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16 Dis 2022	Draf Pendedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendedahan kepada Kaunterparti Tengah	https://www.bnm.gov.my/-/draf-pendedahan-rangka-kerja-kecukupan-modal-basel-iii-aset-berwajaran-risiko-pendedahan-kepada-kaunterparti-tengah	https://www.bnm.gov.my/documents/20124/938039/ED-CAF-ECCP.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/draf-pendedahan-rangka-kerja-kecukupan-modal-basel-iii-aset-berwajaran-risiko-pendedahan-kepada-kaunterparti-tengah&languageId=ms_MY	Reading: Draf Pendedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendedahan kepada Kaunterparti Tengah Share: Draf Pendedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendedahan kepada Kaunterparti Tengah Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1000 pada Jumaat, 16 Disember 2022 16 Dis 2022 Draf pendedahan ini menetapkan keperluan modal yang dicadangkan ke atas pendedahan institusi kewangan kepada kaunterparti tengah di bawah rangka kerja kecukupan modal Basel III. Bank ingin menjemput maklum balas mengenai draf pendedahan ini, termasuk cadangan untuk isu atau bidang tertentu yang perlu dijelaskan dan sebarang cadangan alternatif yang perlu dipertimbangkan oleh Bank. Maklum balas untuk draf pendedahan hendaklah diserahkan secara elektronik dan dihantar melalui e-mel kepada [email protected] selewat-lewatnya pada 17 Februari 2023. Penyerahan yang diterima boleh didedahkan kepada umum melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau sebahagian daripada penyerahan. Tarikh penerbitan: 16 Disember 2022 Jabatan penerbit: Jabatan Dasar Kewangan Pruden Dokumen: Draf Pendedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendedahan kepada Kaunterparti Tengah Bank Negara Malaysia 16 Disember 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) Exposures to Central Counterparties Issued on: 16 December 2022 BNM/RH/ED 029-28 Capital Adequacy Framework (Basel III – Risk-Weighted Assets) Exposures to Central Counterparties Exposure Draft Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Financial holding companies Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) Issued on: 16 December 2022 This exposure draft (ED) sets out the proposed capital requirements on financial institutions’ exposures to central counterparties (CCP), which is part of the Bank’s implementation of Basel III regulatory reforms. The proposed framework requires financial institutions to capitalise their trade and default fund exposures to CCPs, where the capital requirements are differentiated based on qualifying CCP (QCCP) and non-qualifying CCP. Taking into the account the implementation roadmap of the overall Basel III regulatory reforms, the Bank is proposing the following transitional arrangements: (a) The exposure value will be calculated based on the existing method to calculate counterparty credit risk capital, namely the Current Exposure Method (CEM) as set out in the risk weighted assets treatment of the Capital Adequacy Framework. The CEM will be replaced by the Standardised Approach to Counterparty Credit Risk (SA-CCR) framework when the latter is finalised by the Bank1. Financial institutions will be given sufficient time to prepare for the implementation of SA-CCR; and (b) A standardised 2% risk weight will be applied for the computation of capital requirements for the default fund exposures to Bursa Malaysia Derivatives Clearing Berhad (BMDC). This will be replaced by the full-fledged approach stipulated in paragraph 10 after the SA-CCR comes into effect. For default fund exposures to other QCCPs, financial institutions shall apply the full- fledged approach specified in paragraph 10 on the effective date of this policy document. In respect of the submission of feedback for the ED– (a) the Bank invites written feedback on the proposals in this ED, including suggestions for specific issues or areas to be clarified or elaborated further and alternative proposals that the Bank should consider. The responses should specify the applicable paragraph, be constructive and supported with clear rationale and appropriate evidence to facilitate the Bank’s assessment; (b) the feedback received may be made public unless confidentiality is specifically requested for the whole or part of the submission; (c) in addition to providing general feedback, financial institutions are expected to respond to the specific questions set out in the ED; (d) the feedback must be submitted electronically by 17 February 2023 to [email protected]; and (e) in the course of providing your feedback, you may direct queries to Muhammad Rasyad Mohd Razin ([email protected]) or Nik Atikah Nik Mustaffa Shapri ([email protected]). 1 The Bank targets to consult the industry on SA-CCR through an Exposure Draft in 2024. mailto:[email protected] mailto:[email protected] mailto:[email protected] Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) Issued on: 16 December 2022 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................. 1 1 Introduction ...................................................................................................... 1 2 Effective date ................................................................................................... 1 3 Interpretation .................................................................................................... 2 4 Related legal instruments and policy documents ............................................ 5 5 Policy documents superseded ......................................................................... 5 PART B POLICY REQUIREMENTS ..................................................................... 6 6 Scope of application ........................................................................................ 6 7 Qualifying CCP ................................................................................................ 7 8 Risk management requirements for centrally cleared exposures .................... 8 9 Trade exposures to qualifying CCPs ............................................................... 9 10 Default fund exposures to qualifying CCPs ................................................... 14 11 Exposures to non-qualifying CCPs ................................................................ 18 Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 1 of 18 Issued on: 16 December 2022 PART A OVERVIEW 1. Introduction 1.1 As part of the global financial reforms since 2009, central clearing has become an important mechanism to manage counterparty credit risk through its robust margining requirements and loss sharing framework. Financial institutions are also increasingly involved in derivatives transactions that are centrally cleared. 1.2 This policy document is part of the Capital Adequacy Framework and it sets out the requirements to manage the risks arising from financial institutions’ exposures to central counterparties in their capacity as a clearing member or as a client of a clearing member. 1.3 The provisions on the applicability of this policy document and the legal provisions pursuant to which this policy document is issued shall be the same as those set out in the following policy documents and paragraphs: Policy Document Paragraph Capital Adequacy Framework (Capital Components) issued on 9 December 2020 • Paragraph 2 on ‘Applicability’ • Paragraph 3 of ‘Legal Provisions’ Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 9 December 2020 • Paragraph 2 on ‘Applicability’ • Paragraph 3 of ‘Legal Provisions’ 2. Effective date 2.1 This policy document will come into effect no earlier than [1 July 2023]. Sufficient notice will be provided to financial institutions before the policy document comes into effect. 2.2 Notwithstanding paragraph 2.1, the following paragraphs shall not come into effect at the effective date of this policy document and are subject to the following transitional arrangements, where applicable: Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 2 of 18 Issued on: 16 December 2022 Paragraphs Transitional arrangements Paragraphs 6.3, 9.4, 9.6, 9.7, 9.13 and 9.20, which reference the credit valuation adjustment (CVA) capital requirements, Standardised Approach to Counterparty Credit Risk (SA- CCR) or the Basel III Standardised Approach to Credit Risk (SA-CR) Financial institutions shall apply the prevailing requirements under the applicable policy documents listed in paragraph 4.1 2 , 3 until the respective framework (i.e. CVA, SA-CCR or Basel III SA-CR4) has come into force, upon which the corresponding requirements shall be applied where applicable5 Paragraphs 10.2 to 10.18 Financial institutions shall only apply the requirements after the SA-CCR policy document has come into force. Question 1 With regards to paragraph 2.2, please indicate any additional aspects that the Bank should consider when setting the transitional arrangements for this policy document. 3. Interpretation 3.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA or IFSA, as the case may be, unless otherwise defined in this policy document. 3.2 For the purposes of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “banking institution” refers to– (a) a licensed bank; (b) a licensed investment bank; and (c) a licensed Islamic bank, except for a licensed International Islamic bank; “central counterparty” or “CCP” refers to a clearing house that interposes itself between counterparties for contracts traded in one or more financial 2 Financial institutions shall continue to calculate the exposure value for derivatives transactions using the Current Exposure Method until the SA-CCR policy document has come into force. 3 Financial institutions shall apply the risk weight of the CCP under the credit risk capital requirements in cases where the trade exposures to the CCP would not be eligible for the 2% and 4% risk weights. 4 Under the Basel III SA-CR, CCP would be considered as a financial institution. 5 For the avoidance of doubt, there are currently no prevailing Pillar 1 capital requirements for CVA. The capital requirements will be issued in due course. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 3 of 18 Issued on: 16 December 2022 markets, becomes the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. A CCP becomes a counterparty to trade with market participants through a novation, an open offer system, or other legally binding arrangements; “clearing member” refers to a member of, or a direct participant in, a CCP that is entitled to enter into a transaction with the CCP, regardless of whether it enters into trades with a CCP for its own hedging, investment or speculative purposes or whether it also enters into trades as a financial intermediary between the CCP and other market participants; “client” refers to a party to a transaction with a CCP through either a clearing member acting as a financial intermediary, or a clearing member guaranteeing the performance of the client to the CCP; “collateral” includes an asset posted by a financial institution in the form of, but is not limited to, cash, securities and other pledged assets; “counterparty credit risk” refers to the risk that a counterparty to a transaction could default before the final settlement of the transaction's cash flows. An economic loss would occur if the transactions or portfolio of transactions with the counterparty has a positive economic value at the time of default; “credit valuation adjustment” or “CVA” refers to an adjustment to the mid- market valuation of the portfolio of trades with a counterparty which reflects the market value of the credit risk. This adjustment may include either the market value of the credit risk of the counterparty, or the market value of the credit risk of both the financial institution and the counterparty; “current exposure” means the larger of zero or the current market value of a transaction or portfolio of transactions within a netting set with a counterparty that would be lost upon the immediate default of the counterparty, assuming no recovery on the value of those transactions in bankruptcy. Current exposure is often also called Replacement Cost; “default fund” refers to a fund established by a CCP comprising the clearing members' funded or unfunded contributions towards, or underwriting of, a CCP's mutualised loss sharing arrangements. The determination as to whether the fund is a default fund shall be based on the substance of the arrangements, rather than the description given by a CCP. The fund may be also known as clearing deposits or guaranty fund; "exposure value” refers to the exposure amount under SA-CR or the exposure at default (EAD) under the internal-ratings based (IRB) approach to credit risk, as the case may be; “financial institution” refers to a banking institution or a financial holding company, as the case may be; Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 4 of 18 Issued on: 16 December 2022 “financial holding company” or “FHC” refers to a financial holding company approved pursuant to section 112(3) of the FSA or section 124(3) of the IFSA and holds investment directly or indirectly in corporations that are engaged predominantly in banking business; “initial margin” refers to the funded collateral of a clearing member, or a client of a clearing member, posted to a CCP to mitigate the potential future exposure of the CCP to the clearing member arising from the possible future change in the value of their transactions. It includes the collateral deposited in excess of the minimum amount required, provided that there are appropriate arrangements by the CCP or the clearing member to prevent the withdrawal of these excess collateral by the clearing member or the client of a clearing member. In a case where the CCP uses the initial margin to mutualise losses among the clearing members, the collateral shall not be included in the calculation of counterparty credit risk capital requirements and it shall be treated as a default fund exposure to the CCP; “long settlement transaction” refers to a transaction where a counterparty undertakes to deliver a security, a commodity, or a foreign exchange amount against cash, other financial instruments, or commodities, or vice versa, at a settlement or delivery date that is contractually specified as more than the lower of the market standard for this particular instrument and five business days after the date on which the financial institution enters into the transaction; “margin lending” refers to transactions where a financial institution extends credit in connection with the purchase, sale, carrying or trading of securities. Margin lending transactions do not include other loans that happen to be secured by securities that are posted as collateral to the financial institution; “margin period of risk” or “MPOR” refers to an estimated time period from the last exchange of collateral covering a netting set of transactions with a defaulting counterparty until the counterparty is closed out and the resulting market risk is re-hedged; “offsetting transaction” refers to the transaction leg between a clearing member and the CCP when the clearing member acts on behalf of a client, for example when a clearing member clears or novates a client's trade; “qualifying central counterparty” or “QCCP” refers to an entity that is defined under paragraph 7.1; “securities financing transactions” or “SFTs” refers to transactions where its value depends on market valuations and the transactions are often subject to margin agreements. This includes– (a) a repurchase agreement transaction; (b) a reverse repurchase agreement transaction; (c) a securities/commodities lending or borrowing transaction; (d) a margin lending transaction; (e) a collateralised murabahah arrangement; and Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 5 of 18 Issued on: 16 December 2022 (f) a sell and buyback agreement transaction; “Skim Perbankan Islam” or “SPI” refers to a licensed bank or licensed investment bank that has been approved under section 15(1)(a) of the FSA to carry on Islamic banking business; “trade exposures” refers to the current exposure, the potential future exposure and the initial margin of a clearing member, or a client of a clearing member, to a CCP arising from OTC derivatives transactions, exchange-traded derivative transactions, SFTs and long settlement transactions. The current exposure also includes any variation margin due to the clearing member that has not yet been received; “variation margin” refers to the funded collateral of a clearing member, or a client of a clearing member, posted on a daily or intraday basis to a CCP based upon price movements of the transactions. 4. Related legal instruments and policy documents 4.1 This policy document must be read together with other relevant legal instruments, policy documents and guidelines that have been issued by the Bank, in particular– (a) Capital Adequacy Framework (Basel II – Risk-Weighted Assets) issued on 3 May 2019; (b) Capital Adequacy Framework (Capital Components) issued on 9 December 2020; (c) Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 9 December 2020; (d) Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) issued on 3 May 2019; and (e) Risk-Weighted Capital Adequacy Framework (Basel II) – Internal Capital Adequacy Assessment Process (Pillar 2) issued on 2 December 2011. 5. Policy documents superseded 5.1 This policy document supersedes the following– (a) Paragraphs 4 and 5 of Appendix VIII (Counterparty Credit Risk and Current Exposure Method) in the policy document on Capital Adequacy Framework (Basel II – Risk-Weighted Assets) issued on 3 May 2019; and (b) Paragraphs 4 and 5 of Appendix VI (Counterparty Credit Risk and Current Exposure Method) in the policy document on Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) issued on 3 May 2019. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 6 of 18 Issued on: 16 December 2022 PART B POLICY REQUIREMENTS 6. Scope of application S 6.1 The requirements in this policy document shall apply to financial institutions’ exposures to CCP arising from over-the-counter (OTC) derivatives transactions, exchange-traded derivatives transactions, securities financing transactions (SFTs) and long settlement transactions. S 6.2 Exposures arising from the settlement of cash transactions in equities, fixed income, spot foreign exchange and spot commodities are not subject to the requirements 6 in this policy document. For the avoidance of doubt, the settlement of cash transactions remains subject to the capital treatment for failed trades and non-delivery-versus-payment (non-DVP) transactions under the Capital Adequacy Framework as set out in the policy documents listed in paragraph 4.1. S 6.3 Where the clearing member-to-client leg of an exchange-traded derivatives transaction is conducted under a bilateral agreement, a financial institution either in its capacity as a clearing member or as a client of a clearing member shall treat the transaction as an OTC derivative transaction and calculate the CVA capital requirements for such exposures. Question 2 A financial institution may involve in centrally cleared transactions via a multi-level client structure. Under this structure, the clearing services are provided by an entity that is not a direct clearing member of a CCP, for example a client of a clearing member. The Bank is presently assessing whether a financial institution that is involved in centrally cleared transactions via a multi-level client structure would need to treat them as bilateral trades. Consequently, the financial institution shall apply the risk weights under the credit risk capital requirements (and not the 2% or 4% risk weights for centrally cleared transactions as outlined in this policy document). The Bank invites the industry to provide views on this proposed treatment. Where there are alternative views for lower risk weights, these views should be supported by strong justifications. Question 3 With regards to paragraph 6.3, please state whether your institution has any bilateral arrangements for exchange-traded transactions, either as a clearing member or as a client. 6 For contributions to prefunded default funds covering settlement risk-only products, the applicable risk weight is 0%. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 7 of 18 Issued on: 16 December 2022 7. Qualifying CCP S 7.1 A financial institution shall be responsible in determining whether a CCP is a QCCP based on the following criteria: (a) the CCP is an entity that is authorised by an appropriate authority in its jurisdiction to operate as a CCP (including an authorisation granted by way of confirming an exemption); (b) the CCP is based in a jurisdiction where it is subject to prudential supervision of a CCP regulator that applies to the CCP domestic rules and regulations that are consistent with the Principles for Financial Market Infrastructures (PFMI) issued by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions on an ongoing basis; and (c) the CCP meets the requirements under paragraph 10 in order to permit the financial institution to calculate the capital requirements for their default fund exposures. S 7.2 Where a CCP is in a jurisdiction where it is not subject to PFMI, a financial institution shall apply the capital requirements under paragraph 11 for its trade exposures and default fund contributions to the CCP unless the Bank determines otherwise. S 7.3 A financial institution shall provide to the Bank a list of CCPs to which it has exposures to, as and when requested by the Bank. The financial institution shall, if required by the Bank, revise the status of a CCP based on its evaluation of the QCCP criteria as specified in paragraph 7.1. S 7.4 When a financial institution is clearing transactions listed under paragraph 6.1 through a QCCP, the financial institution shall apply the capital requirements under paragraphs 9 and 10 for its trade exposures and default fund contributions to the CCP7. S 7.5 In the case where the sum of a financial institution’s capital requirements for its trade exposures and default fund contributions to the QCCP is higher than the total capital requirement that would be applied to the same exposures under paragraph 11 if the CCP were a non-qualifying CCP, the financial institution shall cap the capital required at the latter amount. S 7.6 In the event where a CCP ceases to be a QCCP because it no longer meets any of the conditions as set out in paragraph 7.1, a financial institution shall continue to account for the exposures to the CCP as though it is still a QCCP for the next three months unless the Bank requires otherwise. Thereafter, the financial institution is required to capitalise the exposures to the CCP based on paragraph 11. 7 For the avoidance of doubt, a financial institution shall apply the capital requirements under paragraphs 9 and 10 to the transactions listed under paragraph 6.1 that are cleared through Bursa Malaysia Derivatives Clearing Berhad (BMDC) as well as on the default fund contributions to BMDC. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 8 of 18 Issued on: 16 December 2022 Question 4 (a) Please share the list of CCPs which your institution has transactions with, either directly (i.e. as a clearing member of CCP) or indirectly (e.g. via a clearing member of a CCP), and please indicate whether they meet the QCCP criteria as specified in paragraph 7.1. (b) Please share your institution’s processes, if any, that are undertaken to establish whether a CCP is a QCCP at the initial recognition stage as well as on an ongoing basis. (c) With regards to paragraph 7.6, please provide your views on whether a three- month window is sufficient to make the necessary adjustments in the event a CCP ceases to qualify as a QCCP (for example, switching to another QCCP). If not, please suggest an alternative proposal that is supported by well- grounded justifications. 8. Risk management requirements for centrally cleared exposures S 8.1 A financial institution shall maintain adequate capital for its exposures to all CCPs. In particular, a financial institution shall consider whether it needs to hold capital in excess of the minimum capital requirements as part of its Internal Capital Adequacy Assessment Process (ICAAP) based on the following events which include but are not limited to: (a) its dealings with a CCP which may give rise to riskier exposures; (b) where the financial institution is not able to establish that the CCP meets the definition of a QCCP; or (c) an external assessment8 has found material shortcomings in the CCP or the regulation of the CCP, and the CCP or the CCP regulator has not addressed the issues identified. S 8.2 A financial institution that acts as a clearing member shall undertake appropriate scenario analysis and stress testing to determine whether the level of capital held against exposures to a CCP adequately addresses the inherent risks of those transactions. This assessment shall include potential future or contingent exposures resulting from future drawings on default fund commitments, and from secondary commitments to take over or replace offsetting transactions from clients of another clearing member in the event of a default or an insolvency of the clearing member, where applicable. S 8.3 A financial institution shall monitor and report to its senior management and Board on a regular basis, at minimum, its overall exposures to CCPs, including exposures arising from trading through a CCP and exposures arising from CCP membership obligations such as default fund contributions. Question 5 (a) Please indicate whether your institution is currently a clearing member of a CCP, and whether your institution has any plans in the foreseeable future to expand the clearing services to clients or migrate bilateral transactions that are not mandated to be centrally cleared towards central clearing. 8 For example, a Financial Sector Assessment Program by the International Monetary Fund. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 9 of 18 Issued on: 16 December 2022 (b) Please share your institution’s specific practices on scenario analysis and stress testing, if any, to manage the additional risks associated with providing clearing services and becoming a clearing member of a CCP. These include arrangements where the stress testing and scenario analysis exercises are conducted together with the CCP. (c) Please state whether your institution currently holds capital in excess of the minimum capital requirements to account for the risks associated with providing clearing services and becoming a clearing member of a CCP. If so, please indicate the quantum as a % of the Total Capital Ratio. 9. Trade exposures to qualifying CCPs Exposures to a QCCP where a financial institution is a clearing member S 9.1 A financial institution shall apply a 2% risk weight to its trade exposures to the QCCP arising from transactions entered for the financial institution’s own purpose. S 9.2 A financial institution shall also apply a 2% risk weight to its trade exposures to the QCCP that arise when the financial institution is obligated to reimburse the clients for any losses from changes in the value of its transactions in the event that the QCCP defaults. S 9.3 A financial institution shall calculate the exposure value for its trade exposures in accordance with the relevant policy documents as listed in paragraph 4.1. S 9.4 With respect to paragraph 9.3, a financial institution shall apply the following computation: (a) in a case where the netting set does not contain illiquid collateral or exotic trades9 and there are no disputed trades within the netting set10, the floor of 20 business days11 for netting sets where the number of trades exceeds 5,000 does not apply; (b) in all cases, a minimum MPOR of 10 business days must be used for OTC derivatives; and (c) where a QCCP retains variation margin against certain trades and the clearing member collateral is not protected against the insolvency of the QCCP, the minimum time risk horizon applied to the financial institution’s trade exposures on these trades must be the lesser of one year and the remaining maturity of the transactions, with a floor of 10 business days. 9 Must be determined in the context of stressed market conditions. These are characterised by the absence of continuously active markets where a counterparty would, within two or fewer days, obtain multiple price quotations that would not move the market or represent a price reflecting a market discount (in the case of collateral) or premium (in the case of a trade). 10 For the avoidance of doubt, this refers to no margin call disputes on a particular netting set. 11 Specifically, the MPOR floor under SA-CCR and minimum holding period under Basel III SA-CR. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 10 of 18 Issued on: 16 December 2022 Question 6 Does your institution foresee operational challenges to implement paragraph 9.4? If so, please provide views on specific areas that should be clarified to ease the implementation of the requirements. S 9.5 Where the settlement of transactions is legally enforceable on a net basis in an event of default, regardless of whether the counterparty is insolvent, bankrupt, or in liquidation, a financial institution shall only calculate the total replacement cost of all contracts relevant to the trade exposures as a net replacement cost if the applicable close-out netting sets meet the requirements set out in the relevant policy documents as listed in paragraph 4.112. If the financial institution is not able to demonstrate that the netting agreements meet these requirements, the financial institution shall regard each single transaction as a netting set of its own for the calculation of trade exposures. Exposures to clients where a financial institution is a clearing member S 9.6 A financial institution shall capitalise its trade exposures to clients as bilateral trades, irrespective of whether the financial institution guarantees the trade or acts as a financial intermediary between the client and the QCCP. In this regard, the financial institution shall– (a) assign the risk weights of the clients under the credit risk capital requirements and calculate the exposure value, in accordance with the relevant policy documents as listed in paragraph 4.1; and (b) apply the CVA capital requirements. S 9.7 In respect of paragraph 9.6(a), a financial institution shall capitalise its exposure to clients by applying an MPOR of at least 5 days under the SA- CCR13. The reduced exposure value shall also be used to calculate the CVA capital requirement. S 9.8 A financial institution shall only recognise a collateral14 for both the QCCP- clearing member leg and the clearing member-client leg of the client-cleared trade if the financial institution collects the collateral from a client for client- cleared trades and this collateral is passed on to the QCCP. Exposures to a QCCP where a financial institution is a client S 9.9 Subject to the conditions in paragraph 9.10, a financial institution shall also apply the treatment as set out in paragraphs 9.1 and 9.3 to 9.5 to the following trade exposures: (a) exposures to a clearing member where the financial institution is the client, and the transactions arise as a result of the clearing member 12 To the extent that the requirements include the term “master agreement” or the phrase “a netting contract with a counterparty or other agreement”, this terminology must be read as including any enforceable arrangement that provides legally enforceable rights of set-off. 13 The lower floor for MPOR is to recognise the shorter close-out period for client cleared transactions. 14 Including the initial margin posted by clients to the financial institution, which mitigates the exposure the financial institution has against these clients. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 11 of 18 Issued on: 16 December 2022 acting as a financial intermediary (i.e. the clearing member completes an offsetting transaction with a QCCP); or (b) exposures to a QCCP where the financial institution is the client and the clearing member guarantees the performance of the financial institution’s exposure to the QCCP. S 9.10 For the purpose of paragraph 9.9, the conditions which must be met by a financial institution are as follows: (a) the offsetting transactions are identified by the QCCP as client transactions; (b) the collateral to support the offsetting transactions is held by the QCCP or the clearing member, or both, under arrangements that prevent any losses to the client due to: (i) the default or insolvency of the clearing member; (ii) the default or insolvency of the clearing member’s other clients; and (iii) the joint default or insolvency of the clearing member and any of its other clients; (c) upon the insolvency of the clearing member, there is no legal impediment (other than the need to obtain a court order as required or entitled by the client) to transfer the collateral belonging to the clients of a defaulting clearing member to the QCCP, to one or more surviving clearing members, or to the clients or their respective nominees; (d) the financial institution has conducted sufficient legal review and has a well-founded basis to conclude that, in the event of a legal challenge, the relevant courts and administrative authorities under their respective jurisdictions would find that the arrangements would be legal, valid, binding and enforceable under the relevant laws of the relevant jurisdictions. The financial institution shall undertake further review as necessary to ensure continuing enforceability of the arrangements; and (e) the relevant laws, regulations, rules, contractual or administrative arrangements provide that the offsetting transactions with the defaulted or insolvent clearing member are highly likely to continue to be indirectly transacted through the QCCP, or by the QCCP. In such circumstances, the client positions and collateral held with the QCCP will be transferred at market value unless the financial institution requests to close out the position at market value. S 9.11 With regards to paragraph 9.10(e), a financial institution shall consider whether the offsetting transactions are highly likely to be ported based on prevailing market practices and precedence. These include whether there is a clear precedent for transactions to be ported at a QCCP and that there is a clear industry intent for such practices to continue. The financial institution shall not determine that the trades are highly likely to be ported solely on the basis that the QCCP documentation that does not prohibit client trades from being ported. S 9.12 Where the condition in paragraph 9.10(b)(iii) is not met but all other conditions in paragraph 9.10 are met, a financial institution shall apply the treatment as Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 12 of 18 Issued on: 16 December 2022 set out in paragraphs 9.3 to 9.5, together with a risk weight of 4%, to the financial institution’s trade exposures as listed in paragraph 9.9. S 9.13 For cases where a financial institution cannot apply the treatment in paragraphs 9.9 and 9.12, the financial institution shall capitalise its trade exposures as bilateral trades. In this regard, the financial institution shall assign the risk weight of the clearing member under the credit risk shall– (a) assign the risk weights of the clients under the credit risk capital requirements and calculate the exposure value, in accordance with the relevant policy documents as listed in paragraph 4.1; and (b) apply the CVA capital requirements. Question 7 (for financial institutions that are clients) Would your institution be able to apply the treatment in paragraph 9.9 or 9.12? If not, please highlight the specific conditions in which your institution cannot meet now. If these conditions cannot be met by 1 July 2023, please suggest a specific timeline where your institution would be able to apply such treatment. Treatment of posted collateral S 9.14 A financial institution shall continue to apply the relevant risk weights on any collateral posted, including excess initial margin or variation margin, based on the prevailing banking book or trading book treatment under the Capital Adequacy Framework as set out in the policy documents listed in paragraph 4.1, regardless of whether such assets have been posted as a collateral to a QCCP. S 9.15 In the case where a collateral posted with a QCCP or a clearing member is not held in a bankruptcy-remote manner, a financial institution shall apply the counterparty credit risk capital requirements to the collateral by recognising the credit risk based on the risk of loss of these collateral due to the creditworthiness of the entity holding such collateral15. S 9.16 Where a collateral is included in the definition of trade exposures and is held by a custodian16 and bankruptcy-remote from the QCCP, a financial institution shall apply zero counterparty credit risk capital requirements to the collateral. S 9.17 Where a collateral is included in the definition of trade exposures, held by the QCCP and not held in a bankruptcy-remote manner, a financial institution shall apply the following risk weights to the collateral: (a) a 2% risk weight, where the financial institution is a clearing member; (b) a 2% risk weight, where the financial institution is a client and applies the treatment in paragraph 9.9; 15 The requirements include, but not limited to, increasing the counterparty credit risk exposure due to the application of haircuts. 16 Custodian may include a trustee, agent, pledgee, secured creditor or any other person that holds property in a way that does not give such person a beneficial interest in such property and will not result in such property being subject to legally enforceable claims by the creditors of such persons, or to a court-ordered stay of the return of such property, should such person become insolvent or bankrupt. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 13 of 18 Issued on: 16 December 2022 (c) a 4% risk weight, where the financial institution is a client and applies the treatment in paragraph 9.12; or (d) the risk weight of the clearing member, where the financial institution is a client and applies the treatment in paragraph 9.1317. S 9.18 Notwithstanding paragraph 9.17 (a), the financial institution shall apply zero counterparty credit risk capital requirements to the collateral collected from a client and posted to the QCCP where– (a) the collateral is not held in a bankruptcy-remote manner; and (b) the financial institution is not obligated to reimburse the client for any loss of the posted collateral in the event that the QCCP defaults. S 9.19 For collateral that is not included in the definition of trade exposures and is not posted as a default fund contribution, a financial institution shall apply the counterparty credit risk capital requirements to the collateral by assigning such collateral with the risk weight of the QCCP under the credit risk capital requirements in accordance with the relevant policy documents as listed in paragraph 4.1. S 9.20 In respect of the calculation of the exposure value, a financial institution shall account for all collaterals posted that are not held in a bankruptcy-remote manner in the net independent collateral amount term18 under SA-CCR. Question 8 Does your institution foresee that capital needs to be set aside for counterparty credit risk capital requirements on the collateral posted? If so, please highlight the specific cases (e.g. collateral not included in definition of trade exposures, collateral not held in bankruptcy-remote manner) and the materiality of the capital requirements. 17 For the avoidance of doubt, similar treatment applies in the case where a collateral is included in the definition of trade exposures, but the collateral is held by a clearing member and not held in a bankruptcy-remote manner. 18 Net independent collateral amount (NICA) represents any collateral (segregated or unsegregated) posted by the counterparty less the unsegregated collateral posted by the financial institution. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 14 of 18 Issued on: 16 December 2022 10. Default fund exposures to qualifying CCPs S 10.1 As part of the transitional arrangement for this policy document, a financial institution shall– (a) apply a 2% risk weight to its default fund exposures to Bursa Malaysia Derivatives Clearing Berhad; and (b) capitalise its default fund exposures to any other QCCP based on the requirements in paragraphs 10.3 to 10.16. S 10.2 A financial institution shall determine the capital requirement for its default fund exposures to the QCCP in accordance with paragraphs 10.3 to 10.16, upon the expiry of the transitional arrangement in paragraph 10.1. G 10.3 The capital requirement for a financial institution’s default fund contributions to the QCCP is determined according to a risk-sensitive formula that considers the size and quality of the QCCP’s financial resources, the counterparty credit risk exposures of the QCCP and the application of the QCCP’s financial resources via its loss bearing waterfall structure, in the event of default by one or more clearing members. S 10.4 Where a default fund of the QCCP is shared between products or types of business with settlement risk only19 and products or types of business which give rise to counterparty credit risk20, a financial institution shall apply the capital requirements for all its default fund exposures to the QCCP, without apportioning to the different classes or types of business or products. S 10.5 Where the contributions from clearing members to a default fund of the QCCP are segregated by products or types of business (product types) and only accessible for specific product types, a financial institution shall apply the capital requirements for the default fund exposures for each specific product type giving rise to counterparty credit risk. If the QCCP’s prefunded own resources are shared among product types, the financial institution shall ensure that the funds are allocated to each of the calculations in proportion to the respective product-specific exposure value. S 10.6 The calculations of the capital requirement for a financial institution’s default fund contributions to the QCCP may be performed by the financial institution, the QCCP, the QCCP supervisor or any other entity with access to the required data. These include calculations of the hypothetical capital requirement of QCCP (KCCP), the total prefunded default fund contributions from all clearing members (DF CM pref ) and the QCCP’s own prefunded resources which are contributed to the default waterfall, where these are junior or pari passu to the prefunded clearing members’ default fund contributions (DFCCP). Where the financial institution relies on another entity to undertake any of these calculations, the financial institution shall ensure that the capital 19 For example, cash transactions in equities and bonds. 20 OTC derivatives transactions, exchange-traded derivative transactions, SFTs and long settlement transactions. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 15 of 18 Issued on: 16 December 2022 requirements are calculated according to paragraphs 10.9 to 10.15 and that the following conditions are met: (a) the entity performs the calculations of KCCP , DFCM pref and DFCCP in a transparent manner that allows the QCCP supervisor to oversee those calculations; (b) the entity shares sufficient information of the calculation results to allow the financial institution to calculate the capital requirement for its default fund contributions, and to allow the Bank to review and confirm the calculations; (c) the entity calculates KCCP on a quarterly basis at a minimum, or more frequently if so by required by the Bank in case of material changes21; (d) the entity performing the calculations makes available to the Bank on a quarterly basis at a minimum, or more frequently if required by the Bank, sufficient aggregate information about the composition of the QCCP’s exposures to clearing members and the information provided to the financial institution for the purposes of calculating KCCP , DFCM pref and DFCCP; and (e) the entity calculates KCCP on a quarterly basis, and whenever there are material changes to the number or exposures of transactions cleared by the QCCP, or material changes to the financial resources of the QCCP. S 10.7 The risk-sensitive capital requirement for a financial institution’s default fund contribution (KCMFI ) to a QCCP is obtained in two steps as follows: (a) determine the KCCP due to the counterparty credit risk exposures of the QCCP to all its clearing members and their clients; and (b) apply the capital requirement for the financial institution based on the formula and inputs specified in paragraph 10.16. First step: Hypothetical capital requirement of the QCCP G 10.8 The KCCP is a hypothetical capital requirement for a QCCP, calculated on a consistent basis for the sole purpose of determining the capitalisation of the clearing members’ default fund contributions. It does not represent the actual capital requirements of the QCCP. S 10.9 For purposes of paragraph 10.8, the following formula shall be used to calculate the KCCP: KCCP= ∑ EADi CMi × RW × capital ratio whereby– (a) CM is the clearing member; (b) the sum (Σ) is over all clearing member accounts; (c) EADi is the exposure value of the QCCP to clearing member “i”, relating to the valuation at the end of the regulatory reporting date before the margin called on the final margin call of that day is exchanged. The exposure includes the clearing member’s own transactions and client 21 For example, the clearing of a new product by a QCCP. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 16 of 18 Issued on: 16 December 2022 transactions guaranteed by the clearing member, as well as all values of collateral held by the QCCP (including the clearing member’s prefunded default fund contribution) against these transactions; (d) RW is a risk weight of 20%, except where the Bank has communicated a higher risk weight22; and (e) the capital ratio is 8%. S 10.10 Where a clearing member provides client clearing services, and the client transactions and collateral are held in a separate (individual or omnibus) sub- accounts to the clearing member’s proprietary transactions, each of such client sub-account shall be included in the sum of EADi in the formula under paragraph 10.9 separately. In this regard, the exposure value of the QCCP to clearing member “i” is the sum of the exposure value of the client sub- accounts and the exposure value of any house sub-account23. If any of these sub-accounts contain both the derivatives and SFTs, the EAD of that sub- account is the sum of the derivatives EAD and the SFT EAD. S 10.11 In the case where the collateral is held against an account containing both derivatives and SFTs, the prefunded initial margin provided by the clearing member or client must be allocated to the derivatives and SFT exposures in proportion to the respective product specific EADs, calculated according to: (a) the credit risk mitigation component under SA-CR24 for SFTs; and (b) the SA-CCR calculation without including the effects of collateral, for derivatives transactions. S 10.12 In the case where the default fund contributions of a clearing member are not split with regards to client and house sub-accounts, such default fund contributions must be allocated per sub-account according to the respective fraction the initial margin of the sub-account has in relation to the total initial margin posted by or for the account of the clearing member. S 10.13 For derivatives transactions, EADi is calculated using the SA-CCR as the bilateral trade exposure the QCCP has against the clearing member and is also subject to the following: (a) an MPOR of 10 business days must be used to calculate the QCCP’s potential future exposures to its clearing members on derivatives transactions. For the avoidance of doubt, the floor of 20 business days on the MPOR for netting sets with more than 5000 trades does not apply; and (b) all collateral held by a QCCP to which the QCCP would have a legal claim in the event of the default of the clearing member or its client, including the default fund contributions of that member, is used to offset 22 For example, the Bank may consider increasing the risk weight if the clearing members in a QCCP are not highly rated. 23 This ensures that the collateral posted by the client and held at the QCCP cannot be used to offset the QCCP’s exposures to clearing members’ proprietary activity in the calculation of KQCCP. 24 Specifically, the treatment of repo-style transactions covered under master netting agreements. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 17 of 18 Issued on: 16 December 2022 the QCCP’s exposure to that clearing member or client though inclusion in the potential future exposure (PFE) multiplier25. S 10.14 For SFTs, EADi is equal to max (EBRMi – IMi – DFi; 0), whereby: (a) EBRMi is the exposure value to clearing member “i” before risk mitigation as according to the credit risk mitigation component under SA-CR26. For the purposes of this calculation, the mark-to-market value of the transactions incorporate the variation margin that has been exchanged before the margin called on the final margin call of that day; (b) IMi is the initial margin collateral posted by the clearing member with the QCCP; and (c) DFi is the prefunded default fund contribution by the clearing member that will be applied upon such clearing member’s default, either along with or immediately following such member’s initial margin, to reduce the QCCP loss. S 10.15 With respect to the calculations in paragraphs 10.9 to 10.14: (a) the standard supervisory haircuts and the holding period requirements for SFTs as set out in the credit risk mitigation component under SA-CR must be applied; and (b) the netting sets that are applicable to regulated clearing members are the same as paragraph 9.5. For all other clearing members, the netting rules as laid out by the QCCP based upon the notification of each of its clearing members shall be applicable. Notwithstanding this, the Bank has the discretion to require more granular netting sets than those laid out by the QCCP. Second step: Capital requirement for each financial institution S 10.16 A financial institution shall calculate the capital requirement for its default fund contribution (KCMFI ) based on the following formula: KCMFI = max (KCCP × DFFI pref DFCCP + DFCM pref ; 8% × 2% × DFFI pref ) whereby– (a) KCMFI is the capital requirement on the default fund contribution of the financial institution; (b) DFCM pref is the total prefunded default fund contributions from all clearing members; (c) DFCCP is the QCCP’s own prefunded resources27 which are contributed to the default waterfall and these are junior or pari passu to the prefunded clearing members’ default fund contributions; 25 The PFE multiplier reflects the risk-reducing property of collateral, including excess collateral. This multiplier decreases as the excess collateral increases without reaching zero, and is also activated when the current value of derivatives transactions is negative. 26 Specifically, the treatment of repo-style transactions covered under master netting agreements. 27 For example, contributed capital and retained earnings. Risk-Weighted Assets – Exposures to Central Counterparties (Exposure Draft) 18 of 18 Issued on: 16 December 2022 (d) DFFI pref is the prefunded default fund contribution provided by the financial institution; and (e) 2% is the risk weight floor on the default fund exposures. 11. Exposures to non-qualifying CCPs S 11.1 A financial institution shall compute the capital requirement for its trade exposures to a non-QCCP by– (a) calculating the exposure value for the trade exposures in accordance with the relevant policy documents as listed in paragraph 4.1; and (b) applying the risk weight under the SA-CR, based on the category of the exposures, to its trade exposures to the non-QCCP. S 11.2 A financial institution shall apply a risk weight of 1250% to its default fund contribution to a non-QCCP. The default fund contribution shall include both the prefunded and unfunded contributions which are liable to be paid by the financial institution if the non-QCCP so requires. G 11.3 With respect to paragraph 11.2, where there is a liability for unfunded contributions arising from unlimited binding commitments to the default fund of the non-QCCP, the Bank will communicate the amount of unfunded commitments to which the 1250% risk weight applies.	Public Notice
15 Dis 2022	Draf Pendedahan tentang Hajah dan Darurah	https://www.bnm.gov.my/-/draf-pendedahan-tentang-hajah-dan-darurah	https://www.bnm.gov.my/documents/20124/938039/ED-Hajah-Darurah.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/draf-pendedahan-tentang-hajah-dan-darurah&languageId=ms_MY	Reading: Draf Pendedahan tentang Hajah dan Darurah Share: Draf Pendedahan tentang Hajah dan Darurah Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1240 pada Khamis, 15 Disember 2022 15 Dis 2022 Draf pendedahan ini menggariskan cadangan keperluan dan jangkaan Bank untuk pelaksanaan hajah dan darurah oleh institusi kewangan Islam dalam menjalankan perniagaan perbankan dan takaful Islam. Bank Negara Malaysia mempelawa maklum balas bertulis mengenai cadangan dalam draf pendedahan ini, termasuk cadangan mengenai perkara yang perlu dijelaskan dan cadangan alternatif yang perlu dipertimbangkan oleh Bank. Maklum balas bertulis hendaklah disokong dengan rasional yang jelas, disertakan dengan bukti atau ilustrasi yang sesuai untuk memudahkan semakan berkesan terhadap draf pendedahan ini. Maklum balas mesti dihantar melalui e-mel kepada [email protected] selewat-lewatnya pada 28 Februari 2023. Penyerahan yang diterima boleh didedahkan kepada umum melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau sebahagian daripada penyerahan. Tarikh Penerbitan 15 Disember 2022 Jabatan Penerbit Jabatan Sistem Kewangan Islam Dokumen Draf Pendedahan tentang Hajah dan Darurah Bank Negara Malaysia 15 Disember 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Issued on: 15 December 2022 BNM/RH/ED 028-22 Hajah and Darurah Exposure Draft Applicable to: 1. Licensed Islamic banks 2. Licensed takaful operators and professional retakaful operators 3. Licensed banks and licensed investment banks approved to carry on Islamic banking business 4. Prescribed development financial institutions approved to carry on Islamic financial business Hajah and Darurah – Exposure Draft This Exposure Draft (ED) sets out Bank Negara Malaysia’s (the Bank) proposed requirements and expectations for the application of hajah (need) and darurah (dire necessity) by Islamic financial institutions (IFIs) in carrying out Islamic banking and takaful business. Specifically, this ED aims to seek feedback from IFIs on the following: (a) parameters of hajah and darurah and their scope of application; (b) requirements relating to responsibilities of the board, Shariah committee, senior management and control functions of the IFIs in ensuring a comprehensive and robust assessment as well as effective implementation of the application of hajah and darurah; and (c) requirements and policy guidance relating to the processes and procedures that facilitate Shariah deliberation and decision-making concerning hajah and darurah in the IFIs. The Bank invites written feedback on the proposals in this ED, including suggestions on areas requiring further clarification, elaboration or alternative arrangement that the Bank should consider. Specifically for IFIs, the Bank requires comprehensive feedback that must– (a) be prepared based on inputs across key functional areas of the IFIs, including unit/section from product development, strategic management, treasury, risk management, compliance and Shariah, given the potential implications of the proposals to the IFIs’ strategies, operations and product offerings; (b) include inputs from the Shariah committee of the IFIs; and (c) be supported with clear justifications, including accompanying evidence or illustrations where appropriate, to facilitate an effective consultation process. Responses shall be submitted via email to [email protected] by 28 February 2023. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. In the course of preparing your feedback, you may direct any queries to the following officers: 1. Azren Rizuani Aziz ([email protected]) 2. Mohd Shahril Mat Rani ([email protected]) 3. Mukhlis Jamil ([email protected]) mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] Hajah and Darurah – Exposure Draft TABLE OF CONTENTS PART A OVERVIEW ...................................................................................................... 1 1 Introduction ....................................................................................................... 1 2 Applicability ...................................................................................................... 2 3 Legal provisions................................................................................................ 3 4 Effective date .................................................................................................... 3 5 Interpretation .................................................................................................... 3 6 Related legal instruments and policy documents .............................................. 4 PART B SHARIAH REQUIREMENTS FOR HAJAH AND DARURAH APPLICATION .. 5 7 Compliance with this part .................................................................................. 5 8 Aspects of hardship .......................................................................................... 5 9 Hajah and darurah parameters ......................................................................... 7 PART C OPERATIONAL REQUIREMENTS ................................................................ 12 10 Compliance with this part ................................................................................ 12 11 Governance and oversight .............................................................................. 12 12 Decision-making process ................................................................................ 14 Appendix 1 Definition of hajah and darurah ................................................................... 19 Appendix 2 Decision tree in applying the general parameters ...................................... 21 Appendix 3 Summary of criteria and parameters in dealing with exceptional rule...... 22 Appendix 4 Process flow in applying hajah and darurah .............................................. 23 Hajah and Darurah – Exposure Draft 1 of 23 PART A OVERVIEW 1 Introduction 1.1 The Islamic financial system in Malaysia has seen significant advancement in scale, diversity and sophistication of institutions and financial offerings in recent years, reflective of a maturing market. As the Islamic banking and takaful industry continues to develop, challenges in the business and operating environment would require attendant risks to be well-managed. This framework aims to clarify parameters on hajah and darurah1 from contemporary finance perspectives to facilitate their application in Islamic financial business in accordance with Shariah. 1.2 Hajah and darurah concepts have been applied in Islamic financial business to address hardship2 or difficulties in executing financial transactions or arrangements based on Shariah principles. The application of hajah and darurah arises during unfavourable circumstances or distress situations facing an Islamic financial institution (IFI) to prevent harm3 (mafsadah) and ultimately attain benefit (maslahah). 1.3 The Shariah Advisory Council of Bank Negara Malaysia (the SAC) has, on case- by-case basis, issued several Shariah rulings4 that outline broad Shariah parameters5 relating to the application of hajah and darurah. Taking into consideration the implementation of these rulings by IFIs, a more robust governance process and assessment approach is warranted to promote effective application of hajah and darurah by IFIs. 1.4 This policy document sets out the Shariah and operational requirements and expectations concerning the application of hajah and darurah, as follows: (a) outline hajah and darurah parameters for the application of exceptional rules; (b) clarify and strengthen the accountability of individuals responsible for the assessment, deduction as well as implementation of hajah and darurah6; and 1 Refer to Appendix 1 for general definition of hajah and darurah from perspectives of the classical and contemporary scholars. 2 Refer to paragraph 8.1 for definition of hardship. 3 For example, in the context of Islamic finance, flexibility permitted by Shariah may be used to prevent failure of an IFI which causes systemic impact to the financial system. 4 Examples of the Shariah rulings, among others are as follows: (a) the permissibility for a licensed takaful operator to cede out its risk to a licensed insurer or a professional reinsurer in the absence of the capacity or expertise of a licensed takaful operator or a professional retakaful operator to underwrite a takaful risk; (b) the application of bai` istijrar (supply sale) for Islamic trade finance; and (c) the permissibility to benchmark interest rate in the pricing component of Islamic financial products. 5 The Shariah rulings focus on main principles without outlining the detailed processes, where some would be supported with requirements and guidance in relevant policy documents. For instance, the SAC ruling on the application of hajah with regard to the ceding out of takaful risk to a licensed insurer or professional reinsurer is supplemented with relevant policy expectation in the policy document on Takaful Operational Framework, but it does not comprehensively cover additional operational guidance as outlined in this policy document. 6 Refer to paragraphs 9.2, 9.4 and 9.6 for the categorisation of hajah and darurah. Hajah and Darurah – Exposure Draft 2 of 23 (c) outline the operational requirements and guidance in facilitating Shariah deliberation and decision-making on the application of hajah and darurah. 1.5 Given the specific nature of hajah and darurah, the Bank expects all governance organs in IFIs to play their role in supporting effective implementation of hajah and darurah by ensuring– (a) a comprehensive assessment is being carried out and supported with clear justifications and business impact analysis; (b) robust deliberation and informed decision-making are performed by the Shariah committee; and (c) appropriate ex-ante and ex-post assessment as well as review are performed by the control functions to serve as a check and balance to the implementation of the Shariah rulings and decisions or advice of the Shariah committee. Overview of hajah and darurah 1.6 Hajah and darurah have been widely discussed by the classical and contemporary Shariah scholars. However, these discussions mostly focus on the hardships experienced by a person aiming to preserve life in mild and severe hardship situations. Both concepts have generally been divided into the following two (2) broad categories: (a) usuliyyah7; and (b) fiqhiyyah8. 1.7 This policy document introduces hajah type 1, hajah type 29 and darurah under the fiqhiyyah perspective in its efforts to ensure relevancy and rigour of the application of hajah and darurah by the IFIs. 1.8 The application of hajah and darurah under usuliyyah perspective is permitted10 and not subject to the requirements in this policy document. Such application is allowed permanently by Shariah to address public needs11 and therefore, the permissibility does not require further deduction12 by the Shariah committee and the SAC. For instance, the permissibility of the application of ijarah (lease) and salam (forward sale). 2 Applicability 2.1 This policy document is applicable to IFIs as defined in paragraph 5.2. 7 Usuliyyah means a circumstance faced by a scholar where there is an established Shariah principle on the application of hajah and darurah and it has been allowed permanently by Shariah. 8 Fiqhiyyah means a circumstance faced by a scholar where it requires a new deduction of a Shariah requirement on the application of hajah and darurah, and its permissibility of the period and quantum will be determined based on the severity of hardships faced by the people. 9 Refer to paragraphs 9.2 and 9.4 for the parameters of hajah type 1 and hajah type 2. 10 The permissibility has been allowed through the Bank’s policy documents on relevant Shariah standards and issuance of the SAC meeting statement on Shariah rulings. 11 May not only be confined to the needs related to Islamic finance sector. 12 The Shariah evidence for hajah usuliyyah and darurah usuliyyah have been used as basis to deduce the Shariah legal judgement (hukm shar`ie) from fiqhiyyah perspective. Hajah and Darurah – Exposure Draft 3 of 23 2.2 The Bank retains its discretion in assessing whether an IFI is in compliance with the policy document to the satisfaction of the Bank. 3 Legal provisions 3.1 The requirements in Part B of this policy document are specified pursuant to– (a) sections 29(1) and 155 of the Islamic Financial Services Act 2013 (IFSA); and (b) sections 33E(1) and 116 of the Development Financial Institutions Act 2002 (DFIA). 3.2 The requirements in Part C of this policy document are specified pursuant to– (a) sections 29(2), 57(1) and 155 of the IFSA; and (b) sections 33E(2), 41 and 116 of the DFIA. 3.3 The guidance in this policy document is issued pursuant to section 277 of the IFSA and section 126 of the DFIA. 4 Effective date 4.1 This policy document comes into effect six (6) months after its date of issuance. Consultation 1: (a) Please describe any challenges in implementing the parameters and requirements of this framework within the allocated timeframe, taking into considerations views/feedback from other relevant parties beyond the Shariah department/unit; and (b) Please provide feedback on whether the duration provided is reasonable for IFIs to reach full compliance with the requirements of this framework. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the Financial Services Act 2013 (FSA), IFSA and DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For purposes of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that shall be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; Hajah and Darurah – Exposure Draft 4 of 23 “Islamic financial institutions” (IFIs) refer to– (a) licensed Islamic banks; (b) licensed takaful operators including professional retakaful operators; (c) licensed banks and licensed investment banks approved under section 15(1)(a) of the FSA to carry on Islamic banking business; and (d) prescribed development financial institutions approved under section 33B(1) of the DFIA to carry on Islamic financial business; “hajah” refers to specific categories of hajah type 1 and hajah type 2 parameters in the context of Islamic finance application which can be referred in paragraphs 9.2 and 9.4; “Shariah requirement” or “Shariah principle” refers to any existing ruling specified under the sources of Islamic laws, or any legal judgement (hukm shar`ie) deduced by a qualified jurist (a mujtahid) via the ijtihad process; and “Shariah ruling” refers to any ruling made by the SAC in accordance with its functions under section 52(1)(a) of the Central Bank of Malaysia Act 2009 for the ascertainment of Islamic law for the purposes of Islamic financial business, or any published SAC resolutions. 6 Related legal instruments and policy documents 6.1 This policy document shall be read together with– (a) other relevant legal instruments and policy documents that have been issued by the Bank, in particular– (i) Corporate Governance issued on 3 August 2016; (ii) Corporate Governance for Prescribed Development Financial Institutions issued on 13 December 2019; (iii) Shariah Governance issued on 20 September 2019; (iv) Fit and Proper Criteria issued on 28 June 2013; (v) Fit and Proper Criteria (for prescribed development financial institutions) issued on 14 June 2017; (vi) Recovery Planning issued on 27 July 2021; (vii) Stress Testing issued on 15 June 2017; (viii) Risk Governance issued on 1 March 2013; (ix) Takaful Operational Framework issued on 26 June 2019; and (b) Manual Rujukan Institusi Kewangan Islam kepada Majlis Penasihat Shariah issued on 15 March 2016. Hajah and Darurah – Exposure Draft 5 of 23 PART B SHARIAH REQUIREMENTS FOR HAJAH AND DARURAH APPLICATION 7 Compliance with this part S 7.1 An IFI that applies hajah or darurah shall ensure that such application is in compliance with Part B of this policy document. 8 Aspects of hardship Definition of hardship G 8.1 Hardship is a situation of unfavourable circumstances, severe adversity or intolerable levels of distress, arising from internal or external factors that require a person to pivot to a different solution(s) which may permit an exception in applying existing Shariah requirements or Shariah rulings based on the following Islamic legal maxims: (a) hardship begets flexibility13; (b) harm must be removed14; (c) extreme necessity lifts prohibitions15; (d) the greater harm is to be removed or replaced by the lesser harm16; and (e) when a matter is constricted/constrained (by the hardship), flexibility is accorded but when the hardship is addressed, the flexibility is rescinded17. Consultation 2: Please provide feedback on the explanation of hardship in paragraph 8.1, whether it has covered the general definition of hardship for the purpose of this ED. G 8.2 Generally, if the hardship is not addressed, it may detrimentally affect the five (5) main objectives of Shariah (maqasid Shariah) which are the preservation of religion, life, intellect, lineage and wealth (property). In the context of fiqh muamalat or Islamic finance, the hardship experienced by a person predominantly involves Shariah rulings aiming at preserving wealth (hifz al-mal) (as provided in Illustration 1). .Al-Suyuti, Al-Ashbah wa Al-Naza’ir, Dar Al-Kutub Al-`Ilmiyyah, 1983, p. 76" المشقة تجلب التیسیر " 13 .Ibid, p. 83" الضرر یزال " 14 .Ibnu Nujaim, Al-Ashbah wa Al-Naza’ir, Dar Al-Kutub Al-`Ilmiyyah,1999, p " الضرورات تبیح المحظورات " 15 73. 16 " األخف بالضرر األشد الضرر یزال " Muhammad Al-Zuhaili, Al-Qawaid Al-Feqhiyyah wa Tatbiqatuha fi Al- Mazahib Al-Arba`ah, Dar Al-Fikr Dimasq, 2006, v. 1 p. 219. .Ibid, v. 1 p. 272 " إذا ضاق األمر اتسع وإذا اتسع ضاق " 17 Hajah and Darurah – Exposure Draft 6 of 23 Illustration 1 As part of a general takaful operator’s risk management strategy, it may decide to share/cede out certain specialised risks such as aviation and oil and gas covers to another takaful or retakaful operator in managing its risk exposure. However, in cases where there is insufficient retakaful capacity and expertise to fully absorb the particular risk and/or it creates detrimental effects to the takaful funds, the takaful operator is allowed to cede out the risks to an insurer or a reinsurer on the basis of difficulty/hardship. This would ensure preservation of the takaful fund managed by the general takaful operator. Consultation 3: The ED views that the scope of objective of Shariah (maqasid Shariah) in the context of Islamic finance predominantly involves preservation of wealth. (a) Please provide real example(s) based on the Shariah committee’s decision where preservation of wealth has been considered and applied, if any. (b) Please provide real example(s) based on the Shariah committee’s decision where preservation of religion, life, intellect and lineage has been considered and applied, if any. Preconditions in applying hajah or darurah S 8.3 An IFI shall ensure that the following preconditions are fulfilled in evaluating the application of hajah or darurah to address hardship: (a) Certainty – There is certainty (al-yaqin) or high possibility (ghalib al-zann)18 on the materialisation or occurrence of hardship, and it is not based on mere assumption; (b) Deviation from Shariah requirement or Shariah ruling – The elimination of hardship requires deviation from existing Shariah requirements or Shariah rulings to an exceptional rule whether temporarily or permanently; (c) Absence or impracticality of Shariah compliant alternatives – There is an absence of a Shariah compliant alternative, or there is an available Shariah compliant alternative to address the hardship but the latter is unfeasible given the prevailing situation(s); and (d) Impact – The application of exceptional rules does not cause greater or equal harm to stakeholders related to the hardship, and the impact shall be assessed based on the fiqh muwazanah19. 18 Certainty (al-yaqin) can be achieved based on undisputable evidences and high possibility (ghalib al- zann) can be achieved with clear leading of signs and indicators but with insignificant dispute. 19 Fiqh muwazanah is a structured method and processes applied by jurist in making Shariah decision through weighing up between multiple benefits (to attain), harms (to avoid), and/or to determine which between the two (2) shall prevail and be prioritised. Hajah and Darurah – Exposure Draft 7 of 23 S 8.4 An IFI is prohibited from applying hajah or darurah to address hardships solely arising from commercial or business challenges20. Consultation 4: Please provide feedback on the proposed preconditions, including suggestions to exclude any of the proposed preconditions or include additional precondition(s). G 8.5 In relation to paragraph 8.3, the following method may be adopted by an IFI in applying the exceptional rule in accordance with the severity of the hardship: (a) Reducing obligation – compliance with Shariah is achieved by reducing the appropriate level of a person’s capability, e.g., in ensuring the sustainability of a takaful fund particularly to prevent the situation of fund deficit which requires continuous qard, a licensed takaful operator may be allowed to cede out a certain percentage of its takaful risk to reinsurers instead of fully retaining the risk; or (b) Exemption/exception – allow the utilisation or adoption of transactions that are not in compliance with Shariah in view of the absence of a Shariah compliant alternative for such transactions or widespread public needs, e.g., subscription to insurance protection in the absence of takaful protection for a particular risk or application of T+2 in the foreign currency exchange (bai` al-sarf) in the absence of spot exchange practices. 9 Hajah and darurah parameters Application of exceptional rules G 9.1 Exceptional rules that may be applied by an IFI can be divided into the following categories: (a) hajah type 1; (b) hajah type 2; or (c) darurah. Hajah Type 1 S 9.2 In addition to paragraph 8.3, an IFI shall categorise any hardship under hajah type 1 if it meets the following parameters: (a) the hardship arises due to practices or situations which are difficult to avoid (`umum balwa) or are widely accepted as a customary commercial practice (`urf tijari); (b) the SAC has issued a ruling on the permissibility of the application of an exceptional rule without stipulating specific conditions or limitations; and (c) the Shariah ruling remains applicable until a new pronouncement is made by the SAC. 20 For examples, losing profit commission from ceding out arrangement, hardship resulted from poor risk management control, business decision or negligence by the IFI or financial loss arising from the effort to rectify the Shariah non-compliance. These examples are non-exhaustive and should not be construed as the only examples available. Hajah and Darurah – Exposure Draft 8 of 23 G 9.3 The examples in Illustration 2 describe the application of hajah type 1. Illustration 2 (a) Permissibility of T+2 for foreign currency exchange (bai` al-sarf) The Shariah principle for foreign currency exchange (bai` al-sarf) transaction requires contracting parties to conclude their transaction on a spot basis (T+0). However, in the context of the current financial system, the conclusion of a contract or settlement could not be done on a spot basis due to difficulties and operational constraints. Therefore, the SAC has allowed the settlement to be done in two (2) days (T+2) after the transaction date as it has been accepted and recognised as a customary commercial practice. (b) Use of a conventional nostro account An Islamic window operation operates its Islamic banking business by sharing relevant services with its conventional counterpart. In the event where it needs to perform international trade or foreign exchange transactions, the Islamic window uses a conventional nostro account. This is due to the following: (i) lack of Shariah compliant nostro accounts available in other jurisdictions; (ii) policy mandate of the group risk management; and (iii) ensuring transactional efficiency. Typically, nostro account balances earn zero or minimal returns. Therefore, an Islamic window is allowed to use the nostro account to address frictions in its transactions with international counterparts on need basis. Hajah Type 2 S 9.4 In addition to paragraph 8.3, an IFI shall categorise any hardship under hajah type 2 if it meets the following parameters: (a) the hardship does not arise from practices or situations which are widely accepted as customary commercial practice (`urf tijari); (b) the hardship is experienced by a specific person(s) and the severity of the hardship does not reach the stage of darurah; (c) the SAC has ruled the permissibility of the application of an exceptional rule with specific conditions or limitations; and (d) the Shariah ruling needs to be applied temporarily and proportionately depending on the complexity of the hardship by considering the appropriate duration and quantum21. 21 This is based on Islamic legal maxim: "بقدرھا تقدر Necessity is to be assessed and treated) "الضرورة proportionally), Ibnu Nujaim, Al-Ashbah wa Al-Naza’ir, Dar Al-Kutub Al-`Ilmiyyah, 1999, p. 73. Hajah and Darurah – Exposure Draft 9 of 23 G 9.5 The examples in Illustration 3 describe the application of hajah type 2. Illustration 3 (a) Insurance coverage for Islamic financing In a wakalah financing deal, an IFI has appointed a client as its agent (wakeel) to source for a takaful coverage to mitigate oil and gas risk. The client has exhausted all reasonable endeavours to source for a takaful coverage, in fulfilling his duty as an agent. However, due to the huge coverage amount needed to mitigate the risk and limited accessibility due to location constraints i.e., such oil and gas businesses located outside Malaysia, the client faces difficulty in getting takaful protection for the project. Hence, the IFI as principal (muwakkil) has allowed the client to obtain insurance coverage to fulfil the project financing requirements. (b) Liquidity risk management A full-fledged licensed Islamic bank has been receiving huge capital support to develop its Islamic banking business, and it has translated into better capital and asset position for the Islamic banking business. However, during a financial crisis or stress event, its banking group is in needs of financial assistance. The licensed Islamic bank, as an entity within the group, can be well positioned to provide financial assistance such as transferring its funds or excess high quality liquid assets (HQLA) to the group22. The assistance provided is important to avoid the contagion risk to the licensed Islamic bank should the stress scenario become more serious and severe to the detriment of the group. This takes into account interdependencies on critical shared services, access to financial market infrastructures as well as the reputation of its conventional parent bank to obtain funding and carry out banking business. (c) Financing Shariah non-compliant business by a prescribed institution A prescribed institution performs its role based on mandates determined by the Government. For a full- fledged Islamic prescribed institution, the institution should not perform any Shariah non-compliant transaction or dealing such as financing non-halal food industry. However, in the event where there is no other commercial banking institution or full-fledged prescribed institution that could provide the financing and the 22 The IFI funding shall be the last resort arrangement i.e., the banking group must first exhaust the funding available at its conventional counterpart or its parent before soliciting funding from the IFI. Hajah and Darurah – Exposure Draft 10 of 23 financing has been mandated by the Government, the full- fledged Islamic prescribed institution shall need to deliberate the issue with its Shariah committee and the SAC prior to executing the non-Shariah compliant transaction. Darurah S 9.6 In addition to paragraph 8.3, an IFI shall categorise any hardship under darurah if it meets the following parameters: (a) the hardship does not arise from practices or situations which are widely accepted as customary commercial practice (`urf tijari); (b) the hardship experienced by a specific person(s) may or may not cause systemic impact, but trigger recovery or resolution actions23; (c) the hardship has yet to be deliberated by the SAC, or there is a need to revisit the Shariah ruling in light of the extreme stress situation; and (d) the Shariah ruling needs to be applied temporarily and proportionately based on the complexity of the hardship by considering the appropriate duration and quantum24. G 9.7 The example in Illustration 4 describes the application of darurah. Illustration 4 An IFI has been identified to undergo a resolution phase by a resolution authority (RA). During that phase, the RA has exhausted all possible funding options in the resolution actions to avoid systemic risk to the financial industry. However, additional funding is still required, and the only possible solution to address the issue is to obtain funding from an international body – which can only be offered through a conventional loan arrangement. In this situation, the RA may execute the only possible solution due to the extreme necessity of the situation. G 9.8 The hardship situations which warrant for the categories of exceptional rules in paragraph 9.1 are not fixed and they may change depending on the nature and severity of hardship as stated in the fiqh legal maxim “a necessity possibly falls under the category of extreme necessity whether it is in the general or specific form25”. For instance, any of the Shariah rulings which are considered as hajah type 1 may be changed to hajah type 2 in the event where the hardship is no longer considered a customary commercial practice (`urf tijari) of the Islamic finance industry, and vice versa. 23 Refer to policy document on Recovery Planning. 24 This is based on Islamic legal maxim: "بقدرھا تقدر Necessity is to be assessed and treated) "الضرورة proportionally), Ibnu Nujaim, Al-Ashbah wa Al-Naza’ir, Dar Al-Kutub Al-`Ilmiyyah, 1999, p. 73. Muhammad Al-Zuhaili, Al-Qawaid Al-Feqhiyyah wa Tatbiqatuha" الحاجة تنزل منزلة الضرورة عامة كانت أو خاصة " 25 fi Al-Mazahib Al-Arba`ah, Dar Al-Fikr Dimasq, 2006, v. 1 p. 288. Hajah and Darurah – Exposure Draft 11 of 23 S 9.9 In line with paragraph 10.6 of the policy document on Shariah Governance, an IFI shall refer to the SAC for a ruling in the case of any hardship with no prior Shariah rulings that warrants the application of hajah type 2 and darurah. Consultation 5: (a) Please provide feedback on each proposed parameter of hajah type 1, hajah type 2 and darurah, including suggestions on excluding any of the proposed parameters or incorporating a new additional parameter(s). (b) Please share some real examples or situations which may be categorised as hajah type 1, hajah type 2 or darurah. Hajah and Darurah – Exposure Draft 12 of 23 PART C OPERATIONAL REQUIREMENTS 10 Compliance with this part S 10.1 Part C of this policy document shall be applicable to the hardship that meets the parameters of hajah type 2 or darurah as described in paragraphs 9.4 and 9.6 respectively. 11 Governance and oversight G 11.1 The requirements under Part C focus on the roles and responsibilities of key organs of the IFIs to promote effective governance arrangements and sound Shariah compliance culture within the IFIs, guided by the intended outcomes of this policy document. It complements the existing policy documents issued by the Bank which promote the long-term safety and soundness of the IFIs. G 11.2 Given the specific nature of the application of hajah type 2 and darurah, the Bank expects heightened oversight and strengthened responsibilities of every key organ of the IFI to ensure rigorous assessment, deliberation, implementation and monitoring. The board S 11.3 The board, in overseeing the application of hajah type 2 and darurah within the IFI, shall have the overall responsibility to ensure establishment and operation of a clear governance structure to facilitate effective implementation of hajah type 2 and darurah that reflects the importance of strategy formulation and risk management practices and promotes end-to-end compliance with Shariah. In doing so, the board shall– (a) oversee the implementation of the decisions and advice of the Shariah committee and ensure that appropriate internal controls are in place; (b) approve internal policies and procedures relating to the decision-making process on hajah type 2 and darurah, including policies on dissemination of decisions or advice of the Shariah committee as well as their implementation monitoring; (c) provide sound and substantiated views, with due regard to the decisions or advice of the Shariah committee, on the existence of hardship and necessity of hajah type 2 and darurah; and (d) constructively challenge proposal by the IFI on the application of hajah type 2 and darurah, including providing inputs on the adequacy of plausible scenarios, stress testing results, and key assumptions used in justifying the application of hajah type 2 and darurah, and give due consideration to the applicable duration and exit strategy. Hajah and Darurah – Exposure Draft 13 of 23 Shariah committee S 11.4 The Shariah committee, in providing objective and sound decision or advice to the IFI on the application of hajah type 2 and darurah, shall– (a) ensure that assessment on the proposed application of hajah type 2 and darurah by the IFI are in compliance with the parameters requirements as specified in paragraphs 8.3, 8.4, 9.4 and 9.6 of this policy document; (b) ensure rigour in deliberating hajah type 2 and darurah cases, highlight any significant concerns and dissenting views, and provide proper justifications for any decision or advice; and (c) satisfy that all possible efforts which have been demonstrated by the IFI prior to applying hajah type 2 and darurah could not address the particular hardship in line with the established internal policy on hajah type 2 and darurah. S 11.5 An IFI shall ensure that deliberations relating to the application of hajah type 2 and darurah are carried out by ascertaining views and insights from all Shariah committee members, except under exceptional circumstances26. S 11.6 In relation to paragraph 11.5, an IFI shall ensure that views of the Shariah committee members who are not in attendance are obtained in writing. S 11.7 In line with paragraph 11.8 of the policy document on Shariah Governance, an IFI shall, at minimum, ensure that any decision of the Shariah committee is made on the basis of simple majority. S 11.8 In line with paragraph 11.14 of the policy document on Shariah Governance on the responsibility of the IFI to ensure clear and accurate minutes of Shariah committee meetings, the Shariah committee shall ensure that the minutes prepared relating to the proposed application of hajah type 2 and darurah are accurate, comprehensive and clear. In this regard, the Shariah committee has the responsibility to ensure the deliberations, considerations and justifications on the decision or advice, including assessment on the relevant parameters provided in this policy document for allowing the application of hajah type 2 and darurah, as well as any significant concerns and dissenting views are reflected appropriately. S 11.9 Where the Shariah committee is unable to finalise its decision or has reasonable doubt on the robustness of hajah type 2 and darurah assessment performed by an IFI, as provided in paragraph 11.11 of the policy document on Shariah Governance, the IFI shall provide the Shariah committee with access to the advice from third party experts to enable the Shariah committee to make an informed decision. 26 This would include instances due to medical reasons. Hajah and Darurah – Exposure Draft 14 of 23 Senior management S 11.10 In discharging the primary responsibility over the day-to-day management of the IFI on the application of hajah type 2 and darurah, the senior management shall– (a) ensure that the differences in the application of hajah type 2 and darurah (against normal operating environment) are properly understood and reflected effectively in its policies, processes and practices. This includes putting in place a robust communication plan on hajah type 2 and darurah; (b) implement effective policies and procedures for the application of hajah type 2 and darurah based on the rulings of the SAC and the decision or advice of the Shariah committee; (c) provide balanced assessment and opinion to the Shariah committee, supported with the relevant information during the identification and assessment stage as outlined in paragraphs 12.4 to 12.11 of this policy document; and (d) ensure a robust internal control framework is in place to effectively monitor the application of hajah type 2 and darurah by the IFI. Control functions S 11.11 An IFI shall ensure the effectiveness and independence of control functions27 in reviewing and monitoring the application of hajah type 2 and darurah implemented by the business organs as described in paragraph 12.19. This includes assessment on areas for improvements that can prevent an IFI from resorting to apply hajah type 2 and darurah continuously. Consultation 6: Please provide feedback on whether the proposed requirements on the responsibility of the key organs are appropriate, considering the specific nature of the application of hajah type 2 and darurah and the existing duties of these organs. 12 Decision-making process S 12.1 An IFI shall establish a comprehensive internal policy and procedure on the application of hajah type 2 and darurah, to facilitate a more structured approach of decision-making by the Shariah committee and ensure effective implementation by the IFI. S 12.2 An IFI shall ensure that the internal policy and procedure relating to the decision- making process on the application of hajah type 2 and darurah to include the following: (a) identification of the scope of hardship; (b) assessment on the severity of the hardship and categorisation as described in paragraphs 9.4 and 9.6, as well as its impact on financial position and operations of the IFI; (c) robust and objective deliberation of possible solutions by the Shariah committee and the board; and 27 Roles and responsibilities of respective control functions (i.e., Shariah risk management, Shariah review and Shariah audit) as outlined in the policy document on Shariah Governance. Hajah and Darurah – Exposure Draft 15 of 23 (d) monitoring of hajah type 2 and darurah implementation by the appropriate control functions, as well as reporting to the Bank in line with paragraphs 12.13 to 12.18 of this policy document as and when hajah type 2 and darurah are being applied. S 12.3 In the event where an extended period is needed for the application of hajah type 2 and darurah, an IFI is required to comply with the decision-making process requirements as described in paragraphs 12.4 to 12.18 and provide compelling justifications on the need for such extension and a feasible exit plan for deliberations by the Shariah committee and the board. Consultation 7: Please describe any instances or situations supported by a clear rationale where the period to apply hajah type 2 or darurah could be extended or prolonged. Identification S 12.4 In relation to paragraphs 8.1 and 8.3(a) to 8.3(c), an IFI shall prepare a comprehensive narrative of the hardship experienced by its stakeholders by gathering information on: (a) the nature of the hardship; and (b) the efforts performed by the IFI in complying with Shariah prior to proposing for the application of hajah type 2 and darurah, as well as the outcome of its efforts. G 12.5 In relation to paragraph 12.4(a), the comprehensive narrative on the nature of the hardship may include but not limited to the following perspectives: (a) institutional – issues that may affect operational resiliency of the institution; (b) legal and regulatory – issues that may affect the effectiveness of regulations in achieving policy objectives; (c) macroeconomic – a condition that stems from, or relates to, a large aspect of an economy; (d) customer – issues that may deteriorate customers’ experience or cause inability to meet customers’ needs and expectations; and (e) external event – incidents outside the control of the institution. Assessment S 12.6 An IFI shall demonstrate the severity of the hardship(s) based on its internal parameters taking into consideration the requirements and guidance set out by the Bank in this policy document and shall support the severity analysis by covering both qualitative and quantitative aspects. S 12.7 Notwithstanding paragraph 12.6, in the case where there is difficulty in assessing the quantitative aspect of the severity, the IFI shall ensure that the absence of quantitative assessment is supported with compelling justifications. G 12.8 In determining the certainty and severity of hardship in relation to paragraphs 8.3(a) to 8.3(c) as well as its categorisation in relation to paragraphs 9.2 to 9.7, an IFI may assess the certainty of the occurrence and adversity of the hardship situation based on its existing overall risk appetite framework, stress severity Hajah and Darurah – Exposure Draft 16 of 23 analysis or recovery planning components (as described in Illustration 5) or any relevant data that could provide a comprehensive perspective on the accurate level of hardship experienced by the IFI. Such integration in the assessment process is essential for timely identification of stress events and the formulation of actionable and credible options to ensure the IFI is well positioned to respond to viability threats, regardless of their origins. Illustration 5 Integration between assessment on certainty and adversity of hardship in the application of hajah type 2 and darurah level into stress severity analysis, risk appetite framework and recovery planning components of the IFI. G 12.9 In relation to paragraphs 8.3(d) and 12.6, a comprehensive assessment to support the severity analysis and impact on internal and external stakeholders may include the following: (a) impact on customers and relevant stakeholders (e.g., counterparties related to main customers, service providers, suppliers, market utilities, public services, government) which stems from Shariah requirements, taking into account– (i) the impact and speed of disruption to financial health, customers, businesses, and short-term liquidity needs of customers and relevant stakeholders; and (ii) the capacity or speed of reaction to the disruption by counterparties, customers and the public; (b) impact on other financial institutions and financial markets, taking into account the magnitude and speed at which such disruption would materially affect market participants or market functioning (e.g., liquidity, operations and structure of other financial institutions, financial markets concerned); (c) impact on economy, taking into account the lack of financial resources for an IFI to continue its operations as its customers or other stakeholders become negatively affected, both directly and indirectly e.g., defaults which may cause further financial repercussions; and Hajah and Darurah – Exposure Draft 17 of 23 (d) impact on environment, social and infrastructure, taking into account the non-availability of Shariah compliant options to fulfil societal and environmental needs. S 12.10 An IFI shall develop proposed solutions supported with comprehensive assessment, consisting of options available in dealing with hardship circumstances, facts and rationale, Shariah justifications, impact assessment and assumption, unintended consequences, applicable duration, mitigation measures and exit strategy for each proposed solution28. S 12.11 In relation to paragraph 9.9, an IFI shall ensure that any reference for ruling of the SAC is supported with comprehensive assessment and proposed solutions as described in paragraphs 12.6, 12.7 and 12.10. Deliberation S 12.12 In reinforcing sound decision for the application of hajah type 2 and darurah, an IFI shall ensure completeness and robustness of the following: (a) information provided in the identification and assessment steps as specified under paragraphs 8.3 and 12 of this policy document; (b) deliberation of the Shariah committee and the board, particularly on the appropriateness of the proposed solutions and duration to address the risks and vulnerabilities identified in the hajah type 2 and darurah assessment as well as its exit strategy; and (c) consistency in providing views on the application of the Shariah rulings. Reporting S 12.13 In the event where the Shariah committee decides that the hardship falls under the category of hajah type 2 and the board agrees with the proposal to pursue such application, an IFI shall notify the Bank of that fact and submit a report in line with paragraph 12.16 within 14 working days after such decision is being made. S 12.14 In the event where the Shariah committee decides that the hardship falls under the category of darurah and the board agrees with the deliberations of the Shariah committee, an IFI shall refer to the SAC for a ruling and write to the Bank within 14 working days after such decision being made. G 12.15 The SAC, with advice from the Bank or a resolution authority, will advise the IFI on the appropriate ruling and period for the application of darurah. S 12.16 In relation to paragraphs 12.13 and 12.14, an IFI shall ensure that notification of hajah type 2 to the Bank to be submitted to Jabatan Penyeliaan Konglomerat Kewangan, Jabatan Penyeliaan Perbankan or Jabatan Penyeliaan Insurans dan Takaful, as the case may be, and shall submit reference for darurah application to the SAC29 to Jabatan Sistem Kewangan Islam. 28 For example, an IFI is expected to identify the profit/loss (such as profit commission on risk ceded to the reinsurers) which may arise in a situation where hajah is adopted and establish a proper treatment/plan to manage such profit/loss, for instance purifying the impermissible profit via charity. 29 As per Manual Rujukan Institusi Kewangan Islam kepada Majlis Penasihat Shariah. Hajah and Darurah – Exposure Draft 18 of 23 S 12.17 In relation to paragraph 12.16, an IFI shall ensure that submission to the Bank includes the following information: (a) detailed narrative and assessment as described in paragraphs 12.4 to 12.11; (b) record of deliberations of the Shariah committee meeting(s), including resolutions, rationale and any significant concerns and dissenting views; and (c) record of deliberations of the board. S 12.18 An IFI shall report to the Shariah committee and the board on a timely basis the progress of the application of hajah type 2 and darurah, and its exit strategy. Monitoring S 12.19 An IFI shall perform periodic assessments on the compliance of the implementation of hajah type 2 and darurah with the rulings of the SAC and decision or advice of the Shariah committee with due regard by the board, as well as requirements set out by the Bank. Consultation 8: (i) Please describe any challenges that you foresee in implementing the proposed requirements on the decision-making process. (ii) Given the specific nature of hardship of hajah type 2 and darurah, please provide feedback on whether the proposed reporting timeframe to the Bank is sufficient. (iii) Please provide any alternative proposals to ensure immediate reporting to the Bank, particularly in the case where the IFI is experiencing severe adversity. (iv) If the Bank wishes to impose that IFIs shall not apply the exceptional rule until the expiry of a certain period (e.g., 14 working days) from the submission of notification of hajah type 2 to the Bank, please provide views on the appropriate period to be imposed supported by clear rationale. Hajah and Darurah – Exposure Draft 19 of 23 APPENDIX 1 DEFINITION OF HAJAH AND DARURAH Definition Classical scholars Hajah Hajah consists of what is required by the people for the realisation of their interests and the proper execution of their affairs. The social order would not, in fact, collapse, but will not function properly, if it is ignored30. Darurah A situation where one needs to consume forbidden items to prevent death or severe harm31. Contemporary scholars Hajah A situation where a need of a person or a community to be met by lifting the distress situation temporarily or permanently. If it is not addressed, it may reach the darurah (necessity) situation32. Darurah An extreme necessity that permits the forbidden except for what is excluded (such as murder and adultery).33. Shariah basis of hajah and darurah The following verse of the Quran and the Hadith imply the general permissibility for application of hajah: Allah intends ease for you, not hardship . (Surah Al-Baqarah, 2:185) للزبري وعبد الرمحن بن عوف رضى هللا عنهما ملسو هيلع هللا ىلصرخص رسول هللا :عن أنس رضى هللا عنه قال رواه البخاري ومسلم .يف لبس احلرير حلكة هبما Anas (may Allah be pleased with him) reported: The Messenger of Allah (peace and blessing of Allah be upon him) permitted Zubair and `Abdur-Rahman bin `Auf (may Allah be pleased with them) to wear silk because they were suffering from an itch. 30 Al-Syatibi, Al-Muwafaqat, Dar Al-Kutub Al-`Ilmiyah, 2004. -الحرج والمشقة الالحقة لفوت المطلوب فإذا لم تراع دخل على المكلفین أنھا مفتقر إلیھا من حیث التوسعة ورفع الضیق المؤدي في الغالب إلى یبلغ مبلغ الفساد المتوقع في المصالح العامة. الحرج والمشقة ولكنھ ال -على الجملة 31 Al-Suyuti, Al-Ashbah wa Al-Nazair, Dar Al-Kutub Al-`Ilmiyah, 1983. یتناول الممنوع ھلك أو قارب، وھذا یبیح تناول الحرامفالضرورة: بلوغھ حدّاً إن لم 32 Ahmad Kafi, Al-Hajah Al-Syar’iyyah Hududuha wa Qawaiduha, Dar Al-Kutub Al-Ilmiyah, 2004. على -المكلفین على فإذا لم تراع دخل التأبید، الحاجة ھي ما یحتاجھ األفراد أو تحتاجھ األمة للتوسعة ورفع الضیق إما على جھة التأقیت أو الحرج والمشقة وقد تبلغ مبلغ الفساد المتوقع في الضرورة. -الجملة 33 Abdullah bin Bayyah, Sina`ah Al-Fatwa wa Feqh Al-Aqalliyat, Al-Muwatta Center, 2018. .ضرورة قصوى تبیح المحّرم سوى ما استُثني Hajah and Darurah – Exposure Draft 20 of 23 The following verse of the Quran and the Hadith imply the general permissibility for application of darurah: But whoever is forced [by necessity], neither desiring [it] nor transgressing [its limit], there is no sin upon him. Indeed, Allah is Forgiving and Merciful. (Surah Al-Baqarah, 2:173) عن أيب واقد الليثي قال: قلت: � رسول هللا، إ� أبرض تصيبنا هبا خممصة، فما حيل لنا من رواه أمحد وصححه ) إذا مل تصطبحوا، ومل تغتبقوا، ومل حتتفئوا بقال، فشأنكم هبا(امليتة؟ قال: احلاكم Abu Waqid al-Laithi said, "Messenger of God, we live in a land where we are afflicted by hunger, so when may we eat animals which have died a natural death?" He replied: "As long as you do not have a morning drink or an evening drink or gather vegetables you may eat them." Hajah and Darurah – Exposure Draft 21 of 23 APPENDIX 2 DECISION TREE IN APPLYING THE GENERAL PARAMETERS Hajah and Darurah – Exposure Draft 22 of 23 APPENDIX 3 SUMMARY OF CRITERIA AND PARAMETERS IN DEALING WITH EXCEPTIONAL RULE Types Hajah Type 1 Hajah Type 2 Darurah Parameters 1. Preconditions • Ensure certainty of the hardship • Deviation from Shariah requirements/ruling • Absence or impracticality of Shariah compliant alternatives • Does not cause greater or equal harm to stakeholders 2. Specific parameters a) Nature of hardship Difficult to avoid (`umum balwa) / customary commercial practice (`urf tijari) Not a customary commercial practice (`urf tijari) b) Coverage of hardship For general needs For specific needs, but neither reach hajah type 1 nor darurah For specific needs, may or may not cause systemic impact, but trigger recovery or resolutions actions c) Availability of ruling There is Shariah ruling issued to all There is Shariah ruling issued for specific institution application Yet to be deliberated by the SAC or the Shariah ruling needs to be revisited in light of the extreme stress situation d) Time and quantum Allowable (Until revision of rulings/policy) Temporary and proportionately based on complexity of the issue Example T+2 in currency exchange (bai` al- sarf), nostro account Ceding out of takaful risk to reinsurance company Loan from International Monetary Fund (IMF) during resolution Hajah and Darurah – Exposure Draft 23 of 23 APPENDIX 4 PROCESS FLOW IN APPLYING HAJAH AND DARURAH PART A Overview 1 Introduction 2 Applicability 3 Legal provisions 4 Effective date 5 Interpretation 6 Related legal instruments and policy documents PART B SHARIAH REQUIREMENTS FOR HAJAH AND DARURAH APPLICATION 7 Compliance with this part 8 Aspects of hardship 9 Hajah and darurah parameters Part C OpERATIONAL REQUIREMENTS 10 Compliance with this part 11 Governance and oversight 12 Decision-making process Appendix 1 DEFINITION OF HAJAH AND DARURAH Appendix 2 decision tree in applying the general parameters Appendix 3 Summary of Criteria and Parameters in Dealing with Exceptional Rule Appendix 4 PROCESS FLOW IN APPLYING HAJAH AND DARURAH	Public Notice
02 Dis 2022	Policy Document on Climate Risk Management and Scenario Analysis	https://www.bnm.gov.my/-/pd-crmsa-2022	https://www.bnm.gov.my/documents/20124/938039/PD_Climate-Risk-Mgmt-Scenario-Analysis-Nov2022.pdf, https://www.bnm.gov.my/documents/20124/938039/SD_Climate-Risk-Mgmt-Scenario-Analysis-Nov2022.pdf, https://www.bnm.gov.my/documents/20124/938039/RF_Climate-Risk-Mgmt-Scenario-Analysis-Nov2022.pdf	null	null	Climate Risk Management and Scenario Analysis - Policy Document Issued on: 30 November 2022 BNM/RH/PD 028-124 Climate Risk Management and Scenario Analysis Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks, including international Islamic banks 4. Prescribed development financial institutions 5. Licensed insurers, including professional reinsurers 6. Licensed takaful operators, including professional retakaful operators 7. Financial holding companies Climate Risk Management and Scenario Analysis TABLE OF CONTENTS ABBREVIATIONS...................................................................................................... 1 PART A OVERVIEW .................................................................................................. 2 1 Introduction ............................................................................................................... 2 2 Applicability ............................................................................................................... 3 3 Legal Provisions ....................................................................................................... 3 4 Effective Date ........................................................................................................... 3 5 Interpretation ............................................................................................................ 4 6 Related Legal Instruments and Policy Documents ................................................... 5 PART B REQUIREMENTS AND GUIDANCE ........................................................... 6 7 Level of Application .................................................................................................. 6 8 Governance .............................................................................................................. 6 9 Strategy .................................................................................................................... 8 10 Risk Appetite .......................................................................................................... 10 11 Risk Management ................................................................................................... 10 12 Scenario Analysis ................................................................................................... 18 13 Disclosure ............................................................................................................... 23 14 Implementation Plan ............................................................................................... 24 15 Supervisory Process ............................................................................................... 25 PART C APPENDICES ............................................................................................ 26 Appendix 1 Principles for Climate Risk Management and Scenario Analysis ................ 26 Appendix 2 Illustration of Climate Risk Management Cycle ........................................... 28 Appendix 3 Transmission of Climate-Related Risks to Existing Types of Risks ............. 29 Appendix 4 Example of Questions to Guide Scenario Analysis...................................... 31 Appendix 5 Shared Socioeconomic Pathways (SSPs) ................................................... 32 Appendix 6 “Basic” Recommendations from the TCFD Application Guide ..................... 34 Appendix 7 “Stretch” Recommendations from the TCFD Application Guide .................. 36 PART D GLOSSARY ............................................................................................... 38 Climate Risk Management and Scenario Analysis Page 1 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 ABBREVIATIONS BCBS Basel Committee on Banking Supervision CCPT Climate Change and Principle-based Taxonomy ESG Environmental, Social and Governance GHG Greenhouse Gas IAIS International Association of Insurance Supervisors ICAAP Internal Capital Adequacy Assessment Process IEA International Energy Agency IPCC Intergovernmental Panel on Climate Change ITOs Insurers and takaful operators, including professional reinsurers and professional retakaful operators JC3 Joint Committee on Climate Change NGFS Network of Central Banks and Supervisors for Greening the Financial System NDC Nationally Determined Contributions TCFD Task Force on Climate-Related Financial Disclosures VBIAF Value-based Intermediation Financing and Investment Impact Assessment Framework Climate Risk Management and Scenario Analysis Page 2 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 PART A OVERVIEW 1 Introduction 1.1 The adverse impact of climate change could pose material financial risks to impact the safety and soundness of financial institutions, with broader implications on the stability of the financial system and hence, could affect the sustainability of domestic economic growth. 1.2 In view of the risks that climate change poses for financial stability in the long run, the Bank expects financial institutions to respond– (a) urgently 1 , through taking early actions to implement changes towards building climate resilience; (b) strategically, by accounting for how actions today affect future outcomes under a range of scenarios and time horizons over the long term; (c) comprehensively, when strengthening the risk management frameworks to address these financial risks from climate change. In particular, financial institutions are to manage these risks by recognising the distinctive 2 elements of climate-related risks: far-reaching in breadth and magnitude, foreseeable but highly complex due to uncertainty, nonlinearity, irreversibility and dependency on short-term actions; and (d) holistically, through greater collaboration across a wider spectrum of stakeholders3 when managing the systemic impact of climate-related risks. Financial institutions stand to gain from greater collective coordination and harmonisation, notably through industry-wide platforms4, including those facilitated by the Joint Committee on Climate Change (JC3) and VBI Community of Practitioners. 1.3 Recognising the characteristics of climate-related risks, this policy document sets out the principles and specific requirements on the management of climate- related risks by financial institutions, with the aim to enhance the resilience of the financial sector against climate-related risks. The principles are summarised in Appendix 1. 1.4 Notwithstanding paragraph 1.3, financial institutions may consider applying the principles in managing broader environmental risks, taking into consideration the interlinkages between climate-related and broader environmental risks. 1.5 The Bank expects financial institutions to have an effective risk management framework that integrates all material risks, which extends to climate-related risks and their interactions with other risk types. In this regard, the specific requirements in this policy document in relation to climate-related risks complement the Bank’s existing requirements for financial institutions to manage 1 In view of the intensifying pace of climate change that is markedly narrowing the finite window for limiting global warming (Source: IPCC). 2 For additional information, refer to CCPT and the reference resource list in Part C of the “Climate Risk Management and Scenario Analysis Supplemental Guidance” document. 3 A diverse set of global and domestic stakeholders including households, firms, governments, regulators, the financial sector, civil society, investors, multilateral institutions, standard-setting bodies, industry associations and scientific communities. 4 Industry-wide platforms can foster sharing of information and a range of practices, collecting data and developing common models. An example is the CCPT Implementation Group. Climate Risk Management and Scenario Analysis Page 3 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 material risks and provide further insights on the consideration of climate-related risks as an integral part of financial institutions’ governance, risk management, ICAAP, stress testing and disclosure practices. 1.6 Financial institutions also play a pivotal role in driving a just and orderly transition towards a low-carbon economy. This in turn contributes to longer-term climate resilience of financial institutions and the financial sector. During the transition process, the Bank expects financial institutions to have due regard to actions that they should take to– (a) mitigate risks surrounding economic dislocation due to abrupt withdrawal of financing from economic sectors or activities that are vulnerable to climate-related risks, which may have potential adverse feedback loops to the wider economy and financial stability; (b) promote transition5 by customers and counterparties towards more sustainable practices; (c) expand the financing of climate-related opportunities and sustainable economic activities, including offering new solutions, markets and products to support a low-carbon economy; and (d) better align business strategies and climate-related targets in supporting global and national commitments6 to address climate change. 2 Applicability 2.1 This policy document is applicable to financial institutions as defined in paragraph 5.2. 3 Legal Provisions 3.1 This policy document is issued pursuant to– (a) sections 47, 143 and 266 of the Financial Services Act 2013 (FSA); (b) sections 57, 155 and 277 of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 41, 116 and 126 of the Development Financial Institutions Act 2002 (DFIA). 4 Effective Date 4.1 This policy document comes into effect on 30 November 2022, subject to the following transitional specifications: (a) paragraphs 7, 8, 9, 10 and 11, with respect to governance, strategy, risk appetite and risk management shall come into effect on 31 December 2023; and (b) paragraphs 9, 10, 11, 12 and 13, with respect to scenario analysis, metrics and targets and disclosure shall come into effect on 31 December 2024. 5 In the CCPT, classification of Categories ‘C2’ and ‘C3’ represent progressive stages of transitioning as customers take remedial measures under Guiding Principle 4 (GP4) to transition towards a low- carbon and climate-resilient economy by adopting sustainable practices. These remedial efforts should contribute towards the outcomes in which unacceptable risks to the climate and/or environment can be eliminated or significantly reduced. 6 For example, the Paris Agreement and the 12th Malaysia Plan. Climate Risk Management and Scenario Analysis Page 4 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 4.2 Notwithstanding paragraph 4.1, the following paragraphs shall come into effect on 31 December 2024: Requirement Paragraph Strategy 9.2, 9.4 Risk Appetite 10.3 Risk Management 11.9 (a), 11.9 (b) and 11.9 (c) 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA or DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purposes of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “financial institution” refers to– (a) a licensed bank, a licensed investment bank and a licensed insurer, including a licensed professional reinsurer under the FSA; (b) a licensed Islamic bank, including a licensed international Islamic bank and a licensed takaful operator, including an international Islamic bank and a licensed professional retakaful operator under the IFSA; (c) a prescribed development financial institution under the DFIA; and (d) a financial holding company approved under the FSA and IFSA; “climate-related risks” refers to potential risks that may arise from climate change, their related impacts and their economic and financial consequences, which include drivers of climate risks, namely physical, transition and liability risks; “board” refers to the board of directors of a financial institution; and “senior management” refers to the chief executive officer (CEO) and senior officers of a financial institution. 5.3 The glossary set out in Part D describes selected terms used in this policy document. Climate Risk Management and Scenario Analysis Page 5 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 6 Related Legal Instruments and Policy Documents 6.1 This policy document must be read together with other relevant legal instruments, policy documents and guidelines that have been issued by the Bank, in particular– (a) Climate Change and Principle-based Taxonomy (CCPT) issued on 30 April 2021; (b) Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) issued on 1 November 2019; (c) 2024 Climate Risk Stress Testing Exercise – Discussion Paper issued on 30 June 2022; (d) Corporate Governance issued on 3 August 2016; (e) Risk Governance issued on 1 March 2013; (f) Risk-Weighted Capital Adequacy Framework (Basel II) – Internal Capital Adequacy Assessment Process (Pillar 2) issued on 2 December 2011; (g) Capital Adequacy Framework for Islamic Banks – Internal Capital Adequacy Assessment Process (Pillar 2) issued on 31 March 2013; (h) Guidelines on Internal Capital Adequacy Assessment Processes for Insurers issued on 28 February 2012; (i) Internal Capital Adequacy Assessment Processes for Takaful Operators issued on 15 April 2016; (j) Risk-Weighted Capital Adequacy Framework (Basel II) – Disclosure Requirements (Pillar 3) issued on 10 January 2010; (k) Capital Adequacy Framework for Islamic Banks (CAFIB) – Disclosure Requirements (Pillar 3) issued on 15 July 2010; (l) Stress Testing (for insurers and takaful operators) issued on 30 June 2016; (m) Stress Testing (for banking institutions) issued on 15 June 2017; (n) Credit Risk issued on 27 September 2019; (o) Operational Risk issued on 10 May 2016; (p) Liquidity Coverage Ratio issued on 25 August 2016; (q) Net Stable Funding Ratio issued on 31 July 2019; (r) Outsourcing issued on 23 October 2019; and (s) Guidelines on Business Continuity Management (Revised) issued on 3 June 2011. Climate Risk Management and Scenario Analysis Page 6 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 PART B REQUIREMENTS AND GUIDANCE 7 Level of Application S 7.1 Financial institutions (excluding financial holding companies) shall comply with the requirements in this policy document at the following levels: (a) entity level, which refers to the global operations of the financial institutions, including overseas branch operations; and (b) consolidated level, which includes all financial and non-financial subsidiaries. S 7.2 Financial holding companies shall comply with the requirements in this policy document on a consolidated level basis. G 7.3 For the purpose of paragraph 7.1, locally incorporated foreign financial institutions and branches of foreign financial institutions operating in Malaysia may leverage their group or parent company’s climate-related policies and procedures to meet the requirements of this policy document. S 7.4 For branches of foreign financial institutions operating in Malaysia, the requirements in this policy document shall apply to the Malaysian operations of the branch with the following modification: (a) any reference to the board in this policy document shall refer to the governing body of the branch of the foreign financial institution operating in Malaysia or any of its committees; and (b) any reference to senior management in this policy document shall include a reference to the CEO of the branch and officers performing a senior management function in respect of the branch operations. 8 Governance S Principle 1: The board and senior management shall exercise effective oversight of climate-related risks to safeguard the financial institution’s resilience against the adverse impacts of climate change. Financial institutions shall clearly identify the relevant responsibilities for managing climate-related risks and assign these responsibilities throughout the organisation structure. Financial institutions shall manage climate-related risks in a manner that is proportionate to the materiality of climate-related risks, taking into consideration the size, nature and complexity of the financial institution’s business model. S 8.1 The board shall have the overall responsibility and accountability to safeguard the financial institution’s resilience against the adverse impacts of climate change while actively promoting a just and orderly transition7 of the economy. In fulfilling this role, the board shall evaluate the risks and opportunities arising from climate change on a periodic basis and consider these risks and opportunities in assessing and approving the financial institution’s strategies and business plan. 7 Refer to use cases outlined in CCPT for illustration on how financial institutions can support customers’ transition. Climate Risk Management and Scenario Analysis Page 7 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 S 8.2 The board shall clearly assign roles and responsibilities for the management of climate-related risks to senior management and address the interactions of such responsibilities with existing governance arrangements to ensure an integrated and balanced view of risks. The board shall designate a senior management officer to oversee the effective management of climate-related risks. For example, the board may appoint a chief sustainability officer (CSO) or expand the current responsibilities of an existing senior management officer for this purpose. G 8.3 A large financial institution8 is encouraged to appoint a dedicated CSO to provide necessary focus on the management of climate-related risks, in view of the inherent complexity and scale of operations of large financial institutions. S 8.4 The senior management of a financial institution shall implement policies and procedures to build and support climate resilience as well as actively promote a just and orderly transition of customers and counterparties. Senior management shall also be responsible for the day-to-day management of climate-related risks and opportunities. S 8.5 The senior management shall review the effectiveness of the financial institution’s organisational structure and appropriately define the roles and responsibilities of key business and risk functions in supporting the financial institution’s strategies to build climate resilience and manage climate-related risks. For example, as part of the process of integrating climate risk considerations in the management of material risks, financial institutions may consider establishing dedicated committees or sub-committees in the early stages to ensure sufficient consideration and oversight are given to the management of climate-related risks and opportunities. S Principle 2: The board and senior management shall ensure that they and the financial institution have a sound understanding of climate-related risks to inform the financial institution’s business and risk management strategies. S 8.6 The board shall actively discuss and remain up to date on climate-related developments. This includes developing a clear understanding of the distinctive elements and transmission channels of climate-related risks. S 8.7 The senior management shall provide regular and timely updates to the board with material information on climate-related risks and opportunities to facilitate the board in carrying out its oversight activities. S 8.8 Financial institutions shall strengthen their capabilities in managing climate- related risks and implementing the strategies to build climate resilience. This is supported by appropriate capacity building and training plans for the board, senior management and all relevant staff. 8 Large financial institution means– (a) a financial institution with one or more business lines that are significant in terms of market share in the relevant industry; or (b) a financial institution with a large network of offices within or outside the country through operations of branches and subsidiaries. Climate Risk Management and Scenario Analysis Page 8 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 S Principle 3: Financial institutions shall embed climate-related risks into their internal control frameworks across the three lines of defence to ensure the robust management of material climate-related risks. S 8.9 Financial institutions shall ensure that the roles, responsibilities and accountabilities in managing climate-related risks shall be clearly allocated across the three lines of defence. G 8.10 The first line of defence in the financial institution lies with its business units, whose role is to identify and manage risks associated with their day-to-day operations. Climate-related risk assessments may be undertaken during the client onboarding, credit application and credit review processes, ongoing monitoring and engagement with clients, as well as in new product or business approval processes. G 8.11 The second line of defence is provided by the financial institution’s independent risk management and compliance functions. The risk management function undertakes climate-related risk assessments and monitoring, independent of the first line of defence. The compliance function entails ensuring adherence to applicable laws, regulations and internal policies. G 8.12 The third line of defence is provided by an independent internal audit function in the financial institution. This function provides independent review and objective assurance of the quality and effectiveness of the overall internal control framework and systems, the first and second lines of defence and the risk governance framework taking into account changes in methodology, business and risk profile, as well as the quality of underlying data. 9 Strategy S Principle 4: Financial institutions shall incorporate the potential impact of material climate-related risks into their business strategies to strengthen resilience against climate-related risks and promote a just and orderly transition. S 9.1 Financial institutions shall appropriately identify and assess the potential impact9 of climate-related risks and opportunities when developing the business strategies in order to make informed forward-looking decisions when navigating structural changes in the business environment during the transition towards a low-carbon economy. S 9.2 In addressing climate resilience over the long term, financial institutions shall use scenario analysis to assess the impact of climate-related factors on the business strategies under a range of time horizons and plausible climate pathways. The scenario analysis is useful in the context of climate-related risks given the uncertainty and complexity associated with the future outcomes of climate change and challenges to the financial sector that have not yet materialised. Paragraph 12 provides details on the expectations for financial institutions when using scenario analysis. 9 This includes areas which could affect financial institutions’ competitiveness and long-term resilience from climate risk strategies. Climate Risk Management and Scenario Analysis Page 9 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 G 9.3 Given the uncertainty surrounding the timing of the impact of climate-related risks and the dependency on short-term actions, a strategic and prudent approach is for financial institutions to embed relevant time horizons in relation to the requirements in this policy document, where appropriate. Financial institutions may consider the following time horizons: (a) short-term horizon (1 to 3 years) to capture impacts over the ordinary business plan horizon; and (b) medium-term horizon (4 to 10 years) and long-term horizon (beyond 10 years and reaching at least 30 years) to provide insights on impacts from the evolution and direction of climate-related risks as they materialise over time. S 9.4 To ensure alignment in the consideration of climate-related risks within financial institutions’ business strategies, financial institutions shall identify and monitor appropriate internal climate-related targets10. The financial institution’s progress against its climate-related targets serves to inform and validate the financial institution’s assessment of climate-related risks. G 9.5 Climate-related targets are important for steering financial institutions into taking early actions in managing transition risks, including proactive and continuous efforts to manage the risk of economic dislocation. This may include developing transition strategies for customers over the long term, including the use of scenario analysis to assess the pathways of future emissions that would be financed by financial institutions. G 9.6 For example, as the transition towards a low-carbon economy impacts structural changes surrounding the business environment, a forward-looking financial institution would consider how climate-related factors would impact the strategies of key business lines and portfolios, including the products and services it is currently offering or planning to offer and develop appropriate climate-related targets and action plans to manage the relevant risks. Significant deviations from the targets would prompt a review of the assumptions underpinning a financial institution’s assessment of climate-related risks. S 9.7 Financial institutions shall clearly communicate and cascade the strategy and internal climate-related targets within the financial institution. This is important to promote effective understanding and coordination with appropriate levels of accountability and oversight across functions. S 9.8 Financial institutions must review their business strategy in a timely manner to take into account material developments in their management of climate-related risks. For example, realised impacts of climate-related risks or controversies that give rise to reputational risk11 may warrant a change in the long-term strategy of the financial institution. This is to ensure that business strategies are responsive 10 A climate-related target refers to a specific level or metric such as temperature limits or reduction in GHG emissions to avoid dangerous interference with the climate system and achieve climate-related goals and strategies of the financial institution. For example, financial institutions can target to reduce emissions of own operations and financed emissions to achieve net-zero emissions by 2050. 11 For example, reputational risk may arise as a sudden credit withdrawal from certain sectors or segments causing undue hardship on customers as well as a result of change in consumer sentiment towards more climate friendly business practices. If reputational risk is not appropriately managed, competitiveness and long-term resilience of financial institutions may be impaired. Climate Risk Management and Scenario Analysis Page 10 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 and resilient to the evolving developments of climate change and also commensurate with the financial institution’s internal capacity and capability in managing the impact of climate change. 10 Risk Appetite S Principle 5: Financial institutions shall embed climate-related risks into the risk appetite framework, including the potential long-term impact of these risks as drivers of existing types of material risks. Financial institutions shall reflect these material risks in the internal capital adequacy assessment process. S 10.1 Financial institutions shall manage climate-related risks in line with the risk appetite approved by the board. S 10.2 Financial institutions shall clearly address climate-related risks within the risk appetite statement (RAS). When using the RAS to guide the implementation of ICAAP, financial institutions shall consider material climate-related risks when assessing the internal capital adequacy over relevant time horizons. S 10.3 To support and monitor the RAS, financial institutions shall develop appropriate risk metrics to manage climate-related risks, including risk limits and thresholds for management action. G 10.4 For example, the assessment of climate metrics such as GHG emissions under different climate scenarios and climate targets can be translated into financial impact using risk metrics. Risk metrics in turn are used to set limits when managing the share of financial exposure to transition risks and the concentration to climate-related risks within the risk appetite of the financial institution. 11 Risk Management General Requirements S Principle 6: Financial institutions shall integrate material climate-related risk considerations into their existing enterprise-wide risk management framework. This must be supported by a reliable approach for identifying, measuring, monitoring and controlling material risks. S 11.1 Financial institutions shall– (a) develop a comprehensive understanding on climate change to enable the mapping of transmission channels and impact of climate-related risks to existing risk types such as credit, market, liquidity, operational, insurance/takaful underwriting and reserving, strategic, reputational and regulatory compliance risks; (b) enhance and update existing risk taxonomy12, risk management policies and procedures, as well as risk functions and capabilities to reflect the distinctive elements of climate change. For example, financial institutions 12 The classification of different risk types and risk drivers to enable assessment, aggregation and management of risks in a consistent manner using a common risk dictionary and mapping. Climate Risk Management and Scenario Analysis Page 11 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 shall ensure that the risk management practices cover the different time horizons reflected in paragraph 9.3; and (c) review risk management practices, including related data, metrics and tools, in a timely manner to reflect continuous improvements in internal risk management capabilities and embed the latest global and domestic developments on climate change. To ensure progress over time, financial institutions shall implement a long-term roadmap when developing the metrics and tools, which shall be a key component of the implementation plan required in paragraph 14. S 11.2 Financial institutions shall integrate climate-related risk considerations into the existing risk management cycle through the following functions: risk identification, risk measurement, risk monitoring and risk controls. Appendix 2 illustrates the climate-related risk management cycle. S 11.3 Financial institutions shall have in place processes to evaluate the impact of climate-related risks that may negatively affect their capital position as part of ICAAP. S Principle 7: Financial institutions shall continuously develop data capabilities, tools and methodologies to effectively aggregate and report material climate- related risks. S 11.4 Financial institutions shall continuously enhance their internal capabilities to effectively manage climate-related risks, which includes the following: (a) identifying, collecting and improving the quality and granularity of climate and climate-related risks data and metrics by using an increasingly wider range of global and domestic sources, including public sources, scientific reports, third-party products and services and proprietary data collected from customers and counterparties; (b) using appropriate qualitative and quantitative risk management tools to measure and manage climate-related risks under business-as-usual and stress conditions; (c) ensuring risk management approaches are forward looking when managing climate-related risks under different time horizons over the long term, which includes enhancing capabilities on scenario analysis; and (d) strengthening practices on model risk management in line with an increasing use of models to manage climate-related risks. S 11.5 Where financial institutions are leveraging external sources to enhance the data, metrics and risk management tools to manage climate-related risks, including third-party certification and verification13, financial institutions shall ensure that there is adequate understanding of the procured external data, metrics and risk management tools. This includes a sound understanding of the capabilities of the external providers, associated methodologies, validation process, limitations as well as relevance and appropriateness to the financial institution’s own portfolio characteristics. G 11.6 As data, metrics and risk management tools mature over time, financial institutions that face material climate-related-risks may consider using models to 13 See examples provided in CCPT, VBIAF and VBIAF Sectoral Guides. Climate Risk Management and Scenario Analysis Page 12 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 quantify the climate-related risks of key portfolios and counterparties. For example, this could include incorporating factors to assess climate-to-credit related risks within existing credit risk rating models. Risk Identification and Measurement S Principle 8: Financial institutions shall consider climate-related risks as part of comprehensive risk assessments to identify and measure all material risks. S 11.7 In identifying14 and measuring climate-related risks, financial institutions shall– (a) map the transmission from climate-related risks such as physical, transition and liability risks to financial and non-financial risks to assess materiality, likelihood as well as concentration of risks; (b) compute climate-related metrics, such as GHG emissions (comprising own emissions and financed emissions) and translate these metrics into financial impact to develop climate-related risk metrics. Financial institutions shall understand these different types of metrics, be clear of their limitations and select credible and robust methodologies when computing these metrics; (c) use scenario analysis to inform the risk identification and measurement process under different time horizons. Paragraph 12 provides details on the specifications and guidance for financial institutions when using scenario analysis; (d) assess climate-related risks along multiple key dimensions to identify current and potential concentration of risks such as asset classes, liabilities, duration of insurance/takaful contracts, operations, business lines, significant activities, portfolios, sectors, types of policy/certificate/product, counterparties and geographies; (e) enhance the existing due diligence policy and process to adequately identify and evaluate climate-related risks at the inception of a contractual relationship and on an ongoing basis, at the portfolio, counterparty and transaction levels; (f) engage with material customers and counterparties to develop a better understanding of their exposures to climate-related risks, track record, as well as their commitment and transition strategies in managing these risks. This shall facilitate the collection of internal data and information including the corresponding mitigation and adaptation measures; and (g) have processes in place to collect and aggregate climate-related financial risk data across the financial institution while ensuring that the aggregated data is accurate and reliable. G 11.8 Financial institutions may consider either one or a combination of the following approaches to identify and measure climate-related risks: (a) top-down approach: Mapping of exposures at an aggregated level using key drivers, such as material risk by geographical location, specific economic sectors with higher GHG emissions, types of insurance/takaful products; and (b) bottom-up approach: Identifying risks at the asset, investment or counterparty level and summing up the risk to provide a portfolio-level risk assessment, which is typically performed on material exposures. For 14 See examples provided in VBIAF and VBIAF Sectoral Guides. Climate Risk Management and Scenario Analysis Page 13 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 example, the CCPT can be used as one starting point to support the risk assessment process, especially for customers and counterparties classified under the watchlist category that are harming the environment and are not taking remedial measures. Identification of customers and counterparties under this CCPT category could warrant further assessment and monitoring. Risk Monitoring and Controls S Principle 9: Financial institutions shall actively monitor and escalate material and potential climate-related risks in a timely manner. This is supported by appropriate data, risk analysis and clear reporting procedures. S 11.9 In developing a holistic approach for effective and timely monitoring of climate- related risks, financial institutions shall– (a) use a range of quantitative and qualitative metrics, which at minimum shall include climate-related metrics such as GHG emission and climate-related risk metrics such as exposure to physical and transition risks; (b) integrate climate-related metrics and corresponding risks metrics into the existing risk monitoring, reporting and escalation framework to support effective decision making when managing climate-related risks, which shall include monitoring the approved risk appetite, business strategy, business plans and climate-related targets; (c) include metrics that are forward looking in order to pre-emptively detect and respond to current and potential climate-related risks. For example, including results from scenario analysis to monitor the climate resilience of a portfolio and the potential losses of a portfolio under different climate scenarios; (d) reflect the appropriate dimension and granularity, by considering at minimum, the concentration of climate-related risks by portfolios, economic sectors, geographical locations and material customers and counterparties; (e) include vulnerabilities of internal operations to climate-related risks such as locations of data centres that are exposed to physical risks; (f) set a timely reporting frequency to ensure updates to the board and senior management account for the evolution of climate change, with continuous detection of future potential risk drivers. For example, the ongoing transition towards a low-carbon economy; adverse climate change activities and controversies and physical climate hazards that impact the internal operations or business lines; (g) provide early-warning signals and thresholds in order to take remedial actions to manage climate-related risks in a pre-emptive manner; and (h) monitor the implementation of remedial actions and potential non- compliance with the financial institution’s policies on climate-related risks. S Principle 10: Financial institutions shall put in place appropriate risk controls when managing current and potential material climate-related risks. Financial institutions shall implement controls in a timely manner to mitigate adverse effects from transition risk, and the potential build-up in concentration to climate- related risks, in line with the risk appetite and business strategy. G 11.10 Given the sectoral factors associated with climate change, namely the evolution of transition risk, financial institutions may develop sector-specific policies to Climate Risk Management and Scenario Analysis Page 14 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 manage climate-related risks. For example, these sectoral policies may include setting a risk appetite for existing or prospective customer profiles; adopting specific limits or exclusion criteria; applying additional conditions on insurance/takaful coverage and reinsurance/retakaful arrangements; as well as appropriate coordination of climate mitigation and adaptation measures. G 11.11 Financial institutions may consider the following mitigation measures for customers and counterparties who do not demonstrate adequate management of climate-related risks within the financial institution’s risk appetite: (a) risk mitigants to reduce climate-related risk exposures such as guarantees, collateral and insurance/takaful cover; (b) conditions for approval or further financing such as development of time- bound action plans for the customers/counterparties to improve their climate risk management practices; (c) imposing shorter tenures, higher discounts to asset valuations for financing, lower limits on financing, investment and insurance/takaful underwriting; (d) reassessing the terms and conditions of covenants for financing, investment and insurance/takaful contracts and reinsurance/retakaful arrangement; (e) repricing of lending/financing rate, insurance premiums/takaful contributions and reinsurance/retakaful rates; or (f) increasing frequency of reporting requirements. S 11.12 It is important for financial institutions to manage the risks of economic dislocation and the associated reputational risk11. Therefore, financial institutions shall reflect these risks in the risk appetite framework and put in place policies and procedures to actively promote a just and orderly transition of customers and counterparties towards more sustainable and climate-resilient practices. This includes committing to a transition strategy that is transparent, gradual and progressive when rebalancing the exposures that are vulnerable to climate- related risks. G 11.13 Actions that financial institutions can take to promote a just and orderly transition include the following: (a) allocate funds to assist customers in building resilience against climate change; (b) incentivise customers with lower pricing or insurance premiums/takaful contributions when transition milestones are achieved; and (c) engage customers and counterparties to develop a transition strategy including establishing specific and credible climate targets and adopting international sustainable certification, practices and standards. G 11.14 Financial institutions may mitigate the risks associated with greenwashing of its portfolio. Financial institutions may use established standards and taxonomies, as well as leveraging certifications and third-party assurance, to verify that the disclosures made by customers comply with relevant standards, metrics and methodologies. Appropriate oversight and periodic reviews may be conducted to ensure the use of these standards, taxonomies and certifications remain relevant, current and valid. Climate Risk Management and Scenario Analysis Page 15 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Risk Management for Specific Risk Types S Principle 11: Climate-related risks can have a significant impact on other major risk types. In this regard, financial institutions shall understand the transmission and impact of climate-related risks on existing risk types and ensure their risk management systems and processes account for material climate-related risks. S 11.15 While climate-related risks have distinctive elements, they can be reflected as risk drivers of existing risk types. In this regard, financial institutions shall understand and assess the transmission of climate-related risks to existing types of risks, with examples illustrated in Appendix 3. Credit Risk S 11.16 Financial institutions’ credit risk assessment shall incorporate the consideration of the effects of climate-related risks and their financial impact on the ability and willingness of customers/counterparties to honour their credit obligations at the inception of contractual relationships and on an ongoing basis15. G 11.17 For a customer or counterparty’s quantitative credit risk assessment, a financial institution may recalibrate its credit risk indicators, such as probability of default (PD), loss given default (LGD) and exposure at default (EAD), to take into account the time horizons relevant to the materialisation of climate-related risks, whether in the short, medium or long term, such that the indicators are forward looking. The impact from these climate-related risks may also result in an increase in expected credit losses (ECL) required on a financial institution’s portfolio. The potential recalibrations are illustrated below: (a) PD: An increase of the PD of counterparties can be triggered by shifts in consumer demand for products from carbon-intensive industries, imposition of carbon taxes on emissions or impacts of severe weather conditions on agriculture business, which may increase the downward pressure on counterparties’ profitability resulting in higher probability of default; (b) LGD: Value of stranded assets will decrease, resulting in lower collateral values and, in a default scenario, lower recovery values. Flood prone areas as a result of climate change may also affect the valuation of properties resulting in lower collateral and recovery value; and (c) EAD: Counterparties subject to physical risk might need to draw more from their committed credit lines to respond to sudden shocks, such as floods. Market Risk S 11.18 Financial institutions shall periodically review and incorporate climate-related risk considerations in their investment strategy and portfolio allocation. Uncertainty about the timing, intensity and location of future severe weather events and other natural disasters may lead to higher volatility in financial markets. Changes in policies, investor sentiment as well as technological advances could also lead to abrupt repricing of financial assets. 15 This shall include the annual review process. Climate Risk Management and Scenario Analysis Page 16 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 G 11.19 To develop an understanding on their portfolio sensitivity to the impact of climate- related risks, financial institutions may consider the following risk drivers in the assessment: (a) potential rating downgrades and devaluation of assets attributed to lower corporate profitability, increased litigation, shifts in consumer preference and imposition of new climate-related policies; and (b) breakdown in correlations between assets due to climate-related risks that reduce effectiveness of hedges. Liquidity Risk S 11.20 Financial institutions shall incorporate climate-related risk considerations in asset and liability management to assess their ability to meet obligations on a timely basis under both business-as-usual and stressed conditions as climate- related risk can adversely affect the matching of assets and liabilities. S 11.21 ITOs with long-duration products or long-tailed business utilise longer-term assets such as bonds or sukuk to match the long duration of their liabilities. As climate-related risks may materialise over an extended period of time, ITOs shall consider the potential effects of any financial losses in their long-term assets or investments arising from climate-related risks that could adversely affect the matching of liabilities. S 11.22 Financial institutions shall also consider the potential correlation in risk between different asset classes as well as between assets and liabilities when financing or investing in an entity while taking deposits or providing insurance/takaful cover to that same entity for risks related to climate change. S 11.23 Financial institutions shall periodically assess the impact that climate-related risks have on stability of funding, potential outflows and adequacy of liquidity buffers by considering the possibility of the materialisation of climate-related risks. Where material, financial institutions shall incorporate these impacts into the calibration of liquidity buffers. G 11.24 Financial institutions may consider the following aspects in liquidity risk assessment: (a) profile of asset holdings in respect of susceptibility to climate-related risks which may affect the credit rating, asset price and marketability of liquid assets; (b) shifts in investors’ preference towards sustainable instruments which may affect the market breadth and depth of existing assets; and (c) composition and profile of depositors and policy holders or participants in economic sectors and geographic locations that may be susceptible to climate-related risk, which may result in large and sudden deposit withdrawals or insurance claims. G 11.25 Financial institutions may collect data such as rollovers, withdrawals, claims and pricing behaviour of investors in response to a climate-related risk event for the modelling of potential liquidity impact. G 11.26 Financial institutions may consider the impact of climate-related risks on regional liquidity positions and related contingency plans, for example potential Climate Risk Management and Scenario Analysis Page 17 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 operational and other impediments that may limit the ability of the parent financial institution to provide liquidity to branches when climate-related risks materialise. Operational Risk S 11.27 Financial institutions shall assess the impact of climate-related events on internal operations as a whole, including material outsourcing activities and the ability to quickly recover capacity to continue providing critical services at an optimum level. The outcome of the assessment, if significant to the critical business functions, shall be reflected in the business continuity plan accordingly. G 11.28 Financial institutions may assess the following potential sources of operational risk, which could lead to direct and indirect losses including reputational damage: (a) susceptibility of financial institutions’ and critical third-party service providers’16 office and data centre locations to severe weather events; (b) impact of climate-related events affecting ability of the employees to commute to the workplace; (c) regulatory and compliance implications as a result of stricter climate-related requirements; (d) potential liability arising from legal actions brought against financial institutions for business practices that are perceived to be directly or indirectly harmful to the environment; and (e) severe weather events such as flood or drought that may have a material impact on the supply of underlying assets for commodity murabahah/tawarruq and/or delivery of the commodity 17 . This may increase Islamic financial institutions’ Shariah non-compliance risk exposure when offering Islamic financial products. G 11.29 In managing physical risk affecting internal operations, financial institutions may– (a) perform ongoing assessments on the resilience of their internal operations including the need to relocate financial institutions’ critical business functions such as key offices, servers and data centres to less vulnerable areas across different geographic locations to reduce potential disruption due to region-specific extreme weather events; and (b) adopt climate adaptation strategies to reduce exposure to physical risks such as building protective barriers to reduce flood-related damage and impacts to financial institutions’ operations. Insurance/Takaful Underwriting and Reserving Risks S 11.30 ITOs shall identify and assess the impact of climate-related risks on their insurance/takaful underwriting and reserving to avoid any underestimation of risks. G 11.31 Climate-related risks could affect different lines of insurance/takaful business. Therefore, ITOs may consider the following impact of climate-related risks on each line of business accordingly: (a) changes in weather patterns might affect claim incidences for general insurance/takaful products due to the increase in physical risk for certain 16 This may include commodity trading platform providers for Islamic financial institutions. 17 In the case where a customer requested for physical delivery. Climate Risk Management and Scenario Analysis Page 18 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 geographical areas. To assess physical risks, ITOs may consider the impact of climate change (e.g. wind and storm pattern shifts, hot weather, strong wind, drought and flood), the probability of occurrence, level of severity and concentration of climate-related risks; (b) certain general insurance/takaful products such as professional indemnity and directors and officers liability covers may have higher liability risks as legal action may be initiated for certain losses emanating from climate- related risks. As such, ITOs may consider and monitor the legal development and increased litigation linked to climate-related risks; and (c) climate change could also affect life insurance/family takaful products as well as medical and health insurance/takaful products through the increase in mortality and morbidity risks. In this regard, ITOs may identify and monitor health conditions arising from climate-driven events, such as extreme temperatures, air pollution levels and weather events that would contribute significantly to overall claims experience. S 11.32 When pricing insurance/takaful products and reserving for insurance/takaful liabilities, ITOs shall consider the quality and completeness of the underlying data and incorporate forward-looking assumptions in the existing models to reflect climate-related risks in the calculation of insurance premiums/takaful contributions and reserves. 12 Scenario Analysis S Principle 12: Financial institutions must employ scenario analysis to determine the resilience of their business strategies to material climate-related risks. Given the complexity and evolving nature of these risks, insights from the scenario analyses shall inform the risk profile, risk appetite and risk management framework. S 12.1 Financial institutions shall incorporate scenario analysis as one of its main tools to manage climate-related risks and opportunities. G 12.2 Scenario analysis is a technique frequently deployed by financial institutions to identify and assess the potential implications of a range of events on financial resilience. In the context of climate change, scenario analysis enables financial institutions to examine their business resilience and strategies to climate-related risks and to measure portfolio alignment18 under a range of scenarios, including those related to extreme climate events. S 12.3 Financial institutions shall conduct climate-related scenario analysis when developing business strategies and as part of risk management. This includes– (a) identifying and defining a range of climate-related scenarios, which considers climate-related risks over both short- and long-term horizons; (b) reviewing the appropriateness of business strategies and business models under a range of climate scenarios; 18 Refers to steps taken by financial institutions to evaluate business decisions (e.g. lending and investment) that will contribute to achieving their ambition to become climate resilient. This could include measuring the percentage of portfolio with net-zero targets, deviation of a portfolio from its climate target and degree of warming/impact metrics. See TCFD “Technical Supplement: Measuring Portfolio Alignment” 2021. Climate Risk Management and Scenario Analysis Page 19 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 (c) accounting for the risk of economic dislocation that may arise from the gradual transition away from selected high-carbon sectors or segments that are vulnerable to climate-related risks. Financial institutions may also refer to paragraphs 11.12 to 11.13 of this policy document for further guidance; and (d) using insights from scenario analysis to inform adjustments to their business strategies where appropriate, identify feasible options to enhance resilience to climate-related risks and mitigate climate-related disruptions to their businesses and operations. S 12.4 In response to outcomes from the scenario analysis, financial institutions shall develop management actions to mitigate the impact from climate-related risks. G 12.5 Management actions under paragraph 12.4 may include plans to strengthen the balance sheet, including adaptation or mitigation measures that could be implemented and completed within a reasonable period. G 12.6 Given the complexity19 and continued evolution of climate change with multiple facets and stakeholders involved, financial institutions may adopt a phased approach when developing better internal scenario analysis capabilities. As a starting point, financial institutions may consider the use of simpler, qualitative models and narratives to explore various climate pathways, outcomes and mitigation plans. G 12.7 An example of paragraph 12.6 is exploring how standalone climate-related risk variables including GHG emissions and carbon price pathways could serve as a good proxy of climate-related risk. As experience and capabilities becomes more developed in this area, financial institutions are encouraged to adopt greater rigour and sophistication. This could include, for example, incorporating results from Integrated Assessment Models (IAMs) of the IPCC into financial institutions’ climate scenarios to provide better insights on the evolution and interactions between human population and earth systems or develop in-house climate scenarios that are more suited to the financial institutions’ business and operations. S Principle 13: Financial institutions must ensure scenario analysis exercises are relevant, follow certain prescribed and well-known standards, are conducted at appropriate time horizons and contain sufficient level of granularity. This must be proportionate to the materiality of climate-related risks associated with the financial institutions’ business and operations. S 12.8 When designing appropriate climate scenarios, financial institutions must be clear on the purpose and intended outcomes of choosing certain climate scenarios for analysis. At minimum, climate-related scenarios selected by financial institutions must reflect the following characteristics: (a) Plausible, but challenging. The events in the climate scenario must be plausible and the narrative credible (e.g. the descriptions of what happens and why and how it 19 This includes uncertainties surrounding the pathways and outcomes of climate change, evolution of greener technology for energy production (e.g. green hydrogen) and transportation (e.g. electric vehicles), carbon capture technology and global climate-related development (e.g. endorsement of carbon pricing as a solution to tackling climate change and biodiversity loss by G20 countries). Climate Risk Management and Scenario Analysis Page 20 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 happens, must be realistic). Events must include baseline and extreme outcomes to give a reasonable diversity of potential future climate states. When thinking about major sources of uncertainty, scenarios help to explore alternatives that will significantly change the grounds for ‘business- as-usual’ assumptions; (b) Relevant. Each climate scenario and the set of scenarios taken as a whole, must contribute specific insights on the strategic and financial implications of climate-related risks and opportunities. Financial institutions shall use scenario analysis to self-evaluate their ability to cope with climate-related risks and explore options to strengthen resilience against these risks; (c) Distinctive. Each climate scenario must focus on different key factors. Scenarios must be clearly differentiated in structure and in narrative. For a given key factor, multiple scenarios shall be used to explore how different permutations and different temporal developments can yield dissimilar outcomes. For example, the impact of introducing a carbon pricing mechanism in an economy might vary with the timing of the implementation; (d) Consistent. Each climate scenario must have a strong internal logic. The goal of scenario analysis is to explore the interactions of factors and how each action produces a reaction. Neither agents nor external factors should completely overturn the evidence of current trends and outcomes unless logical explanations for those changes are a central part of the scenario. For example, the use of fossil fuel must not be assumed to come to a sudden halt without linking the development to the current state of play for alternative energy sources; and (e) Tailored to material risks of financial institutions. Each climate scenario must incorporate material elements that could influence the outcomes of the scenario analysis. This includes the nature of an operation, its location, types of assets and sources of income flows, expected changes to the demand and supply of its financial products and services and how climate change is affecting the financial institution’s clients and stakeholders from a behavioural perspective. G 12.9 When conducting scenario analysis, financial institutions may be guided by the questions tabulated in Appendix 4. Financial institutions are also encouraged to expand the list to reflect the circumstances that are unique to them. G 12.10 In developing the climate scenarios, financial institutions may consider starting with existing global climate scenarios, with examples from the NGFS, IPCC and IEA. These climate scenarios provide financial institutions with an overall narrative, climate pathways, context and macro trends for future population levels, technological change, economic activity, social values, mitigation and adaptation challenges. For example, the IPCC scenarios represent probable future evolution of GHG concentrations and various associated mitigation and adaptation strategies. Meanwhile, the IEA scenarios present plausible transition narratives centred on the energy sector. Appendix 5 offers an introduction to the key components of shared socioeconomic pathways (SSPs) by the IPCC. Climate Risk Management and Scenario Analysis Page 21 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 G 12.11 Financial institutions are encouraged to explore the use of NGFS scenarios20 which are adapted to the Malaysian context where relevant. For example, the NGFS scenarios may be supplemented with additional assumptions relating to Malaysia’s existing and forthcoming climate policies such as the NDC and national plans for the energy sector. Financial institutions may also consider a scenario that lengthens the time horizon up to 2050, which is a common global practice and also in line with the timeline for Malaysia’s net-zero aspiration. S 12.12 In conducting climate scenario analysis, financial institutions must consider short-term, medium-term and long-term horizons in drawing up appropriate scenarios. Specifically– (a) Short-term climate risk scenario analysis is useful to complement business risks assessments within an ordinary business planning horizon. In this regard, financial institutions shall incorporate the impact of climate-related risks arising from such analysis in their regular stress testing exercise specified in the Stress Testing policy document for insurers and takaful operators as well as banking institutions issued on 30 June 2016 and on 15 June 2017 respectively; and (b) for the medium to long-term climate risk assessments, financial institutions shall at the minimum conduct periodic climate-related scenario analysis to identify and address longer-term vulnerabilities and build resilience. The frequency of such scenario analysis should be driven by factors such as changes in the financial institution’s climate strategy, new or updated regulations to limit GHG emissions, emergence of new or efficient carbon capture technology, material changes to economic and climate risk outlook, and realisation of climate risk events that significantly affect the operating environment of the financial institution. G 12.13 The following factors may be considered in determining an appropriate time horizon for the scenario analysis: (a) short-term horizon captures the impacts of climate-related risks over the ordinary business plan horizon. Nevertheless, these may yield limited information and insights on the resilience of financial institutions to manage climate-related risks in the long run; and (b) longer time horizons are useful in providing financial institutions with a richer understanding and insights on impacts from climate-related risks as these risks are likely to materialise more gradually over several decades. However, a longer time horizon introduces significant complexity into the assessment and requires the use of broad-based assumptions and proxies, both of which could lead to greater uncertainty in the outcomes. S 12.14 A financial institution must consider the appropriate level of granularity incorporated in the climate scenario analysis. This can range from high-level assessments based on sensitivity to climate-related risks impacting certain lines of business or economic sectors, to more granular assessments based on specific portfolios that also consider the interactions between climate-related risks and underlying activities of counterparties. 20 Financial institutions may explore the scenarios and access additional materials by NGFS here: https://www.ngfs.net/ngfs-scenarios-portal/ Climate Risk Management and Scenario Analysis Page 22 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 G 12.15 In determining the level of granularity for climate scenario analysis, financial institutions may consider the following: (a) high-level specifications (e.g. climate impact on country level data such as economic growth, level of unemployment and headline inflation) can reduce complexity while providing an assessment of the impact of climate- related risks on financial portfolios. However, such analysis relies on various assumptions and could consequently be less useful in informing specific business and risk management strategies across business lines and portfolios; or (b) more granular specifications (e.g. counterparty level exposures or firm specific information) provide more accurate and consistent results to size up the exposure of climate-related risks. Nonetheless, the analysis is more complex and requires highly granular and consistent data and information, some of which could be time consuming to develop and collect. S 12.16 The depth of the analysis shall be proportionate to the materiality of climate- related risks, taking into consideration the size, nature and complexity of financial institutions’ business and operations. In this regard, climate-related scenario analysis must consider the following: (a) size and nature of underlying exposure and counterparties; (b) interlinkages of exposures and counterparties to the financial system and economy; (c) geographical location of the exposures; (d) expected physical damage to the exposures arising from adverse climate- related events; (e) counterparties’ responses to climate change such as actions to mitigate GHG emissions; and (f) forward-looking information such as future trends in consumer preference, green technology innovation and national policy developments. S 12.17 In the event financial institutions decide to factor in the climate adaptation plans of their counterparties into their scenario analyses, such plans shall only be considered if the following conditions are met: (a) there is credible evidence that these adaptation plans are already under implementation; and (b) financial institutions are of the view that the completion of such plans is highly likely. G 12.18 In assessing the counterparty climate adaptation plans for inclusion, financial institutions may consider a variety of factors, such as a counterparty’s current performance against interim targets, the availability21 of technologies, products, or resources necessary to meet the intended targets, the credibility of strategies proposed in the adaptation plans and whether a counterparty has considered potential unintended consequences in implementing such plans. 21 For instance, if a counterparty’s climate adaptation plan relies upon technology or products that have yet to be discovered, the plan cannot be considered as being “under implementation”, even if the underlying research has been funded or is ongoing. Climate Risk Management and Scenario Analysis Page 23 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 13 Disclosure S Principle 14: Financial institutions shall produce reliable, meaningful and comparable climate-related disclosures, to support informed decisions by stakeholders and reinforce the effective management of material climate-related risks in the financial sector. S 13.1 Financial institutions must establish a board-approved policy on climate-related disclosures that promote credible as well as high-quality disclosures and mitigate the risks of greenwashing. This policy should address internal controls22 and governance arrangements over the disclosure process. S 13.2 Financial institutions must review the disclosure policy in a timely manner to continuously improve the clarity, comprehensiveness and relevance of climate- related disclosures. The review shall account for domestic and global developments23 on sustainability and climate-related financial disclosures, which will drive the evolution of widely recognised practices and methodologies on disclosures. S 13.3 Financial institutions shall make annual climate-related disclosures24 that are aligned with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and shall be published together with annual financial reports for financial years beginning on or after 1 January 2024. S 13.4 Financial institutions shall separately address the following areas in the annual disclosures: (a) governance around climate-related risks and opportunities; (b) actual and potential impact of climate-related risks and opportunities on business, strategy and financial planning; (c) approach to identify, assess and manage climate-related risks; and (d) metrics and targets used to assess and manage relevant climate-related risks and opportunities. G 13.5 Appendices 6 and 7 provide the description of the disclosures for financial institutions, aligned to the “Basic” and “Stretch” recommendations outlined in the JC3’s TCFD Application Guide for Malaysian Financial Institutions issued on 29 June 2022 (hereinafter referred to as TCFD Application Guide) 25. Financial institutions are expected to work towards adopting “Stretch” recommendations outlined in the TCFD Application Guide in line with their climate risk exposure 22 This includes verification and review of accuracy of information. 23 This includes global developments at the International Sustainability Standard Board (ISSB) under the IFRS Foundation and Pillar 3 requirements under the BCBS. 24 To the extent that the disclosures required in this policy document are substantially similar to the Malaysian Financial Reporting Standards (MFRS), listing requirements by Bursa Malaysia, or other statutory reporting requirements, disclosures made in compliance with such requirements are deemed to have met the requirements of this policy document. 25 In the event of discrepancies between this policy document and the TCFD Application Guide on the recommendations and descriptions, the TCFD Application Guide shall prevail as the primary reference. Climate Risk Management and Scenario Analysis Page 24 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 and complexity of operations, in efforts to be fully aligned with TCFD recommendations. G 13.6 A financial institution may disclose the information required in paragraph 13.4 in the management commentary of the financial report, within an existing report26, or on the financial institution’s website. This information should be clearly labelled to enhance readability and guide users. S 13.7 While the Bank does not require the disclosures to be audited by external auditors, financial institutions shall be responsible for ensuring that the disclosures are accurate, verifiable, complete and not misleading. The Bank may require an independent audit by an external auditor at the financial institutions’ expense if there is reason to believe that any disclosure is incorrect, incomplete or misleading. G 13.8 Financial institutions may consider appointing an independent and qualified external third-party to perform verification or provide assurance on the disclosures, such as external assurance on climate-related metrics and targets, to improve the reliability and credibility of the disclosures. 14 Implementation Plan S 14.1 A financial institution must perform a gap analysis between its existing practices in managing climate-related risks and the requirements in this policy document and shall highlight all key implementation gaps. S 14.2 A financial institution must develop a board-approved implementation plan with a clear timeline, as well as interim targets and milestones to address the gaps identified. S 14.3 The gap analysis and implementation plan must be submitted no later than six months after the issuance date of this policy document to– Pengarah Jabatan Penyeliaan Konglomerat Kewangan or Jabatan Penyeliaan Perbankan or Jabatan Penyeliaan Insurans dan Takaful (as applicable) Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur S 14.4 In relation to paragraphs 14.1 and 14.2, when preparing the implementation plan, financial institutions must– (a) ascertain whether existing policies and processes continue to be relevant and effective to manage climate-related risks, as well as clarify roles and responsibilities within the financial institution in this area; (b) establish appropriate monitoring and reporting mechanisms to ensure compliance with the requirements in this policy document; 26 For example, the annual report or sustainability report. Climate Risk Management and Scenario Analysis Page 25 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 (c) undertake enhancement to existing systems to address and manage climate-related risks, where applicable; and (d) formulate an internal long-term roadmap to track the developments and progress of metrics and targets. S 14.5 A financial institution must immediately notify the Bank if the financial institution identifies any issue that may affect its full compliance with the requirements in this policy document by the respective effective dates as set out in paragraphs 4.1 and 4.2. 15 Supervisory Process G 15.1 The management of climate-related risks of a financial institution will be monitored by the Bank against the standards and guidance set out in this policy document. S 15.2 A financial institution shall maintain and make all the relevant information readily available for submission upon request by the Bank to facilitate ongoing supervision. Climate Risk Management and Scenario Analysis Page 26 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 PART C APPENDICES Appendix 1 Principles for Climate Risk Management and Scenario Analysis Governance Principle 1: The board and senior management shall exercise effective oversight of climate-related risks to safeguard the financial institution’s resilience against the adverse impacts of climate change. Financial institutions shall clearly identify the relevant responsibilities for managing climate-related risks and assign these responsibilities throughout the organisation structure. Financial institutions shall manage climate-related risks in a manner that is proportionate to the materiality of climate-related risks, taking into consideration the size, nature and complexity of the financial institution’s business model. Principle 2: The board and senior management shall ensure that they and the financial institution have a sound understanding of climate-related risks to inform the financial institution’s business and risk management strategies. Principle 3: Financial institutions shall embed climate-related risks into their internal control frameworks across the three lines of defence to ensure the robust management of material climate-related risks. Strategy Principle 4: Financial institutions shall incorporate the potential impact of material climate-related risks into their business strategies to strengthen resilience against climate-related risks and promote a just and orderly transition. Risk Appetite Principle 5: Financial institutions shall embed climate-related risks into the risk appetite framework, including the potential long-term impact of these risks as drivers of existing types of material risks. Financial institutions shall reflect these material risks in the internal capital adequacy assessment process. Risk Management Principle 6: Financial institutions shall integrate material climate- related risk considerations into their existing enterprise-wide risk management framework. This must be supported by a reliable approach for identifying, measuring, monitoring and controlling material risks. Principle 7: Financial institutions shall continuously develop data capabilities, tools and methodologies to effectively aggregate and report material climate-related risks. Principle 8: Financial institutions shall consider climate-related risks as part of comprehensive risk assessments to identify and measure all material risks. Principle 9: Financial institutions shall actively monitor and escalate material and potential climate-related risks in a timely manner. This is Climate Risk Management and Scenario Analysis Page 27 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 supported by appropriate data, risk analysis and clear reporting procedures. Principle 10: Financial institutions shall put in place appropriate risk controls when managing current and potential material climate- related risks. Financial institutions shall implement controls in a timely manner to mitigate adverse effects from transition risks, and the potential build-up in concentration to climate-related risks, in line with the risk appetite and business strategy. Principle 11: Climate-related risks can have a significant impact on other major risk types. In this regard, financial institutions shall understand the transmission and impact of climate-related risks on existing risk types and ensure their risk management systems and processes account for material climate-related risks. Scenario Analysis Principle 12: Financial institutions must employ scenario analysis to determine the resilience of their business strategies to material climate-related risks. Given the complexity and evolving nature of these risks, insights from the scenario analyses shall inform the risk profile, risk appetite and risk management framework. Principle 13: Financial institutions must ensure scenario analysis exercises are relevant, follow certain prescribed and well-known standards, are conducted at appropriate time horizons and contain sufficient level of granularity. This must be proportionate to the materiality of climate-related risks associated with the financial institutions’ business and operations. Disclosure Principle 14: Financial institutions shall produce reliable, meaningful and comparable climate-related disclosures, to support informed decisions by stakeholders and reinforce the effective management of material climate-related risks in the financial sector. Climate Risk Management and Scenario Analysis Page 28 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Appendix 2 Illustration of Climate Risk Management Cycle Source: Bank Negara Malaysia Climate Risk Management and Scenario Analysis Page 29 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Appendix 3 Transmission of Climate-Related Risks to Existing Types of Risks Financial risks Transmission channels Credit risk Severe weather events can affect productivity, damage physical asset which lowers the asset/collateral value and disrupt corporates operation/supply chain. This will in turn increase probability of default (PD) for both corporates and individuals and loss given default (LGD) due to depreciation of collateral value. Market risk Negative sentiment towards carbon- intensive assets/sectors or changes in regulation may result in volatile and downward market valuations and pricing, which lead to investment losses. Liquidity risk Sudden increase in deposits withdrawal, drawdown of committed facilities and insurance/takaful claims post disaster may result in significant and negative impact on liquidity buffers. Operational risk Financial institutions’ operations are disrupted due to damage to their or outsourced service providers’ physical property and data centres as a result of severe weather event; climate-related lawsuits could target financial institutions for poor management of climate risks or inadequate climate-related disclosures; and higher exposure to reputational damage due to change in consumer Climate Risk Management and Scenario Analysis Page 30 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 sentiments towards more climate friendly business practices. Insurance/ takaful underwriting risk The impact can be two pronged, i.e. (i) increase insured losses due to increased frequency and concentration of high impact natural catastrophes, resulting in increases in weather-related insurance claims; and (ii) increase insured gap due to ITOs constrained capacity to write insurance business with increasing physical risks to insured property and assets, while not being able to increase the price that exceeds customer’s willingness to pay. Source: Adapted from NGFS and BCBS Climate Risk Management and Scenario Analysis Page 31 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Appendix 4 Example of Questions to Guide Scenario Analysis Broad questions • What is the focus of the scenario analysis exercise? Is the focus on transition risk, physical risk or both? • What is the time horizon? Why was this chosen? • Is the purpose of the scenario to inform quantitative analysis or qualitative discussions? • Should the financial institution consider common reference scenarios or develop their own internal scenarios? If the latter, how should a financial institution provide a high degree of rigour and robustness of the scenarios? • If the financial institution is using a common reference scenario, are the accompanying assumptions suitable? Could adjustments be made by the financial institution to fit internal needs and beliefs? If so, how? • Should the financial institution focus only on ‘stress scenarios’, that are extreme but unlikely, or on scenarios that are more likely to materialise? • How should the financial institution balance between realism and conservatism? Specific questions unique to Malaysia • How will the climate in Malaysia change over the next 30 to 50 years? • What are the possible transmission channels of climate-related risks affecting the Malaysian economy? When will these effects materialise? • Between physical hazards and transition risks, which of the two is a more important consideration for the financial institution and why? • What are unique and prominent features of the Malaysian climate that are not captured by common reference scenarios? • What are the existing national policies on climate change? How are these expected to evolve over across different time horizons? Source: Bank Negara Malaysia Climate Risk Management and Scenario Analysis Page 32 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Appendix 5 Shared Socioeconomic Pathways (SSPs) The SSPs are commonly used narratives that represent five possible socioeconomic futures with varying challenges to climate mitigation and adaptation. They are increasingly used in integrated assessment models (IAMs) to systematically explore the impacts of different socioeconomic contexts on emissions pathways. The diagram below describes the SSPs– Socio-Economic Challenges to Adaptation Low Medium High So ci o- Ec on om ic C ha lle ng es to M iti ga tio n H ig h SSP 5: Fossil Fuel Development • low population • very high economic growth per capita • high human development • high technological progress • ample fossil fuel resources • very resource intensive lifestyles • high energy and food demand per capita • economic convergence and global cooperation SSP 3: Regional rivalry • high population • low economic growth per capita • low human development • low technological progress • resource-intensive lifestyles • resource constrained energy and food demand per capita • focus on regional food and energy security • regionalisation and lack of global cooperation M ed iu m SSP 2: Middle of the road • medium population • medium and uneven economic growth • medium and uneven human development • medium and uneven technological progress • resource-intensive lifestyles • medium and uneven energy and food demand per capita • limited global cooperation and economic convergence Lo w SSP 1: Sustainable Development • low population • high economic growth per capita • high human development SSP 4: Inequality • medium to high population • unequal low to medium economic growth per capita • unequal low to medium human development Climate Risk Management and Scenario Analysis Page 33 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 • high technological progress • environmentally oriented technological and behavioural change • resource-efficient lifestyles • low energy and food demand per capita • economic convergence and global cooperation • unequal technological progress: high in globalised high-tech sectors, slow in domestic sectors • unequal lifestyles in energy/food consumption: resource intensity depending on income • globally connected elite, disconnected domestic work forces Source: IPCC, Global Warming of 1.5°C Special Report, 2018 Climate Risk Management and Scenario Analysis Page 34 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Appendix 6 “Basic” Recommendations from the TCFD Application Guide “Basic” Recommendations Descriptions Governance Recommendation G1 Board Oversight of Sustainability and Climate- related Matters • Disclose nature of Board oversight and accountability with respect to sustainability and climate- related matters, risks and opportunities. Recommendation G2 Sustainability Governance Structure Including Climate- Related Matters at the Management Level • Disclose management-level sustainability governance structure as well as processes for sustainability and climate-related matters, including accountability, responsibility, and decision making. Recommendation G3 Sustainability and Climate- related Board Credentials • Disclose sustainability and climate-related credentials, experience and individual biographies for Board members. Recommendation G4 Sustainability and Climate- Related Training • Disclose the initiatives undertaken and training programmes conducted annually to build capacity of Board members and management on sustainability issues including climate-related matters. Recommendation G5 Sustainability and Climate- related Discussions in Board Meetings • Disclose the frequency of Board meetings per year in which sustainability and climate-related issues have been a substantive agenda item, and a summary of key climate- related issues and initiatives deliberated. Recommendation G6 Sustainability/Climate-linked Remuneration • Link Board of Director (excluding independent directors) and top management remuneration to performance against specified sustainability and climate-related targets. Strategy Recommendation S1 Identification of Climate- related Risks and Opportunities • Review the financial institution’s strategy to identify and disclose climate-related risks and opportunities over the short-, medium-, and long- term. Recommendation S2 Impact of Climate-related Risks and Opportunities • Assess and disclose how climate-associated risks and opportunities could affect the financial institution’s existing businesses, strategy, and financial planning. Recommendation S3 Strategy and Risk Appetite on Climate Change-Related Risks and Sustainability Measures • Disclose strategy and appetite with regard to climate- related risks and opportunities, and the measures towards sustainability in the financial institution’s business activities. Risk Management Recommendation R1 Process for Identifying and Assessing Climate-related Risks • Disclose how the financial institution looks at existing and emerging regulatory requirements related to climate change and other relevant factors. • Disclose the risk classification framework(s) used. • Disclose the risk terminology definitions used or existing risk classification framework(s) used. Climate Risk Management and Scenario Analysis Page 35 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 “Basic” Recommendations Descriptions Recommendation R2 Process for Managing Climate-related Risks • Disclose the financial institution’s risk management processes and controls. • Disclose the identities of individual(s)/function(s) responsible for oversight of climate-related risks and its relationship with the business operations. Recommendation R3 Process for Integrating (i) Process for Identifying and Assessing Climate-related Risks and (ii) Process for Managing Climate-related Risks; into Overall Risk Management. • Disclose the integration of processes for identifying, assessing and managing climate-related risks into overall risk management • Disclose processes for prioritising climate-related risks, including how materiality determinations are made within the financial institution Metrics and Targets Recommendation M1 Key Climate-related Metrics • GHG Emissions: Disclose historical and current GHG Emissions (Example unit of measure – MT of CO2e). • Transition Risks: Disclose amount and extent of assets or business activities vulnerable to transition risks (Example unit of measure – Amount or percentage). • Physical Risks: Disclose amount and extent of assets or business activities vulnerable to physical risks (Example unit of measure – Amount or percentage). • Climate-Related Opportunities: Disclose proportion of revenue, assets or other business activities (financing & investment) aligned with climate-related opportunities (Example unit of measure – Amount or percentage). • Client Engagement: Disclose client engagements on climate-related risks and opportunities (Example unit of measure – percentage). • Capital Deployment: Disclose amount of capital expenditure, financing, or investment deployed toward climate-related risks and opportunities (Example unit of measure – Reporting currency). • Remuneration: Disclose proportion of director and/or senior management remuneration linked to sustainability considerations (Example unit of measure – Percentage, weighting, description, or amount in reporting currency). Recommendation M2 Key Climate-related Targets • Set and disclose clear climate-related targets based on recognised metrics (including cross-industry, sector- specific metrics and/or institution-specific metrics) Source: JC3’s TCFD Application Guide for Malaysian Financial Institutions Climate Risk Management and Scenario Analysis Page 36 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Appendix 7 “Stretch” Recommendations from the TCFD Application Guide “Stretch” Recommendations Descriptions Governance Recommendation G7 Separate Committee on Sustainability and Climate- related Matters • Set up a separate committee to oversee sustainability- related matters, reporting to the Board of Directors for all sustainability and climate-related matters. Strategy Recommendation S4 Scenario Analysis as an Opportunity to Improve Strategic Resilience and Explore Climate Vulnerabilities • Perform climate-related scenario analysis to assess potential business implications of climate-related risks and opportunities over time and under different conditions as well as related strategy to manage these. Risk Management Recommendation R4 Process for Identifying and Assessing Climate-related Risks • Disclose the financial institution’s risk management processes used to identify and assess climate-related risks. • Disclose the financial institution’s climate-related risks and their significance within existing risk categories such as credit, market, operational, liquidity risk. • Disclose the financial institution’s processes for assessing the potential size and scope of identified climate-related risks. • Disclose key sectors in the financial institution’s portfolio that are identified as being highly exposed to climate risk. • Set out the financial institution’s risk management controls or actions in managing impacts from direct climate-related risks (i.e. through own operations). Recommendation R5 Process for Managing Climate-related Risks • Disclose the financial institution’s processes for managing climate-related risks including decisions to mitigate, transfer, accept, or control those risks. • Disclose improvements planned/completed by the financial institution to enhance capabilities and incorporate climate- related risks into existing risk management framework. • Conduct training and employee readiness planning as well as programmes. • Disclose how the financial institution’s customers are engaged and helped in mitigating climate-related risks. • Use metrics and targets to monitor progress in managing climate-related risks (i.e. exposure to, and quantification of, risk types by business segment and jurisdiction). • Set out the financial institution’s risk management controls or actions in managing impacts from indirect climate- related risks (i.e. through activities of its clients). • Disclose the financial institution’s exposure to, and quantification of, sustainable financing. Climate Risk Management and Scenario Analysis Page 37 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 “Stretch” Recommendations Descriptions Recommendation R6 Process for Integrating (i) Process for Identifying and Assessing Climate-related Risks and (ii) Process for Managing Climate-related Risks; into Overall Risk Management. • Disclose how the financial institution has integrated climate-related risks into existing risk categories such as credit, market, operational, insurance and liquidity risks. • Disclose how the financial institution has integrated climate-related risks into existing risk framework(s) and/or directly into credit and investment decision-making (e.g. lending policies, underwriting standards, risk ratings, pricing models). • Disclose the financial institution’s exposure to physical and transition risks within its operations and business model, including concentrations of risk at portfolio and transaction levels, and by geographical footprint. • Disclose the financial institution’s efforts in supporting clients through mitigating climate-related risks via sustainable finance solutions. • Implement policies that restrict/divest from high-risk exposures and in line with international commitments/frameworks. • Enhance the financial institution’s climate risk management framework to be more predictive. Metrics and Targets Recommendation M1 Key Climate-related Metrics • Disclose more granular and specific items building on the Basic Metrics recommendations. Source: JC3’s TCFD Application Guide for Malaysian Financial Institutions Climate Risk Management and Scenario Analysis Page 38 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 PART D GLOSSARY Carbon neutrality Occurs when net contribution to GHG emissions is zero as emissions are fully compensated by offsets. Climate adaptation Refers to the process or actions taken to lower the negative effects and/or moderate harm caused by climate change. Climate metrics Quantitative indicators that provide information about a particular activity or quantitative assessment on the level of climate-related risks for a given institution. Climate metrics can contain backward- or forward-looking information and can be outbound or inbound. For example, GHG metrics quantify the amount of GHG produced by the institution (outbound). Climate metrics are translated into financial impact to quantify climate risk metrics for risk assessment and monitoring. For example, climate risk metrics include exposure to physical and transition risks (inbound). Climate mitigation Refers to the process of reducing or preventing emission of GHG into the atmosphere. Climate target Climate target refers to a specific level or threshold or metric such as a temperature limit or emissions reduction to avoid dangerous interference with the climate system and achieve climate-related goals, ambitions and strategies. For example, a climate target may aim to reduce GHG emissions by a certain amount over a given time horizon. Examples of targets include net-zero carbon emissions by 2050 and carbon neutrality by 2050. Credit risk Credit risk (including counterparty credit risk) is the risk of a counterparty failing to perform its obligations. Environmental risk Environmental risks are financial risks posed by the exposure of financial institutions and/or the financial sector to activities that may potentially cause or be affected by environmental degradation (such as air pollution, water pollution and scarcity of fresh water, land contamination and desertification, biodiversity loss, and deforestation) and the loss of ecosystem services. Insurance/Takaful reserving risk Risk that an ITO underestimates its insurance/takaful liabilities given the uncertainty associated with the forecasted impact of climate change on the business written, leading to insufficient reserves held to cover those liabilities. Insurance/Takaful underwriting risk Risk that an ITO will suffer losses due to the impact of climate change that has changed contrary to the forecast made at the time when a premium/contribution rate was set. Climate Risk Management and Scenario Analysis Page 39 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Liability risk Risks stemming from parties that are seeking compensation for losses these parties may have suffered from the physical or transition risks from climate change. The climate-related litigations can directly and indirectly impact financial losses of financial institutions. Liquidity risk Ability of the financial institution to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses, including both market and funding liquidity. The risk that an ITO is unable to realise its investments and other assets in a timely manner to meet its financial obligations, including collateral needs, as they fall due. Market risk Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. Nationally Determined Contributions (NDC) A term used under the United Nations Framework Convention on Climate Change (UNFCCC) whereby a country that has joined the Paris Agreement outlines its plans for reducing its emissions. In some countries the NDC would also address how the countries will adapt to climate change impacts and what support they need from, or will provide to, other countries to adopt low-carbon pathways and to build climate resilience. Net-zero emissions Net-zero emissions are achieved when anthropogenic (released by human activities like usage of fossil fuels) emissions of greenhouse gases to the atmosphere are balanced by anthropogenic removals (such as greater forestry and carbon capture and storage) over a specified period. Where multiple greenhouse gases are involved, the quantification of net-zero emissions depends on the climate metric chosen to compare emissions of different gases (such as global warming potential, global temperature change potential and others, as well as the chosen time horizon). Nonlinear A process is called nonlinear when there is no simple proportional relation between cause and effect. The climate system contains many such nonlinear processes, resulting in a system with potentially very complex behaviour. Such complexity may lead to abrupt climate change. Operational risk Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk may result in direct financial losses as well as indirect financial losses (e.g. loss of business and market share) due to reputational damage. Paris Agreement An international agreement signed in 2015 to keep the average global temperature rise this century well below 2°C above pre- industrial levels and to pursue efforts to limit the temperature increase to 1.5°C. Climate Risk Management and Scenario Analysis Page 40 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 Pathways The temporal evolution of natural and/or human systems towards a future state. Pathway concepts range from sets of quantitative and qualitative scenarios or narratives of potential futures to solution oriented decision-making processes to achieve desirable societal goals. Pathway approaches typically focus on biophysical, techno-economic and/or socio- behavioural trajectories and involve various dynamics, goals and actors across different scales. Physical risks Economic costs and financial losses resulting from the increasing severity and frequency of– • extreme climate change-related weather events (or extreme weather events) such as heatwaves, landslides, floods, wildfires and storms (i.e. acute physical risks); • longer-term gradual shifts of the climate such as changes in precipitation, extreme weather variability, ocean acidification and rising sea levels and average temperatures (i.e. chronic physical risks or chronic risks); and • indirect effects of climate change such as loss of ecosystem services (e.g. desertification, water shortage, degradation of soil quality or marine ecology). Physical risk drivers are the changes in weather and climate mentioned above that lead to physical risks and impacts on economies and financial institutions. Resilience The capacity of social, economic and environmental systems to cope with a hazardous event or trend or disturbance, responding or reorganizing in ways that maintain their essential function identity and structure while also maintaining the capacity for adaptation, learning and transformation. Roadmap A roadmap sets out a comprehensive and coordinated long-term plan to address climate-related financial risks, including steps and interim time horizons needed to do so. It also articulates ways to implement and monitor interim progress over time to reach intended outcomes and targets. Scenario A plausible description of how the future may develop based on a coherent and internally consistent set of assumptions about key driving forces (e.g. rate of technological change) and relationships. Note that scenarios are neither predictions nor forecasts but are used to provide a view of the implications of developments and actions. Scope 1, 2 and 3 GHG Emissions The Greenhouse Gas Protocol separates emissions into three scopes – • Scope 1 covers direct emissions from owned or controlled sources. • Scope 2 covers indirect emissions from purchased electricity consumed by the reporting entity. Climate Risk Management and Scenario Analysis Page 41 of 41 Issued on: 30 November 2022 BNM/RH/PD 028-124 • Scope 3 covers indirect emissions from assets not owned or activities not controlled by the reporting entity along its value chain (upstream and downstream). Stranded asset Assets exposed to devaluations or conversion to ‘liabilities’ because of unanticipated changes in their initially expected revenues due to innovations and/or evolutions of the business context, including changes in regulations at the domestic and international levels. Strategic risk Loss in competitiveness and market standing for failing to respond in a timely manner to the changing market environment along with increasing scrutiny and preference towards climate or environmental-friendly solutions and responsible practices. Stress testing Stress testing is typically used to evaluate a financial institution’s near-term resiliency to severe but plausible economic and financial shocks, often through a capital adequacy target. Sustainability A dynamic process that guarantees the persistence of natural and human systems in an equitable manner. This can be done by encouraging businesses and households to embed the decision-making process with financial and ESG effects to ensure long-term resilience and value creation. Transition risks The risks related to the process of adjustment towards a low- carbon economy. These drivers represent climate-related changes that could generate, increase or reduce transition risks. They include changes in public sector (generally government) policies, legislation and regulation, changes in technology and changes in market and customer sentiment, each of which has the potential to generate, accelerate, slow or disrupt the transition towards a low-carbon economy. Transmission channels The causal chains that explain how climate risk drivers give rise to financial risks that impact financial institutions directly or indirectly through their counterparties, the assets they hold and the economy in which they operate. Sources: Adapted from multiple sources including Bank Negara Malaysia, IPCC, TCFD, NGFS, BCBS and IAIS ABBREVIATIONS PART A OVERVIEW 1 Introduction 2 Applicability 3 Legal Provisions 4 Effective Date 5 Interpretation 6 Related Legal Instruments and Policy Documents PART B REQUIREMENTS AND GUIDANCE 7 Level of Application 8 Governance 9 Strategy 10 Risk Appetite 11 Risk Management 12 Scenario Analysis 13 Disclosure 14 Implementation Plan 15 Supervisory Process PART C APPENDICES Appendix 1 Principles for Climate Risk Management and Scenario Analysis Appendix 2 Illustration of Climate Risk Management Cycle Appendix 3 Transmission of Climate-Related Risks to Existing Types of Risks Appendix 4 Example of Questions to Guide Scenario Analysis Appendix 5 Shared Socioeconomic Pathways (SSPs) Appendix 6 “Basic” Recommendations from the TCFD Application Guide Appendix 7 “Stretch” Recommendations from the TCFD Application Guide PART D GLOSSARY Climate Risk Management and Scenario Analysis - Supplemental Guidance Issued on: 30 November 2022 Climate Risk Management and Scenario Analysis Supplemental Guidance Climate Risk Management and Scenario Analysis – Supplemental Guidance Issued on: 30 November 2022 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 Introduction ................................................................................................................... 1 PART B CASE STUDIES ........................................................................................ 2 Case study 1: An illustrative example of setting climate-related targets by a financial institution ................................................................................................................... 2 Case study 2: The due diligence process of a financial institution which incorporates climate-related risk assessment during onboarding and annual review of material exposures ................................................................................................................... 3 Case study 3: Management of physical risk ........................................................................ 5 Case study 4: Management of transition risk ...................................................................... 6 Case study 5: Liquidity risk management arising from climate-related risks ....................... 7 Case study 6: End-to-end risk management process of internal operations and outsourced functions ................................................................................................................... 8 PART C REFERENCE RESOURCES ................................................................... 10 Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 1 of 11 Issued on: 30 November 2022 PART A OVERVIEW Introduction 1.1 This document is a supplemental guidance to the Climate Risk Management and Scenario Analysis policy document issued on 30 November 2022, which outlines the key principles and requirements financial institutions must comply with to manage climate-related risks. 1.2 The main objective of this supplemental guidance is to provide non-exhaustive case studies and reference resources that are useful to financial institutions as they continue to strengthen their resilience to climate-related risks. 1.3 This guidance is a living document that may be periodically edited and updated, when necessary, in response to maturing industry practices. Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 2 of 11 Issued on: 30 November 2022 PART B CASE STUDIES Case study 1: An illustrative example of setting climate-related targets by a financial institution A few financial institutions in Malaysia have established internal climate-related targets that are in line with global and national commitments1 to strengthen their efforts in building resilience against climate change and supporting the transition towards a low- carbon economy. Examples include medium-term targets such as carbon neutral by 2030 (Scope 1 and 2 emissions) and long-term targets such as net-zero overall greenhouse gas (GHG) emissions by 2050 (Scope 1, 2 and 3 emissions). These internal targets are supported by a long-term transition roadmap articulating action plans and appropriate metrics to monitor performance of targets over the short- and long-term time horizons. The example below provides some practical steps when setting targets for a financial institution. Process of setting climate-related targets 1 For example, the Paris Agreement and the 12th Malaysia Plan. Set Agenda on Climate Change • Establishment of a committee consisting of board members and CEO to set the agenda for climate risk • Agenda incorporates strategy, roadmap and monitoring of action plans such that there is alignment and integration of ESG and climate change strategies within the financial institution • Make climate change a strategic priority and integrate climate-related risks into decision making and risk management Assessment on Impact of Climate Change to Business Operations Preface to establishing targets • Better understand climate-related risks and opportunities when setting internal targets Formulate business strategy • Identify key strategic areas on climate change, with linkages to governance and integration across and within business lines Additional analysis • Industry benchmarking • Gap analysis • Understand key climate-related issues faced by stakeholders and assess impact to the business Metrics • Develop climate-related metrics on emissions and risk metrics on physical and transition risks for continuous monitoring to ensure overall climate targets are achieved Targets • Use appropriate climate and risk metrics to set targets for the financial institution and specific sectors, covering different time horizons Short- and Medium- term targets • Interim targets and action plans to monitor performance and targets over a few years Long-term targets • Climate risk-related targets are aligned to achieve net-zero GHG emission by 2050 Key Performance Indicators • Targets embedded into performance scorecard • Targets translated into risk appetite using appropriate risk metrics Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 3 of 11 Issued on: 30 November 2022 Source: Adapted from selected financial institutions Case study 2: The due diligence process of a financial institution which incorporates climate-related risk assessment during onboarding and annual review of material exposures With the increasing threats of climate change and the broader environmental degradation, the financial institution addresses these issues by incorporating environmental, social and governance (ESG) standards into its day-to-day business operations. The financial institution adopts an inclusionary approach to support its borrowers towards implementing higher ESG standards and practices through customer engagement initiatives and nurturing programs. The financial institution has in place an ESG Policy & Assessment Framework supported by a rating system to rate and assess borrowers in the Business and Corporate Banking units during the initial credit application or annual credit review process. Borrowers evaluated are subjected to an initial screening as outlined below– i. screening of potential borrowers against a general “exclusion list” which includes activities that are illegal, ethically unacceptable, or have an adverse impact on the environment “E”; ii. ESG rating of existing and potential borrowers to determine the inherent risk (business activities fall within higher “E” risk sectors/sub-sectors); and iii. determining the final risk rating (after considering risk mitigation undertaken by borrower) and recommendations to borrower for orderly transition. In general, the financial institution would exclude potential new applicants with business activities listed in the “exclusion list” as it is not in line with its climate risk management strategy and risk appetite. When assessing on “E” under the ESG framework, borrowers that do not fall within the general exclusion list and existing borrowers will be rated by the “E” risk rating system to determine the inherent “E” risks. The list of higher risk sectors and sub-sectors would be identified through the financial institution’s internal “E” risk scoring system, which screens over 60 broad economic sectors and sub-sectors in Malaysia against several inherent “E” risks listed in the table below. Examples of parameters to assess different economic sectors/sub-sectors’ inherent “E” risks Toxic emissions GHG emissions Other air pollutants (e.g., soot and dust) Effluent monitoring & control Hazardous/ non-hazardous waste Loss of habitat/ deforestation Land contamination/ erosion High energy/ water usage Borrowers with high inherent risk ratings are further evaluated to ascertain if risk mitigating actions have been carried out to reduce the inherent risk. Additional verification is carried out to determine the adequacy of a borrower’s policies and practices on “E”, Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 4 of 11 Issued on: 30 November 2022 relevant certifications 2 and contribution to climate change mitigation and adaptation which serves as evidence and indicators for assigning a final customer-level “E” rating of either “High”, “Medium” or “Low”. Borrowers with a final rating of “High” ESG risk are encouraged to implement mitigation plans to address the key and residual “E” risks, in line with the financial institution’s inclusive approach to support customers in transitioning towards more sustainable practices. Source: Adapted from selected financial institutions 2 Examples of verification indicators and certifications are the Malaysian Sustainable Palm Oil (MSPO)/Roundtable on Sustainable Palm Oi (RSPO) (for the palm oil sector) and Programme for the Endorsement of Forest Certification (PEFC)/Forest Stewardship Council (FSC) (for the forestry sector). Other general certifications that the financial institution considers include, but are not limited to, the ISO14001 – Environmental management, ISO45001. Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 5 of 11 Issued on: 30 November 2022 Case study 3: Management of physical risk A. Management of physical risk by insurance and takaful operators (ITOs) In Malaysia, the primary concern of ITOs in relation to climate-related risks would be the concentration of their insured/covered risks to geographical areas that are prone to flooding. Due to climate change, the geographical location of these high flood risk areas may change over time and utilising reliable geographic risk tools to accurately identify high risk areas is crucial for managing climate-related risks. Several ITOs have in place tools to identify and monitor the concentration of portfolio in areas susceptible to climate-related risks and enable the ITOs to take prompt corrective actions to reduce any adverse financial impact arising from increased claims that have to be paid out. The following is an example of how an ITO identifies and manages its concentration to flood risk– Step 1: Identify geographical areas with higher climate-related risks by using geographic risk tools, which are scientifically developed and continuously updated to incorporate new data and information on sustainability as well as climate and environmental change. Step 2: Define the size and boundary of a geographical area with high climate-related risks and set limits/thresholds for maximum exposures that are permitted for each area. Step 3: Put in place mitigation plans and underwriting guidelines to manage or re-balance its portfolio in the event that certain limits/thresholds are breached. For example, to exclude certain coverages, increase deductibles, obtain reinsurance/retakaful cover or increase premium/contribution rates on the new risks. Step 4: Monitor real-time accumulation of all the risks located in geographical areas with high climate-related risks and execute mitigation plans once exposures are approaching the limits that have been set. B. Identification and measurement of physical risk by reinsurers Several reinsurers cover a number of perils and lines of business around the world. A reinsurer may measure and monitor material natural catastrophe exposures by country and by peril (known as “Scenarios”). The importance of the different scenarios varies depending on local hazard, insured values and reinsurer’s market share in the region. The reinsurer uses historical data and forward-looking assumptions as inputs into external or internally developed models to run specific scenarios (e.g., flood, typhoons and drought) to estimate the potential losses arising from claims to be paid out in geographical locations that it is exposed to. In the event that the expected losses of a specific scenario exceed a certain materiality threshold, the scenario will be identified as “Watchlist” and further analysis such as stochastic simulations will be conducted to determine the likelihood of experiencing losses at various levels. “Watchlist” scenarios that have high likelihood of occurrence would be monitored closely and appropriate measures would be put in place to mitigate the risk. Source: Adapted from selected financial institutions Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 6 of 11 Issued on: 30 November 2022 Case study 4: Management of transition risk Transition risk to Malaysian palm oil sector due to imposition of mandatory Malaysian Sustainable Palm Oil (MSPO) certification Sustainability certification schemes were introduced to the palm oil industry as a response to address the associated negative environmental3 and social impacts. As one of the largest palm oil producers in the world, the government has mandated industry players to be certified on the requirements of the Malaysian Sustainable Palm Oil (MSPO) certification. Organised smallholders, oil palm plantation and millers were required to be MSPO certified from 1 January 2020 while independent smallholders were required to attain the certification from 1 January 2021. Processing facilities and other palm oil downstream activities were required to comply with the voluntary certification of Supply Chain Certification Standard (SCCS) which has been incorporated into the 2022 MSPO revised standard. This certification aims to enhance the credibility of sustainable and responsible management in the palm oil sector. Event driven stress test to assess exposures The failure of the financial institution’s borrowers involved in the palm oil sector in meeting the mandatory MSPO certification would result in financial penalties and revocation or suspension of their operating licenses. Based on the event driven stress test on the financial institution’s risks, this will subsequently affect borrowers’ repayment capabilities leading to higher credit risk and increased impairment provisions incurred by the financial institution. The spill-over effect of transition risk may also lead to higher liquidity risk arising from reduction in repayments and increased drawdowns of deposits from this segment. Nurturing customers to encourage transition to MSPO certification To ensure an orderly transition and to minimise potential adverse financial impact, the financial institution collaborated with the relevant agencies such as the Malaysian Palm Oil Board (MPOB) and Malaysian Palm Oil Certification Council (MPOCC) to encourage and facilitate relevant borrowers to be MSPO certified in accordance with the compliance timeline. This included developing products and programs centred around sustainability to encourage adoption of best practices to enhance their marketability to sustainable focused buyers. The financial institution also allocated additional funds for financing to borrowers to facilitate the certification efforts. Source: Adapted from selected financial institutions 3 Which includes reduction of GHG, efficient use of energy and zero burning practices. Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 7 of 11 Issued on: 30 November 2022 Case study 5: Liquidity risk management arising from climate-related risks Background Climate change crisis has profound implications to the agriculture sector in the Malaysian economy. Floods caused by illegal deforestation, seasonal monsoons and La Nina, have worsened due to climate change and if not addressed, could severely impact the agriculture sector and economy. A financial institution with large exposures to the agriculture sector had accounted for climate-related risks in its liquidity stress testing. Scenario/Event driven stress testing The financial institution’s risk management department incorporates climate-related risks in its stress testing/scenario analysis to assess any potential adverse impact to the financial institution’s liquidity position. Important climate-related risk drivers such as physical risk and related macroeconomic factors have been considered when generating the stress scenarios that enabled the financial institution to quantify the liquidity risk impact and establish a range of potential risk mitigation strategies. Liquidity impact to the financial institution i. Reduction of cash inflows As a financial institution involved in financing the agricultural sector in Malaysia, the financial institution could face financial losses arising from constant and massive flooding due to the inability of its customers to meet their financing repayments. This would significantly impact the financial institution’s future cash inflows. ii. Impact to cash outflows The cash outflows of a financial institution may increase due to a surge of deposit withdrawals as affected individuals, farmers and agricultural companies require additional financial resources for repairs arising from damage to crops and assets. Risk management process in managing liquidity risk The financial institution has designed a contingent funding plan (CFP) to manage the potential liquidity risk arising from the impact of the financial institution’s cash inflow and outflow to ensure adequate sources of liquidity are in place to meet the funding requirement under various liquidity stress events. In the event where there are sudden large deposit withdrawals triggering CFP, the financial institution may utilise the various available contingency funding options that are available to address its liquidity needs. Source: Adapted from selected financial institutions Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 8 of 11 Issued on: 30 November 2022 Case study 6: End-to-end risk management process of internal operations and outsourced functions A. Managing internal environmental impact Risks arising from climate change may materialise through the operation of the financial institution’s infrastructure, business and premises which may be exposed to physical risk via climate-related events and/or as a result of the financial institution’s own activities that contribute towards climate change. To manage this, the financial institution has put in place risk management processes to integrate climate-related risks into its overall risk management framework. Risk Identification & Assessment Identifying potential sources of climate-related risks to internal operations, which include– • vulnerability of the financial institution’s physical assets to climate related events • business disruption due to climate events causing office buildings to be inaccessible • transition risk to a low-carbon economy due to policy, regulatory and legal changes, technology shifts and changing market demand Conducting assessment to ascertain impact of climate change from the following perspectives– • inside-out: assessing the environmental impacts from business operations and service delivery • outside-in: assessing the vulnerability of the business operations, assets and infrastructure to the impact of climate-change events Risk Measurement & Scenario Analysis • Processes are in place to calculate Scope 1 and 2 emissions for its operations • Methodologies including emissions calculations, metrics and scenarios will gradually be developed over time, including the computation of Scope 3 emissions in the future Risk Controls & Mitigation • Incorporating climate-related criteria to facilitate decision making when determining a suitable location for new physical building, relocating from a flood-prone location, implementing adaptation measures in areas prone to flooding and putting in place initiatives to reduce energy consumption Risk Monitoring & Reporting • Mitigation controls that have been put in place are monitored against targets for effectiveness and reported to the relevant committees for oversight Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 9 of 11 Issued on: 30 November 2022 B. Managing the supply chain The financial institution’s commitment to sustainability efforts extends beyond its internal operations and also requires its entire business value chain to be environmentally resilient. The financial institution has plans in place to work with its suppliers by building capabilities through strong partnerships. Risk Identification & Assessment Identifying potential sources of climate-related risks, which include– • susceptibility of the third-party vendor’s location to climate related events • business and supply chain disruption due to climate events that could impact its SLA with bank • legal risks arising from the vendor’s activities including its ESG practices Conducting risk assessment on the potential impact of climate change and the likelihood that it will recur via the physical, transition and liability risk, which include – • the third-party vendor’s time-bound action plan to improve ESG practices • the ranking or risk rating of the third-party vendors (in particular for climate-related risk factors), on top of their performance and operational resiliency Risk Measurement & Scenario Analysis Risk measurement for third-party vendors include– • carbon emissions from third-party vendors with regards to procurement of goods and services • compliance with applicable regulations related to the protection of the environment • performance of the third-party vendor against the SLA with the bank Other metrics and measures are being developed (including scenario analysis and stress testing) and will evolve over time as more data becomes available. Risk Controls & Mitigation All potential third-party vendors will be subjected to the financial institution’s Supplier Code of Conduct. The Code sets the minimum standards for environmental impacts including establishing sustainable operational practices, which includes– • establishing a sustainability policy appropriate to the size, nature and complexity of the operations and addresses the preventing measures on the impact of the operations • complying with all applicable regulations related to the protection of the environment, particularly climate-related risks • demonstrating commitment to transition to low carbon as well as having an effective internal control environmental management program and staff are adequately trained for managing organizational environmental performances Risk Monitoring & Reporting • The exposure of climate-related risks forms the third-party vendor’s profile and are reported to the appropriate Committees for effective oversight Source: Adapted from selected financial institutions Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 10 of 11 Issued on: 30 November 2022 PART C REFERENCE RESOURCES BCBS • Climate-related Financial Risks: A Survey on Current Initiatives, 2020 • Climate-related Risk Drivers and Their Transmission Channels, 2021 • Climate-related Financial Risks – Measurement Methodologies, 2021 • Principles for the Effective Management and Supervision of Climate-related Financial Risks, 2022 Bursa Malaysia • Sustainability Reporting Guide (3rd edition), 2022 Climate Financial Risk Forum (CFRF) • CFRF Guide Disclosures Chapter, 2020 • CFRF Guide Scenario Analysis Chapter, 2020 • CFRF Guide Risk Management Chapter, 2020 • CFRF Guide Risk Appetite Statements, 2021 • CFRF Guide Risk Management Use Cases, 2021 • CFRF Guide Climate Data and Metrics, 2021 IAIS • Application Paper on the Supervision of Climate-related Risks in the Insurance Sector, 2021 International Sustainability Standards Board (ISSB) • Exposure Draft on IFRS S1 General Requirements for Disclosure of Sustainability- related Financial Information, 2022 • Exposure Draft on IFRS S2 Climate-related Disclosures, 2022 IPCC • Sixth Assessment Report Climate Change 2021: The Physical Science Basis, 2021 • Sixth Assessment Report Climate Change 2022: Impacts, Adaptation and Vulnerability, 2022 Joint Committee on Climate Change (JC3) • TCFD Application Guide for Malaysian Financial Institutions, 2022 NGFS • Overview of Environmental Risk Analysis by Financial Institutions, 2020 • Guide to Climate Scenario Analysis for Central Banks and Supervisors, 2020 • NGFS Climate Scenarios for Central Banks and Supervisors, 2020 • NGFS Climate Scenarios for Central Banks and Supervisors, 2020 • Status Report on Financial Institutions’ Practices with Respect to Risk Differential between Green, Non-green and Brown Financial Assets and a Potential Risk Differential, 2020 • Guide for Supervisors: Integrating Climate-related and Environmental Risks into Prudential Supervision, 2020 • Climate-related Litigation: Raising Awareness About a Growing Source of Risk, 2021 • Progress Report on the Guide for Supervisors, 2021 Climate Risk Management and Scenario Analysis – Supplemental Guidance Page 11 of 11 Issued on: 30 November 2022 • Scenarios in Action: A Progress Report on Global Supervisory and Central Bank Climate Scenario Exercises, 2021 • Progress Report on the Guide for Supervisors, 2021 • Progress Report on Bridging Data Gaps, 2022 Partnership for Carbon Accounting Financials (PCAF) • Global GHG Accounting and Reporting Standard for the Financial Industry, 2020 TCFD • Recommendations of the TCFD, 2017 • TCFD Status Report, 2021 • Guidance on Metrics, Targets and Transition Plans, 2021 • Annex: Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, 2021 • TCFD Overview Booklet, 2021 UNEP-FI • Exploring Metrics to Measure the Climate Progress of Banks, 2018 • Navigating a New Climate: Assessing Credit Risk and Opportunity in a Changing Climate, 2018 • TCFD Report Playbook, 2020 • Charting a New Climate: TCFD Banking Programme Report, 2020 • Guidelines for Climate Target Setting for Banks, 2021 • The Climate Risk Landscape: Mapping Climate-related Financial Risk Assessment Methodologies, 2021 Science Based Targets Initiative • Financial Sector Science-based Targets Guidance, 2022 PART A OVERVIEW PART B CASE STUDIES Case study 1: An illustrative example of setting climate-related targets by a financial institution Case study 2: The due diligence process of a financial institution which incorporates climate-related risk assessment during onboarding and annual review of material exposures Case study 3: Management of physical risk Case study 4: Management of transition risk Case study 5: Liquidity risk management arising from climate-related risks Case study 6: End-to-end risk management process of internal operations and outsourced functions PART C REFERENCE RESOURCES Climate Risk Management and Scenario Analysis - Response to feedback 1 Response to feedback received Climate Risk Management and Scenario Analysis Introduction The Bank issued today the Climate Risk Management and Scenario Analysis policy document for financial institutions. This policy document incorporated feedback received during the consultation period to refine the proposals from the exposure draft issued on 27 December 2021, including the 14 principles proposed. The Bank received written responses from 99 respondents during the consultation period. Respondents were broadly supportive of the principles and requirements, as well as the proposed phased implementation approach which provides financial institutions sufficient time to build capacity and capability to effectively manage climate-related risks. This document comprises key feedback received during the consultation period and the Bank’s responses. Other comments and suggestions for clarification, where relevant, have been incorporated in the policy document. Bank Negara Malaysia 30 November 2022 2 1. Implementation of the policy document Feedback received Financial institutions have been taking measures to integrate considerations of climate-related risks into risk management policies and frameworks, as well as their business operations, by establishing an appropriate governance structure, aligning business strategies, and ramping up internal capacity to manage climate-related risks. However, some respondents cited challenges that impede effective management of climate-related risks, notably: a. Lack of readily available data that is sufficiently granular, reliable and comparable; b. Limited internal and external expertise; and c. Lack of robust methodologies to support the identification and measurement of climate-related risks. In this regard, some respondents have suggested a longer transitional period to comply with the requirements in the policy document. The Bank’s response 1.1 The Bank will maintain the effective date as stated in paragraph 4.1 of the policy document. However, the Bank will take an iterative implementation approach and work with financial institutions to ensure the end outcomes of the requirements are achieved progressively. This approach is also aligned with the approach taken by domestic and global standard setters such as the Basel Committee on Banking Supervision’s (BCBS) Principles for the effective management and supervision of climate-related financial risks, International Sustainability Standards Board’s (ISSB) exposure draft on Climate-related Disclosures and Bursa Malaysia’s Sustainability Reporting Guide for listed entities. 1.2 Financial institutions are expected to implement the principles and requirements of the policy document in a proportionate manner, taking into consideration the materiality of their climate-related risks, and commensurate with the size, nature and complexity of their business operations. As a start, financial institutions should incorporate climate-related risk considerations into their risk management framework and prioritise their efforts to manage exposures that could materially impact them1, while continuously building capacity to manage exposures that are less material or have less mature methodologies in place. 1 From a financial, operational and reputational standpoint. 3 1.3 Ongoing supervisory engagements and reviews will be conducted to ensure financial institutions make reasonable and meaningful progress to enhance their resilience against climate-related risks. These engagements and reviews are intended to provide greater clarity on the Bank’s expectations and understand the financial institutions’ plans to comply with these expectations. The Bank does not intend to pursue punitive actions as first resort against financial institutions that are still developing robust frameworks and methodologies to manage climate-related risks by the effective date. Nevertheless, the Bank may consider a broader use of its supervisory toolkit as appropriate, including the use of capital add-ons, if the Bank observes inadequate progress by financial institutions to strengthen their resilience against climate risk in a timely manner. 1.4 Financial institutions are expected to start enhancing internal capabilities to manage climate-related risks, by leveraging the numerous initiatives and resources available domestically and internationally. These include: a. Bridging data gaps: Internationally, the ISSB will issue the baseline standards on sustainability and climate-related disclosures, which will help improve consistency and comparability of data moving forward. At the domestic front, the Bank together with the Joint Committee on Climate Change (JC3) have taken various initiatives2 to improve the availability and consistency of data. In addition, the Bank has issued the 2024 Climate Risk Stress Testing (CRST) discussion paper and will develop a subsequent methodology paper to include relevant scenario parameters and potential data sources. Financial institutions may also leverage the Climate Change and Principles-based Taxonomy (CCPT) classification and reporting to support assessments on climate-related risks. b. Improving technical capacities on climate-related risks: Capacity building programmes developed by the JC33 and other training providers are widely available to support financial institutions’ training and upskilling of staff. Certified programmes on climate change and climate risk offered by a range of academic and training institutions are also accessible and can increase financial institutions’ talent capacity. c. Guidance on methodologies to manage climate-related risks: Financial institutions may utilise a wide range of publicly available resources4 to inform the development of internal climate-related risk management methodologies. Financial institutions may also engage external providers to develop 2 These include (i) a data catalogue to guide financial institutions to relevant data sources, (ii) a disclosure guide for Malaysian businesses to assist financial institutions’ assessments, and (iii) a common due diligence questionnaire to provide a consistent baseline for data gathering in deriving CCPT classification. 3 JC3 Upskilling Sustainability Training Series (Link to the webpage: JC3 (Upskilling Sustainability Training) Series \| IBFIM Online) 4 A list of resources (not exhaustive), including case studies on practices, are available in the “Climate Risk Management and Scenario Analysis: Supplemental Guidance” document. https://ibfimonline.com/jc3upskillingsustainabilityseries/ https://ibfimonline.com/jc3upskillingsustainabilityseries/ 4 methodologies that are suited for the entity’s management of climate-related risks. 2. Appointment of Chief Sustainability Officer Feedback received Respondents sought clarification on whether the requirement to appoint a Chief Sustainability Officer (CSO) is mandatory for all financial institutions, or if it would depend on the size, nature and complexity of the financial institution’s business model. There were also concerns on the lack of suitable talent for such a role. The Bank’s response 2.1 The appointment of a CSO is not a mandatory requirement. However, financial institutions are required to designate an individual within its senior management to oversee the effective management of climate-related risks. This may entail designating an existing senior management officer to undertake this role, such as the Chief Risk Officer, or creating a new role such as the CSO. The arrangements adopted by financial institutions should be proportionate to the size, nature and complexity of their business model. 2.2 The Bank recognises that managing climate-related risks is relatively new, and therefore financial institutions face challenges in hiring individuals equipped with the appropriate knowledge and skillsets. In this regard, senior management officers with roles and responsibilities on climate-related risks may gradually build their knowledge and skills, including through participating in capacity building programmes highlighted in paragraph 1.4(b) of this document. 3. Challenges to quantify climate-related risks and opportunities to support development of business strategies and setting risk appetite Feedback received Some respondents highlighted challenges to integrate the quantification of potential impact on climate-related risk and opportunities into business strategies without reliable and comparable data in place. Respondents also highlighted that while financial institutions are using both qualitative and quantitative approaches in embedding climate-related risks into the risk appetite framework, it is more challenging to implement the quantitative approach at this juncture due to limited resources and reliable data. 5 The Bank’s response 3.1 Recognising the complexities and the current state of enabling infrastructures, financial institutions may take a phased approach to develop the business strategy and risk appetite framework, starting with embedding qualitative factors while developing capabilities for more robust quantification of risks and opportunities. 3.2 Financial institutions may prioritise material or high-risk sectors and/or exposures by developing sector-specific strategies where more data and technical expertise are available. For example, financial institutions may utilise sectoral-specific strategies to help posture and guide their stance on business strategy and risk appetite in the interim while developing a more holistic and robust business strategy and risk appetite framework over time. 3.3 More importantly, financial institutions must show reasonable and meaningful progress in developing a comprehensive strategy and risk appetite framework that is evidence-based and supported by quantitative metrics and targets to enhance the financial institution’s resilience against climate-related risks over time. 4. Quantification of climate-related risks impact on capital Feedback received Respondents raised concerns surrounding the quantification of the impact of climate-related risk on capital as part of the internal capital adequacy assessment process (ICAAP) particularly due to the lack of widely accepted tools and methodologies to quantify climate-related risks at this juncture. The Bank’s response 4.1 The Bank envisages climate-related risks will be incorporated into financial institutions’ ICAAP iteratively and progressively. As a start, financial institutions should identify their material climate-related risks that need to be incorporated into their risk management framework and ultimately into ICAAP. Financial institutions may adopt qualitative approaches in the absence of widely accepted risk measurement tools and methodologies or where the financial institution is still building capacity in implementing quantitative approaches. Nonetheless, financial institutions should start building risk analysis capabilities by identifying relevant climate-related risk drivers that may materially impair their financial conditions, developing key risk indicators and metrics to quantify exposures to these risks, and assessing the interactions between climate-related risks and traditional risk types. Results from the scenario analysis, a key tool to manage 6 climate-related risks, could also form part of the input to the financial institution’s ICAAP. 5. Time horizon for insurers and takaful operators Feedback received Some respondents also raised that the requirements for risk management practices to cover different time horizons should be distinguished between life insurers/family takaful operators and general insurers/takaful operators. Particularly for general insurers/takaful operators, the insurance/takaful underwriting risk is inherently short- term in nature i.e. the insured/covered risk is generally only for one year as per policy/certificate terms, where general insurers/takaful operators may revise the insurance premium/takaful contribution during the next policy/certificate renewal to reflect changes in underwriting risk. The Bank’s response 5.1 The time horizon used to develop an appropriate risk management framework for climate related risk should be aligned to the horizon of risk emanating from the business underwritten by the insurer. For general insurers/takaful operators, they may consider using shorter time horizons for their underwriting and reserving risks to align with the shorter-term nature of their business. However, for any long-term business underwritten, as well as other types of risks such as credit, market, liquidity and operational risks, general insurers/takaful operators should consider longer time horizons, e.g. beyond 10 years and reaching at least 30 years to more accurately reflect the impacts of climate-related risks over time. 6. Challenging to run climate-related scenario analysis Feedback received Respondents generally agreed that the NGFS climate scenarios are a good starting point to guide financial institutions in conducting scenario analysis. However, respondents also highlighted that there are challenges to running scenario analysis and making risk assessments at this juncture due to operational challenges, significant data gaps (e.g. granularity and coverage of macroeconomic, financial and climate-related data), adapting the NGFS’ scenarios to the local context, and limited resources (e.g. manpower, expertise, technology, time). These challenges give rise to concerns over the quality of scenario analysis and risk assessments, and financial institutions’ compliance with the requirements in the policy document. 7 The Bank’s response General 6.1 Given the abovementioned challenges, the Bank will continue to call for industry collaboration and leverage the JC3 Sub-committee 1 on Risk Management and JC3 Sub-committee 5 on Bridging Data Gaps to address these concerns. Besides that, financial institutions are encouraged to explore and engage with external service providers and experts to scale up their internal capacity and capability. Additional information on conducting climate risk scenario analysis and application for the purposes of ICAAP 6.2 In conducting climate risk scenario analysis, financial institutions must consider short-term, medium-term, and long-term horizons in drawing up appropriate scenarios. Specifically, short-term climate risk scenario analysis is useful to complement business risks assessments within an ordinary business planning horizon. In this regard, financial institutions shall incorporate the impact of climate-related risks arising from such analysis in their regular stress testing exercise specified in the Stress Testing policy document for insurers and takaful operators as well as banking institutions issued on 30 June 2016 and 15 June 2017 respectively. 6.3 Given that the quantitative techniques to conduct climate risk scenario analysis and stress testing are still nascent, and in line with paragraph 4.1 of this document, financial institutions may at this juncture employ reasonable qualitative methodologies in their climate risk scenario analysis and stress testing in the ICAAP. Nevertheless, financial institutions should improve their technical and modelling capabilities over time and be able to demonstrate how they are progressively integrating more quantifiable and reliable methods to measure material climate-related risks in their ICAAP stress testing. 6.4 For the medium to long-term climate-related risk assessments, financial institutions shall at the minimum conduct periodic climate-related scenario analysis to identify and address longer-term vulnerabilities and build resilience. The frequency of such scenario analysis should be driven by factors, such as changes in the financial institution’s climate strategy, new or updated regulations to limit greenhouse gas (GHG) emissions, emergence of new or efficient carbon capture technology, material changes to economic and climate risk outlook, and realisation of climate risk events that significantly affect the operating environment of the financial institution. 8 7. Reliance on group or consolidated level climate-related disclosure Feedback received Respondents sought clarification on whether financial institutions could rely on or reference their group and/or consolidated level climate-related disclosures to fulfil the disclosure requirements set out under paragraph 13 of the policy document. Concerns expressed were mainly on: a. lack of data; b. onerous to require each entity under the same group to produce separate disclosures as all entities may leverage group policies at the consolidated basis; and c. group-level disclosures may yield better insights for global institutions with diversified business across jurisdictions. The Bank’s response 7.1 The objectives of the disclosure requirement are to ensure financial institutions produce reliable, meaningful and comparable climate-related disclosures, to support informed decision making by stakeholders and reinforce the effective management of material climate-related risks in the financial sector. Therefore, the requirement on disclosure of quantitative information is applicable to financial institutions at the entity and at the consolidated level. 7.2 However, financial institutions may consider consolidated disclosures of qualitative information for entities under the same group if such disclosures provide more meaningful insights on the group’s strategies and risk management frameworks on building climate resilience. 1. Implementation of the policy document 2. Appointment of Chief Sustainability Officer 3. Challenges to quantify climate-related risks and opportunities to support development of business strategies and setting risk appetite 4. Quantification of climate-related risks impact on capital 5. Time horizon for insurers and takaful operators 6. Challenging to run climate-related scenario analysis 7. Reliance on group or consolidated level climate-related disclosure	null
02 Dis 2022	Dokumen Dasar mengenai Pelaporan Kewangan oleh Institusi Kewangan Pembangunan	https://www.bnm.gov.my/-/policy-dokumen-dasar-mengenai-pelaporan-kewangan-oleh-institusi-kewangan-pembangunan	https://www.bnm.gov.my/documents/20124/963937/PD-Financial-Reporting-DFI.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/policy-dokumen-dasar-mengenai-pelaporan-kewangan-oleh-institusi-kewangan-pembangunan&languageId=ms_MY	Reading: Dokumen Dasar mengenai Pelaporan Kewangan oleh Institusi Kewangan Pembangunan Share: Dokumen Dasar mengenai Pelaporan Kewangan oleh Institusi Kewangan Pembangunan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1230 pada Jumaat, 2 Disember 2022 2 Dis 2022 Bank Negara Malaysia telah menerbitkan Dokumen Dasar Pelaporan Kewangan untuk Institusi Kewangan Pembangunan yang bertujuan untuk menjelaskan dan menetapkan jangkaan minimum bagi pemakaian Standard Pelaporan Kewangan Malaysia (MFRS) kepada institusi kewangan pembangunan (DFI) yang ditetapkan. Dokumen Dasar ini juga bertujuan untuk memastikan pendedahan yang mencukupi oleh DFI dalam penyata kewangan untuk meningkatkan kebolehbandingan bagi pengguna penyata kewangan, selain daripada memudahkan penilaian kedudukan kewangan dan pencapaian pembangunan atau mandat DFI. Lihat selanjutnya: Dokumen Dasar Pelaporan Kewangan untuk Institusi Kewangan Pembangunan Tarikh Penerbitan 2 Disember 2022 Bank Negara Malaysia 2 Disember 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Financial Reporting for Development Financial Institutions Financial Reporting for Development Financial Institutions 1 of 36 Issued on: 2 December 2022 BNM/RH/PD 035-6 Financial Reporting for Development Financial Institutions Applicable to prescribed development financial institutions Financial Reporting for Development Financial Institutions 2 of 36 Table of Content PART A OVERVIEW ................................................................................................. 3 1. Introduction ........................................................................................................... 3 2. Applicability ........................................................................................................... 4 3. Legal provisions .................................................................................................... 4 4. Effective date ........................................................................................................ 4 5. Level of application ............................................................................................... 4 6. Interpretation......................................................................................................... 5 7. Related legal instruments and policy documents .................................................. 5 8. Policy documents superseded .............................................................................. 5 PART B REGULATORY REQUIREMENTS ............................................................. 6 9. General requirements ........................................................................................... 6 10. Specific requirements on the application of the MFRS .......................................... 8 11. Minimum disclosure requirements for DFIs carrying on conventional business with Islamic window operations .................................................................................. 10 12. Minimum disclosure requirements for DFIs carrying on its entire business or activity in accordance with Shariah ..................................................................... 13 Part C SPECIFIC DISCLOSURE REQUIREMENTS ............................................ 18 13. Specific Disclosure on Developmental or Mandate Achievements ...................... 18 14. Government Funds ............................................................................................. 19 15. Future Outlook on Strategic Sectors ................................................................... 19 PART D REGULATORY PROCESS AND SUBMISSION REQUIREMENTS ......... 20 16. Declaration and payment of dividends ................................................................ 20 17. Annual financial statements ................................................................................ 21 18. Interim financial report ........................................................................................ 22 PART E PUBLICATION REQUIREMENTS ............................................................ 23 19. Annual Financial Statements .............................................................................. 23 20. Interim financial reports ....................................................................................... 24 PART F TRANSITIONAL ARRANGEMENT .......................................................... 25 Appendices ............................................................................................................... 26 Appendix 1 Illustration of presentation of investment account ................................. 26 Appendix 2 Guidance on accounting policy of Shariah contracts ............................ 28 Appendix 3 Guidance on classification of Shariah contracts .................................... 29 Appendix 4 Illustration of disclosure requirements by Shariah contracts ................ 30 Appendix 5 Illustration of specific disclosure on developmental performance ....... 36 Financial Reporting for Development Financial Institutions 3 of 36 Issued on: 2 December 2022 PART A OVERVIEW 1. Introduction 1.1 The Malaysian Financial Reporting Standards (MFRS) which serve as the basis for financial reporting in Malaysia have been fully converged with the International Financial Reporting Standards (IFRS) from 1 January 2012. On-going improvements of these standards have contributed to a greater alignment between financial reporting and prudential frameworks. Notwithstanding these positive developments, the increasingly more principle- based financial reporting standards and the substantial degree of judgment required under the financial reporting standards can continue to result in divergent outcomes between the objectives of financial reporting and prudential regulation, which is primarily concerned with promoting financial stability. 1.2 Recognising this potential dichotomy, a development financial institution is required under the Development Financial Institutions Act 2002 (DFIA) to prepare its financial statements in accordance with the MFRS, subject to any standards as may be specified by the Bank to reflect specific modifications or exceptions to the MFRS. The Bank envisages that such modification or exceptions will only become necessary in circumstances where alternative prudential measures would not be adequate to promote the financial resilience of the development financial institution or address threats to financial stability. Where such modifications or exceptions are specified by the Bank, this must be accompanied by a disclosure of that fact by the development financial institution. Policy objective 1.3 This policy document clarifies and sets minimum expectations for the application of the MFRS to a development financial institution. It also aims to ensure adequate disclosures by a development financial institution in the financial statements to improve comparability for users of financial statements and better facilitate the assessment of a development financial institution’s financial position, performance and Shariah compliance. Scope of policy 1.4 This policy document sets out: (a) the specific requirements on the application of the MFRS; (b) information to be disclosed in the financial statements including those arising from the Shariah contracts applied in Islamic banking transactions; (c) application requirements for approval of a dividend payment; and (d) requirements on submission and publication of the financial statements. Financial Reporting for Development Financial Institutions 4 of 36 Issued on: 2 December 2022 2. Applicability 2.1 This policy document is applicable to all development financial institutions (DFI) prescribed under the DFIA. 2.2 A DFI shall make a one-time election in 2020 whether or not to apply paragraph 10.12 and once an election to apply is made, the requirements under paragraphs 10.12 and 10.13 shall apply for two financial years beginning on or after 1 January 2020. 3. Legal provisions 3.1 The requirements in this policy document is issued pursuant to sections 2(2), 36, 73, 74, 75, 76, 78 and 116 of the DFIA. 3.2 The guidance in this policy document is issued pursuant to section 126 of the DFIA. 4. Effective date 4.1 This policy document comes into effect on 2 December 2022. 4.2 The requirements under paragraphs 10.12 and 10.13 shall apply for two financial years beginning on or after 1 January 2020 and in respect of loans/financing for which the contractual cash flows are modified, including payments deferred under moratoriums provided by DFIs during these two financial years. 5. Level of application 5.1 A development financial institution is required to comply with the requirements in this policy document in the preparation and publication of its separate financial statements and consolidated financial statements. Financial Reporting for Development Financial Institutions 5 of 36 Issued on: 2 December 2022 6. Interpretation 6.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the DFIA unless otherwise defined in this policy document. 6.2 For the purpose of this policy document: “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement actions; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “board” means the board of directors of the DFI; “separate financial statements” and “consolidated financial statements” shall have the same meaning as set out in MFRS 127 Separate Financial Statements and MFRS 10 Consolidated Financial Statements. 7. Related legal instruments and policy documents 7.1 This policy document must be read together with other relevant legal instruments, policy documents, codes or circulars that have been issued by the Bank, in particular– (a) Credit Risk issued on 27 September 2019; (b) Capital Framework for Development Financial Institutions issued on 22 February 2008; (c) Reference Rate Framework issued on 11 August 2021; and (d) Notification on Extension of the Accounting Treatment For Modification Losses for Prescribed Development Financial Institutions for the Financial Year beginning on or after 1 January 2022 issued on 17 December 2021. 8. Policy documents superseded 8.1 This policy document supersedes the Guidelines on Financial Reporting for Development Financial Institutions issued on 28 July 2020. Financial Reporting for Development Financial Institutions 6 of 36 Issued on: 2 December 2022 PART B REGULATORY REQUIREMENTS 9. General requirements S 9.1 Pursuant to section 75(2) of the DFIA, a DFI shall ensure that it prepares its financial statements in accordance with the MFRS1 subject to the requirements specified in paragraph 10 and shall disclose a statement to that effect in the financial statements. S 9.2 The board is responsible for ensuring that the financial statements are drawn up so as to give a true and fair view of the state of affairs and of the results of the business of the DFI. This is consistent with the fiduciary and statutory duties placed on the board as persons responsible for managing the affairs of the DFI. Hence, the board shall be satisfied that a sound financial reporting structure is in place to ensure the integrity and credibility of the financial statements. S 9.3 For financial instruments that are measured at fair value, a DFI shall ensure that sound risk management and control process2 around their measurement3 are in place. S 9.4 A DFI shall ensure that sound methodologies for assessing credit risk and measuring the level of loss allowance are in place4. The methodologies employed must incorporate sufficient level of prudence and that the aggregate amount of loss allowance must be adequate to absorb the inherent losses in the credit portfolio. G 9.5 The DFI should take into account the differences between Islamic banking transactions and conventional banking transactions which may arise from the application of the Shariah contracts that involve, for example, trade-related transactions, partnership-related transactions and profit and loss sharing transactions. A DFI should therefore consider both the Shariah and the economic effects of such transactions to determine the most appropriate accounting treatment. 1 In line with the MASB’s consultative approach, a DFI is to refer to MASB when there is divergence in practices regarding the accounting for a particular Shariah compliant transaction or event, or when there is doubt about the appropriate accounting treatment and the DFI believes it is important that a standard treatment be established. 2 A DFI may refer to the expectations set out in the Supervisory Guidance for Assessing Banks’ Financial Instrument Fair Value Practices, Basel Committee on Banking Supervision, April 2009 and Supervisory Guidance on the Use of the Fair Value Option for Financial Instruments by Banks, Basel Committee on Banking Supervision, June 2006. 3 Refer to MFRS 13 Fair Value Measurement. 4 A DFI is encouraged to adopt the principles and guidance set out in the Guidance on Credit Risk and Accounting for Expected Losses, Basel Committee on Banking Supervision, December 2015. Financial Reporting for Development Financial Institutions 7 of 36 Issued on: 2 December 2022 S 9.6 A DFI shall comply with the resolutions of the Shariah Advisory Council (SAC)5 of Bank Negara Malaysia on the applicability of the following accounting principles adopted in the MFRS as being consistent with the broader view of Shariah principles: (a) accrual basis, where the effect of a transaction and other events is recognised when it occurs (and not as cash or its equivalent is received or paid) and is recorded in the accounting records and reported in the financial statements of the periods to which it relates; (b) “substance over form”, where the “form” and “substance” of the transaction must be consistent and shall not contradict one another. In the event of inconsistency between “substance” and “form”, the Shariah places greater importance on “substance” rather than “form”6; (c) probability, where the degree of uncertainty that the future economic benefits associated with the transaction will flow to or from the DFI is considered in reference to the recognition criteria; and (d) time value of money, where a transaction involving time deferment, the asset (liability) is carried at the present discounted value of the future net cash inflow (outflow) that the transaction is expected to generate in the normal course of business. The application of time value of money is permissible only for exchange contracts that involve deferred payment and is strictly prohibited in loan transactions (qard). 5 Resolutions achieved at the 16th SAC meeting (11 November 2000), 57th SAC meeting (30 March 2006) and 71st SAC meeting (26-27 October 2007). 6 For example, in a sell and buyback agreement (SBBA), due to the substance of the transaction being financing rather than a sale transaction, the overall effect of all the contracts involved in the transaction will be recorded as financing under the MFRS. The financial assets sold under the SBBA will not be derecognised from the books of the seller. Financial Reporting for Development Financial Institutions 8 of 36 Issued on: 2 December 2022 10. Specific requirements on the application of the MFRS S 10.1 The financial statements and financial reports referred to under Part C and Part D of this policy document shall be presented in Malaysian ringgit (RM). S 10.2 For the purpose of disclosures of non-compliance with externally imposed capital requirements, the relevant capital adequacy requirements shall refer to the minimum capital adequacy ratios as set out in Capital Framework for Development Financial Institutions. S 10.3 A DFI that is a member institution of Perbadanan Insurans Deposit Malaysia (PIDM) shall also comply with the disclosure requirements specified by PIDM. S 10.4 A DFI shall not account for the investments in associates and joint ventures using the equity method described in MFRS 128 Investment in Associates and Joint Ventures in the preparation of its separate financial statements. S 10.5 A DFI shall classify a credit facility as credit-impaired– (a) where the principal or interest/profit or both7 of the credit facility is past due for more than 90 days or 3 months; (b) in the case of revolving credit facilities (e.g. overdraft facilities), where the outstanding amount has remained in excess of the approved limit for a period of more than 90 days or 3 months; and (c) where the amount is past due or the outstanding amount has been in excess of the approved limit for 90 days or 3 months or less, and the credit facility exhibits weaknesses in accordance with the DFI’s credit risk measurement framework; or (d) as soon as a default8 occurs where the principal and/or interest/profit repayments are scheduled on intervals of 3 months or longer. S S 10.6 Where a credit-impaired facility is rescheduled and restructured, such facility shall remain classified as credit-impaired. A DFI shall only reclassify this facility to non- credit-impaired when repayments based on the revised terms have been observed continuously for a period of at least 6 months or a later period as determined by the DFI’s policy on rescheduled and restructured facilities. 10.7 For the purpose of ascertaining the period in arrears in paragraph 10.5− (a) repayment on each of the instalment amount must be made in full. A partial repayment made on an instalment amount shall be deemed to be still in arrears; and (b) where a moratorium on credit facilities is granted in relation to a rescheduling and restructuring exercise referred to in Appendix 1 of the 7 In the case of credit card facilities, the amount past due refers to the minimum monthly repayments. 8 A default is defined as the inability to meet the contractual repayment terms. Financial Reporting for Development Financial Institutions 9 of 36 Issued on: 2 December 2022 policy document on Credit Risk9, the determination of period in arrears shall exclude the moratorium period granted. S 10.8 A DFI shall present the carrying amount and income and expenses related to Islamic deposit and investment account in separate line items in its separate financial statements and consolidated financial statements. S 10.9 Where the DFI has not recognised the investment account as a financial liability in its separate financial statements and consolidated financial statements, the DFI shall present the carrying amount of the off-balance sheet investment account separately from its commitments and contingencies (refer to Appendix 1 for illustration). S 10.10 Pursuant to paragraph 10.9, a DFI shall also disclose a total carrying amount of the Islamic banking assets in the statement of financial position of its separate financial statement. The total Islamic banking assets shall be calculated as the sum of total assets and financial assets which are funded by the investment account which are recognised off-balance sheet (refer to Appendix 1 for illustration). S 10.11 For placement of funds in an investment account with an Islamic banking institution, a DFI shall- (a) present the placement, as separate line item in the statement of financial position, as either “investment account placement” or “investment account placement – asset description”; and (b) disclose in the explanatory notes the nature of the underlying assets for the investment. G 10.12 Pursuant to section 75 of DFIA, DFIs are allowed to revise the original effective interest/profit rate in respect of any modifications made to the contractual cash flows of the loans/financing. S 10.13 For DFIs applying paragraph 10.12, DFIs shall disclose the application of the modified accounting treatment in the basis of preparation of the interim financial reports and audited annual financial statements. The disclosure shall also include the duration of the application and a comparison of the financial impact of applying the accounting treatment in accordance with the MFRS and the modified accounting treatment. 9 Policy document on Credit Risk issued on 27 September 2019, read together with the Bank’s letter to DFIs dated 6 June 2018 on Credit Risk – Best Practices for Development Financial Institutions (DFIs). Financial Reporting for Development Financial Institutions 10 of 36 Issued on: 2 December 2022 11. Minimum disclosure requirements for DFIs carrying on conventional business with Islamic window operations G 11.1 The requirements under the following paragraphs applies to a DFI carrying on conventional business or a DFI carrying on business or activities in accordance with Shariah in addition to its existing conventional business, and refer specifically to disclosures which form part of the financial statements and do not deal with other disclosures provided by a financial institution as part of the Annual Report (e.g. Director’s Report, Statement on Corporate Governance). S 11.2 A DFI shall make disclosures in the financial statements in accordance with the requirements of the MFRS, and include information specified under paragraph 10.13 if applicable and paragraphs 11.4 to 11.6 of this policy document. S 11.3 A DFI shall comply with the following key principles on disclosure of information: (a) information should be timely and up-to-date to ensure the relevance of the information being disclosed; (b) the scope and content of information disclosed and the level of disaggregation and detail should be sufficient to provide comprehensive, meaningful10 and relevant information to the users; (c) adequate disclosures should be provided on areas of uncertainty, in particular information on key estimates, and if sensitivity analysis is used, a discussion on the assumptions and the probabilities of the occurrence of various scenarios; and (d) disclosures should allow comparisons over time and among institutions11. S 11.4 The explanatory notes to be disclosed in the audited annual financial statements of a DFI shall include the following information, as applicable: Banking business-related information12 (a) deposits from customers with a breakdown by– (i) types of deposits13 (e.g. demand, savings, term); (ii) types of customers (e.g. government, business enterprises); and 10 For example, given the heterogeneity of users of financial reporting, background information on the wider economic environment a DFI operates in is often necessary to provide sufficient information to understand the context for specific disclosures. Information must also be useful to support decision- making by users. 11 For example, users shall be informed of the accounting policies employed in the preparation of the financial statements including any changes in those policies and the effects of such changes. This should enable users to identify differences between the accounting policies for like transactions and other events used by the same entity from period to period and by different entities. Compliance with MFRS, including the disclosure of the accounting policies used by the entity, helps to achieve this comparability. 12 Includes Shariah compliant transactions undertaken by a DFI and/or the Islamic banking subsidiary of a DFI. 13 For a DFI carrying on Islamic financial business, to also show separately at the Islamic banking business level, the breakdown by main Shariah contracts (e.g. wadi’ah and qard). Financial Reporting for Development Financial Institutions 11 of 36 Issued on: 2 December 2022 (iii) maturity structures of term deposits14 (e.g. < 6 months, 6-12 months, 1-3 years); (b) loans/financing and advances with a breakdown by– (i) measurement basis (e.g. amortised cost, fair value) • for fair value through profit or loss, show separately those designated as fair value upon initial recognition; (ii) types of loans/financing 15 (e.g. overdrafts, revolving credit, hire- purchase, housing loans/financing); (iii) geographical distribution; (iv) economic sector; (v) residual contractual maturity (e.g. up to 1 year, 1-5 years, > 5 years); and (vi) interest rate/profit rate sensitivity (e.g. fixed rate, variable rate); (c) capital16 with a breakdown by– (i) capital structure17; and (ii) capital adequacy showing separately Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio, and expressed as percentages to three decimal places; (d) liquidity risk information18 incorporating an analysis of assets and liabilities in the relevant maturity tenures based on remaining contractual maturities. A DFI may also provide the analysis of assets and liabilities in the relevant maturity tenures based on their behavioural profile; and (e) where relevant, operations of Islamic financial business with separate disclosures of a statement of financial position, a statement of comprehensive income and a statement of changes in equity; General information (f) a movement schedule of financial instruments classified as credit-impaired with a breakdown by class of financial instrument (e.g. retail loans/ financing, debt securities, loan commitments); (g) a movement schedule of loss allowance with a breakdown by class of financial instrument and showing separately the loss allowance− (i) measured at an amount equal to 12-month expected credit losses; 14 Including negotiable instruments of deposit 15 For a DFI carrying on Islamic financial business, to also show separately at the Islamic financial business level, the breakdown by main Shariah contracts (e.g. bai’, ijarah, istisna’, musharakah, qard). 16 For a DFI carrying on Islamic financial business, to also show separately the capital information at the Islamic financial business level. 17 The breakdown shall be consistent with the components of capital as set out in the Capital Framework for DFIs. 18 A DFI may refer to Principle 13 of the Principles for Sound Liquidity Risk Management and Supervision, Basel Committee on Banking Supervision, September 2008, for guidance on relevant quantitative and qualitative disclosures. Financial Reporting for Development Financial Institutions 12 of 36 Issued on: 2 December 2022 (ii) measured at an amount equal to lifetime expected credit losses for financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired; (iii) measured at an amount equal to lifetime expected credit losses for financial instruments that are credit-impaired (excluding those that are purchased or originated credit-impaired); and (iv) for financial instruments that are purchased or originated credit- impaired. (h) interest/profit income and expenses with a breakdown by categories of financial assets or liabilities. Interest/profit income recognised for credit- impaired exposures shall be disclosed separately; (i) non-interest/profit income and other operating expenses with a breakdown of major items of income/profit or expense; (j) CEO and directors’ remuneration with a breakdown of types of remuneration (e.g. salary, fees, bonus, benefits-in-kind, retirement benefits), disclosed separately for the CEO and each individual director, distinguishing between executive and non-executive directors; (k) reserves with a breakdown by type and purpose of reserves maintained. A movement schedule shall also be disclosed; (l) commitments and contingencies with a breakdown by types and amount distinguishing between contingent liabilities and commitments; and (m) intercompany charges with a breakdown by type of services received and geographical distribution. S 11.5 The explanatory notes to be disclosed in the interim financial report of a financial institution shall include the following information, as applicable– Banking business-related information (a) a movement schedule of loss allowance; (b) a movement schedule of financial instruments classified as credit-impaired; and (c) capital. The breakdown for the above explanatory notes shall be consistent with that specified for audited annual financial statements (refer to paragraph 11.4). In addition, a DFI shall disclose items that are material to the understanding of the interim financial report in accordance with MFRS 134 Interim Financial Reporting. S 11.6 For placement of funds in an investment account with an Islamic banking institution, a DFI shall− (a) present the placement, as a separate line item in the statement of financial position, as either “investment account placement” or “investment account placement – (asset description)”; and (b) disclose in the explanatory notes the nature of the underlying assets for the investment. Financial Reporting for Development Financial Institutions 13 of 36 Issued on: 2 December 2022 12. Minimum disclosure requirements for DFIs carrying on its entire business or activity in accordance with Shariah G 12.1 The requirements under the following paragraphs applies to a DFI carrying on its entire business or activities in accordance with Shariah, and refer specifically to disclosures which form part of the financial statements. Except for the minimum disclosure for Shariah Committee Report required under paragraph 12.4, this policy document does not deal with other disclosures provided by a DFI as part of the Annual Report (e.g. Director’s Report, and Statement on Corporate Governance). S 12.2 A DFI shall make disclosures in the financial statements in accordance with the requirements of the MFRS, and include information specified under paragraph 10.13 if applicable and paragraphs 12.4 to 12.24 and additional requirements that may be specified in other policy documents applicable to the DFI such as Guidelines on Late Payment Charges for Islamic Financial Institutions and policy document on Investment Account. S 12.3 A DFI shall comply with the following key principles on disclosure of information: (a) information should be timely and up-to-date to ensure the relevance of the information being disclosed; (b) the scope and content of information disclosed and the level of disaggregation and detail should be sufficient to provide comprehensive, meaningful19 and relevant information to the users; (c) adequate disclosures should be provided on areas of uncertainty, in particular information on key estimates, and if sensitivity analysis is used, a discussion on the assumptions and the probabilities of the occurrence of various scenarios; and (d) disclosures should allow comparisons over time and among institutions20. S 12.4 The explanatory notes to be disclosed in the audited annual financial statements of a DFI shall include the information specified in paragraphs 12.5 to 12.21 of this policy document. S 12.5 A DFI shall disclose the recognition and measurement accounting policies on the following: (a) each Shariah contract or main class of Shariah contract e.g. murabahah, 19 For example, given the heterogeneity of users of financial reporting, background information on the wider economic environment a DFI operates in is often necessary to provide sufficient information to understand the context for specific disclosures. Information must also be useful to support decision-making by users. 20 For example, users shall be informed of the accounting policies employed in the preparation of the financial statements including any changes in those policies and the effects of such changes. This should enable users to identify differences between the accounting policies for like transactions and other events used by the same entity from period to period and by different entities. Compliance with MFRS, including the disclosure of the accounting policies used by the entity, helps to achieve this comparability. Financial Reporting for Development Financial Institutions 14 of 36 Issued on: 2 December 2022 ijarah, mudarabah, istisna’- (i) a DFI has the option of listing the accounting policy for each Shariah contract or group the Shariah contracts based on mutual accounting policy according to the nature of the transactions e.g. murabahah financing, ijarah financing, murabahah deposit (refer to guidance in Appendix 3); and (ii) in respect of paragraph 9.1, where a DFI has departed from a particular MFRS requirement due to Shariah prohibition and to achieve a fair presentation, the following shall be disclosed: • title of the MFRS from which a DFI has departed; • nature and reason of the departure; and • financial effect of the departure on each item in the financial statements that would have been reported in complying with the MFRS requirement; (b) a DFI’s obligation on zakat, which may alternatively be disclosed under the Director’s Report. A DFI that does not pay zakat must also disclose a statement to that effect in the financial statements. A DFI that pays zakat shall disclose additional information regarding: (i) its responsibility towards zakat payment either on the business, and/or behalf of the shareholders; (ii) method applied in the determination of zakat base (e.g. growth method, working capital method); and (iii) the beneficiaries of zakat fund (e.g. Baitulmal, the poor, etc); and (c) in the case of a DFI, income derived from Shariah non-compliant activities which may alternatively be disclosed under the Director’s Report or Shariah Committee’s Report. A DFI shall disclose additional information21 regarding: (i) nature of Shariah non-compliant activities; (ii) amount of Shariah non-compliant income; (iii) number of non-Shariah compliant events occurring during the year; and (iv) rectification process and control measures to avoid recurrence of such Shariah non-compliant activities. S 12.6 A DFI shall disclose financing, receivables and other qard loans with a breakdown by: (a) measurement basis (e.g. amortised cost, fair value): (i) for fair value through profit or loss, show separately those designated as fair value upon initial recognition; (b) types of financing (e.g. overdrafts, revolving financing, hire purchase, mortgage financing) and further breakdown by main Shariah contracts in table format (refer to Illustration 1 in Appendix 4): 21 As specified under the Operational Risk Integrated Online Network (ORION) for guidance on treatment of Shariah non-compliant items. Financial Reporting for Development Financial Institutions 15 of 36 Issued on: 2 December 2022 (i) a DFI shall disclose the significant 22 subclasses of the main contracts; and (ii) the classification of main Shariah contracts and their subclasses shall at minimum follow the guidance set out in Appendix 4; (c) geographical distribution; (d) profit rate sensitivity (e.g. fixed rate, variable rate); (e) economic sector; and (f) residual contractual maturity (e.g. up to 1 year, 1-5 years, > 5 years). S 12.7 A DFI shall disclose a movement schedule of financial instruments classified as credit-impaired with a breakdown by class of financial instrument (e.g. retail loans/financing, debt securities, loan commitments). S 12.8 A DFI shall disclose a movement schedule of loss allowance with a breakdown by class of financial instrument and showing separately the loss allowance – (a) measured at an amount equal to 12-month expected credit loss; (b) measured at an amount equal to lifetime expected credit losses for financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired; (c) measured at an amount equal to lifetime expected credit losses for financial instruments that are credit-impaired (but that are not purchased or originated credit-impaired); and (d) for financial instruments that are purchased or originated credit-impaired. S 12.9 A DFI shall disclose a movement schedule of the qard (loan) or financing which includes opening and closing balances, sources and uses of the fund (refer to Illustration 2 in Appendix 4). S 12.10 A DFI shall disclose for transactions that reflect acquisition or transfer of ownership prior to its subsequent sale, the carrying amount held for the purpose of murabahah (cost plus sale) which can be transacted at spot or deferred basis (refer to Illustration 3 in Appendix 4). S 12.11 A DFI shall disclose for ijarah (leasing that does not lead to transfer of ownership at the end of the leasing period), in the following manner: (a) carrying amount of assets held for the purpose of ijarah; and (b) extent of the transfer of usufruct (in percentage terms) from the ijarah asset to the lessee over the ijarah period under the terms of the ijarah contract (refer to Illustration 4 in Appendix 4). S 12.12 A DFI shall disclose the following information: (a) Islamic deposits from customers with a breakdown by - 22 A DFI shall follow its own internal policies and procedures in determining significant subclasses of main Shariah contracts. Financial Reporting for Development Financial Institutions 16 of 36 Issued on: 2 December 2022 (i) types of Islamic deposits (e.g. savings, current and term deposits) and further breakdown by Shariah contracts (e.g. wadi’ah, qard, amanah and tawarruq) (refer to Illustration 5 in Appendix 4); (ii) types of customers (e.g. government, business enterprises); and (iii) maturity structures of term deposits 23 (e.g. <6 months, 6-12 months, 1-3 years); (b) investment accounts of customers with a breakdown by24 - (i) types of investment account (e.g. unrestricted or restricted investment account) and further breakdown by Shariah contracts (e.g. wakalah and mudarabah). A DFI shall also disclose the carrying amounts of investment accounts which qualify as unlisted capital market products under the Capital Markets and Services Act 2007 (CMSA) by type of product (refer to Illustration 6 in Appendix 4); (ii) types of customers; and (iii) maturity structures of investment account with maturity. (c) investment account due to designated financial institutions with a breakdown by - (i) types of investment account and further breakdown by Shariah contracts; and (ii) types of counterparty (e.g. licensed Islamic banks, licensed banks). (Refer to Illustration 7 in Appendix 4). S 12.13 A DFI shall disclose income and expenses with a breakdown by source of funds (e.g. Islamic deposit, investment account and shareholder’s funds) and by categories of financial assets or liabilities. Profit income recognised for credit- impaired exposures shall be disclosed separately. S 12.14 A DFI shall disclose non-profit income and other operating expenses with a breakdown of major items of income or expense. S 12.15 A DFI shall disclose CEO, directors and Shariah Committee members’ remuneration with a breakdown of types of remunerations (e.g. salary, fees, bonus, benefits-in-kind, retirement benefits), disclosed separately for the CEO and each individual director, distinguishing between executive and non- executive directors, and each individual Shariah Committee members. 23 Including negotiable instruments of deposits (e.g. Negotiable Islamic Debt certificate). 24 In addition, a DFI is required to also disclose information as specified in paragraph 27.6 of the policy document on Investment Account. For the avoidance of doubt, a DFI is required to distinguish the additional disclosure of investment accounts which are recognised on-balance sheet from investment accounts which are recognised off-balance sheet. Financial Reporting for Development Financial Institutions 17 of 36 Issued on: 2 December 2022 S 12.16 A DFI shall disclose capital with a breakdown by - (a) capital structure25; and (b) capital adequacy showing separately Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio, and express as percentages to three decimal places. S 12.17 A DFI shall disclose reserves with a breakdown by type and purpose of reserves maintained. A movement schedule shall also be disclosed. S 12.18 A DFI shall disclose liquidity risk information26 incorporating an analysis of assets and liabilities in the relevant maturity tenures based on remaining contractual maturities. A DFI may also provide the analysis of assets and liabilities in the relevant maturity tenures based on their behavioural profile. S 12.19 A DFI shall disclose commitments and contingencies with a breakdown by types and amount distinguishing between contingent liabilities and commitments. S 12.20 A DFI shall disclose sources of donations/charities funds (e.g. gharamah amount, Shariah non-compliance income, shareholder’s funds) and uses of such funds (e.g. distribution to the poor, education fund). S 12.21 A DFI shall disclose intercompany charges with a breakdown by type of services received and geographical distribution. S 12.22 The explanatory notes to be disclosed in the interim financial report of a DFI shall include the following information, as applicable– (a) deposits from customers; (b) investment account of customers and breakdown of the underlying assets funded through investment account; (c) financing, receivables and other qard loans; (d) a movement schedule of impairment allowances; (e) financing, receivables and other qard loans classified as impaired; (f) income and profit distributed; and (g) capital. S 12.23 The breakdown for the above explanatory notes shall be consistent with that specified for audited annual financial statements (refer to paragraph 12.4). In addition, a DFI shall disclose items that are material to the understanding of the interim financial report in accordance with MFRS 134 Interim Financial Reporting. 25 The breakdown shall be consistent with the components of capital as set out in the Capital Framework for DFIs. 26 A DFI may refer to Principle 13 of the Principles for Sound Liquidity Risk Management and Supervision, Basel Committee on Banking Supervision, September 2008 for guidance on relevant quantitative and qualitative disclosures. Financial Reporting for Development Financial Institutions 18 of 36 Issued on: 2 December 2022 PART C SPECIFIC DISCLOSURE REQUIREMENTS 13. Specific Disclosure on Developmental or Mandate Achievements S 13.1 A DFI shall ensure that a specific segment in the Annual Report is dedicated for disclosure on developmental performance which communicates the DFI’s strategic objectives, performance measurement methodology, and the results of strategies and activities undertaken in discharging its mandate. S 13.2 Developmental performance shall be expressed using the additionality concept i.e. the positive impact attributable to the DFI beyond that which is delivered under a purely commercial or profit-driven environment. A DFI shall disclose the performance of indicators against, targets set in relation to four key additionalities, which are as follows: Additionality Description (a) Financial increasing the size of investments (e.g. via loans/financing, equity or guarantees), providing counter-cyclical financing, technical assistance and advisory to support the underserved or unserved segments, strategic sectors and financial inclusion; (b) Policy contributing to the creation of an enabling environment for target segments to flourish by proactively influencing sound public policy design and supporting public sector capabilities; (c) Design amplifying the developmental impact of investments through innovative use of design features to enhance customers’ welfare and increase positive economic spill-overs (e.g. new employment generated, increase in income, upward migration); and (d) Demonstration demonstrating or developing the growth potential of underserved segments or strategic sectors in order to crowd-in private sector financing and investments. S 13.3 For reporting purposes, disclosure on a DFI’s developmental performance is categorised into three areas: (a) development output (short term) – financial and policy additionalities; (b) development outcome (medium / long term) – design, demonstration and policy additionalities; and (c) organisational efficiency – measure of a DFI’s capacity and capability in supporting developmental activities. Financial Reporting for Development Financial Institutions 19 of 36 Issued on: 2 December 2022 G 13.4 A DFI may refer to the Corporate Strategic Plan27 for implementation guidance on how to generate, monitor, evaluate and report additionalities. G 13.5 A DFI may also refer to Appendix 5 for guidance on the developmental performance disclosure format. Notwithstanding the format, a DFI may present the information in other forms (e.g. tables, charts or infographics) to better reflect the substance of disclosures presented. 14. Government Funds S 14.1 A DFI shall disclose in the annual report the Government funds received or allocations made for a specific purpose, where at minimum it should cover: (a) the fund objectives and purposes; (b) the sources, type and tenure of fund received (e.g. funding received from Ministry of Finance in a form of soft loan for 5 years); (c) specify the DFI’s role either as a financier (the DFI bears the credit risk) or as an agent for the Government (the risks are borne by the Government); and (d) performance of the Government funds which includes allocation received, outstanding loan/financing, funds available and the outreach achieved (e.g. number of borrowers assisted). S 14.2 In meeting the requirement in paragraph 14.1(c) above, specific for Government funds/schemes where a DFI acts as a financier, the DFI shall also disclose information on the significant criteria or conditions set by the Government. 15. Future Outlook on Strategic Sectors S 15.1 A DFI is required to provide outlook of their strategic sectors for the subsequent year, the expectations and opportunities, as well as the strategy and direction of the DFI based on the business environment predicted. This may also include: (a) strategic goals and objectives for the respective sectors served by the DFI; and (b) summary of business strategies, proposed resource allocation and targets set. 27 Policy document issued on 27 May 2021. Financial Reporting for Development Financial Institutions 20 of 36 Issued on: 2 December 2022 PART D REGULATORY PROCESS AND SUBMISSION REQUIREMENTS 16. Declaration and payment of dividends S 16.1 Pursuant to section 36(2) of the DFIA, a DFI is required to obtain the Bank’s written approval prior to declaring or paying any dividend on its shares. For the avoidance of doubt, shares refer to both the ordinary shares and preference shares. S 16.2 Unless otherwise informed by the Bank in writing, approval is given to a DFI to declare or pay any dividend on its preference shares where the dividend is non- discretionary28 and non-cumulative29. For the avoidance of doubt, where the Bank has, prior to the effective date of this policy document, imposed a requirement on a DFI to obtain the Bank’s written approval prior to declaring or paying any dividend on its preference shares, such approval requirement shall continue to apply and subject to the requirements set out in paragraph 16.4 which shall be observed by the DFI. S 16.3 Where an application has been made under paragraph 16.1, a DFI shall not - (a) publish in print and/or electronic form30; and (b) lay the audited annual financial statements at its general meeting. The interim financial reports or audited annual financial statements, as the case may be, unless the proposed dividend has been approved by the Bank under section 36(2) of the DFIA. S 16.4 An application for approval made under paragraph 16.1 by a DFI must be supplemented with the following: (a) where an interim dividend is proposed- (i) its interim financial report, with a review by the auditor of the profit after tax for the period31 . The explanatory notes to the interim financial report shall be consistent with that specified for audited annual financial statements (refer to paragraphs 11.5 and 12.5); (ii) the interim financial reports of its principal subsidiaries32 , 33 , as applicable; (iii) the limited review report by its auditor; 28 The proposed dividend payment is not at the full discretion of the DFI. 29 Any waived dividend must not be made up by the DFI at a later date. 30 For example, newspaper, press release and website. 31 In accordance with the standards on review engagements issued by the Malaysian Institute of Accountants (MIA). 32 Subsidiaries which are major contributors to the group’s revenue, assets or profit/loss. 33 For the avoidance of doubt, the interim financial reports of the principal subsidiaries need not be subjected to review by the auditor. Financial Reporting for Development Financial Institutions 21 of 36 Issued on: 2 December 2022 (iv) a written confirmation by the officer primarily responsible for the financial management of the DFI that its interim financial reports have been prepared in accordance with the MFRS subject to requirements specified by the Bank in paragraph 9 of this policy document; and (v) the calculation of Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio showing the positions separately before and after the proposed payment of dividends. (b) where a final dividend is proposed- (i) the information specified in paragraph 17.1; and (ii) the calculation of Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio showing the positions separately before and after the proposed payment of dividends. (c) attestation by the board that the proposed dividend is consistent with the DFI’s ability to meet regulatory requirements and growth strategies on a continuing basis including plausible stress scenarios. 17. Annual financial statements S 17.1 Within three months after the close of each financial year and before the laying of the financial statements at the general meeting, a DFI shall submit to Jabatan Penyeliaan Perbankan of Bank Negara Malaysia the following: (a) its audited annual financial statements34; (b) the audited annual financial statements of its principal subsidiaries, where relevant; (c) its Auditor’s Report35, including a report on the key accounting and auditing matters tabled to the board audit committee; (d) the analysis of performance by key business segments; (e) in the case of the consolidated financial statement, a report on its operations in the financial year, including an analysis (both quantitative and narrative), of the overall assessment of the group’s financial performance. The analysis of performance, for the current and preceding year, of each subsidiary within the group which are major contributors to the group’s profit shall at a minimum, include the following: (i) total assets (in RM and % of group); (ii) profit/(loss) before tax (in RM and % of group); (iii) profit/(loss) after tax (in RM and % of group); (iv) dividends (if any); (v) ratio of profit/(loss) before tax to average shareholders’ funds; and (vi) ratio of profit/(loss) before tax to average total assets. 34 The separate financial statements and consolidated financial statements. 35 This refers to the detailed report prepared by the auditor on the audit of a DFI’s annual financial statements. Financial Reporting for Development Financial Institutions 22 of 36 Issued on: 2 December 2022 (f) a written confirmation by the officer primarily responsible for the financial management of the DFI that its audited annual financial statements have been prepared in accordance with the MFRS subject to requirements specified by the Bank in paragraph 10 of this policy document; and (g) the tentative date of the publication of its audited annual financial statements on the website, where applicable. S 17.2 For the purpose of paragraph 17.1(b), where audited financial statements are in a language other than the national language or English, the copy submitted shall be translated into English. 18. Interim financial report S 18.1 A DFI shall submit to Jabatan Penyeliaan Perbankan of Bank Negara Malaysia not later than four weeks after the end of each interim period, the following: (a) its interim financial reports36; (b) the interim financial reports of its principal subsidiaries37, where relevant; (c) the analysis of performance of key business segments; (d) in the case of the consolidated financial report, an analysis, (both quantitative and narrative) of the overall assessment of the group’s financial performance. The analysis of performance, for the current interim period and cumulatively for the current financial year-to-date and comparable interim period (current and year-to-date) of the preceding year, of each subsidiary within the group which are major contributors to the group’s profit shall at a minimum, include the following: (i) total assets (in RM and % of group); (ii) profit/(loss) before tax (in RM and % of group); (iii) profit/(loss) after tax (in RM and % of group); (iv) dividends (if any); (v) ratio of profit/(loss) before tax to average shareholders’ funds; and (vi) ratio of profit/(loss) before tax to average total assets. (e) a written confirmation by the officer primarily responsible for the financial management of the DFI that the interim financial report has been prepared in accordance with the MFRS subject to requirements specified by the Bank in paragraph 10 of this policy document. 36 The separate financial statements and consolidated financial statements. 37 Where the interim financial statements are in a language other than the national language or English, the copy submitted shall be translated into English. Financial Reporting for Development Financial Institutions 23 of 36 Issued on: 2 December 2022 PART E PUBLICATION REQUIREMENTS 19. Annual Financial Statements S 19.1 A DFI shall - (a) publish, in an abridged format, the audited annual financial statements in at least two local daily newspapers, one of which shall be in the national language and the other in English; and (b) make available the full set of the audited annual financial statements on its website38, no earlier than five working days after the date of submission of the information specified in paragraph 17.1 to the Bank but not later than fourteen calendar days after its annual general meeting. S 19.2 For the purpose of paragraph 19.1(a), the abridged format of the financial statements to be published in the newspapers shall, at a minimum, consist of the following: (a) a statement of financial position; (b) a statement of comprehensive income; (c) a statement of changes in equity; (d) a statement of cash flows; (e) the Auditor’s Report; and (f) the Shariah Committee’s Report. S 19.3 For the purposes of paragraph 19.1(a), the two approved local daily newspapers, are - (a) Berita Harian or Utusan Malaysia; and (b) The New Straits Times or The Star. S 19.4 A DFI shall make available a copy39 of the audited annual financial statements at every branch of the DFI in Malaysia. S 19.5 For the purpose of paragraph 19.1(a), a DFI shall include a prominent note in the published abridged format of its financial statements stating that - (a) the full set of the financial statements is available on the DFI or its financial group’s website, together with the address of the website; and (b) a copy of the audited annual financial statements is available at every branch of the DFI in Malaysia. 38 On the corporate website of a DFI. 39 May be in the form of physical or electronic copy. Financial Reporting for Development Financial Institutions 24 of 36 Issued on: 2 December 2022 20. Interim financial reports S 20.1 Where an application has not been made under paragraph 16.1, a DFI shall make available on its website, the interim financial report prepared on a quarterly and half-yearly basis, as the case may be, no earlier than five working days after the date of submission of the information specified in paragraph 18.1 to the Bank but not later than eight weeks after the close of the interim period. S 20.2 Where an application has been made under paragraph 16.1 and approval from the Bank has been obtained under section 36(2) of the DFIA, a DFI shall make available on its website, the interim financial report prepared on a quarterly and half-yearly basis, as the case may be, no later than eight weeks after the close of the interim period. In the case where the application has yet to be approved by the Bank by the end of the eighth week after the close of the interim period, a DFI shall disclose on its website the interim financial report no later than five working days after the approval from the Bank has been obtained. S 20.3 Where the audited annual financial statements for the preceding financial year have yet to be published by the end of the eighth week after the close of the interim period, a DFI shall disclose on its website the first quarter interim financial reports on the same day or not later than three working days after the publication of the audited annual financial statements. Financial Reporting for Development Financial Institutions 25 of 36 Issued on: 2 December 2022 PART F TRANSITIONAL ARRANGEMENT S 21.1 A DFI must ensure that its developmental performance is expressed based on additionality parameters40 in a manner which complies with the requirements in this policy document before or at the time it makes its disclosures for financial year 2021. 40 As required under paragraphs 13.1, 13.2, 13.3, 13.4 and 13.5 Financial Reporting for Development Financial Institutions 26 of 36 Issued on: 2 December 2022 APPENDICES Appendix 1 Illustration of presentation of investment account Illustrative Statement of Financial Position. Statement of Financial Position 20X1 20X0 Note RM’000 RM’000 Assets Cash and short term funds xxx xxx Deposits and placements with financial institutions xxx xxx Investment accounts placement - financing xxx xxx Financial assets xxx xxx Financing and advances xxx xxx Statutory deposits with Bank Negara Malaysia xxx xxx Investment in subsidiaries xxx xxx Investment in associates xxx xxx Property, plant and equipment xxx xxx Total assets xxx xxx Liabilities Islamic deposits from customers xxx xxx Investment accounts of customers xxx xxx Deposits and placements of banks and other financial institutions xxx xxx Investment accounts due to designated financial institutions xxx xxx Financial liabilities xxx xxx Provision for zakat and taxation xxx xxx Total liabilities xxx xxx Shareholder’s equity Share capital xxx xxx Reserves xxx xxx Total shareholder’s equity xxx xxx Total liabilities and shareholder’s equity xxx xxx Restricted investment accounts xxx xxx Total Islamic banking asset xxx xxx Commitment & contingencies xxx xxx Financial Reporting for Development Financial Institutions 27 of 36 Issued on: 2 December 2022 Illustrative Statement of Comprehensive Income. Statement of Comprehensive Income 20X1 20X0 Note RM’000 RM’000 Income derived from investment of depositors' funds xxx xxx Income derived from investment of investment account funds xxx xxx Income derived from investment of shareholders' funds xxx xxx Impairment loss on investments (xxx) (xxx) Total distributable income xxx xxx Profit share/wakalah fees income from investment accounts41 xxx xxx Profit/hibah distributed to depositors (xxx) (xxx) Profit distributed to investment account holders (xxx) (xxx) Total net income xxx xxx Personnel expenses xxx xxx Other overhead expenses xxx xxx Profit before zakat and taxation xxx xxx Zakat xxx xxx Taxation xxx xxx Profit for the year xxx xxx Earnings per share (sen) xxx xxx 41 These relate to DFI’s profit share or wakalah fee earned from investment accounts which are treated as off-balance sheet. Financial Reporting for Development Financial Institutions 28 of 36 Issued on: 2 December 2022 Appendix 2 Guidance on accounting policy of Shariah contracts Example: Mutual accounting policy Financial assets 1. Financing and receivables Financing and receivables consist of murabahah, ijarah and musharakah contracts. These contracts are initially recognised at fair value, including direct and incremental transaction costs, and subsequently measured at amortised cost using the effective yield method. These contracts are stated net of unearned income and any amount written off and/or impaired. Income recognition 2. Income from financing and receivables Income from financing and receivables is recognised in the income statement using the effective profit method. The effective profit rate is the rate that discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset. The calculation of the effective profit rate includes all contractual terms of the financial instrument and includes any fee or incremental cost that are directly attributable to the instrument and are an integral part of the effective profit rate. Murabahah Murabahah income is recognised on effective profit rate basis over the period of the contract based on the principal amounts outstanding. Ijarah Ijarah income is recognised on effective profit rate basis over the lease term. Musharakah Income is accounted for on the basis of the reducing balance on a time- apportioned basis that reflects the effective yield on the asset. Financial Reporting for Development Financial Institutions 29 of 36 Issued on: 2 December 2022 Appendix 3 Guidance on classification of Shariah contracts Murabahah Bai’ Bithaman Ajil Bai’ Inah Bai’ Dayn Bai’ Salam Tawarruq Ijarah Ijarah Muntahiah Bit Tamlik Ijarah Thumma Al- Bai’ Istisna’ Mudarabah Musharakah Musharakah Mutanaqisah Qard Rahnu Kafalah Ujrah Others Sale-based contracts Lease-based contracts Construction- based contracts Equity-based contracts Loan contract Other Islamic financial contracts Classification of Shariah contracts Financial Reporting for Development Financial Institutions 30 of 36 Issued on: 2 December 2022 Appendix 4 Illustration of disclosure requirements by Shariah contracts 1. Financing by types and Shariah contracts in table format Type Bai' Ijarah Istisna' Musharakah Qard Others Total financing, advances and other receivables Cash Line XX XX XX XX XX XX XX Term Financing XX XX XX XX XX XX XX House Financing XX XX XX XX XX XX XX Syndicated Financing XX XX XX XX XX XX XX Hire purchase receivables XX XX XX XX XX XX XX Lease Receivables XX XX XX XX XX XX XX Other term financing XX XX XX XX XX XX XX Bills receivable XX XX XX XX XX XX XX Trust receipts XX XX XX XX XX XX XX Claims on customers under acceptace credits XX XX XX XX XX XX XX Staff financing of which RMXXX (20XX: RMXXX) are to Directors XX XX XX XX XX XX XX Credit/Charge cards XX XX XX XX XX XX XX Revolving credit XX XX XX XX XX XX XX Others XX XX XX XX XX XX XX Total financing, advances and other receivables XX XX XX XX XX XX XX Financial Reporting 31 of 36 Issued on: 2 December 2022 2. Purpose and source of fund for qard Qard 20XX RM'000 As at 1 January 20XX xxx Sources of qard fund: Depositors' fund Xxx Shareholders' fund Xxx Others Xxx xxx Uses of qard fund: Loans for asset purchase Xxx Loans for education purposes Xxx Microfinancing Xxx (xxx) As at 31 December 20XX xxx 3. Murabahah inventories Inventories 20XX RM'000 Automobiles (cost) xxx Machines and equipment (cost) xxx Properties for resale (net realisable value) xxx Total inventories at lower of cost and net realisable value xxx All inventories are held for the purpose of murabahah (cost plus sale) transactions which can be transacted at spot or on deferred basis. Financial Reporting 32 of 36 Issued on: 2 December 2022 4. Ijarah assets Investment Properties Land RM’000 Building RM’000 Total RM’000 Fair value: As at 1 January 20XX xxx xxx xxx Addition xxx xxx xxx Disposal (xxx) (xxx) (xxx) Impairment loss (xxx) (xxx) (xxx) As at 31 December 20XX xxx xxx xxx Included in the fair value above are assets held for ijarah: RM'000 Extent of transfer of usufruct (%) Land xxx xxx Building xxx xxx Property and equipment Office equipment RM’000 Motor vehicles RM’000 Total RM’000 Cost: As at 1 January 20XX xxx xxx Xxx Addition xxx xxx Xxx Disposal (xxx) (xxx) (xxx) As at 31 December 20XX xxx xxx Xxx Accumulated depreciation: As at 1 January 20XX xxx xxx Xxx Addition xxx xxx Xxx Disposal (xxx) (xxx) (xxx) As at 31 December 20XX xxx xxx Xxx Net book value as at 31 December 20XX xxx xxx Xxx Included in the net book value above are assets held for ijarah: RM'000 Office equipment Xxx Motor vehicles Xxx Financial Reporting 33 of 36 Issued on: 2 December 2022 5. Islamic deposits from customers Islamic deposits from customers 20X1 20X0 RM’000 RM’000 Savings deposits Wadi’ah xxx Xxx Qard xxx Xxx Demand deposits Wadi’ah xxx xxx Qard xxx xxx Term deposits Tawarruq xxx xxx Other Islamic negotiable instruments xxx xxx Structured products xxx xxx xxx xxx 6. Investment accounts of customers Investment account of customers 20X1 20X0 RM'000 RM'000 Unrestricted investment account without maturity Mudarabah xxx xxx Wakalah xxx xxx xxx xxx with maturity Mudarabah* xxx xxx Wakalah* xxx xxx xxx xxx *of which: Structured product xxx xxx Islamic negotiable instruments xxx xxx Restricted investment account with maturity xxx xxx Mudarabah xxx xxx Wakalah xxx xxx Total investment account of customers xxx xxx Financial Reporting 34 of 36 Issued on: 2 December 2022 7. Investment account due to designated financial institutions Investment accounts due to designated FIs 20X1 20X0 RM'000 RM'000 Unrestricted investment account Wakalah xxx Xxx By type of counterparty Licensed Islamic banks xxx Xxx Licensed banks xxx Xxx Other financial institutions xxx Xxx Bank Negara Malaysia xxx Xxx xxx Xxx Financial Reporting 35 of 36 Issued on: 2 December 2022 Financial Reporting 36 of 36 Issued on: 2 December 2022 Appendix 5 Illustration of specific disclosure on developmental performance A DFI shall ensure that the specific disclosure on developmental performance is placed in a dedicated section and contains the three key areas, relevant indicators and corresponding current year performance for four types of additionalities. The table below only acts as a guide. Provided that all the required information are available, a DFI may present the information in other forms (e.g. tables, charts or infographics) in line with an emphasis on substance over form. Indicators Performance Target Actual performance 1. Development Output (short term) Financial additionality Example: • Financing approved to SMEs and microentrepreneurs • Increase in savings by low-income individuals • Number of customers received technical assistance and advisory services Policy additionality Example: • Policy advice by DFIs taken up by the Government Qualitative narration Qualitative narration 2. Development Outcome (medium/long term) Design additionality Example: • Increase in customers’ revenue • Number of new jobs created • Upward migration of entrepreneurs Demonstration additionality Example: • Crowd-in private investment Policy additionality Example: • Impact from the policy implementation by the Government Qualitative narration Qualitative narration 3. Operational efficiency • Cost-to-income ratio • Turnaround time Note: If there are no information for certain types of additionalities, please indicate as nil/unavailable.	Public Notice
29 Sep 2022	Senarai Amaran Pengguna Kewangan telah dikemaskini	https://www.bnm.gov.my/-/fca-20220929-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/fca-20220929-bm&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemaskini Share: 722 Senarai Amaran Pengguna Kewangan telah dikemaskini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 0835 pada Khamis, 29 September 2022 29 Sep 2022 Bank telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan pentadbiran berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat berikut ditambahkan ke dalam senarai: Deet Investment Scheme D'eet Investment Scheme Dinar Edaran Emas Trading Investment Scheme Ingin dimaklumkan bahawa pautan baharu ( https://instagram.com/octafx_official_Malaysia/ ) berkaitan OctaFX juga telah ditambah ke senarai FCA. Senarai akan dikemas kini secara berkala untuk rujukan orang ramai. Untuk melihat senarai yang dikemas kini, klik pada pautan ini. Bank Negara Malaysia 29 September 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
06 Sep 2022	Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara dalam Talian	https://www.bnm.gov.my/-/banknotes-auction-20220906-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/banknotes-auction-20220906-bm&languageId=ms_MY	Reading: Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara dalam Talian Share: Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara dalam Talian Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1625 pada Selasa, 6 September 2022 6 Sep 2022 BNM akan mengadakan lelongan wang kertas Ringgit dengan nombor siri khas secara dalam talian yang akan dibuka dari 5 September hingga 24 September 2022. Lelongan ini dikendalikan oleh jurulelong yang dilantik oleh BNM, iaitu MNP Auctioneers (Central) Sdn. Bhd. (MNP) dan bidaan boleh dibuat melalui pautan ini. MNP akan memulakan sesi ‘Lelongan Secara Langsung’ pada 24 September 2022 (Sabtu) jam 11.00 pagi. Wang kertas Ringgit dengan nombor siri khas akan dilelong, seperti set 10 wang kertas terawal (cth. LL0000001-0000010) dan nombor “super solid” dengan awalan berulang (cth. LL8888888). Pendaftaran dan bidaan dalam talian boleh dilakukan melalui www.best2bid.com. Maklumat lanjut mengenai lelongan boleh didapati melalui laman sesawang MNP iaitu www.mnp.com.my atau talian khidmat pelanggan MNP melalui 017-400 6661. Bank Negara Malaysia 6 September 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
29 Ogos 2022	Senarai Amaran Pengguna Kewangan telah dikemaskini	https://www.bnm.gov.my/-/fca-20220829-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/fca-20220829-bm&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemaskini Share: 593 Senarai Amaran Pengguna Kewangan telah dikemaskini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 2050 pada Isnin, 29 Ogos 2022 29 Ogos 2022 Bank telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan pentadbiran berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat berikut ditambahkan ke dalam senarai: OctaFX Senarai akan dikemas kini secara berkala untuk rujukan orang ramai. Untuk melihat senarai yang dikemas kini, klik pada pautan ini. Bank Negara Malaysia 29 Ogos 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
05 Ogos 2022	Kaji Selidik Penerbitan Data oleh BNM	https://www.bnm.gov.my/-/kaji-selidik-penerbitan-data-oleh-bnm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/kaji-selidik-penerbitan-data-oleh-bnm&languageId=ms_MY	Reading: Kaji Selidik Penerbitan Data oleh BNM Share: Kaji Selidik Penerbitan Data oleh BNM Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1200 pada Jumaat, 5 Ogos 2022 5 Ogos 2022 Perkembangan pesat dalam globalisasi dan pendigitalan telah meningkatkan permintaan untuk ketersediaan data yang lebih besar untuk menyokong kecekapan yang lebih tinggi, memacu inovasi dan membuat keputusan. Bank Negara Malaysia, sebagai sumber utama statistik bulanan mengenai perkembangan kewangan, sedang mengkaji kesesuaian liputan, kekerapan dan format data yang diterbitkannya. Untuk memudahkan usaha ini, sila luangkan sedikit masa untuk melengkapkan kaji selidik ini. Pautan kaji selidik: https://forms.office.com/r/SN1ggLTWWe Maklum balas anda akan membantu kami dalam meningkatkan kerelevenan dan kebolehcapaian data supaya kami boleh terus melayani keperluan pengguna dengan lebih baik pada masa hadapan. Kaji selidik ini akan dibuka untuk maklum balas sehingga 14 Ogos 2022. Terima kasih terlebih dahulu atas penyertaan anda! Bank Negara Malaysia 5 Ogos 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
30 Jun 2022	Kertas Perbincangan Latihan Ujian Tekanan Risiko Iklim (CRST) 2024	https://www.bnm.gov.my/-/kertas-perbincangan-latihan-ujian-tekanan-risiko-iklim-crst-2024	https://www.bnm.gov.my/documents/20124/3770663/DP_2024_CRST.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/kertas-perbincangan-latihan-ujian-tekanan-risiko-iklim-crst-2024&languageId=ms_MY	Reading: Kertas Perbincangan Latihan Ujian Tekanan Risiko Iklim (CRST) 2024 Share: Kertas Perbincangan Latihan Ujian Tekanan Risiko Iklim (CRST) 2024 Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1230 pada Khamis, 30 Jun 2022 30 Jun 2022 Kertas perbincangan ini menetapkan rangka kerja dan elemen cadangan Bank Negara Malaysia (“Bank”) untuk ujian tekanan risiko iklim (CRST) seluruh industri pada tahun 2024. Kertas kerja mengemukakan untuk perbincangan kesesuaian dan format latihan, dan elemen teknikal seperti pemilihan senario, skop portfolio dan butiran serta pertimbangan lain. Bank ingin menjemput semua pihak yang berkaitan, termasuk institusi kewangan, korporat bukan kewangan, persatuan industri, pakar iklim, agensi kerajaan, pengawal selia dan mana-mana organisasi atau individu lain yang berkaitan, untuk meneliti dokumen ini dan memberikan maklum balas bertulis mengenai cadangan, termasuk cadangan mengenai bidang yang perlu diperbaiki, dijelaskan atau cadangan alternatif dan bidang yang perlu dipertimbangkan oleh Bank. Semua maklum balas untuk kertas perbincangan hendaklah dihantar secara elektronik dalam format yang ditetapkan dan dihantar melalui e-mel kepada [email protected] selewat-lewatnya pada 30 September 2022. E-mel mesti bertajuk “2024 CRST Discussion Paper – Feedback by [name of institution]”. Dokumen: Kertas Perbincangan Ujian Tekanan Risiko Iklim 2024 Lampiran 1: Templat Maklumbalas untuk Kertas Perbincangan CRST 2024 (xlsx)Bank Negara Malaysia 30 Jun 2022 © Bank Negara Malaysia, 2022. All rights reserved.	2024 Climate Risk Stress Testing Exercise : Discussion Paper Issued on: 30 June 2022 BNM/RH/DP 028-13 2024 Climate Risk Stress Testing Exercise Discussion Paper Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Prescribed development financial institutions 5. Licensed insurers, including professional reinsurers 6. Licensed takaful operators, including professional retakaful operators Issued on: 30 June 2022 BNM/RH/DP 028-13 This discussion paper sets out Bank Negara Malaysia’s (“the Bank”) proposed framework and elements of the industry-wide climate risk stress testing (CRST) exercise in 2024. The proposals include the applicability and format of the exercise, and technical elements such as scenarios selection, portfolio scope and granularity, and other considerations. The Bank would like to invite all relevant parties, including financial institutions, non-financial corporates, industry associations, climate experts, government agencies, regulators and any other relevant organisations or individuals, to peruse this document and provide written feedback on the proposals. Submission of feedback for the discussion paper: a) The Bank highly encourages the responses to be supported by appropriate rationale and evidence. b) All respondents are to specify the applicable paragraphs and provide sufficient examples or illustrations. In this regard, respondents are required to provide feedback through the Microsoft Excel template provided (refer to Attachment 1), particularly the tab “General Feedback”. c) Additionally, financial institutions in particular, are invited to respond to the specific questions set out throughout the discussion paper (refer to Appendix 3 for a full list of questions and corresponding tabs in Attachment 1) and a survey on climate risk stress testing capabilities and practices. d) All feedback for the discussion paper and/or responses to the survey are to be submitted electronically in the prescribed format and emailed to [email protected] latest by 30 September 2022. The email must be titled “2024 CRST Discussion Paper – Feedback by [name of institution]”. e) When preparing the feedback, specific queries can be directed to the following officers: i. Razeen Mohd Rom (Ms): [email protected] ii. Muhamad Shukri Abdul Rani (Mr): [email protected] iii. Lim Sheng Ling (Ms): [email protected] iv. Muhammad Syamil Kamaruzzaman (Mr): [email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] 2024 Climate Risk Stress Testing Exercise – Discussion Paper 3 of 39 Issued on: 30 June 2022 TABLE OF CONTENTS PART A OVERVIEW ......................................................................................... 4 1 Introduction .................................................................................................. 4 2 Objectives of the exercise ............................................................................ 6 3 Structure of the discussion paper ................................................................. 7 PART B PROPOSED DESIGN FEATURES ..................................................... 7 4 Participation and level of applicability ........................................................... 7 5 Scenario narratives and time horizon ........................................................... 8 6 Financial risk coverage .............................................................................. 13 7 Portfolio exposure scope and granularity ................................................... 15 8 Balance sheet approach ............................................................................ 18 PART C CONDUCT/FORMAT OF THE EXERCISE ....................................... 20 9 Submission requirements ........................................................................... 20 10 Governance ............................................................................................... 21 11 Next steps and timeline .............................................................................. 21 PART D APPENDICES ................................................................................... 24 Appendix 1 Principles for climate risk management and scenario analysis ................... 24 Appendix 2 References for modelling approaches ........................................................ 26 Appendix 3 Full list of discussion questions .................................................................. 27 Appendix 4 Indicative list of potential data sources ...................................................... 30 Appendix 5 Indicative list of sectoral breakdown ........................................................... 32 PART E GLOSSARY ...................................................................................... 33 PART F ACRONYMS ..................................................................................... 36 PART G REFERENCES ................................................................................. 37 2024 Climate Risk Stress Testing Exercise – Discussion Paper 4 of 39 Issued on: 30 June 2022 PART A OVERVIEW 1 Introduction 1.1 Climate change is a complex collective action problem that may pose material risks to the safety and soundness of financial institutions, potentially giving rise to broader implications to financial stability and sustainable economic growth. Financial institutions are thus expected to have an effective risk management framework that integrates all material risks, which extends to climate-related risks and its interactions with other risk types (Figure 1). Figure 1: Transmission of Climate-related Risks to Financial Risks Source: Adapted from Network for Greening the Financial System (NGFS) and Basel Committee on Banking Supervision (BCBS) 1.2 However, measuring climate-related risks and how these risks manifest through financial risks can be complex given several distinctive features. Most notably, such risks are typically non-linear, evolve over a longer time horizon and are global and far-reaching in nature. To meaningfully understand and measure these risks, new and unconventional approaches and tools are therefore required. With added uncertainty surrounding future climate pathways, which will be heavily dependent on global actions taken from now, it is also important to explore the effects of multiple plausible pathways. Given this, the Bank will conduct an industry-wide CRST exercise in 2024,1 allowing industry the time in 2022 and 2023 to put in place the necessary building blocks such as investing in the necessary data infrastructure, and developing the modelling and resource capacity required to assess climate-related risks. 1.3 The CRST exercise builds on existing initiatives that the Bank has already embarked upon to support the industry in managing climate-related risks: 1 Refer to paragraph 11.3 for more information on the Bank’s plan and next steps. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 5 of 39 Issued on: 30 June 2022 (a) In particular, the Climate Risk Management and Scenario Analysis (CRMSA) exposure draft 2 issued on 27 December 2021 contains principle-based expectations (refer to Appendix 1) on scenario analysis and guidance surrounding specific stress testing elements, as well as the necessary pre- requisites as outlined under the principle-based expectations for risk management. Building upon these principles, the CRST exercise prescribes specific stress parameters in greater detail to facilitate results comparability and industry-wide aggregation across banks, and insurers and takaful operators (ITOs);3 (b) Counterparty-level assessment under the Climate Change and Principle- based Taxonomy (CCPT) 4 will facilitate credit risk assessments for the purpose of the CRST at the required level of granularity, as proposed later in this paper; and (c) The Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF),5 as well as the VBIAF Sectoral Guides6 provide guidance on risks and their transmission channels related to climate change and greenhouse gas (GHG) emissions which will be useful for financial institutions when considering these risks for the purpose of the CRST exercise. 1.4 The CRST framework and elements draw upon lessons from industry engagements, both domestically and through the Bank’s participation in international and multilateral organisations such as the NGFS, the International Association of Insurance Supervisors (IAIS), the Sustainable Insurance Forum (SIF), the Executives’ Meeting of East Asia Pacific Central Banks (EMEAP) and the World Bank. As part of the work under the Joint Committee on Climate Change (JC3), the Bank and Securities Commission Malaysia have also advanced an initiative to meet climate-related data needs by establishing a Sub-committee on Bridging Data Gaps in 2021. 1.5 This discussion paper will be used as a basis for consultation and/or collaboration with relevant stakeholders on the design and specifications of the 2024 CRST exercise and other relevant complementary initiatives. This would not only involve financial institutions, but also stakeholders outside of the financial industry, such as climate scientists and subject matter experts in government ministries and agencies, and non-governmental organisations (NGOs). 1.6 Based on responses to this discussion paper, the Bank will publish the final methodology and requirements pursuant to sections 47, 143 and 266 of the Financial Services Act (FSA) 2013, sections 57, 155 and 277 of the Islamic Financial Services Act (IFSA) 2013 and sections 41, 116 and 126 of the Development Financial Institutions Act (DFIA) 2002. 1.7 The terms and expressions used in this discussion paper shall have the same meanings assigned to them in the FSA, IFSA or DFIA, as the case may be, unless otherwise defined in this discussion paper. Unless the context requires otherwise, the meaning of the terms used in this discussion paper is as set out in Part E (Glossary). 2 See Exposure Draft on CRMSA. 3 Throughout this discussion paper, the term "banks” will be used to refer to licensed banks, licensed investment banks, licensed Islamic banks, and prescribed development financial institutions, while “ITOs” will be used to refer to insurers, professional reinsurers, takaful operators and professional retakaful operators. 4 Refer to CCPT. 5 Refer to VBIAF. 6 Refer to VBIAF Sectoral Guides. https://www.bnm.gov.my/-/ed-climate-risk-management-scenario-analysis https://www.bnm.gov.my/documents/20124/938039/Climate+Change+and+Principle-based+Taxonomy.pdf https://www.bnm.gov.my/documents/20124/761679/VBIAF_Final+guidance+1.11.2019.pdf https://aibim.com/value-based-intermediation 2024 Climate Risk Stress Testing Exercise – Discussion Paper 6 of 39 Issued on: 30 June 2022 2 Objectives of the exercise 2.1 The 2024 CRST exercise will assess the resilience of Malaysian financial institutions to physical and transition risks arising from various climate scenarios. 2.2 In particular, the exercise is intended to achieve the following outcomes for the financial sector: (a) Quantify financial institutions’ exposures to climate change and their potential losses arising from physical and transition risks; (b) Facilitate financial institutions’ capacity building in modelling and measuring climate-related risks, as part of their overall climate risk management tools; (c) Provide useful insights to financial institutions for the purpose of strengthening current stress testing practices to incorporate climate-related risks; (d) Initiate discussions among board and senior management of financial institutions on strategic and long-term plans to manage these risks; (e) Identify possible responses that financial institutions may adopt to manage climate-related risks and the potential systemic risks that may arise from these actions, including possible spillovers to the economy; (f) Identify current gaps and challenges faced by financial institutions to inform future collective action plans; and (g) Accelerate financial institutions’ data collection and quality to manage climate- related risks. 2.3 At this point, the Bank does not intend for the quantitative outcome of the 2024 CRST exercise to be used to directly calibrate institution-specific capital requirements. However, this does not preclude the ongoing supervisory review process of ensuring that all material risks are adequately managed by financial institutions. The Bank will use insights from the exercise, including the level of exposures and preparedness of individual financial institutions, to facilitate supervisory reviews and engagements. Where progress by a financial institution towards strengthening its resilience to climate-related financial risks remains inadequate, the Bank may consider broader use of its supervisory toolkit as appropriate, including the use of capital add-ons. 2.4 The Bank also intends for the exercise to be a joint learning experience. Expertise in modelling these risks is still evolving, hence this exercise aims to facilitate the development of technical capabilities within the Bank and the industry. Financial institutions thus play an essential role in ensuring this exercise achieves its intended outcomes. As a starting point, refer to Appendix 2 for a list of available modelling approaches for reference and Section 11 for more details on the industry’s next steps. 2.5 Given its primary role to assess financial resilience, the scenario parameters and results of the CRST exercise should not be taken as an assessment of the efficacy of domestic policy measures to combat climate change. For instance, the shadow carbon price paths included in the scenarios are meant to be illustrative only, given its intended use to stress test financial institutions, and should therefore not be treated as forecasts of future prices. Future policy actions for Malaysia to address climate change will most likely extend beyond carbon pricing mechanisms (e.g., emission caps and investments in technology) and include actions that are beyond the Bank’s mandates. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 7 of 39 Issued on: 30 June 2022 3 Structure of the discussion paper 3.1 This discussion paper sets out the Bank’s current thinking regarding the 2024 CRST exercise as follows: (a) Part B outlines the key features of the exercise, including participation, scenario narratives and specifications, modelling horizon, and assumptions for balance sheet growth; (b) Part C provides a high-level overview of the timeline of the exercise, including the critical milestones and submission requirements for participating financial institutions; and (c) Part D comprises appendices to provide supplementary information. 3.2 To generate feedback on different elements of the exercise, specific questions are posed throughout the discussion paper.7 The Bank also welcomes feedback beyond these questions, particularly on: (a) The feasibility of financial institutions running the exercise as proposed, including areas that may require additional guidance; and (b) Whether the proposed design features and conduct of the exercise would be sufficient to achieve the intended outcomes outlined in paragraph 2. 3.3 Financial institutions are also invited to complete the survey on climate risk stress testing capabilities and practices to help the Bank gauge current capabilities among financial institutions, as well as plans for further strengthening of such capabilities. Insights from the survey are intended to help the Bank understand potential gaps in climate-relevant capabilities, data and common limitations faced by financial institutions, and existing industry best practices, all of which will inform the final calibration of the 2024 CRST exercise. PART B PROPOSED DESIGN FEATURES 4 Participation and level of applicability 4.1 The participation and coverage for the 2024 CRST exercise should be as wide as possible. This considers the fact that all parts of the financial system could be affected by climate change in diverse, novel, and distinct ways. 4.2 The Bank proposes for the following financial institutions to participate in the 2024 CRST exercise: (a) Licensed banks, licensed investment banks and licensed insurers, including licensed professional reinsurers under the FSA 2013; (b) Licensed Islamic banks and licensed takaful operators, including licensed professional retakaful operators under the IFSA 2013; and (c) Prescribed development financial institutions under the DFIA 2002. 4.3 Financial institutions are to complete the 2024 CRST exercise at the entity level, which refers to the global operations of a financial institution, including its overseas branch operations. The Bank acknowledges the importance for financial institutions to build capabilities in conducting a consolidated level exercise, which would include all financial and non-financial subsidiaries. However, given the additional complexity of such an exercise, plans to undertake group-wide consolidated level assessments will be pursued at a later stage. 7 Refer to Appendix 3 for the full list of questions posed in the discussion paper. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 8 of 39 Issued on: 30 June 2022 Questions on participation and level of applicability (please elaborate where relevant): 1. Are there any other factors that the Bank should consider when setting the scope of participation and level of applicability of the 2024 CRST exercise? 2. What kind of challenges would your institution face in order to conduct the analysis on overseas operations’ exposures? 5 Scenario narratives and time horizon Climate-related risks coverage 5.1 In Malaysia, physical and transition risk events have already materialised like in many other parts of the world. For example, mean temperatures, precipitation and sea levels have risen over the past several decades, with observed adverse effects on agriculture, biodiversity, water resources and public health. In December 2021, parts of Malaysia were hit with a 1-in-100 year flood event that brought upon higher- than-expected economic and financial losses. Environmental and climate experts have linked this event to extreme weather patterns caused by climate change. Ceteris paribus, such events are expected to occur more frequently in the future, potentially with greater intensity. From a transition risk perspective, businesses and financial institutions are also faced with challenges amid the transition to a low carbon economy, both globally and locally. Considering the above, the Bank proposes for the 2024 CRST exercise to encompass both physical (chronic and acute) and transition risks. 5.2 Given the changing preference of customers and investors towards green products and processes along economic value chains and services, the Bank acknowledges the significance of liability risk that may arise from environmental- or climate-related litigations. Nevertheless, to avoid modelling complications to the inaugural CRST exercise in 2024, the Bank proposes to exclude liability risk at this stage. Scenario narrative and specifications 5.3 For the 2024 CRST exercise, the Bank intends to use three adverse climate scenarios to capture the impact from a range of different combinations of transition and physical risks. Based on internationally recognised scenarios developed by the NGFS,8 these climate scenarios will assume a variety of potential pathways for the evolution of the relevant fiscal and regulatory policies, and physical climate environments up to 2050 (see Box 1). 5.4 Specifically, the Bank proposes to use the following scenarios from the NGFS’s Hot House World and Disorderly categories: (a) Current Policies scenario Under the Current Policies scenario, governments do not impose additional measures to address climate change beyond those already implemented. Households and businesses do not change their behaviour to reduce emissions and there is limited availability of carbon dioxide removal (CDR) technologies. This causes an unconstrained increase in emissions, leading to a sharp rise in global temperature (+3°C) and a materialisation of severe physical risks in the form of increased frequency and severity of extreme weather events. Transition risks are limited, but physical risks are significant. 8 The Bank plans to use the latest NGFS scenarios and narratives should there be updates in time before the 2024 CRST exercise. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 9 of 39 Issued on: 30 June 2022 (b) Nationally Determined Contributions (NDCs) scenario The NDCs scenario assumes both implemented and pledged policy measures to be effective even if they are yet to be implemented. While emissions decline, the limited policy actions taken are insufficient and will lead to an about 2.5°C increase in temperatures, and a materialisation of moderate to severe physical risks. Similar to the Current Policies scenario, transition risks are limited. (c) Delayed Transition scenario The Delayed Transition scenario captures the transition risks that arise from a late implementation of measures to fight climate change. As the name suggests, efforts to decrease emissions are delayed until 2030, at which point more stringent measures are suddenly introduced to compensate for the delay. Households and businesses are forced to drastically change their behaviour in response to the sudden introduction of policies, resulting in sharp macroeconomic and financial disruptions, particularly in carbon-intensive sectors affected by carbon pricing measures. Global temperature increases are limited to below 2⁰C, but this comes at the cost of significant disruption to the economy. Physical risks are present, although transition risks are much more severe. 5.5 The Bank acknowledges that Orderly scenarios9 may be useful as a counterfactual reference to better appreciate the severity of losses arising from the adverse climate scenarios. However, in striking a careful balance between enabling a richer assessment of climate-related risks while ensuring the information and resource needs for the inaugural CRST exercise remains tractable, the Bank proposes to narrow the climate scenarios to those that reflect severe physical and/or transition risks. Box 1: Overview of NGFS Climate Scenarios for Central Banks and Supervisors (as at June 2021) Building on the scenarios developed by the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA), the NGFS developed a set of scenarios10 exploring the impact of climate change and climate policies with the aim of providing a common reference framework for various users. Each NGFS scenario category explores a distinct set of assumptions for how policies, emissions and temperatures evolve and the consequent transition and physical risks from a macro- financial perspective (Figure 2): i. Orderly: The transition towards a low carbon economy is assumed to occur in a predictable manner and allows for climate objectives to be reached. This results in both physical and transition risks to be relatively subdued. ii. Disorderly: Higher transition risks occur, due to policies being delayed or divergent across countries and sectors. For example, carbon prices are assumed to increase abruptly after a period of delay. iii. Hot House World: Some climate policies are assumed to be implemented in some jurisdictions, but global efforts are insufficient to halt significant global warming. These scenarios result in severe physical risks materialising, including irreversible impacts like sea‑level rise. Six scenarios were then developed for three of the categories to allow central banks and supervisors to explore a range of lower and higher risk outcomes. 9 Refer to Box 1 for more details of the NGFS scenarios, including the Orderly scenarios. 10 A detailed description of the NGFS scenarios can be found here. https://www.ngfs.net/sites/default/files/medias/documents/ngfs_climate_scenarios_phase2_june2021.pdf 2024 Climate Risk Stress Testing Exercise – Discussion Paper 10 of 39 Issued on: 30 June 2022 Figure 2: NGFS Representative Scenarios Source: Adapted from NGFS 5.6 As highlighted in paragraph 2.5, these scenarios should not be treated as forecasts of future climate trajectories; rather, they are intended as explorations of potential future climate conditions, with different assumptions embedded in each scenario. In this regard, their different respective outcomes are useful for testing the resilience of the financial institutions under markedly different climate futures. 5.7 As part of the 2024 CRST exercise, the Bank will provide selected climate and macroeconomic variables for all prescribed scenarios (see Table 1), which would incorporate the added impact from the second half of the century in one of its scenarios (see paragraph 5.16). The Bank expects that the climate variables which embody physical and transition risks will be based on the high-level global and regional pathways as simulated by the NGFS, which have been downscaled and calibrated to individual countries, including Malaysia.11 The Bank will be engaging the relevant subject matter experts to consult on the appropriate application of the downscaled information for Malaysia and the necessary calibrations. Table 1: Indicative Scenario Variables12 Climate Variables Macroeconomic Variables Financial Market Variables Physical variables • Near-surface air temperature Transition variables • Shadow carbon price pathway • Emissions pathway • Global and domestic energy prices • Energy consumption and mix • Real gross domestic product (GDP) (aggregate and by expenditure components) • Gross value added (GVA) by selected sectors • Inflation • Unemployment • Short-term interest rate • Property price index • Long-term interest rate/ bond yield • Exchange rates (MYR/USD) • Equity price index 5.8 For chronic physical risk variables, the primary focus will be on the near-surface air temperature pathways. The Bank is also considering providing information on acute physical risk variables which would relate to the frequency and severity of major perils (such as floods) in Malaysia. While the acute physical risk variables are challenging to model in terms of their macroeconomic and financial markets impacts, 11 Refer to NGFS Scenario Explorer and NGFS Climate Impact Explorer by Climate Analytics. 12 All variables are for Malaysia only unless otherwise indicated. https://data.ene.iiasa.ac.at/ngfs/#/login?redirect=%2Fworkspaces http://climate-impact-explorer.climateanalytics.org/ 2024 Climate Risk Stress Testing Exercise – Discussion Paper 11 of 39 Issued on: 30 June 2022 they are especially useful for financial institutions to assess the potential direct losses from such events. 5.9 For transition risk, the variables would include shadow carbon price and emission pathways. The shadow carbon price is a proxy for required policy intensity (that may cover a range of fiscal and regulatory policies such as carbon taxation, cap-and-trade schemes, and subsidies) given assumptions on climate policy (in terms of ambition, timing, and distribution across sectors), and technology change (in regard to energy sources and efficiency, as well as carbon sequestration, including measures related to agriculture, forestry and land use).13 These assumptions vary across the three scenarios based on the respective pathways for temperature and emissions. In addition, simulations of global and domestic energy prices, as well as energy consumption by fuel type (energy mix) in Malaysia will help to inform the energy transition process of the country under the different scenarios. 5.10 The physical and transition risk variables for Malaysia will be mapped to key aggregate macroeconomic and financial variables, for example GDP, inflation, unemployment, interest rates, exchange rates, and asset prices. These variables would simulate the combined impact from the physical and transition risks associated with each scenario. No additional shocks beyond the climate-related ones will be incorporated into the macroeconomic model simulation. The evolution of macroeconomic and financial variables following the climate-related shocks will also consider fiscal and monetary policy reactions. For fiscal policy, this would include assumptions on carbon pricing and how the associated revenue will be utilised. Regarding monetary policy, this would relate to assumptions on the reaction to risks to inflation and GDP growth. 5.11 Temperature increases, associated with different emission trajectories, will influence the GDP growth path via lower productivity, which could affect the labour market and capital stock, and through negative shocks to aggregate demand.14 Transition risks are more apparent under the Delayed Transition scenario following an unanticipated sharp shift in the stringency of mitigation policies. This reflects the confluence of macroeconomic effects associated with changes in global energy prices and consumption, the domestic carbon pricing, and the domestic energy mix and efficiencies. For example, when carbon pricing is imposed globally, lower global demand and hence lower (pre-tax) prices for fossil fuels will have a negative terms- of-trade effect, though partially offset by lower prices for imports. Meanwhile, with domestic carbon pricing, firm profits are reduced and energy inputs in production decline. This has a constraining effect, especially in the short term, on investment and potential output (absent offsetting efficiency gains), with repercussions for the labour market and aggregate demand. The pass-through of costs associated with the carbon pricing to consumer prices will raise inflation. 5.12 The Bank is also considering the calibration of sectoral effects in terms of GVA, which will be indicative of the most affected sectors over the stress horizon, given the nature of initial emissions, as well as the transition paths. 5.13 The variables and impacts under the various scenarios are meant to serve as a common background and starting point for financial institutions’ modelling and assessments. Notwithstanding this, financial institutions may need to perform further scenario expansion 15 where necessary. For example, financial institutions with 13 The shadow carbon price, based on Integrated Assessment Models (IAM) utilised by the NGFS, is solely for the purpose of the stress test and is not necessarily reflective of the Government’s plans for carbon pricing policies. 14 The calibrated impact is based on estimates by Kalkuhl and Wenz (2020) using panel data across 77 countries for the period 1900 to 2014. The regression model, as utilised by the NGFS, assesses the immediate and long- term effects of temperature change on per capita growth. 15 Scenario expansion in this context refers to the process of extrapolating or calibrating additional scenario variables from the set of variables provided by the Bank. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 12 of 39 Issued on: 30 June 2022 climate-related risk exposures outside of Malaysia may be required to expand the scenario paths across a range of geographies. In this instance, financial institutions will be expected to use the variables provided by the NGFS as a starting point. Further scenario expansion by financial institutions should be aligned with the scenario narratives provided by the Bank. Financial institutions are also expected to undertake the necessary further steps for individual counterparty analysis. 5.14 In addition to the scenario variables provided in Table 1, the Bank has attempted to put together an initial list of potential data sources that may be useful for financial institutions to peruse for this exercise, including for the purpose of scenarios expansion, if any, and counterparty level assessment (see Appendix 4 and paragraph 7). The Bank acknowledges gaps in currently available data, hence where possible, limitations to these data sources have been highlighted in the appendix for further discussion, including on the potential for the industry to work together to source the relevant data. Refer to section 11 for more details on the industry’s next steps. Time horizon 5.15 Some physical impact of climate change such as rising sea levels and higher mean temperature will be incremental and are expected to materialise over an extended period. To ensure that the CRST exercise can capture the long-term nature of these risks, the Bank proposes for this exercise to cover an assessment horizon that spans several decades until 2050. This is aligned with the Paris Agreement where many jurisdictions, including Malaysia, are committed to striving for net zero GHG emissions or carbon neutral. Specifically, the CRST time horizon will span from December 2023 (as the base position) until 2050, with the first projection reporting period to be 2025. The following reporting periods will be the subsequent 5-year points throughout the stress test horizon i.e., 2030, 2035, 2040, 2045 and 2050. 5.16 Engagements with relevant government agencies and preliminary research suggest that the physical impact of climate change in Malaysia is already materialising with more physical risk events expected to occur later in the century. In anticipation of these events, the Bank proposes to bring forward the expected physical impact between 2050 and 2100 into the CRST time horizon. This is especially relevant for the Hot House World scenarios where the focus of the impact assessment is on physical risk. This approach is meant to mitigate any significant underestimation of the physical risk impact on the resilience of financial institutions. At the same time, this approach also reduces the need to further lengthen the assessment horizon which can introduce added complications and amplify uncertainty around modelling requirements. The Bank plans to collaborate with local climate experts to incorporate this impact into the scenario specifications. This could potentially manifest in increased frequency and/or severity of the physical climate events. The Bank is considering to reflect this under one of the Hot House World scenarios. Questions on scenario narratives, time horizon and specifications (please elaborate where relevant): 3. Do the choice of scenarios, specifications and time horizon provide sufficient balance between allowing a full assessment of the climate-related risks while also being tractable for financial institutions’ modelling capabilities? 4. In selecting scenarios to capture the impact of transition risks, the Bank opted for the Delayed Transition scenario given its plausibility in Malaysia’s context.16 Do you agree with this approach? 16 For instance, the absence of carbon pricing policies in Malaysia at this juncture. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 13 of 39 Issued on: 30 June 2022 5. How relevant is the Divergent Net Zero scenario developed by NGFS, which assumes divergent policies across sectors, in the Malaysia’s context? 6. Is there sufficient differentiation between the Current Policies and NDCs scenarios in Malaysia’s context to warrant using both Hot House World scenarios in the CRST exercise, or would one or the other suffice? 7. Do you agree with the Bank’s proposal to exclude orderly scenario(s) from the 2024 CRST exercise? 8. Beyond those proposed above, are there any other scenarios, informed by peer- reviewed research, that the Bank should consider? 9. Are there specific narratives or parameters relevant to Malaysia that the Bank should consider in refining the proposed climate scenarios beyond what has already been provided by the NGFS? 10. Are the climate, macroeconomic and financial variables adequate in capturing the climate-related risks in the proposed scenarios, allowing for further scenario expansion, if any? Are there other climate, macroeconomic or financial variables that the Bank should consider providing for this exercise? 11. Are there any other external data sources that can be added to the current list in Appendix 4? 12. Would the proposed assessment horizon (i.e., 30 years) adequately capture the impact of climate-related risks on financial institutions? What are the potential challenges that financial institutions might face in meeting this requirement, e.g., methodology, processes, technology, and data limitations? 13. Do you agree with the Bank’s proposal to bring forward the materialisation of physical risks (expected in the second half of the century) into the CRST time horizon? 6 Financial risk coverage 6.1 Ideally, the Bank envisions for the 2024 CRST exercise to be as comprehensive as possible where the impact of the various climate scenarios will be assessed on all financial risk exposures of financial institutions. Nevertheless, the Bank acknowledges the challenges to achieve this, especially given current limitations in data and modelling capabilities. Hence, the Bank plans to request banks to quantify climate-related impacts from a credit risk perspective only while ITOs to quantify from market, and insurance and takaful risks perspectives (Figure 3). 6.2 The proposal for banks to focus the quantitative impact of climate-related risks on credit risk for this exercise is in line with credit risk exposures comprising the most significant portion of banks’ balance sheet (approximately 60% of total banking system assets). This approach is also largely consistent with global practices where most banking climate stress tests are designed to assess the impact from credit risk at the minimum. For ITOs, exposures from insurance/takaful and market risks remain the largest with aggregate capital held for these risks accounting for 43% and 38% of total capital required, respectively. Meanwhile, market risk is not only relevant for life and family ITOs, but has also become increasingly notable for general ITOs, given their increased exposures to financial assets via the holding of Collective Investment Schemes (CIS), and direct investments in bonds. 6.3 The Bank proposes for the impact from other risk types (e.g., liquidity and operational risks) to be assessed qualitatively during the CRST exercise in 2024 (Figure 3). For this purpose, the Bank plans to provide a qualitative questionnaire which may include areas such as financial institutions’ views on the potential direction of risks arising from the climate scenarios and plans to improve the relevant risk management areas. Assessing these risks, albeit qualitatively, remains important to enhance financial institutions’ understanding of the various transmission channels and to provide useful 2024 Climate Risk Stress Testing Exercise – Discussion Paper 14 of 39 Issued on: 30 June 2022 insights into the overall climate impact. The quantification of such risks may be considered in future CRST exercises. 6.4 Specifically, for ITOs, worsening climate events could also lead to sustained upward pressure on insurance and takaful rates. Over the long term, this could result in climate-related coverage becoming unaffordable for customers or unfeasible for ITOs to offer. Recognising this, the Bank proposes for the assessment surrounding insurance and takaful pricing to be covered as part of the qualitative assessment. Figure 3: Coverage of Financial Risks for Financial Institutions Banks: ITOs: Questions on coverage of financial risks (please elaborate where relevant): Banks 14. Do you agree with the Bank’s proposal to quantify the climate impact on banks from a credit risk perspective only? 15. Does your institution currently have, or plan to have, resources and capability to quantitatively model the climate-related risks impact from credit, market, liquidity, and operational risks perspective over a 30-year horizon? 16. Besides the risk channels listed above, are there other significant risk channels that are relevant for banks in Malaysia and should be considered by the Bank? ITOs 17. Do you agree with the Bank’s proposal to quantify the impact of climate change from insurance and takaful, and market risks perspectives only? Potential increase in insurance and takaful pricing for climate- related coverage Credit risk: Climate risk drivers may reduce collateral value, borrowers’ repayment ability or recovery in the event of bond default Insurance and takaful risk: Increased claims and liabilities amidst occurrence of chronic, and more severe and frequent acute physical risk events Market risk: Revaluation of asset prices at fair value when climate risk, which has not yet incorporated into prices or valuation, is materialised Liquidity risk: Sufficiency of liquid resources to honour sudden large insurance and takaful claims, and other obligations, arising from climate events Operational risk: Business disruption to ITOs’ operations and their outsourced arrangements due to extreme weather events To include in quantitative assessment To include in qualitative questionnaire Credit risk: Climate risk drivers may reduce collateral value, borrowers’ repayment ability or loan recovery in the event of default, increasing the expected credit losses Market risk: Revaluation of asset prices at fair value when climate risk, which has not yet incorporated into prices or valuation, is materialised Liquidity risk: Access to funding sources could be reduced as climate risk drivers may cause counterparties of banks to withdraw deposits and drawdown credit lines Operational risk: Business disruption to banks’ operations and their outsourced arrangements due to extreme weather events To include in quantitative assessment To include in qualitative questionnaire 2024 Climate Risk Stress Testing Exercise – Discussion Paper 15 of 39 Issued on: 30 June 2022 18. Does your institution currently have, or plan to have, resources and capability to quantitatively model the climate-related risks impact from insurance/takaful, market, credit, liquidity and operational risks perspective over a 30-year horizon? 19. Besides the risk channels listed above, are there other significant risk channels that are relevant for ITOs in Malaysia and should be considered by the Bank? 7 Portfolio exposure scope and granularity Banks 7.1 The Bank proposes for the scope of the 2024 CRST exercise to primarily focus on banks’ domestic exposures to businesses and households. In addition, exposures to businesses and households in banks’ overseas operations should also be accounted for. Banks are to consider the impact on their assets from both physical and transition risk perspectives, ranging from high-level to more granular specifications for the different portfolios. 7.2 To estimate the impact of climate-related risks on credit losses, banks are expected to adopt robust modelling techniques combined with expert judgement across the different scenario pathways. The Bank proposes for banks to assess the materiality of climate-related risks for existing business lines and portfolios based on the scope and level of granularity set out in paragraphs 7.3 to 7.5. 7.3 Business exposures (a) Climate-related risks have the potential to affect businesses through transition risks (e.g., increase in costs due to carbon pricing) and physical risks (e.g., severe disruption to operations due to damage of premises and equipment). When projecting credit losses from businesses, banks are to consider both their loan and bond investment portfolios. The Bank proposes for the assessment to be conducted at the sectoral-level (i.e., leveraging on sectoral- level macroeconomic/financial variables that will be provided by the Bank), complemented by a more granular assessment at the counterparty-level. (b) In this regard, the Bank has considered a list of sectoral breakdowns (refer to Appendix 5). These economic sectors have been identified for this exercise based on their sensitivity to changes in transition and physical risks. For counterparties with diversified business lines that are not listed in Appendix 5, the Bank proposes for these counterparties to be classified based on the respective main economic activity or sector of their parent group. (c) The counterparty-level analysis involves deeper scrutiny on cashflows and earnings of individual firms. To enable sufficient coverage of risks, the Bank recommends for the scope of this assessment to: (i) Include at least the top 100 individual business counterparties (entity level) based on exposure size, or those with exposures of more than RM10 million, whichever is larger; and (ii) Comprise the top 5 counterparties in each economic sector, if the firm is not already part of condition (i). Notwithstanding this, the Bank strongly encourages banks to extend the counterparty level analysis beyond their top 100 firms. (d) The Bank expects banks to actively engage with counterparties and collect counterparty-level data such as ESG ratings and GHG emissions level to have a depth of understanding on how the transition and physical risk may affect them under each scenario. Where reliable or comparable climate-related data are not available, banks may consider using reasonable proxies and assumptions as alternatives in their assessment. When assessing the 2024 Climate Risk Stress Testing Exercise – Discussion Paper 16 of 39 Issued on: 30 June 2022 materiality of climate-related risks, the Bank proposes the assessment to also consider the counterparties’ climate mitigation and adaptation plans only if they are already under implementation and are highly likely to be completed. In this regard, banks may find it helpful to leverage on their CCPT classifications for each counterparty to identify each exposure’s degree of transition to sustainable practices. (e) For the remaining business exposures that are not included in the counterparty level analysis, banks are expected to conduct sectoral-level modelling and may leverage on existing stress test credit models. 7.4 Household exposures (a) The large retail portfolio exposure of Malaysian banks are also increasingly vulnerable to climate change. By employing data that is commonly used in traditional stress tests, banks are to apply country-specific macroeconomic variables such as unemployment rate, GDP and changes in property prices to project credit losses from households arising from both transition and physical risks. (b) To provide better clarity on the drivers of climate-related losses, the Bank proposes banks to consider the exposure of households from the following portfolios: (i) Purchase of residential properties and non-residential properties • Increased transition risk due to low energy efficiency of properties, leading to property price discounts and higher cost on their properties to retrofit to greener standards • Increased physical risk as severe physical climate events can cause significant damage to properties in a particular location and lead to property price discounts and lack of insurability (ii) Purchase of passenger cars • Increased transition risk due to the implementation of carbon tax (congestion tax or other traffic limitation regulations) on vehicles to reduce GHG emissions • Increased physical risk due to damages to vehicles from nature- related events like floods (iii) Other household loans (e.g., unsecured lending, securities, etc.) • Contagion impact from borrowers with exposures to property and vehicle that are vulnerable to climate-related risks • Other possible forms of transition risk which would be relevant to this exercise (c) To assess the impact from physical risk events, the Bank proposes the assessment for paragraph 7.4 (b) (i) to be done at the postcode level for domestic exposures. The Bank proposes banks to also consider any indirect impacts from the macroeconomic developments, e.g., due to unemployment, higher inflation, labour supply, lower consumption, etc. 7.5 Overseas operations (a) In this context, overseas operations refer to domestic banking groups’ overseas branches which have exposures to customers or counterparties outside Malaysia. (b) The Bank proposes the coverage of the assessment for overseas operations to be consistent with that of the domestic operations for both the business and household portfolios. While the Bank acknowledges that the assessment may not likely be as granular as that of the domestic exposures, the Bank expects banks to ensure that the level of granularity to be fairly commensurate to the size of exposures and risks faced in the respective jurisdictions. (c) For losses that are not quantifiable (e.g., due to data or modelling limitations), the Bank expects banks to outline in the qualitative questionnaire (as per 2024 Climate Risk Stress Testing Exercise – Discussion Paper 17 of 39 Issued on: 30 June 2022 paragraph 6.3) how customers or individual counterparties are expected to be affected across the transition pathways, along with their climate mitigation and adaptation plans. Banks would also need to indicate the proportion of their exposures that are not quantifiable and assessed this way. ITOs 7.6 For insurance and takaful risk assessment, the Bank proposes ITOs to assess the impact of physical and transition risks on claims, benefit payouts and liabilities. (a) For general ITOs, this largely relates to the impact following potential increase in the severity and frequency of natural catastrophic events. From a transition risk perspective, liabilities of certain lines of business could also be affected by the increasing costs of insuring carbon-intensive industries or business activities. The Bank proposes the assessment to be conducted for the following lines of business: (i) Motor (ii) Fire (iii) Medical and health (iv) Marine, aviation, and transit (v) Personal accident (vi) Contractors’ all risk and engineering (vii) Others Specifically for the physical risk assessment, the Bank proposes the assessment to be done at the postcode level. (b) For life and family ITOs, benefit payouts and liabilities could be affected by changes in mortality and morbidity rates arising from physical risk events, and other factors such as changes in policyholders’ behaviour. Life and family ITOs are expected to conduct the necessary scenario expansion to produce the appropriate parameters for the specific actuarial assumptions under each scenario. For example, the assumed changes to morbidity and mortality rates must be commensurate with the chronic and acute physical risk scenarios, while changes in policyholders’ behaviour may reflect the domestic economic situation at a point in time. The Bank proposes the assessment to be conducted at the insurance and takaful sub-fund level at the minimum i.e.; (i) Participating ordinary life (ii) Participating annuities life (iii) Non-participating ordinary life (iv) Non-participating annuities life (v) Investment-linked (vi) Individual takaful sub-funds 7.7 For market risk, all ITOs will be asked to revalue their financial assets and liabilities based on the prevailing financial market performance throughout the stress test horizon. For assets, all ITOs are to assess the impact by types of assets e.g., Government bonds, corporate bonds, equities, CIS, etc. Specifically for corporate bonds, the Bank proposes for the assessment to be done by rating categories (e.g., AAA, AA, A, government guaranteed, etc.). Questions on portfolio exposure scope and granularity (please elaborate where relevant): 20. Do you agree with the proposed scope and level of granularity? 21. What are the challenges (e.g., specific data gaps or modelling limitations) that would impede your ability to model the assessment at the proposed scope and level of granularity? 2024 Climate Risk Stress Testing Exercise – Discussion Paper 18 of 39 Issued on: 30 June 2022 Banks 22. Do you agree with the proposed scope for the counterparty-level assessment? If not, what would be a more appropriate threshold that the Bank should consider in determining the scope? 23. Beyond the sectors listed in Appendix 5, are there additional sectors that are crucial for banks to conduct the CRST exercise (e.g., due to materiality of banks’ exposures to the sector or the sector’s vulnerability to climate-related risks)? Is there a need for further granularity or a merging of some of the sectors? 24. How would you reflect judgements about counterparties’ current mitigation and adaptation plan in the quantitative assessment? 25. Do you foresee challenges in estimating the impact on the SME segment based on the sub-sectors provided? Are there specific sector(s) that may be especially challenging? 26. Would your institution be able to assess the impact from the household segment based on the portfolio breakdown proposed? 27. To model climate-related risks for the household sector, what kind of data specifications may be useful to be standardised across the industry? 28. For domestic banking groups (DBGs) with exposures to both overseas subsidiaries and branches, have you considered the climate-related risk impact on your overseas subsidiaries as well? 8 Balance sheet approach 8.1 With the extended assessment horizon up to 2050, assessing the impact of the stress scenario on financial institutions’ balance sheet presents a considerable challenge given the expected changes in the surrounding environment and industries. The Bank proposes financial institutions to assume a static balance sheet approach for the ease of implementation of this exercise. Financial institutions shall assume no change in lending exposure and strategy over time and only allow changes resulting from the direct materialisation of risks in the scenarios. 8.2 A key advantage of this approach is it helps to ensure that results from this exercise can be interpreted pertaining to current business models and are comparable across the industry. In addition, as financial institutions are unable to mitigate the impact through assumed management actions, it lowers the risks of underestimating the financial impact. However, this approach may be unrealistic, especially over longer time horizons given the evolution of the industry. 8.3 In contrast, a dynamic balance sheet approach would present more realism to the results as it allows for a shift in lending strategy to accommodate changes in the economy, capturing the feedback loop between the real and financial sectors. For example, increasing industry pressure may result in a financial institution divesting away from carbon-intensive industries and invest in greener sectors. 8.4 While the dynamic approach has its merits, it would pose additional challenges to financial institutions given the length of the time horizon. Modelling management actions at institutional level may not be desirable at this juncture since: (a) It is resource-intensive due to the greater number of assumptions needed; (b) It increases the risk of underestimation of the financial impact; and (c) It could lead to inconsistencies between financial institutions, reducing comparability across the industry. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 19 of 39 Issued on: 30 June 2022 8.5 Notwithstanding this, the Bank proposes financial institutions to outline the potential management actions they expect to undertake under each scenario, and how these could affect the quantitative results as part of the supplementary qualitative questionnaire. This would be useful for financial institutions to start developing plans surrounding possible actions and changes in business strategies, and for the Bank to estimate the potential second-round impact to financial stability and the wider economy. Questions on balance sheet approach (please elaborate where relevant): 29. What could potentially be useful to complement the static balance sheet approach given its limitation? 30. What are the possible challenges in reflecting and quantifying future management actions in the supplementary questionnaire? 2024 Climate Risk Stress Testing Exercise – Discussion Paper 20 of 39 Issued on: 30 June 2022 PART C CONDUCT/FORMAT OF THE EXERCISE 9 Submission requirements 9.1 Similar to regular stress test exercises, the Bank proposes financial institutions to report the outcome of the 2024 CRST exercise based on a list of selected key metrics. Nevertheless, given the added dimensions that climate assessment presents (e.g., geographical locations and climate mitigation and adaptation plans), the Bank plans to request data from these aspects as well, either quantitatively or qualitatively, to provide sufficient insights into the relevant vulnerabilities and exposures. 9.2 The Bank plans to provide standardised templates for the quantitative reporting. Overall, the Bank proposes the quantitative outputs to be reported at base position (i.e., 2023), followed by an interval of five years starting from year 2025 until 2050 (refer to para 5.15). (a) Specifically for banks, the Bank proposes the following key metrics: (i) Exposure at default (RM million) (ii) Estimated probability of default (%) (iii) Estimated loss given default (%) (iv) Total increase in expected credit losses (RM million) (v) Increase in MFRS 9 Stage 2 and Stage 3 exposures during the year (RM million) (vi) Top 5 individual business counterparties in each economic sector (b) For ITOs, the Bank proposes the following key metrics: (i) Surplus arising for life and family ITOs (ii) Assets (e.g., property, plant and equipment, debt investments, equity investments, cash, and deposits etc.) (iii) Liabilities (e.g., net life/family liabilities, and premiums and claims liabilities) (iv) Premiums (at base position) (v) Net benefit payouts for life and family ITOs (vi) Net claims incurred by types of perils and lines of business for general ITOs The lists above are not exhaustive and may be augmented, taking into consideration industry feedback. 9.3 In addition to aggregated figures, the Bank also proposes for financial institutions to report the key metrics specified under paragraph 9.2 based on the following dimensions: (a) Geographical location (b) Sectoral breakdown (c) Counterparty level (d) Portfolio level The scope and level of granularity for these dimensions are not expected to be more intensive than what have been proposed in Section 7. For example, the request for sectoral breakdown reporting for non-financial corporate exposures will be in line with the list proposed under paragraph 7.3 and will not be set at a more granular sub-sector level. Similarly, for ITOs, the breakdown by types of portfolio will at most be consistent with the lines of business and insurance/takaful sub-funds defined under paragraph 7.6. Any further granular breakdown beyond the stipulations under Section 7 may still be considered, but the reporting will be based on a best effort basis. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 21 of 39 Issued on: 30 June 2022 9.4 Additionally, financial institutions are also expected to fill up a qualitative questionnaire for selected financial risks. In addition to what have been mentioned in paragraph 6.3 and 8.5, financial institutions will also report their learning points and challenges in running the CRST exercise. This information is expected to inform, among others, future work priorities for both the industry and the Bank. Questions on submission requirements: 31. Would the proposed key metrics accurately capture the climate-related risks faced by your institution? Are there any other metrics that you think the Bank should consider? 32. Do you agree with the proposed breakdown/dimensions for the quantitative submissions? 33. Are there other areas that you think the Bank should consider when preparing the qualitative questionnaire? 10 Governance 10.1 Financial institutions will be expected to have in place an internal governance process around the conduct of the CRST exercise and the data submission, consistent with the expectations set out in the CRMSA exposure draft. This includes effective challenges from senior management, including the relevant committees and the board of directors. The Bank expects all the key issues, considerations, approvals, and changes made following the deliberations to be recorded accordingly. The quantitative reporting templates and the qualitative questionnaire shall also be completed as accurately as possible. 11 Next steps and timeline 11.1 In addition to the written feedback as invited in the beginning of this document, the Bank also plans to organise engagement sessions which may be conducted, among others, via the JC3 platform. An area particularly of interest is localisation of physical risk scenarios and variables, especially that for acute physical risk, to fit into the broader scenarios. The Bank invites local climate experts or institutions with the relevant solutions to reach out for potential collaboration on this area. 11.2 Data initiatives will also continue to be pursued via the JC3 Sub-committee on Bridging Data Gaps. In the immediate term, the Sub-committee will work with key public and private sector partners to identify critical data needs, including for the purpose of the CRST exercise, and map them to the relevant data sources. On this, a data catalogue is expected to be published by end-2022. Other longer-term initiatives by the Sub-committee are also underway, including efforts to address the limitation surrounding availability of sustainable financing and investment data, and forward-looking climate data. 11.3 Based on industry responses to this discussion paper and further engagements, the Bank will finalise the key elements of the CRST and publish a methodology paper by end-2023. The methodology paper will consist of the final scenarios, including the relevant variables, and guidance on other elements such as the expected risk coverage and level of granularity. Financial institutions will run the industry-wide CRST exercise in 2024 and be given sufficient time to complete the exercise, which covers both quantitative and qualitative elements. Based on the submission of results by financial institutions, the Bank intends to conduct an assessment to size up a system-wide impact and identify the relevant vulnerabilities. The Bank plans to 2024 Climate Risk Stress Testing Exercise – Discussion Paper 22 of 39 Issued on: 30 June 2022 publish the aggregated results and immediate next steps by 2025 (refer to Figure 4 for the summary of the exercise). 11.4 While the Bank does not plan to publish financial institution-specific results, the Bank may share some indicative ranges of outcomes to provide more insights on climate impact. The results will also supplement supervisors’ knowledge of individual institutions’ vulnerability to climate-related risks, as well as their governance and management of these risks. Figure 4: Summary of the Proposed 2024 CRST Exercise 11.5 The industry plays an essential role to the success of this exercise. Hence, in the run-up to the exercise, the Bank strongly recommends financial institutions to begin accelerating existing efforts to strengthen their capabilities in assessing and managing climate-related risks, in line with the various complementary initiatives highlighted in paragraphs 1.3 and 1.4. This can include building the necessary data infrastructure, models, and resource capacity to assess climate-related risks. Financial institutions are also strongly encouraged to exchange relevant knowledge and expertise, and collaborate where possible, leveraging on platforms such as the JC3 Sub-Committees to conduct knowledge sharing sessions and to advance certain strategic collaborations such as data collection. 11.6 While the Bank recognises the extent of effort and capacity building needed for the 2024 CRST exercise, the Bank expects financial institutions to adopt a long-term view when investing in internal capabilities. The level of sophistication, quality and granularity of the climate risk stress testing techniques are expected to become more complex over time, especially as other important elements such as the consideration of liability risk (in addition to physical and transition risks), and the 2024 Climate Risk Stress Testing Exercise – Discussion Paper 23 of 39 Issued on: 30 June 2022 interlinkages between climate change and biodiversity loss17 are incorporated. As such, it is crucial for the industry to kickstart the process now, with the intention to further refine the stress testing scope and technical capabilities in the future. 17 Refer to the joint Bank Negara Malaysia - World Bank research paper on “An Exploration of Nature-Related Financial Risks in Malaysia”. Questions on next steps and timeline: 34. Do you agree with the proposed broad timeline? 35. Based on the overall CRST proposals, how long do you think your institution would need to run the exercise? 36. Do you have suggestions on potential agencies or service providers that the Bank could collaborate with in relation to the localisation of physical risk scenarios? 37. Data gap remains a key challenge. How do you think the industry can effectively work together to secure the essential data needs for the purpose of this exercise? Kindly refer to Appendix 4 on potential data gaps at this juncture that would require further effort by the industry. Please provide practical examples in the context of this exercise. https://www.bnm.gov.my/documents/20124/3770663/wb-bnm-2022-report.pdf https://www.bnm.gov.my/documents/20124/3770663/wb-bnm-2022-report.pdf https://www.bnm.gov.my/documents/20124/3770663/wb-bnm-2022-report.pdf 2024 Climate Risk Stress Testing Exercise – Discussion Paper 24 of 39 Issued on: 30 June 2022 PART D APPENDICES Appendix 1 Principles for climate risk management and scenario analysis Governance Principle 1: The board and senior management shall exercise effective oversight of climate-related risks to safeguard the financial institution’s resilience against the adverse impacts of climate change. Financial institutions shall clearly identify the relevant responsibilities for managing climate-related risks and assign these responsibilities throughout the organisation structure. Financial institutions shall manage climate-related risks proportionate to the materiality of climate-related risks, taking into consideration the size, nature and complexity of the financial institutions’ business model. Principle 2: The board and senior management shall ensure that they have a sound understanding of climate-related risks to inform the financial institution’s business and risk management strategies. Principle 3: Financial institutions shall embed climate-related risks into their internal control frameworks across the three lines of defence to ensure the robust management of material climate-related risks. Strategy Principle 4: Financial institutions shall incorporate the potential impact of material climate-related risks into their business strategies to strengthen resilience against climate-related risks and support orderly transitions. Risk Appetite Principle 5: Financial institutions shall embed climate-related risks into the risk appetite framework, including the potential long-term impact of these risks as drivers of existing types of material risks. Financial institutions shall reflect these material risks in the internal capital adequacy assessment process. Risk Management Principle 6: Financial institutions shall integrate material climate-related risk considerations into their existing enterprise-wide risk management framework. This must be supported by a reliable approach to identifying, measuring, monitoring and controlling material risks. Principle 7: Financial institutions shall continuously develop data capabilities, tools and methodologies to effectively aggregate and report material climate-related risks. Principle 8: Financial institutions shall consider climate-related risks as part of comprehensive risk assessments to identify and measure all material risks. Principle 9: Financial institutions shall actively monitor and escalate material and potential climate-related risks in a timely manner. This is supported by appropriate data, risk analysis and clear reporting procedures. Principle 10: Financial institutions shall put in place appropriate risk controls when managing current and potential impact of material climate- related risks. Financial institutions shall implement controls in a timely manner to mitigate the potential build-up in concentration to climate- related risks, in line with the risk appetite and business strategy. Principle 11: Climate-related risks can have a significant impact on other major risk types. In this regard, financial institutions shall understand the transmission and impact of climate-related risks on existing risk types and 2024 Climate Risk Stress Testing Exercise – Discussion Paper 25 of 39 Issued on: 30 June 2022 ensure their risk management systems and processes account for material climate-related risks. Scenario Analysis Principle 12: Financial institutions must employ scenario analysis to determine the resilience of their business strategies to material climate- related risks. Given the complexity and evolving nature of these risks, insights from the scenario analyses shall inform the risk profile, risk appetite and risk management framework. Principle 13: Financial institutions must ensure scenario analysis exercises are relevant, follow certain prescribed and well-known standards, are conducted at appropriate time horizons and contain sufficient level of granularity. This is proportionate to the materiality of climate-related risks associated with the financial institutions’ business and operations. Disclosure Principle 14: Financial institutions shall produce reliable, meaningful and comparable climate-related disclosures, to support informed decisions by stakeholders and reinforce the effective management of material climate- related risks in the financial sector. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 26 of 39 Issued on: 30 June 2022 Appendix 2 References for modelling approaches The Bank has compiled a list of papers on modelling approaches, which financial institutions may find useful to construct their own models. This list should not be treated as exhaustive and does not signal the Bank’s preference for a particular modelling approach. Paper Source Overview of Environmental Risk Analysis by Financial Institutions NGFS (2020) Case Studies of Environmental Risk Analysis Methodologies See ‘Part I ERA for Banks’ and ‘Part II ERA for Institutional Investors and Insurers’ NGFS (2020) Climate-Related Scenarios for Financial Stability Assessment: An Application to France Bank of France (2020) Getting Started on Physical Climate Risk Analysis in Finance – Available Approaches and The Way Forward Institute for Climate Economics (2018) Climate Stress Testing Federal Reserve Bank of New York, Staff Report (2021) Navigating a New Climate: Assessing Credit Risk and Opportunity in a Changing Climate UNEP-FI (2018) Integrating Climate Risks into Credit Risk Assessment Monnin (2018) A Framework for Assessing Financial Impacts of Physical Climate Change: A Practitioner’s Aide for the General Insurance Sector Bank of England, Prudential Regulation Authority (2019) Methodological Principles of Insurance Stress Testing – Climate Change Component EIOPA (2022) Methodological Principles of Insurance Stress Testing EIOPA (2020) Climate Financial Risk Forum Various guides and resources. ‘Scenario Analysis – Data and tools providers spreadsheet’, in particular, contains a list of 3rd party vendors for climate models/frameworks CFRF https://www.ngfs.net/sites/default/files/medias/documents/overview_of_environmental_risk_analysis_by_financial_institutions.pdf https://www.ngfs.net/sites/default/files/medias/documents/case_studies_of_environmental_risk_analysis_methodologies.pdf https://publications.banque-france.fr/en/climate-related-scenarios-financial-stability-assessment-application-france https://www.i4ce.org/wp-core/wp-content/uploads/2018/12/I4CE-ClimINVEST_2018_Getting-started-on-physical-climate-risk-analysis.pdf https://www.i4ce.org/wp-core/wp-content/uploads/2018/12/I4CE-ClimINVEST_2018_Getting-started-on-physical-climate-risk-analysis.pdf https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr977.pdf https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr977.pdf https://www.unepfi.org/wordpress/wp-content/uploads/2018/07/NAVIGATING-A-NEW-CLIMATE.pdf https://www.cepweb.org/wp-content/uploads/2019/02/CEP-DN-Integrating-climate-risks-into-credit-risk-analysis.pdf https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/2019/a-framework-for-assessing-financial-impacts-of-physical-climate-change.pdf https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/2019/a-framework-for-assessing-financial-impacts-of-physical-climate-change.pdf https://www.eiopa.europa.eu/document-library/methodology/methodological-principles-of-insurance-stress-testing-climate-change_en?source=search https://www.eiopa.europa.eu/document-library/methodology/methodological-principles-of-insurance-stress-testing_en?source=search https://www.fca.org.uk/transparency/climate-financial-risk-forum 2024 Climate Risk Stress Testing Exercise – Discussion Paper 27 of 39 Issued on: 30 June 2022 Appendix 3 Full list of discussion questions 1. Are there any other factors that the Bank should consider when setting the scope of participation and level of applicability of the 2024 CRST exercise? 2. What kind of challenges would your institution face in order to conduct the analysis on overseas operations’ exposures? 3. Do the choice of scenarios, specifications and time horizon provide sufficient balance between allowing a full assessment of the climate-related risks while also being tractable for financial institutions’ modelling capabilities? 4. In selecting scenarios to capture the impact of transition risks, the Bank opted for the Delayed Transition scenario given its plausibility in Malaysia’s context16. Do you agree with this approach? 5. How relevant is the Divergent Net Zero scenario developed by NGFS, which assumes divergent policies across sectors, in the Malaysia’s context? 6. Is there sufficient differentiation between the Current Policies and NDCs scenarios in Malaysia’s context to warrant using both Hot House World scenarios in the CRST exercise, or would one or the other suffice? 7. Do you agree with the Bank’s proposal to exclude orderly scenario(s) from the 2024 CRST exercise? 8. Beyond those proposed above, are there any other scenarios, informed by peer-reviewed research, that the Bank should consider? 9. Are there specific narratives or parameters relevant to Malaysia that the Bank should consider in refining the proposed climate scenarios beyond what has already been provided by the NGFS? 10. Are the climate, macroeconomic and financial variables adequate in capturing the climate-related risks in the proposed scenarios, allowing for further scenario expansion, if any? Are there other climate, macroeconomic or financial variables that the Bank should consider providing for this exercise? 11. Are there any other external data sources that can be added to the current list in Appendix 4? 12. Would the proposed assessment horizon (i.e., 30 years) adequately capture the impact of climate-related risks on financial institutions? What are the potential challenges that financial institutions might face in meeting this requirement, e.g., methodology, processes, technology, and data limitations? 13. Do you agree with the Bank’s proposal to bring forward the materialisation of physical risks (expected in the second half of the century) into the CRST time horizon? 14. [Banks only] Do you agree with the Bank’s proposal to quantify the climate impact on banks from a credit risk perspective only? 15. [Banks only] Does your institution currently have, or plan to have, resources and capability to quantitatively model the climate-related risks impact from credit, market, liquidity, and operational risks perspective over a 30-year horizon? 16. [Banks only] Besides the risk channels listed above, are there other significant risk channels that are relevant for banks in Malaysia and should be considered by the Bank? 2024 Climate Risk Stress Testing Exercise – Discussion Paper 28 of 39 Issued on: 30 June 2022 17. [ITOs only] Do you agree with the Bank’s proposal to quantify the impact of climate change from insurance and takaful, and market risks perspectives only? 18. [ITOs only] Does your institution currently have, or plan to have, resources and capability to quantitatively model the climate-related risks impact from insurance/takaful, market, credit, liquidity and operational risks perspective over a 30-year horizon? 19. [ITOs only] Besides the risk channels listed above, are there other significant risk channels that are relevant for ITOs in Malaysia and should be considered by the Bank? 20. Do you agree with the proposed scope and level of granularity? 21. What are the challenges (e.g., specific data gaps or modelling limitations) that would impede your ability to model the assessment at the proposed scope and level of granularity? 22. [Banks only] Do you agree with the proposed scope for the counterparty-level assessment? If not, what would be a more appropriate threshold that the Bank should consider in determining the scope? 23. [Banks only] Beyond the sectors listed in Appendix 5, are there additional sectors that are crucial for banks to conduct the CRST exercise (e.g., due to materiality of banks’ exposures to the sector or the sector’s vulnerability to climate-related risks)? Is there a need for further granularity or a merging of some of the sectors? 24. [Banks only] How would you reflect judgements about counterparties’ current mitigation and adaptation plan in the quantitative assessment? 25. [Banks only] Do you foresee challenges in estimating the impact on the SME segment based on the sub-sectors provided? Are there specific sector(s) that may be especially challenging? 26. [Banks only] Would your institution be able to assess the impact from the household segment based on the portfolio breakdown proposed? 27. [Banks only] To model climate-related risks for the household sector, what kind of data specifications may be useful to be standardised across the industry? 28. [Banks only] For domestic banking groups (DBGs) with exposures to both overseas subsidiaries and branches, have you considered the climate-related risk impact on your overseas subsidiaries as well? 29. What could potentially be useful to complement the static balance sheet approach given its limitation? 30. What are the possible challenges in reflecting and quantifying future management actions in the supplementary questionnaire? 31. Would the proposed key metrics accurately capture the climate-related risks faced by your institution? Are there any other metrics that you think the Bank should consider? 32. Do you agree with the proposed breakdown/dimensions for the quantitative submissions? 33. Are there other areas that you think the Bank should consider when preparing the qualitative questionnaire? 34. Do you agree with the proposed broad timeline? 35. Based on the overall CRST proposals, how long do you think your institution would need to run the exercise? 2024 Climate Risk Stress Testing Exercise – Discussion Paper 29 of 39 Issued on: 30 June 2022 36. Do you have suggestions on potential agencies or service providers that the Bank could collaborate with in relation to the localisation of physical risk scenarios? 37. Data gap remains a key challenge. How do you think the industry can effectively work together to secure the essential data needs for the purpose of this exercise? Kindly refer to Appendix 4 on potential data gaps at this juncture that would require further effort by the industry. Please provide practical examples in the context of this exercise. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 30 of 39 Issued on: 30 June 2022 Appendix 4 Indicative list of potential data sources Below are selected data sources that may be useful for purpose of the CRST exercise. This list should not be treated as exhaustive and does not signal the Bank’s preference for a particular data source. Some of these data sources will also be featured in the Data Catalogue by JC3 Sub-committee on Bridging Data Gaps that is expected to be published by 2022. Data item Potential sources Remarks All NDC targets (including Malaysia) UNFCCC The source contains detailed information on NDC pledges across countries. This information may be useful to understand the national policies of which the overseas branches are operating in, as well as to understand the details of Malaysia’s NDC plans and commitments. Energy-efficiency indicators IEA The database contains annual data from 2000 covering energy consumption by energy product, carbon emissions and associated indicators across four sectors of final consumption (residential, services, industry, transport). The data may be useful for transition risk analysis from household exposures, for example, through the residential sector. Detailed information is available upon subscription. Environmental, Social & Governance (ESG) score/rating BURSA – ESG Rating MSCI – ESG Rating Individual companies’ statements or reports May be useful for counterparty level assessment. Where data are insufficient or unavailable, financial institutions need to engage directly with counterparties (e.g., through industry collaboration) or use reasonable proxies and assumptions as alternatives. GHG emissions (scope 1, 2, 3) Individual companies’ statements or reports Green / Sustainable stock / bonds market and indices ACMF Climate Bonds BIX FTSERUSSELL May be useful for both sectoral and counterparty level assessment. For counterparty level assessment, where data are insufficient or unavailable, financial institutions need to engage directly with counterparties (e.g., through industry collaboration) or use reasonable proxies and assumptions as alternatives. Green building Green Building Index GreenRE Given the data on green certified buildings by projects and developers, this may be useful for transition risk analysis at counterparty level assessment, particularly for the real estate sector. https://www4.unfccc.int/sites/NDCStaging/Pages/All.aspx https://www.iea.org/data-and-statistics/data-product/energy-efficiency-indicators https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good-bursa-malaysia-f4gbm-index https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good-bursa-malaysia-f4gbm-index https://www.msci.com/our-solutions/esg-investing/esg-ratings https://www.theacmf.org/initiatives/sustainable-finance/list-of-asean-green-social-sustainability-bondssukuk https://www.climatebonds.net/market/data/#issuer-type-charts https://www.bixmalaysia.com/learning-center/sustainable-responsible-investment-center https://www.ftserussell.com/products/indices/ftse4good https://www.greenbuildingindex.org/ https://www.greenbuildingindex.org/ https://www.greenre.org/ 2024 Climate Risk Stress Testing Exercise – Discussion Paper 31 of 39 Issued on: 30 June 2022 Mortality rate World Bank Life and family ITOs may find this useful for insurance and takaful liability risks analysis. NGFS scenarios NGFS Scenario Portal NGFS Scenario Explorer Useful to understand the detailed narratives of the NGFS scenario and obtain the relevant projected variables that are available at regional and selected national levels (e.g., emissions and macroeconomic variables). May be useful for scenarios expansion and for analysis on overseas operations. Projected climate impacts based on NGFS scenarios and other relevant scenarios such as the IPCC scenarios Climate Impact Explorer More granular data is available for Malaysia (including at the state level) and other countries. May be useful for scenarios expansion and for analysis of overseas operations. Projected climate variables across countries based on SSP scenarios Worldbank – Climate Change Knowledge Portal Projections based on SSP scenarios for more granular climate variables such as number of hot days, number of frost days, days with precipitation exceeding 20mm and sea level rise, for Malaysia and other countries. May be useful for scenario expansion and analysis of overseas operations. Statistics of vector-borne and communicable diseases in Malaysia Portal Data Terbuka The database contains statistics on vector- borne and communicable diseases such as malaria, dengue haemorrhagic fever and cholera in Malaysia. May be useful for scenario expansion, specifically on mortality and morbidity modelling by ITOs. https://data.worldbank.org/country/malaysia https://www.ngfs.net/ngfs-scenarios-portal/ https://www.ngfs.net/ngfs-scenarios-portal/ https://data.ene.iiasa.ac.at/ngfs/#/downloads https://data.ene.iiasa.ac.at/ngfs/#/downloads https://climate-impact-explorer.climateanalytics.org/impacts/?region=MYS&indicator=tasAdjust&scenario=h_cpol&warmingLevel=1.5&temporalAveraging=annual&spatialWeighting=area&compareYear=2030 https://climate-impact-explorer.climateanalytics.org/impacts/?region=MYS&indicator=tasAdjust&scenario=h_cpol&warmingLevel=1.5&temporalAveraging=annual&spatialWeighting=area&compareYear=2030 https://climateknowledgeportal.worldbank.org/country/malaysia/vulnerability https://climateknowledgeportal.worldbank.org/country/malaysia/vulnerability https://climateknowledgeportal.worldbank.org/country/malaysia/vulnerability https://www.data.gov.my/data/en_US/organization/department-of-statistics?groups=kesihatan&page=2 2024 Climate Risk Stress Testing Exercise – Discussion Paper 32 of 39 Issued on: 30 June 2022 Appendix 5 Indicative list of sectoral breakdown Sector Sub-sector Agriculture, forestry, and fishing Oil palm Paddy Rubber Livestock Fishing/aquaculture Forestry and logging Other agriculture Mining and quarrying Mining of coal and lignite Extraction of crude petroleum Extraction of natural gas Other mining and quarrying Manufacturing Food products and beverages Tobacco products Textiles and apparel Automotive Furniture Wood, paper and paper products Rubber and plastic Building materials Electrical and electronic products Others Construction Construction of buildings Civil engineering Services Electricity, gas, steam, and air conditioning supply Coal generation Natural gas generation Petroleum generation Nuclear generation Wind generation Solar generation Hydroelectric generation Other generation Electricity delivery Water supply; sewerage, waste management and remediation activities Water supply Sewerage, waste management Wholesale and retail trade; repair of motor vehicles and motorcycles Wholesale and retail trade – automotive Wholesale and retail trade – others Accommodation and food service activities Hotels & restaurants Transportation and storage Land transport; transport via pipelines Water transport Air transport Information and communication Information and communication Financial and insurance/ takaful activities Financial and insurance/ takaful activities Real estate activities Real estate activities Others Other services 2024 Climate Risk Stress Testing Exercise – Discussion Paper 33 of 39 Issued on: 30 June 2022 PART E GLOSSARY Bottom-up A bottom-up approach to climate stress testing is when a firm uses its own framework as part of a system-wide or supervisory exercise. Carbon dioxide removal (CDR) Anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products. It includes existing and potential anthropogenic enhancement of biological or geochemical sinks and direct air capture and storage, but excludes natural CO2 uptake not directly caused by human activities Climate adaptation Refers to the process or actions taken to lower the negative effects and/or moderate harm caused by climate change Climate mitigation Refers to the process of reducing or preventing emission of GHG into the atmosphere Climate-related risks The potential risks that may arise from climate change, their related impacts and their economic and financial consequences. Drivers of climate-related risks, namely physical, transition and liability risks, that are sources of financial risks. Climate resilience Iterative processes for managing change within complex systems in order to reduce disruptions and enhance opportunities associated with climate change. Counterparty A counterparty is the other party participating in a transaction, which could be a legal entity, unincorporated entity or collection of entities to which an exposure of financial risk may exist. Credit risk Credit risk (including counterparty credit risk) is the risk of a counterparty failing to perform its obligations. ESG ESG (environmental, social and governance) refers to a set of criteria that plays a role in the investment decision-making process or in a company’s operations. Environmental factors consider how an investment or a company contributes to environmental issues such as climate change and sustainability. Social factors examine the social impacts of an investment or a company on communities. Governance relates to transparency and legal compliance of an investment or a company’s operations, for instance in terms of accounting and shareholders’ rights. Greenhouse gas (GHG) Emissions Refers to gases that absorb and emit radiation at specific wavelengths within the spectrum of terrestrial radiation emitted by the Earth’s surface, the atmosphere itself and by clouds. This property causes the greenhouse effect. Water vapour (H2O), carbon dioxide (CO₂), nitrous oxide (N₂O), methane (CH₄) and ozone (O₃) are the primary GHGs in the Earth’s atmosphere. Moreover, there are a number of entirely human-made GHGs in the atmosphere, such as the halocarbons and other chlorine- and bromine-containing substances, dealt with under the Montreal Protocol. Besides CO₂, N₂O and CH₄, the Kyoto Protocol deals with the GHGs sulphur hexafluoride (SF6), hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs). GHG emissions are separated into three scopes: • Scope 1 covers direct emissions from owned or controlled sources. • Scope 2 covers indirect emissions from purchased electricity consumed by the reporting entity. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 34 of 39 Issued on: 30 June 2022 • Scope 3 covers indirect emissions from assets not owned or activities not controlled by the reporting entity along its value chain (upstream and downstream). Liability risk Risks stemming from parties that are seeking compensation for losses these parties may have suffered from the physical or transition risks from climate change. The climate-related litigations can directly and indirectly impact financial losses of financial institutions. Liquidity risk Ability of the financial institution to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses, including both market and funding liquidity. The risk that an ITO is unable to realise its investments and other assets in a timely manner to meet its financial obligations, including collateral needs, as they fall due. Market risk Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. Nationally Determined Contributions (NDC) A term used under the United Nations Framework Convention on Climate Change (UNFCCC) whereby a country that has joined the Paris Agreement outlines its plans for reducing its GHG emissions. In some countries the NDC would also address how the countries will adapt to climate change impacts and what support they need from, or will provide to, other countries to adopt low-carbon pathways and to build climate resilience. Operational risk Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk may result in direct financial losses as well as indirect financial losses (e.g., loss of business and market share) due to reputational damage. Paris Agreement An international agreement signed in 2015 to keep the average global temperature rise this century well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C. Pathways The temporal evolution of natural and/or human systems towards a future state. Pathway concepts range from sets of quantitative and qualitative scenarios or narratives of potential futures to solution oriented decision-making processes to achieve desirable societal goals. Pathway approaches typically focus on biophysical, techno- economic and/or socio-behavioural trajectories and involve various dynamics, goals and actors across different scales. Physical risks Economic costs and financial losses resulting from the increasing severity and frequency of weather events or longer-term shifts in climate patterns. This includes indirect effects of climate change such as loss of ecosystem services (e.g., desertification, water shortage, degradation of soil quality or marine ecology). • Acute physical risk refers to the increased severity and frequency of extreme weather events such as heatwaves, landslides, floods, wildfires, and storms. • Chronic physical risk refers to longer-term gradual shifts of the climate such as changes in precipitation, ocean acidification and rising sea levels and average temperatures. Scenario A plausible description of how the future may develop based on a coherent and internally consistent set of assumptions about key 2024 Climate Risk Stress Testing Exercise – Discussion Paper 35 of 39 Issued on: 30 June 2022 driving forces (e.g., rate of technological change) and relationships. Note that scenarios are neither predictions nor forecasts but are used to provide a view of the implications of developments and actions. Transition risks The risks related to the process of adjustment towards a low-carbon economy. These drivers represent climate-related changes that could generate, increase or reduce transition risks. They include changes in public sector (generally government) policies, legislation and regulation, changes in technology and changes in market and customer sentiment, each of which has the potential to generate, accelerate, slow or disrupt the transition towards a low-carbon economy. Transmission channels The causal chains that explain how climate-related risk drivers give rise to financial risks that impact financial institutions directly or indirectly through their counterparties, the assets they hold and the economy in which they operate. Source: Adapted from IPCC, IEA, NGFS, BCBS 2024 Climate Risk Stress Testing Exercise – Discussion Paper 36 of 39 Issued on: 30 June 2022 PART F ACRONYMS BCBS Basel Committee on Banking Supervision CCPT Climate Change and Principle-based Taxonomy CDR Carbon dioxide removal CIS Collective Investment Schemes CRMSA Climate Risk Management and Scenario Analysis CRST Climate risk stress testing DFIA Development Financial Institutions Act EMEAP Executives’ Meeting of East Asia Pacific Central Banks ESG Environmental, social and governance FSA Financial Services Act GDP Gross domestic product GHG Greenhouse gas GVA Gross value added IAIS International Association of Insurance Supervisors IAM Integrated Assessment Models IEA International Energy Agency IFSA Islamic Financial Services Act IPCC Intergovernmental Panel on Climate Change ITOs Insurers and takaful operators JC3 Joint Committee on Climate Change NDCs Nationally Determined Contributions NGFS Network for Greening the Financial System NGOs Non-governmental organisations SIF Sustainable Insurance Forum SME Small and medium enterprise SSP Shared Socioeconomic Pathways VBIAF Value-based Intermediation Financing and Investment Impact Assessment Framework 2024 Climate Risk Stress Testing Exercise – Discussion Paper 37 of 39 Issued on: 30 June 2022 PART G REFERENCES Alogoskoufis, S. (2021). ‘ECB economy-wide Climate Stress Test: Methodology and Results’. European Central Bank, 281. APRA. (2021). ‘Climate Vulnerability Assessment’. Australian Prudential Regulation Authority. Allen et. al. (2020). ‘Climate-Related Scenarios for Financial Stability Assessment: An Application to France’. Banque de France. ACPR. (2019). ‘French Banking Groups Facing Climate Change-Related Risks’. Autorité de Contrôle Prudentiel et de Résolution, 101. BCBS. (2022). ‘Principles for the Effective Management and Supervision of Climate-Related Financial Risks’. Basel Committee on Banking Supervision. BoC-OSFI. (2022). ‘Using Scenario Analysis to Assess Climate Transition Risk’. Bank of Canada and Office of the Superintendent of Financial Institutions. Baudino, P., and Svoronos, J.P. (2021). ‘Stress-Testing Banks for Climate Change – A Comparison of Practices’. Bank for International Settlements, 34. BCBS. (2021). ‘Climate-Related Financial Risks – Measurement Methodologies’. Basel Committee on Banking Supervision. BCBS. (2021). ‘Climate-Related Risk Drivers and Their Transmission Channels’. Basel Committee on Banking Supervision. BOE. (2021). ‘Guidance for Participants of the 2021 Biennial Exploratory Scenario: Financial Risks from Climate Change’. Bank of England. BOE. (2021). ‘Key Elements of the 2021 Biennial Exploratory Scenario: Financial Risks from Climate Change’. Bank of England. BCBS. (2020). ‘Climate-Related Financial Risks: A Survey on Current Initiatives’. Basel Committee on Banking Supervision. BOE. (2019). ‘A Framework for Assessing Financial Impacts of Physical Climate Change: A Practitioner’s Aide for the General Insurance Sector’. Bank of England. BOE. (2019). ‘General Insurance Stress Test: Scenario Specification, Guidelines and Instructions’. Bank of England. BOE. (2019). ‘Life Insurance Stress Test: Scenario Specification, Guidelines and Instructions’. Bank of England. BOE. (2019). ‘The 2021 Biennial Exploratory Scenario on the Financial Risks from Climate Change’. Bank of England. Clerc et. al. (2021). ‘The Main Results of the 2020 Climate Pilot Exercise’. Autorité de Contrôle Prudentiel et de Résolution, 122. Carlin et. al. (2021). ‘UNEP FI’s Comprehensive Good Practice Guide to Climate Stress Testing’. United Nations Environment Programme Finance Initiative. Clerc et. al. (2020). ‘Scenarios and Main Assumptions of the ACPR Pilot Climate Exercise’. Autorité de Contrôle Prudentiel et de Résolution. ECB. (2021). ‘Climate Risk Stress Test: SSM Stress Test 2022’. European Central Bank. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 38 of 39 Issued on: 30 June 2022 ECB. (2021). ‘Climate-Related Risk and Financial Stability’. European Central Bank. Economic Planning Unit. (2021). ‘Twelfth Malaysia Plan’. Federal Government of Malaysia. EIOPA. (2022). ‘Methodological Principles of Insurance Stress Testing – Climate Change Component’. European Insurance and Occupational Pensions Authority. EIOPA. (2020). ‘Second Discussion Paper on Methodological Principles of Insurance Stress Testing’. European Insurance and Occupational Pensions Authority. EIOPA. (2019). ‘Methodological Principles of Insurance Stress Testing’. European Insurance and Occupational Pensions Authority. Ens, E., and Johnston, C. (2020). ‘Scenario Analysis and the Economic and Financial Risks from Climate Change’. Bank of Canada. Ismail Yaakob. (2021). ‘Komitmen Malaysia Dalam Menerajui Agenda Perubahan Iklim Negara’. Kenyataan Media Yab Perdana Menteri. Ismail Yaakob. (2021). ‘Ucapan Yab Dato’ Sri Ismail Sabri Yaakob Perdana Menteri Malaysia Semasa Membentangkan Usul Mengenai Rancangan Malaysia Kedua Belas, 2021-2025: Keluarga Malaysia – Makmur, Inklusif, Mampan Di Dewan Negara’. Jung, H., Engle, R., and Berner, R. (2021). ‘Climate Stress Testing’. Federal Reserve Bank of New York, 977. Kalkuhl, M., and Wenz, L. (2020). ‘The Impact of Climate Conditions on Economic Production. Evidence from a Global Panel of Regions’. Journal of Environmental Economics and Management, 103. Krznar et. al. (2022). ‘Climate Risk Analysis in FSAPs’. International Monetary Fund. Ministry of Environment and Water. (2020). ‘Malaysia: Third Biennial Update Report to the UNFCC’. Federal Government of Malaysia. NGFS. (2021). ‘NGFS Climate Scenarios for Central Banks and Supervisors’. Network for Greening the Financial System. NGFS. (2021). ‘Scenarios in Action: A Progress Report on Global Supervisory and Central Bank Climate Scenario Exercises’. Network for Greening the Financial System. NGFS. (2020). ‘Guide to Climate Scenario Analysis for Central Banks and Supervisors’. Network for Greening the Financial System. NGFS. (2020). ‘Overview of Environmental Risk Analysis by Financial Institutions’. Network for Greening the Financial System. NGFS. (2020). ‘The Macroeconomic and Financial Stability Impacts of Climate Change: Research Priorities’. Network for Greening the Financial System. NGFS. (2019). ‘A Call for Action: Climate Change as a Source of Financial Risk’. Network for Greening the Financial System. Tang K.H. (2019). ‘Climate Change in Malaysia: Trends, Contributors, Impacts, Mitigations and Adaptations’. Curtin University Malaysia. TCFD. (2017). ‘The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities’. Task Force on Climate-Related Financial Disclosures. Viegas et. al. (2021). ‘Global Workshop on Climate Scenario Analysis and Stress Testing’. Bank of England. 2024 Climate Risk Stress Testing Exercise – Discussion Paper 39 of 39 Issued on: 30 June 2022 Vermeulen et. al. (2018). ‘An Energy Transition Risk Stress Test for the Financial System of the Netherlands’. DeNederlandscheBank, Vol. 16(7).	Public Notice
30 Jun 2022	Dokumen Dasar mengenai Bankasurans / Banktakaful	https://www.bnm.gov.my/-/dokumen-dasar-mengenai-bankasurans-/-banktakaful	https://www.bnm.gov.my/documents/20124/948107/PD_Banca.pdf, https://www.bnm.gov.my/documents/20124/948107/Banca_fdbk_stmt.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/dokumen-dasar-mengenai-bankasurans-/-banktakaful&languageId=ms_MY	Reading: Dokumen Dasar mengenai Bankasurans / Banktakaful Share: Dokumen Dasar mengenai Bankasurans / Banktakaful Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1000 pada Khamis, 30 Jun 2022 30 Jun 2022 Bank Negara Malaysia telah mengeluarkan dokumen polisi mengenai bankasurans / banktakaful. Dokumen polisi menetapkan keperluan dasar dan panduan untuk pengaturan bankasurans / banktakaful, yang bertujuan untuk meningkatkan bankasurans / banktakafulsebagai saluran yang berkesan dan mengukuhkan lagi perlindungan yang sedia ada untuk memastikan penyampaian hasil pengguna yang lebih baik. Keperluan itu kini diperluaskan kepada rakan kongsi bankasurans / banktakaful, jika berkaitan. Keperluan polisi ini juga akan digunakan untuk pengaturan bankasurans / banktakaful sedia ada dan baharu, termasuk pembaharuan perjanjian bankasurans / banktakaful melainkan dinyatakan sebaliknya. Dokumen: Dokumen Polisi Bankasurans / Banktakaful Kenyataan Maklum Balas Awam – Ringkasan maklum balas utama yang diterima mengenai Draf Pendedahan dan maklum balas BNM Jabatan Pengeluar Jabatan Konsumer dan Amalan Pasaran Bank Negara Malaysia 30 Jun 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Bancassurance/Bancatakaful Policy Document (June 2022) Issued on: 30 June 2022 BNM/RH/PD 028-123 Bancassurance/Bancatakaful Applicable to: 1. Licensed insurers 2. Licensed takaful operators 3. Licensed banks 4. Licensed Islamic banks 5. Licensed investment banks 6. Prescribed development financial institutions Bancassurance/Bancatakaful Issued on: 30 June 2022 TABLE OF CONTENTS PART A OVERVIEW ................................................................................................. 1 1 Introduction ................................................................................................. 1 2 Applicability ................................................................................................. 1 3 Legal provisions .......................................................................................... 2 4 Effective date .............................................................................................. 2 5 Interpretation ............................................................................................... 2 6 Related legal instruments and policy documents ........................................ 5 7 Policy documents superseded .................................................................... 5 PART B BANCASSURANCE/BANCATAKAFUL ARRANGEMENTS AND GOVERNANCE PRINCIPLES .................................................................... 6 8 Bancassurance/bancatakaful arrangements ............................................... 6 9 Oversight, accountability, management and control of risk in bancassurance/bancatakaful arrangements ................................................ 7 PART C TRANSPERANCY AND DISCLOSURE ................................................... 13 10 Disclosure and marketing to target customer segment ............................. 13 PART D TRAINING REQUIREMENTS FOR STAFF OF BANCASSURANCE/BANCATAKAFUL PARTNERS .............................. 16 11 Training for staff marketing bancassurance/bancatakaful products .......... 16 PART E REPORTING ............................................................................................. 17 12 Submission of Statistics ............................................................................ 17 PART F APPENDICES ........................................................................................... 18 Appendix I: Illustration of Guaranteed Cash Pay-outs in Marketing Materials .... 18 Appendix II: Submission Form of Statistics ......................................................... 19 Bancassurance/Bancatakaful 1 of 35 Issued on: 30 June 2022 PART A OVERVIEW 1 Introduction 1.1 Bancassurance and bancatakaful has evolved into a significant distribution channel for insurance and takaful businesses, particularly for life insurance and family takaful products. Diversification of distribution channels has widened consumers’ accessibility to a wider range of insurance and takaful products to suit their diverse needs based on individual needs, risk appetites, financial goals and levels of financial capability. This in turn has contributed towards the broader objective of reducing the protection gap in Malaysia. 1.2 The requirements in this policy document are intended to: (a) ensure bancassurance/bancatakaful remains as a viable channel that is widely accessible for consumers to purchase insurance and takaful products; (b) promote sound market conduct practices that safeguard consumers’ interest through needs-based sales, disclosure and enhanced transparency; and (c) promote market competitiveness and preserve consumer choice. 1.3 Towards this end, the policy document serves to enhance the bancassurance/bancatakaful channel and further strengthen safeguards in place to ensure the delivery of better consumer outcomes. 1.4 Making financial decisions can be a complex process and it may be difficult for consumers to appropriately weigh and consider their options when faced with a wide array of bancassurance/bancatakaful products, in particular, savings and investment-linked products. The tendency to focus more on the short-term returns, while not fully understanding the longer-term downside risks associated with more complex products, are among the key challenges faced by consumers. To mitigate this, transparency and disclosure requirements have been enhanced to help consumers make more informed financial decisions when considering the purchase of such products through the bancassurance/bancatakaful channels. 2 Applicability 2.1 This policy document is applicable to financial services providers (FSPs) as defined in paragraph 5.2. 2.2 The requirements in this policy document are applicable to existing and new bancassurance/bancatakaful arrangements, including renewal of bancassurance/bancatakaful agreements, unless otherwise specified. Bancassurance/Bancatakaful 2 of 35 Issued on: 30 June 2022 3 Legal provisions 3.1 This policy document is issued pursuant to: (a) sections 47(1), 123(1), 143(1) and 266 of the Financial Services Act 2013 (FSA); (b) sections 57(1), 135(1), 155(1) and 277 of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 41(1), 42C(1), 116(1) and 126 of the Development Financial Institutions Act 2002 (DFIA). 4 Effective date 4.1 This policy document comes into effect on 1 January 2023 with the exception of paragraphs 9.12 to 9.14, which shall come into immediate effect on the date of issuance of this policy document. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA or DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purposes of this policy document: “S” denotes a standard, an obligation, requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “annualised return” refers to the estimated average annual return on the survival/savings benefits that a policyholder/takaful participant will receive over the period of the policy/certificate until its maturity with respect to the premium/contribution that the policyholder/takaful participant had paid; “apex entity” refers to a financial institution that– (a) is not a subsidiary of another financial institution; or (b) is a subsidiary of a financial institution, and has one or more subsidiaries that is a licensed insurer or licensed takaful operator1; “bancassurance/bancatakaful arrangement” refers to any distribution or marketing arrangement or agreement (collectively referred to as “arrangement”) by licensed insurers or licensed takaful operators with licensed banks, licensed 1 This will be the entity heading an insurance/takaful sub-group. Bancassurance/Bancatakaful 3 of 35 Issued on: 30 June 2022 Islamic banks, licensed investment banks and prescribed institutions (collectively referred to as bancassurance/bancatakaful partners) that involves the sale/marketing of all types of insurance/takaful products including both individual and group policy/takaful certificate via the following means: (a) by the staff of the bancassurance/bancatakaful partners; (b) using the bancassurance/bancatakaful partners’ distribution channels, including their call centers, internet, branches and marketing booths, as well as their third party service providers (such as those providing sales support services to the bancassurance/bancatakaful partners); (c) using the bancassurance/bancatakaful partners’ customer database; and (d) the joint marketing of insurance/takaful products with the bancassurance/bancatakaful partners; “bancassurance/bancatakaful partners” refers to a licensed bank, licensed Islamic bank, licensed investment bank and prescribed institution that has a distribution or marketing arrangement or agreement with a licensed insurer or licensed takaful operator; “board” refers to the board of directors of a FSP or a financial holding company, including a committee of the board where the responsibilities of the board set out in this policy document have been delegated to such a committee; “control function” refers to a function that has a responsibility independent from business lines to provide objective assessments, reporting and assurance on the effectiveness of a FSPs’ policies and operations, and its compliance with legal and regulatory obligations. This includes the risk management function, the compliance function, and the internal audit function; “financial holding company” refers to a company which: (a) holds an aggregate of more than fifty per cent of interest in shares of a licensed person, or has an aggregate interest in shares of fifty per cent or less but has control over a licensed person; and (b) has obtained the approval of the Bank pursuant to subsection 112(3) of the Financial Services Act 2013 or subsection 124(3) of the Islamic Financial Services Act 2013 to be a financial holding company of such licensed person; “financial service provider” or “FSP” refers to: (a) a licensed insurer under the FSA; (b) a licensed takaful operator under the IFSA; (c) a licensed bank under the FSA; (d) a licensed Islamic bank under the IFSA; (e) a licensed investment bank under the FSA; and (f) a prescribed institution under the DFIA; “high-risk segments” refer to segments of consumers which are more susceptible to the risk of harm or mis-selling, including: (a) individuals earning a monthly income of up to RM5,000; Bancassurance/Bancatakaful 4 of 35 Issued on: 30 June 2022 (b) individuals who are buying or intends to buy an insurance, takaful or an investment product for the first time; (c) students; and (d) retirees; “insurance/takaful savings products” refer to life insurance/family takaful products which provide benefits on survival to maturity or during the policy/takaful certificate term which includes both guaranteed and non-guaranteed pay-outs (this excludes payment of surrender benefits), and shall include investment-linked and annuity policies/takaful certificates; “licensed person” refers to a licensed insurer or/and a licensed takaful operator; “persistency rate” refers to the percentage of policies or takaful certificates that remain in force over the total number of new policies or takaful certificates issued within the exposure period; “senior management” refers to the chief executive officer and senior officers of a FSP; and “vulnerable consumer” 2 refers to a financial consumer who: (a) has the capacity to make his/her own decisions but may face challenges in accessing financial services or may require assistance to engage in financial services, for example, a person with disabilities3, a person experiencing cognitive impairment but who still has the intellectual capacity to make decisions, or a senior citizen4; (b) has a low ability to withstand financial shocks, for example, a person who is overly indebted or has low or no savings; (c) is experiencing or has experienced adverse life events which has resulted in temporary or longer-term financial hardship, for example, temporary loss of income, job loss, or the death/total permanent disability of the main breadwinner; or (d) has inadequate level of financial literacy or experience in using financial services or products, or poor language skills, for example, a person who only speaks a language other than Malay/English, or is illiterate. 2 In the event the definition of “vulnerable consumer” in this policy document differs from the definition of “vulnerable consumers” under the policy document on the Fair Treatment of Financial Consumer (revised FTFC) to be issued by the Bank, the definition of “vulnerable consumers” under the revised FTFC shall apply for the purpose of this policy document. 3 Refers to persons with a long term: 1. hearing impairment; 2. visual impairment; 3. speech impairment; 4. physical impairment; or 5. learning impairment, such as dyslexia or low spectrum Autism (Autistic Spectrum Disorder), but who still has the intellectual capacity to make decisions with guidance from FSPs. 4 Refers to individuals aged 60 years and above. Bancassurance/Bancatakaful 5 of 35 Issued on: 30 June 2022 6 Related legal instruments and policy documents S 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular: (a) Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business issued on 24 December 2019 (BNM/RH/PD 029-19); (b) Policy Document on Fair Treatment of Financial Consumers issued on 6 November 2019 (BNM/RH/PD 028-103) (FTFC PD); (c) Policy Document on Shariah Governance issued on 20 September 2019 (BNM/RH/PD 028-100); (d) Policy Document on Investment-Linked Insurance Business issued on 11 January 2019 (BNM/RH/PD 029-36); (e) Policy Document on Corporate Governance issued on 3 August 2016 (BNM/RH/PD 029-9) (CG PD); (f) Policy Document on Introduction of New Products by Insurers and Takaful Operators issued on 15 May 2015 (BNM/RH/STD 029-10) (INP PD); (g) Policy Document on Prohibited Business Conduct issued on 15 July 2016 (BNM/RH/PD 028-21); (h) Paper on Approach to Regulating and Supervising of Financial Groups issued on 21 May 2014 (BNM/RH/NT 029-5); (i) Policy Document on Introduction of New Products issued on 7 March 2014 (BNM/RH/STD 028-5); (j) Policy Document on Related Party Transactions issued on 28 June 2013 (BNM/RH/GL 018-6); (k) Guidelines on Product Transparency and Disclosure issued on 31 May 2013 (BNM/RH/GL 000-3); (l) Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business issued on 17 August 2012 (BNM/RH/GL 010-16); (m) Guidelines on Complaints Handling issued on 17 December 2009 (BNM/RH/GL 000-4); (n) Guidelines on Medical and Health Takaful Business issued on 17 September 2007 (BNM/RH/GL/004-11); (o) Guidelines on Prohibitions Against Unfair Practices in Takaful Business issued on 12 July 2007 (BNM/RH/GL/004-2); (p) Guidelines to Control Operating Costs of General Insurance Business issued on 3 July 2007 (BNM/RH/GL 003-7); (q) Guidelines on Unfair Practices in Insurance Business issued on 3 July 2007 (BNM/RH/GL/003-6); and (r) Guidelines on Medical and Health Insurance Business issued on 26 August 2005 (BNM/RH/GL/003-20). 7 Policy documents superseded S 7.1 This policy document supersedes the following documents: (a) Guidelines on Bancassurance issued on 17 June 2010 (BNM/RH/GL 003-25); (b) Guidelines on Bancatakaful issued on 17 June 2010 (BNM/RH/GL 004-18); and (c) Circular on Marketing of Bancassurance/Bancatakaful Products issued on 24 December 2008 (BNM/RH/CIR 008-8). Bancassurance/Bancatakaful 6 of 35 Issued on: 30 June 2022 PART B BANCASSURANCE/BANCATAKAFUL ARRANGEMENTS AND GOVERNANCE PRINCIPLES 8 Bancassurance/bancatakaful arrangements G S 8.1 A licensed person may enter into bancassurance/bancatakaful arrangements with any number of bancassurance/bancatakaful partners. 8.2 A licensed person must notify the Bank in writing of any new bancassurance/bancatakaful arrangements entered into by the licensed person at least 14 calendar days prior to the commencement date of such arrangements and submit to the Bank, the following information together with the notification: (a) name of bancassurance/bancatakaful partner(s); (b) products to be marketed or distributed by the bancassurance/bancatakaful partner(s); and (c) the period of the arrangement. S S S G G 8.3 With respect to paragraph 8.2(b), the licensed person shall include the following in its submission of information to the Bank: (a) name of the product(s); (b) type of coverage of the product(s); and (c) confirmation that the information on the product(s) has previously been submitted to the Bank as part of the product submission requirements under the INP PD. 8.4 With respect to the termination of bancassurance/bancatakaful arrangements between a licensed person and its bancassurance/bancatakaful partner, the licensed person must notify in writing its policyholders/takaful participants and the Bank, no later than seven days from the date of cessation of the bancassurance/bancatakaful arrangement (including non-renewals of such arrangement). 8.5 In relation to paragraph 8.4, a licensed person shall send a direct notification to policyholders/takaful participants in writing via appropriate means, of the new point of contact for customer service and for their policies/takaful certificates servicing. 8.6 Direct notification by a licensed person to policyholders/takaful participants referred to in paragraph 8.5 may include automatically-generated SMS, emails or push notification via customer portals or mobile applications. 8.7 A licensed person should endeavour to obtain an acknowledgement of receipt from the policyholders/takaful participants upon the notification sent. Bancassurance/Bancatakaful 7 of 35 Issued on: 30 June 2022 S 8.8 A FSP must take necessary measures to modify, amend, supplement or unwind any bancassurance/bancatakaful arrangement to which it is a party to be in line with the requirements of this policy document, including when directed to do so by the Bank. S 8.9 Licensed persons must submit all notifications on bancassurance/bancatakaful arrangements to Jabatan Penyeliaan Insurans dan Takaful of Bank Negara Malaysia5. 9 Oversight, accountability, management and control of risk in bancassurance/bancatakaful arrangements S Roles and responsibilities of board and senior management of FSPs 9.1 The board of FSPs shall ensure that the governance arrangements for the management of its bancassurance/bancatakaful business (including internal governance structures, policies, procedures and controls) are consistent with the requirements set out in the CG PD, FTFC PD, Introduction of New Products and INP PD, respectively. S S 9.2 Towards this end, the FSP’s board shall approve the FSP’s internal governance structures, policies, procedures and controls with respect to the formulation of the bancassurance/bancatakaful arrangement 6, the implementation and monitoring of bancassurance/bancatakaful arrangements, as well as the design and distribution of bancassurance/bancatakaful products. 9.3 In relation to paragraph 9.2, FSPs must ensure that its internal policies, procedures, and controls shall include: (a) the establishment of quantifiable parameters and key performance indicators (KPIs)7 relevant to the specific risks bancassurance/bancatakaful channel presents to consumers; and (b) clarity on specific accountabilities of the respective parties to the bancassurance/bancatakaful arrangement such as: (i) licensed persons to be accountable for the design of bancassurance/bancatakaful products that are appropriate to the needs of the targeted consumer segment and to ensure regular review of the entire product lifecycle 8 of each of its bancassurance/bancatakaful products based on both qualitative and quantitative assessments. This 5 Submissions shall be made online via the Online Submission of Applications and Notifications (“eApps”) system unless otherwise specified. 6 For example, FSPs’ criteria and guiding principles for the formulation of bancassurance/bancatakaful agreements. 7 For the avoidance of doubt, the KPIs may also be linked or tied to specific accountabilities as stipulated in paragraphs 9.3(b)(i) and (ii). For example, taking into consideration historical data, persistency rate, complaints, claims experience, etc. in monitoring sales practices. 8 The entire product lifecycle refers to the entire product-related process from the product design until the termination of the product i.e. by virtue of claims, surrender or maturity. Bancassurance/Bancatakaful 8 of 35 Issued on: 30 June 2022 includes taking into consideration historical data, persistency rate, complaints, claims experience, appropriate consumer profiling and any other relevant factors; and (ii) bancassurance/bancatakaful partners to be accountable for providing quality sales leads (i.e. undertake data-driven consumer profiling) to ensure more targeted matching of bancassurance/bancatakaful products to its consumer base. G S S S 9.4 With respect to paragraph 9.3(a), examples of specific risks bancassurance/bancatakaful presents to consumers include risks arising from inappropriate: (a) product design; (b) financial and non-financial incentive structures for sales staff; (c) customer profiling; and (d) sales and marketing practices such as inadequate customer fact find or financial need analysis carried out resulting in unsuitable product recommendations, product pushing to the masses, inadequate disclosure of key information, misleading or inaccurate information provided to customer e.g. on the non-guaranteed portion of returns for bancassurance/bancatakaful products. 9.5 The board and senior management of FSPs shall be jointly accountable to ensure that the bancassurance/bancatakaful products marketed and sold, as well as bancassurance/bancatakaful arrangements entered into, do not result in poor consumer outcomes. 9.6 The board of FSP shall provide adequate oversight on the implementation of the internal policies, procedures, and controls referred to in paragraph 9.3 by the senior management of FSP to ensure that the FSP’s practices are aligned with its internal policies, procedures, and controls. 9.7 With respect to bancassurance/bancatakaful arrangements concluded at the group level9, the board of a FSP and the board of the apex entity or group entity10 shall ensure that the bancassurance/bancatakaful arrangement entered into: (a) complies with the policy document on Related Party Transactions and the Bank’s letter dated 31 January 2019 on “Intercompany Charges Paid to Related Entities”; (b) is in line with the requirements under the policy documents issued by the Bank and the FSP complies with the relevant requirements, including: (i) the requirements under the CG PD; and (ii) the requirements and expectations on Shariah governance (in the case of bancassurance/bancatakaful arrangements involving Islamic financial business; and 9 Such as at the apex entity level i.e. the parent company, financial holding company or regional entity level. 10 Refers to the apex entity i.e. parent company or financial holding company approved by the Bank. Bancassurance/Bancatakaful 9 of 35 Issued on: 30 June 2022 G S S G S S (c) shall not affect or limit the ability of any locally incorporated subsidiary of an apex entity or within the financial group to comply with local laws and regulatory requirements, including the ability to comply with Shariah requirements at the point of entering into the bancassurance/bancatakaful arrangement and during the course of such arrangement. 9.8 In relation to paragraphs 9.7(b) and (c), an example of non-compliance is where an exclusive bancassurance arrangement entered into by a group level entity11 or a bancassurance partner, with a licensed insurer, preventing an Islamic subsidiary within the financial group from offering takaful products to its customers due to the exclusive tie-up with a licensed insurer. 9.9 The senior management of FSPs shall ensure that the management and control of risks associated with the operation of bancassurance/bancatakaful business is consistent with the requirements set out in the policy documents on Introduction of New Products, INP PD, CG PD as well as FTFC PD. 9.10 The senior management of FSPs shall ensure that the operations of its bancassurance/bancatakaful business, development of bancassurance/bancatakaful products throughout the entire product lifecycle as well as any bancassurance/bancatakaful arrangement entered into does not directly or indirectly promote unethical conduct by staff, such as improper targeting of consumers and pushing unsuitable products to consumers. 9.11 In relation to paragraph 9.10, an example of indirectly promoting unethical conduct by staff includes the setting of unrealistic or unreasonably high sales targets by FSPs which results in a bias towards higher revenue-generating products. This is likely to result in unhealthy sales practices by bancassurance/bancatakaful agents (e.g. poor product recommendations and focusing on commission-based sales), which may ultimately lead to lower persistency rate. Safeguards with respect to upfront fees paid by licensed persons to bancassurance/bancatakaful partners 9.12 A licensed person shall ensure that any upfront fees paid to its bancassurance/bancatakaful partner by the licensed person, or any other party on its behalf, is fully borne by the licensed person’s shareholders’ fund. 9.13 In relation to paragraph 9.12, an upfront fee shall include any type of fees related to or forming the upfront fees12, paid by the licensed person or paid by any party on behalf of the licensed person13 to a bancassurance/bancatakaful partner for the purposes of entering into or pursuant to a bancassurance/bancatakaful agreement with the said bancassurance/bancatakaful partner. 11 Such as apex entity i.e. parent company, financial holding company or regional entity. 12 Includes fees referred to by other terms such as service fee, facilitation fee, etc. 13 Such as apex entity i.e. the parent company, financial holding company or regional entity, etc. paying the upfront fee on behalf of the licensed person and subsequently requiring a repayment from the licensed person. Bancassurance/Bancatakaful 10 of 35 Issued on: 30 June 2022 S G G G 9.14 The upfront fee paid by the licensed person shall include an upfront fee payable at the point of entering or during the course of the bancassurance/bancatakaful agreement14. 9.15 For the avoidance of doubt, paragraph 9.12 applies prospectively in respect of new and existing bancassurance/bancatakaful arrangements, as well as to renewals of existing bancassurance/bancatakaful arrangements. 9.16 Licensed persons should incorporate conditions or appropriate targets tied to the payment of upfront fees that are aimed at: (a) ensuring all parties to the bancassurance/bancatakaful arrangement delivers quality sales; and (b) preventing misaligned incentives from developing. 9.17 With respect to paragraph 9.16, good practices observed include establishing minimum persistency rate thresholds that the bancassurance/bancatakaful partner must meet and providing for clawback mechanisms on fees paid pursuant to the bancassurance/bancatakaful arrangement when such thresholds are not met. Conversely, poor practices observed includes a bancassurance/bancatakaful arrangement that tie minimum sales targets and business volume thresholds to the payment of upfront fees given that such targets tend to incentivise higher sales without sufficient focus on ensuring quality sales. S Ensuring quality of sales 9.18 For non-credit products15, a licensed person shall establish robust internal policies, procedures and controls in relation to its bancassurance/bancatakaful persistency rate. This shall include: (a) a monitoring framework to adequately measure, monitor and escalate persistency issues; and (b) the role of risk management or compliance and internal auditors in reviewing and monitoring the effectiveness of the licensed person’s internal policies, procedures and controls in relation to bancassurance/bancatakaful persistency rate. S 9.19 The senior management of licensed persons shall ensure the monitoring framework referred to in paragraph 9.18(a), is implemented and carried out effectively. 14 For example, upfront fees agreed to be paid in tranches during the course of the bancassurance/bancatakaful arrangement. 15 Refers to all life insurance, family takaful, general insurance and general takaful products other than credit-related products such as mortgage-reducing term assurance, mortgage reducing term takaful, personal reducing term assurance and personal reducing term takaful products. Bancassurance/Bancatakaful 11 of 35 Issued on: 30 June 2022 G S G 9.20 For the avoidance of doubt, a licensed person may use all three control functions, i.e. risk management, compliance and internal audit, in reviewing and monitoring the effectiveness of its internal policies, procedures, and controls in relation to bancassurance/bancatakaful persistency rate. 9.21 A licensed person must carry out a review of its internal policies, procedures, and controls in relation to its bancassurance/bancatakaful persistency rate based on its internal risk assessment, at least once in every two years. Based on the outcome of these reviews, a licensed person shall implement measures to minimise the risk of low persistency arising from its bancassurance/bancatakaful products, including reviewing the appropriateness of product design and sales practices of its bancassurance/bancatakaful products. 9.22 With reference to paragraph 9.21, a licensed person should carry out a review of its internal policies, procedures, and control in relation to its persistency rate more frequently where its bancassurance/bancatakaful business has more complex products or is being sold to vulnerable consumers, particularly to those in high-risk segments. S S Clear accountability between licensed persons and bancassurance/bancatakaful partners 9.23 A FSP must ensure that the bancassurance/bancatakaful arrangements clearly stipulate the accountabilities and responsibilities of both the licensed person and the bancassurance/bancatakaful partner respectively and collectively in the bancassurance/bancatakaful arrangements. Where possible, these accountabilities and responsibilities shall be measurable and subject to close monitoring by the FSPs. 9.24 In relation to paragraph 9.23, the FSPs must ensure that the bancassurance/bancatakaful arrangement include a clear delineation of responsibilities between the licensed person and the bancassurance/bancatakaful partner, particularly with respect to the resolution of customer complaints, customer queries, after-sales services and claims settlement process. G 9.25 Examples of accountabilities and responsibilities of the FSPs referred to in paragraph 9.23 that may be stipulated in the bancassurance/bancatakaful arrangement are as follows: (a) the quantifiable parameters, KPIs and accountabilities established in FSPs internal policies, procedures and controls under paragraph 9.3; (b) ensuring that the design of bancassurance/bancatakaful products focuses on the needs of the consumers and have a clear and appropriate target segment for each product; (c) use sound research methods, including data analytics, to ensure needs- based sales to the identified target market is carried out more accurately; Bancassurance/Bancatakaful 12 of 35 Issued on: 30 June 2022 (d) conducting comprehensive product training to ensure the bancassurance/bancatakaful staff has the relevant skills and expertise to market the product; (e) conducting an independent review of the sales process and practices, taking into consideration consumers’ complaints, sales staff feedback, follow-up calls and mystery shopping; (f) make reasonable efforts to follow-up with policyholders/takaful participants on missed/non-payment of premiums/takaful contribution; (g) ensuring the appraisal and monitoring of bancassurance/bancatakaful staff performance is carried out in an effective manner i.e. does not promote unethical conduct and improves bancassurance/bancatakaful persistency rate; (h) ensuring proper management of customer information i.e. obtaining customer’s explicit written consent for the processing of customer information, ensuring the confidentiality of customer’s information is maintained at all times, proper disposal of customer’s information when no longer in use, etc.; and (i) collating and maintaining the number of customer complaints. Bancassurance/Bancatakaful 13 of 35 Issued on: 30 June 2022 PART C TRANSPARENCY AND DISCLOSURE 10 Effective disclosure and marketing to target customer segment S S S G G S S S 10.1 In ensuring marketing names used for life insurance/family takaful products are not misleading to consumers, FSPs shall use the word “insurance or takaful”, whichever is applicable, in its marketing name (e.g. ABC Wealth Insurance, XYZ Wealth Takaful) or prominently state below the marketing name that “This is an insurance or takaful product”, whichever is applicable, for all non-credit life insurance/family takaful products offered under the bancassurance/bancatakaful arrangement. 10.2 For non-credit life insurance/family takaful products sold via bancassurance/bancatakaful telemarketing, FSPs shall incorporate in its telemarketing call script that “This is an insurance or takaful product”, whichever is applicable. FSP must ensure that the above is made prominently clear during the conversation with the consumer. 10.3 FSPs shall send a notification directly to policyholders/takaful participants via appropriate means, upon conclusion of a bancassurance/bancatakaful sale, to inform policyholders/takaful participants that they have “purchased an insurance or takaful product from [the name of the licensed person]”. 10.4 Direct notification to policyholders/takaful participants referred to in paragraph 10.3 may include automatically generated SMS, emails or push notification via customer portals or mobile applications. 10.5 FSPs may endeavour to obtain an acknowledgement of receipt from the policyholders/takaful participants upon the notification sent. 10.6 For the avoidance of doubt, FSPs must comply with the requirements under paragraphs 10.1 to 10.3 in respect of all existing and new non-credit life insurance/family takaful products offered under the bancassurance/bancatakaful arrangement. 10.7 For insurance/takaful products with guaranteed features, such as guaranteed survival benefits during the policy/takaful certificate term and/or guaranteed maturity benefits, FSPs shall prominently display the annualized returns alongside the disclosure of any guaranteed feature under the policy/takaful certificates in all of its marketing materials (including product disclosure sheet, sales illustration and brochures) that contain any illustration of returns. 10.8 For the avoidance of doubt, the disclosure of annualized returns referred to in Paragraph 10.7 must be clearly visible and legible in the said marketing materials, and shall not be displayed at the bottom of the page and in an obscure manner e.g. in footnotes or in small fonts. Bancassurance/Bancatakaful 14 of 35 Issued on: 30 June 2022 S S S S S S 10.9 With respect to Paragraph 10.7, where guaranteed cash pay-outs are offered as part of an insurance/takaful product, FSPs shall not express or illustrate in absolute value or as a percentage, the total or cumulative amount of the guaranteed cash pay-out payable to policyholder/takaful participant. Appendix I of this policy document provides a non-exhaustive list of expressions or illustrations of guaranteed cash pay-outs that are permitted and not permitted for this purpose. 10.10 FSPs must also include the following statement “The premiums/contributions that you pay contribute to both the savings and protection elements of the product, e.g. death benefits. If you are looking for financial products with savings element, you may wish to compare annualised returns of this policy/takaful certificate with the effective returns of other investment alternatives.” in the marketing materials referred to in Paragraph 10.7. 10.11 Disclosure of any product features of an insurance/takaful product shall not be expressed or illustrated in a manner: (a) which can mislead a customer or result in the customer misinterpreting the insurance/takaful product features; or (b) that could lead to inappropriate comparison with the returns of banking deposit or investment products, including, but not limited to, fixed deposits and unit trusts. 10.12 In respect of non-participating and medical and health insurance/takaful products (applicable to both basic policies/takaful certificates and riders), a licensed person shall disclose the commissions borne by policyholders/takaful participants, expressed both in terms of the actual amount and as a percentage of premiums/takaful contributions payable for each policy/takaful certificate year in the product disclosure sheet. 10.13 In the case of products which combine both insurance/takaful and banking elements, the licensed person shall unbundle the insurance/takaful element16, and FSPs shall disclose the commissions and charges/expenses in accordance with the requirements in paragraph 10.12. 10.14 In relation to the sales and marketing of insurance/takaful savings products via the bancassurance/bancatakaful channel, to mitigate the risk of poor targeting of consumers, FSPs shall ensure that for insurance/takaful savings products sold to vulnerable consumers, particularly those who are identified as high-risk segments: (a) the bancassurance/bancatakaful partner’s sales supervisor shall approve the product recommendation; and (b) FSPs shall carry out the following additional measures: (i) notify and obtain acknowledgment from the customer about the purchase of the insurance/takaful savings product(s) within 15 calendar days from the date of purchase, and key information including policy/takaful certificate coverage, opt-out option, free look period, exclusions and waiting period (if any) through any means of direct 16 With the exception of Perlindungan Tenang products. Bancassurance/Bancatakaful 15 of 35 Issued on: 30 June 2022 G communication such as emails, short messaging system (SMS) or social messaging applications; (ii) if no acknowledgement of understanding is received from a customer arising from the notification to the customer under paragraph 10.14(b)(i), FSPs shall conduct follow-up calls to the customer over the next 15 calendar days. In this regard, FSPs must perform at least three non-consecutive call attempts 17 .These follow-up calls must be conducted by an independent party such as a staff who is not directly or indirectly involved in the sales and marketing process of the said sales; and (iii) where the customer has decided to withdraw, discontinue his/her policy/takaful certificate, FSPs shall ensure the process is accessible and convenient for the customer. This shall include prompt refund of premium/takaful contribution paid, where applicable. 10.15 In carrying out the requirement under paragraph 10.14(b)(i), FSPs may also have in place measures to address the risks of certain segments of consumers who are not able to access the electronic notification or disclosure sent via platforms such as SMS, emails or social messaging applications (e.g. senior citizens, those with disabilities or those who have no internet access). 17 At minimum, all three follow-up call attempts shall not be made on the same day. Bancassurance/Bancatakaful 16 of 35 Issued on: 30 June 2022 PART D TRAINING REQUIREMENTS FOR STAFF OF BANCASSURANCE/BANCATAKAFUL PARTNERS S S S S 11 Training for staff marketing bancassurance/bancatakaful products 11.1 FSPs must ensure that staff of bancassurance/bancatakaful partner or its appointed third-party service providers involved in the marketing and providing advice on insurance/ takaful products must pass the following examinations and obtain the relevant qualifications before they are allowed to sell/market bancassurance/bancatakaful products: (a) Pre-Contract Examination for Insurance Agents (PCEIA) and the Takaful Basic Examination (TBE) for distribution of insurance and takaful products; respectively; and (b) Certificate Examination in Investment-Linked Life insurance (CEILLI) for distribution of investment-linked products. 11.2 Staff of a bancassurance/bancatakaful partner or the appointed third-party service providers shall comply with: (a) the continuous professional development requirements (CPD) as required; (b) the code of conduct and ethics applicable to insurance agents registered with Persatuan Insurans Am Malaysia (PIAM) and/or Persatuan Insurans Hayat Malaysia (LIAM), and takaful agents registered with the Malaysian Takaful Association (MTA); and/or (c) the minimum of eight hours of annual CPD training requirement for sales/marketing of only mortgage reducing term assurance/mortgage reducing term takaful and other credit-related insurance/takaful products. 11.3 For insurance/takaful products marketed through the call centre of the bancassurance/bancatakaful partner or a third-party call centre engaged by the bancassurance/bancatakaful partner, only the team leader is required to comply with the relevant minimum qualification and annual CPD requirement set out in paragraphs 11.1 and 11.2. 11.4 In relation to paragraph 11.3, FSPs must ensure that team leaders in call centres18 are responsible for ensuring all staff conducting marketing calls are practicing appropriate and consistent communication. This shall include ensuring proper adherence to call scripts and processes for handling queries as well as effective escalation of more complex queries to team leaders. 18 This includes in third-party call centres engaged by bancassurance/bancatakaful partners. Bancassurance/Bancatakaful 17 of 35 Issued on: 30 June 2022 S S PART E REPORTING 12 Submission of Statistics 12.1 For the purpose of licensed persons reporting to the Bank on the monthly/quarterly/annual statutory returns on new life insurance/ family takaful business premiums/takaful contributions and gross direct premiums/takaful contributions for general insurance/takaful business by distribution channels, all business (including credit-related business) generated through bancassurance/bancatakaful arrangements described in paragraph 5.2 shall be reported as premiums/takaful contributions generated. 12.2 Licensed persons are required to submit statistics on bancassurance/bancatakaful business to the Bank19 on an annual basis by 31 January each year, which will include all business generated through bancassurance/bancatakaful arrangements in the forms as provided in Appendix II comprising: (i) Form Banca – G1 – applicable for general insurance business (Statement of Gross Direct Premiums Generated through Bancassurance); (ii) Form Banca – GT1 – applicable for general takaful business (Statement of Gross Direct Takaful Contributions Generated through Bancatakaful); (iii) Form Banca – G2 – applicable for general insurance business (Statement of Policies Generated through Bancassurance); (iv) Form Banca – GT2 – applicable for general takaful business (Statement of Takaful Certificates Generated through Bancatakaful); (v) Form Banca – L1 – applicable for life insurance business (Statement of Gross Premium Income Generated Through Bancassurance); (vi) Form Banca – FT1 – applicable for family takaful business (Statement of Gross Takaful Contribution Income Generated through Bancatakaful); (vii) Form Banca – L2 – applicable for life insurance business (Statement of New Business Generated through Bancassurance); and (viii) Form Banca – FT2 – applicable for family takaful business (Statement of New Business Generated through Bancatakaful). 19 Submissions will be via the current existing arrangement e.g. via Integrated Submission Platform of the STATSmart Portal, unless otherwise specified. Bancassurance/Bancatakaful 18 of 35 Issued on: 30 June 2022 PART F APPENDICES Appendix I: Illustration of Guaranteed Cash Pay-outs in Marketing Materials The following are non-exhaustive examples of illustrations of Guaranteed Cash Pay-outs in marketing materials that FSPs are permitted and not permitted to provide in complying with the requirement in Paragraph 10.9: 1. FSPs shall not make statements and references in marketing materials such as “Total 200% of guaranteed cash payments as a percentage of basic sum insured”, “Guaranteed cash payments of up to 70% of total premium payable”, “Guaranteed rewards of up to 70% of total premium payable” or “Receive up to RM75,000 in guaranteed returns” in marketing materials. 2. FSPs may illustrate the periodic guaranteed cash pay-out offered by the product but shall not illustrate the total or cumulative amount of all such pay- outs, in an absolute value or as a percentage. PERMITTED PERMITTED NOT PERMITTED NOT PERMITTED You are entitled to the following benefits: You are entitled to the following benefits: Based on a premium payable/sum insured of RM10,000 You are entitled to the following benefits: Receive up to 10% of your total premium payable or receive a total of 200% of your basic sum insured: Annual Premium Guaranteed cash pay-out (RM) Policy year Guaranteed cash pay-out (RM) Policy year Guaranteed reward (RM) Policy year Guaranteed return Year 5 - 10 Year 11 - 20 5 1500 5 1500 5 2% RM1800 90 180 10 2000 10 2000 10 3% RM3600 180 360 15 3500 15 3500 15 5% TOTAL 7000 TOTAL 10% Legend: Not permitted Cumulative percentage amount, and use of word “return”. Cumulative absolute amount, and use of word “reward”. Bancassurance/Bancatakaful 19 of 35 Issued on: 30 June 2022 Appendix II: Submission Form of Statistics (i) Form Banca – G1 Name of Company: Statement of Gross Direct Premiums Generated through Bancassurance From 1 January 20xx to 31 December 20xx Type of Bancassurance Arrangements Fire Medical & Health Motor Personal Accident Others Total (i) On panel for credit-related business (ii) Direct marketing:-1 (a) Call centres (in-house)20 (b) Outsourced telemarketing21 (c) Branches22 (d) Internet23 (e) Marketing booths24 (f) Direct mailing25 (iii) Others2 Total (1)3 Total gross direct premiums of the insurer (2)4 Ratio of (1)/(2) (%) 1 Refers to bancassurance arrangements that fall under the definition of “bancassurance arrangement” under paragraph 5.2. The figure in this row shall be the sum of the figures in items (a)-(f). 2 Refers to bancassurance arrangements (other than direct marketing) that fall within the definition of “bancassurance arrangement” under paragraph 5.2. 3 The total figure shall be the same as the figure reported in respect of gross premiums generated through bancassurance partners as defined under paragraph 5.2 in the statutory returns submitted 20 Bancassurance partner’s internal call centres conducting telemarketing. 21 Telemarketing outsourced to be conducted on behalf of bancassurance partners. 22 Bancassurance sales concluded either in the branch (i.e. walk-ins) or by bank staff outside the branch (e.g. meeting at customers’ convenience) 23 Bancassurance sales concluded on bancassurance partners’ websites or online portals, etc. 24 Bancassurance sales concluded via campaigns in shopping malls, fairs, corporate offices, etc. 25 Direct mailing includes mails or e-mails of brochures, flyers, newsletters, etc. to existing and potential consumers in the bancassurance partners’ customer database. Bancassurance/Bancatakaful 20 of 35 Issued on: 30 June 2022 to the Bank on gross direct premiums for general insurance business by distribution channel for the corresponding period. 4 The figures in this row shall be the same as the corresponding figures reported in Form G6 of the statutory returns. Signature __________________ Name __________________ Chief Executive Officer Date ___________________ Bancassurance/Bancatakaful 21 of 35 Issued on: 30 June 2022 (ii) Form Banca – GT1 Name of Company: Statement of Gross Direct Takaful Contributions Generated through Bancatakaful From 1 January 20xx to 31 December 20xx Type of Bancatakaful Arrangements Fire Medical & Health Motor Personal Accident Others Total (i) On panel for credit-related business (ii) Direct marketing:-1 (a) Call centres (in-house)26 (b) Outsourced telemarketing27 (c) Branches28 (d) Internet29 (e) Marketing booths30 (f) Direct mailing31 (iii) Others2 Total (1)3 Total gross direct takaful contributions of the takaful operator (2)4 Ratio of (1)/(2) (%) 1 Refers to bancatakaful arrangements that fall under the definition of “bancatakaful arrangement” under paragraph 5.2. The figure in this row shall be the sum of the figures in items (a)-(f). 2 Refers to bancatakaful arrangements (other than direct marketing) that fall within the definition of “bancatakaful arrangement” under paragraph 5.2. 3 The total figure shall be the same as the figure reported in respect of gross contributions generated through bancatakaful partners falling under paragraph 5.2 in the statutory returns submitted to the Bank on gross direct contributions for general takaful business by distribution channel for the corresponding period. 26 Bancatakaful partner’s internal call centres conducting telemarketing. 27 Telemarketing outsourced to be conducted on behalf of bancatakaful partners. 28 Bancatakaful sales concluded either in the branch (i.e. walk-ins) or by bank staff outside the branch (e.g. meeting at customers’ convenience) 29 Bancatakaful sales concluded on bancatakaful partners’ websites or online portals, etc. 30 Bancatakaful sales concluded via campaigns in shopping malls, fairs, corporate offices, etc. 31 Direct mailing includes mails or e-mails of brochures, flyers, newsletters, etc. to existing and potential consumers in the bancatakaful partners’ customer database. Bancassurance/Bancatakaful 22 of 35 Issued on: 30 June 2022 4 The figures in this row shall be the same as the corresponding figures reported in Form GT5 of the statutory returns. Signature __________________ Name __________________ Chief Executive Officer Date ___________________ Bancassurance/Bancatakaful 23 of 35 Issued on: 30 June 2022 (iii) Form Banca – G2 Name of Company: Statement of Policies Generated through Bancassurance From 1 January 20xx to 31 December 20XX 32 Bancassurance partner’s internal call centres conducting telemarketing. 33 Bancassurance partner’s internal call centres conducting telemarketing. 34 Bancassurance sales concluded either in the branch (i.e. walk-ins) or by bank staff outside the branch (e.g. meeting at customers’ convenience) 35 Bancassurance sales concluded on bancassurance partners’ websites or online portals, etc. 36 Bancassurance sales concluded via campaigns in shopping malls, fairs, corporate offices, etc. 37 Direct mailing includes mails or e-mails of brochures, flyers, newsletters, etc. to existing and potential consumers in the bancassurance partners’ customer database. Type of Bancassurance Arrangements Fire Medical & Health Motor Personal Accident Others Total (i) On panel for credit-related business (ii) Direct marketing1 (a) Call centres (in-house)32 (b) Outsourced telemarketing33 (c) Branches34 (d) Internet35 (e) Marketing booths36 (f) Direct mailing37 (iii) Others2 Total Bancassurance/Bancatakaful 24 of 35 Issued on: 30 June 2022 1 Refers to bancassurance arrangements that fall under the definition of “bancassurance arrangement” under paragraph 5.2. The figure in this row shall be the sum of the figures in items (a)-(f). 2 Refers to bancassurance arrangements (other than direct marketing) that fall within the definition of “bancassurance arrangement” under paragraph 5.2. Signature ______________ Name __________________ Date ________________ Chief Executive Officer Bancassurance/Bancatakaful 25 of 35 Issued on: 30 June 2022 (iv) Form Banca – GT2 Name of Company: Statement of Takaful Certificates Generated through Bancatakaful From 1 January 20xx to 31 December 20XX 38 Bancatakaful partner’s internal call centres conducting telemarketing. 39 Telemarketing outsourced to be conducted on behalf of bancatakaful partners. 40 Bancatakaful sales concluded either in the branch (i.e. walk-ins) or by bank staff outside the branch (e.g. meeting at customers’ convenience) 41 Bancatakaful sales concluded on bancatakaful partners’ websites or online portals, etc. 42 Bancatakaful sales concluded via campaigns in shopping malls, fairs, corporate offices, etc. 43 Direct mailing includes mails or e-mails of brochures, flyers, newsletters, etc. to existing and potential consumers in the bancatakaful partners’ customer database. Type of Bancatakaful Arrangements Fire Medical & Health Motor Personal Accident Others Total (i) On panel for credit-related business (ii) Direct marketing1 (a) Call centres (in-house)38 (b) Outsourced telemarketing39 (c) Branches40 (d) Internet41 (e) Marketing booths42 (f) Direct mailing43 (iii) Others2 Total Bancassurance/Bancatakaful 26 of 35 Issued on: 30 June 2022 1 Refers to bancatakaful arrangements that fall under the definition of “bancatakaful arrangement” under paragraph 5.2. The figure in this row shall be the sum of the figures in items (a)-(f). 2 Refers to bancatakaful arrangements (other than direct marketing) that fall within the definition of “bancatakaful arrangement” under paragraph 5.2. Signature ______________ Name __________________ Date ________________ Chief Executive Office Bancassurance/Bancatakaful 27 of 35 Issued on: 30 June 2022 (v) Form Banca – L1 Name of Company: Statement of Gross Premium Income Generated through Bancassurance From 1 January 20xx to 31 December 20XX Type of Bancassurance Arrangements Class of business1 Type of product2 Basic or rider Individual or group Premium Income Single Premium Policies Annual Premium Policies Credit-related (i) On panel for credit-related business (ii) Others3 Subtotal Non-credit related (i) Direct marketing4 (a) Call centres (in-house)44 (b) Outsourced telemarketing45 (c) Branches46 (d) Internet47 44 Bancassurance partner’s internal call centres conducting telemarketing. 45 Telemarketing outsourced to be conducted on behalf of bancassurance partners. 46 Bancassurance sales concluded either in the branch (i.e. walk-ins) or by bank staff outside the branch (e.g. meeting at customers’ convenience) 47 Bancassurance sales concluded on bancassurance partners’ websites or online portals, etc. Bancassurance/Bancatakaful 28 of 35 Issued on: 30 June 2022 (e) Marketing booths48 (f) Direct mailing49 (iii) Others3 Subtotal Total (1) Total gross premium income of the licensed insurer (2)5 Ratio of (1)/(2) (%) 1 Refers to the class of business, i.e. participating, non-participating, or investment-linked. 2 Refers to type of policies, for example, whole life, temporary, medical and health, endowment, universal life etc. 3 Refers to bancassurance arrangements (other than direct marketing) that fall under the definition of “bancassurance arrangement” under paragraph 5.2. 4 Refers to bancassurance arrangements that fall under the definition of “bancassurance arrangement” under paragraph 5.2. The figure in this row shall be the sum of the figures in items (a)-(f). 5 The figures in this row shall be the same as the corresponding gross direct premium figures reported in Schedule 1 of Form L1-1 of the statutory returns. Signature ______________ Name __________________ Date ______________ Chief Executive Officer 48 Bancassurance sales concluded via campaigns in shopping malls, fairs, corporate offices, etc. 49 Direct mailing includes mails or e-mails of brochures, flyers, newsletters, etc. to existing and potential consumers in the bancassurance partners’ customer database. Bancassurance/Bancatakaful 29 of 35 Issued on: 30 June 2022 (vi) Form Banca – FT1 Name of Company: Statement of Gross Takaful Contribution Income Generated through Bancatakaful From 1 January 20xx to 31 December 20XX Type of Bancatakaful Arrangements Class of business1 Type of product2 Basic or rider Individual or group Takaful Contribution Income Single Takaful Contribution Certificates Annual Takaful Contribution Certificates Credit-related (i) On panel for credit-related business (ii) Others3 Subtotal Non-credit related (i) Direct marketing4 (a) Call centres (in-house)50 (b) Outsourced telemarketing51 (c) Branches52 50 Bancatakaful partner’s internal call centres conducting telemarketing. 51 Telemarketing outsourced to be conducted on behalf of bancatakaful partners. 52 Bancatakaful sales concluded either in the branch (i.e. walk-ins) or by bank staff outside the branch (e.g. meeting at customers’ convenience) Bancassurance/Bancatakaful 30 of 35 Issued on: 30 June 2022 (d) Internet53 (e) Marketing booths54 (f) Direct mailing55 (iii) Others3 Subtotal Total (1) Total gross premium income of the licensed insurer (2)5 Ratio of (1)/(2) (%) 1 Refers to the class of business, i.e. ordinary family or investment-linked. 2 Refers to type of takaful certificates, for example, endowment, temporary, medical and health etc. 3 Refers to bancatakaful arrangements (other than direct marketing) that fall under the definition of “bancatakaful arrangement” under paragraph 5.2. 4 Refers to bancatakaful arrangements that fall within the definition of “bancatakaful arrangement” under paragraph 5.2. The figure in this row shall be the sum of the figures in items (a)-(f). 5 The figures in this row shall be the same as the corresponding gross direct takaful contribution figures reported in Schedule 1 of Form FT1-1 and Form FT1-2 of the statutory returns. 53 Bancatakaful sales concluded on bancatakaful partners’ websites or online portals, etc. 54 Bancatakaful sales concluded via campaigns in shopping malls, fairs, corporate offices, etc. 55 Direct mailing includes mails or e-mails of brochures, flyers, newsletters, etc. to existing and potential consumers in the bancatakaful partners’ customer database. Bancassurance/Bancatakaful 31 of 35 Issued on: 30 June 2022 Signature ______________ Name __________________ Date ______________ Chief Executive Officer Bancassurance/Bancatakaful 32 of 35 Issued on: 30 June 2022 (vii) Form Banca – L2 Name of Company: Statement of New Business Generated through Bancassurance From 1 January 20xx to 31 December 20XX 56 Bancassurance partner’s internal call centres conducting telemarketing. 57 Telemarketing outsourced to be conducted on behalf of bancassurance partners. 58 Bancassurance sales concluded either in the branch (i.e. walk-ins) or by bank staff outside the branch (e.g. meeting at customers’ convenience) 59 Bancassurance sales concluded on bancassurance partners’ websites or online portals, etc. 60 Bancassurance sales concluded via campaigns in shopping malls, fairs, corporate offices, etc. Type of Bancassurance Arrangements Class of business1 Type of product2 Basic or rider Individual or group Number of policies Sum Insured Premiums Single Annual Single Annual Single Annual Credit-related (i) On panel for credit-related business (ii) Others3 Subtotal Non-credit related (i) Direct marketing4 (a) Call centres (in- house)56 (b) Outsourced telemarketing57 (c) Branches58 (d) Internet59 (e) Marketing booths60 Bancassurance/Bancatakaful 33 of 35 Issued on: 30 June 2022 1 Refers to the class of business, i.e. participating, non-participating, or investment-linked. 2 Refers to type of insurance policies, for example, whole life, temporary, medical and health, endowment, universal life etc. 3 Refers to bancassurance arrangements (other than direct marketing) that fall under the definition of “bancassurance arrangement” under paragraph 5.2. 4 Refers to bancassurance arrangements that fall within the definition of “bancassurance arrangement” under paragraph 5.2. The figure in this row shall be the sum of the figures in items (a)-(f). 5 The aggregate of single and annual new business premiums shall be the same as the figure reported in respect of new life business premiums generated through bancassurance partners that fall under the definition of “bancassurance arrangement” under paragraph 5.2 in the statutory returns on new premiums for life insurance business by distribution channel for the corresponding period. 6 The figures in this row shall be the same as the corresponding figures reported in Form L6 of the statutory returns. Signature ______________ Name __________________ Date ______________ Chief Executive Officer 61 Direct mailing includes mails or e-mails of brochures, flyers, newsletters, etc. to existing and potential consumers in the bancassurance partners’ customer database. (f) Direct mailing61 (ii) Others3 Subtotal Total (1) 5 5 Total new business of the licensed insurer (2)6 Ratio of (1)/(2) Bancassurance/Bancatakaful 34 of 35 Issued on: 30 June 2022 (viii) Form Banca – FT2 Name of Company: Statement of New Business Generated through Bancatakaful From 1 January 20xx to 31 December 20XX 62 Bancatakaful partner’s internal call centres conducting telemarketing. 63 Telemarketing outsourced to be conducted on behalf of bancatakaful partners. 64 Bancatakaful sales concluded either in the branch (i.e. walk-ins) or by bank staff outside the branch (e.g. meeting at customers’ convenience) 65 Bancatakaful sales concluded on bancatakaful partners’ websites or online portals, etc. 66 Bancatakaful sales concluded via campaigns in shopping malls, fairs, corporate offices, etc. Type of Bancatakaful Arrangements Class of business1 Type of product2 Basic or rider Individual or group Number of certificates Sum Participated Contributions Single Annual Single Annual Single Annual Credit-related (i) On panel for credit- related business (ii) Others3 Subtotal Non-credit related (i) Direct marketing4 (a) Call centres (in- house)62 (b) Outsourced telemarketing63 (c) Branches64 (d) Internet65 (e) Marketing booths66 Bancassurance/Bancatakaful 35 of 35 Issued on: 30 June 2022 1 Refers to the class of business, i.e. ordinary family or investment-linked. 2 Refers to type of takaful certificates, for example, endowment, temporary, medical and health etc. 3 Refers to bancatakaful arrangements (other than direct marketing) that fall under the definition of “bancatakaful arrangement” under paragraph 5.2. 4 Refers to bancatakaful arrangements that fall under the definition of “bancatakaful arrangement” under paragraph 5.2. The figure in this row shall be the sum of the figures in items (a)-(f). 5 The aggregate of single and annual new business contributions shall be the same as the figure reported in respect of new family business contributions generated through bancatakaful partners that fall under the definition of “bancatakaful partners” under under paragraph 5.2 in the statutory returns on new takaful contributions for family takaful business by distribution channel for the corresponding period. 6 The figures in this row shall be the same as the corresponding figures reported in Form FT5 of the statutory returns. Signature ______________ Name __________________ Date ______________ Chief Executive Officer 67 Direct mailing includes mails or e-mails of brochures, flyers, newsletters, etc. to existing and potential consumers in the bancatakaful partners’ customer database. (f) Direct mailing67 (ii) Others3 Subtotal Total (1) 5 5 Total new business of the licensed takaful operator (2)6 Ratio of (1)/(2) Policy Document on Bancassurance/Bancatakaful: Summary of Key Feedback Received from Public Consultation and BNM’s Responses PUBLIC FEEDBACK STATEMENT 1 Policy Document on Bancassurance/Bancatakaful: Summary of Key Feedback Received from Public Consultation and BNM’s Responses In August 2021, Bank Negara Malaysia (the Bank) issued an exposure draft on Bancassurance/Bancatakaful for public consultation. The Bank wishes to record its appreciation to the financial service providers (FSPs) and other parties for providing valuable insights and feedback that have in turn assisted the Bank in finalising the requirements in the policy document. Following the issuance of the Policy Document on Bancassurance/Bancatakaful (PD), this supplementary feedback statement is intended to summarise the key feedback received and the Bank’s corresponding responses to provide greater insights on the Bank’s policy and supervisory expectations. No Requirements Feedback received Responses 1. Risk management or compliance and internal auditor functions to play a role in reviewing and monitoring the effectiveness of internal policies, procedures, and controls with respect to persistency rates. Majority of FSPs were agreeable to this requirement. In responding to the specific question posed with respect to this1, the feedback received showed majority of FSPs uses all three control functions i.e. risk management, compliance and internal audit. The feedback also indicated that it is common for internal audit to carry out this function as it is currently being practiced now by a majority of respondents. However, where internal audit is not utilised to carry out this function, the feedback indicated that either one or a combination of several functions are utilised instead. These include the use of: To ensure robust control and oversight of risk with sufficient independent assurance in carrying out this function, the Bank will maintain the proposed requirement that risk management or compliance and internal audit function are to play a role in reviewing and monitoring the effectiveness of internal policies, procedures and controls in relation to bancassurance/bancatakaful persistency rate. In addition, the Bank welcomed the fact that majority of FSPs used all three control functions with respect to this. As such, to ensure continuity in this regard, a guidance for the avoidance of doubt is also provided specifying that FSPs may use all 3 control functions to carry out this role i.e. risk management, compliance and internal audit. 1 Which functions in the FSP (risk management, compliance, internal audit or all three) are responsible for monitoring compliance to the internal policies and procedures with respect to persistency rates? PUBLIC FEEDBACK STATEMENT 2 No Requirements Feedback received Responses a) Risk management only, b) Risk management & Compliance, c) Joint committees between ITOs and bank partners, comprising of members such as CEOs, sales compliance and distribution teams, client services etc. 2. The review of internal policies, procedures and controls in relation to bancassurance/bancatakaful persistency rates must be carried out at least once in every two years. Feedback received showed majority of FSPs were agreeable to the minimum 2 years frequency for the review. The feedback indicates that the proposed frequency of review is suitable as it enables FSPs to monitor persistency up to the 2nd policy year and allows sufficient time to adopt policies and procedures to correct any persistency issues after the first year. However, some FSPs were of the view that the frequency of review should be dependent on the FSPs’ risk profile assessment, i.e. frequency can be higher in cases of complex products and higher risk segments, or if persistency falls below a certain threshold. The Bank reaffirmed its stance on the suitability of the minimum biennial frequency for the said review, which does infer the need for more frequent reviews for FSPs that have higher risk profiles. For avoidance of doubt, the Bank has provided additional guidance to illustrate higher risk profile circumstances which may warrant a more frequent review period. Therefore, the guidance provides that the review may be carried out more frequently where FSP’s bancassurance/bancatakaful business is exposed to higher risk of mis-selling such as when more complex products are being sold or when products are being sold to vulnerable consumers particularly those who are identified as high-risk segments. 3. Proposed definition of “high-risk segments” refers to segments of consumers which are more susceptible to the risk of harm or mis-selling such as individuals earning a monthly income of up to RM5,000, first time buying an The feedback received on the definition of “high-risk segments” invited varied responses: some FSPs agreed with the proposal, while others disagreed with the RM5,000 individual income threshold proposed. On the latter, these FSPs had proposed for the use of household income instead of individual income, a broader The Bank deliberated at length on the definition of “high-risk segments” taking into consideration the feedback received as well as the approach that should be taken in light of the upcoming issuance of the Exposure Draft on Fair Treatment of Vulnerable Consumers i.e. which defines “Vulnerable Consumers”. PUBLIC FEEDBACK STATEMENT 3 No Requirements Feedback received Responses insurance/investment product, students, or retirees; definition i.e. B40, or for the individual income threshold to be capped at RM3,000 instead. In addition, FSPs had also proposed for the inclusion of other categories of individuals to be considered as high-risk segments, such as: a) senior citizens/the elderly, b) individuals with low/no literacy or education, c) housewives, d) first time buyers to apply to only savings/takaful products or only investment-linked plans. e) individuals with cognitive impairment, f) non-income earners, g) for criteria to be based on specific product, and h) have multiple criteria to be met for individual to be considered part of the high-risk segment. The Bank was of the view that the individual income threshold of RM5,000 and below is appropriate as it has been found that this segment is more susceptible to economic shocks (please refer to the Box Article: “Indebted to Debt: An Assessment of Debt Levels and Financial Buffers of Households”, in Bank Negara Malaysia’s Financial Stability and Payment Systems Report 20172 for further details). In addition, the Bank viewed individual income as a better indicator than household income, which does not take into account factors such as the number of dependents. As such, the Bank has retained the proposed definition of “high-risk segments” and have also included the definition of “Vulnerable Consumers” as defined in the Exposure Draft on Fair Treatment of Vulnerable Consumers, to better reflect the universe of consumer segments that would benefit from additional safeguards as specified in the final Policy Document on Bancassurance/Bancatakaful. 4. FSPs must have 100% successful follow-up calls by an independent party e.g. a staff independent of the sales staff, If insurance savings products are sold to consumer segments that are FSPs expressed concern and disagreement on conducting 100% successful follow-up calls for their high-risk customers as they viewed a 100% success rate is not feasible given that customers are unlikely to pick up calls due to fear of scams. This feedback was supplemented with suggestions such as: The Bank acknowledges that FSPs will face difficulties in obtaining 100% success rate in their follow-up calls to customers and is cognizant of the current scam climate. As such, the Bank has refined the requirement which requires FSPs to instead: a) notify and obtain customer acknowledgement about the purchase of the insurance/takaful 2 https://www.bnm.gov.my/documents/20124/826852/FSPSR+BA1+-+Indebted+to+Debt+An+Assessment+of+Debt+Levels+and+Financial+Buffers+of+Households.pdf file://///workfolder.w2k.bnm.gov.my/USER/JK/jkfarah/Current%20issues/Banca%20PD/FSPSR%20BA1%20-%20Indebted%20to%20Debt%20An%20Assessment%20of%20Debt%20Levels%20and%20Financial%20Buffers%20of%20Households.pdf file://///workfolder.w2k.bnm.gov.my/USER/JK/jkfarah/Current%20issues/Banca%20PD/FSPSR%20BA1%20-%20Indebted%20to%20Debt%20An%20Assessment%20of%20Debt%20Levels%20and%20Financial%20Buffers%20of%20Households.pdf file://///workfolder.w2k.bnm.gov.my/USER/JK/jkfarah/Current%20issues/Banca%20PD/FSPSR%20BA1%20-%20Indebted%20to%20Debt%20An%20Assessment%20of%20Debt%20Levels%20and%20Financial%20Buffers%20of%20Households.pdf https://www.bnm.gov.my/documents/20124/826852/FSPSR+BA1+-+Indebted+to+Debt+An+Assessment+of+Debt+Levels+and+Financial+Buffers+of+Households.pdf PUBLIC FEEDBACK STATEMENT 4 No Requirements Feedback received Responses more susceptible to risk of harm/mis-selling. a) to provide clarity on when to conduct such communications, b) to allow for 100% attempted calls followed by safeguards to ensure customers are reached out to, and c) to allow flexibility in the mode of communication to customers. savings product(s) through any appropriate means of communication; b) to perform at least 3 non-consecutive follow- up call attempts if no acknowledgement of understanding is received from a customer arising from the notification; and c) ensure the process is made easy, immediate and convenient for the customer if the customer has decided to withdraw or discontinue their policy/certificate. This requirement is also supplemented with a guidance that FSPs must have in place measures to address the risks of certain groups of high-risk segments and/or vulnerable consumers who may not be able to access the electronic notification or disclosure sent via platforms such as SMS, emails or social messaging applications (e.g. senior citizens, those with disabilities or those who have no internet access). 5. FSPs shall prominently display the annualised returns for insurance/takaful savings products in all of its marketing materials such as product disclosure sheet, sales illustration or brochures, which contain illustrations of some type of returns. The feedback received on this proposed requirement were mixed. Some respondents felt annualised returns (AR) was sufficient and a suitable indicator to promote more informed and realistic understanding on the actual returns. While other respondents felt AR was an unsuitable indicator as emphasis on AR may push FSPs to prioritise savings over protection element to be able to illustrate higher AR. Respondents also suggested for other indicators to be used instead such as: This proposed requirement is intended to address risk of mis-selling arising from illustration of benefits that may give false impressions of high returns to consumers. By improving disclosures on returns as well as possible downside risks, consumers are better able to make informed decisions on purchase of insurance/takaful products. For example, annualised returns would be a meaningful indicator for bancassurance/bancatakaful consumers to compare the savings element of an insurance/takaful savings products against that of PUBLIC FEEDBACK STATEMENT 5 No Requirements Feedback received Responses a) Annualized returns based on different investment and risk, b) Average rates of return of other FSPs investments and fixed deposits, c) Historical performance against historical industry’s performance (prepared by independent body/industry representative) d) Internal rate of return e) Historical returns/actual average performance of underlying assets Nevertheless, the feedback from FSPs did demonstrate that majority of FSPs are able to incorporate the disclosure of annualised returns in their marketing materials. other products offered by the banking institution (e.g. deposit products) in order to make informed decisions for themselves. As such, the Bank maintained the requirement to disclose annualised returns in all marketing materials that contain illustrations/indications of returns but with the following enhancements: a) The annualised returns shall apply to insurance/takaful products with guaranteed pay-out features such as guaranteed survival benefits during the policy term or guaranteed maturity benefits. This has considered the existing requirements on specific illustration formats for non-guaranteed pay-out features for products such as Investment-Link, Universal Life and Participating products e.g. the 2% and 5% scenario which are indications of returns at fund level b) Further specifications with regards to the disclosure of guaranteed pay-out benefits to reduce risks of giving a false impression of high returns to customers as specified in Paragraphs 10.7 - 10.9 of the Policy Document. Appendix I provides a non-exhaustive list illustrating examples of permitted and non permitted disclosure practices c) A statement to remind consumers of the protection elements of insurance/takaful products alongside illustration of annualised return, to encourage the bancassurance/bancatakaful consumers to PUBLIC FEEDBACK STATEMENT 6 No Requirements Feedback received Responses give due consideration to the benefits of the protection components when making a comparison, as per the following: “The premiums/contributions you pay contribute to both the savings and protection elements of the product, e.g. death benefits. If you are looking for financial products with savings element, you may wish to compare returns of this policy/certificate with the effective returns of other investment alternatives. “ 6. In ensuring marketing names used for life insurance/family takaful products are not misleading to consumers, FSPs shall use the word “insurance or takaful”, whichever is applicable, in its marketing name (e.g. ABC Wealth Insurance, XYZ Wealth Takaful) or prominently state below the marketing name that “This is an insurance or takaful product”, whichever is applicable, for all non-credit life insurance/family takaful products offered under the bancassurance/bancatakaful arrangement. Some FSPs requested for flexibility to not reflect changes in the name of the product (marketing name)/additional statement due to existing practices as prescribed by the Bank’s Guidelines on Product Transparency and Disclosure3. Some FSPs also requested for further clarity on the placement of the statement “This is an insurance/takaful product” in marketing materials – whether it would suffice for this to appear once or should it be recurring throughout i.e. wherever the marketing name is mentioned in the materials. The Bank wishes to reiterate the importance of having unambiguous marketing names and clear disclosure to consumers to ensure their full understanding of the insurance/takaful products that they purchased. This is particularly important as common complaints received by the Bank for insurance/takaful products sold via the bancassurance/bancatakaful channel centre on consumers not being aware that they had purchased an insurance/takaful product, with some assuming they had purchased a deposit product with free insurance coverage. Hence, the Bank has maintained the requirement that FSPs shall use the word “insurance/takaful” in the marketing name or prominently state below the marketing name that “This is an insurance product”. Clarifications on the frequency and placement of the 3 Schedule III, Appendix II - Product Disclosure Sheet Samples requires the name of FSP, and a prominent statement regarding the long-term financial commitment of insurance policies. PUBLIC FEEDBACK STATEMENT 7 No Requirements Feedback received Responses statement can be found in the Frequently Asked Questions (FAQ) of the Policy Document on Bancassurance/Bancatakaful. 7. The Policy Document on Bancassurance/Bancatakaful (PD) to be effective 6 months upon issuance. Some FSPs agreed with the 6 months period proposed, premised on the following:- a) no major differences between the exposure draft and final PD; b) enhancements would be on policies and procedures rather than systems; and c) provided that there is an avenue for FSPs to seek extensions. Other FSPs proposed that the effective date should be extended to 12 months post- issuance of the PD. Justifications given for the extension include: a) Retrospective changes to the marketing materials for current selling plans; b) System enhancements; c) Ensure staff qualifications and trainings; d) Review and implement delineation of accountabilities and persistency monitoring; and e) The need for board & senior management approval. The Bank has maintained the effective date as 6 months upon issuance of the PD as extensions would further delay the timely implementation of requirements that are meant to protect against poor consumer outcomes. 8. Board and senior management are to be jointly accountable to ensure bancassurance/bancatakaful Some FSPs opined that to hold the Board accountable on poor consumer outcomes may not be justifiable as the definition can be very wide with many interpretations and The Bank has maintained the requirement as is and will not be prescriptive in this regard. PUBLIC FEEDBACK STATEMENT 8 No Requirements Feedback received Responses products marketed and sold and bancassurance/bancatakaful arrangements entered do not result in poor consumer outcomes. requested that the Bank cite some minimum expectations on what is construed as poor outcomes. The Bank wishes to highlight that the Board is responsible for setting the right tone from the top to ensure reasonable standards of fair dealing4, including approving relevant policies to achieve fair treatment of financial consumers outcomes, as specified in the Policy Document on Fair Treatment of Financial Consumers (FTFC)5. Examples of poor consumer outcomes are provided under the FAQ for the FTFC6 (please refer to item No.2 under the FAQ for FTFC). BANK NEGARA MALAYSIA JUNE 2022 4 Paragraph 10.2 of the FTFC 5 Paragraph 10.2(c) of the FTFC 6 Examples of poor consumer outcomes, amongst others, include the recommendation and sale of financial products: (i) which are not suited to the financial circumstances of financial consumers; (ii) that do not deliver what financial consumers were led to believe or expect; and/or (iii) which leads to financial consumers making bad financial decisions or choices due to poor disclosure of the financial product risks, charges, features and/or exemptions.	Public Notice
29 Jun 2022	JC3 terbitkan Panduan Pemakaian Syor TCFD untuk Institusi Kewangan Malaysia	https://www.bnm.gov.my/-/jc3-terbitkan-panduan-pemakaian-syor-tcfd-untuk-institusi-kewangan-malaysia	https://www.bnm.gov.my/documents/20124/3770663/TCFD_Application_Guide.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/jc3-terbitkan-panduan-pemakaian-syor-tcfd-untuk-institusi-kewangan-malaysia&languageId=ms_MY	Reading: JC3 terbitkan Panduan Pemakaian Syor TCFD untuk Institusi Kewangan Malaysia Share: JC3 terbitkan Panduan Pemakaian Syor TCFD untuk Institusi Kewangan Malaysia Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1100 pada Rabu, 29 Jun 2022 29 Jun 2022 Jawatankuasa Bersama Perubahan Iklim (JC3) hari ini mengeluarkan Panduan Pelaksanaan Syor Pasukan Petugas Penzahiran Kewangan Berkaitan Iklim (“TCFD”) untuk Institusi Kewangan Malaysia yang menggariskan cadangan utama, berserta dengan huraian, nota panduan, pertimbangan dan contoh yang berkaitan yang boleh digunakan sebagai sumber praktikal untuk memudahkan pelaksanaan Syor TCFD oleh industri kewangan Malaysia. Muat turun panduan Lihat juga: Laman web Perubahan Iklim Bank Negara Malaysia 29 Jun 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Task Force on Climate-Related Financial Disclosures (TCFD) Application Guide For Malaysian Financial Institutions 1 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) APPLICATION GUIDE FOR MALAYSIAN FINANCIAL INSTITUTIONS Issued on: 29 June 2022 2 Contents INTRODUCTION ................................................................................................................................................................ 3 GOVERNANCE ................................................................................................................................................................... 7 A. BASIC ......................................................................................................................................................................... 7 B. STRETCH .................................................................................................................................................................. 10 STRATEGY ....................................................................................................................................................................... 12 A. BASIC ....................................................................................................................................................................... 12 B. STRETCH .................................................................................................................................................................. 14 RISK MANAGEMENT ...................................................................................................................................................... 17 A. BASIC ....................................................................................................................................................................... 17 B. STRETCH .................................................................................................................................................................. 19 METRICS & TARGETS ...................................................................................................................................................... 22 A. BASIC ....................................................................................................................................................................... 23 B. STRETCH .................................................................................................................................................................. 27 APPENDIX A .................................................................................................................................................................... 31 [END OF DOCUMENT] ......................................................................................................................................................... 82 3 INTRODUCTION Purpose and Background Purpose and benefit of TCFD Recommendations: The Financial Stability Board (“FSB”) established the Task Force on Climate-related Financial Disclosures (“TCFD”) to develop recommendations for more effective climate-related disclosures to facilitate more informed financial and business decision-making in addressing climate-related risks and opportunities. Enhanced disclosures would enable stakeholders to better understand and assess companies’ exposure to and management of climate-related risks in a transparent and consistent manner. Among the benefits of implementing the TCFD Recommendations include: (i) easier or better access to capital driven by increased investors’ and financiers’ confidence, (ii) more effectively fulfilling existing disclosure requirements pertaining to reporting of material information in financial filings, and (iii) better understanding as well as management of material risks that revolve around climate change in a more strategic and comprehensive manner. Challenges of implementing TCFD Recommendations and recent key developments: The number of TCFD supporters has grown from 237 at the end of 20171 to over 2,600 supporters as of October 2021, of which 1,069 are financial institutions.2 However, despite this growing number of supporters, not all supporters are able to align their disclosures to the TCFD Recommendations. In this regard, several challenges in implementing the said Recommendations have been highlighted in TCFD’s 2021 Status Report, including (but not limited to): (i) Challenges throughout the process of conducting financial impact analysis, starting from organizational alignment and support through data acquirement, attribution of risks and opportunities, and estimation of potential impacts. (ii) Challenges to secure buy-in to disclose the results of financial impact analyses considering reliability of data, litigation of risk, and competitive disadvantage. Similarly, a survey on ESG readiness in the Malaysian banking sector indicates that the top challenges of embedding ESG factors into risk assessments are low quality customer disclosures and ESG awareness, as well as limited access to counterparty data3. The challenges above can result in inaccurate assessment of climate risk profiles and ineffective formulation of climate strategy across financial institutions. Notwithstanding such challenges, the TCFD encourages businesses to adopt a stepwise approach to disclosure rather than opting not to disclose. Financial institutions may consider disclosing general, qualitative information as a start and then progress towards more specific, quantitative data and information over time.4 According to the Climate Risk Disclosure Barometer 2020 Malaysia, which assessed the coverage as well as quality of climate risk disclosures (benchmarked against TCFD Recommendations) of the Malaysian financial services sector, financial institutions in Malaysia consistently lagged behind the global industry average. For instance, financial institutions in Malaysia scored an average of 20% for coverage of Governance-related aspects as compared to the global industry average of 54%. In terms of quality of disclosures, they achieved an average score of just 4% for Governance as compared to a global industry average of 26%.5 These findings re-affirm a similar assessment of climate-related 1 https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2018-TCFD-Status-Report-092518.pdf 2 TCFD supporters denote that an organisation believes the recommendations provide a useful framework to increase transparency on climate- related risks and opportunities within financial markets. For companies, support is a commitment to work toward their own implementation of the TCFD recommendations. https://www.fsb.org/wp-content/uploads/P141021-1.pdf 3 https://www.pwc.com/my/en/publications/2021/accelerating-esg-integration-in-malaysian-banks.html 4 https://www.ey.com/en_gl/financial-services-technical-resources/task-force-on-climate-related-financial-disclosures-report-playbook and https://www.fsb.org/2020/10/2020-status-report-task-force-on-climate-related-financial-disclosures/ 5 Coverage: a score of 100% indicates that the company has addressed all the recommendations. Quality: A score of 100% indicates that the company had adopted all the recommendations and the quality of the disclosure met all the requirements of the TCFD (i.e. gaining a maximum score of 5 for each of the 11 recommendations). https://assets.ey.com/content/dam/ey-sites/ey-com/en_my/topics/climate-change/ey-climate-risk-disclosure-barometer.pdf https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2018-TCFD-Status-Report-092518.pdf https://www.fsb.org/wp-content/uploads/P141021-1.pdf https://www.pwc.com/my/en/publications/2021/accelerating-esg-integration-in-malaysian-banks.html https://www.ey.com/en_gl/financial-services-technical-resources/task-force-on-climate-related-financial-disclosures-report-playbook https://www.fsb.org/2020/10/2020-status-report-task-force-on-climate-related-financial-disclosures/ https://assets.ey.com/content/dam/ey-sites/ey-com/en_my/topics/climate-change/ey-climate-risk-disclosure-barometer.pdf 4 disclosures made by Malaysian financial institutions undertaken by JC3 Sub-Committee 2 in 2020. Clearly, there is a pressing need for practical guidance on climate-related disclosures for the industry. 6 On a related development, Bank Negara Malaysia (“BNM”) is currently developing a set of guidelines for climate risk management as well as climate scenario analysis to further facilitate TCFD-aligned disclosures by Malaysian financial institutions. On the part of the practitioners, 64% Malaysian banks have indicated plans to adopt TCFD in the next 2 years.7 It is worth noting that recent key developments around particular aspects of climate-related disclosures warranting further guidance have also motivated the proposed guidance laid out in this Guide. For instance, The Global Carbon Accounting Standard, developed by the Partnership for Carbon Accounting Financials (“PCAF”), has proposed a set financed emissions-related metrics for financial institutions (e.g. those pertaining to climate-related metrics including developments that inform the circumstances in which Scope 3 emissions disclosures are appropriate). Separately, the IFRS Foundation announced the formation of an International Sustainability Standards Board (“ISSB”) in November 2021 to develop a baseline global sustainability reporting standard, building on the foundation of the widely accepted TCFD Recommendations and the work of an alliance of sustainability standard setters. On its part, the TCFD has also published Guidance on Metrics, Targets and Transition Plans to support preparers in disclosing decision-useful information and linking those disclosures with estimates of financial impacts. Purpose and context of JC3 application guide: Recognising the urgency for financial institutions in Malaysia to accelerate efforts to manage climate-related risks as well as opportunities, this application Guide forms part of a broader range of JC3 initiatives to support the progressive implementation of climate-related disclosures that are aligned with TCFD Recommendations. Drawing reference from a selection of good practices adopted by financial institutions who are regarded as leading peers in this space globally as well as drawing upon related studies and surveys, the Guide was developed by the Malaysian financial industry within the context of the Malaysian economy and financial system. The primary underlying aim is to support financial institutions who are stepping up efforts to implement the TCFD Recommendations in phases beginning 2022. This “by practitioner, for practitioner” Guide outlines key recommendations supplemented by the relevant descriptions, guidance notes, considerations and examples that could be utilised as practical resources to help financial institutions improve their disclosures. Most recommendations made are applicable / relevant to a range of financial institutions (e.g. banks, insurers/takaful operators, asset managers/owners). As for recommendations that are more sub-sector specific, financial institutions should refer to the corresponding TCFD Supplemental Guidance for Banks, Insurance Companies, Asset Owners and Asset Managers, as deemed appropriate. The Guide is intended to be a supplement to the guidance provided by the TCFD and to be read alongside other relevant/applicable guidance and/or requirements be it jurisdiction-specific or otherwise (e.g. Bursa Malaysia’s Sustainability Reporting Guide, Value-based Intermediation (“VBI”) related documents8 by Bank Negara Malaysia and VBI Community of Practitioners, etc). The Guide is not intended to promote stand-alone climate reporting, and financial institutions are encouraged to incorporate climate-related data into their reporting alongside other financial and non- financial data as deemed appropriate. This Guide is also adapted to the context of financial institutions in Malaysia, taking into consideration varying sizes, complexity, maturity, appetite, and practices. For instance, examples of local and international practices are given to account for different levels of maturity and readiness of financial institutions to disclose as per TCFD’s Recommendations. Global practices would serve as a benchmark for Malaysian financial institutions aspiring for a more robust level of climate governance and disclosure. 6 https://assets.ey.com/content/dam/ey-sites/ey-com/en_my/topics/climate-change/ey-climate-risk-disclosure-barometer.pdf 7 https://www.pwc.com/my/en/publications/2021/accelerating-esg-integration-in-malaysian-banks.html 8 Access VBI related documents through www.aibim.com https://assets.ey.com/content/dam/ey-sites/ey-com/en_my/topics/climate-change/ey-climate-risk-disclosure-barometer.pdf https://www.pwc.com/my/en/publications/2021/accelerating-esg-integration-in-malaysian-banks.html http://www.aibim.com/ 5 It is worth noting that, as an extension of this initiative, disclosure guides for Malaysian businesses will be developed in 2022. Applicability: As climate change is a material source of risk that could pose significant threats to the stability of our financial markets and economy, supervised financial institutions are expected to integrate climate-related risks and considerations into their governance framework arrangement, organisational structure, business strategies, corporate planning and risk management practices. In the effort to promote transparency through progressive disclosure of climate-related risks and information in line with the TCFD Recommendations, this Guide is developed as a source of reference for financial institutions and, in particular, those supervised by Bank Negara Malaysia and Securities Commission Malaysia. The Guide is designed for the following financial institutions (local & foreign): 1. Commercial banks 2. Islamic banks 3. Investment banks 4. Development financial institutions 5. Insurance and reinsurance companies 6. Takaful and retakaful operators 7. Fund management companies 8. Institutional investors In addition, this document can be used as a reference by other entities to guide their climate-related measures and disclosures including preparers as well as users of climate-related disclosures such as rating agencies, research houses, etc. Please note that, given the rapid pace of development of best practices as well as accompanying disclosures pertaining to the effective management of climate-related risks & opportunities, the Application Guide is expected to evolve in tandem especially via the incorporation of the latest advances and examples. Phases of implementation: Financial institutions, particularly in developing and emerging markets, are typically in the preliminary stages of producing scientifically informed, meaningful climate-related financial disclosures. In the area of climate-related reporting, methodologies and best practices are rapidly changing. As a result, a flexible approach is needed. Once initial climate-related reporting is published, financial institutions are encouraged to continue enhancing their disclosures in line with the TCFD Recommendations to facilitate more effective assessment, comprehension and decision-making by key stakeholders. As an illustrative implementation path,9 financial institutions in Malaysia would begin publicly disclosing climate-related considerations (e.g. within their annual report or sustainability report) and also start to view climate-related risks and opportunities as mainstream business and investment considerations. As adoption of the TCFD Recommendations increases as a consequence of increasingly facilitative yet stringent regulatory policies, collaborative industry-wide initiatives as well as increasingly persistent investor activism, financial institutions would disclose more robust technical information (e.g. various relevant metrics & targets and scenario analysis undertaken) with greater maturity and within appropriate context. With more complete, consistent, and comparable information for market participants, there will be increased market transparency and credible pricing of climate related-risks and opportunities. This will eventually lead to better management of climate risks and opportunities within and across the entire financial ecosystem. Financial institutions are then encouraged to innovate and further enhance climate-related initiatives beyond the TCFD Recommendations. Notwithstanding the intention to preserve the inherent flexibility that underpins the TCFD Recommendations, it may be helpful to provide an indicative timeframe for adoption of certain recommendations contained within this Application 9 https://assets.bbhub.io/company/sites/60/2020/10/TCFD_Booklet_FNL_Digital_March-2020.pdf https://assets.bbhub.io/company/sites/60/2020/10/TCFD_Booklet_FNL_Digital_March-2020.pdf 6 Guide. Setting such a timeframe may aid financial institutions, especially those who are at the initial stages of adoption, in terms of guiding the rollout of their respective strategic implementation plans vis-à-vis TFCD Recommendations. After having considered the distinctive nature of each disclosure recommendation (including the underlying policies, processes and practices that need to be established to facilitate such disclosures, where applicable), the recommended timeframe for implementation of all Basic Recommendations is within a period of up to 24 months. Put simply, for a financial institution that has yet to address any of the recommendations made, the assumption is that all Basic Recommendations could be adopted within 24 months. As Stretch Recommendations are linked to more sophisticated underlying practices, their adoption should be dependent upon a financial institution’s overall climate risk exposure and/or complexity of operations. Hence, each financial institution is expected to conduct their own assessment on the extent to which they should adopt Stretch Recommendations and the corresponding timeframe for implementation. Acknowledgement: The Guide was prepared by the JC3 Sub Committee 2 on Governance & Disclosures as well as other supporting institutions comprising: Allianz Malaysia Berhad Bank Negara Malaysia BNP Paribas Asset Management Malaysia Bursa Malaysia CIMB Bank Berhad Hong Leong Bank Berhad Institutional Investors Council Malaysia Kumpulan Wang Persaraan (Diperbadankan) Malayan Banking Berhad PricewaterhouseCoopers Risk Services Sdn Bhd RAM Sustainability Securities Commission Malaysia United Overseas Bank (Malaysia) Bhd WWF-Malaysia Zurich (Insurance and Takaful), Malaysia 7 GOVERNANCE Within a financial institution’s framework, climate governance represents policies, roles, responsibilities and decision- making that are associated with managing climate-related risks and opportunities. Governance disclosures form an integral part of an institution’s climate-related commitments and how it will achieve them explicitly, by describing the oversight role of the board, as well as management’s role in relation to climate risks and opportunities. TCFD encourages companies to disclose their climate governance through a phased approach. In the early phase, financial institutions may disclose foundational elements such as the board’s oversight and management’s role in assessing and managing climate-related issues, showcase the boards’ sustainability credentials, and disclose capacity building conducted for board members and management on sustainability. In the next phase, financial institutions may consider disclosing climate-related topics discussed during board meetings, the setting up of a separate committee on climate-related matters and integrating sustainability with key performance indicators (KPIs) of the board and top management. The Implementation Guide presents two phases (Basic and Stretch) as follows: A. BASIC Recommendation G1: Board Oversight of Sustainability and Climate-related Matters Description Disclose nature of Board oversight and accountability with respect to sustainability and climate- related matters, risks and opportunities. Guidance Notes Businesses have been facing calls from shareholders and stakeholders to proactively manage environmental, social and governance (ESG) matters, including climate-related risks and opportunities. Financial institutions, in particular, need to demonstrate how sustainability and climate change considerations are integrated into the Board’s strategic decision-making process, along with risk management frameworks, and financial planning. Board oversight and accountability are crucial to driving long-term value creation and building trust. It is important to disclose where the primary responsibility at the Board level for sustainability issues including climate-related matters resides, for example, whether it is with the board as a whole, or with a specific Board-level committee or sub-committee. The Malaysian Code on Corporate Governance (MCCG) emphasizes that effective board leadership and oversight require the integration of sustainability considerations into corporate strategy, governance and decision making; and a well-articulated long-term strategy as well as a clear plan on sustainability including supporting the global transition to a net-zero economy will distinguish themselves by building the confidence of the stakeholders. Key Considerations 1. Who has oversight responsibility of sustainability issues, including climate-related matters? 2. Does the Board have a clear view of sustainability and climate-related risks and opportunities, and how these are integrated into long-term strategic planning? 3. In the case of a company group, has the assessment of material sustainability and climate- related risks and opportunities been considered from a group-wide perspective? 4. How is the Board apprised of sustainability/climate-related matters? 5. How frequently does the Board convene meetings to deal with sustainability-linked topics including climate-related matters? 8 6. How does the board monitor and oversee progress against goals and targets for addressing climate-related issues? Note: For relevant example(s), please refer to Appendix A. Recommendation G2: Sustainability Governance Structure Including Climate-Related Matters at the Management Level Description Disclose management-level sustainability governance structure as well as processes for sustainability and climate-related matters, including accountability, responsibility, and decision- making. Guidance Notes Financial institutions should set out the structures as well as processes to ensure sustainability- related (including climate-related) risks and opportunities can be identified, monitored, assessed and managed in a timely and effective manner. In order to do this, there is a need for clear roles and responsibilities defined at the relevant management level(s) and business units, including risk management, corporate strategy, finance, audit and others. Relevant reporting lines for sustainability and climate matters within the institution should be disclosed, including reporting to the ultimate oversight body. Key Considerations 1. What are the roles and responsibilities of the management at various levels in integrating sustainability and climate-related matters into business strategies and processes? Who are the various parties involved, and how are they measured and managed to ensure alignment? 2. What are the processes for reviewing climate-related risk management and policies, managing sustainability matters including climate-related considerations, both from the risk as well as opportunity perspectives? 3. How does the financial institution measure, manage and monitor the progress / implementation of sustainability as well as climate-related initiatives, e.g. through appropriate metrics and/or against pre-set goals / targets? Note: For relevant example(s), please refer to Appendix A. Recommendation G3: Sustainability and Climate-related Board Credentials Description Disclose sustainability and climate-related credentials, experience and individual biographies for Board members. Guidance Notes The Board plays critical role in driving long-term shareholder value, ensuring ESG risks and trends are integrated into business strategy. This would mean that Board members need to have the knowledge and competencies to oversee the identification, monitoring and management of material sustainability and climate-related issues. Board members’ sustainability as well as climate-related skills, proficiencies, and experience should be disclosed, to instil confidence and as a signal that the financial institution is taking its material sustainability-related matters seriously. Key Considerations 1. Does the board possess the relevant knowledge, expertise and experience pertaining to sustainability as well as climate-related matters? 9 2. Are ESG skills included as part of the Board skills matrix, and aligned with long-term business strategy? Are the skills of each director, including ESG-related proficiencies disclosed? 3. Is the Board taking proactive measures to promote the diversity of skills and experience of the Board, both in existing Board members and when considering new Board members? 4. Who is responsible for evaluating sustainability competency on the Board? Note: For relevant example(s), please refer to Appendix A. Recommendation G4: Sustainability and Climate-Related Training Description Disclose the initiatives undertaken and training programmes conducted annually to build capacity of Board members and management on sustainability issues including climate-related matters. Guidance Notes Continuous learning and on-going training programmes are crucial to equip the Board with cutting- edge knowledge and to help them keep abreast with changes in sustainability and climate-related developments, including climate science and regulatory changes. Board and senior management training should be regarded as a strategic priority for the financial institution. With comprehensive sustainability and climate-related learning programmes in place, the Board and management will be better able to manage sustainability and climate-related risks and opportunities faced by the institution. Key Considerations 1. Does the financial institution have continuous learning programmes in place for the Board and senior management? 2. Does the financial institution disclose the focus areas of the training programmes conducted? 3. What are the specific sustainability and climate-related training programmes conducted for the Board and senior management? 4. Do the sustainability training programmes include practical exposures such as site visits, case studies and knowledge sharing sessions by other companies? Note: For relevant example(s), please refer to Appendix A. Recommendation G5: Sustainability and Climate-related Discussions in Board Meetings Description Disclose the frequency of Board meetings per year in which sustainability and climate-related issues have been a substantive agenda item, and a summary of key climate-related issues and initiatives deliberated. Guidance Notes There is increasing expectation for Boards to be proactive in evaluating key sustainability risks and opportunities, including those related to climate change. Better transparency and consistent disclosures would aid investors to make informed investment decisions; and for rating agencies to more accurately evaluate material aspects of a financial institution’s sustainability performance. There should be disclosure on the frequency of the Board discussions on sustainability, as well as disclosure on the specific issues discussed. Disclosing sustainability issues discussed during Board meetings is an opportunity for the Board to use transparency to promote more effective communication with its stakeholders. 10 Key Considerations 1. How frequently does the Board/Board committee discuss climate-related issues? 2. What are the key sustainability and climate-related matters that have been discussed and debated at the Board level? Note: For relevant example(s), please refer to Appendix A. Recommendation G6: Sustainability/Climate-linked Remuneration Description Link Board of Director (excluding independent directors) and top management remuneration to performance against specified sustainability and climate-related targets. Guidance Notes Based on United Nations Principles of Responsible Investment (UNPRI) recommendations, appropriate mechanisms and structures are needed to link remuneration to directors’ (excluding independent directors) and top management performance to ensure long-term value creation. Specifically, directors’ (excluding independent directors) and top management performance should be linked to sustainability and climate-related goals and/or metrics. Details of how remuneration is linked to climate-related initiatives should be disclosed. There are four key dimensions to consider when linking remuneration to climate-related goals and/or metrics, which are internal and external targets; how to keep track of and measure progress towards those goals; what time frames to use; and how to determine achievement of targets.10 Sustainability linked remuneration can include KPIs in the relevant performance scorecards which form the basis of remuneration. Sustainability linked remuneration are applicable to management and Executive Directors. For clarity, this requirement is not applicable to independent directors and non-executive directors. Key Considerations 1. Does the financial institution disclose its sustainability/climate-related goals/metrics for the Board and top management? 2. Does the financial institution disclose the implications of performance on sustainability/climate- related matters on remuneration for Board and top management? 3. What specific sustainability/climate-related goals/metrics have been adopted and over what time horizons? 4. How are these goals/metrics determined, and by whom? 5. How does the Board and top management monitor the progress towards achievement of established goals/metrics? Note: For relevant example(s), please refer to Appendix A. B. STRETCH Recommendation G7: Separate Committee on Sustainability and Climate-related Matters Description Set up a separate committee to oversee sustainability-related matters, reporting to the Board of Directors for all sustainability and climate-related matters. 10 https://www.pwc.com/gx/en/issues/reinventing-the-future/take-on-tomorrow/download/Linking-exec-pay-ESG.pdf 11 Guidance Notes A dedicated Board committee for sustainability can provide better guidance and added focus on climate-related and other sustainability strategies. The committee can also steer and oversee complex strategies such as pivoting the financial institution’s business towards a low carbon economy, while encouraging and assisting its clients and investees to do the same. The committee’s roles and responsibilities should be clearly defined, and should include serving as a driver, critic, as well as knowledge centre of sustainability for the institution. The Board committee for sustainability should have a good proportion of independent directors, including directors with relevant sustainability competencies as well as experience. The board level committee is not necessarily required for each entity. The function can leverage a group-level committee, particularly for country level entities and for foreign FIs. The committee must be focused on sustainability, but can also have other related functions, such as governance. Key Considerations 1. What are the objectives and scope of the Sustainability Committee and where does the committee sit within the financial institution’s overall governance structure? 2. What are the roles and responsibilities of the Sustainability Committee? 3. What is the frequency of committee meetings? 4. How would the composition of the committee be decided, including diversity in terms of members’ skillsets, viewpoints and input? Note: For relevant example(s), please refer to Appendix A. 12 STRATEGY Financial institutions should describe and discuss how climate-related risks and opportunities are identified, assessed and managed. Disclosures relating to strategy should identify the type, extent/magnitude, and time scales of exposure to material climate issues, including possible outcomes/impacts of climate-related risks and opportunities. In doing so, the institutions should pay particular attention to providing visibility in terms of how business strategy, including financial planning and analysis, integrates responses to such risks and opportunities. Financial Institutions should also develop climate-resilient strategies, taking into account different climate scenarios including a 2°C or lower scenario. Financial institutions should first identify the risks and opportunities related to climate, assess how those risks and opportunities affect their business model and performance, and disclose their strategy and risk appetite on climate risks. In the advanced level, financial institutions may perform climate scenario analysis to ensure climate alignment to their values and strategy.11 The Implementation Guide presents two phases (Basic and Stretch) as follows: A. BASIC Recommendation S1: Identification of Climate-related Risks and Opportunities Description Review the financial institution’s strategy to identify and disclose climate-related risks and opportunities over the short-, medium-, and long- term. Guidance Notes Financial institutions should identify material sustainability and climate-related risks as well as opportunities arising from their existing operations. In addition, any planned strategies and initiatives should be tested for climate resilience. In providing a more holistic picture, financial institutions may also explore on how climate related issues could have a material financial impact on the organisation and the interdependencies among the factors that affects the ability to create value over time. Plans and business outcomes that are not aligned with the relevant national policies and/or international agreements such as the Paris Agreement could potentially expose the institution to certain transition risks. As per TCFD Recommendations, specific time frames pertaining to key risks and opportunities depend on considerations such as the useful life of the institution’s assets, and the distinctive natures of the climate-related risks based on sectors and geographies in which they operate. Key Considerations 1. What climate-related risks and opportunities are material to the financial institution’s operations and business goals over the short-, medium- and long-term? How did the financial institution identify such risks and opportunities? 2. Has the financial institution established or identified the relevant internal key risk indicators/measurements to monitor and trigger actions on/responses to climate-related risks and opportunities? Is there a policy and procedure in place for this? 3. Has the company considered or evaluated opportunities in creating sustainable financial products and services, based on trends in relation to sustainability and / or climate change? Note: For relevant example(s), please refer to Appendix A. 11 https://www.fsb.org/wp-content/uploads/P291020-1.pdf https://www.fsb.org/wp-content/uploads/P291020-1.pdf 13 Recommendation S2: Impact of Climate-related Risks and Opportunities Description Assess and disclose how climate-associated risks and opportunities could affect the financial institution’s existing businesses, strategy, and financial planning. Guidance Notes It is important that financial institutions understand and disclose the impacts of climate-related risks and opportunities on their businesses, in terms of magnitude, timing and transmission mechanisms. Consequently, the company should embed sustainability and climate risk considerations into its overall enterprise risk management framework, utilising appropriate tools and metrics, for example the impacts of climate related issues on the financial performance and position to build resilience. The financial institution should adopt an institution-wide view of climate / environmental risk exposures, and there should be an internal process for reviewing, managing, and monitoring climate-related risks to ensure that appropriate and timely actions are taken to address them. Key Considerations 1. How much effort and resources are required to manage climate-related risks and to pursue the opportunities identified? What skillsets are needed internally? 2. What external data or information is needed to assess climate-related risks and opportunities? 3. How often should risks and opportunities be evaluated/updated, given the rapid developments on both science and regulations in the area? 4. Is there a transition plan (or contingency plan) in place to manage/address the impacts identified? Note: For relevant example(s), please refer to Appendix A. Recommendation S3: Strategy and Risk Appetite on Climate Change Related Risks and Sustainability Measures Description Disclose strategy and appetite with regard to climate-related risks and opportunities, and the measures towards sustainability in the financial institution’s business activities. Guidance Notes In the process of identifying material climate-related risks and opportunities, the institution should clearly define and disclose their risk appetite for taking on climate-related risks, how it differs from, and how it relates to their existing risk portfolio. The financial institution should ensure transparency when disclosing their position/efforts pertaining to climate-related risk management strategy and other sustainability-related matters that reflect their strategy and business activities. For example: (i) Acknowledging the existence of climate change issues and disclosing the institution’s environmental impacts such as carbon footprint and energy use. (ii) Making clear commitments/pledges to demonstrate the institution’s resolve in taking proactive measures to address climate issues, and how such commitments/pledges are translated into their overarching strategy and actions. (iii) If applicable, the description of how climate-related risks and opportunities are factored into relevant products/investment strategies, and how of the products and investment strategies might be affected by the transition to a low-carbon economy to various assets classes. 14 Key Considerations 1. Is the financial institution’s stance on climate change/sustainability established and clearly defined within their Board Charter/Risk Appetite/Internal Policy and Procedures? 2. Are sustainability and climate change incorporated in the institution’s vision and mission? 3. Are there institution-wide awareness programmes to cascade key strategies to the employees, including focus on ESG elements? Note: For relevant example(s), please refer to Appendix A. B. STRETCH Recommendation S4: Scenario Analysis as an Opportunity to Improve Strategic Resilience and Explore Climate Vulnerabilities Description Perform climate-related scenario analysis to assess potential business implications of climate- related risks and opportunities over time and under different conditions as well as related strategy to manage these. Guidance Notes Effects of climate change are likely to emerge over the medium- to long-term, but with unknown timing and magnitude. This poses a major challenge to financial institutions in understanding the potential impacts to business strategies and financial performance. Climate-related scenario analysis allows financial institutions to explore a range of possible scenarios and develop an understanding of how various physical and transition risks and opportunities may impact business over various time periods. A scenario analysis should have the following characteristics: (i) Plausible – the event(s) should be possible and have a credible narrative. (ii) Distinctive – each scenario must focus on a different combination of key factors and should be clearly differentiated in structure, not variations on a single theme. Multiple scenarios should be used to explore how different permutations and/or temporal developments on the same key factors can yield different outcomes. (iii) Consistent – each scenario should have sound internal logic. The goal of scenario analysis is to explore the way differing combinations of factors interact, and each action should therefore entail a reaction. (iv) Relevant – each scenario, as well as set of scenarios taken as a whole, should contribute specific insights into the future, especially in relation to strategic and/or financial implications. (v) Challenging – each scenario should challenge conventional wisdom and simplistic assumptions about the future. It should explore alternatives that will significantly change the basis for business-as-usual assumptions. Credible scenarios require estimates of the future such as population, economic activity, governance structure, social values and technological advancements. These can serve as “meta-scenarios” to provide overall context and a set of macro trends, based on which specific scenarios can be developed. The financial institution should disclose clear time horizons for the management of climate-related risks and opportunities, including detailed milestones to show progress and to quantify business impacts. Further considerations: 15 (i) There is a need to draw explicit linkages between time horizons and specific climate-related events and risks over each time horizon. These risks should have a material impact on the financial institution. (ii) The description must consider the weighted average life of the financial institution’s portfolios as well as time horizons used in internal forecasts (e.g. deferred tax assets). (iii) The description must also consider the fact that certain physical climate impacts may manifest over medium and longer time horizons, while others may manifest over the short-term (or are already unfolding). Financial institutions are encouraged to consider the following categories of climate-related risks and opportunities when conducting scenario analysis (non-exhaustive): (i) Market and technology shifts. (ii) Reputational considerations. (iii) Policy, legal and regulatory environment. (iv) Physical (acute and chronic). A high-level view of the approach to be used when applying scenario analysis to climate-related risks and opportunities is as follows: (i) Ensure governance is in place. (ii) Assess materiality of climate-related risks to the company. (iii) Identify and define range of scenarios which includes a range of transition and physical risks that are relevant and material to the financial institution. (iv) Evaluate business impact. (v) Identify potential responses. (vi) Document and disclose key inputs, assumptions, analytical methods, outputs, potential management responses and communication to stakeholders and other relevant parties. Financial institutions are encouraged to disclose the process for selection and review of scenarios, as well as a of justification scenarios used, e.g. why the scenarios are applicable to the institution and how they are supported by business judgment. Disruptive non-linear scenarios should also be considered for inclusion. 1. Scenarios: (i) Types of scenarios (e.g. based on International Energy Agency (IEA), Intergovernmental Panel on Climate Change (IPCC), Network for Greening the Financial System (NGFS), etc.). (ii) Description of scenario (e.g. in-house vs. industry collaboration). (iii) Source of scenario data e.g. available data provided by the National Hydraulic Research Institute of Malaysia (NAHRIM) on sea level rise, flood risk area etc. (iv) High-level outcomes by scenario. 2. Variables: (i) Commentary on alignment with existing regulatory initiatives. 3. Assumptions and methodology: (i) Description of key scenario assumptions. (ii) Description of segmentation methodology used across business segments. (iii) Correlation of climate risk variables (i.e. physical and transition risks) to macroeconomic variables. 4. Results: (i) Firm-specific overlays, limitations and/or adjustments. 16 (ii) Exposure by sector and/or geography at year-end by defined time horizons (short-, medium- and long-term). The financial institution should provide a report of qualitative and quantitative analysis undertaken as well as results obtained, together with the management implications and actions taken. The disclosure should comprise: (i) Whether physical and transition risks are considered separately or jointly, detailing possible interactions if possible. (ii) Results of scenario analysis/stress testing expressed in terms of earnings or value-at-risk under multiple climate scenarios, and in the context of financial commitments and recent year progress. (iii) Description of resiliency of business model and recent strategic decisions. (iv) Client/customer resilience considerations in stress test scenarios. (v) Firm-specific description of sector resilience through stress test scenarios, including relevant responses. (vi) Investment/ lending portfolio (or asset level) performance under selected scenarios. Other potential disclosures: (i) Prioritisation framework for managing climate initiatives. (ii) Climate risks of different sectors in the portfolio under different climate scenarios. (iii) Climate-related risks and opportunities by business segment or geographical region. Key Considerations 1. What are the various relevant scenarios that are readily available? E.g. scenarios developed by International Energy Agency (IEA) and Intergovernmental Panel on Climate Change (IPCC) could be used to assess future vulnerability to climate change. 2. What is the nature of climate related risk and opportunities faced by the financial institution? E.g. climate change impacts may vary significantly depending on industry, value chain position, customers, stakeholders, geography and/or economic sectors. 3. How might the scenario analysis results be used by investors and other stakeholders? E.g. investors may use them to consider potential investments, plan engagement activities and to assess future performance. 4. How much details should be disclosed? E.g. key parameters used, assumptions, analytical choices and business impact/effects for the scenario analysis. Note: For relevant example(s), please refer to Appendix A. 17 RISK MANAGEMENT Financial institutions should integrate climate-related risks into their existing risk management processes. The process of integration would be distinctive to each financial institution especially considering the sheer diversity of practices and techniques to the management of risk where some institutions may use fully integrated, enterprise-wide risk management processes while others may use risk management processes that are more focused. Each financial institution should disclose how it identifies, measures, monitors, manages and reports climate-related risks. They provide important insight to how the climate-related risks are integrated within firm-wide risk management framework(s). (1) Process for Identifying and Assessing Climate-related Risks Financial institutions should describe their risk management processes for identifying and assessing climate-related risks. An important aspect of this description is how they determine the relative significance of climate-related risks in relation to other risks. Financial institutions should describe whether they consider existing and emerging regulatory requirements related to climate change (e.g., limits on emissions) as well as other relevant factors considered. Financial institutions should also consider disclosing the following: (i) processes for assessing the potential size and scope of identified climate-related risks; (ii) definitions of risk terminologies used or references to existing risk classification framework(s) used; and (iii) characterisation of their climate-related risks in the context of traditional banking industry risk categories such as credit risk, market risk, liquidity risk, and operational risk. (2) Process for Managing Climate-related Risks Financial institutions should describe their processes for managing climate-related risks, including how they make decisions to mitigate, transfer, accept, or control those risks. In addition, financial institutions should describe their processes for prioritising climate-related risks, including how materiality determinations are made. In describing their processes for managing climate-related risks, financial institutions should address key transition and physical risks, as appropriate. Process for Integrating (1) and (2) into Overall Risk Management Financial institutions should describe how their processes for identifying, assessing, and managing climate-related risks are integrated into their overall risk management. The Implementation Guide presents two phases (Basic and Stretch) as follows: A. BASIC Recommendation R1: Process for Identifying and Assessing Climate-related Risks Description Disclose how the financial institution looks at existing and emerging regulatory requirements related to climate change and other relevant factors. Disclose the risk classification framework(s) used. Disclose the risk terminology definitions used or existing risk classification framework(s) used. Guidance Notes The financial institution should explain its adherence to, or support for, the relevant and applicable climate-related public policies as well as regulations. In addition, it should provide clear definitions 18 of risk terminologies (e.g. physical risk, transition risk, credit risk, market risk) and consider climate- related risks in relation to existing risks. Key Considerations 1. What kinds of climate-related risks are the financial institution exposed to? 2. What kinds of climate-related risk exposures (e.g. flood, hurricane, technological changes) and other emerging regulatory related to climate change should be managed in addition to other existing risks12? Note: For relevant example(s), please refer to Appendix A. Recommendation R2: Process for Managing Climate related Risks Description Disclose the financial institution’s risk management processes and controls. Disclose the identities of individual(s)/function(s) responsible for oversight of climate-related risks and its relationship with the business operations. Guidance Notes The financial institution should explain how climate-related risks are managed either independently or relative to other risks. After explaining key risk management processes and controls, the financial institution should also outline the approaches used to enhance capabilities and incorporate climate change risks into its existing risk management framework. The financial institution should clearly identify the parties that are overseeing the management of climate-related risks. Key Considerations 1. What management processes are utilised (e.g. climate change risk inventory/taxonomy) to manage climate-related risks? 2. How does climate-related risks relate to other existing types of risk (e.g. mapped across existing risks)? 3. How does the financial institution prioritise its climate-related risks and, in particular, the process by which materiality determinations are made for strategic planning purposes? 4. Has the financial institution established the relevant risk management governance (e.g. climate risk committees at Board level or at the level of business units) to monitor key climate risks in relation to other existing risks? Note: For relevant example(s), please refer to Appendix A. Recommendation R3: Process for Integrating (i) Process for Identifying and Assessing Climate-related Risks and (ii) Process for Managing Climate-related Risks; into Overall Risk Management. Description Disclose the integration of processes for identifying, assessing, and managing climate-related risks into overall risk management. 12 Please note that, to address Recommendation R1 within the context of this Application Guide, FIs should provide disclosures that revolve around climate-related risk exposures that materially impact their Malaysian operations. Moving beyond Basic, for FIs with operations that span foreign jurisdictions as well, they are encouraged to disclose information on all reasonably foreseeable climate-related material risks that are distinctive to their industry or the geographical areas in which the company operates. In this regard, disclosures should include sufficient and comprehensive information that will fully inform investors of all material and foreseeable climate-related risks and potential opportunities e.g. products and services & ability to further diversify business activities in correlations to the shift in consumer preferences. 19 Disclose processes for prioritising climate-related risks, including how materiality determinations are made within the financial institution. Guidance Notes Where parts of integration of climate-related risks are still in progress, the financial institution should provide an elaboration of its on-going plans as well as targeted completion timeframes to fully embed identification, assessment and management of climate-related risks as part of its overall Risk Management Framework. Apart from integration of climate-related considerations (i.e. items (i) and (ii)) into the financial institution’s overall Risk Management Framework (e.g. how physical and transition risks impact overall credit and market risks) an explanation should also include how it helps in credit and investment decision-making. Key Considerations 1. How does the financial institution integrate items (i) and (ii) into their risk appetite framework and operational risk appetite statement? Note: For relevant example(s), please refer to Appendix A. B. STRETCH Recommendation R4: Process for Identifying and Assessing Climate-related Risks Description Disclose the financial institution’s risk management processes used to identify and assess climate- related risks. Disclose the financial institution’s climate-related risks and their significance within existing risk categories such as credit, market, operational, liquidity risk. Disclose the financial institution’s processes for assessing the potential size and scope of identified climate-related risks. Disclose key sectors in the financial institution’s portfolio that are identified as being highly exposed to climate risk. Set out the financial institution’s risk management controls or actions in managing impacts from direct climate-related risks (i.e. through own operations). Guidance Notes The financial institution should elaborate on the impacts of climate-related risks identified on its clients and, where appropriate, by making reference to the relevant industry- and/or internationally- recognised frameworks for identification of risks. In addition, the institution should disclose general risk management processes used in identifying and assessing climate-related risks (alongside existing risk factors) including determination of firm-wide vulnerability to climate change. Key Considerations 1. Does the financial institution disclose how climate-related risks were identified (e.g. by tracking regulatory developments and/or engagements with stakeholders)? 2. Does the financial institution disclose the climate-related risk identification and assessment tools used such as economic scenario planning, stress-testing, vulnerability assessment scales, etc.? 3. Has the financial institution developed a methodology for assessing credit-rating impacts under a 2-degree climate scenario? 20 4. If there are still climate risk-related aspects that are yet to be included/integrated into the institution’s risk management framework, has the institution established an indicative timeline to do so? Note: For relevant example(s), please refer to Appendix A. Recommendation R5: Process for Managing Climate-related Risks Description Disclose the financial institution’s processes for managing climate-related risks including decisions to mitigate, transfer, accept, or control those risks. Disclose improvements planned/completed by the financial institution to enhance capabilities and incorporate climate-related risks into existing risk management framework. Conduct training and employee readiness planning as well as programmes. Disclose how the financial institution’s customers are engaged and helped in mitigating climate- related risks. Use metrics and targets to monitor progress in managing climate-related risks (i.e. exposure to, and quantification of, risk types by business segment and jurisdiction). Set out the financial institution’s risk management controls or actions in managing impacts from indirect climate-related risks (i.e. through activities of its clients). Disclose the financial institution’s exposure to, and quantification of, sustainable financing. Guidance Notes The financial institution should elaborate on its identified or potential climate-related risks under transition risk and physical risk categories, then discuss how the risks identified are managed using various management models to better understand associated impacts and to determine the appropriate responses. It can track progress for implementation of measures and manage these through setting of appropriate metrics and targets. The financial institution has to align risk management processes or measures to manage climate- related risks with existing risk management processes. Key Considerations 1. Does the financial institution disclose the courses of action undertaken to manage climate- related risks e.g. assigning dedicated teams to manage such risks? 2. Has the financial institution organised any relevant training and/or employee readiness planning /programmes? 3. What is the approach adopted by the financial institution to effect improvements to the management of climate-related risks e.g. conducting analysis, conducting enhanced due diligence and/or provide recommendations to clients within sensitive sectors? 4. For insurers/takaful operators, what tools or instruments such as risk models are used to manage climate-related risks in relation to product development & pricing? In addition, how are risks generated by the rising propensity and severity of climate events being managed? Note: For relevant example(s), please refer to Appendix A. 21 Recommendation R6: Process for Integrating (i) Process for Identifying and Assessing Climate-related Risks and (ii) Process for Managing Climate-related Risks; into Overall Risk Management. Description Disclose how the financial institution has integrated climate-related risks into existing risk categories such as credit, market, operational, insurance and liquidity risks. Disclose how the financial institution has integrated climate-related risks into existing risk framework(s) and/or directly into credit and investment decision-making (e.g. lending policies, underwriting standards, risk ratings, pricing models). Disclose the financial institution’s exposure to physical and transition risks within its operations and business model, including concentrations of risk at portfolio and transaction levels, and by geographical footprint. Disclose the financial institution’s efforts in supporting clients through mitigating climate-related risks via sustainable finance solutions. Implement policies that restrict/divest from high-risk exposures and in line with international commitments/frameworks. Enhance the financial institution’s climate risk management framework to be more predictive. Guidance Notes The financial institution should elaborate on the extent to which climate-related risks have been integrated into its risk management framework(s), and where any further enhancements may be required. This is inclusive of both transition and physical risks (e.g. consideration of how new technologies could affect the different energy forms under Technology Risk, climate-related exposures on credit portfolio by geographical footprint). Additionally, the financial institution should also consider impacts of climate-related risks on existing categories of risk (e.g. how physical and transition risks impact credit risk, market risk). The financial institution should also disclose the integration of items (i) and (ii) by providing descriptions of specific enhancements to existing processes (e.g. underwriting assessment, no. of transactions approved, attestation). Key Considerations 1. Has the financial institution conducted environmental risk (and, in particular, climate-related risk) assessments for new transactions and newly onboarded borrowers? If so, has the company made in-depth disclosures in this area? 2. Has the financial institution made and/or disclosed any commitments to support clients in terms of mitigation of physical and transition risks? 3. Has the financial institution disclosed how it embeds climate-related risks into existing risk framework(s) such as embedding physical and transition risks to facilitate credit and investment decision-making? 4. Has the financial institution developed sector-specific approaches to deal with financing/insuring for sensitive/high risk sectors (e.g. specific policies or exclusion lists)? 5. Has the financial institution disclosed approaches used to ingrate items (i) and (ii) such as descriptions of additional risk mitigation measures (e.g. new exclusion policies, updated risk appetite statements)? Note: For relevant example(s), please refer to Appendix A. 22 METRICS & TARGETS Financial institutions should put in place climate-related metrics and targets as a key part of their efforts in decarbonising their financing or investment portfolios. These metrics and targets should be set in such a way that they will inform and be informed by the institution’s governance, strategy, and risk management processes – effectively serving as the connection between the aforementioned TCFD core elements with their respective recommended disclosures, as well as their performance and transition plan. To enhance transparency, each financial institution should disclose the climate-related commitments it made to investors and other stakeholders (both internal and external) using the proposed metrics and targets in this Guide. This will provide stakeholders with insights on how the financial institution is progressing against its commitments. Increased transparency will also improve risk pricing which will lead to better asset and capital allocation, thereby driving change in the real economy. Financial institutions may also categorise the metrics and targets based on their use cases. The focus should revolve around specific key purposes such as portfolio decarbonisation, transition finance, portfolio alignment, physical and transition risk management, client engagement, among others. Such an approach would be helpful in scoping priorities and providing a more holistic view of an institution’s long term, strategic action plan. Metrics should be designed and selected based on the following guiding principles: I. Decision-useful Chosen metrics should be meaningful in terms of providing adequate understanding of relevant climate risks and opportunities, their potential financial impact and ultimately affect on decision-making in the institution. II. Clear and understandable Chosen metrics should be clearly defined and articulated, and wherever possible, contextualised against comparable peers or benchmarks. III. Reliable, verifiable and objective Chosen metrics should be based on robust, science-based methodologies and free from bias and value judgment, therefore producing more objective disclosures. IV. Consistent over time This is to ensure comparability of disclosures over time. Any changes in the methodology employed or data should be explained accordingly. Building on the selected metrics, financial institutions should disclose and describe the targets, and report performance against them. This should be based on the institution’s overall climate ambition with regards to its current performance, its future goals and the transition plan to get there. While it is widely acknowledged that certain data gaps will be a considerable challenge in implementing robust metrics and targets, financial institutions should first start with the basic recommendations detailed in this document. In the process of doing so, financial institutions will engage and nurture clients, thus setting a phased level of expected disclosures from them. This will also trickle down to other stakeholders, such as rating agencies and data providers, translating into a domino effect which will eventually pave the way in bridging the necessary data gaps. The metrics and targets provided in this Guide are applicable to all financial institutions. However, certain metrics may require contextualisation according to the institution’s business activities, relevant asset classes and their respective client groups. Metrics and their methodologies may also evolve with the development of standards and framework over time. Financial institutions are therefore encouraged to customise the metrics and targets to be fit-for-purpose while keeping abreast with global and local development. The Implementation Guide presents two phases (Basic and Stretch) as follows: 23 A. BASIC Recommendation M1: Key Climate-related Metrics Description Recommendation M1a - GHG Emissions Historical and current GHG Emissions (Example unit of measure – MT of CO2e). 1. Absolute Scope 1 GHG Emissions. 2. Absolute Scope 2 GHG Emissions. 3. Absolute Scope 3 GHG Emissions (at minimum on business travel and employee commuting). Recommendation M1b - Transition Risks Amount and extent of assets or business activities vulnerable to transition risks (Example unit of measure – Amount or percentage). 1. Proportion of portfolio with exposure to assets or business activities vulnerable to transition risks: a. Concentration of credit exposure to/investments in companies with carbon-related assets or business activities by sector13 e.g. energy, agriculture, construction, transportation, mining and quarrying, waste, food and forest products. Note: While this may require assessment on the exposure’s planned strategies to respond to transition risk and opportunities (e.g. carbon tax), the financial institutions may leverage on existing datapoints (e.g. information/assessment to derive CCPT classification) to ascertain the carbon intensive exposure. The information/assessment will evolve over time based on the maturity of the FI’s capacity in managing climate-related risk. Recommendation M1c - Physical Risks Amount and extent of assets or business activities vulnerable to physical risks (Example unit of measure – Amount or percentage). 1. Proportion of portfolio with exposure to assets or business activities vulnerable to physical risks: a. Proportion of bank’s/insurer’s/takaful operator’s/asset manager’s own property and operation vulnerable to physical risk such as flooding, heat stress or water stress. Recommendation M1d - Climate-Related Opportunities Proportion of revenue, assets or other business activities (financing & investment) aligned with climate-related opportunities (Example unit of measure – Amount or percentage). 1. Proportion of portfolio with exposure to low carbon assets or business activities. Examples include (non-exhaustive): a. (Insurance) Net premiums written related to energy efficiency and low-carbon technology. b. Percent of resilient infrastructure in investment portfolio. c. Proportion of clients in hybrid and electric vehicle. d. Financing / revenues from products or services that support the transition to a low-carbon economy. 13 FIs may start by disclosing material exposures (e.g. selected portfolio or sectors) and enhance the disclosure in tandem with the improved data points available to the FIs over time, to produce more granular level disclosure (e.g. all portfolios or sectors in more detailed breakdown). 24 e. Proportion of homes financed that are certified to a third- party, multi-attribute green building standard. f. Proportion of sovereign bond underwriting undertaken for countries with net zero 2050 targets. g. Proportion of clients reporting against disclosure good practice e.g. CDP, TCFD, SASB, CDSB. h. Proportion of clients (lending/ securities underwriting) with explicit and credible climate change risk mitigation plans. i. Proportion of financing and investment in climate adaptation measures (e.g., soil health, irrigation, technology). j. Exposure to green activities calculated by dividing revenue from green activities of investee companies / borrowers as defined by green taxonomy (e.g. BNM CCPT) by total revenues of assets in portfolio/product. Please note that financial institutions are expected to adopt and/or adapt any combination of the above as deemed appropriate for their respective circumstances. Recommendation M1e - Client Engagement Client engagements on climate-related risks and opportunities (Example unit of measure – percentage). 1. Proportion of total engagement meetings on climate risk/opportunity, broken down by topic/theme. 2. Proportion/share of the portfolio for which engagement on climate-related risk/opportunities has been a key topic. Recommendation M1f - Capital Deployment Amount of capital expenditure, financing, or investment deployed toward climate-related risks and opportunities (Example unit of measure – Reporting currency). 1. Share of financial assets (e.g. loans/financing, investment assets) based on classification by green taxonomy for example BNM’s Climate Change and Principles-based Taxonomy (“CCPT”). Recommendation M1g - Remuneration Proportion of director and/or senior management remuneration linked to sustainability considerations (Example unit of measure – Percentage, weighting, description, or amount in reporting currency). 1. Portion/weightage of directors and/or senior management’s remuneration linked to sustainability-related KPIs (e.g. investments in related products, performance against emissions targets). Guidance Notes The financial institution should disclose key climate-related metrics Additionally, the institution should contextualise all such climate-related metrics in terms of their relationships with other metrics, especially linking to financial indicators when possible. Relevant considerations include (non-exhaustive): (i) Listing and descriptions of key metrics used to measure climate-related risks and opportunities. (ii) Descriptions should include methodology for assessing each metric. (iii) Descriptions should contain an affirmation that the metrics are comparable and consistent across various years and that there were no major methodological or formula changes between years. 25 (iv) If there were major methodology or formula changes between years, the report should make this explicit and explain the rationale for the change. (v) Association of financial metrics with climate-related metrics when possible. (vi) Contextualisation of metrics in relationship to a specific project or target. In relation to Scopes I, II and III GHG emissions, disclosures should include: (i) Disclosure of methodologies used to calculate emissions, along with which gases are factored into GHG emissions (e.g. CO2, CH4, N2O, HFC). (ii) Disclosure of existing scope/boundary of reporting and its underlying basis. (iii) Consistent use of absolute/relative intensity metrics to enable understanding against targets, featuring a year-to-year comparison when possible. (iv) Inclusion of industry-specific GHG efficiency ratios if possible. (v) Discussion of risks pertaining to the largest source of GHG emissions. Key Considerations In presenting climate-related metrics and financial impacts and associated contextual information in their disclosures, financial institutions should provide the following: (i) Types of measurements used including whether information comes from direct measurements, estimates, proxy indicators, or financial and management accounting processes and standards. (ii) Methodologies used such as the GHG Protocol for greenhouse gas emissions. Methodology discussion for GHG emissions should include emissions factors, scope, and boundary. Methodology discussions should also provide key business assumptions and which qualitative or quantitative climate scenarios were used. (iii) Changes in absolute and relative amounts over time including whether acquisitions, divestments, or policies have affected results. (iv) How results are connected with business units, company strategy, and financial results. Where it aids understanding, the financial institutions should consider disaggregating information by such categories as geographic area, business unit, asset, type, upstream and downstream activities, source, and vulnerability of area. (v) The criteria and indicators used to assess both the level and impact of actual and potential climate-related risks and opportunities on operational and financial performance and position in the reporting period and beyond (where the impact may affect planning, risk management, and opportunity optimisation in future reporting periods). The financial institution should also consider the provision of appropriate incentives for its management in relation to the roles & responsibilities assumed in managing climate-related risks and opportunities e.g. by incorporating GHG emissions / reduction targets within the management's scorecard. Recommendation M2: Key Climate-related Targets Description Set and disclose clear climate-related targets based on recognised metrics (including cross-industry, sector-specific metrics and/or institution-specific metrics). Guidance Notes (i) Targets set should be quantitative and granular: Climate-related targets should be quantified, where possible, especially for metrics that are fully in the financial institution’s control, such as amount of investment in physical risk reduction. Climate-related targets should also be granular enough to enable tracking. The table below provides illustrative examples of quantitative, granular targets across all cross-industry, climate-related metrics. 26 Source: Adopted from Task Force on Climate-related Financial Disclosures Guidance on Metrics, Targets, and Transition Plans (2021) (ii) Targets should be designed by giving due consideration to the financial institution’s strategy and forecasting (and, informed by scenario analysis and climate science): Climate-related targets should be aligned with, and supportive of, the company’s strategy and strategic goals, and informed by appropriate forecasting and climate science. Financial institutions should consider providing a description of how climate scenario analysis influenced the determination of targets and broader climate strategy. For GHG reduction targets, the financial institution should specify which temperature pathway its target is expected to align to. The institution should consider summarising the role of scenario analysis in developing climate-related targets and testing of resilience under various outcomes (e.g. choosing business relevant time horizons, testing achievability, determining contribution to business resilience). (iii) Targets should be clearly specified: Climate-related targets should be defined clearly over time and with appropriate baseline. The financial institution should provide clear definition of the baseline time period against which progress will be tracked as well as adoption of a consistent base year across targets. (iv) Time horizon: The financial institution should disclose a defined time horizon by which targets are intended to be achieved. There should be consistency across targets and, if feasible, consistent with key dates tracked by climate-related organisations or regulators. 27 Source: Source: Adopted from Task Force on Climate-related Financial Disclosures Guidance on Metrics, Targets, and Transition Plans (2021) Key Considerations Where appropriate, targets pertaining to climate-related risks and opportunities should be set relative to metrics described in the preceding disclosures. As additional guidance, all such targets should include certain basic features, including: (i) Whether the target is absolute or intensity-based. (ii) Relevant time frame over which the target applies. (iii) Base year from which progress is measured. (iv) Key performance indicators used to assess progress against target. (v) Targets should feature the following areas relating to climate change: GHG emissions, water usage and energy usage. It can also cover other goals, including environmental financial goals, financial loss tolerance, avoided GHG emissions throughout entire product life cycle, and net revenue goals from products designed for a lower-carbon economy. B. STRETCH Recommendation M3: Key Climate-related Metrics Description Recommendation M3a - GHG Emissions Historical, current and future GHG Emissions (Example unit of measure – MT of CO2e). 28 1. Absolute Scope 3 GHG Emissions. 2. Financed/Insured Emissions by Asset Class. 3. Weighted Average Carbon Intensity-Portfolio Exposure to Carbon-Intensive Companies. 4. Physical Emissions Intensity – Volume of Carbon Emissions Per Unit of Production or Physical Output14 . 5. Economic Emissions Intensity – Volume of Carbon Emissions Per RM of Revenue. In addition to the above and following on from recommended Basic Metrics for this category, additional forward-looking element/analysis to be included as Stretch – based on methodologies such as Scenario Analysis, Trend Analysis, Sensitivity Analysis, and Simulations as well as commitments of emissions reduction targets or climate-related targets. Note: Aggregation of emissions reduction targets or estimated emissions of assets or borrowers. Recommendation M3b - Transition Risks Amount and extent of assets or business activities vulnerable to transition risks (Example unit of measure – Amount or percentage). 1. Volume of real estate collaterals highly exposed to transition risk. 2. Distribution of borrowers/customers by climate-related risk ratings. 3. Transition risk heatmap by sector/technology / geography and materiality to portfolio or degree of transition risk [reflecting own assessment of carbon prices, policies, corporate strategies, etc.]. Recommendation M3c - Physical Risks Amount and extent of assets or business activities vulnerable to physical risks (Example unit of measure – Amount or percentage). 1. Proportion of portfolio with exposure to assets or business activities vulnerable to physical risks: a) Proportion of investing or financing activities vulnerable to physical risk. b) Climate-related events that could potentially affect supply chains, outsourcing arrangements, external service providers, and business continuity planning. 2. Number and value of mortgage loans in flood hazard/risk map. 3. For insurers/takaful operators, proportion of insuring/underwriting activities vulnerable to physical risks (e.g. liabilities arising from increases in insurance claims). 4. Distribution of borrowers/clients by climate-related risk rating. 5. Physical risk heat map by sector/ geography [over time reflecting value chain, adaptive capacity, corporate response, etc.]. 6. Climate-adjusted Loan-to-value ratios. 7. Correlation between asset values and extreme events. Recommendation M3d - Climate-Related Opportunities Proportion of revenue, assets or other business activities (financing & investment) aligned with climate-related opportunities (Example unit of measure – Amount or percentage). 1. Avoided Emissions: how client's products can help avoid GHG emissions compared to other products. 2. Climate-related capex intensity of clients within portfolio (capex on climate solutions as % of total capex). Note: To guide engagement and capital reallocations to best-in-sector companies. 14 It is envisaged that disclosure guides for Malaysian businesses will be developed in 2022. 29 Recommendation M3e - Portfolio Alignment Forward-looking assessments of the convergence between the emissions profile of a portfolio, and the sectoral decarbonization trajectory necessary to achieve climate goals. 1. Sectorial target/limit exposure to high GHG-emitting sectors (e.g. oil and gas) in financial institution's own portfolio and client's emission reduction targets. 2. Portfolio scenario alignment, i.e. forward-looking assessments of the convergence between the emissions profile of a portfolio, and the sectoral decarbonization trajectory necessary to achieve climate goals, developed based on metrics such as sectoral emissions intensity, production capacity, technology mix, originating from client-level data. An example of a portfolio alignment tool is the Paris Agreement Capital Transition Assessment (PACTA). 3. Long-term and intermediate portfolio target setting to support meeting the temperature goals of the Paris Agreement using widely accepted science-based decarbonisation scenarios, e,g, Science Based Targets initiatives (SBTi), net zero standards (Glasgow Financial Alliance for Net Zero, UN Race to Net Zero). 4. Implied temperature rise – warming metrics to quantify portfolio warning i.e. estimates the level of future warming with which a portfolio is currently aligned, on the basis of forecasting emissions intensities to a specific date (e.g. 2030) and then extrapolating future temperature outcomes by 2100. Recommendation M3f - Client Engagement Client engagements on climate-related risks and opportunities (Example unit of measure – Amount or percentage). 1. Engagements where positive progress has been achieved/evidenced against objectives (e.g. by theme, on climate disclosures etc.). 2. Advanced interventions (e.g. for AMs, AGMs attended to speak on climate change, resolutions publicly supported in advanced or co-filed). 3. Transition planning with clients that lay out a set of targets and actions supporting its transition toward a low-carbon economy. Recommendation M3g - Internal Carbon Prices Price on each ton of GHG emissions used internally by an organisation (Example unit of measure – Price in reporting currency, per MT of CO2e). Financial institutions to consider: 1. Internal carbon price: a carbon price charged to a business activity, product line, or other business unit based on its GHG emissions (these internal taxes or fees are similar to intracompany transfer pricing). Internal revenues from these fees or taxes are often used by an organization to incentivize emissions mitigation and investment in various low-carbon opportunities. 2. Shadow carbon price, by geography: a theoretical cost or notional amount that the organization does not charge but that can be used in assessing the economic implications or trade-offs for such things as risk impacts, new investments, net present value of projects, and the cost-benefit of various initiatives. Recommendation M3h - Performance Impact of climate-related risks or opportunities on financial performance (Example unit of measure – Percentage, weighting, description, or amount in reporting currency). 1. Increases in revenue from new products or services from climate opportunities. 2. Increases in cost due to carbon prices, business interruption, contingency, or repairs. 3. Changes to operating cash flow from changes in upstream costs. 30 4. Impairment charges due to assets exposed to transition risks. 5. Changes to total expected losses due to physical risks. 6. (Insurance/Takaful) Probable Maximum Loss (PML) of insured products (property lines) from natural catastrophes. 7. Expected future financial impacts based on scenario analysis (e.g. climate Value-at-Risk, climate adjusted probability of default). 8. Total expected losses under different climate scenarios. Recommendation M3i - Financial Position Impact of climate-related risks or opportunities on financial position (Example unit of measure – Amount or percentage). 1. Changes to the carrying amount of assets due to exposure to physical and transition risks. 2. Changes to the expected portfolio given climate-related risks and opportunities. 3. Changes in liability and equity due to increases or decreases in assets (e.g., due to low- carbon capital investments or to sale or write-offs of stranded assets). Guidance Notes As per Guidance Notes detailed under Recommendation M1. Key Considerations As per Key Considerations detailed under Recommendation M1. 31 APPENDIX A GOVERNANCE BASIC Recommendation G1: Board Oversight of Sustainability and Climate-related Matters Description Disclose nature of Board oversight and accountability with respect to sustainability and climate- related matters, risks and opportunities. Example(s) Example 1 In Maybank Group, the Board is the governing body tasked with reviewing the Group’s sustainability strategies and performance. The Group Sustainability Council sets the Group sustainability agenda and reports to the Group President and CEO, who deliberates and approves all key sustainability related matters. Sound sustainability governance is further cascaded throughout the group to various departments to operationalise the Sustainability Plan. Source: Maybank Sustainability Report FY2020 Maybank has continuously enhanced the integration of sustainability considerations into the Group’s strategy setting and risk management activities. Past Board reviews included reviewing the Board’s stance on forestry and logging. For more information about Maybank’s sustainability governance, click link here: https://www.maybank.com/iwov-resources/corporate_new/document/my/en/pdf/annual- report/2021/Maybank_AR2020-Corporate_Book_.pdf https://www.maybank.com/iwov-resources/corporate_new/document/my/en/pdf/annual-report/2021/Maybank_AR2020-Corporate_Book_.pdf https://www.maybank.com/iwov-resources/corporate_new/document/my/en/pdf/annual-report/2021/Maybank_AR2020-Corporate_Book_.pdf 32 Recommendation G2: Sustainability Governance Structure Including Climate-Related Matters at the Management Level Description Disclose management-level sustainability governance structure as well as processes for sustainability and climate-related matters, including accountability, responsibility, and decision- making. Example(s) Example 1 Standard Life Aberdeen embeds responsible and sustainable business practices into everything they do in order to create long-term value for their stakeholders. The Board has oversight on overall climate-related risks and opportunities, and are supported by various Executive Leadership Team members. Source: Standard Life Aberdeen: TCFD and Environment Report 2020 Standard Life Aberdeen clearly defines the roles and responsibilities of each business unit in the implementation of its sustainability strategies. 33 Source: Standard Life Aberdeen: TCFD and Environment Report 2020 For more information about Standard Life Aberdeen disclosures, click link here: https://www.aberdeenstandard.com/docs?editionId=8add93e9-5b15-42da-a6f3-bee24b615677 Recommendation G3: Sustainability and Climate-related Board Credentials Description Disclose sustainability and climate-related credentials, experience and individual biographies for Board members. Example(s) Example 1 The Australia and New Zealand Banking Group Limited (ANZ) has constantly strived to have individuals on its Board with a variety of technical skills and experiences, with the aim of ensuring that the team’s combined skillsets contribute to its long-term success. Apart from their directors’ experiences and biographies, ANZ also publishes pertinent corporate governance-related documents on its website, which include Board composition, selection, appointment, as well as its Board skills matrix (as shown below). https://www.aberdeenstandard.com/docs?editionId=8add93e9-5b15-42da-a6f3-bee24b615677 34 Source: ANZ Shareholder Centre https://www.anz.com/shareholder/centre/about/corporate- governance/ Recommendation G4: Sustainability and Climate-Related Training Description Disclose the initiatives undertaken and training programmes conducted annually to build capacity of Board members and management on sustainability issues including climate-related matters. Example(s) Example 1 HSBC has long prided itself for providing continuous learning and skills development for its employees. This is to prepare the employees to meet the present and future challenges in the financial industry. In HSBC, the Group Company Secretary and Chief Governance Officer works with the Group Chairman to oversee appropriate training programmes for the Board. As part of efforts to align the bank’s strategy with sustainability-related issues, training on relevant topics have been provided to the Board. https://www.anz.com/shareholder/centre/about/corporate-governance/ https://www.anz.com/shareholder/centre/about/corporate-governance/ 35 Source: HSBC Holdings PLC: Annual Report and Accounts 2020 For more information about HSBC Board induction and training, click link here: https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2020/annual/pdfs/hsbc-holdings- plc/210223-annual-report-and-accounts-2020.pdf Recommendation G5: Sustainability and Climate-related Discussions in Board Meetings Description Disclose the frequency of Board meetings per year in which sustainability and climate-related issues have been a substantive agenda item, and a summary of key climate-related issues and initiatives deliberated. Example(s) Example 1 To promote CIMB’s sustainability agenda, the Board has designated a Sustainability Sponsor to advise and recommend to the Board appropriate business strategies from the aspect of sustainability, and act as a sustainability advocate within the institution and externally. The Board discusses sustainability matters on a regular basis, and discloses the matters discussed in its Annual Report. https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2020/annual/pdfs/hsbc-holdings-plc/210223-annual-report-and-accounts-2020.pdf https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2020/annual/pdfs/hsbc-holdings-plc/210223-annual-report-and-accounts-2020.pdf 36 Source: CIMB Annual Report 2020 Read more about CIMB Annual Report here: https://www.cimb.com/content/dam/cimb/group/documents/investor-relations/annual-general- meeting/2021/cimb-ar-2020.pdf Recommendation G6 Sustainability/Climate-linked Remuneration Description Link Board of Director (excluding independent directors) and top management remuneration to performance against specified sustainability and climate-related targets. Example(s) Example 1 HSBC’s remuneration policy covers many elements, such as base salary, annual incentives, fixed allowances, long-term incentives, etc. Executive directors are assessed against scorecard objectives which were developed along with the group’s strategic priorities and risk appetite, using a scorecard that includes non-financial performance criteria, including the Environment (as shown below). https://www.cimb.com/content/dam/cimb/group/documents/investor-relations/annual-general-meeting/2021/cimb-ar-2020.pdf https://www.cimb.com/content/dam/cimb/group/documents/investor-relations/annual-general-meeting/2021/cimb-ar-2020.pdf 37 Long-term incentive (LTI) conditions include carbon footprint reduction and sustainable finance and investment amount. Source: HSBC Holdings PLC: Annual Report and Accounts 2020 Read HSBC Annual Report here: https://www.hsbc.com/investors/results-and-announcements/annual-report STRETCH Recommendation G7: Separate Committee on Sustainability and Climate-related Matters Description Set up a separate committee to oversee sustainability-related matters, reporting to the Board of Directors for all sustainability and climate-related matters. Example(s) Example 1 To embed sustainable practices into the business, UBS established a Corporate Culture and Responsibility Committee that supports the Board of Directors in overseeing responsible conduct and climate-related matters. The committee monitors and reviews all sustainability strategies and activities, including the implementation and monitoring of sustainability programmes and initiatives within the group. https://www.hsbc.com/investors/results-and-announcements/annual-report 38 Source: UBS Website – Corporate Governance: Board Committees Read UBS Corporate Culture and Responsibility Committee here: https://www.ubs.com/global/en/our-firm/governance/ubs-group-ag/board- committees.html#corporate STRATEGY BASIC Recommendation S1: Identification of Climate-related Risks and Opportunities Description Review the financial institution’s strategy to identify and disclose climate-related risks and opportunities over the short-, medium-, and long- term. Example(s) Example 1 NatWest Group report that shows the identification of opportunities, alongside goals and metrics in addressing climate change: Source: NatWest Group Plc’s Climate-related disclosures report 2020 https://www.ubs.com/global/en/our-firm/governance/ubs-group-ag/board-committees.html#corporate https://www.ubs.com/global/en/our-firm/governance/ubs-group-ag/board-committees.html#corporate 39 Read more about NatWest Group Plc’s Climate-related disclosures report 2020 here: https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/results-center/19022021/2020- climate-related-disclosure-report.pdf Example 2 ING Group report that shows the identification of risks from an early stage via heatmapping exercise: Source: 2020 ING Climate Risk Report Read more about 2020 ING Climate Risk Report here: https://www.ing.com/Newsroom/News/2020-ING-Climate-risk-report.htm Example 3 HSBC Amanah sets out examples of climate risk events that could cause financial losses or impact to their strategies, and the principal risk types most likely to be materially impacted. https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/results-center/19022021/2020-climate-related-disclosure-report.pdf https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/results-center/19022021/2020-climate-related-disclosure-report.pdf https://www.ing.com/Newsroom/News/2020-ING-Climate-risk-report.htm 40 Source: HSBC Amanah, 2020 Read more about 2020 HSBC Amanah TCFD Report here: https://cdn.hsbcamanah.com.my Recommendation S2: Impact of Climate-related Risks and Opportunities Description Assess and disclose how climate-associated risks and opportunities could affect the financial institution’s existing businesses, strategy, and financial planning. Example(s) Examples of basic disclosures that show qualitative impacts on the business from the climate-related risks identified: - Example 1 British Columbia Investment Management Corporation’s (BCI) report describes the company’s alignment towards the TCFD Recommendations in terms of identification of climate-related risks and opportunities: https://cdn.hsbcamanah.com.my/ 41 Source: BCI’s Climate Action Plan and Approach to the TCFD Recommendations Document For more information about British Columbia Investment Management Corporation’s (BCI) climate action plan and the approach taken to address the TCFD Recommendations, please click here: https://www.bci.ca/wp-content/uploads/2019/06/BCIs-Climate-Action-Plan-and-Approach-to-the- TCFD-Recommendations.pdf Example 2 ING Group Climate Risk Report shows how climate-related risks and effects could translate into financial risks: Source: 2020 ING Climate Risk Report Read more about 2020 ING Climate Risk Report here: https://www.ing.com/Newsroom/News/2020-ING-Climate-risk-report.htm https://www.bci.ca/wp-content/uploads/2019/06/BCIs-Climate-Action-Plan-and-Approach-to-the-TCFD-Recommendations.pdf https://www.bci.ca/wp-content/uploads/2019/06/BCIs-Climate-Action-Plan-and-Approach-to-the-TCFD-Recommendations.pdf https://www.ing.com/Newsroom/News/2020-ING-Climate-risk-report.htm 42 Example 3 HSBC Amanah summarises the key categories of transition and physical climate risk, with examples of how their customers might be affected financially by climate change and the shift to a low-carbon economy. Source: HSBC Amanah, 2020 Read more about 2020 HSBC Amanah TCFD Report here: https://cdn.hsbcamanah.com.my Recommendation S3: Strategy and Risk Appetite on Climate Change Related Risks and Sustainability Measures Description Disclose strategy and appetite with regard to climate-related risks and opportunities, and the measures towards sustainability in the financial institution’s business activities. Example(s) Examples of minimum disclosures that a financial institution should make to demonstrate its stand or view with regards to sustainability and climate change matters: Example 1 Excerpt from Allianz Malaysia’s annual report which clearly states their view and commitments on climate-related matters: https://cdn.hsbcamanah.com.my/ 43 Source: Allianz Malaysia Annual Report 2019 Read more about Allianz Malaysia’s Annual Report 2019 here: https://www.allianz.com.my/documents/144671/850499/ALLIANZ+ANNUAL+REPORT+2019_2804 2020.pdf Example 2 Excerpt from Monetary Authority of Singapore’s (MAS) Guidelines On Environmental Risk Management (Insurers) that exemplifies the actions a financial institution can do to promote climate-related awareness and build the necessary capability: Source: Monetary Authority of Singapore’s Guidelines for Environmental Risk Management for Insurers. Read more at: https://www.mas.gov.sg/regulation/guidelines/guidelines-on-environmental-risk- management-for-insurers Examples of more advanced / progressive disclosures that financial institutions can make to detail their approach and strategy in terms of mitigating sustainability and climate change challenges: Example 3 Excerpt from AXA Group’s Climate Report 2020 that clearly defines their ESG strategy, with detailed explanation for each of the strategy pillar in the report: https://www.allianz.com.my/documents/144671/850499/ALLIANZ+ANNUAL+REPORT+2019_28042020.pdf https://www.allianz.com.my/documents/144671/850499/ALLIANZ+ANNUAL+REPORT+2019_28042020.pdf https://www.mas.gov.sg/regulation/guidelines/guidelines-on-environmental-risk-management-for-insurers https://www.mas.gov.sg/regulation/guidelines/guidelines-on-environmental-risk-management-for-insurers 44 Source: AXA Group Climate Report 2020 Read more about AXA Group’s Climate Report 2020: Renewed Action in a Time of Crisis here: https://www-axa-com.cdn.axa-contento-118412.eu/www-axa-com%2F3800520b-ce0f-4aa7-908d- 3ec367b21d39_2020_climate_report_axa.pdf Example 4 Excerpt from Citi’s 2020 TCFD Report by Citigroup that highlights the Strategy, Risk Management, and Metrics & Target that the institution adopts to advance towards a data-driven climate strategy: Source: Citi’s 2020 TCFD Report Read more about Citi’s 2020 TCFD Report: Finance for a Climate-Resilient Future II here: https://www.citigroup.com/citi/sustainability/data/finance-for-a-climate-resilient-future-2.pdf https://www-axa-com.cdn.axa-contento-118412.eu/www-axa-com%2F3800520b-ce0f-4aa7-908d-3ec367b21d39_2020_climate_report_axa.pdf https://www-axa-com.cdn.axa-contento-118412.eu/www-axa-com%2F3800520b-ce0f-4aa7-908d-3ec367b21d39_2020_climate_report_axa.pdf https://www.citigroup.com/citi/sustainability/data/finance-for-a-climate-resilient-future-2.pdf 45 STRETCH Recommendation S4: Scenario Analysis as an Opportunity to Improve Strategic Resilience and Explore Climate Vulnerabilities Description Perform climate-related scenario analysis to assess potential business implications of climate- related risks and opportunities over time and under different conditions as well as related strategy to manage these. Example(s) Example 1 Allianz Group constantly evaluates climate-related risks and opportunities in their insurance and investment business. They understand that the risks and opportunities emerging today will increase over medium- and long-term, and that climate risk exposure will influence the ability of assets to generate long-term value. To manage potentially detrimental impacts, Allianz has committed to align its proprietary investment portfolio to 1.5°C climate scenarios: 46 Source: Allianz 2019 Sustainability Report Read more about Allianz 2019 Sustainability Report here: https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/sustainability/documen ts/Allianz_Group_Sustainability_Report_2019-web.pdf Example 2 HSBC launched its internal climate stress testing and scenario analysis pilot exercise in 2020. The exercise was performed on some of HSBC’s portfolios that were most exposed to climate risk. The goals of this exercise were to 1) develop the foundations for its climate financial risk stress testing capabilities; and 2) to conduct a preliminary identification of material climate risks within the business. https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/sustainability/documents/Allianz_Group_Sustainability_Report_2019-web.pdf https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/sustainability/documents/Allianz_Group_Sustainability_Report_2019-web.pdf 47 47 48 48 49 Source: HSBC Holdings plc: Task Force on Climate-related Financial Disclosures (‘TCFD') Update 2020 Read more about HSBC’s TCFD Update 2020 here: https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2020/annual/pdfs/hsbc-holdings- plc/210223-task-force-on-climate-related-financial-disclosures-tcfd-update-2020.pdf Example 3 UOB completed its pilot climate scenario analysis in 2020, focusing on the impact of transition risk in its portfolio. Partnering an internationally recognised environmental consultancy firm, UOB identified specific carbon intensive segments that were most likely to be impacted by climate change. Subsequently, climate scenario analysis was performed to analyse the impact of transition risk. https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2020/annual/pdfs/hsbc-holdings-plc/210223-task-force-on-climate-related-financial-disclosures-tcfd-update-2020.pdf https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2020/annual/pdfs/hsbc-holdings-plc/210223-task-force-on-climate-related-financial-disclosures-tcfd-update-2020.pdf 50 Source: UOB Sustainability Report 2020 Read more about UOB’s Sustainability Report 2020 here: https://www.uobgroup.com/investor- relations/assets/pdfs/investor/annual/UOB_Sustainability_Report_2020.pdf Example 4 ING Bank uses the Terra approach, which is an inclusive, forward-looking and engagement-driven approach that relies on science-based scenarios and asset level data to align sector portfolios with the Paris Agreement. The Climate Alignment Dashboard below shows the CO₂ intensity per sector for ING’s portfolio as compared to the market and the relevant climate scenario. https://www.uobgroup.com/investor-relations/assets/pdfs/investor/annual/UOB_Sustainability_Report_2020.pdf https://www.uobgroup.com/investor-relations/assets/pdfs/investor/annual/UOB_Sustainability_Report_2020.pdf 51 Source: ING Terra Progress Report 2020 Read more about the Climate Alignment Dashboard in ING Bank’s Terra Progress Report 2020: https://www.ing.com/MediaEditPage/2020-ING-Terra-progress-report.htm and TCFD Scenario Analysis here: https://www.spglobal.com/marketintelligence/en/documents/trucost_tfcdscenarioanalysis_carbo near_practiseessentials.pdf https://www.ing.com/MediaEditPage/2020-ING-Terra-progress-report.htm https://www.spglobal.com/marketintelligence/en/documents/trucost_tfcdscenarioanalysis_carbonear_practiseessentials.pdf https://www.spglobal.com/marketintelligence/en/documents/trucost_tfcdscenarioanalysis_carbonear_practiseessentials.pdf 52 RISK MANAGEMENT BASIC Recommendation R1: Process for Identifying and Assessing Climate-related Risks Description Disclose how the financial institution looks at existing and emerging regulatory requirements related to climate change and other relevant factors. Disclose the risk classification framework(s) used. Disclose the risk terminology definitions used or existing risk classification framework(s) used. Example(s) Example 1 Société Générale disclosed its public policy engagement as adherence to regulatory requirements. Source: Société Générale Climate Disclosure Report 2020, pg. 13 Example 2 Société Générale disclosed the identification and consideration of climate-related risks in relation to existing risk factors and provided a summary on how climate-related risk is identified. 53 Source: Société Générale Climate Disclosure Report 2020, pg. 26 Example 3 Barclays provided definitions of risk terminologies and considered climate-related risks in relation to each of the existing Principal Risk (Credit Risk). Note: For Barclays, processes for identifying, assessing, managing and integration of risks were disclosed together. As such, there are overlapping disclosures for Barclays’ Identification, Assessment and Managing Risks. Additionally, Barclays disclosed Identification, Assessment and Managing Risks for every existing risk type (Credit Risk, Market Risk, etc.). Source: Barclays TCFD Report pg. 17 Recommendation R2: Process for Managing Climate related Risks Description Disclose the financial institution’s risk management processes and controls. Disclose the identities of individual(s)/function(s) responsible for oversight of climate-related risks and its relationship with the business operations. Example(s) Example 1 Barclays disclosed the description of risk management process and controls. 54 Source: Barclays TCFD Report 2020 pg. 18 Example 2 National Australia Bank (NAB) disclosed the key committees established for oversight of its climate risk management. Source: National Australia Bank (NAB) Recommendation R3: Process for Integrating (i) Process for Identifying and Assessing Climate-related Risks and (ii) Process for Managing Climate-related Risks; into Overall Risk Management. Description Disclose the integration of processes for identifying, assessing, and managing climate-related risks into overall risk management. Disclose processes for prioritising climate-related risks, including how materiality determinations are made within the financial institution. Example(s) Example 1 UBS embedded climate-related risks into its risk appetite framework and operational risk appetite statement. They have also developed climate-related standards in the energy and utilities sectors. 55 Source: UBS SR 2020 pg. 33: Climate risk management, Climate-related standards in the energy and utilities sectors Example 2 UBS piloted a climate risk heatmap to take a materiality-driven approach and rates cross-sectoral credit risk exposures to climate sensitivity, from high to low, through a risk segmentation process. 56 Source: UBS SR 2020 pg. 37: Climate risk heatmap Example 3 HSBC Amanah’s approach to climate risk management is guided by HSBC’s Group-wide risk management framework, which follows five simple steps: define and enable, identify and assess, manage, aggregate and report, and govern. 57 Source: HSBC Amanah, 2020 STRETCH Recommendation R4: Process for Identifying and Assessing Climate-related Risks Description Disclose the financial institution’s risk management processes used to identify and assess climate- related risks. Disclose the financial institution’s climate-related risks and their significance within existing risk categories such as credit, market, operational, liquidity risk. Disclose the financial institution’s processes for assessing the potential size and scope of identified climate-related risks. Disclose key sectors in the financial institution’s portfolio that are identified as being highly exposed to climate risk. Set out the financial institution’s risk management controls or actions in managing impacts from direct climate-related risks (i.e. through own operations). Example(s) Example 1 Société Générale provided disclosures of how climate-related risks have been integrated into its existing risk categories such as credit, market, operational, insurance and liquidity risks. Société Générale has also provided comprehensive disclosures for each existing risk categories with corresponding physical and transition risks. 58 Source: Société Générale Climate Disclosure Report 2020, pg. 27 Example 2 UBS tested a methodology that combines quantitative bottom-up borrower-level analysis with top- down portfolio segmentation to analyse for credit-rating impacts under a 2-degree climate scenario, for their Power utilities and Oil & gas portfolios. 59 Source: UBS SR 2020 pg. 35: UNEP FI TCFD Working Group for Banks Example 3 Barclays disclosed the identification of impacts of climate-related risks on the bank’s portfolio and made reference to industry or internationally-recognised frameworks for identification of risks (please refer to elevated risk sectors in illustration below). Note: For Barclays - processes for identifying, assessing, managing and integration of risks were disclosed together. As such, there are overlapping disclosures for Barclays’ Identification, Assessment and Managing Risks. Additionally, Barclays disclosed Identification, Assessment and Managing Risks for every existing risk type (Credit Risk, Market Risk, etc.). 60 60 61 Source: Barclays TCFD Report pg. 17 Example 4 Société Générale disclosed the identification of impacts of climate-related risks on the bank’s portfolio and made reference to industry or internationally-recognised frameworks for identification of risks. 62 Source: Société Générale Climate Disclosure Report 2020, pg. 30 Example 5 Société Générale disclosed its step-by-step approach as well as processes for assessing climate- related risks. 63 Source: Société Générale Climate Disclosure Report 2020 Example 6 Société Générale disclosed evaluation undertaken by the appropriate governance function(s) and results of assessment of climate-related risks based on a vulnerability assessment scale. 64 Source: Société Générale Climate Disclosure Report 2020, pg. 31 and 32 Example 7 UBS disclosed how they used climate stress-testing to identify, measure, monitor, manage and report on climate-related risks. 65 Source: UBS SR 2020 pg. 34: Scenario Analysis Example 8 Société Générale disclosed its key risk management processes and controls and set out risk management controls or actions in managing impacts from direct climate-related risks (i.e. via its own operations). 66 Source: Société Générale Climate Disclosure Report 2020 Recommendation R5: Process for Managing Climate-related Risks Description Disclose the financial institution’s processes for managing climate-related risks including decisions to mitigate, transfer, accept, or control those risks. Disclose improvements planned/completed by the financial institution to enhance capabilities and incorporate climate-related risks into existing risk management framework. Conduct training and employee readiness planning as well as programmes. Disclose how the financial institution’s customers are engaged and helped in mitigating climate- related risks. Use metrics and targets to monitor progress in managing climate-related risks (i.e. exposure to, and quantification of, risk types by business segment and jurisdiction). Set out the financial institution’s risk management controls or actions in managing impacts from indirect climate-related risks (i.e. through activities of its clients). 67 Disclose the financial institution’s exposure to, and quantification of, sustainable financing. Example(s) Example 1 UBS provided disclosures on how they engaged and helped clients in mitigating climate-related risks. Source: UBS SR 2020 pg. 38-39: Protecting our clients’ assets, Engagement & Climate-related opportunities 68 Example 2 Barclays disclosed that they provided training and employee readiness planning and programmes (e.g. training for Environmental Risk Team as illustrated below). Source: Barclays TCFD Report 2020 pg. 18 Example 3 Barclays disclosed the exposure ($/%) and quantification of risk types by business segment and jurisdiction. Source: Barclays TCFD Report 2020 pg. 31 Example 4 Société Générale disclosed their risk management controls or actions set out in managing impacts from indirect climate-related risks (i.e. through activities of its clients). 69 Source: Société Générale Climate Disclosure Report 2020, pg. 37 and 38 Example 5 Société Générale disclosed the quantification of sustainable financing as part of managing the transition to a low carbon future. 70 Source: Société Générale Climate Disclosure Report 2020, pg. 53 Example 6 Société Générale disclosed its process for identifying and managing climate-related risks, particularly transition risks. 71 Source: Société Générale Climate Disclosure Report 2020, pg. 29 Example 7 Barclays provided a description of impacted risk management processes and controls, including a description of improvements planned/completed to enhance its capabilities and incorporate climate-related risks into existing risk management framework. Source: Barclays TCFD Report 2020 72 Recommendation R6: Process for Integrating (i) Process for Identifying and Assessing Climate-related Risks and (ii) Process for Managing Climate-related Risks; into Overall Risk Management. Description Disclose how the financial institution has integrated climate-related risks into existing risk categories such as credit, market, operational, insurance and liquidity risks. Disclose how the financial institution has integrated climate-related risks into existing risk framework(s) and/or directly into credit and investment decision-making (e.g. lending policies, underwriting standards, risk ratings, pricing models). Disclose the financial institution’s exposure to physical and transition risks within its operations and business model, including concentrations of risk at portfolio and transaction levels, and by geographical footprint. Disclose the financial institution’s efforts in supporting clients through mitigating climate-related risks via sustainable finance solutions. Implement policies that restrict/divest from high-risk exposures and in line with international commitments/frameworks. Enhance the financial institution’s climate risk management framework to be more predictive. Example(s) Example 1 Société Générale disclosed the identification of physical risks on credit risk using scenario analysis. 73 4.3.4 Identiﬁcation of physical risk impact on credit risk using scenario analysis Our R&D work on physical risk—related impacts on our portfolios started with our French retail mortgage loan portfolio, for which the exact location of financed assets is known. Conversely it is more complex to locate all assets, installations, premises of our corporate borrowers as explained in the next section. Our analysis was conducted as follow: 0 Assessement of the amount of residential loans exposed to acute physical events (but not the expected financial loss) i.e. we mapped the portfolio against the physical risk map of most impacted areas. 0 Monitoring risks associated with drought, flooding and coastal flooding. Coastal flooding occurs when normally dry, low-lying land is flooded by seawater. Note that it is a different risk to sea level rise. The former is an acute risk (increased severity of extreme weather events) while the latter is a chronic risk (changes in extreme variability in weather patterns). However, sea rising is an aggravatingfactor of coastal flooding. 0 Our analysis was based on data provided by the ON RN (observatoire National des Risques Naturels). It contained the part of the population of each municipality affected by drought, floods and coastal flooding risk. It was noted that the consequences of extreme weather events for borrowers would first be covered by the state- guaranteed natural disaster regime as long as the borrowers have insurance cover. If this cover is no longer maintained and default arises, the bank would be partially covered by the guarantee from Credit Logement-". In this study, no climate physical risk scenario has been used to map the identified vulnerable areas to weather‘ projections. A web application has also been internally developed to identify the drought, flooding and coastal flooding risks at municipality level. The application computes Societe Genera\|e’s exposure in any particular area and enables a visualisation of the different types of risk at selected levels of granularity. The application also provides aggregated data at department level. Figure 7 provides an illustration of this interface. After conducting this first study on home loans, the CORISQ requested to pursue R&D physical risk work on the Group’s corporate loan portfolio. The main challenge is to obtain the precise location of clients’ assets and valLre chains, making difficult to undertake a systemic study on our entire portfolio. To address this issue, we are developing use cases at corporate or sector levels in orderto put in place analyses to be generalised in the future. 73 74 Source: Société Générale Climate Disclosure Report 2020, pg. 33 and 34 Example 2 Société Générale disclosed the identification of physical risks on credit risk using scenario analysis to determine concentration of risks on geographical footprint. 75 Source: Société Générale Climate Disclosure Report 2020, pg. 33 and 34 Example 3 Barclays disclosed its efforts in supporting clients through mitigating climate-related risks via its sustainable finance solutions (integration of climate-related considerations into its financing and investing). Source: Barclays TCFD Report 2020 pg. 11 76 Example 4 Société Générale disclosed implementation of policies that restrict/divest from high-risk exposures and in line with international commitments/frameworks. Source: Société Générale Climate Disclosure Report 2020, pg. 38 Example 5 Société Générale disclosed its commitment to support clients through mitigating climate-related risks via its sustainable finance solutions (integration of climate-related considerations into its financing and investing). 77 Source: Société Générale Climate Disclosure Report 2020, pg. 42 and 44 Example 6 Barclays disclosed pertinent details relating to financing activities for sensitive/high risk sectors. 78 Source: Barclays TCFD Report 2020 pg. 3 Example 7 Barclays provided description of how climate-related risks have been integrated into credit and investment decision-making (e.g. lending policies, underwriting standards, risk ratings, pricing models). Source: Barclays TCFD Report 2020 pg. 18 Example 8 Société Générale disclosed how they embed climate-related risks into existing risk framework which facilitates credit and investment decision-making. Source: Société Générale Climate Disclosure Report 2020, pg. 28 79 Example 9 Barclays disclosed on how climate-related risks have been integrated into existing risk categories such as credit, market, operational, treasury and capital risks. Source: Barclays TCFD Report 2020 pg. 16 Example 10 Société Générale disclosed on how climate-related risks have been integrated into existing risk categories such as credit, market, operational, insurance and liquidity risks. SG has also disclosed comprehensively for each existing risk categories, what are the physical and transition risks. 80 0 Operational risk: risk of losses resulting from operational failures, inadequacies or failures in processes, personnel or information systems, or from external events. It includes: - non-compliance risk (including legal and tax risks): risk of court-ordered, administrative or disciplinary sanctions, or of material financial loss, due to failure to comply with the provisions governing the Group’s activities, - reputational risk: risk arising from a negative perception on the part of customers, counterparties, shareholders, investors or regulators that could negatively impact the Groups ability to maintain or engage in business relationships and to sustain access to sources of financing, - misconduct risk: risk resulting from actions (or inactions) or behaviour of the Bank or its employees inconsistent with the Group’s Code of Conduct, which may lead to adverse consequences for our stakeholders, or place the Bank’s sustainability or reputation at risk, - IT and Information Systems Security risk (cybercrime, IT systems failures, etc.); 0 Risk related to insurance activities: through its insurance subsidiaries, the Group is also exposed to a variety of risks linked to this business. In addition to balance sheet management risks (interest rate, valuation, counterparty and exchange rate risk), these risks include premium pricing risk, mortality risk and the risk of an increase in claims. 0 Liquidity and funding risks: liquidity risk is defined as the inability of the Group to meet its financial obligations: debt repayments, collateral supply, etc. Funding risk is defined as the risk that the Group will not be able to finance its business growth on a scale consistent with its commercial objectives and at a cost that is competitive compared to its competitors; Table 5: Identified climate-related risks impact on existing categories of risk Risk Credit Physical Physical risk could increase customer’ probability of default by directly damaging their assets in affected areas (as physical events could hit production facilities, warehouses, services and decisions centres) and indirectly impacting their business model by disturbing their supply chain, commercial routes or markets. In case of the customer default, physical risks could also make the Group ability to recover part of their commitment more difﬁcult, for example through lower collateral valuations in real estate portfolios as a result of increased ﬂood risk. Transition Transition risks, for sectors affected by low- carbon transition policies (higher price of carbon for example), could also impact customers’ ability to generate revenues and meet their financial commitments ifthey do not take measure to adapt their business models or if they cannot finance the needed adaptations measures (as research and developments to develop low-carbon alternatives to products and services). Transition risks could also indirectly impact customers’ assets valuation, for example by impacting the valuation of fossil fuels resen/es such as coal or oil, whose value is expected to fall in a low-carbon economy perspective (stranded assets phenomenon). This could particularly impact collateral valuation. 80 81 Source: Société Générale Climate Disclosure Report 2020, pg. 26-27 82 [END OF DOCUMENT]	Public Notice
03 Jun 2022	Draf Pendedahan - Garis Panduan Penilaian Risiko Teknologi Awan (CTRAG)	https://www.bnm.gov.my/-/draf-pendedahan-garis-panduan-penilaian-risiko-teknologi-awan-ctrag-	https://www.bnm.gov.my/documents/20124/938039/ED_CTRAG_20220603.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/draf-pendedahan-garis-panduan-penilaian-risiko-teknologi-awan-ctrag-&languageId=ms_MY	Reading: Draf Pendedahan - Garis Panduan Penilaian Risiko Teknologi Awan (CTRAG) Share: Draf Pendedahan - Garis Panduan Penilaian Risiko Teknologi Awan (CTRAG) Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 0800 pada Jumaat, 3 Jun 2022 3 Jun 2022 Draf pendedahan ini menetapkan panduan yang dicadangkan untuk menilai risiko utama biasa dan pertimbangan langkah kawalan apabila institusi kewangan menerima pakai perkhidmatan awan. Garis panduan yang dicadangkan ini melengkapkan dokumen dasar Pengurusan Risiko dalam Teknologi (RMiT) untuk mengukuhkan keupayaan pengurusan risiko awan institusi kewangan. Draf Pendedahan - Garis Panduan Penilaian Risiko Teknologi Awan (CTRAG) Penyerahan maklum balas Bank Negara Malaysia mempelawa maklum balas bertulis mengenai cadangan dalam draf pendedahan ini, termasuk cadangan mengenai perkara yang perlu dijelaskan atau dihuraikan dengan lebih lanjut dan cadangan alternatif yang perlu dipertimbangkan oleh Bank. Maklum balas bertulis hendaklah disokong dengan rasional yang jelas, disertakan dengan bukti atau ilustrasi yang sesuai untuk memudahkan penilaian Bank. Maklum balas hendaklah dikemukakan kepada Bank melalui e-mel kepada [email protected] sebelum atau pada 15 Julai 2022. Garis Panduan ini terpakai kepada: Bank berlesen Bank pelaburan berlesen Bank Islam berlesen Penanggung insurans berlesen termasuk penanggung insurans semula profesional Pengendali takaful berlesen termasuk pengendali takaful semula profesional Institusi kewangan pembangunan yang ditetapkan Pengeluar wang elektronik yang diluluskan Pengendali sistem pembayaran yang ditetapkan Jabatan Penerbit Draf Pakar Risiko dan Penyeliaan Teknologi Bank Negara Malaysia 3 Jun 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Cloud Technology Risk Assessment Guideline (CTRAG) Exposure Draft Appendix of RMIT: Cloud Technology Risk Assessment Guideline (CTRAG) Exposure Draft Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed insurers, including professional reinsurers 5. Licensed takaful operators, including professional retakaful operators 6. Prescribed development financial institutions 7. Approved issuer of electronic money 8. Operator of a designated payment system This exposure draft set out the guidelines for the assessment of common key risks and considerations of control measures when financial institutions adopt cloud services. The proposed expectations serve as supplementary guidance to the Risk Management in Technology (RMiT) policy document to strengthen financial institutions’ cloud risk management capabilities. The Bank invites written feedback on the proposals in this exposure draft, including suggestions on areas to be clarified or elaborated further and alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale, accompanying evidence or illustrations as appropriate to facilitate the Bank’s assessment. Responses must be submitted electronically in the prescribed format and addressed to [email protected] by 15 July 2022. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. In the course of providing your feedback, you may direct any queries to the following officers: - 1. Atikah Adnan ([email protected]) 2. Ahmad Rusdi Ahmad Sabri ([email protected]) 3. Nur Aqilah Zulkafali @ Zulkifli ([email protected]) mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] Appendix 10: Key Risks and Control Measures for Cloud Services (CTRAG) This appendix provides additional guidance for the assessment of common key risks and considerations of control measures when financial institutions adopt cloud services. The guidance is broadly applicable across various cloud service models. The guidance consists of two (2) parts: • Part A: Cloud governance – describes the considerations governing the cloud usage policy, and technology skills capacity to implement cloud services securely and effectively. • Part B: Cloud design and control – describes the considerations related to designing robust cloud infrastructure and in operationalising the cloud environment. This places emphasis on cloud architecture, cloud application delivery model, high velocity software development, cloud backup and recovery, business continuity management, key management, user access management, data protection and cybersecurity management. Part A: Cloud Governance A financial institution should ensure robust cloud governance processes are established prior to cloud adoption and are subject to on-going review and continuous improvement. This should cover the following areas: 1. Cloud risk management (a) A financial institution’s board should promote sound governance principles throughout the cloud service lifecycle in line with the financial institution’s risk appetite to ensure safety and soundness of the institution. (b) A financial institution’s senior management should develop and implement a cloud risk management framework, for the Board’s approval, proportionate to the materiality of cloud adoption in its business strategy, to assist in the identification, monitoring and mitigating of risks arising from cloud adoption. (c) Common cloud service models1 are Software-as-a-Service (SaaS), Platform- as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS), wherein each presents a different set of capabilities offered to the financial institution as the cloud consumer, and hence a different set of shared responsibilities. In view of 1 Cloud service models consist of SaaS, PaaS and IaaS. For SaaS, where financial institutions, as a consumer, uses the cloud service provider’s applications running on a cloud infrastructure. PaaS is a service model where financial institutions deploy application onto cloud infrastructure using the platform capabilities e.g., programming languages, libraries services and tools supported by the cloud service provider. IaaS is a service model where cloud service provider offers fundamental computing resources such as compute, network, or storage, where financial institutions can deploy application and operation systems. this, the cloud risk management framework of the financial institution should be: i) an integral part of the financial institution’s enterprise risk management framework (ERM); ii) tailored to the cloud service models, both currently in use or being considered for use; and iii) specify the scope of the financial institution’s responsibility under each shared responsibility model, as the associated risks may vary. (d) Financial institution’s responsibilities to protect control over protection of data stored in cloud may vary based on the cloud service models and the cloud service providers. Therefore, the financial institutions should understand the specific details of the cloud arrangement, particularly what is or not contractually agreed. (e) Regardless of the cloud arrangement with cloud service providers, the financial institutions will continue to be ultimately accountable for protecting customer information and ensuring service reliability. (f) The use of cloud services may represent a paradigm shift in technology operation management as compared to on-premises IT infrastructure. Business processes may change and internal controls on compliance, business continuity, information and data security may be overlooked due to the ease of subscribing to cloud services. Therefore, the cloud risk management framework should also clearly articulate the accountability of the board and senior management and the process involved in approving and managing cloud service usage, including the responsibility of key functions across the enterprise in business, IT, finance, legal, compliance and audit, over the lifecycle of cloud service adoption. (g) As the cloud landscape rapidly evolves, a financial institution`s cloud risk management framework should undergo periodic review, at least once every three years to ensure its adequacy and effectiveness to manage new service models over time or upon major cyber security incidents to the cloud services 2. Cloud usage policy (a) The senior management should develop and implement internal policies and procedures that articulate the criteria for permitting or prohibiting the hosting of information assets on cloud services, commensurate with the level of criticality of the information asset and the capabilities of the financial institution to effectively manage the risks associated with the cloud arrangement. (b) A financial institution should maintain complete and centralised assets inventory of critical system and information assets hosted on the cloud services, with a clear assignment of ownership, and to be updated upon deployment and changes of IT assets to facilitate timely recalibration of cybersecurity posture in tandem with an evolving threat landscape. The full visibility and current view of the critical system and information assets should enable effective triaging, escalation and response to information security incidents. (c) A financial institution should regularly review and update the cloud usage policy at least once every three years. However, where any material changes arise, e.g., adoption of new cloud service deployment model, adoption of cloud service for IT systems with higher degree of criticality, the financial institution should review and update its cloud usage policy immediately. 3. Due diligence Due diligence on the prospective cloud service providers should be risk-based and conducted to a level of scrutiny that is commensurate with the criticality of the information and technology assets to be hosted on the cloud. It should at minimum: (a) Include all locations where all financial institutions’ data will be processed and stored; (b) Include an assessment of the potential impact of the cloud outsourcing arrangement on the financial institution’s legal, compliance, operational, information security, data privacy and reputational risks; (c) Address relevant requirements and guidance as stipulated in the Third-Party Service Provider Management section of the RMiT policy document and related sections in Outsourcing policy document (Outsourcing process and management of risks); and (d) Risk assessment should be promptly reviewed or re-performed upon material changes in cloud risk profile such as jurisdiction risks for data hosted overseas due to evolving foreign legislations and geopolitical development. 4. Access to authoritative third-party certifications A financial institution should review their cloud service providers’ certifications prior to cloud adoption. At a minimum, a financial institution should: (a) Seek assurance that the cloud service provider continues to be compliant with relevant legal, or regulatory requirements as well as contractual obligations and assess the cloud service provider`s action plans for mitigating any non- compliance; and (b) Obtain and refer to credible independent external party reports of the cloud platforms when conducting risk assessments. This should address requirements and guidance as stipulated in the Cloud Services section of the RMiT policy document and Outsourcing involving Cloud Services section in Outsourcing policy document. 5. Contract management (a) A financial institution should set out clearly and where relevant, measurable, contractually agreed terms and parameters on the information security and operational standards expected of the cloud service provider. Such contract terms and parameters should be aligned with the financial institution’s business strategy, information security policies and regulatory requirements. The terms of the contract between the financial institution and cloud service provider should address the risks associated with cloud services as stipulated in the Cloud Services section of the RMiT policy document. (b) The contract terms, obligations, and responsibilities of all contracting parties (this may include sub-contractor(s) if the sub-contractor is material to the provision of critical function(s)) should be explicitly stated in the contract. At a minimum, the contract should address requirements and guidance as stipulated in Third-Party Service Provider Management sections of the RMiT policy document and related sections in the Outsourcing policy document (Outsourcing agreement and Protection of data confidentiality). (c) Jurisdiction risk may arise because cloud service providers operate regionally or globally in nature and may be subject to the laws and regulatory requirements of its home country, the location of incorporation, and the country where the client receives the service. Therefore, a financial institution should: i) identify and address potential jurisdiction risks by adopting appropriate mitigating measures, where practically possible, to ensure the use of cloud services does not impair its ability to comply with local law and regulatory requirements; ii) understand the scope of local customer protection legislation and regulatory requirements as well as to ensure that the financial institution’s customers receive adequate protection and recourse in the event of a data breach by the cloud service provider; and iii) address requirements as stipulated in the Outsourcing policy document for outsourcing arrangements where the service provider is located, or performs the outsourced activity, outside Malaysia. (d) Difficulties related to incident response and investigation may arise with cloud services as financial institutions may no longer have full access to the computing components managed by the cloud service providers as compared to an on-premises solution. At a minimum, a financial institution should assess the potential impact and formalise arrangements with cloud service providers to comply with local laws and regulatory requirements for incident investigation and law enforcement purposes. This would include adhering to data retention requirements and data access procedural arrangements to ensure the confidentiality and privacy of the customers are protected. (e) The provision of cloud services by the primary cloud service provider may interconnect with multiple layers of other fourth-party cloud service providers (sub-contractors), which could change rapidly. For example, customer data were leaked due to exposure made by fourth party. To mitigate fourth-party risks, financial institutions should: i) understand the scope of customer information shared across the supply chain and ensure that relevant information security controls can be legally enforced [by the financial institution]; and ii) ensure Service Level Agreement (SLA) negotiations and contractual terms cover the performance matrix, availability, and reliability of services to ensure all parties agree and are formally aligned on the requirements and standard of services provided. 6. Oversight over cloud service providers A financial institution should ensure effective oversight over cloud service providers and the cloud service providers’ sub-contractor(s). This includes, at a minimum, the following: (a) Establish and define a continuous monitoring mechanism with alignment to the enterprise vendor management framework (or equivalent) to ensure adherence to the agreed SLA, compliance of the cloud service provider with any applicable legal and regulatory requirements and resilience of outsourced technology services on on-going basis; (b) Identify, assign and document the key responsibilities within the financial institution for continuous monitoring of cloud service providers to ensure accountabilities are clearly defined; and (c) Perform periodic assessments of the cloud service provider`s control environment, including business continuity management, to assess the potential impact on the financial institution’s business resilience. This should address the requirements and guidance of Outsourcing involving Cloud Services section in Outsourcing policy document. 7. Skilled personnel with knowledge on cloud services (a) The adoption of cloud services requires commensurate changes to the financial institution’s internal resource and process capabilities. In this regard, a financial institution should: i) equip its board with appropriate knowledge to conduct effective oversight over the cloud adoption; and ii) ensure its IT operations or relevant personnel are appropriately skilled in the areas of cloud design, migration, security configurations, including administrative, monitoring and incident response. (b) The effective management of cloud services should not purely be the responsibility of the IT function. Therefore, a financial institution should ensure relevant internal resources in business operations, finance, procurement, legal, risk and compliance are also adequately skilled and engaged to manage the change in risk profile arising from cloud adoption. This should also enable financial institutions to respond effectively to operational incidents. (c) A financial institution should equip internal audit and personnel undertaking the risk management and compliance functions with relevant cloud computing skills to be able to verify the effectiveness of the information security controls in alignment with the financial institution’s cloud usage policy and information security objectives. (d) A financial institution should ensure that staff receive adequate training to understand their responsibilities in complying with internal cloud usage policies and are prepared to effectively respond to a range of security incident scenarios developed on a risk-based approach. (e) A financial institution should establish and implement a formal consequence management process to ensure the cloud usage policy is effectively enforced given that cyber hygiene is critical to ensure the continued security of cloud service usage. Part B: Cloud Design and Control A financial institution should design its adoption of cloud services with a degree of portability, scalability and fault tolerance that is proportionate to the materiality of the cloud service to its business operation. It should also ensure robust operational controls are in place to manage its ongoing cloud operations. 1. Cloud architecture (a) A financial institution should design a robust cloud architecture and ensure such design is in accordance with the relevant international standards for the intended application. (b) A financial institution is encouraged to adopt zero-trust principles2 to provide enhanced access control via micro-segmentation of application and infrastructure with “deny-by-default”, “least privilege” access rights or on a ‘need-to-have’ basis. (c) A financial institution should continuously leverage enhanced cloud capabilities to improve the security of the cloud services, amongst others, financial institutions are encouraged to: i) use immutable infrastructure3 for deployment to reduce the risk of failure when new deployment of applications enter production by creating a new environment with the latest version of the software. The on-going monitoring of the cloud environment should include automating the detection of changes to immutable infrastructure to combat evolving cyber-attacks; ii) use the latest network architecture approach such as Software-defined wide-area networking (SD-WAN)4 for managing and monitoring granular network security and centralized network provision in managing complexity of the cloud network environment; and iii) leverage available tools and services to enforce and monitor access control to cloud services. Examples of common tools and services include 2 Zero-trust principles is a security paradigm designed to prevent data breaches and limit internal lateral movement of threat actors by requiring all users, whether in or outside the organization’s network, to be authenticated, authorized, and validated before being granted the access. 3 Immutable infrastructure is an infrastructure paradigm where servers are never modified after deployment. The servers are replaced rather than changed. 4 SD-WAN is a combine software-defined networking (SDN) concepts with traditional WAN technology to improve traffic routing and network operations. While SDN refers to a broad and developing concept that enable the network to be intelligently and centrally controlled using software applications. The objective is to provide control plane to manage the entire network consistently and holistically, regardless of the underlying network technology the use of Cloud Access Security Brokers (CASBs)5 or Secure Access Service Edge (SASE)6. (d) A financial institution should establish and utilise secure and encrypted communication channels for migrating physical servers, applications, or data to the cloud platforms. This includes the use of a network segregated from production networks for cloud migration and on-going administration of the management plane. (e) For financial institutions leveraging their financial group’s cloud infrastructure, consider an appropriate level of network segregation (e.g., logical tenant isolation in the shared environment of the cloud) to mitigate the risk of cyber- attacks from propagating cross-border or cross-entity and affecting the Malaysian financial institution’s operations. (f) The increasing use of application programming interfaces (API) to interconnect with external application service providers could achieve efficiency in new service delivery. However, this may increase the cyber-attack surface and any mismanagement may amplify the impact of an information security incident. A financial institution should ensure APIs are subject to rigorous management and control mechanism which include the following: i) APIs should be monitored under the financial institution’s patch and end- of-life (EOL) management framework to minimise security vulnerabilities; ii) APIs should be tracked in the technology asset management and are de- commissioned on a timely basis when no longer in use; iii) APIs should be configured for secure communication with external application service providers with appropriate access controls; iv) APIs should be designed for service resilience to avoid the risk of single points of failure and included in the financial institution’s business continuity arrangement; and v) APIs should be monitored against cyber-attacks with adequate incident response measures. 2. Cloud application delivery models (a) A financial institution should review its risk management policies and practices should be reviewed at least once every three years to ensure effective oversight over the cloud application delivery model. (b) Cloud application delivery models may evolve to support faster time-to-market in response to consumer demand. Currently, DevOps and Continuous 5 Cloud Access Security Brokers is a software tools or services that function as an intermediary between cloud users and cloud applications and monitors all activity and enforces security policies. 6 Secure Access Service Edge are solutions that combine networking and security services, which may include the capabilities of Secure Web Gateway (SWG), Firewall as a Service (FWaaS), Cloud Access Security Broker (CASB), Zero Trust Network Access (ZTNA) and Service Delivery WAN (SD WANs) to enforce security and compliance policies for usage of public cloud. Integration / Continuous Development (CI/CD)7 are amongst the prevailing practices and processes for cloud application delivery. For instance, the ability to enforce segregation of duties for CI/CD where application developers may require access to the management plane for service configuration. A financial institution should ensure CI/CD pipelines are configured properly to enhance security of automated deployments and immutable infrastructure. (c) A financial institution is encouraged to adopt industry best practices such as Infrastructure as Code (IaC)8 to automate the provisioning of IT infrastructure in a consistent, scalable and secure manner. (d) Where relevant, a financial institution should implement appropriate controls on the IaC process to minimise the risk of misconfiguration and reduce the cyber- attack surface. This includes the following measures that should be taken by the financial institution: i) conduct vulnerabilities scanning on IaC, and ensure issues are remediated prior to the provisioning of IT infrastructure; ii) enable audit logs for real-time monitoring and identification of cyber threats. The logs should be retained for investigations and forensics purposes for at least three years; iii) ensure virtual machine images (VMI) or container images of IaC templates are trusted and digitally signed; and iv) implement appropriate access control to prevent unauthorized changes to IAC templates. 3. Virtualization and containerization management The guidance provided in this paragraph is relevant for PaaS and IaaS cloud service models. (a) A financial institution should ensure virtualization services are configured in line with the prevailing guidance from the cloud service provider and industry best practices, commensurate with the evolution of cloud computing technologies. (b) A financial institution should ensure virtual machine and container images are configured, hardened, and monitored appropriately. This includes the following: i) use latest images and keep images up to date; ii) store and use images from trusted repositories or registries; iii) scan images for vulnerabilities, remediate any vulnerabilities prior running in production; iv) enforce “least privilege” access; v) harden images based on industry best practices; and 7 CI/CD is a set of methods that enables developers to deliver code changes more frequently using automation. 8 The process of managing and provisioning an organization’s IT infrastructure using machine-readable configuration files, rather than employing physical hardware configuration or interactive configuration tools. - NIST Special Publication 800-172, U.S. Department of Commerce, February 2020 vi) stored images are subjected to security monitoring from unauthorised access and changes. 4. Change management (a) A financial institution should ensure its existing change management process is extended to cover cloud services to promote effective and secure system development. (b) A financial institution should define and establish appropriate escalation levels including approval authority matrix with clear accountability from cloud service provider and financial institution (“Authority Matrix”). The Authority Matrix should address the appropriate responsibility based on selected deployment model. The following control measures should be applied for change management: i) ensure change requests are approved by the relevant approving authority and implemented by authorised personnel based on the change Authority Matrix; and ii) establish emergency change escalation protocols and approval requirements in the Authority Matrix to ensure critical changes can be implemented and additional risks are mitigated promptly. (c) A financial institution should establish a process to systematically manage releases by cloud service providers in relation to existing infrastructure, network, upstream and downstream systems to minimize the impact of any service disruption. (d) All critical changes deployed to the production environment should also be timely applied to the disaster recovery environment where appropriate. 5. Cloud backup and recovery (a) As part of an effective recovery capability, financial institutions should ensure existing backup and recovery procedures are extended to cover cloud services, which includes the following: i) define and formalise backup and recovery strategy at the planning stage of cloud adoption; ii) conduct periodic reviews of the cloud service providers’ restoration and recovery capabilities; iii) for critical system hosted on cloud, conduct testing of recovery strategy prior deployment of the system. (b) A financial institution should ensure backup and restoration procedures are periodically tested to validate recovery capabilities. Remedial actions should be taken promptly for unsuccessful backups. (c) A financial institution should ensure sufficient backup and recovery of virtual machine and container including backup configuration settings (for IaaS and PaaS, where relevant), which includes the following: i) ensure the capability to restore a virtual machine and container at point- in-time9 as per the business recovery objectives; ii) make virtual machine and container images available in a way that would allow the financial Institutions to replicate those images at alternate and recovery site10 ; and iii) allow virtual machine and container images to be downloaded and ported to new cloud service providers. (d) A financial institution should assess the resilience requirements of the cloud services and identify appropriate measures that commensurate with the criticality of the system, to ensure service availability in the extreme adverse scenarios. To ensure service availability, financial institution should consider a risk-based approach and progressively adopt one or more of the redundancy approaches, including diversifying away from a single CSP. Amongst the viable options are: i) leverage cloud services’ high availability and redundancy features to ensure production data centres have redundant capacity in different availability zones; ii) achieve geographical redundancy by having data centres in different geographical regions; iii) adopt hybrid cloud (combination of on-premises and public cloud setup); iv) establish back-up cloud service providers and identify appropriate arrangement for porting of data and application to ensure timely service resumption; and v) adopt multi-cloud strategy, with the use of services from different cloud service providers to mitigate concentration risks and geopolitical risks. 6. Interoperability & Portability Interoperability standards for cloud services continue to evolve such that porting data, related configuration and security logging across different cloud service providers may be challenging. To facilitate the smooth process of interoperability and portability between on-premise IT systems and alternate cloud service providers, financial institutions are encouraged to: (a) ensure technical requirements for interoperability and portability are included in the contractual agreement with the cloud service provider to avoid vendor lock- in; 9 Point-in-time is the concept that a particular set of data can be restored to an exact state of time rather than just to the time of the last backup file. 10 The alternate and recovery sites could either be in-house arrangements, or available through agreement with third-party recovery facility provider, or a combination of both options. (b) maintain a list of cloud service providers and tools that are needed to facilitate a smooth transition; (c) ensure usage of standardized network and communication protocols for ease of interoperability and portability with on- premise IT systems or alternate cloud platforms; (d) ensure the use of common electronic data formats, where applicable, to ease the movement of data between cloud service providers or to on-premises IT system; and (e) extend patch and EOL management to ensure technology solutions employed remain effective and protected against system vulnerabilities. 7. Exit strategy (a) A financial institution should establish a robust cloud exit strategy as part of its cloud risk management framework to prepare for extreme adverse events such as the unplanned failure or termination of cloud service providers. The exit strategy should: i) be developed during the cloud deployment planning phase rather than on an ex-post basis; ii) identify alternative cloud service providers (multi-cloud approach) or third- party solutions to ensure no business recovery objectives disruption or vendor lock-in; iii) be properly documented including details on the various exit trigger scenarios, roles, responsibilities and sufficient resources to manage exit plans and the transition activities; and iv) be updated in a timely manner to reflect any material developments. (b) A financial institution’s exit strategy should be supported by an exit plan that establishes the operational arrangements to facilitate an orderly exit from a cloud service provider, which include the following: i) conduct impact assessment to determine potential costs, resources and timing implications of transferring cloud services to an alternative cloud services provider or back to in-house arrangement at the financial institution; ii) identify appropriate methods to port data and applications to an alternative arrangement; iii) obtain written confirmation from the cloud service provider or via an independent external service provider’s attestation that all sensitive data has been completely removed and destroyed from the cloud service provider’s facilities upon completion of the exit process; and iv) conduct testing to validate the effectiveness of the exit plan, to obtain a reasonable degree of assurance of its effectiveness. 8. Cryptographic key management (a) A financial institution should implement appropriate and relevant encryption techniques to protect the confidentiality and integrity of sensitive data stored on the cloud. (b) A financial institution should ensure its policies and procedures on cryptography are extended to cover cloud services where relevant, to promote the adoption of strong cryptographic controls. (c) For critical systems hosted on the cloud, financial institutions should retain ownership and control of the encryption key (themselves or with an independent key custodian), independent from the cloud service provider, to minimize the risk of unauthorised access to the data hosted on the cloud. As example, this could be achieved by deploying the hardware security module (HSM) on- premises or by utilising HSM-as-a-service from a different cloud service provider. (d) Multiple encryption key management systems may add complexity and introduce new challenges of comprehensively maintaining and managing all the cryptographic keys as the usage would increase as cloud adoption increases. A financial institution should consider implementing a centralised key management system to unify key management and encryption policies for efficient scale operation. 9. Access Controls (a) The management plane is a key security difference between traditional infrastructure and cloud computing where remote access is supported by default. This access layer could be prone to cyber-attacks thereby compromising the integrity of the entire cloud deployment. In view of this, financial Institutions should ensure the use of strong controls for accessing the management plane which include the following: i) review the financial institution’s patch and EOL management framework to effectively secure the management plan; ii) allocate dedicated and effectively hardened endpoints and up to date patching of software to access the management console; iii) implement “least privilege” and strong multi-factor authentication (MFA) e.g., strong password, soft token, privileged access management tool and maker-checker functions; iv) employ granular entitlement allocation for privileged users; v) conduct continuous monitoring of the activities performed by privileged users; vi) adopt robust prevention mechanism against phishing and password guessing attacks, credential stuffing and brute-force attacks. e.g., web application firewall (WAF), anti-phishing tools; and vii) ensure secure communication protocols are in place for accessing the management plane. e.g., secure end-to-end communication channels, whitelisting of IP addresses and etc. (b) A financial institution should extend its user access matrix to cover user access rights for both the financial institution and its cloud service providers where relevant for the ongoing access of cloud-related services. (c) A financial institution should ensure access controls to all hypervisor management functions or administrative consoles for systems hosting virtualized systems are effectively implemented as per the requirements and guidance under the Access Control section of RMiT policy document. These controls should mitigate the risk of any unauthorised access to the hypervisor management functions and virtual machine. (d) Point-to-point connections with cloud services may proliferate with the ease of cloud adoption, resulting in fragmentation of identity and access management and the risk of unsanctioned data being migrated to the cloud. In view of this, rigorous planning is recommended for the design of identity and access management as it is inherently complex. Financial institutions are encouraged to: i) implement a federated11 approach for identity and access management to mitigate risks of identities in cloud services being disjointed from the internal identities, unauthorised access and to ease user access management; and ii) consider additional attributes in context-aware decisions for identity and access management such as geographical location of access to further mitigate the risks associated with remote access. 10. Cybersecurity Operations (a) A financial institution should ensure the governance and management of cybersecurity operations is extended to cover cloud services, with appropriate control measures to prevent, detect and respond to cyber incidents in the cloud environment to maintain the overall security posture of the institution. (b) The interconnected cloud service supply chain could become a source of cyber risk. A financial institution should ensure integrated monitoring and full visibility of cloud services are established. This should include the following: i) continuous monitoring of system communications between the cloud service provider, on-premise IT systems and other third-party service providers to ensure the security perimeter is not breached; and ii) ensuring that third-party service providers, including those providing ancillary functions, have adequate capabilities to monitor, detect and 11 Federated approach for identity and access management is a process / arrangement between multiple systems or enterprises that enables users to use the same identification data to access all related networks. respond to anomalous activities, with timely communication to the financial institution of relevant cyber incidents. (c) A financial institution should understand the segregation of responsibility in security management, which varies across the cloud service models. A financial institution should manage the sources of vulnerabilities appropriately including: i) managing vulnerability assessment and penetration testing (VAPT) for cloud services; ii) proactively seek assurance of their cloud service providers to conduct periodic VAPT on the cloud infrastructure to ensure tenant isolation and overall security posture remains healthy; iii) understand the cloud service provider’s VAPT policy on cloud infrastructure given the varying degree of financial institution’s access to the cloud environment, and establish VAPT arrangement upfront; iv) tailor the financial institution`s standard operating procedures for VAPT to the scope of cloud configuration under the financial institution’s responsibility. This includes conducting VAPT prior to deployment of cloud services; v) establish appropriate tools to conduct VAPT on cloud services under the financial institution’s responsibility, commensurate with the complexity of the cloud environment; vi) the scope of penetration testing should place emphasis on the API calls to the management plane and credentials of privileged users (e.g., cloud administrators), which form the key elements of cyber-attack surface; and vii) the financial institution which adopts high velocity methods e.g., Continuous Integration/Continuous Development (CI/CD), should integrate code review, security testing and vulnerability assessment into the system development life cycle (SDLC) process to minimise application vulnerabilities. (d) A financial institution should review loss provision to ensure its adequacy to cover cyber incidents based on its scenario analysis of extreme adverse events. Where cyber insurance is adopted to mitigate impact of cyber incidents, the financial institution should: i) understand the cyber insurance policy scope to ensure it adequately covers the information security events and liability types identified; ii) understand the insurance policy terms and conditions such as the accuracy of financial institution’s attestation on its cyber risk management capability and its on-going responsibility in information security management to ensure any changes to the IT services and associated control measures do not result in unintended exclusions from the insurance policy; and iii) continue to strengthen cloud risk management to mitigate likelihood of cyber incidents from materialising. 11. Distributed Denial of Service (DDoS) (a) A financial institution should ensure the subscription of DDoS mitigation service is commensurate with the size and complexity of the cloud adoption. (b) The risk of a single point of failure (SPOF) may surface when a financial institution leverages solely on a cloud-based solution to mitigate DDoS attacks. As such, a financial institution is encouraged to engage alternative DDOS mitigation providers or establishing circuit breakers to avoid service disruption when the main DDOS mitigation provider is disrupted. 12. Data Loss Prevention (DLP) (a) A financial institution should ensure the DLP strategy and processes are extended to protect data hosted in cloud services, including the following: i) tailor control procedures and appropriate technologies to enforce DLP policies over the entire data lifecycle; and ii) manage the expansion of the endpoint footprint if the financial institution allow staff to use their own devices to connect to cloud services. (b) As it becomes increasingly easy to distribute digital content to customers via cloud services, a financial institution should adopt the appropriate digital rights management solution to preserve the confidentiality of its proprietary and customer information. 13. Security Operations Centre (SOC) (a) A financial institution should understand the scope of cloud service providers’ responsibility for cybersecurity monitoring and adapt its SOC strategy and processes to ensure proactive and holistic monitoring of its cybersecurity posture. This includes the ability of financial institution to scale up the cybersecurity telemetry and analysis to effectively identify and respond to cyber threats. (b) The responsibilities of cloud service providers with respect to SOC operations should be formalised in the contractual agreement between the financial institution and the cloud service provider, including retention period required for relevant logs needed for forensic purposes and the right of the financial institution to access the logs, to meet the RMiT requirements on access control and security of digital services. 14. Cyber response and recovery (a) A financial institution should enhance existing cyber crisis management policies and procedures to remain in a state of readiness to respond to cyber threats in a cloud environment. (b) A financial institution should extend its Cyber Incident Response Plan (CIRP) to include adverse scenarios that may affect cloud services and establish clear roles and responsibilities between the financial institution and cloud service providers for incident response and remediation. The incident escalation process and turnaround time should be established with cloud service providers and periodically reviewed, to the extent possible, to achieve an effective incident response. (c) A financial institution should consider the following additional measures in the development of its CIRP: i) enhance its ability to detect security breach incidents to achieve effective incident management, including the ability to detect data leakage on the dark web; ii) provide adequate assistance to customers in the event of a security breach in view that the complexity of cloud arrangements and sophistication of cyber-attacks often exceed the response range reasonably expected of customers; and iii) ensure CIRP is ready to manage cross-border incidents where the cloud service resides in a foreign jurisdiction. (d) A financial institution should ensure that relevant Cyber Emergency Response Team (CERT) members are conversant with the CIRP covering cloud services to effectively activate the CIRP when incidents occur. (e) A financial institution should extend the existing incident reporting requirements to include cloud services. (f) For critical systems hosted on the cloud, a financial institution should establish arrangements with their cloud service providers to conduct annual cyber drills to test the effectiveness of the financial institution’s CIRP. Question Please identify challenges for your institution to comply with CTRAG, including potential implication to your current cloud design?	Public Notice
01 Jun 2022	Foreign Exchange Notices	https://www.bnm.gov.my/-/pd-fep-notices	https://www.bnm.gov.my/documents/20124/60360/Foreign+Exchange+Notices_Consolidated.pdf	null	Reading: Foreign Exchange Notices Share: 6 Foreign Exchange Notices Embargo : For immediate release Not for publication or broadcast before 2023 on Wednesday, 1 June 2022 1 Jun 2022 The Foreign Exchange Policy Notices set out — Approvals of Bank Negara Malaysia (the Bank) for transactions which otherwise are prohibited under section 214(2) read together with Schedule 14 of the FSA and section 225(2) read together with Schedule 14 of the IFSA; Requirements, restrictions, and conditions of the approvals; and Directions of the Bank. A person shall obtain a written approval of the Bank to undertake or engage in any transaction listed in Schedule 14 of the FSA or IFSA that is not approved by the Bank under the Foreign Exchange Policy Notices. This document will supersede the Foreign Exchange Notices issued on 15 April 2021. See also: Foreign Exchange Policy Notices Bank Negara Malaysia 1 June 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Issued on: 1 June 2022 Foreign Exchange Policy Notices Preamble & Interpretation Foreign Exchange Policy Notices Page 1 of 16 APPROVAL AND DIRECTION PURSUANT TO SECTION 214 OF THE FINANCIAL SERVICES ACT 2013 [ACT 758] AND SECTION 225 OF THE ISLAMIC FINANCIAL SERVICES ACT 2013 [ACT 759] In exercise of the powers conferred by sections 214(2), 214(5), 214(6) and 261 of the Financial Services Act 2013 (“FSA”) and sections 225(2), 225(5), 225(6) and 272 of the Islamic Financial Services Act 2013 (“IFSA”), Bank Negara Malaysia (“Bank”) issues the following: • Interpretation; • Notice 1: Dealings in Currency, Gold and Other Precious Metals; • Notice 2: Borrowing, Lending and Guarantee; • Notice 3: Investment in Foreign Currency Asset; • Notice 4: Payment and Receipt; • Notice 5: Securities and Financial Instruments; • Notice 6: Import and Export of Currency; and • Notice 7: Export of Goods, collectively referred to as the “Foreign Exchange Policy Notices” or “FEP Notices”. Commencement Date 1. The FEP Notices come into operation on 1 June 2022. Notices 2. The FEP Notices set out— (a) approvals of the Bank for transactions which otherwise are prohibited under section 214(2) read together with Schedule 14 of the FSA and section 225(2) read together with Schedule 14 of the IFSA; (b) requirements, restrictions and conditions of the approvals; and (c) directions of the Bank. 3. A person shall obtain a written approval of the Bank to undertake or engage in any transaction listed in Schedule 14 of the FSA or IFSA that is not approved by the Bank under the FEP Notices. Preamble & Interpretation Foreign Exchange Policy Notices Page 2 of 16 4. The FEP Notices may be amended or revoked by the Bank from time to time by a written notice. Related Documents 5. The FEP Notices shall be read together with— (a) the Declaration on Entities Created, Incorporated, etc. in Labuan issued by the Bank on 28 June 2013 and effective on 30 June 2013; and (b) the Direction on Dealings with Specified Person and in Restricted Currency issued by the Bank pursuant to section 216(1) of the FSA and section 227(1) of the IFSA on 3 January 2022. Compliance with Other Law 6. The FEP Notices shall not relieve or absolve any person from complying with other laws including any law which requires such person to obtain an approval, consent or authorisation from any person or authority before any transaction or activity may be carried out. Offence 7. Any person who— (a) undertakes or engages in any transaction listed in Schedule 14 of the FSA or IFSA without a written approval of the Bank; (b) fails to comply with any requirement, restriction or condition of approval; or (c) fails to comply with any direction of the Bank, commits an offence under section 214(9) of the FSA and section 225(9) of the IFSA, as the case may be. Policy Document Superseded 8. The Foreign Exchange Policy Notices issued by the Bank on 15 April 2021 are revoked. Preamble & Interpretation Foreign Exchange Policy Notices Page 3 of 16 Enquiries 9. All enquiries in relation to the FEP Notices may be directed to— (a) BNM Telelink Toll free line : 1 300 88 5465 Web form : eLINK (https://telelink.bnm.gov.my) OR (b) Pengarah Jabatan Dasar Pertukaran Asing Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur E-mail: [email protected] https://telelink.bnm.gov.my/ Preamble & Interpretation Foreign Exchange Policy Notices Page 4 of 16 INTERPRETATION 1. The Interpretation Acts 1948 and 1967 [Act 388] (“IA”) shall apply. 2. The FEP Notices shall include all appendices attached to it but if there is inconsistency between a provision in the body of the FEP Notices and an appendix, the former shall prevail. 3. Terms used in the FEP Notices shall have the same meanings assigned to them in the FSA, the IFSA and the IA, unless otherwise defined or the context requires otherwise. Where a word has different definitions in the FSA, IFSA, IA and the FEP Notices, the applicable definition shall be based on the following hierarchy: (a) the FEP Notices; (b) the FSA and IFSA; and (c) the IA. 4. In the FEP Notices, the following terms shall have the meanings given below— Term Definition Anticipatory (a) a projected Current Account Transaction based on previous track record or relevant documents to validate the projected transaction; or (b) a projected Financial Account Transaction supported with relevant documents to validate the projected transaction. Appointed Overseas Office or AOO a Holding/Parent Entity, subsidiary Entity, sister Entity, head office or branch outside Malaysia within a LOB’s banking group and its overseas office outside the LOB’s banking group approved by the Bank. Borrowing (a) any utilised or unutilised credit facility or financing facility; (b) any utilised or unutilised trade financing facility, including but not limited to, trade guarantee or guarantee for payment of goods; (c) redeemable preference share or Islamic redeemable preference share; or Preamble & Interpretation Foreign Exchange Policy Notices Page 5 of 16 Term Definition (d) Corporate Bond or Sukuk. Notwithstanding the above, the following are excluded from the definition of Borrowing— (i) a trade credit term extended by a supplier for any goods or services; (ii) a credit limit that a LOB apportions for its client to undertake a Forward Basis transaction, excluding a transaction that involves— (A) exchanging or swapping of Ringgit or Foreign Currency debt for another Foreign Currency debt; or (B) exchanging of Foreign Currency debt for a Ringgit debt; (iii) a Financial Guarantee or Non-Financial Guarantee; (iv) an operational leasing facility; (v) a factoring facility without recourse; (vi) a credit card or charge card facility obtained by an Individual from a Resident and used for payment for retail goods or services only; or (vii) a credit facility or financing facility obtained by a Resident Individual from a Resident to purchase one (1) residential property and one (1) vehicle. Note: For clarity purposes, the transactions in paragraphs (ii)(A) and (ii)(B) shall be considered as Borrowing. CMSA Capital Markets and Services Act 2007 [Act 671]. Corporate Bond or Sukuk has the same meaning as defined in the "Guidelines on Issuance of Corporate Bonds and Sukuk to Retail Investors" [SC-GL/5-2015] issued by the Securities Commission as amended or revised from time to time and is available at http://www.sc.com.my. Current Account Transaction (a) trade of goods or services; or http://www.sc.com.my/ Preamble & Interpretation Foreign Exchange Policy Notices Page 6 of 16 Term Definition (b) primary income or secondary income1, and includes fee, commission, royalty or income, wage, salary, dividend, profit and interest. Direct Investment Abroad or DIA (a) an investment in Foreign Currency Asset Offshore by a Resident resulting in at least 10% equity ownership or control of a Non-Resident Entity outside Malaysia or a Labuan Entity; (b) an inter-company lending by a Resident Entity to a Non- Resident Entity within the Resident Entity’s Group where the Non-Resident Entity is outside Malaysia or a Labuan Entity; or (c) a capital expenditure by a Resident investor in an unincorporated Entity outside Malaysia or a project outside Malaysia by an agreement with no establishment created, where the Resident investor— (i) contributes capital of at least 10% of the cost of the project; (ii) is entitled to at least 10% of profits from the unincorporated Entity or project; or (iii) has management control of the unincorporated Entity or project. Direct Shareholder A shareholder with at least 10% effective shareholding in a Resident Entity. Domestic Ringgit Borrowing (a) any Borrowing in Ringgit obtained by a Resident from another Resident; or (b) any obligation considered or deemed as Domestic Ringgit Borrowing under any of the FEP Notices. Note: For purposes of determining the Domestic Ringgit Borrowing status of a Resident Entity— 1 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. Preamble & Interpretation Foreign Exchange Policy Notices Page 7 of 16 Term Definition (a) the Resident Entity is deemed to have a Domestic Ringgit Borrowing when another Resident Entity with Parent-Subsidiary Relationship has a Domestic Ringgit Borrowing; and (b) the following shall not be considered as Domestic Ringgit Borrowing— (i) a Borrowing obtained from another Resident Entity with Parent-Subsidiary Relationship; (ii) a Borrowing obtained from its Direct Shareholder; or (iii) any facility including credit facility or financing facility which is used for Sundry Expenses or Employees’ Expenses only. - “Sundry Expenses” refers to small and infrequent expenses for office supplies (e.g. stationaries), ancillary services (e.g. software and online subscription) and other minor expenses to facilitate daily business operation. - “Employees' Expenses” refers to business-related expenses which may include, but not limited to, travel (e.g. lodging and transportation), entertainment, health, insurance, takaful and other employees' expenses, excluding investment. - “Borrowing” refers to the definition of “Borrowing” above. Entity (a) any corporation, statutory body, local authority, society, co- operative, limited liability partnership and any other body, organisation, association or group of persons, whether corporate or unincorporate, in or outside Malaysia; or (b) the Federal Government, any State Government or any other government. Exchange Rate Derivatives any derivatives or Islamic derivatives which market price, value, delivery or payment obligation is derived from, referenced to or based on exchange rate. Preamble & Interpretation Foreign Exchange Policy Notices Page 8 of 16 Term Definition Export of Goods (a) movement or transfer of goods by land, sea or air from Malaysia to any territory outside Malaysia; or (b) transfer of ownership in goods originated from Malaysia by a Resident Entity to a Non-Resident outside Malaysia or to a Labuan Entity declared by the Bank as a Non-Resident under section 214(6)(a) of the FSA or section 225(6)(a) of the IFSA. External Account an account in Ringgit opened with any Financial Institution in Malaysia— (a) by a Non-Resident— (i) individually; (ii) jointly with another Non-Resident; or (iii) jointly with a Resident, excluding— (A) for a joint venture in Malaysia; (B) a husband and wife; or (b) by a person who operates the account in trust for or on behalf of a Non-Resident. The designation of the account shall be determined based on the residency of the beneficiary. Financial Account Transaction any transaction other than a Current Account Transaction, and includes Borrowing and investment-related transactions. Financial Guarantee any guarantee, indemnity or undertaking to secure repayment of a Borrowing. Financial Institution a person carrying out a financial business regulated under the laws administered by the Bank and any person carrying out any other financial business as may be specified by the Bank. For the avoidance of doubt, Financial Institution includes— Preamble & Interpretation Foreign Exchange Policy Notices Page 9 of 16 Term Definition (a) a LOB; (b) a prescribed institution under the Development Financial Institutions Act 2002 [Act 618]; (c) a licensed insurer; (d) a licensed takaful operator; (e) a licensee under the MSBA; and (f) approved issuer of a designated payment instrument under the FSA or a designated Islamic payment instrument under the IFSA. Financial Instrument includes derivatives as defined in section 2(1) of the FSA. Firm Commitment a commitment arising from— (a) an obligation to make or a right to receive, any payment under any agreement or arrangement; (b) a holding of an asset or a property; or (c) a holding of a debt, an obligation or a liability. Foreign Currency includes— (a) currency notes or coins which are legal tender in any country, territory or place outside Malaysia; (b) any right to receive foreign currency— (i) in respect of any credit or balance at a licensed bank or any other similar institution in or outside Malaysia; or (ii) from any person in or outside Malaysia; or Preamble & Interpretation Foreign Exchange Policy Notices Page 10 of 16 Term Definition (c) any document or device of a kind intended to enable the person to whom the document or device is issued to obtain foreign currency from another person on the credit of the person issuing it, and in particular, any traveller’s cheque or other draft or letter of credit so intended. Foreign Currency Account or FCA any account, document or instrument where Foreign Currency is being maintained including— (a) Trade Foreign Currency Account (“Trade FCA”); and (b) Investment Foreign Currency Account (“Investment FCA”). Foreign Currency Asset Foreign Currency Asset Offshore and Foreign Currency Asset Onshore. Foreign Currency Asset Offshore (previously referred to as “Investment Abroad”) (a) a financial asset in Malaysia swapped for a financial asset in a Labuan Entity or outside Malaysia; (b) Foreign Currency Borrowing given to a Non-Resident; (c) working capital arising from the set up of any business arrangement outside Malaysia (including a joint venture project where no Entity is created or established); (d) deposit in a Foreign Currency Account maintained with a Labuan Entity or outside Malaysia excluding reasonable amount of deposit for education, employment or migration outside Malaysia; or (e) Foreign Currency-denominated— (i) asset (tangible or intangible) offered by a Non-Resident or any person whose residency cannot be determined; (ii) asset (tangible or intangible) in or maintained with a Labuan Entity, or outside Malaysia; (iii) Financial Instrument or Islamic Financial Instrument (excluding Exchange Rate Derivatives) without Firm Preamble & Interpretation Foreign Exchange Policy Notices Page 11 of 16 Term Definition Commitment offered on a Specified Exchange under the CMSA outside Malaysia undertaken by a Resident through a Resident futures broker; or (iv) Financial Instrument or Islamic Financial Instrument (excluding Exchange Rate Derivatives) without Firm Commitment issued or offered by a Non-Resident. Foreign Currency Asset Onshore (a) Foreign Currency-denominated securities or Islamic securities offered in Malaysia by a Resident as approved in writing by the Bank; (b) Foreign Currency-denominated Financial Instrument or Islamic Financial Instrument offered in Malaysia by a Resident as approved in writing by the Bank excluding a derivative or Islamic derivative transaction entered with Firm Commitment; (c) deposit in Investment FCA with a LOB or an approved Financial Institution as specified in Notice 3; or (d) any instrument offered by a LOB with Foreign Currency delivery at maturity2. Forward Basis buying or selling of any currency for settlement after two (2) business days (regardless of whether settlement is to be made on gross or net basis) through— (a) a derivative as defined in section 2(1) of the FSA; (b) an Islamic derivative as defined in section 2(1) of the IFSA; or (c) any other arrangement. FSA the Financial Services Act 2013 [Act 758]. General Partnership has the same meaning with the term “partnership” as defined in section 3(1) of the Partnership Act 1961 [Act 135]. 2 Such as dual-currency investment. Preamble & Interpretation Foreign Exchange Policy Notices Page 12 of 16 Term Definition Global Supply Chain a business activity where a Resident imports goods or services to support production or distribution of goods or services by a Resident exporter for the Resident exporter’s export activities. This includes domestic trade in goods or services between the Resident importer and the Resident exporter undertaken through a Resident intermediate Entity. Group an Entity’s— (a) ultimate or direct Holding/Parent Entity; (b) head office; (c) branch; (d) subsidiary company where the Entity owns more than 50% of ordinary shares in the subsidiary company; (e) associate company where the Entity owns between 10% and 50% of ordinary shares in the associate company; or (f) sister company where the Entity and its sister company have a common shareholder with minimum of 10% of ordinary shares in both the Entity and its sister company. Holding/ Parent Entity an Entity which owns more than 50% of ordinary shares of another Entity. IFSA the Islamic Financial Services Act 2013 [Act 759]. Immediate Family Member a legal spouse, parent, legitimate child (including legally adopted) or legitimate sibling of an Individual. Individual a natural person. Institutional Investor a foreign government, a central bank, an asset manager, a pension fund, an insurance company or a takaful operator. Preamble & Interpretation Foreign Exchange Policy Notices Page 13 of 16 Term Definition Intermediary a management company, trust company, legal firm, stockbroking corporation, an asset manager or any similar Entity who undertakes investment or managing funds on behalf of clients. Islamic Financial Instrument includes Islamic derivatives as defined in section 2(1) of the IFSA. Labuan Entity an Entity which is created, incorporated, licensed or registered under any of the following legislation: (a) Labuan Companies Act 1990 [Act 441]; (b) Labuan Trust Act 1996 [Act 554]; (c) Labuan Financial Services and Securities Act 2010 [Act 704]; (d) Labuan Islamic Financial Services and Securities Act 2010 [Act 705]; (e) Labuan Foundations Act 2010 [Act 706]; or (f) Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 [Act 707]. LFSSA Labuan Financial Services and Securities Act 2010 [Act 704]. Licensed Money Changer a person licensed under the MSBA to carry on money-changing business or wholesale currency business, or its money services business agent as defined in section 2 of the MSBA. Licensed Onshore Bank or LOB (a) a licensed bank or a licensed investment bank under the FSA; and (b) a licensed Islamic bank under the IFSA. LIFSSA Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) [Act 705]. Preamble & Interpretation Foreign Exchange Policy Notices Page 14 of 16 Term Definition MSBA Money Services Business Act 2011 [Act 731]. Non- Financial Guarantee any guarantee, indemnity or undertaking (excluding a Financial Guarantee) issued or obtained not for purposes of securing a Borrowing, and includes a performance bond, tender bond, guarantee for supply of goods or services, or shipping guarantee. Non- Resident (a) any person other than a resident; (b) an overseas branch, a subsidiary, regional office, sales office or representative office of a resident company; (c) Embassies, Consulates, High Commissions, supranational or international organizations; or (d) a Malaysian citizen who has obtained permanent resident status of a country or territory outside Malaysia and is residing outside Malaysia. For the avoidance of doubt, this includes Malaysian Embassies, Consulates and High Commissions. Non- Resident Financial Institution or NRFI a Non-Resident Entity undertaking financial services including custodian bank and trust bank. Parent- Subsidiary Relationship a relationship between a Resident Entity and its direct or indirect— (a) Resident Holding/Parent Entity; or (b) Resident subsidiary. For the avoidance of doubt, this includes a relationship between a Resident subsidiary of a Non-Resident Holding/Parent Entity with the Resident subsidiary’s ultimate Resident Holding/Parent Entity. Preamble & Interpretation Foreign Exchange Policy Notices Page 15 of 16 Term Definition Portfolio Investment (a) tradable debt securities; (b) tradable equity securities (less than 10% of ownership in an investee company), including a collective investment scheme; or (c) derivatives or Islamic derivatives (other than Exchange Rate Derivatives) without Firm Commitment. Real Sector Activity an activity relating to— (a) construction or purchase of a residential or commercial property, excluding purchase of land which will not be utilised for construction or production of goods or services; or (b) production or consumption of goods or services, excluding— (i) activity in financial services sector, whether Islamic or otherwise; (ii) purchase of securities or Islamic securities; or (iii) purchase of Financial Instrument or Islamic Financial Instrument. RENTAS Real-time Electronic Transfer of Funds and Securities System. Resident (a) a citizen of Malaysia, excluding a citizen who has obtained permanent resident status in a country or a territory outside Malaysia and is residing outside Malaysia; (b) a non-citizen of Malaysia who has obtained permanent resident status in Malaysia and is ordinarily residing in Malaysia; (c) a body corporate incorporated or established, or registered with or approved by any authority, in Malaysia; (d) an unincorporated body registered with or approved by any authority in Malaysia; or Preamble & Interpretation Foreign Exchange Policy Notices Page 16 of 16 Term Definition (e) the Government or any State Government. Ringgit currency notes or coins which are legal tender in Malaysia and includes any right to receive ringgit in such form as may be specified by the Bank. Ringgit Asset (a) Ringgit-denominated securities or Islamic securities issued in Malaysia by a Resident; (b) Ringgit-denominated securities or Islamic securities issued by a Non-Resident as approved in writing by the Bank; (c) Ringgit-denominated Financial Instrument or Islamic Financial Instrument as approved in writing by the Bank; (d) Ringgit deposit with a Financial Institution in Malaysia including deposit-like instrument with only Ringgit delivery at the inception and maturity; or (e) any property in Malaysia. ROMS Ringgit Operations Monitoring System. Special Purpose Vehicle An Entity set up solely for a specific purpose and is not an operating business unit. Spot Basis buying and selling of any currency for delivery within two (2) business days. Notice 1 Foreign Exchange Policy Notices Page 1 of 12 NOTICE 1: DEALINGS IN CURRENCY, GOLD AND OTHER PRECIOUS METALS TABLE OF CONTENTS No. Content Page 1. PART A: DEALINGS IN CURRENCY BY RESIDENT Buying and Selling of Foreign Currency Against Ringgit - Own Account Transaction - Dynamic Hedging Framework for Institutional Investors - Transaction on Behalf of Related Entities or Clients Buying and Selling of Foreign Currency Against Another Foreign Currency 2 2 2 3 3 4 2. PART B: DEALINGS IN CURRENCY BY NON- RESIDENT Buying and Selling of Foreign Currency Against Ringgit - Own Account Transaction - Dynamic Hedging Framework for Institutional Investors - Transaction on Behalf of Related Entities or Clients Buying and Selling of Foreign Currency Against Another Foreign Currency 5 5 5 5 6 8 3. PART C: DEALINGS IN CURRENCY WITH AND BY LICENSED MONEY CHANGER 9 4. PART D: DEALINGS IN GOLD AND OTHER PRECIOUS METALS 10 5. PART E: ISSUING, PUBLISHING OR DISSEMINATING INFORMATION ON DEALINGS IN CURRENCY, GOLD AND OTHER PRECIOUS METALS 11 6. APPENDIX: Procedures for Dynamic Hedging Framework for Institutional Investors 12 Notice 1 Foreign Exchange Policy Notices Page 2 of 12 PART A: DEALINGS IN CURRENCY BY RESIDENT Buying and Selling of Foreign Currency Against Ringgit 1. (1) A Resident is allowed to buy or sell Foreign Currency against Ringgit for its own account— (a) on Spot Basis with a LOB; or (b) on Forward Basis with a LOB, subject to the following: (i) the transaction is undertaken on Firm Commitment or Anticipatory basis, and shall be terminated when the Firm Commitment ceases to exist or the anticipated transaction does not materialise; and (ii) where the transaction involves— (A) underlying Foreign Currency-denominated derivatives contract (excluding Exchange Rate Derivatives) offered by a Resident, the value of the transaction shall not exceed the net open position of the Foreign Currency exposure arising from the derivatives contract; (B) buying of Foreign Currency against Ringgit, it shall not be for deposit into FCA except for temporary placement arising from delivery of Foreign Currency under the Forward Basis transaction due to extension of payment timeline of the Foreign Currency Firm Commitment or temporarily placed into the FCA for subsequent payment out on the same day; or (C) selling of Foreign Currency against Ringgit, the Foreign Currency shall not be sourced from FCA except for Foreign Currency proceeds received earlier than the maturity date of the Forward Basis transaction1. 1 Illustration: On 1 June 2020, a Resident enters into a Forward Basis transaction for underlying receipt of proceeds of Export of Goods (i.e. sell Foreign Currency against Ringgit) for delivery on 30 June 2020. However, the proceeds of Export of Goods were received earlier than anticipated Notice 1 Foreign Exchange Policy Notices Page 3 of 12 (2) A Resident is allowed to unwind the Forward Basis transaction undertaken in accordance with paragraph 1(1)(b) with any LOB except for a transaction where the Firm Commitment is a Portfolio Investment. 2. (1) A Resident Institutional Investor registered with the Bank under the Dynamic Hedging Framework for Institutional Investors is allowed to enter into a plain vanilla forward contract for its own account with a LOB to sell Foreign Currency against Ringgit without documentary evidence for the purpose of managing the Resident Institutional Investor’s Foreign Currency exposure up to 100% of the Resident Institutional Investor’s aggregate— (a) investment in Foreign Currency-denominated debt securities, equity securities, Islamic debt securities and Islamic equity securities; and (b) Foreign Currency deposits or deposit-like instruments arising from disposal of existing Foreign Currency-denominated securities referred to in paragraph 2(1)(a) on temporary basis for up to three (3) months pending reinvestment of such deposits. The procedures for this paragraph are in the Appendix. (2) The Resident Institutional Investor is allowed to unwind the plain vanilla forward contract undertaken in accordance with paragraph 2(1) with any LOB. 3. A Resident Entity is allowed to buy or sell Foreign Currency against Ringgit on behalf of an Entity within its Group (“the Principal”) with a LOB, provided that— (a) the Principal is not a Financial Institution or NRFI; (b) where the Principal is a Resident, the Principal complies with paragraphs 1 and 22; and (c) where the Principal is a Non-Resident, the Principal complies with paragraphs 6 and 73. i.e. prior to the maturity of the Forward Basis transaction and credited into Trade FCA. The Resident has the options to either (1) take an early delivery of the Forward Basis transaction or (2) wait until the maturity of the Forward Basis transaction by debiting Foreign Currency from the Resident’s Trade FCA maintained with a LOB. 2 A transaction that is undertaken pursuant to the Dynamic Hedging Framework for Institutional Investors requires registration with the Bank either by the Resident Entity or the Principal. 3 Refer to footnote 2. Notice 1 Foreign Exchange Policy Notices Page 4 of 12 4. A Resident Intermediary acting on behalf of a Resident or Non-Resident client is allowed to buy or sell Foreign Currency against Ringgit with a LOB for settlement of a Ringgit Asset or Foreign Currency Asset, provided that— (a) where the client is a Resident, the transaction complies with paragraph 1; and (b) where the client is a Non-Resident, the transaction complies with paragraph 6. Buying and Selling of Foreign Currency Against Another Foreign Currency 5. A Resident is allowed to buy or sell Foreign Currency against another Foreign Currency on Spot Basis or Forward Basis with a LOB. Notice 1 Foreign Exchange Policy Notices Page 5 of 12 PART B: DEALINGS IN CURRENCY BY NON-RESIDENT Buying and Selling of Foreign Currency Against Ringgit 6. (1) A Non-Resident is allowed to buy or sell Foreign Currency against Ringgit for its own account— (a) on Spot Basis with a LOB or an AOO; or (b) on Forward Basis (subject to paragraph 12) with a LOB or an AOO for— (i) Current Account Transaction on Firm Commitment or Anticipatory basis; or (ii) Financial Account Transaction on Firm Commitment basis. Where the Firm Commitment is a Ringgit-denominated derivatives contract (excluding Exchange Rate Derivatives) offered by a Resident, the value of the transaction shall not exceed the net open position of the Ringgit exposure arising from the derivatives contract, provided that the Forward Basis transaction shall be terminated when the Firm Commitment ceases to exist or the anticipated transaction does not materialise. (2) A Non-Resident is allowed to unwind the Forward Basis transaction undertaken in accordance with paragraph 6(1)(b) with any LOB or AOO except for a transaction where the Firm Commitment is a Portfolio Investment. 7. (1) A Non-Resident Institutional Investor registered with the Bank under the Dynamic Hedging Framework for Institutional Investors is allowed to enter into a plain vanilla forward contract (subject to paragraph 12) for its own account with a LOB or an AOO without documentary evidence to— (a) buy Foreign Currency against Ringgit up to 100%; or (b) sell Foreign Currency against Ringgit up to 25%, of the Non-Resident Institutional Investor’s Ringgit exposure listed in paragraph 7(3) for the purpose of managing such exposure. The procedures for this paragraph are in the Appendix. Notice 1 Foreign Exchange Policy Notices Page 6 of 12 (2) The Non-Resident Institutional Investor is allowed to unwind the plain vanilla forward contract undertaken in accordance with paragraph 7(1) with any LOB or AOO. (3) For purposes of paragraphs 7(1) and 7(2), the Non-Resident Institutional Investor’s Ringgit exposure refers to the aggregate of its— (a) investment in Ringgit-denominated debt securities and Islamic debt securities on RENTAS or Bursa Malaysia; (b) investment in Ringgit-denominated equity securities and Islamic equity securities on Bursa Malaysia; and (c) Ringgit deposits or deposit-like instruments arising from disposal of existing Ringgit-denominated securities referred to in paragraph 7(3)(a) or 7(3)(b) on temporary basis in an External Account for up to three (3) months pending reinvestment of such deposits. 8. A Non-Resident Entity is allowed to buy or sell Foreign Currency against Ringgit on behalf of an Entity within its Group (“the Principal”) with a LOB or an AOO, provided that— (a) the Principal is not a Financial Institution or NRFI; (b) where the Principal is a Resident, the Principal complies with paragraphs 1 and 24; and (c) where the Principal is a Non-Resident, the Principal complies with paragraphs 6 and 75. 9. A Non-Resident Intermediary acting on behalf of a Resident or Non-Resident client is allowed to buy or sell Foreign Currency against Ringgit with a LOB or an AOO for settlement of a Ringgit Asset or Foreign Currency Asset, provided that— (a) where the client is a Resident, the transaction complies with paragraph 1; 4 A transaction that is undertaken pursuant to the Dynamic Hedging Framework for Institutional Investors requires registration with the Bank either by the Non-Resident Entity or the Principal. 5 Refer to footnote 4. Notice 1 Foreign Exchange Policy Notices Page 7 of 12 (b) where the client is a Non-Resident, the transaction complies with paragraph 6; and (c) the Non-Resident Intermediary complies with paragraph 11 of Notice 4 for transaction undertaken for settlement of a Ringgit Asset only. 10. A NRFI, acting on behalf of a Non-Resident client, is allowed to buy or sell Foreign Currency against Ringgit for settlement of international trade in goods or services with a Resident on Spot Basis or Forward Basis (subject to paragraph 12(b)(ii)) with a LOB or an AOO on Firm Commitment basis provided that the NRFI complies with paragraphs 10 and 12 of Notice 4. 11. (1) A NRFI acting as a custodian or trustee managing Ringgit Asset for its Resident or Non-Resident client with Ringgit Asset custody relationship is allowed to buy or sell Foreign Currency against Ringgit with a LOB or an AOO for settlement of a Ringgit Asset, provided that— (a) where the client is a Resident, the transaction complies with paragraph 1; (b) where the client is a Non-Resident, the transaction complies with paragraph 6; and (c) the NRFI is registered with the Bank for a transaction undertaken with an AOO. The registration may be made by submitting the NRFI Custody Passive Foreign Exchange Transaction Registration Form available on the Bank’s website, https://bnm.my/fep. The Bank shall notify the NRFI in writing upon acceptance of the registration. (2) For purposes of paragraph 11(1)— (a) a NRFI has a Ringgit Asset custody relationship with its Resident or Non-Resident client if the NRFI is engaged to manage or act as a custodian or trustee for its Resident or Non-Resident client’s Ringgit Asset; and https://bnm.my/fep Notice 1 Foreign Exchange Policy Notices Page 8 of 12 (b) the approval includes buying or selling Foreign Currency against Ringgit for settlement of a Ringgit Asset that may not be under the NRFI’s custody6. 12. For purposes of paragraphs 6 to 11, the terms “Forward Basis” or “plain vanilla forward contract” shall— (a) include buying or selling of Foreign Currency against Ringgit by a Non- Resident involving Ringgit deposit in the Non-Resident’s External Account where— (i) such deposit does not exceed three (3) months and arises from sale of a Ringgit Asset prior to maturity date of a forward contract; and (ii) the total amount of the transaction does not exceed the total value of the Non-Resident’s Ringgit Assets including proceeds from disposal of and income from the Ringgit Asset which are deposited in the Non-Resident’s External Account; and (b) exclude buying or selling of Foreign Currency against Ringgit— (i) for settlement of Ringgit negotiable instrument of deposits; (ii) involving an External Account except for Ringgit funds described in paragraph 12(a); or (iii) for settlement of over-the-counter derivatives or structured products which tantamount to Borrowing or lending of Ringgit between a Resident and a Non-Resident. Buying and Selling of Foreign Currency Against Another Foreign Currency 13. A Non-Resident is allowed to buy or sell Foreign Currency against another Foreign Currency on Spot Basis or Forward Basis with a LOB. 6 For example: Global Custodian A holds Ringgit-denominated equities and Global Custodian B holds Ringgit-denominated bonds under custody for a Non-Resident Client. Global Custodian A is allowed to undertake a foreign exchange transaction for both underlying Ringgit-denominated equities and Ringgit-denominated bonds on behalf of the Non-Resident Client. Notice 1 Foreign Exchange Policy Notices Page 9 of 12 PART C: DEALINGS IN CURRENCY WITH AND BY LICENSED MONEY CHANGER 14. A Resident or Non-Resident is allowed to buy or sell— (a) Foreign Currency against Ringgit; or (b) Foreign Currency against another Foreign Currency, on Spot Basis with a Licensed Money Changer in accordance with the MSBA. 15. A Licensed Money Changer is allowed to buy or sell— (a) Foreign Currency against Ringgit; or (b) Foreign Currency against another Foreign Currency, on Spot Basis with its Resident or Non-Resident clients in accordance with the MSBA. Notice 1 Foreign Exchange Policy Notices Page 10 of 12 PART D: DEALINGS IN GOLD AND OTHER PRECIOUS METALS 16. A person is allowed to— (a) buy, sell, exchange, borrow, lend, retain or use gold or other precious metals subject to compliance with section 137 of the FSA, section 149 of the IFSA and Parts B and C of Notice 4; (b) import gold or other precious metals; or (c) export gold or other precious metals subject to compliance with Notice 7. Notice 1 Foreign Exchange Policy Notices Page 11 of 12 PART E: ISSUING, PUBLISHING OR DISSEMINATING INFORMATION ON DEALINGS IN CURRENCY, GOLD AND OTHER PRECIOUS METALS 17. A licensee under the MSBA is allowed to issue, publish or disseminate information in any form on buying, selling and exchanging of Foreign Currency in accordance with Parts A and B of this Notice. 18. A person is allowed to issue, publish or disseminate information in any form on buying, selling, exchanging, Borrowing, lending, retaining or using of gold and other precious metals subject to compliance with section 137 of the FSA, section 149 of the IFSA and Parts B and C of Notice 4. Notice 1 Foreign Exchange Policy Notices Page 12 of 12 APPENDIX (Paragraphs 2(1) and 7(1)) Procedures for Dynamic Hedging Framework for Institutional Investors 1. Procedures (a) Registration • An Institutional Investor is required to perform a one-off registration by submitting a completed “Forward Market Participation Form – Institutional Investors” form, either directly or via a LOB or AOO, to the Bank. The form is available at the Bank’s website, https://bnm.my/fep. • The Bank shall notify the Institutional Investor in writing upon acceptance of its registration. (b) Forward Transaction • A registered Institutional Investor may enter into a plain vanilla Forward contract without documentary evidence as follows: (i) a Resident may engage any LOB upon verification of registration status by the LOB; or (ii) a Non-Resident may engage any LOB or AOO upon verification of registration status by the LOB or AOO. (c) Reporting requirement • A LOB shall report to the Bank all plain vanilla Forward contracts via ROMS regardless of the amount. Institutional Investor AOO (only for Non- Resident) ROMS (a) Registration (b) Forward transaction (c) Reporting requirement Reports Forward transaction LOB One-off registration The Bank Verify registration status of investor with the Bank Notice 2 Foreign Exchange Policy Notices Page 1 of 13 NOTICE 2: BORROWING, LENDING AND GUARANTEE TABLE OF CONTENTS No. Content Page 1. PART A: BORROWING BY RESIDENT INDIVIDUAL, SOLE PROPRIETOR OR GENERAL PARTNERSHIP Borrowing in Ringgit from Non-Resident Borrowing in Foreign Currency Refinancing of Borrowing 3 3 3 3 2. PART B: BORROWING BY RESIDENT ENTITY Borrowing in Ringgit from Non-Resident Borrowing in Foreign Currency Refinancing of Borrowing 4 4 4 5 3. PART C: EXCHANGING OF RINGGIT OR FOREIGN CURRENCY DEBT 6 4. PART D: BORROWING BY NON-RESIDENT Borrowing in Ringgit Borrowing in Foreign Currency 7 7 8 5. PART E: ISSUING, PUBLISHING OR DISSEMINATING INFORMATION ON BORROWING 9 6. PART F: LENDING 10 7. PART G: GUARANTEE Financial Guarantee in Relation to LOB Giving and Obtaining of Financial Guarantee 11 11 11 Notice 2 Foreign Exchange Policy Notices Page 2 of 13 Non-Financial Guarantee 12 8. APPENDIX: Exchanging of Existing Debt 13 Notice 2 Foreign Exchange Policy Notices Page 3 of 13 PART A: BORROWING BY RESIDENT INDIVIDUAL, SOLE PROPRIETOR OR GENERAL PARTNERSHIP Borrowing in Ringgit from Non-Resident 1. A Resident Individual is allowed to borrow in Ringgit in any amount from his Non-Resident— (a) Immediate Family Member; or (b) employer in Malaysia for use in Malaysia subject to terms and conditions of his employment contract. 2. A Resident Individual, sole proprietor or General Partnership are allowed to borrow in Ringgit up to RM1 million in aggregate1 for use in Malaysia from a Non- Resident excluding a NRFI. Borrowing in Foreign Currency 3. A Resident Individual is allowed to borrow in Foreign Currency in any amount from his Immediate Family Member. 4. A Resident Individual, sole proprietor or General Partnership is allowed to borrow in Foreign Currency up to RM10 million equivalent in aggregate2 from a LOB or a Non-Resident. Refinancing of Borrowing 5. A Resident Individual, sole proprietor or General Partnership is allowed to refinance the outstanding approved Borrowing (including principal and accrued interest or profit) as per paragraphs 1 to 4, subject to compliance with the requirements in the respective paragraph. 1 Computed based on an aggregate of Borrowing in Ringgit by the Resident Individual and a sole proprietor and a General Partnership owned by the Resident Individual. 2 Computed based on an aggregate of Borrowing in Foreign Currency by the Resident Individual and a sole proprietor and a General Partnership owned by the Resident Individual. Notice 2 Foreign Exchange Policy Notices Page 4 of 13 PART B: BORROWING BY RESIDENT ENTITY Borrowing in Ringgit from Non-Resident 6. A Resident Entity is allowed to borrow in Ringgit in any amount to finance a Real Sector Activity in Malaysia from a Non-Resident within the Resident Entity’s Group including Non-Resident Direct Shareholder, excluding— (a) a NRFI; or (b) a Non-Resident Special Purpose Vehicle which is used to obtain Borrowing from any person outside the Resident Entity’s Group. 7. A Resident Entity is allowed to borrow in Ringgit in any amount from a Non- Resident through the issuance of— (a) redeemable preference shares or Islamic redeemable preference shares in Ringgit for use in Malaysia; (b) Ringgit sovereign bond or sukuk (issued by the Federal Government); or (c) Ringgit Corporate Bond or Sukuk in accordance with relevant guidelines issued by the Securities Commission Malaysia excluding non-tradable Ringgit Corporate Bond or Sukuk issued to a Non-Resident Entity outside the Resident Entity’s Group or a NRFI. 8. A Resident Entity is allowed to borrow in Ringgit up to RM1 million in aggregate3 for use in Malaysia from a Non-Resident excluding a NRFI. Borrowing in Foreign Currency 9. A Resident Entity is allowed to borrow in Foreign Currency in any amount— (a) from a LOB; (b) from an Entity within the Resident Entity’s Group or from the Resident Entity’s Direct Shareholder except for an Entity stated in paragraph 10(b) or 10(c). 3 Computed based on an aggregate Borrowing in Ringgit by the Resident Entity and other Resident Entity with Parent-Subsidiary Relationship. Notice 2 Foreign Exchange Policy Notices Page 5 of 13 (c) through issuance of Foreign Currency Corporate Bond or Sukuk to another Resident. Subscription of the Corporate Bond or Sukuk by the latter shall be subject to compliance with Notice 3. 10. A Resident Entity is allowed to borrow in Foreign Currency up to RM100 million equivalent in aggregate4 from— (a) a Non-Resident outside the Resident Entity’s Group; (b) a NRFI; or (c) a Non-Resident Special Purpose Vehicle which is used to obtain Borrowing from any person outside the Resident Entity’s Group. Refinancing of Borrowing 11. A Resident Entity is allowed to refinance the outstanding approved Borrowing (including principal and accrued interest or profit) as per paragraphs 6 to 10, subject to compliance with the requirements in the respective paragraph. 4 Computed based on an aggregate Borrowing in Foreign Currency by the Resident Entity and other Resident Entity with Parent-Subsidiary Relationship. Notice 2 Foreign Exchange Policy Notices Page 6 of 13 PART C: EXCHANGING OF RINGGIT OR FOREIGN CURRENCY DEBT 12. A Resident is allowed to exchange Ringgit or Foreign Currency debt with another debt in accordance with the Appendix. Notice 2 Foreign Exchange Policy Notices Page 7 of 13 PART D: BORROWING BY NON-RESIDENT Borrowing in Ringgit 13. A Non-Resident Individual is allowed to borrow in Ringgit in any amount from— (a) an Immediate Family Member; (b) a licensed insurer or a licensed takaful operator up to the attained cash surrender value of any life insurance policy or family takaful certificate purchased by the Non-Resident Individual; or (c) his employer in Malaysia for use in Malaysia. 14. A Non-Resident, excluding a NRFI, is allowed to borrow in Ringgit in any amount from— (a) a Resident to finance Real Sector Activity in Malaysia5; or (b) a Resident with a stockbroking license under the CMSA, in the form of margin financing for products traded on Bursa Malaysia. 15. A Non-Resident is allowed to borrow in Ringgit from a LOB— (a) in any amount of trade financing for settlement of trade in goods or services with a Resident; (b) up to the amount of an overdraft facility (not exceeding two (2) business days and with no roll over option) to avoid settlement failure for purchase of shares or Ringgit instrument traded on Bursa Malaysia or through RENTAS due to inadvertent delay of payment by the Non- Resident. Such overdraft facility shall only be eligible to be utilised by— (i) a Non-Resident custodian bank, stockbroking corporation, trust bank or international central securities depository acting on behalf of Non-Resident investor; or 5 Includes refinancing of existing Borrowing in Ringgit that was used for Real Sector Activity in Malaysia or on-lending in Ringgit to a Resident Entity within the same Group or an Immediate Family Member that will be ultimately used for Real Sector Activity in Malaysia. Notice 2 Foreign Exchange Policy Notices Page 8 of 13 (ii) a Non-Resident investor purchasing shares or Ringgit instrument mentioned above for its own account; or (c) up to RM10 million in aggregate via a repurchase agreement or sale buy back agreement. Borrowing in Foreign Currency 16. A Non-Resident is allowed to borrow in Foreign Currency— (a) in any amount from a LOB, a Resident Immediate Family Member or a Non-Resident in Malaysia; or (b) up to the limit stated in Parts A and B of Notice 3 from another Resident. Notice 2 Foreign Exchange Policy Notices Page 9 of 13 PART E: ISSUING, PUBLISHING OR DISSEMINATING INFORMATION ON BORROWING 17. Any person is allowed to issue, publish or disseminate information in any form or advertisements which may lead, directly or indirectly, to any transaction allowed under this Notice or Part A of Notice 5. Notice 2 Foreign Exchange Policy Notices Page 10 of 13 PART F: LENDING 18. A person is allowed to lend in Ringgit or Foreign Currency to a Resident or Non- Resident for any corresponding Borrowing approved in this Notice or where the Borrowing has otherwise been approved in writing by the Bank. Notice 2 Foreign Exchange Policy Notices Page 11 of 13 PART G: GUARANTEE Financial Guarantee in Relation to LOB 19. A LOB is allowed to— (a) obtain a Financial Guarantee in any amount in Ringgit or Foreign Currency for its own account; and (b) give a Financial Guarantee in any amount in Ringgit or Foreign Currency on behalf of its banking group or client. Giving and Obtaining of Financial Guarantee 20. A Resident guarantor is allowed to give a Financial Guarantee in any amount in Ringgit or Foreign Currency to secure any Borrowing obtained by a Resident in Ringgit or Foreign Currency as approved in this Notice or otherwise approved in writing by the Bank. 21. A non-bank Resident guarantor is allowed to give a Financial Guarantee in any amount in Ringgit or Foreign Currency to secure a Borrowing obtained by a Non- Resident in Ringgit or Foreign Currency as approved in this Notice, otherwise approved in writing by the Bank or Borrowing in Foreign Currency from an NRFI, excluding a Financial Guarantee given to secure a Borrowing— (a) obtained by a Non-Resident borrower which is a Special Purpose Vehicle, or if the underlying Borrowing is being utilised by the Resident guarantor. This Financial Guarantee shall be deemed as a Borrowing (in Ringgit or Foreign Currency, as the case may be) by the Resident guarantor, and the Resident guarantor shall comply with Part A or B of this Notice; or (b) where the Resident guarantor has entered into a formal or informal arrangement to make repayment of the Borrowing in Foreign Currency other than under a call-upon6 by the lender in the event of default7. Such repayment shall be deemed as an investment in Foreign Currency Asset, 6 A “call-upon” of Financial Guarantee shall be initiated by the lender in writing to the guarantor. A guarantor may not initiate a “call-upon” of a Financial Guarantee. In the event a Financial Guarantee is liquidated at the instruction of the guarantor, the guarantor must obtain prior approval from the Bank in accordance with Notice 3. 7 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 IFRS9 or any equivalent accounting standards adopted by the lender. Notice 2 Foreign Exchange Policy Notices Page 12 of 13 and the Resident guarantor shall comply with Part A or Part B of Notice 3. 22. (1) A Resident lender is allowed to obtain a Financial Guarantee in any amount in Foreign Currency or Ringgit from a Non-Resident guarantor to secure a Borrowing obtained by a Resident or a Non-Resident borrower. (2) Where a Borrowing obtained by a Resident in Ringgit or Foreign Currency is approved in this Notice or otherwise approved in writing by the Bank, the Financial Guarantee obtained to secure such Borrowing is deemed to be approved. 23. (1) Any payment arising from a Financial Guarantee in Foreign Currency between Residents shall be made in Ringgit. However, the payment may be made in Ringgit or Foreign Currency where the Resident guarantor is— (a) an Entity within the borrower’s Group; (b) the borrower’s Direct Shareholder; (c) an immediate family member; or (d) a LOB. (2) Any payment arising from a Financial Guarantee made to a Non- Resident lender shall be in Foreign Currency. However, a Non-Resident guarantor may make payment in Ringgit or Foreign Currency to a Resident lender arising from a Financial Guarantee in Ringgit to secure a Borrowing in Ringgit which is approved in this Notice or otherwise approved in writing by the Bank. (3) Any repayment of consequential debt arising from a Financial Guarantee to a Non-Resident guarantor shall only be made in Foreign Currency. Non-Financial Guarantee 24. A Resident is allowed to give or obtain a Non-Financial Guarantee in any amount in Foreign Currency or Ringgit to or from a Non-Resident. 25. Any payment to a Non-Resident under a Non-Financial Guarantee shall be made in Foreign Currency. However, a payment to or from a Non-Resident under a Non-Financial Guarantee in Ringgit for use in Malaysia may be made in Ringgit or Foreign Currency. Notice 2 Foreign Exchange Policy Notices Page 13 of 13 APPENDIX (Paragraph 12) Table 1: Exchanging of Existing Debt by Resident with LOB Currency denomination of existing debt Currency denomination of exchanged debt (swap to) Applicable FEP Rules Ringgit Foreign Currency with or without delivery of Foreign Currency at inception. • The exchanged debt shall be considered as a Borrowing in Foreign Currency. • Where the swap involves delivery of Foreign Currency at inception, utilisation of such Foreign Currency for Investment in Foreign Currency Asset shall comply with Notice 3 for Resident with Domestic Ringgit Borrowing. Foreign Currency Ringgit with or without delivery of Ringgit at inception. • The exchanged debt shall be considered as a Domestic Ringgit Borrowing. • In the case where the Foreign Currency Borrowing is obtained from a Non-Resident, it shall continue to be subject to the requirement under Part A and Part B of this Notice. Table 2: Exchanging of Existing Debt by Resident with Non-Resident Currency denomination of existing debt Currency-denomination of exchanged debt (swap to) Applicable FEP Rules Foreign Currency Another Foreign Currency debt with or without delivery of Foreign Currency at inception. • The exchanged debt shall be considered as a Borrowing in Foreign Currency from a Non- Resident. • The Resident shall comply to the requirement under Part A and Part B of this Notice. Notice 3 Foreign Exchange Policy Notices Page 1 of 5 NOTICE 3: INVESTMENT IN FOREIGN CURRENCY ASSET TABLE OF CONTENTS No. Content Page 1. PART A: INVESTMENT BY RESIDENT INDIVIDUAL, SOLE PROPRIETORSHIP OR GENERAL PARTNERSHIP Individual, Sole Proprietorship or General Partnership Without Domestic Ringgit Borrowing Individual, Sole Proprietorship or General Partnership With Domestic Ringgit Borrowing 2 2 2 2. PART B: INVESTMENT BY RESIDENT ENTITY Entity Without Domestic Ringgit Borrowing Entity With Domestic Ringgit Borrowing 3 3 3 3. PART C: INVESTMENT BY LICENSED ONSHORE BANK, LICENSED INSURER, LICENSED TAKAFUL OPERATOR OR RESIDENT ENTITY Investment on Own Account Investment on Behalf of Clients 4 4 4 Notice 3 Foreign Exchange Policy Notices Page 2 of 5 PART A: INVESTMENT BY RESIDENT INDIVIDUAL, SOLE PROPRIETORSHIP OR GENERAL PARTNERSHIP Individual, Sole Proprietorship or General Partnership without Domestic Ringgit Borrowing 1. A Resident Individual, sole proprietorship or General Partnership without Domestic Ringgit Borrowing is allowed to invest in Foreign Currency Asset up to any amount. Individual, Sole Proprietorship or General Partnership with Domestic Ringgit Borrowing 2. A Resident Individual, sole proprietorship or General Partnership with Domestic Ringgit Borrowing is allowed to invest in Foreign Currency Asset up to— (a) any amount using Foreign Currency funds sourced from— (i) outside Malaysia except proceeds of Export of Goods; or (ii) an approved Borrowing in Foreign Currency in accordance with Part A of Notice 2; (b) any amount where the investment is in real estate1 outside Malaysia for the purpose of education, employment or migration; or (c) RM1 million equivalent2 per calendar year using funds sourced from the aggregate of— (i) conversion of Ringgit into Foreign Currency; (ii) Trade FCA; and (iii) swapping of a Ringgit-denominated financial asset in Malaysia for a financial asset in Labuan Entity or outside Malaysia. 1 The real estate is for the Resident Individual’s own accommodation or the Resident Individual’s Immediate Family Member’s accommodation only. 2 Computed in aggregate based on the Resident Individual, sole proprietorship and General Partnership’s investment in Foreign Currency Asset. Notice 3 Foreign Exchange Policy Notices Page 3 of 5 PART B: INVESTMENT BY RESIDENT ENTITY Entity without Domestic Ringgit Borrowing 3. A Resident Entity without Domestic Ringgit Borrowing is allowed to invest in Foreign Currency Asset up to any amount. Entity with Domestic Ringgit Borrowing 4. A Resident Entity with Domestic Ringgit Borrowing is allowed to invest in Foreign Currency Asset up to— (a) any amount using Foreign Currency funds sourced from— (i) outside Malaysia except proceeds of Export of Goods; or (ii) approved Borrowing in Foreign Currency in accordance with Part B of Notice 2; (b) any amount using Foreign Currency funds sourced from a Borrowing in Foreign Currency from a LOB for Direct Investment Abroad; or (c) RM50 million equivalent3 per calendar year using funds sourced from the aggregate of— (i) conversion of Ringgit into Foreign Currency; (ii) Trade FCA; (iii) a Borrowing in Foreign Currency from a LOB for purposes other than Direct Investment Abroad; and (iv) swapping of a Ringgit-denominated financial asset in Malaysia for a financial asset in Labuan Entity or outside Malaysia. 3 Computed in aggregate based on the Resident Entity and other Resident Entity with Parent- Subsidiary Relationship’s investment in Foreign Currency Asset. Notice 3 Foreign Exchange Policy Notices Page 4 of 5 PART C: INVESTMENT BY LICENSED ONSHORE BANK, LICENSED INSURER, LICENSED TAKAFUL OPERATOR OR RESIDENT ENTITY Investment on Own Account 5. A LOB, licensed insurer or licensed takaful operator may invest in Foreign Currency Asset up to any amount for its own account. Investment on Behalf of Clients 6. The following persons may invest in Foreign Currency Asset Onshore on behalf of their clients up to any amount: (a) a licensed insurer or a licensed takaful operator; or (b) a Resident Entity authorised, registered or licensed by Securities Commission Malaysia4 to undertake investment on behalf of its clients. 7. A licensed insurer is allowed to invest in Foreign Currency Asset Offshore on behalf of its client up to— (a) the net asset value of investment-linked fund belonging to its client who is a Resident without Domestic Ringgit Borrowing or a Non-Resident; or (b) 50% of the net asset value5 of investment-linked fund belonging to its Resident client with Domestic Ringgit Borrowing unless the licensed insurer can ascertain that paragraph 2(a), 2(c)(i) to (c)(ii), 4(a) or 4(c)(i) to (c)(iii) applies. 8. A licensed takaful operator is allowed to invest in Foreign Currency Asset Offshore on behalf of its clients up to the net asset value of Shariah-compliant investment-linked fund belonging to its client. 9. A Resident Entity authorised, registered or licensed by Securities Commission Malaysia to offer a unit trust scheme or a collective investment scheme, including a closed-end fund, is allowed to invest in Foreign Currency Asset Offshore on behalf of its client, up to— (a) the net asset value of funds belonging to its client who is a Resident without Domestic Ringgit Borrowing or a Non-Resident; or 4 Including a Resident Entity offering closed-end funds. 5 Computed in aggregate at the licensed insurer’s level instead of on per fund basis. Notice 3 Foreign Exchange Policy Notices Page 5 of 5 (b) the net asset value of Shariah-compliant funds belonging to its Resident client; or (c) 50% of the net asset value6 of conventional funds belonging to its Resident client with Domestic Ringgit Borrowing unless the Resident Entity can ascertain that paragraph 2(a), 2(c)(i) to (c)(ii), 4(a) or 4(c)(i) to (c)(iii) applies. 10. (1) A Resident Entity licensed by Securities Commission Malaysia to undertake fund management activities is allowed to invest in Foreign Currency Asset Offshore on behalf of its client up to— (a) the total funds belonging to its client who is a Resident without Domestic Ringgit Borrowing or a Non-Resident; (b) the total funds belonging to its Resident client for investment in Shariah-compliant assets; or (c) 50% of the total funds7 belonging to its Resident client with Domestic Ringgit Borrowing unless the Resident Entity can ascertain that paragraph 2(a), 2(c)(i) to (c)(ii), 4(a) or 4(c)(i) to (c)(iii) applies. (2) Where decisions on the investment under paragraph 10(1) is made by the Resident client, Parts A and B of this Notice shall apply. 6 Computed in aggregate at the Resident Entity’s level instead of on per fund basis. 7 Computed in aggregate at the Resident Entity’s level instead of on per fund basis. Notice 4 Foreign Exchange Policy Notices Page 1 of 10 NOTICE 4: PAYMENT AND RECEIPT TABLE OF CONTENTS No. Content Page 1. PART A: PAYMENT AND RECEIPT FOR APPROVED TRANSACTION 2 2. PART B: PAYMENT IN RINGGIT Payment in Ringgit Between Non-Resident and Resident or Non-Resident 3 3 3. PART C: PAYMENT IN FOREIGN CURRENCY Payment in Foreign Currency Between Residents Payment in Foreign Currency Between Resident and Non-Resident Payment in Foreign Currency Between Non-Residents 4 4 5 5 4. PART D: PAYMENT RELATING TO REMITTANCE BUSINESS 6 5. PART E: REPATRIATION OF FUNDS BY NON- RESIDENT 7 6. PART F: OPENING AND MAINTAINING OF ACCOUNT Ringgit Account Foreign Currency Account 8 8 9 7. Appendix: Requirements on NRFI or Non-Resident Intermediary in Managing Ringgit Asset on Behalf of Clients 10 Notice 4 Foreign Exchange Policy Notices Page 2 of 10 PART A: PAYMENT AND RECEIPT FOR APPROVED TRANSACTION 1. A person is allowed to make or receive a payment arising from any transaction approved in writing by the Bank under the FEP Notices or otherwise approved in writing by the Bank subject to compliance with the Direction on Dealings with Specified Person and in Restricted Currency issued by the Bank on 3 January 2022 (as amended or revised from time to time). Notice 4 Foreign Exchange Policy Notices Page 3 of 10 PART B: PAYMENT IN RINGGIT Payment in Ringgit Between Non-Resident and Resident or Non-Resident 2. A Non-Resident is allowed to make or receive payment in Ringgit, in Malaysia, to or from another Resident or Non-Resident for— (a) any purpose between Immediate Family Members; (b) income earned or expense incurred in Malaysia; or (c) settlement of— (i) a trade in goods or services, excluding payment between Non- Residents for settlement of a trade in goods or services outside Malaysia; (ii) a Ringgit Asset including any income and profit due from the Ringgit Asset; or (iii) a commodity murabahah transaction undertaken through a commodity trading service provider, excluding payment between Non-Residents for settlement of a commodity murabahah transaction undertaken through a Non-Resident commodity trading service provider. 3. A Non-Resident is allowed to make or receive payment in Ringgit, in Malaysia, to or from a Resident for— (a) a court judgement where the transaction under litigation is undertaken in compliance with the FEP Notices; or (b) a reinsurance for domestic insurance business or a retakaful for domestic takaful business between a Resident and a person licensed to carry out Labuan insurance business under the LFSSA or LIFSSA. Notice 4 Foreign Exchange Policy Notices Page 4 of 10 PART C: PAYMENT IN FOREIGN CURRENCY Payment in Foreign Currency between Residents 4. A Resident is allowed to make or receive payment in Foreign Currency, to or from another Resident for— (a) any purpose between Immediate Family Members; (b) education, employment or migration outside Malaysia; (c) a transaction between the Resident and— (i) a LOB; (ii) a licensed international takaful operator; or (iii) an international currency business unit of a licensed takaful operator, in the conduct of the latter’s business involving Foreign Currency; (d) settlement of— (i) a Foreign Currency-denominated derivative (excluding an Exchange Rate Derivative) transacted on a Specified Exchange under the CMSA between a Resident and a Resident futures broker; (ii) a commodity murabahah transaction between Residents undertaken through a Resident or a Non-Resident commodity trading service provider; (iii) a miscellaneous expense1 incurred outside Malaysia between a Resident Individual residing in Malaysia and a Resident Individual residing outside Malaysia; or 1 Miscellaneous expense is a Current Account Transaction 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. Notice 4 Foreign Exchange Policy Notices Page 5 of 10 (iv) a domestic trade in goods or services between a Resident exporter and a Resident Entity involved in Global Supply Chain2 operations in Malaysia, provided that the payment— (A) is sourced from Trade FCA of the Resident payor or proceeds from a Foreign Currency trade financing facility obtained by the Resident payor in accordance with Part B of Notice 2; (B) shall not be sourced from conversion of Ringgit into Foreign Currency by the Resident payor; and (C) is credited into Trade FCA of the Resident payee. Payment in Foreign Currency Between Resident and Non-Resident 5. A Resident is allowed to make or receive payment in Foreign Currency, to or from a Non-Resident for any purpose3, excluding payment made or received for— (a) a Foreign Currency-denominated derivative or Islamic derivative offered by a Resident unless approved by the Bank under Part B of Notice 5 or otherwise approved in writing by the Bank; (b) a derivative or Islamic derivative which is referenced to Ringgit unless approved by the Bank under Part B of Notice 5 or otherwise approved in writing by the Bank; or (c) an Exchange Rate Derivative offered by a Non-Resident unless approved by the Bank under Notice 1 or otherwise approved in writing by the Bank. Payment in Foreign Currency Between Non-Residents 6. A Non-Resident is allowed to make or receive payment in Foreign Currency, in Malaysia, to or from another Non-Resident for any purpose. 2 This includes pass-through payments for domestic trade in goods or services undertaken via Resident intermediate Entities along the Global Supply Chain. 3 Subject to compliance with other FEP Notices. Notice 4 Foreign Exchange Policy Notices Page 6 of 10 PART D: PAYMENT RELATING TO REMITTANCE BUSINESS 7. The following persons are allowed to make or receive payment relating to remittance business as defined in section 2 of the MSBA for or on behalf of their customer subject to compliance with the Direction on Dealings with Specified Person and in Restricted Currency issued by the Bank on 3 January 2022 (as amended or revised from time to time): (a) a person who is licensed under the MSBA to carry out remittance business or its money services business agent; or (b) a person who provides a remittance system approved by the Bank under section 40(1) of the MSBA for a person referred to in paragraph 7(a). Notice 4 Foreign Exchange Policy Notices Page 7 of 10 PART E: REPATRIATION OF FUNDS BY NON-RESIDENT 8. A Non-Resident is allowed to repatriate from Malaysia, funds including any income earned or proceeds from divestment of Ringgit Asset, provided that— (a) the repatriation is made in Foreign Currency; and (b) the conversion of Ringgit into Foreign Currency is undertaken in accordance with Part B of Notice 1. Notice 4 Foreign Exchange Policy Notices Page 8 of 10 PART F: OPENING AND MAINTAINING OF ACCOUNT Ringgit Account 9. A Non-Resident is allowed to open and maintain an External Account4 with a Financial Institution in Malaysia. 10. Subject to paragraph 12, a NRFI is allowed to undertake the following transaction on behalf of its Non-Resident clients in facilitating settlement of international trade in goods or services between the Non-Resident client and a Resident: (a) make payment in Ringgit to a Resident through the NRFI’s External Account, provided that any sale of Foreign Currency against Ringgit shall be undertaken via straight pass-through transactions matched with a back-to-back arrangement with a LOB; or (b) receive payment in Ringgit from a Resident through the NRFI’s External Account. 11. Subject to paragraphs 12 and 13, a Non-Resident Intermediary or NRFI acting as a custodian or trustee is allowed to make or receive payment in Ringgit to or from a Resident or a Non-Resident on behalf of its Resident or Non-Resident clients in facilitating settlement of Ringgit Asset through— (a) a Ringgit account opened and maintained by the Non-Resident Intermediary or NRFI for the Resident client; (b) an External Account of the Non-Resident Intermediary or NRFI; or (c) an External Account opened and maintained by the Non-Resident Intermediary or NRFI for the Non-Resident client. 12. Any transaction undertaken under paragraph 10 or 11 shall not involve any Ringgit financing by the Non-Resident Intermediary or NRFI to its Resident or Non- Resident clients. 13. A Non-Resident Intermediary or NRFI acting as a custodian or trustee managing Ringgit Asset for its clients shall comply with Appendix. 4 Any payment, receipt or transfer from or into an External Account is allowed provided that the Non- Resident is able to produce documentary evidence that the purpose of transaction complies with relevant FEP Notices. Notice 4 Foreign Exchange Policy Notices Page 9 of 10 Foreign Currency Account 14. A Resident Individual is allowed to open and maintain a FCA with a LOB or a NRFI, individually or jointly5 with another Resident Individual or a Non-Resident Individual. 15. Subject to Part A of Notice 3, a Resident Individual is allowed to transfer Foreign Currency funds from his FCA into— (a) his own FCA; (b) his joint FCA; or (c) a FCA of his Immediate Family Member opened individually or jointly with any Individual. 16. Subject to Part B of Notice 3, a Resident Entity is allowed to open and maintain a FCA with a LOB or a NRFI. 17. A Resident Intermediary shall segregate Foreign Currency funds belonging to its Resident client from those belonging to its Non-Resident client into a separate FCA opened under the Resident Intermediary’s name. 18. A Non-Resident is allowed to open and maintain a FCA with a LOB, individually or jointly with a Resident Individual or another Non-Resident. 5 For a joint FCA where any one account holder is a Resident Individual with Domestic Ringgit Borrowing, Part A of Notice 3 shall apply. Notice 4 Foreign Exchange Policy Notices Page 10 of 10 APPENDIX (Paragraph 13) Requirements on NRFI or Non-Resident Intermediary in Managing Ringgit Asset on Behalf of Clients No. Scenario Requirements 1. The Non-Resident Intermediary or NRFI opens and maintains separate Ringgit accounts for its Resident and Non-Resident clients to manage their Ringgit investments. The Ringgit account opened and maintained by the Non-Resident Intermediary or NRFI for the Resident clients shall be designated as Resident’s Ringgit account. The Ringgit account opened and maintained by the Non-Resident Intermediary or NRFI for the Non- Resident clients shall be designated as External Account. Any investment in Foreign Currency Asset on behalf of the Resident clients using funds from the Ringgit account shall be subject to Part A or B of Notice 3. 2. The Non-Resident Intermediary or NRFI opens and maintains an Omnibus Ringgit Account to manage Ringgit investments of its Resident and Non-Resident clients. Such Omnibus Ringgit Account is classified as External Account. However, all Ringgit proceeds arising from sale of Ringgit Asset on behalf of the Resident clients shall be transferred from the Omnibus Ringgit Account into the Resident Clients’ own Ringgit account within three (3) business days. Notice 5 Foreign Exchange Policy Notices Page 1 of 4 NOTICE 5: SECURITIES AND FINANCIAL INSTRUMENTS TABLE OF CONTENTS No. Content Page 1. PART A: ISSUANCE OF SECURITY AND ISLAMIC SECURITY Issuance of Security by Resident Issuance of Security by Non-Resident 2 2 2 2. PART B: ISSUANCE OF FINANCIAL INSTRUMENT AND ISLAMIC FINANCIAL INSTRUMENT BY LICENSED FINANCIAL INSTITUTION AND BURSA MALAYSIA 3 3. PART C: SUBSCRIPTION OR TRANSFER OF SECURITY OR FINANCIAL INSTRUMENT 4 Notice 5 Foreign Exchange Policy Notices Page 2 of 4 PART A: ISSUANCE OF SECURITY AND ISLAMIC SECURITY (COLLECTIVELY REFERRED TO AS “SECURITY”) Issuance of Security by Resident 1. A Resident is allowed to issue a security denominated in— (a) Ringgit in Malaysia to a Non-Resident; or (b) Foreign Currency to any person, provided that where the issuance involves a debt security, the Resident issuer shall comply with Notice 2. Issuance of Security by Non-Resident 2. A Non-Resident is allowed to issue a security denominated in Foreign Currency in Malaysia to any person. Notice 5 Foreign Exchange Policy Notices Page 3 of 4 PART B: ISSUANCE OF FINANCIAL INSTRUMENT AND ISLAMIC FINANCIAL INSTRUMENT (COLLECTIVELY REFERRED TO AS “FINANCIAL INSTRUMENT”) BY LICENSED FINANCIAL INSTITUTION AND BURSA MALAYSIA 3. A LOB1 is allowed to issue or offer a Financial Instrument denominated in— (a) Ringgit in Malaysia to a Non-Resident; or (b) Foreign Currency to any person, provided that where the Financial Instrument is referenced to exchange rate, the LOB shall comply with Notice 1. 4. A LOB is allowed to deal or transact in a Ringgit-denominated interest rate derivative or profit rate Islamic derivative, directly or through its AOO, with a Non- Resident counterparty, provided that where the derivative or Islamic derivative is an Exchange Rate Derivative or embedded with features referenced to exchange rate, the LOB and Non-Resident shall comply with Notice 1. 5. A licensed international Islamic bank is allowed to issue or offer an Islamic Financial Instrument denominated in Foreign Currency to any person, provided that where the Islamic Financial Instrument is referenced to exchange rate, the licensed international Islamic bank shall comply with Notice 1. 6. A Resident licensed insurer or takaful operator is allowed to issue or offer an insurance product or a takaful product linked to a Financial Instrument2 denominated in Ringgit to a Non-Resident. 7. Bursa Malaysia is allowed to issue or offer to a Non-Resident, a Financial Instrument denominated in Ringgit, excluding a Financial Instrument which is referenced to exchange rate. 1 Depending on its scope of business. 2 Any insurance or takaful product not linked to a Financial Instrument shall be regarded as a service for purposes of FEP Notices. Notice 5 Foreign Exchange Policy Notices Page 4 of 4 PART C: SUBSCRIPTION OR TRANSFER OF SECURITY OR FINANCIAL INSTRUMENT 8. A Resident is allowed to subscribe or transfer a security or Financial Instrument issued or offered in accordance with this Notice subject to compliance with Notice 2, Notice 3 and Notice 4. 9. A Non-Resident is allowed to subscribe or transfer a security or Financial Instrument issued or offered in accordance with this Notice in Malaysia subject to compliance with Notice 2, Notice 3 and Notice 4. Notice 6 Foreign Exchange Policy Notices Page 1 of 6 NOTICE 6: IMPORT AND EXPORT OF CURRENCY TABLE OF CONTENTS No. Content Page 1. IMPORT AND EXPORT OF CURRENCY 2 2. APPENDIX 3 Notice 6 Foreign Exchange Policy Notices Page 2 of 6 IMPORT AND EXPORT OF CURRENCY 1. (1) All importation and exportation of currency shall be made in accordance with the Notice on Import and Export of Currencies, Securities, Islamic Securities, Financial Instruments and Islamic Financial Instruments 2013 [G.N. 38691/2013] (“Gazette Notice”), which was issued and gazetted by the Bank on 7 November 2013 and effective on 2 December 2013. (2) A copy of the Gazette Notice is in Appendix. Notice 6 Foreign Exchange Policy Notices Page 3 of 6 APPENDIX (Paragraph 1(2)) Notice 6 Foreign Exchange Policy Notices Page 4 of 6 Notice 6 Foreign Exchange Policy Notices Page 5 of 6 Notice 6 Foreign Exchange Policy Notices Page 6 of 6 Notice 7 Foreign Exchange Policy Notices Page 1 of 8 NOTICE 7: EXPORT OF GOODS TABLE OF CONTENTS No. Content Page 1. PART A: RECEIPT OF PROCEEDS OF EXPORT OF GOODS BY RESIDENT 2 2. PART B: PAYMENT OF EXPORT PROCEEDS IN RINGGIT BY NON-RESIDENT 3 3. PART C: REPORTING REQUIREMENT 4 4. APPENDICES Appendix A: Approved Deductions 5 Appendix B: Approved Offsetting or Writing-Off Arrangements 6 Appendix C: Approved Circumstances for Receipt of Proceeds of Export of Goods up to Twenty-Four (24) Months from the Date of Shipment 7 Appendix D: Non-Receipt of Proceeds of Export of Goods 8 Notice 7 Foreign Exchange Policy Notices Page 2 of 8 PART A: RECEIPT OF PROCEEDS OF EXPORT OF GOODS BY RESIDENT 1. A Resident exporter shall receive the proceeds of its Export of Goods in Malaysia— (a) in Ringgit or Foreign Currency which shall be placed in a Ringgit account or Trade FCA, as the case may be, maintained with a LOB; (b) in full value excluding any— (i) approved deductions related to the Export of Goods as listed in Appendix A; and (ii) amount spent for approved offsetting or writing-off arrangements as listed in Appendix B. (c) earlier than or in accordance with the payment date of the export contract which shall not exceed six (6) months from the date of shipment. However, where any of the circumstances stated in Appendix C applies, the Resident exporter may receive the proceeds of its Export of Goods up to twenty-four (24) months from the date of shipment. 2. Paragraph 1 shall not apply to proceeds of Export of Goods categorised under Appendix D. Notice 7 Foreign Exchange Policy Notices Page 3 of 8 PART B: PAYMENT OF EXPORT PROCEEDS IN RINGGIT BY NON-RESIDENT 3. Where a Non-Resident undertakes settlement for an Export of Goods in Ringgit in Malaysia, the Ringgit shall be sourced from— (a) buying of Ringgit against Foreign Currency in accordance with Part B of Notice 1; (b) an External Account of the Non-Resident; (c) an External Account of an NRFI acting on behalf of the Non-Resident, where it shall involve the buying of Ringgit in accordance with Part B of Notice 1; or (d) a Ringgit trade financing facility from a LOB in accordance with Part D of Notice 2. Notice 7 Foreign Exchange Policy Notices Page 4 of 8 PART C: REPORTING REQUIREMENT 4. Where a Resident exporter’s annual gross Export of Goods exceeds RM250 million equivalent in the preceding year, the Resident exporter shall submit a report on Export of Goods to the Bank via https://bnm.my/fep as and when required by the Bank. 5. Where any proceeds from Export of Goods as referred to under paragraph 1(c) of Part A of this Notice is not received by the Resident exporter within 24 months from the date of shipment, the Resident exporter shall notify the Bank on the outstanding Export of Goods proceeds within twenty-one (21) days after the end of each calendar year via https://bnm.my/fep. https://bnm.my/fep https://bnm.my/fep Notice 7 Foreign Exchange Policy Notices Page 5 of 8 APPENDIX A (Paragraph 1(b)(i)) Approved Deductions Approved deductions refer to any one or more of the following: (a) agency commission including advertising or promotion expenses; (b) handling charge including freight and insurance or takaful costs; (c) administrative error; (d) discount by the Resident exporter; (e) quality and/or quantity claim; (f) short-shipment; (g) shut-out; (h) write-off arising from fraud; (i) goods that the Resident exporter does not own but is receiving payment for value added input; or (j) buyer is under liquidation. Notice 7 Foreign Exchange Policy Notices Page 6 of 8 APPENDIX B (Paragraph 1(b)(ii)) Approved Offsetting or Writing-Off Arrangements A Resident exporter is allowed to receive less than full value of the proceeds of its Export of Goods where it enters into— (a) an offsetting arrangement with any Non-Resident to offset the proceeds of the Resident exporter’s Export of Goods with— (i) import of goods and services by the Resident exporter; (ii) warranty claim by the buyer; (iii) dividend payment by the Resident exporter; (iv) other Current Account Transactions; or (v) repayment of Foreign Currency Borrowing obtained by the Resident exporter in accordance with Notice 2; or (b) a writing-off arrangement with a Non-Resident buyer of the exported goods to write-off the outstanding proceeds of the Resident exporter’s Export of Goods due to— (i) liquidation of the Non-Resident buyer; or (ii) the Resident exporter is unable to receive the proceeds of its Export of Goods from the Non-Resident buyer after at least twenty- four (24) months from date of shipment despite following up with the Non-Resident buyer. Notice 7 Foreign Exchange Policy Notices Page 7 of 8 APPENDIX C (Paragraph 1(c)) Approved Circumstances for Receipt of Proceeds of Export of Goods up to Twenty-Four (24) Months from the Date of Shipment 1. The Resident exporter has no control over the delay in receiving the proceeds of its Export of Goods due to unexpected circumstances, including but not limited to: (a) buyer in financial difficulties; (b) buyer cancels, delays, disputes or does not respond to request for payment; (c) restriction on foreign exchange transactions in the buyer’s country; (d) quality and/or quantity claims; or (e) incidence of fraud. 2. The Resident exporter has exported goods on credit terms of up to twenty-four (24) months from the date of shipment to the buyer for— (a) consignment sale; or (b) goods that involve testing and commissioning. Notice 7 Foreign Exchange Policy Notices Page 8 of 8 APPENDIX D (Paragraph 2) Non-Receipt of Proceeds of Export of Goods Non-receipt of proceeds of Export of Goods is allowed for goods exported— (a) under a border trade agreement entered into by the Government of Malaysia with any foreign government; or (b) where the goods are not for sale, as follows: (i) gift, donation, personal effects or business sample; (ii) goods that are exported for further processing, testing, repairing, exchange or exhibition, and subsequently will be imported back to Malaysia; or (iii) goods belonging to a Non-Resident that are exported after an exhibition in Malaysia or upon expiry of a lease or rental.	Public Notice
29 Apr 2022	Dokument Dasar mengenai Pelaporan Kewangan	https://www.bnm.gov.my/-/dokument-dasar-mengenai-pelaporan-kewangan	https://www.bnm.gov.my/documents/20124/938039/PD_Financial_Reporting.pdf, https://www.bnm.gov.my/documents/20124/948107/PD_Financial_Reporting_Takaful.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/dokument-dasar-mengenai-pelaporan-kewangan&languageId=ms_MY	Reading: Dokument Dasar mengenai Pelaporan Kewangan Share: 4 Dokument Dasar mengenai Pelaporan Kewangan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1800 pada Jumaat, 29 April 2022 29 Apr 2022 Ringkasan BNM telah menerbitkan Dokumen Dasar Pelaporan Kewangan untuk Pengendali Takaful dan Dokumen Dasar Pelaporan Kewangan, yang menetapkan keperluan yang disemak semula yang terpakai untuk pengendali takaful dan penanggung insurans untuk memastikan penjajaran dengan keperluan Piawaian Pelaporan Kewangan Malaysia (MFRS) 17 Kontrak Insurans dan MFRS 9 Instrumen Kewangan. Khusus untuk pengendali takaful, keperluan pendedahan telah diperkukuh untuk mencerminkan kekhususan takaful. Keperluan juga telah diselaraskan dengan pengesyoran oleh Lembaga Piawaian Perakaunan Malaysia (MASB) dan ketetapan terkini oleh Majlis Penasihat Syariah berkaitan pemakaian MFRS 17 kepada perniagaan takaful (iaitu pembentangan kolumnar penyata kewangan dan ukuran qard). Dokumen Dasar: Pelaporan Kewangan Pelaporan Kewangan untuk Pengendali Takaful Bank Negara Malaysia 29 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Financial Reporting Issued on: 29 April 2022 BNM/RH/PD 032-13 Financial Reporting Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed insurers 4. Financial holding companies Financial Reporting Issued on: 29 April 2022 BNM/RH/PD 032-13 TABLE OF CONTENTS PART A OVERVIEW .............................................................................................. 1 1 Introduction ............................................................................................... 1 2 Applicability .............................................................................................. 1 3 Legal provision ......................................................................................... 2 4 Effective date ............................................................................................ 2 5 Level of application ................................................................................... 2 6 Interpretation ............................................................................................ 2 7 Related legal instruments and policy documents ..................................... 3 8 Policy document superseded ................................................................... 3 PART B REGULATORY REQUIREMENTS .......................................................... 4 9 General requirements ............................................................................... 4 10 Specific requirements on the application of the MFRS ............................. 4 11 Minimum disclosure requirements ............................................................ 6 PART C REGULATORY PROCESS AND SUBMISSION REQUIREMENTS ...... 10 12 Declaration and payment of dividends ................................................... 10 13 Annual financial statements .................................................................... 11 14 Interim financial report ............................................................................ 12 PART D PUBLICATION REQUIREMENTS ......................................................... 14 15 Annual financial statements .................................................................... 14 16 Interim financial report ............................................................................ 14 Financial Reporting 1 of 14 Issued on: 29 April 2022 PART A OVERVIEW 1 Introduction 1.1 The Malaysian Financial Reporting Standards (MFRS) which serve as a basis for financial reporting in Malaysia have been fully converged with the International Financial Reporting Standards (IFRS) from 1 January 2012. Ongoing improvements in these standards have contributed to a greater alignment between financial reporting and prudential frameworks. Notwithstanding these positive developments, the increasingly more principle-based financial reporting standards and the substantial degree of judgment required under the financial reporting standards can continue to result in divergent outcomes between the objectives of financial reporting, and prudential regulation which is primarily concerned with promoting financial stability. 1.2 Recognising this potential dichotomy, a financial institution is required under the Financial Services Act 2013 (FSA) to prepare its financial statements in accordance with the MFRS, subject to any standards as may be specified by the Bank to reflect specific modifications or exceptions to the MFRS. The Bank envisages that such modifications or exceptions will only become necessary in circumstances where alternative prudential measures would not be adequate to promote the financial resilience of the financial institution or address threats to financial stability. Where such modifications or exceptions are specified by the Bank, this must be accompanied by a disclosure of that fact by the financial institution. Policy objective 1.3 This policy document clarifies and sets minimum expectations for the application of the MFRS to a financial institution. It also aims to ensure adequate disclosures by a financial institution in the financial statements to improve comparability for users of financial statements and better facilitate the assessment of a financial institution’s financial position and performance. Scope of policy 1.4 This policy document sets out– (a) the specific requirements on the application of the MFRS; (b) information to be disclosed in the financial statements; (c) application requirements for approval of a dividend payment; and (d) requirements on submission and publication of the financial statements. 2 Applicability 2.1 This policy document is applicable to financial institutions as defined in paragraph 6.2. 2.2 Notwithstanding paragraph 2.1, the requirements under Part D of this policy document are not applicable to a professional reinsurer. Financial Reporting 2 of 14 Issued on: 29 April 2022 3 Legal provision 3.1 The requirements and guidance in this policy document are issued pursuant to section 47(1), section 51, section 56(2)(d), section 64, section 65, section 66, section 115, section 143(2) and section 266 of the FSA. 4 Effective date 4.1 This policy document comes into effect on 1 January 2023 and shall apply to financial statements for financial years beginning on or after 1 January 2023, with the exception of Part D of this policy document. 4.2 The requirements in Part D of this policy document come into effect on 29 April 2022. 4.3 A financial institution shall notify the Bank (one-time notification) of its intention to apply the fair value option under MFRS 9 Financial Instruments (MFRS 9) and the scope of the fair value application to financial instruments as approved by the board, at least one month before the option is first applied. The notification must be supplemented with relevant extracts of board minutes detailing the list of financial instruments approved by the board to apply the fair value option and the intended date of the application of the fair value option. 5 Level of application 5.1 A financial institution is required to comply with the requirements in this policy document in the preparation and publication of its separate financial statements and consolidated financial statements. 6 Interpretation 6.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and the Islamic Financial Services Act 2013 (IFSA) unless otherwise defined in this policy document. 6.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “banking institution” means a licensed person which is a licensed bank or licensed investment bank; Financial Reporting 3 of 14 Issued on: 29 April 2022 “financial institution” means a licensed person and a financial holding company of the financial institution approved by the Bank1; “foreign policies” means policies issued by a foreign professional reinsurer in or from Malaysia but are not Malaysian policies; “foreign professional reinsurer” means a licensed professional reinsurer incorporated outside Malaysia; “Islamic banking institution” means a licensed person which is− (a) a licensed Islamic bank, except for a licensed international Islamic bank; or (b) a licensed bank or licensed investment bank approved by the Bank to carry on Islamic banking business under section 15 of the FSA; “separate financial statements” and “consolidated financial statements” shall have the same meaning as set out in MFRS 127 Separate Financial Statements and MFRS 10 Consolidated Financial Statements. 7 Related legal instruments and policy documents 7.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular– (a) Credit Risk issued on 27 September 2019; (b) Capital Adequacy Framework (Capital Components) issued on 9 December 2020; (c) Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 9 December 2020; (d) Risk-Based Capital Framework for Insurers issued on 17 December 2018; (e) Risk-Based Capital Framework for Takaful Operators issued on 17 December 2018; and (f) Reference Rate Framework issued on 11 August 2021. 8 Policy document superseded 8.1 The policy document on Financial Reporting issued on 27 September 2019 is superseded. 1 Pursuant to section 112 of the FSA. Financial Reporting 4 of 14 Issued on: 29 April 2022 PART B REGULATORY REQUIREMENTS 9 General requirements S 9.1 Pursuant to section 65 of the FSA, a financial institution shall prepare its financial statements in accordance with the MFRS subject to the requirements specified in paragraph 10 and shall disclose a statement to that effect in the financial statements. S 9.2 The board is responsible for ensuring that the financial statements are drawn up so as to give a true and fair view of the state of affairs and of the results of the business of the financial institution. This is consistent with the fiduciary and statutory duties placed on the board as persons responsible for managing the affairs of the financial institution. Hence, the board shall be satisfied that a sound financial reporting structure is in place to ensure the integrity and credibility of the financial statements. S 9.3 For financial instruments that are measured at fair value, a financial institution shall ensure that sound risk management and control processes2 around their measurement3 are in place. S 9.4 A financial institution shall ensure that sound methodologies for assessing credit risk and measuring the level of loss allowance are in place4. The methodologies employed must incorporate sufficient level of prudence and that the aggregate amount of loss allowance must be adequate to absorb inherent losses in the credit portfolio. 10 Specific requirements on the application of the MFRS S 10.1 The financial statements and financial reports referred to under Part C and Part D of this policy document shall be presented in Malaysian ringgit (RM). S 10.2 For the purpose of disclosures of non-compliance with externally imposed capital requirements, the relevant capital adequacy requirements shall refer to– (a) the minimum capital adequacy ratios as set out in Capital Adequacy Framework (Capital Components) and Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 9 December 2020; or (b) the supervisory target capital level as set out in Risk-Based Capital Framework for Insurers and Risk-Based Capital Framework for Takaful Operators issued on 17 December 2018. 2 A financial institution may refer to the expectations set out in the Supervisory Guidance for Assessing Banks’ Financial Instrument Fair Value Practices, Basel Committee on Banking Supervision, April 2009 and Supervisory Guidance on the Use of the Fair Value Option for Financial Instruments by Banks, Basel Committee on Banking Supervision, June 2006. 3 Refer to MFRS 13 Fair Value Measurement. 4 A banking institution is encouraged to adopt the principles and guidance set out in the Guidance on Credit Risk and Accounting for Expected Losses, Basel Committee on Banking Supervision, December 2015. Financial Reporting 5 of 14 Issued on: 29 April 2022 S 10.3 A licensed person that is a member institution of Perbadanan Insurans Deposit Malaysia (PIDM) shall also comply with the disclosure requirements specified by PIDM. S 10.4 A financial institution shall not account for the investments in associates and joint ventures using the equity method described in MFRS 128 Investments in Associates and Joint Ventures in the preparation of its separate financial statements. S 10.5 In applying the impairment requirements under MFRS 9, a banking institution must maintain, in aggregate, loss allowance for non-credit-impaired exposures5 and regulatory reserves of no less than 1% of total credit exposures6,7, net of loss allowance for credit-impaired exposures. S 10.6 A banking institution shall classify a credit facility as credit-impaired– (a) where the principal or interest/profit or both8 of the credit facility is past due for more than 90 days or 3 months; (b) in the case of revolving credit facilities (e.g. overdraft facilities), where the outstanding amount has remained in excess of the approved limit for a period of more than 90 days or 3 months; (c) where the amount is past due or the outstanding amount has been in excess of the approved limit for 90 days or 3 months or less, and the credit facility exhibits weaknesses in accordance with the banking institution’s credit risk measurement framework; or (d) as soon as a default 9 occurs where the principal and/or interest/profit repayments are scheduled on intervals of 3 months or longer. S 10.7 Where a credit-impaired facility is rescheduled and restructured, such facility shall remain classified as credit-impaired. A banking institution shall only reclassify this facility to non-credit-impaired when repayments based on the revised terms have been observed continuously for a period of at least 6 months or a later period as determined by the banking institution’s policy on rescheduled and restructured facilities. S 10.8 For the purpose of ascertaining the period in arrears in paragraph 10.6− (a) repayment on each of the instalment amount must be made in full. A partial repayment made on an instalment amount shall be deemed to be still in arrears; and (b) where a moratorium on credit facilities is granted in relation to the rescheduling and restructuring exercise as set out in Appendix 1 of Credit Risk, the determination of period in arrears shall exclude the moratorium period granted. 5 For the avoidance of doubt, these loss allowances are commonly known as Stage 1 and Stage 2 provisions. 6 Excluding (i) exposures to and exposures with an explicit guarantee from the Government of Malaysia; and (ii) exposures to the Bank, a licensed bank, a licensed investment bank, a licensed Islamic bank and a prescribed development financial institution. 7 Refers to credit exposures that are subject to impairment requirements under MFRS 9. 8 In the case of credit card facilities, the amount past due refers to the minimum monthly repayments. 9 A default is defined as the inability to meet the contractual repayment terms. Financial Reporting 6 of 14 Issued on: 29 April 2022 11 Minimum disclosure requirements G 11.1 The requirements under the following paragraphs refer specifically to disclosures which form part of the financial statements and do not deal with other disclosures provided by a financial institution as part of the Annual Report (e.g. Director’s Report, Statement on Corporate Governance). S 11.2 A financial institution shall make disclosures in the financial statements in accordance with the requirements of the MFRS, and include information specified under paragraphs 11.4 to 11.6 of this policy document. S 11.3 A financial institution shall comply with the following key principles on disclosure of information: (a) information should be timely and up-to-date to ensure the relevance of the information being disclosed; (b) the scope and content of information disclosed and the level of disaggregation and detail should be sufficient to provide comprehensive, meaningful10 and relevant information to the users; (c) adequate disclosures should be provided on areas of uncertainty, in particular information on key estimates and if sensitivity analysis is used, a discussion on the assumptions and the probabilities of the occurrence of various scenarios; and (d) disclosures should allow comparisons over time and among institutions11. S 11.4 A financial institution shall ensure that the explanatory notes to be disclosed in its audited annual financial statements include the following information, as applicable: Banking business-related information12 (a) deposits from customers with a breakdown by– (i) types of deposits13 (e.g. demand, savings, term); (ii) types of customers (e.g. government, business enterprises); and (iii) maturity structures of term deposits14 (e.g. less than 6 months, 6-12 months, 1-3 years); 10 For example, given the heterogeneity of users of financial reporting, background information on the wider economic environment which a financial institution operates in is often necessary to provide sufficient information to understand the context for specific disclosures. Information must also be useful to support decision-making by users. 11 For example, users shall be informed of the accounting policies employed in the preparation of the financial statements including any changes in those policies and the effects of such changes. This should enable users to identify differences between the accounting policies for like transactions and other events used by the same entity from period to period and by different entities. Compliance with MFRS, including the disclosure of the accounting policies used by the entity, helps to achieve this comparability. 12 Includes Shariah compliant transactions undertaken by a banking institution approved under section 15 of the FSA to carry on Islamic banking business and/or the Islamic banking subsidiary of a financial institution. 13 For a banking institution approved under section 15 of the FSA to carry on Islamic banking business, to also show separately at the Islamic banking business level, the breakdown by main Shariah contracts (e.g. Wadiah and Qard). 14 Including negotiable instruments of deposits. Financial Reporting 7 of 14 Issued on: 29 April 2022 (b) loans/financing and advances with a breakdown by– (i) measurement basis (e.g. amortised cost, fair value) (aa) for fair value through profit or loss, show separately those designated as fair value upon initial recognition; (ii) types of loans/financing 15 (e.g. overdrafts, revolving credit, hire- purchase, housing loans/financing); (iii) geographical distribution; (iv) economic sector; (v) residual contractual maturity (e.g. up to 1 year, 1-5 years, more than 5 years); and (vi) interest rate/profit rate sensitivity (e.g. fixed rate, variable rate); (c) capital16,17 with a breakdown by– (i) capital structure18; and (ii) capital adequacy showing separately Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio, and express as percentages to three decimal places; (d) liquidity risk information19 incorporating an analysis of assets and liabilities in the relevant maturity tenures based on remaining contractual maturities. A financial institution may also provide the analysis of assets and liabilities in the relevant maturity tenures based on their behavioural profile; and (e) operations of Islamic banking with separate disclosures20 of a statement of financial position, a statement of comprehensive income and a statement of changes in equity; Insurance/takaful business-related information21,22 (f) analysis of the statement of financial position and statement of comprehensive income showing separately the life business, family takaful business, general business and general takaful business; (g) insurance/takaful contract liabilities; (h) reinsurance/retakaful assets; 15 For a banking institution approved under section 15 of the FSA to carry on Islamic banking business, to also show separately at the Islamic banking business level, the breakdown by main Shariah contracts (e.g. Bai’, Ijarah, Istisna’, Musharakah, Qard). 16 For a banking institution approved under section 15 of the FSA to carry on Islamic banking business, to also show separately the capital information at the Islamic banking business level. 17 In the case of a financial holding company, to disclose the capital adequacy positions on a consolidated basis. 18 The breakdown shall be consistent with the components of capital as set out in the Capital Adequacy Framework (Capital Components) issued on 9 December 2020. 19 A financial institution may refer to Principle 13 of the Principles for Sound Liquidity Risk Management and Supervision, Basel Committee on Banking Supervision, September 2008, for guidance on relevant quantitative and qualitative disclosures. 20 This disclosure is only applicable to a banking institution approved under section 15 of the FSA to carry on Islamic banking business. 21 Includes Shariah compliant transactions undertaken by the takaful operator subsidiary of a financial institution. 22 A financial institution may refer to the Model Insurance Financial Statements issued by the Malaysian Institute of Certified Public Accountants and make appropriate adjustments to the model financial statements, as necessary. Financial Reporting 8 of 14 Issued on: 29 April 2022 (i) total capital available showing separately Tier 1 Capital and Tier 2 Capital23,24; General information applicable to a financial institution (j) a movement schedule of financial instruments classified as credit-impaired with a breakdown by class of financial instrument (e.g. retail loans/financing, debt securities, loan commitments); (k) a movement schedule of loss allowance with a breakdown by class of financial instrument and showing separately the loss allowance− (i) measured at an amount equal to 12-month expected credit losses; (ii) measured at an amount equal to lifetime expected credit losses for financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired; (iii) measured at an amount equal to lifetime expected credit losses for financial instruments that are credit-impaired (excluding those that are purchased or originated credit-impaired); and (iv) for financial instruments that are purchased or originated credit- impaired; (l) interest/profit income and expenses with a breakdown by categories of financial assets or liabilities. Interest/profit income recognised for credit- impaired exposures shall be disclosed separately; (m) non-interest/profit income and other operating expenses with a breakdown of major items of income/profit or expense; (n) CEO and directors’ remuneration with a breakdown of types of remuneration (e.g. salary, fees, bonus, benefits-in-kind, retirement benefits), disclosed separately for the CEO and each individual director, distinguishing between executive and non-executive directors; (o) reserves with a breakdown by type and purpose of reserves maintained. A movement schedule shall also be disclosed; (p) commitments and contingencies with a breakdown by types and amount distinguishing between contingent liabilities and commitments; and (q) intercompany charges with a breakdown by type of services received and geographical distribution. S 11.5 A financial institution shall ensure that the explanatory notes to be disclosed in the interim financial report of a financial institution include the following information, as applicable– Banking business-related information (a) a movement schedule of loss allowance; (b) a movement schedule of financial instruments classified as credit-impaired; and (c) capital; 23 The breakdown shall be consistent with the components of capital as set out in the policy document on Risk-Based Capital Framework for Insurers issued on 17 December 2018. 24 This disclosure is only applicable to a licensed insurer in the preparation of its separate financial statements. Financial Reporting 9 of 14 Issued on: 29 April 2022 Insurance/takaful business-related information (d) analysis of the statement of financial position and statement of comprehensive income showing separately the life business, family takaful business, general business and general takaful business; (e) insurance/takaful contract liabilities; (f) reinsurance/retakaful assets; and (g) total capital available25. The breakdown for the above explanatory notes shall be consistent with that specified for audited annual financial statements (refer to paragraph 11.4). In addition, a financial institution shall disclose items that are material to the understanding of the interim financial report in accordance with MFRS 134 Interim Financial Reporting. S 11.6 For placement of funds in an investment account with an Islamic banking institution, a financial institution shall− (a) present the placement, as a separate line item in the statement of financial position, as either “investment account placement” or “investment account placement – (asset description)”; and (b) disclose in the explanatory notes the nature of the underlying assets for the investment. 25 This disclosure is only applicable to a licensed insurer in the preparation of its separate interim financial report. Financial Reporting 10 of 14 Issued on: 29 April 2022 PART C REGULATORY PROCESS AND SUBMISSION REQUIREMENTS 12 Declaration and payment of dividends S 12.1 Pursuant to section 51(1) of the FSA, a financial institution is required to obtain the Bank’s written approval prior to declaring or paying any dividend on its shares. For the avoidance of doubt, shares refer to both ordinary shares and preference shares. S 12.2 Unless otherwise informed by the Bank in writing, approval pursuant to section 51(1) of the FSA is given to a financial institution to declare or pay any dividend on its preference shares where the dividend is non-discretionary26 and non- cumulative27 . For the avoidance of doubt, where the Bank has, prior to the effective date of this policy document, imposed a requirement on a financial institution to obtain the Bank’s written approval prior to declaring or paying any dividend on its preference shares, such approval requirement shall continue to apply and the requirements set out in paragraph 12.4 shall be observed by the financial institution. S 12.3 Where an application has been made under paragraph 12.1, a financial institution shall not– (a) publish in print and/or electronic form28; (b) lay the audited annual financial statements at its general meeting; and (c) in the case of a listed financial institution, submit to the stock exchange, the interim financial report or audited annual financial statements, as the case may be, unless the proposed dividend has been approved by the Bank under section 51(1) of the FSA. S 12.4 An application for approval made under paragraph 12.1 by a financial institution must be supplemented with the following: (a) where an interim dividend is proposed– (i) its interim financial report, with a review by the auditor of the profit after tax for the period29. The explanatory notes to the interim financial report shall be consistent with that specified for audited annual financial statements (refer to paragraph 11.4); (ii) the interim financial reports of its principal subsidiaries 30 , 31 , as applicable; (iii) the limited review report by its auditor; (iv) a written confirmation by the officer primarily responsible for the financial management of the financial institution that its interim financial reports have been prepared in accordance with the MFRS 26 The proposed dividend payment is not at the full discretion of the financial institution. 27 Any waived dividend must not be made up by the financial institution at a later date. 28 For example, newspapers, press releases and website. 29 In accordance with the standards on review engagements issued by the Malaysian Institute of Accountants. 30 Subsidiaries which are major contributors to the group’s revenue, assets or profit/loss. 31 For the avoidance of doubt, the interim financial reports of the principal subsidiaries need not be subject to review by the auditor. Financial Reporting 11 of 14 Issued on: 29 April 2022 subject to requirements specified by the Bank in paragraph 10 of this policy document; (v) in the case of a banking institution and a financial holding company engaged predominantly in banking activities, the calculation of Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio showing the positions separately before and after the proposed payment of dividends32; and (vi) in the case of a licensed insurer, the calculation of the Capital Adequacy Ratio showing the positions separately before and after the proposed payment of dividends; (b) where a final dividend is proposed– (i) the information specified in paragraph 13.1; (ii) in the case of a banking institution and a financial holding company engaged predominantly in banking activities, the calculation of Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio showing the positions separately before and after the proposed payment of dividends33; (iii) in the case of a licensed insurer, the calculation of the Capital Adequacy Ratio showing the positions separately before and after the proposed payment of dividends; and (iv) in the case of a licensed insurer, its audited statistical returns34 and risk-based capital forms reported under the Insurance Companies Statistical System. 13 Annual financial statements S 13.1 Within three months after the close of each financial year and before the laying of the financial statements at the general meeting, a financial institution shall submit to Jabatan Penyeliaan Konglomerat Kewangan, Jabatan Penyeliaan Perbankan or Jabatan Penyeliaan Insurans dan Takaful of Bank Negara Malaysia, as the case may be, the following: (a) its audited annual financial statements35; (b) the audited annual financial statements of its principal subsidiaries, where relevant; (c) its Auditor’s Report36, including a report on the key accounting and auditing matters tabled to the board audit committee; (d) the analysis of performance by key business segments; (e) in the case of the consolidated financial statements of a banking institution and a financial holding company engaged predominantly in banking activities, a report on its operations in the financial year, including an analysis (both quantitative and narrative) of the overall assessment of the group’s financial performance. The analysis of performance, for the current 32 In the case of a financial holding company, to disclose the capital adequacy positions on a consolidated basis. 33 In the case of a financial holding company, to disclose the capital adequacy positions on a consolidated basis. 34 This refers to the Revenue Account, Income Statement and Balance Sheet. 35 Both the separate financial statements and consolidated financial statements. 36 This refers to the detailed report prepared by the auditor on the audit of a financial institution’s annual financial statements. Financial Reporting 12 of 14 Issued on: 29 April 2022 and preceding year, of each subsidiary within the group which are major contributors to the group’s profit shall at a minimum, include the following: (i) total assets (in RM and % of group); (ii) profit/(loss) before tax (in RM and % of group); (iii) profit/(loss) after tax (in RM and % of group); (iv) dividends (if any); (v) ratio of profit/(loss) before tax to average shareholders’ funds; and (vi) ratio of profit/(loss) before tax to average total assets; (f) a written confirmation by the officer primarily responsible for the financial management of the financial institution that its audited annual financial statements have been prepared in accordance with the MFRS subject to requirements specified by the Bank in paragraph 10 of this policy document; and (g) the tentative date of the publication of its audited annual financial statements on the website, where applicable. S 13.2 For the purpose of paragraph 13.1(b), where the audited financial statements are in a language other than the national language or English, the copy submitted shall be translated into English. S 13.3 For the avoidance of doubt, in the case of a foreign professional reinsurer, the information to be submitted under paragraph 13.1 shall relate to its Malaysian policies and foreign policies of its office in Malaysia. S 13.4 Where the audited financial statements of a foreign professional reinsurer are not made available on the website, a foreign professional reinsurer shall submit to the Bank a copy of its audited financial statements within 30 calendar days after the laying of the financial statements at its general meeting in the country in which it is incorporated or established. Where the audited financial statements are in a language other than the national language or English, the copy submitted shall be translated into English. 14 Interim financial report S 14.1 A banking institution and a financial holding company engaged predominantly in banking activities shall submit to Jabatan Penyeliaan Konglomerat Kewangan or Jabatan Penyeliaan Perbankan of Bank Negara Malaysia, as the case may be, not later than 4 weeks after the end of each interim period, the following: (a) its interim financial report37; (b) the interim financial reports of its principal subsidiaries38, where relevant; (c) the analysis of performance by key business segments; (d) in the case of the consolidated financial report, an analysis (both quantitative and narrative) of the overall assessment of the group’s financial performance. The analysis of performance, for the current interim period and cumulatively for the current financial year-to-date and comparable interim period (current and year-to-date) of the preceding year, of each subsidiary 37 Both the separate financial statements and consolidated financial statements. 38 Where the interim financial statements are in a language other than the national language or English, the copy submitted shall be translated into English. Financial Reporting 13 of 14 Issued on: 29 April 2022 within the group which are major contributors to the group’s profit shall at a minimum, include the following: (i) total assets (in RM and % of group); (ii) profit/(loss) before tax (in RM and % of group); (iii) profit/(loss) after tax (in RM and % of group); (iv) dividends (if any); (v) ratio of profit/(loss) before tax to average shareholders’ funds; and (vi) ratio of profit/(loss) before tax to average total assets; and (e) a written confirmation by the officer primarily responsible for the financial management of the banking institution and the financial holding company that the interim financial report has been prepared in accordance with the MFRS subject to requirements specified by the Bank in paragraph 10 of this policy document. Financial Reporting 14 of 14 Issued on: 29 April 2022 PART D PUBLICATION REQUIREMENTS 15 Annual financial statements S 15.1 A licensed person shall make available the full set of the audited annual financial statements on its website39 no earlier than five working days after the date of submission of the information specified in paragraph 13.1 to the Bank but not later than 14 calendar days after its annual general meeting. S 15.2 A financial holding company shall make available the full set of the audited annual financial statements on its website no earlier than five working days after the date of submission of the information specified in paragraph 13.1 to the Bank but not later than 14 calendar days after its annual general meeting. S 15.3 A licensed person shall make available a copy40 of the audited annual financial statements at every branch of the licensed person in Malaysia. 16 Interim financial report S 16.1 Where an application has not been made under paragraph 12.1– (a) a banking institution and a financial holding company engaged predominantly in banking activities shall make available on its website the interim financial report prepared on a quarterly and half-yearly basis, as the case may be, no earlier than five working days after the date of submission of the information specified in paragraph 14.1 to the Bank but not later than eight weeks after the close of the interim period; (b) a licensed insurer and a financial holding company engaged predominantly in insurance activities shall make available on its website the interim financial report prepared on a half-yearly basis no later than eight weeks after the close of the interim period. S 16.2 Where an application has been made under paragraph 12.1 and approval from the Bank has been obtained under section 51(1) of the FSA, a financial institution shall make available on its website, the interim financial report prepared on a quarterly and half-yearly basis, as the case may be, no later than eight weeks after the close of the interim period. In the case where the application has yet to be approved by the Bank by the end of the eighth week after the close of the interim period, a financial institution shall disclose on its website the interim financial report no later than five working days after the approval from the Bank has been obtained. S 16.3 Where the audited annual financial statements for the preceding financial year have yet to be published by the end of the eighth week after the close of the interim period, a financial institution shall disclose on its website the first quarter interim financial report on the same day or not later than three working days after the publication of the audited annual financial statements. 39 Or the corporate website of a licensed person or a financial holding company 40 May be in the form of physical or electronic copy Financial Reporting for Takaful Operators Issued on: 29 April 2022 BNM/RH/ED 033-5 Financial Reporting for Takaful Operators Applicable to: 1. Licensed takaful operators 2. Financial holding companies Financial Reporting for Takaful Operators Issued on: 29 April 2022 Table of Contents PART A OVERVIEW ...................................................................................................... 1 1. Introduction ....................................................................................................... 1 2. Applicability ...................................................................................................... 1 3. Legal provision ................................................................................................. 2 4. Effective date .................................................................................................... 2 5. Level of application ........................................................................................... 2 6. Interpretation .................................................................................................... 2 7. Related legal instruments and policy documents .............................................. 3 8. Policy document superseded ............................................................................ 3 PART B REGULATORY REQUIREMENTS ................................................................... 4 9. General requirements ....................................................................................... 4 10. Specific requirements on the application of the MFRS ...................................... 5 11. Specific requirements on qard .......................................................................... 6 12. Investment properties ....................................................................................... 6 13. Minimum disclosure requirements .................................................................... 6 PART C REGULATORY PROCESS AND SUBMISSION REQUIREMENTS ................. 9 14. Declaration and payment of dividends .............................................................. 9 15. Annual financial statements ............................................................................ 10 PART D PUBLICATION REQUIREMENTS .................................................................. 12 16. Annual financial statements ............................................................................ 12 17. Interim financial report .................................................................................... 12 Financial Reporting for Takaful Operators 1 of 12 Issued on: 29 April 2022 PART A OVERVIEW 1. Introduction 1.1 The Malaysian Financial Reporting Standards (MFRS) which serve as a basis for financial reporting in Malaysia have been fully converged with the International Financial Reporting Standards (IFRS) from 1 January 2012. Ongoing improvements in these standards have contributed to a greater alignment between financial reporting and prudential frameworks. Notwithstanding these positive developments, the increasingly more principle-based nature of financial reporting standards and the substantial degree of judgment required under the financial reporting standards can continue to result in divergent outcomes between the objectives of financial reporting and prudential regulation, which is primarily concerned with promoting institutional soundness and financial stability. 1.2 Recognising this potential dichotomy, Islamic financial institutions are required under the Islamic Financial Services Act 2013 (IFSA) to prepare their financial statements in accordance with the MFRS, subject to any standards as may be specified by the Bank to reflect specific modifications or exceptions to the MFRS. The Bank envisages that such modifications or exceptions will only become necessary in circumstances where alternative prudential measures would not be adequate to promote the financial resilience of Islamic financial institutions or address threats to financial stability. Where such modifications or exceptions are specified by the Bank, this must be accompanied by a disclosure of that fact by the Islamic financial institutions. Policy objective 1.3 This policy document clarifies and sets minimum expectations for the application of the MFRS to an Islamic financial institution. It also aims to ensure adequate disclosures by an Islamic financial institution in the financial statements to improve comparability for users of financial statements and better facilitate the assessment of an Islamic financial institution’s financial position, performance and Shariah compliance. Scope of policy 1.4 This policy document sets out: (a) the specific requirements on the application of the MFRS; (b) information to be disclosed in the financial statements; (c) application requirements for approval of a dividend payment; and (d) requirements on submission and publication of the financial statements. 2. Applicability 2.1 This policy document is applicable to an Islamic financial institution as defined in paragraph 6.2. 2.2 Notwithstanding paragraph 2.1, the requirements under Part D of this policy document are not applicable to a professional retakaful operator. Financial Reporting for Takaful Operators 2 of 12 Issued on: 29 April 2022 3. Legal provision 3.1 The requirements and guidance in this policy document are specified pursuant to section 29, section 57(1), section 60, section 65(2) (d), section 73, section 74, section 75, section 127, section 155(2), and section 277 of the IFSA. 4. Effective date 4.1 This policy document comes into effect on 1 January 2023 and shall apply to financial statements for financial years beginning on or after 1 January 2023, with the exception of Part D of this policy document. 4.2 The requirements in Part D of this policy document come into effect on 29 April 2022. 4.3 An Islamic financial institution shall notify the Bank (one-time notification) of its intention to apply the fair value option under MFRS 9 Financial Instruments (MFRS 9) and the scope of the fair value application to financial instruments as approved by the board, at least one month before the option is first applied. The notification must be supplemented with relevant extracts of board minutes detailing the list of financial instruments approved by the board to apply the fair value option and the intended date of the application of the fair value option. 5. Level of application 5.1 An Islamic financial institution is required to comply with the requirements in this policy document in the preparation and publication of its separate financial statements and consolidated financial statements. 6. Interpretation 6.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the Financial Services Act 2013 (FSA) and the IFSA unless otherwise defined in this policy document. 6.2 For the purpose of this policy document: “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement actions; “G” denotes guidance which may consist of such statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; Financial Reporting for Takaful Operators 3 of 12 Issued on: 29 April 2022 “foreign policies” means takaful certificates issued by a foreign professional retakaful operator in or from Malaysia but are not Malaysian takaful certificates; “foreign professional retakaful operator” means a professional retakaful operator incorporated outside Malaysia; “takaful operator” means a person licensed under section 10 of the IFSA to carry on takaful business and includes a licensed international takaful operator and a licensed retakaful operator; “Islamic banking institution” means a licensed person which is: (a) a licensed Islamic bank except for licensed international Islamic bank; or (b) a licensed bank or licensed investment bank approved by the Bank to carry on Islamic banking business under section 15 of the FSA; “Islamic financial institution” means a takaful operator and a financial holding company of the takaful operator approved by the Bank1; “separate financial statements” and “consolidated financial statements” shall have the same meaning as set out in MFRS 127 Separate Financial Statements and MFRS 10 Consolidated Financial Statements. 7. Related legal instruments and policy documents 7.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular– (a) Takaful Operational Framework issued on 26 June 2019; and (b) Risk-Based Capital Framework for Takaful Operators issued on 17 December 2018. 8. Policy document superseded 8.1 The policy document on Financial Reporting for Takaful Operators issued on 2 February 2018 is superseded. 1 Pursuant to section 124 of the IFSA. Financial Reporting for Takaful Operators 4 of 12 Issued on: 29 April 2022 PART B REGULATORY REQUIREMENTS 9. General requirements S 9.1 Pursuant to section 74 of the IFSA, an Islamic financial institution shall prepare its financial statements in accordance with the MFRS to the extent that the standards are consistent with Shariah principles2 and subject to the requirements specified in paragraph 10 and shall disclose a statement to that effect in the financial statements. S 9.2 An Islamic financial institution shall comply with the rulings of the Shariah Advisory Council of Bank Negara Malaysia (SAC)3 on the applicability of the following accounting principles adopted in the MFRS as being consistent with the broader view of Shariah principles: (a) accrual basis, where the effect of a transaction and other events is recognised when it occurs (and not when cash or its equivalent is received or paid) and is recorded in the accounting records and reported in the financial statements of the periods to which it relates; (b) “substance over form”, where the “form” and “substance” of the transaction must be consistent and shall not contradict one another. In the event of inconsistency between “substance” and “form”, the Shariah places greater importance on “substance” rather than “form”4; (c) probability, where the degree of uncertainty that the future economic benefits associated with the transaction will flow to or from the Islamic financial institution is considered in reference to the recognition criteria; (d) time value of money (“TVM”), where a transaction involves time deferment, the asset (liability) is carried at the present discounted value of the future net cash inflows (outflows) that the transaction is expected to generate in the normal course of business. The application of TVM is permissible only in determining the selling price for exchange contracts that involve deferred payment and is strictly prohibited in debt-based transactions (qard) in general; and (e) notwithstanding the prohibition on the application of TVM to qard in subparagraph (d), specifically for takaful, TVM may be applied in the measurement of a qard transaction between shareholders’ fund and takaful fund pursuant to section 95 of the IFSA in meeting the MFRS 17 Insurance Contracts and the MFRS 9 Financial Instruments, subject to the following: 2 Refer to Statement of Principles (SOP) i-1: Financial Reporting from Islamic Perspective issued by MASB. Paragraph 6 of SOP i-1 provides that “Shariah compliant transactions and events shall be accounted for in accordance with MASB approved accounting standards, unless there is a Shariah prohibition”. In line with MASB’s consultative approach, an Islamic financial institution is to refer to MASB, when there are divergent practices regarding the accounting for a particular Shariah compliant transaction or event, or when there is doubt about the appropriate accounting treatment and the Islamic financial institution believes it is important that a standard treatment be established. 3 Rulings made at the 16th SAC meeting (11 November 2000), 57th SAC meeting (30 March 2006), 71st SAC meeting (26-27 October 2007) and 213th SAC meeting (27 April 2021). 4 For example, in a sell and buyback agreement (SBBA), due to the substance of the transaction being financing rather than a sale transaction, the overall effect of all the contracts involved in the transaction will be recorded as financing under the MFRS. The financial assets sold under the SBBA will not be derecognised from the books of the seller. Financial Reporting for Takaful Operators 5 of 12 Issued on: 29 April 2022 (i) the total repayment of the qard amount must not exceed the total/actual qard amount from the shareholders’ fund; and (ii) the Islamic financial institution providing a comprehensive disclosure in the explanatory notes to the financial statements in line with paragraph 11.2. S 9.3 The board is responsible for ensuring that the financial statements are drawn up so as to give a true and fair view of the state of affairs and of the results of the business of the Islamic financial institution. This is consistent with the fiduciary and statutory duties placed on the board as persons responsible for managing the affairs of the Islamic financial institution. Hence, the board shall be satisfied that a sound financial reporting structure is in place to ensure the integrity and credibility of the financial statements. S 9.4 For financial instruments that are measured at fair value, an Islamic financial institution shall ensure that sound risk management and control processes5 around their measurement6 are in place. 10. Specific requirements on the application of the MFRS S 10.1 The financial statements and financial reports referred to under Part C and Part D of this policy document shall be presented in Malaysian ringgit (RM). S 10.2 For the purpose of disclosures of non-compliance with externally imposed capital requirements, the relevant capital adequacy requirements refer to the supervisory target capital level as set out in the Risk-Based Capital Framework for Takaful Operators Policy Document issued on 17 December 2018. S 10.3 A takaful operator that is a member institution of Perbadanan Insurans Deposit Malaysia (PIDM) shall also comply with the disclosure requirements specified by PIDM. S 10.4 An Islamic financial institution shall not account for the investments in associates and joint ventures using the equity method described in MFRS 128 Investments in Associates and Joint Ventures in the preparation of its separate financial statements. S 10.5 A takaful operator in the preparation of its separate financial statements shall apply the MFRS 17 Insurance Contracts to account for the takaful business managed under the takaful fund and at the consolidated takaful entity level. In doing so, the takaful operator shall present the assets and liabilities of the takaful fund7 separately from the assets and liabilities of the takaful operator. 5 In line with the expectations set forth in the Supervisory Guidance for Assessing Banks’ Financial Instrument Fair Value Practices, Basel Committee on Banking Supervision, April 2009 and Supervisory Guidance on the Use of the Fair Value Option for Financial Instruments by Banks, Basel Committee on Banking Supervision, June 2006. 6 Refer to MFRS 13 Fair Value Measurement. 7 Refers to family and general funds, as defined under Takaful Operational Framework. Financial Reporting for Takaful Operators 6 of 12 Issued on: 29 April 2022 11. Specific requirements on qard S 11.1 Qard payable by the takaful fund shall be measured as part of the fulfilment cash flows in the calculation of takaful contract liabilities in accordance with the requirements under MFRS 178. S 11.2 In applying the measurement as required under paragraph 11.1, a takaful operator shall disclose the following information in the explanatory notes of the audited annual financial statements: a) the requirement for the takaful operator to provide qard to the takaful fund from its shareholders’ fund pursuant to section 95 of the IFSA in the event a deficit occurs in the takaful fund; b) the nature of the qard, the total/actual qard amount that has been provided to the takaful fund and the expected repayment period for the qard upon the availability of surplus in the takaful fund; and c) explanation on the accounting measurement in respect of the application of TVM to determine the present value and future value of qard and the impact to the total/actual qard amount, including any fair value adjustment. The explanation shall also include the “rights of shareholders’ fund to receive the total/actual qard amount” and the “obligation of takaful fund to repay the total/actual qard amount”, of which the total/actual qard amount shall remain unchanged throughout the qard repayment period. 12. Investment properties S 12.1 A takaful operator shall ensure that the amount of surplus arising from fair value gains on investment properties of the takaful fund which may be distributed to takaful participants shall be limited to the lower of 30% of the aggregate fair value gains (net of fair value losses) or 10% of the aggregate fair value of the investment properties. S 12.2 A takaful operator shall maintain relevant information supporting the valuations for review as and when required by the Bank. S 12.3 A takaful operator shall ensure that an independent professional valuer is appointed to validate material fair value changes or revaluations at any time as and when the Bank may require, and the cost of such validation shall be borne by the shareholders’ fund. 13. Minimum disclosure requirements G 13.1 The requirements under the following paragraphs refer specifically to disclosures which form part of the financial statements and do not deal with other disclosures provided by an Islamic financial institution as part of the Annual Report (e.g. Director’s Report, Statement on Corporate Governance) 8 Takaful operator may refer to MASB’s Issue Bulletin 3 on Reporting Qard in the Takaful Fund’s column within Takaful Entity’s Financial Statements issued and published on 20 August 2021 in its website. Financial Reporting for Takaful Operators 7 of 12 Issued on: 29 April 2022 S 13.2 An Islamic financial institution shall make disclosures in the financial statements in accordance with the requirements of the MFRS, and include information specified under paragraphs 13.4 to 13.9 of this policy document. S 13.3 An Islamic financial institution shall comply with the following key principles on disclosure of information: (a) information shall be timely and up-to-date to ensure the relevance of the information being disclosed; (b) the scope and content of information disclosed, and the level of disaggregation and detail shall be sufficient to provide comprehensive, meaningful9 and relevant information to the users; (c) adequate disclosures shall be provided on areas of uncertainty, in particular information on key estimates and if sensitivity analysis is used, a discussion on the assumptions and the probabilities of the occurrence of various scenarios; and (d) disclosures shall allow comparisons over time and between takaful operators10. S 13.4 A takaful operator shall present the financial statements11 according to a columnar presentation format. At minimum, two standalone columns on the takaful fund and the consolidated takaful entity shall be presented in the financial statements. S 13.5 In the event where a takaful operator opts to present an additional standalone shareholders’ fund column in its financial statements, the takaful operator shall ensure that all items presented under the shareholders’ fund column are in full compliance with relevant MFRS requirements. S 13.6 For placements of funds in an investment account with an Islamic banking institution, an Islamic financial institution shall− (a) present the placement, as a separate line item in the statement of financial position, as either “investment account placement” or “investment account placement – asset description”; and (b) disclose in the explanatory notes the nature of the underlying assets for the investment. S 13.7 An Islamic financial institution shall disclose intercompany charges with a breakdown by type of services received and geographical distribution. 9 For example, given the heterogeneity of users of financial reporting, background information on the wider economic environment takaful operators operate in is necessary to provide sufficient information to understand the context for specific disclosures. Information should also be useful to support informed decision-making by users. 10 For example, users shall be informed of the accounting policies adopted in the preparation of the financial statements including any changes in those policies and the effects of such changes. Users need to be able to identify differences between the accounting policies for like transactions and other events used by the same entity from period to period and by different entities. Compliance with MFRS, including the disclosure of the accounting policies used by the entity, helps to achieve comparability. 11 Takaful operator may refer to MASB’s Issue Bulletin 2 on Columnar Presentation on Takaful Funds in Takaful Entity Financial Statements issued and published on 2 September 2020 in its website. Financial Reporting for Takaful Operators 8 of 12 Issued on: 29 April 2022 S 13.8 An Islamic financial institution shall ensure that the explanatory notes to be disclosed in the audited annual financial statements include the following information: (a) a description on the roles of the takaful operator in relation to its takaful participants based on the underlying Shariah contract (e.g. as a takaful fund manager in a wakalah contract and/or investment manager in a mudarabah contract); (b) any forms of remuneration paid to the takaful operator for the management of the takaful fund (e.g. upfront wakalah fees, performance-based remuneration, profit sharing and compensation for direct costs); (c) the amount of surplus distribution, if any, to both takaful participants and shareholders’ fund; (d) any other forms of financial support received by the takaful fund from the shareholders’ fund pursuant to section 95 of the IFSA; (e) any hibah provided by the takaful operator from its shareholders’ fund to its takaful participants as supplementary to the takaful benefits; (f) the required disclosures on qard in paragraph 11.2; (g) takaful contract liabilities; (h) reinsurance/retakaful assets; (i) other receivables; (j) total capital available showing separately Tier 1 Capital and Tier 2 Capital12; (k) chief executive officer (“CEO”), Directors’ and Shariah Committee members’ remuneration with a breakdown of types of remunerations (e.g. salary, fees, bonus, benefits-in-kind, retirement benefits), disclosed separately for the CEO and each individual director, distinguishing between executive and non- executive directors, and Shariah Committee members; (l) commitments and contingencies with a breakdown by types and amount distinguishing between contingent liabilities and commitments; (m) amount and nature of earnings (expenditure) from sources or by means which are not permitted by Shariah and how takaful operator intends to dispose of the assets generated by prohibited earnings or acquired through prohibited expenditure; and (n) amount of zakat payable and method of calculating zakat as approved by the takaful operator’s Shariah Committee. S 13.9 An Islamic financial institution shall ensure that the explanatory notes to be disclosed in the interim financial report of an Islamic financial institution include the following information: (a) takaful contract liabilities; (b) reinsurance/retakaful assets; and (c) total capital available. The breakdown for the above explanatory notes shall be consistent with that specified for audited annual financial statements (refer to paragraph 13.8). In addition, the takaful operator shall disclose items that are material to the understanding of the interim financial report in accordance with MFRS 134 Interim Financial Reporting. 12 The breakdown shall be consistent with that specified in the policy document on Risk-Based Capital Framework for Takaful Operators issued on 17 December 2018. Financial Reporting for Takaful Operators 9 of 12 Issued on: 29 April 2022 PART C REGULATORY PROCESS AND SUBMISSION REQUIREMENTS 14. Declaration and payment of dividends S 14.1 Pursuant to section 60(1) of the IFSA, an Islamic financial institution is required to obtain the Bank’s written approval prior to declaring or paying any dividend on its shares. For the avoidance of doubt, shares refer to both the ordinary shares and preference shares. S 14.2 Unless otherwise informed by the Bank in writing, approval pursuant to section 60(1) of the IFSA is given to an Islamic financial institution to declare or pay any dividend on its preference shares where the dividend is non-discretionary13 and non-cumulative14. For the avoidance of doubt, where the Bank has, prior to the effective date of this policy document imposed a requirement on an Islamic financial institution to obtain the Bank’s written approval prior to declaring or paying any dividend on its preference shares, such approval requirement shall continue to apply and the requirements set out in paragraph 14.4 shall be observed by an Islamic financial institution. S 14.3 Where an application has been made under paragraph 14.1, an Islamic financial institution shall not- (a) publish in print and/or electronic form15; (b) lay the audited annual financial statements at its general meeting; and (c) in the case of a listed Islamic financial institution, submit to the stock exchange, the interim financial report or audited annual financial statements, as the case may be, unless the proposed dividend has been approved by the Bank under section 60(1) of the IFSA. S 14.4 An application for approval made under paragraph 14.1 by an Islamic financial institution must be supplemented with the following: (a) where an interim dividend is proposed, (i) its interim financial report, with a review by the auditor of the profit after tax for the period16. The explanatory notes to the interim financial report shall be consistent with that specified for audited annual financial statements (refer to paragraph 13.8); (ii) the interim financial report of its principal subsidiaries17,18, as applicable; (iii) the limited review report by its auditor; (iv) a written confirmation by the officer primarily responsible for the financial management of the Islamic financial institution that its interim 13 The proposed dividend payment is not at the full discretion of the takaful operator. 14 Any waived dividend must not be made up by the takaful operator at a later date. 15 For example, newspaper, press release and website. 16 In accordance with the standards on review engagements issued by the Malaysian Institute of Accountants. 17 Subsidiaries which are major contributors to the group’s profit revenue, assets or profit/loss. 18 For the avoidance of doubt, the interim financial reports of the principal subsidiaries need not be subject to review by the auditor. Financial Reporting for Takaful Operators 10 of 12 Issued on: 29 April 2022 financial report has been prepared in accordance with the MFRS subject to requirements specified by the Bank in paragraph 10 of this policy document; and (v) in the case of a takaful operator, the calculation of the Capital Adequacy Ratio showing the positions separately before and after the proposed payment of dividends; (b) where a final dividend is proposed, (i) the information specified in paragraph 15.1; and (ii) in the case of a takaful operator- (aa) the calculation of the Capital Adequacy Ratio showing the positions separately before and after the proposed payment of dividends; and (bb) its audited statistical returns19 reported under the Takaful Operators Statistical System and risk-based capital reporting forms reported under Risk-Based Capital Framework for Takaful Operators issued on 17 December 2018. 15. Annual financial statements S 15.1 Within three months after the close of each financial year and before the laying of the financial statements at the general meeting, an Islamic financial institution shall submit to Jabatan Penyeliaan Insurans dan Takaful of Bank Negara Malaysia, the following: (a) its audited annual financial statements; (b) the audited annual financial statements of its principal subsidiaries, where relevant; (c) its Auditor’s Report20, including a report on the key accounting and auditing matters tabled to the board audit committee; (d) the analysis of performance by key business segments; (e) a written confirmation by the officer primarily responsible for the financial management of the takaful operator that its audited annual financial statements have been prepared in accordance with the MFRS subject to requirements specified by the Bank in paragraph 10 of this policy document; (f) its Shariah Committee’s Report; and (g) the tentative date of the publication of its audited annual financial statements on the website. S 15.2 For the purpose of paragraph 15.1(b), where the audited annual financial statements are in a language other than the national language or English, the copy submitted shall be translated into English. S 15.3 For the avoidance of doubt, in the case of a foreign professional retakaful operator, the information to be submitted under paragraph 15.1 shall relate to its Malaysian takaful certificates and foreign policies of its office in Malaysia. 19 This refers to Revenue Account, Income Statement and Balance Sheet. 20 This refers to the detailed report prepared by the auditor on the audit of a takaful operator’s annual financial statements. Financial Reporting for Takaful Operators 11 of 12 Issued on: 29 April 2022 S 15.4 Where the audited annual financial statements of a foreign professional retakaful are not made available on the website, a foreign professional retakaful operator shall submit to the Bank a copy of its audited annual financial statements within 30 calendar days after the laying of the financial statements at its general meeting in the country in which it is incorporated or established. Where the audited annual financial statements are in a language other than the national language or English, the copy submitted shall be translated into English. Financial Reporting for Takaful Operators 12 of 12 Issued on: 29 April 2022 PART D PUBLICATION REQUIREMENTS 16. Annual financial statements S 16.1 A takaful operator shall make available the full set of the audited annual financial statements on its website21 no earlier than five working days after the date of submission of the information specified in paragraph 15.1 to the Bank but not later than 14 calendar days after its annual general meeting. S 16.2 A financial holding company shall make available the full sets of the audited annual financial statements on its website no earlier than five working days after the date of submission of the information specified in paragraph 15.1 to the Bank but not later than 14 calendar days after its annual general meeting. S 16.3 A takaful operator shall make available a copy22 of the audited annual financial statements at every branch of the takaful operator in Malaysia. 17. Interim financial report S S 17.1 Where an application has not been made under paragraph 14.1, an Islamic financial institution shall make available on its website the interim financial report prepared on a half-yearly basis no later than eight weeks after the close of the interim period. 17.2 Where an application has been made under paragraph 14.1 and approval from the Bank has been obtained under section 60(1) of the IFSA, an Islamic financial institution shall make available on its website, the interim financial report prepared on a half-yearly basis, no later than eight weeks after the close of the interim period. In the case where the application has yet to be approved by the Bank by the end of the eighth week after the close of the interim period, an Islamic financial institution shall disclose on its website the interim financial report no later than five working days after the approval from the Bank has been obtained. 21 Or the corporate website of a takaful operator or a financial holding company. 22 May be in the form of physical or electronic copy.	Public Notice
27 Apr 2022	Draf Pendedahan mengenai Profesionalisme Ejen Insurans dan Takaful	https://www.bnm.gov.my/-/draf-pendedahan-mengenai-profesionalisme-ejen-insurans-dan-takaful	https://www.bnm.gov.my/documents/20124/948107/ED_Professionalism_of_Insurance_and_Takaful_Agents.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/draf-pendedahan-mengenai-profesionalisme-ejen-insurans-dan-takaful&languageId=ms_MY	Reading: Draf Pendedahan mengenai Profesionalisme Ejen Insurans dan Takaful Share: Draf Pendedahan mengenai Profesionalisme Ejen Insurans dan Takaful Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1703 pada Rabu, 27 April 2022 27 Apr 2022 Draf pendedahan ini menggariskan cadangan keperluan baharu Bank Negara Malaysia ke atas penanggung insurans dan pengendali takaful berlesen dalam menggalakkan standard kelakuan dan profesionalisme yang tinggi bagi ejen insurans dan takaful mereka. Draf ini merangkumi keperluan dasar yang berkaitan dengan pengambilan ejen insurans dan takaful, kelayakan minimum, kriteria layak dan wajar, proses usaha wajar, serta langkah tindakan terhadap ejen yang ingkar. Maklum balas hendaklah dikemukakan kepada BNM selewat-lewatnya pada 31 Mei 2022 secara bertulis melalui e-mel ke [email protected]. Maklum balas yang diterima mungkin didedahkan kepada umum melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau sebahagian daripada maklum balas yang diberi. Draf Pendedahan: Profesionalisme Ejen Insurans dan Takaful Bank Negara Malaysia 27 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
26 Apr 2022	Dokumen Dasar mengenai Tatacara Kehematan dan Profesional oleh Penasihat Kewangan	https://www.bnm.gov.my/-/dokumen-dasar-mengenai-tatacara-kehematan-dan-profesional-oleh-penasihat-kewangan	https://www.bnm.gov.my/documents/20124/855632/pd_Prudent_Professional_Conduct_FA.pdf, https://www.bnm.gov.my/documents/20124/855632/Feedback_Statement_April_2022.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/dokumen-dasar-mengenai-tatacara-kehematan-dan-profesional-oleh-penasihat-kewangan&languageId=ms_MY	Reading: Dokumen Dasar mengenai Tatacara Kehematan dan Profesional oleh Penasihat Kewangan Share: Dokumen Dasar mengenai Tatacara Kehematan dan Profesional oleh Penasihat Kewangan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1300 pada Selasa, 26 April 2022 26 Apr 2022 Tarikh Penerbitan 26 April 2022 Ringkasan Bank Negara Malaysia mengeluarkan dokumen dasar mengenai Perilaku Berhemat dan Profesional oleh Penasihat Kewangan pada 26 April 2022. Dokumen dasar ini menetapkan keperluan dasar dan panduan untuk penasihat kewangan dan penasihat kewangan Islam yang diluluskan menurut seksyen 11 Akta Perkhidmatan Kewangan 2013 (FSA) atau Akta Perkhidmatan Kewangan Islam 2013 (IFSA). Keperluan dasar dalam keperluan dasar ini mesti dipenuhi secara berterusan oleh penasihat kewangan yang diluluskan dan penasihat kewangan Islam dalam menguruskan perniagaan dan kelakuannya secara adil, saksama dan profesional yang menyemai kepercayaan dan keyakinan di kalangan pengguna kewangan . Dokumen Dasar: Tatacara Kehematan dan Profesional oleh Penasihat Kewangan Penyata Maklum Balas Awam – Ringkasan maklum balas utama yang diterima daripada Draf Pendedahan dan maklum balas BNM Jabatan pengeluar: Jabatan Pengguna dan Amalan Pasaran Bank Negara Malaysia 26 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Issued on: 26 April 2022 BNM/RH/PD 029-51 Prudent and Professional Conduct by Financial Advisers Applicable to: 1. Approved financial advisers 2. Approved Islamic financial advisers Prudent and Professional Conduct by Financial Advisers Issued on: 26 April 2022 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction ................................................................................................ 1 2 Applicability ............................................................................................... 1 3 Legal provisions ........................................................................................ 1 4 Effective date ............................................................................................. 2 5 Interpretation ............................................................................................. 2 6 Related legal instruments and policy documents ...................................... 3 7 Policy documents superseded ................................................................... 3 PART B POLICY REQUIREMENT .......................................................................... 4 8 Form of establishment ............................................................................... 4 9 Capital funds requirement ......................................................................... 4 10 Professional indemnity .............................................................................. 4 11 Appointment and responsibilities of Board of Directors and senior management ............................................................................................. 4 12 Business conduct requirements ................................................................ 6 13 Other permitted business activities ............................................................ 6 14 Requirements on maintaining professionalism of financial adviser’s representatives .......................................................................................... 7 15 Publication of financial statements .......................................................... 10 16 Notification ............................................................................................... 10 APPENDIX I Minimum Score and Weightage of each KPI for BSC ................... 11 APPENDIX II Template for Submission of BSC Report ....................................... 12 Prudent and Professional Conduct by Financial Advisers 1 of 12 Issued on: 26 April 2022 PART A OVERVIEW 1 Introduction 1.1 In carrying on its financial advisory business or Islamic financial advisory business, an approved financial adviser under Financial Services Act 2013 (FSA) or Islamic Financial Services Act 2013 (IFSA) is expected to provide independent advice and recommendations that would have significant impact on the long-term financial well-being of financial consumers. It is therefore important that an approved financial adviser manages its business and conduct in a fair, impartial and professional manner that instils trust and confidence among financial consumers. 1.2 This policy document sets out the requirements that must be met by an approved financial adviser on an on-going basis. 2 Applicability 2.1 This policy document is applicable to an approved financial adviser as defined in paragraph 5.2. 3 Legal provisions 3.1 The requirements in this policy document are specified pursuant to the following – No. Provisions Section FSA IFSA (a) Minimum amount of professional indemnity insurance or takaful 11(3) (b) Requirements on minimum capital funds or surplus of assets over liabilities 12(1), 12(4) (c) Other permitted business activities 14(1) 15(1) (d) Form of establishment 24(2)(b) 21(2)(b) (e) Notification of establishment or relocation of office 25(2) 22(2) (f) Power of Bank to specify standards on prudential matters 47(1) 57(1) (g) Notification of appointment/reappointment of chairman, director, chief executive officer or FAR 54(4) 63(4) (h) Requirements of FAR 60(1) 69(1) (i) Notification on cessation from office 62 71 Prudent and Professional Conduct by Financial Advisers 2 of 12 Issued on: 26 April 2022 No. Provisions Section FSA IFSA (j) Notification on the appointment of auditor 67(3) 76(3) (k) Notification on cessation of auditor 70 79 (l) Power of Bank to specify standards on business conduct 123(1) 135(1) (m) Submission of document or information to the Bank 143(2) 155(2) 3.2 The above table reflects the specific paragraphs under which the relevant requirements are made. For the avoidance of doubt, certain requirements in this policy document are made pursuant to more than one provisions of the FSA or IFSA. 3.3 The guidance in this policy document is issued pursuant to section 266 of the FSA and section 277 of the IFSA. 4 Effective date 4.1 This policy document comes into effect on 26 April 2022. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document – “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “approved financial adviser” collectively refers to an approved financial adviser under the FSA and an approved Islamic financial adviser under the IFSA, unless otherwise specified; “financial adviser’s representative” or “FAR” collectively refers to an approved financial adviser’s representative and an approved Islamic financial adviser’s representative, unless otherwise specified; Prudent and Professional Conduct by Financial Advisers 3 of 12 Issued on: 26 April 2022 “senior management” refers to the Chief Executive Officer (CEO) and senior officers as defined in FSA and IFSA, of an approved financial adviser. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular – (a) Policy Document on Application Procedures to Carry On Financial Advisory Business and Islamic Financial Advisory Business issued on 26 April 2022; (b) Policy Document on Fair Treatment of Financial Consumers issued on 6 November 2019; (c) Policy Document on Shareholder Suitability - Notification and Application Procedures issued on 3 June 2019; (d) Policy Document on Fit and Proper Criteria for Approved Person issued on 24 December 2018; (e) Policy Document on Prohibited Business Conduct issued on 15 July 2016; and (f) Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business issued on 17 August 2012. 7 Policy documents superseded 7.1 This policy document supersedes the Guidelines on Application for Financial Adviser’s Licence under the Insurance Act 1996 issued on 18 September 2007. Prudent and Professional Conduct by Financial Advisers 4 of 12 Issued on: 26 April 2022 PART B POLICY REQUIREMENTS 8 Form of establishment S 8.1 An approved financial adviser must be a company incorporated under the Companies Act 2016. 9 Capital funds requirement S 9.1 For purposes of sections 12(1) and 12(2) of both the FSA and IFSA, the minimum capital funds of an applicant and an approved financial adviser, as the case may be, is RM50,0001 which shall comprise the sum total of – (a) paid up ordinary shares; (b) reserves; (c) retained profits or accumulated losses; and (d) audited profits for the period, or audited and unaudited losses for the period, minus loans, advances and investments given to shareholders, directors or other related parties. 10 Professional indemnity (PI) S 10.1 An approved financial adviser must maintain a PI insurance or takaful cover with a minimum limit of indemnity of at least RM200,000 net of deductibles for any one claim at all times. S 10.2 Notwithstanding the minimum limit of PI insurance or takaful cover specified in paragraph 10.1, the Board of Directors (Board) of an approved financial adviser must ensure that the amount and scope of PI insurance or takaful cover is commensurate with the volume (e.g. based on revenue or premiums or contributions transacted), nature and risk of business of the approved financial adviser at all times. 11 Appointment and responsibilities of Board of Directors and senior management S 11.1 An approved financial adviser must appoint at minimum two (2) directors and one of its directors must be its appointed FAR. 1 Based on the following Gazette Orders: (a) the Financial Services (Minimum Amount of Capital Funds) (Approved Person) Order 2013 [P.U.(A) 204/2013] (as amended by the Financial Services (Minimum Amount of Capital Funds) (Approved Person) (Amendment) Order 2014 [P.U.(A) 355/2014]); and (b) the Islamic Financial Services (Minimum Amount of Capital Funds) (Approved Person) Order 2013 [P.U.(A) 210/2013] (as amended by the Islamic Financial Services (Minimum Amount of Capital Funds) (Approved Person) (Amendment) Order 2014 [P.U.(A) 356/2014]). Prudent and Professional Conduct by Financial Advisers 5 of 12 Issued on: 26 April 2022 S S S S S S 11.2 A director must not be disqualified under section 59(1) of the FSA or section 68(1) of the IFSA, and must have been assessed by the approved financial adviser to have complied with the Policy Document on Fit and Proper Criteria for Approved Person. 11.3 An approved financial adviser must appoint a CEO who devotes the whole of his professional time to the service of the approved financial adviser and resides in Malaysia unless the Bank approves otherwise in writing. Board of Directors (Board) 11.4 The Board must establish a board charter that sets out the mandate, responsibilities and procedures of the Board that commensurate with the size and risk of an approved financial adviser’s business, including the matters reserved for the Board’s decision. 11.5 The Board has the overall responsibility for promoting the sustainable growth and financial soundness of the approved financial adviser, and for ensuring reasonable standards of fair dealing, without undue influence from any party. In fulfilling this role, the Board must – (a) oversee the implementation of the approved financial adviser’s governance and internal control frameworks to ensure compliance with this policy document and other applicable requirements specified by the Bank, and periodically review whether such implementation remains appropriate taking into account, among other things, material changes in the approved financial adviser’s customer profiles, product options and external environment that may affect the quality of advice provided to consumers; (b) monitor the compliance with any other law applicable to the approved financial adviser; and (c) promote, together with senior management, a sound corporate culture within the approved financial adviser which reinforces ethical, prudent, professional behaviour and give due consideration to customers’ interest. 11.6 The Board’s responsibilities outlined in this policy document shall be read together with section 56 of the FSA and section 65 of the IFSA, any other applicable requirements in the FSA and IFSA and other relevant policy documents. Senior management 11.7 An approved financial adviser must ensure its senior management is responsible for ensuring the following: (a) effective policies and procedures are established and implemented for, among others, the following areas: (i) risk management and appropriate controls to manage and monitor risks, e.g. having effective controls in place to manage issues of conflict of interest, conduct of all staff and handling clients’ monies; and (ii) sufficient and timely reporting or escalation of issues to the Board; Prudent and Professional Conduct by Financial Advisers 6 of 12 Issued on: 26 April 2022 S (b) decision making processes give adequate consideration to customers’ interests; and (c) a robust assessment is conducted to approve any deviation from policies and procedures. Material deviations must be reported to the Board. 11.8 An approved financial adviser must ensure its senior management consist of individuals with the appropriate skill set and experience to support and manage the financial advisory business or Islamic financial advisory business, as the case may be. 12 Business conduct requirements S S S G 12.1 An approved financial adviser shall provide suitable product options to meet customers’ needs from at least three (3) different licensed insurers or licensed takaful operators for each class of insurance or takaful business. 12.2 In the event that there is less than three (3) or no suitable product options that meet customers’ needs, an approved financial adviser shall notify and explain the limitations to the customers accordingly, in line with the requirements in the Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business. The approved financial adviser must obtain consent from customers before proceeding with the comparison and recommendation based on the limited product options. The approved financial adviser is prohibited from recommending the purchase of any other insurance or takaful product for the sole purpose of securing a sale. 12.3 An approved financial adviser is prohibited from using the words “independent financial adviser” or “independent Islamic financial adviser” (penasihat kewangan bebas atau penasihat kewangan Islam bebas) without the prior written approval of the Bank. 12.4 In assessing and approving an approved financial adviser’s application to use the word “independent”, the Bank may take into consideration factors such as whether the approved financial adviser receives any commission or any other benefit from the licensed insurers or licensed takaful operators which may create product bias, and whether the approved financial adviser operates without any conflict of interest created by any connection to, or association with any licensed insurers or licensed takaful operators . 13 Other permitted business activities S 13.1 In addition to its approved financial advisory business or approved Islamic financial advisory business, as the case may be, an approved financial adviser is permitted to carry on any regulated activities under Schedule 2, Part 1 of the Capital Market Services Act 2007 (CMSA) for which the approved financial adviser has been licensed under the CMSA. Prudent and Professional Conduct by Financial Advisers 7 of 12 Issued on: 26 April 2022 G 13.2 An approved financial adviser is also permitted to analyze, recommend, source or arrange a contract in respect of banking or Islamic banking products and services. 14 Requirements on Maintaining Professionalism of FAR S S 14.1 An approved financial adviser must ensure that its financial advisory business or Islamic financial advisory business, as the case may be, is only carried on by FARs who are appointed in accordance with paragraphs 14.2, 14.3 and 14.4. Criteria 14.2 An approved financial adviser must only appoint FARs that meet the following criteria – (a) at least 21 years of age; (b) a resident in Malaysia; (c) has the qualifications specified in paragraph 14.3 or paragraph 14.4, as the case may be; (d) appointed on a full-time basis; and (e) a fit and proper person for purposes of the policy document on Fit and Proper Criteria for Approved Person. Qualifications S 14.3 An approved financial adviser carrying on financial advisory business must only appoint FARs with the following qualifications – Qualification Mandatory Areas of Knowledge Registered Financial Planner offered by the Malaysian Financial Planning Council (MFPC); or Certified Financial Planner offered by the Financial Planning Association of Malaysia (FPAM) 1. Foundation of Financial Planning 2. Risk Management 3. Insurance Planning 4. Investment Planning S 14.4 An approved financial adviser carrying on Islamic financial advisory business must only appoint FARs with the following qualifications – Qualification Mandatory Areas of Knowledge Shariah Registered Financial Planner offered by MFPC; or 1. Foundation of Islamic Financial Planning 2. Risk Management 3. Takaful Planning 4. Shariah Investment Planning Islamic Financial Planner offered by the Islamic Banking & Finance Institute of Malaysia and FPAM. Prudent and Professional Conduct by Financial Advisers 8 of 12 Issued on: 26 April 2022 G 14.5 Notwithstanding paragraphs 14.3 and 14.4, an approved financial adviser may appoint FARs with an equivalent qualification from a higher learning institution recognized by MFPC and FPAM. Continuous Professional Development (CPD) S S S G 14.6 An approved financial adviser must ensure that its appointed FAR attends a minimum of 20 hours of CPD programmes each year. An approved financial adviser must refer to MFPC and FPAM on the type of courses which qualify for the CPD hours and such courses shall include both relevant technical and non- technical courses. Balanced Scorecard (BSC) Framework 14.7 In enhancing the professionalism of appointed FARs, the Board and senior management of an approved financial adviser shall undertake the following – (a) develop and approve the remuneration policy, which includes parameters for the implementation of the BSC Framework; (b) ensure adequate training and support are provided to the appointed FARs2 to understand the key outcomes and implementation of the BSC Framework; (c) ensure that the performance of the appointed FARs is reviewed against the Key Performance Indicators (KPIs) of the BSC Framework at least annually; (d) ensure that the maintenance of contracts or promotion of the appointed FARs are assessed against the performance under the BSC Framework; and (e) monitor the effective implementation of the BSC Framework and take timely corrective measures as required to promote the objectives of the BSC Framework. 14.8 The BSC Framework shall only be applicable to the sale of regular premium or contribution products that are subject to the Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business. 14.9 In relation to paragraph 14.8, the BSC Framework is not applicable to the sale of products that generally have low inherent conduct risks due to the products’ simplicity, are short term in nature or when dealing with more capable master policy owners who have the capability of making informed decisions, such as – (a) life insurance/family takaful products sold through direct marketing and telemarketing, including that marketed through internet and mail services; (b) group products; (c) business products such as key man insurance/takaful; (d) simple term products sold as ancillary products to loans/financing, including the mortgage reducing term assurance/takaful products; (e) stand-alone/individual medical and health insurance/takaful; 2 Approved financial adviser may exempt new appointed FARs from the BSC in the first 2 years of appointment. For FARs or former insurance agents or takaful agents who are reappointed by another approved financial adviser, BSC shall apply the next calendar year. Prudent and Professional Conduct by Financial Advisers 9 of 12 Issued on: 26 April 2022 S G S S S (f) pre-packaged simple employees’ benefit products that are marketed at the workplace; and (g) additions (top-ups), exclusions (deletions) and changes to existing inforce products. 14.10 The percentage of BSC commission payable by an approved financial adviser to its appointed FARs must be set at 25% of total commissions payable. 14.11 In relation to paragraph 14.10, the Bank may gradually increase the proportion of the BSC commission. 14.12 For the purpose of calculating the BSC commission for its appointed FARs, the approved financial adviser must assign the minimum score and weightage of each KPI according to the table as attached in Appendix I. 14.13 In the event its appointed FARs are unable to meet the KPIs specified in Appendix I, an approved financial adviser shall utilise the portion of BSC commission for further training and development of its under-performing appointed FARs. 14.14 In relation to paragraph 14.13, an approved financial adviser shall – (a) not utilise savings in commission from under-performing appointed FARs to subsidise allocated annual training expense intended for all appointed FARs; (b) not utilise savings in commission to pay for any incentives and rewards to under-performing appointed FARs; (c) design specific training programmes for under-performing appointed FARs to raise their current competency and skills to the level of a performing appointed FAR including the following: (i) ensure the course content is sufficiently differentiated from the regular training courses conducted for all appointed FARs to address specific areas for improvement; and (ii) review periodically the effectiveness of these specific training programmes based on feedback from under-performing appointed FARs and make necessary changes to cater for changing needs and competency gaps; (d) seek the Bank’s prior approval in the event the approved financial adviser wishes to utilise any savings in commission for purposes other than to design and deliver specific training programmes for under-performing appointed FARs; and (e) fully utilise any unused savings in commission by the end of the first quarter of the next financial year, unless otherwise permitted in writing by the Bank. Prudent and Professional Conduct by Financial Advisers 10 of 12 Issued on: 26 April 2022 S 14.15 An approved financial adviser shall submit to the Bank an annual report on the performance of its appointed FARs against the KPIs of the BSC Framework which has been reviewed by the Board and senior management, and the information on the amount of BSC commissions payable to its appointed FARs by the end of March of the following year using the template in Appendix II to: Director, Consumer and Market Conduct Department, Bank Negara Malaysia. 15 Publication of financial statements S 15.1 For purposes of section 66 of the FSA and section 75 of the IFSA, an approved financial adviser’s latest audited financial statements must be made available for access and inspection by members of the public, at no cost whatsoever – (a) at every branch of the approved financial adviser in Malaysia; or (b) on the approved financial adviser’s website in an electronic form that is publicly accessible. 16 Notifications S 16.1 An approved financial adviser must notify the Bank in writing within seven (7) days after the date of the following changes: (a) for purposes of section 25(2) of the FSA and section 22(2) of the IFSA, the establishment or relocation of an office; (b) for purposes of section 54(4) of the FSA and section 63(4) of the IFSA, the appointment, re-appointment, election or re-election of its chairman, director, chief executive officer or appointed FAR; (c) for purposes of section 62 of the FSA and section 71 of the IFSA, the cessation from office of its chairman, director, chief executive officer, senior officer or appointed FAR, as the case may be, including the reason for such cessation; (d) for purpose of section 67(3) of the FSA and section 76(3) of the IFSA, the appointment or reappointment of an auditor; and (e) for purposes of section 70 of the FSA and section 79 of the IFSA, cessation of auditor, including the reason of such cessation. Prudent and Professional Conduct by Financial Advisers 11 of 12 Issued on: 26 April 2022 APPENDIX I MINIMUM SCORE AND WEIGHTAGE OF EACH KPI KPIs Minimum Score Weightage a Number of suitable product options provided to meet customer needs Suitable products from at least three different product providers3 20% b Completion rate of customer fact finding (CFF) option 1 and 2 80% and above 20% c 1st year persistency ratio 90% and above 20% d 2nd year persistency ratio 80% and above 20% e Number of substantiated complaints 0 10% f Meeting Continuous Professional Development (CPD) hours 20 hours 10% 3Excluding genuine circumstances (i.e. product limitations vis-à-vis customers’ specific needs, customers preferring a particular ITO) that prevent an approved financial adviser from comparing products from at least three different product providers. An approved financial adviser shall notify and explain the limitations to the customers accordingly as well as obtain consent from customers before proceeding with the comparison and recommendation based on the limited product options as per paragraph 12.2. Prudent and Professional Conduct by Financial Advisers 12 of 12 Issued on: 26 April 2022 APPENDIX II TEMPLATE FOR SUBMISSION OF BSC REPORT Balanced Score Card (BSC) Implementation [Jan - Dec 20xx] Financial Adviser Representatives (FAR) Financial Adviser (FA): Total number of FARs: Data period: Jan - Dec 20xx Not Met Met Total KPI I Number of Suitable Product Options Provided to Meet Customer's Needs 20% Suitable products from at least three different product providers KPI II Completion Rate of Customer Fact Finding (CFF) Option 1 and 2 20% 80% and above KPI III 1st Year Persistency Ratio 20% 90% and above KPI IV 2nd Year Persistency Ratio 20% 80% and above KPI V Number of Substantiated Complaints 10% 0 KPI VI Meeting CPD Hours 10% 20 hours Amount (in RM) of BSC Commissions Payable No. of FARs Total Amount of Commission Paid (RM) Total Amount of Commission Saved (RM) No. of FARs Total Amount of Commission Paid (RM) 1 Jan 20xx - 31 Dec 20xx REMARKS PERIOD Total No. of FARs NORMAL PERFORMERS (Met) UNDER-PERFORMERS (Not Met) No. of FARs % by score No. of FARs % by score No. of FARs % by score No. of FARs % by score No. of FARs % by score No. of FARs % by score Please fill in the boxes in yellow with the respective number of FARs that were able to meet or not meet with the BSC KPI threshold. BSC KPIs Weightage Score Actual Score PUBLIC FEEDBACK STATEMENT 1 Policy Document on Prudent and Professional Conduct by Financial Advisers: Summary of Key Feedback Received from Public Consultation and BNM’s Responses In August 2021, Bank Negara Malaysia (the Bank) has issued an exposure draft on the Prudent and Professional Conduct by Financial Advisers for public consultation. The Bank wishes to record its appreciation to the financial advisory industry for providing valuable insights and feedback that have in turn assisted the Bank in finalising the requirements in the policy document. Following the issuance of the Policy Document on Prudent and Professional Conduct by Financial Advisers (PD), this supplementary feedback statement is intended to summarise the key feedback received and the Bank’s corresponding responses to provide greater insights on the Bank’s policy and supervisory expectations. No Requirements Feedback received Responses 1. Financial advisers (FA) shall provide suitable product options to meet customers’ needs from at least three different insurers/takaful operators (ITOs) for each class of business. FAs generally wish to maintain the current requirement (more than one ITO) due to the following reasons: a. Difficult to make exact/direct comparison for certain types of products; b. Customers’ health condition may limit available options; c. Customers may want a product from a preferred ITO; and d. May result in customers being overloaded with information. This revised requirement is necessary to enforce the Bank’s expectations on FAs as an independent intermediary and ensure distinct differentiation between the services of FAs and agents. Furthermore, all approved FAs already have three or more “tie-ups” with ITOs at present. Hence, the proposed requirement has been retained in the PD. Nevertheless, in addressing the concerns raised by the industry, a new requirement has been included in the PD (Paragraph 12.2) where in the event there are limited product options that meet customers’ needs, FAs are required to inform and obtain customers’ consent before proceeding with the comparison and recommendation based on the limited product options. 2. The weightage for persistency ratio in the Balanced Score Card (BSC) has been proposed to be increased from 20% to 25%. FAs generally are not agreeable to the proposed increase due to the following concerns: a. Seen as a “punishment” to FAs as non-payment or lapsation lapsation is beyond FAs’ control i.e. customers’ loss/reduction of income due to economic In view of the current pandemic situation and the ensuing uncertainties, the Bank agrees to retain the weightage for persistency ratio at 20%. The FA sector’s consistency in producing the highest rates of persistency for insurance policies/takaful certificates sold compared to the other intermediary PUBLIC FEEDBACK STATEMENT 2 conditions, launch of new and better products; b. FAs face margin challenges as have to fully bear operational costs (rental, staff cost) with no incentives or support provided by ITOs, unlike agents; and c. Has to be implemented across all intermediaries, including agents and banca to ensure level playing field. channels has been taken into account in arriving at this decision. Nevertheless, the Bank will revisit this proposal more comprehensively and review the existing BSC weightages for all criteria across all intermediaries (including agents of ITOs and banca agents) at a later stage. 3. FAs are prohibited from using the term “independent financial adviser” without the prior written approval of the Bank. FAs requested for the Bank to provide guidance on the use of the term “independent financial adviser”. The Bank has included the factors for consideration in determining whether FAs are allowed to use the term “independent financial adviser”, in Paragraph 12.4 of the PD. These factors are in line with the factors adopted by the regulators in other countries. 4. FAs must maintain a Professional Indemnity (PI) cover of at least RM200,000 net of deductibles for any one claim at all times. Notwithstanding the minimum PI cover specified, the Board must ensure the amount and scope of PI cover commensurate with the volume and nature of FAs’ business at all times. FAs requested for the Bank to provide guidance on the basis for the minimum limit of PI cover to ensure similar practices across the industry. The Bank has provided additional guidance under Paragraph 10.2 of the PD. 5. FAs’ latest audited financial statements must be made available for access and inspection by members of public, at no cost: a) at FAs’ branch in Malaysia; or Some FAs disagreed with this requirement on the basis that this requirement should only apply to financial service providers that handle clients’ monies, as premiums or contributions received by FAs are directly remitted to the The Bank wishes to reiterate that this is a legislative requirement under section 66 of the Financial Services Act 2013 and section 75 of the Islamic Financial Services Act 2013. Therefore, the requirement has been retained in the PD. PUBLIC FEEDBACK STATEMENT 3 b) on FAs’ website in an electronic form that is publicly accessible. ITOs. Additionally, as FAs are not public listed companies, hence, should not be subjected to such requirements. FAs do have the flexibility to determine whether to comply with this requirement through the cost- free option of publishing its audited financial statements on its website, or by ensuring a printed version is available for viewing at its branch(es) upon request. 6. The Board of FAs must establish a board charter that sets out the mandate, responsibilities and procedures of the Board, including the matters reserved for the Board’s decision. Most FAs are of small set-up and may not have enough resources to implement a proper corporate structure i.e. the same individual dual- hatting as a director and senior management of the FA. Hence, blurring the line of roles, responsibilities and accountability. The Bank acknowledges that FAs are generally smaller and less complex compared to other financial institutions. As such, the requirement under Paragraph 11.4 of the PD has been refined to require FAs to establish a board charter that commensurate with the size and risk of FAs’ business. 7. FAs must have a minimum paid-up capital of RM50,000. The minimum of RM50,000 may be too low to instil confidence in clients and business partners. Hence, some FAs requested for the Bank to consider reverting to RM100,000. The minimum requirement was revised earlier to streamline with the Securities Commission’s requirement for its financial planners. Nevertheless, the Bank wishes to reiterate that the amount specified is a minimum requirement and FAs may increase their capital accordingly to correspond with their business size. As such, the requirement has been retained in the PD. BANK NEGARA MALAYSIA 26 APRIL 2022	Public Notice
26 Apr 2022	Dokumen Dasar mengenai Tatacara Permohonan untuk Menjalankan Perniagaan Penasihat Kewangan dan Perniagaan Penasihat Kewangan Islam	https://www.bnm.gov.my/-/dokumen-dasar-mengenai-tatacara-permohonan-untuk-menjalankan-perniagaan-penasihat-kewangan-dan-perniagaan-penasihat-kewangan-islam	https://www.bnm.gov.my/documents/20124/855632/pd_Application_Procedures_carry_on_FA_business.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/dokumen-dasar-mengenai-tatacara-permohonan-untuk-menjalankan-perniagaan-penasihat-kewangan-dan-perniagaan-penasihat-kewangan-islam&languageId=ms_MY	Reading: Dokumen Dasar mengenai Tatacara Permohonan untuk Menjalankan Perniagaan Penasihat Kewangan dan Perniagaan Penasihat Kewangan Islam Share: Dokumen Dasar mengenai Tatacara Permohonan untuk Menjalankan Perniagaan Penasihat Kewangan dan Perniagaan Penasihat Kewangan Islam Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1300 pada Selasa, 26 April 2022 26 Apr 2022 Tarikh Penerbitan 26 April 2022 Ringkasan Dokumen dasar ini menetapkan dokumen dan prosedur penyerahan yang diperlukan untuk memohon kelulusan baharu atau pembaharuan kelulusan untuk menjalankan perniagaan penasihat kewangan dan perniagaan penasihat kewangan Islam. Dokumen Dasar: Tatacara Permohonan untuk Menjalankan Perniagaan Penasihat Kewangan dan Perniagaan Penasihat Kewangan Islam Jabatan Pengeluar: Jabatan Pengguna dan Amalan Pasaran Bank Negara Malaysia 26 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Issued on: 26 April 2022 BNM/RH/PD 029-52 Application Procedures to Carry On Financial Advisory Business and Islamic Financial Advisory Business Applicable to: 1. Persons intending to become approved financial advisers 2. Persons intending to become approved Islamic financial advisers 3. Approved financial advisers 4. Approved Islamic financial advisers Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business Issued on: 26 April 2022 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................. 1 1 Introduction .................................................................................................. 1 2 Applicability ................................................................................................. 1 3 Legal provisions........................................................................................... 1 4 Effective date ............................................................................................... 2 5 Interpretation ............................................................................................... 2 6 Related legal instruments and policy documents ........................................ 2 7 Policy documents superseded ..................................................................... 3 PART B SUBMISSION REQUIREMENTS AND ANNUAL FEES......................... 4 8 Submission requirements for approval ........................................................ 4 9 Submission requirements for renewal of approval ....................................... 4 10 Submission requirements to carry on Islamic financial advisory business ... 4 11 Submission procedures ............................................................................... 5 12 Annual fees ................................................................................................. 5 APPENDICES ........................................................................................................ 7 Appendix I: Application Form for Approval ............................................................. 7 Appendix II: Application Form for Renewal of Approval ....................................... 26 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 1 of 29 Issued on: 26 April 2022 PART A OVERVIEW 1 Introduction 1.1 Pursuant to section 11 of the Financial Services Act 2013 (FSA) and the Islamic Financial Services Act 2013 (IFSA), Bank Negara Malaysia (BNM) shall assess an application for new approval or renewal of approval to carry on financial advisory business and Islamic financial advisory business, having regard to relevant factors including any of the factors set out in Schedule 5 of the FSA or the IFSA. 1.2 This policy document sets out – (a) BNM’s considerations under the law in assessing an application set out in paragraph 1.1; (b) documents and information to be submitted to BNM by: (i) persons intending to become approved financial advisers or approved Islamic financial advisers; (ii) approved financial advisers or approved Islamic financial advisers; to facilitate BNM’s assessment of the application; and (c) submission procedures to apply for new approval or renewal of approval to carry on financial advisory business and Islamic financial advisory business. 2 Applicability 2.1 This policy document is applicable to an applicant and approved financial adviser as defined in paragraph 5.2. 3 Legal provisions 3.1 The requirements in this policy document are specified pursuant to – No. Provisions Section FSA IFSA (a) Submission of documents and information for application to carry on financial advisory business or Islamic financial advisory business. 9 (b) Submission of documents and information for application to carry on Islamic financial advisory business, in addition to financial advisory business. 15(1)(c), 143 - 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA and section 277 of the IFSA. Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 2 of 29 Issued on: 26 April 2022 4 Effective date 4.1 This policy document comes into effect on 26 April 2022. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA or IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purposes of this policy document – “S” denotes a standard, an obligation, requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “applicant” means any person intending to carry on a financial advisory business under the FSA or Islamic financial advisory business under the IFSA; “approved financial adviser” collectively refers to an approved financial adviser under the FSA and an approved Islamic financial adviser under the IFSA, unless otherwise specified; and “financial adviser’s representative” or FAR collectively refers to an approved financial adviser’s representative and approved Islamic financial adviser’s representative, unless otherwise specified. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by BNM, in particular – (a) Policy Document on Prudent and Professional Conduct by Financial Advisers issued on 26 April 2022; (b) Policy Document on Shareholder Suitability – Notification and Application Procedures issued on 4 June 2019; (c) Policy Document on Fit and Proper Criteria for Approved Person issued on 24 December 2018; (d) Islamic Financial Services (Minimum Amount of Capital Funds) (Approved Person) (Amendment) Order 2014 [P.U. (A) 356/2014]; (e) Financial Services (Minimum Amount of Capital Funds) (Approved Person) (Amendment) Order 2014 [P.U. (A) 355/2014]; (f) Financial Services (Fees) Regulations 2014 [P.U. (A) 331/2014]; Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 3 of 29 Issued on: 26 April 2022 (g) Islamic Financial Services (Fees) Regulations 2014 [P.U. (A) 330/2014]; (h) Islamic Financial Services (Minimum Amount of Capital Funds) (Approved Person) Order 2013 [P.U. (A) 210/2013]; and (i) Financial Services (Minimum Amount of Capital Funds) (Approved Person) Order 2013 [P.U. (A) 204/2013]. 7 Policy documents superseded 7.1 This policy document supersedes the Guidelines on Application for Financial Adviser’s Licence under the Insurance Act 1996 dated 18 September 2007. Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 4 of 29 Issued on: 26 April 2022 PART B SUBMISSION REQUIREMENTS AND ANNUAL FEES 8 Submission requirements for approval S 8.1 Pursuant to section 9 of the FSA and the IFSA and for the purposes of section 11 of the FSA and IFSA, an application for an approval to carry on financial advisory business or Islamic financial advisory business, as the case may be, must be submitted to BNM in writing together with the following documents – (a) a cover letter stating the intention to apply for an approval to carry on financial advisory business under the FSA or Islamic financial advisory business under the IFSA; and (b) a completed application form with relevant documents and information as specified in Appendix I. 9 Submission requirements for renewal of approval S 9.1 Pursuant to section 9 of the FSA and IFSA and for the purposes of section 11 of the FSA and IFSA, an approved financial adviser must submit to BNM in writing the following documents for the purposes of its application for a renewal of an approval no later than two (2) months before the expiry of its existing approval – (a) a cover letter stating the intention to apply for the renewal of the approval to carry on financial advisory business under the FSA or Islamic financial advisory business under the IFSA, as the case may be; (b) a completed application form based on the format specified in Appendix II; (c) relevant documents or information to demonstrate the approved financial adviser’s compliance with the FSA or IFSA, as the case may be; and (d) a copy of the approved financial adviser’s latest audited financial statements. S 10 Submission requirements to carry on Islamic financial advisory business 10.1 For the purposes of section 15(1)(c) of the FSA, an approved financial adviser under the FSA intending to carry on Islamic financial advisory business must submit an application to BNM in writing, consisting of the following documents – (a) a completed application form based on the format specified in Appendix I; and (b) the Shariah Registered Financial Planner certificate or Islamic Financial Planner certificate or an equivalent qualification from a higher learning institution recognised by MFPC and FPAM of the FAR candidate to be appointed by the approved financial adviser. Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 5 of 29 Issued on: 26 April 2022 S S G G 11 Submission procedures 11.1 The completed application form together with the documents and information specified in paragraphs 8.1 and 9.1 and 10.1 respectively, must be submitted to the following address – Director, Consumer and Market Conduct Department, Bank Negara Malaysia 11.2 Where BNM requires the submission of additional documents or information for the assessment of an application under paragraphs 8.1, 9.1 or 10.1, the applicant or the approved financial adviser, as the case may be, must submit such document or information to BNM accordingly and within the time specified by BNM. 11.3 In assessing an application duly made under section 9 of the FSA and IFSA, BNM will take into consideration any of the factors set out in Schedule 5 of the FSA or IFSA, as the case may be and all other matters that BNM considers relevant including the following – (a) compliance with regulatory requirements; (b) financial standing and performance; and (c) in the case of an application for a renewal of an existing approval, its compliance to approval conditions and business conduct requirements, including whether any consumer complaints have been lodged. 11.4 BNM will notify the applicant or the approved financial adviser in writing of BNM’s decision pertaining to the application. BNM endeavours to process the application within a reasonable time and will promptly notify the applicant of the decision accordingly. This is conditional on the ability of the applicant to ensure timeliness and completeness of information submitted to facilitate processing of the application. The submission of an application is only considered as complete when all the required documents and information have been received by BNM. 12 Annual fees S S 12.1 Pursuant to section 26(1) of the FSA1 and section 23(1) of the IFSA, all approved financial advisers and Islamic financial advisers are required to pay annual fees as set out in the Second Schedule of Financial Services (Fees) Regulations 2014 and Islamic Financial Services (Fees) Regulations 20142, as the case may be. 12.2 An approved financial adviser must make the annual fee payment to BNM in the following manner – 1 Read together with the Financial Services (Fees) Regulations 2014 2 Including any changes as specified by BNM from time to time. Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 6 of 29 Issued on: 26 April 2022 (a) through a licensed bank or licensed Islamic bank via RENTAS (Real Time Electronic Transfer of Funds and Securities) by crediting the account of “Akauntan Negara Malaysia (Account No: 1554095430), Bank Negara Malaysia (TRN: ANT01)” within seven (7) working days3 from the date of approval by BNM; (b) state the name of the approved financial adviser and “approval fee” or “renewal fee”, as the case may be, in the payment details; and (c) submit a copy of the credit invoice to BNM as proof of payment within two (2) weeks from the date of payment. 3 Including any changes as specified by BNM from time to time. Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 7 of 29 Issued on: 26 April 2022 APPENDICES Appendix I: Application Form for Approval Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 8 of 29 Issued on: 26 April 2022 Financial Adviser Islamic Financial Adviser Name of contact person: Designation of contact person: i. ii. i. ii. i. ii. 0 Sub-total Non- Malaysian Paid-up capital (in RM): Financial year end: % Share- holdingIn Unit Shares Held In RM SHAREHOLDING STRUCTURE (Please attach a certified true copy of Section 78 - Return for Allotment of Shares. If space provided is insufficient, please provide in a separate sheet) Sub-total 0 0.0%TOTAL Name (may be an individual or company) Sub-total Malaysian (Non-Bumiputera) PART 1: TYPE OF APPROVAL APPLIED FOR - Please TICK where applicable PART 2: APPLICANT'S PARTICULARS Please attach a certified true copy of Constitution of the Company and SSM certificate of registration Fax No.: Registered Address: (If address belongs to company secretary of the applicant, please state the name, telephone and fax number of company secretary) Office Address: Date of incorporation: Tel. No.: Email: Company Registration No.: Name of company: Tel. No.: Pengarah Jabatan Konsumer dan Amalan Pasaran Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Malaysian (Bumiputera) APPLICATION FORM FOR FINANCIAL ADVISER AND/OR ISLAMIC FINANCIAL ADVISER APPROVAL The completed Application Form, cover letter and supporting documents should be submitted to: Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 9 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 10 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 11 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 12 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 13 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 14 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 15 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 16 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 17 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 18 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 19 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 20 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 21 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 22 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 23 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 24 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 25 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 26 of 29 Issued on: 26 April 2022 Appendix II: Application Form for Renewal of Approval Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 27 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 28 of 29 Issued on: 26 April 2022 Application Procedures To Carry On Financial Advisory Business and Islamic Financial Advisory Business 29 of 29 Issued on: 26 April 2022	Public Notice
22 Apr 2022	Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara dalam Talian	https://www.bnm.gov.my/-/14th-banknotes-auction-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/14th-banknotes-auction-bm&languageId=ms_MY	Reading: Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara dalam Talian Share: Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara dalam Talian Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1725 pada Jumaat, 22 April 2022 22 Apr 2022 BNM akan mengadakan lelongan wang kertas Ringgit dengan nombor siri khas secara dalam talian yang akan dibuka dari 23 April hingga 30 April 2022. Lelongan ini dikendalikan oleh jurulelong yang dilantik oleh BNM, iaitu MNP Auctioneers (Central) Sdn. Bhd. (MNP) dan bidaan boleh dibuat melalui pautan ini. MNP akan memulakan sesi ‘Lelongan Secara Langsung’ pada 30 April 2022 (Sabtu) pukul 11.00 pagi. Wang kertas Ringgit dengan nombor siri khas akan dilelong, seperti set 10 wang kertas terawal (cth. LL0000001-0000010) dan nombor super solid dengan awalan berulang (cth. LL8888888). Pendaftaran dan bidaan dalam talian boleh dilakukan melalui www.best2bid.com. Maklumat lanjut mengenai lelongan boleh didapati melalui laman sesawang MNP iaitu www.mnp.com.my atau talian khidmat pelanggan MNP melalui 017-400 6661. Bank Negara Malaysia 22 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
01 Apr 2022	Penerbitan Senarai Pemproses Mata Wang Berdaftar	https://www.bnm.gov.my/-/list-of-registered-currency-processors-bm	https://www.bnm.gov.my/documents/20124/820862/act827_ca2020_bm.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/list-of-registered-currency-processors-bm&languageId=ms_MY	Reading: Penerbitan Senarai Pemproses Mata Wang Berdaftar Share: 2 Penerbitan Senarai Pemproses Mata Wang Berdaftar Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1110 pada Jumaat, 1 April 2022 1 Apr 2022 Sebagaimana yang diperuntukkan di bawah seksyen 26 Akta Mata Wang 2020, Bank Negara Malaysia telah mendaftarkan syarikat-syarikat berikut sebagai Pemproses Mata Wang Berdaftar di bawah Akta tersebut:No. Nama Syarikat dan Alamat Berdaftar Nombor Pendaftaran Suruhanjaya Syarikat Malaysia (SSM) 1. Armour Security Systems (M) Sdn. Bhd. 43, Jalan Bukit Desa 5, Taman Bukit Desa, Off Jalan Kelang Lama, 58100 Kuala Lumpur 113614-X 2. Safeguards G4S Sdn. Bhd. Lot 14 & 16, Jalan 241, Section 51A, 46100, Petaling Jaya, Selangor 535103-P 3. Securiforce Currency Management Sdn. Bhd. No. 55, Kompleks Udarama, Jalan 2/64A, Off Jalan Ipoh, 50350, Kuala Lumpur 1317334-P 4. SRT-EON Security Services Sdn. Bhd. No. 52 & 54, Jalan SS6/14, Kelana Jaya, 47301 Petaling Jaya, Selangor 086334-X Lihat juga: Akta Mata Wang 2020 Bank Negara Malaysia 1 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.	AKTA MATA WANG 2020 Mata Wang 1 UNDANG-UNDANG MALAYSIA Akta 827 AKTA MATA WANG 2020 2 Undang-Undang Malaysia AktA 827 Tarikh Perkenan Diraja ... ... 14 Februari 2020 Tarikh penyiaran dalam Warta ... 28 Februari 2020 Hakcipta Pencetak H PERCETAKAN NASIONAL MALAYSIA BERHAD Semua Hak Terpelihara. Tiada mana-mana bahagian jua daripada penerbitan ini boleh diterbitkan semula atau disimpan di dalam bentuk yang boleh diperolehi semula atau disiarkan dalam sebarang bentuk dengan apa jua cara elektronik, mekanikal, fotokopi, rakaman dan/atau sebaliknya tanpa mendapat izin daripada Percetakan Nasional Malaysia Berhad (Pencetak kepada Kerajaan Malaysia yang dilantik). Mata Wang 3 UNDANG-UNDANG MALAYSIA Akta 827 AKTA MATA WANG 2020 SUSUNAN SEKSYEN Bahagian I PERMULAAN Seksyen 1. Tajuk ringkas dan permulaan kuat kuasa 2. Tafsiran 3. Orang yang diisytiharkan sebagai institusi kewangan 4. Kuasa dan fungsi Bank Bahagian II KUASA YANG BERHUBUNGAN DENGAN MATA WANG 5. Bank menjadi pihak berkuasa tunggal untuk mengeluarkan mata wang 6. Pencetakan dan penempaan mata wang di bawah kuasa Bank 7. Pengeluaran, pengeluaran semula dan pertukaran mata wang di pejabat, dsb., yang ditubuhkan oleh Bank 8. Bank bertanggungan bagi nilai muka mata wang 9. Denominasi dan bentuk mata wang 10. Sah diperlakukan 11. Jualan mata wang 12. Penyimpanan selamat mata wang yang belum dikeluarkan, dsb. 13. Kuasa memanggil balik mata wang 14. Penarikan mata wang 15. Pelupusan mata wang atau instrumen pencetakan dan penempaan 16. Pembayaran balik mata wang yang hilang, dicuri atau tidak sempurna 17. Pemeliharaan kualiti dan integriti mata wang 4 Undang-Undang Malaysia AktA 827 Bahagian III KESALAHAN YANG BERHUBUNGAN DENGAN MATA WANG Seksyen 18. Larangan mengeluarkan, mencetak atau menempa mata wang 19. Sekatan ke atas penggunaan gambar, lukisan atau reka bentuk mata wang dalam penerbitan, dsb. 20. Larangan melebur mata wang syiling 21. Had transaksi tunai 22. Ketidakpakaian seksyen 21 Bahagian IV PERNIAGAAN PEMPROSESAN MATA WANG 23. Perisytiharan perniagaan pemprosesan mata wang Penggal 1 Pendaftaran 24. Larangan menjalankan perniagaan pemprosesan mata wang 25. Permohonan bagi pendaftaran 26. Pendaftaran 27. Tidak boleh didaftarkan 28. Penyiaran senarai pemproses mata wang berdaftar 29. Pembatalan pendaftaran secara sukarela 30. Pembatalan pendaftaran oleh Bank 31. Peluang untuk membuat representasi bagi tindakan di bawah seksyen 30 32. Kesan pembatalan pendaftaran Penggal 2 Kewajipan pemproses mata wang berdaftar 33. Amalan berhemat dan profesional 34. Kewajipan pengarah dan ketua pegawai eksekutif 35. Fi 36. Pemeliharaan kerahsiaan Mata Wang 5 Seksyen 37. Penahanan mata wang yang disyaki palsu 38. Bank, pemproses mata wang berdaftar dan institusi kewangan merekodkan maklumat peribadi orang yang daripadanya mata wang ditahan 39. Mata wang diserahkan dan maklumat dikemukakan, kepada polis 40. Mata wang terus menjadi harta orang yang daripadanya mata wang ditahan jika mata wang adalah tulen 41. Pengemukaan dokumen atau maklumat Penggal 3 Pemeriksaan 42. Kuasa untuk memeriksa 43. Pemeriksaan orang tertentu 44. Hak bagi akses dan pengemukaan harta, dsb. 45. Kehadiran di hadapan Bank Bahagian V PENGUATKUASAAN Penggal 1 Tindakan oleh Bank 46. Kemungkiran 47. Kuasa untuk mengeluarkan arahan 48. Kuasa untuk mengambil tindakan pentadbiran 49. Kesesuaian tindakan 50. Peluang untuk membuat representasi bagi tindakan di bawah seksyen 47 atau 48 51. Rayuan terhadap penalti monetari Penggal 2 Tindakan jenayah 52. Kesalahan oleh orang yang bertindak dalam jawatan rasmi 53. Kesalahan oleh pekerja atau pegawai atau ejen 54. Percubaan, persubahatan dan komplot 6 Undang-Undang Malaysia AktA 827 Seksyen 55. Kesalahan boleh tangkap 56. Pencantuman kesalahan 57. Pengkompaunan kesalahan 58. Pendakwaan Bahagian VI AM 59. Wang yang diterima oleh Bank 60. Kuasa untuk membuat peraturan-peraturan 61. Kuasa untuk mengeluarkan standard 62. Kuasa untuk mengeluarkan garis panduan 63. Peruntukan berhubungan dengan kelulusan, standard, spesifikasi, notis, kehendak, arahan, perintah atau garis panduan 64. Penyiaran tindakan penguatkuasaan 65. Pindaan Jadual 66. Perlindungan terhadap guaman dan prosiding undang-undang 67. Pemakaian seksyen 77 Akta Bank Negara Malaysia 2009, Penggal 2 Bahagian XIV Akta Perkhidmatan Kewangan 2013 dan Penggal 2 Bahagian XV Akta Perkhidmatan Kewangan Islam 2013 68. Pengecualian Bahagian VII KECUALIAN DAN PERALIHAN 69. Kecualian 70. Peralihan Jadual Pertama Jadual Kedua Mata Wang 7 UNDANG-UNDANG MALAYSIA Akta 827 AKTA MATA WANG 2020 Suatu Akta untuk mengadakan peruntukan bagi pengurusan mata wang Malaysia, pengawalseliaan perniagaan pemprosesan mata wang dan aktiviti pemprosesan mata wang dan bagi perkara yang berkaitan. [ ] DIPERBUAT oleh Parlimen Malaysia seperti yang berikut: Bahagian I PERMULAAN Tajuk ringkas dan permulaan kuat kuasa 1. (1) Akta ini bolehlah dinamakan Akta Mata Wang 2020. (2) Akta ini mula berkuat kuasa pada tarikh yang ditetapkan oleh Menteri melalui pemberitahuan dalam Warta dan Menteri boleh menetapkan tarikh yang berlainan bagi permulaan kuat kuasa Bahagian atau peruntukan yang berlainan dalam Akta ini. 8 Undang-Undang Malaysia AktA 827 Tafsiran 2. (1) Dalam Akta ini, melainkan jika konteksnya menghendaki makna yang lain— “aktiviti pemprosesan mata wang” ertinya— (a) pengisihan mata wang kertas atau mata wang syiling mengikut ketulenan atau kualiti; atau (b) pembungkusan mata wang kertas atau mata wang syiling mengikut kualiti, kuantiti atau denominasi; “Bank” mempunyai erti yang sama yang diberikan kepadanya dalam subseksyen 2(1) Akta Bank Negara Malaysia 2009 [Akta 701]; “Gabenor” ertinya Gabenor Bank; “institusi kewangan” ertinya— (a) suatu bank berlesen di bawah Akta Perkhidmatan Kewangan 2013 [Akta 758], suatu bank Islam berlesen di bawah Akta Perkhidmatan Kewangan Islam 2013 [Akta 759] dan suatu institusi yang ditetapkan di bawah Akta Institusi Kewangan Pembangunan 2002 [Akta 618]; atau (b) mana-mana orang yang diisytiharkan sebagai suatu institusi kewangan dalam Jadual Pertama; “instrumen atau bahan” termasuklah— (a) yang berhubungan dengan mata wang kertas, filem asal, progresif, plat, pruf, dan mata wang kertas yang belum dicetak, separuh dicetak atau siap dicetak; (b) yang berhubungan dengan mata wang syiling, reka bentuk, acuan, roda huruf, penebuk, kolar, dai, peralatan kerja, blok gerigi dan penghurufan, syiling kosong dan mata wang syiling yang siap ditempa; dan Mata Wang 9 (c) apa-apa perkakas, kelengkapan dan jentera yang berhubungan dengan pengeluaran, pencetakan atau penempaan mata wang kertas atau mata wang syiling; “Jawatankuasa Semakan Penalti Monetari” ertinya Jawatankuasa Semakan Penalti Monetari yang ditubuhkan di bawah seksyen 238 Akta Perkhidmatan Kewangan 2013; “komputer” mempunyai erti yang sama yang diberikan kepadanya dalam seksyen 3 Akta Keterangan 1950 [Akta 56]; “mata wang kertas” ertinya suatu wang kertas yang dikeluarkan oleh Bank termasuk suatu wang kertas peringatan yang dikeluarkan oleh Bank untuk, atau bagi memperingati, suatu peristiwa atau tujuan tertentu; “mata wang syiling” ertinya suatu syiling yang dikeluarkan oleh Bank termasuk suatu wang syiling peringatan yang dikeluarkan oleh Bank untuk, atau bagi memperingati, suatu peristiwa atau tujuan tertentu; “Menteri” ertinya Menteri yang dipertanggungkan dengan tanggungjawab bagi kewangan; “orang” ertinya mana-mana orang sebenar, perbadanan, badan berkanun, pihak berkuasa tempatan, pertubuhan, kesatuan sekerja, koperasi, perkongsian atau mana-mana badan, organisasi, persatuan atau kumpulan orang lain, sama ada diperbadankan atau yang tidak diperbadankan dan termasuklah Kerajaan dan mana-mana Kerajaan Negeri; “output komputer” ertinya suatu pernyataan atau gambaran, sama ada dalam bentuk bertulis, bercetak, bergambar, filem, grafik, akustik atau yang lain— (a) yang dikeluarkan oleh suatu komputer; (b) yang ditayangkan pada skrin suatu komputer; atau (c) yang diterjemahkan dengan tepat daripada suatu pernyataan atau gambaran yang dikeluarkan dalam bentuk sedemikian; 10 Undang-Undang Malaysia AktA 827 “pemproses mata wang berdaftar” ertinya seseorang yang berdaftar di bawah subseksyen 26(1) untuk menjalankan perniagaan pemprosesan mata wang dan bagi maksud Penggal 3 Bahagian IV termasuklah mana-mana institusi kewangan yang menjalankan aktiviti pemprosesan mata wang; “perniagaan pemprosesan mata wang” ertinya — (a) perniagaan— (i) mengumpul mata wang kertas atau mata wang syiling; (ii) mengisih mata wang kertas atau mata wang syiling mengikut ketulenan dan kualiti; dan (iii) membungkus mata wang kertas atau mata wang syiling mengikut kualiti, kuantiti dan denominasi, oleh seseorang bagi atau bagi pihak orang lain; atau (b) apa-apa aktiviti yang diisytiharkan sebagai suatu perniagaan pemprosesan mata wang di bawah seksyen 23. (2) Suatu mata wang kertas hendaklah disifatkan rosak— (a) jika apa-apa perkataan, tanda, simbol, lukisan, karikatur, atau benda lain, telah ditulis, digores atau dalam apa-apa cara lain atau melalui apa-apa cara lain telah ditunjukkan pada permukaannya; atau (b) jika mata wang kertas itu koyak, tercemar, terbakar, dikotori, punah atau dengan apa-apa cara selainnya dicacatkan. (3) Suatu mata wang syiling hendaklah disifatkan dibega— (a) jika mata wang syiling itu cacat, susut atau menjadi ringan melainkan kerana rosak rosot biasa; atau (b) jika mata wang syiling itu dicap, diukir atau ditebuk, tidak kira sama ada syiling itu telah menjadi susut atau ringan. Mata Wang 11 Orang yang diisytiharkan sebagai institusi kewangan 3. Mana-mana orang yang dinyatakan dalam Jadual Pertama diisytiharkan sebagai suatu institusi kewangan bagi maksud Akta ini. Kuasa dan fungsi Bank 4. (1) Kuasa dan fungsi Bank di bawah Akta ini adalah sebagai tambahan kepada, dan tidak mengurangkan, kuasa dan fungsi Bank di bawah Akta Bank Negara Malaysia 2009. (2) Gabenor hendaklah menjalankan apa-apa kuasa dan melaksanakan apa-apa fungsi Bank di bawah Akta ini bagi pihak Bank. (3) Bank boleh, sama ada secara am atau dalam suatu hal tertentu, melantik mana-mana orang, termasuk pegawai Bank, sama ada di dalam atau di luar Malaysia— (a) untuk menjalankan apa-apa kuasa atau melaksanakan apa-apa fungsi, Bank, di bawah Akta ini bagi pihak dan atas nama Bank; atau (b) untuk memberikan apa-apa bantuan dalam menjalankan apa-apa kuasa atau melaksanakan apa-apa fungsi, Bank, di bawah Akta ini. Bahagian II KUASA YANG BERHUBUNGAN DENGAN MATA WANG Bank menjadi pihak berkuasa tunggal untuk mengeluarkan mata wang 5. Bank hendaklah menjadi pihak berkuasa tunggal untuk mengeluarkan mata wang kertas dan mata wang syiling di Malaysia. Pencetakan dan penempaan mata wang di bawah kuasa Bank 6. (1) Mata wang kertas dan mata wang syiling hanya boleh dicetak atau ditempa oleh atau di bawah kuasa Bank. 12 Undang-Undang Malaysia AktA 827 (2) Bank hendaklah mengatur pencetakan mata wang kertas dan penempaan mata wang syiling. Pengeluaran, pengeluaran semula dan pertukaran mata wang di pejabat, dsb., yang ditubuhkan oleh Bank 7. Bank hendaklah mengeluarkan dan mengeluarkan semula dan boleh membuat pertukaran mata wang kertas dan mata wang syiling di pejabat Bank atau di mana-mana agensi yang ditubuhkan atau dilantik oleh Bank bagi maksud itu. Bank bertanggungan bagi nilai muka mata wang 8. Bank hendaklah bertanggungan bagi nilai muka mata wang kertas dan mata wang syiling yang telah dikeluarkan oleh Bank. Denominasi dan bentuk mata wang 9. (1) Mata wang kertas dan mata wang syiling yang dikeluarkan oleh Bank— (a) hendaklah dalam denominasi ringgit atau sen; dan (b) hendaklah dalam bentuk, ciri-ciri atau reka bentuk, atau mengandungi ciri atau peranti, sebagaimana yang diluluskan oleh Menteri, atas syor Bank. (2) Piawai berat dan komposisi mata wang syiling yang dikeluarkan oleh Bank dan amaun remedi dan ubahan hendaklah sebagaimana yang diluluskan oleh Menteri, atas syor Bank. Sah diperlakukan 10. (1) Hanya mata wang kertas dan mata wang syiling yang dikeluarkan oleh Bank sah diperlakukan di Malaysia pada nilai mukanya dengan syarat mata wang kertas itu tidak rosak dan wang syiling itu tidak dibega. Mata Wang 13 (2) Mata wang kertas dan mata wang syiling yang disebut dalam subseksyen (1) hendaklah sah diperlakukan pada nilai mukanya bagi suatu pembayaran yang tidak melebihi kuantiti atau nilai agregat maksimum mata wang kertas atau mata wang syiling yang dinyatakan dalam Jadual Kedua. Jualan mata wang 11. (1) Bank boleh, bagi maksud mempromosikan ilmu numismatik, menjual mata wang kertas atau mata wang syiling pada suatu harga selain nilai mukanya. (2) Apa-apa hasil daripada jualan mata wang kertas atau mata wang syiling menurut subseksyen (1) hendaklah dianggap sebagai suatu pendapatan kepada Bank. Penyimpanan selamat mata wang yang belum dikeluarkan, dsb. 12. Bank hendaklah, mengikut apa-apa cara yang difikirkan patut oleh Bank— (a) mengatur penyimpanan selamat mata wang kertas atau mata wang syiling yang belum dikeluarkan; dan (b) menyediakan dan menyimpan instrumen dan bahan yang digunakan bagi pengeluaran, pencetakan atau penempaan mata wang kertas atau mata wang syiling. Kuasa memanggil balik mata wang 13. (1) Bank boleh memanggil balik apa-apa mata wang kertas atau mata wang syiling dengan memberi tidak kurang daripada satu bulan notis yang disiarkan dalam Warta mengenai niatnya untuk berbuat demikian. (2) Apabila habis tempoh notis itu, mata wang kertas atau mata wang syiling yang baginya notis itu terpakai hendaklah terhenti daripada menjadi sah diperlakukan. 14 Undang-Undang Malaysia AktA 827 (3) Walau apa pun subseksyen (2), Bank hendaklah bertanggungan bagi nilai muka apa-apa mata wang kertas atau mata wang syiling apabila diserahkan di pejabat Bank atau di mana-mana agensi yang ditubuhkan atau dilantik oleh Bank bagi maksud itu. Penarikan mata wang 14. Bank boleh mengambil semua langkah yang difikirkan patut oleh Bank untuk menarik daripada peredaran— (a) apa-apa mata wang kertas termasuk mata wang kertas yang rosak atau tidak layak untuk edaran; (b) apa-apa mata wang syiling termasuk mata wang syiling yang telah haus atau telah dibega; dan (c) apa-apa mata wang kertas dan mata wang syiling yang telah dipanggil balik menurut seksyen 13. Pelupusan mata wang atau instrumen pencetakan dan penempaan 15. (1) Bank boleh memusnahkan, menguruskan atau selainnya melupuskan mata wang kertas atau mata wang syiling yang telah ditarik menurut seksyen 14 mengikut apa-apa cara yang difikirkan patut oleh Bank. (2) Bank hendaklah mengatur pemusnahan instrumen dan bahan yang digunakan bagi pengeluaran, pencetakan atau penempaan mata wang kertas atau mata wang syiling mengikut apa-apa cara yang difikirkan patut oleh Bank. Pembayaran balik mata wang yang hilang, dicuri atau tidak sempurna 16. (1) Tiada seorang pun berhak untuk mendapatkan kembali daripada Bank nilai— (a) apa-apa mata wang kertas dan mata wang syiling yang hilang, dicuri atau tidak sempurna; Mata Wang 15 (b) apa-apa mata wang kertas yang rosak; atau (c) apa-apa mata wang syiling yang telah dibega. (2) Walau apa pun subseksyen (1), Bank boleh, mengikut budi bicaranya, membayar balik nilai— (a) apa-apa mata wang kertas dan mata wang syiling yang tidak sempurna; (b) apa-apa mata wang kertas yang rosak; atau (c) apa-apa mata wang syiling yang telah dibega. Pemeliharaan kualiti dan integriti mata wang 17. Bagi maksud memelihara kualiti dan integriti , atau mempromosikan pengeluaran semula atau peredaran semula mata wang kertas atau mata wang syiling, Bank boleh— (a) membuat suatu kontrak atau perkiraan lain dengan suatu institusi kewangan atau seorang pemproses mata wang berdaftar; atau (b) mengambil apa-apa langkah atau memudahkan apa-apa tindakan yang difikirkan patut oleh Bank. Bahagian III KESALAHAN YANG BERHUBUNGAN DENGAN MATA WANG Larangan mengeluarkan, mencetak atau menempa mata wang 18. (1) Tiada seorang pun boleh mengeluarkan, mencetak atau menempa atau membenarkan pengeluaran, pencetakan atau penempaan, apa-apa nota, syiling, token, dokumen atau instrumen, sama ada ketara atau tidak ketara, yang berkemungkinan dikatakan sebagai sah diperlakukan melainkan nota, syiling, token, dokumen atau instrumen itu didenominasikan dan disandarkan sepenuhnya kepada ringgit atau mata wang asing. 16 Undang-Undang Malaysia AktA 827 (2) Bagi maksud subseksyen (1)— (a) suatu nota, syiling, token, dokumen atau instrumen berkemungkinan dikatakan sebagai sah diperlakukan, jika nota, syiling, token, dokumen atau instrumen itu memenuhi semua ciri yang berikut: (i) nota, syiling, token, dokumen atau instrumen itu boleh dibayar kepada seseorang pembawa atau pemegang atas permintaan atau apabila diserahkan; (ii) nota, syiling, token, dokumen atau instrumen itu digunakan secara meluas di Malaysia bagi maksud pembayaran kepada mana-mana orang selain pengeluar nota, syiling, token, dokumen atau instrumen itu; dan (iii) nota, syiling, token, dokumen atau instrumen itu mempunyai nilai selain nilai intrinsiknya; (b) “mata wang asing” ertinya apa-apa nota, syiling, token, dokumen atau instrumen, sama ada ketara atau tidak ketara, yang sah diperlakukan di mana-mana negara, wilayah atau tempat di luar Malaysia dan termasuklah apa-apa hak untuk menerima nota, syiling, token, dokumen atau instrumen itu; dan (c) “mengeluarkan” ertinya perbuatan menyediakan bagi kegunaan mana-mana orang awam. (3) Mana-mana orang yang melanggar subseksyen (1) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi lima puluh juta ringgit atau dipenjarakan selama tempoh tidak melebihi sepuluh tahun atau kedua-duanya. Sekatan ke atas penggunaan gambar, lukisan atau reka bentuk mata wang dalam penerbitan, dsb. 19. (1) Tiada seorang pun boleh, melainkan jika diluluskan oleh Bank— (a) menggunakan apa-apa gambar atau apa-apa lukisan atau reka bentuk yang menyerupai suatu mata wang kertas atau mata wang syiling atau mana-mana bahagian daripadanya, dalam apa-apa penerbitan dalam apa-apa saiz, skala atau warna; atau Mata Wang 17 (b) mengimport, membuat, menjual, mengedar atau selainnya mengagih apa-apa dagangan atau produk yang mengandungi suatu gambar, lukisan atau reka bentuk yang menyerupai suatu mata wang kertas atau mata wang syiling atau mana-mana bahagian daripadanya dalam apa-apa saiz, skala atau warna. (2) Mana-mana orang yang melanggar subseksyen (1), melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi lima puluh ribu ringgit. Larangan melebur mata wang syiling 20. (1) Tiada seorang pun boleh, dengan niat untuk mendapatkan keuntungan, melebur apa-apa mata wang syiling melainkan jika diberi kuasa oleh Bank. (2) Bank boleh, dalam memberi apa-apa kuasa di bawah subseksyen (1), mengenakan apa-apa syarat atau sekatan yang difikirkan patut oleh Bank. (3) Mana-mana orang yang melanggar subseksyen (1) atau (2), melakukan suatu kesalahan dan boleh, apabila disabitkan— (a) dalam hal seorang orang sebenar, didenda tidak melebihi lima puluh ribu ringgit atau dipenjarakan selama tempoh tidak melebihi satu tahun atau kedua-duanya; atau (b) dalam hal suatu pertubuhan, yang diperbadankan atau yang tidak diperbadankan, didenda tidak melebihi satu ratus ribu ringgit. Had transaksi tunai 21. (1) Tiada seorang pun boleh, dalam satu transaksi tunggal, membuat atau menerima apa-apa pembayaran menggunakan mata wang kertas, mata wang syiling atau kombinasinya yang melebihi nilai agregat maksimum yang dinyatakan dalam Jadual Kedua. 18 Undang-Undang Malaysia AktA 827 (2) Bagi maksud subseksyen (1)— (a) nilai agregat maksimum yang berlainan boleh diperuntukkan bagi tujuan, golongan orang, aktiviti, perniagaan atau profesion yang berlainan; dan (b) suatu siri transaksi hendaklah dianggap sebagai satu transaksi tunggal jika transaksi itu dibuat dengan orang yang sama, untuk tujuan yang sama dan dalam hari yang sama. (3) Tiada seorang pun boleh mengusahakan atau merangka, atau membantu atau mengambil bahagian dalam penstrukturan, apa-apa transaksi dengan niat untuk mengelak daripada pemakaian subseksyen (1). (4) Mana-mana orang yang melanggar subseksyen (1) atau (3) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi tiga kali ganda jumlah atau nilai agregat transaksi itu pada masa kesalahan itu dilakukan. Ketidakpakaian seksyen 21 22. Seksyen 21 tidak terpakai bagi apa-apa transaksi— (a) yang dibuat oleh seseorang dengan atau melalui Bank atau suatu institusi kewangan; atau (b) diluluskan oleh Menteri, atas syor Bank, dalam hal apa-apa hal keadaan genting termasuk yang berikut: (i) bantuan kemanusiaan; atau (ii) pelepasan bencana. Mata Wang 19 Bahagian IV PERNIAGAAN PEMPROSESAN MATA WANG Perisytiharan perniagaan pemprosesan mata wang 23. Menteri boleh, atas syor Bank, melalui suatu perintah yang disiarkan dalam Warta, mengisytihar apa-apa aktiviti yang berhubungan dengan pengendalian mata wang kertas atau mata wang syiling sebagai suatu perniagaan pemprosesan mata wang. Penggal 1 Pendaftaran Larangan menjalankan perniagaan pemprosesan mata wang 24. (1) Tiada seorang pun, selain Bank atau suatu institusi kewangan, boleh— (a) menjalankan suatu perniagaan pemprosesan mata wang; atau (b) mengemukakan dirinya sebagai seorang pemproses mata wang berdaftar, melainkan jika orang itu berdaftar di bawah seksyen 26. (2) Mana-mana orang yang melanggar subseksyen (1) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi lima juta ringgit. Permohonan bagi pendaftaran 25. (1) Seorang pemohon bagi pendaftaran untuk menjalankan perniagaan pemprosesan mata wang hendaklah— (a) memenuhi semua kehendak yang ditetapkan oleh Bank; 20 Undang-Undang Malaysia AktA 827 (b) mengemukakan suatu permohonan mengikut apa-apa bentuk dan cara, bersama-sama dengan apa-apa maklumat dan dokumen, yang ditentukan oleh Bank; dan (c) membayar fi pemprosesan yang ditetapkan oleh Menteri di bawah seksyen 60. (2) Tiada seorang pun boleh memohon untuk mendaftar bagi menjalankan suatu perniagaan pemprosesan mata wang melainkan jika orang itu ialah suatu syarikat. (3) Bagi maksud perenggan (1)(a), “ditetapkan” ertinya ditetapkan melalui suatu perintah yang disiarkan dalam Warta, dan kuasa untuk menetapkan termasuklah kuasa untuk menetapkan secara berlainan bagi orang yang berlainan atau golongan, kategori, perihalan orang yang berlainan, dan untuk meminda apa-apa penetapan. Pendaftaran 26. (1) Bank hendaklah, apabila menerima suatu permohonan bagi pendaftaran di bawah seksyen 25, mendaftarkan pemohon itu. (2) Seorang pemohon tidak boleh memulakan perniagaan pemprosesan mata wangnya sehingga pemohon itu diberitahu oleh Bank mengenai pendaftarannya di bawah Akta ini. (3) Mana-mana orang yang melanggar subseksyen (2) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi lima juta ringgit. Tidak boleh didaftarkan 27. Bank tidak boleh mendaftarkan seseorang pemohon jika pemohon itu tidak mematuhi seksyen 25 dan Bank hendaklah memberitahu pemohon itu mengenai penolakan permohonan bagi pendaftaran itu. Mata Wang 21 Penyiaran senarai pemproses mata wang berdaftar 28. Bank hendaklah menyiarkan suatu senarai pemproses mata wang berdaftar mengikut bentuk yang difikirkan patut oleh Bank. Pembatalan pendaftaran secara sukarela 29. (1) Seorang pemproses mata wang berdaftar yang bercadang untuk berhenti daripada menjalankan perniagaan pemprosesan mata wang hendaklah memberikan suatu notis kepada Bank bagi pembatalan pendaftaran secara sukarela dan boleh mencadangkan suatu tarikh kuat kuasa bagi pembatalan pendaftaran secara sukarela itu. (2) Bank hendaklah, apabila menerima suatu notis di bawah subseksyen (1), membatalkan pendaftaran seorang pemproses mata wang berdaftar mengikut cadangan tarikh kuat kuasa yang dinyatakan dalam notis itu, jika ada, atau apa-apa tarikh terkemudian yang difikirkan patut oleh Bank. (3) Bank hendaklah memberitahu seorang pemproses mata wang berdaftar mengenai tarikh kuat kuasa pembatalan pendaftaran secara sukarelanya di bawah seksyen ini. Pembatalan pendaftaran oleh Bank 30. Bank boleh mencadangkan untuk membatalkan pendaftaran seorang pemproses mata wang berdaftar— (a) jika pemproses mata wang berdaftar itu mengemukakan kepada Bank maklumat yang palsu, mengelirukan, tidak tepat atau tidak lengkap bagi maksud subseksyen 25(1); (b) jika pemproses mata wang berdaftar itu telah berhenti daripada menjalankan perniagaan pemprosesan mata wang; (c) jika pemproses mata wang berdaftar itu melakukan suatu kemungkiran tidak kira sama ada tiada tindakan telah diambil berkenaan dengan kemungkiran itu; 22 Undang-Undang Malaysia AktA 827 (d) jika pemproses mata wang berdaftar itu melanggar mana-mana peruntukan— (i) Akta Bank Negara Malaysia 2009; (ii) Akta Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan dan Hasil daripada Aktiviti Haram 2001 [Akta 613]; (iii) Akta Perniagaan Perkhidmatan Wang 2011 [Akta 731]; (iv) Akta Perkhidmatan Kewangan 2013; atau (v) Akta Perkhidmatan Kewangan Islam 2013, tidak kira sama ada tiada pendakwaan atau tindakan lain telah diambil berkenaan dengan pelanggaran itu; (e) pengarah, ketua pegawai eksekutif atau mana-mana orang yang terlibat dalam pengendalian atau pengurusan pemproses mata wang berdaftar itu disabitkan atas suatu kesalahan di bawah Akta ini atau suatu kesalahan yang melibatkan fraud atau ketidakjujuran di bawah mana-mana undang-undang bertulis lain; (f) pemproses mata wang berdaftar itu telah digulungkan atau dengan apa-apa cara lain dibubarkan; atau (g) seorang penerima atau pengurus harta bagi pemproses mata wang berdaftar itu telah dilantik. Peluang untuk membuat representasi bagi tindakan di bawah seksyen 30 31. (1) Jika Bank bercadang untuk membatalkan pendaftaran seorang pemproses mata wang berdaftar di bawah seksyen 30, Bank hendaklah memberi pemproses mata wang berdaftar itu suatu notis yang menyatakan cadangan pembatalan pendaftaran dan alasan bagi pembatalan pendaftaran itu. Mata Wang 23 (2) Seorang pemproses mata wang berdaftar yang telah menerima suatu notis di bawah subseksyen (1) hendaklah diberi suatu peluang untuk membuat suatu representasi kepada Bank dalam tempoh empat belas hari dari tarikh notis itu. (3) Jika selepas tamat tempoh yang dinyatakan dalam subseksyen (2)— (a) Bank tidak menerima apa-apa representasi, Bank hendaklah membatalkan pendaftaran pemproses mata wang berdaftar itu dan memberi pemproses mata wang berdaftar itu suatu notis mengenai pembatalan pendaftaran itu; atau (b) Bank menerima suatu representasi, Bank hendaklah, selepas mempertimbang representasi itu, memberi pemproses mata wang berdaftar itu suatu notis mengenai keputusannya sama ada untuk meneruskan pembatalan pendaftaran itu atau sebaliknya. (4) Suatu pembatalan pendaftaran di bawah subseksyen (3) hendaklah berkuat kuasa pada tarikh yang ditentukan oleh Bank dalam notisnya di bawah subseksyen (3). (5) Jika Bank memutuskan di bawah perenggan (3)(b) untuk tidak membatalkan pendaftaran pemproses mata wang berdaftar itu, Bank boleh mengenakan apa-apa kehendak ke atas pemproses mata wang berdaftar itu yang difikirkan patut oleh Bank. Kesan pembatalan pendaftaran 32. (1) Jika seorang pemproses mata wang berdaftar membatalkan pendaftarannya secara sukarela di bawah seksyen 29 atau Bank membatalkan pendaftaran seorang pemproses mata wang berdaftar di bawah subseksyen 31(3), pemproses mata wang berdaftar itu hendaklah dengan serta-merta berhenti daripada menjalankan perniagaan pemprosesan mata wang pada tarikh kuat kuasa pembatalan pendaftaran itu. (2) Suatu pembatalan pendaftaran tidak boleh memberi kesan ke atas apa-apa hak, obligasi atau liabiliti yang berbangkit di bawah, apa-apa perjanjian, perkiraan atau transaksi yang dibuat oleh pemproses mata wang berdaftar itu dengan mana-mana orang sebelum pembatalan pendaftaran itu. 24 Undang-Undang Malaysia AktA 827 Penggal 2 Kewajipan pemproses mata wang berdaftar Amalan berhemat dan profesional 33. (1) Seseorang pemproses mata wang berdaftar dan suatu institusi kewangan yang menjalankan aktiviti pemprosesan mata wang hendaklah menguruskan perniagaannya, hal ehwalnya dan aktivitinya secara berhemat, secara profesional dan dengan integriti, kebertanggungjawaban dan ketelusan. (2) Seseorang pemproses mata wang berdaftar dan suatu institusi kewangan yang menjalankan aktiviti pemprosesan mata wang hendaklah mematuhi dan memastikan bahawa dasar dan tatacara dalamannya selaras dengan apa-apa standard yang ditentukan oleh Bank di bawah seksyen 61, termasuk standard mengenai amalan berhemat, integriti, profesionalisme dan kepakaran dalam menjalankan perniagaannya, hal ehwalnya dan aktivitinya. Kewajipan pengarah dan ketua pegawai eksekutif 34. Tiap-tiap pengarah, ketua pegawai eksekutif atau mana-mana orang yang terlibat dalam pengendalian atau pengurusan seseorang pemproses mata wang berdaftar atau suatu institusi kewangan yang menjalankan aktiviti pemprosesan mata wang hendaklah memastikan bahawa pemproses mata wang berdaftar itu atau institusi kewangan yang menjalankan aktiviti pemprosesan mata wang itu mematuhi Akta ini dan apa-apa peraturan-peraturan, standard, spesifikasi, arahan atau kehendak yang dibuat di bawah Akta ini. Fi 35. (1) Seseorang pemproses mata wang berdaftar hendaklah membayar apa-apa fi yang ditetapkan oleh Menteri di bawah seksyen 60. (2) Tiada pemproses mata wang berdaftar berhak untuk suatu pembayaran balik apa-apa fi yang dibayar di bawah subseksyen (1). Mata Wang 25 (3) Bank boleh membawa guaman terhadap mana-mana orang untuk mendapatkan kembali apa-apa fi yang tidak dibayar di bawah Akta ini sebagai suatu hutang sivil yang kena dibayar kepada Kerajaan dan mahkamah boleh memberikan award kos untuk mendapatkan kembali fi yang tidak dibayar itu kepada Bank. Pemeliharaan kerahsiaan 36. (1) Tiada seorang pun yang sedang atau pernah menjadi seorang pengarah, ketua pegawai eksekutif, pegawai atau pekerja seseorang pemproses mata wang berdaftar boleh mendedahkan kepada mana-mana orang, apa-apa maklumat atau dokumen yang berhubungan dengan urusan atau hal ehwal seseorang pelanggan seseorang pemproses mata wang berdaftar kecuali diluluskan oleh Bank. (2) Tiada seorang pun, yang dengan apa-apa sebab, mempunyai dengan apa-apa cara akses kepada apa-apa maklumat atau dokumen yang berhubungan dengan urusan atau hal ehwal seseorang pelanggan seseorang pemproses mata wang berdaftar, boleh mendedahkan kepada mana-mana orang, maklumat atau dokumen itu melainkan diluluskan oleh Bank. (3) Subseksyen (1) dan (2) tidak terpakai bagi apa-apa pendedahan— (a) yang dibuat kepada Bank yang berhubungan dengan pelaksanaan kewajipannya atau menjalankan fungsinya di bawah Akta ini; atau (b) apabila dikehendaki menurut undang-undang oleh mana-mana mahkamah atau mana-mana undang-undang bertulis. (4) Mana-mana orang yang melanggar subseksyen (1) atau (2) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi tiga juta ringgit atau dipenjarakan selama tempoh tidak melebihi tiga tahun atau kedua-duanya. 26 Undang-Undang Malaysia AktA 827 Penahanan mata wang yang disyaki palsu 37. Bank, pemproses mata wang berdaftar dan institusi kewangan hendaklah menahan apa-apa mata wang kertas atau mata wang syiling yang dikemukakan mengikut apa-apa cara kepada Bank, pemproses mata wang berdaftar dan institusi kewangan yang Bank, pemproses mata wang berdaftar dan institusi kewangan itu mempunyai sebab untuk mempercayai adalah palsu. Bank, pemproses mata wang berdaftar dan institusi kewangan merekodkan maklumat peribadi orang yang daripadanya mata wang ditahan 38. (1) Apabila penahanan mata wang kertas atau mata wang syiling dibuat di bawah seksyen 37, adalah sah bagi Bank, pemproses mata wang berdaftar dan institusi kewangan untuk merekodkan maklumat peribadi termasuk nama, nombor kad pengenalan dan alamat orang yang daripadanya mata wang kertas atau mata wang syiling itu ditahan oleh Bank, pemproses mata wang berdaftar dan institusi kewangan, termasuk— (a) maklumat peribadi pemunya di sisi undang-undang atau pemunya benefisial; dan (b) maklumat peribadi pembawanya atau mana-mana orang yang memiliki mata wang kertas atau mata wang syiling yang ditahan itu sebelum penahanan itu. (2) Orang yang daripadanya mata wang kertas atau mata wang syiling itu ditahan di bawah seksyen 37 hendaklah memberikan maklumat yang dikehendaki di bawah subseksyen (1) kepada Bank, pemproses mata wang berdaftar dan institusi kewangan. (3) Mana-mana orang yang melanggar subseksyen (2) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi dua puluh ribu ringgit. Mata Wang 27 Mata wang diserahkan dan maklumat dikemukakan, kepada polis 39. Bank, pemproses mata wang berdaftar dan institusi kewangan hendaklah menyerahkan apa-apa mata wang kertas atau mata wang syiling yang ditahan di bawah seksyen 37, dan Bank, pemproses mata wang berdaftar dan institusi kewangan hendaklah mengemukakan maklumat yang direkodkan di bawah subseksyen 38(1), kepada polis. Mata wang terus menjadi harta orang yang daripadanya mata wang ditahan jika mata wang adalah tulen 40. (1) Apa-apa mata wang kertas atau mata wang syiling yang ditahan dan diserahkan kepada polis di bawah seksyen 39 hendaklah terus menjadi harta orang yang daripadanya mata wang kertas atau mata wang syiling itu ditahan jika mata wang kertas atau mata wang syiling itu didapati tulen. (2) Tiada seorang pun berhak mendapatkan kembal i apa-apa pampasan bagi apa-apa kerugian yang ditanggung olehnya disebabkan oleh penahanan mata wang kertas atau mata wang syiling di bawah seksyen 37. Pengemukaan dokumen atau maklumat 41. (1) Seseorang pemproses mata wang berdaftar dan suatu institusi kewangan hendaklah mengemukakan kepada Bank, atau kepada mana-mana orang yang dikenal pasti oleh Bank, apa-apa dokumen atau maklumat mengikut cara dan dalam tempoh yang ditentukan oleh Bank. (2) Bank boleh menghendaki mana-mana orang untuk mengemukakan apa-apa dokumen atau maklumat yang ditentukan oleh Bank yang berhubungan dengan— (a) seorang pemproses mata wang berdaftar atau perniagaan pemprosesan mata wangnya; atau (b) suatu institusi kewangan atau aktiviti pemprosesan mata wangnya. 28 Undang-Undang Malaysia AktA 827 (3) Jika mana-mana orang dikehendaki untuk mengemukakan apa-apa dokumen atau maklumat di bawah subseksyen (1) atau (2), orang itu hendaklah mengemukakan dokumen atau maklumat yang betul, tepat, lengkap dan tidak mengelirukan. (4) Mana-mana orang yang melanggar subseksyen (1), (2) atau (3) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi lima puluh ribu ringgit. Penggal 3 Pemeriksaan Kuasa untuk memeriksa 42. (1) Bank boleh tanpa apa-apa notis terdahulu, memeriksa apa-apa— (a) dokumen, akaun atau transaksi; (b) komputer, jentera, peralatan atau infrastruktur; dan (c) premis atau pejabat, yang berhubungan dengan perniagaan pemprosesan mata wang atau aktiviti pemprosesan mata wang seseorang pemproses mata wang berdaftar atau ejennya. (2) Bagi maksud subseksyen (1), kuasa untuk memeriksa termasuklah kuasa untuk— (a) menguji apa-apa komputer, jentera, peralatan dan infrastruktur; (b) membuat salinan atau cabutan apa-apa dokumen, akaun, output komputer, transaksi dan output apa-apa jentera, peralatan dan infrastruktur; dan (c) mengambil gambar apa-apa dokumen, akaun, transaksi, komputer, jentera, peralatan, infrastruktur, premis dan pejabat. Mata Wang 29 Pemeriksaan orang tertentu 43. Dalam menjalankan suatu pemeriksaan di bawah seksyen 42, Bank boleh memeriksa seseorang yang sedang, atau pada bila-bila masa pernah menjadi, seorang pengarah, ketua pegawai eksekutif, pegawai, pekerja, atau mana-mana orang yang terlibat dalam pengendalian atau pengurusan, perniagaan pemprosesan mata wang atau aktiviti pemprosesan mata wang seseorang pemproses mata wang berdaftar atau ejennya di bawah suatu pemeriksaan itu. Hak bagi akses dan pengemukaan harta, dsb. 44. (1) Mana-mana orang yang diperiksa di bawah seksyen 42 atau 43 hendaklah— (a) membenarkan akses kepada apa-apa dokumen, akaun, transaksi, harta, perkakas, peralatan, jentera, komputer, output komputer, sistem, infrastruktur, premis dan pejabat; dan (b) memberikan apa-apa dokumen, akaun, transaksi, harta, perkakas, peralatan, jentera, komputer, output komputer dan sistem, kepada Bank mengikut cara dan dalam masa yang ditentukan oleh Bank. (2) Bagi maksud subseksyen (1), orang yang diperiksa hendaklah memberikan Bank kunci, kata laluan, kod penyulitan, kod penyahsulitan, perisian atau perkakasan yang diperlukan atau apa-apa cara lain bagi membolehkan pemahaman apa-apa output komputer, jentera, peralatan atau infrastruktur. (3) Mana-mana orang yang melanggar subseksyen (1) atau (2) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi satu ratus ribu ringgit. Kehadiran di hadapan Bank 45. (1) Seseorang yang dikehendaki supaya diperiksa di bawah seksyen 43 hendaklah hadir di hadapan Bank pada masa dan di tempat yang ditentukan oleh Bank. 30 Undang-Undang Malaysia AktA 827 (2) Mana-mana orang yang melanggar subseksyen (1) melakukan suatu kesalahan dan boleh, apabila disabitkan, didenda tidak melebihi satu ratus ribu ringgit. Bahagian V PENGUATKUASAAN Penggal 1 Tindakan oleh Bank Kemungkiran 46. Seseorang pemproses mata wang berdaftar atau institusi kewangan, atau pengarahnya atau ketua pegawai eksekutifnya, atau mana-mana orang yang terlibat dalam pengendalian atau pengurusannya, melakukan suatu kemungkiran di bawah Akta ini jika pemproses mata wang berdaftar atau institusi kewangan itu, atau pengarahnya atau ketua pegawai eksekutifnya, atau mana-mana orang yang terlibat dalam pengendalian atau pengurusannya, tidak mematuhi atau memberi kesan kepada— (a) apa-apa peruntukan Akta ini; atau (b) apa-apa peraturan-peraturan, standard, spesifikasi, arahan atau kehendak yang dibuat di bawah Akta ini. Kuasa untuk mengeluarkan arahan 47. (1) Bank boleh, tertakluk kepada seksyen 49 dan 50, mengeluarkan suatu arahan di bawah subseksyen (2) kepada seorang pemproses mata wang berdaftar atau suatu institusi kewangan jika difikirkan oleh Bank bahawa— (a) terdapat keperluan untuk berbuat demikian sebagai suatu keputusan daripada apa-apa pemeriksaan di bawah Akta ini; atau Mata Wang 31 (b) pemproses mata wang berdaftar itu atau institusi kewangan itu, atau pengarahnya atau ketua pegawai eksekutifnya, atau mana-mana orang yang terlibat dalam pengendalian atau pengurusannya— (i) sedang menjalankan atau telah menjalankan perniagaan pemprosesan mata wang atau aktiviti pemprosesan mata wang dengan suatu cara yang memudaratkan kepentingan pelanggannya atau orang awam; atau (ii) sedang melakukan atau telah melakukan atau berkemungkinan melakukan suatu kemungkiran. (2) Bagi maksud subseksyen (1), Bank boleh mengeluarkan suatu arahan kepada pemproses mata wang berdaftar itu atau institusi kewangan itu yang berhubungan dengan satu atau lebih maksud yang berikut: (a) untuk melarang pemproses mata wang berdaftar atau institusi kewangan itu daripada menjalankan keseluruhan atau mana-mana bahagian daripada perniagaan pemprosesan mata wangnya atau aktiviti pemprosesan mata wangnya; (b) untuk melarang pemproses mata wang berdaftar itu atau institusi kewangan itu daripada melakukan atau melaksanakan apa-apa perbuatan atau fungsi yang berkaitan dengan keseluruhan atau mana-mana bahagian daripada perniagaan pemprosesan mata wangnya atau aktiviti pemprosesan mata wangnya; (c) untuk menggantung perniagaan pemprosesan mata wangnya atau aktiviti pemprosesan mata wangnya pada apa-apa takat dan bagi apa-apa tempoh yang difikirkan patut oleh Bank; (d) untuk menghendaki pemproses mata wang berdaftar atau institusi kewangan itu untuk— (i) mematuhi atau memberi kesan kepada; atau (ii) melakukan atau meninggalkan apa-apa perbuatan untuk memastikan pematuhan kepada, 32 Undang-Undang Malaysia AktA 827 apa-apa peruntukan, peraturan-peraturan, standard, spesifikasi, arahan atau kehendak yang dibuat di bawah Akta ini; (e) untuk menghendaki pemproses mata wang berdaftar atau institusi kewangan itu untuk mengambil apa-apa langkah yang diarahkan oleh Bank untuk mengurangkan kesan suatu kemungkiran. Kuasa untuk mengambil tindakan pentadbiran 48. (1) Jika difikirkan oleh Bank bahawa seorang pemproses mata wang berdaftar atau suatu institusi kewangan, atau pengarahnya atau ketua pegawai eksekutifnya, atau mana-mana orang yang terlibat dalam pengendalian atau pengurusannya, telah melakukan suatu kemungkiran dan adalah wajar untuk mengambil tindakan terhadap orang itu, Bank boleh, tertakluk kepada seksyen 49 dan 50, mengambil mana-mana satu atau lebih tindakan yang berikut: (a) menegur orang yang mungkir itu; (b) menghendaki orang yang mungkir itu untuk mengeluarkan suatu pernyataan umum yang berhubungan dengan kemungkiran itu, jika difikirkan oleh Bank bahawa kemungkiran itu relevan untuk makluman orang awam; (c) jika kemungkiran itu bukanlah suatu kesalahan di bawah Akta ini atau apa-apa peraturan-peraturan yang dibuat di bawah Akta ini, mengenakan suatu penalti monetari, dalam apa-apa amaun yang difikirkan patut oleh Bank, tetapi tidak boleh melebihi, berhubungan dengan tiap-tiap kemungkiran— (i) dalam hal suatu pertubuhan, yang diperbadankan atau yang tidak diperbadankan, satu ratus ribu ringgit; atau (ii) dalam hal orang sebenar, dua puluh ribu ringgit. (2) Jika suatu kemungkiran dilakukan oleh suatu pertubuhan, yang diperbadankan atau yang tidak diperbadankan, Bank boleh mengambil apa-apa tindakan di bawah subseksyen (1) terhadap seseorang yang sedang atau pernah menjadi pengarahnya atau ketua pegawai eksekutifnya, atau mana-mana orang yang terlibat Mata Wang 33 dalam pengendalian atau pengurusannya, pada masa kemungkiran itu dilakukan, melainkan jika orang itu menunjukkan bahawa kemungkiran itu dilakukan tanpa persetujuannya atau pembiarannya dan bahawa dia telah menjalankan usaha yang wajar untuk mengelakkan kemungkiran itu sebagaimana yang patut dijalankan olehnya, dengan mengambil kira jenis fungsinya dalam jawatan itu dan hal keadaan itu. (3) Jika suatu kemungkiran dilakukan oleh seseorang yang sedang menjadi seorang pengarah atau ketua pegawai eksekutif, atau mana-mana orang yang terlibat dalam pengendalian atau pengurusan, seorang pemproses mata wang berdaftar atau suatu institusi kewangan semasa menjalankan tugasnya, Bank boleh mengambil apa-apa tindakan di bawah subseksyen (1) terhadap pemproses mata wang berdaftar atau institusi kewangan itu. (4) Jika seseorang gagal membayar suatu penalti monetari yang dikenakan oleh Bank di bawah perenggan (1)(c) dalam tempoh yang ditentukan oleh Bank, Bank boleh membawa guaman dan mendapatkan kembali penalti monetari itu sebagai suatu hutang sivil yang kena dibayar kepada Kerajaan dan mahkamah boleh memberikan award kos untuk mendapatkan kembali penalti monetari yang tidak dibayar itu kepada Bank. Kesesuaian tindakan 49. Dalam menentukan tindakan yang sesuai untuk diambil oleh Bank terhadap seseorang di bawah seksyen 47 atau 48, Bank hendaklah mengambil kira perkara yang berikut: (a) keberkesanan tindakan yang akan diambil itu; (b) perkadaran tindakan yang akan diambil itu dengan dapatan suatu pemeriksaan atau kemungkiran yang dilakukan; (c) pencegahan kemungkiran masa hadapan yang serupa oleh seorang pemproses mata wang berdaftar, suatu institusi kewangan atau orang lain; dan (d) apa-apa perkara lain yang difikirkan patut oleh Bank. 34 Undang-Undang Malaysia AktA 827 Peluang untuk membuat representasi bagi tindakan di bawah seksyen 47 atau 48 50. (1) Jika Bank bercadang untuk mengambil apa-apa tindakan terhadap seseorang di bawah seksyen 47 atau 48, Bank hendaklah memberikan kepada orang itu suatu notis yang menyatakan tindakan yang dicadangkan itu dan alasan bagi tindakan yang dicadangkan itu. (2) Mana-mana orang yang telah menerima suatu notis di bawah subseksyen (1) hendaklah diberikan suatu peluang untuk membuat suatu representasi kepada Bank dalam tempoh empat belas hari dari tarikh notis itu. (3) Jika selepas tamat tempoh yang dinyatakan dalam subseksyen (2)— (a) Bank tidak menerima apa-apa representasi, Bank hendaklah meneruskan tindakan yang dicadangkan itu; atau (b) Bank menerima suatu representasi, Bank hendaklah, selepas mempertimbang representasi itu, memutuskan sama ada untuk— (i) meneruskan tindakan yang dicadangkan itu; (ii) mengubah suai tindakan yang dicadangkan itu; atau (iii) tidak mengambil tindakan lanjut, dan hendaklah memaklumkan keputusannya kepada orang itu melalui suatu notis. (4) Jika Bank memutuskan untuk mengubah suai tindakan yang dicadangkan di bawah subperenggan (3)(b)(ii), Bank hendaklah memberikan suatu notis tambahan dan suatu peluang kepada orang itu untuk membuat suatu representasi. (5) Keputusan Bank di bawah perenggan (3)(b) hendaklah mula berkuat kuasa pada apa-apa tarikh yang ditentukan oleh Bank dalam notisnya. Mata Wang 35 Rayuan terhadap penalti monetari 51. (1) Mana-mana orang yang terkilan dengan suatu keputusan Bank di bawah subseksyen 50(3) yang berkenaan dengan suatu tindakan yang diambil di bawah perenggan 48(1)(c) boleh, dalam tempoh dua puluh satu hari selepas orang itu dimaklumkan mengenai keputusan Bank, membuat suatu rayuan dengan memfailkan suatu notis kepada Jawatankuasa Semakan Penalti Monetari. (2) Keputusan Bank di bawah subseksyen 50(3) yang berkenaan dengan suatu tindakan yang diambil di bawah perenggan 48(1)(c) tidak boleh berkuat kuasa sehingga rayuan itu diputuskan. (3) Jawatankuasa Semakan Penalti Monetari boleh memutuskan untuk mengesahkan keputusan Bank atau menghendaki Bank untuk mempertimbang semula dan mencapai suatu keputusan mengikut dapatan Jawatankuasa itu. Penggal 2 Tindakan jenayah Kesalahan oleh orang yang bertindak dalam jawatan rasmi 52. (1) Jika suatu kesalahan dilakukan oleh suatu pertubuhan, yang diperbadankan atau yang tidak diperbadankan, seseorang yang sedang menjadi pengarahnya atau ketua pegawai eksekutifnya, atau mana-mana orang yang terlibat dalam pengendalian atau pengurusannya, pada masa berlakunya kesalahan itu disifatkan telah melakukan kesalahan itu melainkan orang itu membuktikan bahawa kesalahan itu telah dilakukan tanpa persetujuannya atau pembiarannya dan bahawa dia telah menjalankan usaha yang wajar untuk mengelakkan pelakuan kesalahan itu sebagaimana yang patut dijalankan olehnya, dengan mengambil kira jenis fungsinya dalam jawatan itu dan hal keadaan itu. (2) Seorang orang sebenar boleh didakwa atas suatu kesalahan di bawah subseksyen (1) tanpa mengira— (a) bahawa tiada pendakwaan telah dimulakan terhadap pertubuhan, yang diperbadankan atau yang tidak diperbadankan itu; atau 36 Undang-Undang Malaysia AktA 827 (b) bahawa pertubuhan, yang diperbadankan atau yang tidak diperbadankan itu tidak disabitkan dengan kesalahan itu. (3) Subseksyen (1) tidak menjejaskan liabiliti jenayah pertubuhan, yang diperbadankan atau yang tidak diperbadankan itu bagi kesalahan yang disebut dalam subseksyen itu. Kesalahan oleh pekerja atau pegawai atau ejen 53. (1) Jika suatu kesalahan dilakukan oleh— (a) seorang pekerja atau pegawai semasa menjalankan tugasnya; atau (b) seorang ejen semasa bertindak dalam kuasanya sebagai seorang ejen, majikan atau prinsipal orang itu, mengikut mana-mana yang berkenaan, pada masa pelakuan kesalahan itu, disifatkan telah melakukan kesalahan itu dan boleh dikenakan penalti yang sama bagi kesalahan yang dilakukan oleh pekerja atau pegawai atau ejen itu. (2) Tiada apa-apa jua di bawah subseksyen (1) boleh melepaskan seseorang pekerja atau pegawai atau ejen daripada apa-apa liabiliti bagi suatu kesalahan. Percubaan, persubahatan dan komplot 54. (1) Mana-mana orang yang— (a) cuba untuk melakukan suatu kesalahan di bawah Akta ini; (b) membuat suatu perbuatan sebagai persediaan bagi, atau bagi membantu, pelakuan suatu kesalahan di bawah Akta ini; atau (c) bersubahat atau terlibat dalam suatu komplot jenayah untuk melakukan suatu kesalahan di bawah Akta ini, Mata Wang 37 sama ada atau tidak kesalahan itu dilakukan disebabkan olehnya, melakukan suatu kesalahan dan boleh dikenakan penalti yang sama bagi kesalahan itu. (2) Bagi maksud subseksyen (1)— (a) “komplot jenayah” mempunyai erti yang sama yang diberikan kepadanya dalam seksyen 120a Kanun Keseksaan [Akta 574]; (b) “subahat” mempunyai erti yang sama diberikan kepadanya dalam seksyen 107 Kanun Keseksaan; dan (c) jika hukuman yang berbeza diperuntukkan bagi seorang orang sebenar dan bagi suatu pertubuhan, yang diperbadankan atau yang tidak diperbadankan, orang yang melakukan suatu kesalahan itu hendaklah bertanggungan bagi hukuman yang diperuntukkan bagi seorang orang sebenar jika dia ialah seorang orang sebenar atau hendaklah bertanggungan bagi hukuman yang diperuntukkan bagi suatu pertubuhan, yang diperbadankan atau yang tidak diperbadankan jika ia ialah suatu pertubuhan, yang diperbadankan atau yang tidak diperbadankan. Kesalahan boleh tangkap 55. Tiap-tiap kesalahan yang boleh dikenakan hukuman di bawah Akta ini hendaklah menjadi suatu kesalahan boleh tangkap dan seorang pegawai polis yang berpangkat tidak rendah daripada pangkat Inspektor boleh menangkap tanpa waran mana-mana orang yang semunasabahnya disyaki telah melakukan atau sedang melakukan kesalahan itu. Pencantuman kesalahan 56. Walau apa pun apa-apa yang terkandung dalam mana-mana undang-undang bertulis lain, jika seseorang itu dituduh atas lebih daripada satu kesalahan di bawah Akta ini, dia boleh dipertuduh dengan dan dibicarakan dalam satu perbicaraan bagi seberapa banyak kesalahan yang dilakukan dalam apa-apa jangka masa. 38 Undang-Undang Malaysia AktA 827 Pengkompaunan kesalahan 57. (1) Menteri boleh, atas syor Bank, dengan kelulusan Pendakwa Raya, membuat peraturan-peraturan yang menetapkan— (a) apa-apa kesalahan di bawah Akta ini atau apa-apa peraturan-peraturan yang dibuat di bawah Akta ini sebagai suatu kesalahan yang boleh dikompaun; (b) kriteria untuk mengkompaun kesalahan itu; dan (c) kaedah dan tatacara untuk mengkompaun kesalahan itu. (2) Gabenor boleh, dengan izin Pendakwa Raya, pada bila-bila masa sebelum suatu pendakwaan dimulakan, mengkompaun apa-apa kesalahan yang boleh dikompaun dengan membuat suatu tawaran kepada orang yang disyaki dengan munasabah telah melakukan kesalahan itu apabila dibayar kepada Gabenor suatu jumlah wang yang tidak melebihi jumlah denda maksimum yang orang itu boleh bertanggungan jika dia disabitkan atas kesalahan itu, dalam masa yang ditentukan dalam tawaran itu. (3) Suatu tawaran di bawah subseksyen (2) boleh dibuat pada bila-bila masa selepas kesalahan itu telah dilakukan tetapi sebelum apa-apa pendakwaan baginya telah dimulakan, dan jika amaun yang dinyatakan dalam tawaran itu tidak dibayar dalam masa yang dinyatakan dalam tawaran itu, atau apa-apa tempoh lanjutan yang dibenarkan oleh Gabenor, pendakwaan bagi kesalahan itu boleh dimulakan pada bila-bila masa selepas itu terhadap orang yang kepadanya tawaran itu dibuat. (4) Jika suatu kesalahan telah dikompaun di bawah subseksyen (1), tiada pendakwaan boleh dimulakan berkenaan dengan kesalahan itu terhadap orang yang kepadanya tawaran untuk mengkompaun itu dibuat, dan apa-apa dokumen atau benda yang disita berkenaan dengan kesalahan itu boleh dilepaskan oleh Bank, tertakluk kepada apa-apa terma yang difikirkan patut oleh Bank. Pendakwaan 58. Tiada pendakwaan bagi suatu kesalahan di bawah Akta ini boleh dimulakan kecuali oleh atau dengan keizinan bertulis Pendakwa Raya. Mata Wang 39 Bahagian VI AM Wang yang diterima oleh Bank 59. Tanpa menjejaskan subseksyen 11(2), 35(3) dan 48(4), semua wang yang diterima oleh Bank atau Gabenor menurut Akta ini hendaklah dibayar ke dalam Kumpulan Wang Disatukan termasuk apa-apa— (a) fi yang dibayar oleh seseorang di bawah seksyen 25 atau 35; (b) penalti monetari yang dibayar di bawah seksyen 48; dan (c) kompaun yang dibayar di bawah seksyen 57. Kuasa untuk membuat peraturan-peraturan 60. (1) Menteri boleh, atas syor Bank, membuat peraturan-peraturan sebagaimana yang perlu atau suai manfaat bagi maksud melaksanakan peruntukan Akta ini. (2) Tanpa menjejaskan keluasan subseksyen (1), peraturan-peraturan boleh dibuat untuk mengadakan peruntukan— (a) bagi fi yang kena dibayar kepada Bank berkenaan dengan apa-apa perkara di bawah Akta ini; (b) bagi pendaftaran seseorang pemproses mata wang berdaftar; dan (c) bagi apa-apa perkara lain yang berhubungan dengan mata wang. (3) Apa-apa peraturan-peraturan yang dibuat di bawah seksyen ini boleh menetapkan suatu perbuatan atau peninggalan yang melanggar peraturan-peraturan untuk menjadi suatu kesalahan dan boleh menetapkan penalti denda tidak melebihi lima puluh ribu ringgit atau pemenjaraan selama suatu tempoh tidak melebihi satu tahun atau kedua-duanya bagi kesalahan itu. 40 Undang-Undang Malaysia AktA 827 (4) Peraturan-peraturan yang dibuat di bawah seksyen ini boleh dikaitkan dengan semua atau apa-apa golongan, kategori atau perihalan orang, dan Menteri, atas syor Bank, boleh membuat peruntukan yang berlainan bagi golongan, kategori atau perihalan orang yang berlainan. Kuasa untuk mengeluarkan standard 61. Bank boleh mengeluarkan standard yang difikirkan patut oleh Bank, secara amnya berkenaan dengan Akta ini, atau berkenaan dengan apa-apa peruntukan tertentu Akta ini, atau secara amnya berkenaan dengan kelakuan seorang pemproses mata wang berdaftar atau suatu institusi kewangan yang menjalankan aktiviti pemprosesan mata wang— (a) bagi maksud melaksanakan maksudnya dan menjalankan fungsinya atau menjalankan urusannya atau hal ehwalnya; (b) bagi maksud memberikan kesan sepenuhnya kepada mana-mana peruntukan Akta ini; atau (c) bagi pelaksanaan lanjut, lebih baik atau lebih mudah peruntukan-peruntukan Akta ini. Kuasa untuk mengeluarkan garis panduan 62. Bank boleh mengeluarkan garis panduan kepada mana-mana orang atau kepada apa-apa golongan, kategori atau perihalan orang yang mengandungi apa-apa maklumat, nasihat atau syor sebagaimana yang difikirkan patut oleh Bank— (a) yang berhubungan dengan peruntukan Akta ini; (b) bagi maksud menjalankan atau mencapai objektif pengawalseliaan Akta ini; atau (c) yang berhubungan dengan apa-apa perkara lain yang pada pendapat Bank adalah wajar untuk diberikan maklumat, nasihat atau syor. Mata Wang 41 Peruntukan berhubungan dengan kelulusan, standard, spesifikasi, notis, kehendak, arahan, perintah atau garis panduan 63. (1) Apa-apa kelulusan yang diberikan, atau standard, spesifikasi, notis, kehendak, arahan, perintah atau garis panduan yang dibuat di bawah Akta ini— (a) boleh diberikan atau dibuat secara am atau khusus; dan (b) boleh dipinda atau dibatalkan oleh Bank. (2) Apa-apa standard, spesifikasi, notis, kehendak, arahan, perintah atau garis panduan yang dibuat di bawah Akta ini boleh memperuntukkan secara berlainan bagi orang yang berlainan atau golongan, kategori atau perihalan orang yang berlainan. (3) Apa-apa kelulusan yang diberikan, atau standard, spesifikasi, notis, kehendak, arahan, perintah atau garis panduan yang dibuat di bawah Akta ini hendaklah dikeluarkan atau dimaklumkan mengikut cara yang difikirkan patut oleh Bank. Penyiaran tindakan penguatkuasaan 64. Bank boleh, jika sesuai, menyiarkan dalam apa-apa bentuk dan mengikut apa-apa cara yang difikirkan patut oleh Bank, apa-apa maklumat yang berhubungan dengan apa-apa tindakan yang diambil oleh Bank atau selainnya di bawah Bahagian V, dan keputusan tindakan itu. Pindaan Jadual 65. Menteri boleh, atas syor Bank, melalui suatu perintah yang disiarkan dalam Warta, meminda Jadual Pertama dan Jadual Kedua kepada Akta ini. Perlindungan terhadap guaman dan prosiding undang-undang 66. Tiada tindakan, guaman, pendakwaan atau prosiding lain boleh dibuat atau dibawa, dimulakan, atau disenggarakan di mana-mana mahkamah atau di hadapan mana-mana pihak berkuasa lain terhadap— (a) Menteri; 42 Undang-Undang Malaysia AktA 827 (b) Bank; (c) Gabenor; (d) mana-mana anggota Jawatankuasa Semakan Penalti Monetari; (e) mana-mana pengarah, pegawai atau pekerja Bank; atau (f) mana-mana orang yang bertindak bagi pihak Bank, bagi atau atas sebab, atau berkenaan dengan, apa-apa perbuatan, pernyataan atau peninggalan yang dibuat atau ditinggalkan, atau yang berupa sebagai dibuat atau ditinggalkan, menurut atau dalam melaksanakan, atau yang dimaksudkan untuk menurut atau melaksanakan, Akta ini, atau apa-apa kelulusan yang diberikan, arahan, penetapan, spesifikasi, standard, kehendak, perintah, garis panduan dan peraturan-peraturan yang dibuat, di bawah Akta ini, jika perbuatan, pernyataan atau peninggalan yang dibuat atau ditinggalkan, atau yang berupa sebagai dibuat atau ditinggalkan, menurut atau dalam melaksanakan, atau yang dimaksudkan untuk menurut atau melaksanakan, Akta ini, atau kelulusan yang diberikan, arahan, penetapan, spesifikasi, standard, kehendak, perintah, garis panduan dan peraturan-peraturan itu yang dibuat, di bawah Akta ini, dibuat atau ditinggalkan dengan suci hati. Pemakaian seksyen 77 Akta Bank Negara Malaysia 2009, Penggal 2 Bahagian XIV Akta Perkhidmatan Kewangan 2013 dan Penggal 2 Bahagian XV Akta Perkhidmatan Kewangan Islam 2013 67. (1) Tiada apa-apa jua yang terkandung dalam Akta ini boleh dengan apa-apa cara menyentuh atau melemahkan peruntukan seksyen 77 Akta Bank Negara Malaysia 2009, Penggal 2 Bahagian XIV Akta Perkhidmatan Kewangan 2013 dan Penggal 2 Bahagian XV Akta Perkhidmatan Kewangan Islam 2013. (2) Akta ini hendaklah dibaca tertakluk kepada peruntukan seksyen 77 Akta Bank Negara Malaysia 2009, Penggal 2 Bahagian XIV Akta Perkhidmatan Kewangan 2013 dan Penggal 2 Bahagian XV Akta Perkhidmatan Kewangan Islam 2013 dan dalam keadaan berlaku apa-apa percanggahan antara Akta ini dengan peruntukan itu, peruntukan itu hendaklah dipakai. Mata Wang 43 (3) Tiada apa-apa jua dalam Akta ini boleh dianggapkan sebagai suatu kelulusan bagi maksud Penggal 2 Bahagian XIV Akta Perkhidmatan Kewangan 2013 dan Penggal 2 Bahagian XV Akta Perkhidmatan Kewangan Islam 2013. Pengecualian 68. Menteri boleh, atas syor Bank, melalui perintah yang disiarkan dalam Warta, mengecualikan mana-mana orang atau apa-apa golongan, kategori atau perihalan orang, daripada semua atau mana-mana peruntukan Akta ini bagi apa-apa tempoh dan tertakluk kepada apa-apa syarat yang ditetapkan oleh Menteri dalam perintah itu. Bahagian VII KECUALIAN DAN PERALIHAN Kecualian 69. Apa-apa— (a) kelulusan atau penentuan yang dibuat oleh Menteri di bawah seksyen 23 Akta Bank Negara Malaysia 1958 [Akta 519] hendaklah disifatkan sebagai kelulusan oleh Menteri di bawah seksyen 9; dan (b) kebenaran yang dikeluarkan oleh Bank di bawah seksyen 27a Akta Bank Negara Malaysia 1958 hendaklah disifatkan sebagai kelulusan yang diberikan oleh Bank di bawah subseksyen 19(1), dan hendaklah terus berkuat kuasa dan berkesan sepenuhnya yang berhubungan dengan orang yang kepadanya kelulusan atau penentuan atau kebenaran itu terpakai sehingga kelulusan atau penentuan atau kebenaran itu dipinda atau dibatalkan. 44 Undang-Undang Malaysia AktA 827 Peralihan 70. (1) Mana-mana orang yang telah menjalankan perniagaan pemprosesan mata wang sebelum tarikh yang ditetapkan di bawah subseksyen 1(2) boleh meneruskan perniagaan itu seolah-olah Akta ini tidak diperbuat bagi tempoh enam bulan dari tarikh yang ditetapkan itu atau apa-apa tempoh lain yang ditentukan oleh Bank, yang boleh disebut sebagai “tempoh tangguh”. (2) Jika orang yang disebut dalam subseksyen (1) berniat untuk meneruskan perniagaan pemprosesan mata wang itu selepas tamatnya tempoh tangguh itu, orang itu hendaklah membuat suatu permohonan untuk didaftarkan sebagai seorang pemproses mata wang berdaftar di bawah seksyen 25 dalam tempoh tangguh itu. (3) Jika seseorang yang disebut dalam perenggan (1) telah didaftarkan sebagai seorang pemproses mata wang berdaftar oleh Bank, pemproses mata wang berdaftar itu diberi tempoh tangguh tambahan selama enam bulan dari tamatnya tempoh tangguh itu bagi mematuhi sepenuhnya peruntukan dalam Penggal 2 Bahagian IV dan apa-apa ketakpatuhan selepas tamatnya tempoh tangguh tambahan itu akan tertakluk kepada tindakan yang diperuntukkan dalam peruntukan yang berkenaan. (4) Jika seseorang tidak memohon untuk didaftarkan sebagai seorang pemproses mata wang berdaftar atau permohonan pendaftarannya ditolak apabila tamatnya tempoh tangguh itu, orang itu hendaklah dengan serta-merta berhenti daripada menjalankan perniagaan pemprosesan mata wang, pada tarikh akhir tempoh tangguh itu. (5) Tempoh tangguh di bawah subseksyen (1) hendaklah tamat dalam hal jika seseorang itu telah memohon untuk didaftarkan sebagai seorang pemproses mata wang berdaftar— (a) pada tarikh permohonan bagi pendaftaran sebagai seorang pemproses mata wang berdaftar itu diterima oleh Bank dan suatu pemberitahuan di bawah seksyen 26 dikeluarkan; atau (b) pada tarikh penyampaian suatu notis di bawah seksyen 27 yang menyatakan bahawa permohonan bagi pendaftaran itu ditolak oleh Bank. Mata Wang 45 Jadual Pertama [Seksyen 3] ORANG YANG DIISYTIHARKAN SEBAGAI INSTITUSI KEWANGAN 1. Pemegang lesen di bawah Akta Perniagaan Perkhidmatan Wang 2011 diisytiharkan sebagai institusi kewangan bagi maksud seksyen 22, 33, 34, 37, 38, 39, 41, 42, 43, 44 dan 45 dan Penggal 1 Bahagian V. Jadual Kedua [Subseksyen 10(2) dan 21(1)] HAD SAH DIPERLAKUKAN 1. Mata wang syiling adalah sah diperlakukan bagi pembayaran apa-apa amaun sehingga nilai agregat dua puluh lima keping mata wang syiling dalam apa-apa pembayaran tunggal. HAD BAGI TRANSAKSI TUNAI Tiada	Public Notice
11 Mac 2022	Discussion Paper on Broader Application of Ta`awun in Takaful	https://www.bnm.gov.my/-/dp-taawun-in-takaful	https://www.bnm.gov.my/documents/20124/948107/Discussion_Paper_on_Broader_Application_of_Taawun.pdf	null	null	Broader Application of Ta`awun in Takaful — Discussion Paper 1 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 Broader Application of Ta`awun in Takaful Discussion Paper Applicable to: Licensed takaful operators including professional retakaful operators Broader Application of Ta`awun in Takaful – Discussion Paper 0 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 This Discussion Paper (DP) outlines Bank Negara Malaysia’s (the Bank) policy perspective in respect of the broader application of mutual assistance (ta`awun) by licensed takaful and professional retakaful operators (TOs) in the provision of family and general takaful business. Specifically, this DP seeks feedback from TOs and Shariah Committee of the TOs on the following areas: (a) scope of the broader application of ta`awun in takaful business; (b) Shariah guiding principles and parameters; (c) scope of reviews of existing regulatory requirements; and (d) potential operational challenges. Feedback received from this exercise will serve as input for the formulation of the Bank’s holistic regulatory expectations to be issued later. The Bank invites written feedback, including suggestions on areas requiring further clarification, elaboration or alternatives that the Bank should consider. The feedback must: (a) be prepared based on inputs from relevant parties within the TOs, including from the origination/business units and other relevant control functions including the back office (e.g. actuarial, risk management, compliance, Shariah) given the cross cutting implications of the proposals to a TO’s business strategies, capital adequacy, operations and offerings; (b) include specific inputs and constructive views from the Shariah Committee of the TOs; (c) include specific responses to the questions posed in this DP; and (d) be supported with clear justification, including accompanying evidence or illustrations where appropriate, to facilitate an effective and constructive consultation process. Responses must be submitted to the Bank via email to [email protected] by 31 May 2022. In the course of preparing your feedback, you may direct any queries to the following officers: 1. Hamzah Kamaruzaman ([email protected]) 2. Muhaizam Ismail ([email protected]) 3. Zafirah Adrus ([email protected]) 4. Nadiyah Syahira Nordin ([email protected]) 5. Wafiuddin Ahmad ([email protected]) 6. Nik Atikah Nik Mustaffa Shapri ([email protected]) mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] Broader Application of Ta`awun in Takaful – Discussion Paper 1 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 Table of Contents PART A OVERVIEW ............................................................................................. 4 1 Introduction ........................................................................................... 4 2 Interpretation ......................................................................................... 5 PART B SHARIAH PARAMETERS ...................................................................... 6 3 Scope of ta`awun .................................................................................. 6 4 Fairness to contracting parties ............................................................ 10 5 Disclosure and transparency ............................................................... 12 PART C REVIEW OF REGULATORY POLICIES .............................................. 14 6 Regulatory review in line with broader application of ta`awun ............. 14 APPENDICES Appendix Scope of ta`awun ................................................................................ 15 Broader Application of Ta`awun in Takaful – Discussion Paper 4 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 PART A OVERVIEW 1 Introduction 1.1 Mutual assistance (ta`awun) forms the foundation of the risk-sharing mechanism in takaful1. Takaful participants would mutually agree to contribute to a common fund that provides mutual financial benefits payable to takaful participants or their beneficiaries in accordance with the terms and conditions on the occurrence of pre- agreed events2. This fundamentally differentiates takaful from the conventional insurance that works on the basis of a risk transfer from policyholders to insurers. At present, the regulatory framework mainly focuses on the application of ta`awun among takaful participants in a takaful fund. This is intended to preserve the best interest of takaful participants as the collective owner of the takaful fund. Diagram 1: Simplified illustration of a takaful model in Malaysia 1 Shariah Resolutions in Islamic Finance (Second Edition), Bank Negara Malaysia (2010). 2 As per definition of “takaful” in section 2(1) of the Islamic Financial Services Act (IFSA) 2013. Broader Application of Ta`awun in Takaful – Discussion Paper 5 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 1.2 In recent years, the Bank has received takaful product applications involving a broader application of the ta`awun concept. These include utilisation of surplus generated in takaful fund for donation or financial assistance to a third party, who are not existing participants. 1.3 The Bank acknowledges that the absence of clear Shariah parameters and supportive policy framework may inadvertently limit the ability of TOs to harness the full potential of ta`awun in enhancing the broader socioeconomic resilience and in meeting the needs of unserved/underserved segments. 1.4 This discussion paper (DP) outlines the Shariah parameters to guide a more effective application of ta`awun by the industry. It is also intended to initiate industry discussions as well to facilitate future review of existing regulatory requirements. The Bank is, therefore, seeking feedback on the following: (a) proposed scope of broader application of ta`awun in the takaful business; (b) proposed Shariah guiding principles and parameters; (c) scope of proposed reviews of existing regulatory requirements; and (d) potential operational challenges. 2 Interpretation 2.1 The terms and expressions used in this DP shall have the same meanings assigned to them in the Islamic Financial Services Act 2013 (IFSA) and the Financial Services Act 2013 (FSA), as the case may be, unless otherwise defined in this DP. 2.2 For the purposes of this DP – “takaful fund” or “takaful funds” refers to the definition of “Participants Risk Fund” as provided in the Policy Document on Takaful Operational Framework issued on 26 June 2019. Broader Application of Ta`awun in Takaful – Discussion Paper 6 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 PART B SHARIAH PARAMETERS 3 Scope of ta`awun 3.1 Ta`awun is a broad concept ordained in the Al-Quran that encourages mutual assistance for good causes and prohibits assistance or cooperation for ill-intent causes3. The concept has been widely discussed by classical and contemporary Shariah scholars. Such discussions centred on encouraging piety (taqwa) and cooperation among Muslims towards good causes. These aim to promote the attainment of benefits for the ummah, including: • supporting each other towards becoming a better Muslim (encouraging towards good relationship with Allah)4; • promoting social cohesion by sustaining communal relationship (encouraging social harmony towards building a good community/ummah)5; and • effective resource sharing to promote fair and equitable wealth distribution6 as encouraged in Islam7. 3.2 The application of ta`awun in modern Islamic finance practices strives to realise the above benefits and outcomes. Ta`awun as practised in takaful, for example, is premised on the ground of mutual assistance among takaful participants within a similar takaful fund to protect each other from specified risks as pre-agreed in the takaful certificate. 3.3 The stricter application is intended to safeguard the rights and ensure fair treatment of takaful participants as the collective owner of the takaful fund. The existing policy requirements include limitation on the usage of surplus in a takaful fund (other than its own use) for solvency purposes8, prohibition of cross- subsidisation of surplus between different takaful funds9, and limitation on surplus withdrawals that is confined to purposes of takaful participants in the takaful fund. 3 Surah al-Maidah: 2. 4 Al-Qurtubi (2006), Al-Jami’ li Ahkam al-Quran (Tafsir Al-Qurtubi), j. 6, p. 46-47. 5 Ibnu Qayyim, Zaadul Muhajir, j.13, p.1, Al-Baladhuri, Futuh al-Buldan, p. 441. 6 Ibnu Khaldun, Muqaddimah Ibnu Khaldun, p. 429. 7 For example, the encouragement of Prophet for people with surplus to share their provision with those with no provision. Refer Appendix on classical views of ta`awun. 8 Paragraph 9.1 in Part B of the Policy Document on Risk-Based Capital Framework for Takaful Operators issued on 17 December 2018. 9 Paragraph 9.10(b) of the Policy Document on Takaful Operational Framework issued on 26 June 2019. Broader Application of Ta`awun in Takaful – Discussion Paper 7 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 3.4 Nevertheless, as the industry progresses, the Bank is of the view that the ta’awun concept can be applied more broadly. This will enable the takaful industry to contribute more meaningfully in the nation’s development while continuing to preserve the rights of takaful participants and consistently achieving the initial objective of the takaful (muqtada aqad). Specifically, the broader application of ta`awun in takaful can serve to achieve the following outcomes: i. promote equitable wealth circulation by encouraging effective resource distribution • For instance, in addition to the fiduciary duty of TOs to provide qard to the takaful fund in the event of a deficit and effectively maintain sufficient capital buffers for the takaful fund, the Bank is considering to allow the usage of excess surplus in a takaful fund to absorb losses of another takaful fund(s) that has insufficient capital available10, to meet the Total Capital Required (TCR). ii. promote social cohesion by sustaining communal relationships • For instance, the Bank is considering to review surplus management requirement that allows a wider scope of surplus utilisation for socioeconomic wellbeing purposes11, beyond takaful fund and existing takaful participants, including takaful participants in other takaful fund, governed by the respective TOs’ internal policies and proper governance arrangement12. 3.5 The broader application of ta`awun can be considered across different business situations or circumstances. As such, a clear interpretation of each of these situations or circumstances needs to be supplemented with justified reasoning, including specific events leading to or necessitating such broader application of ta`awun. 10 In reference to the Discussion Paper on Risk-Based Capital Framework for Insurers and Takaful Operators (Framework Design) issued on 30 June 2021. 11 Examples of surplus utilisation for socioeconomic wellbeing purposes may include providing financial assistance to takaful participants in other takaful funds who are affected by certain hardships, or channeling financial assistance to provide takaful coverage to low-income households, thereby improving their financial resilience. 12 For example, establishment of principle-based internal safeguards that govern the mobilisation of takaful fund (e.g. for capital support or actual transfer between different takaful funds), such as defining an internal tolerance level to apply on any broader application of ta`awun that has been agreed by takaful participants. Broader Application of Ta`awun in Takaful – Discussion Paper 8 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 3.6 In respect of paragraph 3.5, this DP proposes the following scope of situations or circumstances and key considerations that may be included in the terms and conditions of a takaful certificate: Situations/ circumstances Key considerations Normal/ business as usual • Clear terms and conditions regarding the areas/situations for the ta`awun application and contractual obligations. These include the implication to takaful participants if the ta`awun is broadened beyond existing takaful participants in a takaful fund, subject to adherence to relevant regulatory requirements. Exigent/stress • Scope of ta`awun application and indicator of hardship shall be guided by hajah parameters13 particularly the type of hardship that invokes the application of hajah. These include an exigent financial situation that necessitates the acceptance of assistance from a conventional insurer through a temporary arrangement of reinsurance or retrocession. Winding-up • Clear terms and conditions on the scope of ta`awun application in resolution situation. Such situation would be after meeting all rightful liabilities and obligations of the takaful fund, including the scope of utilisation of the excess of assets in the takaful fund. 3.7 In relation to paragraph 3.6, the contractual obligations of all contracting parties must be clearly specified in the takaful certificate. These include roles and responsibilities of existing takaful participants in a particular takaful fund, takaful participants in different takaful funds as well as a third party. 3.8 TOs need to ensure that the broader application of ta`awun must not, in any way, directly or indirectly, impair the fundamental objective of takaful. This means, any mutual assistance amongst takaful participants of a particular takaful fund needs to be underpinned by the occurrence of pre-agreed events based on the terms and conditions stipulated in the takaful certificates. 13 As outlined in the Discussion Paper on Hajah issued on 15 November 2021. Broader Application of Ta`awun in Takaful – Discussion Paper 9 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 3.9 Such broader application must only be confined to business activities or transactions that are in compliance with Shariah. This, however, excludes exigent circumstances where such application will be subject to applicable Shariah parameters and regulatory requirements. 3.10 Any form of ta`awun application must not result in a conflict of interest involving TOs as wakil in managing the takaful fund. This is necessary to ensure TOs effectively discharge their fiduciary role in preserving the best interest and fair treatment of takaful participants. For this purpose, the Bank proposes for key organs of a TO including its Shariah Committee to have the responsibility in providing an objective and sound advice on the justification and measures to apply broader ta`awun under each of the specific circumstances14. This can also be performed by instituting an independent oversight mechanism15. Consultation 1: (a) Please provide feedback on the proposed scope of broader application of ta`awun particularly on the application of ta`awun throughout different business situations or circumstances of TOs. The feedback should also cover the proposal on requiring clear interpretation of each circumstance and supplemented with justified considerations, including specific events leading to or necessitating such broader application of ta`awun. Where applicable, the feedback may also cover potential areas in applying broader application of ta`awun such as in TOs’ operational model, product offerings, surplus management, or capital purposes. (b) Expanding the application of ta’awun beyond the takaful fund may impact the sustainability of the takaful fund and benefits payable to takaful participants. Please share your views on potential internal safeguards that should be in place when providing mutual assistance to another takaful fund(s) whilst preserving takaful participants’ interests and sustainability of the existing takaful fund. (c) Where broader application of ta`awun is applied for solvency purposes, please provide feedback on the manner in which the excess surplus can be used to support the solvency of another takaful fund. This could be in the form of capital recognition when calculating the Capital Adequacy Ratio (CAR) or would this necessitate an outright transfer. (d) Please provide feedback on the distinction between surplus from out-of- force and in-force certificates and whether there would be differences in applying the broader application of ta`awun for both types of surpluses. 14 Such expectation forms part of existing roles of Shariah Committee as outlined in Policy Document on Shariah Governance issued on 20 September 2019. 15 Refers to any credible independent party that has sufficient competency to provide an independent view on the TO’s proposed broader application of ta`awun in their operational model and product. Broader Application of Ta`awun in Takaful – Discussion Paper 10 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 (e) Please provide feedback on your current strategic initiatives that are consistent with the perspective of the broader application of ta`awun. These may include social finance initiatives, donations to charity, or capital assistance to other takaful funds. The feedback may also include other proposed initiatives in the industry such as musyarakah retakaful, peer-to- peer (P2P) model, or microtakaful. (f) Please provide feedback on other key organs of TOs that can be leveraged to maintain the independence of the decision making process in broader application of ta`awun. 4 Fairness to contracting parties 4.1 Takaful is structured based on the benevolence (tabarru`at) contract. In applying the Shariah contract in takaful business, the terms and conditions in a takaful certificate are agreed upon by all contracting parties on the basis of principle of freedom to contract (huriyah al-ta`aqud)16. Shariah recognises the principle of freedom to contract is built on the concept of mutual consent (taradhi)17 that should be applied within boundaries such that it preserves the fairness and interest of the contracting parties. 4.2 Such principle also emphasises for elements that nullify consent to be absent from a contract, terms and conditions to be aligned with the objective of the contract, and fair bargaining power between contracting parties that includes the rights to have access to clear information prior to obtaining contractual agreement. As such, when ta`awun is applied beyond the currently limited scope, there must be clear and effective communication to takaful participants on the wider scope of ta’awun. This serves to ensure that all takaful participants understand the potential impact of such application. 16 In a takaful certificate which is based on tabarru` contract, the contractual terms and conditions that are agreed among takaful participants are premised on the concept of huriyah al-ta`aqud (The SAC’s Shariah Resolutions in Islamic Finance, Third Edition, 2017, page 40). 17 Ibid. Broader Application of Ta`awun in Takaful – Discussion Paper 11 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 4.3 In establishing appropriate parameters to guide the application of the principle of freedom to contract in takaful, the Bank has considered the specificities of a tabarru` contract that are different from an exchange contract (mu`awadhat). Therefore, to preserve the attainment of the fundamental rights of contracting parties that are involved in a tabarru` contract, this DP proposes for TOs to consider the following: (a) provide clear disclosure to takaful participants, including the implication of the contractual terms of the takaful certificate to facilitate informed decision making; (b) contractual terms that do not give rise to conflict of interest to the TO as wakil in managing the takaful fund on behalf of the takaful participants; (c) no elements that nullify consent such as undue influence, coercion, or deliberate disregard of any material information; and (d) contractual obligations of the TO and takaful participants are given appropriate prominence. Consultation 2: Please provide TO’s and Shariah Committee’s feedback on the proposed parameters on fairness in a contract from the context of principle of freedom to contract in a tabarru` contract. 4.4 The Bank is considering a requirement for TOs to ensure that appropriate consent is obtained from the takaful participants regarding every scope of application of ta`awun and the terms that affect the takaful participants’ rights and obligations. In ensuring the consent and mandate from takaful participants are properly obtained, the terms and conditions of takaful certificate should include all pre-agreed events leading to the broader application of ta`awun. 4.5 For the avoidance of doubt, broader application of ta`awun involving in-force certificates requires the expressed consent from the affected takaful participants. The Bank is considering similar requirements to be imposed pertaining any changes in terms and conditions involving in-force takaful certificates, for example, in effecting broader application of ta`awun during exigent circumstances or any other situations. 4.6 In relation to paragraph 4.5, TOs must have in place a clear and robust mechanism when dealing with any variation to the terms and conditions of a takaful certificate and for effecting such variation. In any case, takaful certificates must incorporate explicit clauses and specified parameters of the circumstances which allow changes to the contractual terms and conditions. Broader Application of Ta`awun in Takaful – Discussion Paper 12 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 4.7 For any changes to the terms and conditions of the takaful certificate, all contracting parties must be provided with adequate means and reasonable opportunities to indicate their preference and choice concerning their rights and obligations. 4.8 In line with section 94 of the IFSA, TOs must take into account the sustainability of the takaful fund before considering to apply or invoke the broader application of ta`awun as specified in the takaful certificate. In doing so, the Bank expects the Appointed Actuary18 of a TO to ensure appropriateness of such recommendation and justification with regard to any utilisation of surplus in a takaful fund within the current and/or expanded scope of ta`awun. This is considering that the utilisation of excess surplus in a takaful fund for the purpose of broader application of ta`awun without reasonable consideration to the overall sustainability of the takaful fund could be detrimental to existing takaful participants. Consultation 3: (a) Please provide feedback on the proposed fairness parameters, specifically on the requirement to balance between applying ta`awun beyond the current application and ensuring the long-term sustainability of the takaful fund. (b) Please provide feedback on the operationalisation of consent requirements, specifically on methods and ways of effecting the changes in relation to broader application of ta`awun during the in-force period of a takaful certificate. Please also provide feedback on legal constraints, if any, in applying such changes to the in-force takaful certificates. (c) Please outline specific challenges in complying with the proposed fairness parameters in broadening the application of ta`awun. 5 Disclosure and transparency 5.1 The Bank acknowledges that disclosure and transparency are imperative in facilitating informed decision making by takaful participants. On this premise, TOs must ensure timely, reasonable, and reliable disclosure is made to takaful participants with regard to the terms and conditions of a takaful certificate. 5.2 All forms of broader application of ta`awun must be supported by a strong Shariah basis and safeguards to ensure reasonable application while preserving the fair 18 Such expectation forms part of existing role/duties of Appointed Actuary as outlined in Policy Document on Takaful Operational Framework and Policy Document on Appointed Actuary: Appointment and Duties issued on 28 April 2014. Broader Application of Ta`awun in Takaful – Discussion Paper 13 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 treatment to takaful participants of a takaful fund. These need to be explicitly stipulated in the takaful certificate, before it can be applied beyond the current scope. 5.3 The takaful certificate must clearly disclose the definition and scope of application of ta`awun, particularly on specific events leading to such application. 5.4 All contracting parties must be kept well-informed and provided with clear and accurate information on the proposed broader application of ta`awun by the TO including risk/implication of terms and conditions in the takaful certificate. For example, the implication of waiving entitlement to surplus, agreement to participate in charitable activities, and Shariah treatment19 for each application of ta`awun. 5.5 In relation to paragraph 5.4, the Bank is exploring other avenues of disclosure on all pertinent information regarding the broader application of ta`awun by TOs and its implication to the takaful participants. This may include specific disclosure in financial statements, Directors’ Report and Shariah Committee Report regarding the basis of such application. TOs are expected to disclose the available modes of communication to relevant stakeholders, particularly the takaful participants. Consultation 4: (a) Please provide feedback on the proposed Shariah parameters on disclosure and transparency in the takaful certificate. Please also provide feedback on other avenues of disclosure that should be considered to ensure broader application of ta`awun as practised by the TO is clearly communicated and informed to relevant stakeholders. (b) Please share feedback on the implications of the disclosure on broader application of ta`awun to existing takaful participants from a legal perspective and operational aspects. (c) Please provide feedback on whether properly worded takaful certificates and transparent disclosure as proposed are sufficient, or there needs to be further regulatory guidance on the extent of TO’s obligation with regard to broader application of ta`awun. 19 For example, clear Shariah treatment in any application of ta`awun may include the Shariah basis of tanazul/hibah/mubara`ah in the relinquishment of rights to certain threshold of surplus by takaful participants, or Shariah basis of qard/hibah in providing assistance to other takaful fund with lower capital available. Broader Application of Ta`awun in Takaful – Discussion Paper 14 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 PART C REVIEW OF REGULATORY POLICIES 6 Regulatory review in line with broader application of ta`awun 6.1 The Bank is considering to review existing regulatory requirements to facilitate a smooth and effective broader application of ta`awun. 6.2 This review is intended to foster broader application of ta`awun in the industry, as well as to address potential risks arising from operational changes and product innovations introduced by TOs. 6.3 To this end, the review would include, but not limited to, the following regulatory policies: (a) Shariah requirements on application of ta`awun in takaful, such as cross- subsidisation between takaful funds, requirements on utilisation and distribution of surplus, and ta`awun in winding up situation; (b) Conduct and consumer protection requirements on safeguarding the interest of existing takaful participants, and enhancing consent requirements; (c) Takaful operational framework, such as surplus management policy20 that includes surplus utilisation beyond a takaful fund and takaful participants; and (d) Risk-based capital requirement on utilisation of excess surplus in sufficiently capitalised takaful fund to assist another takaful fund that is in need for capital21. 6.4 The Bank will be reviewing relevant policies in phases, centred on the principle of proportionality while preserving the capability of achieving the initial objective of takaful and safeguarding financial stability and the interests of certificate owners and takaful participants. Consultation 5: (a) Please provide feedback on the above identified policies and other policies that may require review in facilitating effective implementation of the broader application of ta`awun, including practices observed in other countries, where relevant. 20 As outlined in Paragraph 18 of the Policy Document on Takaful Operational Framework issued on 26 June 2019. 21 As detailed out in Paragraph 2 of Appendix 2 of the Discussion Paper on Risk-Based Capital Framework for Insurers and Takaful Operators (Framework Design) issued on 30 June 2021. Broader Application of Ta`awun in Takaful – Discussion Paper 15 of 15 Issued on: 11 March 2022 BNM/RH/DP 033-1 APPENDICES Appendix Scope of ta`awun Ta`awun from the Quran and Sunnah The following verse of the Quran implies the broad encouragement of assistance for good causes and piety, and prohibition against cooperation on sinful deeds and transgression: تَعَاَونُواْ وَ َواتَّقُواْ َواْلعُْدَوانِ اِإلثْمِ َعلَى تَعَاَونُواْ َوالَ َوالتَّْقَوى اْلبرِّ َعلَى اْلِعقَابِ َشِدیدُ ّ�َ إِنَّ ّ�َ And cooperate with one another in virtuous conduct and for piety, and do not cooperate with one another in sin and transgression. And fear Allah. Indeed, Allah is severe in retribution (Surah Al-Maidah, 5:2) The following hadith implies the general advocacy for people with excess to help others who are in deficit, and consciousness towards other people’s needs: هللا صلى النبي مع سفر في نحن بینما :قال عنھ هللا رضي الخدري سعید أبي عن ً یصرف فجعل لھ راحلة على رجل جاء إذ وسلم علیھ رسول فقال ،وشماالً یمینا ،لھ ظھر ال من على بھ فلیعد ظھر فضل معھ كان من :وسلم علیھ هللا صلى هللا ما المال أصناف من فذكر ،لھ زاد ال من على بھ فلیعد زاد من فضل لھ كان ومن فضل في منا ألحد حق ال أنھ رأینا حتى ،ذكر مسلم رواه Abu Sa`id Al-Khudri reported: While we were on a journey with the Messenger of Allah (peace and blessing of Allah be upon him), a person came and began to stare on the right and left. The Messenger of Allah (peace and blessing of Allah be upon him) said: He who has an extra mount should give that to one who has none, and he who has surplus of provisions should give them to him who is without provision, and he named various kinds of possessions/wealth, until we began to think that none of us had any right over anything of surplus [Muslim] PART A OVERVIEW 1 Introduction 2 Interpretation PART B SHARIAH PARAMETERS 3 Scope of ta`awun 4 Fairness to contracting parties 5 Disclosure and transparency PART C REVIEW OF REGULATORY POLICIES 6 Regulatory review in line with broader application of ta`awun APPENDICES Appendix Scope of ta`awun	null
11 Mac 2022	Senarai Amaran Pengguna Kewangan telah dikemaskini	https://www.bnm.gov.my/-/fca-20220311-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/fca-20220311-bm&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemaskini Share: 41 Senarai Amaran Pengguna Kewangan telah dikemaskini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1100 pada Jumaat, 11 Mac 2022 11 Mac 2022 Bank telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan pentadbiran berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat berikut ditambahkan ke dalam senarai: BTC Pelaburan Malaysia Al Ayuni Investment Malaysia (not related to Al Ayuni Invesment and Contracting Co. based in Saudi Arabia) Preferred Trust Investment Scheme Madinah Mining Madinah Mining Investment Pte Ltd Madinah Mining Group Investment Pte Ltd Senarai akan dikemas kini secara berkala untuk rujukan orang ramai. Untuk melihat senarai yang dikemas kini, klik pada pautan ini. Bank Negara Malaysia 11 Mac 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
14 Feb 2022	Kemudahan Tempahan dan Pembayaran Dalam Talian bagi Penjualan Wang Peringatan 25 Tahun Lembaga Perkhidmatan Kewangan Labuan	https://www.bnm.gov.my/-/ordering-coins-lfsa25-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/ordering-coins-lfsa25-bm&languageId=ms_MY	Reading: Kemudahan Tempahan dan Pembayaran Dalam Talian bagi Penjualan Wang Peringatan 25 Tahun Lembaga Perkhidmatan Kewangan Labuan Share: Kemudahan Tempahan dan Pembayaran Dalam Talian bagi Penjualan Wang Peringatan 25 Tahun Lembaga Perkhidmatan Kewangan Labuan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1100 pada Isnin, 14 Februari 2022 14 Feb 2022 Bank Negara Malaysia (BNM) ingin mengumumkan penyediaan kemudahan tempahan, pembayaran secara dalam talian dan penghantaran bagi penjualan duit syiling peringatan yang dikeluarkan oleh BNM bersempena dengan Ulang Tahun Lembaga Perkhidmatan Kewangan Labuan yang ke-25 (LFSA25). Orang ramai boleh membuat tempahan melalui laman sesawang https://duit.bnm.gov.my mulai Isnin, 14 Februari 2022 (10.00 pagi) hingga Jumaat, 25 Februari 2022 (11.00 malam). Orang ramai dinasihati supaya membuat tempahan menerusi sistem dalam talian Bank Negara Malaysia sahaja dan bukannya melalui mana-mana pihak atau kemudahan tempahan lain yang tidak sah. Semua tempahan yang diterima semasa tempoh tempahan akan dipertimbangkan dengan sewajarnya. Sekiranya terdapat tempahan yang berlebihan, cabutan untuk menentukan tempahan yang berjaya akan dibuat. Untuk maklumat lanjut mengenai cara membuat pembayaran, pengumuman keputusan tempahan dan penghantaran, sila layari laman sesawang tempahan seperti yang dinyatakan di atas. Bank Negara Malaysia 14 Februari 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
11 Feb 2022	Keputusan Mesyuarat Majlis Penasihat Shariah BNM ke-218	https://www.bnm.gov.my/-/bnm-sac-218th-mtg-ruling-bm	https://www.bnm.gov.my/documents/20124/6123519/SAC_Mesyuarat_ke_218_MYOR-i_bm_v2.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/bnm-sac-218th-mtg-ruling-bm&languageId=ms_MY	Reading: Keputusan Mesyuarat Majlis Penasihat Shariah BNM ke-218 Share: Keputusan Mesyuarat Majlis Penasihat Shariah BNM ke-218 Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 2305 pada Jumaat, 11 Februari 2022 11 Feb 2022 Majlis Penasihat Shariah Bank Negara Malaysia (MPS) pada mesyuarat ke-218 bertarikh 28 Oktober 2021 telah membuat keputusan berhubung Kadar Rujukan Islam Baharu iaitu Malaysia Islamic Overnight Rate (MYOR-i). Keputusan MPS ini bertujuan untuk menjelaskan status Shariah bagi metodologi pengiraan kadar MYOR-i dalam situasi biasa dan luar jangka. Keputusan ini berkuat kuasa berdasarkan garis panduan MYOR-i yang akan dikeluarkan oleh Bank Negara Malaysia (BNM). Sila rujuk lampiran ini untuk maklumat lanjut Bank Negara Malaysia 11 Februari 2022 © Bank Negara Malaysia, 2022. All rights reserved.	Kenyataan MPS - MYOR-i - Mesyuarat ke-218 Mesyuarat MPS 218 2021 1 Keputusan Majlis Penasihat Shariah Bank Negara Malaysia (MPS) Berhubung Kadar Rujukan Islam Baharu iaitu Malaysia Islamic Overnight Rate (MYOR-i) Mesyuarat MPS ke-218 bertarikh 28 Oktober 2021 Bahagian I: Keputusan MPS, Tarikh Kuat Kuasa dan Pemakaian Menurut seksyen 52 Akta Bank Negara Malaysia 2009, MPS telah memutuskan bahawa kadar rujukan Islam yang baharu iaitu Malaysia Islamic Overnight Rate (MYOR-i) dan metodologi pengiraannya dalam situasi biasa dan situasi luar jangka adalah patuh Syariah memandangkan ia hanya mengambil kira transaksi patuh Syariah. 1.1. Keputusan ini berkuat kuasa berdasarkan garis panduan yang akan dikeluarkan oleh Bank Negara Malaysia (BNM) dan terpakai ke atas IKI berikut: (a) institusi kewangan Islam berlesen menurut Akta Perkhidmatan Kewangan Islam 2013 (APKI); (b) bank berlesen dan bank pelaburan berlesen yang diluluskan di bawah seksyen 15(1) Akta Perkhidmatan Kewangan 2013 (APK) untuk menjalankan perniagaan kewangan Islam; dan (c) institusi yang ditetapkan yang diluluskan di bawah seksyen 33B(1) Akta Institusi Kewangan Pembangunan 2002 (DFIA) untuk menjalankan perniagaan kewangan Islam. 1.2. Selaras dengan seksyen 28(1) dan (2) APKI atau seksyen 33D (1) dan (2) DFIA, mengikut mana-mana yang berkenaan, IKI dikehendaki mematuhi keputusan ini kerana pematuhan dengan apa-apa keputusan MPS berkenaan dengan sebarang matlamat tertentu dan pengendalian perniagaan, hal ehwal atau aktiviti IKI tersebut adalah disifatkan sebagai pematuhan kepada Syariah. Bahagian II: Latar Belakang 2.1. Usaha pembaharuan kadar rujukan kewangan sedang dijalankan di pelbagai negara untuk meningkatkan integriti dan kualiti kadar rujukan faedah, selaras dengan saranan oleh Lembaga Kestabilan Kewangan (Financial Stability Board, FSB). Antara saranan utama FSB ialah pembangunan Kadar Rujukan Alternatif (Alternative Reference Rate, ARR) yang hampir bebas risiko (near risk-free) dan pengukuhan Kadar Tawaran Antara Bank (Interbank Offered Rate, IBOR) sedia ada bagi pasaran di negara masing-masing. 2.2. Selaras dengan usaha pembaharuan kadar rujukan kewangan di peringkat global ini, BNM telah melantik Jawatankuasa Pasaran Kewangan (Financial Markets Committee, FMC) untuk menyelia pembangunan kadar ARR yang berasaskan transaksi sebenar yang berlaku di pasaran. 2.3. Sama seperti negara lain, kadar rujukan alternatif bagi pasaran Malaysia iaitu Malaysian Overnight Rate (MYOR) akan dibangunkan berdasarkan kadar yang hampir bebas risiko dan transaksi semalaman dalam pasaran wang antara bank. Ianya akan dilaksanakan seiring Mesyuarat MPS 218 2021 2 dengan Kadar Tawaran Antara Bank Kuala Lumpur (Kuala Lumpur Interbank Offered Rate, KLIBOR) yang sedia ada. 2.4. Bagi pasaran kewangan Islam pula, Kadar Rujukan Islam Kuala Lumpur (Kuala Lumpur Islamic Reference Rate, KLIRR) yang sedia ada akan dimansuhkan dan diganti dengan kadar rujukan yang baharu iaitu, Kadar Islam Semalaman Malaysia (Malaysia Islamic Overnight Rate, “MYOR-i”). Ini berikutan penggunaan KLIRR yang rendah dan ketidakpatuhannya kepada piawaian global bagi kadar rujukan kewangan. MYOR-i dirumus berdasarkan prinsip-prinsip bagi kadar rujukan kewangan yang digariskan oleh International Organisation of Securities Commission, IOSCO. Ia dibangunkan dengan kerjasama antara FMC dan Jawatankuasa Teknikal dan Pembangunan Pasaran Islam (Islamic Market Technical and Development Committee, IMTDC) yang ditubuhkan bersama oleh AIBIM-FMAM1. 2.5. Metodologi pengiraan MYOR-i adalah berdasarkan kadar pulangan purata bagi transaksi semalaman antara bank patuh Syariah dalam denominasi Ringgit Malaysia yang tidak bercagar dan berwajaran berdasarkan bilangan transaksi (volume-weighted average rate), yang dibundarkan kepada dua titik perpuluhan. 2.6. Ciri-ciri utama MYOR-i adalah: (i) berdasarkan kadar hampir bebas risiko; dan (ii) mewakili transaksi sebenar dan patuh Syariah dalam pasaran wang antara bank. 2.7. Transaksi yang diambil kira bagi pengiraan kadar MYOR-i terdiri daripada transaksi berikut: • Transaksi antara bank tanpa cagaran (sama ada melalui broker atau secara langsung/dua hala); dan • Operasi monetari semalaman oleh pihak BNM, yang terdiri daripada tender yang dijalankan melalui Sistem Automatik Sepenuhnya untuk Pengeluaran/Tender (Fully Automated System for Issuing/Tendering, FAST) atau operasi manual, dan transaksi semalaman secara terus antara Bank dan institusi di pasaran wang antara bank, tetapi tidak termasuk Kemudahan Tersedia (Standing Facilities). 2.8. Pada masa ini, instrumen kewangan yang diambil kira dalam metodologi pengiraan MYOR-i adalah instrumen berasaskan Murabahah Komoditi (“Commodity Murabahah”) yang diurus niagakan di pasaran wang antara bank Islam. Instrumen baharu yang sesuai boleh dimasukkan pada masa hadapan bagi memastikan MYOR-i mencerminkan keadaan dan perkembangan terkini dalam pasaran kewangan Islam, tertakluk kepada kelulusan MPS BNM dan memenuhi semua kriteria mengenai kesesuaian instrumen yang akan dinilai oleh BNM. 2.9. Manakala, instrumen berasaskan qard dan kadar hibah bagi transaksi qard yang lalu tidak akan diambil kira dalam metodologi pengiraan MYOR-i kerana dikhuatiri memberi persepsi bahawa wujudnya elemen yang bercanggah dengan Syariah. Kemasukan kadar hibah bagi transaksi qard yang lalu (historical rate) boleh memberi anggapan bahawa kadar hibah tersebut adalah kadar indikatif bagi transaksi qard akan datang dan membiasakan pemberian hibah ke atas qard sebagai satu amalan perniagaan yang dilarang oleh Syarak. 2.10. Formula pengiraan untuk MYOR-i adalah seperti berikut: 1 AIBIM = Persatuan Institusi Perbankan dan Kewangan Islam Malaysia (Association of Islamic Banking and Financial Institutions Malaysia) FMAM = Persatuan Pasaran Kewangan Malaysia (Financial Markets Association Malaysia) Mesyuarat MPS 218 2021 3 2.11. Situasi luar jangka boleh berlaku sekiranya terdapat gangguan kepada proses penerbitan MYOR-i (contohnya, gangguan kepada prosedur penyelesaian transaksi, transaksi antara bank atau pengumpulan data). 2.12. Oleh itu, bagi situasi luar jangka, penggunaan kadar keuntungan kemudahan pendanaan (funding facility profit rate, FFPR)2 akan menggantikan metodologi pengiraan dalam situasi biasa. Metodologi pengiraan dalam situasi luar jangka adalah seperti berikut: Isu Syariah Berdasarkan metodologi pengiraan seperti yang dicadangkan, isu-isu Syariah yang dikenal pasti adalah seperti berikut: 2.13. Adakah metodologi pengiraan kadar MYOR-i dalam situasi biasa dan situasi luar jangka patuh Syariah? 2.14. Adakah penggunaan kadar rujukan bertempoh konvensional dibenarkan semasa ketiadaan kadar rujukan bertempoh Islam yang boleh diguna pakai? Bahagian III: Perbincangan Utama Mengeluarkan transaksi berasaskan qard daripada metodologi pengiraan kadar MYOR-i dalam situasi biasa dan penggunaan kadar keuntungan kemudahan pendanaan bagi situasi luar jangka adalah penting bagi memastikan kepatuhan Syariah secara menyeluruh 3.1. BNM dan pihak industri mencadangkan untuk tidak memasukkan transaksi semalaman di pasaran wang antara bank yang berasaskan qard dan kadar hibah bagi kontrak qard ke dalam metodologi pengiraan kadar MYOR-i. Ini kerana, kemasukan kedua-dua komponen ini ke dalam metodologi pengiraan boleh memberi anggapan bahawa kadar hibah qard yang lalu adalah kadar indikatif bagi transaksi qard akan datang dan membiasakan pemberian hibah ke atas qard ini adalah satu amalan perniagaan yang dilarang oleh Syarak. 2 Kemudahan pendanaan diberikan oleh pihak Bank kepada institusi antara bank bagi memenuhi keperluan kecairan sementara pada kadar keuntungan seperti yang digariskan dalam Dokumen Polisi Standing Facilities. Mesyuarat MPS 218 2021 4 3.2. Berdasarkan simulasi data3 yang dibentangkan, mengeluarkan transaksi berasaskan qard dan kadar hibah ke atas qard daripada metodologi pengiraan kadar MYOR-i tidak memberikan impak ketara kepada pengiraan kadar MYOR-i dimana impaknya kurang daripada 0.01% kepada kadar yang terhasil. 3.3. Berdasarkan penghujahan di atas, MPS bersetuju untuk tidak memasukkan transaksi berasaskan qard dan kadar hibah ke atas qard ke dalam metodologi pengiraan kadar MYOR- i. Ini adalah selari dengan keputusan MPS sedia ada dan keperluan Syariah dalam Dokumen Polisi Qard yang tidak membenarkan pendedahan atau pemasaran kadar hibah indikatif bagi transaksi qard akan datang.4 3.4. Manakala, bagi situasi luar jangka, BNM akan mengira dan menerbitkan kadar MYOR-i berdasarkan purata kadar MYOR-i sepanjang tiga hari penerbitan sebelumnya, yang diselaraskan berdasarkan perubahan dalam FFPR. Penggunaan FFPR bagi situasi luar jangka dicadangkan bagi memastikan MYOR-i hanya mengandungi unsur yang patuh Syariah sahaja dan mengelakkan penggunaan kadar faedah seperti OPR sebagaimana yang diamalkan bagi MYOR konvensional. Oleh itu, MPS bersetuju dengan cadangan penggunaan FFPR dalam situasi luar jangka memandangkan ia merupakan alternatif kepada OPR. Rujukan kepada kadar bertempoh konvensional dalam keadaan ketiadaan kadar rujukan bertempoh yang patuh Syariah 3.5. Di peringkat global dan domestik, pada masa ini, tiada kadar rujukan bertempoh patuh Syariah yang boleh diguna pakai dalam menetapkan harga bagi instrumen kewangan Islam. Oleh itu, MPS bersetuju untuk membenarkan rujukan secara sementara kepada kadar rujukan bertempoh konvensional seperti KLIBOR atau lain-lain kadar rujukan bertempoh konvensional berdasarkan pertimbangan situasi hajah, sehingga kadar rujukan bertempoh Islam yang boleh diguna pakai dapat diwujudkan. Hal ini adalah bagi mengelakkan sebarang gangguan kepada pasaran memandangkan kadar kecairan di pasaran wang Islam agak rendah. Bahagian IV: Asas Pertimbangan Metodologi pengiraan kadar MYOR-i dalam situasi biasa dan situasi luar jangka bebas daripada sebarang unsur tidak patuh Syariah 4.1. Syariah tidak menyatakan kaedah yang spesifik bagi menetapkan harga dalam urus niaga patuh Syariah, tetapi tertakluk kepada prinsip-prinsip Syariah tertentu seperti larangan penipuan dan manipulasi harga. Oleh itu, sebarang kaedah penetapan harga adalah harus melainkan terdapat pelanggaran terhadap sesuatu keperluan Syariah sebagaimana kaedah fiqh menyatakan: العقود والشروط الجواز والصحة األصل في “Prinsip asas dalam kontrak dan syarat adalah keharusan dan kesahihan.”5 3 Simulasi data yang dibentangkan kepada MPS termasuklah data mengenai bilangan transaksi qard yang lalu di pasaran antara bank, kadar hibah ke atas transaksi qard semalaman yang lalu dan analisis impak kepada kadar MYOR-i. 4 Rujuk perenggan 14.7 Dokumen Polisi Qard yang diterbitkan pada 26 Februari 2018. 5 Muhammad Mustafa Al-Zuhayli (2006), Al-Qawa`id al-Fiqhiyyah wa Tatbiqatuha fi al-Mazahib al-`Arba`ah. Damsyik: Dar al-Fikr, v. 2, p. 815. Mesyuarat MPS 218 2021 5 4.2. Peralihan ke arah penggunaan MYOR-i adalah disebabkan ciri-cirinya yang berdasarkan transaksi sebenar yang lebih menggambarkan keadaan pasaran dan sukar untuk dimanipulasi. Perkara ini adalah selari dengan prinsip siyasah syar’iyyah6 dalam kewangan Islam bagi memastikan ketelusan dan keadilan dalam penetapan harga seperti yang dinyatakan dalam hadith berikut: غال السعر فسعر لنا. فقال رسول هللا صلى ،عن أنس بن مالك رضي هللا عنه: قال الناس: يا رسول هللا القابض الباسط الرازق وإني ألرجو أن ألقى ربي وليس أحد يطالبني هللا عليه وسلم: إن هللا هو المسعر بمظلمة في دم وال مال “Anas Bin Malik RA meriwayatkan bahawa, orang ramai telah mengadu kepada Rasulullah SAW: Wahai Rasulullah, harga telah meningkat, maka tetapkanlah harga untuk kami. Rasulullah SAW berkata: Sesungguhnya Allah yang menetapkan harga, yang menahan dan yang memberikan rezeki. Dan sesungguhnya aku berharap agar apabila aku bertemu Allah kelak, tidak ada di kalangan kamu yang menuntut keadilan daripadaku berhubung darah dan harta.” (Tirmizi: Hasan Sahih)7 4.3. Hadith di atas mengungkapkan secara tersirat bahawa pergerakan harga pada ketika itu didorong oleh pasaran. Oleh itu, sebarang penanda aras yang menggambarkan keadaan pasaran semasa adalah sesuai untuk dijadikan kadar rujukan bagi urus niaga yang berlaku dalam pasaran tersebut. 4.4. Walaupun MYOR-i wujud dalam bentuk kadar semalaman sahaja dan tidak mempunyai kadar bertempoh, usaha pelaksanaan kadar rujukan Islam yang tersendiri setakat kemampuan adalah amat digalakkan bagi memastikan instrumen kewangan Islam mematuhi Syariah selain menjaga reputasi industri kewangan Islam daripada sebarang unsur yang dilarang Syarak. Ini adalah selari dengan hadith Rasulullah SAW yang menyeru umatnya untuk mematuhi Syariat Islam dengan kadar kemampuannya seperti berikut: إنما أهلك من : دعوني ماتركتكم " : عن أبي هريرة رضي هللا عنه عن النبي صلى هللا عليه وسلم قال فاجتنبوه، وإذا أمرتكم بأمر كان قبلكم كثرة سؤالهم ، واختالفهم على أنبيائهم، فإذا نهيتكم عن شيء (( متفق عليه )) "فأتوا منه ما استطعتم “Daripada Abu Hurairah RA, Rasulullah SAW bersabda, "Janganlah kamu bertanya kepadaku secara berlebihan tentang perkara-perkara yang tidak aku ceritakan kepada kamu. Sesungguhnya orang-orang sebelum kamu telah binasa kerana banyaknya pertanyaan mereka kepada Nabi-nabi mereka dan berselisih pendapat tentangnya. Jauhilah apa yang telah aku larang kamu daripadanya dan kerjakanlah apa yang telah aku perintahkan kepada kamu berdasarkan kemampuanmu.” (Sahih Bukhari)8 Keharusan menggunakan kadar rujukan bertempoh konvensional oleh institusi kewangan Islam ketika ketiadaan kadar rujukan bertempoh Islam yang boleh diguna pakai 6 Dasar dan pendekatan yang diambil oleh pemerintah demi kepentingan negara dan rakyat yang selari dengan prinsip Syariah. 7 Tirmizi (1996), Sunan Tirmizi, Beirut: Dar Al-Gharb Al-Islami, j. 2, m. 582, no. hadith 1314; Abu Daud (2009), Sunan Abi Daud, Beirut: Dar Al-Risalah Al-‘Alamiyyah, j. 5, m. 322, no. hadith. 3451. 8 Al-Bukhari (2002), Sahih Bukhari, Damsyiq-Beirut: Dar Ibn Kathir, p. 1800, hadith no. 7288. Mesyuarat MPS 218 2021 6 4.5. Rujukan kepada kadar rujukan bertempoh yang berkualiti bagi instrumen kewangan adalah penting dalam menentukan harga sebenar yang mencerminkan keadaan pasaran semasa dan memastikan kestabilan pasaran. Ketika ketiadaan kadar rujukan bertempoh Islam yang boleh diguna pakai untuk dirujuk, institusi kewangan Islam dibenarkan untuk merujuk kepada kadar rujukan bertempoh konvensional yang diguna pakai secara meluas bagi mengelakkan gangguan kepada pasaran berdasarkan kaedah fiqh berikut: إذا األمر ضاق اتسع وإذا اتسع ضاق “Apabila dalam kesusahan, kemudahan (rukhsah) diberikan. Apabila kesusahan itu tidak lagi wujud, maka ia kembali kepada ketetapan asal.”9 Bahagian V: Implikasi Keputusan MPS 5.1. Keputusan MPS ini memberi kejelasan dan kepastian kepada pasaran mengenai status Syariah berhubung penggunaan kadar MYOR-i. Keputusan MPS ini menjelaskan bahawa rujukan kepada MYOR-i adalah sangat bersesuaian dan memenuhi keperluan Syariah bagi instrumen kewangan Islam di pasaran wang antara bank dan produk perbankan borong. Namun, rujukan kepada kadar rujukan bertempoh konvensional dibenarkan secara sementara bagi instrumen kewangan bertempoh sehingga kadar rujukan bertempoh yang patuh Syariah dapat diwujudkan. Di samping itu, kenyataan MPS ini juga memberi isyarat jelas kepada industri untuk mempergiatkan usaha dan mengambil langkah sewajarnya untuk membangunkan kadar rujukan bertempoh Islam yang boleh diguna pakai. 9 Muhammad Mustafa Al-Zuhayli (2006), Al-Qawa`id al-Fiqhiyyah wa Tatbiqatuha fi al-Mazahib al-`Arba`ah. Damsyik: Dar al-Fikr, v. 2, p. 272	Public Notice
06 Jan 2022	Exposure Draft on Payment Cards Framework	https://www.bnm.gov.my/-/exposure-draft-on-payment-cards-framework	https://www.bnm.gov.my/documents/20124/943361/ED_PCF.pdf, https://www.bnm.gov.my/documents/20124/943361/ED_PCF_FAQ.pdf	null	Reading: Exposure Draft on Payment Cards Framework Share: Exposure Draft on Payment Cards Framework Embargo : For immediate release Not for publication or broadcast before 1033 on Thursday, 6 January 2022 6 Jan 2022 This exposure draft sets out proposed measures to foster a safe, efficient and transparent payment card industry in Malaysia. The measures also aim to ensure the cost of accepting payment cards remains fair and reasonable, which will help promote wider acceptance and usage of payment cards. Bank Negara Malaysia (the Bank) invites written feedback on the proposals in this exposure draft. This includes suggestions on areas to be clarified or elaborated further and any alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale, accompanying evidence or illustrations as appropriate to facilitate the Bank’s assessment. Responses must be submitted to the Bank by 15 February 2022 in writing or by email at the addresses below. Electronic submissions are encouraged. Pengarah Jabatan Dasar Perkhidmatan Pembayaran Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Email: [email protected] Find out more: Payment Cards Framework Exposure Draft FAQs Feedback Form Bank Negara Malaysia 6 January 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
03 Jan 2022	Hasil Mesyuarat Meja Bulat Ketiga dalam kalangan Badan Berautoriti Penasihat Syariah Berpusat bagi Kewangan Islam	https://www.bnm.gov.my/-/hasil-mesyuarat-meja-bulat-ketiga-dalam-kalangan-badan-berautoriti-penasihat-syariah-berpusat-bagi-kewangan-islam	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/hasil-mesyuarat-meja-bulat-ketiga-dalam-kalangan-badan-berautoriti-penasihat-syariah-berpusat-bagi-kewangan-islam&languageId=ms_MY	Reading: Hasil Mesyuarat Meja Bulat Ketiga dalam kalangan Badan Berautoriti Penasihat Syariah Berpusat bagi Kewangan Islam Share: Hasil Mesyuarat Meja Bulat Ketiga dalam kalangan Badan Berautoriti Penasihat Syariah Berpusat bagi Kewangan Islam Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 2045 pada Isnin, 3 Januari 2022 3 Jan 2022 Bank Negara Malaysia (BNM) telah menjadi tuan rumah bagi mesyuarat meja bulat ketiga dalam kalangan Badan Berautoriti Penasihat Syariah Berpusat (Centralised Shariah Advisory Authorities, CSAA) bagi Kewangan Islam[1] pada 21 Disember 2021. Mesyuarat ini diadakan secara maya dan disertai lebih 50 delegasi daripada 16 negara[2] dan tiga badan penetapan piawaian antarabangsa[3]. Mesyuarat ini dipengerusikan oleh Pengerusi Majlis Penasihat Shariah BNM, Tan Sri Dr. Mohd Daud Bakar. Mesyuarat ini bertujuan untuk mengukuhkan lagi hubungan dan memupuk rasa saling hormat-menghormati antara lembaga Syariah di peringkat bank pusat dan negara. Perkara-perkara utama yang dibincangkan dalam mesyuarat tersebut adalah seperti yang berikut: Memandangkan CSAA memainkan peranan penting dalam membawa kewangan Islam kepada masyarakat dengan lebih meluas, adalah penting untuk CSAA mempunyai gambaran yang lebih mendalam mengenai pembangunan kewangan Islam di negara masing-masing. Hal ini merangkumi isu-isu di peringkat industri yang tidak dapat diselesaikan oleh institusi-institusi kewangan Islam (IKI) secara individu mahupun lembaga Syariah masing-masing. Antaranya ialah dengan menyediakan panduan Syariah bagi krisis yang belum pernah berlaku, merangka parameter Syariah berhubung dengan pembetulan transaksi dan pendapatan yang tidak patuh Syariah serta menggalakkan tingkah laku beretika yang terbaik dalam kalangan ahli lembaga Syariah dan pengurusan IKI, di samping memelihara kesucian Syariah dalam operasi IKI. CSAA perlu berusaha untuk lebih memantapkan penyelarasan dengan pihak pengawal selia dan kerajaan dalam memacu inisiatif jangka panjang yang kukuh (future-proof initiatives) bagi industri kewangan Islam. Adalah penting untuk CSAA menangani pelbagai cabaran termasuk cabaran yang timbul daripada rangka kerja pengawalseliaan yang tidak selaras dengan prinsip Syariah. Sebagai contoh, bagi menangani impak perubahan iklim, CSAA boleh bekerjasama dengan Kerajaan dan pihak pengawal selia relevan yang lain untuk menerbitkan rangka kerja bagi projek hijau pada peringkat kebangsaan yang selaras dengan prinsip-prinsip Syariah. CSAA juga boleh memberikan panduan kepada pihak pengawal selia untuk memantapkan undang-undang dan dasar pengawalseliaan supaya sesuai dengan pembangunan industri kewangan Islam masing-masing. Berhubung dengan tadbir urus Syariah, mesyuarat mengiktiraf kepentingan rangka kerja yang kukuh bagi memastikan lembaga Syariah yang berkualiti dari segi tingkah laku, pelaksanaan tugas yang diamanahkan dan sikap dalam usaha memenuhi mandat yang diberikan. Mesyuarat turut mengiktiraf peranan utama Sekretariat Syariah yang cekap dalam menyokong fungsi lembaga penasihat Syariah yang berkesan pada peringkat negara dan IKI. Mesyuarat bersetuju untuk memberikan lebih tumpuan pada perbincangan mengenai isu-isu strategik yang utama, maqasid Syariah dan komitmen yang berorientasikan tindakan (action-oriented commitments) dalam menyokong kewangan yang lestari pada mesyuarat-mesyuarat akan datang. [1] CSAA diwujudkan bagi membincangkan hal ehwal Syariah dalam kewangan Islam. Setiap negara menerapkan model dan pendekatan yang berbeza dalam menubuhkan badan berautoriti penasihat Syariah, sepadan dengan saiz dan tahap kompleksiti industri kewangan Islam serta budaya masing-masing. Peranan badan berautoriti penasihat Syariah adalah penting bagi memelihara kesucian Syariah dan keyakinan masyarakat terhadap urus niaga kewangan Islam, lantas mewujudkan persekitaran yang kondusif untuk industri berinovasi dan berkembang. [2] Afghanistan, Algeria, Bahrain, Bangladesh, Brunei, Djibouti, Emiriah Arab Bersatu, Indonesia, Kuwait, Libya, Maghribi, Malaysia, Maldives, Nigeria, Pakistan, dan Turki. [3] Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), General Council for Islamic Banks and Financial Institutions (CIBAFI) dan Islamic Financial Services Board (IFSB). Bank Negara Malaysia 3 Januari 2022 © Bank Negara Malaysia, 2022. All rights reserved.	null	Public Notice
29 Dis 2023	Dokumen Dasar Pemetaan Tanggungjawab	https://www.bnm.gov.my/-/pd-rm23-bm	https://www.bnm.gov.my/documents/20124/938039/fdbk-Responsibility-Mapping-Dec2023.pdf, https://www.bnm.gov.my/documents/20124/938039/pd-Responsibility-Mapping-Dec2023.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/pd-rm23-bm&languageId=ms_MY	Reading: Dokumen Dasar Pemetaan Tanggungjawab Share: 5 Dokumen Dasar Pemetaan Tanggungjawab Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1300 pada Jumaat, 29 Disember 2023 29 Dis 2023 Bank Negara Malaysia (BNM) telah mengeluarkan dokumen dasar Pemetaan Tanggungjawab pada hari ini. Dokumen dasar ini menetapkan keperluan untuk menjelaskan dan mengukuhkan akauntabiliti individu setiap ahli pengurusan kanan yang memikul tanggungjawab utama untuk merancang, mengarah atau mengawal aktiviti institusi kewangan. Keterjelasan dan ketelusan dalam akauntabiliti akan menggalakkan tindakan dan keputusan oleh pengurusan kanan yang konsisten dengan tadbir urus yang baik dan pengurusan risiko yang kukuh, yang akhirnya menyumbang kepada kekukuhan kewangan jangka panjang institusi kewangan. Satu pernyataan maklum balas telah dikeluarkan serentak dengan dokumen dasar ini, yang meliputi maklum balas BNM terhadap bidang utama ulasan yang diterima semasa tempoh perundingan. Dokumen dasar ini akan berkuat kuasa pada 1 Januari 2026. Lihat juga: Dokumen dasar Pemetaan Tanggungjawab Pernyataan maklum balasBank Negara Malaysia 29 Disember 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Responsibility Mapping PD: Response to feedback received Response to feedback received Responsibility Mapping Introduction The Bank today finalised for issuance of the policy document on Responsibility Mapping. This policy document incorporates the proposals from the exposure draft issued in December 2019, and has taken into consideration feedback received during the consultation period. The Bank received written responses from 47 respondents during the three-month consultation period. Bank Negara Malaysia 29 December 2023 2 1. Policy scope Feedback received Some respondents queried whether the individual accountability framework extends to members of the board. In addition, some respondents suggested for the Bank to adopt a term “senior management” in place of the term “individual” used in the exposure draft, as the former is commonly used in other policy documents and is more intuitive. The Bank’s response: 1.1 The duties and responsibilities of the board members are clearly stipulated in the Financial Services Act 2013 (FSA 2013), Islamic Financial Services Act 2013 (IFSA 2013), Development Financial Institutions Act 2002 (DFIA 2002), the policy document on Corporate Governance, and policy document on Corporate Governance for Development Financial Institutions. The policy document on Responsibility Mapping however aims to clarify and strengthen the accountability of members of senior management to whom responsibilities are allocated. 1.2 The Bank sees merit of using the term “senior management” to promote coherence with other policy documents. Where appropriate, the term “individual” has been replaced by the phrase “a member of senior management” to retain the focus on individual accountability in contrast with collective accountability of senior management. 3 2. Allocation of responsibilities Feedback received Some respondents sought clarification on whether financial institutions can allocate responsibilities to an individual of an affiliate that is not regulated by the Bank. They also sought feedback on whether they can allocate responsibilities to affiliate entities located overseas. The Bank’s response: 2.1 As stipulated in paragraph 7.7 of the Responsibility Mapping policy document, a financial institution may allocate responsibilities to a senior officer who is an employee in an affiliate entity that is supervised by the Bank, or an entity supervised by a financial regulatory authority where an effective supervisory cooperation arrangement between the Bank and the financial regulatory authority is in place. 2.2 Paragraph 7.8 of the policy document clarifies key requirements in allowing the identified responsibility to be allocated to a senior officer of an affiliate. 4 3. Guidance for policy implementation Feedback received Some respondents requested for guidance in implementing the policy requirements, particularly on identifying responsibilities and members of senior management to be scoped under the framework, as well as documentation of responsibilities. The Bank’s response: 3.1 The Bank has taken up this feedback and provided a minimum list of responsibilities and senior management roles that must be covered when documenting the responsibilities of members of senior management (refer to Appendix 1 and Appendix 2 of the policy document). Financial institutions may expand the list of responsibilities and senior management roles to reflect their business and risk profiles. 3.2 Appendix 2 serves as a minimum list of roles that a financial institution must designate as senior management. Taking into consideration the financial institution’s size, scale, risk profile and complexity, the responsibilities falling under a senior management role listed in Appendix 2 may be allocated to another senior officer, provided that such arrangement does not give rise to conflict of interest or result in non-compliance to regulatory requirements. 3.3 During the two-year transitional period before the policy document comes into effect, the Bank will be conducting supervisory engagements with financial institutions to identify any challenges in complying with the policy document. Where necessary, the Bank will provide further clarification through frequently asked questions. Responsibility Mapping Policy Document (Dec 2023) Issued on: 29 December 2023 BNM/RH/PD 028-131 Responsibility Mapping Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed insurers 5. Licensed takaful operators 6. Prescribed development financial institutions 7. Financial holding companies Responsibility Mapping TABLE OF CONTENTS PART A OVERVIEW ......................................................................................... 1 1 Introduction ......................................................................................... 1 2 Applicability ......................................................................................... 2 3 Legal provisions .................................................................................. 2 4 Effective date ...................................................................................... 3 5 Interpretation ....................................................................................... 3 6 Related legal instruments and policy documents ................................ 4 PART B POLICY REQUIREMENTS ................................................................. 5 7 Principles of Responsibility Mapping ................................................... 5 APPENDIX 1 LIST OF RESPONSIBILITIES .......................................................... 10 APPENDIX 2 LIST OF SENIOR MANAGEMENT ROLES ..................................... 11 Responsibility Mapping 1 of 11 PART A OVERVIEW 1 Introduction 1.1 Good corporate governance is underpinned by a corporate culture that reinforces ethical, prudent and professional behaviour. This begins with the right “tone from the top”, where the core values established by the board and senior management shape the conduct and behaviour of all employees of the financial institution. 1.2 Responsibility mapping is a fundamental pillar within the governance framework that accords focus on the role of individuals holding leadership positions in financial institutions to promote actions and decisions in areas under their purview that are consistent with good governance and sound risk management. It complements existing standards1 issued by the Bank which promote the long- term financial soundness of financial institutions. 1.3 In recent years, the Bank has observed gaps in the span of control and influence of senior management, leading to heightened risks from inadequate oversight over the operations of the financial institution. This underscores the importance of ensuring responsibilities are clearly identified at the appropriate level of granularity and allocated to members of senior management who have the competence, authority and capabilities to effectively discharge them. 1.4 Responsibility mapping aims to– (a) ensure that responsibilities for all functions of a financial institution, including those prescribed under any law or regulations2 or specified under any instrument issued pursuant to any applicable law3, are clearly allocated to members of senior management within the financial institution; (b) clarify and strengthen the accountability of members of senior management to whom responsibilities are allocated, particularly in circumstances where there are shared responsibilities, collective decision-making as well as centralised functions and matrix reporting structures within groups; and (c) encourage a financial institution to carefully consider whether the allocation of responsibilities to members of senior management is compatible with effective risk management practices, taking into account the size, scale and complexity of the financial institution’s operations. Clarity and transparency in governance and accountability supported by clear documentation also facilitates meaningful engagements with the board and regulators on the operations and decision-making process of the financial institution. 1 These include policy documents on Corporate Governance, Corporate Governance for Development Financial Institutions, Shariah Governance, Fit and Proper Criteria and Employee Screening. 2 Includes any subsidiary legislation such as order etc. 3 Includes standards contained in the policy documents, specification letters etc. Responsibility Mapping 2 of 11 1.5 The Bank expects the responsibility mapping framework to ultimately drive better ex-ante decisions by strengthening incentives for good conduct and culture, and encouraging financial institutions to identify and address barriers that may prevent members of senior management to whom responsibilities are allocated, from effectively discharging their obligations. Therefore, financial institutions shall determine how their governance structures surrounding business, operational, and control functions are organised, guided by the intended outcomes of this policy document. 1.6 Responsibility mapping is intended to exist in parallel with, rather than substitute, existing governance arrangements where decisions are made at designated collective decision-making forums. Therefore, financial institutions can continue to maintain collective decision-making within formal committees/groupings, drawing on contributions from individuals with distinct expertise and experience as a means of discharging corporate responsibilities over areas that cover a broad span of control. 1.7 The Bank will implement requirements relating to responsibility mapping in a manner that is fair and reasonable, as the primary objective is to foster appropriate conduct and behaviour of members of senior management that reinforces a sound culture and promotes the safety and sustainability of the financial institution. Accordingly, the Bank looks to the financial institutions to ensure that any misconduct or poor behaviour by members of senior management is met with appropriate consequences and any non-compliance with any requirement under this policy document is addressed in a timely manner. Except in cases of serious misconduct, the Bank generally does not expect to take enforcement actions as an immediate response to events of individual misconduct or poor behaviour. 2 Applicability 2.1 This policy document is applicable to all financial institutions as defined in paragraph 5.2. 2.2 For a financial institution operating as a foreign branch in Malaysia, the requirements in this policy document shall apply in respect of the Malaysian operations of the branch with the following modifications: (a) any reference to the board in this policy document shall refer to the governing body/committee of the foreign branch; and (b) any reference to senior management in this policy document shall refer to the officers performing a senior management function in respect of the foreign branch operations. 3 Legal provisions 3.1 This policy document is issued pursuant to– (a) sections 47(1) and 266 of the Financial Services Act 2013 (FSA); (b) sections 57(1) and 277 of the Islamic Financial Services Act 2013 (IFSA); and Responsibility Mapping 3 of 11 (c) sections 41(1) and 126 of the Development Financial Institutions Act 2002 (DFIA). 4 Effective date 4.1 This policy document comes into effect on 1 January 2026. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA, DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “affiliate”, in relation to an entity, refers to any corporation that controls, is controlled by, or is under common control with, the entity; “board” refers to the board of directors of a financial institution, including a committee of the board where the responsibilities of the board as set out in this policy document have been delegated to such a committee; “financial institution” refers to a licensed person, a prescribed institution and a financial holding company; “responsibilities” refer to responsibilities held in relation to a business, operational or control function. These include, at minimum, responsibilities listed in Appendix 1 and additional responsibilities identified by a financial institution; "senior management” refers to the chief executive officer (CEO) and senior officers, who are employed by a financial institution or an affiliate of the financial institution. This includes, at minimum, senior management roles listed in Appendix 2; and “senior officer” refers to a person, other than the CEO, who is employed by a financial institution or an affiliate of the financial institution, having authority and responsibility for planning, directing or controlling the activities of the financial institution. Responsibility Mapping 4 of 11 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, including any amendments or reissuance thereafter, in particular– (a) Corporate Governance issued on 3 August 2016; (b) Corporate Governance for Development Financial Institutions issued on 13 December 2019; (c) Fit and Proper Criteria issued on 28 June 2013; (d) Shariah Governance issued on 20 September 2019; and (e) Employee Screening issued on 9 March 2018. Responsibility Mapping 5 of 11 PART B POLICY REQUIREMENTS 7 Principles of Responsibility Mapping S Principle 1: Financial institutions shall adopt and implement an effective process for identifying and allocating responsibilities to members of senior management, as part of internal governance arrangements that promote sound management and decision making. S 7.1 The board shall be responsible for overseeing the adoption and implementation of the financial institution’s responsibility mapping framework. The board must be satisfied that the financial institution adopts and implements an effective process for– (a) identifying responsibilities to avoid any organisational blind spots; (b) identifying and assigning a member of senior management to be accountable for the relevant responsibility4; (c) assessing the fitness and propriety of each member of senior management vis-à-vis their allocated responsibilities, prior to appointment and on an ongoing basis throughout their tenure of appointment; and (d) documenting the responsibilities of each member of senior management, including timely updates where there are material changes. S 7.2 The board must ensure that the financial institution’s performance, remuneration and consequence management frameworks are aligned with and support the objective of the responsibility mapping framework, which is to foster good conduct and behaviour of senior management. S 7.3 The CEO, in leading the senior management, shall be responsible for ensuring the responsibilities are comprehensively identified. In identifying these responsibilities, the CEO shall have regard to the following: (a) the distribution of responsibilities to members of senior management, taking into account the financial institution’s size, scale, risk profile and complexity. These shall cover responsibilities beyond duties inherent within the functions5; (b) the appropriate level of granularity in which responsibilities are identified, such that there is clarity of where accountability shall rest for any aspect of the financial institution’s business, operations or control functions; and (c) the governance structures surrounding areas where there are shared responsibilities, collective decision-making, matrix reporting and centralised functions. This should include structures within the financial institution and across its affiliates. 4 A member of senior management can be allocated with one or more responsibilities. 5 This includes responsibilities that are assumed on an interim or project basis where there are substantial contributions or deliverables from members of senior management. Responsibility Mapping 6 of 11 S Principle 2: The CEO shall ensure that all identified responsibilities are allocated to senior officers, who are fit and proper for their roles. S 7.4 The CEO must ensure that all identified responsibilities are allocated to senior officers who shall bear the primary responsibility for– (a) the planning, directing or controlling the business, operational or control function; and (b) reporting matters pertaining to the relevant function to the CEO or the board, as the case may be. S 7.5 The CEO must ensure that the allocation of responsibilities to senior officers is in alignment with the financial institution’s organisation structure and governance framework. S 7.6 In allocating responsibilities to senior officers, the CEO must– (a) ensure that the financial institution conducts the necessary due diligence to ensure that they have the professional competence, authority and capabilities to fulfil their responsibilities; and (b) have regard to where decision-making authority for a responsibility resides in practice, and not only based on formal designation held by a senior officer. S 7.7 Where a responsibility is allocated to a senior officer who is an employee of an affiliate, the CEO must ensure that the affiliate is either– (a) a financial institution supervised by the Bank; or (b) an entity supervised by a financial regulatory authority where an effective supervisory cooperation arrangement between the Bank and the financial regulatory authority is in place. S 7.8 In relation to paragraph 7.7, the board and the CEO must ensure that they have the ability to influence the performance assessment and remuneration of the senior officer of the affiliate. Where necessary, the CEO shall reallocate the responsibility to another individual when the senior officer of the affiliate is no longer fit and proper to effectively discharge the responsibility. Responsibility Mapping 7 of 11 S Principle 3: Members of senior management to whom responsibilities are allocated shall be accountable for the management and conduct of the responsibilities, including for the staff under their purview. S 7.9 In discharging the allocated responsibilities, a member of senior management must– (a) act with honesty and integrity6; (b) exercise due care7, skill and diligence; (c) take reasonable steps to ensure effective management and control of the business, operation or control function, as the case may be; (d) take reasonable steps to ensure compliance with any applicable law, regulations and regulatory requirements; (e) take reasonable steps to ensure that delegation of responsibilities is appropriate and properly overseen; and (f) deal with the Bank and relevant regulatory authorities in an open and constructive manner. S 7.10 A member of senior management shall have regard to or demonstrate that he/she has taken appropriate and necessary actions, including the following in relation to the obligations set out in paragraph 7.9(c) to (e): (a) understands the activities within his/her area of responsibility and how they can contribute to the safety and soundness of the financial institution; (b) establishes appropriate governance and risk management controls to monitor risk-taking behaviours; (c) deals with risk and control issues in a timely and appropriate manner; (d) ensures that the responsibilities are adequately resourced with the right talent and the necessary infrastructure; and (e) ensures orderly transition of responsibilities when his/her responsibilities are reallocated to another individual. S 7.11 Where a member of senior management delegates his/her responsibilities, the member of senior management must ensure that the delegation is made to an appropriate individual who is competent and capable of discharging the responsibilities delegated. In any event, the member of senior management shall continue to remain accountable for the responsibilities and must ensure the effective performance and discharge of the delegated responsibilities. S 7.12 Where responsibilities are shared by more than one member of senior management, the financial institution shall ensure that all individuals are jointly and severally accountable for such responsibilities. 6 Examples of failure to act with integrity include authorising or omitting to act on material misstatement/misrepresentation, failing to address conflicts of interest and acting dishonestly in a manner prejudicial to customers or the financial institution. 7 At a standard, level or degree reasonably expected of an individual having the same responsibilities. Responsibility Mapping 8 of 11 S Principle 4: Financial institutions shall maintain a complete and up-to-date documentation of responsibilities for each member of senior management. G 7.13 Clear and comprehensive documentation of responsibilities promotes clarity in the scope of responsibility and lines of accountability of a member of senior management. The documentation process would also provide the opportunity for a financial institution to reflect on its existing governance arrangements and make the necessary changes to the structure or reporting lines in the event that any gap is identified. S 7.14 A financial institution must ensure that the documentation of responsibilities captures information that sufficiently articulates the responsibilities of a member of senior management, taking into account the financial institution’s size, scale, risk profile and complexity. The financial institution must also ensure that the documentation of responsibilities include clear description of the financial institution’s expectation on how a member of senior management must support the outcomes of the financial institution, among others, by identifying the actions, decisions and outcomes for which the member of senior management is responsible for. S 7.15 A financial institution must prepare the documentation of responsibilities with the appropriate involvement of the member of senior management concerned to promote understanding of his/her responsibilities, including how his/her responsibilities interact with other individuals in the organisation. S 7.16 A financial institution must ensure that the documentation of responsibilities for a member of senior management shall include the following information: (a) responsibilities of the role, both at the financial institution and within the group (where relevant); (b) responsibilities arising from regulatory requirements imposed by the Bank including the responsibilities listed in Appendix 1; (c) responsibilities that may be assumed on an interim or a project basis where there are substantial contributions or deliverables from the member of senior management concerned; (d) in relation to a shared role8, an explanation on whether the responsibilities are identical or differ between the individuals sharing such role; (e) in relation to a shared responsibility9, an explanation of the arrangement relating to the sharing of responsibilities between the individuals involved; and (f) responsibilities in collective decision-making forums. 8 An example of a shared role is where two (2) members of senior management are assigned to co- lead a business function. 9 An example of a shared responsibility is where two (2) members of senior management such as Chief Financial Officer and Chief Risk Officer are responsible for the management of capital, including the Internal Capital Adequacy Assessment Process and stress testing. Responsibility Mapping 9 of 11 S 7.17 A financial institution must ensure that each member of senior management provides the financial institution with a written acknowledgement in relation to his/her responsibilities to ensure that the financial institution’s expectation and the member of senior management’s understanding of the responsibilities allocated are aligned. The acknowledgement must be, at minimum, obtained at the time of his/her appointment, and thereafter reviewed and re-obtained as and when there are significant changes to the responsibilities allocated to the individual concerned. S 7.18 A financial institution must make available the documentation of responsibilities of members of senior management to the Bank upon request. Responsibility Mapping 10 of 11 APPENDIX 1 LIST OF RESPONSIBILITIES 1. A financial institution shall allocate the following responsibilities to members of senior management10: (a) responsibility for the management of credit, liquidity, market and operational risks including climate-related risks; (b) responsibility for the formulation of financial institution’s recovery plan, recovery planning process and the implementation of recovery plan; (c) responsibility for the implementation of policies, procedures and controls to safeguard any document or information relating to the affairs or account of a customer of the financial institution (customer information); (d) responsibility for implementing the financial institution’s operational resilience framework, including outsourcing risk, business continuity and disaster recovery management; (e) responsibility for the integrity of all regulatory reporting; (f) responsibility for the financial institution’s policies on the fair treatment of financial consumers; (g) where relevant, responsibility to ensure that the operations, business, affairs and activities of the financial institution are in compliance with Shariah requirements at all times; (h) responsibility for the management of capital, including the Internal Capital Adequacy Assessment Process (ICAAP) and stress testing; and (i) responsibility in relation to the financial institution’s policies, processes and procedures for anti-money laundering, countering financing of terrorism and proliferation financing. 10 For avoidance of doubt, the responsibilities may be allocated to more than one (1) member of senior management commensurate with the size, scale, risk profile and complexity of the financial institution. Responsibility Mapping 11 of 11 APPENDIX 2 LIST OF SENIOR MANAGEMENT ROLES 1. For purposes of this policy document, senior management shall, at minimum, include the following individuals holding the positions, however styled or described and having the following responsibilities commensurate with the financial institution’s size, scale, risk profile and complexity: (a) “Chief Executive Officer”, who bears primary responsibility over the day- to-day management of the financial institution; (b) “Chief Financial Officer”, who bears primary responsibility for managing the financial operations of the financial institution; (c) “Chief Operating Officer”, who bears primary responsibility for managing the day-to-day operations of the financial institution; (d) “Chief Risk Officer”, who bears primary responsibility for the risk management function and risk management framework of the financial institution; (e) “Chief Compliance Officer”, who bears primary responsibility for financial institution’s compliance with regulatory requirements as well as internal policies, processes and procedures; (f) “Chief Internal Audit”, who bears primary responsibility for ensuring the adequacy and effectiveness of the financial institution's internal controls; (g) “Chief Information Security Officer”, who bears primary responsibility for the technology risk management function of the financial institution; (h) “Chief Human Resource Officer”, who bears primary responsibility for establishing and implementing the financial institution’s human resource policies and processes including recruitment, performance evaluation, remuneration and consequence management policies; (i) “Chief Technology Officer”, who bears primary responsibility for establishing and implementing information technology strategy and managing information technology operations of the financial institution; (j) “Appointed Actuary”, who bears primary responsibility to ensure the valuation of actuarial and other policy liabilities is in accordance with accepted actuarial principles, practices and applicable requirements11; and (k) “Head of business function”, who bears primary responsibility for the management and conduct of a business activity of the financial institution, including– (i) in relation to banking business, investment banking business and Islamic banking business, the functions involving retail banking, corporate banking, investment banking and treasury, Islamic banking window operations and any other relevant function, as the case may be; and (ii) in relation to insurance and takaful business, the functions involving underwriting, agency and distribution, investment, and any other relevant function. 11 This role is only applicable to licensed insurers and licensed takaful operators.	Public Notice
21 Dis 2023	Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct	https://www.bnm.gov.my/-/pc-intorcoc	https://www.bnm.gov.my/documents/20124/938039/pd_Insurers_Takaful_Operators_Repairers_Code_of_Conduct_dec23.pdf	null	null	Insurers/Takaful Operators-Repairers Code of Conduct Issued on: 21 December 2023 BNM/RH/DP 029-5 Insurers/Takaful Operators-Repairers Code of Conduct Public Consultation Issued on: 21 December 2023 Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct Explanatory Notes 1. This draft Insurers/Takaful Operators-Repairers Code of Conduct (the “Code”) is expected to be drafted with the licensed insurers and licensed takaful operators’ (“ITOs”) and repairers’ (“Repairers”) agreement. The Code is modelled after the Australian Motor Vehicle Insurance and Repair Industry Code of Conduct and customised to Malaysia’s context. Specific questions have been posed in the Code to obtain feedback on certain areas and approaches that are being considered. 2. A series of engagements with ITOs and their associations, as well as with representative of Repairers that are members of the Federation of Automobile Workshop Owners’ Association of Malaysia (“FAWOAM”) were held in the 1H of 2023 to obtain preliminary feedback on the Code. The initial feedback received from these stakeholders have been incorporated into the Code where relevant and appropriate. 3. In our capacity as the regulator of the insurance and takaful industry, Bank Negara Malaysia (“BNM”) will require ITOs to abide by the requirements of the Code, including the minimum requirements expected to be incorporated into ITO’s Service Level Agreements (“SLAs”) with its panel of Repairers, which are primarily aimed at ensuring improved consumer outcomes and to enhance levels of professionalism and fair conduct in the business dealings between ITOs with Repairers. 4. Compliance with the Code will be mandatory for panel repairers by virtue of their SLAs with ITOs, 5. Meanwhile, the Code is expected to be voluntary standards for non-panel repairers to abide by. As a participant to the Code, non-panel repairers agree to the following: a) to comply with the requirements of the Code; b) all disputes that the non-panel repairers have with ITOs will be subject to the independent dispute resolution framework stipulated in the Code (paragraph 11); and c) in the event there is a non-compliance to the Code, the non-panel repairers may no longer be able to utilise the Independent External Dispute Resolution (EDR process) i.e., arbitration. Issued on: 21 December 2023 Table of contents 1 Introduction .................................................................................................. 1 2 Legal Provisions .......................................................................................... 1 3 Principles of the Code ................................................................................. 2 4 Definitions .................................................................................................... 2 5 Obligations of ITO and Repairer .................................................................. 4 6 Panel Repairers of ITOs ............................................................................ 11 7 Estimate, Repair and Authorisation Process ............................................. 15 8 Repair Warranties...................................................................................... 16 9 Payment for Repairs .................................................................................. 18 10 Administration of the Code ........................................................................ 18 11 Independent Dispute Resolution Framework (IDRF) ................................. 20 Appendix 1 ........................................................................................................... 26 Appendix 2 ........................................................................................................... 27 Appendix 3 ........................................................................................................... 28 Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 1 of 28 Issued on: 21 December 2023 1 Introduction 1.1 A high level of professionalism and efficiency in the motor claims and repairs industry would enhance public trust and confidence in the role of Insurers, Takaful Operators (“ITOs”) and Repairers in providing such essential services. 1.2 In line with this, the Insurers and Takaful Operators-Repairers Code of Conduct (the “Code”) has been formulated to establish minimum standards on fair, timely and professional conduct to promote more effective collaboration between ITOs and Repairers. 1.3 In addition to the broad principles and specific obligations on minimum standards of fair, timely and professional services which the ITOs and Repairers must strive to meet, the Code also provides for the establishment of an ITOs-Repairers Independent Dispute Resolution Framework (“IDRF”) to resolve disputes between ITOs and Repairers in a fair, transparent and timely manner. 1.4 Notwithstanding the above, to preserve healthy competition in the motor claims and repairs industry that contributes to fairer outcomes for consumers, the Code does not intervene or intrude on matters pertaining to: (a) the type of vehicle parts to be used in Repairs; (b) the ITOs’ panel Repairer selection criteria; (c) a compulsory choice of Repairer; (d) requirements to allocate work among Repairers; (e) particular conditions of guarantee; (f) any cost components of ITOs and Repairers such as cost accounting formula, methods of computing costs; (g) any sales- or production-related information, including sales volume and sales revenue target; (h) any aspect of competitive bidding; (i) business plans and strategies; (j) details of engagement with suppliers, vendors, or customers; or (k) limits or controls on production or output, or allocation of market. 2 Legal Provisions 2.1 The requirements in this Code are specified pursuant to sections 123 and 143 of the Financial Services Act 2013 (“FSA”) and section 135 and 155 of the Islamic Financial Services Act 2013 (“IFSA”). Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 2 of 28 Issued on: 21 December 2023 3 Principles of the Code Professional and Fair Conduct 3.1 ITOs and Repairers agree to observe high standards of honesty and integrity, and transact in good faith and comply with all relevant laws when conducting their business with each other and in providing services to Customers. 3.2 The Code specifies minimum standards of fair conduct and transparency in dealings between ITOs and Repairers. There should not be any alteration to the commercial relationships between individual ITOs and Repairers, other than as provided in this Code and in accordance with the principles of the Code. 3.3 ITOs and Repairers agree that they, their staff and their representatives shall behave in a professional and courteous manner at all times. This includes not engaging in, condoning, or permitting behaviour that is offensive, harassing, threatening, inappropriate, abusive, bullying or intimidating. Effective and Transparent Dispute Resolution Process 3.4 The Code shall provide for fair, transparent and timely dispute resolution processes to address disputes which may arise between individual ITOs and Repairers. 3.5 ITOs and Repairers shall seek to resolve their disputes in accordance with the processes set out in paragraph 11 of the Code to avoid protracted delays in the motor vehicle claims process to ensure improved outcomes for consumers1. 4 Definitions 4.1 In this Code: “Administrator” refers to the Administrator established in accordance with paragraph 10 of this Code; “Applicant” refers to the Person who initiates the dispute resolution process as set out in paragraph 11 of the Code; 1 An example of poor consumer outcomes which this Code aims to prevent is the unfair practice of holding the consumer’s repaired Motor Vehicle at the workshop for extended periods pending the resolution of protracted disputes between the ITO and Repairer on claims settlement matters. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 3 of 28 Issued on: 21 December 2023 “Claimant” refers to a Policy Owner/Takaful Participant insured or covered by an insurance Policy/Takaful Certificate, as the case may be, or a person who has a claim against such the Policy Owner/Takaful Participant; “Code” refers to the Insurers/Takaful Operators-Repairers Code of Conduct including any changes made thereto; “Customer” refers to a Policy Owner, Takaful Participant and/or Claimant; “External Dispute Resolution” or “EDR” refers to the independent external dispute resolution process which is carried out through Arbitration2 under paragraph 11.3 of the Code; “Internal Dispute Resolution” or “IDR” refers to Internal Dispute Resolution process established by an ITO under paragraph 11.2 of the Code; “Industry” refers to the Motor Vehicle insurance/Takaful and motor repair (including motor smash repair) industries in Malaysia; “In-house Assessor” refers to an ITO’s personnel who evaluates repair estimates for the purpose of apprising claims settlements by the ITO. For the avoidance of doubt, this does not include adjusters registered under subsection 2(1) of the FSA; “Insurer” refers to general insurers licensed under the FSA and which, in the course of its business, engages or authorises Repairers to perform Repairs to Motor Vehicles; “Motor Vehicle” refers to a motor vehicle insured or covered for damage under a Policy/Takaful Certificate; “Panel Repairer” refers to a Repairer who is a member of ITO’s Panel Repairers Scheme; “Parties” refers to the Applicant and the Respondent to a dispute arising under paragraph 11 of the Code; “Person” refers to an individual or entity within the Industry; “Policy” refers to a Motor Vehicle insurance policy for a Motor Vehicle issued by an Insurer, who is a participant to the Code; 2 Refers to a private form of dispute resolution process presided over by an appointed arbitrator and in which the award is final and binding. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 4 of 28 Issued on: 21 December 2023 “Policy Owner” refers to an individual or entity who holds a Policy for a Motor Vehicle with an Insurer; “Presentation” refers to the visual appearance of the Repair performed on the Motor Vehicle; “Registered Adjuster” refers to a registered person carrying on adjusting business as defined under subsection 2(1) of the FSA; “Repair” refers to any work done by a Repairer to fix a Motor Vehicle including any of its components, systems or parts, where the work is insured or covered by a Policy/Takaful Certificate and where a claim is or will be made by a Claimant. Such work may include but is not limited to the following: (a) dismantling or assembling; (b) part or component replacement, adjustment, modification, installation or fitting; or (c) painting; “Repairer” refers to appointed Repairers that handle Repairs of accident Motor Vehicles in Malaysia; “Respondent” refers to the Person defending against the Applicant's complaint; “Takaful Certificate” refers to a Motor Vehicle takaful certificate for a Motor Vehicle issued by a Takaful Operator, who is a participant to the Code; “Takaful Operator” refers to a general takaful operator licensed under the IFSA which, in the course of its business, engages or authorises Repairers to perform Repairs to Motor Vehicles; and “Takaful Participant” refers to an individual or entity who holds a Takaful Certificate for a Motor Vehicle with a Takaful Operator. 5 Obligations of ITO and Repairer 5.1 ITOs’ Obligations (a) ITOs shall authorise Repairs with the following objectives of: (i) restoring the safety, structural integrity, Presentation and utility of the Motor Vehicle; and (ii) fulfilling their obligations to the Policy Owner/Takaful Participant in accordance with the provisions of their Policy/Takaful Certificate, the Specification Letters and Policy Documents issued by BNM including Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 5 of 28 Issued on: 21 December 2023 - Policy Document on Claims Settlement Practices (“PD on CSP”)3 and Policy Document on Fair Treatment of Financial Consumers. (b) Where there is no Service Level Agreement (“SLA”) in place between the ITO and the Repairer, the ITO shall, as far as practicable – (i) include an obligation for the Repairer to abide by the Code in the agreement between the ITO and the Repairer; and (ii) the agreement shall be documented prior to approving the Repairs. (c) ITOs shall not require Repairers to provide estimates or carry out Repairs that are not in accordance with the following: (i) any guidelines which have been or may be introduced by relevant authorities, including but not limited to the Guidelines on Application of Structural Change for Vehicle Panel (Accident)4 issued by Jabatan Pengangkutan Jalan (“JPJ”); (ii) methods that are consistent with standard Motor Vehicle warranty conditions and manufacturer’s technical specifications; or (iii) any mandatory specifications and/or standards required by the law, having regard to the age and condition of the Motor Vehicle. (d) ITOs’ approval of Repair estimates and Repairs carried out by Repairers should be guided by the Malaysian Standard on Motor Vehicle Aftermarket: Smash Repair Requirements issued by Jabatan Standard Malaysia5. (e) With respect to dealings with Repairers in relation to a Repair, ITOs shall do the following: (i) provide Repairers with relevant and sufficient details relating to the insurance/takaful claim that the Repairer requires in order to prepare an estimate or undertake the Repair; (ii) consider estimates submitted by Repairers in a fair, transparent and timely manner, and shall not refuse to consider the estimate on unreasonable grounds such as rejecting a claim without providing valid reasons or solely on the basis that estimates on a supplementary claim for damages had not been discovered during the initial vehicle inspection; and (iii) pay the Repairers the agreed amount for all completed Repairs that have been authorised or requested by the ITO in a timely manner. (f) ITOs shall work together with Repairers to do the following: (i) resolve Customer’s complaints that relate to ITO’s decision on the 3 To be issued by BNM in 1H 2024. Upon issuance, the PD on CSP will be publicly available and will supersede the existing Guidelines on Claims Settlement Practices. 4 Issued in April 2019 and any subsequent amendments to it or any instruments replacing it. 5 The Smash Repair Requirements is in the process of finalisation by Jabatan Standard Malaysia and is expected for issuance in Q1 2024. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 6 of 28 Issued on: 21 December 2023 approval amount or scope of work in a timely and transparent manner; and (ii) promote seamless consumer experience through digitalisation efforts, as far as practicable6. (g) ITOs shall ensure that their In-house Assessors comply with the minimum requirements on professionalism and fair conduct as provided in the PD on CSP, as follows: (i) ITOs shall ensure that their In-house Assessors are – (A) adequately qualified and competent to carry out objective assessments on the cause and circumstances of a loss and to ascertain the quantum of the loss in relation to a motor insurance/takaful claim; (B) provided with relevant and continuous training to keep pace with the latest technical, technological, environmental and other developments in the motor ecosystem in order to deliver high- quality claims assessments; (C) guided by clear internal policies and procedures to ensure that the claims assessment process is conducted in an independent, objective and professional manner; (D) subject to adequate monitoring and controls to avoid any conflict-of-interest situations that can result in unfair outcomes for policy owners/takaful participants. This includes ensuring that the remuneration and incentives provided to In-house Assessors are not tied to claims costs; and (E) acting with due care and diligence when conducting investigations and assessments of loss; (ii) With respect to sub-paragraphs (i)(A) and (B), ITOs should be guided by the qualification and training requirements under the Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters7; (iii) ITOs shall establish a mechanism8 to ensure new and inexperienced In-house Assessors are closely supervised by a senior In-house Assessor9 for at least 1 year before they are allowed to conduct adjusting work independently; (iv) ITOs shall ensure that claims assessments prepared by their In- house Assessors contain sufficient details on key information, such as the facts, assumptions, methods, sources of information and databases used or referred to in producing its final assessment; and 6 For example, reducing reliance or requiring the submission of physical copies of documents in favour of digital documentation. 7 Issued by BNM on 1 June 2023 and published on the BNM’s website (Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters). 8 This mechanism must be documented and subject to periodic review to ensure its relevance and adequacy for this purpose. 9 Senior In-house Assessor refers to in-house assessor who has acquired at least 5 years of adjusting experience in the subject matter being assessed. https://www.bnm.gov.my/-/pd-adjusters https://www.bnm.gov.my/-/pd-adjusters Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 7 of 28 Issued on: 21 December 2023 (v) ITOs shall ensure that claims assessments produced by their In- house Assessors with less than 5 years of adjusting work experience are reviewed and signed-off by a senior In-house Assessor. Question 1 Are there any other obligations on ITOs that need to be provided apart from those proposed under paragraphs 5.1 (a) to (g)? Please provide clear justifications and the rationale for any additional obligations you view as important to impose on ITOs. 5.2 Repairers’ Obligations (a) The objectives of Repairers in carrying out Repairs are as follows: (i) to restore the safety, structural integrity, Presentation and utility of the Motor Vehicle; and (ii) to fulfil their obligations to the ITOs under the provision of the applicable contract of repair in accordance with the SLA with the ITO. (b) The Repair estimates and Repairs carried out by Repairers – (i) shall be in accordance with the following: (A) any guidelines which have been or may be introduced by relevant authorities, including but not limited to the Guidelines on Application for Vehicle Panel Structure Repair or Conversion (Accident Cases) issued by JPJ; (B) methods that are consistent with standard Motor Vehicle warranty conditions and manufacturer’s technical specifications; or (C) any mandatory specifications and/or standards required by the law, having regard to the age and condition of the Motor Vehicle; and (ii) should be guided by Malaysian Standard on Motor Vehicle Aftermarket: Smash Repair Requirements issued by Jabatan Standard Malaysia; Question 2 (a) In relation to sub-paragraph 5.2(b)(i)(B), we wish to seek your feedback whether Repairers: (i) have access to information on methods that are consistent with standard Motor Vehicle warranty conditions and manufacturer’s technical specifications; and (ii) have capabilities (i.e. in terms of personnel skills, facilities and equipment) to handle repair in accordance to the manufacturer’s technical specifications? (b) In relation to sub-paragraph 5.2(b)(i)(C), are there any lawful mandatory specification and/or standards that provides requirements relating to repair estimates or Repairs carried out by Repairers? Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 8 of 28 Issued on: 21 December 2023 (c) In relation to sub-paragraph 5.2(b)(ii), we propose to include the following requirement i.e., the estimates and repair works carried out by Repairers should be guided by Malaysian Standard on Motor Vehicle Aftermarket: Smash Repair Requirements issued by Jabatan Standard Malaysia. In this regard, we would like to seek your feedback on whether sub-paragraph 5.2(b)(ii) should be included in the Code. If you disagree with this proposal, please provide clear justifications to support your view. (c) With respect to dealing with ITOs in relation to Repairs, Repairers shall do the following: (i) prepare estimates that provide an accurate and appropriate account of the scope of Repairs as well as ensure that all Repairs are carried out in a safe, ethical, timely and professional manner and in accordance with the method of Repair and the parts specified and approved by the ITO; (ii) refer to the centralised database for motor repairs estimations of Motordata Research Consortium Sdn Bhd. (“MRC”) or any other credible database used by the ITO to facilitate repairs estimations, including replacement parts prices and labour times; and (iii) not dismantle a Motor Vehicle for the purpose of preparing an estimate or report unless requested or authorised to do so by the ITO. (d) Repairers shall not commence any Repair without obtaining the relevant ITO’s agreement and authorisation to proceed. Where there is no SLA in place between the ITO and the non-panel Repairer, the non-panel Repairers shall do the following: (i) agree to abide by the Code in carrying out the Repairs as authorised by the ITO; and (ii) the agreement shall be documented prior to commencing the Repairs. (e) Repairers shall provide equivalent standard spare parts related to the Repairs and reasonable warranty for the affected spare parts. (f) Repairers shall repair Motor Vehicles in a timely manner and keep the Claimant and the ITO informed of the completion time or any changes to the Repair estimate, including any hidden damage that requires the submission of supplementary claims. (g) Repairers should support ITOs digitalisation initiatives to promote seamless consumer experience10. 10 For example, reducing reliance on and requiring physical copies of documents, where possible, particularly when digital copies are available. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 9 of 28 Issued on: 21 December 2023 Question 3 In relation to paragraph 5.2 (f) and (g), do you foresee any operational issues or challenges in implementing the requirements? If yes, please elaborate and provide clear explanations to support your view. (h) Repairers shall ensure that staff assigned to repair works – (i) have the relevant qualifications and/or experience as specified in the Malaysian Standard on Motor Vehicle Aftermarket: Smash Repair Requirements issued by Jabatan Standard Malaysia; and (ii) undertake repair works and conduct themselves in a professional manner in keeping with the relevant requirements of the automotive industry including those set by the relevant authorities. (i) Repairers shall handle Customer complaints promptly, fairly and effectively. To this end, Repairers shall – (i) have in place proper processes and documented procedures for complaints handling, including clearly identified contact points for the proper handling of complaints from Customers. The procedures shall be clear, easily understood and readily accessible by Customers; (ii) escalate a complaint to the ITO - within 1 working day from the date of receipt of the complaint or date of inspection of the vehicle by the Repairer (where an inspection is required) - if the complaint relates to the ITO’s decision on the approval, claims settlement amount or scope of work. In relation to this, the Repairer shall work together with the ITO to resolve the Customer’s complaints; (iii) address each complaint in an objective and timely manner, and shall adhere to the following timelines in its complaints handling: (A) Repairers shall inform the Customer of the outcome no later than 5 working days from the date of receipt of the complaint; (B) where the case is complicated or involves complex issues that require further investigation, the Repairer shall inform the Customer in writing on reasons for the delay and the estimated time needed to resolve the complaint; and (C) in any event, Repairers shall convey to the Customer a decision on the complaint no later than 30 calendar days from the date the complaint was first lodged. Question 4 (a) In relation to paragraph 5.2(i), what are your views on the timelines stipulated for handling of Customer complaints by Repairers? If you disagree with any of the timelines above, please suggest reasonable timelines supported with relevant data, illustrations, or justifications. (b) In addition to the handling of Customer complaints by Repairers, Repairers should consider establishing a credible and transparent online platform for submission and compilation of data on customer feedback or satisfaction. This would include: i. Transparent rating system for customer’s to providing ratings Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 10 of 28 Issued on: 21 December 2023 on services of repairers, which can be publicly accessed; or ii. Online channel for customers to submit feedback forms after completion of repair works; and iii. Online channels for filing of complaints and to monitor status of complaints. What are your views on the proposal above? Please provide clear justifications to support your view. 5.3 Motor parts trade discounts, labour rate and labour time (a) The motor parts trade discounts and labour rate per hour should be negotiated between ITOs and Repairers and the agreement on this matter should be stipulated in the relevant SLA between ITOs and Repairers. If these terms are not provided in the SLA, or where no SLA is signed between the ITO and the non-panel Repairer, the ITO shall ensure that the parts trade discounts and labour rate per hour are negotiated, and the agreement shall be documented, before the commencement of the Repair. In this regard, the determination of the hourly labour rate shall take into consideration the types of vehicles. (b) Where the labour time for a Repair is unable to be determined using the MRC database, ITOs and Repairers shall agree on the appropriate reference point to determine the standard hours for repair work. This may include recommendations by the appointed registered adjuster or reference to a credible database used by the ITOs, and this agreement shall be disclosed in the SLA. Where no SLA is signed between the ITO and the non-panel Repairer, the ITO shall ensure that the reference point used to determine the standard hours for repair work is discussed with the non-panel Repairer, and the agreement shall be documented, before the commencement of the Repair. (c) With respect to paragraph 5.3(b), the ITOs shall ensure that the database provider being referred to determine the standard hours for a Repair is credible, which adheres to the following principles: (i) Resilient: The database provider has a secure database and is able to preserve the continuity of critical services in adverse situations; (ii) Interoperable: The database provider’s system is easily linked or integrated with other ITO-related systems; and (iii) Comprehensive: The database provides wide coverage and data on labour times that allows for better and faster comparison of prices to reduce price subjectivity. 5.4 ITOs and/or Repairers shall not – (a) make misleading or deceptive statements about the quality, capability or timeliness of a Repairer or group of Repairers; (b) make misleading or deceptive statements about the quality, safety or timeliness of Repairs against an ITO or the approach the ITO uses to allocate Repairs or manage claims; and Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 11 of 28 Issued on: 21 December 2023 (c) make statements or engage in actions or behaviour designed or intended to prevent or discourage a Customer from having any necessary rectification work to their Motor Vehicle following a Repair undertaken by the Repairer who had completed the original Repairs, as the case may be. 6 Panel Repairers of ITOs 6.1 Notification of Opportunities to Apply for Membership to become Panel Repairers of ITOs (a) ITOs that have Panel Repairers Schemes (PRS) shall document and publish11 the criteria for membership12 of the PRS. (b) ITOs shall establish mechanisms for Repairers to register their interest in joining the PRS. These mechanisms shall be documented and be made publicly available. (c) ITOs shall also confirm a Repairer’s registration of interest in writing and provide details of the criteria used by the ITO to select a member of its PRS. 6.2 Disclosure of information on PRS (a) ITOs shall provide Repairers who are members of its PRS with the following: (i) the criteria and requirements for retaining their membership status; (ii) the key performance indicators (KPIs) used to evaluate the performance of the Repairer; (iii) regular feedback on the Repairer’s performance against the KPIs; and (iv) the circumstances under which a Repairer’s status in the PRS can be changed, including being terminated or suspended. 6.3 Terms of Service Level Agreement (a) ITOs shall enter into a SLA with each Repairer that has been selected to become a member of its PRS. (b) At minimum, the SLA shall provide for, but is not limited to, the following: (i) the period of the SLA between ITOs and Panel Repairers, which shall be fair and reasonable, that is, not less than 3 years. This is intended to give due consideration to the time and investment a Repairer has to make to gain and/or maintain their status as a Panel Repairer with the ITOs; (ii) disclosure of information as set out in paragraph 6.2 of this Code; 11 For example, publication on the publicly accessible pages of an ITO's websites. 12 The criteria may include minimum qualification and experience of relevant technicians, as well as minimum requirements relating to site area, facilities, security at workshop and insurance coverage requirements. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 12 of 28 Issued on: 21 December 2023 (iii) for own damage claims, ITOs reserve the right to require their Panel Repairers to carry out repairs expediently, in any case, not more than 10 working days from the date of approval of repair estimates by the ITO. The timeline specified is subject to exceptional circumstances such as extensive damage to the vehicle or non-availability of parts; (iv) ITOs reserve the right to require their Panel Repairers to retain all replacement parts for re-inspection for a period of 30 calendar days from the date of completion of repair works; Question 5 (a) In relation to sub-paragraph 6.3(b)(iv), concerns were raised that the requirement for Repairers to retain the replacement parts for 30 calendar days is too long and not practical due to issues such as space constraint to store the damaged parts, incentivising theft as well as contributing to mosquito breeding and rodent infestations issues. As such, reducing the timeline for this may be warranted. Please suggest a reasonable timeline for Repairers to retain replacement parts for reinspection purposes, supported with relevant data, illustrations, or justifications. The suggested timeline should consider interest of all relevant parties involved. (b) In line with the Malaysian Standard on Motor Vehicle Aftermarket: Smash Repair Requirements to be issued by Jabatan Standard Malaysia, we are considering ensuring proper disposal of ATL motor vehicle and as far as practicable13, to send the ATL vehicle to the Authorised Automotive Treatment Facility (AATF) within 5 working days after deregistration. Depending on the arrangement between ITOs and repairers, ITOs are usually the party responsible for sending the ATL vehicle to the AATF. However, in circumstances where the ATL vehicle is sold to the repairer and where an agreement has been reached between the ITO and repairer, the repairer is usually responsible for sending the ATL vehicle to the AATF. In view of the above, additional obligations will be imposed on both the ITOs and repairers (as an obligation under the SLA under this Code), to require the responsible party to ensure timeliness on surrendering of ATL vehicles to the AATF within 5 working days after deregistration of the ATL vehicle. (i) Please provides your views, supported by clear justification, on the appropriateness of requiring ITOs or repairers (as relevant) to serve as the responsible party for sending ATL vehicles to the AATF. 13 The relevant party may consider other means of proper disposal of ATL vehicle where the option of sending the ATL vehicle to AATF is not available. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 13 of 28 Issued on: 21 December 2023 (ii) Please provide your views, supported by clear justification, on whether the proposed 5 working days is reasonable; and (iii) Do you foresee any challenges in operationalising this requirement? If yes, please suggest measures to overcome the challenges identified. (v) specific, measurable and relevant KPIs that include KPIs on the following: (A) quality of repair work; (B) accuracy of repair estimate quotes; and (C) customer complaints and feedback; (vi) an obligation for the Panel Repairer to do the following: (A) comply with the applicable standards and requirements imposed by the relevant authorities such as JPJ’s Guidelines on Application for Vehicle Panel Structure Repair or Conversion (Accident Cases); and (B) be guided by Malaysian Standard on Motor Vehicle Aftermarket: Smash Repair Requirements issued by Jabatan Standard Malaysia, in carrying out its smash repair works; (vii) circumstances or events which can result in the removal of a Repairer from the ITO’s panel, including in the event there is evidence of collusion involving the Repairer; (viii) avenues for a Panel Repairer to resolve any disputes with the ITO on actions taken by the ITO in response to the following: (A) the failure of a Panel Repairer to meet the obligations under the SLA or to achieve the performance criteria or standard as agreed upon between the ITO and the Panel Repairer; and (B) non-compliance with any standards or turnaround time set out in CSP PD, where applicable; (ix) an obligation for the Panel Repairer to abide by the Code14; (x) a requirement for Panel Repairer to notify the ITO on any change in the business ownership structure of the Panel Repairer within 14 workings days from the date of change of ownership. Related to this, the ITO shall determine whether a new evaluation of membership is necessary; (xi) the termination clauses as set out in paragraph 6.4 of this Code; and (xii) the execution of this SLA shall not conflict with any introduction, imposition or variation of any laws, rules, regulations, directives or any requirement by authorities. The parties hereby agree to be bound by any notice on changes arising from any laws, rules, regulations, directives or any requirement by authorities. 14 Subject to the final amendments made by the industry with the agreement of all stakeholders. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 14 of 28 Issued on: 21 December 2023 Question 6 (a) In relation to sub-paragraph 6.3(b)(i), please provide your views on whether the proposed minimum period of 3 years is reasonable. If not, please provide suggestions supported with clear justifications. (b) In relation to sub-paragraph 6.3(b)(xi), please provide your view on whether the proposed timeline on the notification of ITO i.e. within 14 working days from the date of change of ownership is reasonable? (c) The terms and conditions of the SLA shall take into consideration the Panel Repairers’ feedback on matters such as parts price discounts and hourly labour rate and be subject to periodical review. Question 7 (c) Are there any suggestions on additional areas under paragraph 6.3 that need to be covered or specific requirements that you disagree with? Please support your responses with clear justifications. 6.4 Termination of SLA (a) An ITO may review its business arrangement with their Panel Repairer, including the termination of panelship, in the event that the Panel Repairer – (i) becomes a bankrupt or is insolvent15; (ii) is convicted of a serious criminal offence; (iii) has been engaged in fraudulent activities, particularly in connection with the operation of the Panel Repair business, or has engaged in any other types of serious misconduct16; (iv) committed a breach of SLA requirements. In the occurrence of such breach, an ITO shall: (A) notify the Panel Repairer as soon as possible and inform the Panel Repairer what the ITO requires the Panel Repairer to do in order to remedy the breach; and (B) allow the Panel Repairer to remedy the breach within 30 calendar days. If the breach is remedied in accordance with sub-paragraph 6.4(a)(iv)(A) above, the ITO cannot terminate the SLA because of that breach unless it is a recurring matter; or (v) failed to meet the performance criteria or standard provided in the SLA. However, this is subject to ITOs providing a written notice to inform the Panel Repairer on the details of the breach and provide 15 Refers to company becoming bankrupt. 16 Examples of serious misconduct include but are not limited to submission of false claims, collusion between repairer and customer to manipulate the circumstances of accident, replace new with used parts. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 15 of 28 Issued on: 21 December 2023 the Panel Repairer with a reasonable time to meet the performance criteria or standards. (b) With the exception of the expiry of the SLA term and except where a cause of termination under paragraph 6.4(a) above is triggered, an ITO shall not unreasonably terminate the SLA without due notice. As such, ITOs shall at minimum provide 6 months’ notice of its intention to terminate the SLA while providing explicit grounds and reasons for such proposed termination. (c) ITOs shall give Panel Repairers a reasonable opportunity to make a representation to the ITO within 10 working days from the date of notice of its intention to terminate the SLA. Upon expiry of the 10 working days’ period and having considered the representation made by the Panel Repairer, the ITO shall decide whether to proceed with the termination or to retain the Panel Repairer’s membership status. In this regard, the ITO shall give the Panel Repairer a written notice of the decision, and the decision shall take effect from the date specified in the notice. (d) A Panel Repairer may terminate the SLA by giving the ITOs at least 6 months’ notice while providing explicit grounds and reasons for such proposed termination. Question 8 (a) Are there any suggestions on additional areas under paragraph 6.4 that need to be covered or specific requirements that you disagree with? Please support your responses with clear justifications. (b) In relation to paragraph 6.4(b), please provide your views on the reasonable period proposed for ITO to provide the notice of termination to Panel Repairers. (c) Do you anticipate any issues or challenges in relation to the requirements on termination of panelship by ITOs under sub-paragraphs 6.4(a)(iv) and (a)(v) and 6.4(b)? Please support your responses with clear justifications or explanations. 7 Estimate, Repair and Authorisation Process 7.1 Where estimates are sought: (a) ITOs and Repairers shall ensure the estimation process is fair, transparent and timely; (b) ITOs and Repairers shall ensure that estimates are comprehensive, complete and inclusive of all ascertainable damage; (c) In determining whether a damaged part of a Motor Vehicle needs to be replaced or repaired, factors for considerations should include the severity of the damage and safety of the Motor Vehicle after repair. With respect Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 16 of 28 Issued on: 21 December 2023 to this, consideration to replace a damage part should not be based on the age of the Motor Vehicle or costs to the ITO; (d) ITOs shall ensure that Repairers are provided with access to view the assessments and recommendations of Registered Adjusters or In-house Assessors on motor claim estimates17 via the claims estimating systems; (e) In the event a Repairer does not have access to the claims estimating systems and submits their motor claim estimates manually, the ITO shall provide a copy of the claims assessments and recommendations of the Registered Adjuster or In-house Assessor to the Repairer; and (f) With respect to paragraphs 7.1 (d) and (e), for the avoidance of doubt, the provision of access to the claims assessments and recommendations of the Registered Adjuster or In-house Assessor provided to the Repairer may: (i) be limited to repair estimates and areas relevant to deriving the repair estimate only; and (ii) exclude confidential information, such as information relating to suspected fraud which require further investigations. Question 9 (a) What are your views on Repairers being provided access to see the claims assessments and recommendations of the Registered Adjuster or In-house Assessor relating to repair estimates and areas relevant to deriving the repair estimate? (b) Are there any other key areas of the assessment or recommendation above that is required for Repairers to facilitate better claims processing and timely repair works? 8 Repair Warranties18 8.1 Repairers shall provide the necessary warranty for workmanship as stipulated in paragraph 7.5 of the Malaysian Standard on Motor Vehicle Aftermarket: Smash Repair Requirements issued by Jabatan Standard Malaysia as follows: 17 In relation to parts and labour. 18 ITOs shall reflect the requirements under paragraphs 8.1 and 8.2 in its SLA with Panel Repairers. With respect to non-panel Repairers, where no SLA is in place between the ITO and the non-panel Repairer, the ITO shall, as far as practicable, obtain the Repairer’s agreement to abide by the Code and such agreement shall be documented. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 17 of 28 Issued on: 21 December 2023 (a) Body Panel Repair – Minimum 6 months or 5,000km (whichever comes first) Body panel repairs are warrantied against shrinking, leaking or cracking. The Repairer shall not be responsible for the cracking of old body filler on previous repairs. (b) Structural Replacement – Minimum 6 months or 5,000km (whichever comes first) All materials used in the structural panel replacement are warrantied. However, if additional or hidden damage which affect the performance of the Motor Vehicle is found during or after the smash repair process, the Motor Vehicle owner/customer should be responsible for any additional cost required to make the necessary repairs. This warranty is voided should the repaired Motor Vehicle be involved in a subsequent accident, or if structural problem results from an original equipment manufacturer (“OEM”) design flaw, or if the Motor Vehicle is affected subsequently by natural disaster events, such as submersion in a flood. The Motor Vehicle shall be de-registered and sent to an Authorised Automotive Treatment Facilities (“AATF”). (c) Rust Repair – Minimum 6 months or 5,000km (whichever comes first) The Repairer shall not be responsible of corrosion cause by dirt and moisture accumulating due to automotive designs. (d) Surface Repairs – Minimum 6 months or 5,000km (whichever comes first) The Repairer shall cover surface repair warranty including dent, crack, burr, sharp edge and related surface defect. (e) Painting Warranty – Minimum 6 months or 5,000km (whichever comes first) Panel painting is warrantied against cracking, peeling, delamination, blister, blemish or orange peel. The Repairer shall not offer a warranty on the paint of any area where a motor vehicle owner/customer did their own body work as noted on the repair order. 8.2 Warranty on replacement parts and components Repairers shall provide a warranty on parts and components as follows: (a) Reuse parts and components – not less than 30 calendar days; (b) Repair parts and components – not less than 45 calendar days; and (c) New or remanufactured parts and components – not less than 90 calendar days or as provided by the manufacturer, distributor, supplier or importer of the parts, whichever is longer. Question 10 (a) What are your views on Repairers providing warranty on new or remanufactured parts as provided by the manufacturer, distributor, supplier or importer of parts? Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 18 of 28 Issued on: 21 December 2023 (b) Are there any circumstances where manufacturer, distributor, supplier or importer of the parts do not provide warranty on new or remanufactured parts and components? If yes, please provide clear explanation on those circumstances. 9 Payment for Repairs 9.1 ITOs shall make full payment to the Claimant or to his or her authorised representative, as the case may be, within 7 working days – (a) from the date of receipt of the acceptance of offer or Discharge Voucher and all relevant documents; or (b) from the receipt of the sealed court order in relation to payment of court judgement sum. 9.2 For the avoidance of doubt, with respect to own damage claims, the ITO may make payment of claims referred to under paragraph 9.1 to the Repairer handling the own damage claim. 10 Administration of the Code 10.1 The Code shall be administered by an Administrator. 10.2 The Chairperson of the Administrator shall be responsible for ensuring adequate administrative support for the Administrator’s activities, including sufficient resources. 10.3 The Administrator’s key responsibilities include the following: (a) responding to queries on the interpretation of any requirements in this Code19; (b) monitoring compliance with the Code. This includes the following: (i) receiving and handling information relating to alleged breaches of the Code, which includes ITO’s or Repairer’s failure to carry out their obligations under this Code; (ii) determining if any non-compliance with the Code should lead to the removal of parties as a participant to the Code; and (iii) publishing an aggregated statement detailing results, findings and outcomes of the independent EDR, if necessary; 19 This is intended for the Administrator to handle the queries as the first stage. Only where there are disagreements raised by either ITO or Repairer which the Administrator is unable to resolve, such queries should be escalated for BNM’s review. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 19 of 28 Issued on: 21 December 2023 (c) submitting a quarterly report to BNM detailing the parties involved, quantum, nature and outcome of disputes raised under the independent EDR process; (d) managing funding obtained from the general ITO industry for the administration of the Code and independent EDR process; (e) developing a framework for the appointment, establishment and operation of a national panel of Arbitrators20 in respect to the independent EDR process; and (f) ensuring that periodic reviews on the operation of the Code is carried out where the Administrator shall – (i) conduct an initial internal review of the operation of the Code, 12 months after the commencement of operation of the Code on [DD/MM/YYYY]; and (ii) ensure an external review21 of the operation of the Code is carried out every 2 years from the commencement of the operation of the Code. 10.4 The Administrator shall treat all information it receives in the course of the dispute resolution process i.e. IDR and EDR, as confidential and not disclose it to any other person unless required by law to do so. Question 11 (a) Following a series of engagements with the ITO industry and the Federation of Automobile Workshop Owners' Association of Malaysia (FAWOAM), there is general consensus from ITOs and FAWOAM members for PIAM and MTA to serve as the Administrator of the Code for their respective sectors. BNM fully supports the proposal above given the operational and technical nature of this Code and the disputes that will be handled via the IDRF arrangements. Notwithstanding this, BNM will ensure ITOs compliance to the Code’s requirements. Any subsequent enhancements or reviews to the Code will be subject to BNM’s review and approval. Do you have any objections to this? Please provide clear justifications for your view. 20 Refers to an independent person or committee appointed to preside over a dispute via an arbitration in accordance with the Arbitration Act 2005. 21 This shall be carried out by an independent party not associated with the Administrator of the Code. This scope of this review should include the effectiveness of dispute resolution processes under the Code, the awareness and accessibility of the Code, ITOs’ and Repairers’ compliance with the Code and the effectiveness and adequacy of governance of the Code and Administrator. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 20 of 28 Issued on: 21 December 2023 (b) In relation to sub-paragraph 10.3(f)(ii), please provide your views on whether the proposed minimum period of 2 years is reasonable. If not, please provide suggestions supported with clear justifications. 11 Independent Dispute Resolution Framework (IDRF)22 11.1 IDRF Process (a) The objective of the IDRF23 is to serve as an effective dispute resolution process to address disputes between ITOs and Repairers in a fair, transparent and timely manner. This is intended to reduce protracted delays in the motor vehicle claims process that result in poor consumer outcomes. (b) The Parties shall resolve disputes raised by Repairers against ITOs arising from alleged lapses or breaches of this Code – (i) in accordance with the IDR dispute resolution process set out in paragraph 11.2; and (ii) in the event that the Parties fail to resolve the dispute at IDR, Repairers may escalate the dispute to the independent EDR process in accordance with paragraph 11.3. Failure to resolve disputes in accordance with the process stipulated in this Code amounts to a non-compliance with the Code. (c) To ensure the objective of IDRF is met, ITOs shall ensure the SLA with its panel of repairers must, at minimum, include an obligation for the repairer to abide by the Code. 11.2 Scope of ITO’s Internal Dispute Resolution (IDR) Process24 (a) The IDR process applies to all disputes raised by Repairers on ITOs relating to alleged lapses or breaches with the Code except for the following25: (i) complaints relating to coverage, liability, insurable interest and breach of conditions under the motor insurance policy/motor takaful certificate; (ii) complaints relating to or with an element of fraud; (iii) cases under investigation involving authorities e.g. criminal cases or illegal activities; 22 In order for Repairers to leverage on the IDRF process specified in this Code, the Repairer must be a participant to the Code which means that the Repairer has agreed to adhere to all requirements of the Code i.e. at the point of becoming a participant. 23 For the avoidance of doubt, the IDRF consist of ITO’s IDR process and ITOs-Repairers Independent EDR process. 24 Where no SLA is signed between the ITO and the non-Panel Repairer, the ITO shall ensure that the IDR process under paragraph 11.2 is agreed upon, and the agreement shall be documented, before the commencement of the IDR process. 25 For the avoidance of doubt, all disputes relating to non-compliance of the Code shall go through the IDR as a first step. This includes disputes relating to ITO’s in-house assessor's assessments. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 21 of 28 Issued on: 21 December 2023 (iv) where a lawyer or a legal firm has been appointed to act on the matter; (v) disputes time barred under the Limitation Act 1953 or Limitation Ordinance (Sabah) (Cap.72) or Limitation Ordinance (Sarawak) (Cap. 49); (vi) matters filed or referred to OFS, Court and any arbitration process outside of the Code; (vii) repudiated cases such as cases where the policyowner/takaful participant is making an appeal on the cost of repair and not the Repairer; and (viii) matters set out in paragraph 1.4. Question 12 Do you have any views on the proposed areas that will be excluded from ITOs’ IDR process? Please provide relevant data, illustrations and justifications to support your views. (b) All ITOs shall establish an IDR process that provides for fair, transparent and timely resolution of complaints submitted by Repairers. (c) All ITOs shall ensure staff involved in the IDR process – (i) are not or have not been involved in the assessment or handling of the claims relating to the complaint; and (ii) possess adequate qualification and experience in motor vehicle claims assessment matters. For example, staff who has sound knowledge on current industry practices, possess the relevant technical expertise and who can demonstrate reasonable skill, care and diligence in reviewing the complaint. (d) All ITOs shall ensure the IDR process is independent and impartial, as far as practicable. This shall include ensuring an independent senior staff or a committee26 is involved in the deliberation and decision-making process under the IDR process. (e) In relation to paragraph 11.2(d), ITOs may consider designating an existing structure such as a Panel Workshop Management Committee or Vendor Management Department to carry out the responsibilities under paragraphs 11.2 (c) and (d). (f) The Repairer shall lodge and track the notification of complaint with the ITO through the Merimen system. 26 With respect to paragraphs 11.2 (c) and (d), where ITOs have established a committee, the committee shall comprise a mix of representatives such as Senior Officers of ITOs, representatives from registered adjusters and representatives from its Panel Repairers. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 22 of 28 Issued on: 21 December 2023 (g) With respect to paragraph 11.2(f), the notification of complaint shall, at minimum, contain the information as stated in Appendix 1. (h) The ITO shall acknowledge the complaint in writing within 1 working day from the date of receipt of complaint notification. Repairers and ITOs will conclude the IDR process no later than 10 working days from the date of complaint notification lodged with the ITO in accordance with paragraph 11.2(f). (i) If the Repairer disagrees with the outcome of an ITO’s IDR process, the Repairer may escalate the complaint to the independent EDR process except for: (i) complaints relating to paragraph 6 which includes termination of panel Repairers; and (ii) sub-paragraphs 11.3(a)(i-v) which includes complaints excluded from the independent EDR process. 11.3 ITOs-Repairers Independent External Dispute Resolution (EDR) Process (a) The EDR process applies to all disputes relating to alleged non- compliance with the Code except for the following: (i) disputes arising from sub-paragraphs 6.1, 6.2, 6.3 and 6.4 which includes termination of panel Repairers; (ii) disputes excluded from the IDR process i.e. sub-paragraphs 11.2(a)(i-viii); (iii) general business disputes relating to general commercial contracts; (iv) disputes where no offer has been made to the Repairer due to insufficient documentation; and (v) where the disputed amount is below RM10,000; Question 13 Do you have any views on the proposed areas that will be excluded from the independent EDR process under paragraph 11.3(a)? Please provide relevant data, illustrations, and justifications to support your views. (b) The Parties are encouraged to resolve their disputes using the IDR process as a first step before pursuing the independent EDR process. Please refer to Appendix 2 for the flowchart on the overall IDRF. (c) Under the independent EDR process, both Parties agree to be subject to the following conditions: (i) participation in the independent EDR process is mandatory for both Parties, in the event an EDR process is invoked; (ii) the Parties agree that the dispute escalated through the independent EDR process shall be settled via Arbitration by a recognised and properly qualified Arbitration service provider; (iii) the Parties will share the costs of Arbitration equally; (iv) the venue of the Arbitration shall take place online; Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 23 of 28 Issued on: 21 December 2023 (v) the Parties shall pay for their own costs of attending the Arbitration, if any27; (vi) throughout the EDR process, the Parties shall agree not to have legal representation, such as engaging the services of a lawyer or a legal firm, in relation to the dispute raised through the independent EDR process; (vii) the Parties agree that the decision made by the Arbitrator shall be final and legally binding, i.e. the Parties shall be bound by the decision made by the Arbitrator; and (viii) if a party has filed the dispute in court28 or commenced any dispute resolution process not stipulated in this Code29, the party cannot revert to the Code’s dispute resolution processes. Question 14 Do you disagree with any conditions stipulated under paragraph 11.3(c) which both ITOs and Repairers shall abide to in escalating disputes through the EDR process? Please provide justifications and suggestions, if any. (d) To commence an Arbitration process, the Applicant shall serve a notification of dispute to the Administrator and the Respondent. (e) The notification of dispute shall, at minimum, contain the following information as stated under Appendix 3: (i) the names and contact details of the ITO and the Repairer; (ii) specific and detailed information about the nature of the dispute; (iii) supporting documentation about the dispute; and (iv) in the event the Repairer disagrees with the IDR, an explanation as to Repairer’s disagreement. (f) The Administrator shall acknowledge the dispute notification in writing within 1 working day from date of dispute notification. (g) The Administrator shall immediately notify the Parties of the date of commencement of the arbitration30 and other relevant information, as required. 27 Arbitration shall be conducted via online channels as per sub-paragraph (c)(iv) and will not incur additional expenses to attend. However, in the event, the repairer is unable to attend through an online medium and requires physical attendance, then Parties shall pay their own travel and relevant expenses such as accommodation and share the costs of booking a meeting venue, if any. 28 This includes if the dispute has been decided by the court or has been through a court appointed mediation. 29 This includes commencing a dispute through an arbitration process which is not governed and stipulated by this Code. 30 The refers to the date of dispute notification delivered to the Respondent. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 24 of 28 Issued on: 21 December 2023 (h) The Administrator shall ensure an Approved Arbitrator is appointed from the panel developed by the Administrator under paragraph 10.3(e) within 1 working day from the date of acknowledgement on dispute notification. Question 15 In view of the general consensus reached between ITOs and FAWOAM members for PIAM and MTA to serve as the Administrator of the Code (under paragraph 10), PIAM and MTA are also expected to carry out the role of the Administrator of the independent EDR process under paragraph 11.3(f), (g) and (h). The role as an Administrator of the EDR process is confined to administrative matters only, such as acknowledging the dispute notification in writing, notifying Parties involved in the dispute, and to ensure an Approved Arbitrator is appointed on a timely basis. In relation to this, as the regulatory authority who will be issuing the Code under FSA/IFSA, the Bank will be responsible for enforcing the Code, but will not be carrying out the administrative role of operationalising and implementing the Code. In view of PIAM and MTA's role as the industry association that represents ITOs, what are your views on PIAM and MTA carrying out the role of the Administrator of the Code and the EDR process? Please provide clear justifications to support your views. (i) The Parties shall submit relevant and sufficient documents to the appointed arbitrator within 3 working days from the date of appointment of the Approved Arbitrator. (j) The Parties involved in the Arbitration will ensure confidentiality on all information relating to or in connection with the Arbitration, including the terms of any settlement, unless otherwise agreed by the Parties in writing, except where disclosure is required by law. (k) The appointed arbitrator shall make a final and binding decision no later than 10 working days from full receipt of documents submitted by the Parties to the appointed arbitrator. Question 16 Do you disagree with any of the timelines stipulated under the IDR (see paragraph 11.2(h)) and independent EDR process? If you disagree, please suggest other reasonable timelines supported with relevant data, illustrations, or justifications. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 25 of 28 Issued on: 21 December 2023 (l) In the event any Party fails to comply with the binding decision31 of the appointed arbitrator: (i) appropriate actions will be taken against ITOs by the relevant authorities; (ii) may lead to removal of the Repairer from ITO’s panelship; and (iii) non-panel Repairers will no longer be able to refer any disputes they may have with ITOs to the independent EDR process. Question 17 Paragraph 11.3(l) stipulates the implications of non-compliance by the Parties involved i.e. ITOs or Repairers, to the binding decision of the Appointed Arbitrator. This is to ensure that there is finality to the appointed arbitrator’s decision and to avoid prolonged delays in disputes between ITOs and Repairers which negatively affects consumer’s interest. What are your views of the implications of non-compliance with binding decision of the appointed arbitrator under paragraph 11.3(l)? If you disagree, please suggest what the implications should be in the event of non-compliance of the binding decision of the appointed arbitrator. 31 ITOs and repairers may seek enforcement of the arbitrator's decision through a court proceeding which will incur legal costs. As such, this approach should be the last resort taken by the Parties. Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 26 of 28 Issued on: 21 December 2023 Appendix 1 NOTIFICATION OF COMPLAINT A. Details of Complaint 1. Date of reporting to insurer/takaful operator (ITO) 2. The names and contact details of the ITO and the Repairer 3. Nature of the complaint 4. Date of incident 5. Time of incident 6. Place of incident 7. Other information32 1. Name of policyowner/ takaful participant involved 2. Types / details of policy/takaful certificate involved (Please provide the copy of relevant document) 3. Details of claim 32 Any other information that Repairers are of view is relevant for ITOs to obtain to better assess and resolve the complaint. B. Affairs or Account of Policyowner/Takaful Participant Involved Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 27 of 28 Issued on: 21 December 2023 Appendix 2 Public Consultation on Insurers/Takaful Operators-Repairers Code of Conduct 28 of 28 Issued on: 21 December 2023 Appendix 3 NOTIFICATION OF DISPUTE A. Details of Dispute 1. Date of reporting to insurer/takaful operator (ITO) 2. The names and contact details of the ITO and the Repairer 3. Nature of the dispute (Please provide the copy of relevant supporting documents including those provided under Appendix 1) 4. Explanation on Repairer’s disagreement on the outcome of the internal dispute resolution (IDR), where relevant 5. Date of incident 6. Time of incident 7. Place of incident 8. Other information33 1. Name of policyowner/takaful participant involved 2. Types / details of policy/takaful certificate involved (Please provide the copy of relevant document) 3. Details of claim 33 Any other information that Repairers are of view that is relevant for ITOs to obtain to better assess and resolve the complaint. 1 Introduction 2 Legal Provisions 3 Principles of the Code 4 Definitions 5 Obligations of ITO and Repairer 6 Panel Repairers of ITOs 7 Estimate, Repair and Authorisation Process 8 Repair Warranties17F 9 Payment for Repairs 10 Administration of the Code 11 Independent Dispute Resolution Framework (IDRF)21F Appendix 1 Appendix 2 Appendix 3	null
15 Dis 2023	Issuance of Capital Adequacy Framework (Operational Risk) and Capital Adequacy Framework (Exposures to Central Counterparties)	https://www.bnm.gov.my/-/pd-caf-dec23	null	null	null	null	null
15 Dis 2023	Policy Document on Personal Financing	https://www.bnm.gov.my/-/pd-pfdec23	https://www.bnm.gov.my/documents/20124/938039/pd_personal_financing_dec2023.pdf	null	null	Personal Financing Issued on: 15 December 2023 BNM/RH/PD 028-130 Personal Financing Applicable to: 1. Licensed banks 2. Licensed Islamic banks 3. Prescribed development financial institutions 4. Approved issuers of a designated payment instrument 5. Approved issuers of a designated Islamic payment instrument Issued on: 15 December 2023 Table of contents PART A OVERVIEW ............................................................................................... 1 1 Introduction ................................................................................................ 1 2 Policy objective .......................................................................................... 1 3 Applicability ............................................................................................... 1 4 Legal provisions ........................................................................................ 2 5 Effective date ............................................................................................. 2 6 Interpretation ............................................................................................. 3 7 Related policy documents ......................................................................... 4 8 Policy document superseded .................................................................... 4 PART B POLICY REQUIREMENTS ....................................................................... 5 9 Submission requirement (Operational requirements for FSPs only) .......... 5 10 General requirements ................................................................................ 5 11 Additional requirements on BNPL ............................................................. 5 Personal Financing 1 of 9 Issued on: 15 December 2023 PART A OVERVIEW 1 Introduction 1.1 A credit market that functions effectively contributes significant benefits to the economy, helping financial consumers capitalise on economic opportunities and build wealth, and businesses to grow and create jobs. 1.2 With intense competition in the retail credit market, changes are being observed in the lending practices of credit providers in the personal financing segment which are contributing to unaffordable borrowing by households. Of specific concern has been the emergence of new financing products that give the appearance of affordable borrowing, but actually encourage the imprudent accumulation of debt that borrowers cannot really afford without significant risk of hardship over the duration of the financing facility due to inadequate financial buffers. 1.3 While financial service providers (FSPs) are already required to conduct suitability and affordability assessments for each new and additional financing facility offered to financial consumers, more specific requirements are necessary to prevent unhealthy developments in the personal financing segment. 2 Policy objective 2.1 This policy document (Policy Document) aims to promote prudent and responsible financing practices with respect to the provision of personal financing by FSPs, while encouraging responsible borrowing behaviours by financial consumers. 2.2 This Policy Document complements the Policy Document on Responsible Financing in promoting a sustainable retail credit market and a resilient household sector. 3 Applicability 3.1 This Policy Document is applicable to- (a) with respect to paragraphs 9 and 10, a FSP as defined in paragraph 6.2 that offers a personal financing product as defined in paragraph 6.2(a); Personal Financing 2 of 9 Issued on: 15 December 2023 (b) with respect to paragraph 11, a FSP as defined in paragraph 6.2 that offers a personal financing product as defined in paragraph 6.2(b).1 3.2 This Policy Document is not applicable to the following financing products: (a) financing for the purchase of residential and non-residential property; (b) vehicle financing; (c) credit card and credit card-i; (d) charge card and charge card-i; (e) overdraft and revolving credit facilities with no fixed repayment or payment tenure; (f) micro-financing product or financing to a sole proprietor for purposes of its business; (g) financing for the purchase of securities2; (h) financing granted to employees of FSPs; and (i) pawnbroking or Ar-Rahnu. 3.3 A personal financing product for which the mode of repayment is facilitated through a salary deduction scheme is included within the scope of this Policy Document. 4 Legal provisions 4.1 The requirements in this Policy Document are specified pursuant to- (a) sections 47(1) and 123(1) of the Financial Services Act 2013 (FSA); (b) sections 57(1) and 135(1) of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 41(1) and 42C(1) of the Development Financial Institutions Act 2002 (DFIA). 4.2 The guidance in this Policy Document is specified pursuant to section 266 of the FSA, section 277 of the IFSA and section 126 of the DFIA. 5 Effective date 5.1 This Policy Document comes into effect on 15 December 2023. 1 Licensed banks and licensed Islamic banks can only offer buy now pay later (BNPL) facility as part of their banking business and Islamic banking business. For prescribed development financial institutions, it is subject to their mandated roles. 2 This includes units of funds managed by Amanah Saham Nasional Berhad and other unit trusts. Personal Financing 3 of 9 Issued on: 15 December 2023 6 Interpretation 6.1 The terms and expressions used in this Policy Document shall have the same meanings assigned to them in the FSA, IFSA and DFIA, as the case may be, unless otherwise defined in this Policy Document. 6.2 For the purpose of this Policy Document- “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretive, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “financial service provider” or “FSP” means- (a) a licensed bank under the FSA; (b) a licensed Islamic bank under the IFSA; (c) a prescribed institution under the DFIA; (d) an approved issuer of a designated payment instrument under the FSA; and (e) an approved issuer of a designated Islamic payment instrument under the IFSA; “personal financing product” means the following- (a) a financing product that is offered either directly by a FSP or jointly with another entity, or through the FSP’s intermediary to individuals for personal, domestic or household purposes; and (b) any buy now pay later arrangement, however designed or by whatever name called (BNPL)3, entered into between a financial consumer with a FSP, or in the case of a jointly provided product, with a FSP and the FSP's partner, for the purchase of goods or services where- (i) the FSP pays the seller for such purchase and credit is provided to the financial consumer; and (ii) the payment due from the financial consumer to the FSP is deferred and may be made in a single payment or by instalments over an agreed period of time in accordance with the terms and conditions of the arrangement; 3 For avoidance of doubt, BNPL does not cover any easy payment plan offered by an issuer of credit card/credit card-i to financial consumers by way of monthly instalments over a specific period of time, for the purchase of goods or services. Personal Financing 4 of 9 Issued on: 15 December 2023 but does not include an arrangement comprising moneylending as defined in the Moneylenders Act 1951 and credit sales transaction as defined in the Consumer Protection Act 1999; and “repayment” in the context of an Islamic personal financing product, shall include payment by a financial consumer to a FSP under the terms of the Islamic personal financing product. 7 Related policy documents 7.1 This Policy Document must be read together with other relevant documents, guidelines and policy documents issued by the Bank, as amended from time to time, in particular- (a) Guidelines on the Imposition of Fees and Charges on Financial Products and Services issued on 10 May 2012 (BNM/RH/GL 016-2); (b) Operational Procedures for Submission of Application for the Imposition of Fees and Charges on Financial Products and Services issued on 23 January 2017 (JKAP7500/POL/3/1); (c) Guidelines on Late Payment Charges for Islamic Financial Institutions issued on 31 January 2013 (BNM/RH/GL 012-6); (d) Guidelines on Product Transparency and Disclosure issued on 31 May 2013 (BNM/RH/GL 000-3); (e) Policy Document on Risk-Informed Pricing issued on 16 December 2013 (BNM/RH/STD 028-3); (f) Policy Document on Introduction of New Products issued on 7 March 2014 (BNM/RH/STD 028-5); (g) Policy Document on Prohibited Business Conduct issued on 15 July 2016 (BNM/RH/PD 028-21); (h) Policy Document on Responsible Financing issued on 6 May 2019 (BNM/RH/PD 028-79); (i) Policy Document on Fair Treatment on Financial Consumer issued on 6 November 2019 (BNM/RH/PD 028-103); (j) Policy Document on Merchant Acquiring Services issued on 15 September 2021 (BNM/RH/PD 028-119); and (k) Shariah Resolutions in Islamic Finance (Second Edition) issued on 26 October 2010. 8 Policy document superseded 8.1 This Policy Document supersedes the Policy Document on Personal Financing issued on 5 July 2013 (BNM/RH/GL 008-19). Personal Financing 5 of 9 Issued on: 15 December 2023 PART B POLICY REQUIREMENTS 9 Submission requirement (Operational requirements for FSPs only) FSPs to refer Policy Document on Personal Financing as published in the Bank’s Regulatory Handbook for requirements on product submissions. 10 General requirements S 10.1 The tenure of a personal financing product shall not exceed 10 years. This requirement applies to all new and additional personal financing applications received from the effective date. The requirement also applies to the restructuring or rescheduling of existing personal financing facilities which involve an increase in the amount of financing. G 10.2 Paragraph 10.1 does not apply to existing personal financing products which are restructured or rescheduled based on the specific circumstances of a financial consumer (e.g. distressed borrower), provided that the restructuring or rescheduling does not involve an increase in the amount of financing. S 10.3 A FSP is prohibited from offering any form of pre-approved personal financing product. Personal financing shall only be granted upon receiving a financial consumer’s verbal or written acceptance of the offer and the FSP is satisfied based on affordability assessment, that the financial consumer has the capacity to repay. G 10.4 The prohibition in paragraph 10.3 does not extend to sending promotional materials or informing pre-selected financial consumers of new personal financing products. S 10.5 A FSP is prohibited from offering any personal financing product where the total or bulk of repayments, whether principal only or principal plus interest/profit, is due only at the end of the financing tenure and is to be repaid from the retirement funds of the financial consumer. Retirement funds include the Employees Provident Fund, pensions and gratuity payments. 11 Additional requirements on BNPL S 11.1 Prior to granting BNPL to a financial consumer, a FSP shall assess the financial consumer’s ability to make full repayment of the BNPL without resulting in undue financial hardship. At a minimum, the FSP must consider the financial consumer’s repayment history on existing credit facilities. Personal Financing 6 of 9 Issued on: 15 December 2023 S 11.2 For a financial consumer who does not have any credit repayment history, a FSP shall evaluate the financial consumer’s repayment history on other recurring payment obligations, such as utility or telecommunication bills. S 11.3 A FSP shall not offer a BNPL facility to financial consumers who have been declared bankrupt4. Affordability assessment S 11.4 For a financial consumer who has a cumulative BNPL credit limit5 of RM1,500 or above, a FSP is required to conduct an affordability assessment to ascertain the financial consumer’s ability to fully repay the new BNPL facility by observing a prudent debt service ratio (DSR) as specified in the Policy Document on Responsible Financing. G G 11.5 11.6 In ascertaining the cumulative BNPL credit limit of a financial consumer, a FSP may refer to the Central Credit Reference Information System (CCRIS) for BNPL granted by other CCRIS participating institutions. For BNPL granted by other providers not covered by CCRIS, the FSP may request the financial consumer to declare or may refer to other credit reporting agencies. G 11.7 Notwithstanding paragraph 11.4, a FSP may set a lower cumulative BNPL credit limit for determining when an affordability assessment is required. S 11.8 In carrying out the affordability assessment as required under paragraph 11.4, a FSP shall- (a) obtain and verify the financial consumer’s income; and (b) establish the financial consumer’s overall indebtedness by obtaining information on the consumer’s existing debt repayment obligations. Fees and charges S 11.9 In determining the late payment charge (LPC) and any other fees imposed on financial consumers, a FSP shall comply with the following, as the case may be- (a) Guidelines on Imposition of Fees and Charges on Financial Products and Services issued on 10 May 2012; 4 The restriction does not apply to financial consumers who have been discharged from bankruptcy. 5 This refers to the total credit limits on BNPL granted to a financial consumer by all BNPL providers, including the FSP. Personal Financing 7 of 9 Issued on: 15 December 2023 (b) Operational Procedures for Submission of Application for the Imposition of Fees and Charges on Financial Products and Services issued on 23 January 2017; and (c) Guidelines on Late Payment Charges for Islamic Financial Institutions issued on 31 January 2013. S 11.10 In accordance with paragraph 5.1 of the Guidelines on Imposition of Fees and Charges on Financial Products and Services, a FSP shall obtain the Bank’s approval prior to introducing any fees and charges on BNPL or increasing the current fees and charges on BNPL, including the LPC. S 11.11 A FSP shall ensure the LPC is imposed at an amount that only covers the actual costs6 incurred for recovering overdue instalments from financial consumers. In addition, a FSP must not set a minimum LPC. G 11.12 The LPC is not subject to the cap of 1% per annum under paragraph 5.9.1 of the Guidelines on Imposition of Fees and Charges on Financial Products and Services. For an Islamic BNPL, the LPC is not subject to the cap of 1% per annum as specified in paragraph 5.2.2.A (i) of the Guidelines on Late Payment Charges for Islamic Financial Institutions. S 11.13 A FSP shall observe the following principles and requirements to ensure that the LPC imposed on financial consumers is fair and reasonable- (a) the quantum of LPC shall not be excessive (i.e. disproportionate when compared to the actual costs incurred for recovering overdue instalments); (b) the LPC shall exclude costs that are not relevant to the recovery of overdue instalments, such as cost of funding, marketing and advertising costs, opportunity costs or any other operating costs not attributable to late payments by financial consumers; (c) any unpaid LPC shall not be added to the outstanding amount (i.e. there must not be any compounding when computing LPC for the next repayment cycle); and (d) the FSP shall not consider LPC as an additional source of income for BNPL facility. S 11.14 The basis for deriving the LPC shall be properly documented and supported with information relevant to the decision of a FSP. Such information shall be made available upon request by the Bank. S 11.15 At the point of offering BNPL to financial consumers, a FSP shall clearly inform the consumers about the imposition of LPC if they fail to make payment by the 6 This is consistent with the concept of ta’widh under the Guidelines on Late Payment Charges for Islamic Financial Institutions, whereby an Islamic financial institution shall be compensated up to the amount of actual cost incurred as a direct result of the delay in repayment by the customer. Personal Financing 8 of 9 Issued on: 15 December 2023 due date. The FSP shall also provide a simple illustration on when the LPC will be imposed and the LPC amount. S 11.16 A FSP shall send a reminder to financial consumers at least three calendar days before the payment due date. In the reminder, the FSP shall clearly state the amount due and that a LPC will be imposed if the payment is missed, including a simple illustration on when the LPC will be imposed and the LPC amount. G 11.17 The reminder specified in paragraph 11.16 may be made to financial consumers through the most effective communication channels such as short message service (SMS) or in-app notification. S 11.18 In the event a financial consumer has missed up to three payments for a purchase, a FSP shall suspend the consumer’s BNPL account from being further utilised for new transactions until the missed payments have been fully settled. In relation to paragraph 11.16, the reminder notification sent by the FSP must clearly state that the BNPL account will be suspended after a specified number of missed payments. G 11.19 For the avoidance of doubt, a FSP may suspend a financial consumer’s BNPL account from being further utilised even if the financial consumer has missed less than three payments for a purchase. Shariah requirements on Islamic BNPL S 11.20 A FSP that offers an Islamic BNPL facility shall ensure compliance with Shariah, including the compliance with applicable rulings of the Shariah Advisory Council (SAC) at all times. S 11.21 An Islamic BNPL facility shall be structured based on appropriate underlying Shariah contracts that are consistent with the business and operational models, product features and contractual terms of the Islamic BNPL facility. S 11.22 For Shariah-compliant products which involve the application of a new Shariah contract7, a FSP is required to seek the approval of the SAC. S 11.23 In addition to requirements in paragraphs 11.9 to 11.19, a FSP offering an Islamic BNPL facility shall seek the written approval of its Shariah Committee (SC) on the component of actual costs as ta’widh (compensation) for the LPC. S 11.24 A FSP offering an Islamic BNPL facility is allowed to recognise the LPC on judgement debt decided by the court as ta’widh (compensation) that is 7 Refers to a Shariah contract that has never been introduced in the Malaysian market and there is no current SAC resolution on such contract. Personal Financing 9 of 9 Issued on: 15 December 2023 equivalent to actual costs8. If the charge on judgement debt decided by the court is beyond the actual cost, the balance shall be channelled by the judgement creditor to a charitable organisation. The FSP shall seek the written approval of its SC prior to disbursing the balance to a charitable organisation. Merchant requirement S 11.25 A FSP shall ensure that merchants do not set BNPL as the default payment option for financial consumers. G 11.26 In complying with the requirement under paragraph 11.25, a FSP may consider stipulating the restriction in its Service Legal Agreement (SLA) with the merchants to ensure they fulfil their obligations in accordance with the SLA. In addition, the FSP may leverage on its existing complaint handling mechanism should there be any complaint on a breach of the requirement under paragraph 11.25 from financial consumers. Reporting requirement S 11.27 A FSP shall report both conventional and Islamic BNPL in CCRIS as a facility named "Buy Now Pay Later". 8 This paragraph shall be read together with the SAC resolutions on “Method of Late Payment Charge on Judgement Debt” at the SAC’s 50th meeting, 61st meeting and 100th meeting. Refer to paragraph 83 (page 133) of the Shariah Resolutions in Islamic Finance (Second Edition) issued on 26 October 2010.	null
06 Dis 2023	Senarai Amaran Pengguna Kewangan telah dikemaskini	https://www.bnm.gov.my/-/fca-update-231206-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/fca-update-231206-bm&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemaskini Share: 6 Senarai Amaran Pengguna Kewangan telah dikemaskini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1700 pada Rabu, 6 Disember 2023 6 Dis 2023 Bank telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan pentadbiran berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat berikut ditambahkan ke dalam senarai: ASNB Investment (tidak berkaitan dengan Amanah Saham Nasional Berhad) HSBC Bank Investment (tidak berkaitan dengan HSBC Bank Malaysia Berhad) Pelaburan Berdaya Millenium Capital Trading Top Syariah RaiseFX Raise Sea Trading Senarai akan dikemas kini secara berkala untuk rujukan orang ramai. Untuk melihat senarai yang dikemas kini, klik pada pautan ini: bnm.gov.my/fca Bank Negara Malaysia 6 Disember 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
30 Nov 2023	Bank Negara Malaysia Menambah Baik Penerbitan Sorotan dan Statistik Bulanan	https://www.bnm.gov.my/-/mhs-new-datasets-bm	https://www.bnm.gov.my/documents/20124/5915429/fsb3_bm_s3.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/mhs-new-datasets-bm&languageId=ms_MY	Reading: Bank Negara Malaysia Menambah Baik Penerbitan Sorotan dan Statistik Bulanan Share: Bank Negara Malaysia Menambah Baik Penerbitan Sorotan dan Statistik Bulanan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1530 pada Khamis, 30 November 2023 30 Nov 2023 Lapan set data baharu untuk Sorotan dan Statistik Bulanan Terma Penggunaan Baharu bagi set data BNM untuk menyokong inisiatif data terbuka Kerajaan Bank Negara Malaysia (BNM) hari ini menerbitkan lapan set data baharu serta metadata dalam penerbitan Sorotan Bulanan dan Statistik (Monthly Highlights and Statistics, MHS). Penambahbaikan ini merupakan susulan kepada kajian secara menyeluruh ke atas set data BNM yang diterbitkan. Langkah ini juga selaras dengan inisiatif pembangunan ekosistem data terbuka di bawah Pelan Sektor Kewangan 2022-2026 dan agenda data terbuka oleh Kerajaan. Matlamat utama kajian ini adalah untuk meningkatkan ketersediaan dan kebolehcapaian set data BNM untuk menyokong proses membuat keputusan berasaskan data. Matlamat lain adalah untuk membangunkan pemahaman baharu serta mengenal pasti peluang kolaboratif dan inovatif. Lapan Set Data Baharu Sebanyak lapan set data baharu (lihat jadual) dipilih berdasarkan rekod permintaan data terdahulu daripada pelbagai pihak bekepentingan. Maklum balas juga dikumpulkan menerusi maklum balas orang ramai melalui kajiselidik yang dibuat pada bulan Ogos 2022. BNM juga membuat penanda aras terhadap set data yang diterbitkan oleh bank-bank pusat lain. Bidang Set Data Ciri-ciri Pengembangan Data Tarikh Penerbitan Sektor Luaran 1. Sistem Perbankan: Kedudukan Rentas Sempadan berbanding dengan Bukan Pemastautin Mengikut Sektor dan Instrumen Rakan Niaga Pengasingan mengikut rakan niaga bukan pemastautin 30 November 2023 Insurans dan Takaful 2. Nisbah kecukupan modal suku tahunan Penerbitan setiap suku tahunan 3. Aset dan liabiliti suku tahunan syarikat insurans 4. Nisbah bendungan suku tahunan 5. Premium dan tuntutan suku tahunan Monetari dan Perbankan 6. Pinjaman isi rumah mengikut tujuan Pengasingan mengikut tujuan 7. Transaksi kad debit mengikut jenis transaksi Pengasingan mengikut jenis transaksi 8. Sistem Perbankan: Pinjaman/Pembiayaan Mengikut Lokasi Pengasingan mengikut negeri 30 Jun 2024 Sebagai tambahan kepada lapan set data baharu ini, BNM juga menerbitkan set data yang lebih terperinci untuk Jumlah Pinjaman/Pembiayaan Mengikut Piawaian Pelaporan Kewangan Malaysia 9 (Malaysian Financial Reporting Standards 9, MFRS9) dan Jumlah Peruntukan, dengan menambah pengasingan data mengikut dedahan klasifikasi. Pemerincian ini adalah selaras dengan amalan terbaik antarabangsa. Semua set data sudah tersedia pada hari ini kecuali set data Pinjaman/Pembiayaan Mengikut Lokasi yang akan diterbitkan pada suku kedua tahun 2024. Terma Penggunaan Baharu BNM juga memperkenalkan Terma Penggunaan (Terms of Use, TOU) baharu untuk set datanya yang membolehkan pengguna memanfaatkan data bagi tujuan komersial dan bukan komersial. TOU baharu ini terpakai untuk data yang penyusun utamanya ialah BNM. Sebelum ini, set data terikat dengan TOU umum untuk laman sesawang BNM yang membenarkan data digunakan untuk tujuan makluman sahaja. Bagi membolehkan BNM memberikan maklum balas yang lebih baik kepada permintaan data yang sedang berkembang, BNM akan terus meningkatkan ketersediaan dan akses orang ramai kepada set datanya. Hal ini dibuat melalui semakan berkala menerusi perbandingan dengan amalan terbaik antarabangsa serta sesi libat urus dengan pihak berkepentingan. Orang ramai boleh terus menghubungi BNMLINK menerusi borang web pada pautan bnmlink.bnm.gov.my atau talian 1-300-88-5465 untuk pertanyaan lanjut. Lihat juga: Terma Penggunaan Set Data BNM Sorotan dan Statistik Bulanan bagi bulan Oktober 2023Bank Negara Malaysia 30 November 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Memajukan pendigitalan dalam sektor kewangan - PSK 2022-2026 78 PELAN SEKTOR KEWANGAN 2022-2026 Teras Strategik 3 Memajukan pendigitalan dalam sektor kewangan Pendigitalan terus memberi implikasi yang meluas terhadap perkhidmatan kewangan. Pelanggan mengharapkan perkhidmatan yang lebih pantas, lebih lancar dan lebih khusus, dengan kesedaran yang semakin meningkat tentang kepentingan privasi dan keselamatan data. Model perniagaan digital juga semakin didorong oleh ekosistem, sama ada melalui platform atau rangkaian perkongsian. Di samping itu, landskap risiko juga sedang mengalami perubahan. Sempadan menjadi semakin kabur dengan rantaian yang baharu dan lebih kompleks dalam dan di luar sektor kewangan. Yang penting, industri kewangan Malaysia perlu memanfaatkan kelebihan pendigitalan disamping perlu mengurus risiko yang berkaitan, terutamanya risiko yang mungkin mengancam kestabilan seluruh sistem, keperluan pengguna dan keyakinan terhadap sektor kewangan. Bagi tujuan ini, Bank akan melaksanakan empat strategi utama (Gambar Rajah 1). Gambar Rajah 1: Memajukan pendigitalan dalam sektor kewangan Memperteguh infrastruktur digital utama untuk masa hadapan w Memanfaatkan infrastruktur kewangan utama untuk ekosistem digital Malaysia yang lebih meluas w Memajukan pembangunan ekosistem data terbuka yang sesuai dan adil untuk masa hadapan Menyokong landskap perkhidmatan kewangan digital yang lebih memberangsangkan w Mempermudah laluan ujian, skala dan keluar untuk inovasi digital w Menyokong strategi yang diterajui industri untuk penerapan pembayaran digital w Mengekalkan pengawasan yang berkesan ke atas model perniagaan digital Memperkukuh kesediaan dan tindak balas keselamatan siber w Memperkukuh pengawasan dan keupayaan keselamatan siber di seluruh sistem w Memperkukuh usaha kolaboratif keselamatan siber di dalam negeri dan di peringkat global Menyokong penggunaan teknologi yang lebih meluas bagi tujuan pengawalan dan penyeliaan w Memanfaatkan teknologi untuk mengukuhkan lagi pengawalan dan penyeliaan Bank terhadap industri kewangan w Memperteguh strategi data Bank untuk masa hadapan A B D C 79PELAN SEKTOR KEWANGAN 2022-2026 Strategi 3A Memperteguh infrastruktur digital utama untuk masa hadapan Ekonomi digital dibina berlandaskan gabungan infrastruktur teknologi (Gambar Rajah 2). Infrastruktur kewangan merupakan bahagian yang penting dalam gabungan infrastruktur ini. Contohnya, sistem pembayaran dan penyelesaian membolehkan kegiatan ekonomi harian isi rumah dan perniagaan dijalankan. Apabila lebih banyak transaksi dan data beralih ke sfera digital, maka akan wujud potensi dan risiko yang besar bersama-samanya. Gambar Rajah 2: Infrastruktur utama untuk ekonomi digital Strategi Bank bagi memperteguh infrastruktur kewangan utama untuk masa hadapan akan berteraskan pada beberapa hasil yang diingini. Pertama, infrastruktur ini perlu berdaya tahan, terutamanya untuk mewujudkan satu ekosistem yang selamat dan memelihara kesinambungan perkhidmatan yang penting dalam situasi mencabar. Kedua, infrastruktur ini hendaklah terangkum iaitu dirangka untuk menggalakkan keterbukaan dan saling kendali, mencerminkan profil pihak berkepentingan yang semakin pelbagai dalam landskap kewangan, tanpa menjejaskan keselamatan sistem. Ketiga, infrastruktur ini perlu disesuaikan dengan perkembangan baru muncul, termasuk teknologi dan model pengendalian baharu. Infrastruktur digital yang lebih luas, termasuk infrastruktur digital bukan kewangan, juga sama pentingnya untuk mencapai objektif pembangunan kewangan. Hasil yang serupa seperti daya tahan, keterangkuman dan kebolehsuaian juga perlu menjadi panduan kepada pembangunan infrastruktur ini. Ketersambungan dan identiti digital merupakan beberapa contoh utama yang menyokong inovasi yang lebih meluas dan penggunaan perkhidmatan kewangan digital. Infrastruktur ini juga akan menjadi penting bagi memanfaatkan platform digital yang baru muncul untuk meraih peluang yang besar bagi sektor kewangan dan ekonomi yang lebih luas. Bagi ekosistem data, Bank akan meningkatkan usaha yang boleh memberikan lebih manfaat kepada pengguna kewangan. Usaha ini termasuk menyediakan dasar dan perlindungan yang menyokong penggunaan data yang bertanggungjawab dan beretika, serta memudahkan inisiatif perkongsian data yang adil dan bersifat timbal balik dalam kalangan peserta ekosistem data Malaysia. Usaha ini akan diperkukuh melalui inisiatif kerjasama dengan Kerajaan bagi mempercepat pelaksanaan dan penambahbaikan infrastruktur yang lebih luas ini. Bagi tujuan ini, Bank akan: i. Memanfaatkan infrastruktur kewangan utama untuk ekosistem digital Malaysia yang lebih luas; dan ii. Memajukan pembangunan ekosistem data terbuka yang sesuai untuk masa hadapan. Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan Lapisan infrastruktur Komponen utama (contoh) w Perundangan dan pengawalan data w Mekanisme persetujuan w Piawaian application programming interface (API) w Sistem penjelasan dan penyelesaian (cth. dalam negeri, rentas sempadan) w Standard teknikal w Sistem identiti digital nasional w Internet w Peranti (cth. telefon pintar) Data Pembayaran Identiti Sambungan Secara kolektif, infrastruktur digital ini merupakan asas bagi kes penggunaan ekonomi digital (cth. perkongsian data, e-dagang) Kepentingan platform digital yang semakin meningkat (cth. pengguna- ke-niaga, niaga-ke-niaga, P2P) 80 PELAN SEKTOR KEWANGAN 2022-2026 Gambar Rajah 3: Objektif utama pelaksanaan modenisasi RENTAS n Bank bertujuan memperteguhkan sistem pembayaran Malaysia untuk masa hadapan terutamanya infrastruktur pembayaran masa nyata, termasuk sistem penyelesaian kasar masa nyata dan sistem pembayaran runcit, dengan tumpuan terhadap tiga bidang. o Usaha pemodenan berbilang tahun untuk Sistem Pemindahan Dana dan Sekuriti Secara Elektronik Masa Nyata (Real-Time Electronic Transfer of Funds and Securities System, RENTAS). Sebagai sebahagian daripada usaha ini, Bank akan mengkaji semula model akses RENTAS untuk menampung penyertaan yang lebih pelbagai termasuk penyertaan penyedia perkhidmatan pembayaran (payment service provider, PSP) bukan bank, tanpa menjejaskan Bank akan mengkaji semula model akses RENTAS untuk menampung penyertaan yang lebih pelbagai, termasuk penyertaan penyedia perkhidmatan pembayaran bukan bank Memperkukuh daya tahan w Mengkaji semula infrastruktur sistem secara holistik, termasuk untuk mengukuhkan perlindungan daripada ancaman siber dan menyediakan infrastruktur yang fleksibel untuk memenuhi keperluan masa hapadan Menggalakkan kesalingkendalian dan kecekapan w Menggalakkan penjajaran dengan standard antarabangsa (cth. penerapan Pertubuhan Perniawaian Antarabangsa (International Organisation for Standardisation, ISO) 20022 di seluruh industri menjelang pertengahan tahun 2024, melalui pendekatan secara berperingkat) Membolehkan persaingan dan inovasi w Menilai semula model akses RENTAS bagi memenuhi pengaturan penyertaan yang lebih pelbagai w Mengkaji kemungkinan penggunaan mata wang digital bank pusat (CBDC) dan teknologi lejar teragih (DLT) untuk RENTAS Mempertingkatkan fungsi pengguna w Memudahkan pelaporan masa nyata dan keupayaan pemantauan yang dipertingkat serta membangunkan alat yang lebih baik untuk membuat analisis di bawah RENTAS iLINK* w Mengkaji penggunaan antara muka API bagi menggantikan saluran akses sedia ada untuk RENTAS * *RENTAS iLINK adalah sistem berasaskan web dalam RENTAS yang menyediakan maklumat masa nyata kepada peserta seperti kedudukan wang tunai, pemegangan sekuriti dan status penyelesaian. i Memanfaatkan infrastruktur kewangan utama untuk ekosistem digital Malaysia yang lebih luas daya tahan operasi dan daya tahan siber RENTAS. Selain menjadikan persaingan lebih adil antara bank dengan PSP bukan bank, usaha ini akan memperluas julat transaksi yang diselesaikan melalui wang bank pusat dan seterusnya berpotensi mengurangkan risiko penyelesaian dalam ekosistem. Usaha pemodenan juga akan merangkumi inisiatif untuk mengukuhkan pengurusan risiko dari mula ke akhir dalam RENTAS, menggalakkan saling kendali dan meningkatkan kecekapan, membantu persaingan dan inovasi, serta menambah baik kefungsian pengguna (lihat Gambar Rajah 3 untuk ringkasan). o Membolehkan infrastruktur pembayaran dikongsi bersama dalam ekosistem pembayaran Malaysia, termasuk RPP. Infrastruktur ini membolehkan peserta industri mengumpulkan sumber dan berkongsi kos, sambil bersaing pada peringkat produk untuk memberi perkhidmatan yang lebih baik kepada pengguna akhir, seperti pengguna dan peniaga. Usaha penting yang menjadi keutamaan adalah untuk memelihara dan memastikan pelaksanaan 81PELAN SEKTOR KEWANGAN 2022-2026 rejim akses terbuka dan akses berasaskan risiko yang berkesan untuk bank dan PSP bukan bank, sama ada melalui rejim penyertaan langsung atau tidak langsung1. Antara bidang-bidang tumpuan yang lain termasuk memudahkan penerapan standard teknikal yang lazim (contohnya ISO 20022, DuitNow QR) dan meneroka peluang untuk memanfaatkan infrastruktur pembayaran yang dikongsi bersama bagi lebih banyak kes penggunaan (contohnya bayaran kebajikan, bayaran balik cukai, analisis penipuan, pembiayaan perdagangan). o Mempergiat usaha untuk menambah baik kecekapan pembayaran rentas sempadan. Bank akan bekerjasama dengan peserta industri untuk menangani cabaran yang berkaitan dengan pembayaran rentas sempadan, seperti kos yang tinggi, kelajuan yang rendah, akses yang terhad dan ketelusan yang tidak mencukupi. Hal ini termasuk usaha menghubungkan RPP dengan sistem pembayaran masa nyata lain di rantau Association of Southeast Asian Nations (ASEAN) dan negara-negara lain, dengan memberikan tumpuan pada negara yang mempunyai hubungan ekonomi yang kukuh dengan Malaysia. Bank akan membangunkan jalinan pembayaran QR yang telah diwujudkan baru-baru ini dengan Thailand dan Indonesia, di samping usaha yang berterusan dengan Singapura dan Filipina. Usaha-usaha ini bermatlamat untuk meluaskan skop kes penggunaan kepada pemindahan dana P2P serta mewujudkan jalinan yang serupa dengan negara-negara lain di dalam dan luar rantau ini. Selain rantau ini, Bank juga sedang mengusahakan pembuktian konsep (proof-of-concept, POC) dengan Bank for 1 Rejim penyertaan tidak langsung bermaksud pergantungan penyedia perkhidmatan pembayaran bukan bank kepada pengantara (juga dikenali sebagai 'institusi penaja') untuk menyertai rangkaian infrastruktur pembayaran yang dikongsi bersama secara tidak langsung. Sesetengah PSP mungkin lebih suka rejim penyertaan tidak langsung disebabkan keperluan komersial atau operasi tertentu. International Settlements (BIS) Innovation Hub dan rakan kongsi lain dalam Projek Nexus untuk membangunkan model berbilang hala dan berskala. Projek ini bertujuan menghubungkan semua sistem pembayaran masa nyata secara global bagi memudahkan pembayaran rentas sempadan yang pantas dan lancar. Sebagai tambahan pada jalinan pembayaran masa nyata, Bank akan meneroka inovasi pembayaran yang baharu bagi pembayaran rentas sempadan, seperti penggunaan pengaturan berbilang CBDC. Tidak seperti pengaturan perbankan koresponden sedia ada, penggunaan CBDC boleh memendekkan rantaian transaksi dan membebaskan mudah tunai yang 'terperangkap' dalam akaun perbankan koresponden, sekali gus menghasilkan pembayaran rentas sempadan yang lebih pantas dan murah. Bank akan memulakan inisiatif kerjasama dalam pengaturan tersebut, termasuk memanfaatkan dapatan daripada penyertaan dalam Projek Dunbar. Dalam hal ini, Bank telah bekerjasama dengan BIS Innovation Hub dan bank-bank pusat lain, iaitu Reserve Bank of Australia, Monetary Authority of Singapore dan South African Reserve Bank untuk menguji penggunaan CBDC berbilang dan DLT bagi penyelesaian rentas sempadan. n Bank akan mempergiat penyelidikan dan ujian mengenai penggunaan mata wang digital bank pusat untuk infrastruktur monetari dan kewangan Malaysia. Tumpuan awal akan diberikan pada pembayaran borong sebagai sebahagian daripada usaha gerak balas yang lebih luas terhadap perkembangan mata wang digital (rujuk rencana “Mata wang digital: Sempadan baharu”). Infrastruktur digital lazim pada peringkat negara penting untuk memudahkan pendigitalan rantaian nilai dari mula ke akhir Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan 82 PELAN SEKTOR KEWANGAN 2022-2026 Rejim data yang dipercayai dan lebih terbuka adalah penting untuk membolehkan penciptaan inovasi yang dipacu oleh data n Pelaksanaan perkhidmatan kewangan digital yang berkesan juga bergantung pada ketersediaan infrastruktur digital lazim bukan kewangan yang menyokong semua sektor ekonomi. Bagi tujuan ini, terdapat tiga bidang utama yang akan terus dilaksanakan oleh Bank dengan kerjasama Kerajaan dan agensi yang berkaitan: o Pembentukan identiti digital nasional, yang memerlukan kerjasama terselaras antara pelbagai agensi kerajaan dengan sektor swasta. Bank akan terus menyokong pelaksanaan yang cepat dan berkesan bagi memenuhi keperluan sedia ada dan akan datang (terutamanya berkaitan dengan pilihan teknologi untuk pengesahan). n Bank akan terus menyokong usaha membangunkan standard lazim untuk perkongsian data dalam sektor kewangan, terutamanya bagi kes penggunaan berimpak tinggi. Bagi tujuan ini, Bank berhasrat untuk menumpukan usaha-usaha pada kes penggunaan yang: o Menggalakkan rangkuman kewangan yang lebih meluas. Hal ini termasuk memudahkan pengaturan perkongsian data baharu, seperti pengguna “thin file”, iaitu mereka yang mempunyai sedikit atau tiada sejarah kredit, bagi membolehkan model pemarkahan kredit alternatif dibangunkan. Model ini bertujuan untuk menggunakan pelbagai bentuk data alternatif seperti data pembayaran atau utiliti, yang boleh membantu meningkatkan penilaian kepercayaan kredit. o Menyokong pengguna untuk membuat keputusan kewangan yang lebih baik berdasarkan maklumat yang mencukupi, o Pembaharuan dalam aspek perundangan dan kawal selia bagi memudahkan pendigitalan proses perniagaan dari mula ke akhir, seperti penggunaan tandatangan digital dan elektronik oleh sektor swasta dan sektor awam. o Kepantasan, kualiti dan kemampuan memiliki sambungan internet di seluruh negara dan merentas segmen masyarakat. Hal ini seterusnya akan memudahkan kebolehcapaian dan penggunaan perkhidmatan kewangan digital yang lebih besar, terutamanya dalam kalangan segmen yang kurang mendapat perkhidmatan kewangan dan segmen yang tidak mendapat perkhidmatan kewangan, serta mereka yang tinggal di kawasan luar bandar. seperti melalui perancangan kewangan. Hal ini termasuk penyelesaian pengurusan kewangan peribadi, menyediakan maklumat yang lebih berkualiti kepada pengguna dan mendorong pengguna ke arah tingkah laku kewangan yang lebih baik (seperti menggalakkan tabiat baik berhubung dengan tabungan dan pelaburan). Dalam kes penggunaan khusus yang telah dikenal pasti oleh industri, Bank akan bekerjasama rapat dengan pihak berkepentingan yang berkaitan dalam pembangunan standard data lazim dan pengaturan perkongsian data yang sesuai. Hal ini bertujuan untuk memberikan panduan tentang dasar dan pengawalan, yang mana sesuai. Pendekatan yang diterajui pasaran secara amnya akan lebih diutamakan bagi menyediakan ruang yang mencukupi kepada peserta industri untuk melakukan ujian dan pengulangan, sebelum menetapkan standard yang sesuai dengan tujuan (fit-for-purpose). Walau bagaimanapun, Bank mungkin mempertimbang untuk mewujudkan ii Melaksanakan pembangunan ekosistem data terbuka yang sesuai untuk masa hadapan 83PELAN SEKTOR KEWANGAN 2022-2026 Gambar Rajah 4: Pendigitalan - pengubah pengalaman tuntutan motor pengguna mandat bagi mempercepat kemajuan, sekiranya perlu. Hal ini bagi memenuhi kepentingan orang ramai yang lebih luas selaras dengan objektif pengawalseliaan Bank. n Bank akan menyokong usaha untuk mewujudkan infrastruktur data yang dikongsi bersama untuk sektor kewangan dan rantaian nilainya yang lebih luas. Hal ini termasuk platform digital baru muncul yang membolehkan sambungan yang lebih lancar dan cekap dalam kalangan pengguna yang pelbagai. Seperti infrastruktur digital utama yang lain, keutamaan penting Bank adalah untuk menggalakkan penerapan prinsip reka bentuk terbuka dan saling boleh kendali. Antara infrastruktur ini termasuk infrastruktur pembiayaan perdagangan (contohnya untuk mengesan invois pendua), pertukaran data tuntutan perubatan (contohnya untuk kos prosedur perubatan biasa) yang boleh diakses oleh peserta industri, serta sistem moden yang membolehkan pengalaman digital dari mula ke akhir untuk tuntutan motor. Bagi perkhidmatan insurans dan takaful khususnya, pendigitalan merupakan titik peralihan penting yang akan membawa perkhidmatan semasa ke tahap yang lebih tinggi. Hal ini terutamanya untuk mencipta pengalaman yang lancar bagi pengguna yang membuat tuntutan motor, serta menangani kerumitan yang sedia ada dalam proses tersebut. Bagi tujuan ini, Bank akan mempergiat usaha Sebelum dan semasa perjalanan Peranti memberikan maklumat penting secara masa nyata Sepanjang perjalanan, sensor kereta akan memantau tabiat pemanduan, memberikan amaran dan membuat tindakan pembetulan bagi mencegah kemalangan Apabila berlaku kemalangan Peranti menyampaikan maklumat kepada penanggung insurans atau pengendali takaful Peranti memberikan panduan mengenai langkah seterusnya Butiran kemalangan dirakam Berbilang sistem menilai kerosakan dan menentukan liabilitiProses tuntutan bermula tanpa perlu didahului oleh pemandu Kombinasi pelaburan yang tepat dalam automasi, analisis lanjutan, IoT, API terbuka dan AI Proses yang bersepadu, telus dan lancar Pengguna diberikan pilihan kerja baik pulih untuk membuka laluan kepada penanggung insurans dan pengendali takaful melaksanakan usaha transformasi digital yang akan menghasilkan proses yang lebih bersepadu, telus dan lancar (lihat Gambar Rajah 4 untuk matlamat yang dihasratkan bagi ekosistem motor). Hal ini termasuk mewujudkan dan menambah baik infrastruktur sedia ada untuk menyokong penggunaan teknologi digital dalam proses tuntutan. Infrastruktur ini merupakan prasyarat yang diperlukan untuk liberasasi tarif motor yang sepenuhnya. n Bank akan terus mengkaji semula rangka kerja tadbir urus data untuk sektor kewangan, seiring dengan perkembangan undang-undang dan aplikasi teknologi bagi memastikan perlindungan dan layanan yang adil terhadap pengguna kewangan. Kajian semula ini termasuk potensi penambahbaikan pada mekanisme persetujuan pelanggan dan keperluan mengenai penggunaan data yang beretika dan bertanggungjawab. Hal ini merupakan elemen utama dalam pembentukan rejim data yang dipercayai. Bank menghendaki FSP untuk mengumpul, memproses dan berkongsi data peribadi pengguna dengan cara yang sah dan selamat supaya individu mengetahui cara data mereka akan digunakan dan memberikan persetujuan untuk penggunaan data tersebut. Data juga hendaklah digunakan dengan cara yang tidak mengakibatkan layanan tidak adil terhadap pengguna. Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan Memajukan pendigitalan dalam sektor kewangan Kereta dibaiki seperti keadaan sebelum kemalangan dan tuntutan dibayar Kemas kini daripada peranti secara masa nyata mengenai kerja baik pulih Perkhidmatan kereta sementara dan perkhidmatan kereta tunda diatur dalam tempoh yang singkat 84 PELAN SEKTOR KEWANGAN 2022-2026 Strategi 3B Menyokong landskap perkhidmatan kewangan digital yang lebih memberangsangkan Perubahan teknologi yang berlaku pada kadar yang belum pernah dicatatkan sejak beberapa tahun kebelakangan telah membolehkan penggunaan aplikasi baharu dalam perkhidmatan kewangan. Pandemik telah mempercepat perubahan ini, didorong oleh pelanggan yang memilih untuk mengakses saluran kurang hubungan secara langsung (low-touch) atau saluran digital sepenuhnya, sekali gus membentuk tingkah laku norma bagi perkhidmatan kewangan. Teknologi baharu boleh membentuk semula landskap ini, dengan memperluas sempadan keupayaan perkhidmatan kewangan dari segi teknikal dan operasi. Tumpuan perlu diberikan kepada usaha untuk bergerak seiring dan bertindak balas secara berkesan terhadap teknologi. Dalam hal ini, strategi Bank adalah untuk memberikan tumpuan terhadap usaha memupuk persekitaran yang menyokong inovasi, sambil memelihara kestabilan sistem kewangan yang lebih meluas. Bank juga akan mengutamakan pengukuhan pengaturan institusi untuk memudahkan kerjasama yang lebih erat dalam kalangan peserta industri, pengawal selia dan agensi-agensi lain. Bagi mencapai matlamat ini, Bank akan melaksanakan perkara-perkara yang berikut: i. Mempermudah laluan ujian, skala dan keluar untuk inovasi digital; ii. Menyokong strategi yang diterajui industri untuk penerapan pembayaran digital; dan iii. Mengekalkan pengawasan yang berkesan ke atas model perniagaan digital. n Selain industri kewangan, Bank akan terus bekerjasama dengan peserta industri dan pihak berkepentingan lain bagi membolehkan pengaturan yang lebih luas untuk perkongsian data yang lebih terbuka dan selamat, dengan menumpukan pada tiga keutamaan: o Meningkatkan kebolehcapaian kepada data awam di bawah inisiatif-inisiatif data terbuka Kerajaan. Inisiatif-inisiatif ini, contohnya platform Data Terbuka Unit Pemodenan Tadbiran dan Perancangan Pengurusan Malaysia (Malaysian Administrative Modernisation and Management Planning Unit, MAMPU), memberikan potensi kepada pelbagai pihak berkepentingan, termasuk sektor kewangan, untuk memanfaatkan set data yang berada di bawah agensi-agensi lain. Hal ini membolehkan pihak berkepentingan mewujudkan inovasi yang didorong data supaya dapat memberikan perkhidmatan yang lebih baik kepada orang ramai. Bagi menjadikan perkongsian data lebih lancar, semua pembaharuan utama yang dibincangkan dalam dokumen dasar perdana (contohnya RMK12, MyDigital) perlu diselaraskan dan pendekatan seragam untuk tadbir urus data dibangunkan. Hal ini seterusnya akan menyediakan asas yang diperlukan untuk menerima pakai standard dan format saling boleh kendali merentas sektor. o Menyokong usaha negara membangunkan rangka kerja undang-undang perlindungan data. Bank akan melaksanakan usaha ini khususnya melalui keahlian Bank dalam jawatankuasa peringkat kebangsaan. Bank juga akan bekerjasama dengan agensi-agensi kerajaan berhubung dengan undang-undang dan dasar utama, seperti merangka NDSP dan pindaan Akta Perlindungan Data Peribadi 2010 (Personal Data Protection Act 2010, PDPA). Pelaksanaan PDPA yang dipinda dan NDSP akan mengukuhkan keyakinan dan kepercayaan pengguna data bagi menyokong perkongsian data yang lebih meluas dalam ekonomi digital secara keseluruhan. o Menyokong inisiatif perkongsian data peringkat serantau. Bagi tujuan ini, Bank akan terus bekerjasama dengan agensi- agensi kerajaan dan peserta industri untuk melaksanakan amalan terbaik berhubung dengan aliran data rentas sempadan, yang sejajar dengan standard dan dasar global. Bidang tumpuan utama termasuk menangani penipuan dan pengubahan wang haram rentas sempadan, menyokong amalan pengurusan risiko institusi kewangan yang aktif pada peringkat antarabangsa serta menggalakkan aktiviti perdagangan termasuk dalam rantau ASEAN. 85PELAN SEKTOR KEWANGAN 2022-2026 n Bank akan meningkatkan mekanisme ujian untuk inovasi kewangan melalui dua cara utama. Pertama, Bank akan mengemas kini Sandbox Pengawalseliaan (Regulatory Sandbox). Sandbox telah memainkan peranan penting dalam memajukan inovasi digital setakat ini, dengan membuka laluan untuk kes-kes penggunaan penting seperti e-Kenali Pelanggan Anda (electronic Know- Your-Customer, e-KYC), dan model perniagaan baharu seperti penanggung insurans digital, takaful keluarga P2P dan pengiriman wang digital. Sandbox akan terus menyokong peserta industri untuk membawa inovasi kewangan dengan selamat ke pasaran, merentas peringkat kitaran inovasi yang berbeza. Penambahbaikan pada masa hadapan akan meletakkan sasaran untuk mempercepat ujian tempoh sedia untuk digunakan (time-to-live testing) dalam Sandbox. Bagi penyelesaian inovatif pada peringkat akhir atau peringkat yang lebih lanjut, penambahbaikan ini mungkin termasuk laluan yang dipercepat untuk aktiviti berisiko lebih rendah atau parameter ujian yang dipermudah bagi peserta yang dapat menunjukkan amalan tadbir urus dan pengurusan risiko yang mantap. Khususnya, bagi institusi kewangan yang sudah berada di bawah pengawalseliaan Bank, Bank akan memudahkan dan mengurangkan proses pengawalan akses Sandbox untuk menguji cadangan nilai baharu dan menangani implikasi pengawalseliaan. Usaha ini bertujuan membolehkan institusi kewangan menguji inovasi mereka dengan lebih cepat dan fleksibel, di samping dilengkapi parameter ujian berasaskan prinsip. Berdasarkan pengalaman Bank dengan laluan ujian e-KYC khusus, Bank juga akan mempertimbangkan laluan dipercepat yang serupa untuk kes penggunaan lain yang berkaitan. Usaha ini akan merangkumi aktiviti berisiko rendah atau boleh diurus dalam sempadan yang standard dan ditentukan lebih awal, atau apabila pembangunan dasar yang berkaitan sedang dijalankan. Aktiviti sedemikian termasuk aktiviti pengagregatan insurans dan takaful. Kedua, Bank akan melaksanakan mekanisme ‘rintis secara kolaboratif’ untuk bidang-bidang yang memerlukan transformasi digital pada peringkat industri atau kebangsaan. Hal ini relevan untuk inovasi kewangan yang melibatkan pelbagai pihak berkepentingan. Ujian dan pengulangan merentas rantaian nilai diperlukan bagi membuka laluan ke arah model dan pengaturan perniagaan yang berdaya maju untuk industri. Hal ini termasuk usaha untuk mewujudkan utiliti atau platform yang dikongsi bersama, menggalakkan standard lazim, atau merintis kes-kes penggunaan baharu untuk industri. Sebelum ini, Bank telah menggunakan pendekatan kolaboratif untuk menggalakkan penggunaan standard API terbuka lazim dan membangunkan Projek Spyder2, iaitu penyelesaian kewangan perdagangan berasaskan DLT. Di samping meneruskan usaha sedemikian, Bank juga akan melaksanakan inisiatif ke arah mewujudkan infrastruktur digital yang dikongsi bersama untuk penyelesaian insurans dan takaful, seperti yang dinyatakan dalam Strategi 3A(ii) dalam bab ini. Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan i Mempertingkat laluan ujian, skala dan keluar untuk inovasi digital Bank komited untuk menyokong peserta digital yang boleh menangani keperluan yang tidak dapat dipenuhi, termasuk melalui ekosistem digital 2 Projek Spyder merupakan pembuktian konsep (proof-of-concept) yang dibangunkan pada tahun 2019 antara Bank dengan konsortium industri bank- bank Malaysia terkemuka untuk mengesan pembiayaan invois berganda dan untuk membolehkan perkongsian antara bank mengenai maklumat invois dengan cara yang selamat. Fasa ujian Projek Spyder telah dimuktamadkan pada bulan November 2019, di mana lebih 1,700 invois berganda dikesan daripada lebih 290,000 invois yang dihantar oleh bank-bank peserta. 86 PELAN SEKTOR KEWANGAN 2022-2026 n Bank akan menyokong pendigitalan model perniagaan dalam perkhidmatan kewangan secara lebih tersebar, iaitu memberikan keutamaan kepada perniagaan yang boleh meluaskan lagi rangkuman kewangan. Hal ini bagi memenuhi keperluan golongan yang tidak mendapat perkhidmatan kewangan dan golongan yang kurang mendapat perkhidmatan kewangan (lihat bab “Meningkatkan kesejahteraan kewangan isi rumah dan perniagaan”). Keutamaan akan diberikan kepada pelaksanaan rangka kerja perbankan digital yang lancar. Bank komited untuk memastikan persekitaran dasar kekal relevan untuk bank digital dan bank sedia ada terus mengembangkan model perniagaan mereka (contohnya melalui usaha sama yang lebih erat dengan FSP yang lain atau pihak ketiga) bagi mewujudkan ekosistem yang boleh menangani dengan lebih baik segmen yang kurang mendapat perkhidmatan kewangan dan tidak mendapat perkhidmatan kewangan, tanpa menjejaskan kestabilan seluruh sistem dan hasil yang berkaitan dengan pengguna. Pertimbangan utama adalah untuk memupuk persekitaran pengawalseliaan yang sesuai bagi semua peserta yang terlibat dalam perkhidmatan perbankan, sama ada melalui saluran tradisional atau digital, selaras dengan prinsip pariti, kesetaraan dan keneutralan (rujuk Strategi 3B (iii) dalam bab ini). Di samping itu, Bank akan memuktamadkan rangka kerja pengawalseliaan bagi penanggung insurans digital dan pengendali takaful digital pada tahun 2022, dengan tujuan untuk mempertingkatkan kedinamikan sektor ini secara n Berdasarkan trajektori landskap perkhidmatan pembayaran runcit Malaysia, Bank akan melaksanakan pendekatan yang diterajui industri untuk pembangunan pembayaran digital. Tahap penggunaan pembayaran digital telah meningkat dengan ketara di Malaysia dan menjadi semakin pantas disebabkan oleh pandemik baru-baru ini. Meskipun usaha pengawalseliaan sepanjang dekad yang lalu telah membantu mempercepat kemajuan yang dicapai setakat ini, industri pembayaran runcit juga telah menjadi semakin matang. Sejak beberapa tahun kebelakangan ini, Bank telah menyaksikan persaingan dalam industri semakin meningkat, terutamanya dengan kemasukan peserta baharu. Hal ini menyebabkan perkhidmatan kepada peniaga, termasuk PKS, menjadi lebih murah dan lebih inovatif. Teknologi baharu yang melibatkan pengguna secara langsung (consumer-facing technologies), seperti teknologi biometrik dan peranti boleh pakai, juga telah menjadikan pembayaran digital lebih mudah. Berlatarkan perkembangan ini, Bank berharap industri akan berusaha mengekalkan momentum penggunaan pembayaran digital, di samping Bank memainkan peranan untuk terus menyokong perkembangannya. signifikan. Pada tahun 2023, Bank berhasrat untuk memberikan lesen kepada peserta digital baharu yang boleh memanfaatkan teknologi untuk melaksanakan tawaran nilai dalam tiga aspek. Pertama, aspek rangkuman, iaitu untuk meningkatkan daya tahan kewangan pelanggan yang tidak mendapat perlindungan yang mencukupi. Kedua, aspek persaingan, iaitu untuk mengubah struktur pasaran insurans/takaful sedia ada melalui penyelesaian yang inovatif. Ketiga, aspek kecekapan, iaitu untuk memberikan pengalaman dan perlindungan pengguna yang lebih lancar pada kos yang lebih rendah. n Bank akan terus mendorong dan menyokong potensi pertumbuhan ekosistem fintech Malaysia yang lebih meluas. Sebagai tambahan kepada infrastruktur digital yang lebih meluas (rujuk Strategi 3A dalam bab ini), Bank juga berhasrat untuk menyepadukan rangka kerja Bank, contohnya Sandbox, secara lancar dengan inisiatif lain pada peringkat industri dan kebangsaan. Usaha ini bertujuan untuk meluaskan rangkaian dengan pihak berkepentingan utama, yang dapat menghubungkan syarikat permulaan fintech kepada rangkaian kemudahan sokongan yang komprehensif, bermula daripada sumber pembangunan keupayaan sehingga peluang mengakses pasaran. Usaha ini akan dibangunkan berdasarkan pelbagai inisiatif sedia ada, termasuk inisiatif di bawah Malaysia Digital Economy Corporation (MDEC) dan Malaysian Research Accelerator for Technology and Innovation (MRANTI) yang baru ditubuhkan. ii Menyokong strategi yang diterajui industri untuk penerapan pembayaran digital 87PELAN SEKTOR KEWANGAN 2022-2026 Bank akan terus memberikan keutamaan untuk memelihara dan mengukuhkan lagi keyakinan terhadap pembayaran digital o Memandangkan ekonomi Malaysia secara amnya menggunakan lebih banyak teknologi digital, pentingnya fungsi pengendali sistem pembayaran (payment system operators, PSO) seperti Payments Network Malaysia Sdn. Bhd. (PayNet), Visa dan Mastercard kepada kestabilan seluruh sistem juga akan meningkat seiring dengan perkembangan minat dari sektor perniagaan untuk menjadi PSO di Malaysia. Sehubungan dengan itu, Bank akan memajukan pengawalseliaan ke atas PSO. Tindakan ini akan memberikan pencerahan dan menyelaraskan kehendak dalam bidang-bidang seperti tadbir urus, pengurusan risiko, daya tahan operasi dan ketelusan. o Bank juga akan mengkaji semula dasar pengawalseliaan pembayaran digital yang sedia ada bagi memastikan dasar itu kekal relevan. Antara dasar tersebut ialah Rangka Kerja Dana Insentif untuk e-Pembayaran (e-Payment Incentive Fund Framework, ePIF), Rangka Kerja Pembaharuan Kad Pembayaran (Payment Card Reform Framework, PCRF) dan Rangka Kerja Pemindahan Kredit Saling Boleh Kendali (Interoperable Credit Transfer Framework, ICTF). o Usaha juga akan dilakukan untuk membuka laluan bagi kepimpinan industri dan kedinamikan pasaran yang lebih besar berkaitan dengan pemegangan saham dalam PayNet. Selaras dengan peranan PayNet sebagai pengendali infrastruktur pembayaran perkongsian, komposisi pemegangan sahamnya akan dipertingkatkan lagi untuk lebih mencerminkan kepelbagaian yang semakin meningkat dalam landskap pembayaran Malaysia. Seiring dengan perubahan ini, Bank akan melupuskan sahamnya dalam PayNet secara beransur-ansur mengikut peredaran masa. n Bank menyokong aspirasi negara yang lebih luas untuk pembayaran digital di bawah MyDigital. Bank menjangkakan komitmen daripada agensi persekutuan dan negeri untuk menerapkan bayaran tanpa tunai akan memainkan peranan penting bagi mewujudkan peralihan tingkah laku ke arah penerimaan pembayaran digital yang lebih meluas. Bank komited untuk menyokong aspirasi negara ini dan akan memperhebatkan strategi Bank untuk memupuk kesedaran bagi mencapai matlamat tersebut. Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan 88 PELAN SEKTOR KEWANGAN 2022-2026 n Bank akan terus memperhalus dan menyesuaikan dasar sektor kewangan terhadap model perniagaan digital bagi memastikan risiko diuruskan dengan berkesan. Inovasi digital sentiasa berkembang, dibentuk oleh perubahan teknologi dan kejayaan besar sektor perniagaan. Dalam mengawasi landskap sedemikian, Bank akan berpandukan pada satu set pertimbangan utama untuk menentukan cara Bank mengawal selia perkhidmatan kewangan digital (Gambar Rajah 5): o Bank meletakkan sasaran untuk memelihara pariti (parity), keserataan (proportionality), dan keneutralan (neutrality). Kenyataan ini bermakna jenis risiko yang sama akan dikawal dengan cara yang sama (‘pariti’) tetapi dengan kerapian dan keamatan yang disesuaikan dengan tahap risiko (‘keserataan’). Bagi melaksanakan pengawalan berasaskan keserataan, Bank akan mempertimbangkan ciri-ciri risiko serta kepentingan orang ramai. Sebagai contoh, dalam bidang keselamatan siber, terutamanya yang berkaitan dengan Gambar Rajah 5: Pendekatan Bank dalam mengawal selia inovasi Prinsip menyeluruh bagi memupuk medan operasi yang sama … Kesetaraan Jenis risiko yang sama, jenis peraturan yang sama Perkadaran Keteguhan peraturan dan penyeliaan bergantung pada tahap risiko Keneutralan Agnostik kepada teknologi, sistem dan pendekatan yang berlainan Menggabungkan pengawalan berasaskan aktiviti dan entiti … w Bagi risiko kurang rumit dan lebih terkawal Berasaskan aktiviti Berasaskan entiti w Apabila gabungan aktiviti menyebabkan risiko yang lebih rumit dan berkemungkinan menjadi sistemik (cth. kesalinghubungan yang lebih tinggi dengan sistem kewangan) w Meningkatkan hasil pengguna yang kukuh (cth. penzahiran, mekanisme penyelesaian, privasi) w Mengurangkan arbitraj pengawalan Sebagai tambahan kepada hasil di bawah ‘berasaskan aktiviti’… w Memastikan pengambilan risiko secara berhemat, termasuk penampan dan had w Menangani risiko sistemik, termasuk keselamatan siber w Memudahkan pemulihan dan penyelesaian yang teratur w Mengurus saling pergantungan dengan persaingan … menerusi usaha kerjasama yang lebih giat atas pengaturan pengawasan aBekerjasama merentas sektor (cth. syarikat telekomunikasi, e-dagang) aMengelakkan perkara luar jangka dan timbang tara penyeliaan aPerkongsian maklumat untuk menyokong pengawasan dan intervensi yang tepat pada masanya iii Mengekalkan pengawasan yang berkesan terhadap model perniagaan digital 89PELAN SEKTOR KEWANGAN 2022-2026 3 Peraturan berasaskan aktiviti terdiri daripada keperluan yang perlu dipenuhi oleh mana-mana institusi yang menawarkan perkhidmatan tertentu (contohnya pemberian pinjaman, perkhidmatan pembayaran). Peraturan berasaskan entiti terdiri daripada keperluan yang dikenakan ke atas institusi yang mempunyai lesen atau piagam tertentu, seterusnya menetapkan aktiviti yang dibenarkan untuk entiti tersebut. perkhidmatan kewangan yang penting, kerapian dalam keperluan pengawalan yang sama mungkin digunakan untuk semua peserta bagi menangani risiko ‘pautan paling lemah’ dalam rantaian nilai kewangan, misalnya aktiviti- aktiviti yang dihubungkan antara satu sama lain merentas firma atau infrastruktur (rujuk Strategi 3C dalam Bab ini). Begitu juga, mekanisme bantuan penyelesaian pengguna yang universal bagi perkhidmatan kewangan akan terus dipelihara untuk semua pengguna kewangan, tanpa mengira saiz atau kompleksiti FSP. Bank bersikap neutral terhadap teknologi, sistem dan pendekatan yang berbeza-beza (‘keneutralan’). Walau bagaimanapun, Bank menghendaki peserta industri menunjukkan bahawa risiko yang berkaitan dengan teknologi atau inovasi tertentu dapat difahami dengan baik dan diurus dengan sejajarnya. Secara kolektif, Bank menjangkakan usaha ini akan memupuk medan operasi yang sama, sambil memastikan inovasi digital disokong oleh pengurusan risiko yang mantap. o Bank akan terus menerapkan gabungan pengawalan yang berasaskan aktiviti dan entiti3. Pendekatan berasaskan aktiviti semata- mata mungkin sesuai untuk keadaan yang membabitkan risiko yang lebih mudah dan agak terlindung. Yakni, pergeseran daripada situasi malang, seperti kegagalan perniagaan atau gangguan perkhidmatan sementara, tidak akan mempunyai kesan limpahan yang ketara terhadap sistem kewangan atau ekonomi. Bank akan menerapkan pengawalan berasaskan aktiviti dengan dua keutamaan penting. Pertama, memastikan perlindungan yang sewajarnya terhadap hasil berkaitan pengguna seperti melalui penzahiran yang jelas, serta mekanisme penyelesaian pertikaian dan bantuan penyelesaian. Kedua, menangani arbitraj pengawalseliaan supaya perniagaan yang berbeza tetapi menjalankan perkhidmatan yang sama akan tertakluk pada peraturan yang sama. Peraturan berasaskan entiti adalah sesuai untuk aktiviti-aktiviti tertentu apabila digabungkan sebagai sebahagian daripada model perniagaan, ia boleh menimbulkan profil risiko yang lebih kompleks serta kesalingbergantungan yang boleh menyebabkan gangguan besar kepada keseluruhan pasaran. Hal ini boleh wujud dalam model perniagaan yang menggabungkan pelbagai aktiviti berbeza yang dibangunkan dalam ekosistem atau platform sedia ada. Hal ini kadang kala digambarkan sebagai ‘kewangan tersirat’ (embedded finance). Dalam keadaan ini, entiti-entiti ini mungkin tertakluk pada kehendak kehematan yang menyeluruh termasuk yang berkaitan dengan tadbir urus, pengurusan risiko, keupayaan kewangan untuk menyerap kerugian serta penzahiran. Entiti yang menimbulkan risiko sistemik kepada sistem kewangan juga mungkin perlu merangka pelan pemulihan dan penyelesaian yang boleh melindungi perkhidmatan kewangan yang penting. Pelaksanaan pelesenan bank digital mencerminkan pendekatan berasaskan entiti, berdasarkan pada penilaian Bank terhadap risiko berkaitan perniagaan perbankan. Bank juga akan meningkatkan tumpuan pada rangka kerja kesinambungan perniagaan dan penyelesaian. Pasaran yang lebih kompetitif dan inovatif mungkin memerlukan penyelesaian bagi menangani lebih banyak keadaan yang tidak diketahui dan menghadapi perubahan yang lebih dinamik dalam landskap kewangan. Hal ini mungkin merangkumi kadar keluar masuk entiti yang lebih tinggi dalam industri perkhidmatan kewangan. Objektif Bank adalah untuk memastikan aktiviti perkhidmatan kewangan boleh dibubarkan secara teratur tanpa menjejaskan kestabilan seluruh sistem dengan teruk, sambil melindungi keperluan pengguna. Pada masa yang sama, Bank juga akan memberikan tumpuan pada usaha mengukuhkan kredibiliti rancangan kesinambungan perniagaan oleh institusi kewangan untuk memastikan mereka mengambil kira perubahan konfigurasi operasi dengan secukupnya serta kesalingbergantungan dengan pihak ketiga dan infrastruktur perkongsian bersama yang kian meningkat. Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan 90 PELAN SEKTOR KEWANGAN 2022-2026 o Bank akan terus membangunkan dan memperhalus garis panduan kawal selia Bank yang berkaitan dengan pendorong digital yang penting, seperti penggunaan awan (cloud), AI serta ML. Ini bertujuan untuk menyelaraskan dengan lebih baik jangkaan di kalangan peserta industri bagi memastikan pengurusan risiko yang kukuh serta layanan yang adil terhadap pengguna. Bank juga akan menangani pengawalseliaan atau ketidakcekapan yang tidak wajar, sekiranya ada, termasuk proses penyeliaan Bank. Hal ini bertujuan menyokong institusi kewangan menggunakan teknologi itu dengan lebih cepat (rujuk rencana “Keutamaan jangka sederhana untuk rangka kerja kehematan dan AML/CFT”). n Bank akan meningkatkan kerjasama antara agensi bagi memantapkan pengawasan terhadap model perniagaan bukan bank yang sedang pesat berkembang, dengan memberikan tumpuan pada dua bidang: o Sektor ekonomi yang semakin dikaitkan dengan perkhidmatan kewangan (seperti telekomunikasi dan e-dagang); dan o Mandat pengawalseliaan yang berkait rapat dengan kestabilan monetari dan kewangan dalam bidang kewangan digital, terutamanya persaingan, perlindungan data dan privasi. Pendekatan ini mencerminkan ekosistem kewangan digital yang semakin meluas (contohnya kemunculan pemberi pinjaman digital, jualan silang produk kewangan oleh pengendali e-dompet, potensi perkongsian antara bank atau penanggung insurans dengan penyedia perkhidmatan berasaskan teknologi yang lain). Dalam mempertingkatkan pengaturan ini, Bank memberikan keutamaan pada usaha menyokong pengenalpastian, pemantauan dan pengurangan risiko yang tepat pada masanya dalam rangkaian nilai kewangan keseluruhan terhadap kestabilan kewangan dan hasil berkaitan pengguna. Memandangkan skala model digital berpotensi untuk berkembang pada kadar yang pesat, Bank juga akan bekerjasama rapat dengan pihak berkuasa berkaitan dari segi pengaturan perkongsian maklumat dan intervensi yang tepat pada masanya. Bank juga akan melaksanakan usaha untuk menangani pergeseran pengawalseliaan yang tidak wajar berhubung dengan penggunaan pendorong digital yang penting, seperti teknologi awan dan AI/ML 91PELAN SEKTOR KEWANGAN 2022-2026 Gambar Rajah 6: Faktor utama membentuk ekosistem siber Kesalinghubungan Lebih banyak kesalinghubungan antara perkhidmatan kewangan dengan penyedia perkhidmatan pihak ketiga Aturan kerja Pelaksanaan aturan kerja hibrid Ancaman yang berubah-ubah Ancaman yang semakin kerap, lebih canggih dan laluan masuk ancaman yang lebih pelbagai Penggunaan awan lebih meluas Sistem yang lebih kritikal akan dipindahkan ke public cloud atau hybrid cloud Pemodenan Perisian dan perkakasan penting boleh menjadi lapuk dengan cepat Sektor kewangan Malaysia semakin menjadi sebahagian daripada rangkaian hubungan digital yang lebih luas dengan penyedia perkhidmatan pihak ketiga, institusi kewangan lain dan peranti. Apabila jalinan rantaian bekalan rentas sempadan dan global kian mendalam, kesalingbergantungan dan potensi kelemahan baharu turut semakin meningkat. Dalam rangkaian-rangkaian ini, setiap saluran mungkin menjadi sasaran. Berbeza daripada kebanyakan risiko operasi, pencerobohan keselamatan siber pada satu saluran boleh merebak dengan pantas ke saluran lain dalam masa yang singkat. Oleh itu, kekukuhan keselamatan siber pada mana- mana saluran atau institusi bergantung pada kekuatan pautan yang terlemah dalam rangkaian tersebut. Dengan pendigitalan perkhidmatan kewangan yang berterusan di Malaysia, keselamatan siber boleh dianggap sebagai salah satu risiko terbesar. Ekosistem digital yang sama yang telah mempercepat inovasi, sekali gus menyediakan banyak kelebihan kepada pengguna dan perniagaan, turut menimbulkan risiko Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan dan kelemahan kepada sektor kewangan. Risiko ini termasuk gangguan operasi, pencerobohan data, penipuan dan kerugian kewangan. Sekiranya tidak diuruskan dengan baik, hal ini boleh memudaratkan kestabilan kewangan dan monetari serta ekonomi yang lebih luas. Yang penting, landskap ancaman keselamatan siber sangat kompleks dan dibentuk oleh pelbagai faktor (lihat Gambar Rajah 6). Alat-alat penjenayah siber juga sentiasa berkembang, menjadi lebih mudah dan lebih murah dari hari ke hari. Ancaman ini tanpa sempadan, dan semakin diselaraskan serta canggih. Faktor- faktor ini memperhebat cabaran bagi menyediakan perlindungan yang boleh dipercayai. Berlatarkan persekitaran ini, sistem kewangan yang mempunyai asas keselamatan siber yang kukuh akan terus menjadi keutamaan penting Bank dan seterusnya menyediakan asas yang mantap untuk inovasi berkembang maju. Strategi 3C Memperkukuh kesediaan dan tindak balas keselamatan siber 92 PELAN SEKTOR KEWANGAN 2022-2026 Berdasarkan ciri-ciri risiko siber, strategi Bank bertumpu pada kesediaan dan tindak balas. Walaupun matlamat mengurangkan kebarangkalian serangan siber kekal penting, Bank akan mempergiatkan usaha untuk mengurangkan kesan daripada serangan seperti itu. Bank juga akan memperkukuh pengaturan kerjasama dalam kalangan pihak berkuasa dan peserta industri, baik di dalam mahupun di luar negara. Usaha ini bertujuan membangunkan pertahanan secara menyeluruh terhadap risiko keselamatan siber kepada sektor kewangan, termasuk risiko daripada infrastruktur telekomunikasi dan penyedia perkhidmatan pihak ketiga yang berpotensi menjadi sangat penting, seperti pengendali awan. Bagi tujuan ini, Bank akan melaksanakan strategi-strategi yang berikut: i. Memperkukuh pengawasan dan keupayaan keselamatan siber di seluruh sistem; dan ii. Memperkukuh usaha kerjasama keselamatan siber di dalam negeri dan pada peringkat global. n Bank akan terus memperkukuh pengawasan terhadap risiko keselamatan siber, dengan memberikan lebih tumpuan kepada ekosistem kewangan yang lebih luas. Langkah ini memerlukan tindakan yang berikut: o Memastikan industri kewangan mematuhi standard minimum yang kukuh dalam tadbir urus dan pengurusan risiko siber. o Mempergiat tumpuan Bank terhadap isu- isu keselamatan siber yang timbul daripada TPSP yang sangat penting. Usaha ini akan melibatkan penilaian ke atas tahap kecukupan dasar sedia ada dalam menguruskan risiko TPSP dan sekiranya perlu, membangunkan rangka kerja tambahan untuk melindungi ekosistem kewangan dengan lebih baik di seluruh rantaian nilainya. Selanjutnya, Bank akan mempertimbangkan keperluan untuk memperkukuh pengaturan pengawasan yang mengambil kira interaksi antara sektor kewangan dengan TPSP yang boleh menimbulkan risiko sistemik. Usaha ini termasuk memperluas perimeter pengawalseliaan berikutan meningkatnya saling bergantungan dengan TPSP. Bank akan mendapatkan maklum balas peserta industri utama termasuk TPSP yang sangat penting untuk membentuk pendekatan yang boleh melindungi jalinan teknologi sistem kewangan dengan penyedia pihak ketiga. Bank juga akan membuat pertimbangan untuk menyepadukan TPSP sebagai sebahagian daripada pengaturan perkongsian risikan yang dibentuk dalam sektor kewangan (seperti yang dinyatakan di bawah). n Bank akan mempergiat perkongsian risikan keselamatan siber yang boleh diambil tindakan dengan: o Membangunkan lagi keupayaan Bank untuk membina dan mengekalkan peta penularan siber yang menyeluruh dalam industri kewangan. Matlamat peta ini adalah untuk mengenal pasti secara berterusan titik kelemahan, potensi penumpuan risiko dan kesalinghubungan dalam sektor kewangan yang timbul daripada infrastruktur dan perkhidmatan teknologi yang digunakan oleh institusi kewangan. Peta penularan ini dijangka memberikan gambaran yang lebih terperinci tentang cara kejutan daripada insiden siber boleh merebak ke seluruh ekosistem kewangan, termasuk magnitud dan kesannya. i Memperkukuh pengawasan dan keupayaan keselamatan siber di seluruh sistem Bank akan memperluas tumpuan keselamatan siber pada peringkat ekosistem, termasuk kepada penyedia perkhidmatan pihak ketiga yang sangat penting 93PELAN SEKTOR KEWANGAN 2022-2026 Keselamatan siber merupakan tanggungjawab yang dikongsi bersama (cyber resilience maturity assessment, CRMA), latihan siber dengan pihak berkepentingan lain dan Kerajaan, serta Platform Perisikan Ancaman Siber Sektor Kewangan (Financial Sector Cyber Threat Intelligence Platform, FinTIP) yang baru diwujudkan. Merentas seluruh inisiatif ini, Bank meletakkan sasaran untuk melibatkan lebih banyak pihak berkepentingan dan peserta industri dalam rantaian nilai sektor kewangan. Inisiatif-inisiatif ini dijangka dapat memperkayakan pemahaman kolektif Bank dan meningkatkan keupayaan seluruh ekosistem bagi mengurangkan risiko siber secara proaktif. Perkara ini akan memberikan panduan kepada penilaian penyeliaan Bank terhadap institusi kewangan, menyokong keputusan perniagaan yang berdasarkan maklumat yang mencukupi oleh sektor kewangan bagi menguruskan potensi penumpuan risiko TPSP atau perkhidmatan berkaitan, serta menumpukan usaha Bank di peringkat kebangsaan bagi melindungi infrastruktur sangat penting dengan lebih baik. o Memperluas skop dan liputan mengenai langkah-langkah daya tahan yang berterusan. Langkah ini termasuk pelaksanaan rangka kerja penilaian kematangan daya tahan siber n Bank akan terus menyokong usaha di seluruh negara untuk memperkukuh amalan celik digital dan keselamatan siber (cyber hygiene) pengguna kewangan. Dengan penggunaan perkhidmatan kewangan digital yang lebih meluas, amalan keselamatan siber asas akan menjadi penting untuk melindungi pengguna daripada ancaman seperti penipuan dalam talian, penipuan kewangan dan pencurian identiti. Bagi tujuan ini, Bank akan menyokong dan bekerjasama dengan persatuan industri, agensi penguatkuasaan undang- undang dan agensi kerajaan yang berkaitan untuk meningkatkan kesedaran keselamatan siber dalam kalangan pengguna supaya mereka dapat melindungi data dan peranti digital mereka dengan berkesan. n Bank akan menyokong penggunaan istilah keselamatan siber dan daya tahan siber yang lebih seragam pada peringkat kebangsaan. Melalui penggunaan bahasa yang sama dalam kalangan semua pihak berkepentingan yang berkaitan, usaha seluruh ekosistem untuk melindungi dan mengukuhkan keselamatan siber, sama ada untuk berkongsi maklumat atau menyelaraskan intervensi, dapat diteruskan dengan lebih berkesan. Bank menyasarkan untuk memanfaatkan amalan yang diterima secara meluas dalam memberi sokongan ini. Dalam hal ini, Bank akan mempertimbangkan amalan yang diterima pada peringkat global seperti Cyber Lexicon oleh FSB, ISO serta dasar dalam negeri pelbagai agensi seperti Agensi Keselamatan Siber Negara (National Cybersecurity Agency Malaysia, NACSA), CyberSecurity Malaysia (CSM), Suruhanjaya Komunikasi dan Multimedia Malaysia (Malaysian Communications and Multimedia Commission, MCMC), National Institute of Standards and Technology (NIST) dan lain-lain. Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan ii Memperkukuh usaha kerjasama keselamatan siber di dalam negeri dan pada peringkat global 94 PELAN SEKTOR KEWANGAN 2022-2026 n Bank akan mengukuhkan penggunaan teknologi secara berterusan seperti AI, ML, pemprosesan bahasa semula jadi dan automasi bagi penambahbaikan proses pengawalan dan penyeliaan Bank. Langkah-langkah ini termasuk: o Menyepadukan sistem dan kaedah analisis risiko Bank bagi menyokong pengawasan yang lebih menyeluruh merentas set data yang berbeza. Hal ini membolehkan Bank meneroka penambahbaikan selanjutnya berkaitan dengan cara Bank menjalankan aktiviti pemantauan. Khususnya, tindakan ini dijangka meningkatkan aktiviti penyeliaan berasaskan risiko, dengan memberikan pandangan yang lebih mendalam untuk mengenal pasti dan menilai risiko kepada institusi kewangan. Seterusnya, usaha tersebut akan membolehkan intervensi yang lebih bersasar dan lebih tepat pada masanya. o Memperkemas dan memudahkan proses pengawalseliaan dan pematuhan yang lebih cekap. Langkah ini termasuk menyediakan antara muka (interface) permohonan dan penghantaran tunggal yang disokong teknologi serta mempunyai keupayaan pemantauan, dalam kalangan institusi kewangan yang dibenarkan dengan Bank. n Bank akan memudahkan inisiatif untuk menyampaikan latihan dan pensijilan keselamatan siber khusus yang menggalakkan pembangunan kemahiran dan kompetensi dalam industri kewangan. Dalam melaksanakan inisiatif ini, Bank akan bekerjasama dengan agensi kerajaan dan persatuan industri yang berkaitan seperti MDEC, CSM, NACSA, dan Persatuan Penguji Keselamatan Siber (PPKS) untuk mengumpul, membuat perbandingan dan menilai data untuk merancang pelan hala tuju yang jelas, bagi meluaskan kumpulan tenaga mahir keselamatan siber di Malaysia. Strategi 3D Menyokong penggunaan teknologi yang lebih meluas bagi tujuan pengawalan dan penyeliaan Bank juga komited untuk memastikan teknologi digital dimanfaatkan untuk meningkatkan keberkesanan dan kecekapan secara berterusan, terutamanya sebagai pengawal dan penyelia kewangan. Usaha ini akan menjadi pelengkap kepada peralihan industri kewangan menuju pendigitalan yang lebih meluas. Pertimbangan utama Bank untuk maju ke hadapan adalah dengan meningkatkan cara Bank mewujudkan, menghimpun, mengumpul, melakukan sintesis dan berkongsi data bagi tujuan meningkatkan kecekapan, integriti, dan keselamatan ekosistem. Hal ini mencerminkan penggunaan data yang semakin penting untuk pelbagai fungsi, daripada pengawasan risiko dan kelemahan sehingga pematuhan dasar dan keperluan pengawalseliaan dengan cara yang cekap. Memandangkan penambahbaikan masa hadapan akan memberikan kesan pada infrastruktur, sistem, dan proses sedia ada, Bank akan memastikan hala tuju ke hadapan ditentukan secara usaha sama dengan peserta industri dan pihak berkuasa pengawalseliaan yang lain. Sebagai sebahagian daripada usaha ini, Bank akan melaksanakan perkara-perkara yang berikut: i. Memanfaatkan teknologi untuk mengukuhkan lagi pengawalan dan penyeliaan Bank terhadap industri kewangan; dan ii. Memperteguh strategi data Bank untuk masa hadapan. i Memanfaatkan teknologi untuk mengukuhkan pengawalan dan penyeliaan Bank terhadap industri kewangan 95PELAN SEKTOR KEWANGAN 2022-2026 n Bank akan memulakan tinjauan industri yang menyeluruh berkaitan dengan ekosistem data kewangan yang merangkumi penghantaran, pemprosesan dan penggunaan pelaporan pengawalseliaan serta penghantaran statistik kepada Bank. Dalam tempoh lima hingga sepuluh tahun akan datang, Bank akan memberikan tumpuan untuk menambah baik ketepatan masa, kualiti, perincian dan ketelusan data yang dikumpul daripada industri. Inisiatif ini akan dilakukan melalui pelaksanaan pengaturan pengumpulan dan perkongsian data yang baharu antara Bank, industri kewangan dan institusi rakan kongsi yang lain. o Kualiti dan ketepatan masa. Bank akan bekerjasama dengan industri untuk menamatkan secara beransur-ansur proses penghantaran data secara manual atau separa automatik dan proses kawalan kualiti, serta mengkaji penggunaan API untuk menambah baik keseluruhan proses penyediaan dan penghantaran data. Hal ini akan mengurangkan kos pematuhan institusi kewangan serta meningkatkan kecekapan pengawalan dan penyeliaan Bank. o Perincian. Bank akan lebih memanfaatkan penggunaan teknologi geospatial dan teknologi lain untuk terus meningkatkan perincian data dan selanjutnya, mendorong pemahaman yang lebih mendalam untuk Bank melakukan analisis dan membuat keputusan. Langkah ini akan dibangunkan berdasarkan usaha yang telah dilaksanakan setakat ini, seperti inisiatif rintis yang Bank lakukan sejak bermulanya pandemik. Melalui inisiatif ini, Bank telah mengumpulkan data pembayaran dan rangkuman kewangan yang lebih terperinci hampir pada masa nyata daripada institusi kewangan terpilih. Bank akan terus memperluas skop projek rintis sedemikian untuk mencakupi set data lain, seperti data isi rumah dan perniagaan, serta data dedahan berkaitan iklim dan pembiayaan hijau. o Ketelusan. Bank akan terus meningkatkan akses dan kebolehbawaan pelbagai set data Bank berkaitan kewangan dan ekonomi yang tidak mendedahkan sebarang maklumat sensitif dari segi komersial untuk kemudahan orang ramai. Usaha ini boleh membantu menggalakkan komuniti data yang lebih luas, seperti melalui inisiatif Data Terbuka, bagi mewujudkan pemahaman mendalam yang baharu dan mengenal pasti peluang untuk menjalinkan kerjasama, termasuk bekerjasama dengan Bank. Bank juga akan mengkaji pembangunan keupayaan papan pemuka (dashboard) dengan memanfaatkan data industri yang dilaporkan kepada Bank. Tindakan ini bagi memudahkan institusi-institusi kewangan menanda aras profil dan amalan risiko mereka dengan rakan setara, tanpa perlu mendedahkan nama institusi. Teras Strategik 3: Memajukan pendigitalan dalam sektor kewangan ii Memperteguh strategi data Bank untuk masa hadapan Bank berhasrat/berusaha untuk merubah pengaturan data, termasuk melalui penggunaan API dan inisiatif Data Terbuka	Public Notice
29 Nov 2023	Tindakan Penguatkuasaan Terhadap Pengendali Perniagaan Perkhidmatan Wang Secara Haram di Sarawak	https://www.bnm.gov.my/-/illegal-msb-ops-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/illegal-msb-ops-bm&languageId=ms_MY	Reading: Tindakan Penguatkuasaan Terhadap Pengendali Perniagaan Perkhidmatan Wang Secara Haram di Sarawak Share: 3 Tindakan Penguatkuasaan Terhadap Pengendali Perniagaan Perkhidmatan Wang Secara Haram di Sarawak Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1334 pada Rabu, 29 November 2023 29 Nov 2023 Sebagai sebahagian daripada usaha berterusan untuk melindungi orang ramai terhadap kemungkinan risiko kewangan apabila berurusan dengan entiti tidak berlesen di negara ini, Bank Negara Malaysia (BNM) dengan kerjasama Polis DiRaja Malaysia (PDRM) telah membuat serbuan ke lapan (8) premis di pelbagai lokasi di Sarawak. Serbuan pada 28 November 2023 telah dibuat terhadap premis entiti yang disasarkan kerana disyaki menjalankan perniagaan perkhidmatan wang tanpa lesen yang sah daripada BNM serta mungkin terlibat dengan aktiviti pengubahan wang haram. Entiti tersebut adalah seperti yang berikut: Nama Bandar 999 Mobile Enterprise/H7 Telco Sibu Golden One Enterprise Sibu MK-MKH Telecommunication Sdn. Bhd. Mukah Junlong Mobile Services Selangau Happy Phone Services/Selangau Mobile Phone Centre Selangau Fook Ann Mobile Bekenu Shin Hin Electronic Service/Kedai Emas Shin Hin Batu Niah Hin Trading Company Batu Niah Entiti-entiti ini disiasat di bawah Subseksyen 4(1) Akta Perniagaan Perkhidmatan Wang 2011 (Money Services Business Act, MSBA). Mana-mana individu yang melakukan kesalahan di bawah Subseksyen 4(1) MSBA boleh dikenakan denda tidak melebihi RM5 juta atau dipenjarakan untuk tempoh tidak melebihi 10 tahun atau kedua-duanya sekali. BNM ingin mengingatkan orang ramai bahawa menjadi satu kesalahan untuk mengendalikan perniagaan perkhidmatan wang tanpa lesen yang sah daripada BNM. Senarai perniagaan perkhidmatan wang berlesen boleh didapati melalui laman sesawang BNM di bnm.gov.my/licensed-msb-operators. Orang ramai disaran untuk hanya berurusan dengan perniagaan perkhidmatan wang berlesen bagi melindungi kepentingan kewangan mereka dan digalakkan untuk melaporkan sebarang entiti yang tidak berlesen kepada BNM menerusi: Borang dalam talian BNMLINK \| Live Chat \| Telefon: 1-300-88-5465 atau +603-2174-1717 (Luar Negara) Bank Negara Malaysia 29 November 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
02 Okt 2023	Exposure Draft on Islamic Collateralised Funding	https://www.bnm.gov.my/-/ed-icf	https://www.bnm.gov.my/documents/20124/938039/ed_Liquidity_Risk_Aug2023.pdf	null	null	Issued on: 23 August 2023 BNM/RH/ED 028-24 Liquidity Risk Exposure Draft Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed international Islamic banks 5. Prescribed development financial institutions 6. Financial holding companies engaged predominantly in banking business Liquidity Risk Issued on: 23 August 2023 This exposure draft sets out proposed requirements and guidance on the management of liquidity risk to ensure that financial institutions adequately assess their exposures to liquidity risk and take appropriate measures to address their liquidity needs. These requirements and guidance complement the policy documents on Liquidity Coverage Ratio and Net Stable Funding Ratio which set out minimum regulatory liquidity requirements. The expectations in this exposure draft are drawn from the Principles for Sound Liquidity Risk Management and Supervision by the Basel Committee for Banking Supervision (BCBS) and the Guiding Principles on Liquidity Risk Management for Institutions Offering Islamic Financial Services by the Islamic Financial Services Board (IFSB). In developing these expectations, Bank Negara Malaysia (the Bank) has also taken into account observations of domestic industry practice, while also drawing on lessons learnt from the recent global banking crises. The Bank invites written feedback on the proposed requirements, including suggestions on areas to be clarified and alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale, including accompanying evidence or illustrations, where appropriate, to facilitate an effective consultation process. In addition to providing general feedback, respondents are also requested to respond to the specific questions set out in this exposure draft. Submissions received may be made public unless confidentiality is specifically requested for the whole or any part of the submission. Responses must be submitted electronically to the Bank via [email protected] by 30 November 2023. In the course of preparing your feedback, you may direct any queries to the following officers: 1. Kershia Tan Wei ([email protected]) 2. Chong Yuen Kit ([email protected]) 3. Zafirah Munawar ([email protected]) mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] Liquidity Risk Issued on: 23 August 2023 TABLE OF CONTENTS PART A OVERVIEW ........................................................................................... 1 1 Introduction ......................................................................................... 1 2 Applicability ......................................................................................... 1 3 Legal provisions .................................................................................. 1 4 Effective date ...................................................................................... 2 5 Interpretation ....................................................................................... 2 6 Related legal instruments and policy documents ................................ 3 7 Policy documents and circulars superseded ....................................... 3 PART B POLICY REQUIREMENTS ................................................................... 4 8 Roles and responsibilities of the board and senior management ........ 4 9 Identification, measurement, monitoring and control of liquidity risk ... 6 10 Intraday liquidity risk management .................................................... 11 11 Monitoring and control of liquidity risk across entities within the group and business lines ............................................................................ 12 12 Funding strategy ............................................................................... 14 13 Liquidity costs, benefits and risks ...................................................... 15 14 Liquidity stress testing ....................................................................... 16 15 Liquid assets ..................................................................................... 18 16 Collateral management ..................................................................... 19 17 Contingency funding plan .................................................................. 20 18 Public disclosure ............................................................................... 24 Liquidity Risk 1 of 25 Issued on: 23 August 2023 PART A OVERVIEW 1 Introduction 1.1 Liquidity is the ability of a financial institution to fund assets and meet obligations as they come due, without incurring unacceptable losses. The fundamental role of financial institutions in the maturity transformation of short-term deposits into long-term loans makes financial institutions inherently vulnerable to liquidity risk, both of institution-specific nature and that which affects financial markets as a whole. Effective liquidity risk management therefore helps ensure a financial institution is able to meet its cash flow obligations at all times. 1.2 This policy document sets out Bank Negara Malaysia’s (the Bank) requirements and guidance on the management of liquidity risk to ensure that financial institutions are effective in assessing their exposures to liquidity risk and take appropriate measures to address their liquidity needs. This policy document has been developed based on the Principles for Sound Liquidity Risk Management and Supervision by the Basel Committee for Banking Supervision (BCBS)1 and the Guiding Principles on Liquidity Risk Management for Institutions Offering Islamic Financial Services2 by the Islamic Financial Services Board (IFSB). The requirements and guidance set out in this policy document also complement the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) policy documents which set out minimum regulatory liquidity requirements. 2 Applicability 2.1 This policy document is applicable to all financial institutions as defined in paragraph 5.2. 3 Legal provisions 3.1 The requirements in this policy document are issued pursuant to– (a) section 47 of the Financial Services Act 2013 (FSA); (b) section 57 of the Islamic Financial Services Act 2013 (IFSA); and (c) section 41 of the Development Financial Institutions Act 2002 (DFIA). 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA, section 277 of the IFSA and section 126 of the DFIA. 1 Issued in September 2008; https://www.bis.org/publ/bcbs144.pdf 2 Issued in March 2012; https://www.ifsb.org/download.php?id=4368&lang=English&pg=/published.php https://www.bis.org/publ/bcbs144.pdf https://www.ifsb.org/download.php?id=4368&lang=English&pg=/published.php Liquidity Risk 2 of 25 Issued on: 23 August 2023 4 Effective date 4.1 This policy document comes into effect on [DD MM YYYY] (date to be specified in the finalised policy document). Question 1 The Bank plans to issue the policy document in 2024, and to specify that the requirements take effect six months thereafter. Would your financial institution be able to comply with the requirements stipulated in this policy document based on this timeline? If not, please suggest an alternative implementation timeline, with clear justification. - 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA or DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “financial institution” refers to– (a) a licensed bank under the FSA; (b) a licensed investment bank under the FSA; (c) a licensed Islamic bank under the IFSA; (d) a licensed international Islamic bank under the IFSA; (e) a prescribed institution under the DFIA, or (f) a financial holding company engaged predominantly in banking business; “board” refers to the board of directors of a financial institution, including a committee of the board where the responsibilities of the board set out in this policy document have been delegated to such a committee; “business day” refers to the opening hours of the relevant large value payment system (LVPS) or of correspondent banking services during which a financial institution can receive and make payments in the jurisdiction of the financial institution’s operations; “encumbered asset” refers to an asset that is restricted by legal, regulatory, tax, Shariah, accounting or contractual encumbrances or other practical Liquidity Risk 3 of 25 Issued on: 23 August 2023 restrictions on the ability of a financial institution to liquidate, sell, transfer, or assign the asset; “high-quality liquid asset” or “HQLA” has the same meaning as described in the policy document on Liquidity Coverage Ratio, including with regard to encumbrance and transferability of assets; “intraday liquidity” refers to funds which can be accessed by a financial institution during the business day; “senior management” refers to the chief executive officer and senior officers of a financial institution. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, including any amendments or reissuance thereafter, in particular: (a) Liquidity Coverage Ratio issued on 25 August 2016; (b) Net Stable Funding Ratio issued on 31 July 2019; (c) Risk Governance issued on 1 March 2013; and (d) Stress Testing issued on 15 June 2017; (e) Recovery Planning issued on 28 July 2021; (f) Business Continuity Management issued on 19 December 2022; (g) Financial Reporting issued on 29 April 2022; and (h) Investment Account issued on 10 October 2017. 7 Policy documents and circulars superseded 7.1 This policy document supersedes the Dear CEO letter on Funds Transfer Pricing (FTP) Practices of Banking Institutions dated 6 November 2014. Liquidity Risk 4 of 25 Issued on: 23 August 2023 PART B POLICY REQUIREMENTS 8 Roles and responsibilities of the board and senior management S Principle 1: The board and senior management must exercise effective oversight of the financial institution’s liquidity risk. This entails establishing a liquidity risk management framework that includes strategies, policies and controls to ensure that the financial institution maintains sufficient liquidity to address its liquidity obligations and withstand a range of stress events. S 8.1 The board shall have the overall responsibility for the liquidity risk assumed by the financial institution and the manner in which this risk is managed. This includes ensuring that senior management manages liquidity risk effectively. In fulfilling its responsibility, the board must: (a) approve a liquidity risk appetite3 which defines the level of liquidity risk that the financial institution is willing to assume; (b) approve the financial institution’s strategy as well as critical policies and processes related to the management of liquidity risk (including its funding strategy), and review these elements at least annually; (c) ensure that the financial institution has the necessary resources and systems to identify, measure, monitor and control all sources of liquidity risk. This includes ensuring that senior management and other officers responsible for managing liquidity risk have the necessary expertise to execute their responsibilities effectively; (d) regularly review reports on the liquidity position of the financial institution. This includes ensuring that senior management also provides timely updates to the board on new or emerging liquidity concerns; (e) review and challenge stress testing assumptions and results, even during periods when liquidity is abundant in the market; (f) review and approve the financial institution’s contingency funding plan annually, at minimum, or more often as warranted by changes in business or market circumstances; (g) where liquidity concerns are raised (including those arising from liquidity stress tests and the testing of contingency funding plans), ensure that senior management takes appropriate remedial actions to address these concerns in a timely manner; and (h) develop clear and effective communication and disclosure strategies to stakeholders, particularly during stress events. S 8.2 In relation to paragraph 8.1(a), the board must ensure that the liquidity risk appetite is: (a) appropriate in line with the business objectives, strategic direction and overall risk appetite of the financial institution and its role in the financial system; (b) reflective of the financial condition and funding capacity of the financial institution; (c) set with the aim of ensuring the financial institution manages liquidity robustly during normal day-to-day operations and is able to withstand stress when a shock occurs; and 3 This also includes the financial institution’s risk tolerance. Liquidity Risk 5 of 25 Issued on: 23 August 2023 (d) articulated in a manner that allows all levels of senior management in the financial institution to clearly understand the trade-off between risks and profits. S 8.3 Senior management shall be responsible for the day-to-day management of liquidity risk. This includes developing and implementing the strategy, policies and processes to manage liquidity risk in accordance with the liquidity risk appetite set by the board. In fulfilling its responsibility, senior management must: (a) determine the structure, responsibilities and controls for overseeing and managing the liquidity risks and positions of the financial institution, including across all its entities within the group (e.g. branches and subsidiaries); (b) ensure that the responsibility for implementing internal controls for liquidity risk management is assigned to operationally independent4, appropriately trained and competent officers; (c) define the specific procedures and internal approvals necessary for exceptions to the policies and processes as well as liquidity risk limits, including the escalation procedures and follow-up actions to be taken for breaches of such limits; (d) ensure all officers responsible for liquidity risk management are aware of, and have ready access to, the liquidity strategy, key policies and processes for implementing the strategy, and the governance structure surrounding liquidity risk management; (e) review and update the financial institution’s liquidity risk and funding strategies, key policies and processes to ensure that they continue to remain relevant and fit-for-purpose at all times. This can be done through close monitoring of information on internal and external liquidity developments, including current trends and potential market developments. This also includes ensuring the continued adequacy of stress tests, liquidity buffers, and contingency funding plans; (f) ensure that liquidity costs, benefits and risks are explicitly attributed to the relevant activity so that incentives are consistent with and reinforce the overarching liquidity risk appetite and strategy of the financial institution; (g) integrate liquidity stress test results into the financial institution’s strategic planning process and day-to-day risk management practices (e.g. setting of internal limits); (h) review and update the financial institution’s contingency funding plan annually, at minimum, for the board’s approval, or more often as warranted by changes in business or market circumstances; and (i) report liquidity positions (including assessments of those positions) and liquidity-related developments to the board on a regular basis. S 8.4 The internal audit function of a financial institution shall regularly review the implementation and effectiveness of the liquidity risk management framework. 4 Refers to a separate department, unit, individual or external party that is free from any conflict of interest or potential conflict of interest that could impair the ability to objectively implement internal controls for liquidity risk management. Liquidity Risk 6 of 25 Issued on: 23 August 2023 9 Identification, measurement, monitoring and control of liquidity risk S Principle 2: A financial institution must have a sound process for identifying, measuring, monitoring and controlling liquidity risk. This process must include a robust framework for comprehensively projecting cash flows arising from assets, liabilities and off-balance sheet items over an appropriate set of time horizons. S 9.1 A financial institution must employ a range of measurement tools and metrics to identify and measure liquidity risk5 arising from on- and off-balance sheet positions. These tools must be tailored to the circumstances of the financial institution, with the measurement of liquidity risk adapted to the financial institution’s business mix, complexity and risk profile. The tools must also cover cash flows and liquidity implications arising from all material assets, liabilities, off-balance sheet positions and other activities of the financial institution, including across the dimensions set out in paragraphs 9.9 to 9.22. S 9.2 A financial institution must also develop and employ a set of early warning indicators to identify the emergence of increased risks or vulnerabilities in its liquidity risk position or potential funding needs. Such early warning indicators must identify any material negative trend and prompt a timely assessment and potential response by the financial institution to mitigate its exposure to emerging risks (such as that in contingency funding plans or other management action triggers), and must, to the extent relevant and appropriate, be aligned with liquidity-related recovery indicators for purposes of recovery planning6. G 9.3 For the purpose of paragraph 9.2, a financial institution may be guided by examples of early warning indicators that include, but are not limited to: (a) rapid asset growth, especially when funded with potentially volatile liabilities; (b) growing concentrations in assets or liabilities; (c) increases in currency mismatches; (d) decrease of weighted average maturity of liabilities; (e) repeated incidents of positions approaching or breaching internal limits; (f) negative trends or heightened risk, such as rising delinquencies, significant deterioration in the financial institution’s earnings, asset quality, and overall financial condition; (g) negative publicity (e.g. social media chatter); (h) a sell call on the financial institution’s equity or downgrade of the financial institution’s credit rating; (i) stock price declines or rising debt costs; (j) widening debt or credit-default-swap spreads; (k) rising wholesale or retail funding costs; (l) requests by counterparties for additional collateral for credit exposures; (m) resistance by counterparties to entering into new transactions; (n) correspondent financial institutions that eliminate or decrease their credit lines; 5 Across all entities within the group, including branches and subsidiaries. 6 This is in line with paragraph 13 of the policy document on Recovery Planning, for financial institutions which are subject to the said policy document. Liquidity Risk 7 of 25 Issued on: 23 August 2023 (o) increasing retail deposit outflows, including those through online channels; (p) increasing redemptions of term deposits before maturity; and (q) difficulty in accessing market funding, be it short- or long-term funding. S 9.4 A financial institution must set appropriate limits to control its liquidity risk, in line with its liquidity risk appetite. Such limits must also be relevant to the business of the financial institution in terms of the concentration of exposure to the activity, nature of products, currencies and markets served. The financial institution must regularly review such limits and corresponding escalation procedures. S 9.5 A financial institution must use the limits set in accordance with paragraph 9.4 for managing day-to-day liquidity within and across lines of business and entities within the group. Breaches of liquidity risk limits must be subject to appropriate escalation to higher levels of senior management, the board, the Bank and/or other relevant supervisory or regulatory authorities, as the case may be, and the commensurate consequence management framework of the financial institution. S 9.6 A financial institution must establish an appropriate management information system that provides the board, senior management and other relevant officers timely and forward-looking information on its liquidity position. The management information system must be used in day-to-day liquidity risk management to monitor compliance with the financial institution’s established policies, procedures and limits, as well as to identify any emerging pressures. G 9.7 The management information system should capture all sources of liquidity risk, along all relevant dimensions (which include those set out in paragraphs 9.9 to 9.22) to surface relevant insights. This entails the ability to generate more granular and comprehensive reports as and when required (such as during stress events), at a higher reporting frequency and with a shorter reporting lag. G 9.8 In developing and implementing the process for identifying and measuring liquidity risk, a financial institution may refer to and build on the design and parametrisation of the LCR or NSFR in the policy documents on Liquidity Coverage Ratio and Net Stable Funding Ratio, respectively. The financial institution should, however, not solely (or overly) rely on the LCR and/or NSFR as these indicators may not reveal vulnerabilities beyond, or within, the 30-day and one-year horizons, respectively. The quantitative calibrations in both the LCR and NSFR may also not fully cater to the institution-specific circumstances and experiences of a financial institution. Future cash flows of assets and liabilities S 9.9 A financial institution must measure and forecast its prospective cash flows for assets, liabilities, off-balance sheet commitments and derivatives over a variety of time horizons7 (e.g. intraday, short-, medium- and long terms), under normal conditions and a range of stress scenarios, including that of severe stress. These forecasts must be used to produce a “cash flow mismatch” or “liquidity gap” 7 In determining the appropriate range of time horizons, a financial institution should take into account its vulnerabilities to events (e.g. large deposits maturing at the same time), activities and strategies that can put a significant strain on its internal cash generation capabilities. Liquidity Risk 8 of 25 Issued on: 23 August 2023 analysis that provides the cumulative net excess or shortfall in liquidity faced by the financial institution over a given time frame. G 9.10 In estimating the cash flows arising from its liabilities, a financial institution should assess the “stickiness” of its funding sources – that is, the funding sources’ tendency not to run off quickly under stress, including upon adverse news coverage on the financial institution. While the factors in the policy documents on Liquidity Coverage Ratio and Net Stable Funding Ratio are indicative of funding stability for various funding sources, these should not be the sole basis for a financial institution in ascertaining the stickiness of its liabilities (see paragraph 9.8). The financial institution should consider the following factors, among others, in assessing the behaviour of its funding sources: (a) For wholesale funding providers, the financial institution should assess the likelihood of fund providers continuing to roll-over funding lines under stress, the availability and conditions attached to term funding back-up facilities, and the possibility that both secured and unsecured funding may dry up in times of stress. (b) For retail deposits, the financial institution should consider factors such as deposit size, interest-rate sensitivity, geographical location of depositors and the deposit withdrawal channel. (c) The financial institution should consider how changes in the macroeconomic environment affect the behavioural profile of its funding providers (e.g. greater interest rate sensitivity of certain classes of depositors at certain points of the business or financial cycle). (d) The financial institution should assess the impact of deposit insurance regimes (where applicable), including the scope and extent to which deposits are protected, on the behaviour of depositors. G 9.11 Given the critical role of assumptions in projecting future cash flows, a financial institution should take steps to ensure that such assumptions are reasonable and appropriate, documented in writing and periodically reviewed to remain up- to-date. Sources of contingent liquidity demand and related triggers associated with off- balance sheet positions S 9.12 A financial institution must identify, measure, monitor and control potential cash flows relating to off-balance sheet commitments and other contingent liabilities. This includes identifying and analysing: (a) relevant liquidity trigger events8; and (b) events that could expose the financial institution to liquidity risks resulting from market and public perceptions about its soundness9. S 9.13 A financial institution must have a robust framework for projecting and measuring liquidity risks arising from contingent liquidity demands. The financial institution must measure how changes to underlying risk factors can cause drawdowns of 8 Trigger events are events which enable commitments to be drawn upon (e.g. changes in economic variables or conditions, credit rating downgrades, country risk issues, specific market disruption and the alteration of contracts by governing legal, accounting or tax systems). 9 Liquidity risk can arise from both perceived and actual weaknesses, failures or problems in overall risk management. Liquidity Risk 9 of 25 Issued on: 23 August 2023 committed facilities and the materialisation of other off-balance sheet obligations. This analysis must include appropriate assumptions on the behaviour of both the financial institution and its obligors or counterparties. The financial institution must project and measure contingent liquidity demand from sources which include: (a) drawdown of undrawn commitments; (b) materialisation of potential non-contractual obligations which can give rise to the financial institution supporting related off-balance sheet vehicles in times of stress10, especially off-balance sheet vehicles where the financial institution considers such support to be critical to maintaining ongoing access to funding; and (c) contingent liquidity demands related to the issuance of securitisation products, such as those arising from the existence of recourse provisions in asset sales, the extension of liquidity facilities to securitisation programmes and the early amortisation triggers of certain asset securitisation transactions. G 9.14 In assessing the contingent liquidity demand arising from the drawdown of undrawn commitments under paragraph 9.13(a), a financial institution should consider the terms and conditions of the commitment and creditworthiness of the counterparty which may affect liquidity flows. The financial institution also needs to ascertain whether its exposures to counterparties in the same business and geographical sectors may amplify its liquidity risk, as counterparties in the same sectors may be affected by stress simultaneously. G 9.15 For the purpose of paragraph 9.2, a financial institution should have early warning indicators that signal whether embedded triggers in certain products (e.g. callable public debt, over-the-counter (OTC) derivative transactions) are about to be breached or whether contingent risks are likely to crystallise which would warrant the financial institution providing additional liquidity support or shifting the assets onto the balance sheet. Currencies in which a financial institution is active S 9.16 A financial institution should identify, measure, monitor and control its liquidity risk positions for currencies in which it is active11. This includes for the financial institution to be aware of and have the capacity to manage liquidity risk exposures arising from currency mismatches between its liabilities and assets. G 9.17 A financial institution should take account of the risks of sudden changes in foreign exchange rates or market liquidity, or both, which could amplify liquidity mismatches and alter the effectiveness of foreign exchange hedges and hedging strategies. The financial institution should also consider the specific market characteristics and liquidity risks of positions in foreign currencies. 10 In times of stress, reputational concerns might prompt a financial institution to purchase assets from money market or other investment funds that it manages or with which it is otherwise affiliated. 11 This includes currencies in which a financial institution transacts in or has exposures to. Liquidity Risk 10 of 25 Issued on: 23 August 2023 G 9.18 A financial institution should assess its aggregate foreign currency liquidity needs and identify currencies in which it has significant activity on an ongoing basis. G 9.19 For each currency in which a financial institution has significant activity, a financial institution should, in line with paragraphs 9.512 and 9.6 of the policy document on Liquidity Coverage Ratio, undertake a separate analysis of its strategy and monitor its liquidity needs on an ongoing basis. This may include for the financial institution to negotiate a liquidity back-stop facility or establish contingency liquidity plans to meet obligations denominated in those currencies in the event of stress. G 9.20 A financial institution should determine the acceptable foreign currency liquidity mismatches, and in turn, set appropriate liquidity risk limits for foreign currencies in aggregate and on individual currencies. The size of acceptable foreign currency liquidity mismatches should take into account: (a) the financial institution’s ability and associated costs to access and raise funds in foreign currency markets; (b) the extent of foreign currency back-up facilities available in Malaysia; (c) the ability and associated costs to transfer a liquidity surplus from one currency to another, and across jurisdictions and entities within the group; and (d) the likely convertibility of currencies in which the financial institution is active, during times of stress. Correspondent, custody and settlement activities S 9.21 A financial institution must understand and have the capacity to manage how the provision of correspondent, custodian and settlement bank services can affect its cash flows, especially over overnight and intraday horizons (also see Principle 3 below on intraday liquidity risk management). S 9.22 A financial institution must understand and have the capacity to manage the potential liquidity needs it would face as a result of failure-to-settle procedures of payment and settlement systems in which it is a direct participant. Question 2 a. Does your financial institution foresee any challenges in implementing this Principle? If yes, please elaborate on these challenges. b. What are other indicators that your financial institution employs to identify increased risks or vulnerabilities in your liquidity risk positions? Please elaborate the purpose of each indicator employed. 12 Financial institutions which are subject to the requirements in the policy document on Liquidity Coverage Ratio must continue to comply with such requirements, including paragraph 9.5. Liquidity Risk 11 of 25 Issued on: 23 August 2023 10 Intraday liquidity risk management S Principle 3: A financial institution must actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions, thus contributing to the smooth functioning of payment and settlement systems. S 10.1 A financial institution must have in place a sound framework, including clear internal policies and procedures, for managing intraday liquidity risk across the range of payment and settlement systems (including across different jurisdictions and currencies) in which it participates in. The framework must ensure that the financial institution is able to: (a) identify and prioritise time-specific and other critical obligations13 in order to meet such obligations when needed; and (b) settle other less critical obligations as soon as possible. S 10.2 A financial institution must ensure that the framework for managing intraday liquidity risk allows the financial institution to identify, measure, monitor and control intraday liquidity risk effectively, in accordance with Principle 2. This includes for the financial institution to: (a) measure the expected daily gross liquidity inflows and outflows, anticipate the intraday timing of liquidity inflows and outflows where possible, and forecast the range of potential net funding shortfalls that may arise at different points during the day; (b) monitor intraday liquidity positions against expected activities and available resources (balances, remaining intraday credit capacity, available collateral); (c) arrange to acquire/access sufficient intraday funding to meet its intraday objectives (e.g. central bank facilities); (d) manage and mobilise collateral14 as necessary to obtain intraday funds; (e) manage the timing of its liquidity outflows15 in line with its intraday objectives; and (f) plan for dealing with unexpected disruptions to its liquidity flows (e.g. failure-to-settle procedures), such as to incorporate intraday considerations in its stress tests (see Principle 7) and contingency funding plans (see Principle 10). G 10.3 For the purpose of paragraph 10.2(a), a financial institution should: (a) understand the rules of relevant payment and settlement systems in which it participates in; (b) identify key counterparties (and their correspondents or custodians) that act as the source of incoming or outgoing gross liquidity flows; 13 For example, payment obligations that (i) have time-specific intraday deadlines; (ii) are required to settle positions in other payment and settlement systems; (iii) are related to market activities, such as the delivery or return of money market transactions or margin payments; and/or (iv) are critical to the financial institution’s business or reputation. 14 See Principle 9 on collateral management. 15 This may include having (i) the ability to manage payment outflows of key customers; (ii) intraday credit procedures that are capable of supporting timely credit decisions; and (iii) internal coordination across business lines. Liquidity Risk 12 of 25 Issued on: 23 August 2023 (c) identify key times, days and circumstances where liquidity flows and possible intraday credit needs may be particularly high; and (d) understand the business needs underlying the timing of liquidity flows and intraday credit needs of internal business lines and key customers16. S 10.4 For the purpose of paragraph 10.2(b), and in respect to its participation in relevant payment and settlement systems17, a financial institution shall, at minimum, monitor its intraday liquidity positions using the following metrics18: (a) for all financial institutions: (i) daily maximum intraday liquidity usage; (ii) available intraday liquidity at the start of the business day; (iii) total payments; and (iv) time-specific obligations; (b) for financial institutions that provide correspondent banking services: (i) value of payments made on behalf of correspondent banking customers; and (ii) intraday credit lines extended to customers; and (c) for financial institutions which are direct participants of large-value payment systems, which include RENTAS: (i) Intraday throughput. Question 3 a. Does your financial institution foresee facing any significant impediments in monitoring intraday liquidity positions using the metrics set out in paragraph 10.4? If so, please elaborate on what these impediments are. b. Please describe your financial institution's practices in monitoring the encumbrance status of collateral pledged (e.g. cash or securities) for intraday liquidity purposes, especially where these collaterals are also counted as part of your financial institution's HQLA stock for the purposes of compliance with the LCR. 11 Monitoring and control of liquidity risk across entities within the group and business lines S Principle 4: A financial institution must actively monitor and control liquidity risk exposures and funding needs within and across entities within the group and business lines, taking into account legal, regulatory, operational, Shariah and other limitations to the transferability of liquidity. 16 This may entail asking key customers, including customer banks, to forecast their own payment traffic to facilitate this process. 17 This includes the Real-time Electronic Transfer of Funds and Securities System (RENTAS) and retail payments systems (RPS). 18 These intraday monitoring metrics are based on the BCBS’s Monitoring tools for intraday liquidity management issued in 2013; https://www.bis.org/publ/bcbs248.pdf. Liquidity Risk 13 of 25 Issued on: 23 August 2023 S 11.1 Regardless of its organisational structure and degree of centralisation of liquidity risk management, a financial institution must actively monitor and control liquidity risks at the entity, consolidated and Skim Perbankan Islam (SPI) levels19. In addition, the financial institution must have processes in place to identify and manage constraints in transferring liquidity across entities within the group, and business lines20 within both the entity and group. S 11.2 For each country in which it is active – be it through the operations of a foreign branch or subsidiary – a financial institution must ensure that it has the necessary knowledge and expertise about the operating environment of that country (e.g. country-specific features of the legal and regulatory regime) that influence liquidity risk management. G 11.3 A financial institution should consider the possibility that an adverse event affecting one entity could lead to a liquidity strain across the whole group due to reputational contagion. At the same time, cross-entity funding channels can serve to either alleviate or amplify liquidity pressures through the group. As such, and in line with paragraph 13 of the policy document on Recovery Planning21, a financial institution should develop relevant liquidity-related recovery indicators related to intra-group funding needs. The financial institution should also assess the applicability of those recovery indicators. G 11.4 A financial institution should take into consideration transferability constraints in establishing internal limits (e.g. those set out under Principle 5 on funding strategy) on intragroup funding for its branches, subsidiaries and other affiliates which are appropriate and consistent with its liquidity risk tolerance. These constraints may include legal, regulatory, Shariah, accounting, credit, tax, internal and other constraints that can affect the operational arrangements and time required to complete transfers of funding and collateral between entities within the group. Question 4 Does your financial institution presently have liquidity-related recovery indicators related to intra-group funding needs, in line with paragraph 11.3? If yes, please describe these indicators and the corresponding recovery options. If no, please indicate potential challenges that your financial institution may face in developing these indicators. 19 The terms ‘entity’, ‘consolidated’ and ‘Skim Perbankan Islam (SPI)’ carry the same meaning as that stipulated in paragraph 8.2 of the policy document on Liquidity Coverage Ratio. 20 Including an Islamic window operation run by a conventional bank. 21 Financial institutions which are subject to the requirements in the policy document on Recovery Planning must continue to comply with such requirements, including paragraph 13. Liquidity Risk 14 of 25 Issued on: 23 August 2023 12 Funding strategy S Principle 5: A financial institution must establish a sound funding strategy. The funding strategy must not only provide for effective diversification in the sources and tenor of funding, but also a plan for growing its on- and off-balance sheet activities in a sustainable manner. The financial institution must maintain both an ongoing presence in its chosen funding markets and strong relationships with fund providers. A financial institution must regularly gauge its ability to raise funds quickly from each funding source, and identify and monitor factors that may affect that ability. S 12.1 A financial institution must develop and implement a funding strategy to ensure a stable supply of funds to support its on- and off-balance sheet activities. This includes a funding strategy that sets out credible and realistic plans for the financial institution to grow its funding sources in a sustainable manner through business and financial cycles. The funding strategy must also be developed as part of, or closely integrated with, the financial institution’s strategic planning process (including its credit risk strategy and asset-liability management process) and be aligned with its risk appetite. G 12.2 A financial institution should ensure that it grows its funding sources at a measured and gradual pace over time, without resorting to aggressive measures that impair its financial condition and affect orderly market functioning. S 12.3 In developing a sound funding strategy, a financial institution must also implement strategies to diversify its funding sources and establish concentration limits to avoid over-reliance on any particular source or tenor for funding. G 12.4 For the purpose of paragraph 12.3, a financial institution should consider establishing concentration limits for counterparties and funding providers not only against names (e.g. top 20 largest depositors), but also against groups of funding providers which may exhibit correlated behaviour (e.g. economic sector, geographical area). G 12.5 A financial institution should also actively build strong relationships with various key providers of funding, including to attain insights into funding providers’ behaviours, not only in normal times but also in times of idiosyncratic or market- wide shocks. S 12.6 A financial institution must regularly assess its capacity to raise funds quickly from its target funding sources, including identifying and monitoring any key factors22 that can affect its ability to raise funds from each of these funding sources as well as correlations between sources of funds and market conditions. This assessment must be consistent with, and integrated into, the financial institution’s contingency funding planning (see Principle 10). 22 This includes the lack of necessary systems or documentation, sporadic utilisation of, or previously untested, funding arrangements and the lack of official confirmation of any willing counterparties in chosen funding markets. Liquidity Risk 15 of 25 Issued on: 23 August 2023 G 12.7 Based on the assessment in paragraph 12.6, a financial institution should continuously refine its funding strategy such that it can ensure accessibility to funds on an ongoing basis. S 12.8 Regardless of the strength of its relationship with a given funding provider or market, a financial institution must take a prudent view of how these relationships might be strained during times of stress. Both market-wide disruptions and idiosyncratic shocks can impact the financial institution’s cash flows and access to its funding markets. These effects must be taken into account in the financial institution’s stress test scenarios (see Principle 7) and contingency funding planning (see Principle 10). G 12.9 A financial institution that is active in multiple currencies23 should establish a tailored, robust funding strategy that achieves effective diversification in each of those currencies, taking into consideration the possible difficulties in swapping from one currency to another especially during times of stress. Question 5 Does your financial institution foresee any challenges in complying with this Principle? If so, please elaborate on the challenges faced, including the factor(s) contributing to each challenge and the potential impact to your financial institution? 13 Liquidity costs, benefits and risks S Principle 6: A financial institution must incorporate liquidity costs, benefits and risks in the internal pricing, performance measurement and new product approval process for all its business activities (both on- and off-balance sheet), including contingent exposures, thereby aligning the risk-taking incentives of individual business lines with the liquidity risk exposures their activities create for the financial institution as a whole. S 13.1 In assigning liquidity costs, benefits and risks under this Principle24, a financial institution must incorporate factors related to the tenor or anticipated holding periods of assets and liabilities25, their market liquidity risk characteristics, and any other relevant factors26. S 13.2 The liquidity costs, benefits and risks assigned to positions, portfolios, or individual transactions27 must be reviewed as appropriate and on a timely basis 23 Financial institutions that transact in, or have exposures to, more than one currency. 24 The financial institution may refer to the BCBS’s Liquidity Transfer Pricing: A Guide to Better Practice, issued in December 2011; https://www.bis.org/fsi/fsipapers10.pdf. 25 For example, longer tenor funding sources (e.g. 1-year fixed deposits) should receive a higher reward compared to shorter tenor funding sources (e.g. short-term interbank borrowings), while longer tenor maturity transformations (e.g. 30-year mortgage) should receive a higher charge compared to shorter tenor maturity transformations (e.g. 5-year car loan). 26 Such factors include, but are not limited to, whether a deposit is from a retail or wholesale customer, or the currency of the asset or liability. 27 This could be effected by way of a system of internal transfer prices where a liquidity premium is charged to activities that consume liquidity or which create liquidity risks (e.g. loans/financing), while rewarding activities that generate liquidity (e.g. obtaining deposits). Liquidity Risk 16 of 25 Issued on: 23 August 2023 to reflect changing business and financial market conditions, as well as in consideration of potential stressed conditions. Question 6 Does your financial institution foresee any challenges in implementing Principle 6? If yes, what are the steps that can be taken to overcome these challenges? - 14 Liquidity stress testing S Principle 7: A financial institution must conduct liquidity stress tests on a regular basis for a variety of short-term and protracted institution-specific and market- wide stress scenarios (individually and in combination) to identify sources of potential liquidity strain and to ensure that current exposures remain within its established liquidity risk tolerance. The financial institution must use liquidity stress test outcomes to adjust its liquidity risk management strategies, policies, and positions and to develop effective contingency plans. S 14.1 A financial institution must conduct liquidity stress tests28. S 14.2 A financial institution must ensure that its design and frequency of liquidity stress testing is commensurate with its size, nature and complexity as well as the level of liquidity risk exposures. The design and implementation of liquidity stress tests must also take into account the interlinkages and relative importance of the financial institution within the financial system. G 14.3 A financial institution should have the ability to increase the frequency of its liquidity stress tests, as required. This should include to conduct additional liquidity stress tests as requested by the Bank, and if circumstances warrant (such as in volatile market conditions). S 14.4 In addition to conducting liquidity stress tests at the entity and consolidated levels, a financial institution must assess whether additional tests are warranted for individual subsidiaries, branches or business lines that are exposed to significant liquidity risks. Regardless of the organisational structure of the financial institution and the degree of centralisation of liquidity risk management, the financial institution must understand where liquidity risks could arise and factor these risks into its liquidity stress tests. S 14.5 When conducting liquidity stress tests, a financial institution must analyse the impact of stress scenarios on its liquidity position, as indicated by its LCR and NSFR positions, and other internal liquidity metrics. These assessments must encompass various relevant time horizons29. 28 For financial institutions subject to the policy document on Stress Testing, the requirements on liquidity stress tests shall continue to apply. 29 Liquidity stress testing time horizons must cover short-, medium-, and long-term horizons. They should also be, where relevant, adapted to take into account impending significant market or institution- specific events. Liquidity Risk 17 of 25 Issued on: 23 August 2023 S 14.6 A financial institution must properly document and regularly review the design of liquidity stress scenarios and assumptions to ensure their appropriateness and relevance to the changes in the nature, size and complexity of the financial institution’s business model and activities, changes in market conditions, business and financial cycles, as well as actual experience during liquidity stress events (be it that encountered by the financial institution or other financial institutions, including those operating in other jurisdictions). S 14.7 A financial institution must analyse the sensitivity of its liquidity stress test results to a single risk factor or several closely related risk factors. Such sensitivity analyses must provide additional indications of the financial institution’s vulnerabilities to certain liquidity risk factors for further monitoring and control by the financial institution, if it deems necessary. S 14.8 A financial institution must incorporate into its liquidity stress tests the outcomes of, and insights arising from, stress tests performed for other risk types. Specifically, a financial institution must take into account how different risks can interact with funding liquidity risk when designing its liquidity stress tests. This includes, for example: (a) the links between reductions in market liquidity and constraints on funding liquidity, particularly if a financial institution has a significant market share in, or heavy reliance on, specific funding markets; (b) interactions between funding liquidity risk and other non-liquidity risks, such as the interplay between the financial institution’s solvency/capitalisation and liquidity position; and (c) the impact of operational risk (including reputational risk and Shariah non- compliance risk) on funding liquidity risk. G 14.9 A financial institution should consider in its liquidity stress tests the likely behavioural responses of relevant stakeholders to a liquidity stress event and the extent to which their responses may amplify market movements or exacerbate the situation. In doing so, a financial institution should also account for the likely impact of its own behaviour on other market participants. G 14.10 The determination of liquidity stress scenarios or assumptions should be informed by the timeframes which may materialise during liquidity stress events, bearing in mind that these timeframes may be delayed or accelerated in times of stress. For example, a financial institution should reflect the estimated timeframes for the settlement of assets that might be liquidated and the time required to transfer liquidity across borders. If the financial institution adopts a centralised liquidity management model (e.g. reliance on intra-group transfers) or relies on cash flows across settlement systems to meet obligations, it should consider the risk that operational or settlement disruptions may prevent or delay such transfers. G 14.11 Examples of liquidity stress scenarios that a financial institution may consider include: (a) simultaneous drying up of market liquidity in multiple markets that used to be highly liquid; Liquidity Risk 18 of 25 Issued on: 23 August 2023 (b) simultaneous multiple, time-critical liquidity needs in different currencies and/or multiple payment and settlement systems30; (c) severe constraints in accessing secured and unsecured funding; (d) restrictions on currency convertibility; (e) severe withdrawal of deposits; (f) severe operational and settlement disruptions affecting one or more payment or settlement systems; (g) severe disruptions to correspondent or custodian services; and (h) any other stress scenarios involving other risk types and their interactions with liquidity risk. Question 7 What challenges does your financial institution anticipate facing in meeting the provisions on liquidity stress testing under Principle 7? How significant are these challenges and how would your financial institution overcome them? 15 Liquid assets S Principle 8: A financial institution must maintain a cushion of unencumbered, liquid assets that can be converted easily or immediately into cash in a range of liquidity stress scenarios which may entail an institution-specific or market-wide shock or a combination of the two. S 15.1 A financial institution must evaluate the size of its cushion of unencumbered31 liquid assets that should be held given its estimates of liquidity needed under stress32, and consistent with its established risk tolerance. S 15.2 A financial institution which is subject to the policy document on Liquidity Coverage Ratio must consider assessing the quality of its stock of HQLA (notwithstanding its classification based on the list of eligible HQLA set out in paragraph 10 of the policy document on Liquidity Coverage Ratio). This includes to assess whether liquid assets counted as HQLA for purposes of the LCR meet the characteristics of HQLA (as set out in Appendix 1 of the policy document on the Liquidity Coverage Ratio) on an ongoing basis. S 15.3 A financial institution which is not subject to the policy document on Liquidity Coverage Ratio must identify and maintain an adequate stock of liquid assets. In doing so, the financial institution must consider adopting the list of eligible HQLA set out in paragraph 10 of the policy document on Liquidity Coverage Ratio, as appropriate, while also assessing whether such liquid assets meet the 30 This includes liquidity needs arising from the financial institution’s own roles, activities, customer banks and firms. For example, when a bank acts as a correspondent for other banks’ settlement obligations or when a bank takes on special roles in a given settlement system such as acting as a back-up liquidity provider or settlement bank. 31 Free from any legal, regulatory, Shariah, tax, accounting or contractual encumbrances or other practical restrictions for the financial institution to liquidate, sell, transfer or assign the asset. 32 These estimates should go beyond, but at minimum incorporate, the LCR’s implied 30-day stress scenario. Liquidity Risk 19 of 25 Issued on: 23 August 2023 characteristics of HQLA (as set out in Appendix 1 of the policy document on the Liquidity Coverage Ratio) on an ongoing basis. G 15.4 A financial institution should assess whether its cushion of unencumbered liquid assets is sufficient to cover a range of stress events over time horizons beyond or within the 30-day scenario underpinning the LCR. For stress events that are of lower intensity, a financial institution should identify additional (unencumbered) liquid assets (beyond those deemed eligible as HQLA under the LCR) and assess if they can be used to cover for such events without resulting in excessive losses or discounts. G 15.5 Beyond assessing whether liquid assets meet the characteristics of HQLA (in Appendix 1 of the policy document on Liquidity Coverage Ratio), a financial institution should assess other factors which may affect the marketability or value to which an instrument may be monetised in times of institution-specific or market-wide shocks. This may include, but is not limited to, evolving market conditions (e.g. market capacity constraints, sensitivity of prices, interest rate risk), jurisdiction-specific factors (e.g. haircuts, collateral requirements), institution-specific factors (e.g. the financial institution’s own name and presence in relevant markets)33 or concentrations in the financial institution’s HQLA (e.g. instrument types, issuers or tenors). 16 Collateral management S Principle 9: A financial institution must actively manage its collateral positions, differentiating between encumbered and unencumbered assets. A financial institution must also monitor the legal entity and physical location where the collateral is held and how it may be mobilised in a timely manner. S 16.1 A financial institution must have the ability to manage its collateral positions, including assets currently deployed for use as collateral and unencumbered liquid assets available to be used as collateral. S 16.2 A financial institution must ensure that relevant systems are in place to enable active and timely management of its collateral positions on an on-going basis. These include arrangements to: (a) calculate all of its collateral positions, segregated based on the eligibility and acceptability of collateral to counterparties and fund providers; (b) monitor the level of available collateral by legal entity, jurisdiction and currency exposure; (c) track the operational and timing requirements associated with accessing the collateral given its physical location34; and (d) monitor shifts between intraday and overnight or term collateral usage35. 33 A financial institution should also recognise that the accounting treatment of an instrument may pose practical encumbrances and/or indirectly affect the marketability or value of the instrument. 34 For example, the custodian bank or securities settlement system with which the collateral is held, including those held on a cross-border basis. 35 For example, in some cases collateral pledged to a central bank can be used to support intraday, overnight or longer-term credit. However, a given asset can only provide collateral support for one Liquidity Risk 20 of 25 Issued on: 23 August 2023 G 16.3 In determining the sufficiency of collateral to be pledged or delivered, a financial institution should consider, in tandem: (a) trigger events, including those that are contractually specified in financial instruments, that could impact the financial institution’s liquidity position. For example, a financial institution may be required to pledge additional collateral should changes in market positions or its credit rating or financial position negatively impact its liquidity position; (b) the potential uncertainties around the timing of cash flows. For example, a financial institution may pledge additional collateral to meet its payment or settlement obligations if there is unexpected or delayed intraday flows; and (c) any other operational or liquidity arrangements and/or disruptions that could necessitate additional collateral. G 16.4 For assets that are part of a ‘tied position’36, where necessary, a financial institution should adjust measures of available collateral to account for such assets, including demonstrating ability to liquidate those assets or put on a substitute hedge. Question 8 Please describe your financial institution’s monitoring processes and governance structure for collateral management. In particular, please highlight: (a) the frequency of valuing collateral positions; (b) how the encumbrance status of collateral is monitored; (c) the assessment criteria of the quality and usability of collateral (e.g. central bank eligibility, acceptability to your financial institution’s major funding providers, applicable haircuts, etc.); and (d) how your financial institution monitors Shariah compliance on the use of the collateral and preconditions to mobilise collateral in a timely manner (e.g. documentation and operational requirements). 17 Contingency funding plan S Principle 10: A financial institution must have a formal contingency funding plan (CFP) that clearly sets out the strategies for addressing liquidity shortfalls in emergency situations. The CFP must outline policies to manage a range of stress events, establish clear lines of responsibility, include clear invocation and escalation procedures and be regularly tested and updated to ensure that it is operationally robust. S 17.1 A financial institution must formulate a CFP that is commensurate with its complexity, risk profile, scope of operations and role in the financial system. The CFP must be sufficiently flexible to facilitate responses by the financial institution in a variety of adverse scenarios, in a timely manner and at reasonable cost. type of credit facility at a time, thus requiring financial institutions to exercise effective collateral management to meet competing collateral demands. 36 For example, assets used as part of a hedge of an off-balance sheet or derivative position, such as an equity/debt position as a hedge to a total return swap or a negative basis trade. Liquidity Risk 21 of 25 Issued on: 23 August 2023 S 17.2 A financial institution must set out in its CFP: (a) a clear description of a diverse set of viable, readily available and flexibly deployable potential contingency funding measures for preserving liquidity and making up cash flow shortfalls in various adverse scenarios; (b) available potential contingency funding sources that these contingency funding measures will tap on and an estimate of the amount of funds that can be derived from each of these sources; (c) the lead time needed to tap additional funds from each of the contingency funding sources; and (d) clear policies and procedures that will enable timely and well-informed decision-making, swift execution of the contingency funding measures, and effective communication. S 17.3 A financial institution must ensure that its CFP is closely integrated with its risk management framework, which should include other elements of its framework for managing liquidity risk (e.g. liquidity stress tests), recovery plan, business continuity plan and management action triggers. G 17.4 The financial institution should also reflect, where relevant, the design of central bank liquidity facilities in its CFP (e.g. list of acceptable collateral, operational procedures). The financial institution should include in its CFP an assessment of potential reputational issues involved in accessing such facilities, and measures that can be taken to manage such risk. Contingency funding measures G 17.5 For the purpose of paragraph 17.2(a), the various adverse scenarios for which the contingency funding measures are designed for should include both institution-specific and more generalised market-wide stresses, as well as the potential interactions between them. These scenarios should incorporate: (a) stress scenarios over a range of different time horizons; (b) the impact of stressed market conditions on a financial institution’s ability to sell or securitise assets; (c) the link between asset market and funding liquidity (e.g. the extensive or complete loss of typically available market funding options); and (d) second round and reputational effects37. G 17.6 A financial institution’s CFP should also address intraday liquidity risk (see Principle 3). Specifically, the financial institution should: (a) have the ability to identify critical payments, sequence or schedule payments based on priority, and access contingent sources of intraday liquidity; (b) consider that time-critical settlement needs may arise not only from its own transactions, but also those of its customers, and from its provision of services to payment and settlement systems (e.g. by acting as a contingency liquidity provider); and 37 Examples include: (i) consequences from the execution of certain contingency funding measures; and (ii) reputational contagion from an intra-group institution-specific stress event which could lead to a liquidity strain across the whole group and/or rendering institution-specific CFPs non-viable. Liquidity Risk 22 of 25 Issued on: 23 August 2023 (c) consider the risk management procedures of all relevant systems and have the ability to handle simultaneous disruptions in multiple payment and settlement systems. G 17.7 A financial institution should take a prudent view as to the effectiveness of contingency funding measures in times of stress. For example: (a) a financial institution should critically assess whether identified potential funding sources (e.g. deposit growth, asset sales) can be feasibly executed at different points of a business or financial cycle, such as during a financial crisis. This includes to assess whether strong relationships with fund providers developed in normal times can continue to be preserved in times of stress, especially during systemic liquidity stress events; (b) where assumed in the design of its contingency funding measures, a financial institution should assess the ability to transfer liquidity across entities within the group, jurisdictions and lines of business (see Principle 4), taking into account legal, regulatory, Shariah, operational and time zone restrictions and constraints. In line with paragraphs 8.4 and 8.538 of the policy document on Recovery Planning, a financial institution’s CFP should also be coherent with and aligned across entities within the group, jurisdictions and lines of business, giving due regard to Shariah requirements where Islamic financial institutions are involved; and (c) for the purpose of paragraph 17.2(c), a financial institution should account for the associated operational procedures in determining a realistic timeline for liquidity transfers. In doing so, a financial institution should consider how these lead times would change under various assumptions and stresses. A financial institution should incorporate these considerations in the design of its contingency funding measures. Policies and procedures S 17.8 A financial institution’s CFP must contain clear policies and procedures that enable timely and well-informed decision-making, swift execution of contingency measures, and effective communication. These policies and procedures must include: (a) clear specification of roles and responsibilities39, including the authority to invoke the CFP; (b) clear decision-making processes (including escalation and prioritisation procedures) on which actions to activate, when and how these actions should be activated, and the appropriate level of authority required for approval for each action; (c) names and contact details of members of the team responsible for implementing the CFP and the locations of team members; (d) procedures to deliver effective internal coordination and communication across the financial institution’s different business lines and locations; 38 Financial institutions which are subject to the requirements in the policy document on Recovery Planning must continue to comply with such requirements, including paragraphs 8.4 and 8.5. 39 In addition to paragraph 8.7 of the policy document on Business Continuity Management which stipulates that a financial institution must set up a crisis management team to make key decisions during a crisis, the financial institution may choose to set up a liquidity-specific crisis management team, if appropriate, to facilitate internal coordination and decision-making during a liquidity crisis. Liquidity Risk 23 of 25 Issued on: 23 August 2023 (e) the designation of alternates for key roles; (f) clear specifications of when and how to contact external parties, such as supervisors, central banks, or payments system operators; and (g) plans for effective communication with counterparties, credit rating agencies and other stakeholders during a stress event. S 17.9 For the purpose of 17.8(g), and in line with paragraph 16 of the policy document on Recovery Planning, a financial institution must ensure that its CFP includes a communication plan to keep customers, counterparties and other relevant external and internal stakeholders adequately informed of the relevant developments, so as to maintain customer and market confidence. The communication plan in the CFP must be closely integrated with the financial institution’s crisis communications strategy and framework. The CFP must provide for the delivery of timely, clear and consistent communication to stakeholders under a variety of stress events. The financial institution must also ensure that the channel of communication, level of detail, timing and frequency of information provided is appropriate for each target stakeholder group. G 17.10 A financial institution should ensure that its CFP is consistent with its business continuity management and recovery planning frameworks. The financial institution should also ensure that the CFP is operational under situations where business continuity arrangements or recovery plans have been invoked. To this end, the financial institution should ensure that there is effective coordination between the teams managing issues surrounding liquidity crises, business continuity management and recovery planning. S 17.11 A financial institution must ensure that its CFPs (and the associated policies and procedures) are readily accessible to relevant officers and that such officers are made aware of the operational procedures of the CFP. Testing, update and maintenance S 17.12 For the purpose of paragraph 8.3(h), a financial institution must regularly review, test, and update its CFP to be relevant with market conditions and its circumstances in order to ensure the CFP’s effectiveness and operational feasibility. This includes to: (a) ensure that roles and responsibilities are appropriate and understood by all relevant officers; (b) ensure that all contact information remains up to date; (c) validate the transferability of cash and collateral (especially across jurisdictions and entities within the group); (d) ensure that the necessary legal and operational documentation is in place and remain relevant to execute the CFP at short notice; and (e) ensure key assumptions remain relevant and valid, such as the ability to sell or repo certain assets or periodically draw down credit lines. G 17.13 In line with paragraph 18.2 of the policy document on Recovery Planning, a financial institution should adopt approaches to review and test its CFP that are appropriate to its circumstances. This should include for the board to exercise Liquidity Risk 24 of 25 Issued on: 23 August 2023 effective oversight of the financial institution’s CFP and for senior management to review and test the CFP as outlined in paragraph 17.12. 18 Public disclosure S Principle 11: A financial institution must publicly disclose high-quality liquidity- related information on a regular and timely basis to enable market participants and relevant stakeholders to make informed judgements about a financial institution’s ability to meet its liquidity needs. S 18.1 A financial institution must disclose qualitative information that provides market participants and relevant stakeholders insights into how it manages its liquidity risk. The qualitative disclosure shall, at minimum: (a) explain the financial institution’s governance and organisational structure for managing liquidity risk40. This includes the roles and responsibilities of relevant officers, committees, functions and business units involved in managing liquidity, as well as the degree to which the treasury function and liquidity risk management is centralised or decentralised; and (b) set out the approach adopted by the financial institution to identify, assess and manage liquidity-related risks. G 18.2 In relation to paragraph 18.1, a financial institution may disclose: (a) the liquidity risk tolerance statement; (b) its funding strategy, including policies on diversification in the sources and tenor of funding, (c) the aspects of liquidity risk to which the financial institution is exposed and that it monitors; (d) the diversification of the financial institution’s funding sources; (e) metrics and targets as well as other techniques used to mitigate liquidity risk; (f) the concepts utilised in measuring its liquidity position and liquidity risk, including additional metrics used internally for which the financial institution is not publicly disclosing data; (g) an explanation of how asset market liquidity risk is reflected in the financial institution’s framework for managing funding liquidity; (h) an explanation of how stress testing is used; (i) a description of the stress testing scenarios modelled; (j) an outline of the financial institution’s contingency funding plans and an indication of how the plans relate to stress testing; (k) the financial institution’s policy on maintaining liquidity buffers; (l) regulatory restrictions on the transfer of liquidity among entities within the group, including any Shariah restrictions; and (m) the frequency and type of internal liquidity reporting. S 18.3 A financial institution must disclose quantitative information about its liquidity position for market participants to form a view of the extent of its liquidity risk. 40 For locally incorporated foreign banks, this may include information about the global group-wide structure and liquidity risk management framework of the group. Liquidity Risk 25 of 25 Issued on: 23 August 2023 G 18.4 In addition to disclosing liquidity-related information on the analysis of assets and liabilities in relevant maturity tenures based on remaining contractual or behavioural maturities (as set out in paragraph 11.4(d) of the policy document on Financial Reporting41), a financial institution may consider including, as appropriate, disclosures relating to the LCR, NSFR or other internal measurement tools or metrics. G 18.5 For the purposes of paragraphs 18.3 and 18.4, a financial institution should provide relevant accompanying narratives which explain and discuss quantitative disclosures to facilitate an understanding of the results and the accompanying data (e.g. factors driving results, evolution of indicators over time, limitations to interpreting results). G 18.6 A financial institution may expand on disclosures in existing disclosure publications (e.g. annual financial report) or publish liquidity-related information on the financial institution’s website (in which case, disclosures from prior reporting periods should continue to be made available). A financial institution operating as, or part of a, financial group in Malaysia may rely on group-level qualitative disclosures as required under paragraph 18.1, to the extent that the approach to managing liquidity risk at that financial institution is consistent with that at the group level. S 18.7 While the Bank does not require the disclosures under this Principle to be audited by external auditors42, a financial institution must be responsible for ensuring that the disclosures are accurate, verifiable and complete. G 18.8 For the purpose of paragraph 18.7, the Bank may require an independent audit of such disclosures by an external auditor at the financial institution’s expense. Question 9 Are there any concerns or difficulties anticipated in complying with the disclosure requirements under Principle 11 above at this juncture? Please also provide suggestions on an ideal time period required for financial institutions to comply, with clear justifications and areas which would require extended time. Question 10 Does your financial institution anticipate any other challenge in meeting the requirements set out in this exposure draft? What impact might these requirements have on your financial institution’s business (and in the case of prescribed DFIs, in performance of its mandates)? 41 Financial institutions which are subject to the requirements in the policy document on Financial Reporting must continue to comply with such requirements, including paragraph 11.4(d). 42 With the exception of the disclosure on the analysis of assets and liabilities in the relevant maturity tenures based on remaining contractual maturities, for which paragraph 11.4(d) of the policy document on Financial Reporting requires that it be audited. PART A OVERVIEW 1 Introduction 2 Applicability 3 Legal provisions 4 Effective date 5 Interpretation 6 Related legal instruments and policy documents 7 Policy documents and circulars superseded PART B POLICY REQUIREMENTS 8 Roles and responsibilities of the board and senior management 9 Identification, measurement, monitoring and control of liquidity risk 10 Intraday liquidity risk management 11 Monitoring and control of liquidity risk across entities within the group and business lines 12 Funding strategy 13 Liquidity costs, benefits and risks 14 Liquidity stress testing 15 Liquid assets 16 Collateral management 17 Contingency funding plan 18 Public disclosure	null
25 Sep 2023	Dokumen Dasar Kualiti dan Integriti Mata Wang	https://www.bnm.gov.my/-/pd-qic-bm	https://www.bnm.gov.my/documents/20124/938039/pd_Quality_and_Integrity_of_Currency_sept2023.pdf, https://www.bnm.gov.my/documents/20124/938039/faq_Quality_and_Integrity_of_Currency_sept2023.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/pd-qic-bm&languageId=ms_MY	Reading: Dokumen Dasar Kualiti dan Integriti Mata Wang Share: 7 Dokumen Dasar Kualiti dan Integriti Mata Wang Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1105 pada Isnin, 25 September 2023 25 Sep 2023 Ringkasan Dokumen Dasar ini menetapkan perkara-perkara yang berikut: (a) kriteria penentuan kualiti mata wang Malaysia dalam edaran; (b) piawaian pemprosesan dan pengedaran semula mata wang Malaysia kepada orang ramai; (c) piawaian pengendalian mata wang Malaysia yang disyaki palsu di Malaysia; (d) keperluan merekodkan dan melaporkan mata wang Malaysia yang disyaki palsu; (e) tempoh masa untuk membuat laporan polis terhadap mata wang Malaysia yang disyaki palsu; dan (f) keperluan untuk mempunyai kakitangan yang cekap dan memiliki mesin pemprosesan mata wang yang sesuai. . Tarikh Penerbitan 12 September 2023 Tarikh Berkuat Kuasa 1 Oktober 2023 Jabatan Yang Menerbitkan Dokumen Pengurusan dan Operasi Mata Wang Dokumen (a) Dokumen Dasar (b) Soalan Lazim Bank Negara Malaysia 25 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Issued on: 12 September 2023 BNM/RH/PD 030-13 Quality and Integrity of Currency Applicable to: 1. Licensed banks 2. Licensed Islamic banks 3. Prescribed institutions 4. Licensed money changers 5. Licensed remittance service providers 6. Licensed currency wholesalers 7. Registered currency processors Quality and Integrity of Currency Issued on: 12 September 2023 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................ 1 1. Introduction ........................................................................................................... 1 2. Applicability ........................................................................................................... 1 3. Legal Provision ...................................................................................................... 2 4. Effective Date ........................................................................................................ 2 5. Interpretation ......................................................................................................... 2 6. Related Legal Instruments .................................................................................... 4 7. Superseded Policy Documents ............................................................................. 4 8. Enquiries ............................................................................................................... 4 PART B QUALITY OF CURRENCY .................................................................... 5 9. Introduction ........................................................................................................... 5 10. Criteria for Fit Currency ......................................................................................... 5 11. Criteria for Defaced Currency Note and Unfit Currency Note ................................ 5 12. Criteria for Tampered Currency Coin and Worn Currency Coin ............................ 7 13. Processing of Currency ......................................................................................... 8 14. Submission of Defaced Currency Note excluding Unfit Currency Notes, Tampered Currency Coin excluding Worn Currency Coins, and Demonetised Currency to BNM ................................................................................................... 9 15. Submission of Unfit Currency Notes and Worn Currency Coins to BNM .............. 9 PART C INTEGRITY OF CURRENCY ............................................................... 11 16. Introduction ......................................................................................................... 11 17. Detention and Recording of Information on Suspected Counterfeit Malaysian Currency 11 18. Reporting of Information on Suspected Counterfeit Malaysian Currency ............ 13 PART D CURRENCY PROCESSING OPERATION .......................................... 17 19. Requirements on Currency Processing Operation .............................................. 17 20. Requirements on Currency Processing Machine ................................................ 18 21. Requirements on Recording, Reconciliation and Reporting ................................ 20 Appendix I Illustration: Defaced and unfit currency note ........................................ 22 Appendix II Illustration: Tampered and worn currency coin ..................................... 25 Appendix III Form: Handover of Suspected counterfeit Malaysian currency ............ 27 Appendix IV Form: Details of carrier ......................................................................... 28 Appendix V Form: Details of suspected counterfeit Malaysian currency ................. 29 Quality and Integrity of Currency 1 of 29 Issued on: 12 September 2023 PART A OVERVIEW 1. Introduction 1.1. As the sole authority to issue currency note and currency coin in Malaysia under section 5 of the Currency Act 2020 (CA), Bank Negara Malaysia (BNM)– (a) is responsible for promoting the preservation of the quality and integrity of currency note and currency coin in circulation in accordance with section 17 of the CA; (b) is responsible for promoting the reissuance and recirculation of currency note and currency coin in accordance with section 17 of the CA; and (c) is empowered to issue standards and guidelines relating to currency note and currency coin pursuant to sections 61 and 62 of the CA respectively. 1.2 This policy document sets out– (a) the criteria in determining the quality of currency note and currency coin in circulation; (b) the standards to be adhered to by financial institutions (FIs) in processing currency note and currency coin, and recirculating them to the public; (c) the standards to be adhered to by FIs in handling suspected counterfeit Malaysian currency in Malaysia when– (i) deposited or exchanged by members of the public with the FIs over the counter; (ii) discovered by the FIs during cash processing at FIs’ premises; or (iii) discovered by the FIs at Self-Service Terminals; (d) the requirements for FIs to record and report the discovery of suspected counterfeit Malaysian currency to its headquarters, BNM, Polis Diraja Malaysia (PDRM) and relevant persons; (e) the timeline for FIs to lodge a police report with PDRM of the discovery of suspected counterfeit Malaysian currency; and (f) the requirements for FIs to have competent staff, and to calibrate and perform attestation on their currency processing machines. 2. Applicability 2.1. This policy document is applicable to FIs as defined in paragraph 5.2. Quality and Integrity of Currency 2 of 29 Issued on: 12 September 2023 3. Legal Provision 3.1. This policy document is issued pursuant to sections 5, 7, 16(2), 17, 33, 34, 37, 38, 39, 40, 41, 61, 62 and 63 of the CA. 4. Effective Date 4.1. This policy document comes into effect on 1 October 2023. 5. Interpretation 5.1. The terms and expressions used in this policy document shall, where applicable, have the same meanings assigned to them in the CA unless otherwise defined in this policy document. 5.2. For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretive, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendation that are encouraged to be adopted; “audit cycle” means a complete audit cycle on an FI conducted by internal audit team of the FI with a minimum cycle of every one (1) year; “carrier” means a member of the public who deposit or exchange suspected counterfeit Malaysian currency over-the-counter at FIs; “counterfeit Malaysian currency” means any note or coin issued by any person other than BNM which forges, imitates or resembles Malaysian currency; “currency coin” has the same meaning assigned to it in section 2(1) of the CA and means a coin issued by BNM including a commemorative coin issued by BNM for, or to commemorate, a particular event or purpose. For the avoidance of doubt, currency coin shall include Kijang Emas coins issued by BNM; “currency note” has the same meaning assigned to it in section 2(1) of the CA and means a note issued by BNM including a commemorative note issued by BNM for, or to commemorate, a particular event or purpose; “currency processing data” means data generated or obtained from currency processing activities or currency processing business which may include, but not limited to quantity of currency and denomination processed, date and time of processing, and name and location of FIs involved; Quality and Integrity of Currency 3 of 29 Issued on: 12 September 2023 “currency processing machine” means a machine capable of collecting, sorting or packing Malaysian currency and is used in currency processing activities or currency processing business; “defaced currency note” means a currency note which is deemed defaced under section 2(2) of the CA including those described in paragraph 11.1; “demonetised currency” means a currency note or currency coin which has ceased to be legal tender pursuant to section 13 of the CA; “fit currency” means a currency note or currency coin that meets the criteria listed in paragraphs 10.1 and 10.2 respectively; “financial institutions” or “FIs” mean– (a) licensed banks under the FSA; (b) licensed Islamic banks under the IFSA; (c) prescribed institutions under the Development Financial Institutions Act 2002 (DFIA); (d) licensees under the Money Services Business Act 2011 (MSBA); and (e) registered currency processor (RCP) under the CA; “Malaysian currency” means currency notes and currency coins; “reporting system” means Operational Risk Integrated Online Network (ORION), Operational Risk Reporting (ORR), or such other system identified in writing by BNM for lodging of incidences by FIs (except for licensees under the MSBA and RCP) to BNM; “Self-Service Terminals” or “SST” means any– (a) Cash Deposit Machine (CDM) which facilitates the deposit of currency notes with FIs by customers; (b) Cash Recycler Machine (CRM) which facilitates both withdrawal and deposit of currency note with FIs by customers; or (c) Coin Deposit Machine (CoDM) which facilitates the deposit of currency coins with FIs by customers; “tampered currency coin” means a currency coin which is deemed tampered with under section 2(3) of the CA including those described in paragraph 12.1; “unfit currency note” means any currency note described in paragraph 11.1(i); and Quality and Integrity of Currency 4 of 29 Issued on: 12 September 2023 “worn currency coin” means any currency coins described in paragraph 12.1(g). 6. Related Legal Instruments 6.1. This policy document shall be read together with other relevant legal instruments and policy documents that have been issued by BNM and as may be specified or amended by BNM, in particular – (a) Policy Document on Operational Risk Integrated Online Network (ORION) issued by BNM on 25 February 2021; (b) Guidelines on Dye-Stained Currency Notes issued by BNM on 26 August 2020; (c) Guidelines on Exchange of Defaced Currency Notes, Tampered Currency Coins and Demonetised Currency at Financial Institutions issued by BNM on 15 December 2020; and (d) Guidelines on Quality of Currency and Handling of Suspected Counterfeit Currency issued by BNM on 22 December 2022. 7. Superseded Policy Documents 7.1. This policy document supersedes the Guidelines on Handling of Suspected Counterfeit Malaysian Currency Notes issued by BNM on 2 September 2014. 8. Enquiries 8.1. All enquiries and correspondences relating to this policy document shall be addressed to- Director Currency Management and Operations Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur. 8.2. Any enquiries shall be directed to BNM at [email protected] or using general line 03-2698 8044. mailto:[email protected] Quality and Integrity of Currency 5 of 29 Issued on: 12 September 2023 PART B QUALITY OF CURRENCY 9. Introduction 9.1. It is critical that the quality of Malaysian currency in circulation be maintained at a desired level. As the quality of currency notes and currency coins in circulation deteriorates over time, any currency note and currency coin not fit for circulation should be promptly identified and replaced with fit currency. This is necessary as a matter of security as currency notes and currency coins of good quality are intact and easier to be authenticated of its genuineness. 10. Criteria for Fit Currency 10.1. A currency note is fit and thus, suitable for recirculation if it meets all the following criteria: (a) genuine (i.e. not a counterfeit Malaysian currency note); (b) free from manufacturing defect; (c) not a defaced currency note; and (d) not a demonetised currency. 10.2. A currency coin is fit and thus, suitable for recirculation if it meets all the following criteria– (a) genuine (i.e. not a counterfeit Malaysian currency coin); (b) free from manufacturing defect; (c) not a tampered currency coin; and (d) not a demonetised currency. 10.3. Only fit currency note and currency coin shall continue to be in circulation and be recirculated to the public by FIs. 11. Criteria for Defaced Currency Note and Unfit Currency Note 11.1. Without limiting the generality of section 2(2) of the CA, a currency note that has any of the following features is considered a defaced currency note– (a) Inscribed Word, sign, symbol, drawing, caricature or other thing (not part of the original design of the currency note) written, inscribed or shown on the surface of the currency note. S S S S Quality and Integrity of Currency 6 of 29 Issued on: 12 September 2023 (b) Ink wear Visible ink erosion or change of appearance on part or whole of currency note due to deterioration sustained from continuous use or due to contact with water, oil, paint, ink, chemical or other substance. (c) Tear Tear of any direction with length of more than 5mm on any part of the currency note. (d) Hole Visible hole or missing part of any shape greater than 5mm2 on the currency note. (e) Repair Repaired by joining two (2) or more portions of a single currency note provided that such portions may be established beyond all reasonable doubt to have been originally part of a single currency note. (f) Burnt Damage on the currency note caused by exposure to fire of any direction with size of more than 5mm2. (g) Missing security feature One or more security feature on the currency note is missing or defective. (h) Dye-Stained Currency note stained using an authorised dye ink due to– (i) an accidental discharge; or (ii) failed robbery attempt where the currency note is recovered in a controlled manner by the FIs. (i) Unfit A currency note that has any of the following features is considered an unfit currency note– (i) Soiled General or localised spread of dirt or ink on the surface of the currency note. (ii) Limpness Excessive folding that results in a breakdown of the structure and limpness of the currency note. (iii) Crumples Currency note with– Quality and Integrity of Currency 7 of 29 Issued on: 12 September 2023 (A) multiple random folds across the entire currency note that significantly affect the visual appearance of the currency note; or (B) shrinkage of a polymer currency note due to excessive heat. (iv) Corner folds Permanent and irreparable corner folds on the currency note leading to a reduction in size of more than 5mm2. 11.2. Illustrations of a defaced currency note are provided in Appendix I. 11.3. Any defaced currency note must be withdrawn from circulation and not recirculated to the public by FIs. 12. Criteria for Tampered Currency Coin and Worn Currency Coin 12.1. Without limiting the generality of section 2(3) of the CA, a currency coin that has any of the following features shall be considered a tampered currency coin– (a) Hole Visible hole of any size on any part of the currency coin. (b) Dented Visible pit and bend on the surface of the currency coin. (c) Broken Currency coin fractured into pieces. (d) Cut An opening of any length on the currency coin made by using a sharp tool. (e) Burnt Damage caused by exposure to fire which can result in discoloration and may alter the appearance of the currency coin. (f) Manufacturing defect A markedly unusual or abnormal currency coin due to manufacturing defect. (g) Worn A currency coin that has any of the following features is considered a worn currency coin– (i) Corroded Damage caused by reaction with chemical or atmosphere on part of or the entire surface of the currency coin. G S S Quality and Integrity of Currency 8 of 29 Issued on: 12 September 2023 (ii) Stained Change in colour of the currency coin caused by wear and tear or dirt (e.g. a currency coin with a black or polluted surface). 12.2. Illustrations of a tampered currency coin are provided in Appendix II. 12.3. Any tampered currency coin must be withdrawn from circulation and not recirculated to the public by FIs. 13. Processing of Currency 13.1. When processing currency notes, FIs shall segregate them into the following categories: (a) fit currency notes; (b) defaced currency notes excluding unfit currency notes; (c) unfit currency notes; (d) demonetised currency note; and (e) suspected counterfeit Malaysian currency note. 13.2. When processing currency coins, FIs shall segregate them into the following categories: (a) fit currency coins; (b) tampered currency coins excluding worn currency coins; (c) worn currency coins; (d) demonetised currency coin; and (e) suspected counterfeit Malaysian currency coin. 13.3. FIs shall not mix currency of different categories listed in paragraphs 13.1 or 13.2. 13.4. FIs shall not send any defaced currency note, tampered currency coin and demonetised currency to BNM through mail. BNM will not entertain and shall not be liable for any claim for missing or insufficient amount of defaced currency notes, tampered currency coins and demonetised currency sent to BNM through mail. G S S S S S Quality and Integrity of Currency 9 of 29 Issued on: 12 September 2023 14. Submission of Defaced Currency Note excluding Unfit Currency Notes, Tampered Currency Coin excluding Worn Currency Coins, and Demonetised Currency to BNM 14.1. Where the FIs excluding licensees under the MSBA discover defaced currency notes excluding unfit currency notes, tampered currency coins excluding worn currency coins, or demonetised currency, such FIs shall submit them to BNM for exchange over-the-counter in accordance with the following procedures– (a) where possible, consolidate defaced currency notes excluding unfit currency notes, tampered currency coins excluding worn currency coins, and demonetised currency from their branches in their respective regions; (b) make an appointment with BNM prior to the over-the-counter exchange; (c) submit the defaced currency notes excluding unfit currency notes, tampered currency coins excluding worn currency coins, and demonetised currency in a sealed polythene bag to BNM; and (d) obtain acknowledgement of receipt from the cashier at BNM upon submission. 14.2. FIs excluding licensees under the MSBA must ensure only defaced currency notes excluding unfit currency notes, tampered currency coins excluding worn currency coins, or demonetised currency are exchanged over-the-counter with BNM. 14.3. FIs excluding licensees under the MSBA shall not deposit any defaced currency note excluding unfit currency notes, tampered currency coin excluding worn currency coins, or demonetised currency with BNM. 14.4. Licensees under the MSBA that discover defaced currency notes, tampered currency coins or demonetised currency shall exchange them with a licensed bank or licensed Islamic bank. 15. Submission of Unfit Currency Notes and Worn Currency Coins to BNM 15.1. Where FIs excluding licensees under the MSBA discover unfit currency notes and worn currency coins, such FIs shall submit them to BNM by depositing them with BNM in accordance with the following procedures– (a) where possible, consolidate unfit currency notes and worn currency coins from their branches in their respective regions; (b) ensure every unfit currency note bundle has with it a packing slip with correct information; (c) make an appointment through BNM’s dedicated system for the purposes of submission; S S S S S Quality and Integrity of Currency 10 of 29 Issued on: 12 September 2023 (d) submit the unfit currency notes and worn currency coins in complete quantity to BNM according to the packing requirements set by BNM at the appointed date and time; and (e) obtain acknowledgement of receipt from BNM via the system upon submission. 15.2. FIs excluding licensees under the MSBA are allowed to deposit fit currency notes together with unfit currency notes with BNM in separate packaging, provided that they are in complete quantity according to the packing requirements set by BNM. 15.3. FIs excluding licensees under the MSBA shall not exchange with BNM over-the- counter any unfit currency note or worn currency coin. S S Quality and Integrity of Currency 11 of 29 Issued on: 12 September 2023 PART C INTEGRITY OF CURRENCY 16. Introduction 16.1. Counterfeit Malaysian currency is not legal tender as it is not issued by BNM. Thus, BNM will not give any value to any counterfeit Malaysian currency. 16.2. FIs shall not recirculate any counterfeit Malaysian currency or suspected counterfeit Malaysian currency discovered from circulations, during currency processing or from the SST. 16.3. Any use of counterfeit Malaysian currency as genuine or possession of it with the intention to use it as genuine by any person is a criminal offence under the Penal Code [Act 574]. 17. Detention and Recording of Information on Suspected Counterfeit Malaysian Currency 17.1. FIs shall detain any suspected counterfeit Malaysian currency discovered during any transaction with their customers, during currency processing or from the SST. 17.2. FIs shall not release the suspected counterfeit Malaysian currency detained under paragraph 17.1 back into circulation under any circumstances including– (a) return to original carrier; (b) recirculate to another customer; (c) deposit with BNM together with unfit currency notes or worn currency coins; and (d) exchange with BNM, together with defaced currency notes or tampered currency coins. (A) Over-the-counter 17.3. FIs shall comply with the following procedures upon detection of suspected counterfeit Malaysian currency during an over-the-counter transaction: (a) detain the suspected counterfeit Malaysian currency from the carrier; (b) inform the carrier that the suspected counterfeit Malaysian currency will be surrendered to PDRM pursuant to section 39 of the CA and will be returned to the carrier if it is later discovered to be genuine pursuant to section 40(1) of the CA; S S S Quality and Integrity of Currency 12 of 29 Issued on: 12 September 2023 (c) limit any handling of the suspected counterfeit Malaysian currency to a minimum and shall not stamp, write on, cut or alter the suspected counterfeit Malaysian currency in any manner; (d) keep the suspected counterfeit Malaysian currency in a sealed tamper proof evidence bag, place it in a secured place pending lodgement of police report and surrender the same to PDRM; (e) record the personal information of the carrier or any other person who gives the suspected counterfeit Malaysian currency to the carrier in accordance with section 38(1) of the CA by requesting the carrier to complete the Handover of Suspected Counterfeit Currency Form as per Appendix III; (f) obtain a copy of the carrier’s identity card (NRIC), passport or any other document which may be used to confirm the identity of the carrier in accordance with section 38(1) of the CA; (g) assign each incident of suspected counterfeit Malaysian currency with one reference number as per the following format: Format: Institution name_branch name_year_reference number Example: BNM_BNMOPP1_2023_00001; and (h) complete and sign the Handover of Suspected Counterfeit Malaysian Currency Form, make at least two (2) duplicate copies of the form and provide a duplicate copy to the carrier as proof of receipt. (B) During currency processing or from the SST 17.4. FIs shall comply with the following procedures upon detection of suspected counterfeit Malaysian currency during currency processing or from the SST– (a) limit any handling of the suspected counterfeit Malaysian currency to a minimum and shall not stamp, write on, cut or alter the suspected counterfeit Malaysian currency in any manner; (b) keep the suspected counterfeit Malaysian currency in a sealed tamper proof evidence bag, place it in a secured place pending lodgement of police report and surrender the same to PDRM; and (c) record the information in relation to the discovery, including but not limited to the following: (i) date and time of discovery; 1 Bank Negara Malaysia Office Pulau Pinang S Quality and Integrity of Currency 13 of 29 Issued on: 12 September 2023 (ii) name and location of FIs involved; and (iii) source of currency note or currency coin i.e. collected from cashier or the SST. 17.5. FIs shall immediately return to the carrier any suspected counterfeit Malaysian currency which has been certified as genuine after investigation by PDRM. 18. Reporting of Information on Suspected Counterfeit Malaysian Currency 18.1. For purposes of paragraph 18, the term “suspicious circumstances” refers to- (a) a situation where the FIs suspect the carrier to be the counterfeiter; (b) a situation where a repetitive trend or modus operandi of passing counterfeit Malaysian currency is observed; or (c) any other circumstances deemed suspicious by the FIs. 18.2. The reporting procedures on suspected counterfeit Malaysian currency stipulated in this Part involve reporting to the following: (a) headquarters of the FIs; (b) BNM; (c) PDRM; and (d) vendors of the SST where the counterfeit Malaysian currency was discovered. (A) Over-the-counter 18.3. FIs excluding RCP shall report the discovery of suspected counterfeit Malaysian currency (regardless of quantity) during an over-the-counter transaction to its headquarters within three (3) working days from the time of discovery by submitting the “Summary of Suspected Counterfeit Malaysian Currency” report as per Appendix IV and Appendix V. 18.4. FIs excluding RCP and licensees under the MSBA shall report the discovery of suspected counterfeit Malaysian currency during an over-the-counter transaction to BNM via the reporting system according to the timeline stipulated in the policy document related to the reporting system. S S S S S Quality and Integrity of Currency 14 of 29 Issued on: 12 September 2023 18.5. Licensees under the MSBA shall submit to BNM, via email to [email protected] on a monthly basis by the 15th calendar day of the following month2, a report containing the following information: (a) whether there is discovery of suspected counterfeit Malaysian currency during an over-the-counter transaction during the reporting month; and (b) the aggregate number of suspected counterfeit Malaysian currency discovered during an over-the-counter transaction during the reporting month. For avoidance of doubt, monthly reporting is required even if there is no discovery of suspected counterfeit Malaysian currency during the reporting month. 18.6. FIs shall lodge a police report at the nearest police station on the discovery of suspected counterfeit Malaysian currency (regardless of quantity) during an over-the-counter transaction– (a) within twenty-four (24) hours from the time of discovery where the discovery involves suspicious circumstances; (b) within three (3) working days from the time of discovery where the discovery does not involve suspicious circumstances. 18.7. During the lodgement of police report in accordance with paragraph 18.5, FIs shall surrender the following to PDRM– (a) the suspected counterfeit Malaysian currency in a sealed tamper proof evidence bag; (b) a copy of the completed form under paragraph 17.3(e); (c) a copy of the carrier’s NRIC, passport or other document to confirm the identity of the carrier under paragraph 17.3(f); and (d) any other related documents. (B) During currency processing or from the SST 18.8. FIs shall report the discovery of suspected counterfeit Malaysian currency (regardless of quantity) during currency processing or from the SST to its headquarters within twenty-four (24) hours from the time of discovery by submitting the “Summary of Suspected Counterfeit Malaysian Currency” report as per Appendix V. 2 For example, all events that occur from 1st January to 31st January shall be reported by 15th February S S S S mailto:[email protected] Quality and Integrity of Currency 15 of 29 Issued on: 12 September 2023 18.9. RCP who acts as a service provider on currency processing to FIs shall report the discovery of suspected counterfeit Malaysian currency during currency processing or from the SST to its client’s headquarter within twenty-four (24) hours from the time discovery. 18.10. FIs excluding RCP and licensees under the MSBA shall report the discovery of suspected counterfeit Malaysian currency during currency processing or from the SST to BNM via the reporting system according to the timeline stipulated in the policy document related to the reporting system. 18.11. RCP who processes currency for a person other than an FI and licensees under the MSBA shall submit to BNM via email to [email protected]– (a) a report on the discovery of suspected counterfeit Malaysian currency (regardless of quantity) during currency processing or from the SST within three (3) working days from the time of discovery; and (b) a report, on a monthly basis by the 15th calendar day of the following month3, containing the following information: (i) whether there is discovery of suspected counterfeit Malaysian currency during currency processing or from the SST during the reporting month; and (ii) the aggregate number of suspected counterfeit Malaysian currency discovered during currency processing or from the SST during each reporting month. For avoidance of doubt, monthly reporting is required even if there is no discovery of suspected counterfeit Malaysian currency during the reporting month. 18.12. FIs shall lodge a police report at the nearest police station on the discovery of suspected counterfeit Malaysian currency (regardless of quantity) during currency processing or from the SST within three (3) working days from the time of discovery. 18.13. During the lodgement of police report in accordance with paragraph 18.11, FIs shall surrender the following to PDRM– (a) the suspected counterfeit Malaysian currency in a sealed tamper proof evidence bag; (b) a list of the suspected counterfeit Malaysian currency and their details as mentioned in paragraph 17.4(c); and 3 For example, all events that occur from 1st January to 31st January must be reported by 15th February S S S S S Quality and Integrity of Currency 16 of 29 Issued on: 12 September 2023 S (c) any other related documents. 18.14. FIs shall immediately notify the machine vendors of the SST on the discovery of the suspected counterfeit Malaysian currency (if it was accepted by the SST) and ensure that the machine vendors conduct data collection and patching on the SST immediately to ensure that the SST is capable of detecting and rejecting counterfeit Malaysian currency. Quality and Integrity of Currency 17 of 29 Issued on: 12 September 2023 PART D CURRENCY PROCESSING OPERATION 19. Requirements on Currency Processing Operation 19.1. FIs shall perform their currency processing operation based on the standard operating procedure (SOP) approved based on its respective internal governance. 19.2. The SOP shall– (a) cover activities from handing over of currency note or currency coin to currency processing team until return of the processed currency note or currency coin back to vault, and other relevant areas; (b) outline clear steps for each activity; and (c) be periodically reviewed to mitigate potential risks. 19.3. FIs shall be responsible for ensuring that– (a) all currency notes and currency coins to be recirculated shall be checked for authenticity and fitness in accordance with the standards provided in this policy document; (b) the authenticity verification of currency notes and currency coins shall be performed either by way of using a currency processing machine or manual checks by trained staff; (c) currency notes and currency coins which have been processed shall be segregated in accordance with paragraphs 13.1 and 13.2. (d) any defaced currency note and tampered currency coin detected during fitness sorting shall not be recirculated and shall be dealt with according to this policy document; (e) currency notes and currency coins which have not been checked for authenticity and fitness shall not be recirculated to the public; (f) the quantity of currency notes and currency coins processed and subsequently submitted to BNM is accurate (without any excess or shortage); and (g) packing slip with correct information is affixed to every bundle of currency notes deposited with BNM. 19.4. FIs shall ensure that staff involved in currency processing operation shall be properly trained and shall have the ability to– S S S S Quality and Integrity of Currency 18 of 29 Issued on: 12 September 2023 (a) identify denomination and series of currency note and currency coin issued by BNM; (b) manually detect and sort fit currency, defaced currency notes and tampered currency coins as specified in this policy document; (c) assess the security features available on currency notes and currency coins, and determine their authenticity; (d) manually authenticate currency notes and currency coins; (e) detect any suspected counterfeit Malaysian currency; (f) properly handle and operate currency processing machine; and (g) process currency notes and currency coins according to the approved SOP. 19.5. FIs shall ensure safe-keeping of records for training conducted as described in paragraph 19.4 for one (1) audit cycle, and furnish the record to BNM when requested. 19.6. FIs shall ensure internal trainers4, if any, undergo training programme organised by BNM when available. 20. Requirements on Currency Processing Machine 20.1. FIs shall be responsible for– (a) ensuring the currency processing machine used in currency processing operation– (i) is properly maintained5 so that the machine parts and sensors work optimally to ensure currency notes and currency coins processed meet the standards set by BNM, and to safekeep the maintenance records for one (1) audit cycle; (ii) is immediately recalibrated when acceptance rate is reduced6, addition or revision to any security feature is made by BNM, and/or BNM issues a new currency note and/or currency coin series; 4 Trainers are responsible to train staff on security features available on currency note and currency coin, and how to authenticate them. 5 Maintenance conducted based on recommendation from machine manufacturer and performed by a competent person. 6 Repetitive high rejection of currency note and currency coin observed during currency processing operation. S S S Quality and Integrity of Currency 19 of 29 Issued on: 12 September 2023 (iii) uses the latest7 firmware version capable of detecting and rejecting known types of counterfeit Malaysian currency; (iv) for processing currency notes– (A) is capable of accurately counting currency notes; (B) is capable of processing, sorting and segregating currency notes in accordance with the quality standards as specified in this policy document; (C) has the sensors to detect the required security features in the currency notes issued and any additional features issued by BNM from time to time, including but not limited to– (I) visual properties, including currency fitness detection; (II) infrared properties; (III) ultraviolet properties; and (IV) magnetic properties; and (D) has double sided detection capability; (v) for processing currency coins- (A) is capable of accurately counting currency coin; (B) is capable of processing, sorting and segregating currency coins in accordance with the quality standards as specified in this policy document; and (C) has the sensors to detect the required security features in the currency coin issued and any additional features issued by BNM from time to time, including but not limited to– (I) thickness; (II) diameter; (III) electrical conductivity; and (IV) electromagnetism; 7 If the latest firmware version used failed to reject any known type of counterfeit Malaysian currency, FIs shall immediately inform machine manufacturer on the discovery and temporarily reuse previously best firmware version. Quality and Integrity of Currency 20 of 29 Issued on: 12 September 2023 (b) ensure the output of currency processing machine complies with BNM’s fitness level requirement8; (c) ensure only currency processing machine meeting9 the fitness level requirement is used to process currency notes and currency coins, and immediately fine-tune the machine if deviation is observed; (d) ascertain the authentication accuracy and continuously enhance the setting and capability of the currency processing machine to detect and segregate fit currency, unfit currency notes, worn currency coins, defaced currency notes excluding unfit currency notes and tampered currency coins excluding worn currency coins; and (e) ensure currency processing machine is capable of detecting and rejecting counterfeit Malaysian currency. 20.2. FIs shall submit attestations10 to BNM, signed by a competent person authorized by the Board of Directors by 31st March of each year to confirm that the currency processing machine used is- (a) able to process, sort and segregate currency notes and currency coins according to BNM’s fitness level requirements and quality standard; (b) able to reject counterfeit Malaysian currency; (c) accurate in counting the quantity of currency notes and currency coins processed; and (d) tested on a half-yearly basis to ensure all settings are in accordance with this policy document. 21. Requirements on Recording, Reconciliation and Reporting 21.1. FIs shall– (a) perform reconciliation11 of currency notes and currency coins processed at least on a daily12 basis; 8 BNM will provide samples to assist FIs to fine tune currency processing machine to meet the fitness level requirement. 9 BNM will monitor the output from time to time. 10 FI is allowed to use attestation from machine vendors or outsourced agent as supporting document or reference for own attestation. 11 FI must ensure quantity of currency before processing and after processing (inclusive of all fitness categories and suspected counterfeit discovered) tally. 12 To include days where there are currency processing activities taking place. S S Quality and Integrity of Currency 21 of 29 Issued on: 12 September 2023 (b) record the currency processing data in auditable form and ensure safe- keeping of the currency processing data for at least one (1) audit cycle; and (c) provide the details of all currency processing operation to BNM when requested, including but not limited to the following– (i) denomination of the currency notes and currency coins processed; (ii) quantity of fit currency processed; (iii) quantity of unfit currency notes and worn currency coins processed; and (iv) quantity of currency notes, currency coins and suspected counterfeit Malaysian currency rejected by the currency processing machine. Quality and Integrity of Currency 22 of 29 Issued on: 12 September 2023 Appendix I Illustration: Defaced and unfit currency note Illustration of a defaced currency note and an unfit currency note: No. Illustration Criteria 1 Inscribed 2 Ink wear 3 Tear 4 Hole Quality and Integrity of Currency 23 of 29 Issued on: 12 September 2023 No. Illustration Criteria 5 Repair 6 Burnt 7 Missing security feature 8 Dye stained Quality and Integrity of Currency 24 of 29 Issued on: 12 September 2023 No. Illustration Criteria 9 Soiled 10 Limpness 11 Crumples 12 Corner folds Quality and Integrity of Currency 25 of 29 Issued on: 12 September 2023 Appendix II Illustration: Tampered and worn currency coin Illustration of tampered currency coin and worn currency coin: No. Illustration Criteria 1 Hole 2 Dented 3 Broken 4 Cut Quality and Integrity of Currency 26 of 29 Issued on: 12 September 2023 No. Illustration Criteria 5 Burnt 6 Manufacturing defect 7 Corroded 8 Stained Quality and Integrity of Currency 27 of 29 Issued on: 12 September 2023 Appendix III Form: Handover of Suspected counterfeit Malaysian currency Quality and Integrity of Currency 28 of 29 Issued on: 12 September 2023 Appendix IV Form: Details of carrier Quality and Integrity of Currency 29 of 29 Issued on: 12 September 2023 Appendix V Form: Details of suspected counterfeit Malaysian currency Quality and Integrity of Currency (Frequently Asked Questions) 1 Quality and Integrity of Currency Frequently Asked Questions Quality and Integrity of Currency (Frequently Asked Questions) 2 TABLE OF CONTENTS PART A OVERVIEW................................................................................................ 3 1. Introduction ........................................................................................................... 3 PART B QUALITY OF CURRENCY ........................................................................ 4 2. Interpretation ......................................................................................................... 4 3. Channels to Surrender Currency Not Suitable for Circulation ............................... 4 PART C INTEGRITY OF CURRENCY..................................................................... 6 4. Interpretation ......................................................................................................... 6 5. Detain Counterfeit Malaysian Currency and Record Information of Carrier .......... 6 6. Reporting on Discovery of Counterfeit Malaysian Currency to The Bank .............. 7 7. Surrender Counterfeit Malaysian Currency to Police ............................................ 7 PART D CURRENCY PROCESSING OPERATION ............................................... 9 8. Interpretation ......................................................................................................... 9 9. Currency Processing Machine .............................................................................. 9 10. Requirements on Recording, Reconciliation and Reporting ................................ 10 Quality and Integrity of Currency (Frequently Asked Questions) 3 PART A OVERVIEW 1. Introduction 1.1. This document comprises key feedback received from Financial Institution (FI), Money Services Business (MSB) and Registered Currency Processor (RCP) – collectively referred to as the industry, during the consultation period and the Bank’s responses on the policy on Quality and Integrity of Currency. 1.2. Other comments and suggestions for clarification, where relevant, have been incorporated in the policy document. Quality and Integrity of Currency (Frequently Asked Questions) 4 PART B QUALITY OF CURRENCY 2. Interpretation 2.1. What are the examples for unfit/worn and defaced/tampered, and can these definitions be added in Appendix I and Appendix II? The examples for unfit/worn and defaced/tampered are available in Appendix I and Appendix II while the definitions are available under Section 11 and Section 12 of the policy document. When looking at Appendix I and Appendix II, the industry needs to cross-refer to the definition in Section 11 and Section 12 for clarity. 2.2. What is the definition of 'ink' for dye-stained and soiled banknotes? Ink used in currency protection device is a bright coloured dye ink to stain banknotes in the event of robbery attempt on SST, as defined in the Bank’s Guidelines on Dye-Stained Currency Notes. On the other hand, ink for soiled banknotes are other inks apart from dye-stained ink. 2.3. What are the definitions of limpness and crumpled notes, and can the Bank provide machine readable measurements for both? The definitions for limpness and crumpled notes are available under Section 11 of the policy document. The industry may consult with respective machine vendors for machine readable measurements that would be acceptable as defined by the Bank since different machine model uses different technology to measure. 3. Channels to Surrender Currency Not Suitable for Circulation 3.1. Can defaced and tampered currency be deposited to the Bank? The industry cannot deposit defaced and tampered currency to the Bank, and must exchange them with the Bank over the counter. 3.2. Is a deposit of unfit or worn currency in incomplete quantity allowed by the Bank, if the collected currency volume is low? The industry must ensure quantity of currency is complete before depositing the unfit or worn currency to the Bank. The industry is encouraged to reach out to the Bank should they encounter operational challenges. 3.3. Can small quantities of unfit or worn currency be exchanged over the counter with the Bank? The industry must ensure only defaced and tampered currency are exchange with the Bank over the counter to ensure operational efficiencies. Quality and Integrity of Currency (Frequently Asked Questions) 5 3.4. Can MSBA licensees exchange defaced and tampered currency with commercial banks? MSBA licensees are allowed to surrender defaced and tampered currency with commercial banks, and is subjected to provisions in Guidelines on Exchange of Defaced Currency Notes, Tampered Currency Coins and Demonetised Currency at Financial Institutions. 3.5. Can the Bank incorporate detailed procedures on submission of currency i.e. how to deposit and exchange over the counter? This policy document will only cover the general requirements to be adhered to by the industry for operational efficiencies i.e. the channels to surrender currency to the Bank. Details to each individual process will be supplemented with other documents, such as process manuals, issued from time to time. 3.6. Can the Bank consider offering additional over-the-counter services, e.g. more appointment slots for the exchange of defaced and tampered currency? The Bank aims to continuously improve our services from time to time, and will review requests for additional services accordingly. Quality and Integrity of Currency (Frequently Asked Questions) 6 PART C INTEGRITY OF CURRENCY 4. Interpretation 4.1. What are the examples of suspicious circumstances, and whether carrier of counterfeit currency refusing to disclose personal information falls under this category? In managing risks, the industry needs to assess and ascertain if a carrier refusing to disclose their info should be deemed as suspicious circumstances. This may include, but is not limited to the following scenarios: a) a situation where the industry suspects the carrier to be the counterfeiter; b) a situation where a repetitive trend or modus operandi of passing counterfeit Malaysian currency is observed; or c) any other circumstances deemed suspicious by the industry, based on professional judgement. 4.2. What are the dimensions for TEP bag used to safekeep counterfeit currency? The industry may determine the required dimensions for TEP bag. The industry can also use the existing TEP bag available for currency operations. 4.3. Who is required to inform vendor of SST on discovery of counterfeit currency for machine calibration? FI is responsible to inform SST’s vendor for machine calibration. 5. Detain Counterfeit Malaysian Currency and Record Information of Carrier 5.1. Can the industry choose not to detain counterfeit currency tendered by their customer? It is legally required for FI (including MSB) to detain counterfeit currency to be surrendered to the police for investigation under Currency Act 2020. Notwithstanding, FI may release the counterfeit currency back to the customer in the event there is risk that the customer could cause physical harm to employees of FI or other customers. 5.2. Can the industry use information retrieved from other sources i.e. account holder’s information or CCTV footage to substitute information on carrier? The industry shall, as much as reasonably practicable, collect information from carrier and not use details from other sources to ensure the information submitted to police is accurate to allow investigation. The industry may consider using information retrieved from other sources if such information cannot be obtained as there is risk that the customer could cause physical harm to employees of FI or other customers. Quality and Integrity of Currency (Frequently Asked Questions) 7 5.3. Are there specific forms to be used to collect the information from the carrier?? The industry is required to use the form as per Appendix III. 5.4. Should the carrier’s information collected be submitted to the Bank? The carrier’s information shall be furnished to police to assist their investigation, together with the detained counterfeit currency. The Bank does not conduct criminal investigation, thus the industry is not required to submit carrier’s information to the Bank. 5.5. What details or information need to be recorded if counterfeit currency is discovered during back-end processing? The industry may be guided by the procedures stated under paragraph 17.4 for collection of information, which also specifies which information needs to be recorded. 6. Reporting on Discovery of Counterfeit Malaysian Currency to The Bank 6.1. Can the Bank streamline the requirements to report discovery of counterfeit currency to the Bank in this policy document and policy document on ORION? The reporting requirements under the policy document has been streamlined with the requirements in ORION’s policy document. 6.2. What are the details or information needed for RCP to lodge report on counterfeit currency discovery to the HQ of FI? RCP may use the form as per Appendix V to record required information for the purpose of reporting to HQ of respective FI. 6.3. What are the procedures to follow for counterfeit currency discovered via ATM, and should this incident be reported to the Bank via ORION? Counterfeit currency discovered via ATM is not considered to be accepted (deposited) through SST, thus the industry can surrender the counterfeit currency to the police. The industry is required to comply with ORION’s reporting requirement for discovery of counterfeit currency via ATM. 7. Surrender Counterfeit Malaysian Currency to Police 7.1. Can the Bank streamline the timeline to surrender counterfeit currency to police to three (3) working days to avoid confusion? The reporting timeline has been streamlined to three (3) working days for all cases, except for discovery under suspicious circumstances (to be surrendered within 24 hours) to assist investigation by the police. Quality and Integrity of Currency (Frequently Asked Questions) 8 The reporting timeline is counted based on working days only, and any discovery during weekend or public holiday shall be reported within the stipulated timeline, starting from the next working day. 7.2. Who should surrender the counterfeit currency to the police? It is the duty of the person who discovers the counterfeit currency to surrender it to the police at the nearest police station. Counterfeit currency discovered during processing is to be reported at police station nearest to currency processing centre (where it is discovered) even though it originated from SST in other area. However, please take note that only police station with officers from Jabatan Siasatan Jenayah Komersil (JSJK) will accept reports on counterfeit currency, and the timeline for investigation is based on the prerogative of the police. Quality and Integrity of Currency (Frequently Asked Questions) 9 PART D CURRENCY PROCESSING OPERATION 8. Interpretation 8.1. What is the definition for currency processing activities? Currency processing activities means (i) the sorting of currency note or currency coin by authenticity or quality, or (ii) the packing of currency note or currency coin by quality, quantity or denomination, as defined in Currency Act 2020. 8.2. What is the definition of currency processing data? Currency processing data means the data obtained from currency processing activities, and does not include recounting or currency processed via SST and OTC. 8.3. What is the definition of reconciliation of currency processing? Reconciliation of currency processing means the quantity of currency before processing and after processing (inclusive of all fitness categories and suspected counterfeit) tally. 8.4. What is the definition of latest firmware? Latest firmware is the most recent firmware version made available by the machine manufacturer or agent authorised by him, and the industry needs to regularly check for firmware updates. 8.5. Does the Bank specify the method for determining currency authenticity and fitness i.e. either by using currency processing machine or manual inspection by officer? The industry may determine the method of choice to assess authenticity and fitness of currency, as the requirement is to ensure only fit currency is recirculated. Should the industry decide to use currency processing machine, Section 20 of the policy document shall apply. 9. Currency Processing Machine 9.1. Can the Bank provide clarity on type of sensors mandatory for currency processing machine? Sensor requirements are specified in paragraph 20.1 of the policy document, and it is only mandatory for machine used for currency processing activity only. 9.2. What is required maintenance services for currency processing machine? There is currently no requirement for maintenance services for currency processing machine as long it can perform optimally at all times. Quality and Integrity of Currency (Frequently Asked Questions) 10 9.3. Can the Bank provide test packet for data collection exercise and fine- tuning of currency processing machine? The Bank will allow exchange of fitness test packets to assist the industry to conduct calibration and fine-tuning once the Bank has formalised the desired machine output. In addition, the Bank also allows for the industry to conduct data collection exercise at the Bank’s premise on an appointment basis. The industry is encouraged to advise their machine vendor to update their contact with the Bank to ensure they can be informed on availability of new samples. 9.4. Does the Bank have any plans to accredit currency processing machine? The Bank is aware of the accreditation programme conducted by other central banks to assess the capability of currency processing machine, and will assess the need to provide such accreditation programme. 10. Requirements on Recording, Reconciliation and Reporting 10.1. Can the industry be exempted from daily reconciliation requirement if they do not conduct currency processing daily? The industry is required to perform reconciliation activity on the same day the currency processing activity takes place.	Public Notice
15 Sep 2023	Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara Dalam Talian	https://www.bnm.gov.my/-/banknotes-auction-20230915-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/banknotes-auction-20230915-bm&languageId=ms_MY	Reading: Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara Dalam Talian Share: 2 Lelongan Wang Kertas Ringgit dengan Nombor Siri Khas Secara Dalam Talian Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1652 pada Jumaat, 15 September 2023 15 Sep 2023 BNM akan mengadakan lelongan wang kertas ringgit dengan nombor siri khas secara dalam talian yang akan dibuka mulai 16 September hingga 23 September 2023. Lelongan ini dikendalikan oleh jurulelong yang dilantik oleh BNM, iaitu MNP Auctioneers (Central) Sdn. Bhd. (MNP) dan bidaan boleh dibuat melalui pautan ini. MNP akan memulakan sesi ‘Lelongan Secara Langsung’ pada 23 September 2023 (Sabtu) pukul 11.00 pagi. Wang kertas ringgit dengan nombor siri khas akan dilelong, seperti set 10 wang kertas terawal (cth. DD0000001-0000010) dan nombor super solid dengan awalan berulang (cth. DD8888888). Pendaftaran dan bidaan dalam talian boleh dilakukan melalui www.best2bid.com. Maklumat lanjut mengenai lelongan boleh didapati melalui laman sesawang MNP iaitu www.mnp.com.my atau talian khidmat pelanggan MNP melalui 017-400 6661. Bank Negara Malaysia 15 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
14 Sep 2023	Senarai Amaran Pengguna Kewangan telah dikemaskini	https://www.bnm.gov.my/-/fca-update-230914-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/fca-update-230914-bm&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemaskini Share: Senarai Amaran Pengguna Kewangan telah dikemaskini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1600 pada Khamis, 14 September 2023 14 Sep 2023 Senarai Amaran Pengguna Kewangan telah dikemaskini Bank telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan pentadbiran berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat berikut ditambahkan ke dalam senarai: Bespoke Holdings Budget Besties Pelaburan 2023 abrdn AG Asia Saham Herzen Academy MyDAS FA (tidak berkaitan dengan MyDAS FA Sdn. Bhd.) NordFX Asia YunikonFX AIProFX Cryptotech Institution Community (CIC) Senarai akan dikemas kini secara berkala untuk rujukan orang ramai. Untuk melihat senarai yang dikemas kini, klik pada pautan ini: bnm.gov.my/fca Bank Negara Malaysia 14 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
01 Sep 2023	Bank Negara Malaysia imposes Administrative Monetary Penalty on TNG Digital Sdn. Bhd. for non-compliances with the Financial Services Act 2013	https://www.bnm.gov.my/-/ea-pn-07-2023	null	null	Reading: Bank Negara Malaysia imposes Administrative Monetary Penalty on TNG Digital Sdn. Bhd. for non-compliances with the Financial Services Act 2013 Share: 212 Bank Negara Malaysia imposes Administrative Monetary Penalty on TNG Digital Sdn. Bhd. for non-compliances with the Financial Services Act 2013 Embargo : For immediate release Not for publication or broadcast before 1229 on Friday, 1 September 2023 1 Sep 2023 Enforcement Action Publication Notice (P.N. 07/2023) Bank Negara Malaysia (the Bank) had on 18 May 2023, imposed an Administrative Monetary Penalty (AMP)[1] of RM600,000 on TNG Digital Sdn. Bhd. (TNGD) for contravening the Financial Services Act 2013 (FSA) read together with: a) the Anti-Money Laundering and Counter Financing of Terrorism – Electronic Money and Non-Bank Affiliated Charge & Credit Card (Sector 4) policy document[2] (AML/CFT Sector 4 PD); and b) the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions policy document (AML/CFT and TFS for FIs PD). TNGD had reported to the Bank that it had, on separate occasions, onboarded two sanctioned individuals under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities (Declaration of Specified Entities and Reporting Requirements) (Amendments) Order 2014. These were in breach of section 48(1) of the FSA read together with the following: a) AML/CFT Sector 4 PD in respect of the first sanctioned person where TNGD failed to conduct sanctions screening on the names of its customers; and b) AML/CFT and TFS for FIs PD in respect of the second sanctioned person where TNGD failed to ascertain and make further enquiries that its customer matched with the United Nations Security Council Resolutions List or the Minister of Home Affairs Domestic List. The AMP amount was determined by considering relevant aggravating and mitigating factors, including assessment of the remedial actions taken to address the non- compliances. TNGD paid RM600,000 for the AMP imposed by the Bank on 31 May 2023. [1] The Bank imposed the AMP pursuant to section 234(3)(b) of the FSA. [2] The AML/CFT Sector 4 PD was in effect from 15 September 2013 to 31 December 2019 and has since been superseded by Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions policy document (AML/CFT and TFS for FIs PD), which took effect on 1 January 2020. Bank Negara Malaysia 1 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
01 Sep 2023	Bank Negara Malaysia imposes Administrative Monetary Penalty on MPI Generali Insurans Berhad for failure to conduct targeted financial sanctions screening on customers	https://www.bnm.gov.my/-/ea-pn-06-2023	null	null	Reading: Bank Negara Malaysia imposes Administrative Monetary Penalty on MPI Generali Insurans Berhad for failure to conduct targeted financial sanctions screening on customers Share: 5 Bank Negara Malaysia imposes Administrative Monetary Penalty on MPI Generali Insurans Berhad for failure to conduct targeted financial sanctions screening on customers Embargo : For immediate release Not for publication or broadcast before 1228 on Friday, 1 September 2023 1 Sep 2023 Enforcement Action Publication Notice (P.N. 06/2023) Bank Negara Malaysia (the Bank) had, on 29 December 2022, imposed an Administrative Monetary Penalty (AMP)[1] of RM260,000 on MPI Generali Insurans Berhad (MPGB) for non- compliance with the Financial Services Act 2013 (FSA) read together with the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions policy document (AML/CFT and TFS for FIs PD). On 26 June 2020, MPGB reported to the Bank on the onboarding of a sanctioned person due to the delay in real-time screening of MPGB’s customers against the Domestic and United Nations Securities Council Resolution List. This is in breach of subsection 48(1) of FSA read together with AML/CFT and TFS for FIs PD. The AMP amount was determined by considering relevant aggravating and mitigating factors, which include assessment of MPGB’s controls, first-time non-compliance of a similar nature by MPGB and actions taken to address the breaches. Additionally, the Bank had also directed MPGB to undertake a comprehensive review of its sanction screening processes, and MPGB has since addressed the supervisory concerns satisfactorily. MPGB paid RM260,000 for the AMP imposed by the Bank on 6 January 2023. [1] The Bank imposed the AMP pursuant to section 234(3)(b)(i) of FSA. Bank Negara Malaysia 1 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
01 Sep 2023	Bank Negara Malaysia imposes Administrative Monetary Penalty on Mandiri International Remittance Sdn. Bhd. for non-compliance with the Money Services Business Act 2011	https://www.bnm.gov.my/-/ea-pn-05-2023	null	null	Reading: Bank Negara Malaysia imposes Administrative Monetary Penalty on Mandiri International Remittance Sdn. Bhd. for non-compliance with the Money Services Business Act 2011 Share: 3 Bank Negara Malaysia imposes Administrative Monetary Penalty on Mandiri International Remittance Sdn. Bhd. for non-compliance with the Money Services Business Act 2011 Embargo : For immediate release Not for publication or broadcast before 1227 on Friday, 1 September 2023 1 Sep 2023 Enforcement Action Publication Notice (P.N. 05/2023) Bank Negara Malaysia (the Bank) had, on 12 April 2022, imposed an administrative monetary penalty (AMP)[1] of RM134,400 on Mandiri International Remittance Sdn. Bhd. (MISB) for contravening the Money Services Business Act 2011 (MSBA) read together with the Anti-Money Laundering and Counter Financing of Terrorism – Money Services Business (Sector 3) policy document[2] (AML/CFT Sector 3 PD). During an on-site examination, the Bank discovered that a number of MISB’s customers had conducted remittance transactions on behalf of third parties. Further examination on these customers revealed that MISB had failed to identify and verify the beneficial owners (BOs) for the remittance transactions conducted as follows - a) MISB failed to obtain identification information in the manner required under AML/CFT Sector 3 PD; b) MISB failed to obtain a copy of BO’s identification document for transactions with value of RM3,000 and above; and c) MISB failed to obtain any form of authorisation from the BOs confirming that the remittance transactions were conducted on their behalf. These failures are in breach of section 74(3) of the MSBA read together with AML/CFT Sector 3 PD. The AMP amount was determined by taking into account relevant aggravating and mitigating factors, including MISB’s past compliance record and the remedial actions taken to address the non-compliances. MISB paid RM134,400 for the AMP imposed by the Bank on 7 April 2023[3]. [1] The Bank issued the AMP pursuant to section 75(2)(b) of the MSBA. [2] The AML/CFT PD Sector 3 PD was in effect from 15 September 2013 to 31 December 2019 and has, since 1 January 2020, been replaced with Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions policy document (AML/CFT and TFS for FIs PD). [3] The Bank had granted an extended payment deadline to MISB in consideration of the pandemic impact. Bank Negara Malaysia 1 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
01 Sep 2023	Bank Negara Malaysia compounded I-Serve Online Mall Sdn Bhd and six (6) other related entities for breaches of the Financial Services Act 2013 and the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001	https://www.bnm.gov.my/-/ea-pn-20230901	null	null	Reading: Bank Negara Malaysia compounded I-Serve Online Mall Sdn Bhd and six (6) other related entities for breaches of the Financial Services Act 2013 and the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 Share: 101 Bank Negara Malaysia compounded I-Serve Online Mall Sdn Bhd and six (6) other related entities for breaches of the Financial Services Act 2013 and the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 Embargo : For immediate release Not for publication or broadcast before 1225 on Friday, 1 September 2023 1 Sep 2023 On 19 October 2022, Bank Negara Malaysia (BNM), with the written consent of the Public Prosecutor, and pursuant to its powers under section 253 of Financial Services Act (FSA) and section 92 of Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFAPUAA), imposed a total compound of RM50 million on the following entities (hereby referred to as the I-Serve Group), for accepting deposits without a license under section 137(1)[1] of the FSA and money laundering under section 4(1) of the AMLATFAPUAA. This follows the decision of the Public Prosecutor based on representation and submission from all parties concerned. No. Entities Compound (RM, million) under Total (RM, million) S. 253 FSA[2] S. 92 AMLA[3]1. i-Serve Online Mall Sdn. Bhd. 10.75 1.75 12.5 2. i-Serve Technology and Vacations Sdn. Bhd 10.75 1.75 12.5 3. QA Smart Partnership PLT 4.3 0.7 5 4. QA Elite Partnership PLT 4.3 0.7 5 5. QA Premium Partnership PLT 4.3 0.7 5 6. MM2217 PLT 4.3 0.7 5 7. Valuewise PLT 4.3 0.7 5 Total Amount (RM) 43 7 50 Following a joint enforcement action[4] taken against the above entities on suspicion of committing various offences, BNM’s investigation revealed that between June 2018 and September 2021, the respective entities had accepted deposits from the public and had consequentially engaged directly in transactions that involved proceeds of such illegal deposit-taking activities. This was undertaken through schemes where monies were accepted from the public on terms under which the monies would be repaid in full, in breach of the FSA. In accordance with BNM’s governance and approved frameworks, the total compound amount was determined by considering factors such as the severity of offences committed and all aggravating and mitigating factors. On 16 November 2022, the entities paid the total amount of compound of RM50 million imposed by BNM. I-Serve Group has been instructed to ensure that it does not operate any scheme or a semblance of a scheme that accepts deposits from the public, in contravention of section 137(1) of the FSA. [1] Section 137(1) of the FSA provides that no person shall accept deposits except under a licence granted under section 10 regardless of whether the transaction is described as a loan, an advance, an investment, a savings, a sale, or a sale and repurchase or by whatever name called. [2] For offence of accepting deposits without a licence under section 137 of the FSA. [3] For offence of money laundering under section 4(1) of the AMLA. [4] Refer to BNM’s Public Notice “Joint Enforcement Action against Companies Suspected to be Involved in Financial Crime Activities” dated 15 Nov 2021: https://www.bnm.gov.my/-/joint-enforcement-action-20211111 Bank Negara Malaysia 1 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
23 Ogos 2023	Exposure Draft on Liquidity Risk	https://www.bnm.gov.my/-/ed-liquidity-risk	null	null	null	null	null
30 Jun 2023	Deraf Dedahan Amalan Penyelesaian Tuntutan	https://www.bnm.gov.my/-/deraf-dedahan-amalan-penyelesaian-tuntutan	https://www.bnm.gov.my/documents/20124/948107/ed-claims-settlement-practices-jun23.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/deraf-dedahan-amalan-penyelesaian-tuntutan&languageId=ms_MY	Reading: Deraf Dedahan Amalan Penyelesaian Tuntutan Share: 3 Deraf Dedahan Amalan Penyelesaian Tuntutan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1845 pada Jumaat, 30 Jun 2023 30 Jun 2023 This exposure draft sets out the minimum standards by which licensed insurers carrying on general business, takaful operators carrying on general takaful business (ITOs) and registered adjusters must meet in handling general insurance and general takaful claims. The exposure draft aims to ensure fair, transparent and timely outcomes in claims settlement practices, consistent with expectations for ITOs to observe high standards of sound and responsible business conduct. The Bank invites feedback from interested parties and relevant stakeholders in the general insurance and general takaful claims settlement processes, in particular the motor industry. All submissions must be submitted by 17 August 2023 through https://forms.office.com/r/HVg1Nn5K3E. Submissions received may be made public unless confidentiality is specifically requested for the whole or any part of the submission. Should there be any queries or clarification required in preparing your feedback, you may compile your queries and clarifications sought and direct them to the following officers: Christie Anne Maran ([email protected]) Syafawati binti Yakob ([email protected]) Issuance Date 30 June 2023 Issuing Department Jabatan Konsumer dan Amalan Pasaran Document Exposure Draft on Claims Settlement Practices Bank Negara Malaysia 30 Jun 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Issued on: 30 June 2023 BNM/RH/ED 029-31 Claims Settlement Practices Exposure Draft Applicable to: 1. Licensed insurers carrying on general business 2. Licensed takaful operators carrying on general takaful business 3. Registered adjusters Claims Settlement Practices Page 2 of 49 Issued on: 30 June 2023 This exposure draft sets out the minimum requirements that insurers carrying on general business, licensed takaful operators carrying on general takaful business and registered adjusters must comply with in relation to general insurance and general takaful claims settlement practices. Bank Negara Malaysia (the Bank) invites written feedback on the proposals in this exposure draft, including suggestions on areas to be clarified and alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale, accompanying evidence or illustrations as appropriate to facilitate an effective review of this exposure draft. All submissions must be submitted by 17 August 2023 through https://forms.office.com/r/HVg1Nn5K3E. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. In the course of preparing your feedback, you may direct any queries to the following officers: a. Christie Anne Maran ([email protected]); or b. Syafawati binti Yakob ([email protected]) https://forms.office.com/r/HVg1Nn5K3E mailto:[email protected] mailto:[email protected] Claims Settlement Practices Page 3 of 49 Issued on: 30 June 2023 TABLE OF CONTENTS PART I OVERVIEW…………………………………………………………………………...4 1. Introduction…………………………………………………………………………...4 2. Applicability……………………………………………………………………..........4 3. Legal provisions……………………………………………………………………...5 4. Effective date…………………………………………………………………………5 5. Interpretation………………………………………………………………………….5 6. Related legal instruments and policy documents…………………………………7 7. Policy documents superseded……………………………………………………...7 PART II GENERAL……………………………………………………………………………8 8. Effective Oversight, Accountability, and Internal Controls in Claims Settlement Practices………………………………………………………………………………8 9. Management of Third-Party Service Providers for Motor Claims……………..12 PART III CLAIMS PROCESSING………………………………………………………….15 10. Claims Processing………………………………………………………………….15 PART IV ADDITIONAL REQUIREMENTS ON MOTOR CLAIMS……………………..20 11. Motor Repair Estimates…………………………………………………………....20 12. Vehicle Valuation…………………………………………………………………...23 13. Own Damage Motor Claims…………………………………………………….…25 14. Third-Party Motor Claims…………………………………………………….…….27 15. Total Loss Motor Claims…………………………………………………….……..31 16. Motor Claims – Other Matters…………………………………………….……….34 PART V APPENDICES AND CHARTS…………………………………………………….36 Appendix I: Procedures on Handling of Non-Reported TPPD Claim…………………….36 Appendix II: Scale of Compensation for Assessed Repair Time (CART)…………….…38 Appendix III: Scale of Betterment……………………………………………………….…...39 Chart I: Non-Motor Claims Processing……………………………………………….……..40 Chart II: Motor Claims Processing…………………………………………………..……….41 Chart II(a): Motor Claims Processing……………………………………………..…………42 Chart III: Motor Claims Processing – Theft Claims Process Flow…………..……….......43 Chart IV: Windscreen Claims Processing……………………………………..……………44 Chart V: Knock-for-Knock (KfK) Claims Processing – Third-Party Property Damages..45 Chart VI: Supplemental KfK Claims Processing…………………………………………...46 Chart VII: Third-Party Bodily Injury Claims Processing…………………………………...47 Chart VIII: Actual Total Loss (ATL)/Beyond Economic Repair (BER) Claims………..…48 Claims Settlement Practices Page 4 of 49 Issued on: 30 June 2023 1. Introduction 1.1 This policy document sets out the minimum standards which licensed insurers carrying on general business and licensed takaful operators carrying on general takaful business (ITOs) must meet in handling general insurance and general takaful claims. This policy document aims to ensure fair, transparent and timely outcomes in claims settlement practices and sets expectations for ITOs to observe high standards of sound and responsible business conduct. 1.2 Given the various stakeholders involved in the claims settlement process, this policy document also addresses expectations around ITO’s interactions with these stakeholders. This includes consumers, ITOs’ management of related or third-party service providers that deal with consumers during the claims settlement process, as well as the role of registered adjusters, in addition to ITOs’ internal claims handling processes. 1.3 Another key objective of this policy document is to promote wider adoption of digital solutions by ITOs to reduce frictions, enhance efficiencies and improve customer experience. For instance, the deployment of end-to-end digital claims solutions can potentially address long-standing pain points faced by consumers following a motor vehicle accident, by reducing long waiting times and documentary burdens to support their claims. This in turn will facilitate better management of claims costs and containment of fraud risk by ITOs and contribute to continued access to affordable motor insurance/takaful by consumers in the long run. 1.4 The provisions in this policy document are in line with the Bank’s Financial Sector Blueprint 2022-2026 aspiration for ITOs to advance reforms that will transform the motor claims ecosystem to achieve the desired outcomes of timeliness, transparency and transformative customer experience. 2. Applicability 2.1 This policy document is applicable to ITOs and registered adjusters in relation to its general insurance and general takaful business. PART I OVERVIEW Claims Settlement Practices Page 5 of 49 Issued on: 30 June 2023 3. Legal provisions 3.1 The requirements in this policy document are specified pursuant to: (a) sections 47(1) and 123(1) of the Financial Services Act 2013 (FSA); and (b) sections 57(1) and 135(1) of the Islamic Financial Services Act 2013 (IFSA). 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA and section 277 of the IFSA. 4. Effective date 4.1 This policy document comes into effect on [date]. Question 1 The Bank is considering setting the effective date to commence immediately i.e. upon the date of issuance of this policy document. This is targeted to be in 2H 2023. As such, are there specific areas within this policy document that may require additional time to implement? Please provide relevant data, illustrations and justification to support your views. 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document – “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “actual total loss” refers to the condition of a vehicle that has sustained severe damage which has compromised the structural integrity of the main chassis, to the extent that the damaged vehicle cannot be repaired or restored to a safe state and thus, can only be scrapped; “agent” refers to the definition of agent as specified under the Policy Document on Professionalism of Insurance and Takaful Agents; “compensation for assessed repair time” refers to the compensation for repair time based on a registered adjuster’s recommendation or in-house assessor’s assessment; Claims Settlement Practices Page 6 of 49 Issued on: 30 June 2023 “authorised representative” refers to any person legally authorised by the claimant to act on his or her behalf; “betterment” refers to a charge that a consumer bears when new franchise parts are used to replace the damage part for accident vehicles that are aged 5 years or more; “board” refers to the board of directors of an ITO, including a committee of the board where the responsibilities of the board set out in this policy document have been delegated to such a committee; “beyond economic repair” refers to the condition of a damaged vehicle that is not financially feasible to be repaired or restored, as the cost in repairing or restoring the vehicle to its pre-accident condition before the damage occurred exceeds the market value or the sum insured; “claimant” refers to a policy owner/takaful participant covered by an insurance policy or a takaful certificate, as the case may be, or a person who has a claim against such the policy owner/takaful participant; “in-house assessor” refers to an ITO’s personnel who assesses repair estimates for the purpose of informing claims settlements by the ITO. For the avoidance of doubt, this does not include adjusters registered under Section 2(1) of the FSA; “senior management” refers to the chief executive officer and senior officers of an ITO; "prescribed institutions" refer to prescribed development financial institution under the DFIA 2002. “vehicle inspection provider” refers to a vehicle inspection provider recognised by Jabatan Pengangkutan Jalan (JPJ) or Kementerian Pengangkutan Malaysia. Question 2 To ensure accuracy and consistency of terms used throughout this policy document, the Bank seeks views on the following questions: (a) Does the industry have views on the definition of terms provided under paragraph 5.2 (Interpretation)? (b) Does the industry have views on the definition of “beyond economic repair”, in particular on “restoring the vehicle to its pre-accident condition before the damage occurred”? Claims Settlement Practices Page 7 of 49 Issued on: 30 June 2023 6. Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents (including any reissuance or amendments thereafter) that have been issued by the Bank, in particular – (a) Policy Document on Professionalism of Insurance and Takaful Agents issued on 17 April 2023; (b) Policy Document on Operational Risk Integrated Online Network (ORION) issued on 25 February 2021; (c) Policy Document on Corporate Governance issued on 13 December 2019 (BNM/RH/PD 035-5); (d) Policy Document on Fair Treatment of Financial Consumers issued on 6 November 2019 (BNM/RH/PD 028-103); (e) Policy Document on Management of Insurance Funds issued on 17 December 2018 (BNM/RH/PD 032-15); (f) Policy Document on Prohibited Business Conduct issued on 15 July 2016 (BNMRH/PD 028-21); (g) Guidelines on Product Transparency and Disclosure issued on 31 May 2013 (BNM/RH/GL 000-3); (h) Guidelines on Complaints Handling issued on 17 December 2009 (BNM/RH/GL 000-4); and (i) Registration Procedure to Carry on Adjusting Business issued on 21 December 2018. 7. Policy documents superseded 7.1 This policy document supersedes: (a) Guidelines on Claims Settlement Practices (Consolidated) issued to takaful operators and registered adjusters on 1 April 2008; (b) Guideline on Claims Settlement Practices (Consolidated) issued to insurers and registered adjusters on 3 July 2007; (c) Circular on Market Value of Motor Vehicle issued on 21 June 2011; (d) Specification Letter in respect of the Guidelines on Claims Settlement Practices issued on 24 December 2020 and 28 December 2022; (e) Specification Letter on Determination of Market Value of Motor Vehicles dated 30 April 2020; (f) Dear CEO Letter on Report on Data Usage of the Centralised Database for Motor Repairs Estimation issued on 2 February 2007; and (g) Letter to Persatuan Insurans Am Malaysia (PIAM) and Malaysian Takaful Am (MTA) on Beyond Economic Repair (BER) Vehicles dated 22 January 2009. Claims Settlement Practices Page 8 of 49 Issued on: 30 June 2023 8. Effective Oversight, Accountability, and Internal Controls in Claims Settlement Practices Roles and responsibilities of Board and Senior Management All Claims S 8.1 The board of directors (the board) shall ensure the governance arrangements with respect to ITOs’ claims settlement practices are consistent with the requirements in this policy document and other relevant policy documents issued by the Bank including the Policy Documents on Corporate Governance (CG) and Fair Treatment of Financial Consumers (FTFC). S 8.2 The board shall provide adequate oversight and approve the establishment and implementation of ITO’s internal governance structures, policies, procedures and controls relating to claims settlements, which shall: (a) strive to produce good consumer outcomes; (b) remain appropriate in light of any material changes in the ITO’s business profile, including the size, nature and complexity of its business and the associated impact on the ITO’s risk profile. This includes risks of consumer harm; and (c) promote alignment of incentives through appropriate key performance indicators (KPIs) for the Senior Management of the ITOs that are consistent with the fair treatment of consumers. S 8.3 The senior management shall ensure the effective implementation of the ITO’s claims settlement policies and practices in line with principles of fair treatment of financial consumers and sound risk management. This shall include adequate and effective management of third-party service providers in the claims settlement process. Motor Claims S 8.4 The board shall set the right tone from the top in line with the principles of fairness, transparency, timeliness, and positive customer experiences which are embedded in the ITO’s motor claims settlement practices1. Customer Service Charter Motor Claims S 8.5 The board shall oversee the ITO’s establishment of a Motor Customer Service Charter (MCSC) that outlines, at minimum, the following: (a) the ITO’s commitment to deliver high standards of service for its motor insurance/takaful consumers. This shall include service levels customers can expect from the ITO; 1 From claims notification to payment of claims, including processes involving all stakeholders within the motor claims settlement process. PART II GENERAL Claims Settlement Practices Page 9 of 49 Issued on: 30 June 2023 (b) expected turnaround times with respect to the ITO’s motor claims settlement practices, appropriately segmented for different types or categories of claims. For example, turnaround time consumers can expect to have their vehicle returned to them under an own damage claim2; (c) applicable criteria and thresholds where relevant, for expedited claims3; and (d) the ITO’s commitments to policy owners/takaful participants with respect to dealings with repairers, including what a consumer can expect when selecting a repairer to send their vehicles to, for repairs. S 8.6 With respect to paragraph 8.5, the board and senior management of ITOs shall be accountable to ensure its motor claims settlement practices are consistent with its commitments in the MCSC. S 8.7 With respect to paragraph 8.6, the senior management shall also ensure the ITO’s internal alignment to the MCSC includes: (a) well-defined processes with detailed timelines to deliver the ITO’s service standards commitments under the MCSC, (b) metrics to measure ITO’s performance and action plans to address areas of improvement; (c) effective communication and engagement strategies with customers and other relevant parties within the motor claims settlement process; and (d) monitoring of digital transformation efforts to sustain and continuously improve the ITO’s service standards towards delivering more integrated, transparent, timely and seamless motor claims settlements. S 8.8 ITOs shall ensure its MCSC is published and prominently displayed at all of its branches4 and websites5, by [effective date]. Question 3 In relation to paragraph 8.8, the Bank intends for the MCSC to be published within 1 month from the date of issuance of the policy document. Does the industry have views on the timeframe proposed for ITO to comply with this new requirement? Non-motor Claims G 8.9 The board should encourage ITOs to publish a Customer Service Charter, highlighting relevant key service commitments for non-motor claims. 2 Including motor own damage Knock-for-Knock (KfK) claims. 3 Includes “Express Claims Process” and “Fast-Track Claims Process”. 4 The MCSC shall be prominently displayed in all branches. 5 Websites shall include all of ITOs’ intermediaries’ websites as well. Claims Settlement Practices Page 10 of 49 Issued on: 30 June 2023 Internal Policies, Procedures and Controls S 8.10 ITOs shall establish specific, measurable and relevant key performance indicators (KPIs) for key persons involved in the claims settlement process6. The KPIs shall be: (a) aligned with the principles of fairness, transparency and timely claims settlements practices; and (b) consistent with requirements in the FTFC policy document which promotes clear accountability and fair practices at all stages of the claims settlement process i.e. from claims notification to payment of claims. G 8.11 For the avoidance of doubt, KPIs that focus primarily on the average claims costs and do not address other key aspects of the claims settlement process, or which are inconsistent with the objectives of this policy document, would not meet the requirement under paragraph 8.10. S 8.12 ITOs shall ensure a systematic process for monitoring claims settlement outcomes, including: (a) turnaround times for key claims processes, types and incidents of complaints received from consumers or key stakeholders such as repairers and their resolution, fraud trends and claims costs; and (b) progress of corrective and remedial action taken to address poor outcomes. This shall include actions taken with respect to claims misconduct such as artificially inflating or devaluing claims and substandard quality or recommendations of repairs estimates submitted by registered adjusters and repairers. S 8.13 ITOs must establish an appropriate and comprehensive compliance, risk and audit programme to assess the effectiveness of its internal claims policies, procedures, and controls. Such a programme shall support the board and senior management’s assessment of compliance with this policy document and the ITOs’ performance against the objective of fair, transparent, and timely claims settlements. S 8.14 With respect to paragraph 8.13, compliance, risk and audit reviews must ensure adequate coverage of all material aspects of the ITO’s claim settlement practices and shall be undertaken at an appropriate frequency to be determined by the board (or board committee). S 8.15 With respect to paragraph 8.14, compliance, risk and audit reviews on ITO’s motor claim settlement practices shall be undertaken at least once in every 2 years. 6 Including KPIs for Senior Management and staff responsible for receiving, acknowledging, procuring and paying claims as well as those liaising with policy owners, claimants and third parties such as registered adjusters, repairers, and lawyers. where applicable. Claims Settlement Practices Page 11 of 49 Issued on: 30 June 2023 Fraud Prevention S 8.16 ITOs shall promptly investigate any suspicion of fraud7 and shall report such incidents together with any evidence gathered from its internal investigations to: (a) the police; (b) the Bank as required under the Policy Document on ORION8; (c) other ITOs, as the case may be; and (d) the relevant industry association i.e. PIAM or MTA. Question 4 The Bank intends to ascertain the relevance of the role played by PIAM and MTA in facilitating ITOs to promptly investigate any suspicion of fraud i.e. paragraph 8.16(d) is an existing requirement in the current Guidelines on Claims Settlement Practices. As such, what are the industry’s views for PIAM and MTA to continue receiving reports of any suspicion of fraud with the view to establish and maintain a robust centralised industry database on incidents of fraud detected and investigated by ITOs? S 8.17 ITOs shall establish effective internal processes, mechanisms and controls to guide its staff involved in the claims settlement process to adequately detect and deter incidents of fraud. This shall include: (a) the development of robust indicators, thresholds or triggers for detection and prompt escalation of suspected incidents of fraud that warrant further investigation. These indicators, thresholds or triggers shall be periodically reviewed and updated in line with evolving fraud typologies; (b) ensuring adequate training is provided to ITO’s claim staff to promptly detect and deter incidents of fraud; and (c) the implementation of robust monitoring mechanisms, which shall include random checks on claims files, physical pre-repair (including pre-spray painting) and post-repair inspections particularly to verify new franchise parts replacement for motor claims. S 8.18 ITOs shall establish internal processes and policies for the management of conflicts of interest. This shall include: (a) appropriate segregation of duties between the processing, approval and payment of claims and appropriate authority levels and limits for the approval of claims9; (b) enforcing job rotation among ITO’s claims staff and ensure the assignment of work to its panel of registered adjusters and lawyers10 is conducted on a rotational basis to minimise the possibility of collusion; and (c) establishing clear internal policy and guidance on gifts, hospitality, and social activities from or with interested parties in the claims process that may compromise or be perceived to compromise the professional 7 ITOs should verify the relevant facts and information through the Fraud Intelligence System (FIS), the National Fraud Prevention Committee, PIAM and MTA, where relevant. 8 Refers to requirements to report fraud-related matters and other operational loss reporting requirements under the Policy Document on ORION. 9 For example, limiting the amount of claim that can be approved by the claims staff to be in line with experience and seniority, to prevent instances of fraud. 10 The same shall apply if ITO has a panel of investigators. Claims Settlement Practices Page 12 of 49 Issued on: 30 June 2023 judgement of ITO’s claims staff. ITO’s claims staff shall be specifically prohibited under such policies from receiving any form of gifts (including cash or non-cash benefits) from repairers, registered adjusters and lawyers. G 8.19 With respect to paragraph 8.18, ITOs should require ITO’s claims staff to go on mandatory ‘block’ leave11 of an appropriate duration on an annual basis12 as a preventive control, as specified in the Policy Document on Operational Risk. Question 5 The Bank intends to ascertain the effectiveness of the control under paragraph 8.19. Does the industry view the requirement for ITO’s claims staff to go on mandatory ‘block’ leave as an effective control? Are there any other examples of effective controls in this context? 9. Management of Third-Party Service Providers for Motor Claims Service Level Agreement (SLA) with Registered Adjusters and Repairers S 9.1 In meeting the obligation for fair, transparent and timely claims settlements, ITOs must ensure there are well-defined and comprehensive SLAs in place with its third-party service providers such as panel of registered adjusters and panel of repairers. S 9.2 ITOs shall closely monitor the compliance of third-party service providers to the obligations and standards stipulated in the SLAs. S 9.3 With respect to paragraph 9.1, ITOs shall ensure the SLA with its panel of registered adjusters must, at minimum, include the following: (a) specific, measurable and relevant KPIs that must be achieved by the panel of registered adjusters. The KPIs shall factor in the quality, sound basis and timeliness of claims settlements, but must not be tied to lower claims cost or unreasonable turnaround time which would compromise the quality and objectiveness of the assessment; (b) expectations for registered adjusters to provide sufficient details on key information, such as facts, assumptions, methods, sources of information and databases used or referred to in drawing up the final assessments or recommendations; (c) an obligation for the panel of registered adjusters to: i. comply with applicable standards and requirements imposed by relevant authorities, including the Bank’s Policy Document on 11 Claim staff on mandatory block leave must not be involved in the daily job activities such as giving instruction to transact, executing instruction, giving approval or participating or contributing in decision-making processes. 12 The requirement on mandatory ‘block’ leave is intended to be a preventive control to ensure a sound internal control environment is in place to provide adequate defence against a breakdown in controls in any stage or layer. Claims Settlement Practices Page 13 of 49 Issued on: 30 June 2023 Registration Procedure to Carry on Adjusting Business13 and JPJ’s Guidelines on Application for Vehicle Panel Structure Repair or Conversion (Accident Cases)14; and ii. be guided by applicable voluntary standards and guidelines specified by relevant industry associations and agencies such as Jabatan Standard Malaysia’s Motor Vehicle Aftermarket: Smash Repair Requirements, in carrying out the motor claims assessments; and (d) circumstances or events which can result in the removal of a registered adjuster from the ITO’s panelship or other interventions by ITOs, such as: i. failing to meet with the obligations under the SLA or to achieve KPIs as agreed upon between the ITOs and the registered adjuster; and ii. non-compliance with any standards applicable to registered adjusters set out in this policy document or suspected collusion involving the registered adjuster. In such instances, the SLA shall set out the avenue for a registered adjuster to resolve any disputes with the ITO which are overseen by parties independent of claims staff. S 9.4 With respect to paragraph 9.1, ITOs shall ensure the SLA with its panel of repairers must, at minimum, include the following: (a) for own damage claims, ITOs reserve the right to require their panel of repairers to carry out repairs expediently, in any case, not more than 10 working days from the date of approval of repair estimates by the ITO. The timeline specified is subject to exceptional circumstances such as extensive damage to the vehicle or non-availability of parts. (b) ITOs reserve the right to require their panel of repairers to retain all replacement parts for re-inspection for a period of 30 calendar days from the date of replacement; (c) specific, measurable and relevant KPIs that include KPIs on: i. quality of repair work; ii. accuracy of repair estimate quotes; and iii. customer complaints and feedback. (d) an obligation for the repairer to: i. comply with the applicable standards and requirements imposed by the relevant authorities such as JPJ’s Guidelines on Application for Vehicle Panel Structure Repair or Conversion (Accident Cases); and ii. be guided by applicable voluntary standards and guidelines specified by relevant industry associations and agencies such as Jabatan Standard Malaysia’s Motor Vehicle Aftermarket: Smash Repair Requirements, in carrying out its smash repair works; (e) circumstances or events which can result in the removal of a repairer from the ITO’s panel including in the event of suspected collusion involving the repairer; (f) avenues for a repairer to resolve any disputes with the ITO on actions taken by the ITO in response to: i. the failure of a repairer to meet with the obligations under the SLA or to achieve KPIs as agreed upon between the ITO and the repairer; 13 This will be superseded by the Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters expected to be issued in 1H 2023. 14 Issued by JPJ on April 2019 and any subsequent amendments to it or any instruments replacing it. Claims Settlement Practices Page 14 of 49 Issued on: 30 June 2023 ii. non-compliance with any standards or turnaround time set out in this policy document, where applicable; and (g) an obligation for the repairer to abide by the ITO-Repairers’ Code of Conduct (COC)15 established by the industry in collaboration with relevant stakeholders. Complaints and Whistleblowing S 9.5 ITOs shall establish adequate whistleblowing policies, procedures and mechanisms for third-party service providers to raise issues or wrongdoings encountered during the claims settlement process to ITOs in a secure and trusted manner. Explanatory Note on Dispute Resolutions The Bank is committed to ensure a fair, timely and independent dispute resolution framework (IDRF) is established by ITOs in collaboration with PIAM, MTA and the motor repair industry and relevant stakeholders. This is intended to reduce protracted disputes arising between ITOs and repairers on complex technical issues relating to the repair of damaged vehicles that further delays the overall claims settlement process to the detriment of consumers. The Bank is currently organising engagement sessions in 1H of 2023 with all relevant stakeholders towards finalising proposals for the formulation and implementation of the IDRF. 15 Subject to the final amendments made by the industry with the agreement of all stakeholders. Claims Settlement Practices Page 15 of 49 Issued on: 30 June 2023 10. Claims Processing16 G 10.1 ITOs are encouraged to leverage on technology and adopt innovative solutions to ensure claimants have various access points to obtain claims services expeditiously, efficiently and effectively. This should complement physical access points that may need to be maintained at their head offices and branches to serve customers during the claims process, especially in circumstances where digital infrastructures are limited or unavailable. This may include physical access points to facilitate the submission of claims documentation, post-sales customer services and handling of face-to-face consumer enquiries and complaints. Notification of Claims and Verification of Facts S 10.2 ITOs shall undertake claims registration and initiate claims processing within 3 working days from the receipt of a claim notification by the ITO or its agent. S 10.3 ITOs shall, within 3 working days from receipt of the claim notification, acknowledge the receipt of the submission of claim in writing17 and provide the claimant with the following information: (a) the ITO’s contact person, reference number and any other relevant information for ease of enquiry and correspondence by the claimant; (b) the expected timeframe needed to process the claim; and (c) the rights and obligations of the claimant, if any. G 10.4 ITOs should ensure that the agents are not involved in the claims handling process on behalf of the ITOs except in assisting the claimant in completing and submitting the claim form to the ITOs. S 10.5 ITOs must strive to respond expediently to all communications received from a claimant in accordance with the MCSC. S 10.6 Any request for additional information required by the ITO to process a claim must be made promptly upon receipt of notification of a claim. Such requests should also be complete to avoid multiple successive requests that would prolong the time taken to process the claim. S 10.7 In the event ITOs’ request for additional information is not forthcoming from the claimant, ITOs shall send a reminder to the claimant within 7 working days from the date of its first request. S 10.8 With respect to paragraph 10.7, if the claimant furnishes valid and reasonable explanations for the claimant’s inability to submit any additional information or supporting documents subsequent to the reminder sent by the ITO, ITOs shall consider the claim with due regard to fair consumer outcomes as elaborated in 16 For the avoidance of doubt, this is applicable to motor and non-motor claims. 17 For the avoidance of the doubt, this is also applicable to a party at fault ITO in acknowledging the notification of a claim by a third-party claimant or his/her authorised representative within 3 working days from the date of notification. PART III CLAIMS PROCESSING Claims Settlement Practices Page 16 of 49 Issued on: 30 June 2023 the Policy Document on FTFC. ITOs shall clearly document and communicate the basis for its decision to the claimant. Assessment of Claims S 10.9 ITOs shall assign a registered adjuster or its in-house assessor to conduct an assessment of loss within 5 working days from the date of receipt of all completed and relevant documents. S 10.10 The registered adjuster or in-house assessor assigned by the ITO shall complete the adjusting or claims assessment work required18 within 10 working days from receipt of all completed and relevant documents. G 10.11 The timeline specified in paragraph 10.10 may be extended for: (a) complex business insurance/takaful claims under contractors’ all risks, and marine cargo, aviation and transit policies/certificates; (b) motor accidents involving extensive vehicle damage that requires longer time to inspect; (c) suspected fraud cases that require further investigation; or (d) claims involving inspections in geographically remote areas (such as rural areas and East Malaysia). S 10.12 With respect to motor claims, the registered adjuster or in-house assessor shall ensure its assessments and recommendations are consistent with applicable standards or requirements imposed by the relevant authorities such as JPJ’s Guidelines on Application for Vehicle Panel Structure Repair or Conversion (Accident Cases)19. S 10.13 With respect to motor own damage claims, in the event the ITO fails to assess or inspect the damaged vehicle during the period specified in paragraph 10.9 and paragraph 10.10, the ITO shall allow the claimant to appoint their own registered adjuster at the expense of the ITO and proceed with repairs at any of the repairers they are permitted to use under their policy/takaful certificate20. Supplementary Claims for Re-inspection21 S 10.14 The registered adjuster or in-house assessor shall perform a second inspection of the vehicle if required, within 5 working days from the date of receipt of a supplementary claim request from the claimant or the repairer, as the case may be. S 10.15 ITOs shall issue the supplementary approval letter, to the claimant or repairer, as the case may be, within 5 working days from the date of receipt of the supplementary report from the registered adjuster or in-house assessor. 18 For the avoidance of doubt, this includes: i. completion of field inspection, where applicable; and ii. submission of the final report or assessment to the ITO. 19 As issued by JPJ on April 2019 and any subsequent amendments to it. 20 The policy owner/takaful participant shall refer to the terms and conditions of their motor policy/takaful contract or websites of ITOs in ascertaining which repairer they can use. 21 Applicable to motor claims only. Claims Settlement Practices Page 17 of 49 Issued on: 30 June 2023 S 10.16 With respect to paragraph 10.15, the supplementary approval letter shall include an itemised approved estimate of replacement parts and labour charges. Status Updates S 10.17 ITOs shall notify the claimant on the status of the claim (if investigation is still on- going) within 21 working days from the date of the first claim notification and at regular timely intervals thereafter until the matter is resolved. G 10.18 ITOs should provide accessible and convenient avenues for claimants to obtain real-time updates on this claim status, such as using QR codes, website links and mobile applications. G 10.19 In the event fraud is suspected, ITOs should advise the claimant in writing that the claim is under further investigation to manage the claimant’s expectations and to minimise complaints. Settlement S 10.20 ITOs shall send the approval, offer or rejection letter (whichever applicable) to the claimant, his or her authorised representative or repairer, as the case may be, within 5 working days from receipt of the final report from the registered adjuster or final claims assessment from its in-house assessor22. S 10.21 1 With respect to approval or offer letters under paragraph 10.20, ITOs must ensure that the approval or offer letter includes itemised repair estimates, including replacement parts prices and labour charges, based on the Motordata Research Consortium Sdn. Bhd. (MRC) database or a similar database from a credible database provider. The approval or offer letter shall also include details on how the scale of betterment, average clause and deduction of salvage23 has been applied, as well as options available to the claimant, where applicable. G 10.22 Where there is no dispute on liability, ITOs should generally accept the recommendation made in the registered adjuster’s final report or final claims assessment from its in-house assessor, unless there is a clear and strong basis for departing from the recommendation or assessment made. S 10.23 With respect to paragraph 10.22, where ITOs depart from the recommendation or assessment made, the reasoning and basis for departure shall be documented by ITOs and be subject to periodic independent reviews as part of the ITO’s oversight of its claims settlement practices to meet the objectives of this policy document. G 10.24 ITOs should strive to resolve any material differences (between its assessment and the registered adjuster’s final claims assessment and recommendation) with 22 This does not include settlement for Third Party Property Damage Knock-for-Knock claim where ITOs shall send the approval, offer or rejection letter (whichever applicable) to the claimant, his or her authorised representative or repairer as the case may be, within 5 working days from the date of receipt on amount party-at-fault’s ITO shall authorise for repairs. 23 Salvage refers to the value of the wreck of a vehicle settled on total loss basis. Claims Settlement Practices Page 18 of 49 Issued on: 30 June 2023 the registered adjuster before making an offer of settlement to the claimant or his or her authorised representative24. Repudiation of Liability S 10.25 ITOs shall advise the claimant in writing where a claim is repudiated, stating the reasons for the repudiation. S 10.26 With respect to paragraph 10.25, ITOs shall not repudiate a claim based on the following grounds25: (a) technical breaches of warranty or policy conditions which are not material or relevant to the circumstances of loss, unless it is clearly prejudicial to the interest of the ITOs or has exceeded the time bar as provided under the relevant law; and (b) with respect to motor claims, where the driving licence or the road tax is invalid or had expired at the time of accident, provided the person driving is not disqualified from holding or obtaining such a licence to drive the vehicle under any relevant written laws including the Road Transport Act 1987. Question 6 The Federal Court case on compensation to third parties in accident cases ruled on 5 August 2022 (Civil Appeal No: 02(F)-75-10/2019(W)) highlighted that Section 95 of the Road Transport Act lists out factors that the insurer cannot use as grounds to avoid liability to pay a claim. This includes circumstances where the driver of the motor vehicle at the time of the accident is not holding a licence to drive or not holding a licence to drive the particular motor vehicle. This is also provided under the existing Guidelines on Claims Settlement Practices per paragraph 8.7, which is now duly incorporated under paragraph 10.26(b) as a standard. With respect to this, please provide your response to the following: (a) With respect to paragraph 10.26(a), are there any examples of technical breaches of warranty or policy/certificate conditions which will not result in the repudiation of a claim? (b) Are there any implications arising from paragraph 10.26(b) on own damage motor claims? Notice of Avenue of Appeal S 10.27 ITOs shall ensure that the written communication conveying the ITO’s final decision on a dispute raised by a claimant or rejection of any element of a claim which are within the purview of the Ombudsman for Financial Services (OFS) contains the following statement, which shall be displayed prominently: “If you are not satisfied with our decision, please refer your dispute to the Ombudsman for Financial Services (OFS) within 6 months from the date of 24 In relation to TPPD claims, for any inconsistencies between the registered adjuster’s recommendation and the ITO’s final approved amount, the ITO shall provide the third-party claimant with a clear explanation on the basis used in arriving at its final approved amount in the approval letter. 25 This paragraph should be read together with Schedule 9 in the FSA and IFSA, as the case may be. Claims Settlement Practices Page 19 of 49 Issued on: 30 June 2023 our final decision. The procedure for lodging a dispute with OFS is provided in the attached pamphlet on Resolution of Financial Disputes.” Payment of claims S 10.28 ITOs must make full payment to the claimant or to his or her authorised representative as the case may be, within 7 working days: (a) from the date of receipt of the acceptance of offer or Discharge Voucher and all relevant documents; or (b) from the receipt of the sealed court order in relation to payment of court judgement sum. G 10.29 For the avoidance of doubt, with respect to own damage claims, ITO may make payment of claims referred to under paragraph 10.28 to the repairer handling the own damage claim. S 10.30 With respect to paragraph 10.29, the ITO shall ensure the following: (a) the risks relating to certain segments of consumers (e.g. senior citizens, consumers with disabilities or those who have limited internet access) are addressed by allowing them the choice to decide on alternative mode of payments other than online payments; (b) the claims quantum shall not be reduced in exchange for an early payment; and (c) for claims payable on a reimbursement basis, ITOs shall reimburse the claimant within 7 working days from the date of receipt of original bills from the claimant. In reimbursing the claimant, ITOs shall provide itemised payment receipts in accordance with the policy/certificate coverage/benefits. S 10.31 With respect to paragraph 10.28(b), in the case of minors and persons who are mentally incompetent, a Distribution Order shall also be obtained. G 10.32 ITOs may also make the payment of a court judgement sum upon the receipt of the draft court order which has been approved by both parties and the court, where applicable. Payment of Fees S 10.33 ITOs shall pay the registered adjuster the relevant fees for the services rendered within 7 working days from the submission of the final adjuster’s report or the offer of settlement/rejection to the claimant (whichever is earlier). Question 7 The Bank has shortened the turnaround time for all claims under Part III Claims Processing as it has not been reviewed since 2003 and in light of developments in the general insurance industry that have facilitated claims settlement processes since then. What are your views on the shortened turnaround time particularly for non- motor claims? Please provide relevant data, information and justification to support your views. Claims Settlement Practices Page 20 of 49 Issued on: 30 June 2023 Applicability S 10.34 Under Part III, any reference to “registered adjusters” is to be read to include other specialists such as medical consultants and marine surveyors, as the case may be. G 10.35 The flowchart on non-motor claims processing is set out in in Chart I while flowcharts related to motor claims processing are set out in in Part IV. 11. Motor Repair Estimates Transparency in motor repair estimates S 11.1 1 ITOs shall ensure that repairers are provided with access to view the assessments and recommendations of registered adjusters or in-house assessors on motor claim estimates via the claims estimating systems. S 11.2 In the event a repairer does not have access to the claims estimating systems and submits their motor claim estimates manually, the ITO shall provide a copy of the claims assessments and recommendations of the registered adjuster or in-house assessor to the repairer. S 11.3 ITOs shall also provide a copy of the claims assessments and recommendations of the registered adjuster or in-house assessor to the vehicle owner or the authorised named driver, upon request. S 11.4 With respect to paragraphs 11.1, 11.2 and 11.3, for the avoidance of doubt, the provision of access to the claims assessments and recommendations of the registered adjuster or in-house assessor provided is subject to the following: (a) be limited to repair estimates and areas relevant to deriving the repair estimate only; and (b) exclude confidential information, such as information relating to suspected fraud which require further investigations. S 11.5 For all motor claims processing, ITOs shall provide its registered adjusters, in- house assessors and appointed repairers with access to MRC or any other credible database used by the ITO to facilitate repairs estimations, including replacement parts prices and labour charges. G 11.6 With respect to paragraph 11.5, ITOs should ensure its registered adjusters, in- house assessors and appointed repairers refer to the same credible database used by the ITO to derive repairs estimations. S 11.7 With respect to paragraphs 11.5 and 11.6, the ITO shall ensure that the database provider being referred to for repairs estimations is credible, which adheres to the following principles: (a) Resilient: The database provider has a secure database and is able to preserve the continuity of critical services in adverse situations; PART IV ADDITIONAL REQUIREMENTS ON MOTOR CLAIMS Claims Settlement Practices Page 21 of 49 Issued on: 30 June 2023 (b) Interoperable: The database provider’s system is easily interoperable with other ITO-related systems for smooth integration; and (c) Comprehensive: The database provides wide coverage and data on parts prices and labour times that allows for better and faster comparison of prices and may reduce price subjectivity. Question 8 Does the industry have any views on the criteria for a ‘credible database provider’ (i.e. resilient, interoperable, comprehensive), proposed in paragraph 11.7? S 11.8 Registered adjusters and ITOs26 shall electronically submit all motor claims repair estimates via the claims estimating systems. The repair estimates must be itemised, i.e. by each parts used, its price and labour times and charges required. S 11.9 With respect to paragraph 11.8, ITOs shall electronically approve all motor claims through the claims estimating systems. S 11.10 ITOs must not apply any further adjustment to the total final claims approval amount derived using the credible database. Question 9 With respect to the industry’s experience in referring to a centralised database for motor repair estimates, please provide responses on the following: (a) Does the industry have any views on widening ITOs’ option to refer to other credible database providers? (b) What other initiatives can be done to improve price variance and labour times estimates (i.e. ITO directly procuring parts from suppliers/manufacturers)? (c) Referring to paragraph 11.5 to 11.10, what challenges are there in linking adjusters and repairers to the same database as ITOs? (d) Does the industry have any views on leveraging on alternative procurement models if the claimant opts for parts other than the franchise parts? (e) Referring to paragraph 11.10, can the industry share the current practice when applying discounts (if any) to the claims approval amount? This may include, but not limited to, the final claims approval amount or specific parts prices. 26 In the event in-house assessors are assigned. Claims Settlement Practices Page 22 of 49 Issued on: 30 June 2023 Minimum requirements on professionalism and conduct for in-house assessors S 11.11 ITOs shall ensure that their in-house assessors are: (a) adequately qualified and competent to carry out objective assessments on the cause and circumstances of a loss and in ascertaining the quantum of the loss in relation to a motor insurance/takaful claim; (b) provided with relevant and continuous training to keep pace with the technical, technological, environmental and other changes in the motor ecosystem in order to deliver high-quality claims assessments; (c) guided by clear internal policies and procedures to ensure that the claims assessment work is conducted in an independent, objective and professional manner; (d) subject to adequate monitoring and controls to avoid any conflict of interest situations that can result in unfair outcomes to policy owners/takaful participants. This includes ensuring that the remuneration and incentives provided to in-house assessors are not tied to claims costs; and (e) acting with due care and diligence in conducting investigations and assessments of loss. G 11.12 With respect to paragraph 11.11 (a) and (b), ITOs should be guided by the qualification and training requirements under the Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters27. S 11.13 ITOs shall establish mechanisms to ensure new and inexperienced in-house assessors are closely supervised by senior in-house assessors28 for at least one year. S 11.14 ITOs shall ensure that claims assessments prepared by their in-house assessors must provide sufficient details on key information, such as the facts, assumptions, methods, sources of information and databases used or referred to in producing its final assessment. Adequate records and supporting documentation - including photographs of damaged properties or areas, losses or injuries sustained by claimants, police reports, medical reports, fire brigade reports, repair quotations, statements from witnesses, autopsy reports and forensics’ reports must be maintained for at least 7 years. S 11.15 ITOs shall ensure that claims assessment produced by their in-house assessors with less than 5 years of adjusting work experience, is reviewed and signed-off by a senior in-house assessor. 27 Issued on 1 June 2023. 28 Senior in-house assessor refers to in-house staff assessor who has acquired at least 5 years of adjusting work experience in the subject matter being assessed and take into consideration: i. the number of relevant cases handled by the adjusting employee; and ii. the achievement of satisfactory performance for all relevant cases handled by the adjusting employee. Claims Settlement Practices Page 23 of 49 Issued on: 30 June 2023 Question 10 The new requirements to be imposed on ITOs with respect to their in-house assessors in paragraph 11.11 to 11.15 is intended to streamline the professionalism and business conduct standards between in-house assessors and registered adjusters. This is to ensure similar business conduct standards and quality of assessment will be produced by any party carrying out claims assessment work. Please provide your views on the applicable requirements. Betterment Charges S 11.16 ITOs must ensure that new franchise parts are used for vehicles aged below 5 years, with no betterment charges applied. S 11.17 ITOs shall only apply betterment charges when new franchise parts are used for vehicles aged 5 years and above. For the avoidance doubt, ITOs shall not apply betterment charges where non-franchise parts are used for vehicles aged 5 years and above. S 11.18 In the event betterment charges are applied, ITOs shall: (a) adhere to the scale and maximum rates of betterment as specified in Appendix III; (b) advise claimants on the option of using new non-franchise parts or second- hand parts in order to avoid betterment charges; and (c) obtain explicit confirmation from the claimant and ensure that the consent clearly indicates the claimant’s choice with respect to the types of parts to be used and corresponding betterment charges the claimant has agreed to incur. 12. Vehicle Valuation G 12.1 With the availability of industry-wide vehicle valuation databases (VVDs), ITOs are better equipped to determine the market value of most motor vehicles at the point of sale or renewal as well as at the point of claim. This is expected to address the risk of over-insuring/covering or under-insuring/covering vehicles, which leads to disputes on the market value of vehicles at the point of claim. Market Value S 12.2 At the point of sale or renewal of motor insurance/takaful cover, ITOs must advice customers on: (a) the current market value of the motor vehicle as provided in the VVD used by the respective ITOs29. In this regard, ITOs shall quote the exact market value30 from the VVD when advising consumers on the sum insured/covered of the motor vehicle at the point of purchase or renewal; (b) the importance of insuring/covering the vehicle at an appropriate market value; and 29 Refers to ISM Automobile Business Intelligence System (ISM-ABI system) or any other credible vehicle valuation database. 30 For example, the market value/sum insured shall not be rounded to the nearest RM1,000. Claims Settlement Practices Page 24 of 49 Issued on: 30 June 2023 (c) the effect of over-insurance/coverage and under-insurance/coverage when a claim is made. S 12.3 With respect to paragraph 12.2, ITOs shall also adhere to the following: (a) ITOs must indicate the market value and its source at the point of purchase or renewal in the renewal notice and quotation slip, whichever applicable; (b) ITOs must not quote a sum insured/covered which is higher than the market value provided in the VVD used for policies/takaful certificates that will be insured/covered on market value basis; and (c) ITOs shall refer to the same VVD used at the point of sale31 and at the point of claim to ensure consistency when determining the claim settlement amount for total loss or theft claims. S 12.4 To ensure the accuracy of the market value used at the point of sale or renewal as well as at the point of claim, ITOs shall establish robust internal policies, procedures and controls pertaining to the use of VVDs. This shall include ITOs: (a) ensuring timely updates of the market value in the ITO’s internal systems to ensure the current market value published in the VVD is accurately captured; (b) performing routine checks on the expected range and missing valuations in the ITO’s internal systems as compared with the VVD; (c) establishing controls to prevent unilateral adjustments to the market value in the VVD used; and (d) putting in place robust SLAs with the VVD service providers, which shall include obligations of the VVD service provider to provide resolve and address all concerns raised by ITOs relating to the market values listed in the VVD in a timely manner. This includes circumstances where: i. there is a material discrepancy between the market value of vehicles published in the VVD and the registered adjuster’s assessment; and ii. information on the market value of a particular vehicle model is not available in the VVD. S 12.5 ITOs are prohibited from imposing any charges when providing information on the current market value of motor vehicles to consumers. S 12.6 Where the consumer agrees to insure/cover the motor vehicle at the value recommended by the ITO, the ITO must ensure that the average clause32 is not applied in the event of a partial loss claim. G 12.7 Where the market value of the motor vehicle is not available in the VVD, the ITO may state in the renewal notice that the recommended sum insured/covered is based on the previous year’s sum insured/covered, and that the current market value of the motor vehicle may have further depreciated. 31 Includes renewal of the policy/takaful certificate. 32 Average clause refers to deduction made by ITO to total claim amount where the vehicle is under- insured/covered. Claims Settlement Practices Page 25 of 49 Issued on: 30 June 2023 Agreed Value S 12.8 Where an agreed value policy/takaful certificate33 is offered, ITOs must ensure that: (a) the renewal notice and quotation slip, whichever applicable, clearly states that it is an agreed value policy/takaful certificate; and (b) the implications of having an agreed value policy/takaful certificate is clearly explained to the consumer. G 12.9 ITOs may offer the consumer an agreed value policy/takaful certificate in circumstances where the consumer is required by their financier to insure/cover their motor vehicle with a higher sum insured/covered to match their outstanding loan/financing balances34. S 12.10 Where the ITO does not offer agreed value/coverage to match the higher outstanding loan/financing balances borne by the consumer, in addition to complying with paragraph 12.2(a) and (c), the ITO must: (a) advise the relevant consumers on the availability of gap cover add-ons to account for the difference between the actual market value of their motor vehicles and their outstanding loan/financing balances in the event of a total loss or a theft claim; and (b) inform the consumer on the availability of gap cover add-ons in the market in the event the gap cover referred under subparagraph (a) above is not offered by the ITO. S 12.11 Where agents are advising consumers on behalf of ITO with respect to a vehicle’s market value or agreed value, ITOs shall ensure that their agents comply with the relevant requirements under paragraphs 12.2 to 12.10. 13. Own Damage Motor Claims Question 11 Under paragraph 6.2 of the existing Guideline on Claims Settlement Practices, ‘The prior written approval of the Bank must be obtained by the ITOs for any arrangement or agreement involving pre-approved authorised repairs’. Are pre-approved authorised repair arrangements still relevant? If yes, under what circumstances would this requirement be relevant? Please elaborate on current practices. 33 Agreed value means that the motor vehicle is insured/covered in the event of total loss or theft claims based on an amount that the ITO and the policy owner/takaful participant have agreed on. 34 For example, ITOs and their agents may quote a higher sum insured/covered to consumers to match their outstanding loan/financing balances. Claims Settlement Practices Page 26 of 49 Issued on: 30 June 2023 Unsatisfactory Repairs S 13.1 ITO must ensure repairs carried out comply with applicable standards and requirements imposed by the relevant authorities such as JPJ’s Guidelines on Application for Vehicle Panel Structure Repair or Conversion (Accident Cases). S 13.2 Where repairs are entitled to a warranty period, ITOs shall ensure it is clearly communicated to the policyowner/takaful participant that they can report unsatisfactory repairs to ITOs within the repair warranty period. This shall be specifically stated in the Discharge Voucher. S 13.3 With respect to paragraph 13.2, ITOs shall: (a) ensure that the said vehicle is re-inspected within 5 working days from the date of the unsatisfactory repair reported to the ITOs and ensure that the vehicle is restored to its pre-accident condition; (b) send the repaired vehicle to vehicle inspection providers (VIPs) for the appropriate inspection and certification of roadworthiness, where applicable; and (c) reimburse the policy owner/takaful participant with the market value of the vehicle in the event inspection of the repaired vehicle under subparagraph (b) results in the vehicle being certified as not roadworthy35 after repairs have been carried out in accordance with ITO’s approval. S 13.4 With respect to paragraph 13.3(c), ITOs shall comply with paragraphs 12.1 to 12.11 in determining the market value of the vehicle. Expedited Claims S 13.5 With respect to any form of expedited claims process that ITOs have in place, ITOs shall ensure robust governance and measures for adequate management of operational and other associated risks are established and implemented to ensure the safety and roadworthiness of the vehicle is not compromised. Theft Claims S 13.6 ITOs shall appoint a registered adjuster or an investigator within 1 working day following its decision to investigate a theft claim. Question 12 In light of the existing requirements in the Guideline on Claims Settlement Practices issued in year 2007 and 2008 which refers to panel of investigators, the Bank intends to ascertain the relevance of the term “investigator” in this policy document moving forward and its distinction from “registered adjusters”. With respect to paragraph 13.6, does your company have panel of investigators/appoint investigators, who are not registered adjusters, e.g. forensic investigators and private investigators to carry out investigation work beyond the scope of work registered adjusters carry out e.g. for theft and third-party bodily injury (TPBI) claims? Please 35 After the repairs have been carried out in accordance with ITOs’ approval. Claims Settlement Practices Page 27 of 49 Issued on: 30 June 2023 provide details on the nature of such engagements that differentiate them from appointment of registered adjusters, where relevant. S 13.7 ITOs shall complete their investigation of theft claims within 45 working days from the date of the notification of loss. S 13.8 ITOs must make an offer of settlement to the policy owner/takaful participant upon the completion of police investigations or its own investigations, whichever is earlier. S 13.9 With respect to paragraph 13.8, ITOs shall make a reasonable offer of settlement or repudiate the claim within 60 working days from the date of the notification of loss. S 13.10 ITOs shall ensure that the registration card36 of the vehicle or other relevant documents evidencing ownership of the vehicle are surrendered by the policy owner/takaful participant to the ITO upon payment of the theft claim. Question 13 With respect to paragraph 13.10, apart from the registration card of the vehicle, what are other key documentations required for theft claims based on industry’s current practices? G 13.11 Please refer to the flowcharts for the following types of motor claims: (a) Own Damage Claims Chart II & II(a) (b) Theft Claims Chart III (c) Windscreen Claims Chart IV 14. Third-Party Motor Claims S 14.1 ITOs shall not apply excess in the settlement of third-party motor claims. S 14.2 If the policy owner/takaful participant who is the Party-at-Fault fails to report the accident, the Party-at-Fault ITOs (PFITOs) shall inform its policy owner/takaful participant in writing on their obligations: (a) as required under: i. section 52(2) and section 104 of the Road Transport Act 1987, whichever applicable; and ii. the penalties pertaining to the failure to report the accident to the police; and (b) to notify the PFITO of the accident as required under the terms and conditions of the insurance policy/takaful certificate. S 14.3 With respect to paragraph 14.2, a minimum of at least 2 reminders at an interval of 7 working days between each reminder shall be sent to the policy owner/takaful participant if he/she fails to report the accident. 36 This may also refer to Vehicle Ownership Certificate, where applicable. Claims Settlement Practices Page 28 of 49 Issued on: 30 June 2023 S 14.4 With respect to third-party claims, PFITO shall not: (a) require third-party claimants to furnish information or submit documents which the third-party claimants are unable to obtain (e.g. the police report lodged by the policy owner/takaful participant who is the Party-at-Fault); or (b) repudiate liability on third-party property damage claims solely on the grounds of non-reporting of the accident to the PFITO by the policy owner/takaful participant who is the Party-at-Fault. In this regard, PFITOs shall consider such claims in line with the procedures specified in Appendix I. Compensation for Assessed Repair Time (CART) S 14.5 Where a claim for CART is payable, the PFITO shall comply with the minimum scale of CART as provided in Appendix II. S 14.6 Where a third-party claimant is entitled to a claim of CART, the PFITO shall clearly explain the basis needed to derive the amount of CART payable in its offer of settlement to the third-party claimant. S 14.7 Where the third-party claimant can produce receipts for public transport, ride- share fares or vehicle rentals37 used, PFITOs shall pay the amount shown in the receipts. G 14.8 With respect to payments for vehicle rentals under paragraph 14.7, PFITOs may subject the amount paid to rented vehicles with the equivalent nature as the claimant’s damaged vehicle. S 14.9 The number of days for the computation of CART shall be based on the recommendation of the registered adjuster or assessment of the in-house assessor on the number of days required to repair the damaged vehicle with reasonable provisions for additional days to cater for unforeseen delays which are beyond the control of third-party claimants, such as unavailability of parts needed for the repair work, where applicable. Question 14 The current scale of CART has not been revised since it was last implemented in 1997. In light of this, the Bank is considering revising the scale of CART to provide fair compensation to not-at-fault claimants entitled to a CART claim and to reflect the current cost of transportation. As such, the scale of CART for private use vehicles and motorcycles as outlined in Appendix II is proposed to be increased by applying the rate of inflation from the time the scale was implemented on 1 December 1997 until 2022 as follows: (a) the scale for private use vehicles is adjusted upwards by an absolute amount of RM20, RM 25 and RM35; and 37 For the avoidance of doubt, such rental should be only from rental companies which are duly registered and licensed by the relevant authority. Claims Settlement Practices Page 29 of 49 Issued on: 30 June 2023 (b) the scale for motorcycles is adjusted upwards by an absolute amount of RM5 and RM10 for motorcycles. Please provide your response on the following: (a) What are your views on the proposed adjustments to the minimum scale of CART for private use vehicles and motorcycles? (b) What is the expected impact, if any, on motor premium assessments for your company based on this revision (in RM and %)? Third-Party Property Damage (TPPD) Claims G 14.10 Paragraphs 14.10 to 14.19 is applicable to property damage due to vehicle accidents38. S 14.11 In the event a registered adjuster is appointed for a TPPD claim, the registered adjuster shall, within 1 working day upon being appointed: (a) notify both the PFITO and the third-party claimant’s insurer/takaful operator (CITO), respectively on the impending claim. This shall be done via the claims estimating system used by the registered adjuster; (b) provide the PFITO with relevant information including the accident vehicle registration number and details of the repairer39 where the accident vehicle is at; and (c) The registered adjuster shall obtain the third-party claimant’s consent as relevant for this purpose. S 14.12 With respect to paragraph 14.11(a), upon receiving notification from the registered adjuster, the CITO shall contact its policy owner/takaful participant40 to advise on the following: (a) the process for submission of claims including documentation required; (b) to submit complete documentation to the PFITO as soon as possible; (c) important steps to facilitate a faster turnaround time for the claims processing and for the return of their repaired vehicle, including advise to allow the PFITO to inspect the accident vehicle prior to the commencement of repair works; and (d) the option for submission of an own damage KfK claim (OD KfK) to the CITO to expedite claims processing, where applicable. The policy owner/takaful participant must be informed that their No Claims Discount (NCD) is not affected if an OD KfK is submitted. S 14.13 The CITOs that become aware of an accident involving its policy owner/takaful participants41 shall notify the relevant PFITO immediately and observe the requirements under paragraph 14.12. 38 For the avoidance of doubt, this refers to accident involving vehicles only i.e. vehicle-to-vehicle accident. 39 Such as the name and address of the repairer. 40 Who is the third-party claimant in this instance. 41 For example, CITO may become aware of an accident upon being informed by its policy owner/takaful participant or any party in this instance of an accident that has occurred. Claims Settlement Practices Page 30 of 49 Issued on: 30 June 2023 G 14.14 Upon PFITO’s receiving notification of a TPPD claim, the PFITO should arrange for a field inspection of the accident vehicle as soon as possible42 to assess the extent of damages and scope of repair works involved. This is expected reduce disputes on the claims amount to be paid and in turn significantly reduce the turnaround time for TPPD claims processing. S 14.15 For TPPD claims that fall within the scope of the KfK Agreement43, ITOs shall adhere to the following requirements: (a) the PFITO shall refer to the CITO on the proposed claims approval amount at all times; (b) the CITO shall respond to the PFITO within 7 working days indicating: i. the amount the PFITO shall authorise for repairs upon receipt of the referral from the PFITO on the proposed claims approval amount; or ii. the claims approval amounts the PFITO may offer in cases where the vehicle has been repaired. (c) the PFITO shall proceed to settle the claim without further reference to the CITO in the event the CITO fails to respond within the stipulated period under subparagraph (b). In the absence of reasonable grounds for disputing a claim, the CITO shall honour the reimbursement amount thereafter; (d) for the avoidance of doubt, the CITO shall adhere to the requirements under subparagraphs (b), (c) and (d) above in the event of an appeal from a third-party claimant on the claims approval amount offered. G 14.16 For TPPD claims that fall within the scope of the KfK Agreement or the Supplemental KfK Agreement44, the PFITO and CITO should adhere to the Code of Procedures and Practices stipulated in these Agreements. S 14.17 For all Supplemental KfK claims45, the PFITO shall reimburse the third-party claimant the amount of excess as stated in the approval letter issued by the CITO. G 14.18 In the event policy owners/takaful participant insist that the ITO will not handle the third-party claim as he/she is not liable for the accident, ITOs may require the policy owner/takaful participant to sign an undertaking letter to waive any liability on the part of the ITO. 42 Where PFITO decides to carry out a field inspection, refer to paragraph 10.10 on the applicable timelines. Where re-inspection by PFITO is applicable, refer to paragraph 13.3 on the applicable timelines. 43 KfK Agreement refers to the industry agreement between ITOs to expedite TPPD motor claims settlement based on agreed terms under the agreement i.e. ITOs agree to assume responsibility for their own policy owners/takaful participants with respect to TPPD claims. For example, PFITO will process the claims submitted by the third-party claimant and seek reimbursement from CITO on the claims settlement amount. 44 KfK Supplemental Agreement provides that if the policy owner/takaful participant chooses to pursue repairs of their damaged vehicle with their own ITO (own damage KfK) i.e. ITOs as an industry have agreed that the NCD entitlement of the policy owner/takaful participant shall not be affected, if policy owner or participant is found not at fault. 45 Refers to own damage KfK claims. Claims Settlement Practices Page 31 of 49 Issued on: 30 June 2023 S 14.19 e With respect to paragraph 14.18, ITOs shall advise the policy owner/takaful participant of the implications of providing such an undertaking. Question 15 What are the key challenges that may be encountered arising from requirements proposed in paragraph 14.10 to 14.19? Third-Party Bodily Injury S 14.20 ITOs shall promptly establish the facts of the accident and persons injured upon receipt of the initial information on a third-party bodily injury (TPBI) claim. Where ITOs decide to investigate the claim, ITOs shall appoint an investigator or registered adjuster within 5 working days from the date of receipt of all completed and relevant documents. G 14.21 With respect to the payment of a court judgement sum, ITOs should instruct their solicitors to request from the court for the portion of the court settlement judgement award intended for long-term needs of an injured person46, such as nursing care, to be managed through a public trustee for the benefit of the injured person. This is to avoid any unwarranted dissipation of TPBI payments intended to cover costs of recovery, rehabilitation and care in order to preserve the best interests of the accident victim over the long term. G 14.22 With respect to paragraph 14.21, ITOs should absorb any administrative- related costs charged by the public trustee47 as part of their corporate social responsibilities. This is to ensure that the court judgement sum remains sustainable and sufficient to meet the long-term needs of accident victims. G 14.23 The flowchart on the following types of third-party motor claims are set out in the following charts: (a) KfK Claims Chart V (b) Supplemental KfK Claims Chart VI (c) TPBI Claims Chart VII 15. Total Loss Motor Claims S 15.1 With respect to a total loss claim, ITOs shall have the discretion to declare a vehicle as Actual Total Loss (ATL) or Beyond Economic Repair (BER), subject to the registered adjuster’s recommendation. 46 This does not include the entire court judgement sum such as medical cost incurred, loss of future income, pain and suffering, and special damages. 47 For example, 2.50% annual fee is levied on the total award by Amanah Raya. With respect to this, ITOs as an industry may engage with public trustees to negotiate on lower fees in this respect as a public interest matter. Claims Settlement Practices Page 32 of 49 Issued on: 30 June 2023 S 15.2 In declaring a vehicle as ATL or BER, ITOs shall ensure that: (a) the relevant approvals48 are obtained, where applicable; (b) the decision reached is premised on the safety and roadworthiness of the claimants’ vehicles; and (c) the best interests of the claimants who are still registered as legal owners of these vehicles are protected. Question 16 During the development of Jabatan Standard Malaysia’s Motor Vehicle Aftermarket: Smash Repair Requirements, relevant stakeholders have raised concerns on ITOs having vested interests, with the focus being primarily on cost cutting considerations, when deciding whether a vehicle is declared as ATL or BER. As such, the Bank is proposing to: (a) require ITOs decision on a vehicle being declared as ATL or BER to be subject to registered adjuster's recommendation, which is independent of ITOs; and (b) introduced additional safeguards ITOs shall consider in making declaring a vehicle as ATL or BER. Please provide your view on this and support it with relevant justifications or information. S 15.3 ITOs shall provide and clearly explain the basis for all total loss settlements i.e. ATL and BER to the claimant. S 15.4 With respect to paragraph 15.3, ITOs must ensure that any deduction from total loss settlements i.e. ATL and BER, such as due to depreciation, is measurable, reasonable, specific and clearly explained to the claimant. S 15.5 ITOs must establish robust internal policies, procedures and controls to ensure proper deregistration and disposal of ATL vehicles as well as appropriate handling of BER vehicles, which shall include: (a) sending ATL vehicles to a licensed Automotive Treatment Facility (AATF) for disposal, where applicable; (b) obtaining services from a credible auctioneer, vendor or repairer for towing, storage and undertaking the tender process for the sale of BER vehicles; and (c) ensuring all repaired BER vehicles are sent to a VIP such as PUSPAKOM for the appropriate inspection and certification of roadworthiness. S 15.6 ITOs shall ensure that the internal policies and procedures referred to under paragraph 15.5 are in compliance with applicable standards or requirements imposed by relevant authorities including JPJ’s Guidelines on Application for Vehicle Panel Structure Repair or Conversion (Accident Cases). 48 For example, approval from JPJ in relation to damaged vehicle structural panels shall be obtained before the repair process commences. Claims Settlement Practices Page 33 of 49 Issued on: 30 June 2023 G 15.7 With respect to paragraph 15.6, ITOs should also be guided by voluntary standards and guidelines specified by relevant industry associations and relevant agencies such as Jabatan Standard Malaysia’s Motor Vehicle Aftermarket: Smash Repair Requirements. G 15.8 The flowchart on ATL and BER claims processing are set out in Chart VIII. Actual Total Loss (ATL) S 15.9 Upon ITOs declaring a vehicle as ATL, ITOs must: (a) immediately notify JPJ on the ATL status of the vehicle and ensure that the vehicle is successfully deregistered; (b) ensure proper safekeeping of registration cards of vehicles declared as ATL, until the registration cards are returned to JPJ for cancellation; and (c) ensure timely return of the registration cards of vehicles declared as ATL to JPJ for cancellation, within the timelines indicated by JPJ. S 15.10 ITOs shall also disclose information on ATL vehicles to VIPs such as PUSPAKOM, upon request. Beyond Economic Repair (BER) S 15.11 Upon ITOs declaring a vehicle as BER, ITOs must ensure: (a) the BER settlement is supported by sufficient documentation on the vehicle’s condition; and (b) the proper safekeeping of the BER vehicles’ registration cards of the vehicles until the transfer of ownership of the BER vehicle is successfully effected. S 15.12 If the wreck value49 of the vehicle is more than the claim settlement sum offered, ITOs shall give the claimant the choice of either withdrawing their total loss claim or accepting the ITO’s offer. Question 17 Please provide your views on the following: (a) With respect to paragraph 15.12, in light of current practices, what are other factors that may be necessary to be considered when giving claimants’ the choice of either withdrawing their total loss claim or accepting the ITO’s offer? (b) Are the terms ‘salvage’ and ‘wreck value’ still relevant in light of current practices? (c) If relevant, what are your views on the following definition of terms as follows: i. “Salvage” refers to the value of the wreck of a vehicle settled on a total loss basis, i.e. ATL or BER. Salvage may also include the scrap of a vehicle where it is not repairable and requires disposal (e.g. ATL vehicles). 49 The price of a damaged accident vehicle which may be repaired or restored. Claims Settlement Practices Page 34 of 49 Issued on: 30 June 2023 ii. “Wreck value” refers to the price of a damaged accident vehicle which may be repaired or restored. S 15.13 Where the claimant insists that the vehicle is to be repaired, the ITO shall give due consideration to such requests to repair the vehicle, subject to the following conditions: (a) the wreck value is more than the claim settlement sum offered; and (b) the vehicle meets the “Contract Repairs” requirements under paragraph 16.1. 16. Motor Claims – Other Matters Contract Repairs S 16.1 ITOs shall not allow contract repairs50 for damaged vehicles, except under the following circumstances: (a) with the written agreement of the policy owner/takaful participant; (b) the damaged vehicle is aged 5 years or more; and (c) estimated cost of repair exceeds 65% of the sum insured/covered. Question 18 With respect to contract repairs, what are your views on the following: (a) the exceptions provided under paragraph 16.1 (a), (b) and (c), specifically if these are still relevant in light of current practices; (b) with respect to paragraph 16.1(b), does your company have any views on allowing contract repairs regardless of the vehicle age, subject to the following conditions: i. explicit consent obtained from policyowner/takaful participant; and ii. adequate roadworthy inspection by VIPs such as PUSPAKOM after the vehicle has been fully repaired. Please support your response with relevant data and information. (c) the removal of paragraph 16.1(c) on estimated cost of repair exceeding the sum insured/covered as an exception. This is to allow more contract repairs to be done i.e. more vehicles returned to the policy owner/takaful participant, subject to the safeguards provided above? S 16.2 With respect to paragraph 16.1, ITOs must ensure that all contract repaired vehicles are sent to VIPs such as PUSPAKOM for the appropriate inspection and certification of roadworthiness. 50 Under a contract repair settlement, the repair works would generally not be based on the registered adjuster’s recommendation for repair (i.e. basis of settlement decided between ITOs and claimant). As such, there are concerns that minimum safety standards of repairs may not be met as it is limited by the contract repair amount agreed upon. Claims Settlement Practices Page 35 of 49 Issued on: 30 June 2023 Cut-and-Joint S 16.3 The practice of joining two halves of damaged vehicles (Cut-and-Joint) as a method of repair is prohibited, except for the repair of ‘stretched’ versions of vehicles which are constructed using the joining technique or process, and subject to prior approval from JPJ. ITOs shall ensure the necessary approvals with respect to this are obtained prior to the commencement of such repairs. Chain Collision Claims S 16.4 In the event of a chain collision, the ITO insuring/covering the vehicle immediately behind a vehicle shall be responsible for the damage and uninsured/uncovered losses (i.e. excess and CART only) for the vehicle in front of it. This does not apply to collisions involving: (a) parked vehicles; (b) where the front vehicle makes a ‘U’ turn; (c) vehicles not traveling in the same direction; or (d) foreign-registered vehicles. Question 19 (a) With respect to cut-and-joint, what is your view on the relevance on maintaining paragraph 16.3 in light that this has been covered broadly under section 10(3) and 10(4) of the Road Transport Act? What are the implications, if any, in removing paragraph 16.3? (b) With respect to chain collision claims, what is your view on the relevance of maintaining paragraph 16.4(d) as an exception, in light of current practices? What are the implications, if any, in removing subparagraph (d)? S 16.5 With respect to paragraph 16.4, ITOs shall not forfeit the No-Claims Discount for any third-party claimant involved in the chain collision. Claims Settlement Practices Page 36 of 49 Issued on: 30 June 2023 Appendix I: Procedures on Handling of Non-Reported TPPD Claims (a) Where a policy owners/takaful participant does not report a TPPD claims to the PFITO, the PFITO may request a third-party claimant involved in an accident to submit documents such as those listed below to the ITOs: i. claim in writing by the third-party claimant or his or her authorised representative; ii. a copy of the third-party claimant’s identity card and driving licence; iii. a copy of vehicle ownership certificate or registration card; iv. a copy of registered adjuster’s report; v. bill of repair costs of the third-party claimant’s vehicle; vi. photos of accident scene and damages to vehicles involved; vii. a copy of the third-party claimant’s police report; viii. a copy of the PFITO's policy owner’s/takaful participant’s police report, if available; ix. if the PFITO's policy owner’s/takaful participant’s police report is not available, a Statutory Declaration by the third-party claimant declaring the circumstances of the accident and identifying the PFITO policy owner’s/takaful participant’s vehicle as a party to the accident; x. a copy of the police investigation report or a notification by the police as evidence that the PFITO’s policy owner/takaful participant was at fault; and xi. other relevant information or documents as required by the PFITOs. Question 20 (a) Is Appendix I still relevant to be retained? What are your views on removing Appendix I from the CSP PD? Please provide data, information or justifications to support your views. (b) The Bank is of the view that third-party claimants should not be responsible for furnishing documents under paragraph (a) (viii) and (ix). What is your view on the relevance of paragraphs (a) (viii) and (ix)? (c) With respect to paragraph (a)(ix), the Bank is of the view that the third-party claimant’s police report should suffice as it is an offence to make a false police report. What is your view on removing paragraph (a)(ix) from the CSP PD? Is the expectation for third-party claimant to provide a Statutory Declaration in this context still relevant? What are the possible implications, if any, of removing paragraph (a)(ix)? (b) The claim should be filed by a third-party claimant within 14 working days from the date of the accident. However, any delay in filing the claim shall be considered by the PFITO based on the merits of each case. (c) Upon evaluation of the claim, the PFITO must ensure that their decision to make an offer or reject the TPPD claim is properly recorded with reasons for rejection stated on the claims file and escalated to Senior Management for ratification. PART V APPENDICES AND CHARTS Claims Settlement Practices Page 37 of 49 Issued on: 30 June 2023 (d) Once the PFITO has decided to handle a TPPD claim on a without prejudice basis, the claim shall be treated as any other claim, and accordingly, consequential losses such as loss of No-Claim Discount and CART (subject to actual proof of these losses) shall apply as in the case where the policy owner/takaful participant had reported the accident. (e) In assessing TPPD claims, PFITOs shall apply the principles of contributory negligence in the same manner applied in the assessment of any other claim. Claims Settlement Practices Page 38 of 49 Issued on: 30 June 2023 Appendix II: Scale of Compensation for Assessed Repair Time (CART) Vehicle Type Private Use Vehicles CART/Day Up to 1500 cubic capacity (cc) RM 50 Above 1500 cc up to 2000 cc RM 65 Above 2000 cc RM 85 Commercial Vehicles Up to 1 ton RM 40 Above 1 ton up to 2 tons RM 60 Above 2 tons RM 90 Trailer Lorries RM 120 Buses (Private) RM 90 Other Buses (stage/express) RM 180 Taxis/Hire and Drive RM 40 Motorcycles Up to 250 cc RM 15 Above 250 cc RM 25 Note: The above scale defines the minimum amount payable by PFITO for CART claims where the third-party claimant is unable to produce satisfactory documentary evidence, such as receipts for public transport, ride-share fares or vehicle rentals, to support the third-party claimant’s CART claim. For the avoidance of doubt, the above scale serves as a starting point and upward adjustments may be made by ITOs according to the circumstances of each case. Claims Settlement Practices Page 39 of 49 Issued on: 30 June 2023 Appendix III: Scale of Betterment Scale of Betterment 1. The following rates shall be applied in determining the scale of betterment: Age of Vehicle/Years Maximum Rate of Betterment (%) Less than 5 years 0 5 15 6 20 7 25 8 30 9 35 10 and above 40 2. The following basis shall be used in determining the age of vehicles: Vehicle Categories Basis in Determining Age of Vehicle New Vehicle Date of Registration Local second-hand/used vehicle Date of Original Registration Imported second-hand/used vehicle Date of Manufacture Claims Settlement Practices Page 40 of 49 Issued on: 30 June 2023 Chart I: Non-Motor Claims Processing Check Policy/Takaful Certificate Coverage Claim acknowledgement Advise reinsurance (if any) Issue Policy/Takaful Certificate Send release letter Appoint registered adjuster Registered Adjuster Immediate Advice Register claim with initial reserve END A B C D E Key Controls: If a policy/certificate has not been issued, it must be issued within 24 hours of notification. Claim acknowledgement to policy owner/takaful participant within 3 working days from the receipt of a claim Send offer letter and Discharge Voucher to policy owner/ takaful participant within 5 working days from the date of receipt of final report from the registered adjuster. Payment of claim must be made within 7 working days from the date of receipt of acceptance of offer or discharge voucher and all relevant documents. A B C D E Yes No Assessment Received final report Liable? Send offer letter and discharge voucher Subrogation possible? Process reinsurance recovery (if any) Send claim recovery letter to third party No No Yes Claim Payment E F G The ITO may consider ex-gratia settlement upon policy owner’s/takaful participant’s appeal. Proceed with reinsurance recovery while awaiting payment from third party. F G Yes Policy/Certificate Issued? Registered adjuster’s immediate advice is essential for the registration of claims and must be submitted as soon as possible. Claim Notification* Claims Settlement Practices Page 41 of 49 Issued on: 30 June 2023 Chart II: Motor Claims Processing (From Notification of Claim to Appointment of Registered Adjuster/Investigator) \ Acknowledge receipt of all documents B B C Register claim with initial reserves Check policy/ takaful certificate coverage C Verification of facts Interview policy owner/takaful participant Obtain sufficient details of the accident Obtain relevant documents Appoint registered adjuster/in-house assessor Continue at Chart II (a) D D This includes walk-in, phone, website, app, e- mail/ fax/ claims estimating system such as Merimen, OneWorks and SNK Market Data Research. Claim Notification Check policy/ takaful certificate issuance A Key Controls: ITOs to acknowledge receipt of claim within 3 working days from the receipt of a claim In the event ITOs’ request for additional information is not forthcoming from the claimant, ITOs shall send a reminder to the claimant within 7 working days from the date of its first request. A In the event a policy/certificate has not been issued, the underwriting department is required to issue a policy/takaful certificate within 24 hours of claim notification. Policy/Certificate issued? Yes No ITOs shall assign registered adjusters or its in-house assessor to conduct an assessment of loss giving rise to a claim within 5 working days from the date of receipt of all completed and relevant documents. B C D Claims Settlement Practices Page 42 of 49 Issued on: 30 June 2023 Chart II(a): Motor Claims Processing (From Assessment to Payment) Send offer letter and discharge voucher Send repudiation letter Liable? END E Key Controls: ITOs shall send the offer letter and discharge voucher, or repudiation letter to workshop and copy to the claimant, his or her authorised representative or repairer, as the case may be, within 5 working days from the date of receipt of final report from registered adjuster or final claims assessment from the in- house assessor. E Receive signed discharge voucher and final bill for payment Payment Assess claim The registered adjuster or in-house assessor assigned by the ITO shall complete the adjusting or claims assessment work required within 10 working days from receipt of all completed and relevant documents. C Continue from Chart II Registered adjuster’s/in-house assessor report ITOs may consider ex-gratia settlement upon appeal by claimant. G Yes No F G F Claims Settlement Practices Page 43 of 49 Issued on: 30 June 2023 Chart III: Motor Claims Processing – Theft Claims Process Flow (From Claim Notification to Appointment of Registered Adjuster/Investigator – See Chart II) Motorcycle Vehicle Valuation Vehicle under hire purchase? Other Vehicles Obtain Outstanding Balance from Financier A B No Key Controls: Theft investigation by the ITO should be completed within 45 working days from the date of notification of loss. A B C D E Send offer letter and discharge voucher & Request original documents Request police investigation outcome letter Obtain police investigation outcome Obtain undertaking letter on the release of original documents from Financier Prepare payment Received registration card & JPJ Form 3 (Transfer of Ownership) END C D E Yes If police investigation outcome is not received after 60 working days, ITO must proceed with disbursement of claim. In cases where policy owner/takaful participant has settled part of the loan, the financier will reimburse the policy owner/takaful participant. Payment of claim must be made within 7 working days from the date of acceptance of offer, discharge voucher and all other relevant documents. ITOs shall ensure proper safekeeping of these original documents. Continue from Chart II Registered Adjuster/Investigator’s Report Claims Settlement Practices Page 44 of 49 Issued on: 30 June 2023 Chart IV: Windscreen Claims Processing (For policy owner/takaful participant with Windscreen Cover) Check & confirm policy/certificate coverage Acknowledge receipt of all documents END Key Controls: The offer letter/discharge voucher to be sent to policy owner/takaful participant within 5 working days from the date of receipt of photos or repair bill. Payment of claim to claimant must be made within 7 working days from the date of receipt of the signed discharge voucher. A B Register claim with initial reserves Payment Assess claim Send offer letter and discharge voucher This includes walk-in, phone, website, app, e-mail/ fax/ claims estimating system including Merimen, OneWorks and SNK Market Data Research. Claim Notification B A Claims Settlement Practices Page 45 of 49 Issued on: 30 June 2023 Chart V: Knock-for-Knock (KfK) Claims Processing – Third-Party Property Damages (With KfK reimbursement) Submission of documents and repair estimates END A B D Key Controls: ITO shall send a minimum of 2 reminders at an interval of 7 working days each if the policy owner/takaful participant fails to report the accident PFITO seek approval/mandate from CITO. CITO shall respond to the PFITO request for approval/ mandate within seven working days. A B C D Upon complete documentation and verification of coverage, refer to CITO for approval/mandate Payment Reimbursement from CITO Send offer letter and discharge voucher E E Includes notification via: (a) Registered adjuster notifying CITO and PFITO on the impending claim within 1 working day upon being appointed; and (b) CITO notifying the relevant PFITO immediately upon being aware of an accident involving its policy owner/takaful participants. Upon the PFITO receiving the notification of a TPPD claim, PFITO should arrange for a field inspection of the accident vehicle as soon as possible to assess the extent of damages and scope of repair work involved. Upon the PFITO receiving the notification of a TPPD claim, PFITO should [must?] arrange for an inspection of the accident vehicle as soon as possible to assess the extent of damages. Upon the PFITO receiving the notification of a TPPD claim, PFITO should [must?] arrange for an inspection of the accident vehicle as soon as possible to assess the extent of damages. C Check policy coverage Register claims with initial reserves Acknowledge receipt and confirm cover Payment of claim to claimant must be made within 7 working days from the date of receipt of the signed discharge voucher. CITO must reimburse the PFITO within 30 working days from the date of receipt of payment request, as stipulated in the industry’s KFK agreement. Claim Notification Claims Settlement Practices Page 46 of 49 Issued on: 30 June 2023 Chart VI: Supplemental KfK Claims Processing Party at Fault Insurer/Takaful Operator (PFITO) Claimant Insurer/Takaful Operator (CITO) Acknowledge Receipt Check Policy/Takaful Certificate Coverage Assessment of Claim Register claim, open claims file & notify PFITO Appoint registered adjuster/in-house assessor Send discharge voucher & approval letter to workshop c.c. to policyowner/takaful participant END E Key Controls: Policy owner/takaful participant notifies intention to make KfK claim (to his insurer/ takaful operator) within 7 working days from date of accident with the relevant documents. . A B A B E Payment to workshop upon receipt of signed discharged voucher Acknowledge receipt of uninsured loss (CART & Excess) claim from claimant Assess uninsured/uncovered loss (CART & Excess) Assess uninsured loss (CART & Excess)Assess uninsured/uncovered loss (CART & Excess) Confirm Receipt E C E D CITO notifies PFITO of the claim within 14 working days from the date of acknowledgement of claim from policy owner/takaful participant. CITO need not wait for a reply from PFITO and shall continue to process the claim. PFITO confirm receipt of notification and reply within 14 working days upon receipt of the notification. C PFITO should assess the uninsured loss claim (CART & excess) within 14 working days from date of advice. CITO settles the claim and shall not seek reimbursement from the PFITO for the amount paid. Issue offer letter to claimant and make payment upon receipt of signed discharge voucher C D Claim Notification Claims Settlement Practices Page 47 of 49 Issued on: 30 June 2023 Chart VII: Third-Party Bodily Injury Claims Processing Appoint Solicitor Negotiation Send offer letter to claimant A Litigation Register claim with initial reserves END Assessment Claim file opened Adjust Reserve Additional documents, correspondence letters, etc Offer Settlement to Claimant Accept? Quantum agreed Payment, Release Letter, discharge voucher Yes No Key Control: With respect to the payment of a court judgement sum, ITOs should instruct their solicitors to request from the court for the portion of the court settlement judgement award intended for long-term needs of an injured person , such as nursing care, to be managed through a public trustee for the benefit of the injured person. This is to avoid any unwarranted dissipation of TPBI payments intended to cover costs of recovery, rehabilitation and care in order to preserve the best interests of the accident victim over the long term. A This includes medical report, photo etc. Quantum decided Claim Notification Claims Settlement Practices Page 48 of 49 Issued on: 30 June 2023 Chart VIII: Actual Total Loss (ATL)/Beyond Economic Repair (BER) Claims (From Claim Notification to Appointment of Registered Adjuster/Investigator – See Chart II) Prepare Payment Send offer letter & discharge voucher Contract Repairs END A A B Vehicle under HP? Obtain outstanding balance from financier C Continue from Chart II Registered Adjuster/Investigator’s Report D C Yes No C F B Receive registration card & JPJ Form 3 (Transfer of Ownership) Type of loss? ATL BER Safe keeping of documents Deregistration of vehicle at JPJ & safe keeping of original documents until it is returned to JPJ Appropriate handling of BER vehicle No Yes D F E E F Disposal of ATL vehicle F Policy owner/takaful participant requests repair? Key Controls: ITOs shall have the discretion to declare a vehicle as ATL or BER. ITOs should send the offer letter and Discharge Voucher to workshop and a copy to policy owner/takaful participant within 5 working days from the date of receipt of registered adjuster’s report. Payment must be made within 7 working days from the date of acceptance of offer, signed Discharge Voucher and all other relevant documents. Vehicle valuation A confirmation letter of release of original documents must be obtained from financier before proceeding with payment. Where policy owner/takaful participant has settled part of the loan, the financier will reimburse the policy owner/takaful participant. Upon an ITO declaring a vehicle as ATL, ITOs must: (a) immediately notify JPJ on the ATL status of the vehicle and ensure the vehicle is deregistered; (b) ensure proper safekeeping of the its registration cards; and (c) ensure timely return of the registration cards of vehicles declared as ATL to JPJ for cancellation. ITOs shall: (a) send ATL vehicles to an Automotive Treatment Facility (AATF) for disposal, where applicable; (b) obtain services from a credible auctioneer, vendor or repairer for towing, storage and undertake the tender process for the sale of BER vehicles; (c) ensuring all repaired BER vehicles are sent to a VIP to obtain the appropriate certification of roadworthiness. ITOs must follow ‘Contract Repair’ requirements under paragraph 16.1 (only applicable to BER). If the damaged vehicle does not fulfil the requirements under paragraph 16.1, ITOs may treat it as a ‘ATL’ and advise policy owner/takaful participant in writing within 7 working days from the date of receipt of policy owner/takaful participant’s request for repair and make an offer of settlement, taking the wreck value into consideration. A B C D E F F Claims Settlement Practices Page 49 of 49 Issued on: 30 June 2023 Question 23 With respect to Chart III: (a) Is the police investigation outcome not applicable for motorcycles? (b) If yes, please confirm if the police are not involved in theft pertaining to motorcycles. Question 22 With respect to Chart I and II, what are your views on the flowcharts in the existing Guidelines on Claims Settlement Practices which reflect the step of policy/takaful certificate being issued at point of claims i.e. is this a current practice? Question 21 With respect to Chart I to Chart VIII: (a) Are the processes in the flowcharts and guidance in the key controls still relevant to be retained, particularly on Windscreen claims (Chart IV) and TPBI claims (Chart VII) in light of current practices? (b) Is there a need to modernise the wordings? If yes, please suggest proposed wordings to better reflect it.	Public Notice
23 Jun 2023	Kertas Strategi Rangka Kerja Rangkuman Kewangan (2023-2026)	https://www.bnm.gov.my/-/2nd-fin-incl-frmwk-bm	https://www.bnm.gov.my/documents/20124/55792/SP-2nd-fin-incl-framework.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/2nd-fin-incl-frmwk-bm&languageId=ms_MY	Reading: Kertas Strategi Rangka Kerja Rangkuman Kewangan (2023-2026) Share: 2 Kertas Strategi Rangka Kerja Rangkuman Kewangan (2023-2026) Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1553 pada Jumaat, 23 Jun 2023 23 Jun 2023 Pelaksanaan Rangka Kerja Rangkuman Kewangan Pertama (2011–2020) telah membawa kepada peningkatan yang ketara dalam kebolehcapaian dan penggunaan perkhidmatan kewangan asas di Malaysia. Di sebalik kemajuan yang dicapai, beberapa halangan dan cabaran masih perlu ditangani untuk mencapai tahap terakhir dalam memajukan rangkuman kewangan. Sejajar dengan matlamat yang dibayangkan dalam Pelan Tindakan Sektor Kewangan (2022–2026) untuk meningkatkan kesejahteraan kewangan isi rumah dan perniagaan, Bank Negara Malaysia membangunkan Rangka Kerja Rangkuman Kewangan Kedua (2023–2026) sebagai pelan hala tuju strategik empat tahun dan sebagai panduan berasaskan prinsip untuk memajukan rangkuman kewangan di Malaysia. Rangka Kerja ini juga mengambil kira penjajaran strategi ke arah sudut pertumbuhan baharu yang baru muncul dalam perkhidmatan kewangan, dan pencapaian Matlamat Pembangunan Lestari (Sustainable Development Goals, SDG) dan cadangan untuk Alam Sekitar, Kelestarian dan Tadbir Urus (Environmental, Sustainable, and Governance, ESG) oleh Pertubuhan Bangsa-bangsa Bersatu untuk penciptaan nilai yang lebih tinggi. Bank telah berunding dengan pihak berkepentingan utama dalam membangunkan Rangka Kerja. Maklum balas dan cadangan yang membina telah diterima semasa tempoh perundingan dan telah digabungkan dalam pengeluaran Rangka Kerja. Dokumen: Kertas Strategi Rangka Kerja Rangkuman Kewangan (2023–2026) Bank Negara Malaysia 23 Jun 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Financial Inclusion Framework (2023–2026) Strategy Paper Financial Inclusion Framework 2023 – 2026 Strategy Paper Issued on: 23 June 2023 BNM/RH/DP/ 030-2 About the Strategy Paper Developed by Bank Negara Malaysia (“the Bank”) to align with the Financial Sector Blueprint 2022 – 2026 (“the Blueprint”), the 2nd Financial Inclusion Framework 2023 – 2026 (“the Framework”) serves as a four-year strategic roadmap and principle-based guidance to advance financial inclusion in Malaysia. The Framework sets out the vision, desired outcomes, policy objectives and strategies in advancing financial inclusion holistically. The Framework also provides principle- based guidance on defining the financially unserved and underserved, with the aim of ensuring greater alignment of industry efforts with inclusive finance goals. The Bank has consulted key stakeholders in developing the Framework. Constructive feedback and suggestions have been received during the consultation period and have been incorporated in the issuance of the Framework. Any further queries may be directed to: Financial Inclusion Framework Secretariat [email protected] Liza Mohamed Noor [email protected] Ooi Kiesha [email protected] Aimi Hafizah Hamzah [email protected] i TABLE OF CONTENTS PART A: Bridging Economic Empowerment and Inclusive Growth 1. Overview: Advancing Financial Inclusion 2. Malaysia’s Advancement in the Past Decade 3. Crossing Remaining Hurdles to Run the Last Mile PART B: Strategic Direction of the Renewed Framework 4. Vision of the Financial Inclusion Framework 2023 – 2026 5. Guidance on Unserved and Underserved Segments 6. Desired Outcomes 7. Policy Objectives and Strategies 8. Cross-cutting Themes PART C: Translating Policy to Action 9. Strategic Enablers for Successful Implementation 10. Monitoring and Evaluation Framework 11. Key Performance Indicators and Targets ii Part A: Bridging Economic Empowerment and Inclusive Growth 1 Part A: Bridging Economic Empowerment and Inclusive Growth An inclusive financial system provides a foundation for building strong and resilient households, communities, and economies. In this regard, financial inclusion strategies must facilitate meaningful access and effective usage of affordable financial products and services that allow consumers to save, invest, protect against risks and build financial buffers for current and future needs. To make this happen, having the skills and knowledge to make the right financial decisions are important. This will lay the foundation for individuals and businesses to improve their financial health and resilience, stimulate the economy and promote socio-economic growth. Financial inclusion is also an important enabler in achieving eight of the 17 Sustainable Development Goals (SDGs). United Nations has estimated that achieving the SDGs will create at least US$12 trillion of market opportunities and 380 million new jobs globally, with climate change efforts saving at least US$26 trillion by 20301 . The recent COVID-19 pandemic has caused economic disruptions that eroded financial buffers of many individuals and households, particularly, the underserved and vulnerable segments as well as businesses, especially the small and medium enterprises (SMEs)2. Therefore, financial inclusion strategies going forward will need to take into account these new realities in order to deliver meaningful outcomes that can improve the financial well-being of people in this country. 1 Business and Sustainable Development Commission, 2017; Better Business Better World; Report of the Global Commision on the Economy and Climate, 2018 2 SMEs refer to micro, small and medium enterprises, as defined by SME Corporation Malaysia (as per Guidelines on National SME Definition issued by SME Corporation Malaysia), accessible at: https://www.smecorp.gov.my/images/pdf/2022/Guideline_on_SME_Definition_Updated_September_2020_Final.pdf Financial inclusion is positioned prominently in 8 of the 17 SDGs - Source: UNCDF Bridging Economic Empowerment and Inclusive Growth 1 Overview: Advancing Financial Inclusion 1.1 1.2 1.3 2 2 Malaysia’s Advancement in the Past Decade Diagram 1: Key progress of financial inclusion in the past decade 4 Desired Outcomes Broad Strategies and Key Outcomes Innovative channels: More than 4,600 agent banks nationwide with the introduction of the agent banking framework Innovative products and services: Wider availability of microfinance and microinsurance products through Pembiayaan Mikro and Perlindungan Tenang Enabling Financial Institutions & Infrastructure: Sustained resilience of households with manageable debt service levels Conduit for savings: Individual deposits grew 16% Income generation: Philanthropic funds increased income generation capabilities e.g. > 45% of iTEKAD participants recorded higher sales and savings Positive spillovers from agent banking implementation: 90% of agents cited income increase; 30% cited improved services to community Well-informed & Responsible Consumers: Impactful outreach: Agensi Kaunseling dan Pengurusan Kredit (AKPK) Financial education modules integrated into formal education system Financial Education Network (2016) National Strategy for Financial Literacy (2019) Improved customer satisfaction: Customer Satisfaction Index (CSI) for banking sector at 74.3 (2013: 70.0) Malaysia Insurance/Takaful Competitiveness against the global CSI benchmark at 85.0 (2018: 80.2) Customers with active deposit accounts: 96% of adults (2011: 87%) Population living in sub-districts with physical access to financial services: 99% (2011: 82%) Sub-districts with presence of financial institutions: 95% (2011: 46%) Share of business financing to SMEs: 45% (2011: 39%) Adults with at least one life insurance policy or family takaful certificate: 42% (2014: 33%) Reflects supply side data, and earliest data available is from 2014 after accounting for multiple policies per individual Higher Malaysia Financial Literacy and Capability (MYFLIC) index in 2021 of 59.0 (2015: 56.5) The first MYFLIC index was measured in 2015 E-payment transactions per capita: 170 (2011: 49) E-payment usage (2021): 79% of adults (2014: 63%) Reflects demand side data from World Bank’s Global FINDEX Report. Earliest data available is 2014. 1 Convenient Accessibility 2 High Take-Up 3 Responsible Usage 4 High Satisfaction Progress in Financial Inclusion Source: Bank Negara Malaysia, data as of end-2020 unless speci�ed otherwise. Key financial inclusion initiatives (2011-2020) 3 The Bank’s commitment towards a progressive and inclusive financial system is embedded in the Central Bank of Malaysia Act 2009. Since the implementation of the 1st Financial Inclusion Framework 2011-2020, significant progress has been achieved which broadened the level of financial inclusion in the country. Accelerated Adoption of Digital Financial Services Post Pandemic COVID-19 has affected our day-to-day living including how we conduct finance. In particular, the pandemic has accelerated the adoption of digital financial services (DFS). The recent Financial Capability and Inclusion Demand Side Survey 2021-20223 (FCI Survey 2021-2022) estimated that 74% of Malaysians use DFS. In addition, the World Bank’s Global FINDEX Report (2021) revealed that 79% of Malaysian adults use digital payments, of which 42% did so for the first time during the pandemic. In turn, receiving digital payments has catalysed the use of other financial services, including savings and borrowing. 2.1 2.2 3 The Financial Capability and Inclusion Demand Side Survey is conducted every three years to assesses the level of financial capability of Malaysians based on measures of financial knowledge, behaviour and attitude. Diagram 2: Digital Financial Services Trends in Malaysia 79% of Malaysian adults used digital payments, of which 42% did so for the first time after the pandemic. Digital Payments Usage (%) Paid Utility Bills from Account Saved at Financial Institution or in Mobile Money Account 49% of Malaysian adults saved at a financial institution or through a mobile money account. 36% of Malaysian adults paid utility bills directly from an account. Source: World Bank's Global FINDEX Report (2021) 4 In ensuring that financial inclusion strategies yield the desired outcomes, the Bank continuously monitors and measures the level of financial capability and inclusion in Malaysia. In recent years, the Bank conducted the FCI Survey 2021-2022 and the SME Financing Survey 20214 to gain insights into the current level of financial capability and inclusion in Malaysia, particularly in the post-pandemic environment. Despite the progress made in the past decade, the survey findings highlighted several barriers and challenges that need to be addressed to further advance financial inclusion. 3 Crossing Remaining Hurdles to Run the Last Mile 3.1 3.2 Diagram 3: Barriers and Challenges to Financial Inclusion Source: Demand-side data from World Bank’s Global FINDEX Report (2021), Financial Capability and Inclusion Demand Side Survey 2021-2022 Digital Digital financial services 1 Take-up of insurance and takaful 2 Innovation in products for underserved segments 3 Financial awareness and education Significant impact of pandemic for some segments 4 5 Reliance on cash and traditional banking prevails, particularly among low-income, elderly and rural communities, mainly due to lack of knowledge and concerns over fraud/security Low Digital Financial Literacy rate - 37% of Malaysians sharing passwords and/or PIN of bank accounts with close friends Narrow definition of un/underserved focusing on availability of physical access points Limited exploration of targeted, innovative financial solutions for the underserved 29% of consumers rate themselves to be of low financial knowledge MYFLIC Index: Improvement in financial knowledge not translated into positive changes in behaviour and attitude 55% of consumers’ household income decreased during pandemic, with 15% unable to cover basic needs 30% of Malaysians cited high indebtedness particularly for those in education, public and/or professional sectors 47% of Malaysians claim to have difficulty to raise RM1,000 as emergency funds Low take-up of insurance and takaful - 23% by individuals and 67% by SMEs, due to lack of affordability and awareness of the need for risk protection and limited understanding of products * Data is from Financial Capability and Inclusion Demand Side Survey 2021 4 SME Financing Survey 2021 was conducted to assess the business conditions and needs, challenges and behaviour of Malaysian SMEs in accessing financial products and services, especially in the post-pandemic environment. 5 To this end, the Blueprint lays out wide-ranging strategies to elevate the financial well- being of households and businesses. The financial inclusion strategies and aspirations outlined in this Framework are aligned to meet the goals envisioned in the Blueprint. At the national level, advancing the financial inclusion agenda remains a key priority under the Twelfth Malaysia Plan 2021 – 2025 (Rancangan Malaysia Kedua Belas, RMK12). The aim is to ensure all Malaysians have meaningful access to quality and affordable financial services, with emphasis on innovative financial solutions and technology-led modes of delivery. This will be key to meeting RMK12’s objective to achieve a prosperous, inclusive and sustainable society. 3.3 3.4 6 Part B: Strategic Direction of the Renewed Framework 7 Part B: Strategic Direction of the Renewed Framework The Strategic Direction of the Renewed Framework Diagram 4: The Framework at a Glance Desired outcomes Policy Objectives Broad strategies Cross-cutting themes Strategic Enablers Digital Financial Inclusion Framework 2023 - 2026 Vision Advance financial inclusion to elevate the financial well-being and standard of living of all residents of Malaysia Access to affordable and suitable financial products and services Responsible usage of financial products and services Financial innovation that delivers value for all Financially capable consumers with good financial health Expanding access to financial services for the last frontier Promote secure and inclusive digital financial services (DFS) Enhance SME financing ecosystem Strengthen role and capabilities of financial institutions (FIs) Enhance services by Agent and Mobile Banks Expand access and usage of wide-ranging DFS Enhance access to diverse sources of financing for SMEs Support microenterprises to move up the value chain Scale up needs-based microinsurance/ takaful Improve guidance on un/underserved Data Sharing Facilitative data-sharing and enhanced usage of alternative data Strategic Collaborations Strong network to create more accessible, inclusive and effective financial ecosystem Regulatory Environment Conducive regulatory environment for financial inclusion Infrastructure Strong internet connectivity; adequate financial infrastructure Facilitate FIs partnerships with Fintech players Promote social finance Integrate gender considerations within financial inclusion strategies Strengthen impact measurement and monitoring of financial inclusion efforts Support growth of social impact businesses Ensure effective financial literacy ecosystem Improve targeted support for the vulnerable segments Equip consumers with improved financial capabilities Improve access to and usage of risk protection 8 The Framework sets out a clear vision to “Advance financial inclusion to elevate the financial well-being and standard of living of all residents of Malaysia” by: enabling everyone to benefit from an accessible and inclusive financial ecosystem; equipping individuals and businesses with affordable and suitable financial solutions; and empowering consumers with the financial capability to make sound financial decisions and meaningfully participate in the financial system. Greater financial inclusion enables households and businesses to improve their overall financial well-being and be better at responding to changes in financial circumstances. This in turn will build their financial resilience, including through economic cycles. This Framework serves as a four-year strategic roadmap to advance financial inclusion as a means to an end, instead of an end in itself. The Framework features: a more expansive and holistic approach to transition the focus from accessibility and usage to achieving broader development outcomes as well as financial resilience and well-being; seven policy objectives to address remaining gaps and accelerate the advancement of financial inclusion; four strategic enablers to support the effective implementation of the Framework; principle-based guidance to identify the unserved and underserved - covering broader challenges of exclusion beyond geography, and includes various aspects of financial vulnerabilities; and two cross-cutting themes as underlying implementation principles: • embedding gender equality considerations for greater socio-economic outcomes; and • strengthening impact measurement and evaluation of financial inclusion efforts across the industry to promote greater accountability. list of key performance indicators (KPIs) that will account for the quality of financial services and components of financial capabilities and health (to be published in 2023 upon consultation with stakeholders). In line with the Blueprint’s call on the need to improve guidance on how financial institutions can define the financially unserved and underserved segments, the Framework provides a principle-based guidance5, based on the following six key characteristics: Physically challenging to reach given geographical accessibility; Unable to conduct digital transactions or adopt digital solutions, due to a lack of digital literacy, capability or connectivity; Face difficulties obtaining financial services given their risk profiles; Face difficulties accessing financial products due to information asymmetry or concerns on commercial viability especially in new growth areas; 5 The guidance is aligned with definitions provided under the relevant policy documents issued by the Bank including the Policy Document on Agent Banking (2022), Policy Document on Licensing Framework for Digital Banks (2020), Exposure Draft on Fair Treatment of Vulnerable Consumers (2023), and Exposure Draft on Licensing and Regulatory Framework for Digital Insurers and Takaful Operators (2022), and complements existing guidance and policy documents issued by the Bank. 4 Vision of the Financial Inclusion Framework 2023 - 2026 4.1 i. ii. iii. 4.2 4.3 5.1 5 Guidance on Unserved and Underserved Segments i. ii. iii. iv. 9 i. ii. iii. iv. v. vi. Are likely to be more vulnerable due to personal circumstances, including changes in personal circumstances, exposing consumers to greater risk of experiencing harm; and/or Gaps in financial literacy hindering the effective take-up and meaningful usage of financial products and services. Diagram 5: Principle-based guidance on the financially unserved and underserved Reside in rural / remote / hard-to-reach areas Reside in areas where Financial Access Points (FAPs) located > 10km travelling distance away Characteristics of unserved and underserved segments Limited geographical accessibility 1 Unable to conduct digital transactions 2 Difficulties obtaining financial services given risk profiles 3 Need help with digital transactions or adoption of digital solutions due to lack of technological savviness or physical disabilities Cannot a�ord internet subscription or smartphone Reside in areas with poor digital connectivity Lack of documentation e.g., identity for veri�cation, credit history/ collateral/ �nancial track record, or insu�cient data or experience to support pricing of risks No income/unemployed / inconsistent source of income SMEs within FIs’ high-risk segments and/or segments with cautious/negative outlook Not typically suited to traditional bank-based �nancing and/or risk protection solutions Di�culty accessing �nancing and/or protection solutions due to information asymmetry or commercial viability concerns given the infancy stage of development SMEs in new growth areas 4 Vulnerable segments15 Low financial literacy deterring effective take-up and usage of financial services 6 Change in circumstances or life events resulting in �nancial hardship Low ability to withstand �nancial shocks Have capacity to make own decisions but require assistance to deal with �nancial institutions Lack access and capability to make use of �nancial education tools and resources Lack awareness of the need for and the availability of suitable �nancial products and services Lack knowledge and capability to use �nancial products and services, particularly risk protection products 1 Aligns with definition of ‘vulnerable consumer’ under the Exposure Draft on the Fair Treatment of Vulnerable Consumers (2023) v. vi. 10 v. Are likely to be more vulnerable due to personal circumstances, including changes in personal circumstances, exposing consumers to greater risk of experiencing harm; and/or vi. Gaps in financial literacy hindering the effective take—up and meaningful usage of financial products and services. Diagram 5: Principle-based guidance on the financially unserved and underserved Characteristics of unserved and underserved segments 0 '9 Limited geographical \-55 accessibility - Reside in rural / remote/ hard—to—reach areas - Reside in areas where Financial Access Points (FAPs) located > 10km travelling distance away n ,- SMEsinnewgrowth 0 ‘9 areas - Not typically suited to traditional bank-based ﬁnancing and/or risk protection solutions ' Difﬁculty accessing ﬁnancing and/or protection solutions due to information asymmetry or commercial viability concerns given the infancy stage of development 3 "0 Unable to conduct 190;‘ digital transactions - Need help with digital transactions or adoption of digital solutions due to lack of technological savviness or physical disabilities - Cannot afford internet subscription or smartphone - Reside in areas with poor digital connectivity e Vulnerable segments‘ - Change in circumstances or life events resulting in ﬁnancial hardship - Low ability to withstand ﬁnancial shocks - Have capacity to make own decisions but require assistance to deal with ﬁnancial institutions . Difficulties obtaining a '3 financial services given Q: risk profiles Lack of documentation e.g., identity for veriﬁcation, credit history/ co\|\|atera\|/ ﬁnancial track record, or insufﬁcient data or experience to support pricing of risks No income/unemployed / inconsistent source of income SMES within Fls’ high—risk segments and/or segments with cautious/negative outlook Low financial literacy e deterring effective take—up and usage of financial services Lack access and capability to make use ofﬁnancial education tools and resources Lack awareness ofthe need for and the availability of suitable ﬁnancial products and services Lack knowledge and capability to use ﬁnancial products and services, particularly risk protection products ‘A\|igns with definition of ‘vulnerable consumer’ under the Exposure Draft on the Fair Treatment of Vulnerable Consumers (2023) 10 The Framework focuses on delivering four key Desired Outcomes that will drive and focus our collaborative efforts to attain the Vision. 7 Policy Objectives and Strategies Diagram 6: Desired Outcomes for Financial Inclusion Access to affordable and suitable financial products and services Convenient physical and digital access to financial products and services that are affordable, reliable, suitable and/or flexible, particularly for the unserved and underserved segments Responsible usage of financial products and services Sustained and responsible usage of financial products and services that allows consumers to save, invest, be insured and build financial buffers for their current and future needs. Supported by high level of confidence and trust in the reliability and security of financial products and services, particularly digital financial services Financial innovation that delivers value for all Adoption of new business models and innovations by financial service providers to develop well-targeted, needs-based financial products and services, resulting in more diverse financial choices for consumers Financially capable consumers with good financial health Consumers with improved financial capabilities and confidence in making sound financial decisions and taking charge of their financial futures 6 Desired Outcomes 6.1 11 Diagram 7: Overview of Policy Objectives and Strategies of the Framework Policy Objective 1: Expand financial access for the “last frontier” Policy Objective 2: Promote secure and inclusive digital financial services Enhance role of agent banks and mobile banks Support transition to digital financial services and build cash lite communities in remote and underserved areas Promote greater interoperability of financial services in underserved areas Sustained and responsible usage of financial products and services that allows consumers to save, invest, be insured and build financial buffers for their current and future needs. Supported by high level of confidence and trust in the reliability and security of financial products and services, particularly digital financial services Promote accessible, affordable and convenient digital payments Widen provision and usage of e-remittance services, particularly for SMEs and migrant workers Promote digital insurance/takaful that leverages technology to improve quality and affordability Ensure smooth operationalisation of digital banks as catalyst for financial inclusion Policy Objective 3: Enhance SME financing ecosystem Sustained and responsible usage of financial products and services that allows consumers to save, invest, be insured and build financial buffers for their current and future needs. Supported by high level of confidence and trust in the reliability and security of financial products and services, particularly digital financial services Improve access to diversified funding sources to encourage greater supply of financing and income-generating activities Facilitate ‘second-chance’ for non-viable borrowers Enhance support for microenterprises and informal businesses to move up the value chain Policy Objective 4: Improve access to and usage of risk protection Enhance availability and accessibility of more diverse microinsurance/microtakaful offerings Increase consumer awareness and understanding of risk protection for households and businesses 7 Policy Objectives and Strategies 12 Policy Objective 5: Strengthen financial institutions’ role and capabilities in promoting financial inclusion Policy Objective 6: Improve targeted support for the vulnerable segments Improve alignment of industry’s efforts with inclusive finance goals Improve access to data on profiles, needs, usage and behaviour of the unserved and underserved Review guidelines for Basic Banking Services Facilitate greater collaborations and capacity building between Development Financial Institutions (DFIs) and Financial Institutions (FIs) with other stakeholders Ensure proportionate regulatory approach for DFIs to enhance capacity to sustainably deliver developmental impact Pursue regulatory reforms to strengthen consumer protection Enhance support towards greening finance and financing green Integrate social finance into the financial ecosystem to improve access to funding for segments that face challenges in accessing commercially-driven finance Facilitate provision of appropriate funding/financing and capacity building for social impact businesses and co-operatives that support well-being of the vulnerable segments Enhance policy and regulations to ensure vulnerable consumers are treated fairly by financial service providers Policy Objective 7: Equip consumers with improved financial capabilities Collaborate with the Financial Education Network (FEN) to drive national collaboration on financial education initiatives by expanding strategic partnerships Collaborate with FEN to enhance the Programmatic Roadmap to ensure effective implementation and monitoring of the National Strategy for Financial Literacy Scale up targeted engagement measures to elevate financial literacy and inclusion 13 All sub-districts (mukim) with financial access points Greater migration towards digital financial channels among underserved segments Intended Outcomes: Policy Objective 1 Expand financial access for the “last frontier” Policy Objective 1: Expand access to financial services for the “last frontier” 14 Malaysia has made significant progress in widening financial access points covering 96% of sub-districts (mukim). However, financial barriers remain to the “last frontier” unbanked population, particularly in remote and underserved areas. Hence, the focus in the medium term will be on: • ensuring access to and availability of financial services to segments currently unserved and underserved; and • facilitating on-boarding processes for the population to transition to digital financial channels. Policy Objective 1 lays out strategies for stakeholders to reduce barriers currently impending access to appropriate financial products and services. Enhance role of agent banks and mobile banks Expand location of agent banks with wide range of services offered (e.g. facilitate e-payments, remittances, money services businesses (MSBs) and insurance/takaful-related services) and allow agent banks to facilitate simple account opening without visiting bank branches Increase deployment of mobile banks and ensure mobile banks offer basic services i.e. deposits, withdrawals, advisory and digital onboarding (e.g. 1st time activation of online accounts, how to download mobile apps, do’s and don’ts in digital banking) Support transition to digital financial services and build cash lite communities in remote and underserved areas Expand eDuit Desa1 programme to targeted communities (e.g. elderly, rural communities, microentrepreneurs) to facilitate digital onboarding of financial services Collaborate with relevant stakeholders to support digital literacy and digital financial literacy initiatives (e.g. Malaysia Digital Economy Corporation’s (MDEC) Digital Nomad, MyDigitalCorp, Securities Commission’s (SC) Digital Desa for Senior Citizens) and leverage on local teachers and students as agents of change to cultivate cashless culture 1 2 Promote greater interoperability of financial services in underserved areas Promote interoperability for the services under agent banks and mobile banks Increase MyDebit Cash Out (MDCO) merchants in underserved areas with low digital finance coverage 3 Strategies 1 Refers to the campaign launched by the Bank in October 2022 to increase public awareness and encourage the usage of e-payments among rural residents and microenterpreneurs 7.1 7.2 15 Stronger trust in reliability and security of digital financial services Increase in adult population using digital financial services Intended Outcomes: Policy Objective 2 Promote secure and inclusive digital financial services Increase in e-payment per capita at a Compound Annual Growth Rate (CAGR) of more than 15% Policy Objective 2: Promote secure and inclusive digital financial services 16 The rapid growth of DFS opens enormous opportunities to deepen financial inclusion and expand access to previously excluded and underserved populations. However, these opportunities can only be fully realised if the population is equipped with the knowledge to use them effectively, responsibly and confidently. Low awareness and trust, as well as limited digital financial literacy can preclude consumers from competently and confidently using DFS. Therefore, focus is being accorded to promote more secure and inclusive digital financial services that can encourage greater financial inclusion by effectively meeting the needs of the unserved and underserved segments. More efforts will also be channeled to elevating digital financial literacy (DFL) and improving trust to encourage greater usage of DFS. 7.3 7.4 Promote accessible, affordable and convenient digital payments Promote wider access to digital payment infrastructures to ensure efficiency and reliability of e-payments Assess and foster readiness of e-payment platforms to support digital financial services (e.g., insurance, remittance) Create a conducive regulatory environment by introducing a regulatory framework in 2023 to promote innovation whilst safeguarding consumers’ interest Intensify awareness programs to support digital payment usage (e.g., Cashless Campaigns) Widen provision and usage of e-remittance services, particularly for SMEs and migrant workers Encourage greater e-KYC adoption to onboard individuals and businesses Conduct public awareness drive on availability of e-remittance services, in collaboration with industry and leveraging on social media 1 2 Promote digital insurance/takaful that leverages technology to improve quality and affordability License new digital insurers and takaful operators that deliver on intended value propositions of inclusion, competition and efficiency 3 Ensure smooth operationalisation of digital banks as catalyst for financial inclusion Ensure policy environment remains relevant for digital banks to evolve business models to effectively deliver on financial inclusion objectives 4 Strategies 17 Greater share of SME financing to total business financing Greater access to non-debt based financing Intended Outcomes: Policy Objective 3 Enhance SME financing ecosystem Increase in number of informal businesses graduating to formal and SMEs moving up the value chain, with improved income Policy Objective 3: Enhance SME Financing Ecosystem 18 One of the game changers highlighted in RMK12 is transforming SMEs as the new driver of growth, which includes accelerating SME development through technology and digital adoption. Whilst SMEs are showing positive signs of recovery post-pandemic, the sector is still grappling with lower-than-desired capacity, labour shortages, rising overhead costs and supply chain disruptions. Furthermore, recent surveys indicate that technology adoption and digital transformation among SMEs are still relatively poor compared to larger corporations. The strategies under this policy objective will complement ongoing initiatives for SME development outlined in RMK12 and the Blueprint: • to digitalise the SME sector and support its transition to green economy; and • provide a conducive and holistic ecosystem to support the growth of SMEs. In this regard, the Bank has also introduced special funds, with the objective to providing access to financing at reasonable cost for SMEs in all economic sectors. The funds aim to support the recovery of SMEs, accelerate innovation and promote digital transformation as well as transition to green business models. In addition, the strategies will focus on the following: • improving access to diversified funding sources; • facilitate ‘second chance’ for non-viable borrowers; and • enhance support for microenterprises and informal businesses to improve their income and move up the value chain. 7.5 7.6 7.7 Improve access to diversified funding sources to encourage greater supply of financing and income-generating activities Enhance microfinance provisions:- Holistically review Skim Pembiayaan Mikro (SPM) to ensure relevance and effectiveness, including gaps for pockets of underserved micros (e.g., informal businesses, gig workers) Establish simplified portfolio guarantee scheme, in collaboration with relevant strategic partners Improve access and use of alternative data to develop targeted, innovative solutions by microfinance Financial Services Providers (FSPs) and Digital Banks Review BNM’s Funds to ensure the continued relevance of the funds in meeting the needs of the target segments Allow FIs to offer nano/ social/ blended finance as means to help the un/underserved SMEs build track record and reduce information asymmetry, before transitioning to larger, purely commercial microfinancing 1 Facilitate ‘second-chance’ for non-viable borrowers Support efforts to enhance and simplify insolvency framework to ease cost and time needed for SMEs’ exit and restarting of business ventures. This includes Corporate Voluntary Arrangements (CVA) for SMEs, efficient market-driven restructuring programs simplification of winding up procedures for non-viable SMEs 2 Enhance support for microenterprises and informal businesses to move up the value chain Ensure structured support on business formalisation, business matching, mentoring and financial management, improve referral channels to link SMEs to other financial and business solution providers and encourage better financial management through improved access to and awareness of financial solutions tailored to small businesses 3 Strategies 19 Policy Objective 4: Improve access to and usage of risk protection Insurance/takaful penetration rate of 4.8-5.0% (as % of GDP) by 2026 Significant increase in take-up of insurance/takaful, including by low-income and youth segments, with doubling in number of individuals subscribed to microinsurance/microtakaful Intended Outcomes: Policy Objective 4 Improve access to and usage of risk protection 20 The pandemic has underscored the importance of financial resilience and the need for risk protection solutions in times of uncertainty. Insurance/takaful cushions businesses and individuals against a variety of unforeseen risks, helps to build retirement savings and contributes to advancing an inclusive, resilient society. Despite these benefits, the take-up of insurance/takaful products in Malaysia remains relatively low, particularly among the lower income and youth segments. This is due to income constraints, lack of suitable choices and low awareness of its importance and usage. In this regard, efforts must be channelled to develop a protection landscape that is efficient, competitive and inclusive in meeting the needs of the unserved and underserved segments. The priority in the coming years will be to further promote the growth of a diverse microinsurance/microtakaful market that delivers products that are accessible, affordable, needs-based as well as easy to use by: • encouraging broader offerings under the Perlindungan Tenang6 framework with more targeted and proportionate regulations; and • ensuring more seamless data-sharing across the industry. FEN will be intensifying financial literacy initiatives to further improve consumer awareness and understanding of risk protection and the benefits of Perlindungan Tenang among key segments that most need it. 7.8 7.9 7.10 Enhance availability and accessibility of more diverse microinsurance/ microtakaful offerings Promote greater product innovation guided by flexibilities within the Perlindungan Tenang framework by: Promote seamless sharing of data and experiences across industry to enable innovation and efficiency e.g. facilitate democratisation of data from existing operators of national scheme (e.g. mySalam) to wider industry players 1 Increase consumer awareness and understanding of risk protection for households and businesses Advance financial education and literacy initiatives on the importance of risk protection offerings, particularly for the vulnerable segments that need it most 2 Strategies Facilitating insurance and takaful operators (ITOs) to expand distribution channels and offer more diverse products; Facilitating applications for product bundling and provision of value-added services; and Further develop and provide ITOs with access to more granular demand-side data and demographic information to enable better identification of protection coverage gaps, risks and behaviours of unserved or underserved segments 6 Perlindungan Tenang is a national initiative to provide simple and affordable insurance and takaful plans with a convenient claims process. 21 Policy Objective 5: Strengthen financial institutions’ role and capabilities in promoting financial inclusion Greater use of forward-looking and alternative data alongside traditional metrics Increase in provision of suitable financial products targeted to meet the needs of unserved and underserved segments Intended Outcomes: Policy Objective 5 Strengthen financial institutions’ role & capabilities in promoting financial inclusion Conducive regulatory environment that encourages innovation, safeguards consumers’ interests and supports development of green sectors and green finance solutions 22 In a rapidly changing business environment post pandemic, financial institutions are well- placed to leverage on the following: high levels of digital adoption by financial institutions and an enabling e-payments ecosystem; access to a comprehensive credit data infrastructure; partnerships with fintech players to access the expanding digital data footprint of financial consumers; established business conduct regulatory frameworks and close supervision that promote consumer confidence. This includes effective redress mechanisms for grievances; and active and sustained financial literacy programs. In this context, financial institutions can play a transformative role in financial inclusion by taking advantage of innovation to strengthen digital channels and platforms, as well as develop customised and simplified financial solutions that meet the needs of customers at an affordable cost. To support this, the Bank will continue to facilitate a conducive and enabling regulatory environment to encourage innovation, safeguard consumers’ interests and support the development of green sectors and green finance solutions. 7.11 7.12 23 Improve alignment of industry’s efforts with inclusive finance goals Provide principle-based guidance on definition and characteristics of the financially unserved and underserved Communicate financial inclusion targets and KPIs and standardise reporting to promote wider KPI disclosures by the industry 1 Improve access to data on profiles, needs, usage and behaviour of unserved and underserved segments Enable data sharing arrangements with FIs, microfinance institutions and key government agencies to facilitate development of alternative credit scoring models and support consumers to make better informed financial decisions 2 Review guidelines for Basic Banking Services Review the minimum level of services offered by the FIs to ensure continued relevance according to the needs of financial consumers 3 Facilitate greater partnerships, collaborations and capacity building between Development Financial Institutions (DFIs) and Financial Institutions (FIs) with other stakeholders (e.g., Fintech players, international DFIs, Govt agencies, zakat institutions1, non-governmental organisations) to elevate the DFIs and FIs’ ability to develop innovative business models and customised products for the underserve 4 Ensure proportionate regulatory approach for DFIs to enhance capacity to sustainably deliver developmental impact Ensure policy environment is relevant for digital banks to evolve business models to effectively deliver on financial inclusion commitments 5 Pursue regulatory reforms to strengthen consumer protection (e.g., Consumer Credit Act by the Consumer Credit Oversight Board, standards on data governance and protection, etc.) 6 Enhance support towards greening finance and financing green Strengthen regulatory and supervisory expectations on industry’s management of climate risks Collaborate with fintech players to develop green financial solutions 7 Integrate social finance into the financial ecosystem to improve access to funding for segments that face challenges in accessing commercially- driven finance Scale up financial institutions’ participation in iTEKAD, encourage diverse social finance funds, and facilitate collaboration with implementation partners2 nationwide Advocate for advancement of social finance ecosystem by encouraging infrastructure improvements and integrating social finance in business strategies Develop better measures of value and impact for more transparent disclosure of social finance initiatives Explore and implement innovative models of social finance to include guarantee mechanism 8 Strategies 1 Refers to Islamic organisations that manages the collection and distribution of zakat (alms). 2 Implementation partner refers to all parties involved in rolling out social finance programmes in partnership with the financial institutions, including but not limited to government and private agencies, NGOs, fintech providers, change makers, social enterprises, corporations and even individuals. 24 Policy Objective 6: Improve targeted support for the vulnerable segments 25 Growth in social finance solutions and other value-added services (e.g. upskilling), especially for the vulnerable segments Increase in access to innovative funding/financing for the social enterprise sector Intended Outcomes: Increase in usage and satisfaction of formal financial advisory and redress avenues Policy Objective 6 Improve targeted support for the vulnerable segments Financial inclusion is a key enabler in reducing poverty and boosting shared prosperity. The FCI Suvey 2021-2022 revealed that 55% of consumers’ household income decreased during the pandemic, with 15% unable to cover basic needs. In addition, 47% of Malaysians have difficulty raising RM1,000 as emergency funds. These heightened vulnerabilities may create a cycle of debt and negatively impact the long-term financial security of those affected. Thus, priority will be accorded to implement financial inclusion strategies that will improve socio-economic impact and narrow income inequality for the most vulnerable segments in our society. This includes facilitating the integration of social finance as an integral part of the financial ecosystem, and to support and leverage on existing platforms for social impact businesses to obtain appropriate financing and build necessary financial management skills. Suitable financing and protection solutions can be designed to support the vulnerable segments with the aim to improve their income generation potential to provide financial security and ultimately improve their financial well-being. Complementing this, the Bank will continue to ensure access to effective avenues for financial advisory and redress mechanisms for vulnerable consumers. The Bank will also further strengthen policies and regulations to ensure vulnerable consumers are treated fairly by financial service providers. Facilitate provision of appropriate funding/financing and capacity building for social impact businesses and co-operatives that supports well-being of the vulnerable segments Review and enhance iTEKAD and/or BNM Funds’ eligible beneficiaries to include viable and accredited social enterprises Encourage financial institutions’ support in fulfilling social enterprises’ funding needs beyond grants Facilitate information-sharing and strategic collaboration between financial institutions and relevant stakeholders (e.g. leading global social impact bond providers, Ministries, Govt. agencies and zakat institutions) to expand capacity building efforts and widen outreach to vulnerable segments 1 Enhance policy and regulations to ensure vulnerable consumers are treated fairly by financial service providers Enhance the Policy Document on Fair Treatment of Financial Consumers to introduce requirements on financial service providers to provide appropriate assistance to vulnerable consumers, including those rendered vulnerable due to specific circumstances Ensure access to effective avenues for information on financial advisory and redress 2 Strategies 7.13 7.14 7.15 26 Policy Objective 7: Equip consumers with improved financial capabilities Improvements in MYFLIC index and broad-based increase in Malaysia’s OECD/INFE financial literacy scores Increase in responsible usage and improved financial health Intended Outcomes: Policy Objective 7 Equip consumers with improved financial capabilities 27 Consumers are now facing an increasingly complex digital financial environment. The pandemic has also revealed that financial vulnerability can affect anyone, irrespective of income or education. With this as context, the goals of the National Strategy for Financial Literacy (NS) will continue to be pursued to ensure that the population can confidently navigate financial decisions during challenging times and in an increasingly digital economy. The Financial Education Network, or FEN, is an inter-agency platform of eight partner institutions7 committed to raising the level of financial literacy in Malaysia. FEN will continue to drive the implementation of the NS and is committed to providing free access to financial knowledge, tools and resources as well as strengthening the measurement and evaluation of the initiatives for greater impact. FEN will work together with the financial industry to undertake more targeted efforts to support individuals and groups facing challenges that could make them more vulnerable financially. This includes rural communities, youth, gig workers, SMEs and lower-income households. Further to this, financial institutions have an important role to address the misalignment between information and resources made available to financial consumers, and the way in which they consume, process and act on such information. Better use of data and behavioural insights by financial institutions can help close this gap and advance smarter financial education to bring about positive change. 7 FEN members comprise the Ministry of Education Malaysia, Ministry of Higher Education, Bank Negara Malaysia, Securities Commission Malaysia, Employees Provident Fund, Perbadanan Insurans Deposit Malaysia (The Malaysian Deposit Insurance Corporation), Permodalan Nasional Berhad (National Fund Management Company) and Agensi Kaunseling dan Pengurusan Kredit (Credit Counselling and Debt Management Agency). Collaborate with FEN to drive national collaboration on financial education initiatives by expanding strategic partnerships Expand strategic partnerships and strengthen FEN’s branding as a national advocate for financial literacy Improve evidence-based research and measurements aimed at identifying and understanding gaps, needs, contexts, and behavioural outcomes via Financial Education Measurement and Evaluation (FEME) Framework and Financial Capability and Inclusion (FCI) Survey Provide tangible improvements in the design and delivery of financial literacy interventions through the use of behavioural insight studies 1 Collaborate with FEN to enhance the Programmatic Roadmap to ensure effective implementation and monitoring of the National Strategy for Financial Literacy Strengthen impact evaluation by developing annual KPIs under the four focus areas (Solutions, Access, Awareness and Application) of the FEN Programmatic Roadmap 2 Scale up targeted engagement measures to elevate financial literacy and inclusion Scale up targeted and focused engagement measures to elevate financial literacy particularly on risk protection, digital financial literacy and financial management for SMEs (incl. entrepreneurs, informal sector, gig workers), workplace employees, youth and school students Incorporate education on climate risks within financial literacy engagement and conduct capacity building on greening SMEs 3 Strategies 7.16 7.17 7.18 28 8 Cross-cutting Themes Diagram 8: Cross-cutting thematic considerations for financial inclusion strategies Gender considerations Identify specific barriers faced by women that limit their access to and use of financial services Increase usage of gender disaggregated data to inform policy responses and develop customised value propositions tailored to women’s needs and gender-smart products Ensure targeted financial education and capacity building programmes for different subgroups of women consumers (e.g. youth, low-income, SMEs) Impact-based measurement and monitoring Establish a monitoring and evaluation (M&E) system to track progress and review effectiveness of strategies under the Framework: Develop impact metrics and standardised reporting templates to facilitate disclosures by financial institutions, in turn improving impact creation and promoting consumer confidence: Provide guidance on defining the financially unserved and underserved Communicate core financial inclusion KPIs and targets Facilitate regular reporting on implementation progress Develop Composite Development Rating (CDR) for Development Financial Institutions based on the Performance Measurement Framework Enhance value-based scorecards under Value-based Intermediation (VBI) to ensure information published is well-aligned with international practices Collaborate with social finance providers to develop measures of value and impact 29 Globally, almost three quarters of a billion women continue to be excluded from formal financial services, with a global gender gap of about 6%8. In Malaysia, while there is no significant gender gap in financial account ownership and access to credit, disparities in economic participation remain to be addressed. The labour force participation rate for women in Malaysia at 51%, is below that of the developed economies9. Furthermore, women-owned SMEs make up only about 20% of total SMEs in Malaysia10. Improving gender equality is an increasingly important priority for policymakers globally in the pursuit of sustainable development. In Malaysia, the RMK12 outlines aspirations and initiatives for women empowerment, particularly to strengthen the development of women entrepreneurs and to increase women’s labour force participation rate to 59% by 2025. Complementing these efforts, financial inclusion interventions should be more intentional about ensuring equitable financial access for women consumers. With better access and capabilities, women consumers also become more likely to invest in health, education and businesses, which benefit not only the women themselves but also their families and the wider society. To ensure industry-wide efforts are well aligned and effective, the monitoring and impact assessment of financial inclusion initiatives must be strengthened. A monitoring and evaluation (M&E) process will be developed to systematically track and evaluate the performance of the strategies under this Framework. Efforts will be focused on collaborating with financial institutions to develop standardised reporting metrics and promote more transparent impact-based evidences on financial inclusion. This would allow financial institutions to systematically demonstrate and continually improve their commitment towards supporting financial inclusion and the broader Environmental, Social and Governance (ESG) goals and the SDG agenda. Consequently, this will instill greater confidence in consumers and investors seeking to deal with institutions that are aligned to ESG goals. 8 Source: The World Bank’s Global FINDEX Report (2021) 9 For comparison, the labour force participation rate for women in Singapore is 59%, 60% in Australia and 65% in New Zealand. Labour force participation rate for women in other ASEAN countries are also higher, e.g., 70% in Vietnam, 59% in Thailand, and 54% in Indonesia. Source: The World Bank Database (2021). 10 Source: Department of Statistics Malaysia (2016) 8.1 8.2 8.3 8.4 8.5 30 The Framework highlights two thematic considerations to be integrated within the financial inclusion strategies across the board: Embedding gender considerations within financial inclusion initiatives Strengthening impact-based measurement and monitoring of industry-wide financial inclusion efforts Part C: Translating Policy To Action 31 Part C: Translating Policy To Action Strategic collaborations – Achieving common goals of inclusivity and well-being aligned to broader national development policies will require greater coordination, synergies and collaboration between stakeholders in both the public and private sectors. Focus will be given to facilitate strategic collaborations between the financial sector and other actors in the ecosystem (e.g., Government Ministries and agencies, financial and non-financial infrastructure providers, non-profit organisations) to strengthen capabilities, widen outreach and ensure the effective implementation of the financial inclusion strategies. Data sharing - With more open data sharing across the industry, financial service providers have access to more granular and alternative forms of data for: • better targeted financial solutions; and • enrich creditworthiness assessments for thin-file consumers. This will also offer better quality information back to consumers to make informed financial decisions and nudge them towards better financial behaviour, which in turn improves their financial well-being. Diagram 9: Strategic enablers to support successful implementation of financial inclusion strategies Strategic collaboration Facilitate collaborations between public and private sector stakeholders to strengthen capabilities, widen outreach and ensure effective implementation of strategis Data sharing 4 Strategic Enablers for Successful Implementation Facilitate data-sharing arrangements to improve access to more granular and alternative forms of data on the unserved and underserved segments Regulatory environment Ensure conducive regulatory environment that facilitates delivery of safe and reliable financial services, eases entry barriers for non-traditional financial services providers and improves consumer protection Infrastructure Ensure availability and accessibility of financial and non-financial digital infrastructures that support a dynamic and inclusive financial system 9 Strategic Enablers for Successful implemention 9.1 9.2 32 The Framework also identifies four strategic enablers involving industry-wide efforts that support the successful realisation of policy objectives and strategies for financial inclusion. These on-going efforts are in line with strategies outlined in the Blueprint: Infrastructure - Focus continues to be given to ensure the financial infrastructure (e.g., interoperable payment systems, credit reference and reporting firms, credit guarantees) is effective in serving a dynamic and inclusive financial system. With the acceleration of DFS, the availability and accessibility of broader non-financial digital infrastructures are crucial to ensure that hard-to-reach segments can participate meaningfully in the financial system.11 Conducive regulatory environment - The Framework also takes into consideration the continued need to ensure a regulatory environment that facilitates financial inclusion. This includes facilitating the provision of financial services that are safe and reliable, easing entry barriers for non-traditional financial service providers and improving consumer protection standards. The Bank also continues to ensure a proportionate regulatory approach for DFIs to support the sustainable delivery of developmental impact by the DFIs. Diagram 10: Strategies under the Framework are aligned with the Financial Sector Blueprint 2022 - 2026 Broad Themes3 Finance for All Diverse financial choices Strong financial safety nets Confident consumers Finance for Transformation Grow alternative finance Deeper global integration Vibrant financial landscape Finance for Sustainability Wider adoption of value-based intermediation Greening finance and financing green Wide-ranging strategies to promote financial inclusion Sustain and grow alternative finance Reinforce finance ecosystem for microenterprises for sustainable and inclusive growth Strengthen counter-cyclical measures for continued financing access Enhance financial capability, access and usage of financial services Strengthen protection for financial resilience Shape financial system that upholds fair and responsible dealings with consumers Advance development of open data system that is fit for the future Support more vibrant digital financial services landscape Integrate climate-related and environmental risks in prudential regulation and supervision Support orderly transition to a low-carbon economy Mainstream social finance Fund Malaysia’s economic transformation Elevate the financial well-being of households and business Advance digitalisation of the financial sector Position the financial system to facilitate an orderly transition to a greener economy Advance value-based finance through Islamic finance leadership 9.3 9.4 33 11 Please refer to “Strategic Thrust 3: Advance Digitalisation of the Financial Sector” in the Blueprint for more information on efforts to enhance financial and non-financial infrastructures to support the broader financial system. The Bank will develop a structured M&E process to track the performance and progress of the strategies outlined in the Framework. This will ensure that the financial inclusion strategies are implemented as planned, reviewed and calibrated when necessary, to achieve the Framework’s desired outcomes. The advancement and progress of financial inclusion will then be published to promote greater transparency and maximise the drive towards achieving financial inclusion goals and targets. The Bank will drive and coordinate the M&E process which encompasses the key elements stipulated in Diagram 11. The Bank will engage with key stakeholders and monitor the implementation of the strategies outlined in the Framework. The monitoring of strategies will include updates on action plans, progress, outcome and impact of financial inclusion initiatives by the stakeholders. These in turn will be reflected in the progress of the key performance indicators to capture the collective industry and various stakeholders’ performance in driving financial inclusion objectives. Diagram 11: Key Elements of M&E Process Develop Programmatic Roadmap to implement strategies under the Framework Data and progress from supply and demand side for periodic reporting of implementation headway Communicate and publish progress of the Framework on an agreed platform for greater transparency Implementation Monitoring EvaluationReporting Communication Establishment of key performance indicators (KPIs) and targets based on the Framework’s Desired Outcomes Mid-term review to evaluate progress of the Framework and to adjust strategies to ensure continued relevance and effectiveness 10 Monitoring and Evaluation Framework 10.1 10.2 34 Setting the right KPIs and targets plays a critical role in the financial inclusion policy- making process and in driving the design and implementation of strategies and initiatives. The performance of the Framework will be evaluated based on a set of headline indicators and targets tied to the Desired Outcomes. These headline indicators and targets will be a key component of the M&E process. The Bank in consultation with relevant stakeholders will develop a comprehensive and appropriate set of KPIs and targets. The aim is to incorporate inputs from the industry and key stakeholders to ensure a stronger and effective coordinated implementation which is aligned to the objectives of national development plans. The KPIs and targets will be published as part of the Strategy Paper’s addendum in 2023. Diagram 12: A Guide for Financial Institutions to Measure Financial Inclusion Outcomes Financial Inclusion Outcome Measurement for Financial Institutions As a guide for financial institutions to measure financial inclusion outcomes, data should be incorporated into existing processes, such as product development, credit approvals and decision making. Financial institutions can: Identify financial inclusion core indicators Define their data architecture and data collection strategies based on the indicators Reorganise data governance model to better manage and report financial inclusion data (including ESG and SDG data where relevant) 11 Key Performance Indicators and Targets 11.1 11.2 35	Public Notice
19 Jun 2023	Draf Dedahan Pelupusan dan Pembelian Pinjaman/Pembiayaan Terjejas	https://www.bnm.gov.my/-/ed-disposal-impaired-loans-bm	https://www.bnm.gov.my/documents/20124/938039/ED-Disposal-and-Purchase-of-Impaired-Loans-Financing-2023.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/ed-disposal-impaired-loans-bm&languageId=ms_MY	Reading: Draf Dedahan Pelupusan dan Pembelian Pinjaman/Pembiayaan Terjejas Share: Draf Dedahan Pelupusan dan Pembelian Pinjaman/Pembiayaan Terjejas Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 2015 pada Isnin, 19 Jun 2023 19 Jun 2023 Draf dedahan ini menetapkan cadangan keperluan dan panduan berkenaan dengan pelupusan dan pembelian pinjaman/pembiayaan terjejas oleh institusi perbankan dan bukan perbankan. Draf dedahan ini bertujuan untuk mengurangkan halangan kemasukan pembeli ke dalam pasaran pembiayaan terjejas, mengukuhkan keperluan kelakuan untuk menyediakan perlindungan yang sewajarnya kepada peminjam yang pinjamannya dijual kepada pembeli bukan bank, dan menggalakkan kecekapan yang lebih besar dalam pelupusan/pembelian pembiayaan terjejas. Bank menjemput maklum balas bertulis mengenai cadangan dasar dalam draf dedahan ini. Maklum balas boleh termasuk cadangan mengenai cadangan alternatif yang Bank harus pertimbangkan dan ianya harus disokong dengan rasional, bukti atau ilustrasi yang jelas untuk memudahkan penilaian Bank. Maklum balas mesti diserahkan secara elektronik kepada Bank sebelum 19 Julai 2023 kepada [email protected] . Pertanyaan khusus boleh diajukan kepada pegawai-pegawai berikut: (a) Sariah Md. Senan ([email protected]) (b) Nadrah Md. Nadzir ([email protected]) (c) Christie Anne Maran ([email protected]) Tarikh Penerbitan 19 Jun 2023 Jabatan Penerbit Jabatan Konsumer dan Amalan Pasaran Dokumen Draf Dedahan Pelupusan dan Pembelian Pinjaman/Pembiayaan Terjejas Bank Negara Malaysia 19 Jun 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Disposal and Purchase of Impaired Loans/Financing - Exposure Draft Issued on: 19 June 2023 BNM/RH/ED 029-32 Disposal and Purchase of Impaired Loans/Financing Exposure Draft Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Non-bank buyers Disposal and Purchase of Impaired Loans/ Financing – Exposure Draft This exposure draft sets out Bank Negara Malaysia’s (Bank) proposed requirements and guidance with respect to the disposal and purchase of impaired loans/financing by banking and non-banking institutions. The exposure draft aims to ensure that the interests of affected borrowers continue to be protected under such arrangements. The Bank invites written feedback on the policy proposals in this exposure draft. The feedback can include suggestions on alternative proposals which the Bank should consider and should be supported with clear rationale, evidence or illustrations, to facilitate the Bank’s assessment. Feedback must be submitted electronically to the Bank by 19 July 2023 to [email protected]. Specific queries can be directed to the following officers: (a) Sariah Md. Senan ([email protected]) (b) Nadrah Md. Nadzir ([email protected]) (c) Christie Anne Maran ([email protected]) mailto:[email protected] mailto:[email protected] Disposal and Purchase of Impaired Loans/ Financing – Exposure Draft PART A OVERVIEW .................................................................................................... 1 1. Introduction ............................................................................................... 1 2. Applicability .............................................................................................. 2 3. Legal provisions ....................................................................................... 3 4. Effective date ............................................................................................ 3 5. Interpretation ............................................................................................ 3 6. Related legal instruments and policy documents ..................................... 6 7. Policy documents superseded .................................................................. 6 PART B GENERAL REQUIREMENTS ........................................................................ 7 8. Specification of financial consumer falling within the definition of “borrowers” ............................................................................................... 7 9. Eligibility criteria ........................................................................................ 7 10. Responsibilities of the Board and Senior Management ............................ 8 11. Business conduct requirements ............................................................. 10 12. Other requirements ................................................................................ 13 PART C ADDITIONAL REQUIREMENTS for NON-BANK BUYERS ....................... 14 13. Business conduct requirements ............................................................. 14 PART D SUBMISSION OF APPLICATION ............................................................... 25 14. Submission of application ....................................................................... 25 TABLE OF CONTENTS Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 1 of 25 PART A OVERVIEW 1. Introduction 1.1 The disposal of impaired loans/financing by banking institutions is allowed to enable banking institutions to effectively manage their balance sheet, which includes allowing the disposal of impaired loans/financing to specialised entities to leverage on their recovery expertise. 1.2 This policy document aims to enhance the requirements pertaining to the disposal and purchase of impaired loans/financing to ensure the process involved is conducted efficiently without compromising on the rights and interests of the affected borrowers. 1.3 Pursuant to section 100 of the Financial Services Act 2013 (FSA) and section 112 of the Islamic Financial Services Act 2013 (IFSA)1, parties intending to enter into any agreement or arrangement to transfer the whole or any part of the business of a licensed person including a disposal or purchase of impaired loans/financing by a banking institution to another banking institutions or impaired loan/financing buyer are required to obtain the Bank’s approval prior to effecting such agreement or arrangement. In the event the proposed disposal or purchase of impaired loans/financing constitutes a transfer of the whole or a material2 part of the banking institution’s business, the Bank will seek the Minister’s concurrence pursuant to section 100(4) of the FSA and section 112(4) of the IFSA3. 1.4 This policy document sets out the requirements prior to and post the disposal and purchase of impaired loans/financing. 1 Read together with paragraph 6.1(b) of the policy document on Transfers of Business issued by the Bank on 5 August 2016. 2 “Material” refers to impaired loans/financing with nominal or book value exceeding RM 1 billion. 3 In addition, the Bank shall, prior to giving approval for the transfer of the whole or a material part of the business of a licensed person, be satisfied that the proposed agreement or arrangement for such transfer is not prejudicial to – (a) the interests of any person likely to be affected by the transfer; and (b) the safety and soundness of such licensed person. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 2 of 25 2. Applicability 2.1 Part B and Part D of this policy document are applicable to: (a) a banking institution who is a seller of impaired loans/financing as defined in paragraph 5.2; and (b) a buyer of impaired loans/financing as defined in paragraph 5.2. 2.2 Part C of this policy document is applicable to a non-bank buyer as defined in paragraph 5.2. 2.3 For the avoidance of doubt, this policy document is only applicable to a disposal and purchase of impaired loans/financing which is on a non-recourse basis. Any disposal and purchase of impaired loans/financing through other arrangements such as asset securitisation transactions4, or disposal and purchase of loans/ financing which are not impaired, do not fall within the scope of this policy document. 2.4 Section 100(3) of the FSA and section 112(3) of the IFSA impose a requirement for an application for a disposal and purchase of impaired loans/financing to be submitted jointly by the seller and buyer to the Bank for an approval, together with documents or information under Part D as well as any other information as may be specified by the Bank. Question 1 The exposure draft has excluded the disposal and purchase of impaired loans/financing through other arrangements such as asset securitisation transactions from the scope of this document. In your view, are there any other types of transactions that should be excluded from the scope? Please support your views with clear rationale and data. 4 Where the disposal involves asset securitisation scheme, banking institutions are required to adhere to the requirements stipulated in the “Prudential Standards on Securitisation Transactions by Licensed Institutions” issued by BNM on 23 October 2009 and Guidelines on the Offering of Asset-Backed Debt Securities” issued by the Securities Commission on 26 July 2004 or any relevant requirements applicable. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 3 of 25 3. Legal provisions 3.1 The requirements in Parts B and D of this policy document are specified pursuant to: (a) sections 47(1), 100, 101, 105, 123(1) and 143 of the FSA; and (b) sections 29(2), 57(1), 112, 113, 117, 135(1) and 155 of the IFSA. 3.2 The requirements under Part C of this policy document are specified pursuant to: (a) sections 100 and 143 of the FSA; and (b) sections 112 and 155 of the IFSA. 3.3 The guidance in this policy document is issued pursuant to: (a) section 266 of the FSA; and (b) section 277 of the IFSA. 4. Effective date 4.1 The policy document shall come into effect on [the date of issuance of the policy document]. Question 2 What are the anticipated issues or challenges in implementing the proposals outlined in this exposure draft within the proposed timeframe? Please elaborate on the specific operational measures that may pose implementation challenges should the policy document be effected immediately upon issuance. 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meaning assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purposes of this policy document – “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 4 of 25 “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “AKPK” refers to Agensi Kaunseling dan Pengurusan Kredit (Company No. 729811-P); “banking institution” refers to- (a) a licensed bank; (b) a licensed investment bank; and (c) a licensed Islamic bank5, but shall exclude a licensed international Islamic bank; “board” refers to the board of directors of a seller or buyer, including a committee of the board where the responsibilities of the board set out in this policy document have been delegated to such a committee. However, the board remains fully accountable for any authority and responsibilities delegated to such committee; “borrower” refers to- (a) as defined in section 121 of the FSA or section 133 of the IFSA; and (b) any person including a corporation who uses or has used, any financial service or product of a banking institution; “buyer” refers to the transferee who is a locally-incorporated company that purchases or intends to purchase impaired loans /financing from a seller. This includes both a buyer who is a banking institution or a non-bank buyer; “non-bank buyer” is a buyer that is not a banking institution, which includes a subsidiary of a banking institution or a special purpose vehicle established to purchase impaired loans/financing from the banking institution; 5 For avoidance of doubt, reference to a licensed Islamic bank in paragraph 9.3 includes a licensed bank and licensed investment bank approved under section 15(1)(a) of the FSA to carry on Islamic banking business. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 5 of 25 “debt collector” refers to- (a) the internal unit or department established by a buyer to collect payments due from a borrower; and (b) outsourced debt collectors of the buyer; “impaired loans”, “impaired financing” or “impaired loans/financing” means any loan or financing (excluding financing which is funded by an investment account6) originating in Malaysia granted to borrowers that falls within the classification set out in paragraph 10 of the policy document on “Financial Reporting”7 or “Financial Reporting for Islamic Banking Institutions”8, as the case may be. “non-recourse” refers to a disposal and purchase of impaired loans/financing where the liability and risk for such loans/financing are completely transferred to the buyer; “OFS” refers to the Ombudsman for Financial Services (Company No. 664393P); “seller” refers to the transferor who is a banking institution that disposes or intends to dispose of its impaired loans/financing to a buyer; “senior management” refers to the chief executive officer and senior officers of a seller or buyer who are involved in the decision-making of any disposal or purchase of impaired loans/ financing; “staff” refers to persons employed by a seller or buyer, including temporary or contract staff, and officers on attachment from an affiliate. 6 Refer to the policy document on “Investment Account” issued on 17 January 2018. 7 Refer to the policy document on “Financial Reporting” Issued on 29 April 2022. 8 Refer to the policy document on “Financial Reporting for Islamic Banking Institutions” issued on 29 April 2022. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 6 of 25 6. Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular: (a) Policy Document on Fair Treatment of Financial Consumers dated 6 November 2019; (b) Guidelines on Complaints Handling dated 17 December 2009; (c) Circular on Fair Debt Collection Practices dated 11 September 2007; (d) Policy Document on Financial Reporting dated 29 April 2022; (e) Policy Document on Financial Reporting for Islamic Banking dated 29 April 2022; (f) Guidelines on Late Payment Charges for Islamic Financial Institutions dated 31 January 2013; (g) Guidelines on Ibra’ (Rebate) for Sale-based Financing dated 31 January 2013; (h) Guidelines on Imposition of Fees and Charges on Financial Products and Services dated 10 May 2012; (i) Policy Document on Investment Account dated 17 January 2018; (j) Policy Document on Outsourcing dated 23 October 2019; (k) Policy Document on Transfers of Business dated 5 August 2016; and (l) Policy Document on Central Credit Reference Information System (CCRIS): Requirements on the Submission, Usage and Protection of Credit Information dated 15 December 2022. 7. Policy documents superseded 7.1 This policy document supersedes the following: (a) Guidelines on Disposal/Purchase of Non-Performing Loans by Banking Institutions dated 29 June 2007; and (b) Guidelines on the Disposal/Purchase of Non-Performing Financing by Islamic Banks dated 29 June 2007. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 7 of 25 PART B GENERAL REQUIREMENTS 8. Specification of financial consumer falling within the definition of “borrowers” S 8.1 For the purposes of sections 121(c)(ii) of the FSA and 133(c)(ii) of the IFSA, the Bank specifies that a financial consumer means any person including a corporation who uses, has used or may be intending to use, any financial service or product of a banking institution, whether or not for the purposes set out in paragraph 121(a) or (b) of the FSA, or paragraph 133(a) or (b) of the IFSA. 9. Eligibility criteria Loans/financing eligibility S 9.1 Prior to submitting the joint application referred to in paragraph 2.4, the seller shall ensure that the following criteria are satisfied: (a) whichever of the following criteria occurs earlier – (i) the impaired loans/financing remain classified as impaired for a minimum period of 12 months from the date in which such loans/financing were first classified as impaired; or (ii) all reasonable efforts to recover the impaired loans/financing9 have been exhausted by the seller. For example, reasonable efforts include the need for the seller to verify that they have the most recent contact details of the borrower, or to ensure that any notices or reminders sent to the borrower have actually been received by the intended recipient; and (b) the impaired loans/financing must not be loans/ financing that was granted for or linked to projects of strategic importance10. Buyer of impaired loans/financing eligibility S 9.2 Where a seller intends to sell its impaired loans/financing, the seller shall only sell such impaired loans/financing to the following parties subject to obtaining the 9 This refers to recovery efforts which are within the FSP’s control e.g. calls, reminders and notices, serving of legal action, and exclude processes such as auction and foreclosures, bankruptcy proceedings. 10 This includes loans/financing granted for or related to national infrastructure projects such as in the area of transportation and telecommunications, as well as those identified by the Government as strategic through its various developmental plans. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 8 of 25 relevant prior written approval under section 100(6) of the FSA or section 112(6) of the IFSA: (a) domestic banking institutions or locally incorporated foreign banking institutions in Malaysia; or (b) non-banking institutions that are locally incorporated in Malaysia and are a resident for tax purposes. S 9.3 For purposes of submitting the joint application referred to in paragraph 2.4, the buyer shall ensure that the following criteria are satisfied: (a) the buyer has a proven track record in debt management and recovery, and there are minimal adverse complaints, written or otherwise, against its debt management and recovery practices; (b) the buyer has adopted satisfactory recovery approaches, including having a dedicated unit with competent personnel to effectively manage debt collection and any complaints from borrowers; (c) the buyer has adequate and competent staff with recognised qualifications from reputable institutions of higher learning, or adequate knowledge and training, including, if applicable, in Islamic banking and finance or Shariah law; and (d) where a buyer intends to outsource the collection or recovery of the impaired loans/financing to a service provider, the buyer must ensure that the service provider meets the criteria specified in paragraphs 9.3 (a) to (c). S 9.4 Upon receiving approval from the Bank under section 100(6) of the FSA or section 112(6) of the IFSA, the buyer must comply with paragraph 9.3 on a continuous basis. 10. Responsibilities of the Board and Senior Management Board S 10.1 The board shall be responsible for setting the tone from the top to ensure reasonable standards of fair dealing, without compromising on the rights and interests of the affected borrowers, including ensuring effective policies, Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 9 of 25 procedures and controls have been established and provide adequate oversight on its implementation. S 10.2 The board must ensure that all risks and implications arising from the disposal or purchase of impaired loans/financing, including financial, legal, reputational and if applicable, Shariah, risks at both entity and group levels are appropriately managed. This includes overseeing and approving the design of policies and mechanisms to ensure: (a) satisfaction of the criteria for the disposal or purchase of impaired loans/financing as specified in paragraph 9; and (b) compliance with the business conduct requirements as specified in paragraph 11 and Part C, as well as any other such requirements in the policy documents set out in paragraph 6.1, including other relevant policy documents as may be specified by the Bank from time to time. Senior Management S 10.3 The senior management shall be responsible for ensuring effective implementation of the policies, procedures and controls on the disposal or purchase of impaired loans/financing, as approved by its board. This includes ensuring that: (a) policies relating to disposal and purchase of impaired loans/financing including debt recovery practices are properly documented and implemented; (b) adequate internal systems and risk management controls are in place to manage the risks that may emanate from these arrangements; and (c) an independent review is carried out at least once in every two years on the effectiveness of policies, procedures and control measures, particularly in protecting borrower’s information. S 10.4 For the disposal and purchase of impaired financing- (a) the seller’s senior management must ensure that the implementation of policies and transactions carried out in respect of the disposal of impaired Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 10 of 25 financing comply with Shariah requirements and approved by its Shariah Committee; (b) where the buyer is a licensed Islamic bank, its senior management must ensure that the implementation of policies and transactions carried out in respect of the purchase of impaired financing comply with Shariah requirements and is approved by its Shariah Committee; and (c) where the buyer is not a licensed Islamic bank, its senior management must ensure that the implementation of policies and transactions carried out in respect of the purchase of impaired financing are in compliance with Shariah requirements. For this purpose, the buyer may enter into an arrangement with the seller of the impaired financing to leverage on the seller’s Shariah Committee. S 10.5 In the event the seller is appointed as an outsourced service provider for the buyer – (a) the board and senior management of the seller must ensure that proper internal systems and controls are in place to ensure segregation of records on impaired loans/financing recovery activities; and (b) the seller must inform the borrowers in writing that it is only acting as a service provider for the buyer within seven (7) calendar days from the completion date of the purchase of the impaired loans/financing where the buyer assumes the rights and titles to such impaired loans/financing. For avoidance of doubt, where the disposal and purchase of the impaired loans/ financing involve obtaining a court’s order under section 102 of the FSA or section 114 of the IFSA, “completion date” refers to the date fixed by the court as the date on which the business transfer scheme shall take effect. 11. Business conduct requirements Seller of impaired loans/financing S 11.1 Pursuant to section 123 of the FSA and section 135 of the IFSA, the seller must notify the affected borrowers in writing of its intention to dispose of its impaired loans/financing to a buyer no later than ninety (90) calendar days prior to [entering Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 11 of 25 into an agreement or arrangement for the disposal of the impaired loans/financing to the buyer/ completion date where the buyer assumes the rights and titles to such impaired loans/financing]. S 11.2 The seller must allow a period of ninety (90) calendar days from the date of the notice provided in paragraph 11.1 for the affected borrowers to regularise or settle their outstanding loans/financing, before entering into an agreement or arrangement for the disposal of the impaired loans/financing to the buyer/ completion date where the buyer assumes the rights and titles to such impaired loans/financing. S 11.3 Upon completion of the disposal of impaired loans/financing, where the buyer assumes the rights and titles to such impaired loans/financing, the seller must notify the affected borrowers in writing of the following within seven (7) calendar days: (a) the fact that the disposal is completed, including the name and contact number of the buyer; and (b) that all complaints or any matters related to such impaired loans/financing prior to the completion of the disposal of impaired loans/ financing where the buyer assumes the rights and titles to such impaired loans/ financing shall be promptly directed to the seller. S 11.4 When the impaired loans/financing are sold off to a non-bank buyer who does not have access to the Central Credit Reference and Information System (CCRIS), and the seller receives a written request from the non-bank buyer pursuant to paragraph 13.3(a) or a written notification by the borrower pursuant to paragraph 13.3(b) that the borrower has fully settled the impaired loans/financing with the non-bank buyer: (a) the seller shall update the status of the borrower to ‘Settled’ within seven (7) calendar days from the date the seller receives the request from the non-bank buyer or notification by the borrower; and Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 12 of 25 (b) the seller shall notify the borrower within seven (7) calendar days from updating the borrower’s status in the CCRIS, that such status has been duly updated. Question 3 What challenges do you anticipate your institution may face in meeting the requirement to update CCRIS record for the borrower that have been sold off? Please supplement your feedback with relevant rationale and data, as well as any suggestions on alternative proposals to address these challenges. Buyer of impaired loans/financing S 11.5 Within seven (7) calendar days from the completion date of the purchase of the impaired loans/financing where the buyer assumes the rights and titles to such impaired loans/financing, the buyer must inform the affected borrowers in writing that – (a) any complaints or queries on matters pertaining to the purchase, management and recovery procedures of the impaired loans/financing must first be directed to the buyer, unless the complaint or query relates to matters prior to the completion date of the purchase where the buyer assumes the rights and titles to such impaired loans/ financing; and (b) if the affected borrowers are not satisfied with the decision of the buyer on the complaints or queries raised with the buyer under paragraph (a), the buyer must inform the affected borrowers on the availability of alternative redress avenues as follows: (i) for complaints or enquiries: BNMLINK (Laman Informasi Nasihat dan Khidmat) 4th Floor, Podium Bangunan AICB, No. 10, Jalan Dato’ Onn, 50480 Kuala Lumpur. Tel: 1-300-88-5465 (BNMTELELINK) or +603 21741717 (for overseas calls) Live chat: http://bnm.gov.my/livechat http://bnm.gov.my/livechat Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 13 of 25 (ii) for disputes: Ombudsman for Financial Services, Level 14, Menara Takaful Malaysia, No 4, Jalan Sultan Sulaiman, 50000 Kuala Lumpur. Tel: 03-2272 2811 E-mail: [email protected] S 11.6 Upon the completion date of the purchase of the impaired loans/financing where the buyer assumes the rights and titles to such impaired loans/ financing, the buyer shall: (a) for impaired loans/financing that are under the AKPK’s debt management programme (DMP), comply with the debt repayment plan and the terms and conditions set by AKPK; and (b) for impaired loans/financing that are not yet under AKPK’s DMP – (i) allow borrowers that are facing financial distress to seek AKPK’s services; (ii) negotiate and work out a debt repayment plan with AKPK for borrowers who have debts with multiple creditors; and (iii) comply with the DMP and terms and conditions set by AKPK where the buyer and the borrowers have agreed to reschedule or restructure such impaired loans/ financing. 12. Other requirements Accounting treatment S 12.1 A seller must recognise any losses that may arise at the point of the completion of the disposal of the impaired loans/financing to a buyer. S 12.2 A buyer that is a banking institution must– (a) classify the purchased impaired loans/financing as impaired for financial reporting purposes; mailto:[email protected] Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 14 of 25 (b) ensure that the total impairment provisions remain adequate to absorb any potential credit losses that may arise from these impaired loans/financing; and (c) comply with paragraph 10 of the Policy Document on “Financial Reporting” or “Financial Reporting for Islamic Banking Institutions”, as the case may be, at all times. Disposal of impaired loans/financing to entities within the same group S 12.3 A seller and buyer of the same impaired loans/financing where such seller and buyer are banking institutions within the same group shall ensure that for purposes of accounting, the impaired loans/financing are consolidated at the group level. PART C ADDITIONAL REQUIREMENTS FOR NON-BANK BUYERS 13. Business conduct requirements S 13.1 Upon completion of the disposal and purchase of impaired loans/ financing where a non-buyer assumes the rights and titles to such impaired loans/ financing, a non- bank buyer must disclose its commitment to recover debts in a prominent and transparent manner, as well as how it intends to implement such commitments which shall, at a minimum, include: (a) the contact details for queries and complaints; (b) the time taken to respond to queries and resolve complaints; (c) information on other avenues to lodge complaints and disputes resolution as specified in paragraph 11.5(ii); and (d) if applicable, assurances that its business and conduct comply with Shariah requirements at all times. G 13.2 For purposes of paragraph 13.1, the commitments may be disclosed to the affected borrowers through the publication of a notice or Charter in its website or prominently displayed at its business premises, or by sending a notice directly to affected borrowers. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 15 of 25 S 13.3 Within seven (7) calendar days from the full settlement of an impaired loans/financing by a borrower, the non-bank buyer shall- (a) provide documentary evidence to the borrower that the non-bank buyer has requested the seller to update the borrower’s status in the CCRIS; or (b) provide the necessary documents to the borrower for the borrower to notify the seller to update the borrower’s status in the CCRIS. Complaints Handling G 13.4 Fair, transparent and efficient complaints handling is key in ensuring the best interests of borrowers are preserved and reduces the need for regulatory intervention or recourse to external dispute mechanisms that may be costly and time-consuming. S 13.5 A non-bank buyer must establish a centralised platform for affected borrowers to lodge complaints including a dedicated single point of contact such as a complaint or borrower service unit to ensure prompt and proper handling of complaints from affected borrowers. The non-bank buyer’s policies and procedures for complaint resolution must be clear, easily understood and readily accessible by affected borrowers. S 13.6 Each complaint must be addressed in an equitable, objective and timely manner, including establishing timelines for handling complaints. S 13.7 Prompt acknowledgement must be provided to the complainant upon receipt of the complaint, along with details of the dedicated contact point or person and clearly inform when the complainant can expect to receive a response. S 13.8 In relation to paragraph 13.6, a non-bank buyer must inform a borrower of its decision no later than fourteen (14) calendar days from the date of receipt of the complaint. However, if the case is complicated or involves complex issues that require further investigation, a non-bank buyer must inform the complainant in writing on reasons for the delay and the need for additional time to resolve the complaint. In total, a decision on the complaint must be conveyed to the Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 16 of 25 complainant no later than thirty (30) calendar days from the date the complaint was first lodged. S 13.9 Where a decision cannot be made within thirty (30) calendar days due to the need to obtain material information or documents from a third party (e.g., medical, forensic or police investigation reports), a non-bank buyer must follow up with the third party on the information or documents required and provide updates on the progress of the case to the complainant at least on a monthly basis. The non- bank buyer must finalise its investigation within fourteen (14) calendar days upon receipt of complete information or documents. 13.10 A non-bank buyer must communicate its decision to the complainant by the next working day after the completion of its investigation into the complaint. S 13.11 All engagements between the non-bank buyer with the borrower when handling complaints must be clear and constructive. This may include calling the complainant upon receiving a complaint to check on the nature of the complaint and to obtain more details, or conduct of face-to-face discussions with the complainant, where necessary. S 13.12 A non-bank buyer must maintain records on the type and details of complaints received, including the actions taken and decisions made. These records must be made available to the Bank upon request. Fair Debt Collection Practices Authorisation of Debt Collectors S 13.13 A non-bank buyer is required to issue an authorisation card to each of its debt collectors. This document must clearly indicate that the debt collectors have been appointed and authorised by the non-bank buyer to collect debts on its behalf. The authorisation card shall at least contain the following information: (a) non-bank buyer’s name and contact details; (b) external debt collection agency’s name and contact details; Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 17 of 25 (c) name and identification card number of the debt collector; (d) photo identification of the debt collector; and (e) validity period of the appointment. When collecting any debt, every debt collector must show the authorisation card to identify himself. Borrower’s Information S 13.14 A non-bank buyer must ensure that borrower’s information provided to debt collectors is up to-date and accurate including but not limited to, the name and address of the borrower, as well as the outstanding amount to be recovered from the borrower. S 13.15 When contacting any borrower either by telephone, face-to-face contact or any other forms of communication, a debt collector must confirm that the person they are dealing with is the borrower before divulging the details of the debt. Upon confirmation that the person they are dealing with is the borrower, the debt collector makes clear the purpose of the contact. The restrictions on disclosing information to third parties apply to the borrower’s spouse and family members unless written authorisation that is explicit and deliberate has been given by the borrower for such disclosures. S 13.16 When collecting information on any borrower from a third party, the debt collectors shall not collect more information than is necessary to recover the debt. At minimum, information which are not necessary in this circumstance include the borrower’s deposit account number, account balance and number of dependants. Cease Recovery Activities S 13.17 A non-bank buyer must communicate to its debt collectors by the next working day, if the recovery action is to be called off, for instance, when a borrower has regularised his account, fully settled any outstanding amount, or when a borrower has been accepted by AKPK under its DMP. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 18 of 25 Collection of payments S 13.18 A non-bank buyer must ensure that its debt collectors advice borrowers to make debt repayments at any of the non-bank buyer’s offices, electronic transfer to the non-bank buyer or any other accepted payment methods. If payments are made to the debt collectors, such payment shall be deemed as payment to the non- bank buyer and the borrower must be provided with an official receipt from the non-bank buyer to acknowledge that payment has been received. Cheque payments must be made payable to the non-bank buyer concerned. S 13.19 A non-bank buyer must establish adequate internal controls to ensure accurate record keeping of payments received by its debt collectors. This includes ensuring that - (a) only receipts approved by the non-bank buyer are issued for payments received; and (b) receipt books are in the custody of authorised personnel of the non-bank buyer, secured against loss and unauthorised use. Conduct of Debt Collectors S 13.20 Debt collectors must not resort to intimidation or violence, either verbal or physical, against any borrower or person known to a borrower. In particular, debt collectors must not: (a) use threatening, foul or intimidating language or remarks; (b) cause bodily injury to any borrower or third parties known to a borrower; (c) enter into a property uninvited or force their way into the property or not leaving when asked to; (d) destruct or forcibly remove any personal property belonging to any borrower; (e) threaten to publish any borrower’s failure to pay or disclose any borrower’s debt details to any third party; and (f) publicly humiliate the borrower by putting up posters or writing at borrower’s residence or in any other platform, physical or virtual (e.g. social media). Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 19 of 25 Intrusion of Privacy S 13.21 In the course of collecting debts from a borrower, a debt collector must not: (a) communicate with the borrower or any party authorised by the borrower either by telephone, face-to-face contact or any other forms of communication at unreasonable hours. The appropriate contact times is between 8.00 a.m. and 9.00 p.m., which must be observed by the non- bank buyer or its appointed debt collector, unless the borrower specifically asks to be contacted outside of these hours, or if the borrower is not contactable during such hours; (b) contact the borrower repeatedly or continuously with intent to harass or intimidate the borrower or which will cause undue harassment or intimidation to the borrower. The frequency of contacts with a borrower shall be reasonable and to the extent necessary based on earlier communications with the borrower. It is recommended that a debt collector refrains from contacting the borrower by telephone more than three (3) times per week if the borrower has responded to earlier telephone contacts; (c) visit the borrower’s workplace unless: (i) the borrower has failed to respond to other means of communication, for example, by telephone or written letters/notices; (ii) the borrower is not contactable at his place of residence; (iii) the borrower has specifically requested or agreed to the visit either orally or in writing; or (iv) the non-bank buyer or debt collector does not have the borrower’s latest residential address; (d) stay in the borrower’s place of residence or workplace for longer than necessary and must leave such place of residence or workplace when asked to do so by the borrower; or (e) harass the borrower’s family, relatives, neighbours, friends or employer, either by telephone or any other forms of communication, for information about the borrower’s whereabouts. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 20 of 25 S 13.22 A non-bank buyer must provide appropriate oversight over the conduct of its appointed debt collectors to maintain a careful balance between the necessity to contact the borrowers and a reasonable expectation for the borrowers to be free from excessive communications from debt collectors. Misleading Borrower S 13.23 When contacting any borrower or any party authorised by the borrower whether through telephone, written notice or face-to-face contact, a debt collector must not mislead the borrower or any party authorised by the borrower in terms of: (a) amount owed by borrower – A borrower must be provided with accurate information about the amount owing. A debt collector is not allowed to collect or attempt to collect monies that exceed the overdue amount stated on the statement provided by the non-bank buyer. It is the responsibility of the non-bank buyer to provide the correct amount repayable by the borrower; and (b) authority of debt collector – A debt collector must not falsely imply that they represent a legal authority or claim that they are collecting the debt based on the court’s instruction, with the intention to deceive or falsely induce the borrower into making payments. Recovery of Debt from Third Parties S 13.24 A debt collector must not attempt to recover debts, directly or indirectly, from third parties including family members, friends, relatives or the employer of the borrower. Monitoring Mechanisms S 13.25 A non-bank buyer must establish monitoring mechanisms, including the conduct of regular reviews, to ensure that their debt collectors adhere to the debt collection practices specified in Part C of this policy document. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 21 of 25 Complaints against Debt Collectors S 13.26 A non-bank buyer remains accountable to borrowers for any complaints against its debt collectors and must not disclaim responsibility for their misconduct. Transparency and disclosure requirements S 13.27 A non-bank buyer must pay due regard to the information needs of the borrower by adopting the following disclosure principles: (a) timely; (b) clear and concise; (c) accurate and relevant; and (d) highlights important information prominently. S 13.28 A non-bank buyer must adopt continuous disclosure during the term of the contract including: (a) provide notice of change including but not limited to the terms and conditions and the borrower’s rights and obligations; (b) disclosure on statements, which include electronic statements, issued at regular intervals to communicate important information to the borrower during the term of the contract. In this respect, periodic statements must be given as soon as practicable without any charge to the borrower. For financial products for which periodic statements are issued only upon request, the non-bank buyer must ensure that the borrower has timely access to the information through other channels without any cost; and (c) disclosure following a specific request. Where a fee may be levied on the borrower, the non-bank buyer must inform the borrower of the charges and the basis for such charges at the time the borrower requests for the information. Management of Borrower’s information S 13.29 A non-bank buyer must preserve borrower’s information against theft, loss, misuse or unauthorised access, modification or disclosure by whatsoever means, including disclosure made in verbal or written form. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 22 of 25 S 13.30 A non-bank buyer must deploy preventive and detective information and communication technology controls to prevent theft, loss, misuse or unauthorised access, modification or disclosure of borrower’s information and to detect errors and irregularities when they occur. S 13.31 A non-bank buyer must ensure that the role profile for its staff across various job functions includes a specific description on the level of access to borrower’s information to enable its staff perform their jobs effectively without compromising the preservation of secrecy of borrower’s information. S 13.32 A non-bank buyer must implement adequate controls to ensure borrower’s information stored either in paper and electronic forms are properly protected against theft, loss, misuse or unauthorised access, modification or disclosure by whatsoever means. S 13.33 In relation to paragraph 13.31, a non-bank buyer must provide relevant training and regularly remind its staff who have access to borrower’s information on their obligations to handle borrower’s information with due care. S 13.34 A non-bank buyer must ensure that its employment contract contains a provision requiring its staff to sign a confidentiality undertaking that clearly specifies the obligation to safeguard borrower’s information, as well as the consequences for failure to comply with such obligations. S 13.35 A non-bank buyer must put in place a mechanism to identify borrower’s information breaches and establish breach handling and response plan in the event of theft, loss, misuse or unauthorised access, modification or disclosure by whatsoever means of borrower’s information. Appointment of Outsourced Service Provider (OSP) for collection and servicing G 13.36 Whilst outsourcing can be used as a means of improving operational efficiency and reducing costs to the non-bank buyer, the arrangement ought not to create Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 23 of 25 undue risks to the borrowers. A non-bank buyer is expected to maintain appropriate oversight over the outsourcing arrangement and ensure that borrowers are not left worse-off. S 13.37 A non-bank buyer must conduct effective due diligence of the OSP at the point of considering all new arrangements and when renewing or renegotiating existing arrangements. The scope and depth of the due diligence process must be commensurate with the materiality of the outsourced activity. The outcomes of the due diligence process must be well-documented and escalated to the board for approval, where relevant. S 13.38 The outsourcing arrangement must be governed by a written agreement that is legally enforceable. S 13.39 A non-bank buyer must ensure that appropriate controls are in place and are effective in safeguarding the security, confidentiality and integrity of any information shared with the OSP. A non-bank buyer must also ensure that the OSP complies with the requirements on management of borrower’s information under paragraph 13.29 to paragraph 13.35. S 13.40 A non-bank buyer must ensure that the OSP implements satisfactory debt collection practices as required under paragraph 13.13 to paragraph 13.26. In this regard, the Bank reserves the right to direct the termination of the OSP by the non-bank buyer in the event of abusive practices or serious misconduct pursuant to section 234 of FSA / section 243 of IFSA, to ensure that the rights and interests of the affected borrowers are not compromised. S 13.41 A non-bank buyer must ensure that its business continuity planning (BCP) includes all its outsourcing arrangements. The depth and comprehensiveness of the BCP must be commensurate with the materiality of the outsourcing arrangements. At a minimum, the non-bank buyer must ensure that the BCP includes probable or adverse scenarios together with specific action plans to handle such scenarios effectively. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 24 of 25 S 13.42 A non-bank buyer must ensure that it has full access to all its records and information at the OSP with respect to the outsourced activity which would be necessary for the non-bank buyer to operate and meet its legal and regulatory obligations at all times. This includes scenarios where the OSP becomes insolvent or a dispute resolution process is ongoing. S 13.43 A non-bank buyer must periodically test its own BCP and proactively seek assurance on the state of BCP preparedness of the OSP and where relevant, alternative OSP. Appointment of independent party S 13.44 Where required by the Bank in writing, the non-bank buyer shall – (a) appoint an independent party as may be specified by the Bank to conduct an assessment on the buyer’s compliance with the conditions imposed by the Bank; and (b) ensure that the terms of the appointment of the independent party complies with the terms as may be specified by the Bank. Prohibition on onward disposal of impaired loans/financing S 13.45 A buyer must not onward sell any impaired loans/financing purchased from a seller. Question 4 For non-bank buyer, what challenges do you anticipate your institution may face in meeting the requirements under (i) paragraph 10.1, 10.2 and 10.3, (ii) paragraphs 11.5 and 11.6 and (iii) Part C? Please supplement your feedback or suggestions on alternative proposals to ensure fair treatment of financial consumers with relevant rationale and data. Disposal and Purchase of Impaired Loans/Financing – Exposure Draft 25 of 25 PART D SUBMISSION OF APPLICATION 14. Submission of application S 14.1 In relation to paragraph 2.4, the following documents or information must be submitted to the Bank: (a) name of the seller; (b) name of the buyer and where the buyer is a non-bank buyer, its company registration number, management, shareholders and date of establishment; (c) details of the impaired loans/financing to be disposed and purchased including: (i) the total number, size and general profile; (ii) whether the impaired loans/financing are given to corporations that are involved in projects of strategic importance to the nation; and (iii) impact of the disposal or purchase of impaired loans/financing, as case may be, on the impaired loans/financing ratio and total capital ratio (TCR) of the seller and buyer (if the buyer is a banking institution); (d) purchase consideration for the impaired loans/financing; (e) source of funding for the purchase of impaired loans/financing; and (f) confirmation that the relevant requirements in this policy document have been satisfied by both the seller and buyer. S 14.2 A joint application under paragraph 2.4 together with the documents and information set out in paragraph 14.1 must be submitted to - Pengarah Jabatan Konsumer dan Amalan Pasaran Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur.	Public Notice
14 Jun 2023	Senarai Amaran Pengguna Kewangan telah dikemaskini	https://www.bnm.gov.my/-/senarai-amaran-pengguna-kewangan-telah-dikemaskini-3	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/senarai-amaran-pengguna-kewangan-telah-dikemaskini-3&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemaskini Share: 129 Senarai Amaran Pengguna Kewangan telah dikemaskini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1020 pada Rabu, 14 Jun 2023 14 Jun 2023 Bank telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan pentadbiran berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat berikut ditambahkan ke dalam senarai: XFOX Market Trust (003280046 - H) dan XFOX Market Sdn Bhd (1438134 - V) Senarai akan dikemas kini secara berkala untuk rujukan orang ramai. Untuk melihat senarai yang dikemas kini, sila layari bnm.gov.my/fca. Bank Negara Malaysia 14 Jun 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
01 Jun 2023	Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters	https://www.bnm.gov.my/-/pd-adjusters	https://www.bnm.gov.my/documents/20124/948107/fs_adjusters_june2023.pdf, https://www.bnm.gov.my/documents/20124/948107/PU_%28A%29_206_Gazette_Order.pdf, https://www.bnm.gov.my/documents/20124/948107/faq_adjusters_june2023.pdf	null	Reading: Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters Share: 8 Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters Embargo : For immediate release Not for publication or broadcast before 2330 on Thursday, 1 June 2023 1 Jun 2023 Issuance Date 1 June 2023 Summary This policy document aims to enhance the professionalism of registered adjusters in managing its business and dealing with customers. The requirements in this policy document include fit and proper criteria, effective governance and oversight, and business conduct requirements on the registered adjusters. Documents Policy Document Feedback Statement Frequently Asked Questions Gazette Order Bank Negara Malaysia 1 June 2023 © Bank Negara Malaysia, 2023. All rights reserved.	PUBLIC FEEDBACK STATEMENT 1 Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters: Summary of Key Feedback Received from Public Consultation and BNM’s Responses In July 2022, Bank Negara Malaysia (the Bank) has issued an exposure draft on Registration Procedures and Requirements on Professionalism of Adjusters for public consultation. The Bank wishes to record its appreciation to the adjusting industry in particular for providing valuable insights and feedback that have in turn assisted the Bank in finalising the requirements in the policy document. Following the issuance of the Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters (PD), this supplementary feedback statement is intended to summarise the key feedback received and the Bank’s corresponding responses to provide greater insights on the Bank’s policy and supervisory expectations. No Requirements Feedback received Responses 1. A registered adjuster shall ensure that its key responsible persons (KRPs) meet the following fit and proper requirements at all times: b) has not become the subject of any proceedings of a disciplinary or criminal nature, or has been notified of any impending proceedings; c) has not engaged in any business practices which are deceitful, oppressive or otherwise improper (whether unlawful or not), or which otherwise reflect discredit on his professional conduct; d) has not acted unfairly or dishonestly in his dealings with customers, employer, auditors or regulatory authorities; e) has not contravened any of the requirements and standards of a regulatory body, professional body, government or its agencies; f) has not been dismissed or asked to resign from employment or from a position of trust, fiduciary appointment or similar position because of questions about his honesty and integrity; or Implementing the requirements pose unforeseen implications to adjusting businesses as: a. The additional requirements may be deemed too strict and prescriptive; and b. Restrictions may cause shortage of talent for the industry. In addition to the above, the industry is of the view that the fit and proper requirements should be complied via attestation and submission to AMLA for monitoring purposes. The imposition of rigorous fit and proper requirements on KRPs is to ensure persons in these positions have the necessary qualities, competencies and experience that will allow them to effectively perform the duties and carry out the responsibilities required of the position. In addition to the above, the fit and proper requirements are in line with regulatory requirements imposed on other registered businesses in the Financial Services Act 2013, i.e the merchant acquiring business. Financial sector authorities in neighbouring jurisdictions such as India, Indonesia and China also impose similar requirements on the KRPs of adjusting companies. In complying with this requirement, the registered adjusters are required to establish effective and comprehensive internal policies PUBLIC FEEDBACK STATEMENT 2 h) has not been an undischarged bankrupt, suspended payments or compounded with his creditors whether in or outside Malaysia. and procedures as specified under paragraph 11 of the PD. The registered adjusters may include obtaining valid attestations periodically from the KRPs that meet fit and proper requirements. In such a circumstance, registered adjusters should also consider establishing measures to independently validate the attestations received from its KRPs. No Requirements Feedback received Responses 2. In addition, the shareholders, directors, CEO, senior officers and adjusting employees of the registered adjuster, including their spouses, children, parents, or siblings shall not hold any equity or have any interests, or be employed or associated with any licensed insurer, licensed takaful operator and workshop operator. The industry is generally not receptive to the requirement due to the following concerns: a. Common for family members to be working within the same industry; b. Prohibiting them may stifle the opportunity of employment; c. Infringe on rights to choose lawful employment; and d. Operational challenges such that: I. May not be in the position to validate the employment details of adjusting staff; or II. Require the affected employees to leave the company when they have family members who are employed with either an insurer or workshop operator. The requirement provided in the exposure draft reflects the Bank’s existing requirements under Schedule 2, Section 5 of the Financial Services (Requirements and Submission of Documents or Information) (Registered Business) Order 2013 (Regulation). In relation to this, the term “employees” specified in the Regulation refers to adjusting employees only and does not include other employees that are involved in administrative or support functions. The industry’s concern that this requirement infringes on the constitutional rights of their KRPs or adjusting employees to seek gainful employment is unfounded. The expectation is for registered adjusters to establish and implement effective internal policies, procedures and controls to identify and manage situations of actual, perceived or potential conflict of interest involving their KRPs to ensure that such conflicts do not result PUBLIC FEEDBACK STATEMENT 3 in unlawful, unprofessional or unfair outcomes. Such internal policies should also clarify the mitigating actions which their KRPs or adjusting employees who may be faced with situations of actual, perceived or potential conflict should adhere to avoid the poor outcomes described above. Registered adjusters may consider leveraging on the Association of Malaysian Loss Adjusters (AMLA) to develop an industry code or guidelines on best practice to serve as guidance to industry participants on how to establish effective SOPs or policies for managing conflict of interest by its KRPs and adjusting employees. BANK NEGARA MALAYSIA 1 JUNE 2023 PAYMENT SYSTEMS ACT 2003 29 Jun 2013 29 June 2013 P.U. (A) 206 WARTA KERAJAAN PERSEKUTUAN FEDERAL GOVERNMENT GAZETTE PERINTAH PERKHIDMATAN KEWANGAN (KEHENDAK DAN PENGEMUKAAN DOKUMEN ATAU MAKLUMAT) (PERNIAGAAN BERDAFTAR) 2013 FINANCIAL SERVICES (REQUIREMENTS AND SUBMISSION OF DOCUMENTS OR INFORMATION) (REGISTERED BUSINESS) ORDER 2013 DISIARKAN OLEH/ PUBLISHED BY JABATAN PEGUAM NEGARA/ ATTORNEY GENERAL’S CHAMBERS P.U. (A) 206 2 AKTA PERKHIDMATAN KEWANGAN 2013 PERINTAH PERKHIDMATAN KEWANGAN (KEHENDAK DAN PENGEMUKAAN DOKUMEN ATAU MAKLUMAT) (PERNIAGAAN BERDAFTAR) 2013 PADA menjalankan kuasa yang diberikan oleh perenggan 17(1)(a) Akta Perkhidmatan Kewangan 2013 [Akta 758], Bank Negara Malaysia membuat perintah yang berikut: Nama dan permulaan kuat kuasa 1. (1) Perintah ini bolehlah dinamakan Perintah Perkhidmatan Kewangan (Kehendak dan Pengemukaan Dokumen atau Maklumat) (Perniagaan Berdaftar) 2013. (2) Perintah ini mula berkuat kuasa pada 30 Jun 2013. Kehendak dan dokumen atau maklumat bagi perkhidmatan pemeroleh saudagar 2. Seorang yang bercadang untuk mengendalikan perkhidmatan pemeroleh saudagar hendaklah memenuhi kehendak dan mengemukakan dokumen atau maklumat seperti yang dinyatakan dalam Jadual 1. Kehendak dan dokumen atau maklumat bagi perniagaan pengajusteran 3. Seorang yang bercadang untuk menjalankan perkhidmatan perniagaan pengajusteran hendaklah memenuhi kehendak dan mengemukakan dokumen atau maklumat seperti yang dinyatakan dalam Jadual 2. P.U. (A) 206 3 JADUAL 1 [Perenggan 2] KEHENDAK DAN DOKUMEN ATAU MAKLUMAT BAGI PERKHIDMATAN PEMEROLEH SAUDAGAR BAHAGIAN 1 Kehendak 1. Pemohon ialah suatu syarikat yang diperbadankan di bawah Akta Syarikat 1965 [Akta 125]. 2. Pemegang syer, pengarah atau mana-mana orang yang berkenaan dengan pengendalian atau pengurusan pemohon tidak pernah disabitkan dengan kesalahan di bawah Akta atau kesalahan melibatkan fraud atau kecurangan di bawah mana-mana undang-undang bertulis yang lain. 3. Pemegang syer, pengarah atau mana-mana orang yang berkenaan dengan pengendalian atau pengurusan pemohon tidak pernah terlibat dalam pengurusan atau pengendalian seseorang yang sebelum ini telah dibatalkan pendaftarannya oleh Bank. BAHAGIAN 2 Pengemukaan dokumen atau maklumat Penggal 1 Dokumen atau maklumat yang perlu dikemukakan oleh pemohon yang bukan institusi kewangan yang dikawal selia di bawah undang-undang yang dikuatkuasakan oleh Bank 1. Salinan yang diperakui sah memorandum dan tataurusan persatuannya atau dokumen konstituen lain yang di bawahnya ia ditubuhkan. P.U. (A) 206 4 2. Salinan yang diperakui sah sijil pemerbadanannya atau pendaftaran perniagaannya. 3. Salinan yang diperakui sah penyata kewangan terkini yang diaudit atau bagi syarikat baru yang masih belum selesai pusingan tahun kewangannya yang pertama, dokumen yang berikut boleh dikemukakan sebagai ganti penyata kewangan terkini yang diaudit: (a) Borang 24 (pemulangan atas penguntukan syer) di bawah Akta Syarikat 1965; (b) penyata bank terkini; dan (c) akaun pengurusan terkini yang tidak diaudit. 4. Suatu akuan berkanun bahawa— (a) pemegang syer, dalam hal yang mana pemohon bukanlah syarikat awam yang disenaraikan, pengarah atau orang yang berkenaan dengan pengendalian atau pengurusan pemohon tidak pernah disabitkan dengan kesalahan di bawah Akta itu atau suatu kesalahan melibatkan fraud atau ketidakjujuran di bawah mana-mana undang- undang bertulis; dan (b) pemegang syer, dalam hal yang mana pemohon bukanlah syarikat awam yang disenaraikan, pengarah atau orang yang berkenaan dengan pengendalian atau pengurusan pemohon tidak pernah terlibat dalam pengurusan atau pengendalian seseorang yang sebelum ini telah dibatalkan pendaftarannya oleh Bank. P.U. (A) 206 5 5. Maklumat dan dokumen sokongan syarikat pemohon dan perniagaannya yang berikut: (a) nama, tempat dan tarikh penubuhannya; (b) perniagaan utama; (c) nama, alamat dan kad pengenalan atau nombor pasport semua pengarah dan ketua pegawai eksekutifnya; (d) nama dan alamat pemegang syer utamanya, dalam maksud seksyen 69D Akta Syarikat 1965, dan perbadanan yang berkaitan dengannya sebagaimana ditakrifkan dalam seksyen 4 Akta Syarikat 1965; (e) butiran syarikat induk, subsidiari dan syarikat berkaitan; dan (f) struktur organisasi pemohon. 6. Mana-mana kelulusan, pemberian kuasa, lesen atau permit yang diperlukan atau diperoleh daripada pihak berkuasa kawal selia. 7. Maklumat dan dokumen sokongan yang berhubungan dengan sistem pembayaran bagi pengendalian perkhidmatan pemeroleh saudagar seperti yang berikut: (a) suatu perihalan sistem pembayaran yang terperinci, termasuk aliran pembayaran dan perkiraan penyelesaian; (b) suatu perihalan saudagar yang disasarkan dan kriteria bagi penyertaan; (c) peranan dan tanggungjawab pengendali; P.U. (A) 206 6 (d) kaedah-kaedah dan tatacara yang menyatakan hak dan liabiliti pengendali dan peserta itu termasuk terma dan syarat dan tatacara bagi penyelesaian pertikaian; (e) perihalan tatacara dan pelaksanaan keselamatan sistem; (f) fi dan caj yang dikenakan oleh pengendali, termasuk pecahan terperinci; (g) tatacara pengambilan peserta, termasuk kriteria penajajamin dan tatacara bagi kelulusan, dan mekanisme pengawasan saudagar; (h) langkah-langkah bagi memastikan keselamatan, keutuhan dan kebolehpercayaan pengendalian sistem pembayaran itu termasuk penerusan perniagaan dan rancangan pemulihan bencana dan strategi yang diambil untuk sistem pemulihan dan lokasi tempat alternatif itu; (i) pengesanan fraud dan mekanisme pengawalan; dan (j) perkiraan khidmat luaran, sekiranya ada. Penggal 2 Dokumen atau maklumat yang perlu dikemukakan oleh pemohon yang merupakan institusi kewangan yang dikawal selia di bawah undang-undang yang dikuatkuasakan oleh Bank Maklumat dan dokumen sokongan yang berhubungan dengan sistem pembayaran bagi pengendalian perkhidmatan pemeroleh saudagar seperti yang berikut: (a) suatu perihalan sistem pembayaran yang terperinci, termasuk aliran pembayaran dan perkiraan penyelesaian; P.U. (A) 206 7 (b) suatu perihalan saudagar yang disasarkan dan kriteria bagi penyertaan; (c) peranan dan tanggungjawab pengendali; (d) kaedah-kaedah dan tatacara yang menyatakan hak dan liabiliti pengendali dan peserta itu termasuk terma dan syarat dan tatacara bagi penyelesaian pertikaian; (e) perihalan tatacara dan pelaksanaan keselamatan sistem; (f) fi dan caj yang dikenakan oleh pengendali, termasuk pecahan terperinci; (g) tatacara pengambilan peserta, termasuk kriteria penajajamin dan tatacara bagi kelulusan, dan mekanisme pengawasan saudagar; (h) langkah-langkah bagi memastikan keselamatan, keutuhan dan kebolehpercayaan pengendalian sistem pembayaran itu termasuk penerusan perniagaan dan rancangan pemulihan bencana dan strategi yang diambil untuk sistem pemulihan dan lokasi tempat alternatif itu; (i) pengesanan fraud dan mekanisme pengawalan; dan (j) perkiraan khidmat luaran, sekiranya ada. P.U. (A) 206 8 JADUAL 2 [Perenggan 3] KEHENDAK DAN DOKUMEN ATAU MAKLUMAT BAGI PERNIAGAAN PENGAJUSTERAN BAHAGIAN 1 Kehendak 1. Pemohon ialah suatu syarikat yang diperbadankan di bawah Akta Syarikat 1965 dengan modal berbayar minimum yang tidak terjejas oleh kerugian sebanyak RM 150,000. 2. Pekerja syarikat yang terlibat dengan kerja pengajusteran itu hendaklah mempunyai sekurang-kurangnya kelayakan minimum dalam pengajusteran kerugian daripada sekurang-kurangnya salah satu daripada badan profesional yang diiktiraf atau ijazah seperti yang berikut: (a) Associate or Fellow of Chartered Institute of Loss Adjuster; (b) Diploma atau Associate atau Fellow Institusi Insurans Malaysia; (c) Associate atau Fellow Insititusi Insurans Berkanun; (d) Diploma or Associate or Fellow of Australian Insurance Institute; (e) Associate or Fellow of Insurance Institute of Canada; (f) Fellow of Life Management Institute; (g) Chartered Property & Casualty Underwriter; (h) Diploma atau Diploma Lanjutan dalam Pengajian Perniagaan, pengkhususan dalam Insurans daripada Universiti Teknologi MARA; P.U. (A) 206 9 (i) Ijazah sarjana muda dalam pengurusan risiko; (j) Kursus Asas atau Sijil Pertengahan dalam Pelarasan Kerugian Insurans daripada Institusi Insurans Malaysia; atau (k) mana-mana kelayakan lain yang diluluskan oleh Bank. 3. Pemegang syer, pengarah atau mana-mana orang yang berkenaan dengan pengendalian atau pengurusan pemohon tidak pernah disabitkan kesalahan di bawah Akta itu, Akta Insurans 1996 [Akta 553] yang dimansuhkan atau kesalahan yang melibatkan fraud atau ketidakjujuran di bawah mana-mana undang-undang bertulis. 4. Pemegang syer, pengarah atau ketua pegawai eksekutif tidak pernah terlibat dalam pengurusan atau pengendalian suatu syarikat pengajusteran yang lesen atau pendaftaran telah dibatalkan, membatalkan pendaftaran atau telah pun enggan diberikan lesen oleh Bank. 5. Pemegang syer, pengarah, ketua pegawai eksekutif, pekerja-pekerja dan ahli-ahli gabungan termasuklah pasangan, anak-anak, ibu bapa, adik beradik dan ahli-ahli keluarga terdekat yang lain tidak mempunyai apa-apa kepentingan ekuiti, atau tidak bekerja atau dikaitkan dengan mana-mana penanggung insurans, pengendali takaful dan pengendali bengkel. BAHAGIAN 2 Pengemukaan dokumen atau maklumat 1. Salinan yang diperakui sah memorandum dan tataurusan persatuannya atau dokumen konstituen lain yang di bawahnya ia ditubuhkan. 2. Salinan yang diperakui sah sijil pemerbadanannya atau pendaftaran perniagaannya. P.U. (A) 206 10 3. Salinan yang diperakui sah penyata kewangan terkini yang diaudit bagi suatu syarikat yang beroperasi. 4. Borang 24 (pemulangan atas penguntukan syer) di bawah Akta Syarikat 1965. 5. Borang 29 (perihalan pengarah) di bawah Akta Syarikat 1965. 6. Akuan berkanun yang pemohon telah memenuhi kesemua kehendak yang dinyatakan dalam Bahagian 1 Jadual 2. 7. Maklumat dan dokumen sokongan syarikat itu dan perniagaannya seperti yang berikut: (a) nama, tempat dan tarikh penubuhannya; (b) nama, alamat dan kad pengenalan atau nombor pasport yang semua pengarahnya dan ketua pegawai eksekutifnya; (c) nama dan alamat pemegang syer utamanya, dalam maksud seksyen 69D Akta Syarikat 1965, dan perbadanan yang berkaitan dengannya sebagaimana yang ditakrifkan dalam seksyen 4 Akta Syarikat 1965; dan (d) nama semua staf pengajusteran dengan kelayakan relevan mereka. Dibuat 19 Jun 2013 [BNM/JUN/1125/50/01; PN(PU2) 718] TAN SRI DATO’ SRI DR. ZETI AKHTAR AZIZ Gabenor Bank Negara Malaysia P.U. (A) 206 11 FINANCIAL SERVICES ACT 2013 FINANCIAL SERVICES (REQUIREMENTS AND SUBMISSION OF DOCUMENTS OR INFORMATION) (REGISTERED BUSINESS) ORDER 2013 IN exercise of the powers conferred by paragraph 17(1)(a) of the Financial Services Act 2013 [Act 758], the Central Bank of Malaysia makes the following order: Citation and commencement 1. (1) This order may be cited as the Financial Services (Requirements and Submission of Documents or Information) (Registered Business) Order 2013. (2) This Order comes into operation on 30 June 2013. Requirements and documents or information for merchant acquiring services 2. A person who intends to carry on merchant acquiring services shall fulfill the requirements and submit documents or information as specified in Schedule 1. Requirements and documents or information for adjusting business 3. A person who intends to carry on adjusting business shall fulfill the requirements and submit documents or information as specified in Schedule 2. P.U. (A) 206 12 SCHEDULE 1 [Paragraph 2] REQUIREMENTS AND DOCUMENTS OR INFORMATION FOR MERCHANT ACQUIRING SERVICES PART 1 Requirements 1. The applicant is a company incorporated under the Companies Act 1965 [Act 125]. 2. The shareholder, director or person concerned with the operation or management of the applicant has not been convicted of an offence under the Act or an offence involving fraud or dishonesty under any other written law. 3. The shareholder, director or person concerned with the operation or management of the applicant has not been involved in the management or operation of a person who has previously been deregistered by the Bank. PART 2 Submission of documents or information Division 1 Document or information to be submitted by applicant who is not a financial institution regulated under the laws enforced by the Bank 1. A certified true copy of its memorandum and articles of association or other constituent documents under which it is established. 2. A certified true copy of its certificate of incorporation or business registration. 3. A certified true copy of its latest audited financial statements or in the case of a new company which has yet to complete its first financial year cycle, the P.U. (A) 206 13 following documents may be submitted in lieu of the latest audited financial statements: (a) Form 24 (return on allotment of shares) under the Companies Act 1965; (b) latest bank statement; and (c) latest unaudited management account. 4. A statutory declaration that— (a) the shareholder, in the case where the applicant is not a public listed company, director or person concerned with the operation or management of the applicant has not been convicted of an offence under the Act or an offence involving fraud or dishonesty under any other written law; and (b) the shareholder, in the case where the applicant is not a public listed company, director or person concerned with the operation or management of the applicant has not been involved in the management or operation of a person who has been previously deregistered by the Bank. 5. The following information and supporting documents of the applicant and its business: (a) the name, place and date of its establishment; (b) the principal business; (c) the names, addresses and identity card or passport numbers of all its directors and chief executive officer; P.U. (A) 206 14 (d) the names and addresses of its substantial shareholders, within the meaning of section 69D of the Companies Act 1965, and its related corporations as defined in section 4 of the Companies Act 1965; (e) details of parent company, subsidiaries and related companies; and (f) organizational structure of the applicant. 6. Any approval, authorization, licence or permit required or obtained from regulatory authorities. 7. The following information and supporting documents relating to the payment system for merchant acquiring services: (a) a detailed description of the payment system, including payment flow and settlement arrangements; (b) a description of the targeted merchants and the criteria for participation; (c) roles and responsibilities of the operator; (d) rules and procedures setting out the rights and liabilities of the operator and participants including the terms and conditions and procedures for dispute resolution; (e) description of the system security procedures and implementation; (f) fees and charges imposed by the operator, including the detailed breakdown; P.U. (A) 206 15 (g) participant recruitment procedures, including underwriting criteria and procedures for approval, and merchant monitoring mechanism; (h) measures that ensure the safety, security and operational reliability of the payment system including business continuity and disaster recovery plan and the strategy adopted for system recovery and location of alternative site; (i) fraud detection and control mechanism; and (j) outsourcing arrangements, if any. Division 2 Document or information to be submitted by applicant who is a financial institution regulated under the laws enforced by the Bank The following information and supporting documents relating to the payment system for merchant acquiring services: (a) a detailed description of the payment system, including payment flow and settlement arrangements; (b) a description of the targeted merchants and the criteria for participation; (c) roles and responsibilities of the operator; (d) rules and procedures setting out the rights and liabilities of the operator and participants including the terms and conditions and procedures for dispute resolution; (e) description of the system security procedures and implementation; P.U. (A) 206 16 (f) fees and charges imposed by the operator, including the detailed breakdown; (g) participant recruitment procedures, including underwriting criteria and procedures for approval, and merchant monitoring mechanism; (h) measures that ensure the safety, security and operational reliability of the payment system including business continuity and disaster recovery plan and the strategy adopted for system recovery and location of alternative site; (i) fraud detection and control mechanism; and (j) outsourcing arrangements, if any. SCHEDULE 2 [Paragraph 3] REQUIREMENTS AND DOCUMENTS OR INFORMATION FOR ADJUSTING BUSINESS PART 1 Requirements 1. The applicant is a company incorporated under the Companies Act 1965 with minimum paid-up capital unimpaired by losses of RM150, 000. 2. The employee of the company that is involved with the adjusting work shall have at least a minimum qualification in loss adjusting from at least one of the recognized professional bodies or degree as follows: (a) Associate or Fellow of Chartered Institute of Loss Adjuster; P.U. (A) 206 17 (b) Diploma or Associate or Fellow of Malaysian Insurance Institute; (c) Associate or Fellow of Chartered Insurance Institute; (d) Diploma or Associate or Fellow of Australian Insurance Institute; (e) Associate or Fellow of Insurance Institute of Canada; (f) Fellow of Life Management Institute; (g) Chartered Property & Casualty Underwriter; (h) Diploma or Advance Diploma in Business Studies, majoring in Insurance from MARA University of Technology; (i) Degree in risk management; (j) Basic or Intermediate Certificate Course in Insurance Loss Adjusting from Malaysian Insurance Institute; or (k) any other qualification approved by the Bank. 3. The shareholder, director or any person concerned with the operation or management of the applicant has not been convicted of an offence under the Act, the repealed Insurance Act 1996 [Act 553] or an offence involving fraud or dishonesty under any other written law. 4. The shareholder, director or chief executive officer has not been involved in the management or operation of an adjusting company whose license or registration has been revoked, deregistered or has been refused a license by the Bank. 5. The shareholders, directors, chief executive officer, employees and affiliates including their spouses, children, parents, siblings and other immediate family P.U. (A) 206 18 members do not have any equity interest or are not employed or associated with any insurer, takaful operator and workshop operator. PART 2 Submission of documents or information 1. A certified true copy of its memorandum and articles of association or other constituent documents under which it is established. 2. A certified true copy of its certificate of incorporation or business registration. 3. Certified true copy of its latest audited financial statements for a company already in operation. 4. Form 24 (return on allotment of shares) under the Companies Act 1965. 5. Form 29 (particulars of directors) under the Companies Act 1965. 6. Statutory declaration that the applicant has met all requirements specified in Part 1 of Schedule 2. 7. The following information and supporting documents on the company and its business: (a) the name, place and date of its establishment; (b) the names, addresses and identity card or passport numbers of all its directors and chief executive officer; (c) the names and addresses of its substantial shareholders, within the meaning of section 69D of the Companies Act 1965, and its related corporations as defined in section 4 of the Companies Act 1965; and P.U. (A) 206 19 (d) the names of all adjusting employee with their relevant qualifications. Made 19 June 2013 [BNM/JUN/1125/50/01; PN(PU2) 718] TAN SRI DATO’ SRI DR. ZETI AKHTAR AZIZ Governor Central Bank of Malaysia Registration to Carry on Adjusting Business Frequently Asked Questions and Answers (FAQs) Introduction The FAQs are intended to provide clarification to applicants on the requirements to carry on adjusting business under the Financial Services Act 2013 (the Act), including the standards and guidelines applicable for such business. The FAQs will be updated from time to time. For ease of reference, font in blue denotes updates to the FAQs published on 1 June 2023. See questions 6, 11 and 12. No. Questions Answers 1. How and when can an applicant submit an application for registration to carry on adjusting business under the Act? • An applicant is required to complete and submit: (i) a cover letter; (ii) the registration form together with all the supporting documents listed in the Appendix of the Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters; and (iii) all documents listed in Part 2 of Schedule 2 of The Financial Services (Requirements and Submission of Documents or Information) (Registered Business) Order 2013 [P. U. (A) 206/2013] (The Order). • Submission of new registrations should be made either in the months of February or August annually. Any submissions received in any other month will be processed in the next processing period (for e.g., a submission of registration received in the month of March 2023 will be processed in August 2023 while a submission of registration received in October 2023 will be processed in February 2024). Note: Registration forms submitted without the complete list of required documentation/information will not be processed and will be returned to the applicant. 2. Can I appeal if my registration is unsuccessful? No. The applicant must submit a fresh application for registration together with the complete list of required documents/information for the Bank’s consideration. 3. Does the Bank charge any processing fee for registration to carry on adjusting business? • The Bank does not charge any fee for processing the application as an adjuster. • However, upon successful registration as an adjuster, an annual registration fee of RM1,000 will be imposed. The registration fee shall be paid within seven (7) days from the date of the Bank’s confirmation in writing. • The fee of RM1,000 will be pro-rated based on the number of months remaining for the first year of registration; and thereafter, the full fee of RM1,000 must be paid before 15 December of every year. 4. Can the registration form and supporting documents be submitted online/ via email? Applicants must submit hardcopy submissions to: Director Consumer and Market Conduct Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur In addition, a copy of this application in digital form (i.e. softcopies) may be submitted to: (i) [email protected]; (ii) [email protected]; (iii) [email protected]; or (iv) [email protected]. 5. What are the minimum requirements to carry on adjusting business under the Act? • In order to be registered as an adjuster, an applicant must fulfil the requirements in the following: (i) Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters [issued on 1 June 2023]; and (ii) The Order. • An applicant must also meet the following minimum requirements as listed in Schedule 2 Part 1 of the Order: (i) A Body Corporate Applicant is a company incorporated either under the Companies Act 1965 or Companies Act 2016 (ii) Minimum Paid-Up Capital Must have minimum paid-up capital unimpaired by losses of at least RM150,000 at all times (iii) Minimum Qualification for Employees involved in the Adjusting Work • Associate or Fellow of Chartered Institute of Loss Adjuster; • Diploma or Associate or Fellow of Malaysian Insurance Institute; • Associate or Fellow of Chartered Insurance Institute; • Diploma or Associate or Fellow of Australian Insurance Institute; • Associate or Fellow of Insurance Institute of Canada; • Fellow of Life Management Institute; • Chartered Property & Casualty Underwriter; • Diploma or Advance Diploma in Business Studies, majoring in Insurance from MARA University of Technology; • Degree in Risk Management; • Basic or Intermediate Certificate Course in Insurance Loss Adjusting from Malaysian Insurance Institute: or • Any other qualification approved by the Bank (iv) Fit & Proper • The shareholder, director or person concerned with the operation or management of the applicant has not been convicted of an offence under the Act or an offence involving fraud or dishonesty under any mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] other written law. • The shareholder, director or chief executive officer has not been involved in the management or operation of an adjusting company whose license or registration has been revoked, deregistered or has been refused by the Bank. (v) Conflict of Interest The shareholder, directors, chief executive officer, employees and affiliates including their spouses, children, parents, siblings and other immediate family members do not have any equity interest or are not employed or associated with any insurer, takaful operator or workshop operator. 6. What policies should an adjusting company implement to detect and manage conflicts of interest? A registered adjuster must establish adequate internal policies and procedures to ensure an effective mechanism is in place to identify and manage any actual, perceived or potential conflict of interest situations involving its key responsible persons (KRPs), senior officers or adjusting employees which may arise in the course of conducting business. At a minimum, the policies and procedures should: • Identify circumstances which constitute or may give rise to situations of actual, perceived or potential conflicts of interest; • Clearly define the process for KRPs, senior officers or adjusting employees to keep the Board informed on any change in their personal circumstances which may result in a conflict of interest; • Identify specific officers or functions within the company that is/are responsible for maintaining updated records on each KRP, senior officer or adjusting employee who may be faced with situations of conflict of interest in the course of conducting business; and • Establish effective mitigating actions or controls which KRPs, senior officers or adjusting employees must comply with to avoid or address situations of actual, perceived or potential conflict of interest. For example, if an adjusting employee of a registered adjuster has family members with equity interests or is employed by a workshop or a licensed insurer/takaful operator (ITO), the registered adjuster must establish a process which requires its adjusting employee to be transparent and declare this relationship, and this declaration should be refreshed on a periodic basis. An assessment should then be conducted to determine the actual level of conflict of interest that arises due to this relationship. Where the level of conflict of interest is assessed as high, adequate controls must be established to ensure that such conflicts do not result in poor outcomes. Such as, prohibiting the adjusting employee from handling cases which are assigned by the ITO where his/her family member has equity interests in, or to handle jobs in workshops where their family member works. 7. Can a third party such as legal advisers and consultants, submit an application or enquire further on the application procedure on behalf of the applicant? No. The Bank deals directly with the applicant concerned when providing specific guidance or requesting for additional clarifications relevant to the application received. This ensures improved transparency and more robust governance of the assessment process. 8. If the company is currently involved in other types of businesses, is it allowed to use the same company to apply to carry on adjusting business? Yes, provided that the company is not involved in any business that conflicts with the core adjusting business, such as insurance agency, repairer or workshop. 9. What are the other requirements to be fulfilled upon registration? The registered adjusters must comply with the following requirements: • Commence adjusting business within six (6) months from the date of registration and notify the Bank within 7 days after the commencement of its business operation; • Have an established place of business/office; • Conduct its adjusting business in a fair, responsible and professional manner at all times • Comply with the requirements in the PD on Adjusting Business at a all times; • Strongly encouraged to be a member of the Association of Malaysian Loss Adjusters; • Submit reports required under the Policy Document on STATsmart Reporting Requirements on Data Submission for Reporting Entities to the Bank; and • Submit the company’s management account, including quarterly balance sheet and income statement. The submission must be made within two weeks after the end of each quarter. 10. Can an applicant with more than 5 years working experience as an in-house claims assessor in an insurance company/takaful operator or an employee of a workshop operator be exempted from obtaining the qualification to be an adjuster? No. Every person who wishes to carry on adjusting work must have at least one of the qualifications listed in response above (Q5.iii). 11. In relation to paragraph 12.3 of the PD on Adjusting Business, what are the key criteria for assessment before new adjusting employees can conduct adjusting work independently? A registered adjuster must conduct assessment based on specific criteria before allowing new adjusting employees to conduct work independently. The criteria may include: • Accurately documented the damages, estimate repair costs, and determination of liability in insurance/takaful claim; • Able to analyse information, identify issues and make sound decisions in handling more complex claims or to navigate difficult situations; • Demonstrate ability to communicate professionally with policyholders, insurance/takaful providers, and other stakeholders; • Understand the relevant regulations and industry standards, as well as adherence to the company's own code of ethics; and • Knowledgeable in the areas of insurance policies/takaful certificates, claims procedures, and relevant software or technology. 12. What does ‘subject matter’ refer to in relation to the recognition of a senior adjusting employee? In relation to Paragraph 12.4(a) of the Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters, subject matter refers to the senior adjusting employee’s ‘area of expertise’. For example, whether the senior adjusting employee’s on-the-job expertise is in handling of motor claims or non-motor claims. For non-motor claims, which business line the senior adjusting employee has expertise on i.e. fire, marine etc. 13. Who can we contact should we have any further queries regarding our application? Please email your queries to: (i) [email protected]; (ii) [email protected]; (iii) [email protected]; or (iv) [email protected]. Consumer and Market Conduct Revised on 1 June 2023 mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected]	Public Notice
01 Jun 2023	Risk Management in Technology (RMiT) Policy Document	https://www.bnm.gov.my/-/risk-management-in-technology-rmit-policy-document	https://www.bnm.gov.my/documents/20124/938039/FAQ-RMiT-June2023.pdf, https://www.bnm.gov.my/documents/20124/938039/PD-RMiT-June2023.pdf	null	Reading: Risk Management in Technology (RMiT) Policy Document Share: 18 Risk Management in Technology (RMiT) Policy Document Embargo : For immediate release Not for publication or broadcast before 0000 on Thursday, 1 June 2023 1 Jun 2023 This policy document sets out the Bank's requirements with regard to financial institutions' management of technology risk. All financial institutions shall implement robust risk management controls above the minimum regulatory standards to deliver efficient financial services securely and prevent the exploitation of weak links in interconnected networks and systems with robust cyber fortification to preserve public confidence in the financial system. Issuance Date 1 June 2023 Highlights Key updates to the policy document dated 1 June 2023 include the following: Additional guidance to strengthen financial institution’s cloud risk management capabilities as set out in paragraphs 10.50 and Appendix 10. Shift to a risk-based approach in cloud consultation and notification process as set out in paragraph 15, with corresponding updates in the risk assessment and submission requirement. Updated cross references including the multi-factor authentication (MFA) security control denoted as a standard requirement. The Frequently Asked Questions document has been revised to aid implementation of the revised policy requirements. Applicability Licensed banks, including licensed digital banks Licensed investment banks Licensed Islamic banks, including licensed Islamic digital banks Licensed insurers including professional reinsurers Licensed takaful operators including professional retakaful operators Prescribed development financial institutions Approved issuer of electronic money Operator of a designated payment system Effective Date 1 June 2023 except for paragraphs 10.50, 15 and Appendix 10, which comes into effect on 1 June 2024 in respect of the relevant financial institutions other than a licensed digital bank or licensed Islamic digital bank as set out below: 1 June 2024 in respect of financial institutions which have already adopted public cloud for critical systems prior to the issuance date of this policy document. However, if any of the terms of the financial institution’s existing contracts with the cloud service providers are not in accordance with the provisions of Appendix 10, the financial institutions may make the necessary amendments or modifications during the next renewal of the relevant contracts with the cloud service providers i.e., after the effective date of the relevant provisions in this policy document in respect of the financial institution; and 1 June 2024 in respect of financial institutions which have not adopted public cloud for critical systems prior to the issuance date of this policy document. This policy document comes into effect on 1 June 2023 in respect of a licensed digital bank or licensed Islamic digital bank. Issuing Department Risk Specialist and Technology Supervision See also: Risk Management in Technology (RMiT) Policy Document Frequently Asked Questions on RMiT Bank Negara Malaysia 1 June 2023 © Bank Negara Malaysia, 2023. All rights reserved.	FAQ Risk Management in Technology Policy Document 1 Frequently Asked Questions Risk Management in Technology Last updated: 1 June 2023 This document supplements the policy document on Risk Management in Technology (RMiT) by providing an explanation to interpretation issues likely to be faced by financial institutions in implementing the requirements. The questions are grouped according to the requirements of the policy document. 2 Interpretation 1. What are the examples of systems categorised under Critical System? [Paragraph 5.2] The example of critical systems may include but are not limited to: a) Core Banking System; b) Core Insurance System; c) Payment Systems: i. eSpick; ii. RENTAS iii. Interbank Fund Transfer (IBFT, MEPS IBG); d) Card System (Credit Card, Debit Card); e) Treasury System; f) Self-Service Terminals (CRM, CDM & ATM); g) Internet Banking System (Retail and Corporate); h) Mobile Banking System; i) Call Centre; j) Insurance eCover note; k) Internet Insurance System (for public and agents, e.g. motor & travel insurance); and l) SWIFT. The list of critical systems above is not exhaustive and financial institutions must assess and ascertain whether there are other systems that fall within “critical system”, taking into account the potential for a failure of the relevant system to significantly impact the provision of services to customers, business operations, reputation or compliance with regulatory requirements and laws. A financial institution may also consult the Bank for further clarification on specific systems. 2. Will the applicability of RMiT be extended to overseas entities of local financial conglomerates? [Paragraph 2.1 read together with paragraph 5.2] The Bank expects financial institutions to practise robust risk management and adopt similar or more stringent requirements for its overseas branches and entities. Responsibilities of the board of directors (board) 3. Can a financial institution be given the flexibility to adapt its IT and cybersecurity strategic plan from the parent company or the Group? [Paragraph 8.2] Yes. However, the plans shall align with local regulatory requirements including the requirements under the RMiT after taking into consideration the complexity of the financial institution’s operations, risk profile as well as the local entity business environment. The board of each financial institution must provide oversight and ensure the adequacy of these plans. 4. Can a board of a financial institution leverage on any existing board committee to perform oversight on technology-related matters? [Paragraph 8.4] Yes. The board of a financial institution may either designate an existing board committee or establish a separate committee for this purpose. Where such a committee is separate from the Board Risk Committee (BRC), there must be appropriate interface between this committee and the BRC on technology risk-related matters to ensure effective oversight of all risks at the enterprise level. 3 Large Financial Institution 5. Could the Bank provide more clarity on the criteria to conduct a self-assessment to determine whether a financial institution is categorised as a large financial institution? [Paragraph 8.12] Financial institutions are required to apply the criteria under paragraphs 8.12 (a) to (d) to determine whether it is considered a large financial institution. Given the dynamic and complex business operating environment, there are no plans to prescribe any quantitative thresholds for defining large financial institutions. It is not the intention for the definition of ‘large financial institution’ to be changed on a frequent basis, which may be the case if a simple quantitative threshold is used. Rather the financial institution should consider more structural long-term factors. As highlighted in the policy document, when determining the significance of its size, the financial institution shall consider the extent to which the broader market segment may be unable to access relevant financial services in the event of a disruption to its systems. It should also consider the extent to which the operations of other institutions may be disrupted due to a reliance on services provided by the financial institution that may not be immediately substitutable. [Footnote 4 of the RMiT policy document] Establishment of Chief Information Security Officer (CISO) function 6. What are the responsibilities of the CISO function and certifications needed? [Paragraph 9.5] The CISO must formulate and facilitate the effective implementation of Technology Risk Management Framework (TRMF) and Cyber Resilience Framework (CRF). The CISO also must advise senior management on technology risk and security matters, including developments in the financial institution’s technology security risk profile in relation to its business and operations. We do not prescribe any preferred certification, however, the CISO must have a suitable and related certification on information security. 7. What is the appropriate reporting structure for the CISO? [Paragraph 9.4 (a)] The Bank does not prescribe the reporting structure, however, the CISO must be independent from day-to-day technology operations. Ideally, the CISO should be placed within the second line of defence function, nevertheless financial institutions have the flexibility to position the CISO where they deem equally suitable to meet the stipulated RMiT requirements. The financial institutions must demonstrate that the CISO has sufficient authority and stature and is not inhibited in providing independent views. 8. Can financial institution leverage Group-level CISO? [Paragraph 9.4] Footnote 6 to paragraph 9.4 of the RMiT, provides that a financial institution’s CISO may take guidance from the expertise of a Group-level CISO, in or outside of Malaysia. In implementing this requirement, a financial institution may fully leverage a Group-level CISO who is based in a locally incorporated affiliate financial institution or financial holding company, which the Bank regulates. The Group-level CISO is expected to ensure all entities within the Group has implemented robust technology risk management practices and to report to the entity- level boards of directors. Nevertheless, if there are any finding of implementation gaps 4 in the course of the Bank's supervisory activity, the Bank may require a financial institution to designate an entity-level CISO. For the avoidance of doubt, the Group-level CISO cannot be based in an entity outside of Malaysia. The designated CISO at the entity level is expected to be the responsible person for ensuring the financial institution’s information assets and technologies are adequately protected to preserve operational integrity and business continuity. Data Centre and Application Resiliency 9. Is there any requirement for a concurrently maintainable data centre to be certified? [Paragraph 10.22] There is no requirement for the production data centre to be certified. 10. Does the designated Disaster Recovery Data Centre (DRC) have to be concurrently maintainable if it also hosts selected production systems? [Paragraph 10.23] Yes. The DRC has to be concurrently maintainable if the facility is hosting production critical systems. Any dedicated space hosting critical systems must also provide concurrently maintainable infrastructure. 11. How would the Bank assess a cumulative unplanned downtime? [Paragraph 10.32] The requirement is applicable only for critical systems and touchpoints which are expected to provide immediate delivery of service to customers or dealings with counterparties. The Bank will consider all factors related to the unplanned downtime before deciding on the appropriate action. Among others, the Bank will assess external factors contributing to the failure as well as the reach and severity of the disruption. Cyber Risk Management 12. Can a large financial institution engage an external party to conduct the “Red Team” attack exercise? [Paragraph 11.4 (b) (ii)] A large financial institution may engage an external party to perform the “Red Team” exercises. However, the cyber risk management function of the financial institution must provide adequate oversight and ensure proper safeguards are in place. 13. How should the intelligence-led penetration test be conducted? [Paragraph 11.9] An intelligence-led penetration test shall involve the use of a variety of techniques to simulate an attack on the financial institution’s critical functions and underlying systems (i.e., its people, processes and technologies). The test should also mimic the tactics, techniques, and procedures of real-life threat actors who, on the basis of threat intelligence, are perceived as posing a genuine threat to the financial institution. These techniques and procedures may change over time to reflect the evolving threat landscape and may be unique to each financial institution based on its risk profile. Notification for Technology-Related Application 14. The RMiT policy document requires financial institution to appoint an external service provider to perform certain risk assessments. In this context, can a financial institution appoint a technically competent independent party within the 5 financial institution or Group to undertake the required risk assessment instead of an external service provider? The Bank requires all financial institutions to appoint external service providers to carry out the required risk assessment. In the future, the Bank may consider allowing suitable financial institutions to perform the assessment internally. Any changes to this requirement will be communicated in due course. Consultation and Notification related to Cloud Services 15. What are the preparations to be done for the consultation session as required under paragraph 15.1 prior to the first-time use of public cloud for critical system? [Paragraph 15.1] The Bank encourages early engagement from the financial institutions on the cloud adoption plan, i.e. via submission of annual outsourcing plan, IT profile, etc. This would enable the Bank the ability to provide feedback on any areas of potential concern prior to committing large amounts of resources to the initiatives. To facilitate the consultation process, the financial institution shall demonstrate that it has thoroughly considered and addressed the risks outlined in paragraphs 10.49, 10.50 and Appendix 10 during the consultation session with the Bank. The financial institution must provide the Bank with sufficient information prior to the briefing session to facilitate a robust discussion. 16. Requirements related to cloud services prior to 1st June 2024 Paragraphs 10.49, 10.50, 10.51 and 10.52 of RMiT policy document issued on 1 January 2020 will continue to apply during the transition period until 31 May 2024 for all financial institutions except for licensed digital bank or licensed Islamic digital bank. The revised paragraphs related to cloud services i.e., paragraph 10.49, 10.50, 15 and Appendix 10 will come into effect on 1 June 2024. Gap Analysis 17. Is there a requirement for the gap analysis to be tabled to the board of the financial institution prior to the submission to the Bank? [Paragraph 16.1] No. However, the gap analysis must be robust, adequately deliberated and the financial institution must adhere to its own due process and internal governance process. 18. My organisation has submitted a gap analysis in 2020 to the Bank as per the requirement under the RMiT dated 1 January 2020. With the latest version of this policy document set to come into effect on 1 June 2023, is the financial institution required to perform the gap analysis again? [paragraph 16.1] Yes, financial institutions must maintain continuous compliance by regularly updating its level of compliance (taking into account the new and revised requirements) on an annual basis and the relevant document or assessment has to be made available to the Bank upon request. 6 Appendix 10: Key Risks and Control Measures for Cloud Services (Formerly referred to as Cloud Technology Risk Assessment Guide (CTRAG) in the exposure draft) 19. Does Appendix 10 apply to critical systems in production? Yes. Financial institution is provided with a transition period up to 31 May 2024 to review the adequacy of risk management for existing cloud deployment, with additional time allowance to amend the service contracts upon the next renewal with the cloud service providers. 20. Does Appendix 10 apply to non-critical systems? Financial institution is encouraged to consider the common key risks outlined in Appendix 10 in the implementation of control measures for any cloud adoption. Notwithstanding, the Bank does reserve discretion to require a financial institution to observe Appendix 10 for non-critical systems. 21. Does Appendix 10 apply in a circumstance where a financial institution deploys critical system to hybrid cloud operated by Group of companies and Group owned the data centre and its operations? Yes, since Appendix 10 is applicable to the scope of critical system operating on public cloud. 22. Can SaaS be exempted from the Appendix 10 requirements, given the services are commercially available and provided as-is where the users have no or limited controls over the backend process? No. As the use of SaaS relies on third-party IT infrastructure services, financial institutions should understand the associated risks, identify applicable provisions in Appendix 10 and apply cloud risk management proportionate to the criticality and materiality of the service. For example, the use of SaaS for critical systems which store, or process customer data would require stronger security controls. Financial institutions should obtain sufficient assurance that the quality of risk management by the third-party service provider is in line with their respective risk appetites. Procurement decisions relating to the service level and added functionalities should also be driven by information security objectives (e.g., sufficient storage to meet high level of resilience, cyber threat detection for highly sensitive data, etc). 23. Do other cloud service models (e.g. Unified communications as service – UCaaS, Function as a Service – FaaS) also need to adhere to the guidance? Yes, if the cloud service is classified as a critical system. Financial institutions should identify the relevant provisions in Appendix 10 when assessing the risks of specialised variation of the cloud service models, e.g., UCaaS is a form of SaaS. Financial institutions are also encouraged to leverage on industry standards to identify key risk considerations for commonly used cloud service models as they evolve. 7 24. Clarity on the shared responsibility model in cloud between financial institution and cloud service provider. The operations and management of systems on cloud services are shared between cloud user which is the financial institution (FI) and cloud services provider (CSP). The CSP is responsible for securing the infrastructure, while the financial institution is responsible for securing the data and applications that run on the infrastructure. Financial institutions should understand the responsibilities of each party according to the adopted cloud model. The roles and responsibilities of each party should be clearly defined and contractually agreed. The matrix below illustrates an example of how these responsibilities might be defined. Iaas Paas Saas User management FI FI FI Data security FI FI FI Application security FI To be defined CSP Network security (virtual network) FI To be defined CSP Operating system FI CSP CSP Hypervisor CSP CSP CSP Physical infrastructure CSP CSP CSP Note: the actual matrix of shared responsibility in Cloud Service Models may vary depending on the specific agreement between the cloud user and the CSP 25. Can a financial institution combine cloud technology risk management framework with the current technology risk framework under RMiT in one documentation? Yes. Oversight over cloud service providers 26. For financial institutions leveraging on Group’s cloud services, what is the expectation for ongoing monitoring and periodic assessment? Can the financial institution rely on the parent company or the Group assessment outcome? Appendix 10 does not preclude financial institutions from leveraging Group IT services, including master service agreement with cloud service providers for economies of scale. The financial institution must make an objective assessment to ensure the Group’s contract terms and on-going monitoring are adequate to meet the Malaysian operation’s business objectives and regulatory requirements. Managed by FI. Managed by CSPs. FI should check the operation and management by CSP. To be defined and contractually agreed between FI and CSPs. FI should check the operation and management by CSP. 8 The financial institution is ultimately accountable for managing the risks from cloud arrangements, regardless of whether they are performed by an external cloud service provider or by Group. Therefore, financial institutions should not rely solely on the monitoring and periodic assessment conducted by the Group. Financial institutions must ensure that the monitoring and assessments conducted by the Group are appropriate and that the cloud services comply with the Bank’s policy requirements, as well as obtain additional independent assurance if necessary. Access to cloud service providers’ certifications 27. Clarification on oversight and reliance on third party attestation reports A financial institution is required to ensure that the cloud service provider is capable of securely managing and protecting sensitive information and data. The financial institution may rely on a third-party attestation report or obtain assurance from an independent evaluation of the cloud service provider’s security, privacy, and compliance controls and processes provided that such reliance is supported by an adequate understanding of the scope and methods. Some of the commonly recognized third-party attestation reports that the financial institution can rely on include but not limited to SOC 1, SOC 2, and ISO 27001. Financial institutions must perform due diligence on the appointed cloud service providers on on-going basis and supplement their review of the cloud service providers’ performance based on actual service delivery and the state of compliance of the cloud service providers to meet the information security objectives. Skilled personnel with knowledge on cloud services 28. For skilled personnel with knowledge on cloud services, does it require the IT Operations personnel to be certified regardless of any cloud model? [Appendix 10 read together with paragraphs 13.2 and 13.3 of the RMiT?] IT operations personnel of large financial institution shall be suitably certified for handling day to day cloud operations. We do not prescribe any preferred certification. For non- large financial institution, the IT personnel shall be appropriately skilled by attending periodic or relevant training to effectively discharge their operational roles. Operational Resilience 29. Clarification and expectations on multi-cloud strategy There is a range of service availability and redundancy options for financial institutions to achieve operational resilience under various potential scenarios. Financial institutions are given flexibility to decide on the appropriate solution that commensurate with its information security objectives and are encouraged to adopt a forward-looking approach in their cloud migration journey to achieve operational resilience. This includes the adoption of a multi-cloud strategy, where appropriate, to avoid the concentration risks associated with a single cloud service provider. 9 Exit Strategy 30. Expectations for testing an exit plan Given increasing reliance of financial institutions on cloud service providers to support financial institutions’ critical day-to-day operations, financial institutions must be prepared for the possibility of unplanned termination of outsourced services and have effective plans in place as clarified in paragraph 7 of Part (B) Appendix 10: Exit Strategy. Financial institutions are expected to ensure that the exit plans are sufficiently tested and reviewed periodically to provide reasonable assurance on the feasibility of the plan in the event of the unplanned termination of cloud services. Financial institutions are given flexibility to adopt suitable test methods in line with industry best practices such as the technical paper on cloud strategy testing of exit plans issued by the European Banking Federation Cloud Banking Forum. Cryptographic Key Management 31. Why is it crucial to maintain independence in cryptographic key management from the cloud service provider in the case of critical systems? Maintaining independence in cryptographic key management is crucial for systems that handle sensitive or confidential information. As clarified in paragraph 8 of Part (B) Appendix 10: Cryptographic Key Management, possession of encryption keys grants the ability to access the data stored on the servers. The risk of unauthorized access to data and potential compromise of sensitive information increases when the cloud service providers (who are responsible for managing the production data) have access to the encryption keys. By retaining control over the encryption keys, the financial institution can ensure that only authorised parties have access to their data, thereby reducing the risk of data breaches and protecting the confidentiality, integrity, and availability of the information. Some financial institutions may face challenges in managing and retaining control of the encryption keys, especially when lacking the necessary resources, expertise, and infrastructure. In this case, financial institutions may consider utilising a trusted third- party key custodian to protect the encryption keys and sensitive data. Some cloud service providers may not allow the customers to manage their own keys due to technical limitation or security concerns. For such cases where there is no alternative and the financial institutions must rely on the cloud service provider’s key management system, the financial institutions should carefully review the cloud service providers’ key management practices to ascertain that the information is sufficiently safeguarded and consider whether the additional risk exposure remains within its risk appetite. 10 RMIT REVISION HISTORY Version No. Effective Date Summary of Changes 1.0 18 July 2019 Initial Creation 2.0 19 January 2020 Paragraph 7.1 Added item (n) to the list of superseded documents. Paragraph 10.19 Fixed a typo in the paragraph. Paragraph 14.3 Inserted the word 'explicitly' to the paragraph to emphasize the statement. Paragraph 14.7 Added new paragraph for notification requirements and supervisory process for non-material enhancement technology related applications. Appendix 6 Updated items in Category 1 and Category 3. 3.0 1 June 2023 Paragraph 5.2 Updated the paragraph to include the definition of cloud service providers. Paragraph 7.1 Added the paragraphs on the superseded guidelines and policy documents including RMiT issued on 1 January 2020 except for paragraphs 10.49, 10.50, 10.51 and 10.52 which shall remain applicable until 31 May 2024. Paragraph 10.49 – 10.52 Updated cloud services domain to introduce Appendix 10. Paragraph 10.68 Revised the paragraph from guidance to standard for multi-factor authentication (MFA) requirement. Paragraph 10.70 Updated the paragraph to include additional requirement of MFA security controls. Paragraph 15.1 - 15.5 Rearrange and updated the paragraph to introduce consultation and notification requirement related to cloud services. Paragraph 16.1 Updated the paragraph to clarify the requirement of conducting assessment and gap analysis. 11 Appendix 7 Updated the risk assessment report to include cloud service in part D. Appendix 8 Updated the confirmation template to include cloud services. Appendix 10 New Appendix to provide guidance on managing cloud risks. Any refinements to the FAQs will be updated by the Bank from time to time. Should you have additional queries related to the RMiT policy document, please submit your queries via any of the following means: a) Mail: Director Risk Specialist and Technology Supervision Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur b) Email: [email protected] Risk Management in Technology (RMiT) Applicable to: 1. Licensed banks, including licensed digital banks 2. Licensed investment banks 3. Licensed Islamic banks, including licensed Islamic digital banks 4. Licensed insurers including professional reinsurers 5. Licensed takaful operators including professional retakaful operators 6. Prescribed development financial institutions 7. Approved issuers of electronic money 8. Operator of a designated payment system Issued on: 01 June 2023 BNM/RH/PD 028-98 Risk Management in Technology 2 of 67 Issued on: 1 June 2023 TABLE OF CONTENTS 1 Introduction ........................................................................................................ 3 2 Applicability ....................................................................................................... 3 3 Legal provision .................................................................................................. 3 4 Effective date ..................................................................................................... 4 5 Interpretation ..................................................................................................... 4 6 Related legal instruments and policy documents ........................................... 6 7 Policy documents and circulars superseded .................................................. 6 PART B POLICY REQUIREMENTS ................................................................................. 8 8 Governance ........................................................................................................ 8 9 Technology Risk Management ....................................................................... 10 10 Technology Operations Management ............................................................ 11 11 Cybersecurity Management ............................................................................ 25 12 Technology Audit ............................................................................................ 31 13 Internal Awareness and Training .................................................................... 31 PART C REGULATORY PROCESS .............................................................................. 32 14 Notification for Technology-Related Applications ........................................ 32 15 Consultation and Notification related to Cloud Services .............................. 34 16 Assessment and Gap Analysis ....................................................................... 35 APPENDICES .............................................................................................................. 36 Appendix 1 Storage and Transportation of Sensitive Data in Removable Media .......... 36 Appendix 2 Control Measures on Self-service Terminals (SST) ............................... 37 Appendix 3 Control Measures on Internet Banking ................................................. 40 Appendix 4 Control Measures on Mobile Application and Devices ............................ 41 Appendix 5 Control Measures on Cybersecurity ..................................................... 42 Appendix 6 Positive List for Enhancements to Electronic Banking, Internet Insurance and Internet Takaful Services ............................................... 43 Appendix 7 Risk Assessment Report ..................................................................... 47 Appendix 8 Format of Confirmation ............................................................................. 49 Appendix 9 Supervisory Expectations on External Party Assurance ......................... 50 Appendix 10 Key Risks and Control Measures for Cloud Services …………………....…52 Risk Management in Technology 3 of 67 Issued on: 1 June 2023 PART A OVERVIEW 1 Introduction 1.1 Technology risk refers to risks emanating from the use of information technology (IT) and the Internet. These risks arise from failures or breaches of IT systems, applications, platforms or infrastructure, which could result in financial loss, disruptions in financial services or operations, or reputational harm to a financial institution. 1.2 With the more prevalent use of technology in the provision of financial services, there is a need for financial institutions to strengthen their technology resilience against operational disruptions to maintain confidence in the financial system. The growing sophistication of cyber threats also calls for the increased vigilance and capability of financial institutions to respond to emerging threats. Critically, this should ensure the continuous availability of essential financial services to customers and adequate protection of customer data. 1.3 This policy document sets out the Bank’s requirements with regard to financial institutions’ management of technology risk. In complying with these requirements, a financial institution shall have regard to the size and complexity of its operations. Accordingly, larger and more complex financial institutions are expected to demonstrate risk management practices and controls that are commensurate with the increased technology risk exposure of the institution. In addition, all financial institutions shall observe minimum prescribed standards in this policy document to prevent the exploitation of weak links in interconnected networks and systems that may cause detriment to other financial institutions and the wider financial system. The control measures set out in Appendices 1 to 5 and Appendix 10 serve as a guide for sound practices in defined areas. Financial institutions should be prepared to explain alternative risk management practices that depart from the control measures outlined in the Appendices and demonstrate their effectiveness in addressing the financial institution’s technology risk exposure. 2 Applicability 2.1 This policy document is applicable to all financial institutions as defined in paragraph 5.2. 3 Legal provision 3.1 The requirements in this policy document are specified pursuant to— (a) Sections 47(1) and 143(2) of the Financial Services Act 2013 (FSA); (b) Sections 57(1) and 155(2) of the Islamic Financial Services Act 2013 (IFSA); and (c) Sections 41(1) and 116(1) of the Development Financial Institutions Act 2002 (DFIA). Risk Management in Technology 4 of 67 Issued on: 1 June 2023 3.2 The guidance in this policy document are issued pursuant to section 266 of the FSA, section 277 of the IFSA and section 126 of the DFIA. 4 Effective date 4.1 This policy document comes into effect on 1 June 2023 except for paragraph 10.50, paragraph 15 and Appendix 10 which come into effect on the corresponding dates in respect of the relevant financial institutions other than a licensed digital bank or licensed Islamic digital bank as set out below: (a) 1 June 2024 in respect of financial institutions which have already adopted public cloud for critical systems prior to the issuance date of this policy document. However, if any of the terms of the financial institution’s existing contracts with the cloud service providers are not in accordance with the provisions of Appendix 10, the financial institutions may make the necessary amendments or modifications during the next renewal of the relevant contracts with the cloud service providers i.e., after the effective date of the relevant provisions in this policy document in respect of the financial institution; and (b) 1 June 2024 in respect of financial institutions which have not adopted public cloud for critical systems prior to the issuance date of this policy document. 4.2 This policy document comes into effect on 1 June 2023 in respect of a licensed digital bank or licensed Islamic digital bank. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA or DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For purposes of this policy document – “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “board” refers to the board of directors of a financial institution, including any committee carrying out any of the responsibilities of the board under this policy document; “critical system” refers to any application system that supports the provision of critical banking, insurance or payment services, where failure of the system has the potential to significantly impair the financial institution’s provision of financial services to customers or counterparties, business operations, Risk Management in Technology 5 of 67 Issued on: 1 June 2023 financial position, reputation, or compliance with applicable laws and regulatory requirements; “customer and counterparty information” refers to any information relating to the affairs or, in particular, the account, of any customer or counterparty of a financial institution in whatever form; “cyber resilience” refers to the ability of people, processes, IT systems, applications, platforms or infrastructures to withstand adverse cyber events; “cyber risk” refers to threats or vulnerabilities emanating from the connectivity of internal technology infrastructure to external networks or the Internet; “digital services” refers to the provision of payment, banking, Islamic banking, insurance or takaful services delivered to customers via electronic channels and devices including Internet and mobile devices, self-service and point-of-sale terminals; “financial institution” refers to- (a) a licensed person under the FSA and the IFSA (excluding branches of a foreign professional reinsurer and a professional retakaful operator); (b) a prescribed institution under the DFIA; (c) an eligible issuer of e-money as defined in the policy document on Interoperable Credit Transfer Framework1; and (d) an operator of a designated payment system; “large financial institution” refers to- (a) a financial institution with one or more business lines that are significant in terms of market share in the relevant industry; or (b) a financial institution with a large network of offices within or outside Malaysia through operations of branches and subsidiaries; “material technology projects” refers to projects which involve critical systems, the delivery of essential services to customers or counterparties, or compliance with regulatory requirements; “OTP or one-time password” refers to an alphanumeric or numeric code represented by a minimum of 6 characters or digits which is valid only for single use; “public cloud” refers to a fully virtualised environment in which a service provider makes resources such as platforms, applications or storage available to the public over the Internet via a logically separated multi-tenant architecture; 1 For ease of reference, an “eligible issuer of e-money” is defined as an approved issuer of electronic money with substantial market presence based on the criteria set out in Appendix 1 of the policy document on Interoperable Credit Transfer Framework. Risk Management in Technology 6 of 67 Issued on: 1 June 2023 “production data centre” refers to any facility which hosts active critical production application systems irrespective of location; "recovery data centre" refers to a facility that a financial institution plans to activate to recover and restore its IT applications and operations upon failure of its production data centre irrespective of location; “senior management” refers to the Chief Executive Officer (CEO) and senior officers; “third party service provider” refers to an internal group affiliate or external entity providing technology-related functions or services that involve the transmission, processing, storage or handling of confidential information pertaining to the financial institution or its customers. This includes cloud computing software, platform and infrastructure service providers; “cloud service provider” refers to a third party service provider who provides cloud services to financial institutions. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with any relevant legal instruments, policy documents, guidelines etc. issued by the Bank, including any amendments and reissuances thereafter, in particular— (a) Policy Document on Risk Governance issued on 1 March 2013 ; (b) Policy Document on Compliance issued on 10 May 2016; (c) Policy Document on Outsourcing issued on 23 October 2019; (d) Policy Document on Operational Risk issued on 10 May 2016; (e) Policy Document on Operational Risk Reporting Requirement – Operational Risk Integrated Online Network (ORION) issued on 25 February 2021; (f) Policy Document on Introduction of New Products issued on 7 March 2014; (g) Policy Document on Interoperable Credit Transfer Framework issued on 23 December 2019; (h) Policy Document on Business Continuity Management issued on 19 December 2022; (i) Provisions under paragraphs 21, 22 and 26 of the Guidelines on the Provision of Electronic Banking (e-banking) Services by Financial Institutions issued on 30 March 2010; (j) Guidelines on Data Management and MIS Framework issued on 23 October 2008; and (k) Guidelines on Data Management and MIS Framework for Development Financial Institutions issued on 5 November 2012. 7 Policy documents and circulars superseded 7.1 This policy document supersedes the following circulars, guidelines and policy documents: Risk Management in Technology 7 of 67 Issued on: 1 June 2023 (a) Guidelines on Management of IT Environment (GPIS 1) issued in May 2004; (b) Circular on Prior Notification by Licensed Institutions for External System Interfaces issued on 22 November 2010; (c) Preparedness against Distributed Denial of Service Attack issued on 17 October 2011; (d) Managing Inherent Risk of Internet Banking Kiosks issued on 5 December 2011; (e) Circular on Managing Risks of Malware Attacks on Automated Teller Machine (ATM) issued on 3 October 2014; (f) Managing Cyber Risk Circular issued on 31 July 2015; (g) Managing Cyber Risks on Remote Desktop Protocol Circular issued on 20 July 2016; (h) Revocation of Prior Notification by Licensed Institutions for External System Interfaces issued on 1 June 2017; (i) Guidelines on the Provision of Electronic Banking (e-banking) Services by Financial Institutions, except for the provisions under paragraphs 21, 22 and 26 issued on 18 Nov 2019; (j) Circular on Internet Takaful issued on 10 Jan 2019; (k) Letter to CEO dated 31 October 2017 entitled “Immediate Measures for Managing identification of Counterfeit Malaysian Currency Notes at Deposit-Accepting Self Service Terminals (SST)”; (l) Letter to CEO dated 7 November 2017 entitled “Guidelines on the Provision of Electronic Banking (e-banking) Services by Financial Institutions (“Guidelines”) – Specification Pursuant to the Financial Services Act 2013 (“FSA”), Islamic Financial Services Act 2013 (“IFSA”) and Development Financial Institutions Act 2002 (“DFIA”)”; (m) Letter to CEO dated 10 November 2017 entitled “Storage and Transportation of Sensitive Data in Removable Media”; (n) Letter to CEO dated 17 May 2018 entitled “Guidelines on Internet Insurance (Consolidated) (“Guidelines”) and Circular on Internet Takaful (“the Circular’) – Specification Pursuant to the Financial Services Act 2013 (“FSA”) and Islamic Financial Services Act 2013 (“IFSA”)”; (o) Letter to CEO dated 11 December 2018 entitled “Leveraging on cloud services and upliftment of mobile banking condition”; (p) Guidelines on Internet Insurance (Consolidated) issued on 10 January 2019; (q) Letter to CEO dated 18 November 2019 entitled "Guidelines on the Provision of Electronic Banking (e-banking) Services by Financial Institutions, Guidelines on Internet Insurance (Consolidated), Circular on Internet Takaful - Specification Pursuant to the Financial Services Act 2013 ("FSA"), Islamic Financial Services Act 2013 ("IFSA") and the Development Financial Institutions Act 2002 ("DFIA")”; and (r) Policy Document on Risk Management in Technology (RMiT) issued on 1 January 2020 except for paragraphs 10.49, 10.50, 10.51 and 10.52 which shall remain applicable until 31 May 2024 in respect of financial institutions described in paragraph 4.1(a) and (b). Risk Management in Technology 8 of 67 Issued on: 1 June 2023 PART B POLICY REQUIREMENTS 8 Governance Responsibilities of the Board of Directors S 8.1 The board must establish and approve the technology risk appetite which is aligned with the financial institution’s risk appetite statement. In doing so, the board must approve the corresponding risk tolerances for technology-related events and ensure key performance indicators and forward-looking risk indicators are in place to monitor the financial institution’s technology risk against its approved risk tolerance. The board must ensure senior management provides regular updates on the status of these indicators together with sufficiently detailed information on key technology risks and critical technology operations to facilitate strategic decision-making. S 8.2 The board must ensure and oversee the adequacy of the financial institution’s IT and cybersecurity strategic plans covering a period of no less than three years. These plans shall address the financial institution’s requirements on infrastructure, control measures to mitigate IT and cyber risk and financial and non-financial resources, which are commensurate with the complexity of the financial institution’s operations and changes in the risk profile as well as the business environment. These plans shall be periodically reviewed, at least once every three years. S 8.3 The board shall be responsible to oversee the effective implementation of a sound and robust technology risk management framework (TRMF) and cyber resilience framework (CRF), as required to be developed under paragraphs 9.1 and 11.2, for the financial institution to ensure the continuity of operations and delivery of financial services. The TRMF is a framework to safeguard the financial institution’s information infrastructure, systems and data, whilst the CRF is a framework for ensuring the financial institution’s cyber resilience. The board must ensure that the financial institution’s TRMF and CRF remain relevant on an ongoing basis. The board must also periodically review and affirm the TRMF and CRF, at least once every three years to guide the financial institution’s management of technology risks. S 8.4 The board must designate a board-level committee2 which shall be responsible for supporting the board in providing oversight over technology- related matters. Among other things, the committee shall review the technology-related frameworks including the requirements spelt out in paragraphs 8.1 through 8.3, for the board’s approval, and ensure that risk assessments undertaken in relation to material technology applications submitted to the Bank are robust and comprehensive. 2 The board of a financial institution may either designate an existing board committee or establish a separate committee for this purpose. Where such a committee is separate from the Board Risk Committee (BRC), there must be appropriate interface between this committee and the BRC on technology risk-related matters to ensure effective oversight of all risks at the enterprise level. Risk Management in Technology 9 of 67 Issued on: 1 June 2023 G 8.5 To promote effective technology discussions at the board level, the composition of the board and the designated board-level committee should include at least a member with technology experience and competencies. S 8.6 Given the rapidly evolving cyber threat landscape, the board shall allocate sufficient time to discuss cyber risks and related issues, including the strategic and reputational risks associated with a cyber-incident. This shall be supported by input from external experts as appropriate. The board must also ensure its continuous engagement in cybersecurity preparedness, education and training. S 8.7 The board audit committee (BAC) is responsible for ensuring the effectiveness of the internal technology audit function. This includes ensuring the adequate competence of the audit staff to perform technology audits. The BAC shall review and ensure appropriate audit scope, procedures and frequency of technology audits. The BAC must also ensure effective oversight over the prompt closure of corrective actions to address technology control gaps. Responsibilities of the senior management S 8.8 A financial institution’s senior management must translate the board-approved TRMF and CRF into specific policies and procedures that are consistent with the approved risk appetite and risk tolerance and supported by effective reporting and escalation procedures. S 8.9 The senior management must establish a cross-functional committee to provide guidance on the financial institution’s technology plans and operations. The members of the committee must include senior management from both technology functions and major business units. The committee’s responsibilities shall include the following: (a) oversee the formulation and effective implementation of the strategic technology plan and associated technology policies and procedures; (b) provide timely updates to the board on key technology matters3; and (c) approve any deviation from technology-related policies after having carefully considered a robust assessment of related risks. Material deviations shall be reported to the board. S 8.10 Senior management must ensure the adequate allocation of resources to maintain robust technology systems and appropriately skilled and competent staff to support the effective management of technology risk. S 8.11 For large financial institutions, senior management must embed appropriate oversight arrangements within the technology function to support the enterprise-wide oversight of technology risk. These arrangements must provide for designated staff responsible for the identification, assessment and 3 Key technology matters include updates on critical systems’ performance, significant IT and cyber- incidents, management of technology obsolescence risk, status of patch deployment activities for critical technology infrastructure, proposals for and progress of strategic technology projects, performance of critical technology outsourcing activities and utilisation of the technology budget. Risk Management in Technology 10 of 67 Issued on: 1 June 2023 mitigation of technology risks who do not engage in day-to-day technology operations. S 8.12 For the purpose of paragraph 8.11 and all other requirements applicable to large financial institutions under this policy document, each financial institution shall conduct a self-assessment on whether it is a large financial institution in accordance with the definition in paragraph 5.2. The self-assessment shall take into account– (a) the complexity of the financial institution’s operations, having particular regard to the interconnectedness of its operations with other financial institutions, customers and counterparties that are driven by technology; (b) the number and size of the financial institution’s significant business lines together with its market share4 (e.g. in terms of assets, liabilities, revenue and premiums); (c) the number of subsidiaries, branches and agents; and (d) other business considerations that could give rise to technology risk. S 8.13 Notwithstanding the self-assessment in paragraph 8.12, the Bank may designate a financial institution as a large financial institution and such financial institutions shall comply with all requirements in this policy document applicable to a large financial institution. 9 Technology Risk Management S 9.1 A financial institution must ensure that the TRMF is an integral part of the financial institution’s enterprise risk management framework (ERM). S 9.2 The TRMF must include the following: (a) clear definition of technology risk; (b) clear responsibilities assigned for the management of technology risk at different levels and across functions, with appropriate governance and reporting arrangements; (c) the identification of technology risks to which the financial institution is exposed, including risks from the adoption of new or emerging technology; (d) risk classification of all information assets/systems based on its criticality; (e) risk measurement and assessment approaches and methodologies; (f) risk controls and mitigations; and (g) continuous monitoring to timely detect and address any material risks. S 9.3 A financial institution must establish an independent enterprise-wide technology risk management function which is responsible for— 4 Size is an indicator of the potential systemic impact that any failure or breach of the financial institution’s IT systems may have on the broader financial system. When determining the significance of its size, the financial institution shall consider the extent to which the broader market segment may be unable to access relevant financial services in the event of a disruption to its systems. It should also consider the extent to which the operations of other institutions may be disrupted due to a reliance on services provided by the financial institution that may not be immediately substitutable. Risk Management in Technology 11 of 67 Issued on: 1 June 2023 (a) implementing the TRMF and CRF; (b) advising on critical technology projects and ensuring critical issues that may have an impact on the financial institution’s risk tolerance are adequately deliberated or escalated in a timely manner; and (c) providing independent views to the board and senior management on third party assessments5, where necessary. S 9.4 A financial institution must designate a Chief Information Security Officer (CISO), by whatever name called, to be responsible for the technology risk management function of the financial institution. The financial institution must ensure that the CISO has sufficient authority, independence and resources6. The CISO shall— (a) be independent from day-to-day technology operations; (b) keep apprised of current and emerging technology risks which could potentially affect the financial institution’s risk profile; and (c) be appropriately certified. S 9.5 The CISO is responsible for ensuring the financial institution’s information assets and technologies are adequately protected, which includes— (a) formulating appropriate policies for the effective implementation of TRMF and CRF; (b) enforcing compliance with these policies, frameworks and other technology-related regulatory requirements; and (c) advising senior management on technology risk and security matters, including developments in the financial institution’s technology security risk profile in relation to its business and operations. 10 Technology Operations Management Technology Project Management S 10.1 A financial institution must establish appropriate governance requirements commensurate with the risk and complexity7 of technology projects undertaken. This shall include project oversight roles and responsibilities, authority and reporting structures, and risk assessments throughout the project life cycle. S 10.2 The risk assessments shall identify and address the key risks arising from the implementation of technology projects. These include the risks that could 5 Relevant third party assessments may include the Data Centre Risk Assessment (DCRA), Network Resilience and Risk Assessment (NRA) and independent assurance for introduction of new or enhanced digital services. 6 A financial institution’s CISO may take guidance from the expertise of a group-level CISO, in or outside of Malaysia, and may also hold other roles and responsibilities. Such designated CISO shall be accountable for and serve as the point of contact with the Bank on the financial institution's technology- related matters, including managing entity-specific risks, supporting prompt incident response and reporting to the financial institution’s board. 7 For example, large-scale integration projects or those involving critical systems should be subject to more stringent project governance requirements such as more frequent reporting to the board and senior management, more experienced project managers and sponsors, more frequent milestone reviews and independent quality assurance at major project approval stages. Risk Management in Technology 12 of 67 Issued on: 1 June 2023 threaten successful project implementation and the risks that a project failure will lead to a broader impact on the financial institution's operational capabilities. At a minimum, due regard shall be given to the following areas: (a) the adequacy and competency of resources including those of the vendor to effectively implement the project. This shall also take into consideration the number, size and duration of significant technology projects already undertaken concurrently by the financial institution; (b) the complexity of systems to be implemented such as the use of unproven or unfamiliar technology and the corresponding risks of integrating the new technology into existing systems, managing multiple vendor- proprietary technologies, large-scale data migration or cleansing efforts and extensive system customisation; (c) the adequacy and configuration of security controls throughout the project life cycle to mitigate cybersecurity breaches or exposure of confidential data; (d) the comprehensiveness of the user requirement specifications to mitigate risks from extensive changes in project scope or deficiencies in meeting business needs; (e) the robustness of system and user testing strategies to reduce risks of undiscovered system faults and functionality errors; (f) the appropriateness of system deployment and fallback strategies to mitigate risks from prolonged system stability issues; and (g) the adequacy of disaster recovery operational readiness following the implementation of new or enhanced systems. S 10.3 The board and senior management must receive and review timely reports on the management of these risks on an ongoing basis throughout the implementation of significant projects. System Development and Acquisition G 10.4 A financial institution should establish an enterprise architecture framework (EAF) that provides a holistic view of technology throughout the financial institution. The EAF is an overall technical design and high-level plan that describes the financial institution’s technology infrastructure, systems’ inter- connectivity and security controls. The EAF facilitates the conceptual design and maintenance of the network infrastructure, related technology controls and policies, and serves as a foundation on which financial institutions plan and structure system development and acquisition strategies to meet business goals. S 10.5 A financial institution must establish clear risk management policies and practices for the key phases of the system development life cycle (SDLC) encompassing system design, development, testing, deployment, change management, maintenance and decommissioning. Such policies and practices must also embed security and relevant enterprise architecture considerations into the SDLC to ensure confidentiality, integrity and availability Risk Management in Technology 13 of 67 Issued on: 1 June 2023 of data8. The policies and practices must be reviewed at least once every three years to ensure that they remain relevant to the financial institution’s environment. G 10.6 A financial institution is encouraged to deploy automated tools for software development, testing, software deployment, change management, code scanning and software version control to support more secure systems development. S 10.7 A financial institution shall consider the need for diversity9 in technology to enhance resilience by ensuring critical systems infrastructure are not excessively exposed to similar technology risks. S 10.8 A financial institution must establish a sound methodology for rigorous system testing prior to deployment. The testing shall ensure that the system meets user requirements and performs robustly. Where sensitive test data is used, the financial institution must ensure proper authorisation procedures and adequate measures to prevent their unauthorised disclosure are in place. G 10.9 The scope of system testing referred to in paragraph 10.8 should include unit testing, integration testing, user acceptance testing, application security testing, stress and regression testing, and exception and negative testing, where applicable. S 10.10 A financial institution must ensure any changes to the source code of critical systems are subject to adequate source code reviews to ensure code is secure and was developed in line with recognised coding practices prior to introducing any system changes. S 10.11 In relation to critical systems that are developed and maintained by vendors, a financial institution must ensure the source code continues to be readily accessible and secured from unauthorised access. S 10.12 A financial institution shall physically segregate the production environment from the development and testing environment for critical systems. Where a financial institution is relying on a cloud environment, the financial institution shall ensure that these environments are not running on the same virtual host. S 10.13 A financial institution must establish appropriate procedures to independently review and approve system changes. The financial institution must also establish and test contingency plans in the event of unsuccessful implementation of material changes to minimise any business disruption. S 10.14 Where a financial institution’s IT systems are managed by third party service providers, the financial institution shall ensure, including through contractual obligations, that the third party service providers provide sufficient notice to the 8 The security considerations shall include ensuring appropriate segregation of duties throughout the SDLC. 9 Diversity in technology may include the use of different technology architecture designs and applications, technology platforms and network infrastructure. Risk Management in Technology 14 of 67 Issued on: 1 June 2023 financial institution before any changes are undertaken that may impact the IT systems. S 10.15 When decommissioning critical systems, a financial institution must ensure minimal adverse impact on customers and business operations. This includes establishing and testing contingency plans in the event of unsuccessful system decommissioning. Cryptography S 10.16 A financial institution must establish a robust and resilient cryptography policy to promote the adoption of strong cryptographic controls for protection of important data and information. This policy, at a minimum, shall address requirements for: (a) the adoption of industry standards for encryption algorithms, message authentication, hash functions, digital signatures and random number generation; (b) the adoption of robust and secure processes in managing cryptographic key lifecycles which include generation, distribution, renewal, usage, storage, recovery, revocation and destruction; (c) the periodic review, at least every three years, of existing cryptographic standards and algorithms in critical systems, external linked or transactional customer-facing applications to prevent exploitation of weakened algorithms or protocols; and (d) the development and testing of compromise-recovery plans in the event of a cryptographic key compromise. This must set out the escalation process, procedures for keys regeneration, interim measures, changes to business-as-usual protocols and containment strategies or options to minimise the impact of a compromise. S 10.17 A financial institution shall ensure clear senior-level roles and responsibilities are assigned for the effective implementation of the cryptographic policy. S 10.18 A financial institution must conduct due diligence and evaluate the cryptographic controls associated with the technology used in order to protect the confidentiality, integrity, authentication, authorisation and non-repudiation of information. Where a financial institution does not generate its own encryption keys, the financial institution shall undertake appropriate measures to ensure robust controls and processes are in place to manage encryption keys. Where this involves a reliance on third party assessments10, the financial institution shall consider whether such reliance is consistent with the financial institution’s risk appetite and tolerance. A financial institution must also give due regard to the system resources required to support the cryptographic controls and the risk of reduced network traffic visibility of data that has been encrypted. 10 For example, where the financial institution is not able to perform its own validation on embedded cryptographic controls due to the proprietary nature of the software or confidentiality constraints. Risk Management in Technology 15 of 67 Issued on: 1 June 2023 S 10.19 A financial institution must ensure cryptographic controls are based on the effective implementation of suitable cryptographic protocols. The protocols shall include secret and public cryptographic key protocols, both of which shall reflect a high degree of protection to the applicable secret or private cryptographic keys. The selection of such protocols must be based on recognised international standards and tested accordingly. Commensurate with the level of risk, secret cryptographic key and private-cryptographic key storage and encryption/decryption computation must be undertaken in a protected environment, supported by a hardware security module (HSM) or trusted execution environment (TEE). S 10.20 A financial institution shall store public cryptographic keys in a certificate issued by a certificate authority as appropriate to the level of risk. Such certificates associated with customers shall be issued by recognised certificate authorities. The financial institution must ensure that the implementation of authentication and signature protocols using such certificates are subject to strong protection to ensure that the use of private cryptographic keys corresponding to the user certificates are legally binding and irrefutable. The initial issuance and subsequent renewal of such certificates must be consistent with industry best practices and applicable legal/regulatory specifications. Data Centre Resilience Data Centre Infrastructure S 10.21 A financial institution must specify the resilience and availability objectives of its data centres which are aligned with its business needs. The network infrastructure must be designed to be resilient, secure and scalable. Potential data centre failures or disruptions must not significantly degrade the delivery of its financial services or impede its internal operations. S 10.22 A financial institution must ensure production data centres are concurrently maintainable. This includes ensuring that production data centres have redundant capacity components and distribution paths serving the computer equipment. S 10.23 In addition to the requirement in paragraph 10.22, large financial institutions are also required to ensure recovery data centres are concurrently maintainable. S 10.24 A financial institution shall host critical systems in a dedicated space intended for production data centre usage. The dedicated space must be physically secured from unauthorised access and is not located in a disaster-prone area. A financial institution must also ensure there is no single point of failure (SPOF) in the design and connectivity for critical components of the production data centres, including hardware components, electrical utility, thermal management and data centre infrastructure. A financial institution must also ensure adequate maintenance, and holistic and continuous monitoring of these critical components with timely alerts on faults and indicators of potential issues. Risk Management in Technology 16 of 67 Issued on: 1 June 2023 S 10.25 A financial institution is required to appoint a technically competent external service provider to carry out a production data centre resilience and risk assessment (DCRA) and set proportionate controls aligned with the financial institution’s risk appetite. The assessment must consider all major risks and determine the current level of resilience of the production data centre. A financial institution must ensure the assessment is conducted at least once every three years or whenever there is a material change in the data centre infrastructure, whichever is earlier. The assessment shall, at a minimum, include a consideration of whether the requirements in paragraphs 10.22 to 10.24 have been adhered to. For data centres managed by third party service providers, a financial institution may rely on independent third party assurance reports provided such reliance is consistent with the financial institution’s risk appetite and tolerance, and the independent assurance has considered similar risks and meets the expectations in this paragraph for conducting the DCRA. The designated board-level committee must deliberate the outcome of the assessment. Data Centre Operations S 10.26 A financial institution must ensure its capacity needs are well-planned and managed with due regard to business growth plans. This includes ensuring adequate system storage, central processing unit (CPU) power, memory and network bandwidth. A financial institution shall involve both the technology stakeholders and the relevant business stakeholders within the financial institution in its development and implementation of capacity management plans. S 10.27 A financial institution must establish real-time monitoring mechanisms to track capacity utilisation and performance of key processes and services11. These monitoring mechanisms shall be capable of providing timely and actionable alerts to administrators. S 10.28 A financial institution must segregate incompatible activities in the data centre operations environment to prevent any unauthorised activity12. In the case where vendors’ or programmers’ access to the production environment is necessary, these activities must be properly authorised and monitored. S 10.29 A financial institution must establish adequate control procedures for its data centre operations, including the deployment of relevant automated tools for batch processing management to ensure timely and accurate batch processes. These control procedures shall also include procedures for implementing changes in the production system, error handling as well as management of other exceptional conditions. S 10.30 A financial institution is required to undertake an independent risk assessment of its end-to-end backup storage and delivery management to ensure that 11 For example, batch runs and backup processes for the financial institution’s application systems and infrastructure. 12 For example, system development activities must be segregated from data centre operations. Risk Management in Technology 17 of 67 Issued on: 1 June 2023 existing controls are adequate in protecting sensitive data at all times. A financial institution must also maintain a sufficient number of backup copies of critical data, the updated version of the operating system software, production programs, system utilities, all master and transaction files and event logs for recovery purposes. Backup media must be stored in an environmentally secure and access-controlled backup site. G 10.31 In regard to paragraph 10.30, a financial institution should also adopt the controls as specified in Appendix 1 or their equivalent to secure the storage and transportation of sensitive data in removable media. S 10.32 Where there is a reasonable expectation for immediate delivery of service to customers or dealings with counterparties, a financial institution must ensure that the relevant critical systems are designed for high availability with a cumulative unplanned downtime affecting the interface with customers or counterparties of not more than 4 hours on a rolling 12 months basis and a maximum tolerable downtime of 120 minutes per incident. Network Resilience S 10.33 A financial institution must design a reliable, scalable and secure enterprise network that is able to support its business activities, including future growth plans. S 10.34 A financial institution must ensure the network services for its critical systems are reliable and have no SPOF in order to protect the critical systems against potential network faults and cyber threats13. S 10.35 A financial institution must establish real-time network bandwidth monitoring processes and corresponding network service resilience metrics to flag any over utilisation of bandwidth and system disruptions due to bandwidth congestion and network faults. This includes traffic analysis to detect trends and anomalies. S 10.36 A financial institution must ensure network services supporting critical systems are designed and implemented to ensure the confidentiality, integrity and availability of data. S 10.37 A financial institution must establish and maintain a network design blueprint identifying all of its internal and external network interfaces and connectivity. The blueprint must highlight both physical and logical connectivity between network components and network segmentations. S 10.38 A financial institution must ensure sufficient and relevant network device logs are retained for investigations and forensic purposes for at least three years. 13 Measures implemented may include component redundancy, service diversity and alternate network paths. Risk Management in Technology 18 of 67 Issued on: 1 June 2023 S 10.39 A financial institution must implement appropriate safeguards to minimise the risk of a system compromise in one entity affecting other entities within the group. Safeguards implemented may include establishing logical network segmentation for the financial institution from other entities within the group. S 10.40 A financial institution is required to appoint a technically competent external service provider to carry out regular network resilience and risk assessments (NRA) and set proportionate controls aligned with its risk appetite. The assessment must be conducted at least once in three years or whenever there is a material change in the network design. The assessment must consider all major risks and determine the current level of resilience. This shall include an assessment of the financial institution’s adherence to the requirements in paragraphs 10.33 to 10.39. The designated board-level committee must deliberate the outcome of the assessment. Third Party Service Provider Management S 10.41 The board and senior management of the financial institution must exercise effective oversight and address associated risks when engaging third party service providers14 for critical technology functions and systems. Engagement of third party service providers, including engagements for independent assessments, does not in any way reduce or eliminate the principal accountabilities and responsibilities of financial institutions for the security and reliability of technology functions and systems. S 10.42 A financial institution must conduct proper due diligence on the third party service provider’s competency, system infrastructure and financial viability as relevant prior to engaging its services. In addition, an assessment shall be made of the third party service provider’s capabilities in managing the following specific risks ̶ (a) data leakage such as unauthorised disclosure of customer and counterparty information; (b) service disruption including capacity performance; (c) processing errors; (d) physical security breaches; (e) cyber threats; (f) over-reliance on key personnel; (g) mishandling of confidential information pertaining to the financial institution or its customers in the course of transmission, processing or storage of such information; and (h) concentration risk. S 10.43 A financial institution must establish service-level agreements (SLA) when engaging third party service providers. At a minimum, the SLA shall contain the following: (a) access rights for the regulator and any party appointed by the financial institution to examine any activity or entity of the financial institution. This 14 Financial institutions must adhere to the requirements in the Policy Document on Outsourcing for engagements with third party service providers that meet the definition of outsourcing arrangement as specified in the policy document. Risk Management in Technology 19 of 67 Issued on: 1 June 2023 shall include access to any record, file or data of the financial institution, including management information and the minutes of all consultative and decision-making processes; (b) requirements for the service provider to provide sufficient prior notice to financial institutions of any sub-contracting which is substantial; (c) a written undertaking by the service provider on compliance with secrecy provisions under relevant legislation. The SLA shall further clearly provide for the service provider to be bound by confidentiality provisions stipulated under the contract even after the engagement has ended; (d) arrangements for disaster recovery and backup capability, where applicable; (e) critical system availability; and (f) arrangements to secure business continuity in the event of exit or termination of the service provider. S 10.44 A financial institution must ensure its ability to regularly review the SLA with its third party service providers to take into account the latest security and technological developments in relation to the services provided. S 10.45 A financial institution must ensure its third party service providers comply with all relevant regulatory requirements prescribed in this policy document15. S 10.46 A financial institution must ensure data residing in third party service providers are recoverable in a timely manner. The financial institution shall ensure clearly defined arrangements with the third party service provider are in place to facilitate the financial institution’s immediate notification and timely updates to the Bank and other relevant regulatory bodies in the event of a cyber-incident. S 10.47 A financial institution must ensure the storage of its data is at least logically segregated from the other clients of the third party service provider. There shall be proper controls over and periodic review of the access provided to authorised users. S 10.48 A financial institution must ensure any critical system hosted by third party service providers have strong recovery and resumption capability and provisions to facilitate an orderly exit in the event of failure or unsatisfactory performance by the third party service provider. Cloud Services S 10.49 A financial institution must fully understand the inherent risk of adopting cloud services. In this regard, a financial institution is required to conduct a comprehensive risk assessment prior to cloud adoption which considers the inherent architecture of cloud services that leverages on the sharing of resources and services across multiple tenants over the Internet. The assessment must specifically address risks associated with the following: (a) sophistication of the deployment model; 15 This includes specific requirements for system development and acquisition, data centre operations, network resilience, technology security and cybersecurity, wherever applicable. Risk Management in Technology 20 of 67 Issued on: 1 June 2023 (b) migration of existing systems to cloud infrastructure; (c) location of cloud infrastructure including potential geo-political risks and legal risks that may impede compliance with any legal or regulatory requirements; (d) multi-tenancy or data co-mingling; (e) vendor lock-in and application portability or interoperability; (f) ability to customise security configurations of the cloud infrastructure to ensure a high level of data and technology system protection; (g) exposure to cyber-attacks via cloud service providers; (h) termination of a cloud service provider including the ability to secure the financial institution’s data following the termination; (i) demarcation of responsibilities, limitations and liability of the cloud service provider; and (j) ability to meet regulatory requirements and international standards on cloud computing on a continuing basis. G 10.50 For critical systems hosted on public cloud, a financial institution should consider common key risks and control measures as specified in Appendix 10. A financial institution that relies on alternative risk management practices that depart from the measures outlined in Appendix 10 should be prepared to explain and demonstrate to the Bank that these alternative practices are at least as effective as, or superior to, the measures in Appendix 10. S 10.51 A financial institution must implement appropriate safeguards on customer and counterparty information and proprietary data when using cloud services to protect against unauthorised disclosure and access. This shall include retaining ownership, control and management of all data pertaining to customer and counterparty information, proprietary data and services hosted on the cloud, including the relevant cryptographic keys management. Access Control S 10.52 A financial institution must implement an appropriate access controls policy for the identification, authentication and authorisation of users (internal and external users such as third party service providers). This must address both logical and physical technology access controls which are commensurate with the level of risk of unauthorised access to its technology systems. G 10.53 In observing paragraph 10.52, a financial institution should consider the following principles in its access control policy: (a) adopt a “deny all” access control policy for users by default unless explicitly authorised; (b) employ “least privilege” access rights or on a ‘need-to-have’ basis where only the minimum sufficient permissions are granted to legitimate users to perform their roles; (c) employ time-bound access rights which restrict access to a specific period including access rights granted to service providers; Risk Management in Technology 21 of 67 Issued on: 1 June 2023 (d) employ segregation of incompatible functions where no single person is responsible for an entire operation that may provide the ability to independently modify, circumvent, and disable system security features. This may include a combination of functions such as: (i) system development and technology operations; (ii) security administration and system administration; and (iii) network operation and network security; (e) employ dual control functions which require two or more persons to execute an activity; (f) adopt stronger authentication for critical activities including for remote access; (g) limit and control the use of the same user ID for multiple concurrent sessions; (h) limit and control the sharing of user ID and passwords across multiple users; and (i) control the use of generic user ID naming conventions in favour of more personally identifiable IDs. S 10.54 A financial institution must employ robust authentication processes to ensure the authenticity of identities in use. Authentication mechanisms shall be commensurate with the criticality of the functions and adopt at least one or more of these three basic authentication factors, namely, something the user knows (e.g. password, PIN), something the user possesses (e.g. smart card, security device) and something the user is (e.g. biometric characteristics, such as a fingerprint or retinal pattern). S 10.55 A financial institution shall periodically review and adapt its password practices to enhance resilience against evolving attacks. This includes the effective and secure generation of passwords. There must be appropriate controls in place to check the strength of the passwords created. G 10.56 Authentication methods that depend on more than one factor typically are more difficult to compromise than a single factor system. In view of this, financial institutions are encouraged to properly design and implement (especially in high-risk or ‘single sign-on’ systems) multi-factor authentication (MFA) that are more reliable and provide stronger fraud deterrents. G 10.57 A financial institution is encouraged to adopt dedicated user domains for selected critical functions, separate from the broader enterprise-wide user authentication system. S 10.58 A financial institution must establish a user access matrix to outline access rights, user roles or profiles, and the authorising and approving authorities. The access matrix must be periodically reviewed and updated. S 10.59 A financial institution must ensure— (a) access controls to enterprise-wide systems are effectively managed and monitored; and Risk Management in Technology 22 of 67 Issued on: 1 June 2023 (b) user activities in critical systems are logged for audit and investigations. Activity logs must be maintained for at least three years and regularly reviewed in a timely manner. S 10.60 In fulfilling the requirement under paragraph 10.59, large financial institutions are required to— (a) deploy an identity access management system to effectively manage and monitor user access to enterprise-wide systems; and (b) deploy automated audit tools to flag any anomalies. Patch and End-of-Life System Management S 10.61 A financial institution must ensure that critical systems are not running on outdated systems with known security vulnerabilities or end-of-life (EOL) technology systems. In this regard, a financial institution must clearly assign responsibilities to identified functions: (a) to continuously monitor and implement latest patch releases in a timely manner; and (b) identify critical technology systems that are approaching EOL for further remedial action. S 10.62 A large financial institution must establish dedicated resources to perform the functions under paragraph 10.61. S 10.63 A financial institution must establish a patch and EOL management framework which addresses among others the following requirements: (a) identification and risk assessment of all technology assets for potential vulnerabilities arising from undeployed patches or EOL systems; (b) conduct of compatibility testing for critical patches; (c) specification of turnaround time for deploying patches according to the severity of the patches; and (d) adherence to the workflow for end-to-end patch deployment processes including approval, monitoring and tracking of activities. Security of Digital Services S 10.64 A financial institution must implement robust technology security controls in providing digital services which assure the following: (a) confidentiality and integrity of customer and counterparty information and transactions; (b) reliability of services delivered via channels and devices with minimum disruption to services; (c) proper authentication of users or devices and authorisation of transactions; (d) sufficient audit trail and monitoring of anomalous transactions; (e) ability to identify and revert to the recovery point prior to incident or service disruption; and (f) strong physical control and logical control measures. Risk Management in Technology 23 of 67 Issued on: 1 June 2023 S 10.65 A financial institution must implement controls to authenticate and monitor all financial transactions. These controls, at a minimum, must be effective in mitigating man-in-the-middle attacks, transaction fraud, phishing and compromise of application systems and information. S 10.66 A financial institution must implement additional controls to authenticate devices and users, authorise transactions and support non-repudiation and accountability for high-risk transactions or transactions above RM10,000. These measures must include, at a minimum, the following: (a) ensure transactions are performed over secured channels such as the latest version of Transport Layer Security (TLS); (b) both client and host application systems must encrypt all confidential information prior to transmission over the network; (c) adopt MFA for transactions; (d) if OTP is used as a second factor, it must be dynamic and time-bound; (e) request users to verify details of the transaction prior to execution; (f) ensure secure user and session handling management; (g) be able to capture the location of origin and destination of each transaction; (h) implement strong mutual authentication between the users’ end-point devices and financial institutions’ servers, such as the use of the latest version of Extended Validation SSL certificate (EV SSL); and (i) provide timely notification to customers that is sufficiently descriptive of the nature of the transaction. S 10.67 A financial institution must ensure the MFA solution used to authenticate financial transactions are adequately secure, which includes the following: (a) binding of the MFA solution to the customer’s account; (b) activation of MFA must be subject to verification by the financial institution; and (c) timely notification to customers of any activation of and changes to the MFA solution via the customers’ verified communication channel. S 10.68 A financial institution must deploy MFA technology and channels that are more secure than unencrypted short messaging service (SMS). S 10.69 A financial institution shall deploy MFA solutions with stronger security controls for open third party fund transfer and open payment transactions with a value of RM10,000 and above. S 10.70 A financial institution must ensure that the security controls of MFA solutions includes adherence to the following requirements: (a) the MFA solution is resistant to interception or manipulation by any third party throughout the authentication process; (b) payer/sender must be made aware and prompted to confirm details of the identified beneficiary and amount of the transaction; (c) authentication code must be initiated and generated locally by the payer/sender using MFA; (d) authentication code generated by payer/sender must be specific to the confirmed identified beneficiary and amount; Risk Management in Technology 24 of 67 Issued on: 1 June 2023 (e) secure underlying technology must be established to ensure the authentication code accepted by the financial institution corresponds to the confirmed transaction details; and (f) notification must be provided to the payer/sender of the transaction. S 10.71 Where a financial institution deploys OTP as part of its stronger or enhanced MFA solutions, the following features must be implemented: (a) binding of the transaction details to the OTP generated by the device (e.g. beneficiary account number, amount of transaction); (b) generation of the OTP from the customer’s device and not from the bank’s server; and (c) requiring the customer to manually enter the generated OTP into the application. S 10.72 For financial transactions below RM10,000, a financial institution may decide on proportionate controls and authentication methods for transactions assessed by the financial institution to be of low risk. In undertaking the assessment, the financial institution must establish a set of criteria or factors that reflect the nature, size and characteristics of a financial transaction. Such criteria or factors must be consistent with the financial institution’s risk appetite and tolerance. The financial institution must periodically review the risk assessment criteria to ensure its continued relevance, having regard to the latest developments in cybersecurity risks and authentication technologies as well as fraud trends and incidents. S 10.73 Where a financial institution decides not to adopt MFA for financial transactions that are assessed to be of low risk, the financial institution must nevertheless implement adequate safeguards for such transactions which shall include at a minimum the following measures: (a) set appropriate limits on a per-transaction basis, and on a cumulative basis; (b) provide a convenient means for customers to reduce the limits described in paragraph (a) or to opt for MFA; (c) provide a convenient means for its customers to temporarily suspend their account in the event of suspected fraud; and (d) provide its customers with adequate notice of the safeguards set out in paragraphs (a) to (c). S 10.74 A financial institution must ensure sufficient and relevant digital service logs are retained for investigations and forensic purposes for at least three years. S 10.75 A financial institution must ensure that critical online payments and banking16 services have high availability with reasonable response time to customer actions. S 10.76 A financial institution must ensure that the use of more advanced technology to authenticate and deliver digital services such as biometrics, tokenisation 16 For example, Internet and mobile banking services. Risk Management in Technology 25 of 67 Issued on: 1 June 2023 and contactless communication17 comply with internationally recognised standards where available. The technology must be resilient against cyber threats18 including malware, phishing or data leakage. S 10.77 A financial institution must undertake a comprehensive risk assessment of the advanced technologies and the algorithms deployed in its digital services. Algorithms must be regularly reviewed and validated to ensure they remain appropriate and accurate. Where third party software is used, a financial institution may rely on relevant independent reports provided such reliance is consistent with the financial institution’s risk appetite and tolerance, and the nature of digital services provided by the financial institution which leverage on the technologies and algorithms. S 10.78 A financial institution must ensure authentication processes using biometric technology are secure, highly resistant to spoofing and have a minimal false acceptance rate to ensure confidentiality, integrity and non-repudiation of transactions. S 10.79 A financial institution must perform continuous surveillance to assess the vulnerability of the operating system and the relevant technology platform used for its digital delivery channels to security breaches and implement appropriate corresponding safeguards. At a minimum, a financial institution must implement sufficient logical and physical safeguards for the following channels: (a) self-service terminal (SST); (b) non-cash SST; (c) Internet banking; and (d) mobile application and devices. In view of the evolving threat landscape, these safeguards must be continuously reviewed and updated to protect against fraud and to secure the confidentiality and integrity of customer and counterparty information and transactions. G 10.80 In fulfilling paragraph 10.79, a financial institution should adopt the controls specified in the following Appendices for the respective digital delivery channel: (a) Appendix 2: Control Measures on Self-Service Terminals (SST); (b) Appendix 3: Control Measures on Internet Banking; and (c) Appendix 4: Control Measures on Mobile Application and Devices. 11 Cybersecurity Management Cyber Risk Management 17 Such as Quick Response (QR) code, Bar Code, Near Field Communication (NFC), Radio Frequency Identification (RFID), Wearables. 18 For example, in respect of QR payments, financial institutions shall implement safeguards within its respective mobile applications to detect and mitigate risks relating to QR code that may contain malware or links to phishing websites. Risk Management in Technology 26 of 67 Issued on: 1 June 2023 S 11.1 A financial institution must ensure that there is an enterprise-wide focus on effective cyber risk management to reflect the collective responsibility of business and technology lines for managing cyber risks. S 11.2 A financial institution must develop a CRF which clearly articulates the institution’s governance for managing cyber risks, its cyber resilience objectives and its risk tolerance, with due regard to the evolving cyber threat environment. Objectives of the CRF shall include ensuring operational resilience against extreme but plausible cyber-attacks. The framework must be able to support the effective identification, protection, detection, response, and recovery (IPDRR) of systems and data hosted on-premise or by third party service providers from internal and external cyber-attacks. S 11.3 The CRF must consist of, at a minimum, the following elements: (a) development of an institutional understanding of the overall cyber risk context in relation to the financial institution’s business and operations, its exposure to cyber risks and current cybersecurity posture; (b) identification, classification and prioritisation of critical systems, information, assets and interconnectivity (with internal and external parties) to obtain a complete and accurate view of the financial institution’s information assets, critical systems, interdependencies and cyber risk profile; (c) identification of cybersecurity threats and countermeasures including measures to contain reputational damage that can undermine confidence in the financial institution; (d) layered (defense-in-depth) security controls to protect its data, infrastructure and assets against evolving threats; (e) timely detection of cybersecurity incidents through continuous surveillance and monitoring; (f) detailed incident handling policies and procedures and a crisis response management playbook to support the swift recovery from cyber-incidents and contain any damage resulting from a cybersecurity breach; and (g) policies and procedures for timely and secure information sharing and collaboration with other financial institutions and participants in financial market infrastructure to strengthen cyber resilience. S 11.4 In addition to the requirements in paragraph 11.3, a large financial institution is required to— (a) implement a centralised automated tracking system to manage its technology asset inventory; and (b) establish a dedicated in-house cyber risk management function to manage cyber risks or emerging cyber threats. The cyber risk management function shall be responsible for the following: (i) perform detailed analysis on cyber threats, provide risk assessments on potential cyber-attacks and ensure timely review and escalation of all high-risk cyber threats to senior management and the board; and (ii) proactively identify potential vulnerabilities including those arising from infrastructure hosted with third party service providers through Risk Management in Technology 27 of 67 Issued on: 1 June 2023 the simulation of sophisticated “Red Team” attacks on its current security controls. Cybersecurity Operations S 11.5 A financial institution must establish clear responsibilities for cybersecurity operations which shall include implementing appropriate mitigating measures in the financial institution’s conduct of business that correspond to the following phases of the cyber-attack lifecycle: (a) reconnaissance; (b) weaponisation; (c) delivery; (d) exploitation; (e) installation; (f) command and control; and (g) exfiltration. G 11.6 Where relevant, a financial institution should adopt the control measures on cybersecurity as specified in Appendix 5 to enhance its resilience to cyber- attacks. S 11.7 A financial institution must deploy effective tools to support the continuous and proactive monitoring and timely detection of anomalous activities in its technology infrastructure. The scope of monitoring must cover all critical systems including the supporting infrastructure. S 11.8 A financial institution must ensure that its cybersecurity operations continuously prevent and detect any potential compromise of its security controls or weakening of its security posture. For large financial institutions, this must include performing a quarterly vulnerability assessment of external and internal network components that support all critical systems. S 11.9 A financial institution must conduct annual intelligence-led penetration tests on its internal and external network infrastructure as well as critical systems including web, mobile and all external-facing applications. The penetration testing shall reflect extreme but plausible cyber-attack scenarios based on emerging and evolving threat scenarios. A financial institution must engage suitably accredited penetration testers and service providers to perform this function. S 11.10 In addition to the requirement in paragraph 11.9, a large financial institution must undertake independent compromise assessments on the technology infrastructure of its critical systems at least annually and ensure the results of such assessments are escalated to senior management and the board in a timely manner. S 11.11 A financial institution must establish standard operating procedures (SOP) for vulnerability assessment and penetration testing (VAPT) activities. The SOP must outline the relevant control measures including ensuring the external Risk Management in Technology 28 of 67 Issued on: 1 June 2023 penetration testers are accompanied on-premises at all times, validating the event logs and ensuring data purging. S 11.12 A financial institution must ensure the outcome of the penetration testing exercise is properly documented and escalated in a timely manner to senior management to identify and monitor the implementation of relevant remedial actions. Distributed Denial of Service (DDoS) S 11.13 A financial institution must ensure its technology systems and infrastructure, including critical systems outsourced to or hosted by third party service providers, are adequately protected against all types of DDoS attacks (including volumetric, protocol and application layer attacks) through the following measures: (a) subscribing to DDoS mitigation services, which include automatic ‘clean pipe’ services to filter and divert any potential malicious traffic away from the network bandwidth; (b) regularly assessing the capability of the provider to expand network bandwidth on-demand including upstream provider capability, adequacy of the provider’s incident response plan and its responsiveness to an attack; and (c) implementing mechanisms to mitigate against Domain Name Server (DNS) based layer attacks. Data Loss Prevention (DLP) S 11.14 A financial institution must establish a clear DLP strategy and processes in order to ensure that proprietary and customer and counterparty information is identified, classified and secured. At a minimum, a financial institution must- (a) ensure that data owners are accountable and responsible for identifying and appropriately classifying data; (b) undertake a data discovery process prior to the development of a data classification scheme and data inventory; and (c) ensure that data accessible by third parties is clearly identified and policies must be implemented to safeguard and control third party access. This includes adequate contractual agreements to protect the interests of the financial institution and its customers. S 11.15 A financial institution must design internal control procedures and implement appropriate technology in all applications and access points to enforce DLP policies and trigger any policy violations. The technology deployed must cover the following: (a) data in-use – data being processed by IT resources; (b) data in-motion – data being transmitted on the network; and (c) data at-rest – data stored in storage mediums such as servers, backup media and databases. Risk Management in Technology 29 of 67 Issued on: 1 June 2023 S 11.16 A financial institution must implement appropriate policies for the removal of data on technology equipment, mobile devices or storage media to prevent unauthorised access to data. Security Operations Centre (SOC) S 11.17 A financial institution must ensure its SOC, whether managed in-house or by third party service providers, has adequate capabilities for proactive monitoring of its technology security posture. This shall enable the financial institution to detect anomalous user or network activities, flag potential breaches and establish the appropriate response supported by skilled resources based on the level of complexity of the alerts. The outcome of the SOC activities shall also inform the financial institution’s reviews of its cybersecurity posture and strategy. S 11.18 The SOC must be able to perform the following functions: (a) log collection and the implementation of an event correlation engine with parameter-driven use cases such as Security Information and Event Management (SIEM); (b) incident coordination and response; (c) vulnerability management; (d) threat hunting; (e) remediation functions including the ability to perform forensic artifact handling, malware and implant analysis; and (f) provision of situational awareness to detect adversaries and threats including threat intelligence analysis and operations and monitoring indicators of compromise (IOC). This includes advanced behavioural analysis to detect signature-less and file-less malware and to identify anomalies that may pose security threats including at endpoints and network layers. S 11.19 A financial institution must ensure that the SOC provides a regular threat assessment report, which shall include, at a minimum, the following: (a) trends and statistics of cyber events and incidents categorised by type of attacks, target and source IP addresses, location of data centres and criticality of applications; and (b) intelligence on emerging and potential threats including tactics, techniques and procedures (TTP). For large financial institutions, such reports shall be provided on a monthly basis. S 11.20 A financial institution must subscribe to reputable threat intelligence services to identify emerging cyber threats, uncover new cyber-attack techniques and support the implementation of countermeasures. S 11.21 A financial institution must ensure the following: (a) the SOC is located in a physically secure environment with proper access controls; (b) the SOC operates on a 24x7 basis with disaster recovery capability to ensure continuous availability; and Risk Management in Technology 30 of 67 Issued on: 1 June 2023 (c) the SOC has a holistic and end-to-end view of the financial institution’s infrastructure including internal and external facing perimeters. Cyber Response and Recovery S 11.22 A financial institution must establish comprehensive cyber crisis management policies and procedures that incorporate cyber-attack scenarios and responses in the organisation’s overall crisis management plan, escalation processes, business continuity and disaster recovery planning. This includes developing a clear communication plan for engaging shareholders, regulatory authorities, customers and employees in the event of a cyber-incident. S 11.23 A financial institution must establish and implement a comprehensive Cyber Incident Response Plan (CIRP). The CIRP must address the following: (a) Preparedness Establish a clear governance process, reporting structure and roles and responsibilities of the Cyber Emergency Response Team (CERT) as well as invocation and escalation procedures in the event of an incident; (b) Detection and analysis Ensure effective and expedient processes for identifying points of compromise, assessing the extent of damage and preserving sufficient evidence for forensics purposes; (c) Containment, eradication and recovery Identify and implement remedial actions to prevent or minimise damage to the financial institution, remove the known threats and resume business activities; and (d) Post-incident activity Conduct post-incident review incorporating lessons learned and develop long-term risk mitigations. S 11.24 A financial institution must ensure that relevant CERT members are conversant with the incident response plan and handling procedures and remain contactable at all times. A key contact person or an alternate must be appointed to liaise with the Bank during an incident. S 11.25 A financial institution must conduct an annual cyber drill exercise to test the effectiveness of its CIRP, based on various current and emerging threat scenarios (e.g. social engineering), with the involvement of key stakeholders including members of the board, senior management and relevant third party service providers. The test scenarios must include scenarios designed to test: (a) the effectiveness of escalation, communication and decision-making processes that correspond to different impact levels of a cyber-incident; and (b) the readiness and effectiveness of CERT and relevant third party service providers in supporting the recovery process. Risk Management in Technology 31 of 67 Issued on: 1 June 2023 S 11.26 A financial institution must immediately notify the Bank of any cyber-incidents affecting the institution. Upon completion of the investigation, the financial institution is also required to submit a report on the incident through ORION19. G 11.27 Financial institutions are strongly encouraged to collaborate and cooperate closely with relevant stakeholders and competent authorities in combating cyber threats and sharing threat intelligence and mitigation measures. 12 Technology Audit S 12.1 A financial institution must ensure that the scope, frequency, and intensity of technology audits are commensurate with the complexity, sophistication and criticality of technology systems and applications. S 12.2 The internal audit function must be adequately resourced with relevant technology audit competencies and sound knowledge of the financial institution’s technology processes and operations. S 12.3 A financial institution must ensure its internal technology audit staff are professionally certified and adequately conversant with the developing sophistication of the financial institution’s technology systems and delivery channels. S 12.4 In addition to paragraph 12.2, a large financial institution must establish a dedicated internal technology audit function that has specialised technology audit competencies to undertake technology audits. S 12.5 A financial institution must establish a technology audit plan that provides appropriate coverage of critical technology services, third party service providers, material external system interfaces, delayed or prematurely terminated critical technology projects and post-implementation review of new or material enhancements of technology services. G 12.6 The internal audit function (in the case of paragraph 12.2) and the dedicated internal technology audit function (in the case of paragraph 12.4) may be enlisted to provide advice on compliance with and adequacy of control processes during the planning and development phases of new major products, systems or technology operations. In such cases, the technology auditors participating in this capacity should carefully consider whether such an advisory or consulting role would materially impair their independence or objectivity in performing post-implementation reviews of the products, systems and operations concerned. 13 Internal Awareness and Training S 13.1 A financial institution must provide adequate and regular technology and cybersecurity awareness education for all staff in undertaking their respective roles and measure the effectiveness of its education and awareness programmes. This cybersecurity awareness education must be conducted at 19 Operational Risk Integrated Online Network Risk Management in Technology 32 of 67 Issued on: 1 June 2023 least annually by the financial institution and must reflect the current cyber threat landscape. S 13.2 A financial institution must provide adequate and continuous training for staff involved in technology operations, cybersecurity and risk management in order to ensure that the staff are competent to effectively perform their roles and responsibilities. S 13.3 In fulfilling the requirements under paragraph 13.2, a large financial institution shall ensure the staff working on day-to-day IT operations such as IT security, project management and cloud operations are also suitably certified. S 13.4 A financial institution must provide its board members with regular training and information on technology developments to enable the board to effectively discharge its oversight role. PART C REGULATORY PROCESS 14 Notification for Technology-Related Applications S 14.1 A financial institution must notify the Bank in accordance with the requirements in paragraphs 14.2 to 14.7 prior to conducting e-banking, Internet insurance and Internet takaful services, including introducing new technology relating to e-banking, Internet insurance and Internet takaful20. S 14.2 A financial institution offering e-banking, Internet insurance and Internet takaful services for the first time must submit the following information in the notification to the Bank: (a) risks identified and strategies to manage such risks. This includes specific accountabilities, policies and controls to address risks; (b) security arrangements and controls; (c) significant terms and conditions for e-banking, Internet insurance and Internet takaful services; (d) client charter on e-banking, Internet insurance and Internet takaful services; (e) privacy policy statement; and (f) any outsourcing or website link arrangements, or strategic alliances or partnerships with third parties that have been finalised. 20 For the purpose of this Part ̶ “e-banking” means the provision of banking products and services through electronic channels. E-banking includes banking via the Internet, phone, automated teller machines (ATM), and any other electronic channel; “Internet insurance” means the use of the Internet as a channel to transact insurance business with customers or as a platform for transmission of customers’ information; “Internet takaful” means the use of the Internet as a channel to transact takaful business with customers or as a platform for transmission of customers’ information. Risk Management in Technology 33 of 67 Issued on: 1 June 2023 S 14.3 In introducing any enhancement to existing e-banking, Internet insurance and Internet takaful services, the financial institution is required to follow the notification process based on whether the enhancement is explicitly listed in Appendix 6 (Positive List for Enhancement to Electronic Banking, Internet Insurance and Internet Takaful Services). The list may be updated as and when there are changes to the risk profile and risk management of the technology landscape. S 14.4 For any enhancements listed in Appendix 6, the financial institution must submit the notification together with the following information: (a) description of the enhancements to the existing technologies; and (b) risk assessment of the proposed enhancements, including the impact and measures to mitigate identified risks. S 14.5 For the introduction of new services, and any enhancements to existing services not listed in Appendix 6, the financial institution is required to undertake the following measures prior to notifying the Bank: (a) engage an independent external party to provide assurance that the financial institution has addressed the technology risks and security controls associated with the e-banking, Internet insurance and Internet takaful services or any material enhancement to the existing e-banking, Internet insurance and Internet takaful services. The format of the assurance shall be as set out in Appendix 7; and (b) provide a confirmation by the CISO, senior management officer or the chairman of the board or designated board-level committee stipulated in paragraph 8.4 of the financial institution’s readiness to provide e-banking, Internet insurance and Internet takaful services or implement any material enhancement to the e-banking, Internet insurance and Internet takaful services. The format of the confirmation shall be as set out in Appendix 8. S 14.6 A financial institution must ensure that the independent external party providing the assurance is competent and has a good track record. The assurance shall address the matters covered in, and comply with, Appendix 9. G 14.7 For any enhancements that do not materially alter the prior assessments and representations made by a financial institution to the Bank, a notification under paragraph 14.4 and Appendix 6 is not required. S 14.8 A financial institution must have the relevant information pertaining to any enhancements that do not materially alter the prior assessments and representations made by a financial institution to the Bank readily available and submit the same to the Bank as and when required by the Bank within the period specified by the Bank. G 14.9 A financial institution may offer the services or implement any enhancement to the services immediately upon submission of the notification under paragraph 14.1 and compliance with the requirements in paragraphs 14.2 to 14.6. Risk Management in Technology 34 of 67 Issued on: 1 June 2023 15 Consultation and Notification related to Cloud Services S 15.1 A financial institution is required to consult the Bank prior to the first-time adoption of public cloud for critical systems. During the consultation, the financial institution must demonstrate that specific risks associated with the use of cloud services have been adequately considered and addressed to the satisfaction of the Bank, in order to proceed with the adoption of the public cloud for critical systems for the first time. The financial institution shall undertake the following prior to consulting the Bank on its adoption of public cloud for critical systems: (a) conduct a comprehensive risk assessment of the proposed cloud adoption, including the possible impact and measures to address and mitigate the identified risks as outlined in paragraph 10.49 and in Appendix 10. The financial institution shall also adopt the format of the Risk Assessment Report as per Appendix 7; (b) provide a confirmation by the CISO, senior management officer or the chairman of the board or designated board-level committee stipulated in paragraph 8.4 of the financial institution’s readiness to adopt public cloud for critical system. The format of the confirmation shall be as set out in Appendix 8; and (c) perform a third-party pre-implementation review on public cloud implementation that covers the areas set out in Appendix 10 and Part A of Appendix 9 for higher-risk public cloud services, such as when the cloud services involve the processing or storage of customer information, or if data will be transmitted across borders. S 15.2 A financial institution shall notify the Bank on any subsequent adoption of public cloud for critical system, by submitting the notification together with the necessary updates to all the information required under paragraph 15.1, subject to the financial institution having met and included the following requirements in the notification submitted to the Bank that the financial institution: (a) has consulted the Bank prior to adopting public cloud for critical systems for the first time in accordance with paragraph 15.1, with no concerns raised by the Bank during the first-time consultation; (b) has enhanced the technology risk management framework to manage cloud risks; (c) has established independent assurance on the cloud risk management framework; and (d) provided assurance to the Bank on the enhanced incident response to cater for adverse/unexpected events. G 15.3 For the avoidance of doubt, notification to the Bank under paragraph 15.2 is not required for any enhancement to existing cloud adoption that does not materially alter the prior assessments and representations made by a financial institution to the Bank. G 15.4 The Bank may at its discretion require a financial institution to consult the Bank under paragraph 15.1, notify the Bank under paragraph 15.2 or observe any Risk Management in Technology 35 of 67 Issued on: 1 June 2023 of the guidance in Appendix 10 and to explain any deviations from the guidance in Appendix 10 to the Bank, including for a non-critical system, where necessary as determined by the Bank. S 15.5 The financial institutions must ensure the roadmap for adoption of cloud services (for critical systems and non-critical systems) is included in the annual outsourcing plan submitted to the Bank in adherence to the requirements in the policy document on Outsourcing or IT Profile. The risk assessment as outlined in paragraph 10.49 must also be documented and made available for the Bank’s review as and when requested by the Bank. 16 Assessment and Gap Analysis S 16.1 A financial institution must perform a gap analysis of existing practices in managing technology risk against the requirements in this policy document and highlight key implementation gaps. The financial institution must develop an action plan with a clear timeline and key milestones to address the gaps identified. The gap analysis and action plan must be submitted to the Bank no later than 90 days after the issuance date of this policy document. Financial institutions that have previously made a submission in accordance with the equivalent provision in the previous version of this policy document are required to maintain continuous compliance by identifying any new gaps against the enhanced or revised requirements in the latest version of this policy document and taking the necessary steps to address such gaps. The updated annual assessment of its level of compliance must be made available to the Bank upon request. S 16.2 For the purpose of paragraph 8.12, a financial institution shall submit together with the gap analysis and action plan its self-assessment on whether it is a large financial institution. S 16.3 The self-assessment, gap analysis and action plan in paragraphs 16.1 and 16.2 must be submitted to Jabatan Penyeliaan Konglomerat Kewangan, Jabatan Penyeliaan Perbankan, Jabatan Penyeliaan Insurans dan Takaful or Jabatan Pemantauan Perkhidmatan Pembayaran, as the case may be. Risk Management in Technology 36 of 67 Issued on: 1 June 2023 Appendix 1 Storage and Transportation of Sensitive Data in Removable Media Financial institutions should ensure adequate controls and measures are implemented for the storage and transportation of sensitive data in removable media, including: 1. Deploying the latest industry-tested and accepted encryption techniques; 2. Implementing authorised access control to sensitive data (e.g. password protection, user access matrix); 3. Prohibiting unauthorised copying and reading from the media; 4. Should there be a need to transport the removable media to a different physical location, financial institutions should — (a) strengthen the chain of custody process for media management which includes: (i) the media must not be under single custody at any point of time; (ii) the media must always be within sight of the designated custodians; and (iii) the media must be delivered to its target destination without unscheduled stops or detours; (b) use secure and official vehicle for transportation; (c) use strong and tamper-proof containers for storing the media with high- security lock (e.g. dual key and combination lock); and (d) implement location tracking functionality for each media container; and 5. Ensuring third party service providers comply with the requirements in paragraphs 1 to 4 of this Appendix, in the event third party services are required in undertaking the storage management or transportation process of sensitive data. Risk Management in Technology 37 of 67 Issued on: 1 June 2023 Appendix 2 Control Measures on Self-service Terminals (SSTs) Cash SST Cash SSTs are computer terminals provided by banking institutions such as Automated Teller Machine, Cash Deposit Machine and Cash Recycler Machine that provide cash transactions such as cash withdrawals and deposits including in foreign currencies. Financial institutions should ensure the adequacy of physical and logical security and controls implemented on the Cash SST, which includes: 1. Enforcing full hard disk encryption; 2. Retaining cards or block access to Cash SST service when the following are detected: (a) exceed maximum PIN tries; (b) invalid card authentication value; (c) cash SST card unable to eject; (d) “deactivated” card status; (e) inactive account status such as “Dormant” or “Deceased”; and (f) cards tagged as “Lost” or “Stolen”; 3. Ensuring Cash SST operating system is running on a secure version operating system with continued developer or vendor support for security patches to fix any operating system security and vulnerabilities; 4. Deploying Anti-virus (AV) solution for Cash SST and ensure timely update of signatures. Ensure virus scanning on all Cash SSTs is performed periodically; 5. Implementing a centralised management system to monitor and alert any unauthorised activities on Cash SST such as unauthorised shutting-down of OS or deactivation of the white-listing programme; 6. Ensuring effective control over the Cash SST lock and key by using a unique and non-duplicable key to open the Cash SST PC Core compartment as well as ensure proper safekeeping and custody of the key; 7. Installing alarm system with triggering mechanism connected to a centralised alert system to detect and alert bank’s staff of any unauthorised opening or tampering of the physical component of the Cash SST, particularly the access to the Cash SST PC Core; 8. Securing physically the Cash SST PC Core by enclosing the CPU in a locked case; 9. Enforcing firewall and Intrusion Prevention System (IPS) at the financial institution’s network to filter communication between the host server and the Cash SST; 10. Enforcing pairing authentication for key Cash SST components, particularly between cash dispenser and Cash SST controller; 11. Enforcing Basic Input Output System (BIOS) lock-down which includes: Risk Management in Technology 38 of 67 Issued on: 1 June 2023 (a) enabling unique password protection for accessing BIOS. The password should be held by financial institutions under strict control; (b) disabling external input device and port such as CD-ROM, floppy disk and USB port. The Cash SST operating system can only be booted from the internal hard disk; and (c) disabling automatic BIOS update; 12. Ensuring proper configuration and hardening of the OS and application system, which includes: (a) blocking any wireless network connection such as Bluetooth, Wi-Fi; (b) disabling Microsoft default program system (such as Notepad, Internet browser, Windows shortcut, file download, file sharing and command prompt); (c) disabling unnecessary services in the operating system such as the auto- play features; (d) concealing Start Bar or Tray Menu; (e) enabling cache auto-deletion; and (f) disabling key combinations and right-click mouse functions; 13. Enforcing secure system parameter setting, which includes: (a) changing defaults password and other system security parameters setting of the Cash SST; (b) using a unique system administrator password for all Cash SSTs; and (c) using lowest-level privileges for programmes and users system access; 14. Performing scanning and removing any known malware such as Backdoor.Padpin and Backdoor.Ploutus; 15. Enforcing and monitor Cash SST end-point protection such as installing white- listing programmes. The end-point protection programme, at a minimum, should ensure only authorised Cash SST system processes and libraries are installed and executed; 16. Enforcing strict control procedures over installation and maintenance of Cash SST OS and application systems, which includes: (a) ensuring only authorised personnel have access to gold disk copy (master copy of Cash SST installation software); (b) ensuring the gold disk copy is scanned for virus/malware prior to installation into Cash SST; and (c) enforcing dual control for installation and maintenance of Cash SST software; and 17. Installing closed-circuit cameras and transaction triggered cameras at strategic locations with adequate lighting in order to ensure high quality and clear closed- circuit television images of cardholder performing a transaction as well as any suspicious activities. Risk Management in Technology 39 of 67 Issued on: 1 June 2023 Non-Cash SST Non-cash SSTs are computer terminals such as desktops, laptops, tablets and cheque deposit machines that provide non-cash transactions such as cheque deposits, balance enquiries, fund transfers, utilities bill payments and insurance quotations. Financial institutions should ensure the adequacy of physical and logical security and controls implemented on the self-service terminals, which includes: 1. Enforcing the use of lock and key on the computer terminal’s central processing unit (CPU) at all times; 2. Deploying closed-circuit television to monitor the usage of self-service terminals; 3. Ensuring adequate control over network security of the self-service terminals to ensure that the kiosks are secured and segregated from the internal network; 4. Disabling the use of all input devices (such as USB, CD and DVD), application system (such as Notepad, Microsoft Word, and Microsoft PowerPoint) and file download as well as command prompt on the kiosk; 5. Disabling browser scripting, pop-ups, ActiveX, Windows shortcut; 6. Concealing Start Bar or Tray Menu; 7. Enabling cache auto-deletion; 8. Disabling key combinations and right-click mouse functions; and 9. Restricting use of Internet browser i.e. only to be used to access the financial institution’s internet website. Risk Management in Technology 40 of 67 Issued on: 1 June 2023 Appendix 3 Control Measures on Internet Banking 1. A financial institution should ensure the adequacy of security controls implemented for Internet banking, which include: (a) Ensure Internet banking only runs on secured versions of web browsers that have continued developer support for security patches to fix any vulnerabilities; (b) Put in place additional authentication protocols to enable customers to identify the financial institution’s genuine website such as deploying image or word verification authentication or similar controls. The system should require the customer to acknowledge that the image or word is correct before the password box is displayed to the customer; (c) Assign a customer to MFA solution binding to a single device; (d) Require MFA when registering an account as a “favourite” beneficiary. A financial institution must also require MFA, for the first funds transfer to the favourite beneficiary; (e) For new customers, the default transfer limit shall be set at a conservatively low level (such as RM5,000 per day). However, customers should be provided with the option to change the limit via secure channels (e.g. online with MFA or at branches); and (f) Deploy an automated fraud detection system which has the capability to conduct heuristic behavioural analysis. Risk Management in Technology 41 of 67 Issued on: 1 June 2023 Appendix 4 Control Measures on Mobile Application and Devices 1. A financial institution should ensure digital payment, banking and insurance services involving sensitive customer and counterparty information offered via mobile devices are adequately secured. This includes the following: (a) ensure mobile applications run only on the supported version of operating systems and enforce the application to only operate on a secure version of operating systems which have not been compromised, jailbroken or rooted i.e. the security patches are up-to-date; (b) design the mobile application to operate in a secure and tamper-proof environment within the mobile devices. The mobile application should be prohibited from storing customer and counterparty information used for authentication with the application server such as PIN and passwords. Authentication and verification of unique key and PIN should be centralised at the host; (c) undertake proper due diligence processes to ensure the application distribution platforms used to distribute the mobile application are reputable; (d) ensure proper controls are in place to access, maintain and upload the mobile application on application distribution platforms; (e) activation of the mobile application should be subject to authentication by the financial institution; (f) ensure secure provisioning process of mobile application in the customer’s device is in place by binding the mobile application to the customer’s profile such as device ID and account number; and (g) monitor the application distribution platforms to identify and address the distribution of fake applications in a timely manner. 2. In addition to the guidance in paragraph 1, a financial institution should also ensure the following measures are applied specifically for applications running on mobile devices used by the financial institution, appointed agents or intermediaries for the purpose of processing customer and counterparty information: (a) mobile device to be adequately hardened and secured; (b) ensure the capability to automatically wipe data stored in the mobile devices in the event the device is reported stolen or missing; (c) establish safeguards that ensure the security of customer and counterparty information (e.g. Primary Account Numbers (PAN), Card Verification Value Numbers (CVV), expiry dates and Personal Identification Numbers (PIN) of payment cards), including to mitigate risks of identity theft and fraud21; (d) enforce masking of sensitive customer and counterparty information when displayed on mobile devices; and (e) limit the storage of customer and counterparty information for soliciting insurance businesses in mobile devices to 30 days. 21 This includes risks associated with malwares that enable keystroke logging, PIN harvesting and other malicious forms of customer and counterparty information downloading. Risk Management in Technology 42 of 67 Issued on: 1 June 2023 Appendix 5 Control Measures on Cybersecurity 1. Conduct periodic review on the configuration and rules settings for all security devices. Use automated tools to review and monitor changes to configuration and rules settings. 2. Update checklists on the latest security hardening of operating systems. 3. Update security standards and protocols for web services encryption regularly. Disable support of weak ciphers and protocol in web-facing applications. 4. Ensure technology networks are segregated into multiple zones according to threat profile. Each zone shall be adequately protected by various security devices including firewall and Intrusion Prevention System (IPS). This must include mobile and wireless networks as well. 5. Ensure security controls for server-to-server external network connections include the following: (a) server-to-server authentication such as Public Key Infrastructure (PKI) certificate or user ID and password; (b) use of secure tunnels such as Transport Layer Security (TLS) and Virtual Private Network (VPN) IPSec; and (c) deploying staging servers with adequate perimeter defences and protection such as firewall, IPS and antivirus. 6. Ensure security controls for remote access to server include the following: (a) restrict access to only hardened and locked down end-point devices; (b) use secure tunnels such as TLS and VPN IPSec; (c) deploy ‘gateway’ server with adequate perimeter defences and protection such as firewall, IPS and antivirus; and (d) close relevant ports immediately upon expiry of remote access. 7. Ensure overall network security controls are implemented including the following: (a) dedicated firewalls at all segments. All external-facing firewalls must be deployed on High Availability (HA) configuration and “fail-close” mode activated. Deploy different brand name/model for two firewalls located in sequence within the same network path; (b) IPS at all critical network segments with the capability to inspect and monitor encrypted network traffic; (c) web and email filtering systems such as web-proxy, spam filter and anti- spoofing controls; (d) end-point protection solution to detect and remove security threats including viruses and malicious software; (e) solution to mitigate advanced persistent threats including zero-day and signatureless malware; and (f) capture the full network packets to rebuild relevant network sessions to aid forensics in the event of incidents. 8. Synchronise and protect the Network Time Protocol (NTP) server against tampering. Risk Management in Technology 43 of 67 Issued on: 1 June 2023 Appendix 6 Positive List for Enhancements to electronic Banking, Internet Insurance and Internet Takaful Services Guiding Principles: 1. Does not result in any introduction of new technology to the institution or industry. 2. Does not result in any material change in application architecture or network design. 3. The simplified notification process only applies to enhancements that are explicitly listed below. Category 1: Notification for Add-on Services to Internet/Mobile Banking/Insurance/Takaful Category 2: Notification for Add-on Security Features to Internet/Mobile Banking/Insurance/Takaful Category 3: Notification for Add- on Network/security devices and systems connectivity to approved schemes 1. Participation in payment gateways involving Financial Process Exchange (FPX), approved payment system operator and registered business (merchant acquiring business) with BNM. 2. Implementation of technology platform approved by Securities Commission e.g. Digital Investment Management 3. Participation in approved schemes as follows: (i) Tabung Haji; (ii) Amanah Saham Nasional Berhad (ASNB); (iii) Skim Simpanan Pendidikan Nasional (SSPN-i); and (iv) PayNet’s current and future products and services, e.g. Real-time Retail Payments Platform (RPP) / DuitNow / DuitNow QR, and Fasstap 1. Enhance Transaction Authorisation Code (TAC) delivery including subscribing to a new TAC gateway service provider. 2. Enhance the e-Banking system to support migration to Chip and PIN cards. 3. Implement automated storing of privilege IDs. 4. Enhancements to existing login features of biometric security. 5. Enhancement to existing features of MFA method. 6. Enhancement to existing features of phone banking technology. 7. Enhancement on login authentication method on the existing Internet platform. 1. System connectivity with approved schemes i.e. PayNet. 2. Enhancement to add connectivity to third party service providers i.e. MYEG, Financial Link, Rexit, Bestinet, PSPPA and Merimen. 3. Changes on security and monitoring related tools that include (i) Firewalls; (ii) Intrusion Detection Systems (IDS); and (iii) Intrusion Prevention Systems (IPS). 4. Enhancements of Open API integrations which does not involve the transmission of “confidential” or “sensitive” information. Risk Management in Technology 44 of 67 Issued on: 1 June 2023 Guiding Principles: 1. Does not result in any introduction of new technology to the institution or industry. 2. Does not result in any material change in application architecture or network design. 3. The simplified notification process only applies to enhancements that are explicitly listed below. Category 1: Notification for Add-on Services to Internet/Mobile Banking/Insurance/Takaful Category 2: Notification for Add-on Security Features to Internet/Mobile Banking/Insurance/Takaful Category 3: Notification for Add- on Network/security devices and systems connectivity to approved schemes 4. Enable RENTAS and SWIFT payment transaction initiative on the Internet platform. 5. Participation in existing approved e-channels e.g.: (i) Western Union; (ii) Merchantrade; (iii) Paypal; (iv) Inter Bank Giro (IBG); and (v) Inter Bank Fund Transfer (IBFT). 6. Notification to participate in existing approved e- money issuer. 7. Usage of motor underwriting engine by third-party for calculation of motor premium. 8. Enhancement to application form and underwriting question. 9. Increase in transaction limits including default limit for online/ATM. 10. Enhancement for the following services including new add-on services and features on the existing platform: (i) Debit/credit card activation; and (ii) Reset password; 5. Enhancement to add connectivity with approved participants in the Financial Technology Regulatory Sandbox. 6. Enhancement to add connectivity with online distribution channel e.g. telecommunication company. 7. Enhancement to add connectivity with third-party without material change to the existing approved platform. 8. Leveraging approved website/mobile application for e- banking or Internet insurance-related services within financial group. Risk Management in Technology 45 of 67 Issued on: 1 June 2023 Guiding Principles: 1. Does not result in any introduction of new technology to the institution or industry. 2. Does not result in any material change in application architecture or network design. 3. The simplified notification process only applies to enhancements that are explicitly listed below. Category 1: Notification for Add-on Services to Internet/Mobile Banking/Insurance/Takaful Category 2: Notification for Add-on Security Features to Internet/Mobile Banking/Insurance/Takaful Category 3: Notification for Add- on Network/security devices and systems connectivity to approved schemes (iii) Block card including enabling debit/credit card for overseas usage; (iv) Credit card PIN change via Internet banking; (v) Credit card activation via SMS/online; (vi) Maintenance of existing product features e.g. time deposit maturity tenor and rates; (vii) Add-on features or services to the existing interactive voice response (IVR) system; (viii) Add-on features and services from the existing Internet platform to the existing mobile application; (ix) Add-on features and functions to existing approved platform such as loan applications, opening of accounts, purchasing travel/ motor insurance, withdrawal, Risk Management in Technology 46 of 67 Issued on: 1 June 2023 Guiding Principles: 1. Does not result in any introduction of new technology to the institution or industry. 2. Does not result in any material change in application architecture or network design. 3. The simplified notification process only applies to enhancements that are explicitly listed below. Category 1: Notification for Add-on Services to Internet/Mobile Banking/Insurance/Takaful Category 2: Notification for Add-on Security Features to Internet/Mobile Banking/Insurance/Takaful Category 3: Notification for Add- on Network/security devices and systems connectivity to approved schemes surrender, claims and endorsement; (x) Enrolment of new/existing customers onto the online platform; (xi) Maintenance of customer’s credential via Internet platform; and (xii) Implementation of “chatbot” or “live chat” onto the existing approved platform to facilitate non-complex activity. Risk Management in Technology 47 of 67 Issued on: 1 June 2023 Appendix 7 Risk Assessment Report Part A: Financial Institution Name of Financial Institution Mailing address Type of cloud service /e- banking/Internet insurance and Internet takaful service New / Enhancement Description of the cloud service, e-banking, Internet insurance and Internet takaful service Key contact personnel Email address Phone number Part B: External Service Provider Name of company SSM registration number Mailing address Engagement period Key contact personnel Email address Phone number Part C: Detail of application Overview of the application i.e. business case, target segment of demographic and end-user, etc. (Please keep the response below 200 words. Additional information may be provided as supporting documents) Describe the technology used to support the product, service or solution (Please keep the response below 200 words. Additional information may be provided as supporting documents) Risk Management in Technology 48 of 67 Issued on: 1 June 2023 Part D: Technology risk assessment Technology risk assessment shall provide assurance on the effectiveness of technology risk control and mitigation performed by the financial institutions in meeting expectations outlined in Part B of Appendix 9 and paragraph 15.1 (for cloud services). Part E: Quality assurance Overall recommendation Part F: Authorised signatory Signature Name Designation Date Risk Management in Technology 49 of 67 Issued on: 1 June 2023 Appendix 8 Format of Confirmation Name of Financial Institution…. ………..…………………………………………………… As Chairman of the board of directors / designated board-level committee / CISO / designated senior management officer * of [name of Financial Institution], I confirm that – 1. cloud service /e-banking / Internet insurance / Internet takaful * is consistent with the bank’s / insurer’s / takaful operator’s * strategic and business plans; 2. the board of directors / senior management * understand and are ready to assume the roles and responsibilities stated in Bank Negara Malaysia’s policy document on Risk Management in Technology and are also apprised of all relevant provisions in the FSA, IFSA and DFIA and other relevant legislation, guidelines and codes of conduct; 3. risk management process related to cloud service /e-banking / Internet insurance / Internet takaful * is subject to appropriate oversight by the board of directors and senior management; 4. appropriate security measures to address cloud service /e-banking / Internet insurance / Internet takaful * security concerns are in place; 5. customer support services and education related to cloud service /e-banking / Internet insurance / Internet takaful * are in place; 6. performance monitoring of cloud service /e-banking / Internet insurance / Internet takaful * products, services, delivery channels and processes has been established; 7. cloud service /e-banking / Internet insurance / Internet takaful * is included in the contingency and business resumption plans; 8. there are adequate resources to support the offering of cloud service /e-banking / Internet insurance / Internet takaful * business; and 9. the systems, procedures, security measures, etc. relevant to sound operations of cloud service /e-banking / Internet insurance / Internet takaful * will constantly be reviewed to keep up with the latest changes. Signature : ……………………………… Name : ………………………………….. Date : ………………………..………….. * (delete whichever is not applicable) Risk Management in Technology 50 of 67 Issued on: 1 June 2023 Appendix 9 Supervisory Expectations on External Party Assurance Part A: Financial Institutions are required to provide an external assurance 1. The assurance shall be conducted by an independent external service provider (ESP) engaged by the financial institution. 2. The independent ESP must understand the proposed services, the data flows, system architecture, connectivity as well as its dependencies. 3. The independent ESP shall review the comprehensiveness of the risk assessment performed by the financial institution and validate the adequacy of the control measures implemented or to be implemented. 4. The Risk Assessment Report (as per Part D in Appendix 7) shall state among others, the scope of review, risk assessment methodology, summary of findings and remedial actions (if any). 5. The Risk Assessment Report shall confirm there is no exception noted based on the prescribed risk areas (Negative attestation). 6. The financial institution shall provide the Risk Assessment Report accompanied by the relevant documents. Part B: Minimum controls to be assessed by the independent External Service Provider, where applicable 1. The independent ESP assessment of security requirements shall include the following key areas: (a) access control; (b) physical and environmental security; (c) operations security; (d) communication security; (e) information security incident management; and (f) information security aspects of business continuity management. 2. For online transactions and services, a financial institution has implemented the following: (a) adequate measures to authenticate customer identity and ensure legitimate transaction authorisation by the customer, including— (i) measures to prevent session takeover or man-in-the-middle attacks; (ii) internal controls must be in place to prevent compromise of relevant internal systems /application /database; (iii) where appropriate, apply multi-level authentication, out of band protocol and real-time verification; (iv) secure session handling functions and authentication databases; and (v) ensure strong password and cryptographic implementation (recognised algorithm with reasonable key strength); (b) adequate measures for transaction authentication that promotes non- repudiation and establishes accountability— (i) mechanism exists to ensure proof of origin, content as well as the integrity of the message; (ii) chosen channel to deliver transaction is secure; Risk Management in Technology 51 of 67 Issued on: 1 June 2023 (iii) mechanism exists to alert the user on certain type of transactions for further authentication; and (iv) establish mutual authentication or appropriate use of digital certification; (c) segregation of duties and access control privilege for systems, databases and applications— (i) implement dual control where applicable; (ii) controls exist to detect and prevent unauthorised access to relevant resources/devices; (iii) authorisation database should be tamper-resistant; and (iv) periodic review of privileged users; (d) adequate measures to protect data integrity of transactions and information: (i) implementation of end-to-end encryption for external communication; (ii) implementation of multi-layer network security and devices; (iii) absence of single point of failures in network architecture; (iv) conduct network security assessment/penetration test to identify vulnerabilities; (v) establish audit trail capabilities; (vi) preserve the confidentiality of information; (vii) use of stronger authentication for higher risk transactions; and (viii) timely notification to customers that is sufficiently descriptive of the nature of the transaction; and (e) adequate measures to mitigate associated risks of using electronic mobile devices to perform online transactions, which shall include the following: (i) application is running on secure mobile Operating System versions; (ii) application is not running on compromised devices; (iii) conduct penetration test to identify and rectify potential vulnerability; (iv) secure end-to-end communication between the device and host; (v) sensitive information is not stored on mobile devices; (vi) user is notified of successful transactions; (vii) user is notified of suspicious transactions; (viii) continuous monitoring and takedown of fake applications in application distribution platforms; (ix) controls over the uploading of application to application distribution platforms; (x) a unique code is generated per transaction; and (xi) timely expiry of the transaction code. Risk Management in Technology 52 of 67 Issued on: 1 June 2023 Appendix 10: Key Risks and Control Measures for Cloud Services This appendix provides additional guidance to financial institutions for the assessment of common key risks and considerations of control measures when financial institutions adopt public cloud for critical systems. The guidance is broadly applicable across various cloud service models and financial institutions should apply a risk- based approach in implementing the guidance. The guidance consists of two (2) parts: • Part A: Cloud governance – describes the considerations governing the cloud usage policy, and technology skills capacity to implement cloud services securely and effectively. • Part B: Cloud design and control – describes the considerations related to designing robust cloud infrastructure and in operationalising the cloud environment. This places emphasis on cloud architecture, cloud application delivery model, high velocity software development, user access management, data protection, key management, cloud backup and recovery, business continuity management and cybersecurity management. Part A: Cloud Governance A financial institution should ensure robust cloud governance processes are established prior to cloud adoption and are subject to on-going review and continuous improvement. This should cover the following areas: 1. Cloud risk management (a) The board of a financial institution should promote and implement sound governance principles throughout the cloud service lifecycle in line with the financial institution’s risk appetite to ensure safety and soundness of the financial institution. (b) The senior management of a financial institution should develop and implement a cloud risk management framework that integrates with existing outsourcing risk management framework, technology risk management framework (TRMF) and cyber resilience framework (CRF), for the board’s approval, proportionate to the materiality of cloud adoption in its business strategy, to assist in the identification, monitoring and mitigating of risks arising from cloud adoption. (c) Common cloud service models22 are Software-as-a-Service (SaaS), Platform- as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS), wherein each presents a different set of capabilities offered to the financial institution as the 22 Cloud service models consist of SaaS, PaaS and IaaS. For SaaS, financial institutions, as a consumer, uses the cloud service provider’s applications running on a cloud infrastructure. PaaS is a service model where financial institutions deploy application onto cloud infrastructure using the platform capabilities e.g., programming languages, libraries services and tools supported by the cloud service provider. IaaS is a service model where cloud service provider offers fundamental computing resources such as compute, network, or storage, where financial institutions can deploy application and operation systems. Risk Management in Technology 53 of 67 Issued on: 1 June 2023 cloud consumer, and hence a different set of shared responsibilities. In view of this, the cloud risk management framework of the financial institution should : i) be an integral part of the financial institution’s enterprise risk management framework (ERM); ii) be tailored to the cloud service models, both currently in use or being considered for use; and iii) specify the scope of the financial institution’s responsibility under each shared responsibility model, as the associated risks may vary. (d) A financial institution is responsible for the protection of data stored in cloud irrespective of cloud service models and the cloud service providers. Therefore, the financial institution’s understanding of the specific details of the cloud arrangement, particularly what is or is not specified in the terms of the contract with the cloud service providers is essential. (e) Regardless of the cloud arrangement with cloud service providers, the onus remains on the financial institution to satisfy the Bank that it is protecting customer information and ensuring service reliability. (f) The use of cloud services may represent a paradigm shift in technology operation management as compared to on-premises IT infrastructure. Business processes may change and internal controls on compliance, business continuity, information and data security may be overlooked due to the ease of subscribing to cloud services. Therefore, the cloud risk management framework should also clearly articulate the accountability of the financial institution’s board and senior management and the process involved in approving and managing cloud service usage, including the responsibility of key functions across the enterprise in business, IT, finance, legal, compliance and audit, over the lifecycle of cloud service adoption. (g) As the cloud landscape rapidly evolves, a financial institution`s cloud risk management framework should undergo periodic review (at least once every three years to ensure its adequacy and effectiveness to manage new service models over time), or immediately upon any major cyber security incidents involving the cloud services. 2. Cloud usage policy (a) The financial institution’s senior management should develop and implement internal policies and procedures that articulate the criteria for permitting or prohibiting the hosting of information assets on cloud services, commensurate with the level of criticality of the information asset and the capabilities of the financial institution to effectively manage the risks associated with the cloud arrangement. (b) A financial institution should expand the scope of its current technology assets inventory to include critical systems hosted on the cloud services, with a clear Risk Management in Technology 54 of 67 Issued on: 1 June 2023 assignment of ownership, and to be updated upon deployment and changes of IT assets to facilitate timely recalibration of cybersecurity posture in tandem with an evolving threat landscape. Having visibility on the latest view of the technology asset would enable effective triaging, escalation and response to information security incidents. (c) A financial institution should regularly review and update the cloud usage policy at least once every three years. However, where any material changes arise, including but not limited to adoption of new cloud service deployment model, or adoption of cloud service for IT systems with higher degree of criticality, the financial institution should review and update its cloud usage policy immediately. 3. Due diligence Due diligence on the prospective cloud service providers should be risk-based and conducted to a level of scrutiny that is commensurate with the criticality of the information and technology assets to be hosted on the cloud in compliance with relevant requirements and guidance as stipulated in the Third Party Service Provider Management section (paragraphs 10.41 to 10.48) of this policy document and paragraphs 9, 10 and 11 in the Bank’s Outsourcing policy document (Outsourcing process and management of risks, Outsourcing outside Malaysia, Outsourcing involving cloud services). 4. Access to cloud service providers’ certifications A financial institution should review their cloud service providers’ certifications prior to entering into any cloud arrangement or contract with such cloud service providers. At a minimum, a financial institution should: (a) Seek assurance that the cloud service provider continues to be compliant with relevant legal, or regulatory requirements as well as contractual obligations and assess the cloud service provider’s action plans for mitigating any non- compliance; and (b) Obtain and refer to credible independent external party reports of the cloud platforms when conducting risk assessments. The financial institution’s risk assessment should address all the requirements and guidance as stipulated in the Cloud Services section (paragraphs 10.49 to 10.51) of this policy document and paragraph 11 of the Bank’s policy document on Outsourcing which sets out provisions on outsourcing involving cloud services. 5. Contract management A financial institution should set out clearly and where relevant, measurable, contractually agreed terms and parameters on the information security and operational standards expected of the cloud service providers. Such contract terms and Risk Management in Technology 55 of 67 Issued on: 1 June 2023 parameters should be aligned with the financial institution’s business strategy, information security policies and regulatory requirements. (a) The terms of the contracts between the financial institution and cloud service providers should address the risks associated with cloud services and third party service providers as stipulated in the Cloud Services section (paragraphs 10.49 to 10.51) of this policy document and related paragraphs in the Bank’s Outsourcing policy document (Outsourcing agreement – paragraphs 9.6 and 9.7, and Protection of data confidentiality – paragraphs 9.8 and 9.9); (b) Jurisdiction risk may arise because cloud service providers operate regionally or globally in nature and may be subject to the laws and regulatory requirements of its home country, the location of incorporation, and the country where the client receives the service. Therefore, a financial institution should: i) identify and address potential jurisdiction risks by adopting appropriate mitigating measures, where practically possible, to ensure the use of cloud services does not impair its ability to comply with local law and regulatory requirements; and ii) understand the scope of local customer protection legislation and regulatory requirements as well as to ensure that the financial institution receives adequate protection and recourse for the benefit of its customers, in the event of a data breach or fulfilment of a legal data request by the cloud service provider; (c) A financial institution should assess the potential impact and formalise arrangements with cloud service providers to comply with local laws and regulatory requirements for incident investigation and law enforcement purposes. This would include adhering to data retention requirements and data access procedural arrangements to ensure the confidentiality and privacy of the customers are protected; and (d) The provision of cloud services by the primary cloud service provider may interconnect with multiple layers of other fourth party service providers (such as sub-contractors), which could change rapidly. For example, customer data could be leaked due to exposure caused by fourth party service providers. To mitigate the risks associated with such fourth party service providers, financial institutions should: i) understand the scope of customer information shared across the supply chain and ensure that relevant information security controls can be legally enforced by the financial institution; and ii) ensure Service Level Agreement (SLA) negotiations and contractual terms cover the performance matrix, availability, and reliability of services in order to ensure that the cloud service providers agree and are formally aligned on the requirements and standard of cloud services provided. In addition, cloud service providers should be accountable to the financial institution for the SLA, performance matrix, availability and reliability of cloud services rendered by its service providers (i.e. subcontractors). Risk Management in Technology 56 of 67 Issued on: 1 June 2023 6. Oversight over cloud service providers A financial institution should ensure effective oversight over cloud service providers taking into account the fact that the cloud service providers may engage sub- contractor(s) to provide cloud services. This includes, at a minimum, the following: (a) establish and define a continuous monitoring mechanism with alignment to the enterprise outsourcing risk management framework (or equivalent) to ensure adherence to the agreed SLA, compliance of the cloud service provider with any applicable legal and regulatory requirements and resilience of outsourced technology services on on-going basis; (b) identify, assign and document the key responsibilities within the financial institution for continuous monitoring of cloud service providers to ensure accountabilities are clearly defined; (c) perform assessments of the outsourcing arrangement involving cloud service providers periodically in accordance with the financial institution’s internal policy to achieve business resilience with emphasis on data security and ensure prompt notification to the Bank of the developments that may result in material impact to the financial institution (such as jurisdiction risks for data hosted overseas due to evolving foreign legislation and geopolitical development) in line with the Bank’s policy document on Outsourcing (Outsourcing PD), in particular, provisions relating to outsourcing of cloud services outside Malaysia including paragraphs 9, 10 and 11 of the Outsourcing PD; and (d) promptly review or re-perform risk assessment upon any material changes in cloud risk profile such as jurisdiction risks for data hosted overseas due to evolving foreign legislation and geopolitical development. 7. Skilled personnel with knowledge on cloud services (a) The adoption of cloud services require commensurate changes to the financial institution’s internal resources and process capabilities. In this regard, a financial institution should: i) equip its board and senior management with appropriate knowledge to conduct effective oversight over the cloud adoption; and ii) ensure its IT and security operations or relevant personnel are appropriately skilled in the areas of cloud design, migration, security configurations, including administrative, monitoring and incident response; (b) The effective management of cloud services is not purely the responsibility of the financial institutions’ IT function. Therefore, a financial institution should ensure relevant internal resources in business operations, finance, procurement, legal, risk and compliance are also adequately skilled and engaged to manage the change in risk profile arising from cloud adoption. This Risk Management in Technology 57 of 67 Issued on: 1 June 2023 should also enable financial institutions to respond effectively to operational incidents; (c) A financial institution should equip internal audit and personnel undertaking the risk management and compliance functions with relevant cloud computing and cloud security skills to be able to verify the effectiveness of the information security controls in alignment with the financial institution’s cloud usage policy and information security objectives; (d) A financial institution should ensure that its staff receive adequate training to understand their responsibilities in complying with internal cloud usage policies and are prepared to effectively respond to a range of security incident scenarios developed on a risk-based approach; and (e) A financial institution should expand the scope of the formal consequence management process to govern the use of cloud services to ensure the cloud usage policy is effectively enforced given that cyber hygiene is critical to ensure the continued security of cloud service usage. Risk Management in Technology 58 of 67 Issued on: 1 June 2023 Part B: Cloud Design and Control A financial institution should design its adoption of cloud services with a degree of portability, scalability and fault tolerance that is proportionate to the materiality of the cloud service to its business operation. It should also ensure robust operational controls are in place to manage its ongoing cloud operations. 1. Cloud architecture (a) A financial institution should design a robust cloud architecture and ensure such design is in accordance with the relevant international standards for the intended application. (b) A financial institution is encouraged to adopt zero-trust principles23 to provide a cyber resilient architecture by adopting an “assume breach” mindset, layering defense-in-depth through micro-segmentation, “deny-by-default“, “least privilege” access rights, and conducting deep inspection and continuous validation where applicable. (c) A financial institution should use the latest network architecture approach and appropriate network design concept and solutions for managing and monitoring granular network security and centralized network provision in managing complexity of the cloud network environment. (d) A financial institution should establish and utilise secure and encrypted communication channels for migrating physical servers, applications, or data to the cloud platforms. (e) For financial institutions leveraging on their financial group’s cloud infrastructure, the financial institutions should consider an appropriate level of network segregation (e.g., logical tenant isolation in the shared environment of the cloud) to mitigate the risk of cyber-attacks from propagating cross-border or cross-entity and affecting the Malaysian financial institution’s operations. (f) The increasing use of application programming interfaces (API) by financial institution to interconnect with external application service providers could achieve efficiency in new service delivery. However, this may increase the cyber-attack surface and any mismanagement may amplify the impact of an information security incident. A financial institution should ensure its APIs are subject to rigorous management and control mechanisms which include the following: i) APIs should be designed for service resilience to avoid the risk of single points of failure and configured securely with appropriate access controls; and 23 Zero-trust principles is a security paradigm designed to prevent data breaches and limit internal lateral movement of threat actors by requiring all users, whether in or outside the organization’s network, to be authenticated, authorized, and validated before being granted the access. Risk Management in Technology 59 of 67 Issued on: 1 June 2023 ii) APIs should be tracked and monitored against cyber-attacks with adequate incident response measures and are de-commissioned on a timely basis when no longer in use. 2. Cloud application delivery models (a) Cloud application delivery models may evolve to support faster time-to-market in response to consumer demand. Currently, DevOps and Continuous Integration / Continuous Development (CI/CD)24 are amongst the prevailing practices and processes for cloud application delivery. For instance, the ability to enforce segregation of duties for CI/CD where application developers may require access to the management plane for service configuration. A financial institution should ensure CI/CD pipelines are configured properly to enhance security of automated deployments and immutable infrastructure25. (b) A financial institution should continuously leverage enhanced cloud capabilities to improve the security of the cloud services and financial institutions are, among others, encouraged to: i) adopt industry best practices such as infrastructure-as-code (IaC)26 to automate the provisioning of IT infrastructure in a consistent, scalable and secure manner; and ii) use immutable infrastructure practices for deployment of services to reduce the risk of failure by creating a new environment with the latest stable version of the software. The on-going monitoring of the cloud environment should include automating the detection of changes to immutable infrastructure to improve compliance review and combat evolving cyber-attacks. (c) Where relevant, a financial institution should implement appropriate controls on the IaC process to minimise the risk of misconfiguration and reduce the cyber- attack surface. This includes the following measures that should be taken by the financial institution: i) conduct vulnerabilities scanning as part of IaC automation steps and ensure issues are remediated prior to the provisioning of IT infrastructure; ii) ensure virtual machine images (VMI) or container images of IaC templates are trusted and digitally signed; and iii) implement appropriate access control to prevent unauthorized changes to IaC templates. 24 CI/CD is a set of methods that enables developers to deliver code changes more frequently using automation. 25 Immutable infrastructure is an approach to managing and deploying infrastructure where components, such as virtual servers and networks, are created once and then never modified. If a new version of a service or application requires changes to the underlying infrastructure components, new instances of those components are created and the old instances are replaced. 26 The process of managing and provisioning an organization’s IT infrastructure using machine-readable configuration files, rather than employing physical hardware configuration or interactive configuration tools. - NIST Special Publication 800-172, U.S. Department of Commerce, February 2020 Risk Management in Technology 60 of 67 Issued on: 1 June 2023 3. Virtualization and containerization management The guidance provided in this paragraph is applicable to financial institutions which use or plan to use PaaS and IaaS cloud service models only. (a) A financial institution should ensure virtualization services are configured in line with the prevailing guidance from the cloud service providers and industry best practices, commensurate with the evolution of cloud computing technologies. (b) A financial institution should ensure virtual machine and container images are configured, hardened, and monitored appropriately. This includes the following: i) use stable images and keep images up to date; ii) store and use images from trusted repositories or registries; iii) scan images for vulnerabilities, remediate any vulnerabilities prior running in production; iv) enforce “least privilege” access; v) harden images based on industry best practices; and vi) stored images are subjected to security monitoring from unauthorised access and changes. 4. Change management (a) A financial institution should establish a process to systematically assess and take appropriate action to manage the impact of the releases by cloud service providers in relation to existing infrastructure, network, upstream and downstream systems to minimize the impact of any service disruption. (b) A financial institution should ensure its existing change management process is extended to cover cloud services where appropriate to promote effective and secure system development. The escalation process and approving authority should be clearly defined to ensure critical changes can be implemented and risk of service disruptions are mitigated promptly. (c) All critical changes deployed to the production environment should also be timely applied across environments such as disaster recovery site or supported cloud regions and availability zones where appropriate. 5. Cloud backup and recovery (a) As part of an effective recovery capability, financial institutions should ensure existing backup and recovery procedures are extended to cover cloud services, which includes the following: i) define and formalise backup and recovery strategy at the planning stage of cloud adoption; ii) conduct periodic reviews of the cloud service providers’ restoration and recovery capabilities; and iii) conduct testing of recovery strategy prior to deployment of the system. (b) A financial institution should ensure backup and restoration procedures are periodically tested to validate recovery capabilities. The frequency of backup Risk Management in Technology 61 of 67 Issued on: 1 June 2023 procedures should be commensurate with the criticality of the system and recovery point objective (RPO) of the system. Remedial actions should be taken promptly by the financial institution for unsuccessful backups. (c) A financial institution should ensure sufficient backup and recovery of virtual machine and container including backup configuration settings (for IaaS and PaaS, where relevant), which includes the following: i) ensure the capability to restore a virtual machine and container at point- in-time27 as per the business recovery objectives; and ii) make virtual machine and container images available in a way that would allow the financial institutions to replicate those images at alternate sites or recovery sites28 ; (d) A financial institution should assess the resilience requirements of the cloud services and identify appropriate measures that commensurate with the criticality of the system, to ensure service availability in the extreme adverse scenarios. Financial institutions should consider a risk-based approach and progressively adopt appropriate mitigating controls to ensure service availability and mitigate concentration risk. Amongst the viable options are: i) leverage cloud services’ high availability and redundancy features to ensure production data centres have redundant capacity in different availability zones; ii) achieve geographical redundancy by having data centres in different geographical regions; iii) adopt hybrid cloud (combination of on-premises and public cloud setup); iv) establish back-up cloud service providers and identify appropriate arrangement for porting of data and application to ensure timely service resumption; and v) adopt multi-cloud strategy, with the use of services from different cloud service providers to mitigate concentration risks and geopolitical risks. 6. Interoperability and Portability Interoperability standards for cloud services continue to evolve such that porting data, related configuration and security logging across different cloud service providers may be challenging. To facilitate the smooth process of interoperability and portability between on-premise IT systems or alternate cloud service providers, financial institutions are encouraged to: (a) assess technical requirements for interoperability and portability prior to entering into an agreement or arrangement with the cloud service providers to avoid vendor lock-in; 27 Point-in-time refers to the ability to preserve and retrieve the state of a virtual machine or system at a specific moment. 28 The alternate sites and recovery sites could either be in-house arrangements, or available through agreement with third-party recovery facility provider, or a combination of both options. Risk Management in Technology 62 of 67 Issued on: 1 June 2023 (b) maintain a list of third party service providers and tools that are needed to facilitate a smooth transition; (c) ensure usage of standardized network and communication protocols for ease of interoperability and portability with on-premise IT systems or alternate cloud platforms; (d) ensure the use of common electronic data formats, where applicable, to ease the movement of data between cloud service providers or to on-premises IT system; and (e) extend patch and EOL management to ensure technology solutions employed remain effective and protected against system vulnerabilities. 7. Exit strategy (a) A financial institution should establish a robust cloud exit strategy as part of its cloud risk management framework to prepare for extreme adverse events such as the unplanned failure or termination of cloud service providers. The exit strategy should: i) be developed during the cloud deployment planning phase rather than on an ex-post basis; ii) identify alternative cloud service providers (multi-cloud approach) or third- party solutions, or other such means to ensure no business recovery objectives disruption or vendor lock-in; iii) be properly documented including details on the various exit trigger scenarios, roles and responsibilities, and sufficient resources to manage exit plans and the transition activities; and iv) be updated in a timely manner to reflect any material developments. (b) A financial institution’s exit strategy should be supported by an appropriate and proportionate exit plan that establishes the operational arrangements to facilitate an orderly exit from an agreement or arrangement with cloud service provider, including the following: i) conduct impact assessment to determine potential costs, resources, and timing implications of transferring cloud services to an alternative cloud service providers or rely on the in-house arrangement at the financial institution; ii) identify appropriate methods to port data and applications to an alternative arrangement; iii) to obtain written confirmation or attestation from the cloud service providers or independent external service providers that all sensitive data has been securely deleted from the cloud service provider’s system upon completion of the exit process; and iv) conduct testing to validate the effectiveness of the exit plan, to obtain a reasonable degree of assurance of its effectiveness. Risk Management in Technology 63 of 67 Issued on: 1 June 2023 8. Cryptographic key management (a) A financial institution should implement appropriate and relevant encryption techniques to protect the confidentiality and integrity of sensitive data stored on the cloud. (b) A financial institution should ensure its policies and procedures on cryptography are extended to cover cloud services where relevant, to promote the adoption of strong cryptographic controls. (c) Where appropriate and feasible, financial institutions should retain ownership and control of the encryption keys (themselves or with an independent key custodian), independent from the cloud service provider, to minimize the risk of unauthorised access to the data hosted on the cloud. (d) As the usage of cloud adoption increases, managing many encryption keys used for protecting data has become more complex and may introduce new challenges for financial institutions. A financial institution should adopt a comprehensive and centralized approach to key management including the use of centralised key management system that can handle generations, storage and distribution of keys in a secure and scalable manner. 9. Access Controls (a) The management plane is a key security difference between traditional infrastructure and cloud computing where remote access is supported by default. This access layer could be prone to cyber-attacks thereby compromising the integrity of the entire cloud deployment. In view of this, financial Institutions should ensure the use of strong controls for accessing the management plane which may include the following: i) allocate dedicated and effectively hardened endpoints and up to date patching of software to access the management plane; ii) implement “least privilege” and strong multi-factor authentication (MFA) e.g., strong password, soft token, privileged access management tool and maker-checker functions; iii) employ granular entitlement allocation for privileged users; iv) conduct continuous monitoring of the activities performed by privileged users; and v) ensure secure communication protocols are in place for accessing the management plane. e.g., secure end-to-end communication channels, whitelisting of IP addresses, etc. (b) A financial institution should extend its user access matrix to cover user access rights for both the financial institution and its cloud service providers where relevant for the ongoing access to cloud services. (c) A financial institution should ensure their tenant access controls to all hypervisor management functions or administrative consoles for systems hosting Risk Management in Technology 64 of 67 Issued on: 1 June 2023 virtualized systems are effectively implemented in accordance with the requirements and guidance under the Access Control section (paragraphs 10.52 to 10.60) of this policy document. These controls should mitigate the risk of any unauthorised access to the hypervisor management functions and virtual machine. (d) Point-to-point connections with cloud services may proliferate with the ease of cloud adoption, resulting in fragmentation of identity and access management and the risk of unsanctioned data being migrated to the cloud. In view of this, rigorous planning is recommended for the design of identity and access management as it is inherently complex. Financial institutions are encouraged to: i) where appropriate and commensurate with the size and complexity of the cloud adoption, implement a federated29 approach for identity and access management to mitigate risks of identities in cloud services being disjointed from the internal identities, unauthorised access and to ease user access management; and ii) consider additional attributes in context-aware decisions for identity and access management such as pattern of access to further mitigate the risks associated with remote access. 10. Cybersecurity Operations (a) A financial institution should ensure the governance and management of cybersecurity operations is extended to cover cloud services, with appropriate control measures to prevent, detect, and respond to cyber incidents in the cloud environment to maintain the overall security posture of the institution. (b) The interconnected cloud service supply chain could become a source of cyber risk. A financial institution should ensure integrated monitoring and full visibility of cloud services are established. This should include the following: i) continuous monitoring of system communications between the cloud service provider, on-premise IT systems and other service providers to ensure the security perimeter is not breached; and ii) ensuring that third party service providers, including those providing ancillary functions, have adequate capabilities to monitor, detect and respond to anomalous activities, with timely communication to the financial institution of relevant cyber incidents. (c) A financial institution should understand the segregation of responsibility in security management, which varies across the cloud service models. A financial 29 Federated approach for identity and access management is a process / arrangement between multiple systems or enterprises that enables users to use the same identification data to access all related networks. Risk Management in Technology 65 of 67 Issued on: 1 June 2023 institution should manage the sources of vulnerabilities appropriately including by: i) proactively seeking assurance of their cloud service providers to conduct periodic VAPT on the cloud infrastructure to ensure tenant isolation and overall security posture remains healthy; and ii) understanding the cloud service provider’s VAPT policy for the financial institution on cloud infrastructure for IaaS model given the varying degree of the financial institution’s access to the cloud environment and establish a VAPT arrangement with cloud service providers upfront which commensurate with the complexity of the cloud environment. 11. Distributed Denial of Service (DDoS) (a) A financial institution should ensure that its DDoS mitigation service is commensurate with the size and complexity of the cloud adoption. (b) The risk of a single point of failure (SPOF) may surface when a financial institution leverages solely on a cloud-based solution to mitigate DDoS attacks. As such, a financial institution is encouraged to engage alternative DDOS mitigation providers or establish circuit breakers to avoid service disruption when the main DDOS mitigation provider is disrupted. 12. Data Loss Prevention (DLP) (a) A financial institution should protect the data hosted in cloud services as required under the Data Loss Prevention section (paragraphs 11.14 to 11.16) of this policy document, including the expansion of the endpoint footprint if the financial institution allows its staff to use their own devices to access the sensitive data. (b) As it becomes increasingly easy to distribute digital content to customers via cloud services, a financial institution should adopt the appropriate digital rights management mechanism to preserve the confidentiality of its proprietary and customer information. 13. Security Operations Centre (SOC) (a) A financial institution should understand the scope of cloud service providers’ responsibility for cybersecurity monitoring and adapt its SOC strategy and processes to ensure proactive and holistic monitoring of its cybersecurity posture. This adaptation should include the ability to effectively improve cybersecurity telemetry and analysis to detect and respond to cyber threats. (b) Where applicable, the responsibilities of cloud service providers with respect to SOC operations should be formalised in the agreement or arrangement between the financial institution and the cloud service providers, including the retention period required for relevant logs needed for forensic purposes and the right of the financial institution to access the logs for quick restoration as and Risk Management in Technology 66 of 67 Issued on: 1 June 2023 when needed, in accordance with the requirements and guidance under the Access Control section (paragraphs 10.52 to 10.60) and Security of Digital Services section (paragraphs 10.64 to 10.80) of this policy document. 14. Cyber response and recovery (a) A financial institution should enhance existing cyber crisis management policies and procedures to remain in a state of readiness to respond to cyber threats in a cloud environment. (b) A financial institution should extend its Cyber Incident Response Plan (CIRP) to include adverse scenarios that may affect cloud services and establish clear roles and responsibilities between the financial institution and cloud service providers for incident response and remediation. The incident escalation process and turnaround time should be established with cloud service providers and periodically reviewed, to achieve an effective incident response. (c) A financial institution should consider the following additional measures in the development of its CIRP: i) enhance its ability to detect security breach incidents to achieve effective incident management, including the ability to detect data leakage on the dark web; ii) provide adequate assistance to customers in the event of a security breach in view that the complexity of cloud arrangements and sophistication of cyber-attacks often exceed the response range reasonably expected of customers; and iii) ensure CIRP is ready to manage cross-border incidents where the data resides in a foreign jurisdiction. (d) A financial institution should ensure that relevant Cyber Emergency Response Team (CERT) members are conversant with the CIRP covering cloud services to effectively activate the CIRP when incidents occur. (e) A financial institution should extend its existing incident reporting requirements to include cloud services. (f) A financial institution should enter into agreements or arrangements with its cloud service providers to conduct integrated business continuity testing and cyber drill in accordance with the requirement on testing of disaster recovery plan in paragraph 9.48 and 9.50 of the Bank’s policy document on Business Continuity Management (BCM) and paragraphs 11.22 to 11.27 relating to cyber response and recovery under this policy document to test the effectiveness of the financial institution’s CIRP and recovery plan. (g) A financial institution should review its loss provision arrangements to ensure its adequacy to cover cyber incidents based on its scenario analysis of extreme adverse events. Where cyber insurance is adopted to mitigate impact of cyber incidents, the financial institution should: Risk Management in Technology 67 of 67 Issued on: 1 June 2023 i) understand the cyber insurance policy scope to ensure it adequately covers the information security events and liability types identified; ii) understand the insurance policy or takaful certificate’s terms and conditions such as the accuracy of financial institution’s attestation on its cyber risk management capability and its on-going responsibility in information security management to ensure any changes to the IT services and associated control measures do not result in unintended exclusions from the insurance policy or takaful certificate; and iii) continue to strengthen cloud risk management to mitigate likelihood of cyber incidents from materialising. 1 Introduction 2 Applicability 3 Legal provision 4 Effective date 5 Interpretation 6 Related legal instruments and policy documents 7 Policy documents and circulars superseded PART B POLICY REQUIREMENTS 8 Governance 9 Technology Risk Management 10 Technology Operations Management 11 Cybersecurity Management 12 Technology Audit 13 Internal Awareness and Training PART C REGULATORY PROCESS 14 Notification for Technology-Related Applications 15 Consultation and Notification related to Cloud Services 16 Assessment and Gap Analysis	Public Notice
27 Mei 2023	BNM imposes Administrative Monetary Penalty on J.P. Morgan Chase Bank Berhad for non-compliance with the Financial Services Act 2013	https://www.bnm.gov.my/-/ea-pn-01-2019	null	null	null	null	null
27 Mei 2023	BNM imposes Administrative Monetary Penalty and Compound on CIMB Bank Berhad and CIMB Islamic Bank Berhad for non-compliances with the Financial Services Act 2013 and Islamic Financial Services Act 2013	https://www.bnm.gov.my/-/ea-pn-02-2019	null	null	null	null	null
27 Mei 2023	BNM imposes Compound and Administrative Monetary Penalty on Wawasan Ilham (M) Sdn. Bhd. for non-compliance with the Money Services Business Act 2011	https://www.bnm.gov.my/-/ea-pn-01-2023	null	null	null	null	null
27 Mei 2023	BNM imposes Administrative Monetary Penalty on Koperasi Co-opbank Pertama Malaysia Berhad for non-compliance with the Islamic Financial Services Act 2013	https://www.bnm.gov.my/-/ea-pn-02-2023	null	null	null	null	null
27 Mei 2023	BNM imposes Administrative Monetary Penalty on Takaful Ikhlas Family Berhad for failure to conduct sanctions screening and risk profiling on customers	https://www.bnm.gov.my/-/ea-pn-03-2023	null	null	null	null	null
27 Mei 2023	BNM imposes Administrative Monetary Penalty on MCIS Insurance Berhad for failure to conduct targeted financial sanctions screening on customers	https://www.bnm.gov.my/-/ea-pn-04-2023	null	null	null	null	null
17 Apr 2023	Dokumen Dasar Profesionalisme Ejen Insurans dan Takaful	https://www.bnm.gov.my/-/pd-prof-ito-agents-bm	https://www.bnm.gov.my/documents/20124/938039/PD-Professionalism-of-Agents-2023.pdf, https://www.bnm.gov.my/documents/20124/938039/FS-Professionalism-of-Agents-2023.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/pd-prof-ito-agents-bm&languageId=ms_MY	Reading: Dokumen Dasar Profesionalisme Ejen Insurans dan Takaful Share: 5 Dokumen Dasar Profesionalisme Ejen Insurans dan Takaful Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1510 pada Isnin, 17 April 2023 17 Apr 2023 Dokumen Dasar ini menetapkan keperluan untuk penanggung insurans dan pengendali takaful (ITO) berlesen untuk mempromosikan standard kelakuan dan profesionalisme yang tinggi bagi ejen insurans dan takaful mereka. Dokumen Dasar ini termasuk keperluan yang berkaitan dengan pengambilan ejen insurans dan takaful, kelayakan minimum, kriteria yang sesuai dan wajar, dan proses usaha wajar yang perlu dilakukan oleh ITO apabila melantik ejen baharu dan layanan terhadap ejen yang ingkar. Dokumen Dokumen Dasar Profesionalisme Ejen Insurans dan Takaful Ringkasan maklum balas utama yang diterima daripada Konsultasi Awam dan maklum balas oleh BNM Jabatan Pengeluar Jabatan Konsumer dan Amalan Pasaran Bank Negara Malaysia 17 April 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Issued on: 17 April 2023 BNM/RH/PD 029-59 Professionalism of Insurance and Takaful Agents Applicable to: 1. Licensed insurers 2. Licensed takaful operators Professionalism of Insurance and Takaful Agents Issued on: 17 April 2023 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction ................................................................................................ 1 2 Applicability ............................................................................................... 1 3 Legal provisions ........................................................................................ 1 4 Effective date ............................................................................................. 2 5 Interpretation ............................................................................................. 2 6 Related legal instruments and policy documents ...................................... 3 7 Policy documents superseded ................................................................... 3 PART B POLICY REQUIREMENTS ........................................................................ 4 8 Oversight, accountability, management and control of risks related to appointment of agents ............................................................................... 4 9 Appointment of agents .............................................................................. 5 10 Fit and proper criteria ................................................................................ 9 11 Treatment of agents that fail fit and proper criteria .................................. 11 12 Continuous Professional Development and training ............................... 12 13 Other requirements ................................................................................ 13 APPENDIX Template for Reference Checks ....................................................... 14 Professionalism of Insurance and Takaful Agents 1 of 16 Issued on: 17 April 2023 PART A OVERVIEW 1 Introduction 1.1 Licensed insurers and takaful operators’ (ITOs) agents remain as the key distribution channel for insurance and takaful products. For many financial consumers (customers), agents play a critical role in providing sound advice and recommendations to help customers in choosing suitable products as well as in ensuring timely claims submission. In view of this, agents must behave professionally and with integrity in all their dealings with customers. 1.2 The requirements in this policy document are intended to: (a) require ITOs to ensure that their agents are competent, qualified and act professionally in the best interest of customers at all times; and (b) improve public confidence in the integrity of ITOs’ agency workforce as a trusted and reliable channel for distribution of insurance and takaful products. 1.3 Towards this end, the policy document serves to enhance the professionalism of individual agents and further strengthen safeguards in place to ensure a consistent delivery of improved customer outcomes through the ITOs’ agency channel. 1.4 This policy document sets out the requirements that ITOs shall comply with in relation to the recruitment of their agents. This includes requirements relating to the agents’ minimum qualifications, fit and proper criteria, due diligence processes, Continuous Professional Development (CPD) of agents and corrective actions that must be taken by the ITOs in the event of misconduct by agents. 2 Applicability 2.1 This policy document is applicable to all ITOs (excluding licensed reinsurers and retakaful operators) and their existing and new agents (either working on individual basis or under Agency Leader Corporation or Corporate Agency or any other arrangements1) who are involved in the distribution of insurance or takaful products to customers. 3 Legal provisions 3.1 The requirements in this policy document are specified pursuant to sections 123(1) and 143 of Financial Services Act 2013 (FSA) and sections 135(1) and 155 of Islamic Financial Services Act 2013 (IFSA). 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA and section 277 of the IFSA. 1 Excluding approved financial advisers/Islamic financial advisers, approved insurance/takaful brokers and bancassurance/bancatakaful arrangements. Professionalism of Insurance and Takaful Agents 2 of 16 Issued on: 17 April 2023 4 Effective date 4.1 This policy document comes into effect on 1 January 2024. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document: “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “agent” refers to, except stated otherwise, any natural person (including a natural person working under Agency Leader Corporation or Corporate Agency or any other arrangements) who solicits or obtains a proposal on behalf of an ITO, negotiates a contract of insurance or a contract of takaful on behalf of an ITO or does any other act on behalf of an ITO in relation to the issuance, renewal or continuance of an insurance policy or takaful certificate, but excludes the sales staff of licensed banks, licensed Islamic banks, and prescribed institutions2; “Board” means the Board of Directors of an ITO, including a committee of the Board where the responsibilities of the Board set out in this policy document have been delegated to such a committee; “Multi-Level Marketing (MLM)-based distribution arrangement” includes- (a) the sale of insurance or takaful products directly or indirectly by any person who is not an agent registered with an ITO, acting for or on behalf of a party involved in MLM; (b) the efforts of any person who is not an agent registered with an ITO acting for or on behalf of a party involved in MLM, who seeks or encourages other persons to purchase or obtain benefits of any insurance or takaful products of an ITO; or (c) a member-get-member mode of marketing where the member who recruits a new member(s) is paid or given some form of benefit or commission, whether directly or indirectly, by a party involved in MLM. "senior agent”, refers to an appointed agent who has obtained the Module 2 qualifications as specified in paragraph 9.13, or, has been exempted from Module 2 qualifications in accordance with paragraphs 9.14 and 9.16; 2 Refers to prescribed institutions under the Development Financial Institutions Act 2002. Professionalism of Insurance and Takaful Agents 3 of 16 Issued on: 17 April 2023 “senior management” refers to the Chief Executive Officer and senior officers as defined in FSA and IFSA, of an ITO. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by Bank Negara Malaysia (the Bank), including any amendments or reissuance thereafter, in particular: (a) Policy Document on Fair Treatment of Financial Consumers (FTFC) issued on 6 November 2019; (b) Policy Document on Employee Screening issued on 9 March 2018; and (c) Policy Document on Prohibited Business Conduct issued on 15 July 2016. 7 Policy documents superseded 7.1 This policy document supersedes the Specification Letters on Referred Listing on Agents issued on 8 July 2020 and 28 December 2021. The rest of the page is intentionally left as blank Professionalism of Insurance and Takaful Agents 4 of 16 Issued on: 17 April 2023 PART B POLICY REQUIREMENTS 8 Oversight, accountability, management and control of risk related to appointment of agents S S 8.1 The Board of an ITO shall: (a) oversee the formulation and implementation of the ITO’s internal governance and control frameworks (including internal structures, policies and processes) on the appointment of agents, to ensure compliance with the Bank’s requirements; (b) periodically review the appropriateness and effectiveness of the implementation of the ITO’s internal governance and control frameworks referred above; and (c) promote, together with the senior management, a sound corporate culture among the ITO’s agency force, which reinforces ethical, prudent and professional behavior that accords due consideration to customers’ best interest. 8.2 The senior management of an ITO is responsible for establishing and implementing effective internal governance and control framework (including internal structures, policies and processes) on the appointment, movement and termination of agents acting on behalf of the ITO, including in the following areas: (a) a robust due diligence process, as specified in paragraphs 9.1 to 9.6, for the appointment and termination of agents, internal disciplinary procedures, as well as risk tolerance levels that need to be established when considering the appointment of former agents with past disciplinary issues; (b) an effective monitoring mechanism for the movement of agents from one ITO to another ITO or termination of agents to ensure databases of agents registered with the ITOs, which are maintained by the ITOs are comprehensive and are up-to-date to facilitate the due diligence process as specified in paragraph 8.2(a); (c) the ITO’s compliance with the Bank’s requirements, including the obligation to ensure that only agents who meet fit and proper criteria at all times in accordance with the Bank’s requirements are appointed as the ITO’s agent or remain in the ITO’s agency force; (d) a code of ethics that articulates the minimum standards of professional conduct by agents of the ITO in their dealings with customers. Such code of ethics must include the requirements for agents to: i. take into consideration the specific risks, needs and affordability of customers when making product recommendations or providing advice on insurance/takaful coverage including customers’ existing insurance/takaful coverage, if any; and ii. provide assistance on claims and maintain contact with customers for the purpose of ensuring the continuity of services throughout the policy/takaful certificate tenure; (e) sufficient and timely reporting or escalation of pertinent issues by the ITO relating to serious and recurring misconduct by agents, such as breach of Professionalism of Insurance and Takaful Agents 5 of 16 Issued on: 17 April 2023 S trust and misappropriation of insurance premiums/takaful contributions, to its Board; and (f) clearly defined processes and authorities within the ITO which are empowered to make decision on any exceptions to such approved policies and procedures. 8.3 An ITO shall ensure its internal audit function performs periodic review on the adequacy, sufficiency and effectiveness of the implementation of the policies and procedures specified in paragraph 8.2. 9 Appointment of agents Due diligence process S 9.1 An ITO shall undertake the necessary due diligence process prior to appointing its agents to ensure that only qualified individuals who meet the fit and proper criteria as per paragraph 10 are appointed as agents. The due diligence process shall at minimum include: (a) screening of a candidate being considered for the appointment as an agent by the ITO. In this regard, the ITO is required to obtain written consent from the candidate which authorises – i. the ITO to make an inquiry into the candidate’s current and previous employment (including with other ITOs) and any appointment of the candidate as agents by other ITOs for the past seven (7) years; and ii. all of the candidate’s current and former employers (including ITOs) and principals (in relation to the candidate who is or has been an agent of an ITO) in the past seven (7) years to disclose his/her employment history or history as an agent; (b) conducting reference checks of current and former employers (including ITOs) and principals (in respect of agents) of the candidate in the past seven (7) years, including any internal disciplinary proceeding he/she has been or is being subject to, using the template in the Appendix of this policy document; (c) reviewing the candidate’s previous employment and appointment references. In this regard, the ITO is required to check with the respective industry association of ITOs for details of any other ITOs that had previously appointed the candidate or are currently represented by the candidate; and (d) obtaining a declaration by the candidate that he/she does not have any existing or potential conflicts that may raise concerns regarding his/her ability to meet the fit and proper criteria such as previous convictions for offences described under paragraph 10.4(a). The existing or potential conflicts include circumstances where any of the candidate’s immediate family members are/were agents of, employed by the ITO or other ITOs with a record of disciplinary proceedings, or members of senior management or directors of any ITOs. S 9.2 Upon receiving a request for a reference made pursuant to paragraph 9.1(b), an ITO shall provide the hiring ITO a reference for the candidate in writing, Professionalism of Insurance and Takaful Agents 6 of 16 Issued on: 17 April 2023 using the template in the Appendix of this policy document, within 15 working days from the date of the request. G 9.3 If the hiring ITO does not receive the reference requested after 15 working days from the date of its request, the hiring ITO may proceed with its assessment on the candidate’s fitness and propriety based on the policies and procedures established pursuant to paragraph 8.2(a). S S S S S S 9.4 Notwithstanding paragraph 9.3, if the previous employers/ITOs submit the information at any time after 15 working days from the date of the request, the hiring ITO shall re-assess the candidate pursuant to paragraph 10.1 based on the information received. 9.5 For the preparation of the references, an ITO shall comply with the requirements as specified in paragraph 12 of the Policy Document on Employee Screening. 9.6 An ITO shall maintain complete records3 of all supporting documents and information referred to in conducting the screening of new agents. Minimum entry requirements 9.7 An ITO shall ensure its appointed agents meet the following criteria: (a) at least 18 years of age; (b) passed the relevant entry qualification for agents i.e. the Pre-contract Examination for Insurance Agent (PCE) for insurance agents and Takaful Basic Examination (TBE) for takaful agents. Insurance agents who solicit investment-linked products must also pass Certificate Examination in Investment-linked Life Insurance (CEILLI); and (c) fit and proper criteria as specified in paragraph 10 of this policy document. Registration of agents 9.8 An ITO shall ensure all its appointed agents are registered with the relevant industry association i.e. Life Insurance Association of Malaysia (LIAM), General Insurance Association of Malaysia (PIAM) or Malaysian Takaful Association (MTA) (collectively referred to as industry associations) prior to soliciting business for the ITO and that such appointed agents are provided with an identification document (e.g. authorisation card/certificate of registration) to enable customers to identify the agents who are authorised to represent the ITO. The ITOs must ensure that the identification document shall include information on the validity period of the agents’ appointment. 9.9 An ITO shall maintain an up-to-date register containing the list of all its appointed agents and update the relevant industry associations, as and when there are: (a) new agents appointed; 3 All records must be maintained for a minimum of seven (7) years, in line with the provision on disposal of old records in the Companies Act 2016. Professionalism of Insurance and Takaful Agents 7 of 16 Issued on: 17 April 2023 S S G S (b) changes in appointed agents’ status to ‘active’ or ‘inactive’, as well as changes in appointed agents’ address or contact details; or (c) exit, expiry or ending of appointed agents’ tenure with the ITO and the reasons for such exit, expiry or ending i.e. due to termination, resignation, retirement, death or total permanent disability. For avoidance of doubt, the ITO shall update its register within five (5) working days from the final decision or notification of change in circumstances as listed above. Number of principals per agent 9.10 An ITO shall take reasonable measures to ensure that at the time of appointment and during the term of appointment with the ITO, its appointed agents (including agents which are not natural persons) do not represent more than the maximum number of ITOs that can be represented by an agent at any one time, as follows4: (a) one (1) licensed life insurer; (b) one (1) licensed family takaful operator; (c) two (2) licensed general insurers; and (d) two (2) licensed general takaful operators. 9.11 An ITO shall take reasonable steps to monitor the conduct of its agents to: (a) ensure compliance with paragraph 9.10; (b) ensure its agents do not collude and establish a company, platform or any other arrangements etc. to sell products from various ITOs; and (c) detect acts of collusion or attempts to serve as a proxy for other suspended or terminated agents for purpose of parking of business5. This includes formal or informal arrangements, such as receiving an introducer fee or other forms of incentive sharing arrangements, including with agents of other ITOs or suspended or terminated agents, when soliciting business. 9.12 In relation to paragraph 9.11, an ITO may consider conducting random or periodic surveillance on their agents’ social media activities, mystery shopping or welcome calls to customers to verify the identity of the agent who provided advice and recommendation for the insurance/takaful product purchased by the customers. Additional qualification requirements for life insurance and family takaful agents 9.13 In addition to the entry qualification in paragraph 9.7(b), an ITO shall ensure that its appointed agents pass the relevant examinations for the modules specified in the table below if the appointed agents intend to be involved in the 4 For the avoidance of doubt, POS Malaysia shall be exempted from complying with the requirement on number of principals per agent as specified in paragraph 9.10. 5 This refers to the practice of an agent, who usually an agency leader or an influential agent registering a policy/takaful certificate under the name of another agent. Professionalism of Insurance and Takaful Agents 8 of 16 Issued on: 17 April 2023 S S S related activities, in particular, the distribution of life insurance or family takaful products, as the case may be: Qualifications Mandatory Areas of Knowledge For life insurance agents: (a) Module 2 of Registered Financial Planner (RFP) offered by the Malaysian Financial Planning Council (MFPC); or 1. Risk management; and 2. Insurance planning. (b) Module 2 of Certified Financial Planner (CFP) offered by the Financial Planning Association of Malaysia (FPAM); or (c) Fellow Certified Life Practitioner (FCLP) offered by the National Association of Malaysian Life Insurance and Family Takaful Advisors (NAMLIFA). Completion of all modules of FCLP For family takaful agents: (a) Module 2 of Shariah Registered Financial Planner offered by the MFPC; or 1. Risk management; and 2. Takaful planning. (b) Module 2 of Islamic Financial Planner (IFP) offered by the FPAM. 9.14 Notwithstanding paragraph 9.13, an ITO shall exempt its appointed agents from passing the relevant examinations for any of the qualifications specified in the table above if the appointed agents have obtained other qualifications that are recognised by MFPC or FPAM to be equivalent to Module 2 of RFP/CFP or Shariah RFP/IFP, as the case may be. 9.15 An ITO shall ensure that its appointed agents obtain the additional qualification stipulated in paragraph 9.13 within the following timeframe: (a) within one (1) year of appointment for all appointed agents who are fresh entrants to the life insurance and/or family takaful industries; and (b) within two (2) years from the effective date of this policy document for appointed agents with less than ten (10) cumulative years of experience as a life insurance and/or family takaful agent, subject to the exception specified in paragraph 9.16. 9.16 For avoidance of doubt, the following categories of appointed agents are exempted from the requirements under paragraph 9.13: (a) agents with at least ten (10) years of cumulative experience (based on the anniversary of the date they are first registered with an ITO) in the life insurance and/or family takaful industries as at 1 January 2024; or (b) agents with five (5) years or more of cumulative experience (based on the anniversary date they are first registered with an ITO) in the life insurance Professionalism of Insurance and Takaful Agents 9 of 16 Issued on: 17 April 2023 G S G S G and/or family takaful industries as at 1 January 2024 and are in the category of ‘normal’ or ‘outperformer’ for their 2023 Balanced Scorecard performance. 9.17 For the purpose of meeting the CPD requirement as specified in paragraph 12.1, an ITO may allow its appointed agents to fulfil 15 CPD hours when attending classes for the relevant examinations specified in paragraph 9.13. 9.18 An ITO shall suspend its appointed agents from making any further sales in the event the appointed agents fail to obtain the additional qualification within the timeframe as specified in paragraph 9.15. The suspension shall remain in effect until the appointed agents obtain the additional qualification. An ITO shall also ensure appropriate arrangements are in place to supervise and monitor the suspended agents’ conduct in servicing customers (i.e. existing policyholders or takaful participants). 9.19 Notwithstanding paragraph 9.18, in the event newly appointed agents fail to obtain the additional qualification within one (1) year of appointment as specified in paragraph 9.15(a), the newly appointed agents are allowed to continue sourcing for new business under the supervision of a senior agent and service existing clients for one (1) more year. For example, an agent who was newly appointed on 1 January 2024, and who has failed to obtain the additional qualification by 31 December 2024, is allowed to continue sourcing for new business under the supervision of a senior agent and service existing clients while continuing to sit for the M2 examination from 1 January 2025 up to 31 December 2025. 9.20 For avoidance of doubt, if the newly appointed agent in the example in paragraph 9.19 still fails to obtain such additional qualification by 31 December 2025, this agent must be suspended from sourcing for new business from 1 January 2026 until this agent has successfully obtained the additional qualification. 9.21 In relation to paragraphs 9.18 and 9.20, suspended agents may continue to service their existing customers, including prospective customers who the suspended agents have provided product recommendation. During this period, these agents remain as servicing agents and would continue to receive commissions. 10 Fit and proper criteria S S 10.1 An ITO shall ensure that any person appointed to be its agent has been assessed to have met all the fit and proper criteria specified in paragraph 10, at the point of his/her appointment and at all times thereafter. 10.2 The ITO’s assessment on its appointed agent’s compliance with the fit and proper criteria shall be conducted both prior to an agent’s appointment and at regular intervals or whenever the ITO becomes aware of any information that may compromise the appointed agent’s fitness and propriety. Professionalism of Insurance and Takaful Agents 10 of 16 Issued on: 17 April 2023 S S S 10.3 In relation to paragraph 10.2, an ITO shall ensure that the fit and proper assessments are supported by relevant documents and information in relation to the person being assessed. Where an ITO places significant reliance on information that is obtained from the person being assessed, and that information is material to the determination of the person’s fitness and propriety, the ITO shall take reasonable steps to verify the information from independent sources such as checking with the respective industry associations to ascertain whether the person has had any history of misconduct when appointed as an agent of other ITOs and where necessary, verifying the information using original documents provided by the person. Criteria 1: Probity, personal integrity and reputation 10.4 An ITO’s assessment of a candidate to be appointed as its agent and existing agents in terms of probity, personal integrity and reputation shall include, but are not limited to, the following considerations: (a) the person has not been convicted of and/or through the ITO’s domestic inquiry process or otherwise found to have committed: i. criminal acts or criminal breach of trust, including misappropriation of clients’ monies; or ii. offences under section 28, 29 or 124 of the FSA or section 25, 26 or 136 of the IFSA and paragraph 11 of Schedule 9 of FSA or IFSA; (b) the person has not contravened any requirements or provision of law designed to protect members of the public against financial loss due to dishonesty, incompetence or malpractice; (c) the person has not contravened any requirements or standards of any regulatory body, professional body, Government/State Government or their agencies; (d) the person has not been dismissed, terminated or resigned from employment, a position of trust, fiduciary appointment or similar position due to dishonest conduct or questions on his integrity; (e) the person has not engaged in any business practices which are deceitful, oppressive or otherwise improper (whether unlawful or not), or which otherwise reflect discredit on his professional conduct or his reputation; and (f) the person has no previous record of unfair or dishonest acts in his dealings with customers, employer(s), auditors and regulatory authorities. This includes the use of or serving as proxies in selling, offering or marketing of insurance or takaful products as specified in paragraph 9.11. Criteria 2: Competency and capability 10.5 An ITO’s assessment of competency and capability of a candidate as its agent or existing agents shall include, but are not limited to, the following considerations: (a) the person has the appropriate qualifications, training, skills, practical experience and commitment to effectively fulfill the role and responsibilities of an agent; and (b) the person has satisfactory past performance or expertise relevant to the nature of the business being conducted. Professionalism of Insurance and Takaful Agents 11 of 16 Issued on: 17 April 2023 S Criteria 3: Financial integrity 10.6 An ITO’s assessment of a candidate as its agent or existing agents’ financial integrity shall include, but are not limited to, the following considerations: (a) the person has been and will be able to fulfill his/her financial obligations as and when they fall due; and (b) the person has not been the subject of a judgment debt which has not been satisfied either in whole or in part. 11 Treatment of agents that fail fit and proper criteria S S S 11.1 In the event an ITO’s agent fails to meet any of the fit and proper criteria in paragraph 10 above, an ITO shall determine the appropriate actions including disciplinary actions to be taken against the agent, based on the established policies and procedures established by the ITO pursuant to the requirement in paragraph 8.2. For an agent who has been found to have committed offences specified in paragraph 10.4(a)(i) and (ii) through the ITO’s domestic inquiry process or otherwise, the ITO shall lodge a police report of such fact before informing the respective industry association as required under paragraph 11.2. The ITO shall maintain proper records of any internal inquiry, investigation, disciplinary proceedings or any other proceedings or action undertaken by the ITO. 11.2 Within ten (10) working days of determining the appropriate actions to be taken against the agent who fails to satisfy the fit and proper criteria under paragraph 10, an ITO is required to inform the respective industry association of the pertinent information as described in paragraph 11.3. Similarly, an ITO shall inform the respective industry association regarding any agents who have ceased to be the ITO’s agent but had engaged in such misconduct before the agent’s cessation as the ITO’s appointed agent. Such information on the agent’s conduct shall be retained by the ITO in its database for future reference6. 11.3 An ITO is required to submit the relevant information including the following information to the relevant industry association(s) in the event the obligations under paragraphs 11.1 and 11.2 are triggered: (a) name and contact details of the ITO submitting the information; (b) date of the submission of information; (c) name and identification number of the agent; (d) description of the agent’s misconduct and the manner in which the agent has failed to meet fit and proper criteria; (e) date of initiation and conclusion of ITO’s internal inquiry, investigation, disciplinary proceedings or any other proceedings or action; and (f) brief description of disciplinary action or any other action taken against the agent. 6 All records must be maintained for a minimum of seven (7) years, in line with the provision on disposal of old records in the Companies Act 2016. Professionalism of Insurance and Takaful Agents 12 of 16 Issued on: 17 April 2023 S S S 11.4 In the event of an appeal by the agent in relation to any actions taken by an ITO due to the agent’s failure to meet the fit and proper criteria, the ITO shall inform the respective industry association of any changes in its decision, within five (5) working days after the decision has been made by the ITO. Any changes in the ITO’s decision shall be supported by appropriate justifications. 11.5 An ITO shall communicate: (a) to the affected agent, the outcome of its internal inquiry, investigation, disciplinary proceedings or any other proceedings or action; and (b) to the policyholders or takaful participants, on the cessation of the affected agent’s services. 11.6 An ITO shall ensure the policyholders or takaful participants previously served by the affected agent that have resigned or been terminated or suspended as the case may be, continue to be served, either by another appointed agent or directly by the ITO7. 12 Continuous Professional Development and training S S 12.1 An ITO shall ensure that its appointed agents attend courses or training to achieve the minimum required CPD hours in each calendar year. The minimum CPD hours required for each type of agent is as follows: Life insurance/family takaful agents General insurance/ takaful agents CPD hours a) Newly appointed agents who are fresh entrants to the insurance/takaful industries are required to complete: 20 hours training within the first six (6) months of appointment 12 hours training within the first six (6) months of appointment b) Existing agents with more than one (1) year of experience in the insurance/takaful industries (including agents who are reappointed by another ITO), are required to complete: 30 CPD hours, comprising: • Technical training; and • Non-technical training 20 CPD hours, comprising: • Technical training; and • Non-technical training 12.2 An ITO shall adhere to the following conditions relating to CPD hours: 7 For affected policies which no longer serviced by an agent, an ITO is required to contact the affected customers and provide the options for customers to either be assigned to another agent or to deal directly with the ITO. Professionalism of Insurance and Takaful Agents 13 of 16 Issued on: 17 April 2023 S S S G S S S (a) credit points for CPD can be earned only once for the same programme i.e. each agent can earn credit from the same programme only once per agency contract; (b) for agents with more than one (1) principal ITO, CPD points awarded through the first principal are allowed to be combined with and recognised by other principal ITOs that the agents are registered with for the purpose of meeting CPD requirements; and (c) any CPD hours including extra points earned is not allowed to be carried forward to the following year. 12.3 An ITO shall determine the composition of technical and non-technical training programmes required to be attended by its appointed agents based on the agents’ development needs and the business needs of the ITO on a yearly basis. 12.4 In relation to paragraphs 12.2 and 12.3, an ITO shall adhere or refer to the respective industry association’s guidance on the structure and types of CPD programmes to be attended by its appointed agents. 12.5 An ITO shall ensure its appointed agents comply with the CPD requirements by conducting the following: (a) reviewing and following-up on each of its appointed agents’ CPD training needs on an annual basis; and (b) monitoring, obtaining and retaining relevant supporting evidence that each of its appointed agents has completed minimum CPD hours required within the stipulated period in paragraph 12.1. This includes records of the CPD hours and types of training or courses attended by each of its appointed agents. 12.6 An ITO may exercise flexibility in terms of extending the periods in paragraph 12.1 for its appointed agents’ compliance with remaining CPD hours on a case-to-case basis subject to valid reasons. 12.7 An ITO is required to exercise its discretion under paragraph 12.6 objectively and maintain proper records on the decisions reached together with any supporting documents. Such records shall be made available to the Bank upon request by the Bank. 13 Other requirements Prohibition on participation in MLM 13.1 An ITO shall ensure that its staff and appointed agents (including agents which are not natural persons) do not, directly or indirectly, participate or be involved in or allow the sale of its insurance/takaful products through MLM-based distribution arrangements as described in paragraph 5.2. 13.2 An ITO shall ensure that its staff and appointed agents (including agents which are not natural persons) are aware of the prohibition on participating in MLM- based distribution arrangements and ensure compliance to this prohibition. Professionalism of Insurance and Takaful Agents 14 of 16 Issued on: 17 April 2023 APPENDIX: TEMPLATE FOR REFERENCE CHECKS In line with paragraph 9.1(a) of Bank Negara Malaysia’s Policy Document on Professionalism of Insurance and Takaful Agents, the written consent of the candidate which authorizes the hiring licensed insurer/takaful operator (ITO) to make enquiries into the candidate’s previous employment history and records must be attached to the reference form. PART A BACKGROUND (i) To be completed by the hiring ITO Name of ITO Name and Designation of Requesting Officer Contact Details of Requesting Officer Date of request Candidate’s name Candidate’s MyKad/passport number (ii) To be completed by the candidate’s current/former employers/ITOs Name of institution Name and Designation of Responding Officer Contact Details of Responding Officer Date of response All functions held by the individual in the institution, including past functions, and the period during which the individual held the function– Function From (date) To (date) Description of role Professionalism of Insurance and Takaful Agents 15 of 16 Issued on: 17 April 2023 PART B MANDATORY INFORMATION Question 1 Has the candidate been subject to any internal disciplinary proceedings for an incident which relates to his/her conduct or integrity? Yes No If yes, please provide the following information (to be reported separately for each incident): i) Date of incident; ii) Date of initiation of internal disciplinary proceedings; iii) Factual description of the incident (e.g. nature of the allegations); iv) Details of the candidate’s written representation in response to an allegation, if any; v) Status of internal disciplinary proceedings− a. Concluded (please include decision of the proceedings); b. Ongoing; or c. Unable to proceed (please specify reason, e.g. insufficient evidence); vi) Action(s) taken, if any; and vii) Outcome of appeal, if any. Question 2 To your knowledge, has the candidate been found by any authority to be in breach of any legal or regulatory requirements under any written law, whether in or outside Malaysia? If yes, please provide the following information (to be reported separately for each incident): i) Date of breach; ii) Factual description of the breach; iii) Date of notification by the authority; and iv) Enforcement action(s) taken, if any. To be completed by the candidate’s current/former employers/ITO. The responses to Questions 1 and 2 must cover the entire period the candidate was employed by the institution. Professionalism of Insurance and Takaful Agents 16 of 16 Issued on: 17 April 2023 PART C ADDITIONAL INFORMATION Question 3 If you are aware of any additional information (positive or negative)8 that you consider relevant for an assessment of the candidate’s conduct or integrity, please provide the information below. 8 For example, evidence of good behaviour or exemplary conduct by the individual, or information that the institution considers significant that may have an impact on the character assessment of the candidate. To be completed by the candidate’s current/former employers/ITOs Feedback Statement - Professionalism of Insurance and Takaful Agents PUBLIC FEEDBACK STATEMENT 1 Policy Document on Professionalism of Insurance and Takaful Agents: Summary of Key Feedback Received from Public Consultation and BNM’s Responses In April 2022, Bank Negara Malaysia (the Bank) has issued an exposure draft on the Professionalism of Insurance and Takaful Agents for public consultation. The Bank has received feedback from 41 respondents from insurers and takaful operators (ITOs), industry associations, professional bodies and individual agents. The Bank appreciates the effort made in providing comments and suggestions that are relevant for the Bank’s consideration in finalising the requirements in the Policy Document on Professionalism of Insurance and Takaful Agents (PD). This feedback statement is intended to summarise the key feedback received and the Bank’s responses to provide greater insights on the Bank’s policy and supervisory expectations. Other comments and suggestions for clarification have either been incorporated in the PD or included in the Frequently Asked Questions. No Areas Feedback received Responses 1. Types of agents that will be subject to the requirements in the ED The definition of agent provided in the Exposure Draft (ED) does not include definition of other classes of agents as set out in the industry’s Intercompany Agreements. The industry requests for clarification whether the other classes of agents would be captured in this PD. The Bank has further refined the definition of agent in the PD. The revised definition should provide further clarity on the types of agents that are subject to the PD and the relevant requirements applicable to them. Following the issuance of this PD, the industry associations are expected to withdraw their respective guidelines on matters already specified in this PD. The industry associations may, however, establish industry codes or best practices to assist their respective members in complying to the requirements. PUBLIC FEEDBACK STATEMENT 2 No Areas Feedback received Responses 2. Due diligence process prior to appointing agents While there are no strong objections to the requirement to conduct due diligence process, the industry enquired and proposed for the establishment of a centralised database of agents to ease the process. Such database should be accessible to all ITOs and include information of agents’ details, history of employment and agents’ misconduct, if any. The industry also suggested for this requirement to be coordinated by the associations to ensure ITOs’ replies on reference checks requests are aligned and fair. The establishment of the centralised database is being considered to support more effective due diligence processes by respective ITOs. The Life Insurance Association of Malaysia (LIAM), General Insurance Association of Malaysia (PIAM) and Malaysian Takaful Association (MTA) are currently working closely with the Bank to develop the database. 3. Identification document for all registered agents. The industry sought clarification on the following issues: a) Whether the associations will continue to issue the authorisation card/certificate of registration. b) Whether the validity of the card/certificate remains at 2 years as per current practice. The industry suggests for the Bank to standardise the validity period or empower the associations to prescribe the validity period. c) Whether customers would be able to verify the agents via the associations’ website or would the associations are expected to revert to issuing physical identification cards to agents. Currently associations no longer issue physical cards as customers could verify the license status of such agents in the associations’ portal. Moving forward, the industry associations are no longer required to issue authorisation cards/certificate of registration for agents of ITOs. In this respect, the associations’ role in relation to the registration of agents will be more administrative in nature i.e. maintaining the centralised database of agents. Customers may still verify the status of agents with the associations since ITOs are required to update the list and status of their agents with the relevant industry association. Thus, the ITOs will assume the responsibility of issuing the necessary authorisation or certification documents to enable customers to identify and verify the status of agents. PUBLIC FEEDBACK STATEMENT 3 No Areas Feedback received Responses 4. Number of principals per agent An industry association sought clarification on the expectation of the associations regarding compliance to paragraph 9.10. If the associations are expected to take on the administrative role of maintaining the database of agents only, the associations then are no longer required to ensure agents compliance with the requirement. Additionally, the association sought clarification whether they are authorised to conduct verification checks on agents and sharing the verification to hiring ITOs. With the issuance of the PD, the responsibility to ensure compliance to paragraph 9.10 lies with the ITOs. However, by virtue of paragraph 9.1(c) of the PD, the industry associations are authorised and required to support the due diligence process conducted by ITOs. This would include early notifications from the relevant industry associations to hiring ITOs on any other ITO(s) that have also registered a prospective agent, to avoid any breaches of this requirement. 5.. Imposition of additional qualifications to distribute life insurance or family takaful products a) New agents and existing agents to obtain the additional qualification within one year of appointment and two years from effective date of the PD, respectively. Applicability This requirement should only be applicable to new agents, not to existing agents. Reasons provided are as follows: a) Should an existing agent fail to pass the mandatory programs, this would lead to the suspension of the agent and potentially termination. It would be unfair for these agents to be suspended or terminated due to failing to obtain the qualification as they have spent years building their career in the industry. b) In the past, new requirements did not affect existing agents. It is unfair to impose The Bank has further revised the applicability of the additional qualification requirement on existing agents in the PD. See paragraphs 9.13 to 9.21 for details. The revised requirements reflect the Bank’s acknowledgement that existing agents who have been in service for over 10 years would have gained the pre-requisite knowledge in risk management and insurance/takaful planning through on-the-job experience and fulfilment of continuous professional development programmes. PUBLIC FEEDBACK STATEMENT 4 No Areas Feedback received Responses additional educational requirement after these agents had served numerous years in the industry. Existing agents should only be encouraged to attend the classes on the mandatory courses in order for them to acquire knowledge. Possessing paper qualification does not necessarily make an agent more professional. There is also no guarantee that the additional qualification requirement would eliminate errant agents. Existing agents with more than five years of experience should be exempted from this requirement. Similarly, existing agents who have been in service for 5 years or more and who have been consistent in achieving good or exemplary performance will also be exempted from having to pass this additional qualification. Nonetheless, the Bank considers the additional qualification - Module 2 of the Registered Financial Planner/Certified Financial Planner (and its equivalent Shariah qualifications) - covers essential areas on risk management and insurance/takaful planning. These topics are currently lacking in the syllabus of the existing mandatory qualifications (i.e. PCE, TBE, CEILLI) which all new candidates must pass before they can be registered as agents. The Bank considers the need to raise the bar on such minimum qualifications to be timely and commensurate with the growing complexity of products offered by life insurers and family takaful operators. Further extending the timeframe for new and existing agents (who do not qualify for exemptions) to obtain the additional qualification may heighten the risk of consumers being given improper advice or purchasing products that are not best suited to their needs. Agents who fail to pass the additional qualifications at their first attempt are encouraged to re-sit for the examination once they are ready. Timeframe Feedback received indicated that the timeframe is too short: a) It is overwhelming for new agents given other mandatory training required by the associations within the first two years; and b) Too challenging as these agents are in the early stage of learning the fundamentals (e.g. products, compliance, selling skills) within the first year. The industry recommended the following proposals: PUBLIC FEEDBACK STATEMENT 5 No Areas Feedback received Responses a) extend the requirement for new agents to obtain additional qualification to two or three years; b) Extend the timeframe for existing agents to obtain the additional qualification to three years; and c) To extend the timeframe to five years for new agents. To ensure new agents’ livelihoods are not unduly impacted during this period, new agents who fail to obtain the additional qualification within one year of appointment would not be immediately suspended. These agents would be allowed another year to obtain the qualification while continuing to service existing customers and solicit new business, under the supervision of a more senior agent who has completed or is exempted from meeting the additional qualification requirement. Existing agents who are not eligible for the exemption from taking the additional qualification would have two years from the effective date of the PD to pass the exam. In this regard, ITOs are strongly encouraged to play an active role in supporting and motivating their new agents to obtain this additional qualification, such as through cash rewards for those who succeed in passing at their first attempt and/or by subsidising the fees for attending classes or sitting for exams. PUBLIC FEEDBACK STATEMENT 6 No Areas Feedback received Responses 6. Timeframe to inform associations on agent’s failure to meet the fit and proper criteria The industry requested for an extension on the timeframe: a) To inform industry associations within 15 working days after determining appropriate actions to be taken against agents (instead of 10 days); and b) To inform industry associations within 10 working days in the event there are any changes in actions taken after appeal by agent (instead of 5 days) The Bank is of the view that 10 working days and 5 working days (in the case of appeals) to update the associations should be sufficient as the assessment and decision made by ITOs would have already been finalised. As provided in the PD, only a brief description is required to be submitted to the respective associations. See paragraph 11.3 in the PD. 7. Effective date of the PD. Majority of the ITOs requested an effective date that is between six to 12 months post issuance of the PD. ITOs would require more time to enhance internal system, revise internal policies and procedures and to undertake communication and education activities to staff and agents. Taking into consideration the feedback received, the Bank has agreed for the effective date to be on 1 January 2024. This should provide sufficient time and resources for ITOs to plan and effect the changes required in complying with the PD. BANK NEGARA MALAYSIA 17 APRIL 2023 1 Policy Document on Professionalism of Insurance and Takaful Agents (PD) Frequently Asked Questions No. Paragraph/Question Question/Suggestions Response 1 5.2 “agent” refers to any person who solicits or obtains a proposal for an ITO, offers or assumes to act on behalf of an ITO in negotiating a policy or takaful certificate or does any other act on behalf of an ITO in relation to the issuance, renewal or continuance of a policy or takaful certificate; The industry seeks further clarification whether different types of intermediaries would also be applicable to this PD e.g. corporate nominees, corporate agents, bancassurance/bancatakaful. The definition of agents in the PD has been further refined to reflect the actual intention, as follows. Agent refers to, except stated otherwise, any natural person (including a natural person working under Agency Leader Corporation or Corporate Agency or any other arrangements) who solicits or obtains a proposal on behalf of an ITO, negotiates a contract of insurance or a contract of takaful on behalf of an ITO or does any other act on behalf of an ITO in relation to the issuance, renewal or continuance of a policy or takaful certificate, but excludes the sales staff of licensed banks, licensed Islamic banks, and prescribed institutions. For further clarification this PD excludes individuals who are under the bancassurance/bancatakaful arrangement and other intermediaries who acts on behalf of consumers i.e. financial advisers or brokers. 2 5.2 “Multi-Level Marketing (MLM)-based distribution arrangement” refers to- (c) a member-get-member mode of marketing where the member who recruits a new member(s) is paid or given some form of benefit or Does “member-get-member” refer to a person who introduces others to become insurance/takaful agents? No, it does not refer to acts of introducing non-agents to become agents. Paragraph 5.2(c) refers to individuals (non-agents) who are remunerated for successfully ‘recruiting’ other individuals to become “referrers” (who refer customers to a registered agent). 2 commission, whether directly or indirectly, by a party involved in MLM. 3 8.2 The senior management of an Insurers and Takaful Operators (ITOs) is responsible for establishing …: (d) a code of ethics that articulates the minimum standards of professional conduct by agents of the ITO. Such code of ethics must include the requirements for agents to: i. take into consideration the specific risks, needs and affordability of customers when agents make product recommendations or advice on existing insurance/takaful coverage; ii. provide assistance on claims and maintain contact with customers for the purpose of ensuring the continuity of services throughout the policy/certificate tenure. Clarification on expectation of senior management on Code of Ethics (COE): Can ITOs adopt the best practices in the COE prepared by associations? ITOs are expected to establish their own COE to govern their own agents. ITOs may adopt any relevant parts of the current COE issued by the respective associations. 4 Since ITOs are required to establish their own policies and procedures, there will be differing standards on appointment and retention of agents adopted by ITOs. What is BNM’s take on this. There would be differences in COE of each ITO due to the different levels of standard and expectations on the conduct of their respective agents. However, we are of the view that each ITO would at least cover important elements among others, fair treatment to consumers, managing conflict of interest, confidentiality of information and abuse of position. 3 5 9.1 An ITO shall undertake the necessary due diligence process prior to appointing its agents to ensure that only qualified individuals who meet the fit and proper criteria as per paragraph 10 are appointed as agents. The due diligence process shall at minimum include: (a) screening of a candidate being considered for the appointment as an agent by the ITO. In this regard, the ITO is required to obtain written consent from the candidate authorizing the ITO to make enquiries into the candidate’s previous employment history and records; (b) conducting reference checks with all current and former employers/ITOs of the candidate including any internal disciplinary proceeding he/she has been subject to; … (d) obtaining a declaration by the candidate that he/she does not have any existing or potential conflicts that may raise concerns regarding his/her ability to meet the fit and proper criteria, including if any of his/her immediate family members were agents of, employed by the ITO or other ITOs with a record of disciplinary proceedings, or members of [In relation to 9.1 (a)] Is the screening requirement applicable to existing agent? Paragraph 9 stipulates the requirements for assessing new candidates to become agents of an ITO regardless of whether the candidates are currently agents of other ITOs or new to the industry. 6 [In relation to 9.1 (b)] Does the reference check include non- financial service providers? Reference check is required for all previous employers/ITOs. This includes non-financial service providers (if the candidate was previously employed by non-financial service providers). 7 [In relation to 9.1 (d)] Please define the scope of “immediate family members”. “Immediate family members” here includes parents, siblings, spouse(s) and children. 8 [In relation to 9.1 (d)] What is the intention behind this requirement? The intention is to prevent new agents from being used to serve as proxies in selling, offering or marketing of insurance or takaful products on behalf of agents that have been terminated or suspended. For example, a candidate who is applying to be a new agent under an ITO has a spouse who has been terminated or suspended by the ITO. In this case, the ITO must ensure that the candidate is not applying with the intention to serve as a proxy agent for their spouse. 4 senior management or directors of any ITOs. 9 9.7 An ITO shall maintain an up-to-date register containing the list of all its appointed agents and update the relevant industry associations as and when: (a) new agents are appointed; (b) change in appointed agents’ status to active or inactive; and exit, expiry, ending of appointed agents’ tenure with the ITO with reasons i.e. due to termination, resignation, retirement, death or total permanent disability. Seek clarification on who would be maintaining the registered agents database. As specified in the said paragraph, respective ITOs are expected to maintain their own database of agents registered under them and to update relevant industry associations accordingly as and when there are new appointments or changes in appointed agents status. ITOs may also opt to make available on their websites a list of agents registered with the ITOs to facilitate customers verifying the status of agents. 10 9.10 An ITO shall take reasonable measures to ensure that - at the time of appointment and during the term of appointment with the ITO - its appointed agents (including agents which are not natural persons) do not represent more than the maximum number of ITOs that can be represented by an agent at any one time, as follows : (a) one licensed life insurer; (b) one licensed family takaful operator; (c) two licensed general insurers; and (d) two licensed general takaful operators. Seek examples of reasonable measures that can be taken by ITOs. Some of the measures that ITOs may consider taking to ensure agents’ compliance to this requirement include: (a) periodic checking with industry associations; (b) conduct continuous market scanning of their agents’ activities; (c) act on complaints or tip-off received from public; or (d) require periodic declaration from agents as part of their fit and proper assessment. 5 11 9.13 An ITO shall suspend its appointed agent from making any further sales in the event where the appointed agent fails to obtain the additional qualification within the timeframe as specified in paragraph 9.12. The suspension shall remain in effect until the appointed agent obtains the additional qualification. However, the agent may continue to service existing customers subject to paragraph 9.14. Does an agent remain a servicing agent and continue to receive commission on existing business while under suspension? The Bank has further revised the requirement on suspension of new agents. Should the new agents’ fail to obtain the additional qualification within one year of appointment, they would not be immediately suspended. These agents are given another year to obtain the qualification while continuing to service existing customers and solicit new business, under the supervision of a more senior agent who has completed or are exempted from meeting the additional qualification requirements. During this period, agents remain as servicing agents and would continue to receive commissions. However, if the agents still fail to obtain the additional qualification by the end of the second year, these agents must be suspended from sourcing for new business until they successfully obtained the additional qualification. For purpose of clarity, while agents are under the suspension due to failure in obtaining M2 by the specified timeframe, the agents shall continue to: (a) provide after-sales service to existing customers; (b) receive commissions from the existing business; and (c) conclude sales for potential customers whom the agents have provided advice and recommended products prior to the suspension. The after-sales service could also be provided. 6 11 (a) Is there a timeframe for when a suspended agent should obtain the additional qualification before termination? (b) Does an agent remain under suspension until completion of the additional qualification or up to termination? Incidents leading to termination of agents are part of an ITOs’ business decision. Thus, ITOs should establish their respective timelines to determine when suspended agents who continue to fail to obtain the additional qualification should be terminated. 12 10.2 The ITO’s assessment on its appointed agent’s compliance with the fit and proper criteria shall be conducted both prior to an agent’s appointment and at regular intervals or whenever the ITO becomes aware of any information that may compromise the appointed agent’s fitness and propriety. How frequent should assessment on fitness and propriety be conducted? The frequency of assessment of existing agents’ fitness and propriety shall be based on the respective ITO’s policies and procedures and should be commensurate to its assessment of prevailing risks relating to its own agency force. The senior management of respective ITOs are responsible for establishing and implementing effective internal governance and control framework on appointment, movement and termination of agents, including a robust due diligence process that covers compliance to the fit and proper criteria. In addition, ITOs are required to assess the agents’ fitness and propriety in the event the ITOs become aware of the agents’ potential non-compliance with the requirements on fit and proper criteria (paragraph 10 of the PD). Bank Negara Malaysia 17 April 2023 Prof of Agents_Feedback Statement (17042023) clean Prof of Agents_FAQ (17042023) clean	Public Notice
03 Apr 2023	Policy Document on Management of Customer Information and Permitted Disclosures	https://www.bnm.gov.my/-/pd-mcipd	null	null	Reading: Policy Document on Management of Customer Information and Permitted Disclosures Share: 18 Policy Document on Management of Customer Information and Permitted Disclosures Embargo : For immediate release Not for publication or broadcast before 2230 on Monday, 3 April 2023 3 Apr 2023 Issuance Date 3 April 2023 Summary This policy document sets out the requirements regarding financial service providers’ measures and controls in handling customer information throughout the information lifecycle. The policy document also specifies the conditions in relation to the disclosure of customer information in accordance with the permitted disclosures set out in Schedule 11 of the Financial Services Act 2013 and Islamic Financial Services Act 2013, as well as the Fourth Schedule of the Development Financial Institutions Act 2002. Revisions made to this policy document are as follows: Paragraph 5.2 on definitions of “customer information” and “outsourcing arrangement”. Paragraph 13 under Part C on conditions in relation to permitted disclosure: Enhanced condition for item 1 under subparagraph (d)(iii); and New conditions under item 8 for the disclosure of customer information that is permitted in writing by the customer, the executor or administrator of the customer, or in the case of a customer who is incapacitated, any other legal personal representative.Superseded Policy This policy document supersedes the policy document on the Management of Customer Information and Permitted Disclosures issued on 12 October 2021. Documents Policy Document on Management of Customer Information and Permitted Disclosures Appendix I - Template for reporting customer information breach Appendix V - Template for application for disclosure of customer information Section in Charge Market Conduct Regulation Issuing Department Jabatan Konsumer dan Amalan Pasaran Bank Negara Malaysia 3 April 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
28 Mac 2023	Exposure Draft on Financial Technology Regulatory Sandbox Framework	https://www.bnm.gov.my/-/ed-sandbox-2023	null	null	null	null	null
03 Mac 2023	Senarai Amaran Pengguna Kewangan telah dikemas kini	https://www.bnm.gov.my/-/senarai-amaran-pengguna-kewangan-telah-dikemas-kini	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/senarai-amaran-pengguna-kewangan-telah-dikemas-kini&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemas kini Share: 2 Senarai Amaran Pengguna Kewangan telah dikemas kini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1000 pada Jumaat, 3 Mac 2023 3 Mac 2023 Bank telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan pentadbiran berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat berikut ditambahkan ke dalam senarai: TriumphFX; and Najmuldin Exchanger (NE) Sila ambil maklum bahawa TriumphFX dimasukkan dalam senarai ini kerana syarikat tersebut telah dipromosikan melalui laman web yang berikut: https://eobinfinity.com, https://eobmiles.com dan halaman Facebook Triumph Investment Malaysia: https://www.facebook.com/profile.php?id=100069799277365&mibextid=LQQJ4d Senarai ini dikemas kini secara berkala untuk rujukan orang ramai. Untuk melihat senarai Amaran Pengguna Kewangan yang dikemas kini, sila kunjungi bnm.gov.my/fca. Bank Negara Malaysia 3 Mac 2023 © Bank Negara Malaysia, 2023. All rights reserved.	null	Public Notice
28 Feb 2023	Draf Dedahan Layanan Adil Terhadap Pengguna Mudah Terjejas	https://www.bnm.gov.my/-/draf-dedahan-layanan-adil-terhadap-pengguna-mudah-terjejas	https://www.bnm.gov.my/documents/20124/938039/28230228_ED_Fair_Treatment_of_Vulnerable_Consumers.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/draf-dedahan-layanan-adil-terhadap-pengguna-mudah-terjejas&languageId=ms_MY	Reading: Draf Dedahan Layanan Adil Terhadap Pengguna Mudah Terjejas Share: Draf Dedahan Layanan Adil Terhadap Pengguna Mudah Terjejas Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1100 pada Selasa, 28 Februari 2023 28 Feb 2023 Draf dedahan ini menetapkan keperluan dan panduan yang dicadangkan untuk mempromosikan budaya di mana penyedia perkhidmatan kewangan mempertimbangkan dan bertindak balas dengan betul kepada keperluan pengguna yang mudah terjejas, konsisten dengan hasil daripada amalan layanan yang adil. Bank menjemput maklum balas mengenai draf dedahan ini, termasuk cadangan untuk isu atau bidang tertentu yang perlu dijelaskan dan sebarang cadangan alternatif yang perlu dipertimbangkan oleh Bank. Semua maklum balas untuk draf pendedahan mesti diserahkan oleh 14 April 2023 melalui https: //forms.office.com/r/eKjC9gMTLQ. Semasa menyediakan maklum balas, pertanyaan khusus juga boleh diarahkan ke [email protected]. Penyerahan yang diterima boleh didedahkan kepada umum melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau mana-mana bahagian penyerahan. Tarikh Dikeluarkan: 28 Februari 2023 Jabatan Pengeluar: Jabatan Pengguna dan Amalan Pasaran Dokumen: Draf Dedahan Layanan Adil Terhadap Pengguna Mudah Terjejas Bank Negara Malaysia 28 Februari 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Fair Treatment of Vulnerable Consumers Exposure Draft Applicable to: 1. Licensed banks 2. Licensed Islamic banks 3. Licensed insurers 4. Licensed takaful operators 5. Prescribed development financial institutions 6. Approved financial advisers and approved Islamic financial advisers 7. Approved insurance brokers and approved takaful brokers 8. Approved issuers of a designated payment instrument 9. Approved issuers of a designated Islamic payment instrument Issued on: 28 February 2023 BNM/RH/ED 028-21 Fair Treatment of Vulnerable Consumers 1 of 17 Issued on: 28 February 2023 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 3 1 Introduction ......................................................................................................... 3 2 Applicability ......................................................................................................... 3 3 Legal provisions .................................................................................................. 3 4 Effective date ...................................................................................................... 4 5 Interpretation....................................................................................................... 4 6 Related legal instruments and policy documents ................................................ 6 7 Corporate culture ................................................................................................ 7 8 Vulnerable consumers ........................................................................................ 8 APPENDIX Illustration of good practices by financial service providers in dealing with persons with disabilities ......................................... 17 Fair Treatment of Vulnerable Consumers 2 of 17 Issued on: 28 February 2023 This Exposure Draft sets out regulatory requirements and further guidance aimed at ensuring vulnerable consumers are treated fairly and equitably, and provided with the appropriate assistance in their dealings with financial service providers (FSPs). The requirements in this Exposure Draft will be incorporated into the policy document on Fair Treatment of Financial Consumers (FTFC PD) issued by Bank Negara Malaysia (the Bank) on 6 November 2019. Upon finalisation, the new principle and requirements proposed in this Exposure Draft, as well as the six fair treatment of financial consumer outcomes and existing requirements in the FTFC PD will apply to FSPs when dealing with vulnerable consumers. The requirements in this Exposure Draft are principle-based, which accords FSPs the flexibility to determine the measures that are most appropriate and relevant to their respective business strategies, product offerings and interactions with their target customer segments. The extent to which a FSP implements these requirements would depend on its size, the market it operates in, the nature and complexity of its operations, and the characteristics of financial consumers it serves and targets. The Bank invites written feedback on the regulatory requirements and expectations proposed in this Exposure Draft, including suggestions for further clarification on any particular issues or areas, or alternative proposals which the Bank should consider. The written feedback should be supported with clear rationale, evidence or illustrations, as may be appropriate, to facilitate the Bank’s assessment. Feedback must be submitted electronically to the Bank by 14 April 2023 through https://forms.office.com/r/eKjC9gMTLQ. When preparing the feedback, specific queries can be directed to [email protected] and addressed to the following officers: (a) Farah Mas Liyana Mustaffa (b) Faiszuan Mohd Salleh (c) Anis Farhana Alfadino Akbar https://forms.office.com/r/eKjC9gMTLQ mailto:[email protected] Fair Treatment of Vulnerable Consumers 3 of 17 Issued on: 28 February 2023 PART A OVERVIEW 1 Introduction 1.1 Financial consumers may become vulnerable at a certain period in their lives or at different stages in the product life cycle. Some financial consumers may not be vulnerable today, but their circumstances may change over time due to a change in their health conditions, employment status, life events or other factors which can increase their susceptibility to financial distress. 1.2 Financial consumers in vulnerable circumstances are more likely to have additional or distinct needs which, if not reasonably met by financial service providers (FSPs), could result in unfair treatment, undue financial hardship or exclusion from essential financial services. These financial consumers may be significantly less able to make informed decisions in their best interests when dealing with FSPs and are more likely to experience harm compared to the average consumer arising from their dealings with FSPs. 1.3 FSPs that make the effort to understand and effectively respond to the needs of vulnerable consumers will benefit from increased levels of customer satisfaction that leads to improved customer loyalty. Conversely, FSPs that consistently fail to consider the needs of vulnerable consumers may end up losing market share over time as consumers opt to deal with institutions which are perceived as being more ethical and socially responsible. 1.4 This policy document aims to- (a) promote a culture where FSPs are considering and responding to the interests and needs of vulnerable consumers appropriately in conducting their business and operations; and (b) set requirements and expectations for all FSPs to observe, to provide the appropriate support to vulnerable consumers, consistent with fair treatment outcomes. 2 Applicability 2.1 This policy document is applicable to FSPs as defined in paragraph 5.2. 3 Legal provisions 3.1 The requirements in this policy document are specified pursuant to- (a) sections 121(c)(ii), 123(1) and 123(3) of the Financial Services Act 2013 (FSA); (b) sections 133(c)(ii), 135(1) and 135(3) of the Islamic Financial Services Act 2013 (IFSA); and Fair Treatment of Vulnerable Consumers 4 of 17 Issued on: 28 February 2023 (c) sections 42C(1) and 42C(3) of the Development Financial Institutions Act 2002 (DFIA). 3.2 The guidance in this policy document are issued pursuant to- (a) section 266 of the FSA; (b) section 277 of the IFSA; and (c) section 126 of the DFIA. 4 Effective date 4.1 This policy document comes into effect on [6 months after the date of issuance], except for the requirements under paragraph 8.26 which comes into effect on [12 months after the date of issuance]. Question 1 The Bank suggests adopting a staggered effective date for FSPs to comply with the requirements in the revised FTFC PD, which is targeted to be issued in Q4 of 2023. This is to ensure that FSPs have sufficient time to enhance existing physical infrastructure, systems, processes and materials to accommodate the needs of vulnerable consumers. The Bank seeks views and feedback on this proposed staggered implementation approach. Please provide clear justifications to support your response. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA or DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document- “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretive, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “financial consumer” refers to any person- (a) who uses, has used or may be intending to use, any financial service or product- (i) for personal, domestic or household purposes; or Fair Treatment of Vulnerable Consumers 5 of 17 Issued on: 28 February 2023 (ii) in connection with a micro or small business as defined in the notification on Definition of Small and Medium Enterprises (SMEs) issued by the Bank on 27 December 2017 (BNM/RH/NT 028-51)1; or (b) insured under a group policy or covered under a group takaful certificate where the premiums or contributions are paid by the person insured or the person covered, as the case may be; “financial service provider” or “FSP” refers to- (a) a licensed bank; (b) a licensed Islamic bank; (c) a licensed insurer; (d) a licensed takaful operator; (e) a prescribed development financial institution; (f) an approved issuer of a designated payment instrument; (g) an approved issuer of a designated Islamic payment instrument; (h) an approved insurance broker; (i) an approved takaful broker; (j) an approved financial adviser; and (k) an approved Islamic financial adviser; “representatives” and “agents” refer to any individuals or firms acting on behalf of a FSP, which includes sales representatives, insurance agents, takaful agents and bancassurance staff; “senior management” refers to the chief executive officer and senior officers; “staff” refers to persons employed by a FSP, including temporary or contract staff whose conduct has an impact on financial consumer outcomes, regardless of whether that person has direct contact with financial consumers of the FSP; and “vulnerable consumer” refers to a financial consumer2 who- (a) has the capacity to make his or her own financial decisions but may face challenges in accessing financial services or may require assistance to engage in financial services, for example, a person with disabilities3 or a senior citizen; (b) has a low ability to withstand financial shocks, for example, a person who is overly-indebted or has no savings; 1 For a company that is part of a multinational company, conglomerate or public listed company, such a company can be treated as a corporate and not a micro or small business. 2 For purposes of the scope of “vulnerable consumer” and applying the relevant principles applicable to a “vulnerable consumer”, “financial consumer” refers to a natural person, whereby for a micro or small business, “financial consumer” refers to the individual(s) running the business. 3 Refers to persons with long-term: (a) hearing impairment; (b) visual impairment; (c) speech impairment; (d) physical impairment; or (e) learning impairment, such as dyslexia or low spectrum Autism (Autistic Spectrum Disorder), but who still has the intellectual capacity to make decisions with guidance from FSPs. Fair Treatment of Vulnerable Consumers 6 of 17 Issued on: 28 February 2023 (c) is experiencing or has experienced adverse life events resulting in temporary or long-term financial hardship, for example, natural disasters, temporary loss of income, unemployment, or the death/total permanent disability of the main breadwinner; or (d) has an inadequate level of financial literacy or experience in using financial services or products, or poor language skills, for example, a person who only speaks a language other than Bahasa Malaysia or English, or is illiterate, or a person who is not digitally savvy. Question 2 The proposed definition of “vulnerable consumer” focuses on the circumstances known as the drivers of vulnerability and is in line with the approaches adopted by regulatory authorities in the UK, Australia and New Zealand, customised to the Malaysian context. The Bank seeks views and feedback on the following questions: (a) Is there any category or example which the Bank should consider including or excluding from the definition of “vulnerable consumer”? (b) In relation to the example of “a person with disabilities” above, the Bank is cognizant of the potential challenges faced by FSPs to assess the condition of an individual with non-physical impairments in determining whether the individual would meet the definition of a person with disabilities. The Bank also views the importance and need of balancing between ease of implementation by FSPs and embedding sufficient safeguards to manage the risk of abuse by financial consumers. As such, the Bank seeks views on whether there is a suitable document, official form or other alternative means for FSPs to assess the condition of a prospective customer who may potentially meet the definition of a person with disabilities? (c) Given a person’s digital savviness can be due to several factors such as the person’s accessibility to Wi-Fi connectivity, age group or level of experience in using financial products, should the example of “a person who is not digitally savvy” be included as an example of a vulnerable consumer? Please provide clear justifications to support your response. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with the policy document on Fair Treatment of Financial Consumers issued by the Bank on 6 November 2019 (BNM/RH/NT 028-103). Fair Treatment of Vulnerable Consumers 7 of 17 Issued on: 28 February 2023 PART B POLICY REQUIREMENTS 7 Corporate culture S 7.1 Senior management of a FSP is required to set the right tone from the top by clearly communicating the values and standards upheld by the FSP when dealing with vulnerable consumers. Such values and standards shall be consistent with delivering fair outcomes to financial consumers, having due regard to the particular circumstances of vulnerable consumers. S 7.2 Senior management shall establish and maintain appropriate policies, processes and accountability structures that enable and support staff in meeting the needs of vulnerable consumers when carrying out their roles. This shall include ensuring that the requirements on fair treatment of vulnerable consumers as specified under paragraphs 8.1 to 8.28 of this policy document are adequately reflected in the FSP’s existing policies and processes throughout the entire product life cycle. G 7.3 In implementing paragraph 7.2, measures that can be taken by senior management can include championing a business culture that considers and responds to the needs of vulnerable consumers and providing specific guidance to staff on how their role can affect vulnerable consumers, particularly staff with direct interaction with vulnerable consumers and staff involved in product design and development. Good practice The FSP provides incentives for staff to identify and deal effectively with vulnerable consumers by building this into their performance assessment. Note: 1. The requirements under paragraphs 7.1 to 7.3 will be incorporated into the current Principle 1 of the FTFC PD. 2. The board’s responsibilities under the current FTFC PD will also be enhanced to cover the fair treatment of vulnerable consumers as stated below: (a) to demonstrate commitment to the fair treatment of vulnerable consumers through actions, communications and measures to achieve fair treatment of vulnerable consumer outcomes; (b) to approve relevant policies to achieve fair treatment of vulnerable consumer outcomes; and (c) to ensure appropriate reflection of fair treatment of vulnerable consumers in the FSP’s business strategies and operations. Fair Treatment of Vulnerable Consumers 8 of 17 Issued on: 28 February 2023 8 Vulnerable consumers New Principle: A FSP must take appropriate actions to ensure that vulnerable consumers are treated fairly and equitably G 8.1 Understanding the needs of vulnerable consumers and ensuring staff have the right skills to take appropriate actions throughout the entire product life cycle, from product development, communication, to customer service are necessary preconditions for a FSP to be able to deliver fair outcomes to vulnerable consumers. S 8.2 A FSP must assess the needs of vulnerable consumers in its existing financial consumer base and target market, as well as implement appropriate policies and procedures to meet these needs. This is to ensure that vulnerable consumers are treated fairly in accordance with the requirements in this policy document throughout their engagement and dealings with the FSP in respect of the financial service or product obtained or to be obtained from the FSP. The FSP must ensure that the policies and procedures are clearly communicated to relevant staff so that they are implemented effectively. Poor practice Policies on the handling of vulnerable consumers are not well communicated internally, particularly to staff on the frontline and branches, which leads to vulnerable consumers receiving inconsistent treatment in their dealings with a particular FSP. G 8.3 In implementing paragraph 8.2, a FSP may consider consulting credible institutions or associations4 that provide support to financial consumers with a wide variety of vulnerabilities and have good understanding and expertise in dealing with the challenges those vulnerable consumers face to gain meaningful insights into the needs and experiences of these financial consumers. This would improve the capabilities of a FSP in developing and putting in place effective solutions to support and meet the needs of vulnerable consumers. 4 This could include any domestic, regional or foreign associations, societies or non-profit based organisations formed with the sole intent of collectively enhancing the well-being of its members, by representing and highlighting the needs of the vulnerable community or providing assistance to those facing severe financial distress. Such entities may also comprise of like-minded professionals or members with similar disabilities who are able to share real experiences and accounts from their own dealings with FSPs and the further improvements which can be made to better serve the needs of their community. Examples of such organisations may include: (a) The Malaysian Information Network on Disabilities (MIND); (b) Damai Disabled Person Association Malaysia; (c) National Council of Senior Citizens Organisations, Malaysia (NASCOM); (d) Agensi Kaunseling dan Pengurusan Kredit (AKPK); (e) OECD International Network on Financial Education (OECD/INFE); (f) World Health Organisation (WHO); and (g) United Nations (UN) and its intergovernmental platforms such as Economic and Social Commission for Asia and the Pacific (ESCAP). Fair Treatment of Vulnerable Consumers 9 of 17 Issued on: 28 February 2023 G 8.4 The way financial services or products are designed can have a positive or negative impact on vulnerable consumers. There may be product features that can result in disproportionate harm or result in the exclusion of vulnerable consumers. It is therefore important for FSPs to consider such prevailing or possible vulnerabilities in their target market at the stage of product design and development to avoid any unintended effects due to certain product features. S 8.5 A FSP shall take into consideration any prevailing or possible vulnerabilities in its existing financial consumer base as well as the needs of vulnerable consumers in its target market during the product design stage. This is to ensure that the features of the new financial services or products and the customer requisition process adequately addresses risks of potential harm to or exclusion of vulnerable consumers. G 8.6 In relation to paragraphs 8.2 and 8.5, examples of actions by a FSP in taking into consideration the needs of vulnerable consumers in its target market during the product design stage may include: (a) identifying the likelihood of customer segments targeted being vulnerable and obtaining a clear understanding on the category of vulnerability that may be experienced by consumers in its target market; (b) assessing financial product features that may pose risk of harm to vulnerable consumers in its target market; (c) identifying and establishing processes, procedures and appropriate controls to ensure the risk of harm to vulnerable consumers can be prevented or minimised; and (d) consulting with relevant credible institutions or associations to include user experience testing when developing new financial services or products to ensure such financial services or products are accessible to vulnerable consumers. S 8.7 A FSP shall consider the likelihood of any inherent product features that may pose material risks to vulnerable consumers when developing financial services and products. The FSP shall provide adequate safeguards to prevent or minimise such risks when offering financial services and products to vulnerable consumers, including the level of pricing and fees to be imposed on new financial services and products which are offered to financial consumers with low financial resilience. Good practices 1. The FSP analyses internal database which includes data on vulnerabilities and needs, product utilisation and complaints during product design to avoid product features that may cause harm or detriment to vulnerable consumers. 2. When developing new financial services or products that target unserved or underserved segments of the community, the FSP ensures that the pricing, fees and commission structures are appropriate for the nature of vulnerability identified in this segment and puts in place safeguards to prevent mis-selling or unnecessary financial burden on vulnerable consumers. Fair Treatment of Vulnerable Consumers 10 of 17 Issued on: 28 February 2023 Poor practices 1. Additional conditions with unclear value-add are imposed on vulnerable consumers, for such consumers to access the same financial services or products offered to other financial consumers, such as the FSP requiring vulnerable consumers to bring along a third party to act as a witness for the opening of a new account. 2. The FSP offers its main services digitally by default, without taking into consideration the needs of those without adequate internet access or those who may face difficulties or require assistance to access such services effectively and conveniently, such as senior citizens. G 8.8 A FSP is also encouraged to take vulnerable consumers’ needs into consideration in the overall product governance process. Examples of actions which a FSP can take include: (a) considering the reasonableness of product pricing and fees for the vulnerable segment; (b) providing financial product materials in at least two languages, i.e. Bahasa Malaysia and English, depending on the size of the FSP’s customer base; (c) providing recorded audio and video presentations during the financial product introductory stage to facilitate vulnerable consumers, particularly those who are illiterate or PWDs; (d) maintaining complete records5 of communications and verbal interactions between the FSP’s staff, representatives or agents with vulnerable consumers, particularly when dealing with consumers under category (d) of the vulnerable consumer definition and when providing verbal explanations on a financial product’s terms and conditions, risks and coverage; (e) ensuring the FSP’s product disclosure sheet provides available avenues for vulnerable consumers to submit queries or complaints, which should also be applicable if the financial consumer becomes vulnerable post-sales; (f) providing simple and understandable information and documents such as terms and conditions and forms; (g) preparing and providing a vulnerable consumer declaration form for new financial consumers to fill up upon on-boarding to build the FSP’s database on vulnerable consumers, which can be supported by indicators for each category of vulnerable consumers to guide sales staff, representatives and agents on the type of assistance to be provided to this group of financial consumers; (h) providing a longer free-look period for vulnerable consumers of licensed insurers and takaful operators; or (i) providing post-sales calls to vulnerable consumers who are senior citizens to obtain direct feedback on the financial service or product purchased. 5 All records must be maintained for a maximum of seven years, in line with the provision on disposal of old records in the Companies Act 2016. Fair Treatment of Vulnerable Consumers 11 of 17 Issued on: 28 February 2023 S 8.9 A FSP is prohibited from engaging in predatory practices in their dealings with vulnerable consumers. In addition, a FSP shall refrain from sales and marketing practices that exploit vulnerable consumers such as providing misleading information on risks and returns, which could lead to vulnerable consumers buying unsuitable or poor value services and products. G 8.10 Examples of predatory practices referred to in paragraph 8.9 include: (a) opportunistic behaviours by a FSP which exploits or takes advantage of vulnerable consumers’ circumstances, or which leads to significant financial consumer harm; (b) enticing financial consumers who are already highly indebted, i.e. have a high debt service ratio and low savings to take on new loans, particularly unsecured loans; (c) promoting credit cards to university students; (d) promoting highly complex investment-linked insurance or takaful products to financial consumers with no investment experience; and (e) misleading retirees to take higher risk investment-linked insurance or takaful or unit trust products on the basis that such financial products will earn them a higher interest or profit, without explaining the downside risks. Poor practices 1. The FSP targets vulnerable consumers with low financial capability when offering complex and high-risk financial products without taking due care to properly explaining the downside risks, putting the vulnerable consumers at risk of making significant financial losses. 2. The FSP’s staff takes advantage of vulnerable consumers’ weaknesses by selling other financial services or products which may not be appropriate to the vulnerable consumers’ needs or circumstances. G 8.11 A FSP is expected to understand and identify common behavioural biases associated with vulnerable consumers and establish appropriate measures to prevent these biases from being exploited when developing, marketing or offering financial services and products to vulnerable consumers. S 8.12 A FSP shall exercise due care when adopting artificial intelligence and machine learning in credit assessments and risk underwriting to avoid the unfair discrimination or exclusion of vulnerable consumers from accessing financial services and products. G 8.13 Vulnerable consumers are more likely to have different service needs. Having in place adequate systems and processes that support staff in delivering responsive customer services to meet the needs of vulnerable consumers will enable vulnerable consumers to better cope with challenging life events. For example, if a vulnerable consumer who has a visual impairment informs that their condition means receiving important notifications through SMS is difficult, FSPs should focus on how the vulnerable consumer’s communication needs using other Fair Treatment of Vulnerable Consumers 12 of 17 Issued on: 28 February 2023 channels can be met. By resolving vulnerable consumers’ issues with flexible and timely solutions, FSPs can deliver better outcomes for these consumers. G 8.14 Staff and representatives of FSPs are expected to be proactive in engaging with vulnerable consumers and seek relevant information to understand their vulnerability, exercise due care and diligence, and be adequately equipped and empowered to take actions that would reduce harm to these consumers. In this regard, while staff and representatives are expected to take steps to encourage disclosures by such consumers where there are clear indicators of vulnerabilities, they are also expected to be given the flexibility and discretion to offer solutions that are customised to the needs and circumstances of the vulnerable consumer. S 8.15 A FSP shall ensure that its staff and representatives, particularly those who have direct interaction with vulnerable consumers, are provided with the necessary training to recognise, assess and respond appropriately to their needs. G 8.16 For purposes of paragraph 8.15, examples of good practices by a FSP in providing the necessary training to its staff and representatives include: (a) developing an internal training programme to provide staff and representatives with a better understanding of the signs and indicators as well as potential needs of vulnerable consumers; (b) training staff and representatives to act with sensitivity, respect and compassion towards financial consumers identified as vulnerable; (c) giving opportunities for staff to share knowledge and experiences with other colleagues through knowledge sharing sessions, particularly between frontline staff and staff involved in product development; (d) developing “How to” guides based on the categories of vulnerable consumers for frontline staff and representatives to use in performing their day-to-day roles, such as signposting additional information or support, and examples of best practices in dealing with vulnerable consumers under each category; or (e) updating staff and representatives’ training on a regular basis to ensure staff and representatives continue to have a good understanding of vulnerable consumers and the required skills relevant to their role. G 8.17 A FSP’s staff and representatives are expected to be trained to recognise when it is appropriate to seek additional support, such as escalating a case to a higher level or seeking additional help from dedicated specialist teams. G 8.18 A FSP may engage industry training institutions or its respective industry association to drive efforts in providing centralised training courses on dealing with vulnerable consumers. Such efforts can help ensure consistency in the method of identifying and engaging with vulnerable consumers. Good practices 1. The FSP appoints dedicated personnel to serve as a champion for vulnerable consumers. Fair Treatment of Vulnerable Consumers 13 of 17 Issued on: 28 February 2023 2. The FSP periodically engages with its industry association to share the needs of vulnerable consumers in its customer base and target market. Such information sharing would serve as useful inputs for industry associations to develop centralised training courses on effectively dealing with vulnerable consumers within the same industry. Poor practice 1. Frontline staff do not engage meaningfully with vulnerable consumers and fail to identify or understand the financial consumers’ specific vulnerability, resulting in the vulnerable consumer not being referred to the appropriate officer or division for more tailored or suitable solutions. S 8.19 A FSP shall ensure that relevant information about the needs of vulnerable consumers is properly captured or recorded in a manner that would enable the FSP to meet their needs promptly and consistently, and is accessible by other staff who may need to refer to such information. Poor practice Sensitive information provided by vulnerable consumers is not properly recorded and shared internally, causing distress to these consumers who have to repeat the same information each time they deal with the FSP. G 8.20 Having accessible records as specified under paragraph 8.19 would enable relevant staff and representatives to use previously recorded information for future interactions with the same or similar groups of vulnerable consumers to increase the responsiveness of FSPs in mitigating harm to such consumers. S 8.21 A FSP shall consider and provide sufficient flexibilities for staff and representatives to effectively adapt to the needs of vulnerable consumers and to exercise judgement when it is necessary to do so in ensuring the delivery of fair outcomes to vulnerable consumers. Good practice The FSP gives frontline staff clear boundaries on areas where they have a discretion to respond to accommodate to vulnerable consumers’ needs and when they need to seek approval from more senior staff to accommodate the needs of vulnerable consumers. Fair Treatment of Vulnerable Consumers 14 of 17 Issued on: 28 February 2023 S 8.22 A FSP must ensure that its customer service processes are adaptable to enable staff and representatives to deliver tailored responses that are appropriate to the individual needs and circumstances of vulnerable consumers. Good practice The FSP considers the vulnerable consumer’s individual circumstances when assessing potential solutions, including whether the vulnerable consumer is facing a temporary or long-term hardship, and is flexible in applying terms and conditions tailored to the vulnerable consumer’s circumstances. S 8.23 A FSP shall provide its financial consumers with information that is easily accessible on how they can obtain assistance, in the event they encounter sudden life events that places them in situations of vulnerability, such as the death or permanent disability experienced by the household’s main breadwinner due to the onset of an illness or accident. G 8.24 The requirement under paragraph 8.23 is particularly relevant for financial consumers who are unexpectedly impacted by a major life event which affects their ability to generate a steady income on an on-going basis or to make sound and informed financial decisions independently. In such circumstances, the FSP is expected to encourage affected financial consumers to approach them early to enable alternative measures to be put in place to mitigate the risk of further financial strain or distress. Poor practices 1. When offering alternative repayment plans to vulnerable consumers, the FSP does not give due regard to the long-term implications on the well-being of such consumers, such as capitalising the amount in arrears without reducing the monthly instalment amount, excessive lengthening of the financing tenure which significantly increases the total borrowing costs without offering the financial consumer alternative repayment plans to choose from. 2. The FSP proceeds with foreclosure of a vulnerable consumer’s residential property without any consideration of the vulnerable consumer’s genuine financial difficulties or before exhausting all other viable options for recovery. G 8.25 Effective interaction with vulnerable consumers is particularly important when considering vulnerable consumers as they may have additional or different information needs. By offering more communication options and making information more accessible, vulnerable consumers will be better able to communicate their needs and to have their needs met. FSPs may determine what tailored communications are appropriate based on their understanding of the needs of vulnerable consumers they serve or intend to serve. Fair Treatment of Vulnerable Consumers 15 of 17 Issued on: 28 February 2023 S 8.26 A FSP must ensure communication with vulnerable consumers throughout the product life cycle, from the point of sale to post-sales, is clear and easily understood by vulnerable consumers. The FSP must periodically test and verify the effectiveness of its communication channels for vulnerable consumers and adapt appropriately where necessary to ensure communication channels remain accessible to vulnerable consumers throughout the product life cycle. In addition, the FSP shall ensure that vulnerable consumers are made aware of the different communication channels available to enable these vulnerable consumers to communicate with the FSP through a channel they find most effective and convenient. Good practices 1. The FSP provides vulnerable consumers with different methods to communicate with the FSP and/or access to financial services and products according to their needs, such as audio, braille, talking automated teller machines (ATMs) and cash machines. 2. The FSP carries out periodic customer surveys to better understand the risks of harm for vulnerable consumers and to find out whether these vulnerable consumers find it easy to share such information with the FSP. Poor practice 1. The FSP’s call centre is automated and does not provide the option for vulnerable consumers to interact with the FSP’s staff to explain any hardship or difficulty faced. S 8.27 A FSP shall regularly monitor and evaluate whether staff and representatives are responding to the needs of vulnerable consumers and take appropriate actions to address any poor outcomes or make necessary improvements to ensure vulnerable consumers receive fair and equitable treatment. Good practices 1. The FSP identifies instances where the needs of vulnerable consumers are not met at key points in their customer journey and takes appropriate actions to address the root causes and issues identified. 2. The FSP conducts an audit of its current practice and ongoing evaluation of the effectiveness of the FSP’s vulnerability policies and procedures to identify and rectify areas for improvements. S 8.28 A FSP shall embed the considerations on fair treatment of vulnerable consumers as set out in this policy document in meeting the requirements under the following policy documents: Fair Treatment of Vulnerable Consumers 16 of 17 Issued on: 28 February 2023 (a) Policy document on Introduction of New Products issued on 7 March 2014 (BNM/RH/STD 028-5) (i.e. requirements on suitability assessment); (b) Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business issued on 17 August 2012 (BNM/RH/GL/010-16) (i.e. requirements on suitability assessment); (c) Guidelines on Product Transparency and Disclosure issued on 31 May 2013 (BNM/RH/GL 000-3) (i.e. requirements on disclosure at pre-contractual stage, at point of entering into contract and during the term of contract); (d) Policy document on Responsible Financing issued on 6 May 2019 (BNM/RH/PD 028-95) (i.e. requirements on loan restructuring and rescheduling); and (e) Circular on Fair Debt Collection Practices issued on 10 September 2007 (BNM/RH/CIR 013-1) (i.e. requirements on loan recovery efforts). Question 3 Aside from the proposed requirements and good practices provided in this Exposure Draft (including the Appendix), the Bank seeks views and feedback on whether there are other areas which should be included to achieve better outcomes for vulnerable consumers. Fair Treatment of Vulnerable Consumers 17 of 17 Issued on: 28 February 2023 APPENDIX ILLUSTRATION OF GOOD PRACTICES BY FINANCIAL SERVICE PROVIDERS IN DEALING WITH PERSONS WITH DISABILITIES The following examples are intended as guidance to FSPs on measures that can be taken when dealing with PWDs. The examples are non-exhaustive and non-binding and may not be the only approach that a FSP can adopt. FSPs may assess the relevance of these examples in light of the nature, scale, complexity and operating environment of its business and are encouraged to adopt other approaches that can better achieve the intended outcomes. Good practices 1. The FSP offers a full range of financial services and products to PWDs on an equal basis with other financial consumers. 2. The FSP ensures staff are always ready to provide the necessary assistance, e.g. reading terms and conditions, or completing forms, bank slips, cheques, etc. 3. The FSP provides information on its website and mobile app on the location of its ATMs which are convenient for wheelchair users and its voice navigation ATMs. 4. The FSP provides barrier-free access to the main lobby and service counters for persons with disabilities. 5. Apart from printed information, the FSP provides information in audio format for visually impaired persons. 6. The FSP presents information in a visual format for persons who are hard of hearing or who are deaf to enable them to understand the FSP’s audio broadcasts. 7. The FSP adopts blank screens with step-by-step guides in audio format for persons with visual impairment and enables the audio activation through the insertion of headphones in the ATM headphone jack. 8. The FSP has a voice-guided orientation option for the machine that gives the full layout of the ATM, the function, keypad positions and money outlet slot. 9. The FSP supports the card slot, cash dispenser, receipt printer and headphone jack slot with Braille labels. 10. Statements and notifications sent via email by the FSP to vulnerable consumers are in formats that persons with disabilities can access. 11. The FSP’s website, mobile application(s) and online banking services meet internationally recognised web accessibility best practice standards such as the World Wide Web Consortium’s (“W3C”) Web Content Accessibility Guidelines. 12. The FSP ensures that security features are made available in audio format to persons with visual impairment. PART A OVERVIEW 1 Introduction 2 Applicability 3 Legal provisions 4 Effective date 5 Interpretation 6 Related legal instruments and policy documents 7 Corporate culture 8 Vulnerable consumers APPENDIX illustration of good practices BY Financial service providers in dealing with persons with disabilities	Public Notice
22 Feb 2023	Draf Dedahan Kualiti dan Integriti Mata Wang	https://www.bnm.gov.my/-/draf-dedahan-kualiti-dan-integriti-mata-wang	https://www.bnm.gov.my/documents/20124/938039/ED-quality-integrity-currency-2023.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/draf-dedahan-kualiti-dan-integriti-mata-wang&languageId=ms_MY	Reading: Draf Dedahan Kualiti dan Integriti Mata Wang Share: 3 Draf Dedahan Kualiti dan Integriti Mata Wang Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1000 pada Rabu, 22 Februari 2023 22 Feb 2023 Draf Dedahan ini menetapkan perkara-perkara yang berikut: (a) kriteria penentuan kualiti mata wang dalam edaran; (b) piawaian pemprosesan mata wang dan pengedaran semula mata wang kepada orang ramai; (c) piawaian pengendalian mata wang Malaysia yang disyaki palsu di Malaysia; (d) keperluan merekodkan dan melaporkan mata wang Malaysia yang disyaki palsu; (e) tempoh masa untuk membuat laporan kepada Polis Diraja Malaysia mengenai mata wang Malaysia yang disyaki palsu; dan (f) keperluan untuk mempunyai kakitangan yang cekap dan memiliki mesin pemprosesan mata wang yang sesuai. Bank Negara Malaysia (Bank) mengalu-alukan ulasan bertulis mengenai Draf Dedahan ini, termasuk cadangan berhubung dengan isu khusus atau bahagian yang perlu dijelaskan serta sebarang cadangan alternatif untuk pertimbangan Bank. Bagi memudahkan penilaian Bank, sila nyatakan dengan jelas perenggan yang berkaitan dengan ulasan yang diberikan berserta penerangan yang jelas dan bukti mengikut kesesuaian. Maklum balas hendaklah dihantar secara elektronik dalam format yang ditetapkan kepada alamat e-mel [email protected] selewat-lewatnya pada 30 April 2023. Tarikh Penerbitan: 22 Februari 2023 Jabatan yang Mengeluarkan Dokumen: Jabatan Pengurusan dan Operasi Mata Wang Dokumen: Draf Dedahan Kualiti dan Integriti Mata Wang Bank Negara Malaysia 22 Februari 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Exposure Draft - Quality and Integrity of Currency Issued on: 22 February 2023 BNM/RH/ED 030-6 Quality and Integrity of Currency Exposure Draft Applicable to: 1. Licensed banks 2. Licensed Islamic banks 3. Prescribed institutions 4. Licensed money changers 5. Licensed remittance service providers 6. Licensed currency wholesalers 7. Registered currency processors Quality and Integrity of Currency (Exposure Draft) This exposure draft outlines the standards that financial institutions (FIs) must observe to preserve the quality and integrity of Malaysian currency notes and currency coins in accordance with the Currency Act 2020 (the Act). This includes several related key areas such as– (a) quality of currency in circulation; (b) integrity of currency in circulation; (c) operations of currency processing; (d) currency processing machine; and (e) competency of staff involved in currency processing. Bank Negara Malaysia invites written feedback on the proposals in this exposure draft. The written feedback should be supported with clear rationale, accompanying evidence or appropriate illustrations to facilitate an effective review of this exposure draft. Electronic submission is encouraged. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. Responses must be submitted by 30 April 2023 to: Director Currency Management and Operations Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Email: [email protected] Any queries may be directed to the following officers: (a) Nik Mohd Assif Fathi – [email protected] (b) Maizali Maidin – [email protected] (c) Syahrir Nadzmin Zawawi – [email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] Quality and Integrity of Currency (Exposure Draft) TABLE OF CONTENTS PART A OVERVIEW................................................................................................ 1 1. Introduction ........................................................................................................... 1 2. Applicability ........................................................................................................... 1 3. Legal Provision ...................................................................................................... 2 4. Effective Date ........................................................................................................ 2 5. Interpretation ......................................................................................................... 2 6. Related Legal Instruments .................................................................................... 3 7. Superseded Policy Documents ............................................................................. 4 8. Enquiries ............................................................................................................... 4 PART B QUALITY OF CURRENCY ........................................................................ 5 9. Introduction ........................................................................................................... 5 10. Criteria for Fit Currency ......................................................................................... 5 11. Criteria for Defaced Currency Note and Unfit Currency Note ................................ 5 12. Criteria for Tampered Currency Coin and Worn Currency Coin ............................ 7 13. Processing of Currency ......................................................................................... 8 14. Submission of Defaced Currency Note excluding Unfit Currency Notes, Tampered Currency Coin excluding Worn Currency Coins and Demonetised Currency to BNM ................................................................................................... 9 15. Submission of Unfit Currency Notes and Worn Currency Coins to BNM .............. 9 PART C INTEGRITY OF CURRENCY................................................................... 11 16. Introduction ......................................................................................................... 11 17. Detention and Recording of Information on Suspected Counterfeit Malaysian Currency ............................................................................................................. 11 18. Reporting of Information on Suspected Counterfeit Malaysian Currency ............ 13 Quality and Integrity of Currency (Exposure Draft) PART D CURRENCY PROCESSING OPERATION ............................................. 17 19. Requirements on Currency Processing Operation .............................................. 17 20. Requirements on Currency Processing Machine ................................................ 18 21. Requirements on Recording, Reconciliation and Reporting ............................... 20 Appendix I ................................................................................................................. 22 Appendix II ................................................................................................................. 25 Appendix III ................................................................................................................ 27 Appendix IV ................................................................................................................ 28 Appendix V ................................................................................................................. 29 Quality and Integrity of Currency (Exposure Draft) 1 of 29 PART A OVERVIEW 1. Introduction 1.1. As the sole authority to issue currency note and currency coin in Malaysia under section 5 of the Currency Act 2020 (CA), Bank Negara Malaysia (BNM)– (a) is responsible for promoting the preservation of the quality and integrity of currency note and currency coin in circulation in accordance with section 17 of the CA; (b) is responsible for promoting the reissuance and recirculation of currency note and currency coin in accordance with section 17 of the CA; and (c) is empowered to issue standards and guidelines relating to currency note and currency coin pursuant to sections 61 and 62 of the CA respectively. 1.2 This policy document sets out– (a) the criteria in determining the quality of currency note and currency coin in circulation; (b) the standards to be adhered to by financial institutions (FIs) in processing currency note and currency coin, and recirculating them to the public; (c) the standards to be adhered to by FIs in handling suspected counterfeit Malaysian currency in Malaysia when– (i) deposited or exchanged by members of the public with the FIs over the counter; (ii) discovered by the FIs during cash processing at FIs’ premises; or (iii) discovered by the FIs at Self-Service Terminals; (d) the requirements for FIs to record and report suspected counterfeit Malaysian currency to its headquarters, BNM, Polis Diraja Malaysia (PDRM) and relevant persons; (e) the timeline for FIs to lodge a police report with PDRM of suspected counterfeit Malaysian currency; and (f) the requirements for FIs to have competent staff and to calibrate and perform attestation on their currency processing machines. 2. Applicability 2.1. This policy document is applicable to FIs as defined in paragraph 5.2. Quality and Integrity of Currency (Exposure Draft) 2 of 29 3. Legal Provision 3.1. This policy document is issued pursuant to sections 5, 7, 16(2), 17, 33, 34, 37, 38, 39, 40, 41, 61, 62 and 63 of the CA. 4. Effective Date 4.1. This policy document comes into effect on XX XXXX 2023. 5. Interpretation 5.1. The terms and expressions used in this policy document shall, where applicable, have the same meanings assigned to them in the CA unless otherwise defined in this policy document. 5.2. For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretive, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendation that are encouraged to be adopted; “audit cycle” means a complete audit cycle on an FI conducted by internal audit team with a minimum duration of one (1) year, or any duration longer than one (1) year to mitigate any dispute; “carriers” mean members of the public who deposit or exchange suspected counterfeit Malaysian currency over-the-counter at FIs; “counterfeit Malaysian currency” means forged or imitation of Malaysian currency note or currency coin; “currency coin” has the same meaning assigned to it in section 2 of the CA and means a coin issued by BNM including a commemorative coin issued by BNM for, or to commemorate, a particular event or purpose. For the avoidance of doubt, currency coin shall include Kijang Emas coins issued by BNM; “currency note” has the same meaning assigned to it in section 2 of the CA and means a note issued by BNM including a commemorative note issued by BNM for, or to commemorate, a particular event or purpose; “defaced currency note” means a currency note which is deemed defaced under section 2(2) of the CA including those described in paragraph 11.1; “demonetised currency” means a currency note or currency coin which has ceased to be a legal tender pursuant to section 13 of the CA; Quality and Integrity of Currency (Exposure Draft) 3 of 29 “fit currency” means a currency note or currency coin that meets the criteria listed in paragraphs 10.1 and 10.2 respectively; “financial institutions” or “FIs” mean– (a) licensed banks under the FSA; (b) licensed Islamic banks under the IFSA; (c) prescribed institutions under the Development Financial Institutions Act 2002 (DFIA); (d) licensees under the Money Services Business Act 2011 (MSBA); and (e) registered currency processor (RCP) under the CA; “ORION” means Operational Risk Integrated Online Network, a system owned by BNM for lodging of incidences by the FIs (except for licensees under the MSBA and RCP) to BNM; “Self-Service Terminals” or “SST” means any– (a) Automated Teller Machine (ATM) which facilitates the withdrawal of currency notes from FIs by customers; (b) Cash Deposit Machine (CDM) which facilitates the deposit of currency notes with FIs by customers; (c) Cash Recycler Machine (CRM) which facilitates both currency note withdrawal and deposit transactions with FIs by customers; (d) Coin Deposit Machine (CoDM) which facilitates the deposit of currency coins with FIs by customers; “tampered currency coin” means a currency coin which is deemed tampered with under section 2(3) of the CA including those described in paragraph 12.1; “unfit currency note” means any currency note described in paragraph 11.1(h); and “worn currency coin” means any currency coins described in paragraph 12.1(g). 6. Related Legal Instruments 6.1. This policy document shall be read together with– (a) Guidelines on Dye-Stained Currency Notes issued by BNM on 26 August 2020; and Quality and Integrity of Currency (Exposure Draft) 4 of 29 (b) Guidelines on Exchange of Defaced Currency Notes, Tampered Currency Coins and Demonetised Currency at Financial Institutions issued by BNM on 15 December 2020. 7. Superseded Policy Documents 7.1. This policy document supersedes– (a) Guidelines on Quality Standards for Malaysian Currency issued by BNM on 1 September 2006; (b) Guidelines on Handling of Suspected Counterfeit Malaysian Currency Notes issued by BNM on 2 September 2014; and (c) Guidelines on the Treatment of Unfit, Mutilated, Defaced and Fraudulently Tampered Genuine Banknotes by Commercial Banks issued by BNM on 15 September 2009. 8. Enquiries 8.1. All enquiries and correspondences relating to this policy document shall be addressed to: Director Currency Management and Operations Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur. 8.2. Any enquiries shall be directed to BNM at [email protected] or using general line 03-2698 8044. mailto:[email protected] Quality and Integrity of Currency (Exposure Draft) 5 of 29 PART B QUALITY OF CURRENCY 9. Introduction 9.1. It is critical that the quality of Malaysian currency notes and currency coins in circulation be maintained at a desired level. As the quality of currency notes and currency coins in circulation deteriorates over time, any currency notes and currency coins not fit for circulation should be promptly identified and replaced with fit currency notes and currency coins. This is necessary as a matter of security as currency notes and currency coins of good quality are intact and easier to be authenticated of its genuineness. 10. Criteria for Fit Currency 10.1. A currency note is fit and thus, suitable for recirculation if it meets all the following criteria– (a) genuine (i.e. not a counterfeit Malaysian currency note); (b) free from manufacturing defect; (c) not a defaced currency note; and (d) not a demonetised currency. 10.2. A currency coin is fit and thus, suitable for recirculation if it meets all the following criteria– (a) genuine (i.e. not a counterfeit Malaysian currency coin); (b) free from manufacturing defect; (c) not a tampered currency coin; and (d) not a demonetised currency. 10.3. Only fit currency shall continue to be in circulation and be recirculated to public by FIs. 11. Criteria for Defaced Currency Note and Unfit Currency Note 11.1. Without limiting the generality of section 2(2) of the CA, a currency note that has any of the following features is considered a defaced currency note– (a) Inscribed Word, sign, symbol, drawing, caricature or other thing (not part of the original design of the currency note) written, inscribed or shown on the surface of the currency note. S S S S Quality and Integrity of Currency (Exposure Draft) 6 of 29 (b) Ink wear Visible ink erosion or change of appearance on part or whole of currency note due to deterioration sustained from continuous use or due to contact with water, oil, paint, ink, chemical or other substance. (c) Tear Tear of any direction with length of more than 5mm on any part of the currency note. (d) Hole Visible hole or missing part of any shape greater than 5mm2 on the currency note. (e) Repair Repaired by joining two (2) or more portions of a single currency note provided that such portions may be established beyond all reasonable doubt to have been originally part of a single currency note. (f) Burnt Damage on the currency note caused by exposure to fire of any direction with size of more than 5mm2. (g) Missing security feature One or more security feature on the currency note is missing or defective. (m) Dye-Stained Currency note stained using an authorised dye ink due to– (i) an accidental discharge; or (ii) failed robbery attempt where the currency note is recovered in a controlled manner by the FIs. (h) Unfit A currency note that has any of the following features is considered an unfit currency note– (i) Soiled General or localised spread of dirt or ink on the surface of the currency note. (ii) Limpness Excessive folding that results in a breakdown of the structure and limpness of the currency note. (iii) Crumples Currency note with– Quality and Integrity of Currency (Exposure Draft) 7 of 29 (A) multiple random folds across the entire currency note that significantly affect the visual appearance of the currency note; or (B) shrinkage of a polymer currency note due to excessive heat. (iv) Corner folds Permanent and irreparable corner folds on the currency note leading to a reduction in size of more than 5mm2. 11.2. Illustrations of a defaced currency note are provided in Appendix I. 11.3. Any defaced currency note must be withdrawn from circulation and not recirculated to the public by FIs. 12. Criteria for Tampered Currency Coin and Worn Currency Coin 12.1. Without limiting the generality of section 2(3) of the CA, a currency coin that has any of the following features shall be considered a tampered currency coin– (a) Hole Visible hole of any size on any part of the currency coin. (b) Dented Visible pit and bend on the surface of the currency coin. (c) Broken Currency coin fractured into pieces. (d) Cut An opening of any length on the currency coin made by using a sharp tool. (e) Burnt Damage caused by exposure to fire which can result in discoloration and may alter the appearance of the currency coin. (f) Manufacturing defect A markedly unusual or abnormal currency coin due to manufacturing defect. (g) Worn A currency coin that has any of the following features is considered a worn currency coin– (i) Corroded Damage caused by reaction with chemical or atmosphere on part of or the entire surface of the currency coin. G S S Quality and Integrity of Currency (Exposure Draft) 8 of 29 (ii) Stained Change in colour of the currency coin caused by wear and tear or dirt (e.g. a currency coin with a black or polluted surface). 12.2. Illustrations of a tampered currency coin are provided in Appendix II. 12.3. Any tampered currency coin must be withdrawn from circulation and not recirculated to public by FIs. 13. Processing of Currency 13.1. When processing currency notes, FIs shall segregate them into the following categories: (a) fit currency notes; (b) defaced currency notes excluding unfit currency notes; (c) unfit currency notes; (d) demonetised currency note; and (e) suspected counterfeit Malaysian currency note. 13.2. When processing currency coins, FIs shall segregate them into the following categories: (a) fit currency coins; (b) tampered currency coins excluding worn currency coins; (c) worn currency coins; (d) demonetised currency coin; and (e) suspected counterfeit Malaysian currency coin. 13.3. FIs shall not mix currency of different categories listed in paragraphs 13.1 or 13.2. 13.4. FIs shall not send any defaced currency note, tampered currency coin and demonetised currency to BNM through mail. BNM will not entertain and shall not be liable for any claim for missing or insufficient amount of defaced currency notes, tampered currency coins and demonetised currency sent to BNM through mail. G S S S S S Quality and Integrity of Currency (Exposure Draft) 9 of 29 14. Submission of Defaced Currency Note excluding Unfit Currency Notes, Tampered Currency Coin excluding Worn Currency Coins and Demonetised Currency to BNM 14.1. Where FIs discover defaced currency notes excluding unfit currency notes, tampered currency coins excluding worn currency coins or demonetised currency, FIs shall submit them to BNM for exchange over-the-counter in accordance with the following procedures– (a) where possible, consolidate defaced currency notes excluding unfit currency notes, tampered currency coins excluding worn currency coins and demonetised currency from their branches in their respective regions; (b) make an appointment with BNM prior to the over-the-counter exchange; (c) submit the defaced currency notes excluding unfit currency notes, tampered currency coins excluding worn currency coins and demonetised currency in a sealed polythene bag to BNM; and (d) obtain acknowledgement of receipt from the cashier at BNM upon submission. 14.2. FIs must ensure only defaced currency notes excluding unfit currency notes, tampered currency coins excluding worn currency coins or demonetised currency are exchanged over the counter with BNM. 14.3. FIs shall not deposit any defaced currency note excluding unfit currency notes, tampered currency coin excluding worn currency coins or demonetised currency with BNM. 15. Submission of Unfit Currency Notes and Worn Currency Coins to BNM 15.1. Where FIs discover unfit currency notes and worn currency coins, FIs shall submit them to BNM by depositing them with BNM in accordance with the following procedures– (a) where possible, consolidate unfit currency notes and worn currency coins from their branches in their respective regions; (b) ensure every unfit currency note bundle has with it a packing slip with correct information; (c) make an appointment through a dedicated system with BNM for the purposes of submission; (d) submit the unfit currency notes and worn currency coins in complete quantity in a sealed polythene bag or sealed bin to BNM according to the packing requirements set by BNM at the appointed date and time; and S S S S Quality and Integrity of Currency (Exposure Draft) 10 of 29 (e) obtain acknowledgement of receipt from BNM via the system upon submission. 15.2. FIs must ensure only unfit currency notes or worn currency coins are deposited with BNM. 15.3. FIs are allowed to deposit fit currency notes together with unfit currency notes with BNM in separate bins or bags, provided that they are in complete quantity according to the packing requirements set by BNM. 15.4. FIs shall not exchange with BNM over the counter any unfit currency note or worn currency coin. S S S Quality and Integrity of Currency (Exposure Draft) 11 of 29 PART C INTEGRITY OF CURRENCY 16. Introduction 16.1. Counterfeit Malaysian currency is not a legal tender as it is not issued by BNM. Thus, BNM will not give any value to any counterfeit Malaysian currency. 16.2. FIs shall not recirculate any suspected counterfeit Malaysian currency discovered from circulations, during currency processing or from the SST. 16.3. Any use of counterfeit Malaysian currency note or currency coin as genuine or possession of it with the intention to use it as genuine by any person is a criminal offence under the Penal Code [Act 574]. 17. Detention and Recording of Information on Suspected Counterfeit Malaysian Currency 17.1. FIs shall detain any suspected counterfeit Malaysian currency discovered during any transaction with their customers, during currency processing or from the SST. 17.2. FIs shall not release the suspected counterfeit Malaysian currency detained as described in paragraph 17.1 back into circulation under any circumstances including– (a) return to original carrier; (b) recirculate to another customer; (c) deposit with BNM together with unfit currency notes or worn currency coins; and (d) exchange with BNM, together with defaced currency notes or tampered currency coins. (A) Over the counter 17.3. FIs shall comply with the following procedures upon detection of suspected counterfeit Malaysian currency during an over-the-counter transaction: (a) detain the suspected counterfeit Malaysian currency from the carrier; (b) inform the carrier that the suspected counterfeit Malaysian currency will be surrendered to PDRM pursuant to section 39 of the CA and will be returned to the carrier if it is later discovered to be genuine pursuant to section 40(1) of the CA; S S S Quality and Integrity of Currency (Exposure Draft) 12 of 29 (c) limit any handling of the suspected counterfeit Malaysian currency to a minimum and shall not stamp, write on, cut or alter the suspected counterfeit Malaysian currency in any manner; (d) keep the suspected counterfeit Malaysian currency in a sealed tamper proof evidence bag, place it in a secured place pending lodgement of police report and surrender the same to PDRM thereafter; (e) record the personal information of the carrier or any other person who gives the suspected counterfeit Malaysian currency to the carrier in accordance with section 38(1) of the CA by requesting the carrier to complete the Handover of Suspected Counterfeit Currency Form as per Appendix III; (f) obtain a copy of the carrier’s identity card (NRIC), passport or any other document which may be used to confirm the identity of the carrier in accordance with section 38(1) of the CA; (g) assign each incident of suspected counterfeit Malaysian currency with one reference number as per the following format: Format: Institution name_branch name_year_reference number Example: BNM_BNMOPP1 _2020_00001; and (h) complete and sign the Handover of Suspected Counterfeit Malaysian Currency Form, make at least two (2) duplicate copies of the form and provide a duplicate copy to the carrier as proof of receipt. (B) During currency processing or from the SST 17.4. FIs shall comply with the following procedures upon detection of suspected counterfeit Malaysian currency during currency processing or from the SST– (a) limit any handling of the suspected counterfeit Malaysian currency to a minimum and shall not stamp, write on, cut or alter the suspected counterfeit Malaysian currency in any manner; (b) keep the suspected counterfeit Malaysian currency in a sealed tamper proof evidence bag, place it in a secured place pending lodgement of police report and surrender the same to PDRM thereafter; and (c) record the information in relation to the discovery, including but not limited to the following: (i) date and time of discovery; (ii) name and location of FIs involved; and 1 Bank Negara Malaysia Office Pulau Pinang S Quality and Integrity of Currency (Exposure Draft) 13 of 29 (iii) source of currency note or currency coin i.e. collected from cashier or the SST. 17.5. FIs shall immediately return to the carrier any suspected counterfeit Malaysian currency which has been certified as genuine after investigation by PDRM. 18. Reporting of Information on Suspected Counterfeit Malaysian Currency 18.1. The reporting procedures on suspected counterfeit Malaysian currency stipulated in this Part involve reporting to the following: (a) headquarters of the FIs; (b) BNM; (c) PDRM; and (d) vendors of the SST where the counterfeit Malaysian currency was discovered. 18.2. For purposes of paragraph 18, the term “suspicious circumstances” refers to– (a) a situation where the FIs suspect the carrier to be the counterfeiter; (b) a situation where a repetitive trend or the modus operandi of passing counterfeit Malaysian currency is observed; or (c) any other circumstances deemed suspicious by the FIs. (A) Over the counter 18.3. FIs shall report the discovery of suspected counterfeit Malaysian currency during over-the-counter transaction to its headquarters– (a) within twenty-four (24) hours where the discovery involves– (i) more than one (1) piece per carrier; or (ii) one (1) piece per carrier but in suspicious circumstances; or (b) within two (2) working days where the discovery involves one (1) piece per carrier with no suspicious circumstances, by submitting the “Summary of Suspected Counterfeit Malaysian Currency” report as per Appendix IV and Appendix V. 18.4. FIs (excluding RCP and licensees under the MSBA) shall report the discovery of the suspected counterfeit Malaysian currency during an over-the-counter transaction to BNM via ORION– S S S S S Quality and Integrity of Currency (Exposure Draft) 14 of 29 (a) within twenty-four (24) hours where the discovery involves – (i) more than one (1) piece per carrier; or (ii) one (1) piece per carrier but in suspicious circumstances; and (b) on a monthly basis by the 15th calendar day of the following month for aggregate data of suspected counterfeit Malaysian currency for each month. For example, all events that occur from 1st January to 31st January shall be reported by 15th February. 18.5. Licensees under the MSBA shall report the discovery of the suspected counterfeit Malaysian currency during an over-the-counter transaction to BNM via email– (a) within twenty-four (24) hours where the discovery involves – (i) more than one (1) piece per carrier; or (ii) one (1) piece per carrier but in suspicious circumstances; and (b) on a monthly basis by the 15th calendar day of the following month for aggregate data of suspected counterfeit Malaysian currency for each month. For example, all events that occur from 1st January to 31st January shall be reported by 15th February. 18.6. FIs shall lodge a police report on the discovery of suspected counterfeit Malaysian currency during an over-the-counter transaction at the nearest police station– (a) within twenty-four (24) hours where the discovery involves suspicious circumstances; (b) within two (2) working days where the discovery involves more than one (1) piece per carrier; or (c) within five (5) working days where the discovery involves one (1) piece per carrier with no suspicious circumstances. 18.7. During the lodgement of police report as per paragraph 18.6, FIs shall surrender the following to PDRM– (a) the suspected counterfeit Malaysian currency in a sealed tamper proof evidence bag; (b) a copy of the completed form under paragraph 17.3(e); S S S Quality and Integrity of Currency (Exposure Draft) 15 of 29 (c) a copy of the carrier’s NRIC, passport or other document to confirm the identity of the carrier under paragraph 17.3(f); and (d) any other related documents. (B) During currency processing or from the SST 18.8. FIs shall report on the discovery of suspected counterfeit Malaysian currency during currency processing or from the SST to its headquarters– (a) within twenty-four (24) hours where the discovery involves more than one (1) piece or any quantity for currency collected from the SST; or (b) within two (2) working days where the discovery involves only one (1) piece, by submitting the “Summary of Suspected Counterfeit Malaysian Currency” report as per Appendix V. 18.9. RCP who acts as a ‘service provider’ on currency processing to FIs shall report on the discovery of suspected counterfeit Malaysian currency during currency processing or from the SST to its client’s headquarter– (a) within three (3) working days after receiving the report under paragraph 18.8 from its branches or processing centres; or (b) within three (3) working days after the discovery if the suspected counterfeit Malaysian currency is discovered by the headquarter. 18.10. FIs (excluding RCP and licensees under the MSBA) shall report on the discovery of the suspected counterfeit Malaysian currency during currency processing or from the SST to BNM via ORION – (a) within twenty-four (24) hours where the discovery involves more than one (1) piece during currency processing or any quantity for currency collected from the SST; and (b) on a monthly basis by the 15th calendar day of the following month for aggregate data of suspected counterfeit Malaysian currency for each month. For example, all events that occur from 1st January to 31st January must be reported by 15th February. 18.11. RCP (where it processes currency for a person other than an FI) and licensees under the MSBA shall report on the discovery of the suspected counterfeit Malaysian currency during currency processing or from the SST to BNM via email– S S S S Quality and Integrity of Currency (Exposure Draft) 16 of 29 (a) within twenty-four (24) hours where the discovery involves more than one (1) piece; and (b) on a monthly basis by the 15th calendar day of the following month for aggregate data of suspected counterfeit Malaysian currency for each month. For example, all events that occur from 1st January to 31st January must be reported by 15th February. 18.12. FIs shall lodge a police report on the discovery of suspected counterfeit Malaysian currency during currency processing or from the SST at the nearest police station– (a) within three (3) working days if the currency is collected from the SST; or (b) within five (5) working days if the currency is collected from cashier. 18.13. During the lodgement of police report as per paragraph 18.12, FIs shall surrender the following to PDRM– (a) the suspected counterfeit Malaysian currency in a sealed tamper proof evidence bag; (b) a list of the suspected counterfeit Malaysian currency and their details as mentioned in paragraph 17.4(c); and (c) any other related documents. 18.14. FIs shall immediately notify the machine vendors of the SST on the discovery of the suspected counterfeit Malaysian currency (if it was accepted by the SST) and ensure that the machine vendors conduct data collection and patching on the SST immediately to ensure that the SST is capable of detecting and rejecting counterfeit Malaysian currency. S S S Quality and Integrity of Currency (Exposure Draft) 17 of 29 PART D CURRENCY PROCESSING OPERATION 19. Requirements on Currency Processing Operation 19.1. FIs shall perform their currency processing operation based on the standard operating procedure (SOP) approved based on its respective internal governance. 19.2. The SOP shall– (a) cover activities from handing over of currency note or currency coin to currency processing team until return of the processed currency note or currency coin back to vault, and other relevant areas; (b) outline clear steps for each activity; and (c) be periodically reviewed to mitigate potential risks. 19.3. FIs shall be responsible for ensuring that– (a) all currency notes and currency coins to be recirculated shall be checked for authenticity and fitness in accordance with the standards provided in this policy document; (b) the authenticity verification of currency notes and currency coins shall be performed either by way of using a currency processing machine or manual checks by trained staff; (c) currency notes and currency coins which have been processed shall be segregated in accordance with paragraphs 13.1 and 13.2. (d) any defaced currency note and tampered currency coin detected during fitness sorting shall not be recirculated and shall be submitted to BNM using correct channels2; (e) currency notes and currency coins which have not been checked for authenticity and fitness shall not be recirculated to the public; (f) the quantity of currency notes and currency coins processed and subsequently submitted to BNM is accurate (without any excess or shortage); and (g) packing slip with correct information is affixed to every bundle of currency notes deposited with BNM. 19.4. FIs shall ensure that staff involved in currency processing operation shall be properly trained and shall have the ability to– 2 Deposit unfit currency notes and worn currency coins with BNM, and exchanged defaced currency notes and tampered currency coins with BNM. S S S S Quality and Integrity of Currency (Exposure Draft) 18 of 29 (a) identify denomination and series of currency note and currency coin issued by BNM; (b) manually detect and sort out fit currency, defaced currency notes and tampered currency coins as specified in this policy document; (c) assess the security features available on currency notes and currency coins, and determine their authenticity; (d) manually authenticate currency notes and currency coins, and able to detect any suspected counterfeit Malaysian currency; and (e) properly handle and operate currency processing machine; and (f) process currency notes and currency coins according to the approved SOP. 19.5. FIs shall ensure safe-keeping of records for training conducted as described in paragraph 19.4 for one (1) audit cycle, and furnish the record to BNM when requested. 19.6. FIs shall ensure internal trainers3, if any, undergo training programme organised by BNM when available. 20. Requirements on Currency Processing Machine 20.1. FIs shall be responsible for– (a) ensuring the currency processing machine used in currency processing operation– (i) is properly maintained4 so that the machine parts and sensors work optimally to ensure currency notes and currency coins processed meet the standards set by BNM, and to safekeep the maintenance records for one (1) audit cycle; (ii) is immediately recalibrated when acceptance rate5 is reduced, addition or revision to any security feature is made by BNM, and BNM issues a new currency note and currency coin series; 3 Trainers are responsible to train staff on security features available on currency note and currency coin, and how to authenticate them. 4 Maintenance conducted based on recommendation from machine manufacturer and performed by a competent person. 5 Repetitive high rejection of currency note and currency coin observed during currency processing operation. S S S Quality and Integrity of Currency (Exposure Draft) 19 of 29 (iii) uses the latest6 firmware version capable of detecting and rejecting known types of counterfeit Malaysian currency; (iv) for processing currency notes– (A) is capable of accurately counting currency notes; (B) is capable of processing, sorting and segregating currency notes in accordance with the quality standards as specified in this policy document; (C) has the sensors to detect the required security features in the currency notes issued and any additional features issued by BNM from time to time, including but not limited to– (I) visual properties, including currency fitness detection; (II) infrared properties; (III) ultraviolet properties; and (IV) magnetic properties; and (D) has double sided detection capability; (v) for processing currency coins- (A) is capable of accurately counting currency coin; (B) is capable of processing, sorting and segregating currency coins in accordance with the quality standards as specified in this policy document; and (C) has the sensors to detect the required security features in the currency coin issued and any additional features issued by BNM from time to time, including but not limited to– (I) thickness; (II) diameter; (III) electrical conductivity; and (IV) electromagnetism; 6 If the latest firmware version used failed to reject any known type of counterfeit Malaysian currency, FIs shall immediately inform machine manufacturer on the discovery and temporarily reuse previously best firmware version. Quality and Integrity of Currency (Exposure Draft) 20 of 29 (b) ensure the output of currency processing machine complies with BNM’s fitness level requirement7; (c) ensure only currency processing machine meeting8 the fitness level requirement is used to process currency notes and currency coins, and immediately fine-tune the machine if deviation is observed; (d) ascertain the authentication accuracy and continuously enhance the setting and capability of the currency processing machine to detect and segregate fit currency, unfit currency notes, worn currency coins, defaced currency notes excluding unfit currency notes and tampered currency coins excluding worn currency coins; and (e) ensure currency processing machine is capable of detecting and rejecting counterfeit Malaysian currency. 20.2. FIs shall submit attestations to BNM, signed by a competent person authorized by the Board of Directors by 31st March of each year to confirm that the currency processing machine used is- (a) able to process, sort and segregate currency notes and currency coins according to BNM’s fitness level requirements and quality standard; (b) able to reject counterfeit Malaysian currency; (c) accurate in counting the quantity of currency notes and currency coins processed; and (d) tested on a quarterly basis to ensure all settings are in accordance with this policy document. 21. Requirements on Recording, Reconciliation and Reporting 21.1. FIs shall– (a) perform reconciliation of currency notes and currency coins processed at least on a daily basis; (b) record the currency processing data in suitable form and ensure safe- keeping of the currency processing data for at least one (1) audit cycle; and (c) provide the details of all currency processing operation to BNM when requested, including but not limited to the following– (i) denomination of the currency notes and currency coins processed; 7 BNM will provide samples to assist FIs to fine tune currency processing machine to meet the fitness level requirement. 8 BNM will monitor the output from time to time. S S Quality and Integrity of Currency (Exposure Draft) 21 of 29 (ii) quantity of fit currency processed; (iii) quantity of unfit currency notes and worn currency coins processed; and (iv) quantity of currency notes, currency coins and suspected counterfeit Malaysian currency rejected by the currency processing machine. Quality and Integrity of Currency (Exposure Draft) 22 of 29 Appendix I Illustration of a defaced currency note and an unfit currency note: No. Illustration Criteria 1 Inscribed 2 Ink wear 3 Tear 4 Hole Quality and Integrity of Currency (Exposure Draft) 23 of 29 No. Illustration Criteria 5 Repair 6 Burnt 7 Missing security feature 8 Dye stained Quality and Integrity of Currency (Exposure Draft) 24 of 29 No. Illustration Criteria 9 Soiled 10 Limpness 11 Crumples 12 Corner folds Quality and Integrity of Currency (Exposure Draft) 25 of 29 Appendix II Illustration of tampered currency coin and worn currency coin: No. Illustration Criteria 1 Hole 2 Dented 3 Broken 4 Cut Quality and Integrity of Currency (Exposure Draft) 26 of 29 No. Illustration Criteria 5 Burnt 6 Manufacturing defect 7 Corroded 8 Stained Quality and Integrity of Currency (Exposure Draft) 27 of 29 Appendix III Quality and Integrity of Currency (Exposure Draft) 28 of 29 Appendix IV Quality and Integrity of Currency (Exposure Draft) 29 of 29 Appendix V PART A OVERVIEW 1 1. Introduction 1 2. Applicability 1 3. Legal Provision 2 4. Effective Date 2 5. Interpretation 2 6. Related Legal Instruments 3 7. Superseded Policy Documents 4 8. Enquiries 4 PART B QUALITY OF CURRENCY 5 9. Introduction 5 10. Criteria for Fit Currency 5 11. Criteria for Defaced Currency Note and Unfit Currency Note 5 12. Criteria for Tampered Currency Coin and Worn Currency Coin 7 13. Processing of Currency 8 14. Submission of Defaced Currency Note excluding Unfit Currency Notes, Tampered Currency Coin excluding Worn Currency Coins and Demonetised Currency to BNM 9 15. Submission of Unfit Currency Notes and Worn Currency Coins to BNM 9 PART C INTEGRITY OF CURRENCY 11 16. Introduction 11 17. Detention and Recording of Information on Suspected Counterfeit Malaysian Currency 11 18. Reporting of Information on Suspected Counterfeit Malaysian Currency 13 PART D CURRENCY PROCESSING OPERATION 17 19. Requirements on Currency Processing Operation 17 20. Requirements on Currency Processing Machine 18 21. Requirements on Recording, Reconciliation and Reporting 20 Appendix I 22 Appendix II 25 Appendix III 27 Appendix IV 28 Appendix V 29 PART A OVERVIEW 1. Introduction 2. Applicability 3. Legal Provision 4. Effective Date 5. Interpretation 6. Related Legal Instruments 7. Superseded Policy Documents 8. Enquiries PART B QUALITY OF CURRENCY 9. Introduction 10. Criteria for Fit Currency 11. Criteria for Defaced Currency Note and Unfit Currency Note 12. Criteria for Tampered Currency Coin and Worn Currency Coin 13. Processing of Currency 14. Submission of Defaced Currency Note excluding Unfit Currency Notes, Tampered Currency Coin excluding Worn Currency Coins and Demonetised Currency to BNM 15. Submission of Unfit Currency Notes and Worn Currency Coins to BNM PART C INTEGRITY OF CURRENCY 16. Introduction 17. Detention and Recording of Information on Suspected Counterfeit Malaysian Currency 18. Reporting of Information on Suspected Counterfeit Malaysian Currency PART D CURRENCY PROCESSING OPERATION 19. Requirements on Currency Processing Operation 20. Requirements on Currency Processing Machine 21. Requirements on Recording, Reconciliation and Reporting Appendix I Appendix II Appendix III Appendix IV Appendix V	Public Notice
03 Feb 2023	Discussion Paper on Financial Inclusion Framework 2023-2026	https://www.bnm.gov.my/-/dp-framework-2023-2026	https://www.bnm.gov.my/documents/20124/938039/FINC_Framework_DP.pdf	null	Reading: Discussion Paper on Financial Inclusion Framework 2023-2026 Share: 22 Discussion Paper on Financial Inclusion Framework 2023-2026 Embargo : For immediate release Not for publication or broadcast before 2300 on Friday, 3 February 2023 3 Feb 2023 Issuance Date 3 February 2023 Summary The discussion paper explores Bank Negara Malaysia’s (the Bank) proposed features of the Financial Inclusion Framework 2023-2026 (Framework). The implementation of the Financial Inclusion Framework 2011-2020 has led to significant improvements in the accessibility and take-up of basic financial services in Malaysia. Despite the progress made, several barriers and challenges need to be addressed to run the last mile in progressing financial inclusion. The Framework will also take into consideration alignment of strategies towards new emerging growth angles in financial services, and achievement of the United Nation’s Sustainable Development Goals (SDGs) and Environmental, Sustainability and Governance (ESG) propositions for higher value creation. Developed to align with the Financial Sector Blueprint 2022-2026, the Framework serves as a four-year strategic roadmap and principle-based guidance to advance financial inclusion. The vision of the Framework is to provide a more expansive and holistic approach to achieve broader development outcomes and elevating the financial well-being and standard of living of all residents in Malaysia. The Bank invites written feedback on this discussion paper, including suggestions on areas to be clarified and alternative proposals that the Bank should consider. The written feedback should be supported by a clear rationale, accompanying evidence or practical examples, where appropriate, to facilitate greater understanding of its context. Issuing Department Financial Inclusion Department Section in Charge Financial Capability and Inclusion Relevant Act FSA IFSA DFIA MSBA Document Discussion Paper on Financial Inclusion Framework 2023-2026 Bank Negara Malaysia 3 February 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Microsoft Word - FINC Framework DP Financial Inclusion Framework 2023 – 2026 Discussion Paper Issued on: 03 February 2023 BNM/RH/DP 028-16 2 This discussion paper sets out Bank Negara Malaysia’s (“the Bank”) proposed 2nd Financial Inclusion Framework 2023 – 2026 (“the Framework”). The Bank would like to invite all relevant parties, including ministries, government agencies, financial institutions, industry associations, consumer groups, regulators, non-governmental organisations, social enterprises and any other relevant organisations or individuals, to peruse this document and provide written feedback on the proposals. Submission of feedback for the discussion paper: a. The Bank highly encourages the responses to be supported by appropriate rationale and evidence. b. All respondents are to specify the applicable paragraphs and provide sufficient examples or illustrations. c. Financial institutions in particular are invited to respond to a survey on financial inclusion (refer to Appendix 1) and provide feedback on the discussion paper (refer to Appendix 2) d. All responses to the survey and/or feedback for the discussion paper are to be submitted electronically in the prescribed format and emailed to [email protected] latest by 31 March 2023. The email must be titled “Financial Inclusion Framework 2023 – 2026: Feedback from [name of institution/ individual]”. e. When preparing the feedback, specific queries can be directed to the following officers: i. Liza Mohamed Noor [email protected] ii. Aimi Hafizah Hamzah [email protected] 3 TABLE OF CONTENTS PART A: Bridging Economic Empowerment and Inclusive Growth 1. Overview: Advancing Financial inclusion 2. Malaysia’s Advancement in the Past Decade 3. Crossing Remaining Hurdles to Run the Last Mile PART B: Strategic Direction of the Renewed Framework 4. Vision of the Financial Inclusion Framework 2023 – 2026 5. Guidance on Unserved and Underserved Segments 6. Desired Outcomes 7. Policy Objectives and Strategies 8. Cross Cutting Themes PART C: Translating Policy to Action 9. Strategic Enablers for Successful Implementation 10. Monitoring and Evaluation Framework 11. Key Performance Indicators and Targets 4 “It is our firm conviction that the purpose of finance is to serve the needs of the real economy, improving lives and livelihoods. Ultimately, financial services must help people and businesses grow their wealth, engage in trade and commerce, and build resilience. It must help customers manage financial risks and adverse events – including climate and environment related risks to secure lasting prosperity. The Financial Sector Blueprint 2022 - 2026 seeks to align the financial sector with the national aspiration to not only become a high value-added and high-income economy, but also lay a solid foundation for a more dynamic, inclusive and sustainable development path”. Nor Shamsiah Yunus, Governor Bank Negara Malaysia, February 2022 5 PART A: Bridging Economic Empowerment and Inclusive Growth 1 Overview: Advancing Financial Inclusion 1.1. An inclusive financial system provides a foundation for building strong and resilient households, communities, and economies. In this regard, financial inclusion strategies must facilitate meaningful access and effective usage of affordable financial products and services that allows consumers to save, invest, protect against risks and build financial buffers for current and future needs. To make this happen, having the skills and knowledge to make the right financial decisions are important. This will lay the foundation for individuals and businesses to improve their financial health and resilience, stimulate the economy and promote socio-economic growth. 1.2. Financial inclusion is also an important enabler in achieving eight of the 17 Sustainable Development Goals (SDGs). United Nations has estimated that achieving the SDGs will create at least US$12 trillion of market opportunities and 380 million new jobs globally, with climate change efforts saving at least US$26 trillion by 20301. Financial inclusion is positioned prominently in 8 of the 17 SDGs - Source: UNCDF 1.3. The recent COVID-19 pandemic has caused economic disruptions that eroded financial buffers of many individuals and households, particularly, the underserved and vulnerable segments as well as businesses especially the small and medium enterprises (SMEs). Therefore, financial inclusion strategies going forward will need to take into account these new realities in order to deliver meaningful outcomes that can improve the financial well-being of people in this country. 1 Business and Sustainable Development Commission, 2017; Better Business Better World; Report of the Global Commission on the Economy and Climate, 2018 6 2 Malaysia’s Advancement in the Past Decade 1 2.1 The Bank’s commitment towards a progressive and inclusive financial system is embedded in the Central Bank of Malaysia Act 2009. Since the implementation of the 1st Financial Inclusion Framework 2011-2020, significant progress has been achieved which broadened the level of financial inclusion in the country. Diagram 1: Key progress of financial inclusion in the past decade Source: Bank Negara Malaysia, data as of end-2020 unless specified otherwise. Accelerated Adoption of Digital Financial Services Post Pandemic 2.2 COVID-19 has affected our day-to-day living including how we conduct finance. In particular, the pandemic has accelerated the adoption of digital financial services (DFS). The recent Financial Capability and Inclusion Demand Side Survey 2021- 20222 (FCI Survey 2021-2022) estimated that 74% of Malaysians use DFS. In addition, the World Bank's Global Findex 2021 Report revealed that 79% of Malaysian adults use digital payments, of which 42% did so for the first time during the pandemic. In turn, receiving digital payments has catalysed the use of other financial services, including savings and borrowing. 2 The Financial Capability and Inclusion Demand Side Survey is conducted every three years to assesses the level of financial capability of Malaysians based on measures of financial knowledge, behaviour and attitude. 7 Diagram 2: Digital Financial Services Trends in Malaysia Source: Findex 2021 3 Crossing Remaining Hurdles to Run the Last Mile 3.1 In ensuring that financial inclusion strategies yield the desired outcomes, the Bank continuously monitors and measures the level of financial capability and inclusion in Malaysia. In recent years, the Bank conducted the FCI 2021-2022 and the SME Financing Survey 20213 to gain insights into the current level of financial capability and inclusion in Malaysia, particularly in the post-pandemic environment. 3.2 Despite the progress made in the past decade, the survey findings highlighted several barriers and challenges that need to be addressed to further advance financial inclusion. 3 SME Financing Survey 2021 was conducted to assess the business conditions and needs, challenges and behaviour of Malaysian SMEs in accessing financial products and services, especially in the post-pandemic environment. 8 Diagram 3: Barriers and Challenges to Financial Inclusion 3.3 To this end, the Financial Sector Blueprint 2022-2026 (“the Blueprint”) lays out wide- ranging strategies to elevate the financial well-being of households and businesses. The financial inclusion strategies and aspirations outlined in this Framework are aligned to meet the goals envisioned in the Blueprint. 3.4 At the national level, advancing the financial inclusion agenda remains a key priority under the Twelfth Malaysia Plan 2021 – 2025 (Rancangan Malaysia Kedua Belas, RMK12). The aim is to ensure all Malaysians have meaningful access to quality and affordable financial services, with emphasis on innovative financial solutions and technology-led modes of delivery. This will be key to meet RMK12’s objective to achieve a prosperous, inclusive and sustainable society. 9 4 Vision of the Financial Inclusion Framework 2023 - 2026 PART B: The Strategic Direction of the Renewed Framework 4.1 The Framework sets out a clear vision to “Advance financial inclusion to elevate the financial well-being and standard of living of all residents of Malaysia” by: i. enabling everyone to benefit from an accessible and inclusive financial ecosystem; ii. equipping individuals and businesses with affordable and suitable financial solutions; and iii. empowering consumers with the financial capability to make sound financial decisions and meaningfully participate in the financial system. Diagram 4: The Framework at a Glance 4.2 Greater financial inclusion enables households and businesses to improve their overall financial well-being, and be better at responding to changes in financial circumstances. This in turn will build their financial resilience, including through economic cycles. 10 4.3 This Framework serves as a four-year strategic roadmap to advance financial inclusion as a means to an end, instead of an end in itself. The Framework features: i. a more expansive and holistic approach to transition the focus from accessibility and usage to achieving broader development outcomes as well as financial resilience and well-being; ii. seven policy objectives to address remaining gaps and accelerate the advancement of financial inclusion; iii. four strategic enablers to support the effective implementation of the Framework; iv. principle-based guidance to identify the unserved and underserved - covering broader challenges of exclusion beyond geography, and includes various aspects of financial vulnerabilities; and v. Two cross-cutting themes as underlying implementation principles:  embedding gender equality considerations for greater socio-economic outcomes; and  strengthening impact measurement and evaluation of financial inclusion efforts across the industry to promote greater accountability. vi. list of key performance indicators (KPIs) that will account for the quality of financial services and components of financial capabilities and health (to be published in 2023 upon consultation with stakeholders). 11 5 Guidance on Unserved and Underserved Segments 5.1 In line with the Blueprint’s call on the need to improve guidance on how financial institutions can define the financially unserved and underserved segments, the Framework provides principle-based guidance4 , based on the following six key characteristics: i. physically challenging to reach given geographical accessibility; ii. unable to conduct digital transactions, due to a lack of digital literacy, or connectivity; iii. face difficulties obtaining financial services given their risk profiles; iv. face difficulties accessing financial products due to information asymmetry or concerns on commercial viability especially in new growth areas; v. are likely to be more vulnerable due to personal circumstances, including change in personal circumstances, exposing consumers to greater risk of experiencing harm; and vi. gaps in financial literacy which hinder the effective take-up and meaningful usage of financial products and services. Diagram 5: Principle-based guidance on the financially unserved and underserved 4 The guidance is aligned with the definitions provided under the relevant policy documents issued by the Bank - Agent Banking Framework 2021, Licensing Framework for Digital Banks 2020, the Fair Treatment of Vulnerable Consumers Exposure Draft and the Licensing Framework for Digital Insurers and Takaful Operators 2022. 12 6 Desired Outcomes 7 Policy Objectives and Strategies 6.1 The Framework focuses on delivering four key Desired Outcomes that will drive and focus our collaborative efforts to attain the Vision. Diagram 6: Desired Outcomes for Financial Inclusion Policy Objective 1: Expanding access to financial services for the “last frontier” 7.1 Malaysia has made significant progress in widening financial access points covering 96% of mukims. However, financial barriers remain to the “last frontier” unbanked population, particularly in remote and underserved areas. Hence, the focus in the medium term will be on: i. ensuring access to and availability of financial services to segments currently unserved and underserved; and ii. facilitating on-boarding processes for the population to transition to digital financial channels. 7.2 Policy Objective 1 lays out strategies for stakeholders to reduce barriers currently impending access to appropriate financial products and services. 13 Diagram 7: Expanding financial access for the “last frontier” Policy Objective 2: Promote secure and inclusive digital financial services 7.3 The rapid growth of DFS opens enormous opportunities to deepen financial inclusion and expand access to previously excluded and underserved populations. However, these opportunities can only be fully realised if the population is equipped with the knowledge to use them effectively, responsibly and confidently. Low awareness and trust, as well as limited digital financial literacy can preclude consumers from competently and confidently using DFS. 7.4 Therefore, focus is being accorded to promote more secure and inclusive digital financial services that can encourage greater financial inclusion by effectively meeting the needs of the unserved and underserved segments. More efforts will also be channeled to elevating digital financial literacy (DFL) and improving trust to encourage greater usage of DFS. 14 Diagram 8: Promote secure and inclusive digital financial services Policy Objective 3: Enhance SME financial ecosystem 7.5 One of the game changers highlighted in RMK12 is transforming SMEs as the new driver of growth, which includes accelerating SME development through technology and digital adoption. Whilst SMEs are showing positive signs of recovery post- pandemic, the sector is still grappling with lower-than-desired capacity, labour shortages, rising overhead costs and supply chain disruptions. Furthermore, recent surveys indicate that technology adoption and digital transformation among SMEs are still relatively poor compared to larger corporations. 7.6 The strategies under this policy objective will complement ongoing initiatives for SME development outlined in RMK12 and the Blueprint:  to digitalise the SME sector and support its transition to green economy; and  provide a conducive and holistic ecosystem to support the growth of SMEs. 7.7 In this regard, the Bank has also introduced special funds, with the objective to provide access to financing at reasonable cost for SMEs in all economic sectors. The funds aim to support the recovery of SMEs, accelerate innovation and promote digital transformation as well as transition to green business models. In addition, the strategies will focus on the following:  improving access to diversified funding sources; 15  facilitate ‘second chance’ for non-viable borrowers; and  enhance support for microenterprises and informal businesses to improve their income and move up the value chain. Diagram 9: Enhance SME financial ecosystem Policy Objective 4: Improve access to and usage of risk protection 7.8 The pandemic has underscored the importance of financial resilience and the need for risk protection solutions in times of uncertainty. Insurance/takaful cushions businesses and individuals against a variety of unforeseen risks, helps to build retirement savings and contributes to advancing an inclusive, resilient society. Despite these benefits, the take-up of insurance/takaful products in Malaysia remains relatively low, particularly among the lower income and youth segments. This is due to income constraints, lack of suitable choices and low awareness of its importance and usage. 7.9 In this regard, efforts must be channeled to develop a protection landscape that is efficient, competitive and inclusive in meeting the needs of the unserved and underserved segments. The priority in the coming years will be to further promote 16 the growth of a diverse microinsurance/microtakaful market that delivers products that are accessible, affordable, needs-based as well as easy to use by:  encouraging broader offerings under the Perlindungan Tenang5 framework with more targeted and proportionate regulations; and  ensuring more seamless data-sharing across the industry. 7.10 The Financial Education Network (FEN) will be intensifying financial literacy initiatives to further improve consumer awareness and understanding of risk protection and the benefits of Perlindungan Tenang among key segments that most need it. Diagram 10: Improve access to and usage of risk protection Policy Objective 5: Strengthen financial institutions’ role and capabilities in promoting financial inclusion 7.11 In a rapidly changing business environment post pandemic, financial institutions are well-placed to leverage on the following:  high levels of digital adoption by financial institutions and an enabling e- payments ecosytem;  access to a comprehensive credit data infrastructure; 5 Perlindungan Tenang is a national initiative to provide simple and affordable insurance and Takaful plans with a convenient claims process. 17  partnerships with fintech players to access the expanding digital data footprint of financial consumers;  established business conduct regulatory frameworks and close supervision that promote consumer confidence. This includes effective redress mechanisms for grievances; and  active and sustained financial literacy programmes. 7.12 In this context, financial institutions can play a transformative role in financial inclusion by taking advantage of innovation to strengthen digital channels and platforms, as well as develop customised and simplified financial solutions that meet the needs of customers at an affordable cost. To support this, the Bank will continue to facilitate a conducive and enabling regulatory environment to encourage innovation, safeguard consumers’ interests and support the development of green sectors and green finance solutions. Diagram 11: Strengthen financial institutions’ role and capabilities in promoting financial inclusion 18 Policy Objective 6: Improve targeted support for the vulnerable segments 7.13 Financial inclusion is a key enabler in reducing poverty and boosting shared prosperity. The FCI 2021-2022 revealed that 55% of consumers’ household income decreased during the pandemic, with 15% unable to cover basic needs. In addition, 47% of Malaysians have difficulty raising RM1,000 as emergency funds. These heightened vulnerabilities may create a cycle of debt and negatively impact the long- term financial security of those affected. 7.14 Thus, priority will be accorded to implement financial inclusion strategies that will improve socio-economic impact and narrow income inequality for the most vulnerable segments in our society. This includes facilitating the integration of social finance as an integral part of the financial ecosystem, and to support and leverage on existing platforms for social impact businesses to obtain appropriate financing and build necessary financial management skills. Suitable financing and protection solutions can be designed to support the vulnerable segments with the aim to improve their income generation potential to provide financial security and ultimately improve their financial well-being. 7.15 Complementing this, the Bank will continue to ensure access to effective avenues for financial advisory and redress mechanisms for vulnerable consumers. The Bank will also further strengthen policies and regulations to ensure vulnerable consumers are treated fairly by financial service providers. Diagram 12: Improve targeted support for the vulnerable segments 19 Policy Objective 7: Equip consumers with improved financial capabilities 7.16 Consumers are now facing an increasingly complex digital financial environment. The pandemic has also revealed that financial vulnerability can affect anyone, irrespective of income or education. With this as context, the goals of the National Strategy for Financial Literacy (NS) will continue to be pursued to ensure that the population can confidently navigate financial decisions during challenging times and in an increasingly digital economy. 7.17 The Financial Education Network, or FEN, is an inter-agency platform of eight partner institutions6 committed to raising the level of financial literacy in Malaysia. FEN will continue to drive the implementation of the NS and is committed to provide free access to financial knowledge, tools and resources as well as strengthen the measurement and evaluation of the initiatives for greater impact. FEN will work together with the financial industry to undertake more targeted efforts to support individuals and groups facing challenges that could make them more vulnerable financially. This includes rural communities, youth, gig workers, SMEs and lower- income households. 7.18 Further to this, financial institutions have an important role to address the misalignment between information and resources made available to financial consumers, and the way in which they consume, process and act on such information. Better use of data and behavioral insights by financial institutions can help close this gap and advance smarter financial education to bring about positive change. 6 FEN members comprise the Ministry of Education Malaysia, Ministry of Higher Education, Bank Negara Malaysia, Securities Commission Malaysia, Employees Provident Fund, Perbadanan Insurans Deposit Malaysia, Permodalan Nasional Berhad and Agensi Kaunseling and Pengurusan Kredit, 20 8 Cross Cutting Themes Diagram 13: Equip consumers with improved financial capabilities There are two thematic considerations that will be integrated within the financial inclusion strategies across the board: Gender Considerations 8.1 Globally, almost three quarters of a billion women continue to be excluded from formal financial services, with a global gender gap of about 6%7. In Malaysia, while there is no significant gender gap in financial account ownership and access to credit, disparities in economic participation remain to be addressed. The labour force participation rate for women in Malaysia at 51%, is below that of the developed economies8. Furthermore, women-owned SMEs make up only about 20% of total SMEs in Malaysia9. 8.2 Improving gender equality is an increasingly important priority for policymakers globally in the pursuit of sustainable development. In Malaysia, the RMK12 outlines aspirations and initiatives for women empowerment, particularly to strengthen the 7 Source: The World Bank Global FINDEX Report (2021) 8 For comparison, the labour force participation rate for women in Singapore is 59%, 60% in Australia and 65% in New Zealand. Labour force participation rate for women in other ASEAN countries are also higher, e.g., 70% in Vietnam, 59% in Thailand, and 54% in Indonesia. Source: The World Bank Database (2021). 9 Source: Department of Statistics Malaysia (2016) 21 development of women entrepreneurs and to increase women’s labour force participation rate to 59% by 2025. 8.3 Complementing these efforts, financial inclusion interventions should be more intentional about ensuring equitable financial access for women consumers. With better access and capabilities, women consumers also become more likely to invest in health, education and businesses, which benefit not only the women themselves but also their families and the wider society. Diagram 14: Embedding Gender Considerations Impact-based measurement and monitoring 8.4 To ensure industry-wide efforts are well aligned and effective, the monitoring and impact assessment of financial inclusion initiatives must be strengthened. A monitoring and evaluation (M&E) process will be developed to systematically track and evaluate the performance of the strategies under this Framework. 8.5 Efforts will be focused on collaborating with financial institutions to develop standardised reporting metrics and promote more transparent impact-based disclosures on financial inclusion. This would allow financial institutions to systematically demonstrate and continually improve their commitment towards supporting financial inclusion and the broader Environmental, Social and Governance (ESG) goals and the SDG agenda. Consequently, this will instill greater confidence in consumers and investors seeking to deal with institutions that are aligned to ESG goals. 22 Diagram 15: Impact-based measurement and monitoring 23 9 Strategic Enablers for Successful Implementation PART C: Translating Policy to Action The Framework also identifies four strategic enablers involving industry-wide efforts that support the successful realisation of policy objectives and strategies for financial inclusion: 9.1 Strategic collaborations - Concerted and collaborative efforts by relevant stakeholders in both the public and private sectors are necessary to achieve common goals of inclusivity and well-being aligned to broader national development policies. This entails forging strategic partnerships for the implementation of financial inclusion strategies, with regular monitoring of progress and evaluation of progress. 9.2 Data sharing - With more open data sharing across the industry, financial service providers have access to more granular and alternative forms of data for:  better targeted financial solutions; and  enrich creditworthiness assessments for thin-file consumers. It also offers better quality information back to consumers to make informed financial decisions and nudge them towards better financial behaviour. To this end, the emphasis will be on establishing data sharing arrangements with relevant agencies to improve data access on the profiles, needs and behaviour of the unserved and underserved segments. 9.3 Infrastructure - Focus continues to be given to ensure the financial infrastructure (e.g., interoperable payment systems, credit reference and reporting firms, credit guarantees) is effective in serving a dynamic and inclusive financial system. With the acceleration of digital financial services, broader digital infrastructures and reliable connectivity, including in rural and remote areas, are crucial to ensure that hard-to-reach segments can participate meaningfully in the financial system. 9.4 Conducive regulatory environment - The Framework also takes into consideration the continued need to ensure a regulatory environment that facilitates financial inclusion. This includes facilitating the provision of financial services that are safe and reliable, easing entry barriers for non-traditional financial service providers and improving consumer protection standards. 24 10 Monitoring and Evaluation Framework 10.1 The Bank will develop a structured M&E process to track the performance and progress of the strategies outlined in the Framework. This will ensure that the financial inclusion strategies are implemented as planned, reviewed and adjusted when necessary, to achieve the Framework’s desired outcomes. 10.2 The Bank will coordinate the M&E process which encompasses the key elements stipulated in Diagram 16. The Bank will engage with key stakeholders and monitor the implementation of the strategies outlined in the Framework. The monitoring of strategies will include updates on action plans, progress, outcome and impact of financial inclusion initiatives by the stakeholders. These in turn will be reflected in the key performance indicators to capture the stakeholders' performance in driving financial inclusion objectives by fulfilling the financing needs of the unserved and underserved segments. Diagram 16: Key Elements of M&E Process 25 11 Key Performance Indicators and Targets 11.1 Setting the right KPIs and targets play a critical role in the financial inclusion policy- making process and in driving the design and implementation of strategies and initiatives. The performance of the Framework will be evaluated based on a set of headline indicators and targets tied to the Desired Outcomes. These headline indicators and targets will be a key component of the M&E process. 11.2 The Bank in consultation with relevant stakeholders will develop a comprehensive and appropriate set of KPIs and targets. The aim is to incorporate inputs from the industry and key stakeholders to ensure a stronger and effective coordinated implementation which is aligned to the objectives of national development plans. The KPIs and targets will be published as part of the Strategy Paper’s addendum in 2023. 26 Appendix 1 Appendices Survey on Financial Inclusion Initiatives Does your institution offer products and services related to financial inclusion? If yes, please state the products and services, as well as the amount invested and outcomes/impact, including outreach, of the respective products and services. Does your institution have key performance indicators (KPIs) or targets related to financial inclusion? Do you publish the KPIs and the progress? Will your institution be pursuing financial inclusion initiatives for the longer term? What would be the focus of the financial inclusion initiatives by your institution? 27 Appendix 2 Feedback on the Financial Inclusion Framework 2023 - 2026 Principle-based guidance on the financially unserved and underserved:  Is the guidance adequate for your institutions’ targeted financial inclusion initiatives? Vision and Desired Outcomes of the Framework  Are they relevant for the current development landscape of the country? Policy objectives and strategies  Are the policy objectives and strategies in line with your respective institutions’ financial inclusion objectives (if any)?  Comprehensiveness of the policy objectives and strategies?  Is your institution keen to collaborate or pursue any of the strategies outlined in the Framework?  What are the key areas of regulatory support needed to facilitate the further advancement of financial inclusion in Malaysia? Cross Cutting Themes and Strategic Enablers  Are there other considerations that the Bank should consider to facilitate a supportive and enabling environment for an inclusive financial system? Stakeholders and Role  Do you have any specific feedback on the expected involvement and commitments of stakeholders in delivering a National Financial Inclusion Strategy? Monitoring and Evaluation Framework  Will your institution be open to publish financial inclusion progress and achievements? Key Performance Indicators (KPIs) and Targets  What indicators or targets will be useful for your institution to align your business plans to the Framework’s vision and desired outcomes?	Public Notice
20 Jan 2023	Draf Dedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendekatan Standard untuk Risiko Kredit	https://www.bnm.gov.my/-/ed-basel3-credit-risk-2023-bm	https://www.bnm.gov.my/documents/20124/938039/ED-CAF-Std-App-Cr-Risk.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/ed-basel3-credit-risk-2023-bm&languageId=ms_MY	Reading: Draf Dedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendekatan Standard untuk Risiko Kredit Share: 28 Draf Dedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendekatan Standard untuk Risiko Kredit Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1615 pada Jumaat, 20 Januari 2023 20 Jan 2023 Draf dedahan ini menetapkan cadangan keperluan pengiraan caj modal bagi Pendekatan Standard untuk Risiko Kredit di bawah pembaharuan Basel III oleh institusi kewangan. Keperluan ini juga dikenakan ke atas institusi kewangan yang menggunakan Pendekatan Berasaskan Penarafan Dalaman untuk Risiko Kredit bagi menentukan keperluan terendah output, yang akan dibincangkan dalam draf dedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendekatan Berasaskan Penarafan Dalaman untuk Risiko Kredit. Bank Negara Malaysia (BNM) mengundang maklum balas terhadap draf dedahan ini, termasuk cadangan berhubung dengan isu khusus atau bahagian yang perlu dijelaskan serta sebarang cadangan alternatif untuk pertimbangan BNM. Semua maklum balas terhadap draf dedahan ini perlu dihantar selewat-lewatnya pada 30 Jun 2023 kepada [email protected]. Maklum balas yang diterima boleh dimaklumkan kepada orang ramai melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau mana-mana bahagian maklum balas. Tarikh Penerbitan: 20 Januari 2023 Jabatan yang Mengeluarkan Dokumen: Jabatan Dasar Kewangan Pruden Dokumen: Draf Dedahan Rangka Kerja Kecukupan Modal (Basel III – Aset Berwajaran Risiko) – Pendekatan Standard untuk Risiko Kredit Bank Negara Malaysia 20 Januari 2023 © Bank Negara Malaysia, 2023. All rights reserved.	Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) Standardised Approach for Credit Risk Issued on: 20 January 2023 BNM/RH/ED 029-30 Capital Adequacy Framework (Basel III – Risk-Weighted Assets): Standardised Approach for Credit Risk Exposure Draft Applicable to: 1. Licensed banks 2. Licensed Islamic banks 3. Licensed investment banks 4. Financial holding companies Issued on: 20 January 2023 This Exposure Draft (ED), which is to be read together with the Capital Adequacy Framework (Capital Components) and the Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 9 December 2020 sets out the proposed regulatory requirements and guidance for the calculation of the capital charge for the Standardised Approach for Credit Risk under Basel III reforms, by financial institutions, which is expected to come into effect in [2025]. Once in effect, these requirements will replace the existing part on the standardised approach for credit risk (i.e. Part B) under the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) issued on 3 May 2019. The Bank invites written feedback on the proposed regulatory requirements in this ED, including suggestions for specific issues, areas to be clarified or elaborated further and alternative proposals that the Bank should consider. The written feedback should be constructive and be supported with clear rationale and appropriate evidence, examples or illustrations, to facilitate the Bank’s assessment. Where appropriate, please specify the applicable paragraph. In addition to providing general feedback, all financial institutions are expected to: • respond to the specific questions set out in this ED; and • complete the Quantitative Impact Study (QIS) reporting template issued concurrently with this ED. Please refer to the accompanying Excel file and the reporting instructions provided in the Capital Adequacy Framework (Basel III – Risk-Weighted Assets): Quantitative Impact Study (QIS) Instructions for the Standardised Approach for Credit Risk. Responses must be incorporated in the QIS template and submitted electronically to the Bank by 30 June 2023 to [email protected]. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. In the course of preparing your feedback, you may direct any queries to the following officers: 1. Rebecca Choong Shu Wen ([email protected]); 2. Syazwani binti Hamsani ([email protected]); 3. Janneni Suthakaran ([email protected]); or 4. Nur Ili Nabilah binti Zaaba ([email protected]). mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] mailto:[email protected] Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) Issued on: 20 January 2023 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 3 1 Introduction ................................................................................................ 3 PART B GENERAL REQUIREMENTS ................................................................... 4 2 Level of application .................................................................................... 4 3 Computation of credit risk-weighted assets ............................................... 4 PART C USE OF EXTERNAL RATINGS ................................................................ 6 4 Recognition ............................................................................................... 6 5 Mapping of ratings of different External Credit Assessment Institutions (ECAIs) ...................................................................................................... 6 6 Multiple external ratings............................................................................. 6 7 Use of issue-specific and issuer ratings .................................................... 6 8 Use of domestic and foreign currency ratings ........................................... 7 9 Use of short-term ratings ........................................................................... 7 10 Level of application of ratings .................................................................... 8 11 Use of unsolicited ratings .......................................................................... 8 PART D DUE DILIGENCE ...................................................................................... 9 12 Due diligence ............................................................................................. 9 PART E INDIVIDUAL EXPOSURES .................................................................... 10 13 Exposures to sovereigns and central banks ............................................ 10 14 Exposures to public sector entity (PSEs)................................................. 10 15 Exposures to multilateral development banks (MDBs) ............................ 11 16 Exposures to banking institutions ............................................................ 12 17 Exposures to securities firms and other financial institutions ................... 14 18 Exposures to corporates.......................................................................... 14 19 Exposures to subordinated debt, equity and other capital instruments ... 18 20 Retail exposures ...................................................................................... 21 21 Real estate exposures ............................................................................. 23 22 Exposures with currency mismatch ......................................................... 29 23 Defaulted exposures ............................................................................... 30 24 Off-balance sheet exposures ................................................................... 31 25 Exposures that give rise to counterparty credit risk ................................. 33 26 Exposures in credit derivatives ................................................................ 33 27 Equity investments in funds ..................................................................... 33 28 Exposures in securitised assets .............................................................. 33 29 Exposures to central counterparties ........................................................ 33 30 Exposures arising from unsettled transactions and failed trades ............. 34 31 Other assets ............................................................................................ 34 PART F EXPOSURES TO ASSETS UNDER SHARIAH CONTRACTS .............. 35 32 General requirements .............................................................................. 35 33 Murabahah .............................................................................................. 35 34 Salam ...................................................................................................... 36 35 Istisna’ ..................................................................................................... 37 36 Ijarah ...................................................................................................... 38 37 Musyarakah ............................................................................................. 38 38 Mudarabah .............................................................................................. 39 39 Tawarruq ................................................................................................. 40 40 Sukuk .................................................................................................... 40 41 Qard ...................................................................................................... 41 Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) Issued on: 20 January 2023 42 Wakalah bi al-istithmar ............................................................................ 41 PART G CREDIT RISK MITIGATION ................................................................... 42 43 General requirements .............................................................................. 42 44 Legal requirements .................................................................................. 43 45 Maturity mismatches ............................................................................... 43 46 Currency mismatches .............................................................................. 44 47 Collateralised transactions ...................................................................... 44 48 On-balance sheet netting ........................................................................ 58 49 Guarantees and credit derivatives ........................................................... 59 50 Floor for exposures collateralised by physical assets .............................. 64 PART H TRANSITIONAL ARRANGEMENTS ...................................................... 65 51 Transitional arrangements ....................................................................... 65 APPENDICES .......................................................................................................... 66 APPENDIX 1 Risk weights and rating categories ............................................... 66 APPENDIX 2 ECAI eligibility criteria ................................................................... 68 APPENDIX 3 Definition of defaulted exposures .................................................. 71 APPENDIX 4 Equity investments in funds .......................................................... 73 APPENDIX 5 Capital treatment of unsettled transactions and failed trades ....... 81 APPENDIX 6 Capital treatment for Sell and Buyback Agreement (SBBA)/ Reverse SBBA transactions .................................................................... 86 APPENDIX 7 List of recognised exchanges ....................................................... 87 APPENDIX 8 Recognition criteria for physical collateral used for credit risk mitigation (CRM) purposes for Islamic banking exposures ..................... 89 APPENDIX 9 Comparison of asset-based sukuk and asset-backed sukuk ........ 93 APPENDIX 10 Minimum haircut floors for securities financing transactions (SFTs) with certain counterparties ...................................................................... 94 Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 3 of 97 Issued on: 20 January 2023 PART A OVERVIEW 1 Introduction 1.1 This policy document sets out the standards and guidance for computing capital requirements for credit risk according to the Standardised Approach. The standards and guidance in this document are based on the Basel Committee on Banking Supervision’s (BCBS) Basel framework 1 and the Islamic Financial Services Board’s (IFSB) standard2 with the objective of promoting the safety and soundness of financial institutions (FIs). Where necessary and appropriate, the requirements from the BCBS Basel framework and IFSB standard have been modified to take into account the unique characteristics of the Malaysian economy and financial system. 1.2 The provisions on the applicability of this policy document, legal provisions pursuant to which this policy document is issued and the terms and expressions used in this policy document shall be the same as the following: Policy Document Paragraph Capital Adequacy Framework (Capital Components) issued on 9 December 2020 (hereinafter referred to as “CAF CC PD”) • Paragraph 2 on ‘Applicability’ • Paragraph 3 of ‘Legal Provisions’ • Paragraph 5 on ‘Interpretation’ subject to paragraph 1.3 below Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 9 December 2020 (hereinafter referred to as “CAFIB CC PD”) • Paragraph 2 on ‘Applicability’ • Paragraph 3 of ‘Legal Provisions’ • Paragraph 5 on ‘Interpretation’ subject to paragraph 1.3 below 1.3 For purposes of this policy document - (a) a reference to “financial institution” or “FI” includes a reference to an Islamic financial institution or “IFI”, and a reference to “banking institution” includes a reference to an Islamic banking institution, as defined in paragraph 5 of the CAFIB CC PD; and (b) this policy document shall be applicable to external credit assessment institutions (ECAIs) referred to in paragraph 4.1. 1.4 This policy document comes into effect on [1 January 2025]. 1 Basel III: Finalising post-crisis reforms, December 2017. https://www.bis.org/bcbs/publ/d424.pdf. 2 Revised Capital Adequacy Standard for Institutions Offering Islamic Financial Services, December 2021. https://www.ifsb.org/download.php?id=6310&lang=English&pg=/published.php https://www.bis.org/bcbs/publ/d424.pdf https://www.ifsb.org/download.php?id=6310&lang=English&pg=/published.php Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 4 of 97 Issued on: 20 January 2023 PART B GENERAL REQUIREMENTS 2 Level of application S 2.1 A banking institution shall comply with the requirements in this policy document at the following levels: (a) entity level3, which refers to the global operations of the banking institution (i.e. including its overseas branch operations) on a stand-alone basis. This includes its Labuan branch or banking subsidiary; and (b) consolidated level, which includes entities covered under the entity level requirement, and the consolidation 4 of all financial and non-financial subsidiaries, except insurance/ takaful subsidiaries which shall be deducted in the calculation of Common Equity Tier 1 Capital5. S 2.2 A financial holding company shall comply with the requirements in this policy document at the consolidated level in accordance with paragraph 2.1(b). S 2.3 Where a consolidation of the subsidiaries required under paragraphs 2.1(b) and 2.2 is not feasible 6 , an FI shall seek the Bank’s approval to deduct such investments in accordance with paragraph 31 of the CAF CC PD or CAFIB CC PD. S 2.4 In addition to paragraph 2.1(a), a banking institution carrying on Skim Perbankan Islam7 (hereafter referred to as an “SPI”), shall comply with the requirements under the CAFIB CC PD at the level of the SPI, as if it is a stand-alone Islamic banking institution. 3 Computation of credit risk-weighted assets S 3.1 For purposes of computing the capital requirements, an FI shall refer to an exposure as an asset or contingent asset under the applicable Financial Reporting Standards, net of specific provisions (including partial write-offs). Under the MFRS 9, specific provisions8 refer to loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures, while general provisions9 refer to (i) loss allowance measured at an amount equal to 12-month and lifetime expected credit losses; and (ii) regulatory reserves, to the extent that they are ascribed to non-credit-impaired exposures. 3 Also referred to as the “solo” or “stand-alone” level. 4 In accordance with the Malaysian Financial Reporting Standards (MFRS). 5 This is in accordance with paragraph 30 of the CAF CC PD and CAFIB CC PD. These policy documents are being reviewed with the view to consolidate the requirements into one policy document. 6 For example, where non-consolidation for regulatory capital purposes is otherwise required by law. 7 In accordance with section 15 of the FSA and Guidelines on Skim Perbankan Islam. 8 More commonly known as Stage 3 provisions. 9 More commonly known as Stage 1 and Stage 2 provisions. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 5 of 97 Issued on: 20 January 2023 S 3.2 Exposures in the trading book shall be subject to the requirements under the market risk component of Part D of the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) policy document issued on 3 May 2019 (CAF (RWA) PD) and the Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) policy document issued on 3 May 2019 (CAFIB (RWA) PD). S 3.3 For exposures emanating from Islamic banking contracts, the treatment for the computation of the risk-weighted assets is provided in Part F on Exposures to Assets under Shariah Contracts. S 3.4 On-balance sheet exposures shall be multiplied by the appropriate risk-weight to determine the risk-weighted asset amount, while off-balance sheet exposures shall be multiplied by the appropriate credit conversion factor before applying the respective risk-weights. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 6 of 97 Issued on: 20 January 2023 PART C USE OF EXTERNAL RATINGS 4 Recognition S 4.1 For the purpose of this policy document, an FI shall only use the ratings from ECAIs which the Bank determines as meeting the eligibility criteria stipulated in Appendix 2. 5 Mapping of ratings of different External Credit Assessment Institutions (ECAIs) S 5.1 While the requirements in Part E and Part G are based on the general rating notations, an FI shall use the fully mapped rating notations from the ECAIs provided in Appendix 1. 6 Multiple external ratings S 6.1 If there is only one rating by an ECAI chosen by an FI for a particular exposure, that rating shall be used to determine the risk weight of the exposure. S 6.2 If there are two ratings provided by ECAIs that attract different risk weights, the higher risk weight shall apply. S 6.3 If there are three or more ratings with different risk weights, an FI shall refer to the two ratings that attract the lowest risk weights. The FI shall apply the higher risk weight out of the referred two ratings. 7 Use of issue-specific and issuer ratings S 7.1 Where an FI invests in a particular issuance that has an issue-specific rating, the risk weight of the exposure shall be based on this rating. Where the FI’s exposure is not an investment in a specific rated issue, the following general principles shall apply: (a) in circumstances where the issuer has a specific rating for an issued debt but the FI’s exposure is not in this particular debt, the FI shall apply the specific rating on the FI’s exposure if this exposure ranks in all respects, pari passu or senior to the rated exposure. If not, the specific rating shall not be used, and the exposure shall receive the risk weight for unrated exposures; (b) in circumstances where the issuer has an issuer-specific rating (i.e. an entity rating), this rating typically applies to senior unsecured exposures of that issuer. Consequently, if the issuer rating is high-quality, only the senior unsecured exposures of the issuer will benefit from the high-quality rating. This will similarly apply to a low-quality issuer rating; and (c) in circumstances where the issuer has a specific high-quality rating (one which maps into a lower risk weight) that only applies to a limited class of liabilities (such as a deposit rating or a counterparty risk rating), this shall only be used in respect of exposures that fall within that class. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 7 of 97 Issued on: 20 January 2023 S 7.2 Whether the FI intends to rely on an issuer or an issue-specific rating, the FI shall ensure that the rating must take into account and reflect the entire amount of credit risk exposure, i.e. all payments owed to the FI. For example, if an issuer owes both principal and interest/profit to the FI, the rating must fully take into account and reflect the credit risk associated with repayment of both the principal and interest/profit. S 7.3 In order to avoid any double counting of credit enhancement factors, FIs are not allowed to recognise credit risk mitigation (CRM) techniques if the credit enhancement is already reflected in the issue-specific rating (see paragraph 43.2(c)). 8 Use of domestic and foreign currency ratings S 8.1 The risk-weights used for exposures shall be based on the rating of an equivalent exposure to an issuer. Therefore, the general rule is that foreign currency ratings shall be used to risk weight exposures in foreign currency. Domestic currency ratings, if separate, shall only be used to risk weight exposures denominated in the domestic currency. 9 Use of short-term ratings S 9.1 Since short-term ratings are deemed to be issue specific, an FI shall only use the ratings to derive risk weights for short-term rated exposures of banking institutions and corporates as follows: External rating10 1 2 3 Others11 Risk weight 20% 50% 100% 150% S 9.2 An FI shall not – (a) generalise short term ratings with those for other short-term exposures, unless this is done in accordance with the conditions in paragraph 9.4; and (b) use short-term ratings for an unrated long-term exposure. S 9.3 When an FI has exposures to a rated short-term facility of a particular issuer, the FI shall ensure the following: (a) if the rated short-term facility attracts a 50% risk weight, other unrated short-term exposures to the issuer must not attract a risk weight lower than 100%; or (b) if the rated short-term facility attracts a 150% risk weight, all unrated exposures, whether long-term or short-term, shall also receive a 150% risk-weight, unless the FI uses recognised CRM techniques for such exposures. 10 Please refer to Appendix 1 for the details of the rating categories. 11 This includes all non-prime and B or C ratings. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 8 of 97 Issued on: 20 January 2023 S 9.4 In cases where short-term ratings are available, an FI shall apply the following interaction with the general preferential treatment for short-term exposures to banking institutions as described in paragraph 16.3: (a) the general preferential treatment for short-term exposures applies to all exposures to banking institutions with an original maturity of up to three months when there is no specific short-term rating; (b) when there is a short-term rating and such rating maps into a risk-weight that is more favourable (i.e. lower or identical to that derived from the general preferential treatment), the short-term rating shall be used for the specific exposure only. Other short-term exposures would be subject to the general preferential treatment; and (c) when a specific short-term rating maps into a less favourable (higher) risk- weight, the general short-term preferential treatment for interbank exposures shall not be used. The exposures shall apply the same risk weight as that implied by the specific short-term rating. 10 Level of application of ratings S 10.1 External ratings for one entity within a corporate group shall not be used to determine the risk weights of other entities within the same group. An FI shall apply the risk-weights for exposures to the other entities within the same group based on Part E of this policy document. 11 Use of unsolicited ratings S 11.1 An FI shall only use solicited ratings from eligible ECAIs for purposes of the capital adequacy computation under the standardised approach. G G G 11.2 For internal risk management purposes, FIs may consider using unsolicited ratings. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 9 of 97 Issued on: 20 January 2023 PART D DUE DILIGENCE 12 Due diligence S 12.1 The FI shall ensure that the implementation of the due diligence requirements as stipulated in Part D is consistent with the requirements in the Credit Risk policy document issued on 27 September 2019. S 12.2 When using external ratings, an FI must perform due diligence to ensure that it has an adequate understanding at the origination and thereafter, on a regular basis (at least annually), of the risk profile of their counterparties. The due diligence conducted by the FI must ascertain the risk of the exposure and ensure that the risk weight applied in computing the capital requirements commensurate with the inherent risk of the exposure and is prudent. S 12.3 An FI must take reasonable and adequate steps to assess the operating and financial performance levels of each counterparty on a regular basis (at least annually). G 12.4 For exposures to entities belonging to consolidated groups, an FI may perform due diligence to the extent possible, on the solo entity to which it has a credit exposure to. In evaluating the repayment capacity of the solo entity, an FI may consider any contagion risk from the group that may impair the solo entity’s ability to repay the credit exposure. S 12.5 An FI shall have in place effective and clear governance and internal policies, procedures, systems and controls to ensure that the due diligence exercises are robust. Question 1 The revised Standardised Approach for Credit Risk has introduced a new requirement for FIs to assess whether the ratings provided by ECAIs are sufficiently robust when used for capital computation. Some examples include developing a mapping scheme which leverages scorecard information against equivalent external credit rating, as well as mapping internally developed models against equivalent external credit ratings. (1) Where a counterparty has an external rating, does your internal credit assessment rating consider the external rating in deriving the overall credit rating of the counterparty? (2) If yes, please describe the existing process and basis in which the external rating is taken into account. Please also identify challenges your institution may face when conducting such due diligence exercises. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 10 of 97 Issued on: 20 January 2023 PART E INDIVIDUAL EXPOSURES 13 Exposures to sovereigns and central banks S 13.1 An FI shall apply a 0% risk weight to – (a) exposures to the Federal Government of Malaysia and the Bank12, where such exposures are denominated and funded13 in Ringgit Malaysia (RM); and (b) exposures in RM where there is an explicit guarantee provided by the Federal Government of Malaysia or the Bank. S 13.2 Where another national supervisor has accorded a preferential risk weight (that is 0% or 20%) for exposures to its sovereign (or central bank), an FI shall only apply the preferential risk weight on these exposures provided these exposures are denominated and funded in their domestic currency. Where an explicit guarantee has been provided by these sovereigns (or central banks), the preferential risk weight shall be applied. S 13.3 Notwithstanding paragraph 13.2, in circumstances where the Bank deems the preferential risk weight to be inappropriate, the Bank reserves the right to require these sovereign exposures to be risk-weighted based on the sovereign’s external rating. In such circumstances, the FI shall ensure that these sovereign exposures must be risk-weighted based on the sovereign’s external rating. S 13.4 For exposures to sovereigns (or central banks) not falling under paragraphs 13.1 and 13.214, an FI shall risk weight the exposures based on the external rating of the sovereigns (or central banks) as follows: Rating category15 1 2 3 4 5 Unrated Risk weight 0% 20% 50% 100% 150% 100% 14 Exposures to public sector entity (PSEs) S 14.1 An FI shall apply a 20% risk weight to exposures to domestic PSEs that meet all of the following criteria: (a) the PSE has been established under its own statutory act; (b) the PSE and its subsidiaries are not involved in any commercial undertakings; (c) the winding-up process against of the PSE is not possible; and 12 Including securities issued through special purpose vehicles established by the Bank e.g. Bank Negara Malaysia Sukuk Ijarah and BNMNi-Murabahah issued through BNM Sukuk Berhad. However, banking institutions shall apply the look-through approach as in Appendix 4 for BNM Mudarabah certificate (BMC). 13 This means that the banking institution has corresponding liabilities denominated in RM. 14 Such as bonds/sukuk denominated in USD that are issued and/or guaranteed by Federal Government of Malaysia. 15 Please refer to Appendix 1 for the details of the rating categories. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 11 of 97 Issued on: 20 January 2023 (d) the PSE is mostly funded by the Federal Government of Malaysia and any financing facilities obtained by the PSE are subjected to strict internal financing rules by the PSE. Exposures to PSE that do not fulfil all of the above criteria shall be risk- weighted as corporate exposures as per paragraph 18. Question 2 Please provide your banking institution’s list of PSEs that currently qualify for the 20% risk weight and a brief explanation on how these PSEs meet each qualifying criteria as prescribed in paragraph 14.1. S 14.2 In cases where other national supervisors have accorded a preferential risk weight to their PSEs (i.e. to be treated as exposures to sovereign), an FI shall only apply the preferential risk weight on their exposures to these foreign PSEs provided these exposures are denominated and funded in their domestic currency. S 14.3 Notwithstanding paragraph 14.2, where the preferential risk weight to a foreign PSE is deemed inappropriate, the Bank reserves the right to require exposures to the PSE to be risk-weighted based on its external rating. In such circumstances, the exposures to the PSE must be risk-weighted based on its external rating. 15 Exposures to multilateral development banks (MDBs) S 15.1 An FI shall apply a 0% risk weight to the following qualifying MDBs: (a) World Bank Group comprising the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Development Association (IDA); (b) Asian Development Bank (ADB); (c) African Development Bank (AfDB); (d) European Bank for Reconstruction and Development (EBRD); (e) Inter-American Development Bank (IADB); (f) European Investment Bank (EIB); (g) European Investment Fund (EIF); (h) Nordic Investment Bank (NIB); (i) Caribbean Development Bank (CDB); (j) Islamic Development Bank (IDB); (k) Council of Europe Development Bank (CEDB); (l) International Finance Facility for Immunisation (IFFIm), and (m) Asian Infrastructure Investment Bank (AIIB). Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 12 of 97 Issued on: 20 January 2023 S 15.2 For exposures to other MDBs, an FI shall risk weight the exposures based on the MDB’s external ratings as follows: Rating category15 1 2 3 4 5 Unrated Risk weight 20% 30% 50% 100% 150% 50% 16 Exposures to banking institutions S 16.1 An FI shall classify an exposure to a banking institution and a prescribed institution under the Development Financial Institutions Act 2002 (prescribed DFI)16 as an exposure to banking institutions. This includes exposures in the form of financing or senior debt instruments, but excludes subordinated debts and equities that are recognised as regulatory capital instruments as specified in paragraph 19. S 16.2 An FI shall risk weight its exposures to banking institutions according to their external ratings as follows: Rating category15 1 2 3 4 5 Unrated Risk weight 20% 30% 50% 100% 150% 50% Risk weight for short term exposures 20% 20% 20% 50% 150% 20% S 16.3 For the purpose of paragraph 16.2, short-term exposures are defined as – (a) exposures to banking institutions with an original maturity of 3 months or less; or (b) exposures to banking institutions that arise from the movement of goods across national borders with an original maturity of 6 months or less17. S 16.4 An FI must ensure that the ratings used in paragraph 16.2 do not incorporate assumptions of implicit government support unless the rating is accorded to a banking institution whose shares are fully and directly owned by the government. Implicit government support refers to the notion that the government would voluntarily (and not by legal requirement), step in to fulfil the obligation of the banking institution to its creditors in the event the banking institution is in distress and is unable to do so. 16 Prescribed DFIs refer to specialised financial institutions established by the Government as part of an overall strategy to develop and promote specific strategic sectors, such as agriculture, small and medium enterprises (SMEs), infrastructure development, shipping and capital-intensive and high- technology industries for the social and economic development of the country. This is in line with the definition of “development financial institution” and “prescribed institution” under Section 3 of the Development Financial Institutions Act 2002 (DFIA 2002). In Malaysia, prescribed DFIs refer to development financial institutions prescribed by the Minister under the DFIA 2002. 17 This includes trade-related financing that are self-liquidating. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 13 of 97 Issued on: 20 January 2023 Question 3 In line with BCBS’s new requirement to remove assumptions of implicit government support from the rating of banking institutions, international rating agencies such as S&P, Moody’s, and Fitch have started to disclose standalone credit ratings excluding implicit government support. (1) Please provide feedback on the potential impact of the removal of implicit government support on your institution’s capital, and subsequent changes to your funding costs, risk appetite and lending behaviour. (2) What are the potential challenges faced by your institution to meet this requirement, including operational challenges in obtaining the external ratings without implicit government support? S 16.5 Where the external ratings of FIs include the implicit government support as referred to in paragraph 16.4, an FI shall only use these ratings for a period of up to 5 years from the effective date of this policy document. Thereafter, the external ratings must be adjusted to exclude the implicit government support. S 16.6 In line with the due diligence requirement in paragraph 12, an FI must ensure that the external ratings appropriately reflect the creditworthiness of the counterparties. If the due diligence analysis shows higher risk characteristics than that implied by the external rating bucket of the exposure, the FI must assign a risk weight of at least one bucket higher than the risk weight determined by the external rating. The due diligence analysis must not result in the exposure being accorded a lower risk weight than that determined by the external rating. S 16.7 Specifically for unrated banking institutions, where the due diligence analysis shows higher risk characteristics than that implied by the 50% risk weight, the FI must assign a risk weight of at least one bucket higher than the risk weight for banking institutions rated BBB-. Question 4 The Bank is proposing to apply a flat risk weight for unrated banking institutions’ exposures instead of applying the Standardised Credit Risk Assessment (SCRA) Approach under the Basel III framework. Application of a flat risk weight is similar to the approach used in the Basel II requirements and reduces additional complexity in the implementation. This however should be complemented by robust due diligence policies and practices by banking institutions. (1) Please clarify how your institution plans to apply the credit assessment and due diligence process for unrated exposures. (2) Would your institution prefer to apply the SCRA approach on unrated banking institutions’ exposures? Please refer to paragraphs 20.21 to 20.32 under the section “CRE20: Standardised approach – individual exposures” for additional information. Please provide the reasons and Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 14 of 97 Issued on: 20 January 2023 rationale to support this approach, and the measures that will be taken by your institution to adopt SCRA for unrated banking institutions’ exposures. 17 Exposures to securities firms and other financial institutions S 17.1 An FI shall treat exposures to insurers and takaful operators18, securities firms, unit trust companies and other asset management companies as exposures to corporates. S 17.2 An FI shall apply a risk weight of 20% on exposures to local stock exchanges19 and clearing houses exposures. S 17.3 Exposures to a financial holding company shall be treated as exposures to banking institutions. 18 Exposures to corporates S 18.1 An FI shall treat an exposure (e.g. financing, bonds/sukuk, receivables) to incorporated entities, associations, partnerships, proprietorships, trusts, funds and other entities with similar characteristics, except those which qualify for other exposure classes, as exposures to corporates. This form of exposures excludes subordinated debt and equity. S 18.2 An FI shall classify its corporate exposures based on the following categories: (a) corporate small and medium-sized enterprises (SMEs); (b) general corporates; or (c) specialised financing. Corporate SME exposures S 18.3 An FI shall classify as corporate SMEs, corporate exposures where the reported annual sales for the consolidated group of which the corporate is a part of, is less than or equal to RM 250 million for the most recent financial year. An FI shall apply a risk weight of 85% to corporate SME exposures. Question 5 The Bank is exploring a suitable threshold for corporate SMEs in Malaysia, having regard to the current definition of SMEs by SME Corporation Malaysia and thresholds for firm-size adjustment under the IRB framework. (1) Please specify the categories and the corresponding qualifying criteria used by your institution to differentiate exposures to SMEs and corporates (e.g. retail banking: turnover RM 50 million, corporate banking: turnover RM 250 million) for underwriting and risk management purposes. 18 The treatment of ITOs will be reviewed once the revised Risk-Based Framework for Insurers and Risk-Based Framework for Takaful Operators have been finalised. 19 Refers to Bursa Malaysia Securities Berhad and Labuan Financial Exchange. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 15 of 97 Issued on: 20 January 2023 (2) Based on your institution’s experience and risk outcomes in financing to SMEs and corporates, are there any other suitable alternative thresholds that should be considered for an exposure to qualify as a corporate SME? (3) Are there operational challenges in maintaining different definitions for SMEs that qualify for the regulatory retail risk weight against a broader corporate SME definition? S 18.4 For the avoidance of doubt, where a corporate SME is rated, the treatment specified under paragraph 18.5 shall continue to apply. General corporate exposures S 18.5 An FI shall assign risk weights to its general corporate exposures according to their external ratings as follows: Rating category15 1 2 3 4 5 Unrated Risk weight 20% 50% 75% 100% 150% 100% S 18.6 Based on the due diligence analysis as required in paragraph 12, an FI must ensure that the external ratings appropriately reflect the creditworthiness of the counterparties. If the due diligence analysis shows higher risk characteristics than that implied by the external rating bucket of the exposure, the FI must assign a risk weight that is at least one bucket higher than the risk weight determined by the external rating. The due diligence analysis must not result in the counterparty being accorded a lower risk weight than that determined by the external rating. Specialised financing exposures S 18.7 An FI shall treat a corporate exposure as a specialised financing exposure if the financing exhibits more than one of the following characteristics, either in its legal form or economic substance: (a) the exposure is not related to real estate and is within the definitions of object finance, project finance or commodities finance under paragraph 18.8. If the exposure is related to real estate, the treatment would be determined in accordance with paragraph 21; (b) the exposure is to an entity (often a special purpose vehicle (SPV)) that was created specifically to finance and/or operate physical assets; (c) the entity has few or no other material assets or activities, and therefore has little or no independent capacity to repay the obligation, apart from the income that it receives from the asset(s) being financed. The primary source of repayment of the obligation is the income generated from the asset(s); or (d) the terms of the obligation give the FI a substantial degree of control over the asset(s) and the income generated by the asset(s). Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 16 of 97 Issued on: 20 January 2023 S 18.8 An FI shall classify the exposures described in paragraph 18.7 into one of the following three subcategories of specialised financing: (a) project finance, which refers to the method of funding in which the FI considers primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex, and expensive investments such as power plants, chemical processing plants, mines, transportation infrastructure, environment, media, and telecommunication infrastructure. Project finance may take the form of financing the construction of a new capital installation or refinancing of an existing installation, with or without improvements; (b) object finance, which refers to the method of funding to acquire assets (e.g. ships, aircraft, satellites, railcars, and fleets) where the repayment of the exposure is dependent on the cash flows generated by the specific assets that have been financed and pledged or assigned to the FI; or (c) commodities finance, which refers to short-term financing to finance reserves, inventories, or receivables of exchange-traded commodities (e.g. crude oil, metals, or crops), where the exposure will be repaid from the proceeds of the sale of the commodity and the obligor has no independent capacity to repay the exposure. S 18.9 An FI shall assign the risk weights for specialised financing determined by the issue-specific external ratings as follows: Rating category15 1 2 3 4 5 Risk weight 20% 50% 75% 100% 150% S 18.10 An FI shall not use the issuer ratings for the purpose of paragraph 18.9. S 18.11 For exposures that do not have an issue-specific external rating as prescribed in paragraph 18.9, an FI shall apply the following risk weights: (a) for object and commodities finance exposures, apply 100%; (b) for project finance, apply – (i) 130% during the pre-operational phase; (ii) 100% during the operational phase as defined in paragraph 18.12; or (iii) 80% during operational phase if the exposure is deemed to be a high-quality project finance exposure, as defined in paragraph 18.13. S 18.12 For the purpose of paragraph 18.11, an FI shall construe “operational phase” as the phase in which the entity that was specifically created to finance a project has a positive net cash flow that is sufficient to cover any remaining contractual obligation and a declining long-term debt. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 17 of 97 Issued on: 20 January 2023 S 18.13 A high-quality project finance exposure referred to in paragraph 18.11 means an exposure to a project finance entity, where – (a) the project finance entity is able to meet its financial commitments in a timely manner and its ability to do so is assessed to be robust against adverse changes in the economic cycle and business conditions; (b) the project finance entity is restricted from acting to the detriment of the creditors (e.g. by not being able to issue additional debt without the consent of existing creditors); (c) the project finance entity has sufficient reserve funds or other financial arrangements to cover the contingency funding and working capital requirements of the project; (d) the project finance entity has revenues that are availability-based20 or subject to a rate-of-return regulation or take-or-pay contract; (e) the project finance entity has revenue that depends on one main counterparty and this main counterparty shall be a central government, PSE or a corporate entity with a risk weight of 80% or lower; (f) the exposure to the project finance entity is governed by contractual provisions that provide for a high degree of protection for the FI in case of a default of the project finance entity; (g) the main counterparty or other counterparties which similarly comply with the eligibility criteria for the main counterparty will protect the FI from the losses resulting from a termination of the project; (h) all assets and contracts necessary to operate the project have been pledged to the FI to the extent permitted by applicable law; and (i) the FI may assume control of the project finance entity in case of its default. Question 6 The Bank is assessing the appropriateness of the criteria stipulated under paragraph 18.13 on high-quality project finance exposures in the Malaysian context. (1) Please identify any projects (current/past) that would qualify based on the criteria in paragraph 18.13 (2) Please provide feedback on the nine criteria for high quality project finance and state whether there are aspects of the criteria that require further clarification or customisation to the Malaysian environment. 20 This means that once construction is completed, the project finance entity is entitled to payments from its contractual counterparties as long as the contract conditions are fulfilled. Availability payments are sized to cover operating and maintenance costs, debt service costs and equity returns as the project finance entity operates the project. Availability payments are not subject to swings in demand, such as traffic levels, and are adjusted typically only for the lack of performance or lack of availability of the asset to the public. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 18 of 97 Issued on: 20 January 2023 19 Exposures to subordinated debt, equity and other capital instruments S 19.1 An FI shall classify an exposure as an equity exposure if it meets all of the following criteria: (a) the exposure includes direct and indirect ownership interests, whether voting or non-voting, in the assets and income of a commercial enterprise or of an FI that is not consolidated or deducted from the capital base of the FI; (b) it is irredeemable where the return of invested funds can be achieved only by the sale of the investment or sale of the rights to the investment or by the liquidation of the issuer; (c) it does not embody an obligation on the part of the issuer; and (d) it conveys a residual claim on the assets or income of the issuer. S 19.2 Notwithstanding paragraph 19.1, an FI shall categorise the following instruments as equity exposures: (a) an instrument with the same structure as those permitted as Tier 1 capital for FIs; and (b) an instrument that embodies an obligation on the part of the issuer and meets any of the following conditions: (i) the settlement of the obligation may be deferred indefinitely; (ii) the obligation requires (or permits at the issuer’s discretion) settlement by issuance of a fixed number of the issuer’s equity shares; (iii) the obligation requires (or permits at the issuer’s discretion) settlement by issuance of a variable number of the issuer’s equity shares and (ceteris paribus), any change in the value of the obligation is attributable to, comparable to, and in the same direction as, the change in the value of a fixed number of the issuer’s equity shares21; or (iv) the FI has the option to require the obligation to be settled in equity shares, unless – (A) in the case of a traded instrument, the FI is able to demonstrate that the instrument trades more like the debt of the issuer than equity; or (B) in the case of non-traded instruments, the FI is able to demonstrate that the instrument is akin to a debt. (v) in the case of paragraph (iv), the FI shall only decompose the risks for regulatory purposes subject to the prior written consent of the Bank. 21 For certain obligations that require or permit settlement by issuance of a variable number of the issuer’s equity shares, the change in the monetary value of the obligation is equal to the change in the fair value of a fixed number of equity shares multiplied by a specified factor. Those obligations meet the conditions of item (c) if both the factor and the referenced number of shares are fixed. For example, an issuer may be required to settle an obligation by issuing shares with a value equal to three times the appreciation in the fair value of 1,000 equity shares. That obligation is considered to be the same as an obligation that requires settlement by issuance of shares equal to the appreciation in the fair value of 3,000 equity shares. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 19 of 97 Issued on: 20 January 2023 Question 7 With respect to paragraph 19.2, does your institution have exposures that meet the requirements in paragraph 19.2(b)(iv)? If so, please indicate whether your institution is able to decompose the debt and equity risks for these exposures, for regulatory purposes. S 19.3 An FI shall consider the economic substance of a debt or equity instrument based on the requirements in paragraph 19.1 to determine the appropriate regulatory capital treatment. For example – (a) holdings of debt obligations and other securities, partnerships, derivatives or other vehicles structured with the intent of conveying the economic substance of equity ownership are considered as equity exposures22,23; and (b) equity investments that are structured with the intent of conveying the economic substance of debt or securitisation holdings are considered as subordinated debt and securitisation exposures respectively unless the Bank requires otherwise24. S 19.4 An FI must risk weight exposures to subordinated debt, equity and other regulatory capital instruments issued by corporates or FIs that are not deducted from regulatory capital, as follows: Exposure Risk weight Equity investments called for by the Federal Government of Malaysia, the Bank, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, Malaysian Investment Banking Association, or Association of Development Finance Institutions Malaysia. 100% Subordinated debt and capital instruments other than equities, including instruments that qualify as total loss-absorption capacity (TLAC) 25 liabilities that are not deducted from regulatory capital 150% Speculative unlisted equity26 400% Equity of a non-financial commercial subsidiary 1250% Other equity 250% 22 Equities that are recorded as a financing but arise from a debt/equity swap made as part of the orderly realisation or restructuring of the debt are included in the definition of equity holdings. However, these instruments may not attract a lower capital charge than would apply if the holdings remained in the debt portfolio. 23 This includes liabilities from which the return is linked to that of equities. The Bank may elect not to require that such liabilities be included where they are directly hedged by an equity holding, such that the net position does not involve material risk. 24 Nonetheless, the Bank reserves the right to re-categorise debt holdings as equity for regulatory purposes to ensure a consistent and appropriate treatment. 25 Total loss-absorption capacity requirements that are imposed on global systemically important banks (G-SIBs). 26 Equity investment in unlisted companies that are invested for short-term resale purposes or are Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 20 of 97 Issued on: 20 January 2023 Question 8 The Bank is exploring a differentiated capital treatment for certain types of equity exposures where the risk profile of the equity investment may be more similar to direct financing exposures. (1) Does your institution have (or plan to have) any existing alternative financing exposures? For the purpose of this question, alternative financing is defined as any form of funding that is not debt-based. Examples include direct equity investment in businesses including in venture capital and blended finance. If yes, kindly provide the type of alternative finance/instrument and the amount of these exposures. (2) Please provide feedback on the types of equity exposures that should be carved out, appropriate capital charges or treatment based on the exposures listed in paragraph 19.4, particularly if the exposure has a certain risk mitigation process in place (e.g. collateral, risk transfer mechanism, etc). considered venture capital or similar investments which are subject to price volatility and are acquired in anticipation of significant future capital gains. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 21 of 97 Issued on: 20 January 2023 20 Retail exposures S 20.1 An FI shall classify its retail exposures into three categories: (a) regulatory retail exposures to “transactors”; (b) regulatory retail exposures to “non-transactors”; or (c) other retail exposures27. S 20.2 An FI shall classify exposures to an individual and other persons including SMEs as regulatory retail exposures if the exposures meet all of following criteria: (a) product criterion – The exposure takes the form of any of the following: (i) revolving credits and lines of credit (including credit cards, charge cards and overdrafts); (ii) personal term financing and leases (e.g. instalment financing, auto- financing and leases, student and educational financing and personal financing); and (iii) small business facilities and commitments. Mortgage financing, derivatives and other securities (such as bonds/sukuk and equities), whether listed or not, are excluded from this paragraph; (b) low value individual exposures – The maximum aggregated exposure to one counterparty shall not exceed an absolute threshold of RM 5 million28; and (c) granularity criterion – No aggregated exposure29 to one counterparty30 can exceed 0.2%31 of the overall regulatory retail portfolio32. 27 Retail exposures that do not meet the criteria for regulatory retail exposures. 28 For this assessment, aggregate exposure means gross amount (inclusive of defaulted exposures) but without considering CRM of all forms of debt exposures (including off-balance sheet exposures) that individually satisfy the product and granularity criteria. 29 Aggregated exposure means gross amount (i.e. not taking any CRM into account) of all forms of retail exposures, excluding residential real estate exposures. In case of off-balance sheet claims, the gross amount would be calculated after applying credit conversion factors. 30 “To one counterparty” means one or several entities that may be considered as a single beneficiary as defined under the Single Counterparty Exposure Limit policy document issued on 9 July 2014. 31 To apply the 0.2% threshold of the granularity criterion, an FI must undertake a one-off computation by taking the following actions – • first, identify the full set of exposures in the retail exposure class; • second, identify the subset of exposures that meet the product criterion and do not exceed the threshold for the value of aggregated exposures to one counterparty; and • third, exclude any exposures that have a value greater than 0.2% of the subset before exclusions. FIs may update the computation on an annual basis to ensure compliance with the requirement. 32 For granularity criterion assessment, an FI shall exclude the defaulted exposures from the overall regulatory retail portfolio. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 22 of 97 Issued on: 20 January 2023 S 20.3 For the purpose of paragraph 20.2, exposures to SMEs33 refer to exposures to corporates that are registered with the Companies Commission of Malaysia (SSM) and fulfil the following criteria: (a) for the manufacturing sector, firms with sales turnover not exceeding RM 50 million or firms which have a maximum of 200 full-time employees; and (b) for the services sector and other sectors, firms with sales turnover not exceeding RM 20 million or firms which have a maximum of 75 full-time employees. S 20.4 An FI shall classify the following regulatory retail obligors as “transactors”: (a) obligors in relation to credit facilities such as credit cards and charge cards, where the balance has been repaid in full at each scheduled repayment date for the previous 12 months; or (b) obligors in relation to overdraft facilities where there has been no drawdown over the previous 12 months. S 20.5 An FI shall risk weight the exposures to retail assets as follows: Type of retail exposures Risk weight Regulatory retail exposures to “transactors” 45% Regulatory retail exposures to “non-transactors” 75% Other retail exposures 100% S 20.6 Notwithstanding paragraph 20.5, an FI shall apply a risk weight of 100% to any term financing for personal use with an original maturity of more than 5 years. 33 SMEs shall exclude entities that are public-listed on the main board and subsidiaries of: (i) publicly- listed companies on the main board; (ii) multinational companies; (iii) government-linked companies; (iv) Syarikat Menteri Kewangan Diperbadankan; and (v) state-owned enterprises. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 23 of 97 Issued on: 20 January 2023 21 Real estate exposures S 21.1 An FI shall classify real estate34 exposures as follows: (a) “regulatory real estate exposures” for exposures secured by real estate that meet the requirements in paragraph 21.3; (b) “land acquisition, development and construction (ADC) exposures” for exposures that meet the requirements in paragraph 21.16; and (c) “other real estate exposures”, for exposures secured by real estate that do not qualify as “regulatory real estate exposures” or “ADC exposures”. S 21.2 An FI shall classify “regulatory real estate exposures” as follows: (a) “residential real estate exposures”, for regulatory real estate exposures that are secured by a property that has the nature of dwelling and satisfies all applicable laws and regulations for the property to be occupied for housing purposes; and (b) “commercial real estate exposures”, for regulatory real estate exposures that are not residential real estate. Regulatory real estate exposures S 21.3 An FI shall ensure a financing complies with the following criteria before it can be considered as a regulatory real estate exposure and in such a case, comply with the requirements in paragraphs 21.12 to 21.15: (a) finished property – the financing must be secured by a fully completed immovable property, except for exposures secured by forest and agricultural land; (b) legal enforceability – any claim on the property must be legally enforceable in all relevant jurisdictions. The collateral agreement and the legal process underpinning it must provide the FI the legal powers and avenues to realise the value of the property within a reasonable time frame; (c) claims over the property – the financing is a claim over the property where the FI holds a first lien over the property, or holds the first lien and any sequentially lower ranking lien(s) (i.e. there is no intermediate lien from another bank) over the same property; (d) ability of the obligor to repay the financing – the obligor must meet the FI’s underwriting policies which are subject to minimum requirements in paragraph 21.4; (e) prudent value of property – the property must be valued according to the criteria in paragraphs 21.6 and 21.7 for determining the value in the financing-to-value ratio (FTV). Moreover, the value of the property must not depend materially on the performance of the obligor; and (f) required documentation – all the information required at financing origination and for monitoring purposes must be properly documented, including information on the ability of the obligor to repay the financing and on the valuation of the property. 34 Real estate includes land or any property that is attached to the land, in particular buildings. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 24 of 97 Issued on: 20 January 2023 S 21.4 Consistent with the requirements in the Responsible Financing policy document issued on 6 May 2019 and Credit Risk policy document issued on 27 September 2019, an FI must put in place prudent underwriting policies in the granting of mortgage financing that includes the assessment of the ability of the obligor to repay financing. G 21.5 For purposes of the underwriting policies, an FI may include – (a) metrics on the obligor’s ability to repay the financing (e.g. financing’s debt service coverage ratio) and the thresholds of these metrics in accordance with the risk appetite of the FI; and (b) other considerations, including relevant metrics for risk assessments for mortgage financing that depend materially on the cash flows generated by the property (e.g. occupancy rate of the property) for repayment of the financing. S 21.6 The value of property used in measuring FTV referred to in paragraph 21.3 must be maintained at the value at origination unless any of the following circumstances35 are satisfied: (a) an extraordinary, idiosyncratic event36 occurs resulting in a permanent reduction of the property value; (b) modifications made to the property unequivocally increase its value; or (c) the Bank requires the FI to revise the property value downwards. Question 9 The Bank intends to adopt the requirement to maintain the value of a property at origination when calculating the FTV for all new financing which originated after the effective implementation date of the policy document. For all other exposures, the Bank requires FIs to freeze the value of the property based on its most recent valuation date. Please share your institution’s views on the proposal. Please also share your institution’s experience on the types of modifications made to the property resulting in either an unequivocal change (increase or decrease) in value that has resulted in a corresponding (upward or downward) adjustment of the property valuation. S 21.7 An FI must calculate the FTV prudently in accordance with the following requirements: (a) the amount of the financing shall include the outstanding exposure amount and any undrawn amount of the mortgage financing. The exposure amount must be calculated gross of any provisions and other risk mitigants, except where the conditions for on-balance sheet netting in Part G have been met; and 35 If the value has been adjusted downwards, a subsequent upwards adjustment can be made but not to a higher value than the value at origination. 36 Examples include but are not limited to natural disasters. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 25 of 97 Issued on: 20 January 2023 (b) value of the property must be appraised independently37 using robust valuation criteria, and the FI must ensure that – (i) the financing amount comprises of the potential or outstanding exposures to the obligor. Where the financing facility covers additional costs to be incurred by the obligor in connection to the home financing (e.g. for fire insurance/takaful, stamp duty fees, legal fees, Mortgage Reducing Term Assurance etc.), these amounts shall also be included in the financing amount; (ii) the valuation excludes expectations on future price increases. Where the current market price is significantly above the value that would be sustainable over the life of the financing, an FI must adjust the pricing downwards; and (iii) where a market value of the property can be determined, the valuation shall not be higher than the market value at the point of origination, unless the conditions under paragraph 21.6(b) are met. S 21.8 An FI shall recognise a guarantee or financial collateral as a credit risk mitigant38 in calculating the exposure amount secured by real estate if it qualifies as eligible collateral under the CRM framework in Part G. However, the FTV bucket and risk weight to be applied to the exposure amount must be determined independent of the CRM. S 21.9 An FI must determine whether the repayments for the regulatory real estate exposure would be materially dependent on cash flows generated by the property securing the financing rather than the capacity of the obligor to service the debt from other sources. An FI shall consider a regulatory real estate exposure is materially dependent on cash flows generated by the property when the primary source of the cash flows are lease or rental payments from the property, or from the sale of the property. G 21.10 A financing may also be considered materially dependent on cash flows generated by the property if more than 50% of the obligor’s income used to service the financing is from cash flows generated by the residential property. This would predominantly apply to financing to corporates, SMEs or SPVs. Question 10 The Bank is considering providing additional operational clarification, in addition to the income guidance, on exposures that would be considered as materially dependent on cash flows generated by the property. Please provide feedback on the following possible approaches – (1) for residential real estate, a financing is deemed as income producing when the financing is for the third or more mortgage; or 37 The valuation must be done independently from the bank’s mortgage acquisition, financing processing and financing decision process. 38 Where the residential mortgage loan is protected by Cagamas SRP Berhad (under Cagamas MGP, Skim Rumah Pertamaku, and Skim Perumahan Belia), a risk weight of 20% shall apply on the protected portion. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 26 of 97 Issued on: 20 January 2023 (2) leveraging CCRIS records where financing is tagged for ‘investment’ is classified as income producing. S 21.11 An FI shall exclude the following exposures from being classified as “materially dependent on cash flows generated by the property”: (a) an exposure secured by a property that is the obligor’s primary residence; (b) an exposure secured by an income-producing residential housing unit, to an individual who has 2 or less mortgages; (c) an exposure secured by residential real estate property to associations or cooperatives of individuals that are regulated under national law, where the property is used solely by its members as a primary residence; and (d) an exposure secured by residential real estate property to public housing companies, agencies and not-for-profit associations regulated under national law to serve social objectives and offer tenants long-term housing. Question 11 The Bank is exploring the need to specify the entities referenced in paragraph 21.11(d) for clarity and consistency. (1) Does your institution currently have exposures to public housing companies and not-for-profit associations that meet the above objectives? If so, please specify these entities and provide clarification on how these entities meet the above objectives. (2) Are there other entities that should qualify for the treatment in paragraph 21.11(d)? If yes, please list down these entities accordingly. Residential real estate exposures S 21.12 An FI shall risk weight its exposures to residential real estate that are not materially dependent on cash flows generated by the property as follows: FTV (x) x ≤ 50% 50% < x ≤ 60% 60% < x ≤ 80% 80% < x ≤ 90% x > 90% Risk weight 20% 25% 30% 40% 100% S 21.13 An FI shall risk weight its exposures to residential real estate that are materially dependent on cash flows generated by the property as follows: FTV (x) x ≤ 50% 50% < x ≤ 60% 60% < x ≤ 80% 80% < x ≤ 90% x > 90% Risk weight 30% 35% 45% 60% 100% Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 27 of 97 Issued on: 20 January 2023 Commercial real estate exposures S 21.14 An FI shall risk weight its exposures to commercial real estate that are not materially dependent on cash flows generated by the property as follows: FTV (x) x ≤ 60% x > 60% Risk weight min (60, risk weight of counterparty) % Risk weight of counterparty S 21.15 An FI shall risk weight its exposures to commercial real estate that are materially dependent on cash flows generated by the property as follows: FTV (x) x ≤ 60% 60% < x ≤ 80% x > 80% Risk weight 70% 90% 110% Land ADC exposures S 21.16 An FI shall treat financing to companies or SPVs for land acquisition for development and construction purposes, or development and construction of any residential or commercial property as ADC exposures. S 21.17 Financing to corporates or SPVs where repayment of the financing depends on the credit quality of the corporate and not on the future income generated by the property, shall not be classified as ADC exposure, and shall be treated as a corporate exposure. S 21.18 An FI shall apply a risk weight of 150% to its ADC exposures. Question 12 BCBS allows a 100% risk weight for ADC exposures to residential real estate that meet two criteria relating to pre-sale contracts 39 and equity contribution40 by the obligor. (1) Please provide an estimate of the size of your institution’s exposures in residential real estate that will be classified as an ADC exposure. If your institution has an outstanding ADC exposure, please state the impairment rate for ADC exposures to residential real estate. (2) Does your institution impose a minimum pre-sale or pre-lease contract threshold when granting financing to property developers, as well as a minimum amount of equity that must be contributed by the said 39 Minimum sales achievement to be met by the buyer of the real estate asset (or obligor) prior to release of the loan, as stipulated in the disbursement conditions between the bank and the obligor. The minimum sales achievement must be supported by confirmation from the solicitors that the sales and purchase agreement has been signed between the property developer and the end- buyer. 40 Also known as equity at risk, this is the commitment provided by an obligor using its internal funds, towards securing the real estate asset. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 28 of 97 Issued on: 20 January 2023 developers? Please share your institution’s policy on pre-sale/pre- lease and equity contribution. (3) Are there any risk mitigating conditions that your institution imposes on financing to residential ADC (e.g. applying a low limit on the size of the exposure, higher pricing or shorter grace period)? Other real estate exposures S 21.19 An FI shall risk weight its other real estate exposures as follows: Exposure Risk weight Exposures that are not materially dependent on the cash flows generated by the property • For exposures to individuals, the risk weight applied is 75%. • For exposures to SMEs, the risk weight applied is 85%. • For exposures to other counterparties, the risk weight applied is the risk weight assigned to an unsecured exposure to that counterparty. Exposures that are materially dependent on the cash flows generated by the property 150% Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 29 of 97 Issued on: 20 January 2023 22 Exposures with currency mismatch S 22.1 An FI shall apply a multiplier of 1.5 to risk weights (up to a ceiling of 150%) applied to unhedged retail and residential real estate exposures to individuals specified under paragraphs 20 and 21 where the financing currency is different from the currency of the obligor’s source of income. Question 13 The Bank is exploring the appropriateness of this requirement in the context of Malaysia. Please provide feedback on the following – (1) risk profile and impairment rate of unhedged retail and real estate exposures to individuals; and (2) operational challenges in identifying and tracking currency mismatch exposures, as well as any possible proxies that may be used to identify these exposures. S 22.2 For the purpose of paragraph 22.1 - (a) an unhedged exposure refers to an exposure to an obligor where there is no natural or financial hedge against the foreign exchange risk resulting from the currency mismatch between the currency of the obligor’s income and the currency of the financing; (b) a natural hedge exists where the obligor receives foreign currency income that matches the currency of the financing (e.g. remittances, rental incomes, salaries); and (c) a financial hedge includes a legal contract with an FI (e.g. forward contract). Only natural or financial hedges that cover at least 90% of the financing instalments are considered sufficient, regardless of the number of hedges for purposes of the application of the multiplier. Otherwise, the exposure shall be deemed as an unhedged exposure. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 30 of 97 Issued on: 20 January 2023 23 Defaulted exposures S 23.1 An FI shall apply the requirements in paragraph 23.2 or 23.3 on defaulted exposures as defined in Appendix 3. S 23.2 With the exception of residential real estate exposures where repayments for the financing do not materially depend on cash flows generated by the property, an FI shall risk weight the unsecured or unguaranteed portion41 of its defaulted exposures, net of specific provisions42 and partial write-offs, as follows: Unsecured or unguaranteed portion of defaulted exposure Risk weight Specific provisions < 20% of the outstanding amount of the exposure 150% Specific provisions ≥ 20% of the outstanding amount of the exposure, but < 50% of the outstanding amount of the exposure 100% Specific provisions ≥ 50% of the outstanding amount of the exposure 50% S 23.3 For defaulted residential real estate exposures where repayments for the financing do not materially depend on cash flows generated by the property, an FI shall risk weight the exposures at 100%, net of specific provisions and partial write-offs. 41 For the purpose of defining the secured or guaranteed portion of the defaulted exposure, eligible collateral and guarantees will be the same as for credit risk mitigation purposes in Part G. 42 Specific provisions refer to loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9. These provisions are commonly known as Stage 3 provisions. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 31 of 97 Issued on: 20 January 2023 24 Off-balance sheet exposures S 24.1 An FI shall convert off-balance sheet items into credit exposure equivalents using credit conversion factors (CCF). S 24.2 An FI shall treat any contractual arrangement to extend credit, purchase assets or issue credit substitutes, that has been offered by the FI and accepted by the obligor, as commitments. This includes any such arrangement that can be unconditionally cancelled by the FI at any time without prior notice to the obligor. It also includes any such arrangement that can be cancelled by the FI if the obligor fails to meet the conditions set out in the facility documentation, including conditions that must be met by the obligor prior to any initial or subsequent drawdown under the arrangement. S 24.3 For commitments, an FI shall multiply the CCF with the committed but undrawn amount of the exposure. S 24.4 An FI shall apply the CCF for its off-balance sheet items as follows: Off-balance sheet items CCF Direct credit substitutes such as general guarantees of indebtedness (including standby letters of credit serving as financial guarantees for financing and securities) and acceptances (including endorsements with the character of acceptances). 100% Sale and repurchase agreements43 and asset sales with recourse where the credit risk remains with the FI44. 100% The financing of FIs’ securities or the posting of securities as collateral by FIs, including instances where these arise out of repo-style transactions (i.e. repurchase/reverse repurchase and securities financing transactions)45 . 100% Forward asset purchases, forward deposits and partly paid shares and securities, which represent commitments with certain drawdown. 100% Note issuance facilities and revolving underwriting facilities regardless of the maturity of the underlying facility. 50% Certain transaction-related contingent items such as performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions. 50% 43 Any reference to repurchase agreement or repo in this document shall include all Shariah-compliant alternatives to repo such as Sell and Buy Back Agreement and Collateralised Murabahah instruments. 44 The exposures shall be risk-weighted according to the type of asset (e.g. home financing) and not according to the counterparty (e.g. Cagamas) with whom the transaction has been entered into. 45 An FI shall also apply the risk weighting treatment for counterparty credit risk in addition to the credit risk charge on the securities or posted collateral, where the credit risk of the securities posted as collateral remains with the bank. This does not apply to posted collateral related to derivative transactions that is treated in accordance with the counterparty credit risk standards. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 32 of 97 Issued on: 20 January 2023 Off-balance sheet items CCF Other commitments, regardless of the maturity of the underlying facility, unless they qualify for a lower CCF. This shall include unutilised credit card and charge card lines. 40% Issuing and confirming FIs’ short-term 46 self-liquidating trade letters of credit arising from the movement of goods such as documentary credits collateralised by the underlying shipment. 20% Commitments that are unconditionally cancellable47 at any time by the FI without prior notice, or that effectively provide for automatic cancellation due to deterioration in the obligor’s creditworthiness. 10% Off-balance sheet items that are credit substitutes not explicitly included in any other category. 100% S 24.5 An FI shall apply the lower of two applicable CCFs when there is an undertaking to provide a commitment on an off-balance sheet item48. 46 Maturity below one year. 47 An FI must demonstrate that it has the legal ability to cancel these facilities and that its internal control systems and monitoring practices are adequate to support timely cancellations which the FI does effect in practice upon evidence of a deterioration in an obligor’s creditworthiness. The FI must also be able to demonstrate that such cancellations have not exposed the FI to legal actions, or where such actions have been taken, the courts have decided in favour of the FI. 48 E.g. If an FI has a commitment to open short-term self-liquidating trade letters of credit arising from the movement of goods, a 20% CCF will be applied (instead of a 40% CCF); and if an FI has an unconditionally cancellable commitment to issue direct credit substitutes, a 10% CCF will be applied (instead of a 100% CCF). Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 33 of 97 Issued on: 20 January 2023 25 Exposures that give rise to counterparty credit risk S 25.1 An FI shall use the following methods to compute the exposure amount of the relevant transactions: (a) methods from Appendix VIII (Current Exposure Method) of the CAF (RWA) PD or Appendix VI (Counterparty Credit Risk and Current Exposure Method) of the CAFIB (RWA) PD for over-the-counter (OTC) derivatives transactions; and (b) CRM from Part G of this policy document for exchange-traded derivatives, long settlement transactions and securities financing transactions. 26 Exposures in credit derivatives S 26.1 An FI that provides credit protection through a first-to-default or second-to- default credit derivative shall be subject to the following capital requirements: (a) for first-to-default credit derivatives, the risk weights of the assets included in the basket must be aggregated up to a maximum of 1250% and multiplied by the nominal amount of the protection provided by the credit derivative; and (b) for second-to-default credit derivatives, the treatment is similar to paragraph 26.1(a), except, in aggregating the risk weights, the asset with the lowest risk weighted amount shall be excluded from the calculation. S 26.2 An FI shall apply the requirements in paragraph 26.1(b) respectively for the nth- to-default credit derivatives, for which the n-1 assets with the lowest risk- weighted amounts can be excluded from the calculation. 27 Equity investments in funds S 27.1 An FI shall apply the requirements in Appendix 4 Equity Investments in Funds for all equity investments in funds, including investment account placements with Islamic banking institutions. 28 Exposures in securitised assets S 28.1 An FI shall apply the requirements in Part F Securitisation Framework of the CAF (RWA) PD or CAFIB (RWA) PD for all securitisation exposures. 29 Exposures to central counterparties S 29.1 An FI shall apply the requirements in the Capital Adequacy Framework (Basel III – Risk-Weighted Assets): Exposures to Central Counterparties policy document49 for all exposures to central counterparties. 49 An ED was issued on 16 December 2022. FIs should comply with the PD when it comes into effect. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 34 of 97 Issued on: 20 January 2023 30 Exposures arising from unsettled transactions and failed trades S 30.1 An FI shall apply the requirements in Appendix 5 Capital Treatment of Unsettled Transactions and Failed Trades for all exposures arising from unsettled transactions and failed trades. 31 Other assets S 31.1 For other assets not specified above, an FI shall risk weight the exposures as follows: Exposure Risk weight Cash owned and held at a FI or in transit. 0% Gold bullion held at a FI or held in another banking institution on an allocated basis, to the extent the gold bullion assets are backed by gold bullion liabilities. 0% Exposures on the Bank for International Settlements, the International Monetary Fund, the European Central Bank and the European Community. 0% Cash items in the process of collection. 20% Right-of-use (ROU) assets where the underlying asset being leased is a tangible asset which will be accorded a 100% risk weight. 100% Investment in sukuk issued by the International Islamic Liquidity Management Corporation (IILM). Risk weight based on the short-term rating requirements in paragraph 9 Any other asset not specified. 100% Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 35 of 97 Issued on: 20 January 2023 PART F EXPOSURES TO ASSETS UNDER SHARIAH CONTRACTS 32 General requirements S 32.1 This part outlines the credit risk capital treatment for Shariah contracts used by an FI carrying on Islamic banking business. While Islamic banking products offered by FIs may differ in terms of their names and the manner in which their underlying Shariah contracts are being structured, an FI is required to consider the inherent risks of the transactions involving such products and the relevant Shariah contracts to ensure that the capital provided is commensurate with the underlying risks borne by the FI. S 32.2 The requirements in this policy document must be read together with the relevant Shariah contracts policy documents issued by the Bank. S 32.3 For Shariah contracts involving two embedded transactions, such as in tawarruq and lease and lease-back contracts, an FI shall determine the capital treatment based on the inherent risks embedded within these transactions. FIs must not net off the two legs of the transactions unless these transactions meet the requirements in paragraph 48 for on-balance sheet netting arrangements. 33 Murabahah S 33.1 An FI shall be subject to capital requirements for the credit risk on a murabahah transaction upon the sale of an asset while the capital requirement for a murabahah with wa’d (murabahah to the purchase orderer) transaction shall apply upon the acquisition of the specified asset under the contract. S 33.2 An FI shall apply the capital treatment specified in the following table for murabahah and murabahah with wa’d transactions: Contract Applicable Stage of the Contract (when an FI applies the capital requirements) Applicable Risk Weight Murabahah Sale is completed and customer assumes ownership of asset. Note: Exposure is the amount of financing outstanding from a customer Refer to Part E Individual Exposures Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 36 of 97 Issued on: 20 January 2023 Murabahah to the Purchase Orderer (MPO)50 FI has acquired the asset but sale and ownership transfer of asset to customer has not been completed. Note: Exposure is the FI’s acquisition cost of the asset 34 Salam G 34.1 In a salam contract, an FI purchases and pays for an asset which is to be delivered to a customer on a specified future date based on certain specifications. The FI may also enter into a parallel salam contract to sell the asset purchased in the initial salam contract to another customer. The FI is exposed to credit risk from the potential failure of the seller to deliver the asset as per the agreed terms. S 34.2 In both salam and parallel salam transactions, an FI shall apply capital requirements for credit risk upon the execution of the salam or initial salam contract and payment of the purchase price, as follows: Contract Stage of the Contract (when an FI applies the capital requirements) Determination of Risk Weight Salam Purchase price has been paid by the FI but the asset has yet to be delivered to the customer. Note: Exposure is based on the payment made by the FI Risk weight based on the counterparty as per Part E Individual Exposures Salam with parallel salam Similar to the above (the parallel salam does not eliminate the capital requirement from the initial salam). 50 The treatment for bai’ bithaman ajil (BBA) and bai’ inah contracts shall follow the treatment for MPO. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 37 of 97 Issued on: 20 January 2023 35 Istisna’ S 35.1 An FI is required to apply capital requirements for the credit risk on an istisna’ transaction as the manufacturer/contractor must account for the potential failure of the customer to pay the selling price for the asset based on pre-agreed payment terms during the manufacturing/construction stage, or upon full completion of the manufacturing/construction of the asset. S 35.2 In a parallel istisna’ contract where the FI engages another party to manufacture or construct the asset, an FI remains accountable for the failure of that party to deliver the specified asset. As such, an FI is also required to apply a capital charge for credit risk on the assets that are due but not delivered by the manufacturer/contractor. S 35.3 An FI shall apply the capital treatment specified in the following table for istisna’ and parallel istisna’ transactions: Contract Applicable Stage of the Contract (when an FI applies the capital requirements) Determination of Risk Weight Istisna’ Phases of work that have been completed, billed but not paid by the customer. Note: Exposure based on the amount billed according to the agreement between parties Refer to Part E Individual Exposures Istisna’ with parallel istisna’ Capital charge on (a) or (b), depending on whichever is higher: (a) stages of completion until the selling price is fully received from the ultimate customer/ buyer; or Note: Exposure based on the amount billed (b) phases of work due to be completed by the manufacturer/ contractor. Note: Exposure based on amount disbursed Risk weight based on the counterparty (customer in initial istisna’ or manufacturer/ contractor in parallel istisna’) as per Part E Individual Exposures Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 38 of 97 Issued on: 20 January 2023 36 Ijarah S 36.1 An FI is required to apply capital requirements for the credit risk of ijarah transactions without wa`d to lease the asset from the customer starting from the execution of the lease agreement. In the case of ijarah muntahiyah bi tamlik transactions (including al-ijarah thumma al-bai’ (AITAB)) with wa`d to lease the asset and wa`d to purchase in an event of default by the customer, an FI is required to apply a credit risk capital charge from the acquisition of the asset. S 36.2 An FI shall apply the capital treatment specified in the following table for ijarah and ijarah muntahiyah bi tamlik transactions: Contract Applicable Stage of the Contract (when an FI applies the capital requirements) Determination of Risk Weight Ijarah (without wa`d) Upon execution of lease agreement and when lease payment is due. Note: Exposure is based on outstanding rental amount Risk weight based on the counterparty (lessee) as per Part E Individual Exposures Ijarah muntahiyah bi tamlik Upon signing of wa`d to lease and acquire the asset. Note: Exposure is based on the amount of financing outstanding from the customer Risk weight based on the counterparty (lessee) as per Part E Individual Exposures 37 Musyarakah S 37.1 An FI shall apply the capital treatment for the credit risk of musyarakah venture involving provision of capital and musyarakah financing for asset acquisition (including musyarakah mutanaqisah) as specified in the following table: Contract Applicable Stage of the Contract (when an FI applies the capital requirement) Determination of Risk Weight Musyarakah venture Capital is invested in the venture. Note: Exposure is capital contributed in the venture Risk weight based on paragraph 19 (Exposures to Subordinated Debt, Equity and Other Capital Instruments) or paragraph 18 (Specialised Financing) subject to Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 39 of 97 Issued on: 20 January 2023 meeting the criteria in paragraphs 18.7 and 18.8 Musyarakah Mutanaqisah Upon signing of wa`d by customer to gradually acquire the FI’s ownership over the asset. Note: Exposure is based on the amount of financing outstanding from the customer Risk weight based on the counterparty as per Part E Individual Exposures 38 Mudarabah S 38.1 An FI shall apply the capital treatment for the credit risk of an investment in investment account structured using mudarabah contract and mudarabah venture involving the provision of capital as specified in the following table: Contract Applicable Stage of the Contract (when an FI applies the capital requirements) Determination of Risk Weight Investment account using mudarabah where FI is the investment account holder Upon acquisition of investment. Note: Exposure is the investment amount placed Risk weight based on Appendix 4 Equity Investments in Funds Mudarabah venture Capital is invested in the venture. Risk weight based on paragraph 19 (Exposures to Subordinated Debt, Equity and Other Capital Instruments) or paragraph 18 (Specialised Financing) subject to meeting the criteria in paragraphs 18.7 and 18.8 Investment account using mudarabah where FI manages the investment funds on behalf of the customer and credit risk is fully borne by the customer n/a No credit risk exposure as the risk is fully borne by the customer (risk absorbent) Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 40 of 97 Issued on: 20 January 2023 39 Tawarruq S 39.1 An FI shall apply the capital treatment for the credit risk of a tawarruq financing and a tawarruq financing with wa`d as specified in following table: Applicable Stage of the Contract (when an FI applies the capital requirements) Determination of Risk Weight Payment is made to supplier, but asset is yet to be delivered to the FI (risk exposure arises from delivery risk). Note: Exposure is based on the acquisition cost of the asset Risk weight is based on the counterparty (commodity supplier) as per Part E Individual Exposures Asset is delivered and available for sale (only if there is a wa`d from customer to purchase the asset). Note: Exposure is based on the acquisition cost of the asset Risk weight is based on counterparty (customer), as per Part E Individual Exposures Asset is sold to a customer and the selling price is due from the customer. Note: Exposure is based on the amount of financing outstanding 40 Sukuk51 S 40.1 An FI shall classify Sukuk held in the banking book as the following: (a) asset-based Sukuk, where the risks and rewards are dependent on the obligor that originates/issues the instrument. The economic substance or actual risk profile of such Sukuk resembles that of the originator/issuer52. For these exposures, the risk weight is determined as per Part E Individual Exposures for rated Sukuk. For unrated Sukuk, the risk weight is determined based on the underlying contract of the Sukuk; and (b) asset-backed Sukuk, where the risks and rewards are dependent on the underlying asset. For these exposures, the capital treatment is subject to the requirements in Part F Securitisation Framework of the CAF (RWA) PD and CAFIB (RWA) PD. 51 Sukuk contracts are certificates that represent the holder’s proportionate ownership in an undivided part of an underlying asset where the holder assumes all rights and responsibilities to such assets. 52 Although sukuk represents the holder’s proportionate ownership in an underlying asset which enables the generation of cash flow, there are clauses within the terms and conditions of the Sukuk that causes the risk and rewards to ultimately depend on the originator. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 41 of 97 Issued on: 20 January 2023 S 40.2 An FI shall assess the characteristics of the Sukuk, including the underlying Shariah contract used and transaction structure in order to determine whether the Sukuk is asset-based or asset-backed and the consequential regulatory capital requirements. G 40.3 The assessment in paragraph 40.2 may include an assessment of the actual source of cash flow, the ability of investors to have recourse to the originator, as well as the existence of repurchase terms. G 40.4 Examples of asset-based and asset-backed Sukuk are set out in Appendix 9. 41 Qard S 41.1 An FI must apply capital requirements for the credit risk from qard transactions upon the execution of a qard contract based on the financing amount provided. The risk weight is determined based on the counterparty as Part E Individual Exposures. 42 Wakalah bi al-istithmar S 42.1 An FI is required to apply capital requirements for credit risk where the FI invests in a fund or instrument which is structured based on a wakalah bi al-istithmar contract, or acts as an agent to manage investment funds placed by a customer, as follows: Scenario Applicable Stage of the Contract (when an FI applies the capital requirements) Determination of Risk Weight FI is an investor in a fund which is structured based on a wakalah bi al-istithmar contract Investment in the fund or instrument. Risk weight based on Appendix 4 Equity Investments in Funds FI acts as an agent to manage a customer’s investment funds where the risk is fully borne by the customer n/a No credit risk exposure as the risk is fully borne by the customer Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 42 of 97 Issued on: 20 January 2023 PART G CREDIT RISK MITIGATION 43 General requirements G 43.1 This part outlines the requirements for the use of CRM, with respect to the following types of CRM: (a) collateralised transactions; (b) on-balance sheet netting; and (c) guarantee and credit derivatives. S 43.2 In order to obtain capital relief from the use of CRM instruments, an FI must ensure the following: (a) the capital requirement for transactions in which CRM is used is not higher than an otherwise identical transaction with no CRM; (b) full compliance with the Pillar 3 requirements53 to obtain capital relief in respect of any CRM; (c) the effects of CRM are not double-counted (i.e. there shall not be additional recognition of CRM for regulatory capital purposes where the risk weight applied on the asset already reflects the CRM); (d) principal only-ratings54 are not recognised; (e) any residual risks from using the CRM, including legal, operational, liquidity and market risks, are controlled using robust procedures and processes55. Where these risks are not adequately controlled in the Bank’s view, the Bank may impose additional capital charges under Pillar 256; (f) the credit quality of the counterparty57 must not have a material positive correlation with the employed CRM or with the resulting residual risks; and (g) when there are multiple CRM covering a single exposure, an FI shall subdivide the exposure into portions covered by each CRM and the risk- weighted assets of each portion must be calculated separately. When credit protection provided by a single protection provider has differing maturities, the exposures must be subdivided into separate portions as well. S 43.3 Where an FI applies a CRM on Islamic exposures to obtain capital relief, the collateral used in the CRM must be fully Shariah-compliant. 53 Please refer to Guidelines on Risk-Weighted Capital Adequacy Framework (Basel II) – Disclosure Requirements (Pillar 3) issued on 7 August 2010 and Capital Adequacy Framework for Islamic Banks (CAFIB) – Disclosure Requirements (Pillar 3) issued on 7 August 2010. 54 A principal only-rating is a rating that only reflects the credit risk exposure for the principal amount owed. This rating does not account or reflect the entire amount of credit risk associated with an exposure, which includes the credit risk associated with the repayment of the interest/profit. 55 This includes strategy; consideration of the underlying credit; valuation; policies and procedures; systems; control of roll-off risks; and management of concentration risk arising from the FI’s use of CRM techniques and its interaction with the FI’s overall credit risk profile. 56 Please refer to Risk-Weighted Capital Adequacy Framework (Basel II) – Internal Capital Adequacy Assessment Process (Pillar 2) issued on 2 December 2011 and Capital Adequacy Framework for Islamic Banks – Internal Capital Adequacy Assessment Process (Pillar 2) issued on 31 March 2013. 57 In Part G, “counterparty” is used to denote a party to whom an FI has an on- or off-balance sheet credit exposure. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 43 of 97 Issued on: 20 January 2023 S 43.4 For purposes of this Part G, repo-style transactions mentioned in paragraphs 47.6, 47.12, 47.18 - 47.19 and 47.37 - 47.49 are not applicable to IFIs. 44 Legal requirements S 44.1 An FI must comply with the following legal requirements in order to obtain capital relief for any use of CRM: (a) all documentation used in collateralised transactions, on-balance sheet netting agreements, guarantees and credit derivatives must be binding on all parties and legally enforceable in all relevant jurisdictions; (b) sufficient assurance from the FI’s legal counsel must be obtained with respect to the legal enforceability of the documentation; and (c) periodic review must be undertaken to confirm the ongoing enforceability of the documentation. 45 Maturity mismatches S 45.1 For the purpose of calculating risk-weighted asset, an FI shall classify arrangements where the residual maturity of a CRM (e.g. hedge) is less than the underlying exposure, as a maturity mismatch. S 45.2 An FI shall not recognise financial collateral with maturity mismatch under the simple approach as specified in paragraph 47.14 of this policy document. S 45.3 Under the other approaches, an FI shall only recognise CRM with maturity mismatch if the original maturity of the arrangement is greater than or equal to one year, and its residual maturity is greater than or equal to three months. In such cases, an FI shall partially recognise the applicability of the CRM in accordance with paragraph 45.4. S 45.4 An FI shall apply the following adjustment when there is a maturity mismatch with the recognised CRM: Pa = P × t - 0.25 T - 0.25 Where - Pa = Value of the credit protection adjusted for maturity mismatch P = Credit protection amount (e.g. collateral amount, guarantee amount) adjusted for any haircuts t = Min (T, residual maturity of the CRM expressed in years) T = min (five years, residual maturity of the exposure expressed in years) Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 44 of 97 Issued on: 20 January 2023 S 45.5 An FI must define the maturity of the underlying exposure and the maturity of the hedge conservatively by considering the following: (a) for the underlying exposure, the effective maturity must be gauged as the longest possible remaining time before the counterparty is scheduled to fulfil its obligation, taking into account any applicable grace period; and (b) for the hedge, (embedded) options that may reduce the term of the hedge must be taken into account so that the shortest possible effective maturity58 is used. 46 Currency mismatches S 46.1 For the purpose of calculating the risk-weighted asset, an FI shall classify arrangements where the underlying exposure and credit protection arrangement are denominated in different currencies, as a currency mismatch. S 46.2 Where an FI intends to recognise CRM where there are currency mismatches under the comprehensive approach for collateral, guarantees or credit derivatives, the FI shall apply the specific adjustment for currency mismatches as prescribed in paragraphs 47.33 and 49.15 to 49.16, respectively. G 46.3 Under the simple approach for collateral, there is no specific treatment for currency mismatches as the minimum risk weight of 20% (floor) is generally applied. 47 Collateralised transactions Overview S 47.1 An FI shall classify a transaction as a collateralised transaction where the - (a) FI has a credit exposure or a potential credit exposure; and (b) the credit exposure or potential credit exposure is hedged in whole or in part, by collateral posted by a counterparty or by a third party on behalf of the counterparty. S 47.2 An FI shall only reduce its regulatory capital requirements through the application of CRM when it accepts eligible financial collateral, subject to the requirements under paragraph 47.3. 58 For example, in the case of a credit derivative, the protection seller has a call option, the maturity is the first call date. Likewise, if the protection buyer owns the call option and has a strong incentive to call the transaction at the first call date (e.g. because of a step-up in cost from this date on), the effective maturity is the remaining time to the first call date. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 45 of 97 Issued on: 20 January 2023 S 47.3 To qualify for lower regulatory capital requirements as stipulated in paragraph 47.2, an FI shall apply the following approaches to reduce its regulatory capital requirements: (a) the simple approach, which replaces the risk weight of the counterparty with the risk weight of the collateral for the collateralised portion of the exposure (generally subject to a 20% floor); or (b) the comprehensive approach, which allows for a more precise offset of the collateral against the exposures, by effectively reducing the exposure amount by a volatility-adjusted value ascribed to the collateral. S 47.4 Under paragraph 47.3, an FI may recognise partial collateralisation in both the simple or comprehensive approaches. S 47.5 With respect to paragraph 47.3, an FI must comply with the following – (a) for exposures in the banking book, an FI must apply either the simple or comprehensive approach, but not both approaches. The approach selected under paragraph 47.3 must subsequently be applied consistently within the banking book. However, this is not applicable for Islamic exposures, where an FI may use the simple approach for recognition of non-physical asset collaterals and the comprehensive approach for physical asset collaterals concurrently; and (b) For exposures in the trading book, an FI shall only use the comprehensive approach. S 47.6 An FI shall use requirements in paragraph 47.50 and Appendix VIII (Current Exposure Method) of the CAF (RWA) PD or Appendix VI (Counterparty Credit Risk and Current Exposure Method) of the CAFIB (RWA) PD to compute the exposure amount for collateralised OTC derivatives. S 47.7 An FI must indicate upfront to the Bank, which approach it intends to adopt for CRM purposes. Any subsequent migration to a different approach shall also be communicated to the Bank. General requirements S 47.8 An FI that lends securities or posts collateral must calculate capital requirements for the following: (a) credit risk or market risk of the securities, if such risks remain with the FI; and (b) counterparty credit risk (CCR) arising from the risk that the obligor of the securities may default. S 47.9 Irrespective of whether the simple or comprehensive approach is used, an FI must meet the following requirements to receive capital relief in respect of any form of collateral: (a) in the event of a default, insolvency, bankruptcy or occurrence of any otherwise-defined credit events (which have been set out in the transaction documentation), of the counterparty (and where applicable, the custodian holding the collateral), the FI has the legal right to liquidate or take legal possession of the collateral in a timely manner; Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 46 of 97 Issued on: 20 January 2023 (b) the FI takes all steps necessary to fulfil the legal requirements in order to obtain and maintain an enforceable interest59 over the collateral; and (c) the FI has clear and robust procedures for a timely liquidation of the collateral to ensure that any legal conditions required for declaring the default of the counterparty and liquidating the collateral are observed, and the collateral can be liquidated promptly. S 47.10 An FI must ensure that it has sufficient resources to manage the orderly operation of margin agreements with OTC derivative and securities-financing counterparties, as measured by the timeliness and accuracy of its outgoing margin calls and response time to incoming margin calls. These include having robust collateral risk management policies in place to control, monitor and report (a) the risk exposures arising from margin agreements 60 (such as the volatility and liquidity of the securities exchanged as collateral); (b) the concentration risk to particular types of collateral; (c) the reuse of collateral (both cash and non-cash) including the potential liquidity shortfalls resulting from the reuse of collateral received from counterparties; and (d) the surrender of rights on collateral posted to counterparties. S 47.11 Where the collateral is held by a custodian, the FI shall take reasonable steps to ensure that the custodian segregates the collateral from its own assets. S 47.12 The FI must apply capital requirements on both sides of a transaction61. Where the FI in acting as an agent, arranges a repo-style transaction between a customer and a third party and provides a guarantee to the customer that the third party will perform its obligations, the risk to the FI is deemed to be the same as if the FI had entered into the transaction as a principal. In such circumstances, the FI must calculate the capital requirements as if it was the principal. The simple approach General requirements for the simple approach S 47.13 Under this approach, an FI shall replace the risk weight of a counterparty with the risk weight of the collateral instrument and treat the collateralised and unsecured portion of the exposure as follows: 59 For example, by registering it with a registrar, or for exercising a right to net or set off in relation to the title transfer of the collateral. 60 Margin agreement is a contractual agreement or provisions to an agreement under which one counterparty must supply variation margin to a second counterparty when an exposure of that second counterparty to the first counterparty exceeds a specified level. 61 For example, both repurchase and reverse repurchase agreements will be subject to capital requirements. Likewise, both sides of a securities financing transaction will be subject to explicit capital charges, as will the posting of securities in connection with derivatives exposures or with any other financing transaction. However, sale and buyback agreement (SBBA) and reverse SBBA transactions will not be deemed as collateralised transactions given that they involve outright purchase and sale transactions. Please refer to Appendix 6 for the capital treatment for these transactions. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 47 of 97 Issued on: 20 January 2023 (a) collateralised portion – apply the risk weight applicable to the collateral instrument subject to a floor of 20%, except under the conditions specified in paragraphs 47.18 to 47.20; and (b) unsecured portion – apply the risk weight applicable to the counterparty. S 47.14 An FI shall only recognise a collateral under this approach when it is pledged for a duration of at least the life of the exposure, is marked-to-market and revalued with a minimum frequency of six months62. S 47.15 For collateral denominated in local currency, the FI must use the risk weight linked to domestic currency ratings. For collateral denominated in foreign currency, the FI must use the risk weight linked to foreign currency ratings. Eligible financial collateral S 47.16 An FI shall recognise the following as financial collateral under this approach: (a) investment account or cash 63 on deposit 64 (including certificate of deposits or comparable instruments issued by the financing FI) with the FI which is incurring the counterparty exposure65,66; (b) gold; (c) debt securities/sukuk rated by ECAIs where the risk weight attached to the debt securities/sukuk is lower than that of the obligor and is rated– (i) at least BB when issued by sovereigns or PSEs that are treated as sovereigns; (ii) at least BBB– when issued by other entities; or (iii) at least A-3/P-3 for short-term debt instruments; (d) debt securities/sukuk unrated by a recognised ECAI, but fulfil the following conditions: (i) issued by an FI; (ii) listed on a recognised exchange; (iii) classified as a senior debt; (iv) all other rated issues of the same seniority that are issued by the issuing FI are rated at least BBB-, A-3/P-3 or any equivalent rating; and (v) the FI is sufficiently confident about the market liquidity of the debt securities/sukuk; 62 As stipulated in paragraph 45.2, a credit protection arrangement with a maturity mismatch is not recognised under this approach. 63 Cash pledged includes `urbūn (or earnest money held after a contract is established as collateral to guarantee contract performance) and hamish jiddiyyah (or security deposit held as collateral) in Islamic banking contracts (for example, Ijarah). 64 Structured deposits and Restricted Investment Accounts would not qualify as eligible financial collateral. 65 Cash funded credit linked notes issued by the FI against exposures in the banking book which fulfil the criteria for credit derivatives will be treated as cash collateralised transactions. 66 When cash on deposit, certificates of deposit or comparable instruments issued by the financing bank are held as collateral at a third-party bank in a non-custodial arrangement, if they are openly pledged/assigned to the financing bank and if the pledge/assignment is unconditional and irrevocable, the exposure amount covered by the collateral (after any necessary haircuts for currency risk) receives the risk weight of the third-party bank. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 48 of 97 Issued on: 20 January 2023 (e) equities (including convertible bonds/sukuk) that are included in the main index listed in Appendix 7; or (f) funds (e.g. collective investment schemes, unit trust funds, mutual funds etc.) where – (i) the price of the units are publicly quoted on a daily basis; and (ii) the unit trust fund/mutual fund 67 is limited to investing in listed financial instruments under paragraph 47.16. S 47.17 An FI must not recognise re-securitisations68 as an eligible financial collateral. Exemptions to the risk weight floor S 47.18 An FI shall only exempt a repo-style transaction from the risk weight floor if it meets the following conditions: (a) both the exposure and the collateral are in the form of cash, sovereign security or PSE security qualifying for a 0% risk weight under the standardised approach; (b) both the exposure and the collateral are denominated in the same currency; (c) either the transaction occurs overnight or both the exposure and the collateral are marked-to-market daily and are subject to daily re- margining; (d) following a counterparty’s failure to re-margin, the time that is required between the last mark-to-market before the failure to re-margin and the liquidation of the collateral is no more than 4 business days; (e) the transaction is settled across a settlement system meant for that type of transaction; (f) the documentation covering the agreement is standard market documentation for repo-style transactions in the securities concerned; (g) the transaction is governed by documentation, specifying that if the counterparty fails to satisfy an obligation to deliver cash or securities, fails to deliver margin or otherwise defaults, then the transaction is immediately terminable by the FI; and (h) upon any default event, regardless of whether the counterparty is insolvent or bankrupt, the FI has unfettered and legally enforceable rights to immediately seize and liquidate the collateral. S 47.19 An FI shall only apply a 10% risk weight to a repo-style transaction that fulfils the conditions in paragraph 47.18. In addition, a 0% risk weight shall only be applied if the counterparty to the transaction is a core market participant, such as – (a) the Federal Government of Malaysia; (b) the Bank; and (c) licensed banking institutions in Malaysia. 67 The use or potential use by a fund of derivative instruments solely to hedge investments listed in this paragraph shall not prevent units in that fund from qualifying as an eligible financial collateral. 68 A resecuritisation exposure is a securitisation exposure in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation exposure. In addition, an exposure to one or more resecuritisation exposures is a resecuritisation exposure. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 49 of 97 Issued on: 20 January 2023 S 47.20 An FI shall only apply a 0% risk weight to the collateralised portion of an exposure where the exposure and the collateral are denominated in the same currency, and the collateral is – (a) cash on deposit as defined in paragraph 47.16(a); or (b) in the form of securities eligible for a 0% risk weight, and its market value has been discounted by 20%. The comprehensive approach General requirements for the comprehensive approach S 47.21 Under this approach, an FI shall calculate the adjusted exposure to a counterparty after applying the following treatment to the collateral: (a) apply the applicable supervisory haircuts to the value of the exposure and collateral to take into account possible future value fluctuations 69 due to market movements; and (b) unless either side of the transaction uses cash or applies a 0% haircut, ensure – (i) the adjusted exposure value is higher than its nominal value; and (ii) the adjusted collateral value is lower than its nominal value. S 47.22 An FI shall apply haircuts to the CRM instrument depending on the prescribed holding period for the transaction. For the purposes of the CRM, an FI shall treat the holding period as the period of time during which the exposure or collateral values are assumed to fluctuate before the FI can close out the transaction. The supervisory prescribed minimum holding period is used as the basis for the calculation of the supervisory haircuts. S 47.23 An FI shall comply with to the requirements in paragraph 47.33 to determine the individual haircuts. G 47.24 For example, repo-style transactions subject to daily mark-to-market and daily re-margining will receive a haircut based on a 5-business day holding period, while secured lending transactions that are subject to daily mark-to-market and do not have re-margining clauses will receive a haircut based on a 20-business day holding period. S 47.25 An FI shall scale up haircut based on the actual frequency of re-margining or marking-to-market as stated in paragraph 47.41. S 47.26 An FI shall also apply an additional haircut to the volatility-adjusted collateral amount when currency mismatch occurs, in accordance to paragraph 47.33 and paragraphs 49.15 to 49.16, to account for possible future fluctuations in exchange rates. 69 Exposure value may also vary under a certain arrangement such as lending of security. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 50 of 97 Issued on: 20 January 2023 S 47.27 An FI shall only recognise the effect of master netting agreements covering securities financing transactions (SFTs) 70 in the calculation of capital requirements if they meet the conditions and requirements in paragraphs 47.44 and 47.48. However, if the FI chooses not to recognise the effect of the master netting agreement, each transaction shall be subjected to a capital charge without being based on a master agreement. Eligible collateral S 47.28 An FI shall recognise the following as financial collateral under this approach: (a) all instruments in paragraph 47.16; (b) equities (including convertible bonds/sukuk) which are not included in a main index i.e. Composite Index of Bursa Malaysia, but are listed on a recognised exchange (refer to Appendix 7); and (c) funds (e.g. collective investment schemes, unit trust funds, mutual funds etc.) which include equities that are not included in a main index i.e. Composite Index of Bursa Malaysia, but are listed on a recognised exchange (refer to Appendix 7). S 47.29 Under certain Islamic transactions such as Murabahah, Salam, Istisna’ and Ijarah, the underlying physical assets, namely commercial and residential real estate 71 as well as plant and machinery are recognised as collateral or risk mitigants. For these physical assets to be recognised as eligible collateral, they must fulfil the minimum requirements specified under the comprehensive approach as well as the additional criteria specified in Appendix 8. Calculation of capital requirement S 47.30 An FI shall calculate the adjusted exposure value after risk mitigation as follows: E∗= max[0, E × (1+ He) − C × (1 − Hc − Hfx)] Where ‒ E* = Exposure value after risk mitigation E = Current value of the exposure He = Haircut appropriate to the exposure C = Current value of the collateral received Hc = Haircut appropriate to the collateral 70 Include transactions such as repurchase agreements, reverse repurchase agreements, security financing and margin financing transactions, where the value of the transactions depend on market valuations and the transactions are often subject to margin agreements. 71 Exposures that fulfil the criteria of financing secured by regulatory real estate and hence are entitled to receive the qualifying regulatory real estate risk weight, are not allowed to use the underlying regulatory real estate as a credit risk mitigant. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 51 of 97 Issued on: 20 January 2023 Hfx = Haircut appropriate for currency mismatch between the collateral and exposure S 47.31 An FI shall adjust the current value of the collateral received (C) when there are maturity mismatches in accordance with paragraphs 45.4 and 45.5. S 47.32 An FI shall multiply the exposure value after risk mitigation (E) with the risk weight of the counterparty to obtain the risk-weighted asset amount for the collateralised transaction. S 47.33 An FI shall apply the supervisory haircuts72 in the table below to the collateral (Hc) and to the exposure (He) - Issue rating for debt securities Residual maturity, m Haircut Sovereign Other issuer Securitisation exposure AAA to AA-/A- 1 m < 1 year 0.5% 1% 2% 1 year < m ≤ 3 year 2% 3% 8% 3 year < m ≤ 5 year 4% 5 year < m ≤ 10 year 4% 6% 16% m > 10 years 12% A+ to BBB-/A- 2/A-3/P-3 and unrated bank securities as per paragraph 47.28 and 47.16(d) m < 1 year 1% 2% 4% 1 year < m ≤ 3 year 3% 4% 12% 3 year < m ≤ 5 year 6% 5 year < m ≤ 10 year 6% 12% 24% m > 10 years 20% BB+ to BB- All 15% Not eligible Not eligible Main index equities (including convertible bonds/sukuk) and gold 20% Other equities and convertible bonds/sukuk listed on a recognised exchange 30% Funds (e.g. collective investment schemes, unit trust funds, mutual funds etc.) Highest haircut applicable to any security in which the fund can invest, unless the FI can apply the look-through approach (LTA) for equity investments in funds, in which case the FI may use a weighted average of haircuts applicable to instruments held by the fund. Cash in the same currency 0% Currency mismatch 8% 72 Assuming daily mark-to-market, daily re-margining and a 10-business day holding period. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 52 of 97 Issued on: 20 January 2023 Where – (a) “Sovereign” includes PSEs that are treated as sovereigns by the national supervisor, as well as multilateral development banks receiving a 0% risk weight; (b) “Other issuer” includes PSEs that are not treated as sovereigns by the national supervisor; (c) “Securitisation exposure” refers to exposures that meet the definition set forth in the Securitisation Framework in the CAF (RWA) PD or CAFIB (RWA) PD; and (d) “Cash in the same currency” refers to eligible cash collateral specified in paragraph 47.16(a). S 47.34 An FI with Islamic banking exposures shall apply a haircut of 30% for CRE/RRE/other physical collaterals73. S 47.35 For SFTs and secured financing transactions, an FI shall apply the haircut adjustment in accordance with paragraphs 47.37 to 47.41. Meanwhile, for SFTs in which the FI posts non-eligible instruments as collateral, the haircut on the exposure is 30%. For transactions in which the FI accepts non-eligible instruments, CRM shall not be applied. S 47.36 Where the collateral is a basket of assets, an FI shall calculate the haircut (H) on the basket as follows: H =�aiHi i Where ‒ H = Haircut of the collateral ai = Weight of the asset (measured by units of currency) in the basket Hi = Haircut applicable to the asset in the basket Question 14 The Bank intends to adopt the revised supervisory haircuts for the comprehensive approach as prescribed by the BCBS. (1) Do the revised supervisory haircuts significantly impact your institution’s post-CRM RWA? (2) If so, do the revisions affect certain exposure classes more than others? 73 While the Bank has provided a minimum 30% haircut on other types of physical collateral, FIs shall exercise conservatism in applying haircuts on physical assets’ values used as CRM for capital requirement purposes. In this regard, FIs may use a more stringent haircut should their internal historical data reveals loss amounts (which reflect a haircut of higher than 30%) when the physical assets are disposed. Please refer to Appendix 8 for additional requirements for recognition of other physical collateral. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 53 of 97 Issued on: 20 January 2023 (3) Please provide the RWA impact given the revisions on the supervisory haircuts. Please elaborate and provide relevant evidence to substantiate your views for the abovementioned questions, in the QIS. Adjustment for different holding periods and non-daily mark-to-market or re-margining S 47.37 For some transactions, depending on the nature and frequency of the re- evaluation and re-margining provisions, an FI must apply different holding periods and thus different haircuts. The framework for collateral haircuts distinguishes between repo-style transactions (i.e. repo/reverse repos and securities financing), “other capital market-driven transactions” (i.e. OTC derivatives transactions and margin financing) and secured financing. In capital- market-driven transactions and repo-style transactions, the documentation contains re-margining clauses, while for secured financing transactions, the documentation generally does not. S 47.38 An FI shall refer to the following table for the minimum holding period for various products: Transaction type Minimum holding period (business days) Minimum re-margining/ revaluation period Repo-style transaction 5 Daily Other capital market transactions 10 Daily Secured financing 20 Daily S 47.39 If a netting set74 includes both repo-style and other capital market transactions, an FI must use a minimum holding period of 10 business days. S 47.40 In addition to paragraphs 47.38 and 47.39, an FI shall adopt a higher minimum holding period in the following cases: (a) when a netting set has a number of trades exceeding 5,000 at any point during a quarter, the FI must use a minimum holding period of 20 business days for the following quarter; (b) when a netting set has one or more trades involving illiquid collateral, the FI must use a minimum holding period of 20 business days75; and 74 Netting set is a group of transactions with a single counterparty that are subject to a legally enforceable bilateral netting arrangement under Appendix VIII (Current Exposure Method) of the CAF (RWA) PD or Appendix VI (Counterparty Credit Risk and Current Exposure Method) of the CAFIB (RWA) PD. 75 “Illiquid collateral” must be determined in the context of stressed market conditions and will be characterised by the absence of continuously active markets where a counterparty would, within two or fewer days, obtain multiple price quotations that would not move the market or represent a price reflecting a market discount. Examples of situations where trades are deemed illiquid for this purpose include, but are not limited to, trades that are not marked daily and trades that are subject to specific accounting treatment for valuation purposes (e.g. repo-style transactions referencing securities whose fair value is determined by models with inputs that are not observed in the market). Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 54 of 97 Issued on: 20 January 2023 (c) when the FI has experienced more than two margin call disputes on a particular netting set over the previous two quarters that have lasted longer than the FI’s estimate of the margin period of risk76, the FI must use a minimum holding period that is twice the level that would apply. However, this sub-paragraph would not apply for the subsequent two quarters. S 47.41 An FI must adjust the haircut of a transaction when the frequency of re-margining or revaluation is higher than the minimum as outlined in paragraphs 47.38 to 47.40. Where the haircut of a transaction is different from the default haircuts of 10 business days as provided in paragraph 47.33, these haircuts must be scaled up or down using the following formula: H =H10� NR + (TM − 1) 10 Where ‒ H = Haircut H10 = Haircut based on the 10-business day holding period in paragraph 47.33 TM = Minimum holding period for the type of the transaction as per paragraph 47.38 NR = Actual number of business days between re-margining for capital market transactions or revaluation for secured transactions Exemptions for qualifying repo-style transactions involving core market participants S 47.42 An FI shall only apply a haircut of zero for repo-style transactions with core market participants as defined in paragraph 47.19 if such transactions satisfy the conditions in paragraph 47.18. S 47.43 FIs shall only apply the treatment under paragraph 47.42 where other national supervisors have accorded a similar treatment to core market participants within their jurisdictions, unless the Bank requires otherwise, in view of changes to domestic conditions. 76 Margin period of risk is the time period from the last exchange of collateral covering a netting set of transactions with a defaulting counterparty until that counterparty is closed out and the resulting market risk is re-hedged. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 55 of 97 Issued on: 20 January 2023 Treatment of SFTs covered by master netting agreements S 47.44 An FI shall recognise the effect of bilateral netting agreements covering SFT on a counterparty-by-counterparty basis if the agreements – (a) are legally enforceable in each relevant jurisdiction upon the occurrence of an event of default, regardless of whether the counterparty is insolvent or bankrupt; (b) provide the non-defaulting party the right to terminate and close out all transactions under the agreement in a timely manner upon the occurrence of a default event, including the event of insolvency or bankruptcy of the counterparty; (c) provide for the netting of gains and losses on transactions (including the value of any collateral) terminated and closed out so that a single net amount is owed by one party to the other; (d) allow for the prompt liquidation or set-off of collateral upon the event of default; and (e) together with the rights arising from the provisions required in (a) to (d) above, are legally enforceable in each relevant jurisdiction upon the occurrence of an event of default and regardless of the counterparty’s insolvency or bankruptcy. S 47.45 In addition, an FI must ensure that the SFT is subject to the Global Master Repurchase Agreement (GMRA) with its relevant annexes that specify all terms of the transaction, duties and obligations of the parties concerned. An FI must also ensure that other requirements specified under the Bank’s current guidelines on repo-style transactions77 have also been met. S 47.46 An FI shall only recognise netting across positions in the banking and trading books if it meets the following requirements – (a) all transactions are marked-to-market daily78; and (b) the collateral instruments used in the transactions are recognised as eligible financial collateral in the banking book. S 47.47 An FI shall use the formula in paragraph 47.48 to compute the counterparty credit risk capital requirements for SFTs with netting agreements. This formula includes the current exposure, an amount for systematic exposure of the securities based on the net exposure, an amount for the idiosyncratic exposure of the securities based on the gross exposure, and an amount for currency mismatch. All other rules regarding the calculation of haircuts under the comprehensive approach stated in paragraph 47.21 to 47.22 must be complied with, by FIs using bilateral netting agreements for SFTs. S 47.48 An FI shall use the formula below to calculate the exposure amount to account for the impact of SFTs under master netting agreements: E* =max{0;∑ Eii - ∑ Cji +0.4 × net exposure + 0.6× gross exposure √N + ∑ (Efx×Hfx)fx } 77 Repurchase Agreement Transactions policy document issued on 12 November 2019. 78 The holding period for the haircuts depends, as in other repo-style transactions, on the frequency of margining. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 56 of 97 Issued on: 20 January 2023 Where ‒ E* = Exposure value of the netting set after risk mitigation Ei = Current value of all cash and securities lent, sold with an agreement to repurchase or otherwise posted to the counterparty under the netting agreement Cj = Current value of all cash and securities borrowed, accepted or purchased with an agreement to resell or otherwise held by the bank under the netting agreement net exposure= ��EsHs s � gross exposure= �Es\|Hs\| s Es = Net current value of each security issuance under the netting set (always a positive value) Hs = Haircut appropriate to Es as described in paragraph 47.33 • Hs has a positive sign if the security is lent, sold with an agreement to be repurchased, or transacted in manner similar to either securities lending or a repurchase agreement • Hs has a negative sign if the security is borrowed, accepted or purchased with an agreement to resell, or transacted in a manner similar to either a securities financing or reverse repurchase agreement N = Number of security issues contained in the netting set (except issuances where the value Es is less than one tenth of the value of the largest Es in the netting set are not included the count) Efx = Absolute value of the net position in each currency fx different from the settlement currency Hfx = Haircut for currency mismatch of currency fx Minimum haircut floors for SFTs S 47.49 An FI shall comply with the requirements in Appendix 10 for the treatment of non- centrally cleared SFTs with certain counterparties. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 57 of 97 Issued on: 20 January 2023 Collateralised OTC derivatives S 47.50 An FI shall use the formula below to compute the counterparty credit risk charge for an individual contract as per Appendix VIII (Current Exposure Method) of the CAF (RWA) PD or Appendix VI (Counterparty Credit Risk and Current Exposure Method) of the CAFIB (RWA) PD– Counterparty Charge = [(RC + Add-on) – CA] × r × 8% Where ‒ RC = The replacement cost Add-on = The amount for potential future exposure calculated according to Appendix VIII (Current Exposure Method) of the CAF (RWA) PD or Appendix VI (Counterparty Credit Risk and Current Exposure Method) of the CAFIB (RWA) PD CA = The volatility adjusted collateral amount under the comprehensive approach R = The risk weight of the counterparty S 47.51 When effective bilateral netting contracts are in place, RC shall be the net replacement cost and the add-on will be ANet calculated according to Appendix VIII (Current Exposure Method) of the CAF (RWA) PD or Appendix VI (Counterparty Credit Risk and Current Exposure Method) of the CAFIB (RWA) PD. The haircut for currency risk (Hfx) shall be applied when there is a mismatch between the collateral currency and the settlement currency. Even in the case where there are more than two currencies involved in the exposure, collateral and settlement currency, a single haircut assuming a 10-business day holding period scaled up as necessary depending on the frequency of mark-to-market must be applied. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 58 of 97 Issued on: 20 January 2023 48 On-balance sheet netting S 48.1 An FI shall only use the net exposure of financing and deposit/investment account79 as the basis of calculating its capital adequacy when the following conditions are complied with: (a) the FI has a well-founded legal basis to justify that the netting or offsetting agreement is enforceable in each relevant jurisdiction regardless of whether the counterparty is insolvent or bankrupt; (b) the FI is able to at any time, determine those assets and liabilities with the same counterparty that are subject to the netting agreement; (c) the FI monitors and controls its roll-off risks80; and (d) the FI monitors and controls the relevant exposures on a net basis. S 48.2 When calculating the net exposure for paragraph 48.1, an FI shall use the formula in paragraph 47.30, in applying the following conditions: (a) assets (financing) are treated as exposure and liabilities (deposits) as collateral; (b) a zero haircut is applied unless there is a currency mismatch; (c) a 10-business day holding period is applied when there is daily mark-to- market; and (d) requirements in paragraphs 45, 47.33, and 47.41 are applied accordingly. S 48.3 The net exposure amount shall be multiplied by the risk weight of the counterparty to obtain risk-weighted assets for the exposure following the on- balance sheet netting. 79 Structured deposits and Restricted Investment Account would not be recognised for on-balance sheet netting. 80 Roll-off risks relate to the sudden increases in exposure which can happen when short dated obligations (for example deposits) used to net long dated claims (for example financing) mature. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 59 of 97 Issued on: 20 January 2023 49 Guarantees and credit derivatives Operational requirement S 49.1 An FI must ensure that a guarantee or credit derivative meets the following requirements before it is recognised accordingly in the calculation of capital requirements: (a) it represents a direct claim on the protection provider; (b) the extent of the cover is clearly defined and incontrovertible with explicit reference to specific exposures or a pool of exposures; (c) the protection contract is irrevocable except when there is a non-payment by a protection purchaser; (d) there is no clause in the contract that would allow the protection provider to unilaterally cancel the credit cover, change the maturity agreed ex post, or increase the effective cost of cover as a result of deteriorating credit quality in the hedged exposure; (e) it is unconditional. The protection contract must not have any clause which is outside the direct control of the FI that could prevent the protection provider from being obliged to fulfil its obligation in a timely manner in the event of a default by the counterparty; and (f) if the credit protection has maturity mismatches, an FI must adjust the amount of protection in accordance with paragraph 45. S 49.2 In addition to the requirements in paragraph 49.1, for a guarantee to be recognised, an FI must ensure the following is met: (a) upon default/non-payment of the counterparty, the FI has the right to, in a timely manner, pursue the guarantor for any monies outstanding under the legal documentation governing the transaction. The guarantor may make one lump sum payment of all monies under such documentation to the FI, or the guarantor may assume the future payment obligations of the counterparty covered by the guarantee; (b) the guarantee undertaking is explicitly documented; and (c) the guarantee covers all types of payments that are due under the legal documentation, for example notional amount, margin payments, etc. However, where a guarantee covers payment of principal only, interests/profit and other uncovered payments must be treated as an unsecured amount in accordance with the rules for proportional cover described in paragraph 49.12. S 49.3 In addition to the requirements in paragraphs 49.1 and 49.2, in order to recognise trade credit insurance or trade credit takaful as CRM, the FI must – (a) be the policy owner or takaful participant, as the case may be and the person covered; (b) not be the assignee, or assign the benefits of the policy or takaful certificate to another party; Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 60 of 97 Issued on: 20 January 2023 (c) obtain a legal opinion81 confirming that the policy or takaful certificate is unconditional82 and irrevocable83 as required for CRM recognition under this policy document; and (d) establish and implement, at minimum, the following: (i) a process to determine and verify the completeness and appropriateness of documentation, and information required for submission to the licensed ITO; (ii) a mechanism to monitor specified deadlines and credit standing of obligors (i.e. the buyer of trade goods); and (iii) a process for timely and regular communication between the FI and the licensed ITO. S 49.4 In addition to the requirements in paragraph 49.1, in order to recognise a credit derivative as a CRM, an FI must ensure the following is met: (a) the credit events specified by the contracting parties must at a minimum cover – (i) the failure to pay the amounts due under the terms of the underlying obligation that are in effect at the time of such failure; (ii) bankruptcy, insolvency or inability of the obligor to pay its debts, its failure or admission in writing of its inability to pay its debts as they become due, and any other analogous events; and (iii) restructuring84 of the underlying obligation involving forgiveness or postponement of principal, interest/profit or fees that result in a credit loss event (i.e. write-off, specific provision or other similar debit to the profit and loss account); (b) if the credit derivative covers obligations that do not include the underlying obligation, paragraph (g) below governs whether the asset mismatch is permissible; (c) the credit derivative shall not be terminated prior to the expiry of any grace period provided to determine a default on the underlying obligation. In the case of a maturity mismatch, the provisions of paragraph 45 must be applied; (d) credit derivatives allowing for cash settlement are recognised for capital purposes insofar as a robust valuation process is in place to estimate loss reliably. There must be a clearly specified period for obtaining post credit- event valuations of the underlying obligation. If the reference obligation 81 FIs may rely on in-house legal expertise or obtain opinion from an external legal firm. 82 The conditions for a policy or takaful certificate to qualify as “unconditional” are stipulated in paragraph 49.1(e). Exclusionary clauses relating to fraudulent, criminal acts, and insolvency of banking institutions and losses caused by nuclear or harmful substance contamination and war between major countries would not cause the trade credit insurance or trade credit takaful to be deemed as conditional. 83 The conditions for a policy or takaful certificate to qualify as “irrevocable” are stipulated in paragraph 49.1(c). 84 When hedging corporate exposures, this particular credit event is not required to be specified provided that: (1) a 100% vote is needed to amend the maturity, principal, coupon, currency or seniority status of the underlying corporate exposure; and (2) the legal domicile in which the corporate exposure is governed has a well-established bankruptcy code that allows for a company to reorganise/restructure and provides for an orderly settlement of creditor claims. If these conditions are not met, then the treatment in paragraph 49.5 may be eligible. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 61 of 97 Issued on: 20 January 2023 specified in the credit derivative for purposes of cash settlement is different from the underlying obligation, paragraph (g) below governs whether the asset mismatch is permissible; (e) if the protection purchaser’s right/ability to transfer the underlying obligation to the protection provider is required for settlement, the terms of the underlying obligation must clearly provide that any required consent to such transfer must not be unreasonably withheld; (f) the identity of the parties responsible for determining whether a credit event has occurred must be clearly defined. This determination must not be the sole responsibility of the protection seller. The protection buyer must have the right/ability to inform the protection provider of the occurrence of a credit event; (g) a mismatch between the underlying obligation and the reference obligation under the credit derivative (i.e. the obligation used for purposes of determining cash settlement value or the deliverable obligation) is permissible if - (i) the reference obligation ranks pari passu with or is junior to the underlying obligation; and (ii) the underlying obligation and reference obligation share the same obligor (i.e. the same legal entity) and legally enforceable cross- default or cross-acceleration clauses are in place; and (h) a mismatch between the underlying obligation and the obligation used for purposes of determining whether a credit event has occurred is permissible if - (i) the latter obligation ranks pari passu with or is junior to the underlying obligation; and (ii) the underlying obligation and reference obligation share the same obligor (i.e. the same legal entity) and legally enforceable cross- default or cross-acceleration clauses are in place. S 49.5 When the restructuring of the underlying obligation is not covered by the credit derivative, but the other requirements in paragraph 49.4 are met, an FI shall partially recognise the credit derivative as CRM only if it meets the following conditions: (a) if the amount of the credit derivative is less than or equal to the amount of the underlying obligation, 60% of the amount of the hedge can be recognised as CRM; or (b) if the amount of the credit derivative is larger than that of the underlying obligation, then the amount of eligible hedge is capped at 60% of the amount of the underlying obligation. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 62 of 97 Issued on: 20 January 2023 Eligible guarantors, protection providers and credit derivatives S 49.6 An FI shall recognise the credit protection of the following entities, provided they have a lower risk weight than the counterparty: (a) sovereign entities 85 , PSEs, banking institutions, qualifying central counterparties as well as securities firms with a lower risk weight than the counterparty; and (b) other entities than those listed in paragraph (a), which fulfil the following: (i) externally rated, except when credit protection is provided to a securitisation exposure. This would include credit protection provided by a parent, subsidiary and affiliate companies which qualify for a lower risk weight than the obligor; or (ii) externally rated BBB– or better and that were externally rated A– or better at the time the credit protection was provided, where such credit protection is provided to a securitisation exposure. This would include credit protection provided by parent, subsidiary and affiliate companies which qualify for a lower risk weight than the obligor. S 49.7 For trade credit insurance or trade credit takaful, an FI shall only recognise the trade credit insurance or trade credit takaful as CRM if it is obtained from a licensed ITO or a prescribed DFI with a minimum rating of BBB-. S 49.8 For trade credit insurance or trade credit takaful ceded to a licensed professional reinsurer or retakaful operator, an FI shall only recognise these as CRM if the licensed professional reinsurer or retakaful operator is rated at least BBB-, and the reinsurance or retakaful contract – (a) fulfils the requirements of a guarantee in this policy document; (b) provides an equally robust level of protection as the trade credit policy or takaful certificate between the FI, licensed ITO or prescribed DFI; and (c) includes a specific clause in the legal documentation that enables the FI to pursue claim payments directly from the licensed professional reinsurer or retakaful operator when there is a default in payment of claims by the licensed ITO or prescribed DFI. S 49.9 An FI shall only recognise credit default swaps and total return swaps as CRM where they provide credit protection equivalent to guarantees. However, where an FI buys credit protection through a total return swap and records the net payments received on the swap as net income but does not record any offsetting deterioration in the value of the asset that is protected (either through reductions in fair value or by an addition to reserves), the credit protection will not be recognised. 85 This includes the Bank for International Settlements, the International Monetary Fund, the European Central Bank, the European Union, the European Stability Mechanism and the European Financial Stability Facility, as well as MDBs eligible for a 0% risk weight. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 63 of 97 Issued on: 20 January 2023 S 49.10 An FI shall not recognise as CRM, first-to-default and all other nth-to-default credit derivatives (i.e. by which a bank obtains credit protection for a basket of reference names and where the first or nth–to-default among the reference names trigger the credit protection and terminates the contract). Risk weight treatment for protected portion S 49.11 An FI shall apply the following general risk weight treatment for transactions in which eligible credit protection is provided – (a) the protected portion is assigned the risk weight of the protection provider; (b) the uncovered portion of the exposure is assigned the risk weight of the underlying counterparty; and (c) where there are materiality thresholds which exempt the protection provider from making good payments below these thresholds in a default event, such positions are deemed as first-loss positions. The portion of the exposure that is below the materiality threshold must be assigned a risk weight of 1250% by the banking institution purchasing the credit protection. S 49.12 Where losses are shared pari passu on a pro-rated basis between the FI and the guarantor, an FI shall apply capital relief on a proportional basis (i.e. the protected portion of the exposure receives the treatment applicable to eligible guarantees/credit derivatives) with the remainder treated as unsecured exposure. G 49.13 Where an FI transfers a portion of the risk of an exposure in one or more tranches to a protection seller or sellers and retains some level of the risk, and the risk transferred and the risk retained are of different seniority, the FI may obtain credit protection for either the senior tranches (e.g. the second-loss portion) or the junior tranche (e.g. the first-loss portion). S 49.14 In order to recognise the credit protection under paragraph 49.13, an FI shall apply the rules as set out in the securitisation standard in section F.3 Standardised Approach for Securitisation Standards in the CAF (RWA) PD and CAFIB (RWA) PD. Currency mismatch S 49.15 An FI shall calculate the amount of exposure impacted by currency mismatch (GA) using the following formula: GA = G (1 – HFX) Where ‒ G = Nominal amount of the credit protection HFX = Haircut appropriate for currency mismatch between the credit protection and underlying obligation Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 64 of 97 Issued on: 20 January 2023 S 49.16 An FI shall apply a currency mismatch haircut for a 10-business day holding period (assuming daily marking-to-market) of 8%. However, this haircut must be scaled up using the square root of time formula, depending on the frequency of revaluation of the credit protection as described in paragraph 47.41. Sovereign guarantees and counter-guarantees S 49.17 As specified in paragraph 13.1 and 13.2, an FI shall apply a lower risk weight to exposures to a sovereign or central bank where the FI is incorporated and where the exposure is denominated and funded in the domestic currency. This treatment is also extended to portions of exposures guaranteed by the sovereign or central bank, where the guarantee is denominated and funded in the domestic currency. S 49.18 An exposure shall be covered by a guarantee that is indirectly counter- guaranteed by a sovereign. Such an exposure shall be treated as covered by a sovereign guarantee provided that - (a) the sovereign counter-guarantee covers all credit risk elements of the exposure; (b) both the original guarantee and the counter-guarantee meet all operational requirements for guarantees, except that the counter- guarantee need not be direct and explicit to the original exposure; and (c) the FI is satisfied that the cover is robust and that no historical evidence suggests that the coverage of the counter-guarantee is less than equivalent to that of a direct sovereign guarantee. 50 Floor for exposures collateralised by physical assets S 50.1 For an FI with Islamic banking operations, the RWA for exposures collateralised by physical assets shall be the higher of – (a) the RWA calculated using the CRM method; or (b) 50% risk weight applied on the gross exposure amount (i.e. before any CRM effects). Question 15 (1) Are there any other potential CRM instruments for which the treatment should be clarified in the CRM framework, such as cash collateral pledged under life insurance or credit insurance? Please provide justifications to support your comment. (2) Which elements of the revised CRM framework, if any, would be challenging to implement? Please elaborate and rank your answers based on elements that are the most challenging to the least challenging one. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 65 of 97 Issued on: 20 January 2023 PART H TRANSITIONAL ARRANGEMENTS 51 Transitional arrangements Phase-in for standardised approach treatment of equity exposures S 51.1 An FI shall subject the risk weight treatment described in paragraph 19.4, excluding equity holdings risks weighted at 100%, to a five-year linear phase-in arrangement specified in paragraphs 51.2 and 51.3 from the effective implementation date of this policy document. S 51.2 For speculative unlisted equity exposures, the applicable risk weight will start at 100% and increase by 60 percentage points at the end of each year until the end of Year 5. S 51.3 For all other equity holdings, the applicable risk weight will start at 100% and increase by 30 percentage points at the end of each year until the end of Year 5. Question 16 A key feature of the Basel III reforms is the introduction of an output floor which limits the amount of capital benefit an FI can obtain from its use of internal models, relative to using the standardised approaches. The Bank is planning to adopt the output floor of 72.5%, of the standardised RWA as well as the corresponding transitional arrangements as stipulated under the section "RBC90: Risk-based capital requirements - Transitional arrangements". If your institution is applying the Internal Ratings-Based Approach for Credit Risk, please provide your feedback on the BCBS- prescribed phase-in arrangements, and whether this provides sufficient time for your institution to fully adopt the output floor. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 66 of 97 Issued on: 20 January 2023 APPENDICES APPENDIX 1 Risk weights and rating categories Sovereign and Central Bank Rating Category Standard & Poor’s Rating Services (S&P) Moody’s Investors Service (Moody’s) Fitch Ratings (Fitch) Rating and Investment Information, Inc. (R&I)86 1 AAA to AA- Aaa to Aa3 AAA to AA- AAA to AA- 2 A+ to A- A1 to A3 A+ to A- A+ to A- 3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- BBB+ to BBB- 4 BB+ to B- Ba1 to B3 BB+ to B- BB+ to B- 5 CCC+ to D Caa1 to C CCC+ to D CCC+ to C Unrated Banking Institution Rating Category S&P Moody’s Fitch R&I RAM Rating Services Berhad (RAM) Malaysian Rating Corporati on Berhad (MARC) 1 AAA to AA- Aaa to Aa3 AAA to AA- AAA to AA- AAA to AA3 AAA to AA- 2 A+ to A- A1 to A3 A+ to A- A+ to A- A1 to A3 A+ to A- 3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- BBB+ to BBB- BBB1 to BBB3 BBB+ to BBB- 4 BB+ to B- Ba1 to B3 BB+ to B- BB+ to B- BB1 to B3 BB+ to B- 5 CCC+ to D Caa1 to C CCC+ to D CCC+ to C C1 to D C+ to D Unrated 86 External credit assessments produced by Rating and Investment Information, Inc. on Islamic debt securities are not recognised by the Bank in determining the risk weights for exposures to the asset classes listed in this Appendix. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 67 of 97 Issued on: 20 January 2023 Corporate and Specialised Finance Rating Category S&P Moody’s Fitch R&I RAM MARC 1 AAA to AA- Aaa to Aa3 AAA to AA- AAA to AA- AAA to AA3 AAA to AA- 2 A+ to A- A1 to A3 A+ to A- A+ to A- A1 to A3 A+ to A- 3 BBB+ to BB- Baa1 to Ba3 BBB+ to BB- BBB+ to BB- BBB1 to BB3 BBB+ to BB- 4 B+ to D B1 to C B+ to D B+ to D B1 to D B+ to D Unrated Banking Institutions and Corporate (Short term ratings) Rating Category S&P Moody’s Fitch R&I RAM MARC 1 A-1 P-1 F1+, F1 a-1+, a-1 P-1 MARC-1 2 A-2 P-2 F2 a-2 P-2 MARC-2 3 A-3 P-3 F3 a-3 P-3 MARC-3 4 Others Others B to D b, c NP MARC-4 Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 68 of 97 Issued on: 20 January 2023 APPENDIX 2 ECAI eligibility criteria The following are the eligibility criteria: Criterion 1: Objectivity of credit assessment methodology and process 1. The methodology used by the ECAI for assigning external ratings must be rigorous, systematic, and subject to validation based on historical experience. Moreover, external ratings must be subject to ongoing reviews and responsive to changes in the financial condition, operating environment and business models of the rated entity. The rating methodology for each market segment must have been established for a minimum of one year87, and must be subject to rigorous back testing. Criterion 2: Independence of ECAI 2. The ECAI must be independent and not be subject to political or economic pressures that may influence their ratings. An ECAI shall not delay or refrain from taking a rating action when there is evidence to justify such action (economic, political or otherwise). Where practicable, an ECAI shall remain separate from its other businesses, operationally, legally and physically to maintain its independence and avoid situations of conflict of interest. Criterion 3: International access/transparency 3. The individual ratings, key elements underpinning the rating assessments and involvement of the rated entity in the rating process shall be publicly disclosed on a non-selective basis, unless they are private ratings, which should be at least available to both domestic and foreign institutions are made available only to the issuer or parties with legitimate interest and on equivalent terms. In addition, the ECAI’s general procedures, methodologies and assumptions for deriving the ratings shall be publicly available. Criterion 4: Disclosure 4. An ECAI shall disclose the following information: its code of conduct; the general nature of its compensation arrangements with rated entities; any conflict of interest, its internal compensation arrangements, its rating assessment methodologies (including the definition of default, the time horizon, and the definition of each rating); the actual default rates of the rated entities experienced in each assessment category; and the transition of the ratings, e.g. the likelihood of AA ratings becoming A over time. A rating shall be disclosed as soon as practicable after issuance. When disclosing a rating, the information shall be provided in plain language, indicating the nature and limitation of credit ratings and the risk of unduly relying on them to make investments. 87 While the minimum requirement is 1 year, ideally the methodology should preferably be established for at least 3 years. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 69 of 97 Issued on: 20 January 2023 5. Regarding the disclosure of conflicts of interest referenced in paragraph 4 above, at a minimum, the following situations and their influence on the ECAI’s credit rating methodologies or credit rating actions shall be disclosed: (a) the ECAI is being paid to issue a credit rating by the rated entity or by the obligor, originator, underwriter or arranger of the rated obligation; (b) the ECAI is being paid by subscribers with a financial interest that could be affected by a credit rating action of the ECAI; (c) the ECAI is being paid by rated entities, obligors, originators, underwriters, arrangers, or subscribers for services other than issuing credit ratings or providing access to the ECAI’s credit ratings; (d) the ECAI is providing a preliminary indication or similar indication of credit quality to an entity, obligor, originator, underwriter, or arranger prior to being hired to determine the final credit rating for the entity, obligor, originator, underwriter, or arranger; and (e) the ECAI has a direct or indirect ownership interest in a rated entity or obligor, or a rated entity or obligor has a direct or indirect ownership interest in the ECAI. 6. Regarding the disclosure of an ECAI's compensation arrangements referenced in paragraph 4 above: (a) an ECAI shall disclose the general nature of its compensation arrangements with rated entities, obligors, lead underwriters, or arrangers; (b) when the ECAI receives from a rated entity, obligor, originator, lead underwriter, or arranger, compensation unrelated to its credit rating services, the ECAI shall disclose such unrelated compensation as a percentage of total annual compensation received from such rated entity, obligor, lead underwriter, or arranger in the relevant credit rating report or elsewhere, as appropriate; and (c) an ECAI shall disclose in the relevant credit rating report or elsewhere, as appropriate, if it receives 10% or more of its annual revenue from a single client (e.g. a rated entity, obligor, originator, lead underwriter, arranger, or subscriber, or any of its affiliates). Criterion 5: Resources 7. An ECAI shall have sufficient resources to carry out high-quality credit assessments. These resources shall have access to the entities assessed to ensure robustness of the credit assessments. In particular, ECAIs shall assign analysts with appropriate knowledge and experience to assess the creditworthiness of the type of entity or obligation being rated. Such assessments shall be based on methodologies that combine qualitative and quantitative approaches. Criterion 6: Credibility 8. An ECAI may derive credibility from complying with the criteria in paragraphs 1 to 7, 9 and 10. In addition, the reliance on an ECAI’s external ratings by independent parties (for example, investors, insurers, takaful operators and trading partners) is evidence of the credibility of the ratings of the ECAI. The Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 70 of 97 Issued on: 20 January 2023 credibility of an ECAI is also underpinned by the existence of its internal procedures to prevent the misuse of any confidential information. In order to be eligible for recognition by the Bank, an ECAI does not have to assess firms in more than one country. Criterion 7: No abuse of unsolicited ratings 9. An ECAI must not use unsolicited ratings to put pressure on entities to obtain solicited ratings. The Bank shall consider whether to continue recognising an ECAI as eligible for capital adequacy purposes, if such behaviour is identified. Criterion 8: Cooperation with the supervisor 10. An ECAI shall notify the Bank of significant changes to their methodologies and submit to the Bank, upon the Bank’s request, external ratings and other relevant data in order to support their initial and continued eligibility as ECAIs. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 71 of 97 Issued on: 20 January 2023 APPENDIX 3 Definition of defaulted exposures 1. An FI shall categorise an obligor as defaulted if any of the following events have occurred: (a) any material credit obligation is due for more than 90 days, except for – (i) securities, where a default occurs immediately upon a breach of the contractual repayment schedule; (ii) overdrafts, where a default occurs when the obligor has breached the approved limits or has been advised of a limit smaller than the current outstanding for more than 90 days; and (iii) repayments that are scheduled every three months or longer, where a defaults occurs immediately upon a breach of the contractual repayment schedule; (b) any material credit obligation is on non-accrued status (e.g. the financing bank no longer recognises accrued interest/profit as income or, if recognised, makes an equivalent amount of provisions); (c) a write-off or account-specific provision is made as a result of a significant perceived decline in credit quality; (d) any credit obligation is sold at a material credit-related economic loss; (e) a distressed restructuring and rescheduling of any credit obligation (i.e. a restructuring that may result in a diminished financial obligation caused by the material forgiveness88, or diminished financial obligation caused by the postponement, of principal, interest or where relevant, fees) is agreed by the FI; (f) a bankruptcy or similar order has been filed against the obligor in respect of his/her credit obligations to the banking group; (g) the obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of any of the credit obligations to the banking group; or (h) any other situation where the FI considers that the obligor is unlikely to pay its credit obligations in full without recourse by the FI to actions such as realising security. 2. In addition to the definition in paragraph 1 of this Appendix, an FI must also consider the following elements as indications of unlikeliness to repay: (a) the FI is uncertain about the collectability of a credit obligation which has already been recognised as revenue and subsequently, the uncollectible amount is recognised as an expense; (b) the default of a related obligor. FIs must review all related obligors in the same group to determine if the default of a related obligor is an indication of unlikeliness to pay by any other related obligor. This can be ascertained by assessing the degree of economic interdependence between the obligor and its related entities; (c) acceleration of an obligation; (d) the obligor is in significant financial difficulty. This could be triggered by a significant downgrade of the obligor’s credit rating; or 88 i.e. reduction in the principal amount of the financing or reduction in the accrued interest/ profit Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 72 of 97 Issued on: 20 January 2023 (e) default by the obligor on credit obligations to other financial creditors, e.g. other FIs, bond-holders/sukuk-holders. 3. For retail exposures, an FI can apply the definition of default at the level of a particular credit obligation, rather than at the level of the obligor. As such, default by an obligor on one credit obligation does not require an FI to treat all other credit obligations to the same obligor as defaulted. For example, an obligor may default on a credit card obligation but not on other retail obligations. Nevertheless, an FI shall remain vigilant and consider cross-default of facilities of an obligor if it is evident that the obligor is unable to meet its other credit obligations. 4. A default by a corporate obligor shall trigger a default on all of its other credit obligations. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 73 of 97 Issued on: 20 January 2023 APPENDIX 4 Equity investments in funds An FI must apply one of the following three approaches89 to measure the risk weighted assets of its equity investments in funds90. The look-through approach (LTA) 1. This is the most granular and risk sensitive approach. It must be used when – (a) there is sufficient and frequent information provided to the FI regarding the underlying exposures of the fund. The frequency of financial reporting of the fund must be the same as, or more frequent than that of the FI’s and the granularity of the financial information must be sufficient to calculate the corresponding risk weights; and (b) the information on the underlying exposures is verified by an independent third party, such as the depository of the custodian bank or where applicable, the management company91. 2. Under this approach, an FI shall risk weight all the underlying exposures of a fund as if the exposures were held directly by the FI. This includes any underlying exposure arising from the fund’s derivative activities for situations in which the underlying exposures receive a risk weighting treatment under the computation of credit or market risk, and the associated counterparty credit risk (CCR) exposure. 3. An FI may rely on third-party calculations for determining the risk weights associated with their equity investments in funds (i.e. the underlying risk weights of the exposures of the fund) if it does not have adequate data or information to perform the calculations on its own. In such cases, the applicable risk weight shall be 1.2 times higher than the applicable risk weight if the exposure was held directly by the FI92, unless the third party performing the calculation is an entity within the financial group that is regulated and supervised by the Bank. 89 This Appendix presently excludes the requirements on Credit Valuation Adjustment. These requirements will be incorporated into this Appendix once the capital framework on Credit Valuation Adjustment has been finalised. 90 Equity investments in funds include investment accounts managed by Islamic banking institutions. An Islamic banking institution shall refer to this Appendix in computing the credit risk exposure under the standardised approach arising from placement in investment accounts instead of the CAF (RWA) PD and the CAFIB (RWA) PD. 91 An external audit is not required for the verification. Specifically for investment accounts, this condition is deemed met if a review of the financial statements is conducted by external auditors. 92 For example, any exposure that is subject to a 20% risk weight under the Standardised Approach would be weighted at 24% (1.2 × 20%) when the look through is performed by a third party. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 74 of 97 Issued on: 20 January 2023 The mandate-based approach (MBA) 4. This approach is applicable when the conditions for applying the LTA are not met. 5. Under this approach, an FI shall use the information contained in a fund's mandate or in the national regulations governing such investment funds. 6. An FI must ensure that all underlying risks are taken into account (including CCR) and that the MBA renders capital requirements no less than the LTA. In this regard, an FI must calculate the risk-weighted asset as the sum of the following: (a) balance sheet exposures (i.e. the fund’s assets) are risk weighted assuming the underlying portfolios are invested to the maximum extent allowed under the fund's mandate in assets attracting the highest capital requirements, and then progressively in other assets attracting lower capital requirements. If more than one risk weight can be applied to a given exposure, the maximum risk weight must be used; (b) whenever the underlying risk of a derivative exposure or an off-balance sheet item receives a risk weighting treatment under this policy document, the notional amount of the derivative position or of the off- balance sheet exposure is risk weighted accordingly93; and (c) the CCR associated with the fund's derivative exposures is calculated using the approach in Appendix VIII (Current Exposure Method) of the CAF (RWA) PD or Appendix VI (Counterparty Credit Risk and Current Exposure Method) of the CAFIB (RWA) PD. The risk weight associated with the counterparty is applied to the CCR exposure as follows: (i) when the replacement cost is unknown, the exposure measure for CCR will be calculated in a conservative manner using the sum of the notional amounts of the derivatives in the netting set as a proxy for the replacement cost, and the multiplier used in the calculation of the potential future exposure will be equal to 1; and (ii) when the potential future exposure is unknown, the exposure measure for CCR will be calculated as 15% of the sum of the notional values of the derivatives in the netting set93F94. The fall-back approach (FBA) 7. Where neither the LTA nor the MBA are feasible, an FI is required to apply the FBA. 8. Under this approach, an FI applies a 1250% risk weight to the FI’s equity investment in the fund. 93 If the underlying is unknown, the full notional amount of derivative positions must be used for the calculation. If the notional amount of derivatives is unknown, it will be estimated conservatively using the maximum notional amount of derivatives allowed under the mandate. 94 For example, if both the replacement cost and add-on components are unknown, the CCR exposure will be calculated as: 1.4 × (sum of notionals in netting set +0.15×sum of notionals in netting set). Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 75 of 97 Issued on: 20 January 2023 Funds that invest in other funds 9. When an FI has an investment in a fund (e.g. Fund A) that itself has an investment in another fund (e.g. Fund B) which the FI identified by using either the LTA or the MBA, the risk weight applied to the investment of the first fund (i.e. Fund A’s investment in Fund B) can be determined by using one of the three approaches set out above. For all subsequent layers (e.g. Fund B’s investments in Fund C and so forth), the risk weights applied to an investment in another fund (Fund C) can be determined using the LTA under the condition that the LTA was also used for determining the risk weight for the investment in the fund at the previous layer (Fund B). Otherwise, the FBA must be applied. An illustration of the requirement is provided below. Partial use of an approach 10. An FI may use a combination of the three approaches when determining the capital requirements for an equity investment in an individual fund, provided that the conditions set out in paragraphs 1 to 11 in this Appendix are met. FI Fund A Fund B Fund C LTA MBA/FBA LTA FBA LTA/MBA/FBA Available approaches Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 76 of 97 Issued on: 20 January 2023 Exclusion to the LTA, MBA and FBA 11. An FI shall exclude equity holdings in entities whose debt obligations qualify for a zero-risk weight from the LTA, MBA and FBA approaches. Leverage adjustment 12. An FI shall apply a leverage adjustment when using the LTA or MBA as follows: Application of the LTA and MBA to FIs using the Internal Ratings Based (IRB) approach95 13. An FI applying the IRB approach to credit risk shall treat equity investments in funds that are held in the banking book in a consistent manner based on paragraphs 1 to 12 of this Appendix, as adjusted by paragraphs 14 and 15 below. 14. Under the LTA, an FI using an IRB approach – (a) shall calculate the IRB risk components (i.e. probability of default of the underlying exposures, and where applicable, loss-given-default and exposure at default) associated with the fund’s underlying exposures; (b) for directly held investments, shall use the Standardised Approach for credit risk when applying risk weights to the underlying components of funds if they are permitted to do so under the provisions relating to the adoption of the IRB approach set out in B.3 The Internal Ratings Based Approach in the CAF (RWA) PD and the CAFIB (RWA) PD. In addition, when an IRB calculation is not feasible (e.g. the FI cannot assign the necessary risk components to the underlying exposures in a manner consistent with its own underwriting criteria), the methods set out in paragraph 15 in this Appendix must be used; and 95 For the avoidance of doubt, paragraphs 13 and 14 of this Appendix will not be applicable to an FI using the Standardised Approach for Credit Risk. RWAinvestment = Average RWfund × Leverage × Equity Investment Average RWfund Leverage Equity Investment Total risk weighted assets divided by total assets of the funds of the fund, capped at 1250% Total assets divided by total equity of the fund FI’s ownership of the fund Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 77 of 97 Issued on: 20 January 2023 (c) may rely on third-party calculations for determining the risk weights associated with their equity investments in funds (i.e. the underlying risk weights of the exposures of the fund) if they do not have adequate data or information to perform the calculations themselves. In this case, the third party must use the methods set out in paragraph 15 in this Appendix, with the applicable risk weight set 1.2 times higher than the applicable risk weight if the exposure were held directly by the FI. 15. In cases when the IRB calculation is not feasible (as highlighted in paragraph 14(b) in this Appendix), a third party is performing the calculation of risk weights (as highlighted in paragraph 14(c) in this Appendix) or when the FI is using the MBA, the following methods must be used to determine the risk weights associated with the fund’s underlying exposures: (a) for equity exposures, the simple risk weight method set out in paragraph 19.4; (b) for securitisation exposures, the method specified in section F.3 Standardised Approach for Securitisation Standards in the CAF (RWA) PD and the CAFIB (RWA) PD; and (c) the standardised approach for all other exposures. Illustration: Calculation of risk-weighted assets using the LTA 16. Consider a fund that replicates an equity index, and assume the following: (a) the FI uses the standardised approach for credit risk when calculating its capital requirements for credit risk. For determining CCR exposures, it uses the Current Exposure Method; (b) the FI owns 20% of the shares of the fund; (c) the fund holds forward contracts on listed equities that are cleared through a qualifying CCP (with a notional amount of RM 100); and (d) the fund presents the following balance sheet: Assets Cash RM 20 Government bonds/sukuk (AAA-rated) RM 30 Variation Margin receivable (ie collateral posted by the bank to the CCP in respect of the forward contracts) RM 50 Liabilities Notes payable RM 5 Equity Shares, retained earnings and other reserves RM 95 17. The funds exposures will be risk weighted as follows: (a) the RWA for the cash (RWAcash) is calculated as the exposure of RM 20 multiplied by the applicable Standardised Approach risk weight of 0%. Thus, RWAcash = RM 0; (b) the RWA for the government bonds/sukuk (RWAbonds) is calculated as the exposure of RM 30 multiplied by the applicable Standardised Approach risk weight of 0%. Thus, RWAbonds = RM 0; Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 78 of 97 Issued on: 20 January 2023 (c) the RWA for the exposures to the listed equities underlying the forward contracts (RWAunderlying) is calculated by multiplying the following three amounts: (1) the Standardised Approach credit conversion factor of 100% that is applicable to forward purchases; (2) the exposure to the notional of RM 100; and (3) the applicable risk weight for listed equities under the Standardised Approach which is 100%. Thus, RWAunderlying = 100% × RM 100 × 100% = RM 100; and (d) the forward purchase equities expose the bank to counterparty credit risk in respect of the market value of the forward purchase equities and the collateral posted that is not held by the CCP on a bankruptcy remote basis. For the sake of simplicity, this example assumes the application of Current Exposure Method results in an exposure value of RM 56. The RWA for the CCR (RWACCR) is determined by multiplying the exposure amount by the relevant risk weight for trade exposures to CCPs, which is 2% in this case (see Capital Adequacy Framework (Basel III – Risk- Weighted Assets): Exposures to Central Counterparties policy document96 for the capital requirements for bank exposures to CCPs). Thus, RWACCR = RM 56 × 2% = RM 1.12. 18. The total RWA of the fund is therefore RM 101.12 = (RM 0 + RM 0 + RM 100 + RM 1.12). 19. The leverage of a fund under the LTA is calculated as the ratio of the fund’s total assets to its total equity, which in this example is 100/95. 20. Therefore, the RWA for the FI’s equity investment in the fund is calculated as the product of the average risk weight of the fund, the fund’s leverage and the size of the bank’s equity investment. That is: RWA = RWAfund Total Assetsfund × Leverage × Equity investment = 101.12 100 × 100 95 × (95 × 20%) = RM 20.2 Illustration: Calculation of risk-weighted assets using the mandate-based approach 21. Consider a fund with assets of RM 100, where it is stated in the mandate that the fund replicates an equity index. In addition to being permitted to invest its assets in either cash or equities, the mandate allows the fund to take long positions in equity index futures up to a maximum nominal amount equivalent to the size of the fund’s balance sheet (RM 100). This means that the total on balance sheet and off-balance sheet exposures of the fund can reach RM 200. Consider also that a maximum financial leverage (fund assets/fund equity) of 1.1 applies according to the mandate. The FI holds 20% of the shares of the fund, which represents an investment of RM 18.18. 96 An ED was issued on 16 December 2022. FIs should comply with the PD when it comes into effect. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 79 of 97 Issued on: 20 January 2023 22. First, the on-balance sheet exposures of RM 100 will be risk weighted according to the risk weights applied to equity exposures (risk weight =100%), i.e. RWAon- BS = RM 100 × 100% = RM 100. 23. Second, the FI is to assume that the fund has exhausted its limit on derivative positions, i.e. RM 100 notional amount. The RWA for the maximum notional amount of underlying the derivatives positions is calculated by multiplying the following three amounts: (1) the Standardised Approach credit conversion factor of 100% that is applicable to forward purchases; (2) the maximum exposure to the notional of RM 100; and (3) the applicable risk weight for equities under the Standardised Approach which is 100%. Thus, RWAunderlying = 100% × RM100 × 100% = RM 100. 24. Third, the FI is to calculate the CCR exposure associated with the derivative contract as set out in paragraph 14(c) of this Appendix, as follows: (a) if the replacement cost related to the futures contract is unknown, the FI is to approximate it by the maximum notional amount, i.e. RM 100; (b) if the aggregate add-on for potential future exposure is unknown, the FI is to approximate this by 15% of the maximum notional amount (i.e. 15% of RM 100=RM 15); and (c) the CCR exposure is calculated by multiplying (i) the sum of the replacement cost; and (ii) the aggregate add-on for potential future exposure. 25. The CCR exposure in this example, assuming the replacement cost and aggregate add-on amounts are unknown, is therefore RM 161 (= 1.4 ×(100+15)). Assuming the futures contract is cleared through a qualifying CCP, a risk weight of 2% applies, so that RWACCR = RM 161 × 2% = RM 3.2. 26. The RWA of the fund is hence obtained by adding RWAon-BS, RWAunderlying and RWACCR, i.e. RM 203.2 (=100 + 100 + 3.2). 27. The RWA (RM 203.2) will be divided by the total assets of the fund (RM 100) resulting in an average risk weight of 203.2%. The FI’s total RWA associated with its equity investment is calculated as the product of the average risk weight of the fund, the fund’s maximum leverage and the size of the FI’s equity investment. Thus, the FI’s total associated RWA are 203.2% × 1.1 × RM 18.18 = RM 40.6. Illustration: Calculation of the leverage adjustment 28. Consider a fund with assets of RM 100 that invests in corporate debt. Assume that the fund is highly levered with equity of RM 5 and debt of RM 95. Such a fund would have financial leverage of 100/5=20. Consider the two cases below. 29. In Case 1, the fund specialises in low-rated corporate debt and it has the following balance sheet: Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 80 of 97 Issued on: 20 January 2023 Assets Cash RM 10 A+ to A- bonds/sukuk RM 20 BBB+ to BB- bonds/sukuk RM 30 Below BB- bonds/sukuk RM 40 Liabilities Debt RM 95 Equity Shares, retained earnings and other reserves RM 5 30. The average risk weight of the fund is (RM 10×0% + RM 20×50% + RM 30×100% + RM 40×150%)/RM 100 = 100%. The financial leverage of 20 would result in an effective risk weight of 2000% for FIs’ investments in this highly levered fund, however, this is capped at a conservative risk weight of 1250%. 31. In Case 2, the fund specialises in high-rated corporate debt and it has the following balance sheet: Assets Cash RM 5 AAA to AA- bonds/sukuk RM 75 A+ to A- bonds/sukuk RM 20 Liabilities Debt RM 95 Equity Shares, retained earnings and other reserves RM 5 32. The average risk weight of the fund is (RM 5×0% + RM 75×20% + RM 20×50%)/RM 100 = 25%. The financial leverage of 20 results in an effective risk weight of 500%. 33. The above examples illustrate that the rate at which the 1250% cap is reached depends on the underlying riskiness of the portfolio (as judged by the average risk weight) as captured by standardised approach risk weights or the IRB approach. For example, for a “risky” portfolio (100% average risk weight), the 1250% limit is reached fairly quickly with a leverage of 12.5x, while for a “low risk” portfolio (25% average risk weight) this limit is reached at a leverage of 50x. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 81 of 97 Issued on: 20 January 2023 APPENDIX 5 Capital treatment of unsettled transactions and failed trades 1. An FI is exposed to the risk associated with unsettled securities, commodities, and foreign exchange transactions from trade date. Irrespective of the booking or the accounting of the transaction, unsettled transactions must be taken into account for regulatory capital requirements purposes. 2. An FI shall develop, implement and improve systems for tracking and monitoring the credit risk exposure arising from unsettled transactions and failed trades as appropriate so that they can produce management information that facilitates timely action. An FI must closely monitor securities, commodities, and foreign exchange transactions that have failed from the first day they fail. Delivery versus payment transactions 3. Transactions settled through a delivery-versus-payment system (DvP) 97 , providing simultaneous exchanges of securities for cash, expose FIs to a risk of loss on the difference between the transaction valued at the agreed settlement price and the transaction valued at current market price (i.e. positive current exposure). An FI must calculate a capital requirement for such exposures if the payments have not yet taken place 5 business days after the settlement date98. Non-delivery-versus-payment transactions (free deliveries) 4. Transactions where cash is paid without receipt of the corresponding receivable (securities, foreign currencies, gold, or commodities) or conversely, deliverables were delivered without receipt of the corresponding cash payment (non-DvP, or free deliveries) expose firms to a risk of loss on the full amount of cash paid or deliverables delivered. An FI that has made the first contractual payment/delivery leg must calculate a capital requirement for the exposure if the second leg has not been received by the end of the business day. The requirement increases if the second leg has not been received within 5 business days99. Scope of Requirements 5. The capital treatment set out in Appendix 5 in this policy document is applicable to all transactions on securities, foreign exchange instruments and commodities that give rise to a risk of delayed settlement or delivery. This includes transactions through recognised clearing houses and central counterparties that are subject to daily mark-to-market and payment of daily variation margins and that involve a mismatched trade. The treatment does not apply to the instruments that are subject to the CCR requirements set out in Appendix VIII (Current Exposure Method) of the CAF (RWA) PD or Appendix VI (Counterparty Credit Risk and Current Exposure Method) of the CAFIB (RWA) PD (i.e. over- 97 For the purpose of this Framework, DvP transactions include payment-versus-payment transactions. 98 Refer to paragraph 9 of this Appendix. 99 Refer to paragraphs 10 to 12 of this Appendix. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 82 of 97 Issued on: 20 January 2023 the-counter derivatives, exchange-traded derivatives, long settlement transactions and securities financing transactions). 6. Where they do not appear on the balance sheet (i.e. settlement date accounting), an FI shall apply a 100% credit conversion factor on the unsettled exposure amount to determine the credit equivalent amount. 7. In cases of a system-wide failure of a settlement, clearing system or central counterparty, the Bank may use its discretion to waive capital requirements until the situation is rectified. 8. Failure of a counterparty to settle a trade will not be deemed a default for purposes of credit risk under this policy document. Capital requirements for DvP transactions 9. For DvP transactions, if the payments have not yet taken place 5 business days after the settlement date, an FI must calculate a capital requirement by multiplying the positive current exposure of the transaction by the appropriate factor, according to the table below: Number of working days after the agreed settlement date Corresponding risk multiplier Corresponding risk weight 5 to 15 8% 100% 16 to 30 50% 625% 31 to 45 75% 937.5% 46 or more 100% 1250% Capital requirements for non-DvP transactions (free deliveries) 10. For non-DvP transactions (i.e. free deliveries), after the first contractual payment/delivery leg, the FI that has made the payment will treat its exposure as a financing if the second leg has not been received by the end of the business day100. This means that: (a) for counterparties to which the FI applies the Standardised Approach to credit risk, the FI will use the risk weight applicable to the counterparty set out in Part E Individual Exposures; and (b) for counterparties to which the FI applies the Internal Ratings-Based (IRB) approach to credit risk, the FI will apply the appropriate IRB formula (set out in the CAF (RWA) PD and CAFIB (RWA) PD) applicable to the counterparty. When applying this requirement, if the FI has no other banking book exposures to the counterparty (that are subject to 100 If the dates when two payment legs are made are the same according to the time zones where each payment is made, it is deemed that they are settled on the same day. For example, if a bank in Tokyo transfers Yen on day X (Japan Standard Time) and receives corresponding US Dollar via the Clearing House Interbank Payments System on day X (US Eastern Standard Time), the settlement is deemed to take place on the same value date. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 83 of 97 Issued on: 20 January 2023 the IRB approach), the FI may assign a probability of default to the counterparty on the basis of its external rating. FIs using the Advanced IRB approach may use a 45% loss-given-default (LGD) in lieu of estimating LGDs so long as they apply it to all failed trade exposures. Alternatively, FIs using the IRB approach may opt to apply the standardised approach risk weights applicable to the counterparty set out in Part E Individual Exposures. 11. As an alternative to paragraphs 10(a) and 10(b) of this Appendix, when exposures are not material, FIs may choose to apply a uniform 100% risk weight to these exposures, in order to avoid the burden of a full credit assessment. 12. If the second leg has not yet effectively taken place 5 business days after the second contractual payment/delivery date, the FI that has made the first payment leg must risk weight the full amount of the value transferred plus replacement cost, if any, at 1250%. This treatment will apply until the second payment/delivery leg is effectively made. Counterparty Risk Requirement (CRR) for Investment Banks 13. The CRR aims to measure the amount necessary to accommodate a given level of a counterparty risk 101 specifically for unsettled trades 102 and free deliveries with respect to a licensed investment bank’s equity business. The CRR capital charge (as stated in the table on the next page) will be multiplied by a factor of 12.5 to arrive at the CRR risk weighted asset amount. 101 Counterparty risk means the risk of a counterparty defaulting on its financial obligation to the banking institution. 102 An unsettled agency purchase/sale or an unsettled principal sale/purchase. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 84 of 97 Issued on: 20 January 2023 Agency Trade Transactions Type of Contract Time Period CRR Sales contract Day, T to T+2 CRR = 0 T+3 to T+30 CRR = 8% of market value (MV) of contract X Counterparty Risk weight, if current MV of contract > transaction value of contract CRR = 0, if current MV of contract ≤ transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if current MV of contract > transaction value of contract CRR = 0, if MV of contract ≤ transaction value of contract Purchase contract Day, T to T+3 CRR = 0 T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract ≥ transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract ≥ transaction value of contract Principal Trade Transactions Type of Contract Time Period CRR Sales contract Day, T to T+3 CRR = 0 T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract ≥ transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract ≥ transaction value of contract Purchase contract Day, T to T+3 CRR = 0 T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract > transaction value of contract Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 85 of 97 Issued on: 20 January 2023 Agency Trade Transactions Type of Contract Time Period CRR CRR = 0, if MV of contract ≤ transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract > transaction value of contract CRR = 0, if MV of contract ≤transaction value of contract Free Deliveries103 Time Period CRR Day, D 104 to D+1 CRR = 8% of Transaction value of contract X Counterparty Risk weight Beyond D+1 CRR = Transaction value of contract 103 Where a licensed investment bank delivers equities without receiving payment, or pays for equities without receiving the equities. 104 Due date where the licensed investment bank delivers equities without receiving payment shall be the date of such delivery, and where the licensed investment bank pays for equities without receiving the equities, shall be the date of such payment. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 86 of 97 Issued on: 20 January 2023 APPENDIX 6 Capital treatment for Sell and Buyback Agreement (SBBA)/ Reverse SBBA transactions The capital treatment for exposures from SBBA and reverse SBBA transactions under the banking book is provided below: Capital treatment for SBBA transactions Capital treatment for Reverse SBBA transactions105 Banking book transactions Standardised Approach for Credit Risk Credit risk in the underlying asset in the forward purchase transaction: Credit RWA = Underlying asset value x CCF of forward asset purchase (i.e. 100%) x risk weight based on recognised issue / issuer rating of the asset Counterparty credit risk in the forward purchase transaction Credit RWA = Credit equivalent amount (derived from the Current Exposure Method) x risk weight of counterparty. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward purchase transaction value, where the underlying asset market value > the forward purchase transaction value. Counterparty credit risk in the forward purchase transaction: Credit RWA = Credit equivalent amount (derived from the Current Exposure Method) x risk weight of counterparty Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward sale transaction value, where the underlying asset market value < the forward sale transaction value. The underpinning basis for the capital treatment for SBBA and reverse SBBA transactions is the risk profile of the underlying transactions i.e. outright sale/buy contract as well as forward transactions as wa’d (promise) to buyback/sellback. Hence, while SBBA and reverse SBBA are not securities financing transactions, the treatment prescribed for securities financing transactions (e.g. requirements on maturity and floor) is also applicable to SBBA and reverse SBBA except for treatment on CRM106). 105 In addition to the capital charge applied here, if an arrangement that could effectively transfer the risk back to the SBBA seller is not legally binding, the SBBA buyer is required to provide for credit risk charge of the underlying asset. 106 Refer to Part G. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 87 of 97 Issued on: 20 January 2023 APPENDIX 7 List of recognised exchanges 1. American Stock Exchange (USA) 2. Athens Stock Exchange (Greece) 3. Australian Stock Exchange (Australia) 4. Bermuda Stock Exchange (Bermuda) 5. BME Spanish Exchanges (Spain) 6. Bolsa de Comercio de Buenos Aires (Argentina) 7. Bolsa de Comercio de Santiago (Chile) 8. Bolsa de Valores de Colombia (Colombia) 9. Bolsa de Valores de Lima (Peru) 10. Bolsa de Valores do Sao Paulo (Brazil) 11. Bolsa Mexicana de Valores (Mexico) 12. Bolsa Italiana SPA (Italy) 13. Bourse de Luxembourg (Luxembourg) 14. Bourse de Montreal (Canada) 15. BSE The Stock Exchange, Mumbai (India) 16. Budapest Stock Exchange Ltd (Hungary) 17. Bursa Malaysia Bhd (Malaysia) 18. Chicago Board Options Exchange (USA) 19. Colombo Stock Exchange (Sri Lanka) 20. Copenhagen Stock Exchange (Denmark) 21. Deutsche Borse AG (Germany) 22. Euronext Amsterdam (Netherlands) 23. Euronext Brussels (Belgium) 24. Euronext Lisbon (Portugal) 25. Euronext Paris (France) 26. Hong Kong Exchanges and Clearing (Hong Kong) 27. Irish Stock Exchange (Ireland) 28. Istanbul Stock Exchange (Turkey) 29. Jakarta Stock Exchange (Indonesia) 30. JSE Ltd. (South Africa) 31. Korea Exchange (South Korea) 32. Ljubljana Stock Exchange (Slovenia) 33. London Stock Exchange (United Kingdom) 34. Malta Stock Exchange (Malta) 35. NASD (USA) 36. National Stock Exchange of India Limited (India) 37. New York Stock Exchange (USA) 38. New Zealand Stock Exchange Ltd (New Zealand) 39. OMX Exchanges Ltd (Finland & Sweden) 40. Osaka Securities Exchange (Japan) 41. Oslo Bors (Norway) 42. Philippine Stock Exchange (Philippines) 43. Shanghai Stock Exchange (China) 44. Shenzhen Stock Exchange (China) 45. Singapore Exchange (Singapore) 46. Stock Exchange of Tehran (Iran) 47. Stock Exchange of Thailand (Thailand) Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 88 of 97 Issued on: 20 January 2023 48. SWX Swiss Exchange (Switzerland) 49. Taiwan Stock Exchange Corp (Taiwan) 50. Tokyo Stock Exchange (Japan) 51. TSX Group (Canada) 52. Warsaw Stock Exchange (Poland) 53. Wiener Bourse (Austria) Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 89 of 97 Issued on: 20 January 2023 APPENDIX 8 Recognition criteria for physical collateral used for CRM purposes for Islamic banking exposures General Criteria 1. An FI may recognise physical assets as eligible collateral for CRM purposes for Islamic banking exposures, subject to fulfilling all the minimum requirements specified in this Appendix and obtaining prior approval from the Board. In addition, FIs are required to notify the Bank in writing two months in advance of any recognition. 2. An FI shall only recognise completed physical assets for their intended use and such assets must fulfil the following minimum conditions for recognition as eligible collateral: (a) assets are legally owned by the FI. For Ijarah contracts, these are restricted to operating Ijarah only, where related costs of asset ownership are borne by the FI107; or (b) the physical assets attract capital charges other than credit risk prior to/and throughout the financing period (e.g. operating Ijarah and inventories108 under Murabahah). Specific Criteria Commercial real estate (CRE) and residential real estate (RRE) 3. For purposes of Appendix 8, eligible CRE or RRE collateral is defined as: (a) collateral where risk of the obligor is not materially dependent upon the performance of the underlying property or project, but rather on the underlying capacity of the obligor to repay the debt from other sources. As such, repayment of the facility is not materially dependent on any cash flow generated by the underlying CRE/RRE serving as collateral; and (b) the value of the collateral pledged must not be materially dependent on the performance of the obligor. This requirement is not intended to preclude situations where purely macro-economic factors affect both the value of the collateral and the performance of the obligor. 4. Subject to meeting the definition above, an FI shall only treat CRE and RRE collateral as eligible for recognition as CRM under the comprehensive approach, if the CRE and RRE collateral meet the following requirements: (a) legal enforceability: any claim on collateral taken must be legally enforceable in all relevant jurisdictions, and any claim on collateral must be properly filed on a timely basis. Collateral interests must reflect a perfected lien (i.e. all legal requirements for establishing the claim has 107 Shariah requires that the lessor/ owner bears the costs related to the ownership of or any other costs as agreed between the lessor and the lessee. 108 This excludes inventories which are merely used as a ‘pass-through’ mechanism such as in Commodity Murabahah transactions. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 90 of 97 Issued on: 20 January 2023 been fulfilled). Furthermore, the collateral agreement and the legal process underpinning it must be such that they provide for the reporting institution to realise the value of the collateral within a reasonable timeframe; (b) objective market value of the collateral: the collateral must be valued at or less than the current fair value under which the property could be sold under private contract between a willing seller and an arm’s-length buyer on the date of valuation; (c) frequent revaluation: an FI shall monitor the value of the collateral on a frequent basis, at a minimum annually. More frequent monitoring is suggested where the market is subject to significant changes in conditions. Acceptable statistical methods of evaluation (for example reference to house price indices, sampling) may be used to update estimates or to identify collateral that may have declined in value and that may need re-appraisal. A qualified professional must evaluate the property when information indicates that the value of the collateral may have declined materially relative to general market prices or when a credit event, such as default, occurs; (d) junior liens: junior liens or junior legal charges may be taken into account where there is no doubt that the claim for collateral is legally enforceable and constitutes an efficient credit risk mitigant. An FI may only use the residual value after taking into account collateral haircut. In this case, residual value is derived after deducting exposures with other pledgees, using approved limits or total outstanding amount of the exposures with other pledgees whichever is higher; (e) an FI must also meet the following collateral management requirements: (i) the types of CRE and RRE collateral accepted by the FI and financing policies when this type of collateral is taken must be clearly documented; (ii) the FI must take steps to ensure that the property taken as collateral is adequately insured against damage or deterioration; and (iii) the FI must monitor on an ongoing basis the extent of any permissible prior claims (for example tax) on the property; and (f) an FI must appropriately monitor the risk of environmental liability arising in respect of the collateral, such as the presence of toxic material on a property. Other physical assets109 5. An FI shall recognise physical collateral other than CRE and RRE as eligible collateral under the comprehensive approach if the physical collateral meets the following requirements: (a) existence of liquid markets for disposal of collateral in an expeditious and economically efficient manner; and 109 Physical collateral in this context is defined as non-financial instruments collateral. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 91 of 97 Issued on: 20 January 2023 (b) existence of well established, publicly available market prices for the collateral. The amount an FI receives when collateral is realised shall not deviate significantly from these market prices. 6. Subject to meeting the above requirements, other physical assets will be recognised as credit risk mitigation under the comprehensive approach only if it meets the operational requirements set out for CRE/RRE as well as the following criteria: (a) first claim: only FIs having the first liens on, or charges over, collateral are permitted to recognise this type of collateral as credit risk mitigation. In this regard, the FI must have priority over all other lenders to the realised proceeds of the collateral; (b) the financing agreement must include detailed descriptions of the collateral plus detailed specifications of the manner and frequency of revaluation; (c) the types of physical collateral accepted by the FI and policies and practices in respect of the appropriate amount of each type of collateral relative to the exposure amount must be clearly documented in internal credit policies and procedures and available for examination and/or audit review; (d) FIs’ credit policies with regard to the transaction structure must address appropriate collateral requirements relative to the exposure amount, the ability to liquidate the collateral readily, the ability to establish objectively a price or market value, the frequency with which the value can readily be obtained (including a professional appraisal or valuation), and the volatility of the value of the collateral. The periodic revaluation process must pay particular attention to “fashion-sensitive” collateral to ensure that valuations are appropriately adjusted downward for fashion, or model-year, obsolescence as well as physical obsolescence or deterioration; and (e) in cases of inventories (for example raw materials, finished goods, dealers’ inventories of autos) and equipment, the periodic revaluation process must include physical inspection of the collateral. Leased assets 7. An FI may recognise assets used in operating Ijarah and Ijarah Muntahia Bittamleek (IMB) (leased assets) as eligible collateral and used as credit risk mitigation under the comprehensive approach for collateralised transactions, provided they meet the additional conditions under paragraph 8 of this Appendix. 8. In addition to the requirements in paragraphs 3 to 6 of this Appendix, an FI shall only recognise leased assets that fulfil a function similar to that of collateral as eligible collateral, if: (a) there is robust risk management on the part of the FI acting as the lessors with respect to the location of the asset, the use to which it is put, its age, and planned obsolescence; Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 92 of 97 Issued on: 20 January 2023 (b) there is a robust legal framework establishing the lessor’s legal ownership of the asset and its ability to exercise its rights as owner in a timely manner; and (c) the difference between the rate of depreciation of the physical asset and the rate of amortisation of the lease payments must not be so large as to overstate the CRM attributed to the leased assets. Other Additional Criteria Data maintenance 9. An FI shall collect and retain the relevant data pertaining to revaluation and disposal of physical assets as a means to recover from delinquent or defaulted exposures, particularly data on disposal (i.e. selling) amount and timeline of disposal of the physical assets as well as the relevant costs incurred for the disposal. 10. An FI shall use relevant data to verify the appropriateness of the minimum 30% haircut on physical assets particularly non-CRE and non-RRE collateral at least on an annual basis. FIs shall use a more stringent haircut if their internal historical data on disposal of these physical assets reveal loss amounts that exceed the 30% haircut. 11. In addition, for the regulatory retail portfolio, an FI is required to have at least two years of empirical evidence on data such as recovery rates and value of physical collateral prior to its recognition as a credit risk mitigant. Independent review 12. An FI is required to conduct an independent review110 to ascertain compliance with all minimum requirements specified in this framework for the purpose of recognising physical collateral as a credit risk mitigant. The review shall be performed prior to the recognition of the physical collateral as a credit risk mitigant and at least annually thereafter to ensure on-going fulfilment of all criteria and operational requirements. 110 Validation must be performed by a unit that is independent from risk taking/ business units. Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 93 of 97 Issued on: 20 January 2023 APPENDIX 9 Comparison of asset-based sukuk and asset-backed sukuk Example of Asset-based Sukuk Ijarah (sale & lease-back) Example of Asset-backed Sukuk Ijarah Originator/ Lessee Sukuk holders 3 (b) Profit distributions 3 (a) SPV/Sukuk holders leases property back to originator. SPV receives rental proceeds from originator (who is now also the lessee). 4. Upon maturity, originator is obligated to repurchase property for redemption of the principal amount 1. Originator sells property to SPV and receives proceeds from Sukuk issuance 2. Issues Sukuk SPV SPV Tenants/ Lessee Sukuk holders 3 (b) Profit distributions 4. Upon maturity, since there is no repurchase undertaking of underlying asset from originator, sukuk holders may obtain the principal amount via disposal of underlying asset to 3rd party 1. Originator sells property to SPV & receives proceeds from Sukuk issuance Originator 2. Issue Sukuk 3 (a) SPV leases the property to tenants and receives rental proceeds from tenants (i.e. lessees) Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 94 of 97 Issued on: 20 January 2023 APPENDIX 10 Minimum haircut floors for securities financing transactions (SFTs) with certain counterparties Scope 1. An FI shall apply a haircut floor to the following transactions: (a) non-centrally cleared SFTs in which the financing (i.e. the financing of cash) against collateral other than government securities is provided to counterparties who are not regulated by the Bank; or (b) collateral upgrade transactions with these same counterparties. A collateral upgrade transaction is when an FI lends a security to its counterparty and the counterparty pledges a lower-quality security as a collateral, thus allowing the counterparty to exchange a lower-quality security for a higher quality security. 2. An FI may be exempted from haircut floors for the following transactions: (a) SFTs with the Bank; and (b) cash collateralised SFTs, where the – (i) securities are lent (to the FI) at long maturities and the lender of securities reinvests or employs the cash at the same or shorter maturity, therefore not giving rise to material maturity or liquidity mismatch; or (ii) securities are lent (to the FI) at call or at short maturities, giving rise to liquidity risk, only if the lender of the securities reinvests the cash collateral into a reinvestment fund or account subject to regulations or regulatory guidance meeting the minimum standards for reinvestment of cash collateral by securities lenders set out in Section 3.1 of the Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos111. For this purpose, the FI may rely on representations by securities lenders that their reinvestment of cash collateral meets the minimum standards. 3. An FI that borrows (or lends) securities are exempted from the haircut floors on collateral upgrade transactions if the recipient of the securities that the FI has delivered as collateral (or lent) is either – (a) unable to re-use the securities; or (b) provides representations to the FI that they do not and will not re-use the securities. 111 Financial Stability Board, Strengthening oversight and regulation of shadow banking, Policy framework for addressing shadow banking risks in securities lending and repos, 29 August 2013, www.fsb.org/wp-content/uploads/r_130829b.pdf. http://www.fsb.org/wp-content/uploads/r_130829b.pdf Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 95 of 97 Issued on: 20 January 2023 Haircut floors 4. An FI shall refer to the following table for the haircut floors for in-scope SFTs (referred to in paragraphs 1 to 3 of this Appendix): Residual maturity of collateral Haircut level Corporate and other issuers Securities products ≤ 1 year debt securities, and floating rate notes 0.5% 1% > 1 year, ≤ 5 years debt securities 1.5% 4% > 5 years, ≤ 10 years debt securities 3% 6% > 10 years debt securities 4% 7% Main index equities 6% Other assets within the scope of the framework 10% 5. An FI shall treat SFTs that do not meet the haircut floors as unsecured financing. In determining whether the treatment applies to an in-scope SFT, an FI must compare the collateral haircut H and a haircut floor f. Single in-scope SFTs 6. An FI shall compute the values of H and f for single in-scope SFT not included in a netting set as follows: (a) For a single cash-lent-for-collateral SFT, H and f are known since H is simply defined by the amount of collateral received and f is defined in paragraph 4 of this Appendix. For the purpose of this calculation, collateral that is called by either counterparty can be treated collateral received from the moment that it is called (i.e. the treatment is independent of the settlement period). For example, consider an in-scope SFT where RM 100 is lent against RM 101 of a corporate debt security with a 12-year maturity. H = (101−100) 100 = 1% f = 4% (as per table in paragraph 4) Therefore, the SFT does not meet the haircut floor and must be treated as unsecured financing as per paragraph 5 of this Appendix. (b) For a single collateral-for-collateral SFT, financing collateral A and receiving collateral B, the H is still be defined by the amount of collateral received but the effective floor of the transaction must integrate the floor of the two types of collateral and can be computed using the following formula, which will be compared to the effective haircut of the transaction, H = 𝐶𝐶𝐵𝐵 𝐶𝐶𝐴𝐴 − 1: Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 96 of 97 Issued on: 20 January 2023 f = �� 1 1+𝑓𝑓𝐴𝐴 � � 1 1+𝑓𝑓𝐵𝐵 �� − 1 = 1+ 𝑓𝑓𝐵𝐵 1+ 𝑓𝑓𝐴𝐴 − 1 For example, consider an in-scope SFT where RM 102 of corporate debt security with a 10-year maturity is exchanged against 104 of equity. H = 104 102 − 1 = 1.96% f = 1+6% 1+3% − 1 = 2.91% Therefore, the SFT does not meet the haircut floor and must be treated as unsecured financing as per paragraph 5 of this Appendix. Netting set of SFTs 7. An FI shall apply the following for a netting set of SFTs: (a) An effective “portfolio” floor of the transactions must be computed using the following formula, where – fportfolio = �� ∑ � 𝐸𝐸𝑠𝑠 1+ 𝑓𝑓𝑠𝑠 �𝑠𝑠 ∑ 𝐸𝐸𝑠𝑠𝑠𝑠 � � ∑ � 𝐶𝐶𝑡𝑡 1+𝑓𝑓𝑡𝑡 �𝑡𝑡 ∑ 𝐶𝐶𝑡𝑡𝑡𝑡 �� − 1 Where – Es = the net position in each security (or cash) s that is net lent Ct = the net position that is net borrowed fs = the haircut floors for the securities that are net lent ft = the haircut floors for the securities that are net borrowed (b) The portfolio does not breach the floor where – ∑𝐶𝐶𝑡𝑡− ∑𝐸𝐸𝑠𝑠 ∑𝐸𝐸𝑠𝑠 ≥ fportfolio (c) If the portfolio haircut does breach the floor, then the netting set of SFTs must be treated as unsecured financing. This treatment shall be applied to all trades for which the security received appears in the table in paragraph 4 of this Appendix and for which, within the netting set, the FI is also a net receiver in that security. For the purposes of this calculation, collateral that is called by either counterparty can be treated collateral received from the moment that it is called (i.e. the treatment is independent of the settlement period). Risk-Weighted Assets – Standardised Approach for Credit Risk (Exposure Draft) 97 of 97 Issued on: 20 January 2023 8. The following portfolio of trades gives an example of how this methodology works: Actual trades Cash Sovereign Collateral A Collateral B Floor (fs) 0% 0% 6% 10% Es 50 100 0 250 Ct 0 0 400 0 fportfolio = �� ∑ � 𝐸𝐸𝑠𝑠 1+ 𝑓𝑓𝑠𝑠 �𝑠𝑠 ∑ 𝐸𝐸𝑠𝑠𝑠𝑠 � � ∑ � 𝐶𝐶𝑡𝑡 1+𝑓𝑓𝑡𝑡 �𝑡𝑡 ∑ 𝐶𝐶𝑡𝑡𝑡𝑡 �� − 1 -0.00023 ∑𝐶𝐶𝑡𝑡 − ∑𝐸𝐸𝑠𝑠 ∑𝐸𝐸𝑠𝑠 0 The portfolio does not breach the floor as per paragraph 7 of this Appendix. PART A OVERVIEW 1 Introduction PART B GENERAL REQUIREMENTS 2 Level of application 3 Computation of credit risk-weighted assets PART C USE OF EXTERNAL RATINGS 4 Recognition 5 Mapping of ratings of different External Credit Assessment Institutions (ECAIs) 6 Multiple external ratings 7 Use of issue-specific and issuer ratings 8 Use of domestic and foreign currency ratings 9 Use of short-term ratings 10 Level of application of ratings 11 Use of unsolicted ratings PART D DUE DILIGENCE 12 Due diligence PART E INDIVIDUAL EXPOSURES 13 Exposures to sovereigns and central banks 14 Exposures to public sector entity (PSEs) 15 Exposures to multilateral development banks (MDBs) 16 Exposures to banking institutions 17 Exposures to securities firms and other financial institutions 18 Exposures to corporates 19 Exposures to subordinated debt, equity and other capital instruments 20 Retail exposures 21 Real estate exposures 22 Exposures with currency mismatch 23 Defaulted exposures 24 Off-balance sheet exposures 25 Exposures that give rise to counterparty credit risk 26 Exposures in credit derivatives 27 Equity investments in funds 28 Exposures in securitised assets 29 Exposures to central counterparties 30 Exposures arising from unsettled transactions and failed trades 31 Other assets PART F EXPOSURES TO ASSETS UNDER SHARIAH CONTRACTS 32 General requirements 33 Murabahah 34 Salam 35 Istisna' 36 Ijarah 37 Musyarakah 38 Mudarabah 39 Tawarruq 40 Sukuk 41 Qard 42 Wakalah bi al-istithmar PART G CREDIT RISK MITIGATION 43 General requirements 44 Legal requirements 45 Maturity mismatches 46 Currency mismatches 47 Collateralised transactions 48 On-balance sheet netting 49 Guarantees and credit derivatives 50 Floor for exposures collateralised by physical assets PART H TRANSITIONAL ARRANGEMENTS 51 Transitional arrangements APPENDICES APPENDIX 1 Risk weights and rating categories APPENDIX 2 ECAI eligibility criteria APPENDIX 3 Definition of defaulted exposures APPENDIX 4 Equity investments in funds APPENDIX 5 Capital treatment of unsettled transactions and failed trades APPENDIX 6 Capital treatment for Sell and Buyback Agreement (SBBA)/ Reverse SBBA transactions APPENDIX 7 List of recognised exchanges APPENDIX 8 Recognition criteria for physical collateral used for CRM purposes for Islamic banking exposures APPENDIX 9 Comparison of asset-based sukuk and asset-backed sukuk APPENDIX 10 Minimum haircut floors for securities financing transactions (SFTs) with certain counterparties	Public Notice
19 Apr 2024	Senarai Amaran Pengguna Kewangan telah dikemaskini	https://www.bnm.gov.my/-/fca-update-240419-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/fca-update-240419-bm&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemaskini Share: 5 Senarai Amaran Pengguna Kewangan telah dikemaskini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1000 pada Jumaat, 19 April 2024 19 Apr 2024 Bank Negara Malaysia (BNM) telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan peraturan berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat yang berikut telah ditambahkan ke dalam senarai: Wahed Trader Team Investment, Wahed Investment Trader (tidak berkaitan dengan Wahed Technologies Sdn Bhd licensed under Securities Commission Malaysia) (AAA) Labur Saham Syariah, (AAA) Asri Ahmad Academy, Salam Mohd Asri Ahmad (SMAA) (tidak berkaitan dengan Asri Ahmad Academy Sdn Bhd) MIDF Investment Skim (tidak berkaitan dengan MIDF Amanah Investment Bank Berhad) Invest KL Malaysia (tidak berkaitan dengan InvestKL) Sila ambil maklum bahawa maklumat terkini berkenaan dengan HSBC Bank Investment (tidak berkaitan dengan HSBC Bank Malaysia Berhad) dan ASNB Investment (tidak berkaitan dengan Amanah Saham Nasional Berhad) juga telah dikemas kini dalam Senarai Amaran Pengguna Kewangan. Senarai ini akan dikemas kini secara berkala untuk rujukan orang ramai. Bagi mendapatkan senarai yang telah dikemas kini, sila layari: bnm.gov.my/fca Bank Negara Malaysia 19 April 2024 © Bank Negara Malaysia, 2024. All rights reserved.	null	Public Notice
17 Apr 2024	Lelongan Ke-17 Wang Kertas Ringgit dengan Nombor Siri Khas	https://www.bnm.gov.my/-/17aucmyr-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/17aucmyr-bm&languageId=ms_MY	Reading: Lelongan Ke-17 Wang Kertas Ringgit dengan Nombor Siri Khas Share: Lelongan Ke-17 Wang Kertas Ringgit dengan Nombor Siri Khas Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 0945 pada Rabu, 17 April 2024 17 Apr 2024 BNM akan mengadakan Lelongan ke-17 bagi wang kertas ringgit dengan nombor siri khas. Lelongan dalam talian akan dibuka mulai 20 April hingga 27 April 2024. Selain lelongan dalam talian, lelongan secara bersemuka dan lelongan secara langsung akan diadakan serentak pada 27 April 2024 (Sabtu) pukul 10.30 pagi di Sasana Kijang, Bank Negara Malaysia. Kesemua lelongan ini dikendalikan oleh jurulelong yang dilantik oleh BNM, iaitu MNP Auctioneers (Central) Sdn. Bhd. (MNP). Wang kertas ringgit dengan nombor siri khas akan dilelong, seperti set 10 wang kertas terawal (cth. PP0000001-0000010) dan nombor super solid dengan awalan berulang (cth. PP8888888). Mereka yang berminat untuk turut serta dalam lelongan ini wajib membuat pendaftaran melalui pautan ini (www.best2bid.com). Bidaan dalam talian juga boleh dilakukan melalui pautan yang sama. Maklumat lanjut mengenai lelongan boleh didapati melalui laman sesawang MNP iaitu www.mnp.com.my atau talian khidmat pelanggan MNP melalui 017-400 6661. Bank Negara Malaysia 17 April 2024 © Bank Negara Malaysia, 2024. All rights reserved.	null	Public Notice
15 Apr 2024	Dokumen Dasar Kenali Pelanggan Anda Menerusi Platform Digital (e-KYC)	https://www.bnm.gov.my/-/pd-ekyc-bm	https://www.bnm.gov.my/documents/20124/938039/pd-ekyc-apr2024.pdf, https://www.bnm.gov.my/documents/20124/938039/faq-ekyc-apr24.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/pd-ekyc-bm&languageId=ms_MY	Reading: Dokumen Dasar Kenali Pelanggan Anda Menerusi Platform Digital (e-KYC) Share: 8 Dokumen Dasar Kenali Pelanggan Anda Menerusi Platform Digital (e-KYC) Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1200 pada Isnin, 15 April 2024 15 Apr 2024 Dokumen dasar ini menetapkan keperluan dan panduan oleh BNM yang disemak semula dalam melaksanakan penyelesaian Kenali Pelanggan Anda Menerusi Platform Digital (electronic know-your-customer, e-KYC) untuk proses kemasukan individu dan orang yang sah di sisi undang-undang ke sektor kewangan. Keperluan dan panduan yang disemak dalam dokumen dasar ini bertujuan untuk menampung kemajuan dalam teknologi untuk memudahkan penggunaan penyelesaian e-KYC yang selamat dan terpelihara untuk kedua-dua individu dan orang yang sah di sisi undang-undang, sambil memelihara integriti sistem kewangan. Sebagai tambahan, BNM juga telah menyemak dokumen Soalan Lazim untuk memberikan penjelasan kepada soalan biasa berhubung dengan keperluan dasar yang disemak. Tarikh Penerbitan 15 April 2024 Tarikh Kuat Kuasa 15 April 2024 Jabatan Penerbit Jabatan Pembangunan Kewangan dan Inovasi Terpakai kepada: 1. Bank berlesen 2. Bank pelaburan berlesen 3. Bank Islam berlesen 4. Penanggung insurans hayat berlesen 5. Pengendali takaful keluarga berlesen 6. Institusi kewangan pembangunan yang ditetapkan 7. Perniagaan perkhidmatan wang berlesen 8. Pengeluar yang diluluskan bagi instrumen pembayaran yang ditetapkan dan instrumen pembayaran Islam yang ditetapkan Dokumen Dokumen Dasar Kenali Pelanggan Anda Menerusi Platform Digital (e-KYC) Soalan Lazim Bank Negara Malaysia 15 April 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Electronic Know-Your-Customer (e-KYC) Policy Document Issued on: 15 April 2024 BNM/RH/PD 030-16 Electronic Know-Your-Customer (e-KYC) Electronic Know-Your-Customer (e-KYC) Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed life insurers 5. Licensed family takaful operators 6. Prescribed development financial institutions 7. Licensed money services businesses 8. Approved issuers of designated payment instruments and designated Islamic payment instruments Issued on: 15 April 2024 BNM/RH/PD 030-16 Electronic Know-Your-Customer (e-KYC) TABLE OF CONTENTS Part A Overview ................................................................................................. 1 1 Introduction .......................................................................................... 1 2 Applicability .......................................................................................... 1 3 Legal provisions ................................................................................... 1 4 Effective date ....................................................................................... 2 5 Interpretation ........................................................................................ 2 6 Related legal instruments and policy documents ................................. 4 7 Policy documents superseded ............................................................. 5 PART B POLICY REQUIREMENTS ...................................................................... 6 8 e-KYC implementation ......................................................................... 6 9 Reporting requirements ..................................................................... 12 PART C REGULATORY PROCESS .................................................................... 13 10 Notification for licensed persons and prescribed development financial institutions .......................................................................................... 13 11 Approval for licensed money services businesses ............................. 14 12 Enforcement....................................................................................... 14 APPENDICES ........................................................................................................... 15 Appendix 1: Examples of verification methods to establish business legitimacy .. 15 Appendix 2: False Acceptance Rate and sampling ............................................... 16 Appendix 3: Minimum scope and criteria for external independent assessment ... 20 Appendix 4: e-KYC safeguards to be adopted by financial institutions offering higher risk financial products ............................................................. 24 Appendix 5: Information required for submission .................................................. 27 Appendix 6: Submission instructions ………………………………………………... 28 Page 1 of 28 Electronic Know-Your-Customer (e-KYC) PART A OVERVIEW 1.1 Supported by further technological advancements and introduction of electronic Know-Your-Customer (e-KYC) solutions for the financial sector, digitalisation of the customer identification and verification processes has become an increasingly prominent enabler in the onboarding process for financial services. 1.2 Growing adoption and understanding of e-KYC solutions in the financial sector call for enhancements to existing requirements to ensure e-KYC solutions continue to remain relevant, robust and reliable. This includes expanding the scope of e-KYC applications to cover both individuals and legal persons, providing guidance on e-KYC solutions that can cater to the unbanked, while ensuring uncompromised accuracy in customer identification and verification. 1.3 This document sets out the minimum requirements and standards that a financial institution, as defined in paragraph 5.2, must observe in implementing e-KYC for the on-boarding of individuals and legal persons. The requirements outlined in this policy document are aimed at - (i) Enabling safe and secure application of e-KYC technology in the financial sector; (ii) Facilitating Bank Negara Malaysia’s (the Bank’s) continued ability to carry out effective supervisory oversight of financial institutions; and (iii) Ensuring effective anti-money laundering, countering financing of terrorism and countering proliferation financing (AML/CFT/CPF) control measures. 2.1 This document is applicable to all financial institutions as defined in paragraph 5.2 and any other institution that may be specified by the Bank. 2.2 This policy document shall not apply to agent banking channels governed under the Agent Banking Policy Document dated 30 June 2022. 3.1 This policy document is issued pursuant to- (i) sections 47(1) and 261(1) of the Financial Services Act 2013 (FSA); (ii) sections 57(1) and 272 of the Islamic Financial Services Act 2013 (IFSA); (iii) sections 41(1),126 and 123A of the Development Financial Institutions Act 2002 (DFIA); (iv) sections 74 of the Money Services Business Act 2011 (MSBA); and (v) sections 16 and 83 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). 1 Introduction 2 Applicability 3 Legal provisions Page 2 of 28 Electronic Know-Your-Customer (e-KYC) 4.1 This Policy Document comes into effect on 15 April 2024. 5.1 The terms and expressions in this Policy Document shall have the same meaning assigned to them in the FSA, IFSA, DFIA, AMLA and MSBA unless otherwise stated. 5.2 For the purposes of this Policy Document- “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action. “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted. “authorised person” in the context of a business relationship with a financial institution, refers to a natural person appointed in writing1 by a legal person to operate and maintain an account with a financial institution including to open, close and give any instruction for the conduct of financial transactions in the account on behalf of the legal person. “beneficial owner” in the context of a legal person, refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those natural persons who exercise ultimate effective control over a legal person. Only a natural person can be an ultimate beneficial owner, and more than one natural person can be the ultimate beneficial owner of a given legal person. Reference to “ultimately owns or control” or “ultimate effective control” refers to situations in which ownership or control is exercised through a chain of ownership or by means of control other than direct control. In insurance and takaful sectors, this also refers to any natural person(s) who ultimately owns or controls a beneficiary, as specified in the Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) policy document. “biometric” refers to a unique physical feature of a person based on a certain aspect of the person’s biology. These include facial features, fingerprints or retinal patterns. 1 By means of a letter of authority or directors’ resolution or by electronic means, as permitted under the legal person’s constitution. For avoidance of doubt, requirements relating to such electronic means can be referred in paragraph 8.16 of this policy document. 4 Effective date 5 Interpretation Page 3 of 28 Electronic Know-Your-Customer (e-KYC) “Board” in relation to a company, refers to- (i) directors of the company who number not less than the required quorum acting as a board of directors; or (ii) if the company has only one director, that director. “customer” refers to both account holder and non-account holder. The term also refers to a client. For the life insurance and family takaful sector, “customer” refers to parties related to an insurance/takaful contract including potential parties such as the proposer/policyholder/policy owner, payor, assignee and company representative, but does not include insurance agent. In the case of group policies, “customer” refers to the master policy holder, that is, the owner of the master policy issued or intended to be issued. In addition, for money services business and designated payment instruments, “customer” refers to a person for whom the licensee or approved issuer of designated payment instruments undertakes or intends to undertake business relations. Where the term “customer” is broadly used in this policy document, requirements shall apply to both individual and legal person. “electronic Know-Your-Customer (e-KYC)” means establishing business relationships and conducting customer due diligence (CDD) 2 by way of electronic means, including online channel and mobile channels. “financial institution” refers to- (i) a licensed bank, investment bank and life insurer under the FSA; (ii) a licensed Islamic bank and licensed family takaful operator under the IFSA; (iii) a prescribed development financial institution under the DFIA; (iv) an approved issuer of designated payment instruments under the FSA; (v) an approved issuer of designated Islamic payment instruments under the IFSA; and (vi) a licensed money services business under the MSBA. “False Negative” refers to identification and verification cases processed under e-KYC solutions in which the solution falsely rejected and did not verify an identity when it should have been accepted. These include cases of genuine identities or documents that were falsely rejected. 2 This includes the cases of standard and simplified CDD on individuals, legal persons and beneficiaries as specified under the AML/CFT/CPF and TFS for FIs policy document. Page 4 of 28 Electronic Know-Your-Customer (e-KYC) “False Positive” refers to identification and verification cases processed under e-KYC solutions in which the solution accepted and verified an identity when said identity should have been rejected. These include cases of false or unclear identities, forged or tampered documents and unclear images that were falsely accepted. “individual” refers to a natural person. “legal person” means a legal person as specified under paragraph 6.2 of the AML/CFT/CPF and TFS for FIs policy document. It refers to any entity other than a natural person that can establish a permanent customer relationship with a reporting institution or otherwise own property. This includes companies, bodies corporate, government-linked companies (GLC), foundations, partnerships, or associations and other similar entities. GLC refers to an entity where the government is the majority shareholder or single largest shareholder and/or has the ability to exercise and influence major decisions such as appointment of board members and senior management. “the Bank” means Bank Negara Malaysia. “True Positive” refers to identification and verification cases processed under e-KYC solutions in which the solution rightly accepted and verified an identity. These include cases of genuine identities or documents that were rightly accepted. “True Negative” refers to identification and verification cases processed under e-KYC solutions in which the solution rightly rejected and did not verify an identity. These include cases of false or unclear identities, forged or tampered documents and unclear images that were rightly rejected: 6.1 Where applicable, this policy document must be read together with any relevant legal instruments, policy documents, guidelines, circulars, and supplementary documents issued by the Bank, in particular - (i) Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) policy document issued on 5 February 2024; (ii) Risk Management in Technology (RMiT) dated 1 June 2023; (iii) Outsourcing dated 23 October 2019; (iv) Management of Customer Information and Permitted Disclosures dated 3 April 2023; (v) Introduction of New Products dated 7 March 2014; and (vi) Introduction of New Products by Insurers and Takaful Operators dated 15 May 2015. 6 Related legal instruments and policy documents Page 5 of 28 Electronic Know-Your-Customer (e-KYC) 6.2 For avoidance of doubt, where a financial institution is subjected to more than one policy document relating to e-KYC or non-face-to-face (FTF) requirements, the more stringent requirement shall apply. 7.1 This policy document supersedes the Electronic Know-Your-Customer (e-KYC) policy document issued on 30 June 2020. 7 Policy documents superseded Page 6 of 28 Electronic Know-Your-Customer (e-KYC) PART B POLICY REQUIREMENTS Role and responsibility of the Board S 8.1 A financial institution shall obtain Board approval on the overall risk appetite and internal framework governing the implementation of e-KYC for both individuals and legal persons. The framework shall address- i. high risk or material risk scenarios that require subsequent Board approval; ii. variations or exceptions to existing e-KYC related products or methods that require subsequent Board approval; iii. internal processes, mitigating controls and triggers for escalation to the Board where there may be potential concern on the effectiveness of the e-KYC solution performance and related processes (e.g., change of technology provider, review of e-KYC results, sufficiency of reporting); and iv. other instances that require Board approval. S 8.2 The Board of financial institutions shall be responsible for ensuring satisfactory measures are undertaken by the financial institution such that an appropriate level of performance of the e-KYC solution is maintained at all times. Such responsibilities of the Board should include but are not limited to ensuring improvements are undertaken by the financial institution to enhance the e-KYC solution in a regular and timely manner, and that the Board is satisfied that the level of performance of the e-KYC solution does not undermine the integrity of the identification and verification process. S 8.3 The Board of a financial institution shall set and ensure the effective implementation of appropriate policies and procedures to address any risks associated with the implementation of e-KYC. These include operational, information technology (IT) and money laundering, terrorism financing, proliferation financing (ML/TF/PF) and fraud risks. Identification and verification (IDV) of customers through e-KYC A. General requirements S 8.4 In line with requirements under the AML/CFT/CPF and TFS for FIs policy document, a financial institution shall ensure and be able to demonstrate on a continuing basis that appropriate measures for the identification and verification of a customer’s identity through e-KYC are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of e- KYC. G 8.5 In relation to paragraph 8.4, where reference is made to face-to-face processes, this should mainly serve as guidance on the minimum expected baseline. 8 e-KYC implementation Page 7 of 28 Electronic Know-Your-Customer (e-KYC) S 8.6 For the money services business sector, in meeting requirements under paragraph 8.4 of this policy document, money services businesses shall also comply with IDV requirements for new customers when establishing business relationships through e-KYC under the AML/CFT/CPF and TFS for Financial Institutions Policy Document. S 8.7 A financial institution shall adopt an appropriate combination of authentication factors when establishing measures to verify the identity of a customer being on-boarded through e-KYC. The strength and combination of the authentication factors shall be commensurate to the risks associated with inaccurate identification for a particular product or service. G 8.8 In respect of paragraph 8.7, a financial institution may give regard to the key basic authentication factors, which namely and amongst others include: (i) something the customer possesses (e.g. national identity document such as an identity card, registered mobile number, company’s certificate of incorporation); (ii) something the customer knows (e.g. PIN, personal information, transaction history); and (iii) in the case of individuals, something the customer is (e.g. biometric characteristics). An e-KYC solution that depends on more than one factor is typically more difficult to compromise than a single factor system. S 8.9 In verifying the identity of an individual or beneficial owner under paragraphs 8.10 and 8.13 of this policy document and as required under the AML/CFT/CPF and TFS for FIs policy document, financial institutions shall: (i) be satisfied with the identity of the individual or the beneficial owner through reliable and independent documentation, electronic data or any other measures that the financial institution deems necessary; (ii) be satisfied with the veracity of information referred to in paragraph 8.9 (i) when verifying the identity of the individual or beneficial owner; and (iii) ensure that documents, data or information collected is kept up-to-date and relevant. B. IDV through e-KYC for individuals G 8.10 In identifying and verifying an individual’s identity through e-KYC as required under paragraph 8.4 of this policy document and the AML/CFT/CPF and TFS for FIs policy document, a financial institution may undertake measures, including but not limited to the following- (i) Document verification – i.e., ensuring that the government issued ID to support e-KYC customer verification is authentic by utilising appropriate fraud detection mechanisms; (ii) Biometric matching – i.e., verifying the customer against a government issued ID3 by utilising biometric technology; and/or 3 i.e, National Registration Identity Card (NRIC), passport, or any other official documents. Page 8 of 28 Electronic Know-Your-Customer (e-KYC) (iii) Liveness detection – i.e, ensuring the customer is a live subject and not an impersonator (e.g. through use of photos, videos, synthetic human face masks4) by utilising liveness detection. S 8.11 For the money services business sector, in meeting requirements under paragraph 8.10 of this policy document, money services businesses shall also comply with IDV requirements for individuals under the AML/CFT/CPF and TFS for FIs Policy Document. C. IDV through e-KYC for legal person5 G 8.12 A financial institution may implement e-KYC to identify and verify legal persons, subject to meeting the requirements in this policy document and the requirements for legal persons specified under the AML/CFT/CPF and TFS for FIs policy document6 on CDD for legal persons. S 8.13 When implementing e-KYC for legal persons, a financial institution shall have due regard to the areas listed as CDD requirements for legal persons in the AML/CFT/CPF and TFS for FIs Policy Document. This includes but are not limited to: (i) identification and verification of a legal person as an entity to establish the existence of a legitimate business. (ii) identification and verification of the authorised person appointed by the legal person to establish business relations and conduct transactions on behalf of the legal person; and (iii) identification and reasonable measures for verification of beneficial owners7 of the legal person. G 8.14 In relation to paragraph 8.13 (i), financial institutions may wish to undertake one or more verification methods to establish business legitimacy, such as but not limited to those specified under Appendix 1. S 8.15 For the money services business sector, in meeting requirements under paragraph 8.13 (i) - (ii) and paragraph 8.14 of this policy document, money services businesses shall also comply with IDV requirements for legal persons, i.e., corporate customers and the authorised person under the AML/CFT/CPF/CPF and TFS for FIs Policy Document, as may be amended by the Bank from time to time. 4 Synthetic human face masks are designed to impersonate real human faces and made from materials such as silicone or otherwise. For purposes of e-KYC, such masks may be used to defraud facial recognition software. 5 For avoidance of doubt, a sole proprietor is not deemed as legal person under this policy document. Accordingly, the on-boarding of sole proprietors through e-KYC is subject to e-KYC process for individual as specified under paragraph 8.10. 6 In particular, requirements relating to legal persons as well as clubs, societies and charities contained within paragraphs 14A.9, 14B.11, 14C.10 and 14D.9 of the AML/CFT/CPF and TFs for FIs Policy Document. 7 As required under paragraphs 14A.9.6, 14B.11.12, 14C.10.7 and 14D.9.6 of the AML/CFT/CPF and TFS for FIs policy document. Page 9 of 28 Electronic Know-Your-Customer (e-KYC) S 8.16 In relation to paragraph 8.13 (ii), where the identification and verification of the authorised person is conducted via electronic means, a financial institution shall ensure that – (i) electronic communication or documents that capture collective decision making by the directors of the legal person (e.g. digital forms of Directors Resolution or Letter of Authority) to appoint the authorised person and establish business relations are maintained in accordance with relevant record keeping requirements as specified under paragraph 24 of the AML/CFT/CPF and TFS for FIs Policy Document; (ii) such electronic means adopted to identify and verify the authorised person are within the legal person’s constitution or any other document which sets out the powers of the legal person; and (iii) the authorised person is identified and verified through e-KYC as an individual, having due regard to the measures listed under paragraph 8.10 of this policy document. G 8.17 In respect of paragraph 8.16 (i), such electronic means to capture collective decision making by the directors of the legal person on the appointment of the authorised person may include but are not limited to the following: (i) utilising electronic technologies that identify and verify the directors, and subsequently capture evidence of directors’ consent (e.g. audited/circulated email trails, providing agreement or disagreement through personal secure authentication links for directors to consent, video-conferencing to verify consent, digital signatures, use of secure electronic voting platforms, etc); and/or (ii) using third parties (e.g. Digital Company Secretaries) that may provide confirmation on the legitimacy of relevant evidence such as the Directors Resolution or Letter of Authority. S 8.18 A financial institution shall undertake their own risk assessment to clearly define parameters for classifying potential legal persons that are not allowed to establish business relations through e-KYC. Ensuring effective e-KYC implementation G 8.19 e-KYC solutions may utilise artificial intelligence, machine learning or other forms of predictive algorithms to ensure accurate identification and verification. This may result in automation of the decision-making process for customer on- boarding, thus reducing the need for human intervention. S 8.20 Where the decision to verify a customer’s identity through e-KYC is automated with the use of artificial intelligence, machine learning or other forms of predictive algorithms, whether in whole or in part, a financial institution shall ensure that the e-KYC solution is continuously capable of accurately distinguishing between genuine and non-genuine cases of customer on- boarding. Page 10 of 28 Electronic Know-Your-Customer (e-KYC) S 8.21 For the purposes of paragraph 8.20, in ensuring accuracy of the e-KYC solution, a financial institution shall take steps to minimise the False Acceptance Rates (FAR), defined as 𝐹𝑎𝑙𝑠𝑒 𝑃𝑜𝑠𝑖𝑡𝑖𝑣𝑒 (𝐹𝑎𝑙𝑠𝑒 𝑃𝑜𝑠𝑖𝑡𝑖𝑣𝑒 + 𝑇𝑟𝑢𝑒 𝑁𝑒𝑔𝑎𝑡𝑖𝑣𝑒) 𝑥 100 . In measuring and assessing the FAR, a financial institution shall observe the considerations and requirements listed in Appendix 28. S 8.22 Financial institutions shall ensure that the technology provider appointed to provide the e-KYC solution conducts the following: (i) Ensure that the e-KYC solution, encompassing the three (3) e-KYC modules namely document verification, biometric matching and liveness detection as referenced in paragraph 8.10, has been assessed by a credible9 external independent assessor in accordance with the scope and criteria as provided in Appendix 3. This includes ensuring that the technology provider has put measures in place to address the gaps or weaknesses identified from such assessment in a timely manner; (ii) Ensure that the relevant certification(s) is obtained for the various modules under e-KYC solution, where such certification is available10. S 8.23 Financial institutions that have yet to implement e-KYC (i.e. first-time implementation) or wish to change the e-KYC solution or technology provider used are required to ensure the following: (i) Financial institutions must perform due diligence on the identified technology provider and the e-KYC solution. The due diligence, which must be validated by an independent party, shall include the following: a. Assessment whether the technology provider has a good track record, experience and expertise in offering solutions involving regulated entities and products; and b. Assessment of the e-KYC solution’s technical capabilities (e.g. parameters, methodology of models used). (ii) Prior to implementing the e-KYC solution, financial institutions shall fulfil the requirements in paragraph 8.2211. S 8.24 Financial institutions shall review or revalidate requirements under paragraph 8.22 for continued relevance at least once every three (3) years, or where there are any material changes to the e-KYC solution. 8 For avoidance of doubt, requirements for FAR within this policy document do not apply to e-KYC solutions where verification of customer identity is automated without the use of artificial intelligence, machine learning or other similar forms of predictive algorithms. 9 Credible external independent assessor refers to an assessor who has the capability and expertise in conducting assessments on identity verification solutions. 10 The modules are biometric matching/facial recognition, liveness test and ID verification. For example, ISO 19794- 5 for facial recognition and ISO 30107-3 for liveness test (presentation attack detection) module. 11 This requirement must be completed prior to implementation of the e-KYC solution unless: (i) Such assessment has already been conducted by the technology provider within the past two (2) years; or (ii) Where the technology provider has experience in applying the e-KYC solution effectively for other financial institutions and has established a good track record, this requirement may be completed no later than one (1) year from the date of the financial institution’s e-KYC implementation. Page 11 of 28 Electronic Know-Your-Customer (e-KYC) S 8.25 Notwithstanding requirements under paragraphs 8.22 and 8.23, to ensure an effective overall implementation of e-KYC, financial institutions shall conduct an independent assessment on the financial institution’s own processes, procedures and controls prior to first-time implementation of an e-KYC solution and undertake a review of the independent assessment on a regular basis, as may be determined by the financial institution based on its own risk assessment. Reliance on human representatives G 8.26 Notwithstanding paragraphs 8.19 to 8.21, a financial institution may also perform e-KYC where identification and verification is conducted solely by a human representative. This includes cases where the decision to verify a customer is conducted by a financial institution representative, intermediary or insurance agent, with the assistance of electronic means such as video calls using mobile devices. G 8.27 In contrast with e-KYC solutions under paragraphs 8.19 to 8.21 that utilise both machine and human 12 capabilities, e-KYC performed solely by a human representative through electronic means may involve a lower level of identity assurance due to human limitations and thus may not be suitable for all circumstances. S 8.28 Where the decision to verify a customer’s identity through e-KYC is conducted solely by a human representative, a financial institution shall give due regard to situations where there is potential for higher risk of misidentification and establish internal safeguard measures to address this risk. Addressing ongoing vulnerabilities S 8.29 A financial institution shall continuously monitor, identify and address potential vulnerabilities13 in the e-KYC solution. Where potential vulnerabilities in the e- KYC solution are detected, a financial institution shall identify and adopt immediate mitigation measures as necessary, including for higher risk products. S 8.30 In respect of paragraph 8.29, actions to address potential vulnerabilities shall include: (i) Conducting reviews on the e-KYC solution and, where applicable, submitting periodical feedback to technology providers with the aim of improving effectiveness of the underlying technology used for customer identification and verification; and (ii) Risk considerations, trigger mechanisms and rectification measures as listed in Appendix 2. 12 By virtue of audits that are conducted under Appendix 2. 13 Potential vulnerabilities include exposures to IT, operational and ML/TF/PF related risks. Page 12 of 28 Electronic Know-Your-Customer (e-KYC) Additional safeguards to facilitate deployment G 8.31 The availability of data is an important factor in the effectiveness of e-KYC solutions for identification and verification. S 8.32 Where there are limited data points to determine accuracy of the e-KYC solution in the initial deployment stage, a financial institution shall implement additional safeguards, particularly for products that pose higher risks arising from inaccurate identification. S 8.33 To facilitate deployment of e-KYC solutions for products with higher risks arising from inaccurate identification, a financial institution shall observe the considerations and safeguards specified in Appendix 4. This list may be specified, amended or superseded from time to time as and when there are developments in the e-KYC landscape, including availability of better performance data on the effectiveness of specific e-KYC methods. S 9.1 In monitoring the effectiveness and accuracy of e-KYC solutions utilising artificial intelligence, machine learning or other forms of predictive algorithms, a financial institution shall maintain a record of the performance of the e-KYC solution segregated on a monthly basis. S 9.2 The records required to be maintained under this policy document shall be made readily available for review by the Bank. S 9.3 A financial institution shall submit the record in relation to paragraph 9.1 via the STATsmart Integrated Submission Platform (ISP) accessible via Kijang.Net (refer to Appendix 6 for details). S 9.4 A financial institution shall submit the record in relation to paragraph 9.1 on a half-yearly basis according to the following arrangement- (i) For the period of January to June of each year, the record shall be submitted no later than 4 August of the same year; and (ii) For the period of July to December each year, the record shall be submitted no later than 4 February the following year. S 9.5 In respect of paragraph 9.4, in the event that the deadline falls on a non-working day, the deadline will be extended to the next immediate working day, unless specifically informed by the Bank in writing on the revised deadline. 9 Reporting requirements Page 13 of 28 Electronic Know-Your-Customer (e-KYC) PART C REGULATORY PROCESS S 10.1 Subject to paragraphs 8.1 and 8.3, where a licensed person14 or a prescribed development financial institution15 meets the requirements stipulated in this policy document and intends to implement an e-KYC solution described in paragraph 8.19 for the first time16 or change the appointed technology provider for the e-KYC solution, a complete list of information as set out in Appendix 5 shall be submitted to the Bank. This shall also include a complete list of information to demonstrate that the technology provider complies with requirements set out in paragraph 8.22 and Appendix 3 of this policy document. S 10.2 In respect of paragraph 10.1, a licensed person or a prescribed development financial institution may proceed to implement and utilise the e-KYC solution after 14 working days from the date of receipt by the relevant Departments of the Bank of the complete submission of information set out in Appendix 5. The submission of information to the Bank shall be made to Jabatan Penyeliaan Konglomerat Kewangan, Jabatan Penyeliaan Perbankan or Jabatan Penyeliaan Insurans dan Takaful, as the case may be and shall be signed off by the Chief Executive Officer, Chief Risk Officer or Chief Operating Officer who has the responsibility to ensure that the information submitted pursuant to this paragraph is complete and accurate. G 10.3 In respect of paragraph 10.1, where a licensed person or a prescribed development financial institution intends to implement the e-KYC solution for the first time and the product to be offered qualifies as a new product as defined under the Introduction of New Products policy document17, the information required under the aforementioned policy document and this policy document may be submitted together to the Bank. S 10.4 Prior to submitting the information required in paragraph 10.1, a licensed person or a prescribed development financial institution, shall ensure, where relevant, approvals such as those in relation to the Bank’s RMiT and Outsourcing policy documents are obtained. 14 As defined under the FSA or IFSA. 15 As defined under the DFIA. This excludes cases where a prescribed development financial institution licensed under the MSBA intends to implement e-KYC for remittance services. 16 For avoidance of doubt, this requirement also applies to a financial institution implementing e-KYC in the following situations for the first time: (i) e-KYC for legal persons; and/or (ii) e-KYC for higher risk products without a credit transfer safeguard. 17 Or in the case of life insurers and family takaful operators, the Introduction of New Products by Insurers and Takaful Operators policy document. 10 Notification for licensed persons and prescribed development financial institutions Page 14 of 28 Electronic Know-Your-Customer (e-KYC) S 11.1 Subject to paragraphs 8.1 to 8.3 and as required under the AML/CFT/CPF and TFS for FIs policy document, licensed money-changing operators, licensed remittance service providers 18 , approved non-bank issuers of designated payment instruments and approved non-bank issuers of designated Islamic payment instruments shall obtain a written approval from Jabatan Pemantauan Perkhidmatan Pembayaran prior to implementing e-KYC or changing the appointed technology provider for the e-KYC solution. S 11.2 In respect of paragraph, 11.1, application for approval shall include a complete list of information as set out in Appendix 5 and a complete list of information to demonstrate that the technology provider complies with requirements set out in paragraph 8.22 and Appendix 3 of this policy document. 12.1 Where the Bank deems that the requirements in this document have not been complied with, the Bank may take appropriate enforcement action against the financial institution, including the directors, officers and employees with any provision marked as “S” in this document or direct a financial institution to- (i) undertake corrective action to address any identified shortcomings; and/or (ii) suspend or discontinue implementation of e-KYC. 18 This includes cases where a prescribed development financial institution licensed to conduct remittance service under the Money Services Business Act 2011 (MSBA) intends to implement e-KYC for remittance services. 11 Approval for licensed money services business 12 Enforcement Page 15 of 28 Electronic Know-Your-Customer (e-KYC) APPENDICES 1. In developing e-KYC methods for legal persons, a financial institution may wish to consider undertaking at least one or more verification methods that is relevant to the nature or business model of the legal person. This aims to provide heightened assurance on the legitimacy of the legal person’s business. 2. Such verification measures may include but not be limited to the following: (i) make video calls to the CEO, directors, or authorised person assigned to the legal person. During the video call, reporting institutions may request the person to show proof of business existence such as signboard or inventories (if any). During the video call, a financial institution may request the person to show proof of business existence such as signboard or inventories (if any). A financial institution may consider making unannounced video calls depending on the ML/TF/PF risk identified on a particular customer. Such unannounced call may be effective in identifying circumstances where a fraudulent business had staged its premise in advance of the call; (ii) identify and verify the location of legal person to ensure that the location matches the registered or business address of the legal person via methods that provide high levels of assurance and are legally permissible19. A financial institution may also verify location of the CEO, directors, or authorised person during the video call; (iii) verify the legal person’s information against a database maintained by credible independent sources such as relevant regulatory authorities, government agencies or associations of the regulated sectors. A financial institution may also request for the legal person’s active bank account statement or audited financial statement as proof of on-going business activity; and/or (iv) any other credible verification methods as proposed by financial institutions to the Bank. 19 Examples of such methods include (but are not limited to) video calls, use of internet map/location services, drones, or visits by the financial institution’s agent network. Appendix 1: Examples of verification methods to establish business legitimacy Page 16 of 28 Electronic Know-Your-Customer (e-KYC) 1. In measuring the accuracy and effectiveness of e-KYC solutions, the FAR may be considered a useful measurement as it captures the capability of the solution to identify non-genuine identification and verification cases. Generally, a lower FAR indicates that the e-KYC solution has correctly identified non-genuine or fraudulent identification and verification attempts on a regular basis. 2. FAR shall be measured based on the number of complete20 identification and verification cases processed under e-KYC. 3. In determining FAR, a financial institution shall conduct audits to classify identification and verification cases into genuine and non-genuine cases. Where it is not feasible for a financial institution to audit every identification and verification case facilitated through e-KYC, a financial institution may adopt a sampling approach. In doing so, a financial institution shall adopt a risk-based sampling approach in determining the appropriate sample size for each module21 of the e-KYC solution and ensure that the sample size data used to determine FAR is random, unbiased and representative of the entire population of customers. 4. In determining the appropriate sample size and group, a financial institution shall ensure that FAR calculations are based on total sample cases tested (i.e. if 1,000 cases were tested as the sample size, then the FAR data submitted must be based on the 1,000 cases sampled). 5. In determining the appropriate sampling approach, a financial institution shall at minimum take into consideration the following sampling dimensions to ensure that FAR results from the sample size tested appropriately reflects the severity of any FAR threshold breaches22: (i) Minimum sample size: The sample size shall minimally meet a 95% confidence level and 3% margin of error or 400 cases per month, whichever is higher. (ii) Time-based considerations: For the first 6 months of implementation where the level of assurance of the e-KYC solution effectiveness is not yet optimal, a higher sample size is recommended to gain a higher level of assurance. Subsequent to this, a financial institution may lower the sampling size tested if the FAR performance is satisfactory. (iii) Risk-based considerations: For higher risk financial products or segments (e.g. current and savings account for customers that do not have an existing bank account), a financial institution may wish to conduct a larger or full sampling approach. 20 A complete identification and verification case processed under e-KYC is defined as a case where the customer has completed only the e-KYC checks as described in paragraph 3 of Appendix 4. This includes cases where e- KYC for individuals related to legal persons are implemented. This does not include other steps in the e-KYC process (e.g. credit transfer). 21 i.e., facial recognition, liveness detection & ID document. 22 For avoidance of doubt, the higher or stricter of considerations in (i) – (iv) shall apply in determining the minimum sample size. For example, if the minimum sample size required from 5(ii) is lower than that needed to meet requirements in 5(i), the minimum sample size required shall not be lower than that of 5(i). Appendix 2: False Acceptance Rate and sampling Page 17 of 28 Electronic Know-Your-Customer (e-KYC) (iv) Progressive sampling: Where one or more false positives are detected in the initial sample, a financial institution may wish to consider a higher sample size, with a focus on e-KYC cases that may share the same profile and result in a similar outcome as the identified false positive case. 6. A financial institution shall make readily available upon request by the Bank, information on false positive cases that are genuine fraud attempts and cases that were falsely accepted by the solution due to other reasons23. 7. In respect of paragraph 3 of this Appendix, a financial institution shall conduct audits on current month e-KYC cases by the last day of the following month (e.g. January cases to be audited by the last day of February) for the first six months of e-KYC implementation. After the first six months of e-KYC implementation, a financial institution shall conduct the audits no less than once every quarter, where current quarter e-KYC cases shall be conducted by the last day of the first month of the following quarter (e.g. first quarter cases to be audited by the last day of April). 8. In principle, a financial institution is highly encouraged to strive to ensure that the overall FAR of the e-KYC solution is as low and close to zero as possible. Nevertheless, a financial institution should also take into consideration other data points beyond FAR to form an informed view of the risk level and effectiveness of the solution. This may include factors such as the number of identification and verification cases, number of false positives, availability of other safeguards, fraud patterns observed, and the risks associated with inaccurate identification for a particular product or service offered through e-KYC. 9. Generally, for e-KYC solutions leveraging the use of artificial intelligence, FAR should reduce with the increase in identification and verification cases processed. 10. To strengthen solution performance and enable quicker cadence for remedial action, a financial institution shall adopt a tiered approach for FAR threshold monitoring, review and notification, as follows: Table 1: FAR thresholds and actions to be taken FAR thresholds Action to be taken when breached Level 1 (0% – 3%) A financial institution shall continuously monitor and improve the capability of e-KYC solutions. 23 Reasons may include but are not limited to blurry images (ID images that are blurry but may be genuine, which were falsely accepted by the solution but should have been rejected), poor image quality, poor lighting or overexposure during facial recognition/ID document verification step, poor framing of the face/ID document, etc. Page 18 of 28 Electronic Know-Your-Customer (e-KYC) Level 2 (> 3%) A financial institution shall conduct a risk assessment for notification to the Board and internal review to strengthen the e-KYC solution, including taking the appropriate rectification measures. In conducting the risk assessment, financial institutions may consider the FAR performance together with other relevant factors, observation points and considerations to provide an informed view of the risk level of the solution performance. For example, this may include the total number of identification and verification cases performed, number of false positives, existing mitigating controls, fraud patterns observed, etc. Level 3 (> 5%) Where FAR is measured to be more than 5% for any two months within a four-month period, a financial institution shall notify the Bank and submit an assessment of the e-KYC solution performance and mitigation measures. The notification shall be submitted to Jabatan Penyeliaan Konglomerat Kewangan, Jabatan Penyeliaan Perbankan, Jabatan Penyeliaan Insurans dan Takaful or Jabatan Pemantauan Perkhidmatan Pembayaran, as the case may be, in writing within seven (7) working days upon the completion of the latest audit and detection of this FAR scenario. 11. In respect of paragraph 10 of this Appendix, the notification to the Bank shall include the following- (i) an assessment on the current performance of the e-KYC solution, including reasons for the observed level of FAR, risk level of the e-KYC solution, as well as existing mitigating controls in place; (ii) an assessment on whether the false positive case was successfully onboarded, or if the false positive case was detected and rejected through other mitigating controls24 already in place as part of the e-KYC process. This assessment shall also include an analysis on the nature of the false positive cases (e.g. whether the cases are related to any mule activity, an emerging fraud trend/modus operandi, suspicious transactions, etc); (iii) proposed rectification actions to reduce the FAR going forward and address any identified vulnerabilities; (iv) proposed new mitigating actions or additional controls to safeguard the effectiveness of the e-KYC process; and (v) evidence that the Board is satisfied with items (i) to (iv) above, and with the decision to either continue or suspend using the same e-KYC solution, when such assessment by the Board has been made. 24 e.g., Via verification against existing credible bureau files, fraud databases or any other form of fraud detection measures. Page 19 of 28 Electronic Know-Your-Customer (e-KYC) 12. In respect of paragraph 11 (iv) of this Appendix, the mitigating actions and/or additional controls may include but are not limited to the following- (i) enhanced monitoring of customers identified and verified through e-KYC; and/or (ii) conducting audits on e-KYC cases prior to opening an account. 13. Where FAR exceeds 5% and the Bank assesses a financial institution and its Board did not effectively undertake the expected rectification measures on vulnerabilities that were identified, relevant enforcement action may be taken against the financial institution. The Bank may also specify controls or intervention measures as deemed necessary. Page 20 of 28 Introduction 1. The AML/CFT/CPF & TFS for FI PD25 requires reporting institutions to ensure the systems and technology deployed for the purpose of establishing a business relationship using non-face-to-face channels (including e-KYC) have the capabilities to support an effective AML/CFT/CPF compliance programme26. 2. Hence, the objective of the external independent assessment in paragraph 8.18 of this policy document is to identify the overall effectiveness27 and robustness of the e-KYC solution in detecting and mitigating ML/TF/PF and fraud risks at the point of customer on-boarding. The assessment shall include any identified gaps/weaknesses in the e-KYC solution, areas for improvement and recommendations to address such gaps/weaknesses. Scope 3. The assessment shall cover the three (3) modules of an e-KYC solution, namely facial recognition, liveness detection (presentation attack detection) and Identity Document (ID) verification (which includes MyKad, international passports or any other common IDs used). Criteria of assessment 4. The assessment shall be conducted in accordance with an appropriate methodology that is clear, structured and effective in delivering the intended objectives. 5. The assessment shall be conducted on a risk-based approach and shall ensure areas of higher risk are given an appropriate level of focus and intensity. 6. The assessment shall: (a) Determine whether the e-KYC solution fulfils the requirements in relevant established standards and practices, if any; (b) Evaluate effectiveness of the methodology and key parameters used in the relevant modules of the e-KYC solution, to the extent possible; 25 Under paragraphs 14A.15.8 (for Banking and Deposit-Taking Institutions), 14.17.10 (for Insurance and Takaful), 14C.16.13 (for Money Services Business) and 14D.16.11 (for Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments). 26 As part of the AML/CFT/CPF compliance programme, under paragraph 14A.3 (for Banking and Deposit-Taking Institutions), 14B.3 (for Insurance and Takaful), 14C.4 (for Money Services Business) and 14D.3 (for Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments), reporting institutions are required to conduct customer due diligence (CDD) to identify the customer and verify that the customer’s identity using reliable, independent source document, data or information. 27 Effectiveness is defined as the overall ability of the e-KYC solution to detect identity fraud and not deemed as indicating whether a particular e-KYC solution is being endorsed and/or more effective than others. Appendix 3: Minimum scope and criteria for external independent assessment Page 21 of 28 (c) Take into consideration any certifications28 and tests results/outcome on the e-KYC solution by credible independent bodies29; and (d) Ensure breakthrough testing is conducted in accordance with the minimum requirements under paragraph 7 of this Appendix. 7. Breakthrough testing are tests conducted on the e-KYC solution from end-to-end to mimic a malicious attacker. Specific requirements for breakthrough testing on the e-KYC solution are as follows: (a) The tests shall be conducted in a comprehensive and effective manner, in line with emerging fraud techniques; (b) The tests shall consist of various test scenarios for each module under the e-KYC solution, including the following as well as any other alternative but equally robust test scenarios: Module Test Scenarios ID verification • Physical tampering of ID. • Digital tampering of ID. • Use of fake ID: o Low quality fakes (e.g., self-generated) o Medium quality fakes (e.g., ID that may be produced by printing shops) o If possible, use of high quality fakes. Facial recognition • Tampering of selfie image but not ID. • Tampering of ID but not selfie image. • Tampering of both selfie image and ID. • Use of different person’s selfie vs ID (eg. Mr.A’s selfie against Mr.B’s ID) Liveness test Presentation attack detection test may be done in conformance to ISO/IEC 30107-3 standards, where there is increasing degree of sophistication as commercially available technology solution to produce biometric artefacts become more readily available. This shall include at minimum the following: • Use of simple artefacts produced with equipment readily available in a normal home e.g., 2D mask. • Use of 3D mask. • Use of falsified biometric traits e.g. facial image using software readily available in the market ‘ShallowFake’ application. 28 Such as ISO 30107-3 on presentation attack detection and ISO 19794-5 on standardized face image format for facial recognition application. 29 For example, for each module under the e-KYC solution, the assessment on the capability of the e-KYC solution should be made. This can be done by comparing any credible third-party independent test results (such as National Institute of Standards and Technology (NIST) Facial Recognition Vendor Test (FRVT), NIST FRVT Presentation Attack Detection (PAD) or National Fintech Evaluation Center (NFEC) facial recognition assessment), against a known benchmark (such as known accuracy for humans in facial matching capability). Page 22 of 28 • If possible, use of falsified biometric traits created using artificial intelligence technology “DeepFake” application. • Coverage of the test scenarios must reflect the latest identity impersonation and cyber-attack techniques. (c) The tests must be done using an adequate sample size in accordance with the various test scenarios for each module. The number of test samples should be risk-based (for instance, a smaller number of test samples can be prepared for a module that has undergone credible tests or met a known benchmarked, whereas more vigorous testing is required with higher sample size for a module which has not undergone any credible test or benchmark). (d) Test samples shall be representative of and adequately reflect the demographics of an FI’s customers (e.g., coverage of race, gender, age, etc). (e) Test samples shall consist of low, medium and high quality of samples30. (f) The tests shall include replay attacks test (e.g., resubmission of identical images test, man-in-the-middle attack via network layer packet transmission approach), where at least two rounds of random re-tests shall be conducted. (g) For ID verification, it is recommended that the testing include the elements below: i. Detection of tampered personal data e.g. name, address ii. Detection and verification of micro print (e.g., existence and features of micro print, font type and size, unique colour); iii. Detection and verification of hologram image (i.e., comparison of hologram image against ID image and selfie); iv. Official markings (e.g., the Malaysian flag, MyKad logo, font type and size) v. Identity card number (e.g., consistency of presented MyKad with existing numbering and format conventions, for passport the machine-readable zone (MRZ) bit-check number and format conventions); and (h) ID verification shall include verification of passports that are compliant with International Civil Aviation Organisation (ICAO) standards. The ID verification on international passports shall focus more on passports from countries where the financial institution’s customers are commonly from. 30 For example, low quality test samples are simple, fast and cheap to produce. Medium quality test samples are moderately difficult to produce, takes longer time (eg.1-3 days) and involves moderate investment. Where else high quality test samples are generally difficult/requires more expertise to produce, takes longer time and can be expensive. Page 23 of 28 8. The outcome of the assessment shall be adequately and clearly documented and shall be submitted to the TPs and subsequently submitted to the relevant financial institutions. The outcome of the assessment shall include the following: i. areas of gaps/weaknesses and areas for improvement; and ii. recommendations to address any weaknesses or gaps detected. This shall also include recommendation on any certifications required. Page 24 of 28 1. List of products31 subjected to e-KYC safeguards: (i) current account; (ii) savings account; and (iii) unrestricted investment account with funds placement and withdrawal flexibilities as well as funds transfer features. e-KYC for individuals with credit transfer for higher risk products 2. A financial institution offering the financial products in paragraph 1 of this Appendix through e-KYC for the purpose of customer identification and verification shall at minimum- (i) verify the customer against a government issued ID by utilising biometric technology; (ii) ensure that the government issued ID used to support e-KYC customer verification is authentic by utilising appropriate fraud detection mechanisms; (iii) ensure the customer is a live subject and not an impersonator (e.g. use of photos, videos, synthetic human face masks) by utilising liveness detection; and (iv) undertake measures to demonstrate that the customer has an existing bank account with another licensed person and is able to access said bank account. This may be achieved through requiring the customer to perform a credit transfer or to verify an amount transferred to the said bank account. 3. In respect of paragraph 2 (iv) of this Appendix, a financial institution shall ensure that the customer details (i.e. name or identity document number) obtained in relation to the bank account with another licensed person is consistent with the details supplied by the customer. 4. In addition to requirements under paragraph 3 of this Appendix, a financial institution may also consider additional verification measures listed in paragraph 10 of this Appendix for higher levels of assurance, where deemed appropriate based on its own risk assessment. e-KYC for individuals without credit transfer for higher risk products 6. The requirement in paragraph 2 (iv) of this Appendix does not apply where an individual customer does not have any existing bank account with another licensed person and thus is unable to perform the credit transfer step. In lieu of the credit transfer safeguard, a financial institution intending to offer the products listed in this Appendix to individual customers shall ensure to: (i) have in place sufficient controls based on internal assessment of risk arising from offering the product without the credit transfer step; 31 Requirements in this Appendix apply to existing individual customers of a financial institution that do not have any of the products listed in paragraph 1 of this Appendix and is intending to apply for one through e-KYC. Appendix 4: e-KYC safeguards to be adopted by financial institutions offering higher risk financial products Page 25 of 28 (ii) be able to demonstrate that their e-KYC solution remains effective and secure; (iii) build in a combination of both additional verification measures and ringfencing parameters to establish higher assurance levels and limit risk exposure; and (iv) build in safeguards such that products offered in paragraph 1 of this Appendix to customers that do not have an existing bank account shall not have fund transfer capabilities to accounts of the same customer name. 7. In respect of paragraph 6 (iv) of this Appendix, this requirement may be waived subject to the following conditions: (i) Availability of and implementation of infrastructures that enable the accounts opened under paragraph 6 of this appendix to be clearly distinguished from other accounts under paragraph 1 of this appendix at all times; or (ii) Use of a trusted National Digital Identity32 for identity verification. 8. In respect of accounts opened under paragraph 6 of this Appendix, a financial institution may, subject to their own risk assessment, consider uplifting ringfencing parameters imposed under paragraph 6 (iii) and fund transfer limitations under paragraph 6 (iv) where the financial institution ascertains the customer is genuine and determines the customer may be upgraded to full capability accounts, subject to the following conditions: (i) Sufficient account activity is observed for at least twelve months and the financial institution’s satisfactory assessment 33 that the account is genuine; or (ii) The customer consents to visit a bank branch for physical identity verification. 9. In respect of paragraph 6 of this Appendix, a financial institution shall take reasonable measures to verify whether the individual customer has an existing bank account with another licensed person. This may include but are not limited to the following measures: (i) initiating an instant transfer (i.e. DuitNow) query via the customer’s mobile phone number or IC number and verifying whether information on the query matches the customer’s personal details or otherwise; (ii) presenting a declaration form for the customer to confirm that the customer does not have an existing bank account with another licensed person; or (iii) through any other credible methods or infrastructures as may be proposed for the Bank’s consideration. 32 Issued by the relevant authorities of the government of Malaysia. 33 A financial institution’s decision to graduate the account must be well documented. Page 26 of 28 10. In respect of paragraph 4 and paragraph 6 of this Appendix, examples of additional verification measures and ringfencing parameters that may be undertaken and built into the e-KYC process to provide a higher level of assurance for customers include but are not limited to: Ringfencing parameters (i) limiting product functions (e.g. lower account size and fund transfer limits, no cross-border wire transfer) at the initial period of account opening (i.e., at least 12 months post-account opening). Additional verification measures (i) performing a credit transfer from an existing e-wallet account held by the customer with a participating DuitNow e-wallet provider (applicable to customers without an existing bank account with another financial institution only); (ii) conducting audits for on-boarding cases prior to granting access to account; (iii) telephone or video calls to the customer; (iv) utilising device-based indicators to detect potential fraud attempts (e.g. consistency of IP address, geo-location, device IDs, methods to detect jailbroken/rooted devices and network connection used); (v) analysing publicly available data (e.g. social media and digital footprints) to check for identity consistency; (vi) requesting for official documents issued by government agencies or credible providers which can be verified by the document issuer (e.g. income statement, utility bills, etc); (vii) requiring customers to complete online questionnaires for account opening applications that require a wide range of information, which can be verified; (viii) confirming the customer’s identity during physical delivery of bank cards; (ix) introducing specific transaction monitoring scenarios/parameters and stricter on-going due diligence review cycles and triggers for accounts opened through e-KYC; and conducting randomised audits on e-KYC cases post on-boarding. 11. In relation to paragraph 8 of this Appendix, the financial institution’s decision to graduate the account must be well documented and maintained in accordance with record keeping requirements under the AML/CFT/CPF and TFS for FIs policy document and must be made available to the Bank upon request. Page 27 of 28 1. A detailed product description, including its features, structure and target market or customers. Product illustrations shall also be included where appropriate. 2. Sample product term sheet. 3. Detailed information on the key features of the e-KYC solution. This may include types of checks, customer information captured and any other material information. 4. A written assessment on the effectiveness of the e-KYC solution. The written assessment may consider accuracy of technology functions, types of checks included and any other relevant information that may attest for the effectiveness of the underlying technology. Where relevant, the assessment should include FAR results gathered from conducting negative testing of fraudulent scenarios34 on the e-KYC solution. Other relevant information supporting the written assessment such as independent assurance, review or certification may also be considered for this purpose. 5. In the case where a financial institution chooses to engage a technology provider, the assessment to demonstrate effectiveness of the e-KYC solution shall include a complete list of information to demonstrate that the technology provider complies with requirements set out in paragraph 8.22 and Appendix 3 of this policy document. The assessment may also include the technology provider’s company background and track record in other jurisdictions or industries. 6. Description of key inherent risks of the e-KYC solution and arrangements in place to manage those risks. Where a financial institution deems it necessary, plans for implementation of enhanced monitoring and reporting mechanisms to identify potential ML/TF/PF activities should also be included in the description. 7. Detailed end-to-end process flow of the e-KYC solution. This may include but is not limited to an illustration of the customer journey and decision-making process from start of application to account opening. 8. Any other relevant information to demonstrate a financial institution’s ability to comply with the standards in this document and any other related policy documents issued by the Bank, including, where applicable- (i) AML/CFT/CPF and TFS for FIs policy document; (ii) RMiT policy document; (iii) Electronic Money (E-Money) policy document; (iv) Governance, Risk Management, and Operations for Money Services Business (MSB) policy document; and (v) Outsourcing policy document. 9. Any additional documents or information as may be specified by the Bank. 34 Negative testing may include testing the e-KYC solution against photocopied ICs, deepfake technology or any other method which may spoof the e-KYC solution into accepting an inaccurate on-boarding attempt. Appendix 5: Information required for submission Page 28 of 28 1. The completed e-KYC reporting template shall be submitted to the Bank via the Integrated Submission Platform (ISP) on https://kijangnet.bnm.gov.my. 2. Please refer to the ‘User Manual on Kijang.Net, Integrated Submission Platform and Entity Database for Reporting Entities’ accessible here or via Kijang.Net Portal for guidance on the following: (i) Access to the Kijang.Net Portal (ii) User registration and approval process (iii) Submission process Enquiries on reporting-related matters shall be addressed to Jabatan Pengurusan Data dan Statistik (JPS) via email or telephone as specified below: (i) Group Email address : [email protected] (ii) Telephone number : +603 26988044 (iii) Extension : 7225, 7999, 7819, 7799 Appendix 6: Submission instructions https://kijangnet.bnm.gov.my/ https://kijangnet.bnm.gov.my/webdav/ep/document_library/EP/PSD/MANUAL/User%20Manual%20on%20Kijang.Net%2C%20ISP%20%26%20EDB%20for%20RE%20v5.00.pdf mailto:[email protected] FAQs on the e-KYC Policy Document Frequently Asked Questions (FAQs) and Answers on the e-KYC Policy Document FAQs issued on: 15 April 2024 Introduction The FAQs are intended to provide clarification to financial institutions on common queries in relation to the enhanced policy document on “Electronic Know-Your-Customer (e-KYC)” dated 15 April 2024. No. Questions Answers General questions 1. Would procuring e-KYC services from a 3rd party technology vendor be deemed a material outsourcing arrangement? Given the different permutations of e-KYC checks and arrangements, financial institutions are encouraged to self-assess the applicability of requirements stipulated under the Outsourcing policy document. In doing so, a financial institution must take into consideration the exact features of the e-KYC solution that will be implemented, including the nature of activities performed by the 3rd party, and the nature of any data shared1. Generally, arrangements where a significant portion of e-KYC services is operated by the 3rd party are likely to be considered as material outsourcing. Nevertheless, financial institutions are reminded that any arrangement with a 3rd party technology vendor should safeguard the confidentiality of customer information at all times, in line with requirements under the policy document on Management of Customer Information and Permitted Disclosures. 2. In complying with the Risk Management in Technology (RMiT) policy document, would 3rd Party Attestation be required when financial institutions adopt e-KYC When a financial institution adopts e-KYC for the first time, the notification requirements set forth in section 14 of RMiT policy document requires a financial institution to engage an independent external party to provide assurance that the financial institution has addressed the associated technology risks and 1 For the avoidance of doubt, the Bank may determine that an arrangement is considered material pursuant to paragraph 12.5 of the Outsourcing policy document. services offered by a technology provider? security controls relating to the introduction of new technology for e-banking, Internet insurance and Internet takaful. This is important to ensure the integrity of customer identity proofing and the security of online transaction authentication with the use of e- KYC technologies. The third-party attestation is not required for subsequent enhancement to the e-KYC solution, as listed in the Appendix 6 Positive List. Nevertheless, financial institutions must ensure the risks associated with the enhancement are identified and managed on on-going basis and the enhancement notified to the Bank. A financial institution which intends to adopt e-KYC services hosted in the public cloud must meet the regulatory process as set forth in section 15 of RMiT policy document. A financial institution must self-identify whether the cloud service is subject to the consultation or notification requirements, based on criteria outlined in paragraph 15.2 of RMiT policy document i.e., its track record in public cloud adoption and the readiness of its technology risk management framework to manage cloud risks. 3. For e-KYC implementation, under which circumstances should the notification system prescribed under the e-KYC policy document be pursued? Subsequently, in which circumstances should the notification system prescribed under the Introduction of New Products2 When implementing an e-KYC solution as described under paragraph 8.19 of the e-KYC policy document for the first time, a licensed person or a prescribed development financial institution shall refer to both the process specified under the e-KYC policy document and the Introduction of New Products policy document. Where a licensed person or a prescribed development financial institution intends to implement the e-KYC solution for the first time and the product to be offered 2 Or in the case of life insurers and family takaful operators, the Introduction of New Products by Insurers and Takaful Operators policy document. policy document be pursued instead? qualifies as a new product as defined under the Introduction of New Products policy document3, the information required under both policy documents may be submitted together to the Bank. Upon submission, the e-KYC solution may be implemented after 14 working days from the submission of information required to the Bank. Where a licensed person or a prescribed development financial institution is not implementing e-KYC for the first time and the product to be offered qualifies as a new product as defined under the Introduction of New Products policy document, a licensed person or prescribed development financial institution shall refer to the requirements and processes specified under the Introduction of New Products policy document. 4. Can customers be dismissed due to a false negative result which is due to limitations of financial institution’s e-KYC system? With respect to false negative results, financial institutions are reminded to not discriminate against customers affected by the financial institution’s system limitations as means to ensure fair treatment of financial consumers. As such, false negative customers should not be immediately dismissed. Remedial actions should be considered where the customers can prove authenticity of their identification. These should include improvements to the e-KYC solution to reduce future occurrences of false negatives. 5. With MyDigital ID implemented as the National Digital ID recently, can MyDigital ID fulfil some e-KYC requirements in this policy document? The long-term view is that the use of a trusted, secure National Digital ID can significantly reduce the risk of identity theft and fraud, and as such would complement the existing e-KYC process. Nonetheless, it is important for financial institutions to establish full understanding of the level of security and assurance of the National Digital ID to satisfactorily assess whether it fulfils the identity verification needs of the financial sector. Where deemed appropriate, a financial institution may consider the use of a trusted and secure National Digital ID for identity verification purposes on top of existing processes. However, at this juncture this shall be subject to the financial institution’s own risk assessment on whether the strength of the National Digital ID fulfils identity verification requirements under the e-KYC policy document and AML/CFT and TFS for FIs policy document, and where additional verification measures may be required. The Bank expects a further review of requirements in the e-KYC policy document in the near future to provide greater clarity on how the National Digital ID can complement the financial sector’s e-KYC requirements. e-KYC for the unbanked segment 6. How do financial institutions ensure that accounts opened without the credit transfer safeguard would not have fund transfer capabilities to accounts of the same name, as required under Appendix 4 of the e- KYC PD for customers without an existing bank account? It is the responsibility of the financial institution offering products listed in paragraph 1 of Appendix 4 to the e- KYC PD to build in technical capabilities (e.g. name matching with fuzzy logic) that would enable the financial institution (as the fund transfer sending bank) to detect and block any fund transfer attempts to other accounts outside of the financial institution with the same customer’s name. Nonetheless, these restrictions may be waived subject to conditions under paragraphs 7 and 8 of Appendix 4 which provide for circumstances where these restrictions need not apply. 7. Can the use of a National Digital ID such as MyDigital ID waive ringfencing parameters and fund transfer limitations imposed on accounts opened by the unbanked segment? As referred to in question 5 of this FAQ, the long-term view is that the use of a trusted, secure National Digital ID can significantly reduce the risk of identity theft and fraud, and as such potentially address the assurance level required for accounts opened by customers without an existing bank account. The Bank expects a further review of requirements in the e-KYC policy document in the near future – including those for the unbanked segment - to provide greater clarity on how the National Digital ID can complement the financial sector’s e-KYC requirements. Effectiveness of e-KYC solutions 8. What are the definitions of the terms used in relation to the enhanced sampling requirements? Key terms are as follows: Sample size: Number of cases included in the study to represent total onboarding attempts via e-KYC. • Confidence level: Level of certainty that the result is true and reliable for the population. • Margin of error: Degree of error in results that differ from population value. • Population size: Total number of identification and verification cases performed via eKYC. 9. How is the sample size computed? 1. Sample size equation 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 = 𝑧2 × 𝑝(1 − 𝑝) 𝑒2 1 + ( 𝑧2 × 𝑝(1 − 𝑝) 𝑒2 × 𝑁 ) Notes on fixed variables: • Critical value of the normal distribution at 95% confidence level, z: 1.96 (95% confidence Level) • Margin error, e: 0.03 (3%) • Sample, portion, p: 0.5 • Onboarded customers, N: [Indicate Total number of identification and verification cases performed via eKYC] 2. Simplified formula 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 = 1.962 × 0.5(1 − 0.5) 0.032 1 + ( 1.962 × 0.5(1 − 0.5) 0.032 × 𝑁 ) 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 = 3.8416 × 0.25 0.0009 1 + 3.8416 × 0.25 0.0009 × 𝑁 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 = 1067.11 1 + 1067.11 𝑁 3. Example of calculation with N = 2,000 onboarded customers through eKYC 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 = 1067.11 1 + 1067.11 2000 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 = 1067.111111 1 + 0.533555555 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 = 695.84 (2 𝑑. 𝑝. ) ≈ 696 Note: A sample size that meets a minimum 95% confidence level and 3% margin of error for a population size of 2,000 cases is approximately 696. This is the minimum sampling size expected to be conducted by financial instituitions. For rounding ease and higher levels of assurance, financial instituitions may wish to consider rounding up to at least 700 or above. Kindly refer to the sample size table as a guidance in Appendix I. 10. What if the total number of customers onboarded via e-KYC is less than (<) 400 per month? Financial institutions shall conduct 100% sampling, i.e. all cases shall be sampled. 11. Can financial institutions leverage on the technology provider (TP) to conduct this validation? Yes, financial institutions may leverage on their TP to carry out the validation subject to adequate assessment of the TP’s capacity and capabilities. However, any leveraging arrangement should be supplemented with periodic independent assurance checks by the financial institutions. 12. Can TPs obtain certifications other than ISO standards specified in the e-KYC policy document? Yes, TPs may opt to obtain any relevant ISO- equivalent certifications that are able to provide sufficient assurance on the three (3) e-KYC modules. 13. Can a TP rely on a single assessment by an assessor, despite having multiple financial institutions subscribe to their solution? Yes, TPs can rely on a single assessment even if the TP services multiple financial institutions. Further, financial institutions may consider any additional scope beyond the e-KYC policy document. We would also like to reiterate that the requirement to obtain assessment from a credible external independent assessor and relevant certifications for the three (3) e-KYC modules is applicable for the TP, not the financial institutions. 14. Should the independent assessment of financial institution’s own processes, procedures and controls be conducted by internal or external assessors? The independent assessment may be performed by any independent party, at the financial institution’s discretion. 15. What are some examples of mitigating controls financial institutions can take where potential vulnerabilities in the e-KYC solution is detected? Pursuant to paragraphs 8.29 and 8.30 of the e-KYC policy document, financial institutions are expected to identify triggers that should prompt an assessment of mitigation controls that may need to be introduced to manage the associated risks. This includes but is not limited to: (i) Risk considerations, trigger mechanisms and rectification measures as listed in Appendix 2 of the e-KYC policy document; and (ii) Where a notable number of common or repeated fraud cases (e.g. tampered IDs) were not successfully detected by the solution. Where vulnerabilities are detected, financial institutions may consider the following in addition to or in complement with those listed in Appendix 2 of the e-KYC policy document: (i) Full or heightened visual inspection sampling for all e-KYC applications before onboarding for a defined period; (ii) Back-testing of all customers onboarded through e-KYC for a defined period (e.g., past 3 to 6 months) using the enhanced e-KYC solution; and (iii) Developing a detailed work plan to address identified vulnerabilities. This plan should include interim milestones to indicate progress, such as the percentage of previous false positive cases that the solution can progressively reject. 16. Are requirements on the technology provider and financial institutions referenced in paragraphs 8.22 to 8.25 of the e-KYC PD applicable to e-KYC solutions for both individuals and legal persons? Yes, requirements paragraphs 8.22 to 8.25 of the e- KYC PD are applicable to e-KYC solutions for both individuals and businesses, particularly given that the authorised persons of the legal person would still be subject to identity verification requirements for individuals. As such, relevant requirements on the technology provider and financial institution would still apply. Any refinements to the note will be updated by the Bank from time to time. Should you have additional queries related to the policy document, please submit your queries via any of the following means: a) Mail : Director Financial Development and Innovation Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur b) Email : [email protected] Appendix I: Sample Size Table Population Size Required Sample Size Confidence Level = 95% Confidence Level = 99% Margin Error Margin of Error 3.00% 2.50% 2.00% 1.00% 3.00% 2.50% 2.00% 1.00% 1 – 400 Minimum sample size shall be the entire population 500 341 378 414 476 394 422 447 486 600 385 434 481 565 454 490 525 580 700 423 482 543 653 508 555 600 672 800 458 527 601 739 559 616 672 764 1,000 517 607 707 906 650 728 807 944 1,200 566 675 801 1,067 728 828 932 1,120 1,500 624 760 924 1,298 829 960 1103 1,377 2,000 697 870 1,092 1,656 962 1,143 1,351 1,786 2,500 749 952 1,225 1,984 1,064 1,290 1,562 2,174 3,500 818 1,069 1,425 2,566 1,211 1,513 1,902 2,892 5,000 880 1,176 1,623 3,289 1,351 1,738 2,272 3,845 7,500 935 1,276 1,819 4,212 1,484 1,966 2,677 5,171 10,000 965 1,333 1,937 4,900 1,561 2,103 2,939 6,247 25,000 1,024 1,448 2,191 6,939 1,722 2,407 3,567 9,991 50,000 1,045 1,491 2,292 8,057 1,784 2,528 3,841 12,486 75,000 1,053 1,506 2,327 8,514 1,805 2,572 3,942 13,620 100,000 1,056 1,514 2,345 8,763 1,816 2,594 3,995 14,267 250,000 1,063 1,528 2,379 9,249 1,836 2,635 4,093 15,603 500,000 1,065 1,532 2,390 9,424 1,843 2,649 4,126 16,106 1,000,000 1,066 1,535 2,396 9,513 1,846 2,656 4,144 16,369 2,500,000 1,067 1,536 2,399 9,568 1,848 2,660 4,154 16,531 10,000,000 1,067 1,537 2,401 9,595 1,849 2,662 4,159 16,614 100,000,000 1,068 1,537 2,401 9,604 1,849 2,663 4,161 16,639 300,000,000 1,068 1,537 2,401 9,604 1,849 2,663 4,161 16,641 Notes: 1. Refers to the minimum sample size financial institutions should adopt. For higher levels of assurance, financial institutions may wish to consider a higher Confidence Level and / or lower Margin of Error. 2. *Minimum sample size shall be at least 400. 3. Numbers are provided for illustrative / estimation purposes only. Financial institutions should determine the appropriate sample size required based on financial institutions’ own calculation of the population size.	Public Notice
27 Mac 2024	Dokumen Dasar Layanan Adil kepada Pengguna Kewangan	https://www.bnm.gov.my/-/pd-ftfc-bm	https://www.bnm.gov.my/documents/20124/938039/fs-fair-treatment-mar24.pdf, https://www.bnm.gov.my/documents/20124/938039/pd-ftfc-mar24.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/pd-ftfc-bm&languageId=ms_MY	Reading: Dokumen Dasar Layanan Adil kepada Pengguna Kewangan Share: Dokumen Dasar Layanan Adil kepada Pengguna Kewangan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1615 pada Rabu, 27 Mac 2024 27 Mac 2024 Dokumen dasar ini ialah versi dipertingkatkan bagi Dokumen Dasar Layanan Adil kepada Pengguna Kewangan (Fair treatment of financial consumers, FTFC) yang dikeluarkan oleh Bank Negara Malaysia (BNM) pada November 2019. Ia menetapkan keperluan dan panduan sedia ada untuk penyedia perkhidmatan kewangan (PPK) untuk melayan pengguna kewangan secara adil dengan mengguna pakai standard kelakuan bertanggungjawab dan profesional yang tinggi dan untuk menerapkan budaya di mana kepentingan pengguna kewangan adalah sebahagian daripada strategi dan operasi perniagaan PPK. Dokumen dasar yang disemak ini memperkenalkan prinsip baharu dan keperluan khusus untuk PPK mempertimbangkan dan bertindak balas terhadap kepentingan dan keperluan pengguna yang terdedah dalam menjalankan perniagaan dan operasinya. PPK dijangka memberikan sokongan yang sewajarnya kepada pengguna yang terdedah, selaras dengan layanan adil terhadap hasil pengguna kewangan. Dalam dokumen dasar yang disemak ini, BNM telah menambah keperluan sedia ada dan baharu dengan ilustrasi amalan baik dan sebaliknya untuk memudahkan industri melaksanakannya. Sorotan Untuk memudahkan rujukan, semakan utama yang dibuat pada dokumen dasar pada FTFC termasuk: Peningkatan kepada definisi "wakil" dan "ejen" dan kemasukan definisi "orang kurang upaya" dan "pengguna mudah terjejas" di bawah perenggan 5.2; Peningkatan kepada spesifikasi "pengguna kewangan" di bawah perenggan 7.1; Pemasukan Hasil 7 yang baharu untuk memastikan pengguna yang mudah terjejas dilayan secara adil dan saksama oleh PPK, dan kakitangan, wakil dan ejen PPK di bawah perenggan 8.1(g); Peningkatan kepada peranan lembaga pengarah dan pengurusan kanan dalam menunjukkan komitmen terhadap layanan adil terhadap pengguna yang mudah terjejas, termasuk mewujudkan dan mengekalkan dasar, proses dan struktur akauntabiliti yang sesuai di bawah perenggan 10.2 hingga 10.4; Pemasukan Prinsip 7 untuk menetapkan keperluan baharu mengenai layanan adil terhadap pengguna yang mudah terjejas di bawah perenggan 16.1 hingga 16.28; Peningkatan amalan sedia ada dan kemasukan amalan baik dan buruk yang baharu dalam seluruh dokumen dasar untuk menggambarkan jangkaan BNM dan membantu PPK memahami dan mematuhi keperluan dokumen dasar; Peningkatan hasil yang saksama kepada pengguna kewangan di bawah Lampiran 1; Peningkatan kepada ilustrasi Piagam Layanan Pelanggan Secara Adil di bawah Lampiran 2; dan Pemasukan amalan baik baharu oleh PPK dalam berurusan dengan orang kurang upaya dan pengguna lain yang mudah terjejas, jika berkaitan, di bawah Lampiran 5. BNM juga telah menjawab maklum balas utama yang diterima mengenai Draf Dedahan Mengenai Layanan Adil Terhadap Pengguna Mudah Terjejas yang dikeluarkan pada bulan Februari 2023, yang boleh diakses melalui dokumen yang dilampirkan di bawah. Selain itu, BNM akan menambah baik Soalan Lazim (frequently asked questions, FAQ) sedia ada pada dokumen FTFC untuk dikeluarkan tidak lama lagi. Tarikh Penerbitan 27 Mac 2024 Tarikh Berkuatkuasa 27 Mac 2024 Jabatan Penerbit Jabatan Pengguna dan Amalan Pasaran Dokumen Dokumen Dasar Layanan Adil kepada Pengguna Kewangan Kenyataan Maklum Balas terhadap Draf Dedahan Layanan Adil kepada Pengguna Mudah Terjejas: Ringkasan Maklum Balas Utama Yang Diterima dan Maklum Balas BNM Bank Negara Malaysia 27 Mac 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Feedback Statement - Fair Treatment of Vulnerable Consumers 1 TERHAD TERHAD Exposure Draft on Fair Treatment of Vulnerable Consumers Feedback Statement Summary of Key Feedback Received and Bank Negara Malaysia’s Responses In February 2023, Bank Negara Malaysia (BNM) issued an Exposure Draft on Fair Treatment of Vulnerable Consumers (ED on FTVC) for public consultation. BNM received feedback from 84 respondents. Among the 84 respondents were 71 financial service providers (FSPs), and 13 members of the public comprising the general public and associations representing the financial industry, consumers and persons with disabilities. We greatly appreciate the effort made in providing feedback and suggestions for our consideration in enhancing the requirements on FTVC. This Feedback Statement is intended to summarise the key feedback received and BNM’s responses to provide greater insights on BNM’s regulatory expectations. Other relevant feedback, suggestions and queries have been incorporated in the revised Policy Document on Fair Treatment of Financial Consumers (PD on FTFC) and the updated Frequently Asked Questions (FAQs) to the PD on FTFC. No. Area Feedback received Bank Negara Malaysia’s Response 1. Definition of a vulnerable consumer – whether there is a suitable document, official form or other means for FSPs to assess the condition of persons with disabilities (PWDs) BNM received the following suggestions on the possible procedures which can assist FSPs in assessing the condition of a PWD with non- physical impairments: (a) refer to the Orang Kurang Upaya (OKU) card, or a medical letter from a certified practitioner; (b) establish a PWD database, or enhance the National Registration Identity Card to embed data on a person’s disability; and (c) allow self-disclosure by customers via a vulnerable customer declaration form or a customer fact-finding document. Related to item (c) above, there were also suggestions from FSPs in the insurance and The question on whether there is a suitable document, official form or other credible means for FSPs to assess the condition of a PWD was posed in the ED on FTVC given the practical challenges FSPs may face in accurately identifying a PWD with non-physical impairments. BNM recognises that the suggestions provided has its own merits and potential challenges. For example: (a) On supporting documentation, while the OKU card can serve as a form of identification of PWDs, not all PWDs are in possession of an OKU card, given ownership of such card is not made mandatory by the relevant authorities, such 2 TERHAD TERHAD 1 Accessible via SMOKU (jkm.gov.my). No. Area Feedback received Bank Negara Malaysia’s Response takaful industry to reinforce voluntary disclosure by customers on their status or circumstance of vulnerability in product disclosure sheets relating to insurance or takaful products as part of financial consumers’ ongoing duty of disclosure, given that insurance and takaful is contracted based on utmost good faith. as Jabatan Kebajikan Masyarakat (JKM). (b) Similarly, a medical letter may also serve as a credible form of identification of PWDs. However, in view of the sensitivity of such personal medical information, financial consumers must not be forced to submit such to FSPs as a condition for signing-up for financial products and services. (c) On the creation of a PWD database, JKM has already established and administers the Sistem Maklumat Orang Kurang Upaya (SMOKU)1, which contains consolidated data of PWDs who voluntarily register with them. The National Registration Identity Card system is administered by a different authority i.e. the National Registration Department, but it may be unfeasible for BNM to leverage on this database due to legal and regulatory limitations. (d) Lastly, while the suggestion on self- disclosure to be made by financial consumers is a valid means of identification, such disclosures may still require independent verification by FSPs. https://oku.jkm.gov.my/ 3 TERHAD TERHAD 2 This excludes digital banks given the nature of their business. No. Area Feedback received Bank Negara Malaysia’s Response Given the above considerations, BNM will not be mandating any specific procedure to identify a PWD. Instead, a non-exhaustive list of procedures will be included in the revised PD on FTFC as guidance for FSPs in identifying PWDs with non-physical impairments. The non- exhaustive list takes into consideration all the feedback received from the public consultation. 2. Definition of a vulnerable consumer – whether the example of “a person who is not digitally savvy” should be included in the definition Feedback received on this was mixed, with half of respondents not in favour of including the example, while the remaining half expressed support for the example to be included. Among the reasons highlighted by respondents who were not in favour include the potential challenges in identifying the extent of a financial consumer’s digital savviness given the subjectivity, and the view that a financial consumer’s vulnerability should not be attributed to their preference to use or not to use digital channels. Respondents who expressed support underlined the important role of FSPs to assist financial consumers who are not digitally savvy, such as Given the divergent views received, BNM wishes to clarify the regulatory objective for proposing the inclusion of this example in the description of circumstances that can contribute to vulnerability: (a) To ensure that adequate assistance is provided by FSPs to financial consumers who are not digitally savvy for purposes of financial inclusion; and (b) To ensure that FSPs give due consideration to the needs of vulnerable consumers in their digitalisation initiatives or when migrating customers to digital or online apps. Financial consumers should not be forced to sign up for any financial product or service offered by FSPs2 4 TERHAD TERHAD 3 Category (a) in the ED on FTVC is defined as a financial consumer who has the capacity to make his or her own financial decisions but may face challenges in accessing financial services or may require assistance to engage in financial services or may require assistance to engage in financial services, for example, a person with disabilities or a senior citizen. 4 Category (b) in the ED on FTVC is defined as a financial consumer who has a low ability to withstand financial shocks, for example, a person who is overly-indebted or has no savings, category (c) in the ED on FTVC is defined as a financial consumer who is experiencing or has experienced adverse life events resulting in temporary or long-term financial hardship, for example, natural disasters, temporary loss of income, unemployment, or the death/total permanent disability of the main breadwinner, and category (d) in the ED on FTVC is defined as a financial consumer who has an inadequate level of financial literacy or experience in using financial services or products, or poor language skills, for example, a person who only speaks a language other than Bahasa Malaysia or English, or is illiterate, or a person who is not digitally savvy. No. Area Feedback received Bank Negara Malaysia’s Response senior citizens, as well as financial consumers who are illiterate and in the lowest income segments, who would benefit from such assistance. digitally, particularly financial consumers who face difficulty in accessing digital platforms due to lack of connectivity in their location or not owning a smartphone, or who lack experience in conducting their financial transactions digitally. In view of the above, BNM will be retaining the example of “a person who is not digitally savvy” in the definition of a vulnerable consumer. Further guidance will be included in the FAQS to the PD on FTFC on the possible methods that can be considered by FSPs for identification of such vulnerabilities. 3. Definition of a vulnerable consumer – other feedback There were also a few suggestions to: (a) confine the definition of a vulnerable consumer to category (a)3 only, as the remaining categories (b) to (d)4 defined in the ED on FTVC is considered as challenging for the FSP to establish processes and to monitor BNM has considered all suggestions received, including whether the examples will be adequate or sufficient to determine the vulnerability faced by a financial consumer and whether the definitions proposed would pose 5 TERHAD TERHAD No. Area Feedback received Bank Negara Malaysia’s Response due to its subjectivity; and (b) consider excluding the example of persons who are unable to communicate in Bahasa Malaysia or English as these are the two official languages for communication in Malaysia, thus it would not be practical for FSPs to set up processes or documentations in languages other than the common languages in Malaysia. practical challenges for FSPs to implement. In preparing for the new requirements on FTVC to come into effect, FSPs are encouraged to review its internal policies and procedures to ensure its staff, representatives and agents are provided with adequate training and guidance on its internal criteria and processes for identifying financial consumers who may fall under each of the categories of vulnerability and are well informed on the appropriate manner or assistance that should be offered to vulnerable consumers. A list of non-exhaustive examples that FSPs can consider has been included in the FAQs to the PD on FTFC. 4. Scope of persons with disabilities (PWDs) Both the industry and public suggested for “mental impairment” to be included in the scope of PWDs in view of differences between the proposed scope of PWD in the ED on FTVC and the legal definition of PWDs under the Persons with Disabilities Act 2008 (PWD Act). BNM is of the view that the term “persons with disabilities” referred to in the Policy Document should be consistent with the existing legal definition of persons with disabilities under the PWD Act. As such, the revised PD on FTFC will cross-reference the definition of persons with disabilities to the existing definition under the PWD Act. This approach ensures appropriate assistance is provided by FSPs to PWDs, regardless of the type of disability. 6 TERHAD TERHAD 5 Paragraph 8.26 of the ED on FTVC sets out requirements on ensuring the effectiveness of a FSP’s communication channels for vulnerable consumers. No. Area Feedback received Bank Negara Malaysia’s Response 5. Centralised training of FSP’s staff The industry suggested for centralised training to be provided to all staff handling PWDs in the financial sector so that the standards of services or treatment provided across the financial sector to PWDs is consistent. As clarified in paragraph 8.18 of the ED on FTVC, FSPs may opt to engage industry training institutions or their respective industry association to drive efforts to provide centralised training courses on fair treatment of vulnerable consumers. FSPs may also consider referring to available PWD-related training programmes certified by JKM, such as Disability-Related Services Training, which focuses on how one should treat a person with disabilities and the common etiquette in communicating with persons with disabilities. 6. Effective date of the final requirements – whether agreeable with BNM’s proposed staggered effective date of 6 months for all requirements set out under the ED on FTVC and 12 months for paragraph 8.265 of the ED on FTVC While majority of the industry were supportive of the proposed effective dates of the final Policy Document, a significant number of FSPs also requested for longer duration prior to the final requirements coming into effect, due mainly to the need to undertake the following- (a) Enhancements to physical infrastructure of FSPs’ branches to cater to PWDs, where relevant; (b) Development, enhancement and testing of systems and channels to cater to vulnerable consumers; (c) Formulation and review of relevant internal policies and procedures; In view of the feedback received from the industry, BNM will be extending and standardising the effective date of all the new requirements in the final Policy Document to 12 months after the issuance date, with the aim to ensure FSPs are provided with sufficient time to make the necessary enhancements to their systems, processes and communication channels to fully comply with the final requirements, particularly for FSPs with a large customer base. All FSPs are expected to commence a robust 7 TERHAD TERHAD BANK NEGARA MALAYSIA 27 March 2024 No. Area Feedback received Bank Negara Malaysia’s Response (d) Training of staff and intermediaries to ensure consistent understanding in recognising, assessing and responding to the needs of vulnerable consumers; and (e) Preparation of relevant documents, such as manuals, application forms, agreements, and product disclosure sheets. review to identify enhancements required to internal policies, processes and procedures as well as physical and online infrastructure, and conduct the necessary training of its staff, representatives and agents upon the issuance of the revised PD on FTFC to ensure effective compliance once the new requirements come into effect. Fair Treatment of Financial Consumers Fair Treatment of Financial Consumers Applicable to: 1. Licensed banks 2. Licensed Islamic banks 3. Licensed insurers 4. Licensed takaful operators 5. Prescribed development financial institutions 6. Approved financial advisers and approved Islamic financial advisers 7. Approved insurance brokers and approved takaful brokers 8. Approved issuers of a designated payment instrument 9. Approved issuers of a designated Islamic payment instrument Issued on: 27 March 2024 BNM/RH/PD 028-103 Fair Treatment of Financial Consumers 1 of 53 Issued on: 27 March 2024 Table of contents PART A OVERVIEW ............................................................................................... 2 1 Introduction ......................................................................................................... 2 2 Applicability ......................................................................................................... 3 3 Legal provisions .................................................................................................. 3 4 Effective date ...................................................................................................... 3 5 Interpretation....................................................................................................... 4 6 Related and superseded policy documents and legal instruments ...................... 6 PART B POLICY REQUIREMENTS ....................................................................... 7 7 Specification of financial consumer ..................................................................... 7 8 Fair treatment of financial consumer outcomes ................................................... 7 9 Treat Customers Fairly Charter ........................................................................... 8 10 Corporate culture ................................................................................................ 9 11 Fair terms ......................................................................................................... 15 12 Provision of information .................................................................................... 19 13 Fair dealing ....................................................................................................... 23 14 Advice and recommendation ............................................................................. 28 15 Redress ............................................................................................................ 33 16 Vulnerable consumers ...................................................................................... 37 APPENDIX 1 FAIR OUTCOMES TO FINANCIAL CONSUMERS ....................... 46 APPENDIX 2 ILLUSTRATION OF A TREAT CUSTOMERS FAIRLY CHARTER ...................................................................................... 47 APPENDIX 3 ILLUSTRATION OF QUALITATIVE CRITERIA IN PERFORMANCE MEASURES.................................................................................... 49 APPENDIX 4 CONTRACT TERMS WHICH MAY BE REGARDED AS UNFAIR .......................................................................................... 50 APPENDIX 5 ILLUSTRATION OF GOOD PRACTICES IN DEALING WITH PERSONS WITH DISABILITIES .................................................... 52 Fair Treatment of Financial Consumers 2 of 53 Issued on: 27 March 2024 PART A OVERVIEW 1 Introduction 1.1 A resilient and progressive financial system is characterised by the presence of financial service providers (FSPs) that are responsive to the needs of financial consumers, and that conduct their businesses in a way which engenders trust and confidence. A FSP with a corporate culture that focuses on the fair treatment of financial consumers (FTFC) is more likely to have high customer satisfaction and retention, leading to sustained business performance over the long term. 1.2 It is crucial that the management of conduct risk1 is incorporated as part of the FSP’s overall risk management framework, which shall be subject to the same processes as other risks, including risk assessment, risk management, risk monitoring and reporting. The risk assessment process shall identify areas that could potentially result in conduct risk, including business models, product development and governance, sales and marketing practices and staff remuneration practices. 1.3 A FSP must be fair, responsible and professional when dealing with financial consumers. In addition, financial consumers may become vulnerable at a certain period in their lives or at different stages in the product life cycle. Their circumstances may change over time due to a change in health conditions, employment status, life events or other factors which can increase susceptibility to financial distress. Poor treatment of financial consumers not only gives rise to conduct and reputational risks for a FSP but may also result in significant costs due to remediation, compensation and penalties. 1.4 Financial consumers who are or become vulnerable in particular stages of their lifecycle are more likely to have additional or distinct needs which, if not reasonably met by FSPs, could result in unfair treatment, undue financial hardship or exclusion from essential financial services. These vulnerable consumers may be significantly less able to make informed decisions in their best interests when dealing with FSPs and are more likely to experience harm when dealing with FSPs or their intermediaries, compared to the average financial consumer. 1.5 A FSP that makes the effort to understand and effectively respond to the needs of vulnerable consumers can benefit from increased levels of customer satisfaction that leads to improved customer loyalty. Conversely, a FSP that consistently fails to consider the needs of vulnerable consumers may lose competitiveness over time as financial consumers opt to deal with FSPs which are observed to be more ethical and socially responsible in the treatment of their customers. 1 Conduct risk refers to risk arising from a FSP’s business conduct and practices that could result in poor financial consumer outcomes and have a negative reputational and/or financial impact on the FSP. Fair Treatment of Financial Consumers 3 of 53 Issued on: 27 March 2024 1.6 This Policy Document aims to- (a) foster high standards of responsible and professional conduct in a FSP; (b) promote a culture where the interests of financial consumers are an integral part of a FSP’s business strategies and operations; (c) set expectations for a FSP to effectively manage conduct risk; (d) provide financial consumers with the confidence that a FSP exercises due care, skill and diligence, and acts fairly in its dealings with financial consumers; (e) promote a culture where a FSP considers and responds to the interests and needs of vulnerable consumers appropriately in conducting their business and operations; and (f) set requirements and clear guidance for a FSP to observe and provide the appropriate support to vulnerable consumers, consistent with fair treatment of financial consumer outcomes. 2 Applicability 2.1 This Policy Document is applicable to a FSP as defined in paragraph 5.2. 3 Legal provisions 3.1 The requirements in this Policy Document are specified pursuant to- (a) sections 121(c)(ii), 123(1) and 123(3) of the Financial Services Act 2013 (FSA); (b) sections 133(c)(ii), 135(1) and 135(3) of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 42C(1) and 42C(3) of the Development Financial Institutions Act 2002 (DFIA). 3.2 The guidance in this Policy Document are issued pursuant to- (a) section 266 of the FSA; (b) section 277 of the IFSA; and (c) section 126 of the DFIA. 4 Effective date 4.1 This Policy Document comes into effect on 27 March 2024, except for the following paragraphs, which will come into effect on 1 April 2025- (a) paragraph 8.1(g); (b) paragraph 10.3(f); (c) paragraph 10.3(g); (d) paragraph 10.4; and (e) paragraphs 16.1 to 16.28. Fair Treatment of Financial Consumers 4 of 53 Issued on: 27 March 2024 5 Interpretation 5.1 The terms and expressions used in this Policy Document shall have the same meanings assigned to them in the FSA, IFSA or DFIA, as the case may be, unless otherwise defined in this Policy Document. 5.2 For the purpose of this Policy Document- “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretive, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “Board” refers to the board of directors of a FSP, including a committee of the Board where the responsibilities of the Board set out in this Policy Document have been delegated to such a committee. However, the Board remains fully accountable for any authority and responsibilities delegated to such committee; “commission” refers to any remuneration received by a FSP for marketing, offering or selling a financial service or product for and on behalf of another person and may include compensation, incentive, allowance or bonus in whatever form or by whatever name called; “financial consumer” refers to any person as specified in paragraph 7.1 of this Policy Document; “financial service provider” or “FSP” refers to- (a) a licensed bank; (b) a licensed Islamic bank; (c) a licensed insurer; (d) a licensed takaful operator; (e) a development financial institution prescribed under the DFIA; (f) an approved issuer of a designated payment instrument; (g) an approved issuer of a designated Islamic payment instrument; (h) an approved insurance broker; (i) an approved takaful broker; (j) an approved financial adviser; and (k) an approved Islamic financial adviser; “plain language” refers to a clear presentation of information in a manner that is easy for a layman to understand. It avoids the use of convoluted sentence structures and unnecessary use of legal and technical jargon; Fair Treatment of Financial Consumers 5 of 53 Issued on: 27 March 2024 “persons with disabilities” 2 has the same meaning assigned to it in the Persons with Disabilities Act 2008; “representatives” and “agents” refer to any individuals or firms acting on behalf of a FSP, which includes sales representatives, bancassurance or bancatakaful staff, Perlindungan Tenang partners, insurance or takaful agents and their related parties3; “senior management” refers to the chief executive officer and senior officers of the FSP; “staff” refers to persons employed by a FSP, including temporary or contract staff whose conduct would have an impact on financial consumer outcomes, regardless of whether that person has direct contact with financial consumers of the FSP; “vulnerable consumer” refers to a financial consumer4 who- (a) may face challenges in accessing financial services or may require assistance to engage in financial services, for example, a person with disabilities or a senior citizen5; (b) has a low ability to withstand financial shocks, for example, a person who is overly-indebted or has no savings; (c) is experiencing or has experienced adverse life events resulting in temporary or long-term financial hardship, for example, natural disasters, temporary loss of income, unemployment, or the death/total permanent disability of the main breadwinner; or (d) has an inadequate level of financial literacy or experience in using financial services or products, or poor language skills, for example, a person who only speaks a language other than Bahasa Malaysia or English, is illiterate, or is not digitally savvy. 2 In circumstances where the disability is not apparent, a FSP may consider the following non-exhaustive procedures to verify that a financial consumer falls within this category of persons. However, such procedures should not be compelled on or used against a financial consumer in any way- (a) voluntary submission of a medical letter/report or a verified copy certifying the person’s disability issued by a doctor/specialist registered under the Malaysian Medical Council; (b) voluntary disclosure of an OKU card issued by Jabatan Kebajikan Malaysia; or (c) voluntary disclosure of disability to the FSP (by filling up a form/document prepared by the FSP for purposes of such voluntary disclosure). 3 “Related parties” refer to any persons accustomed to representing, or take instructions from, the FSPs’ intermediary in relation to a FSP’s financial service or product, unless otherwise stated in relevant and applicable regulatory documents issued by the Bank. 4 For purposes of the scope of vulnerable consumer and applying the relevant principles applicable to a vulnerable consumer, “financial consumer” refers to a natural person, whereby for a micro or small business, “financial consumer” refers to the individual(s) running the business. 5 “Senior citizen” refers to an individual aged 60 years and above, as defined by the Government of Malaysia in the MyGovernment Portal under the classification of vulnerable groups. Fair Treatment of Financial Consumers 6 of 53 Issued on: 27 March 2024 6 Related and superseded policy documents and legal instruments 6.1 This Policy Document must be read together with other relevant policy documents and legal instruments that have been issued by the Bank6 , in particular- (a) Policy Document on Corporate Governance issued on 3 August 2016 (BNM/RH/PD 029-9); (b) Guidelines on the Imposition of Fees and Charges on Financial Products and Services issued on 10 May 2012 (BNM/RH/GL 016-2); (c) Policy Document on Introduction of New Products issued on 7 March 2014 (BNM/RH/STD 028-5); (d) Policy Document on Responsible Financing issued on 6 May 2019 (BNM/RH/PD 028-95); (e) Guidelines on Product Transparency and Disclosure issued on 31 May 2013 (BNM/RH/GL 000-3); (f) Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business issued on 17 August 2012 (BNM/RH/GL/010-16); (g) Circular on Fair Debt Collection Practices issued on 11 September 2007 (BNM/RH/CIR 013-1); (h) Circular on Fair Debt Collection Practices issued on 1 October 2007 (BNM/RH/CIR/005-13); and (i) Guidelines on Complaints Handling issued on 17 December 2009 (BNM/RH/GL 000-4). 6.2 This Policy Document supersedes the Policy Document on Fair Treatment of Financial Consumers issued on 6 November 2019 (BNM/RH/PD 028-103). 6 Including any amendments or modifications made after the issuance date. Fair Treatment of Financial Consumers 7 of 53 Issued on: 27 March 2024 PART B POLICY REQUIREMENTS 7 Specification of financial consumer S 7.1 For the purpose of this Policy Document, a financial consumer means- (a) any person who uses, has used, or may be intending to use, any financial service or product for personal, domestic or household purposes as defined in section 121 of the FSA, section 133 of the IFSA and section 42A of the DFIA; and (b) the following persons specified by the Bank for purposes of sections 121(b) and 121(c)(ii) of the FSA, sections 133(b) and 133(c)(ii) of the IFSA and sections 42A(b) and 42A(c) of the DFIA- (i) any person who uses, has used or may be intending to use any financial service or product in connection with a micro or small business as defined in the Guideline for SME Definition issued by SME Corporation Malaysia7; and (ii) any person who uses, has used or may be intending to use any insurance or takaful product and who is an individual, or a micro or small business as defined under subparagraph (i), insured under a group policy or covered under a group takaful certificate where the premiums or contributions are paid by the person insured or the person covered, as the case may be. 8 Fair treatment of financial consumer outcomes S 8.1 A FSP shall implement the requirements in this Policy Document with the objective of delivering the following outcomes- (a) Outcome 1: Financial consumers have the confidence that they are dealing with a FSP where the fair treatment of its financial consumers and consideration of their best interests are integral to its corporate culture and core values; (b) Outcome 2: Financial consumers are not subject to unfair discriminatory practices, including unfair contract terms that significantly disadvantage financial consumers; (c) Outcome 3: Financial consumers are provided with clear, relevant and timely information for them to make informed decisions before, during and after the point of sale, including the costs, risks and important exclusions or limitations; (d) Outcome 4: Staff, representatives and agents of a FSP exercise due care, skill and diligence when dealing with financial consumers; (e) Outcome 5: Financial consumers receive suitable advice and recommendations that take into account their financial needs and circumstances; (f) Outcome 6: Financial consumers’ complaints and claims are handled in a prompt, fair and effective manner; 7 Issued in 2013, including any amendments or modifications made thereof. Fair Treatment of Financial Consumers 8 of 53 Issued on: 27 March 2024 (g) Outcome 7: Vulnerable consumers are treated fairly and equitably by the FSP and its staff, representatives and agents. G 8.2 Appendix 1 of this Policy Document provides a non-exhaustive list of examples of conduct that is consistent with fair outcomes to financial consumers. 9 Treat Customers Fairly Charter S 9.1 A FSP shall prominently publish its commitment towards treating financial consumers fairly and how it intends to implement such commitments on its website. G 9.2 For the purposes of paragraph 9.1, the commitments may be set out in a separate Treat Customers Fairly Charter or incorporated into its Customer Service Charter with adequate prominence. Appendix 2 of this Policy Document provides an illustration of a Treat Customers Fairly Charter. G 9.3 A FSP may collaborate with industry associations to develop industry codes of good practices that are aligned with the FTFC principles, and to raise awareness on the fair treatment that financial consumers can expect from a FSP. S 9.4 A FSP shall be guided by the FTFC principles set out in paragraphs 10 to 16 of this Policy Document in developing its commitments. Fair Treatment of Financial Consumers 9 of 53 Issued on: 27 March 2024 10 Corporate culture Principle 1: The Board and senior management must set clear expectations on FTFC and ensure that these expectations are embedded in the FSP’s corporate culture and core values. G 10.1 FTFC begins with a FSP’s culture. Culture plays an important role in shaping the behaviour of individuals and in influencing the actions and decisions taken by the FSP. An effective culture is one where the conduct of the Board, senior management and staff are shaped by underlying values that place financial consumers’ interests as an integral part of the business strategies and operations. Effective leadership from the Board and senior management through communication and actions are essential to the promotion of a fair dealing culture within the FSP. By setting a good example, the Board and senior management can drive the conduct of staff to be ethical, prudent and professional. S 10.2 The Board is responsible for setting the tone from the top to ensure reasonable standards of fair dealing, including by- (a) working with senior management to promote a sound corporate culture within the FSP which reinforces ethical, prudent and professional conduct and behaviour; (b) demonstrating commitment to FTFC, including the fair treatment of vulnerable consumers (FTVC) through actions, communications and measures to achieve FTFC outcomes; (c) approving relevant policies to achieve FTFC outcomes; and (d) ensuring appropriate reflection of FTFC in the FSP’s business strategies and operations. Good practices8 1. During deliberations at Board meetings and communications with senior management, the Board provides constructive feedback to senior management on ongoing efforts to implement the FTFC principles and embeds FTFC into the corporate culture and such feedback, along with specific action items, are properly documented. 2. The Board conducts meaningful deliberations on FSPs’ product design and development, taking into account the interests and fair treatment of financial consumers prior to any approvals. This includes robust deliberations on key retail products offered by FSPs, such as personal financing and housing loans offered by licensed banks, licensed Islamic banks and prescribed 8 The good and poor practices set out in this Policy Document are intended as examples to guide a FSP on measures that can be taken to implement the requirements in this Policy Document. The examples are non-binding and may not be the only approach that a FSP can adopt. A FSP should assess the relevance of these examples in light of the nature, scale, complexity and operating environment of its business. A FSP has the flexibility to adopt other approaches that can better achieve the intended FTFC outcomes. Fair Treatment of Financial Consumers 10 of 53 Issued on: 27 March 2024 development financial institutions, and the management of participating life funds by licensed insurers to prevent or cease unfair practices. 3. The Board assesses and endorses reports prepared by senior management on the long-term implications arising from its business and commercial decisions to its financial consumers. This includes strategies to mitigate against any adverse implications that may arise, such as in the context of medical insurance and takaful, to prevent actions that could accelerate the shrinking of medical product portfolios and lead to poorer financial consumer outcomes arising from the diminishing risk-pooling effects. Similarly, in the context of online banking and e-payment transactions, to implement measures that can effectively detect and prevent financial consumers from falling victim to financial fraud. Poor practices 1. Absence or insufficiency of deliberation by the Board on matters of importance to the preservation of interests and fair treatment of financial consumers, such as ensuring due consideration of policyholders’ reasonable expectations when reviewing and approving bonus rates under participating life policy and re-pricing of medical insurance/takaful products. 2. The Board sets underwriting standards for financing products which focuses only on the management of the FSP’s credit risk, without due consideration of responsible financing. For example, the Board approves the adoption of lax affordability criteria for assessment of new retail financing applications – such as imprudent Debt Service Ratio thresholds and/or low Net Disposable Income thresholds - which serve as poor safeguards to prevent vulnerable consumers from over-indebtedness in the event of any future hikes in interest/profit rates or increases in cost of living. S 10.3 Senior management is primarily responsible for driving the FTFC agenda and embedding FTFC into the FSP’s corporate culture and core values. This includes- (a) supporting the Board to establish a sound corporate culture within the FSP which reinforces ethical, prudent and professional conduct and behaviour; (b) integrating FTFC into the business model, business strategy and business practices; (c) ensuring that decision making processes give adequate consideration to financial consumer interests; (d) setting and communicating to staff the core values and desired behaviour needed to deliver FTFC outcomes, including when engaging with vulnerable consumers; (e) embedding FTFC into all stages of the product life cycle, from product design (including the setting of fees and charges), promotions, product distribution, provision of advice to post-sales processes; Fair Treatment of Financial Consumers 11 of 53 Issued on: 27 March 2024 (f) ensuring measures adopted under paragraph 10.3(e) adheres to the requirements on fair treatment of vulnerable consumers specified under paragraphs 16.1 to 16.28; (g) establishing and maintaining appropriate policies, processes and accountability structures that assist staff, representatives and agents in meeting the needs of vulnerable consumers when carrying out their roles; (h) aligning recruitment, training, appraisals and reward schemes to the desired values and outcomes in accordance with the FTFC principles; (i) monitoring FTFC outcomes and the implementation of corrective measures where the outcomes are not met; and (j) providing avenues for early escalation of concerns affecting FTFC outcomes, including breaches in policies and procedures. G 10.4 In implementing paragraph 10.3(g), measures taken by senior management should promote a business culture that recognises that their existing and prospective customers may be or are already facing vulnerabilities, and rewards good behaviour and actions by their staff, representatives of agents that are able to respond effectively to the specific needs of vulnerable consumers. Good practices 1. Senior management deliberates and ensures appropriate and timely escalation of material and emerging issues that may contribute to heightened risk of harm to customers to the Board, such as sudden spikes in customer complaints or rising trends in impairment rates following the launch of a new product line. Senior management ensures regular updates to the Board on material concerns affecting the achievement of FTFC outcomes at least on a quarterly basis. Potential weaknesses in the delivery of FTFC obligations are promptly identified and addressed. 2. Senior management requires business units to complete and submit a self- assessment compliance checklist to the FSP’s compliance function for their independent review before launching any marketing material, product campaign, notification of re-pricing or bonus revision in order to assess its compliance with relevant business conduct requirements such as on disclosure and fees and charges. 3. Senior management conducts periodic reviews on the effectiveness of its conduct practices, which includes post-launch audits on the effectiveness of its product disclosure sheets or communications to policyholders on bonus revisions or repricing of medical and health insurance products in supporting informed decisions by its customers. These reviews include a robust review of customer enquiries or complaints, or through focus group discussions or market surveys to identify gaps and areas for improvement in its business processes against defined FTFC outcomes. 4. Senior management ensures that the FSP incorporates clear procedures for conduct issues and implications to be adequately considered and addressed during the product design stage. Fair Treatment of Financial Consumers 12 of 53 Issued on: 27 March 2024 5. Senior management regularly reviews the nature and levels of fees and charges levied on financial consumers to ensure that they are consistent with fair treatment principles and do not lead to financial exclusion or discrimination. 6. Senior management regularly reviews non-compliances or breaches of market conduct requirements and ensures timely execution of appropriate remedial and mitigation actions, including appropriate consequence management, to serve as effective deterrence and a clear signal of the institution’s low tolerance for such misconduct by its employees. Poor practices 1. Issues or concerns raised by staff that could affect the achievement of FTFC outcomes are not acted on or disregarded by senior management or officers of higher authority. 2. Staff are penalised for highlighting FTFC issues or concerns which involve members of the Board, senior management or individuals with higher authority. 3. Senior management does not give due consideration to the affordability of an insurance/takaful cover by imposing a significant lump sum rate increase which disproportionately compromises financial consumers’ ability to continue paying for the financial product or service. G 10.5 The promotion of FTFC culture can be achieved by recruiting staff with appropriate values and attitudes, training them on the FSP’s core values and desired behaviour, monitoring staff performance and having in place reward schemes that incentivise staff conduct and behaviour to achieve FTFC outcomes. S 10.6 A FSP shall ensure its staff, representatives and agents are trained on the core values and desired conduct and behaviour to deliver fair outcomes to financial consumers. G 10.7 The training referred to under paragraph 10.6 should be specific to the staff, representative or agent’s role and address how the FTFC principles apply to the different stages of the product lifecycle, and the FSP’s core values and desired behaviour in delivering FTFC outcomes. Good practice The FSP’s code of ethics emphasises the importance of according fair treatment to financial consumers, including those identified as vulnerable, and sets expectations for staff to uphold high standards of professionalism. Fair Treatment of Financial Consumers 13 of 53 Issued on: 27 March 2024 Poor practice No specific guidance is provided to staff on the conduct and behaviour or actions expected of them to deliver FTFC outcomes. S 10.8 A FSP shall ensure that performance measures at the enterprise, business or functional unit and individual levels promote the FSP’s core values and desired conduct and behaviour to achieve FTFC outcomes. Apart from quantitative targets, performance measures shall include qualitative criteria that closely reflect the delivery of FTFC outcomes. G 10.9 Qualitative criteria referred to in paragraph 10.8 may include understanding a customer’s needs, the suitability of product recommendation, the provision of quality advice, achieving customer satisfaction and compliance with the FSP’s internal policies and procedures. Appendix 3 of this Policy Document provides an illustration of qualitative criteria in performance measures. Good practices 1. The FSP uses a balanced scorecard approach to track staff key performance indicator (KPI) that incorporates various quantitative and qualitative criteria. During the performance review process, any misconduct by staff, such as engaging in exploitative and predatory practices, is also considered when deciding on incentives and rewards. 2. The FSP provides incentives for staff to identify and deal effectively with vulnerable consumers by building this into their performance assessment. S 10.10 A FSP must ensure that its remuneration arrangements and practices are aligned with FTFC outcomes. S 10.11 Where the remuneration policy allows for variable remuneration, a FSP shall ensure that- (a) potential risks of poor financial consumer outcomes are identified and addressed; (b) the ratio between fixed and variable components are appropriately balanced; and (c) sufficient weight is placed on qualitative criteria to promote the desired conduct and behaviour to act in the best interests of financial consumers at all times. Poor practices 1. The FSP’s remuneration arrangements and practices are based mainly on meeting sales targets and generating revenue, without emphasising on considerations to act in the best interests of financial consumers. For Fair Treatment of Financial Consumers 14 of 53 Issued on: 27 March 2024 example, lack of explicit conduct indicators in KPIs of senior management as well as criteria to qualify for sales campaign incentives such as persistency rates, quality of customer fact find forms, feedback from welcome calls, past disciplinary actions, and complaints. 2. The licensed insurer or takaful operator implements a commission structure that does not commensurate with the actual effort or services rendered to financial consumers by its intermediaries, resulting in disproportionate charges to financial consumers and contributing to the depletion of their insurance or takaful fund values. S 10.12 Where undesirable conduct or behaviour of staff, representatives or agents results in detriment to financial consumers, a FSP shall investigate and take appropriate action to prevent future recurrence. G 10.13 Undesirable conduct or behaviour of staff, representatives or agents that can result in detriment to financial consumers as referred to in paragraph 10.12 may include the behaviours specified under paragraphs 13.3, 13.4, 13.7, 13.10 and 14.14. Poor practices 1. The FSP’s compliance and internal audit functions focus only on compliance with conduct rules and regulations, without assessing whether the FSP’s practices contribute or result in poor FTFC outcomes. 2. No serious action is taken against an intermediary despite complaints or allegations of potentially serious misconduct against the intermediary. The FSP merely issue reminders without conducting proper assessments to identify the root causes and severity of harm caused to financial consumers or implementing effective remedial measures to prevent further recurrence of such lapses. Fair Treatment of Financial Consumers 15 of 53 Issued on: 27 March 2024 11 Fair terms Principle 2: A FSP must ensure that financial consumers are provided with fair terms in contracts with financial consumers. G 11.1 Given the imbalance of bargaining power between financial consumers and a FSP, a FSP is expected to ensure a fair balance between the rights and obligations of the parties to the contract, particularly in relation to pre-written contractual terms. This includes avoiding legal and technical terminology in contracts which can be difficult for financial consumers to comprehend. S 11.2 The requirements in this section do not apply to terms of contract which- (a) have been individually negotiated; or (b) reflect statutory or regulatory provisions and requirements. G 11.3 Terms of contract are regarded as having been individually negotiated where the financial consumer is able to influence the substance of the contract terms. S 11.4 A FSP must ensure that terms in its standard contracts are fair to financial consumers. A term is regarded as unfair if it has a tendency to create a significant imbalance, whereby it shifts the rights and obligations significantly in favour of the FSP to the detriment of financial consumers. Whether a term is fair is to be determined by reference to the contract as a whole in light of the circumstances existing when the contract was entered into and by taking into account the nature of the financial service or product involved. G 11.5 Appendix 4 of this Policy Document provides a non-exhaustive and indicative list of contract terms that are likely to be regarded as unfair by the Bank. The Bank may review and update the list from time to time to ensure its relevance and applicability. Good practices 1. The FSP takes into account financial consumers’ interests when developing contract terms to ensure that the terms are not one-sided or structured only to the advantage or benefit of the FSP. 2. The FSP’s contract terms allow for full refunds in cases where the financial consumer cancels a policy/certificate under the free-look period or where the insurance/takaful coverage has not been activated for policies/certificates purchased through non-direct digital platforms9, e.g., the financial consumer did not enter a redemption code on a specified webpage or did not click on a link to activate the policy/certificate. 9 Non-direct digital platforms refer to intermediaries’ own social media page or corporate website /microsite/ mobile application, product aggregators’ website, e-commerce platforms/ e-wallets and third-party websites/ online service providers. Fair Treatment of Financial Consumers 16 of 53 Issued on: 27 March 2024 Poor practices 1. The FSP includes terms that allow the FSP to unilaterally vary a contract without any valid reason or with ambiguous reasons such as ‘for any reason the bank sees fit’ or ‘for any reason the bank considers reasonable at the time of the change’. 2. The FSP includes terms that allow the FSP to impose a disproportionately high penalty fee on financial consumers due to their failure to meet the terms of the contract. 3. The FSP includes terms that allow the FSP not to provide any notice on its right to set-off any credit balance in financial consumers’ account maintained with the FSP or to terminate the agreement with the financial consumer. 4. The FSP includes terms that impose unreasonable or unrelated conditions on financial consumers in order to continue to provide benefits or coverage to financial consumers. For example, in the application for policy reinstatement, the licensed insurer or takaful operator expects financial consumers to prove that the life assured’s family members are in good health. 5. The licensed insurer or takaful operator includes terms that limit the coverage provided under a financial product which is otherwise commonly offered for similar financial products in the market, without prominently disclosing the limitations in the marketing material. 6. The FSP includes declarations that could put financial consumers at a disadvantaged position in the event of a dispute. For example, financial consumers are required to make a declaration that the decision to purchase a financial product was made on their own judgement regardless of any misrepresentation made by the FSP’s staff, representatives or agents. 7. The FSP includes terms that exclude, limit or indemnify the FSP against any liabilities arising from the opening of a current or savings account by a financial consumer, particularly those who meet the vulnerable consumer definition. S 11.6 A FSP shall ensure a contract is reviewed during product development to ensure the terms are clear and accurately reflect the financial product as designed. This includes ensuring that- (a) terms are expressed in plain language; (b) terms are presented in a legible and concise manner; and (c) terms that impose obligations on financial consumers are given appropriate prominence. Fair Treatment of Financial Consumers 17 of 53 Issued on: 27 March 2024 Good practices 1. The terms explicitly disclose any future charges that may be imposed on financial consumers instead of using broad terms such as ‘at our discretion’ or ‘at a cost to be determined by the FSP’. 2. The FSP uses plain language in contracts to facilitate financial consumers’ understanding on their rights and obligations. Poor practices 1. The FSP provides general cross-references to other laws such as ‘pursuant to the relevant provisions of the Land Code where applicable’ without drawing attention to provisions that could have a material impact on financial consumers’ interests. 2. The FSP includes terms that are vague such as ‘the bank is entitled to utilise any monies received towards any payment to be appropriated in any manner’. 3. The FSP does not accord appropriate prominence to statements seeking financial consumers’ consent in key disclosure materials, such as application or proposal forms and contracts. For example, statements seeking financial consumers’ consent on surrendering of moneys payable. S 11.7 A FSP must not have contract terms that impose barriers which make it difficult for financial consumers to switch to another financial product or another FSP before the end of the contract tenure. Financial consumers must be able to switch financial products or FSPs without incurring disproportionate costs. Good practice The FSP gives financial consumers reasonable notice in advance with valid reasons prior to making any alterations to contract terms and financial consumers are free to terminate the contract within a reasonable timeframe. Poor practice The FSP imposes excessively long waiting periods or coverage limitations on a policy owner/takaful participant who switches insurance/takaful products due to affordability reasons, e.g., a policy owner/takaful participant opting to switch to a cheaper product during a medical re-pricing exercise. S 11.8 A FSP shall include a clear and prominent statement to remind financial consumers to read and understand contract terms, and to discuss further with the FSP’s staff, representative or agent if there are any terms that the financial Fair Treatment of Financial Consumers 18 of 53 Issued on: 27 March 2024 consumers do not understand before signing a contract. A FSP must provide within a pre-contractual document, for financial consumers to acknowledge that the key contract terms affecting the obligations of the financial consumers have been adequately explained to them. S 11.9 A FSP shall include key contract terms that affect financial consumers’ rights and obligations in the product disclosure sheet for all financial products. S 11.10 A FSP shall review its contract terms periodically and be satisfied that the terms comply with the requirements in this Policy Document at all times. S 11.11 A FSP must not enforce or invoke any unfair terms in contracts with financial consumers existing prior to the issuance of this Policy Document. G 11.12 For purposes of implementing the requirement in paragraph 11.11, a FSP is encouraged to proactively review such contracts and amend the terms, where appropriate. A FSP is reminded to embrace the spirit of FTFC at all times. Fair Treatment of Financial Consumers 19 of 53 Issued on: 27 March 2024 12 Provision of information Principle 3: A FSP must provide financial consumers with clear, relevant and timely information on financial services and products. G 12.1 As financial services and products become increasingly complex, it is critical for financial consumers to have better access to pertinent information to facilitate comparison and informed decision-making. Adequate and effective product disclosure can facilitate financial consumers to be more active in safeguarding their interests. Product disclosure will only serve its purpose if financial consumers are able to understand the information provided to compare and assess product suitability. It is therefore important for the disclosure to be easy to understand and focused on key and relevant information central to financial consumers’ decision making. S 12.2 A FSP shall ensure proper processes are in place for the development and review of product disclosure and promotional materials to ensure that information disclosed provide a clear and balanced representation on key features, risks and benefits necessary for financial consumers to make informed financial decisions. Good practice The FSP carries out testing of the disclosure documents with financial consumers prior to launching a new financial product to ensure that the information disclosed can be understood and serves the purpose of facilitating informed decision-making. Poor practice The product disclosure sheet focuses unduly on potential returns or benefits of a financial product without also highlighting the risks that financial consumers should take into account. S 12.3 A FSP shall keep financial consumers adequately informed regarding a financial service or product at the pre-contractual stage, at the point financial consumers enter into a contract and during the term of the contract as stipulated in the Guidelines on Product Transparency and Disclosure 10 to facilitate financial consumers in making informed decisions on the financial service or product that meets their needs. This shall include relevant information on fees and charges applicable to a financial service or product. 10 Issued in May 2013, including any amendments or modifications made thereof. Fair Treatment of Financial Consumers 20 of 53 Issued on: 27 March 2024 Good practices 1. The FSP’s sales and marketing staff, representatives and agents provide financial consumers with the product disclosure sheet and spend time to clearly explain the key terms affecting the rights and obligations of financial consumers. The sales and marketing staff, representatives and agents also advise financial consumers to read and consider the information and explanation given. 2. Financial consumers are given adequate time to read and understand the information they are provided with before a purchasing decision is made or confirmed. 3. Notice on changes to a financial service or product’s terms and conditions is provided directly to individual financial consumers within a reasonable period, prior to the scheduled implementation of such change and includes the names of the FSP’s staff whom financial consumers can contact for clarification. The same notice is also provided to intermediaries with adequate guidance to enable them to explain the changes and possible implications to financial consumers. Poor practices 1. The product disclosure sheets for common financial products such as home financing, hire purchase financing and credit card are not widely available at the FSP’s financial consumer touchpoints. 2. The product disclosure sheet is only provided to financial consumers after they have decided to purchase the financial product. S 12.4 A FSP shall ensure that promotional materials are clear and not misleading (whether by statement or omission) as financial consumers often rely on information in promotional materials when making decisions. Good practice The FSP provides illustrations comparing the benefits and premiums of similar alternative products (e.g., new motor product vs. basic comprehensive product, annual e-hailing vs. daily e-hailing) in all promotional materials of the product. Poor practice Promotional materials include comparisons with other financial products that do not share similar features or provide over-optimistic projections on expected returns of the financial product. Fair Treatment of Financial Consumers 21 of 53 Issued on: 27 March 2024 S 12.5 A FSP shall ensure that warnings or disclaimers in relation to an advertised financial service or product are not obscured or disguised in any way by the content or design of the promotional material. S 12.6 A FSP shall disclose information in a clear, concise and effective manner. Focus must be placed on the quality of product disclosure rather than the quantity of disclosure. Poor practices 1. The FSP overloads financial consumers with excessive product information, without regard to whether the information is relevant or appropriate to them. At the same time, the FSP requires financial consumers to make a declaration that they understand the information provided. 2. Where communication to financial consumers requires certain actions or decisions to be taken by the financial consumers, the manner in which the information is provided highlights the need for financial consumers to take prompt action. 3. The FSP does not provide sufficient prominence to statements seeking for financial consumers’ consent, e.g., statements seeking financial consumers’ consent to the sharing of personal information with marketing partners and/or on surrendering of monies payable. S 12.7 A FSP must ensure that information is presented in plain language for financial consumers to better understand the key product features, risks, and their rights and responsibilities. S 12.8 The same requirements on transparency and disclosure shall apply to financial services or products which are offered digitally. If disclosure to and communications with financial consumers will only be undertaken through digital means, a FSP must ensure that this is made clear and acceptable to the financial consumers. A FSP must consider the profile of affected financial consumers in implementing fully digital disclosures and communications and ensure that reasonable measures are taken to help financial consumers adjust to the change in the way the FSP interacts with its financial consumers. Good practices 1. Prior to migrating existing customers to digital products or services – such as migration from hardcopy statements and physical facilities (e.g. savings passbook) to e-statements or online apps - the FSP ensures its existing customers receive adequate notification and guidance to avoid any unintended consequences which are detrimental to the interests of financial consumers arising from such migration exercises. This includes: Fair Treatment of Financial Consumers 22 of 53 Issued on: 27 March 2024 (a) providing ample prior notification on its intended migration plans and the benefits to financial consumers that opt to go digital, to enable customers to opt-in for migration; (b) giving adequate guidance on how to access traditional services online and the importance of cyber hygiene practices to prevent falling prey to online scams and malware; and (c) sets a reasonable adoption rate threshold as a key consideration for full migration. For example, migrating from the offering of hardcopy statements to e-statements only upon meeting a 60% adoption rate. 2. FSPs that are no longer providing free hardcopy statements, or sending monthly e-statements to customers, ensure that their customers can still access at least the last 12-months e-statements through the online app. S 12.9 A FSP must ensure that disclosure made through digital channels is effective and will facilitate understanding by financial consumers. G 12.10 Effective disclosure may be achieved, for example, by incorporating more engaging forms of media such as the adoption of visual aids, interactive tools and videos to explain complex information and the use of infographics and ‘bite- size’ guides to encourage financial consumers to read and use the information for decision-making. S 12.11 When information delivered contains financial consumers’ financial information, such as in a periodic statement, a FSP must ensure that the information is adequately protected. Fair Treatment of Financial Consumers 23 of 53 Issued on: 27 March 2024 13 Fair dealing Principle 4: A FSP must ensure its staff, representatives and agents exercise due care, skill and diligence when dealing with financial consumers. G 13.1 The general principle that financial consumers should be accountable for their decisions should be complemented by clear obligations on a FSP to act honestly, fairly and professionally having regard to the interests of financial consumers. As a FSP’s staff, representatives and agents play an important role in the interface between financial consumers and the FSP, it is crucial that they carry out their duties with due care, skill and diligence. S 13.2 A FSP shall establish policies which require staff, representatives and agents to carry out their duties and responsibilities with due care, skill and diligence in accordance with professional ethical standards. Good practice 1. The FSP takes proactive measures to identify the planned source of repayment during engagements with financial consumers who have financing amounts in arrears and offers advice on whether the source of repayment is suitable to settle the amounts due. For example, if a financial consumer intends to repay a housing loan amount in arrears via funds from his/her EPF account, the FSP requests for relevant documents which shows the financial consumer’s EPF balance to establish whether the funds are sufficient to settle the amount in arrears and avoid foreclosure of the property. Poor practices 1. A licensed life insurer adopts unsustainable pricing strategies for participating life products which may compromise fair treatment to financial consumers and contribute to undue policyholders’ reasonable expectations. The premium rates may be insufficient to support benefits to policy owners, expenses and/or future transfers to shareholders’ fund. This results in the cost of under-pricing to be eventually passed to policy owners via deductions from asset shares and/or bonus cuts. 2. A licensed life insurer, including its appointed actuary, does not adequately consider the interests and fair treatment of policy owners in determining bonus distributions to policyholders. For example, introducing bonus cut to rectify past errors or mismanagement of participating life fund; or introducing staggered bonus revision without ensuring equitability to different groups of policyholders with different maturity profiles within a single cohort. Fair Treatment of Financial Consumers 24 of 53 Issued on: 27 March 2024 S 13.3 A FSP must implement measures, including training, supervision and monitoring, to ensure that its staff, representatives and agents do not recklessly, negligently or deliberately mislead financial consumers on the advantages or disadvantages of any financial service or product. Good practices 1. The FSP only allows sales staff, representatives and agents who have completed certification or training, or possess relevant experience on financial planning or wealth management to promote investment products. The FSP also conducts periodic training and enforce Continuing Professional Development requirements to ensure its sales staff, representatives and agents have updated knowledge on financial planning. 2. The FSP regularly monitors the practices of sales staff, representatives and agents through mystery shopping, field audits, voice recordings of telemarketing sales and random calls to financial consumers to obtain feedback on their dealings with the FSP’s staff, representatives or agents. 3. An annual review is conducted by an independent party to ensure the quality of performance of the FSP’s staff, representatives and agents as well as compliance with internal and regulatory requirements. 4. The FSP conducts independent post-sales review of financial services or products by individuals that are not directly involved in the sales process, including contacting a sample of financial consumers shortly after completing a sale, analysing recordings of sales conversations, and assessing staff with unusual sales trends as part of efforts to identify undesirable practices or adverse financial consumer outcomes. Poor practices 1. The staff, representative or agent of the FSP promotes a financial service or product by focusing on its advantages, without highlighting the related risks, any major exclusion clauses, key terms and conditions or cooling-off period. 2. The FSP’s telemarketing staff fail to properly follow up on and confirm vague responses given by financial consumers in relation to their interest in purchasing a financial service or product. 3. The FSP’s staff, representatives or agents recommend financial services or products needed to meet sales targets or earn higher commissions rather than the most suitable financial service or product for the financial consumers. 4. When selling investment products, the FSP’s staff, representatives or agents focus on promotional gifts rather than providing the relevant Fair Treatment of Financial Consumers 25 of 53 Issued on: 27 March 2024 information and explanation on the investment product’s features, benefits and risks. S 13.4 A FSP shall not in any communication or agreement with financial consumers exclude any liability arising from either staff, representatives and agents misleading financial consumers or the failure of staff, representatives and agents who are authorised to sell a financial service or product from exercising due care, skill and diligence. S 13.5 Before appointing representatives and agents to market or sell financial services or products or to recover payment from financial consumers, a FSP shall conduct proper due diligence on the representatives and agents. Good practice The FSP conducts training for appointed external debt collectors which includes the emphasis on fair debt collection practices and importance of preserving the confidentiality of customer information. Poor practice The licensed insurer or takaful operator relies exclusively on the appointed adjusters’ recommendation to offer a lower amount or reject an insurance claim without undertaking its own due diligence. S 13.6 A FSP shall ensure that the expectations to uphold high standards of ethics, integrity and professionalism in all dealings with financial consumers are reflected in the service level agreement between the FSP and its representatives and agents. Good practice The FSP contractually prohibits staff, representatives and agents from engaging a third party to conduct sales and marketing activities on their behalf. This includes but is not limited to the act of conducting fact finding and product recommendation. Fair Treatment of Financial Consumers 26 of 53 Issued on: 27 March 2024 S 13.7 A FSP shall ensure that its staff, representatives and agents do not exert undue pressure or influence on any financial consumer to acquire a financial service or product. A FSP shall ensure that its staff, representatives and agents allow financial consumers the opportunity to independently evaluate the benefits and risks. Poor practices 1. The FSP’s telemarketing staff, representative or agent exert pressure on financial consumers into concluding a transaction without having adequate opportunity to consider their decision, e.g. persuading the financial consumers to continue with the call despite lack of interest, or rushing to close sales by marketing the financial service or product as a one-off promotion. 2. The FSP’s telemarketing script for an insurance or takaful product provides a disproportionate emphasis on returns such as guaranteed cash payments, rather than protection benefits, or making misleading comparison between the financial service or product returns with a financial service or product of a different nature e.g., comparing returns from an insurance plan with a fixed deposit. S 13.8 A FSP shall not impose conditions that are unfairly prejudicial to a particular financial consumer or group of financial consumers to obtain a financial service or product from the FSP. In particular, a FSP shall not treat a financial consumer or group of financial consumers less favourably solely on the basis of arbitrary factors such as marital status, race or religion. G 13.9 The prohibition in paragraph 13.8 does not prevent a FSP from offering a financial service or product at different pricing levels or targeted to a defined customer segment which reflect differentiated service levels or customer needs and preferences. Good practice Subject to any legal or regulatory requirement, where an application for a financial service or product is rejected, the FSP explains to the applicant the reasons for the rejection. Poor practice The FSP discriminates against certain loan applicants based on characteristics such as race and national origin without regard to sound credit underwriting practices and creditworthiness of the prospective borrowers. S 13.10 For insurance and takaful products, a licensed insurer and a licensed takaful operator shall not- (a) make or permit any unfair discrimination between- Fair Treatment of Financial Consumers 27 of 53 Issued on: 27 March 2024 (i) individuals of the same class and equal expectation of life in the premium or contribution rates or policy or certificate fees charged for any life insurance or family takaful certificate and investment-linked insurance policy or takaful certificate, in the bonus or investment profits, other benefits payable or in any other terms and conditions of such policy or certificate; (ii) individuals of the same class and of essentially the same hazard in the premium or contribution rates or policy or certificate fees charged for any accident or health insurance policy or takaful certificate, in the benefits payable, or in any other terms and conditions of such policy or certificate; or (iii) individuals of the same class and of essentially the same hazard by refusing to insure or provide takaful cover (including making a cover prohibitively expensive), refusing to renew, cancelling or limiting the amount of insurance or takaful coverage on a general insurance or takaful risk; (b) refuse to insure or provide takaful cover or continue to insure or provide takaful cover (including making a cover prohibitively expensive), or limit the amount of coverage available to an individual because of gender, marital status, race, religion or national origin of the individual; or (c) refuse to insure or provide takaful cover to an individual solely because another licensed insurer or takaful operator has refused to provide insurance or takaful cover, or has cancelled or refused to renew an existing policy or certificate in which that individual was the named insured or participant, unless such action can be demonstrated as the result of the application of sound underwriting or actuarial principles. G 13.11 The application of sound underwriting or actuarial principles in paragraph 13.10 may include having regard to- (a) a licensed insurer’s or a licensed takaful operator’s capacity to insure or provide takaful cover; (b) the collective assessment of a licensed insurer’s or licensed takaful operator’s exposure to loss based on the overall portfolio of insurance or takaful products sold to a particular policyholder or participant and/or the policyholder’s or participant’s loss experience over time; (c) subjective considerations such as risk management measures implemented by a risk owner that are reasonably relevant to the decision to underwrite a risk; and (d) market precedents that are themselves based on sound underwriting or actuarial considerations that would have been relevant to a licensed insurer’s or licensed takaful operator’s decision to underwrite a risk. Fair Treatment of Financial Consumers 28 of 53 Issued on: 27 March 2024 14 Advice and recommendation Principle 5: A FSP must take reasonable care to ensure the suitability of advice and recommendations provided to financial consumers. G 14.1 Quality advice can help financial consumers in making important decisions about a financial service or product that meet their financial needs. The Bank expects a FSP to have regard to the interests of financial consumers and to give due consideration to financial consumers’ needs when providing advice or recommendation on a financial service or product. The provision of advice or recommendation by a FSP should be based on the financial consumer’s financial objectives, needs, knowledge and experience, considering the complexity of the financial service or product and the risks associated with it. G 14.2 For life insurance or family takaful products, the requirements under paragraphs 14.3 to 14.8, 14.11 and 14.16 should be read together with the Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business11. S 14.3 A FSP must ensure that any advice or recommendation on a financial service or product provided by its staff, representatives or agents is supported by reasonable basis and is offered in the best interests of financial consumers. S 14.4 A FSP must ensure that prior to providing any advice or recommendation, its staff, representatives and agents obtain sufficient information on the financial consumer, including but not limited to the following- (a) financial objectives, needs and priorities; (b) personal circumstances (e.g. age, number of dependents); (c) financial situation (e.g. sources and amount of income, financial commitments, assets and liabilities); (d) risk appetite; (e) investment horizon; and (f) level of knowledge and experience in relation to the financial service or product. Good practice The FSP establishes standard operating procedures for their staff, representatives and agents on- (a) the type of information that must be obtained from financial consumers when recommending complex products such as investment-linked or medical and health insurance policies; and (b) the type of vulnerable consumers which should not be specifically targeted when marketing complex products, such as retirees or financial consumers with low financial literacy or investment experience. 11 Issued in August 2012, including any amendments or modifications made thereof. Fair Treatment of Financial Consumers 29 of 53 Issued on: 27 March 2024 S 14.5 A FSP shall have controls in place to ensure that its staff, representatives and agents preserve the confidentiality of the information disclosed by financial consumers, particularly those identified as vulnerable. The information shall only be used for purposes of providing advice on or recommending a financial service or product to the financial consumers and must not be used in a manner that could be detrimental to the financial consumers. S 14.6 A FSP shall obtain information from financial consumers as necessary or appropriate to the nature and complexity of the financial service or product being sought by the financial consumers. Where a financial consumer chooses not to provide all the information requested, a FSP shall caution the financial consumer that withholding relevant information could hinder the FSP from making a suitable product recommendation. S 14.7 A FSP must ensure that its staff, representatives and agents highlight to financial consumers that any inaccurate information provided by the financial consumers would affect the suitability of the recommendation or advice. S 14.8 In determining the suitability of a financial service or product for a financial consumer, where relevant, a FSP must ensure that its staff, representatives and agents, assess whether- (a) the financial service or product is suitable to the financial consumer’s financial objectives, needs, personal circumstances, financial situation, risk appetite and investment horizon; (b) the financial consumer has the necessary knowledge and experience on financial matters to understand the key terms and risks of the financial service or product; (c) the financial consumer is likely to be able to meet the financial commitments associated with the financial service or product; and (d) the risks and rewards associated with the financial service or product is consistent with the financial consumer’s tolerance for risk. Good practice The FSP develops criteria to assess the suitability of a financial service or product to financial consumers. The assessment criteria allocate appropriate weightage to the financial consumer’s financial situation, investment objectives and risk appetite. S 14.9 A FSP must ensure that its staff, representatives and agents provide financial consumers with information on all financial services or products that are assessed to be suitable so that financial consumers are adequately informed of all choices available. Fair Treatment of Financial Consumers 30 of 53 Issued on: 27 March 2024 S 14.10 For investment-related services or products where the capital invested by financial consumers could be at risk of potential loss, the FSP must ensure that its staff, representatives and agents take reasonable steps to ensure that the financial consumers understand the implication of this risk before offering any advice or providing recommendations on the financial service or product. Poor practice When selling investment products, the FSP’s staff, representatives or agents focus on the potential investment returns without giving due consideration to the financial consumer’s financial objectives, needs, financial situation, risk appetite and level of knowledge in relation to the investment product. This also includes requiring the financial consumer to sign waiver clauses which exclude the FSP’s liability for misrepresentation or poor recommendation provided by its staff, representatives or agents. S 14.11 A FSP must be able to demonstrate that any financial service or product recommendation provided is suitable to the financial consumer, having regard to the information obtained from the financial consumer under paragraph 14.4. Good practice The FSP can demonstrate that they have taken reasonable care in ensuring their staff, representatives and agents’ practices do not lead to unfair outcomes to financial consumers. This includes the FSP ensuring their staff, representatives and agents can produce appropriate evidence to show that they have complied with relevant policies and procedures. S 14.12 A FSP shall disclose to financial consumers the quantum of any commission, prior to providing any advice or recommendation on the financial service or product. S 14.13 The quantum of commission referred to in paragraph 14.12 shall be disclosed as a percentage12 of the amount paid by financial consumers for a financial service or product. S 14.14 A FSP shall not recommend a financial service or product solely to generate higher financial gains without due regard to the interests of financial consumers. Good practice If a requested financial service or product is of a higher risk rating than a financial consumer’s risk appetite or of a nature that does not match the 12 This requirement would apply unless otherwise stated in relevant and applicable regulatory documents issued by the Bank. For example, where an applicable Policy Document states that financial service providers are required to disclose commission as nominal (RM) figures and as a percentage. Fair Treatment of Financial Consumers 31 of 53 Issued on: 27 March 2024 financial consumer’s needs, the FSP’s staff, representatives and agents draw this mismatch to the financial consumer’s attention. Poor practice The FSP’s staff, representatives or agents misrepresent key product information and exploits vulnerable consumers to push for sales of financial products that earn them higher commissions despite the products being unsuitable to the needs of these vulnerable consumers. S 14.15 A FSP shall ensure that its staff, representatives and agents- (a) are adequately trained and competent to provide financial consumers with quality advice and recommendation on the most suitable financial service or product; (b) have sound understanding of key features and critical terms of the financial service or product offered in order to provide appropriate recommendation; (c) provide timely and relevant information on the financial service or product to enable financial consumers to make informed decisions; (d) are able to explain the risk-reward characteristics of the financial service or product and key terms affecting the financial consumer’s obligations; (e) provide quality advice or recommendation based on adequate consideration of the financial consumer’s financial objectives, needs, personal circumstances, financial situation, risk appetite and investment horizon; (f) provide financial consumers adequate opportunity to read the financial service or product information and consider the advice or recommendation given; (g) do not misrepresent the features and risks of the financial service or product recommended; and (h) keep abreast with changes in regulatory requirements and participate in continuing education to maintain the necessary knowledge and competence to perform their roles effectively. Good practices 1. New staff, representatives and agents are placed under the guidance of experienced supervisors and agency leaders who observe their conduct when obtaining information from financial consumers and providing financial product advice and recommendations. 2. The FSP’s staff, representatives and agents encourage financial consumers who may face difficulty understanding financial advice e.g., due to language or knowledge barriers, to be accompanied by a trusted party who can assist to ensure that the financial advice provided is clearly understood. Fair Treatment of Financial Consumers 32 of 53 Issued on: 27 March 2024 Poor practices 1. New financial services or products are marketed by the FSP without providing adequate training to staff, representatives and agents on key features, benefits and risks to enable them to give appropriate advice and recommendations to financial consumers. 2. The FSP’s staff, representatives or agents misuse the illustration of non- guaranteed benefits in insurance products to market the benefits as if it was guaranteed. 3. The FSP’s staff, representatives or agents over-emphasize returns which are non-guaranteed when marketing insurance/takaful products. S 14.16 A FSP shall establish a process to periodically check that its staff, representatives and agents remain competent to provide quality advice and recommendations to financial consumers. Such process can include obtaining financial consumers’ feedback to validate the ability of the staff, representatives and agents to accurately explain relevant financial service or product information and to provide appropriate advice and recommendation. Good practices 1. The FSP regularly provides customised and refresher training to staff on financial services or products and relevant internal policies. The staff are subject to some form of assessment or examination prior to being qualified to provide advice to financial consumers. 2. The FSP conducts post-sales calls to financial consumers to validate whether staff, representatives and agents adequately assessed the financial consumers’ financial objectives, needs, risk appetite and knowledge against the risks and other features of the financial product before making any financial product advice and recommendation. 3. Regular reviews are conducted on staff, representatives and agents to ensure that they are well-equipped with the necessary technical and market knowledge to perform their duties and identify areas where they require further training. Poor practices 1. The FSP does not keep a record of advice or recommendations provided to financial consumers. 2. The FSP does not have a process to periodically review the quality of advice or recommendations provided to financial consumers. The FSP is not able to demonstrate the suitability of a financial product recommendation to the financial consumers’ financial objectives, needs, financial situation, risk appetite and level of knowledge. Fair Treatment of Financial Consumers 33 of 53 Issued on: 27 March 2024 15 Redress Principle 6: A FSP must handle financial consumer complaints and claims promptly, fairly and effectively. G 15.1 Financial consumers require clear redress options in the event that they have any concerns or feel they have been unfairly treated. An internal dispute resolution process that is effective, simple and easily accessible for financial consumers to seek redress is essential for the fair treatment of financial consumers. Financial consumers should have access to complaints and claims handling mechanisms that are fair and efficient to resolve their disputes and claims against a FSP without any undue delay or burden. S 15.2 A FSP shall have in place proper processes, and well-documented procedures for complaints and claims handling, including clearly identified contact points for the proper handling of complaints and claims from financial consumers. The procedures shall be clear, easily understood and readily accessible by financial consumers. Good practice The FSP establishes internal guidance and clear parameters on the types of cases which are classified as serious and require escalation to the Board, senior management or an internal committee for review e.g., complaints relating to mis-selling or prohibited business conduct. Poor practice The FSP only ensures that complaints from more valuable financial consumers are handled well. G 15.3 A FSP should create an environment where complaints are seen as valuable feedback to help improve business performance and help staff recognise the importance of resolving complaints and handling claims in a fair and effective manner. S 15.4 Senior management shall ensure- (a) sufficient resources are allocated to handle and resolve complaints and claims; (b) staff are properly trained to handle and resolve complaints and claims effectively; and (c) timeframes for resolving complaints and claims are established to ensure that each complaint or claim is dealt with in a timely manner. Fair Treatment of Financial Consumers 34 of 53 Issued on: 27 March 2024 Good practices 1. Senior management regularly reviews a sample of response letters to financial consumers to check the appropriateness and consistency in the decisions on complaints and claims. 2. Staff handling financial consumer complaints and claims are given appropriate training and guidance to ensure complaints and claims are handled objectively. Poor practices 1. The complaint call centre helplines are under-staffed making it difficult or frustrating for financial consumers to lodge a complaint. 2. The FSP assigns only a limited number of branches or customer touchpoints to financial consumers who have opted for direct channels rather than via the FSP’s appointed agents e.g., in relation to motor insurance. S 15.5 When assessing complaints, a FSP shall examine the circumstances and underlying causes of individual cases in an equitable, objective and timely manner. A FSP shall make reasonable efforts to understand a financial consumer’s issue, investigate the complaint thoroughly and explain the basis of the decision when responding to the financial consumer. Poor practice The FSP uses the Bank’s requirements as the basis for rejecting a financial consumer’s application for a financial service or product or for declining a claim rather than providing a reasonable explanation to the financial consumer. S 15.6 For insurance or takaful services or products, a licensed insurer or licensed takaful operator, as the case may be, shall conduct a thorough and objective investigation of all claims submitted. A licensed insurer or licensed takaful operator, as the case may be, shall ensure that the claim settlement offer made to a financial consumer is fair, taking into account relevant factors, and represents the claimant’s reasonable entitlement under an insurance policy or takaful certificate. S 15.7 Where there is a total or partial rejection of an insurance or takaful claim, a licensed insurer or licensed takaful operator, as the case may be, shall provide the financial consumer with a clear explanation of the rationale including the policy terms or exclusions on which the decision is based. Fair Treatment of Financial Consumers 35 of 53 Issued on: 27 March 2024 Good practices 1. Where it appears that a claim from a financial consumer is not covered by the insurance policy, the FSP responds to the financial consumer as soon as possible, explaining why the claim was rejected. 2. Where an insurance or takaful claim is declined, the FSP explains the reasons for its decision, subject to any applicable and/or prevailing legal or regulatory requirements. S 15.8 A FSP must establish effective monitoring and evaluation mechanisms for all complaints and claims received. This shall include analysing the nature and trends of complaints and claims received and undertaking effective root cause analysis. A FSP shall take adequate measures to rectify the weakness identified and establish a mechanism for appropriate escalation of significant complaints and claims to senior management. Good practices 1. The FSP conducts financial consumer surveys to assess the quality and efficiency of the FSP’s complaints and claims handling process. The results of the surveys are shared with senior management and/or the Board. 2. Where a systemic problem is detected, the FSP assesses the severity of detriment caused to affected financial consumers and takes appropriate measures to ensure that all affected financial consumers, including other financial consumers who have not complained, are given appropriate redress. Poor practices 1. The FSP does not keep proper record of complaints received against its staff, representatives and agents and their resolution. 2. Reporting on complaints to senior management only provides statistics without further explanation on the root causes and whether the complaints indicate an isolated issue or a more widespread issue for financial consumers. S 15.9 A FSP shall ensure that there are effective and timely communications with the complainants or claimants throughout the complaints and claims handling process. Poor practices 1. Unjustified delays or inadequate explanations are provided by the FSP in relation to its decision on complaints or claims, without consideration to Fair Treatment of Financial Consumers 36 of 53 Issued on: 27 March 2024 financial consumers who are or may already be in a vulnerable or stressful situation. 2. The licensed insurer or takaful operator does not monitor the turnaround time and quality of claims assessment to ensure fair and prompt claims settlement. S 15.10 A FSP shall inform financial consumers of the availability of alternative dispute resolution avenues such as the Ombudsman for Financial Services, should the financial consumer decide to continue pursuing a case which the FSP considers as either resolved or closed. Fair Treatment of Financial Consumers 37 of 53 Issued on: 27 March 2024 16 Vulnerable consumers Principle 7: A FSP must take appropriate actions to ensure that vulnerable consumers are treated fairly and equitably. G 16.1 Understanding the needs of vulnerable consumers and ensuring staff, representatives and agents have the right skills to take appropriate actions throughout the entire product life cycle, from product development, market and sales, to after sales service are necessary preconditions for a FSP to be able to deliver fair outcomes to vulnerable consumers. S 16.2 A FSP must assess the needs of vulnerable consumers in its existing financial consumer base and target market, as well as implement appropriate policies and procedures to meet these needs. This is to ensure that vulnerable consumers are treated fairly in accordance with the requirements in this Policy Document throughout their engagement and dealings with the FSP in respect of the financial service or product obtained or to be obtained from the FSP. The FSP must ensure that the policies and procedures are clearly communicated to relevant staff, representatives and agents so that they are implemented effectively. Poor practice Policies on the handling of vulnerable consumers are not well communicated internally, particularly to frontline staff and at branches, which leads to vulnerable consumers receiving inconsistent treatment in their dealings with a particular FSP. G 16.3 In implementing paragraph 16.2, a FSP may consider consulting credible institutions or associations13 that provide support to financial consumers with a wide variety of vulnerabilities and have good understanding and expertise in dealing with the challenges those vulnerable consumers face to gain meaningful 13 This could include any established domestic, regional or foreign associations, societies or non-profit based organisations formed with the sole intent of collectively enhancing the well-being of its members, by representing and highlighting the needs of the vulnerable community or providing assistance to those facing severe financial distress. Such entities may also comprise of like-minded professionals or members with similar disabilities who are able to share real experiences and accounts from their own dealings with FSPs and the further improvements which can be made to better serve the needs of their community. Examples of such organisations may include: (a) Agensi Kaunseling dan Pengurusan Kredit (AKPK); (b) Autism Inclusiveness Direct Action Group (AIDA); (c) Damai Disabled Person Association Malaysia; (d) Malaysian Deaf Advocate and Well-Being Organisation (DAWN); (e) National Council for the Blind, Malaysia (NCBM); (f) National Council of Senior Citizens Organisations, Malaysia (NASCOM); (g) OECD International Network on Financial Education (OECD/INFE); (h) Society of the Blind in Malaysia (SBM); (i) United Nations (UN) and its intergovernmental platforms such as Economic and Social Commission for Asia and the Pacific (ESCAP); (j) United Voice; and (k) World Health Organisation (WHO). Fair Treatment of Financial Consumers 38 of 53 Issued on: 27 March 2024 insights into the needs and experiences of these financial consumers. This would improve the capabilities of a FSP in developing and putting in place effective solutions to support and meet the needs of vulnerable consumers. G 16.4 The way financial services or products are designed can have a positive or negative impact on vulnerable consumers. There may be product features that can result in disproportionate harm or the exclusion of vulnerable consumers. It is therefore important for FSPs to consider such prevailing or possible vulnerabilities in their target market at the stage of product design and development to avoid any unintended effects due to certain product features. S 16.5 A FSP shall take into consideration any prevailing or possible vulnerabilities in its existing financial consumer base as well as the needs of vulnerable consumers in its target market during the product design stage. This is to ensure that the features of the new financial services or products and the customer requisition process adequately addresses risks of potential harm to or exclusion of vulnerable consumers. G 16.6 In relation to paragraphs 16.2 and 16.5, examples of actions by a FSP in taking into consideration the needs of vulnerable consumers in its target market during the product design stage may include: (a) identifying the likelihood of customer segments targeted being vulnerable and obtaining a clear understanding on the category of vulnerability that may be experienced by financial consumers in its target market; (b) assessing financial product features that may pose risk of harm to vulnerable consumers in its target market; (c) identifying and establishing processes, procedures and appropriate controls to ensure the risk of harm to vulnerable consumers can be prevented or minimised; and (d) consulting with relevant credible institutions or associations to include user experience testing when developing new financial services or products to ensure such financial services or products are accessible to vulnerable consumers. S 16.7 A FSP shall consider the likelihood of any inherent product features that may pose material risks to vulnerable consumers when developing financial services and products. The FSP shall provide adequate safeguards to prevent or minimise such risks when offering financial services and products to vulnerable consumers, including the level of pricing and fees to be imposed on new financial services and products which are offered to financial consumers with low financial resilience. Good practices 1. The FSP compiles and analyses data on vulnerabilities and needs, product utilisation and complaints received during the product design stage to avoid product features that have high likelihood of causing harm or detriment to vulnerable consumers. Fair Treatment of Financial Consumers 39 of 53 Issued on: 27 March 2024 2. When developing new financial services or products that target unserved or underserved segments of the community, the FSP ensures that the pricing, fees and commission structures are appropriate to the nature of vulnerability identified in this segment and puts in place safeguards to prevent mis-selling or unnecessary financial burden on vulnerable consumers. 3. When migrating to digital financial services or products, such as the offering of e-statements to replace hardcopies, the FSP continues to provide free hardcopy statements over-the-counter or by mail to vulnerable consumers who are not digitally savvy. The FSP also makes it easy for such vulnerable consumers to opt-in for the digital financial service or product through their preferred channel of communication. Poor practice 1. The FSP discriminates against vulnerable consumers by imposing conditions which result in additional inconvenience for vulnerable consumers to access the same financial service or product offered to other financial consumers. For example, the FSP requires vulnerable consumers to bring along a third party, such as a sighted person in the case of a visually impaired individual, to act as a witness, co-applicant or authoriser for the opening of a new current or savings account. G 16.8 A FSP is also encouraged to take vulnerable consumers’ needs into consideration in the overall product governance process. Examples of actions which a FSP can take include: (a) considering the reasonableness of product pricing and fees for the vulnerable segment; (b) providing product disclosure sheets in at least two languages, i.e. Bahasa Malaysia and English. In addition, depending on the size and composition of its customer base, such materials are also published in Mandarin, Tamil and other dialects commonly used by the various ethnic groups in Malaysia; (c) providing audio recordings and video presentations when marketing new financial services or products to facilitate improved understanding by vulnerable consumers, particularly those who are illiterate or persons with disabilities; (d) maintaining complete audio or CCTV records of dealings and interactions between the FSP’s staff, representatives or agents with vulnerable consumers, particularly when engaging with financial consumers under category (d) of the vulnerable consumer definition and when providing verbal explanations on a financial product’s terms and conditions, risks and coverage at the point of onboarding; (e) ensuring the FSP’s product disclosure sheet provides available avenues for vulnerable consumers to submit queries or complaints, which should also be applicable if the financial consumer becomes vulnerable post- sales; Fair Treatment of Financial Consumers 40 of 53 Issued on: 27 March 2024 (f) providing an avenue for new customers to indicate if they have specific vulnerabilities at the point of onboarding, such as through a declaration form, to help FSPs identify and provide appropriate types of assistance to better meet their specific needs; (g) providing a longer free-look period for vulnerable consumers of licensed insurers and takaful operators; and (h) providing post-sales calls to vulnerable consumers who may not be familiar with digital feedback channels, such as senior citizens, to obtain direct feedback on the suitability of the financial service or product purchased. Good practice The FSP provides policyowners/takaful participants with multiple payment options for insurance premium/takaful contribution payments, including cash and over-the-counter facilities. This caters for vulnerable consumers and consumer segments which are less technologically savvy and may be unable to make online payments for their insurance premium/takaful contribution payments. S 16.9 A FSP is prohibited from engaging in predatory practices in their dealings with vulnerable consumers. In addition, a FSP shall refrain from sales and marketing practices that exploit vulnerable consumers, such as providing misleading information on risks and returns, which could lead to vulnerable consumers buying unsuitable or complex products which are not in line with their needs or financial circumstances. G 16.10 Examples of predatory practices referred to in paragraph 16.9 may include: (a) enticing financial consumers who are already highly indebted, i.e. have a high debt service ratio and low savings, to take on new loans, particularly unsecured loans; (b) promoting credit cards to university students; (c) promoting highly complex investment-linked insurance or takaful products to financial consumers with no investment experience; and (d) misleading retirees to take higher risk investment-linked insurance or takaful or unit trust products on the basis that such financial products will earn them a higher interest or profit, without explaining the downside risks. Poor practices 1. The FSP targets vulnerable consumers with low financial capability when offering complex and high-risk financial products without taking due care to properly explain the downside risks, putting the vulnerable consumers at risk of making significant financial losses. 2. The FSP’s staff, representative or agent takes advantage of vulnerable consumers’ weaknesses by selling other financial services or products which may not be appropriate to the vulnerable consumers’ needs or circumstances. Fair Treatment of Financial Consumers 41 of 53 Issued on: 27 March 2024 G 16.11 A FSP is expected to understand and identify common behavioural biases associated with vulnerable consumers and establish appropriate measures to prevent these biases from being exploited when developing, marketing or offering financial services and products to vulnerable consumers. S 16.12 A FSP shall exercise due care when adopting artificial intelligence and machine learning in credit assessments or risk underwriting, as the case may be, to avoid unfair discrimination, excessive pricing or exclusion of vulnerable consumers from accessing essential financial services and products. G 16.13 Vulnerable consumers are more likely to have different service needs. Having in place adequate systems and processes that support staff, representatives and agents in delivering responsive customer services to meet the needs of vulnerable consumers will enable vulnerable consumers to better cope with challenging life events. For example, if a vulnerable consumer who has a visual impairment informs that it may be difficult for him/her to receive important notifications through SMS, the FSP should focus on how the vulnerable consumer’s communication needs can be met using other channels. By resolving vulnerable consumers’ issues with flexible and timely solutions, FSPs can deliver better outcomes for these vulnerable consumers. Good practice The FSP facilitates a vulnerable consumer who is not able to be physically present at the FSP’s branch due to a medical condition, such as being bedridden, by making home visits and offering alternatives for the vulnerable consumer to undertake certain procedures. G 16.14 Staff, representatives and agents of FSPs are expected to be proactive in engaging with vulnerable consumers and seek relevant information to understand their vulnerability, exercise due care and diligence, and be adequately equipped and empowered to take actions that would reduce harm to these consumers. In this regard, while staff and representatives are expected to take steps to encourage disclosures by such consumers where there are clear indicators of vulnerabilities, they are also expected to be given the flexibility and discretion to offer solutions that are customised to the needs and circumstances of the vulnerable consumer. S 16.15 A FSP shall ensure that its staff, representatives and agents, particularly those who have direct interaction with vulnerable consumers, are provided with the necessary training to recognise, assess and respond appropriately to their needs. G 16.16 For purposes of paragraph 16.15, examples of good practices by a FSP in providing the necessary training to its staff, representatives and agents may include: Fair Treatment of Financial Consumers 42 of 53 Issued on: 27 March 2024 (a) developing an internal training programme to provide staff, representatives and agents with a better understanding of the signs and indicators of vulnerability as well as potential needs of vulnerable consumers; (b) training staff, representatives and agents to preserve confidentiality of financial consumers’ information and act with sensitivity, respect and compassion towards financial consumers identified as vulnerable; (c) giving opportunities for staff to share knowledge and experiences, including those gained from engagements with vulnerable consumers, with other colleagues through knowledge sharing sessions, particularly between frontline staff and staff involved in product development; (d) developing “How to” guides based on the categories of vulnerable consumers for frontline staff, and representatives and agents to use in performing their day-to-day roles, such as signposting additional information or support, and examples of best practices in dealing with vulnerable consumers under each category; and (e) updating training materials and conducting refresher sessions for staff, representatives and agents’ training periodically to ensure staff, representatives and agents continue to have a good understanding of vulnerable consumers and the necessary knowledge to respond to their needs effectively. G 16.17 A FSP’s staff, representatives and agents are expected to be trained to recognise when it is appropriate to seek additional support, such as escalating a case to a higher level or seeking additional help from dedicated specialist teams. G 16.18 A FSP may engage industry training institutions or its respective industry association to drive efforts in providing centralised training courses on dealing with vulnerable consumers. Such efforts can help ensure consistency in the method of identifying and engaging with vulnerable consumers. Good practices 1. The FSP appoints dedicated personnel to serve as champions for vulnerable consumers. 2. The FSP periodically engages with its industry association to share its understanding on the needs of vulnerable consumers in its existing customer base. Such information sharing would serve as useful inputs for industry associations to facilitate the development of centralised training courses on effectively dealing with vulnerable consumers within the same industry. Poor practice 1. Frontline staff, representatives and agents of FSPs do not engage meaningfully with vulnerable consumers and fail to identify or understand the financial consumers’ specific vulnerability, resulting in the vulnerable consumer not being referred to the appropriate officer or division for more tailored or suitable solutions. Fair Treatment of Financial Consumers 43 of 53 Issued on: 27 March 2024 S 16.19 A FSP shall ensure that relevant information about the needs of vulnerable consumers is properly captured or recorded in a manner that would enable the FSP to meet their needs promptly and consistently and are accessible by other staff who may need to refer to such information. Poor practice Sensitive information provided by vulnerable consumers is not properly recorded and shared internally, causing distress to these vulnerable consumers who have to repeat the same information each time they deal with the FSP. G 16.20 Having accessible records as specified under paragraph 16.19 would enable relevant staff, representatives and agents to use previously recorded information for future interactions with the same or similar groups of vulnerable consumers to increase the responsiveness of FSPs in mitigating harm to such vulnerable consumers. S 16.21 A FSP shall consider and provide sufficient flexibilities for staff, representatives and agents to effectively adapt to the needs of vulnerable consumers and to exercise judgement when it is necessary to do so in ensuring the delivery of fair outcomes to vulnerable consumers. S 16.22 A FSP must ensure that its customer service processes are adaptable to enable staff, representatives and agents to deliver tailored responses that are appropriate to the individual needs and circumstances of vulnerable consumers. Good practice The FSP considers the vulnerable consumer’s individual circumstances when assessing potential solutions, including whether the vulnerable consumer is facing a temporary or long-term hardship, and is flexible in applying terms and conditions tailored to the vulnerable consumer’s circumstances. S 16.23 A FSP shall provide its financial consumers with information that is easily accessible on how they can obtain assistance, in the event they encounter sudden life events that puts them in vulnerable circumstances, such as the death or permanent disability experienced by the household’s main breadwinner due to the onset of an illness or accident. In such circumstances, the FSP is expected to encourage affected financial consumers to approach them early to enable alternative measures to be put in place to mitigate the risk of further financial strain or distress. G 16.24 The requirement under paragraph 16.23 is particularly relevant for financial consumers who are unexpectedly impacted by an adverse life event which affects their ability to generate a steady income on an on-going basis or to make sound and informed financial decisions independently. Fair Treatment of Financial Consumers 44 of 53 Issued on: 27 March 2024 Poor practices 1. When offering alternative repayment plans to vulnerable consumers, the FSP does not give due regard to the long-term implications on the well- being of such vulnerable consumers, such as capitalising the amount in arrears without reducing the monthly instalment amount, excessive lengthening of the financing tenure which significantly increases the total borrowing costs without offering the vulnerable consumer alternative repayment plans to choose from. 2. The FSP proceeds with foreclosure of a vulnerable consumer’s residential property without any consideration of the vulnerable consumer’s genuine financial difficulties or before exhausting all other viable options for recovery. G 16.25 Effective interaction with vulnerable consumers is particularly important as they may have additional or different information needs. By offering a variety of communication channels and making information more accessible, vulnerable consumers will be better able to communicate their needs more clearly to enable FSPs to tailor the right solutions to meet these needs. S 16.26 A FSP must ensure communication with vulnerable consumers throughout the product life cycle, from the point of sale to post-sales, is clear and easily understood by vulnerable consumers. The FSP must periodically test and verify the effectiveness of its communication channels for vulnerable consumers and adapt appropriately where necessary to ensure communication channels remain accessible to vulnerable consumers throughout the product life cycle. In addition, the FSP shall ensure that vulnerable consumers are made aware of the different communication channels available to enable these vulnerable consumers to communicate with the FSP through a channel they find most effective and convenient. Good practices 1. The FSP provides vulnerable consumers with different methods to communicate with the FSP and/or access to financial services and products according to their needs, such as audio, braille, talking automated teller machines (ATMs) and cash machines. 2. The FSP carries out periodic customer surveys to better understand the risks of harm for vulnerable consumers and to find out whether these vulnerable consumers find it easy to share such information with the FSP. Poor practice 1. The FSP’s call centre is automated and does not provide the option for vulnerable consumers to interact with the FSP’s staff to explain any hardship or difficulty faced. Fair Treatment of Financial Consumers 45 of 53 Issued on: 27 March 2024 S 16.27 A FSP shall regularly monitor and evaluate whether staff, representatives and agents are responding to the needs of vulnerable consumers and take appropriate actions to address any poor outcomes or make necessary improvements to ensure vulnerable consumers receive fair and equitable treatment. Good practices 1. The FSP identifies instances where the needs of vulnerable consumers are not met at key points in their customer journey and takes appropriate actions to address the root causes and issues identified in a timely manner. 2. The FSP conducts periodic audits of its current practices to evaluate the effectiveness of the FSP’s policies and procedures for fair treatment of vulnerable consumers to promptly rectify any lapses or weaknesses identified. 3. The FSP ensures accessibility to and promotes awareness on specific customer service channels where vulnerable consumers can convey specific feedback on their experience when dealing with the FSP’s staff, representatives or agents. S 16.28 A FSP shall ensure its internal policies, procedures and controls are reviewed to ensure compliance to the requirements in this Policy Document as well as the other policy documents listed below14: (a) Policy Document on Introduction of New Products issued on 7 March 2014 (BNM/RH/STD 028-5) (i.e. requirements on suitability assessment); (b) Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business issued on 17 August 2012 (BNM/RH/GL/010-16) (i.e. requirements on suitability assessment); (c) Guidelines on Product Transparency and Disclosure issued on 31 May 2013 (BNM/RH/GL 000-3) (i.e. requirements on disclosure at pre- contractual stage, at point of entering into contract and during the term of contract); (d) Policy Document on Responsible Financing issued on 6 May 2019 (BNM/RH/PD 028-95) (i.e. requirements on loan restructuring and rescheduling); and (e) Circular on Fair Debt Collection Practices issued on 11 September 2007 (BNM/RH/CIR 013-1) and Circular on Fair Debt Collection Practices issued on 1 Oct 2007 (BNM/RH/CIR/005-13) (i.e. requirements on loan recovery efforts). 14 Issued on the dates specified, including any amendments or modifications made thereof. Fair Treatment of Financial Consumers 46 of 53 Issued on: 27 March 2024 APPENDIX 1 FAIR OUTCOMES TO FINANCIAL CONSUMERS A FSP meets the outcomes of FTFC when it- (a) can trust that the FSP conduct its business with justness, impartiality, honesty and integrity, and delivers its promises and honours its commitments as it has led its customers to expect; (b) commits through appropriate policies, processes and controls to ensure that financial consumers and vulnerable consumers are consistently offered financial services and products that are suitable to their needs, financial circumstances and risk appetite, and when they receive advice, the advice is right for them; (c) provides appropriate notification to financial consumers prior to a change in the FSP’s terms and conditions, rates, or fees and charges; (d) does not impose excessive or unreasonable fees and charges that do not reflect the actual costs incurred in the provision of services offered or which significantly disadvantage certain groups of financial consumers, particularly vulnerable consumers; (e) treats financial consumers, including vulnerable consumers in a courteous and fair manner and does not take advantage of such financial consumers due to their circumstances (e.g. age, education level); (f) has dispute resolution processes that are easily accessible and handles financial consumers’ complaints and claims promptly, fairly and effectively; and (g) does not treat vulnerable consumers unfairly or exclude them from essential financial services or products. Fair Treatment of Financial Consumers 47 of 53 Issued on: 27 March 2024 APPENDIX 2 ILLUSTRATION OF A TREAT CUSTOMERS FAIRLY CHARTER The following is an example of a Treat Customers Fairly Charter. Each FSP is expected to establish its own Charter that reflects its commitment to FTFC, in a format that best fits the FSP. XYZ Treat Customers Fairly Charter The Chairman, the Board and senior management are committed to deliver good financial consumer outcomes to our customers. We believe in building long-term and mutually beneficial relationships with our customers. This Charter specifies our commitment to provide the highest standards of fairness in all our dealings with our customers. To protect the interests and financial well-being of our customers: 1. We commit to embed fair dealing into our institution’s corporate culture and core values i) We will set minimum standards on fair business practices in all dealings with our customers. This includes providing financial services or products suitable to our customers’ financial circumstances and preserving the confidentiality of our customers’ information; ii) We will train all staff attending to customers to provide quality advice and recommendation; and iii) We will take customers’ feedback seriously and provide immediate constructive feedback to our staff. 2. We commit to ensure that customers are provided with fair terms i) We will ensure that the terms in our contracts or agreements are fair, transparent, and well communicated to customers; ii) We will ensure that terms and conditions set out the respective rights, liabilities and obligations clearly and as far as possible in plain language; and iii) We will ensure that the terms and conditions in contracts or agreements are not altered without prior notification to customers. 3. We commit to ensure that customers are provided with clear, relevant and timely information on financial services and products i) We will provide customers with relevant and timely information in a product disclosure sheet; ii) We will disclose key product features, fees and charges, risks and benefits in a clear and concise manner; and iii) We will ensure critical terms are brought to customers’ attention and explained to the customers. 4. We commit to ensure that our staff, representatives and agents exercise due care, skill and diligence when dealing with customers i) We will conduct sales, advertising and marketing of our financial services and products with integrity and will not make false or exaggerated claims; ii) We will avoid or clearly disclose actual or potential conflicts of interest; and iii) We will ensure staff remuneration takes into consideration whether key performance indicators relating to fair treatment of customers have been achieved. Fair Treatment of Financial Consumers 48 of 53 Issued on: 27 March 2024 5. We commit to ensure that customers receive suitable advice and recommendations that take into account their financial needs and circumstances i) We will provide clear, relevant and quality advice or recommendations based on adequate consideration of customers’ financial objectives, needs, circumstances, financial situation and risk appetite so that customers can make informed decisions; ii) We will ensure advice or recommendations are substantiated with a reasonable basis and in the best interest of customers; and iii) We will ensure that our customers’ data and privacy are safeguarded. 6. We commit to ensure that customers’ complaints and claims are handled in a prompt, fair and effective manner i) We will have in place proper and well documented complaints handling process and provide clear redress options should customers decide to further escalate their complaints; ii) We will ensure that our staff, representatives and agents are properly trained to handle and resolve complaints in an effective and timely manner; and iii) We will monitor and evaluate the nature and trend of complaints received through effective root cause analysis and thereafter take adequate measures to rectify weaknesses identified. 7. We commit to ensure that vulnerable consumers are treated fairly and equitably, including by our staff, representatives and agents i) We will ensure that we assess the needs of vulnerable consumers in our customer base and target market and implement appropriate policies to meet these needs; ii) We will ensure that our staff, representatives and agents are well trained to recognise, assess and respond appropriately to the needs of vulnerable customers; and iii) We will have in place sufficient monitoring and evaluation mechanisms to ensure that our staff, representatives and agents are responding to the needs of vulnerable customers and make necessary improvements to ensure vulnerable consumers continue to receive fair and equitable treatment. Fair Treatment of Financial Consumers 49 of 53 Issued on: 27 March 2024 APPENDIX 3 ILLUSTRATION OF QUALITATIVE CRITERIA IN PERFORMANCE MEASURES Qualitative criteria 1: Understanding a customer’s needs Yes No Did the staff document all of the customer’s particulars? Did the staff document the following customer information: a) Financial objectives, needs and priorities b) Financial situation c) Risk appetite d) Investment horizon e) Level of knowledge and experience in relation to the product If the information referred to in the sections above was not collected and documented, is there a valid reason? If yes, please specify the reason: Qualitative criteria 2: Suitability of product recommendation Yes No Did the staff document the assumptions used for the product recommendation (e.g. retirement age of the customer, return on investment) and are these assumptions reasonable? Did the staff conduct a risk profiling for the customer? Did the staff document the basis for the recommendation? Did the staff recommend a financial product which: a) Meets the customer’s financial objectives, needs, personal circumstances, financial situation, risk appetite and investment horizon b) Is affordable to the customer c) Matches the customer’s risk profile d) Takes into consideration the particular needs of the customer Fair Treatment of Financial Consumers 50 of 53 Issued on: 27 March 2024 APPENDIX 4 CONTRACT TERMS WHICH MAY BE REGARDED AS UNFAIR 1. A term which requires the financial consumer to pay a disproportionately high sum in compensation or permit the FSP to retain entire sums paid by the financial consumer where the financial consumer terminates the contract before its maturity. 2. A term which requires the financial consumer to pay a disproportionately high sum in penalty as a consequence of a breach of contract by the financial consumer. 3. A term which makes the financial consumer fully liable for matters or losses incurred by the FSP that are not caused by the financial consumer. (This excludes investment products where financial losses are due to changes in market prices). 4. A term which excludes or limits any obligation of the FSP to act with skill, care and diligence towards the financial consumer in connection with the provision of any financial service or product. 5. A term which excludes or limits the FSP’s liability for any error, omission, misrepresentation or negligence caused by the FSP’s staff, representatives or agents. 6. A term which excludes or limits the FSP’s liability for breach of contract or non- performance of obligations by the FSP. 7. A term which excludes or limits the FSP’s obligation to honour commitments to the financial consumer undertaken by the FSP’s staff, representatives or agents. 8. A term which excludes or limits the financial consumer’s rights to take legal action or access to legal remedy in the event of total or partial non-performance of the FSP’s contractual obligations. 9. A term which provides the FSP a right to vary the terms of the contract at its discretion without a valid reason and reasonable notice to the financial consumer. 10. A term which provides the FSP a right to notify on variations to contract terms in any manner the FSP deems appropriate and the financial consumer is deemed to have agreed to the variation. 11. A term which permits the FSP to unilaterally terminate the contract without reasonable notice except where there is a valid reason for doing so. 12. A term which gives the FSP the discretion to refuse the financial consumer’s request to terminate the contract without any valid reason. 13. A term which allows the FSP the exclusive rights to interpret any terms of the contract as it thinks fit. Fair Treatment of Financial Consumers 51 of 53 Issued on: 27 March 2024 14. A term which allows the FSP to assign or transfer the FSP’s rights and obligations under the contract to the detriment of the financial consumer. 15. A term which allows the FSP to set a minimum prescribed rate for a retail loan or financing product, unless required under Shariah requirements. Fair Treatment of Financial Consumers 52 of 53 Issued on: 27 March 2024 APPENDIX 5 ILLUSTRATION OF GOOD PRACTICES BY FINANCIAL SERVICE PROVIDERS IN DEALING WITH PERSONS WITH DISABILITIES The following examples are intended as guidance to FSPs on measures that can be taken when dealing with persons with disabilities. Where relevant, these measures may also be considered when dealing with senior citizens. These examples are non- exhaustive and serve as guidance for FSPs in considering the best approaches to implement the requirements set out in this Policy Document. FSPs are strongly encouraged to assess the relevance15 of these examples in light of the nature, scale, complexity and operating environment of its business and are encouraged to adopt other approaches that can better achieve the intended outcomes. Good practices 1. The FSP offers a full range of financial services and products to persons with disabilities on an equal basis with other financial consumers. 2. The FSP ensures staff, representatives and agents are always ready to provide the necessary assistance, e.g. reading terms and conditions, or completing forms, bank slips, cheques, etc. 3. The FSP provides information on its website and mobile app on the location of its ATMs which are convenient for wheelchair users and its voice navigation ATMs. 4. The FSP provides barrier-free access to the main lobby and service counters for persons with disabilities in line with universal design principles. 5. Apart from printed information, the FSP provides information in audio format for visually impaired financial consumers. 6. The FSP presents information in a visual format for financial consumers who are hard of hearing or who are deaf to enable them to understand the FSP’s audio broadcasts. 7. The FSP adopts blank screens with step-by-step guides in audio format for persons with visual impairment and enables the audio activation through the insertion of headphones in the ATM headphone jack. 8. The FSP has a voice-guided orientation option for the machine that gives the full layout of the ATM, the function, keypad positions and money outlet slot. 9. The FSP supports the card slot, cash dispenser, receipt printer and headphone jack slot with Braille labels. 10. Statements and notifications sent via email by the FSP to vulnerable consumers are in formats that persons with disabilities can access. 15 Certain good practices are not applicable to certain FSPs due to their nature of business, such as licensed digital banks not being able to offer over-the-counter services due to their financial services and products being offered exclusively in a digital manner. Fair Treatment of Financial Consumers 53 of 53 Issued on: 27 March 2024 11. The FSP’s website, mobile application(s) and online banking services meet internationally recognised web accessibility best practice standards such as the World Wide Web Consortium’s (“W3C”) Web Content Accessibility Guidelines. 12. The FSP ensures that security features are made available in audio format to ensure accessibility for persons with visual impairment. 13. The FSP designs its online services to accommodate the time needed by persons with disabilities to complete online transactions. 14. The FSP provides seamless and convenient deposit account opening processes for persons with disabilities.	Public Notice
29 Feb 2024	Policy Document on Medical and Health Insurance/Takaful Business	https://www.bnm.gov.my/-/pd-mhit	https://www.bnm.gov.my/documents/20124/938039/feedback-ed-mhit.pdf, https://www.bnm.gov.my/documents/20124/938039/pd_mhit_feb2024.pdf	null	Reading: Policy Document on Medical and Health Insurance/Takaful Business Share: 9 Policy Document on Medical and Health Insurance/Takaful Business Embargo : For immediate release Not for publication or broadcast before 1900 on Thursday, 29 February 2024 29 Feb 2024 This policy document sets out Bank Negara Malaysia’s (BNM) revised requirements and guidance to licensed insurers and licensed takaful operators carrying the medical and health insurance/takaful (MHIT) business. The requirements seek to address developments in the MHIT business. This is to promote more innovative and inclusive MHIT coverage. It is also to balance the need to ensure MHIT business remains sustainable in the long term. Supplementing this, BNM has also issued a Feedback Statement to address the key feedback and proposals received during the consultation period. Issuance Date 29 February 2024 Effective Date 1 June 2024 except for specific provisions outlined in the policy document Issuing Departments Financial Development and Innovation Department Islamic Finance Department Insurance and Takaful Supervision Department Consumer and Market Conduct Department Documents Policy Document on Medical and Health Insurance/Takaful Business Feedback Statement from the Exposure Draft on Medical and Health Insurance/Takaful BusinessBank Negara Malaysia 29 February 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Response to feedback received from the Exposure Draft on Medical and Health Insurance/Takaful Business Introduction Bank Negara Malaysia (the Bank) today issued the policy document on Medical and Health Insurance/Takaful Business for licensed insurers and takaful operators (licensed ITOs). This policy document incorporates feedback received from 53 respondents during the consultation period following the publication of the exposure draft on 30 December 2022. The respondents were broadly supportive of the proposed requirements in the exposure draft, and the feedback and suggestions received have been incorporated in the policy document. To provide further clarity, the Bank issues the following clarification on the feedback received on the key requirements in the policy document. Bank Negara Malaysia 29 February 2024 A. Product design 1. Applicability of minimum co-payment amount Feedback received Respondents generally agreed with the introduction of a minimum co-payment amount. Some respondents suggested setting a higher minimum amount to effectively nudge positive consumption behaviour to reduce “buffet syndrome1” while others have suggested a lower minimum amount to account for affordability considerations. Respondents also sought clarification on the application of the minimum co-payment amount (e.g. whether the requirement is applied retrospectively or prospectively, and whether medical reimbursement products without a co-payment feature can continue to be sold, including riders to waive the co-payment amount). The Bank’s response 1.1 After careful consideration, the Bank will maintain the minimum co-payment requirement of co-insurance/co-takaful of 5% of total claimable expenses (after deductible) and/or RM500 deductible per policy/takaful certificate year for new individual medical reimbursement insurance/takaful product. This decision takes into consideration the experience of existing co-payment products in the market and income levels of Malaysians, while balancing it against prevailing economic conditions and the intended objective of the co- payment requirement. Experiences of other countries’ which have implemented co-payment requirement was also a factor in the Bank’s decision. 1.2 A licensed ITO will no longer be permitted to design any new individual medical reimbursement insurance/takaful products without a co-payment feature or to offer any add-ons to reduce or fully waive the co-payment portion. This means that licensed ITOs must include a co-payment feature to any new individual medical reimbursement insurance/takaful products that it will introduce into the market effective 1 June 2024, where the co-payment amount shall be no less than the minimum amount set out in paragraph 9.4(a) of the policy document. For the purposes of this requirement, any revisions to benefits and limits, including via rider add-ons, of any existing product, is deemed to be material and hence, meets the definition of new product under the Policy Document on Introduction of New Products by Insurers and Takaful Operators issued on 15 May 2015. 1.3 A licensed ITO must also have and offer at least one co-payment product with the minimum co-payment level by 1 September 2024 unless otherwise specified by the Bank. In the event a licensed ITO does not have any on-shelf individual medical reimbursement insurance/takaful product with the minimum co-payment amount, the licensed ITO must design a new individual medical reimbursement insurance/takaful product that meets the minimum amount. 1 A situation where individuals seek to maximise the value of premiums paid/contributions made. Hence, the higher likelihood to utilise medical services with little incentive to consider the associated costs. 1.4 Existing on-shelf individual medical reimbursement insurance/takaful products can continue to be sold until the licensed ITO decides to withdraw them from the market. B. Business conduct and disclosure 2. Disclosure requirements: Revised product disclosure sheet Feedback received Some respondents raised concerns that the 2 ½ pages requirement in the revised product disclosure sheet (PDS) will be impractical and insufficient to provide sufficient details to consumers. Respondents also highlighted concerns that the disclosure of industry average claims ratio may not fully illustrate the concept of risk pooling and results in potential confusion among consumers. In addition, such disclosure may adversely impact individual licensed ITO’s commercial viability as it is seen as disclosing sensitive individual business information. The Bank’s response 2.1 The revised PDS for individual medical reimbursement insurance/takaful products is designed to serve as a reference document for consumers and it contains essential information about the product. This includes key product/plan benefits, sum insured/covered, and fees and charges. The revised PDS is intentionally limited to 2 ½ A4 pages to ensure that the document is concise to promote easy reading and to facilitate consumers’ decision-making process in reviewing the product. 2.2 Licensed ITOs may supplement the revised PDS with other relevant sales and marketing materials (e.g., brochure). These materials can be accessed by consumers either through a QR code shown on the revised PDS or printed documents. This will enable consumers to have further information about the individual medical reimbursement insurance/takaful product being sold. As the revised PDS format is standardised across the industry, consumers will be able to compare the products offered by different licensed ITOs more easily. 2.3 The flow of the revised PDS is deliberately designed to be a step-by-step guide on what consumers should be mindful of when purchasing medical reimbursement insurance/takaful products as well as the underlying concepts of such products. In this regard, Step 1 seeks to enhance consumers’ understanding on the risk-pooling concept. The claims ratio in Step 3 is expressed as the average amount allocated to pay claims to demonstrate that the levels of premium/takaful contribution is dependent on expected claims payout and may need to be reviewed periodically to ensure long term sustainability. Further, the average claims ratio to be disclosed is an industry- level figure to manage sensitive individual business information. The Bank expects respective licensed ITOs to also manage consumers’ understanding on the concept of risk-pooling and how premiums/takaful contributions are utilised. 2.4 The requirements on the revised PDS will apply to all individual medical reimbursement insurance/takaful products effective 1 January 2025. 3. Needs-based assessment requirements Feedback received Some respondents provided feedback that the list of minimum information that must be obtained from consumers may not be practical and does not necessarily provide further insights to aid in the product recommendation process. There were also suggestions for the Bank to consider excluding certain MHIT products from the needs-based assessment requirement such as Perlindungan Tenang, group MHIT and MHIT products designed for foreign workers. In addition, licensed ITOs sought further clarification as to whether the Bank will be setting a standard on the use of appropriate online tools for consumers to conduct self-assessment on product suitability. 3.1 After consideration, the Bank maintains its decision on the list of minimum information that must be obtained from consumers as this is important for licensed ITOs and/or its intermediaries to determine products that are suitable for consumers based on their needs. The list of information obtained will also help determine how best to narrow the consumer’s protection gap and how much customers can afford to pay for the recommended coverage. 3.2 In obtaining the minimum information, licensed ITOs and/or its intermediaries shall be guided by paragraph 14.6 of the policy document on Fair Treatment of Financial Consumers. Should a consumer choose not to provide all the information requested, the licensed ITO and/or its intermediaries shall caution the consumer that withholding relevant information could hinder them from making a suitable product recommendation. 3.3 With regards to the applicability of the needs-based assessment requirement, the Bank will not be requiring the list of minimum information to be obtained from customers purchasing group MHIT products and MHIT products approved under the policy document on Perlindungan Tenang. The requirement continues to apply to other MHIT products. 3.4 On the use of appropriate online tools, the Bank wishes to inform that the Bank will not prescribe any standardised tool. Where relevant, the requirements in paragraph 14.4 and 14.5 of the policy document shall be read together with paragraph 9.1 of the policy document on Direct Distribution Channels for Pure Protection Products for licensed insurers carrying life insurance business and licensed takaful operators carrying family takaful operator business. This requirement shall also extend to licensed insurers carrying on general insurance business and licensed takaful operators carrying on general takaful business. 4. Prohibition on concluding sales through telemarketing channel Feedback received Respondents raised concerns on the prohibition on concluding sales through the telemarketing channel and highlighted that the telemarketing channel is an effective and convenient tool to offer simple MHIT products. Such prohibition would result in the removal convenient access to such products and would also result in higher operational cost. In this regard, respondents had requested for the Bank to reconsider the prohibition, especially for simple MHIT products and if proper sales practices and robust monitoring mechanisms are in place. The Bank’s response 4.1 The thematic review undertaken by the Bank has revealed significant areas for improvement in licensed ITOs’ sales practices through the telemarketing channel. These areas include improving product explanations to consumers and enhancing oversight over telemarketers to minimise the risk of offering inaccurate and incomplete information to consumers when concluding a sale. It was also observed that while telemarketing channels remain the main distribution channel for simple MHIT products (i.e., critical illness and hospitalisation income products) for some licensed ITOs, persistency rates of these products were much lower as compared to other distribution channels. 4.2 The Bank recognises the value of telemarketing channels to ensure insurance/takaful access, especially when face-to-face interactions are limited. In this regard, the Bank will not prohibit licensed ITOs from marketing MHIT products through telemarketing channels. However, telemarketers will not be permitted to conclude a sale and potential customers will need to be redirected to a qualified sales representative who will conduct a proper needs- based analysis before concluding the sale, as per paragraph 15.2 of the policy document. 4.3 Ensuring proper conduct of needs-based assessment is critical to ensure suitable MHIT products that meet the needs of customers are sold. In view that more detailed customer information is needed to facilitate meaningful suitability and affordability assessments, direct engagements, including virtual engagements through video calls, with a qualified sales representative is more befitting for this purpose. The Bank views that it is inappropriate to use telemarketing channels to do so given the expected level of conduct and rigour. Telemarketers’ focus will now be on marketing and providing adequate information about the MHIT products. As such, customers would be able to make well-informed decisions with their needs in mind as the sales would now be thoughtfully concluded. 4.4 The same expectation to conduct a thorough needs-based assessment on simple MHIT products applies as customers still need to understand the features of the MHIT product and consider their individual needs. Hence, permitting simple MHIT products to continue to be sold via telemarketing channels will not meet the Bank’s expectation of proper conduct of needs- based assessment. With the issuance of this policy document, the prohibition on concluding sales through telemarketing channels will apply to all MHIT products only. Issued on: 29 February 2024 BNM/RH/PD 029-66 Medical and Health Insurance/Takaful Business Applicable to: 1. Licensed insurers 2. Licensed takaful operators Medical and Health Insurance/Takaful Business 1 of 52 TABLE OF CONTENTS PART A OVERVIEW .......................................................................................... 2 1 Introduction ........................................................................................... 2 2 Applicability ........................................................................................... 2 3 Legal provisions .................................................................................... 3 4 Effective date ........................................................................................ 3 5 Interpretation ........................................................................................ 3 6 Related legal instruments and policy documents .................................. 6 7 Policy documents superseded .............................................................. 7 PART B POLICY REQUIREMENTS .................................................................. 8 8 Underwriting and terms governing issuance of MHIT policies/takaful certificates ............................................................................................ 8 9 Product design .................................................................................... 13 10 Re-pricing and risk pooling practices .................................................. 15 11 Commission limits ............................................................................... 17 12 Monitoring and reporting ..................................................................... 18 PART C BUSINESS CONDUCT AND DISCLOSURE REQUIREMENTS ....... 19 13 Disclosure requirements ..................................................................... 19 14 Needs-based assessment requirements ............................................ 22 15 Prohibition on concluding sales of all MHIT products (including riders) through telemarketing channel ........................................................... 23 PART D APPENDICES .................................................................................... 24 Appendix 1 Circumstances where the co-payment feature shall not apply* .......... 24 Appendix 2 Practices which shall be regarded as unfair ....................................... 25 Appendix 3 Minimum information required to be included in the re-pricing addendum in respect of individual medical reimbursement insurance/takaful products to be submitted to the Bank ..................... 26 Appendix 4 Format for submission of quantitative information for re-pricing of individual medical reimbursement insurance/takaful products (to be submitted in form of Microsoft Excel spreadsheet) ............................. 30 Appendix 5 Minimum communication requirements for re-pricing and regular updates in respect of medical reimbursement insurance/takaful products .............................................................................................. 35 Appendix 6 Requirements relating to the establishment of the central medical claims data platform ............................................................................ 38 Appendix 7 Reporting template for medical reimbursement insurance/takaful product(s) with co-payment feature .................................................... 40 Appendix 8 Sample Product Disclosure Sheet ...................................................... 41 Medical and Health Insurance/Takaful Business 2 of 52 PART A OVERVIEW 1 Introduction 1.1 Medical and health insurance/takaful (MHIT) remains an important component of health financing in Malaysia. Over the years, the MHIT business continues to grow as more consumers demand wider access to quality health services as well as heightened awareness of MHIT cover as a risk mitigation tool to assist them financially in the event of catastrophic health incidences. The MHIT business has grown over the years based on the total premiums and takaful contributions of MHIT policies/takaful certificates underwritten by licensed insurers and takaful operators (licensed ITOs). 1.2 A number of significant developments are impacting the MHIT business, such as the rise in non-communicable diseases, growth of private healthcare services and escalating medical inflation. These have contributed towards an increase in the utilisation of medical services and magnitude of claims over the years. 1.3 There has also been increased expectations for licensed ITOs carrying on MHIT business to provide more comprehensive and inclusive coverage, as well as to account for the latest development in medical technologies and to support preventive care. These developments have placed increased focus on licensed ITOs to continuously innovate to meet consumers’ evolving needs while balancing the need to ensure that the MHIT business remains sustainable in the long term. 1.4 The healthcare ecosystem in Malaysia involves many stakeholders including licensed ITOs, healthcare providers, regulators including the Bank, managed care organisations and end consumers. Against the backdrop, viable solutions to meet the healthcare financing needs require a concerted and collaborative effort by all stakeholders. 1.5 This policy document sets out the regulatory requirements covering the following areas: (a) Underwriting and terms governing issuance of MHIT policies/takaful certificates; (b) Product design, including limitations that apply; (c) Re-pricing and risk pooling practices; (d) Commissions and incentives; (e) Monitoring and reporting requirements for MHIT-related data; and (f) Business conduct and disclosure to consumers. 2 Applicability 2.1 This policy document is applicable to licensed ITOs as defined in paragraph 5.2. Medical and Health Insurance/Takaful Business 3 of 52 2.2 Except where expressly provided, the requirements set out in this policy document apply equally to all MHIT products of the licensed ITOs, including those offered either on a standalone basis or as riders. 3 Legal provisions 3.1 The requirements in this policy document are issued pursuant to: (a) sections 47, 123, 143 and 144 of the Financial Services Act 2013 (FSA); and (b) sections 57, 135, 155 and 156 of the Islamic Financial Services Act 2013 (IFSA). 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA and section 277 of the IFSA. 4 Effective date 4.1 This policy document comes into effect on 1 June 2024 except for the following provisions: (a) paragraphs 9.4(a) and 9.4(b) shall come into effect on 1 September 2024 unless otherwise specified by the Bank; and (b) paragraphs 12.2 and 13.5 shall come into effect on 1 January 2025. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document: “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; "co-insurance/co-takaful” refers to a type of co-payment where a policy owner/takaful participant bears a specified percentage of total eligible medical expenses covered under a MHIT policy/takaful certificate, with the remainder of the medical expense being covered by the licensed ITO based on the coverage of the MHIT policy/takaful certificate; “co-payment” refers to a specified amount or percentage that a policy owner/takaful participant must pay upon incurring a medical expense covered under a MHIT policy/takaful certificate, with the remainder of the medical expense being covered by the licensed ITO based on the coverage of the MHIT policy/takaful certificate; Medical and Health Insurance/Takaful Business 4 of 52 “consumer” refers to any person who intends to purchase, has purchased or is covered under any MHIT policy/takaful certificate, including persons insured under a group policy or covered under a group takaful certificate where the premiums or takaful contributions are paid by the insured or person covered, as the case may be; “deductible” refers to a type of co-payment where a policy owner/takaful participant bears a specified monetary amount of the medical expenses covered under a MHIT policy/takaful certificate before any benefits are payable by the licensed ITO based on the coverage of the MHIT policy/takaful certificate; “direct distribution channel” refers to the distribution of insurance or takaful products through any or all of the following channels: (a) the head office and branch premises of a licensed ITO; or (b) an online platform, whether developed as the licensed ITO’s proprietary system or outsourced to third party vendors, whereby consumers purchase insurance or takaful products directly from the licensed ITO; “direct MHIT product” refers to any MHIT product that is distributed through a direct distribution channel; “free-look period” refers to the period specified in paragraph 8.11 of this policy document during which a policy owner/takaful participant may examine a newly issued MHIT policy/takaful certificate and surrender it in exchange for a full refund of premium/takaful contribution already paid minus any expenses incurred by the licensed ITO; "Government healthcare facility” refers to any facility used or intended to be used for the provision of healthcare services established, maintained, operated or provided by the Government but excludes privatized or corporatized Government healthcare facilities; “grace period” refers to the additional period of time after the due date of premium/takaful contribution during which payment may be made by the policy owner/takaful participant to the licensed ITO without any penalty while keeping the MHIT policy/takaful certificate in force; “group policy/takaful certificate” refers to a policy/takaful certificate issued to a legal entity as the policy owner/takaful participant where the policy/takaful certificate may insure/cover any person in whom the policy owner/takaful participant has insurable interest/permissible takaful interest; “guaranteed yearly renewable policy/takaful certificate” refers to a MHIT policy/takaful certificate (issued either on a standalone basis or as a rider) of which the renewability on its anniversary is at the option of the policy owner/takaful participant and the licensed ITO is obligated to continue coverage, subject to conditions as specified in paragraph 8.18(b) of this policy document; Medical and Health Insurance/Takaful Business 5 of 52 “homogeneous cohort” refers to a group of medical reimbursement insurance/takaful products that are assessed to be homogeneous in accordance with the risk pooling principles as defined in the licensed ITOs’ internal policies and procedures for re-pricing of medical reimbursement insurance/takaful products; “industry” refers to the insurance and takaful industry in Malaysia; “industry associations” refer collectively to the Life Insurance Association of Malaysia (LIAM), General Insurance Association of Malaysia (PIAM) and Malaysian Takaful Association (MTA); “individual policy/takaful certificate” refers to a policy/takaful certificate issued to an individual consumer as the policy owner/takaful participant where the policy/takaful certificate may insure/cover any person in whom the policy owner/takaful participant has insurable interest/permissible takaful interest; “intermediary” includes any insurance or takaful agent, financial adviser or Islamic financial adviser, insurance or takaful broker, bancassurance or bancatakaful partner, or Perlindungan Tenang partner as defined under the Bank’s respective policy documents; “licensed ITO(s)” refers collectively to a licensed insurer under the FSA and a licensed takaful operator under the IFSA which underwrites or offer a MHIT product; “medical inflation” refers to the year-on-year increase in the average treatment cost as billed by hospitals for surgical treatments and/or non-surgical treatments covered under the medical reimbursement insurance/takaful product; “medical reimbursement insurance/takaful product” refers to an insurance/takaful product that provides benefits in the form of a reimbursement of medical expenses, whether in full or in part, as incurred by the policy owner/takaful participant for an inpatient or outpatient care; “MHIT policy/takaful certificate” refers to a policy/takaful certificate that provides illness benefits or medical, surgical or hospital expense benefits to a policy owner/takaful participant as a result of diseases, sickness or infirmity. Benefits may take the form of the reimbursement of medical expenses incurred by the policy owner/takaful participant, a lump sum payment of the sum insured/participated, or payment of an allowance or income stream at regular intervals for the specified period during which the insured/person covered is incapacitated and/or hospitalised; “MHIT products” refer to insurance or takaful products which may be offered on a standalone basis or as a rider that fall within the definition of MHIT policy/takaful certificate, including, but not limited to the following: (a) Medical reimbursement insurance/takaful product; (b) Critical illness or dread disease insurance/takaful product; (c) Long-term care insurance/takaful product; Medical and Health Insurance/Takaful Business 6 of 52 (d) Hospital income insurance/takaful product; and (e) Dental insurance/takaful product; “rider” refers to a supplementary or extension of cover attached to a base life policy/family takaful certificate (issued either on a standalone basis or as a rider) that adds benefits to or amends the terms of the base life policy/family takaful certificate to provide additional coverage. A rider may come at an extra cost in addition to the premium/takaful contribution for the base life policy/family takaful certificate; “staff” refers to a person employed by a licensed ITO, including temporary or contract staff whose conduct would have an impact on consumer outcomes, regardless of whether or not that person has direct contact with consumers of the licensed ITO; “waiting period” refers to a specified period from the commencement date or reinstatement date of a MHIT policy/takaful certificate during which a claim cannot be made to a licensed ITO; and “yearly renewable policy/takaful certificate” refers to a MHIT policy/takaful certificate whereby renewability upon policy/takaful certificate expiry is at the discretion of a licensed ITO. 6 Related legal instruments and policy documents 6.1 This policy document shall be read together with other relevant policy documents, guidelines or circulars etc. that have been issued by the Bank, including any reissuance or amendments thereafter, in particular: (a) Direct Distribution Channels for Pure Protection Products issued on 3 September 2018; (b) Fair Treatment of Financial Consumers issued on 6 November 2019; (c) Operating Cost Controls for General Insurance and Takaful Business issued on 30 June 2023; (d) Introduction of New Products by Insurers and Takaful Operators issued on 15 May 2015; (e) Investment-linked Business issued on 13 February 2023; (f) Management of Customer Information and Permitted Disclosures issued on 3 April 2023; (g) Operating Cost Controls for Life Insurance and Family Takaful Business issued on 24 December 2019; (h) Perlindungan Tenang issued on 2 July 2021; (i) Product Transparency and Disclosure issued on 31 May 2013; (j) Professionalism of Insurance and Takaful Agents issued on 17 April 2023; (k) Prohibited Business Conduct issued on 15 July 2016; (l) Prohibitions against Unfair Practices in Takaful Business issued on 30 December 2003; (m) Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business issued on 17 August 2012; (n) Risk Management in Technology (RMiT) issued on 19 June 2020; (o) Takaful Operational Framework issued on 26 June 2019; Medical and Health Insurance/Takaful Business 7 of 52 (p) Unfair Practices in Insurance Business issued on 4 April 2003; (q) Universal Life Business issued on 13 February 2023; and (r) Specifications pursuant to sections 47, 123 and 143(1) of the Financial Services Act 2013 and sections 57, 135 and 155(1) of the Islamic Financial Services Act 2013 in respect of Medical and Health Insurance/Takaful (MHIT) Business dated 19 January 2024. 7 Policy documents superseded 7.1 This policy document supersedes the following documents: (a) The Product Disclosure Sheet samples in Paragraph F of Appendix II under Schedule III and Paragraph F of Appendix II under Schedule IV of Guidelines on Product Transparency and Disclosure issued on 31 May 20131; (b) Guidelines on Medical and Health Insurance Business (Revised) issued on 26 August 2005; (c) Guidelines on Medical and Health Takaful Business issued on 17 September 2007; and (d) Specification letter relating to Medical and Health Insurance/Takaful Re- pricing and Risk-pooling dated 6 January 2022. 1 For the avoidance of doubt, other provisions of the Guidelines including the Product Disclosure Sheet samples in the Guidelines shall remain in effect and applicable in respect of other MHIT products. Medical and Health Insurance/Takaful Business 8 of 52 PART B POLICY REQUIREMENTS 8 Underwriting and terms governing issuance of MHIT policies/takaful certificates S Underwriting policies and procedures 8.1 A licensed ITO shall establish clear underwriting policies and procedures for its MHIT business and consistently apply such policies and procedures. The underwriting policies and procedures shall, at minimum, address the following, supported by technical justifications: (a) Parameters for risk evaluation and selection, including any risk differentials; (b) Categories of risk that the licensed ITO is prepared to accept or is restricted from accepting; (c) Circumstances under which further information, documentation and/or medical investigation report, including the type of investigation, are required prior to accepting the risk; (d) Underwriting authority limits; and (e) Concentration limits, including concentrations arising from exposures to any particular health risk profiles, occupations, individuals or groups. S 8.2 A licensed ITO’s decision on whether or not to accept or renew a risk shall be based on sound and objective underwriting, and actuarial principles, in line with paragraph 13.10 of the Policy Document on Fair Treatment of Financial Consumers2. A licensed ITO shall not refuse to accept or renew a risk, or limit the amount of coverage available, solely on the basis of a refusal by another licensed ITO or other reinsurers/retakaful operators to accept or renew cover for the same risk, without independently assessing such risk based on its own underwriting policies and procedures. S 8.3 In the event a licensed ITO or its intermediaries has received a premium/takaful contribution payment but has not confirmed the acceptance of risk, the licensed ITO shall not deny liability for events insured/person covered under the MHIT product, that occur prior to the licensed ITO confirming the acceptance of risk, if, under the licensed ITO’s established underwriting policies, the risk would have been accepted as a standard risk. S 8.4 In relation to paragraphs 8.1 to 8.3, a licensed ITO shall: (a) ensure that its staff implement the underwriting policies and procedures established by the licensed ITO in a consistent manner and make underwriting decisions in line with the underwriting policies and procedures; (b) ensure that its staff who are responsible for the underwriting of MHIT business have the necessary specialist knowledge, expertise and experience to execute their role effectively; and (c) undertake periodic reviews to enhance and ensure relevance of its underwriting policies and procedures. Such reviews shall take into consideration factors such as developments in medical treatment and 2 Issued on 6 November 2019. Medical and Health Insurance/Takaful Business 9 of 52 technology to ensure objective and reasonable underwriting assessment as well as fair treatment of consumers. S 8.5 For the purpose of paragraph 8.4(a), a licensed ITO shall: (a) effectively communicate its underwriting policies and procedures to its staff; (b) maintain proper records of the underwriting decisions made; and (c) establish and implement robust monitoring and review mechanisms to ensure compliance with its underwriting policies and procedures. S Processing of applications for MHIT policy/takaful certificate 8.6 A licensed ITO, including its intermediaries, shall: (a) use plain language in providing any information to consumers and assist the consumer in fulfilling his/her pre-contractual duty of disclosure when he/she is applying for a MHIT policy/takaful certificate; and (b) facilitate the submission of required information, documentation and/or medical investigation reports by consumers to the licensed ITO, as outlined in paragraph 8.1(c), to aid the licensed ITO’s decision-making process on whether to accept the risk and, the terms and conditions to be applied if the risk is accepted. S 8.7 A licensed ITO shall inform the consumer of its decision, in writing, on whether or not to accept his/her application for new MHIT policy/takaful certificate, within a reasonable time (which in any event, shall not exceed 14 calendar days from the date of receipt of complete information or documentation from the consumer by the licensed ITO) that allows the consumer to promptly seek alternative cover in the event that the licensed ITO declines the risk or imposes terms and conditions on the policy/takaful certificate that are unacceptable to the consumer. The licensed ITO shall not unreasonably delay its decision on whether or not to accept the consumer’s application for a new MHIT policy/takaful certificate to the extent that such delay restricts the consumer’s ability to source for other MHIT products with more competitive terms from the market, or results in the consumer becoming unduly exposed to personal financial risk, due to the occurrence of an event that would have otherwise been insured/person covered had it not been for the licensed ITO’s delay. Standardised definitions S 8.8 Licensed ITOs, in collaboration with the industry associations and in consultation with the Bank, shall: (a) jointly develop, formulate or determine the standardised wordings for common definitions used in contractual terms of MHIT policy/takaful certificates under the Glossary of Terms3 (GOT) to facilitate ease of understanding and comparison of MHIT products by consumers; and (b) issue and periodically review the GOT. 3 The standardised wordings under the GOT shall only contain: (a) definitions relating to policy/takaful certificate contract terminology and policy/takaful certificate condition(s); and (b) description of benefits, conditions and exclusions under the policy/takaful certificate. Medical and Health Insurance/Takaful Business 10 of 52 S 8.9 A licensed ITO shall adopt the GOT in its MHIT policy/takaful certificate and other relevant documents. G 8.10 A licensed ITO may only deviate from adopting the standardised wordings in relation to a MHIT policy/takaful certificate where the deviation delivers unambiguously better terms and conditions for the policy owner/takaful participant than the standardised wordings. S Free-look period 8.11 A licensed ITO shall provide a policy owner/takaful participant with a 15 calendar days free-look period4 to: (a) examine the terms and conditions of the MHIT policy/takaful certificate; and/or (b) decide whether or not to terminate the MHIT policy/takaful certificate. S 8.12 In the event the policy owner/takaful participant decides to terminate his/her MHIT policy/takaful certificate within the 15 calendar days free-look period, the licensed ITO shall immediately refund any premium/takaful contribution which has been paid after deducting expenses incurred for the medical examination of the policy owner/takaful participant, if applicable. S Revisions and modifications to MHIT policy/takaful certificate 8.13 A licensed ITO shall only apply revisions to a premium/takaful contribution of an in-force MHIT policy/takaful certificate on its anniversary date or upon its renewal, as the case may be. For avoidance of doubt, the revision to premium/takaful contribution refers to the licensed ITO’s periodic review of premium/takaful contribution rate due to prevailing claims experience. S 8.14 In relation to paragraph 8.13, a licensed ITO shall provide a prior written notification to the affected policy owner/takaful participant at least 30 calendar days before effecting the revision to the premium/takaful contribution. S 8.15 Any revisions5 to an in-force MHIT policy/takaful certificate6, other than revisions to a premium/takaful contribution as outlined in paragraph 8.13, shall not be done on a unilateral basis during the policy period or coverage term on the basis that a consumer would have selected the MHIT policy/takaful certificate that best suits his/her needs and affordability at the point of sale. S 8.16 In relation to paragraph 8.15, a licensed ITO shall only give effect to any revisions to an in-force MHIT policy/takaful certificate, if the following conditions are satisfied: (a) The licensed ITO demonstrates to the Bank that the revision is necessary and justified in light of emerging developments; 4 Upon the delivery date of the MHIT policy/takaful certificate to the policy owner/takaful participant. 5 These include any revisions affecting benefits, terms and conditions of MHIT policy/takaful certificate. 6 For avoidance of doubt, this includes guaranteed yearly renewable insurance policy/takaful certificate. Medical and Health Insurance/Takaful Business 11 of 52 (b) The licensed ITO communicates the following in advance to its policy owners/takaful participants, prior to giving effect to the revisions: i) details of the revision; ii) consequences of the revision, including impact on the coverage of the MHIT policy/takaful certificate and/or premium/takaful contribution or cost of insurance (COI)/tabarru’, and additional premium/takaful contribution needed to ensure sustainability of coverage (if applicable) moving forward; and iii) details of dedicated avenue(s) for the policy owner/takaful participant to seek clarification, advice and assistance as well as to lodge any complaints on the revision; (c) The licensed ITO obtains explicit written consent from policy owners/takaful participants via an opt-in approach; and (d) The licensed ITO monitors the claims made by policy owners/takaful participants who opted in for the revision separately from the claims made by other policy owners/takaful participants who did not opt in for the revision. The licensed ITO shall take into consideration any material risks into the pricing for the MHIT policy/takaful certificate in subsequent reviews of premium/takaful contribution rates. S 8.17 A licensed ITO shall submit relevant documents and information addressing matters outlined in paragraph 8.167 to the Bank at least 30 calendar days before the offering of such revision to its policy owners/takaful participants. Continuity of coverage S 8.18 A licensed ITO shall not: (a) unilaterally terminate a MHIT policy/takaful certificate during the period of cover; and (b) terminate a MHIT policy/takaful certificate or refuse to renew a MHIT policy/takaful certificate that is a guaranteed yearly renewable policy/takaful certificate, except where non-renewal and termination are due to the following: i) If fraud has been committed in relation to the MHIT policy/takaful certificate or the policy owner/takaful participant or any other relevant person misrepresents material facts during the application for a new cover or renewal of the policy/takaful certificate; ii) If any premium/takaful contribution remains unpaid by the policy owner/takaful participant at the expiry of the stipulated grace period; iii) If the MHIT policy/takaful certificate expires, lapses, is cancelled, is surrendered or is converted to an extended-term insurance/takaful product; iv) If total claims of the MHIT policy/takaful certificate have reached the lifetime limit specified and/or in the event of death of the policy owner/takaful participant; or v) If the insured/person covered ceases to qualify as a dependant based on the definition of the MHIT policy/takaful certificate or attains the maximum coverage age limit specified. 7 The documents and information required to be submitted to the Bank under this provision are in addition to information required under paragraph 13.10 of the Policy Document on Introduction of New Products by Insurers and Takaful Operators. Medical and Health Insurance/Takaful Business 12 of 52 S 8.19 A licensed ITO shall not refuse to renew a MHIT policy/takaful certificate solely due to the insured/person covered having made a claim in the preceding year(s). However, a licensed ITO may, upon renewal: (a) modify the terms and conditions of the MHIT policy/takaful certificate, subject to fair and reasonable underwriting assessment, aligned with its internal policies and procedures; or (b) impose reasonable level of premium/takaful contribution loading aligned with established underwriting policies, as the case may be. S 8.20 For purpose of paragraph 8.19(b), the premium/takaful contribution loading imposed on an individual policy owner/takaful participant is subject to the following conditions: (a) The loading shall not exceed 25% of the premium/takaful contribution or COI/tabarru’ rate prior to the claims. For loading that exceeds the above- mentioned threshold, the licensed ITO shall review the premium/takaful contribution or COI/tabarru’ rates for the entire portfolio to ensure that the individual experience loading is suitably moderated by the spread of risks included in the portfolio; (b) The loading structure shall be clearly set out in the licensed ITO’s internal policy, with adequate analysis and justification to support the basis of the loading structure; and (c) The licensed ITO shall disclose its practice of applying loading on individual policy owner/takaful participant with past claims in the product disclosure sheet to ensure that consumers are informed of the licensed ITO’s practice at point of sale. S 8.21 In the event an in-force MHIT policy/takaful certificate which is yearly renewable: (a) will be renewed with modified terms and conditions, a licensed ITO shall notify the policy owner/takaful participant in writing of its decision to modify the terms and conditions, and the reasons for the modifications, at least 30 calendar days before the MHIT policy/takaful certificate anniversary date; or (b) will not be renewed or renewal is to be deferred or will be terminated, a licensed ITO shall notify the policy owner/takaful participant in writing of its decision, together with reasons for its decision (where appropriate), at least 30 calendar days before the MHIT policy/takaful certificate anniversary date. S 8.22 A licensed ITO shall preserve the rights of a policy owner/takaful participant to cancel the MHIT policy/takaful certificate at any time upon request by the policy owner/takaful participant or the policy owner/takaful participant giving written notice to the licensed ITO within a reasonable time. The licensed ITO shall refund any premiums/takaful contributions which have been made in advance subject to the following conditions: (a) Refunds are proportionate based on the remaining period of cover, in accordance with generally accepted actuarial principles and having considered the related expenses incurred; and (b) Terms of refund, including but not limited to the circumstances that warrant a refund, the amount of refunds and how they will be paid, are fair to policy owners/takaful participants. Medical and Health Insurance/Takaful Business 13 of 52 S 8.23 For the purpose of paragraph 8.22, a licensed ITO shall disclose its premium/takaful contribution refund schedule to the policy owner/takaful participant at the point of sale and renewal of the MHIT policy/takaful certificate, if applicable8. 9 Product design S 9.1 A licensed ITO shall consider the changing demographics and healthcare needs of society to ensure meaningful and inclusive protection coverage when designing and innovating its MHIT products. The licensed ITO shall also undertake periodic reviews on its MHIT products to ensure they continue to meet the evolving healthcare needs of consumers and cater to advances in medical developments. G 9.2 A licensed ITO is encouraged, within its risk appetite and business strategies, to provide value-added services such as wellness programmes or preventive care services. This is to promote better long-term health outcomes of its policy owners/takaful participants and manage the underlying risk(s) being insured/ covered. S 9.3 A licensed ITO shall ensure pricing of MHIT products are based on generally accepted actuarial principles and adhere to the relevant principles and requirements in the Policy Document on Fair Treatment of Financial Consumers when designing and innovating MHIT products. S 9.4 As part of efforts to promote more responsible healthcare usage, a licensed ITO shall: (a) have at least one individual medical reimbursement insurance/takaful product with the minimum co-payment amount and offer it as an option, alongside existing products, to consumers at point of sale9. The minimum co-payment amount shall be no less than: i) Co-insurance/co-takaful of 5% of total claimable expenses (after deductible, if any) per policy/takaful certificate year, subject to a maximum co-payment limit to be set by the licensed ITO10; and/or ii) RM500 deductible per policy/takaful certificate year; (b) offer a range of other co-payment amounts11 to consumers, as options at point of sale; and 8 If there are no changes to the premium/takaful contribution refund schedule that has been disclosed at point of sale, the licensed ITO is not required to disclose the same premium/takaful contribution refund schedule at point of renewal. 9 While group medical reimbursement insurance/takaful products are exempted from the requirement to be designed with minimum co-payment feature, licensed ITOs are encouraged to offer the co-payment feature as an option to their customers at point of sale and/or during policy/takaful certificate renewal. 10 Licensed ITOs can determine the basis of its own maximum limit. Such basis may include, but not be limited to, per treatment or utilisation basis as well as per policy/takaful certificate year basis. 11 The range of co-payment amount levels offered should cater to the varying financial needs of diverse policy owners/takaful participants. Medical and Health Insurance/Takaful Business 14 of 52 (c) design all new12 individual medical reimbursement insurance/takaful products with a co-payment feature13, where the co-payment amount shall not be lower than the minimum amount set out in paragraph 9.4(a). S 9.5 In relation to paragraph 9.4, a licensed ITO shall: (a) exercise discretion to consider any financial hardships or extenuating circumstances faced by the policy owner/takaful participant when deciding whether or not to waive the requirement for the policy owner/takaful participant to make co-payment at time of a claim, subject to respective internal governance and procedures; and (b) not apply the co-payment feature in circumstances set out in Appendix 1. S 9.6 In order to protect the interest of an individual MHIT policy owner/takaful participant, a licensed ITO shall comply with the following: (a) The general waiting period shall not: i) exceed 30 calendar days from the effective date of the MHIT policy/takaful certificate; or ii) apply in cases where emergency treatment is sought for an insured/person covered arising from an accident; (b) Imposition of any additional waiting period shall be limited to those illnesses specified in GOT, as a risk mitigation measure against anti- selection and shall not exceed 120 calendar days from the effective date of the MHIT policy/takaful certificate; (c) Any coverage exclusions or limitations for pre-existing condition(s) shall be limited to those that existed prior to the effective date of cover under the policy/takaful certificate and of which the policy owner/takaful participant could have reasonably been aware of14. A licensed ITO is responsible to prove that the policy owner/takaful participant either had knowledge or was reasonably aware of the pre-existing condition(s) in the event the licensed ITO denies a claim of an excluded pre-existing condition; and (d) The survival period15 for a critical illness or dread disease insurance/takaful product shall not exceed 30 calendar days from the date the policy owner/takaful participant is diagnosed with such illness/disease. 12 The term “new product” is defined in the Policy Document on Introduction of New Products by Insurers and Takaful Operators issued on 15 May 2015. For the purpose of this requirement, any changes to benefits and limits, including via rider add-ons, of any existing product as at 29 February 2024, is deemed to be material and hence, meets the definition of new product. 13 The minimum co-payment feature can be in the form of co-insurance/co-takaful and/or deductible. For the avoidance of doubt, licensed ITOs are no longer permitted to design new medical reimbursement insurance/takaful products without the minimum co-payment feature. Licensed ITOs shall not offer any add-ons to reduce or fully waive the co-payment portion. 14 A policy owner/takaful participant may be considered to have reasonably been aware of a pre- existing condition where the condition is one for which:- a) the policy owner/takaful participant had received or is receiving treatment; b) medical advice, diagnosis, care or treatment has been recommended; c) clear and distinct symptoms are or were evident; or d) its existence would have been apparent to a reasonable person in the circumstances. 15 Survival period refers to the time period that the insured/person covered must survive after being diagnosed with a critical illness before a licensed ITO pays out the coverage amount. Medical and Health Insurance/Takaful Business 15 of 52 S 9.7 A licensed ITO shall not bundle MHIT product(s) with a life insurance or family takaful product if the premium/takaful contribution of the MHIT component is not similarly guaranteed or fixed throughout the term of the life insurance policy/family takaful certificate. A MHIT product shall not be considered as ‘bundled’ if: (a) the MHIT and life insurance/family takaful components are clearly distinct and separable; and (b) the policy owner/takaful participant can terminate his/her MHIT cover without affecting his/her life insurance/family takaful cover. G 9.8 Notwithstanding paragraph 9.7, a licensed ITO may offer MHIT product(s) as a rider to a base life insurance policy/family takaful certificate without having to guarantee or fix the MHIT premium/takaful contribution. 10 Re-pricing and risk pooling practices S 10.1 A licensed ITO shall develop internal policies and procedures for the re-pricing of medical reimbursement insurance/takaful products and ensure that all re- pricing exercises are carried out in compliance with its internal policies and procedures. The internal policies and procedures on re-pricing shall be properly documented and duly approved by the board of directors of the licensed ITO in line with paragraphs 10.3 and 11.1 of the Policy Document on Introduction of New Products by Insurers and Takaful Operators16. S 10.2 A licensed ITO shall undertake price adjustments in a re-pricing exercise either on an individual medical reimbursement insurance/takaful product or a homogeneous cohort basis. When determining homogeneous cohorts, the licensed ITO shall: (a) balance the objectives of preserving equity17 among different groups of policy owners/takaful participants and the benefits of risk pooling; and (b) ensure that the principles and approach of determining the homogeneous cohorts are consistent with sound actuarial principles and existing regulatory requirements, including Shariah requirements18. S 10.3 In relation to paragraph 10.1, a licensed ITO shall ensure that its internal policies and procedures on re-pricing of medical reimbursement insurance/takaful products address the following areas: (a) Overall approach for experience monitoring and re-pricing purposes including: i) the metric(s) used for claims experience monitoring and the explicit triggers for remedial actions to be carried out. If a licensed ITO intends to consider other parallel non-repricing initiatives19 prior to 16 Issued on 15 May 2015. 17 Where appropriate, medical reimbursement insurance/takaful products with and without co- payment features must be pooled separately to be more reflective of the underlying differences in product design and claims experience. 18 Including the requirement under paragraph 9.10 of the Policy Document on Takaful Operational Framework. 19 Non-repricing initiatives would include any remedial actions other than re-pricing that are undertaken with the aim to manage escalating claims experience. Examples of non-repricing initiatives are the application of data analytics to identify claim leakages or abuses and improving claims management processes. Medical and Health Insurance/Takaful Business 16 of 52 undertaking a re-pricing exercise, the internal policies and procedures shall specify the tolerance limit such as the time frame or loss ratio range before a re-pricing exercise is undertaken; and ii) the scope of data and information to be used in the re-pricing assessment; (b) Methodology and assumptions adopted for determining the technical risk rates and the revised premium/takaful contribution or COI/tabarru’ rates, taking into account the policy owners’/takaful participants’ reasonable expectations. This includes details on the approach for deriving the medical inflation loading assumption and the number of years the medical inflation would be loaded for (i.e. intended re-pricing frequency); (c) Principles for risk pooling including defining the homogeneity criteria in determining homogeneous cohort, for experience monitoring and re- pricing purposes; (d) Principles surrounding the management of trade-offs between affordability and sustainability of medical reimbursement insurance/takaful products that facilitate consistency across re-pricing assessments including the: i) measurement of affordability; ii) limits on quantum of revision; iii) extent of cross-subsidies allowed within a homogeneous cohort and the management of such cross-subsidies over time; and iv) smoothing of premium/takaful contribution or COI/tabarru’ rates (e.g. across age groups and products); (e) Avenues for policy owners/takaful participants, including those who are already in the lowest plan of the medical reimbursement insurance/takaful product, to seek assistance and strategies to conserve its coverage; (f) Approach for managing risk pools in the event of decreasing pool size over time, with considerations for data credibility explicated quantitatively; (g) Stakeholder management and communication strategies including a comprehensive risk assessment of the impact of any re-pricing of the medical reimbursement insurance/takaful products to different stakeholders, as well as specific risk mitigation action plans and targeted communication strategies to the different stakeholders; and (h) Governance framework and process for re-pricing exercises including: i) roles and responsibilities of teams/committees etc. involved in the re- pricing exercise; and ii) list of circumstances under which the licensed ITO’s re-pricing exercise may depart from the internal policies and procedures (e.g. postponement of re-pricing), including waivers/exceptions approved by the licensed ITO’s board of directors in the past. G 10.4 In relation to paragraph 10.3(e), a licensed ITO may provide for a different approach to conserve the coverage of the medical reimbursement insurance/takaful product depending on the type of product (e.g. standalone versus premium/takaful contribution-paying rider versus unit-deducting rider). S 10.5 A licensed ITO shall ensure that its internal policies and procedures relating to the re-pricing of medical reimbursement insurance/takaful products sufficiently address practices which may be regarded as unfair to consumers, including, but not limited to those set out in Appendix 2. Medical and Health Insurance/Takaful Business 17 of 52 S 10.6 A licensed ITO shall submit an addendum for the re-pricing of medical reimbursement insurance/takaful products with reviewable rates to the Bank, in line with paragraph 13.14 of the Policy Document on Introduction of New Products by Insurers and Takaful Operators. The licensed ITO shall ensure that its submission is in line with paragraph 13.10 of the Policy Document on Introduction of New Products by Insurers and Takaful Operators and shall include, at minimum, the information set out in Appendix 3 of this policy document and submitted in the format specified in Appendix 4 of this policy document, where relevant. 11 Commission limits S 11.1 A licensed ITO shall not pay any commission exceeding the following maximum commission limits in respect of the sale of its MHIT products. As a percentage of premium/takaful contribution a) Individual policy/takaful certificate i) Yearly renewable standalone policy/takaful certificate. 15% ii) Other policies/takaful certificates, including riders, with term exceeding one year20. 171% for a 20-year or more policy/takaful certificate, pro- rated accordingly for a shorter- term policy/takaful certificate21. iii) Guaranteed yearly renewable medical reimbursement rider22 where its premium/takaful contribution does not constitute more than 50% of the combined premium/takaful contribution of the medical reimbursement rider and base life insurance policy/family takaful certificate23. as per (ii). iv) Other riders, excluding items a(ii) and (iii) above. 15% b) Group policy/takaful certificate 10% - 20 Applicable to policies/takaful certificates offered by licensed ITOs carrying on life/family takaful business only. 21 The commission payment shall be in accordance with the Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business. 22 Include guaranteed yearly renewable and conditional yearly renewable riders which are subject to portfolio withdrawal clause. 23 When calculating the combined premium/takaful contribution, the licensed ITO must exclude other non-MHIT riders attached to the base policy/takaful certificate and based on first year premium/takaful contribution. Medical and Health Insurance/Takaful Business 18 of 52 S 11.2 A licensed ITO shall not include any commissions into the pricing of premiums/takaful contributions of any direct MHIT product or pay any commissions for direct MHIT products offered24. 12 Monitoring and reporting G 12.1 To facilitate greater data sharing to support better cost control management and pave way towards greater transparency, licensed ITOs are encouraged to enhance the collection and standardisation of MHIT product data, particularly medical reimbursement insurance/takaful products. Submission to central medical claims data platform S 12.2 Licensed ITOs shall submit MHIT claims data25 to a central medical claims data platform which is established by the licensed ITOs in collaboration with the relevant industry associations beginning 1 January 2025. This is to enable greater industry-wide analysis of medical claims data, including but not limited to facilitating the disclosure and publication of information relevant to drivers of medical inflation rate and medical claims trends. S 12.3 In relation to paragraph 12.2, licensed ITOs shall establish the central medical claims data platform in accordance with the requirements set out in Appendix 6. Submission of medical reimbursement insurance/takaful product(s) with co- payment feature data S 12.4 In monitoring the effectiveness and progress of medical reimbursement insurance/takaful product(s) with co-payment feature, licensed ITOs shall monitor and maintain records of the take-up and experience of medical reimbursement insurance/takaful product(s) with co-payment feature on an annual basis26 in accordance with the reporting template set out in Appendix 7. S 12.5 In relation to paragraph 12.4, licensed ITOs shall submit the complete records digitally to the Bank via the Integrated Submission Platform (ISP) in accordance with the submission instructions stated in Appendix 7. The complete records shall be submitted to the Bank by 31 January of the subsequent year beginning 31 January 2025 or any other date as agreed upon by the Bank. In the event that the deadline falls on a non-working day, the completed records must be submitted to the Bank by the next immediate working day. 24 This requirement is in line with paragraph 8.5 of the Policy Document on Direct Distribution Channel for Pure Protection Products for licensed ITOs carrying on life business and family takaful business. 25 Including MHIT claims data for the years 2023 and 2024. 26 For the period of 1 January to 31 December of that calendar year. Medical and Health Insurance/Takaful Business 19 of 52 PART C BUSINESS CONDUCT AND DISCLOSURE REQUIREMENTS 13 Disclosure requirements S 13.1 A licensed ITO shall, at all times: (a) ensure that any information provided to consumers on a MHIT product is in line with the Guidelines on Product Transparency and Disclosure27; (b) ensure that the information provided to consumers on the MHIT product is consistent with the contents of its product documentation filed with the Bank; (c) provide adequate information on the MHIT product to consumers and policy owners/takaful participants to facilitate comparisons and informed decision-making. Such information shall include, but are not limited to, the key product features, benefits and risks, exclusions and limitations, fees and charges, and contractual rights and obligations of policy owners/takaful participants; and (d) provide accurate and timely information to policy owners/takaful participants on their MHIT policies/takaful certificates. S At point of sale 13.2 In addition to any sales and marketing materials, a licensed ITO shall provide a copy of the product disclosure sheet (PDS) to consumers. S 13.3 In relation to paragraph 13.2, a licensed ITO shall make available the PDS in languages, including Bahasa Malaysia, that meet the needs of its customer segments. S 13.4 With respect to the PDS, a licensed ITO shall provide consumers the full details of the fees and charges, including any other fees and charges that are not included in the premiums/takaful contributions. The licensed ITO shall also explain the purpose of imposing such fees and charges. Specifically, for: (a) yearly renewable standalone policies/takaful certificates and group policies/takaful certificates, the commissions to be borne by the policy owner/takaful participant shall be expressed both in terms of the aggregate (absolute) amount and as a percentage of premiums/takaful contributions payable for each policy/takaful certificate year; (b) standalone policies/takaful certificates with a term exceeding 12 months, guaranteed yearly renewable standalone policies/takaful certificates and premium/takaful contribution paying riders, the commissions to be borne by the policy owner/takaful participant, shall be expressed both in terms of the aggregate (absolute) amount and as a percentage of total premiums/takaful contributions payable for the years where commissions are payable to intermediaries; (c) unit-deducting riders, the licensed ITO shall refer the policy owner/takaful participant to the sales and marketing illustration of the base policy/takaful certificate for more information; and (d) medical and health takaful products, the licensed ITO shall disclose the wakalah fees with further breakdown by commissions and management expenses, expressed both in terms of the aggregate (absolute) amount 27 Issued on 31 May 2013. Medical and Health Insurance/Takaful Business 20 of 52 and as a percentage of takaful contributions payable for each takaful certificate year or the years where commissions are payable to intermediaries, in line with paragraphs 13.4(a) or 13.4(b). S 13.5 For individual medical reimbursement insurance/takaful products, a licensed ITO shall ensure that the PDS for such products conforms to the format as set out in Appendix 8 of this policy document. The PDS for individual medical reimbursement insurance/takaful products shall not exceed two and a half (2 ½) A4 pages. S 13.6 In relation to paragraph 13.5, in ensuring that the PDS for individual medical reimbursement insurance/takaful products conforms to the PDS format set out in Appendix 8, specifically on: (a) ‘Step 3’ of the PDS, a licensed ITO shall: i) disclose the three-year industry average medical inflation rate, based on the billed amounts for surgical and non-surgical treatments insured/person covered under individual medical reimbursement insurance/takaful products by 1 January 202528. The billed amounts shall include all approved claims, including those unsettled, as at 31 December of every year; ii) illustrate the projected premium/takaful contribution or COI/tabarru’ using the three-year industry average medical inflation rate, compared against current premium/takaful contribution or COI/tabarru’ upon consumer’s attained age. The projection must be customised according to the consumer’s entry age, with five-year intervals for the next 20 years (or until the end of the individual medical reimbursement policy/takaful certificate contractual term, whichever is earlier); iii) disclose the three-year industry average claims ratio, expressed as the amount of premium (per RM1.00) allocated to pay claims, by 1 January 202528; iv) update in the PDS the abovementioned industry average medical inflation rate and corresponding projections of all individual medical reimbursement insurance/takaful products offered by 1 July of every year beginning 1 July 2026; and v) update in the PDS the abovementioned three-year industry average claims ratio by 1 July of every year beginning 1 July 2026; and (b) ‘Step 5’ of the PDS, a licensed ITO shall: i) disclose two alternative products which are comparable to the recommended individual medical reimbursement plan in the Product Options Table. In the event that the licensed ITO has less than three medical reimbursement products distributed through the same channel as the recommended product, the licensed ITO shall disclose a different plan available within the recommended product or a different plan available within the alternative product options; ii) select for disclosure only alternative individual medical reimbursement insurance/takaful product options which are distributed through the same distribution channel as the recommended product; 28 For the period from 1 January 2025 until 30 June 2026, a licensed ITO shall disclose the industry average medical inflation rate and the industry average claims ratio as specified by the Bank. Medical and Health Insurance/Takaful Business 21 of 52 iii) disclose at least one individual medical reimbursement product with co-payment feature as one of the alternative products, in line with paragraph 9.4(a) of this policy document, especially if the recommended product is not a product with co-payment feature; and iv) disclose the total of annual premium/takaful contribution for the base life insurance policy/family takaful certificate with the rider attached where applicable. G 13.7 In relation to paragraph 13.6(b), in disclosing the alternative products in the Product Options Table, a licensed ITO may prioritise the following features (in order of importance) for comparability: (a) Products or plans with co-insurance/co-takaful and/or deductible; (b) Standalone products; (c) Products or plans offering similar or lower levels of benefits (i.e. hospital room and board, annual limit, lifetime limit etc.); (d) Products or plans with similar coverage terms; or (e) Products or plans with lower annual premiums/takaful contributions. S At point of entering into contract 13.8 A licensed ITO shall provide complete information of a MHIT product in the policy/takaful certificate that must include but is not limited to, the following: (a) Policy/takaful certificate benefits; (b) Premium/takaful contribution rates; (c) Fees and charges; (d) Exclusions and limitations; and (e) All contractual rights and obligations of policy owners/takaful participants, including policy/takaful certificate renewals and switching of products or plans. S During the term of policy/takaful certificate 13.9 In its communication with policy owners/takaful participants on the re-pricing of individual medical reimbursement insurance/takaful products, a licensed ITO shall give due regard to the policy owners’/takaful participants’ respective financial circumstance, in particular, the impact of re-pricing on the affordability of their existing policies/takaful certificates. A licensed ITO shall also communicate, at minimum, the information relating to the areas outlined in Appendix 5 of this policy document to the policy owners/takaful participants, in line with Principle 329 specified in paragraph 12 of the Policy Document on Fair Treatment of Financial Consumers. S 13.10 A licensed ITO shall ensure that policy owners/takaful participants have access to key information with respect to the management of their individual medical reimbursement insurance/takaful products, in line with paragraph 4 of Part A in Appendix 5 of this policy document. This is to manage policy owners’/takaful participants’ expectations and to facilitate policy owners/takaful participants in making informed decisions on the available products to preserve their coverage. 29 Principle 3: A financial service provider must provide financial consumers with clear, relevant and timely information on financial services and products. Medical and Health Insurance/Takaful Business 22 of 52 S 13.11 A licensed ITO shall clearly disclose to policy owners/takaful participants the consequences30 of switching to a different MHIT product in the surrender or product switching forms. 14 Needs-based assessment requirements S 14.1 A licensed ITO shall ensure that its staff and intermediaries obtain sufficient information about a consumer before providing any advice and product recommendation(s). This applies to all individual MHIT products offered31, including MHIT riders purchased upon or after the inception of the base life insurance policy/family takaful certificate. The licensed ITO shall make available appropriate tools and relevant trainings for its staff and intermediaries to conduct a needs-based assessment in their dealings with consumers. S 14.2 In relation to paragraph 14.1, a licensed ITO shall ensure that its staff and intermediaries obtain the following minimum information from the consumer through the fact-finding process: (a) His/her financial objectives, needs and priorities; (b) His/her financial situation, including sources and amount of income as well as the potential financial impact to the consumer32; (c) His/her existing MHIT coverage; and (d) His/her employment status and whether MHIT coverage is provided by his/her employer. S 14.3 In line with Principle 533 specified in paragraph 14 of the Policy Document on Fair Treatment of Financial Consumers, a licensed ITO shall ensure that its staff and intermediaries provide advice and recommendation on individual MHIT products that is supported with a reasonable basis and is in the best interests of consumers. S 14.4 For MHIT policies/takaful certificates distributed via direct distribution channels, a licensed ITO must make available appropriate tools for consumers to conduct self-assessment on product suitability, having regard to his/her needs, financial circumstances and risk profiles34. These tools shall include: (a) a needs analysis calculator to estimate the amount of coverage needed; and (b) a financial budget calculator to gauge the affordability of premiums/takaful contributions payable based on current income, expenditure and financial obligations. 30 This may include additional fees and charges, imposition of new waiting periods, exclusion of additional pre-existing conditions and/or changes in benefit coverage. 31 Excluding individual MHIT products approved pursuant to the Policy Document on Perlindungan Tenang. 32 This allows licensed ITOs to gauge the affordability of premiums/takaful contributions or co- payment amount to be incurred. 33 Principle 5: A financial service provider must take reasonable care to ensure the suitability of advice and recommendations provided to financial consumers. 34 This requirement is in line with paragraph 9.1 of the Policy Document on Direct Distribution Channel for Pure Protection Products, for licensed ITOs carrying on life business and family takaful business. Medical and Health Insurance/Takaful Business 23 of 52 S 14.5 In relation to paragraph 14.4, a licensed ITO shall set mandatory fields within the needs analysis and financial budget calculators made available online, where consumers can only proceed with the transaction after providing key information in the mandatory fields. 15 Prohibition on concluding sales of all MHIT products (including riders) through telemarketing channel G 15.1 A licensed ITO may market its MHIT products and provide information on its key features, terms and conditions through telemarketers. S 15.2 Notwithstanding paragraph 15.1, a licensed ITO shall not permit telemarketers to conclude the sale of its MHIT products, either on a standalone basis or as a rider, over the phone. Instead, the licensed ITO shall refer consumers who are interested to make a purchase to an intermediary who is qualified to conduct the needs-based assessment in line with the requirements under paragraphs 14.1, 14.2 and 14.3. Medical and Health Insurance/Takaful Business 24 of 52 PART D APPENDICES Appendix 1 Circumstances where the co-payment feature shall not apply* 1. Emergency treatment, including in accident cases. 2. Outpatient treatment for follow-up treatments arising from critical illnesses such as for cancer or kidney dialysis. 3. Treatment sought at a Government healthcare facility. * A licensed ITO shall obtain the Bank’s prior written approval to provide additional circumstances beyond those listed above. Such applications shall be submitted with relevant details and clear justifications to the Bank. Medical and Health Insurance/Takaful Business 25 of 52 Appendix 2 Practices which shall be regarded as unfair 1. Rate increases that are not due to the underlying medical claims experience A licensed ITO must not revise the rates of medical reimbursement insurance/takaful products as a result of- (i) higher profit margin to be generated for the licensed ITO than initial pricing assumption; or (ii) increase price of loadings that are not directly attributable to the ongoing management of the individual product/homogeneous cohort. For example, a change in the overall expense allocation methodology that results in a higher share of common expenses being charged to the individual product/homogeneous cohort. 2. Inconsistent application of risk rating differentials over time on guaranteed yearly renewable and long-term medical reimbursement insurance/takaful products A licensed ITO’s practice of changing rating factors to further differentiate the risk profiles of the policy owners/takaful participants during re-pricing would not be fair to consumers, for both guaranteed yearly renewable and long-term medical reimbursement insurance/takaful products. In particular, adding rating factors could invalidate the criteria against which entrance to the pool was assessed and would not be consistent with policy owners’/takaful participants' expectations at the point of sale. Medical and Health Insurance/Takaful Business 26 of 52 Appendix 3 Minimum information required to be included in the re-pricing addendum in respect of individual medical reimbursement insurance/takaful products to be submitted to the Bank A licensed ITO must submit to the Bank, at minimum, the following information in the re-pricing addendum of individual medical reimbursement insurance/takaful products: 1. Summary of information relating to re-pricing, including35: (i) the affected products, grouped according to homogeneous cohort; (ii) product type and classification under the Policy Document on Investment- Linked (“IL”) Business (for IL riders); (iii) for yearly renewable term (“YRT”) medical reimbursement insurance/takaful products, whether renewability is guaranteed; (iv) whether the medical reimbursement insurance/takaful products are open or closed for new business, and year of closure, if applicable; (v) the number of affected medical reimbursement policies/takaful certificates; (vi) the minimum and maximum rate revision36 by percentage and amount for each medical reimbursement insurance/takaful product, by rate table37; (vii) the minimum, maximum and weighted average of rate revision by percentage and amount for each medical reimbursement insurance/takaful product, by expected impact to existing policy owners/takaful participants; and (viii) the amount of increase in premium/takaful contribution rates to meet target loss ratio at each medical reimbursement insurance/takaful product level. 2. Statistics for each medical reimbursement insurance/takaful product within the homogeneous cohort for the latest five years preceding re-pricing, categorised by at least plan type (e.g. room and board level), gender and age band38: (i) total claims amount (including the incurred but not reported (“IBNR”) provision, if any); (ii) total premiums/takaful contributions or COI/tabarru’ received; (iii) number of policies/takaful certificates39; (iv) number of claims; and (v) ratio of actual/expected claims (if available). 3. Explanation on the licensed ITO’s compliance with its internal policies and procedures, including the rationale for any deviations from such internal policies and procedures. The information that the licensed ITO must submit to the Bank includes but is not limited to the following: (i) re-pricing thresholds; (ii) derivation of the inflation assumption; 35 To be provided according to Table 1(a) and Table 1(b) in Appendix 4. 36 For IL riders and takaful products with dripping model, the rate revision must be expressed as the change in cost of insurance/tabarru’. 37 Licensed ITOs must assume at least 1 exposure for each age band and plan type. 38 To be provided according to Table 2 in Appendix 4. 39 For policies/takaful certificates covering more than one person, licensed ITOs must adjust the statistics such that the total number of policies/takaful certificates equals to the total number of insureds/persons covered under the product portfolio. Medical and Health Insurance/Takaful Business 27 of 52 (iii) scope of the data and information used, including confirmation that ex-gratia payments40 have been excluded from the re-pricing assessment; (iv) the extent of cross subsidisation within the homogeneous cohort; and (v) management of shrinking pool (e.g. whether the re-priced cohort meets the data credibility criteria and plans to manage remaining policies/takaful certificates if claims experience is anticipated to deteriorate faster as the risk pool shrinks). 4. Explanation and numerical examples on: (i) derivation of morbidity assumption; (ii) derivation of revised premium/takaful contribution rate or COI/tabarru’ charges (including any further adjustments made to the technical risk rates, having regard to the licensed ITO’s internal policies and procedures) including an explanation of the derivation of the rates for each plan type and age band; and (iii) derivation of top-up premium/takaful contribution (for IL life policies/takaful certificates). 5. Range of increase in premium/takaful contribution rate (for conventional non- IL/single risk fund takaful products) or COI/tabarru’ (for conventional IL/dripping model takaful products) (both in amount and %) with corresponding number of policies/takaful certificates impacted at least by plan type and age bands41. For re-pricing with optional changes to benefits, the information must be submitted with and without benefit changes. 6. In addition to item 5 of this Appendix, for medical riders of IL plans/takaful products with dripping model, range of equivalent42 top-up premiums/takaful contributions required to support the increase in reviewable COI/tabarru’ (both in amount and %), at least by plan type and age bands, including the distribution of number of policies/takaful certificates falling within specific range of top-up premiums/takaful contributions43. 7. For re-pricing of medical reimbursement riders that results in incremental premium/takaful contribution or COI/tabarru’ of other riders (e.g. premium/takaful contribution waiver rider or payor/contributor rider) attached to the same basic life insurance policy/family takaful certificate: (i) the number of policies/takaful certificates with corresponding increase in premium/takaful contribution or COI/tabarru’ for other riders (out of total number of policies/takaful certificates affected by the re-pricing); (ii) if there is corresponding increase in premium/takaful contribution for the other riders affected, the range of increase in premium/takaful contribution rate (both in amount and %) for the other riders, with corresponding number of policies/takaful certificates impacted at least by plan type and age bands, 40 Ex-gratia payments are voluntary payments made by the licensed ITO in response to a loss event which does not fall within the ambit of contractual terms. 41 To be provided according to Table 3 in Appendix 4. 42 For the purpose of this requirement, the range of top-up premiums/takaful contributions for IL plans falling under paragraph 16.8(a) of the Policy Document on Investment-Linked Business must not include the amount of additional premiums/takaful contributions required to restore overall policy/takaful certificate sustainability to the end of contractual term. 43 To be provided according to Table 4(a) and Table 4(b) in Appendix 4, with segregation between single top-ups and regular top-ups. Medical and Health Insurance/Takaful Business 28 of 52 including the distribution of number of policies/takaful certificates falling within specific range of incremental premiums/takaful contributions44; and (iii) sample of annexure to the policy/takaful certificate of all the other riders affected. 8. For re-pricing of medical riders attached to basic life insurance policies/family takaful certificates that are waived from paying premiums/takaful contributions: (i) the number of policies/takaful certificates that are waived from paying premiums/takaful contributions; (ii) the range of top-ups required to maintain medical cover until end of contractual coverage term45, at least by plan type and age bands, including the distribution of number of policies/takaful certificates falling within specific range of top-up premiums/takaful contributions46; and (iii) the impact to sustainability of the medical cover attached to the IL policies/takaful certificates, i.e. the reduction of coverage term (in number of years) assuming the policy owners/takaful participants choose to not perform top-ups, at least by plan type and age bands, including the distribution of number of policies/takaful certificates falling within specific range of impact to sustainability46. 9. Impact analysis due to lapse upon re-pricing (i.e. stress test on higher lapse due to re-pricing for the next three years). 10. Projected loss/claims ratios for each homogeneous cohort and product after re- pricing, specifying the historical medical inflation rates, medical claims inflation rate assumed in projection and any other assumptions used in the projection (e.g. new business, lapse etc.). The period of projection must be in line with the licensed ITO’s internal policies and procedures on medical reimbursement insurance/takaful product re-pricing. 11. Assessment on affordability and measures to ensure continuity of medical cover for affected policy owners/takaful participants (if any), including: (i) assessment on affordability of increases in premiums/takaful contributions, including regular or single top-ups required of affected policy owners/takaful participants to maintain medical cover; (ii) assessment on affordability, particularly for vulnerable groups47. This includes using the available data types to support options offered to affected policy owners/takaful participants; (iii) Board meeting minutes where affordability assessment is deliberated (if any); (iv) details on available options to policy owners/takaful participants to downgrade the existing plans, criteria for downgrading the existing plan as well as options to switch with or without underwriting considerations; and 44 To be provided according to Table 5(a) and Table 5(b) in Appendix 4. 45 For IL products with an extension to coverage term feature, this refers to the initial coverage term only. 46 To be provided according to Table 6(a) and Table 6(b) in Appendix 4, with segregation between single top-ups and regular top-ups. 47 At minimum, vulnerable groups include affected policy owners/takaful participants who are senior citizens in line with the definition of “vulnerable consumers” in the Policy Document on Fair Treatment of Financial Consumers. Medical and Health Insurance/Takaful Business 29 of 52 (v) comparison of details (e.g. benefits, premiums/takaful contributions and COI/tabarru’) of existing plan and available options. 12. Cost containment initiatives, including claims management actions taken (including timeframe), and the extent these are imputed into the current re-pricing, if any. 13. Assessment on policy owners’/takaful participants' reasonable expectations (“PRE”), including materials used and feedback (e.g. evidence that licensed ITOs took into consideration PRE when determining the revised premium/contribution and COI/tabarru’ rates). 14. Sales tools used, including previous and current training materials, sales and marketing materials, and PDS, for all products including those that have been withdrawn. 15. Materials for stakeholder management and communication strategy48, including the written notifications to policy owners/takaful participants49, agency toolkit, FAQs for policy owners/takaful participants, agents and BNM LINK/Regional Offices, leaflets, and past communications to policy owners/takaful participants regarding the performance of the medical portfolio, if any. 16. Details of all previous premium/takaful contribution and COI/tabarru’ rate revisions, including, for each medical reimbursement insurance/takaful product under the homogeneous cohort: (i) the date of the implementation of revision; (ii) overall range (minimum and maximum) of increase in premium/takaful contribution rate (for conventional non-IL/single risk fund takaful products) or COI/tabarru’ (for conventional IL/dripping model takaful products) (both in amount and %); (iii) the rationale for revision and the overall target loss ratio or actual/expected ratio of the re-pricing exercise; and (iv) the number of policies/takaful certificates affected. 48 Including differentiated approach according to availability of policy owners’/takaful participants’ contact details and respective vulnerabilities, and plans for monitoring receipt of notifications. 49 Licensed ITOs to share the computation (i.e. formula, numerators, denominators, time period used) of the metrics “change in utilisation rate and average claims size” and “three-year average medical inflation rate” (as per paragraph 1(a) under Part A of Appendix 5), and whether these are the experience of the specific medical reimbursement product being re-priced or the homogeneous cohort. For the avoidance of doubt, licensed ITOs are prohibited from adjusting or modifying the medical inflation rate computation by any other factors (e.g. claims utilisation rate). Medical and Health Insurance/Takaful Business 30 of 52 Appendix 4 Format for submission of quantitative information for re-pricing of individual medical reimbursement insurance/takaful products (to be submitted in form of Microsoft Excel spreadsheet) Table 1(a): Summary information for re-pricing (general) Cohort Product Product Type (Note 1) Basis of top- up premium/ takaful contribution (Note 2) Yearly renewability: guaranteed/ non-guaranteed Open/ closed to new business Date of closure to new business Changes to rate table (Notes 3 and 4) Percentage (%) Amount (RM) per annum Min. Max. Min. Max. 16.8(a) or 16.8(b) Table 1(b): Summary information for re-pricing (based on referenced position) Cohort Product Referen ced position (Note 4) Number of affected policies/takaful certificates (inclusive of riders) Impact of rate change to affected consumers (Note 5) Required % increase to meet target loss ratio (at product level) (Note 6) Percentage (%) Amount (RM) per annum Min. Max. Wt. Avg. Min. Max. Wt. Avg. Note: 1. Product type is applicable for licensed ITOs carrying on life business and family takaful business only: • Life business: investment-linked (IL)/non-IL • Family takaful business: dripping model/non-dripping model 2. Applicable for IL riders only and in reference to paragraphs 16.8(a) or 16.8(b) of the Policy Document on Investment-linked Business. 3. Assume at least 1 exposure at each age band and plan type. 4. The referenced position is the date which the impact assessment of the re-pricing exercise is based on. 5. For investment-linked riders and takaful products with dripping model, the rate revision must be expressed as the change in COI/tabarru’. 6. If the final quantum of re-pricing is not expected to restore target loss ratio within the timeframe specified in the internal policy, state the required percentage increase (technical change). Medical and Health Insurance/Takaful Business 31 of 52 Table 2: Re-pricing statistics for each product Year X Age band Plan 1 [i] Total claims amount (RM) [ii] Total premiums/ takaful contributions/COI/ tabarru’ received (RM) [iii] Number of policies/ takaful certificates (Note 1) [iv] Number of claims [v] Claims ratio ([i]/[ii]) [iv] Average claims amount ([i]/[iv]) [vii] Utilisation rate ([iv]/[iii]) [viii] Ratio of Actual to Expected Claims (%) 0 – 10 11 – 20 … Total Note: 1. For policies/takaful certificates covering more than one person, licensed ITOs must adjust the statistics such that the total number of policies/takaful certificates equals to the total number of insured/person covered under the product portfolio. 2. Age band grouping must correspond with the grouping used in the licensed ITO’s rate tables. 3. Please ensure the information in this table is consistent with information in other tables in Appendix 4 (e.g. number of policies/takaful certificates affected by the re-pricing must be the same across all tables). If it is not consistent, please highlight and justify (e.g. use of different referenced position). Table 3: Range of increase in premium/takaful contribution rate or COI/tabarru’ Age band Plan 1 Range of increment in premium/ takaful contribution rate/ COI/tabarru’ (RM) Range of increment in premium/ takaful contribution rate/ COI/tabarru’ (%) Number of policies/ takaful certificates 0 – 10 11 – 20 … Total Note: 1. Age band grouping must correspond with the grouping used in the licensed ITO’s rate tables. 2. Please ensure the information in this table is consistent with information in other tables in Appendix 4 (e.g. number of policies/takaful certificates affected by the re-pricing must be the same across all tables). If it is not consistent, please highlight and justify (e.g. use of different referenced position). Medical and Health Insurance/Takaful Business 32 of 52 Table 4(a): Range of equivalent top-up premiums/takaful contributions required to support the increase in COI/tabarru’, for medical riders of IL plans/takaful with dripping model, by age band Age band Plan 1 Range of equivalent top-up premium/takaful contribution (RM) Range of equivalent top-up premium/takaful contribution (%) Number of policies/takaful certificates 0 – 10 11 – 20 … Total Table 4(b): Range of equivalent top-up premiums/takaful contributions required to support the increase in COI/tabarru’, for medical riders of IL plans/takaful with dripping model, by range of top up in amount and percentage increase Plan 1 Range of equivalent top-up premium/takaful contribution (RM) Number of policies/ takaful certificates Range of equivalent top-up premium/takaful contribution (%) Number of policies/ takaful certificates 0 – 300 0 – 5.00 301 – 600 5.01 – 10.00 … … Total Total Note: 1. Age band grouping must correspond with the grouping used in the licensed ITO’s rate tables. 2. Please ensure the information in this table is consistent with information in other tables in Appendix 4 (e.g. number of policies/takaful certificates affected by the re-pricing must be the same across all tables). If it is not consistent, please highlight and justify (e.g. use of different referenced position). Medical and Health Insurance/Takaful Business 33 of 52 Table 5(a): Range of increase in premium/takaful contribution rate for other riders affected by the re-pricing of medical reimbursement rider attached to the same basic life insurance policy/family takaful certificate, by age band Age band Plan 1 Range of increment in premium/ takaful contribution rate (RM) Range of increment in premium/ takaful contribution rate (%) Number of policies/ takaful certificates 0 – 10 11 – 20 … Total Table 5(b): Range of increase in premium/takaful contribution rate for other riders affected by the re-pricing of medical reimbursement rider attached to the same basic life insurance policy/family takaful certificate, by range of increment in amount and percentage increase Plan 1 Range of increment in premium/takaful contribution rate (RM) Number of policies/ takaful certificates Range of increment in premium/takaful contribution rate (%) Number of policies/ takaful certificates 0 – 300 0 – 5.00 301 – 600 5.01 – 10.00 … … Total Total Note: 1. Age band grouping must correspond with the grouping used in the licensed ITO’s rate tables. 2. Please ensure the information in this table is consistent with information in other tables in Appendix 4 (e.g. number of policies/takaful certificates affected by the re-pricing must be the same across all tables). If it is not consistent, please highlight and justify (e.g. use of different referenced position). Medical and Health Insurance/Takaful Business 34 of 52 Table 6(a): Range of top-up premiums/takaful contributions required to maintain medical cover until end of contractual coverage term, and impact to sustainability if policy owner/takaful participant chooses not to perform top-ups, for medical reimbursement riders of IL plans/takaful with dripping model that are waived from paying premiums/takaful contributions, by age band Age band Plan 1 Range of top-up premium/takaful contribution (RM) Impact to sustainability (number of years) (Note 3) Number of policies/takaful certificates Minimum Maximum 0 – 10 11 – 20 … Total Table 6(b): Range of top-up premiums/takaful contributions required to maintain medical cover until end of contractual coverage term, and impact to sustainability if policy owner/takaful participant chooses not to perform top-ups, for medical reimbursement riders of IL plans/takaful with dripping model that are waived from paying premiums/takaful contributions, by range of top-up in amount and impact to sustainability in years Plan 1 Range of top-up premium/takaful contribution (RM) Number of policies/ takaful certificates Range of impact to sustainability (number of years) (Note 3) Number of policies/ takaful certificates 0 – 300 < 1 year 301 – 600 1-2 years … … Total Total Note: 1. Age band grouping must correspond with the grouping used in the licensed ITO’s rate tables. 2. Please ensure the information in this table is consistent with information in other tables in Appendix 4 (e.g. number of policies/takaful certificates must be the same across all tables). If it is not consistent, please highlight and justify (e.g. use of different referenced position). 3. The impact to sustainability (i.e. reduction of coverage term in number of years assuming no top-up performed) must only account for the impact due to current re-pricing exercise. Medical and Health Insurance/Takaful Business 35 of 52 Appendix 5 Minimum communication requirements for re-pricing and regular updates in respect of medical reimbursement insurance/takaful products A licensed ITO shall communicate to its policy owners/takaful participants, at minimum, the information set out below in relation to re-pricing of medical reimbursement insurance/takaful products: A. Notification(s) of re-pricing to policy owners/takaful participants 1. The written notification(s) issued by a licensed ITO to its policy owners/takaful participants regarding re-pricing of medical reimbursement insurance/takaful products must include– (a) clear explanation of the factors driving the premium/takaful contribution rate adjustments, including individual product/cohort- specific data/statistics (i.e. “change in utilisation rate and average claims size”50 and three-year average medical inflation rate51) to support the premium/takaful contribution revision quantum and considerations taken into account in the determination of the rate adjustment; (b) the revised premium/takaful contribution or COI/tabarru’52, compared with the current premium/takaful contribution or COI/tabarru’; (c) relevant information on the cost containment initiatives currently being undertaken by the licensed ITO and/or the industry; (d) clear explanation of alternatives made available specifically to the affected policy owners/takaful participants to ensure continuity of cover (i.e. options to switch products or downgrade plan); and (e) the implications of higher COI/tabarru’ and the need for policy owners/takaful participants to top-up premium/takaful contribution to ensure continuity, if applicable. 2. In relation to paragraph 1(b), for re-pricing of medical reimbursement insurance/takaful products which results in– (a) increase in premium/takaful contribution for other riders attached to the same basic life insurance policy/family takaful certificate, licensed ITOs must ensure that the written notification on re-pricing clearly segregate the components of incremental premium/takaful contribution for the medical reimbursement rider and the other riders; and 50 This metric shall be expressed as “XX out of 1,000 policy owners/takaful participants^ made a claim* compared to YY out of 1,000 policy owners/takaful participants Z years ago. Each claim on average has increased from RMY to RMX”, where; “^” refers to insureds/persons covered; “” refers to approved claims; and “Z” shall be either the number of years since the product was first introduced, number of years since the previous re-pricing exercise or 5 years, whichever is lowest. 51 For clarity, a licensed ITO may disclose the same medical inflation rate throughout one specific re- pricing cycle (e.g. staggered re-pricing spanning across two or three years), by clearly stating the reference time frame (e.g. the time frame used for the medical portfolio experience study which led to the re-pricing). 52 For staggered re-pricing exercise, if the revised rates for subsequent years 2 and/or 3 of the re- pricing are not subject to changes (i.e. revised rates are pre-determined and will not change regardless of emerging experience), licensed ITOs shall disclose upfront the revised rates for all years to policy owners/takaful participants in the initial re-pricing written notification. If the subsequent years’ revised rates are subject to further changes, while it is not necessary to disclose upfront the revised rates of subsequent years, licensed ITOs shall pre-empt policy owners/takaful participants that there may be further rate revisions in subsequent years. Medical and Health Insurance/Takaful Business 36 of 52 (b) increase in COI/tabarru’ for other riders attached to the same basic life insurance policy/family takaful certificate (without corresponding increase in premium/takaful contribution), licensed ITOs must ensure that the MHIT repricing notifications explain that the recommended premium/contribution increase is solely to cater for the increase in medical reimbursement COI/tabarru’ deductions, and that additional COI/tabarru’ may be deducted for other riders, which may affect the overall life policy/family takaful certificate’s sustainability. 3. A licensed ITO must ensure that the licensed ITO’s customer service/branch and intermediaries are adequately trained and equipped to address any enquiries from the policy owners/takaful participants on the re-pricing exercise. 4. A licensed ITO must ensure that the general information to be provided to consumers, in particular, its policy owners/takaful participants on re-pricing of medical reimbursement products is written in plain and simple language. A licensed ITO must manage policy owners’/takaful participants’ expectations and understanding by, among others, directing the policy owners/takaful participants to the licensed ITO’s website or reference QR code for general information on re-pricing of medical reimbursement insurance/takaful products. The general information provided to policy owners/takaful participants must, at a minimum, cover areas such as concept of risk pooling, re-pricing effects on policy sustainability (if applicable) and consequences of discontinuing or terminating existing coverage. B. Other information to intermediaries 1. A licensed ITO shall include, at minimum, the information listed in paragraphs 1(a) to (e) under Part A of Appendix 5 of this policy document in its communication to its intermediaries to enable them to provide clear explanation to the policy owners/takaful participants. C. Other information to be regularly communicated 1. A licensed ITO shall provide yearly updates to its policy owners/takaful participants on the next premium/takaful contribution increase by age band (if relevant) and product/cohort-specific three-year average medical inflation rate53,54 to enable them to anticipate and prepare for future adjustments of premium/takaful contribution rates. 2. A licensed ITO may leverage on the annual/sustainability statements or yearly renewal notices for this annual update to its policy owners/takaful participants. For long-term medical reimbursement insurance/takaful 53 Licensed ITOs are accorded some flexibility in the study cycle, subject to the following conditions: i) The reference time frame (e.g. 1 January 20XX to 31 December 20XX+2, 1 July 20XX to 30 June 20XX+2 etc) used for computing the three-year average must be clearly disclosed; ii) Once a particular study cycle (e.g. January-December, April-March, July-June, etc.) has been selected for a specific product/cohort, ITOs are expected to stick to the same study cycle moving forward, until the specific product/cohort is discontinued; and iii) The medical inflation rate disclosed shall not be more than 15 months old (i.e. counting from the end date of the reference time frame) at point of disclosure, to ensure relevance. 54 For products with limited claims experience (e.g. new products introduced within the last 3 years, shrinking pool etc), a licensed ITO shall disclose the homogeneous cohort’s (i.e. where the product falls within) medical inflation rate and specify that it is the cohort’s experience. In the event the said product does not fall within any homogeneous cohort, a licensed ITO shall disclose the company- level medical inflation rate (i.e. combined experience of all medical reimbursement products of the licensed ITO) and specify that it is the company’s experience. Medical and Health Insurance/Takaful Business 37 of 52 products (i.e. with a term exceeding 12 months) without renewal notice, a licensed ITO may issue personalised annual updates (i.e. specific to individual policy owners/takaful participants). 3. A licensed ITO shall consider the form of communication (e.g. hardcopy letters or communication via digital channels) preferred by individual policy owners/takaful participants to ensure the annual updates are effectively communicated. 4. For medical reimbursement products with on-going re-pricing exercises, a licensed ITO must manage policy owners’/takaful participants’ understanding regarding the difference between the three-year average medical inflation rate disclosed in the re-pricing notification and in the annual updates. Medical and Health Insurance/Takaful Business 38 of 52 Appendix 6 Requirements relating to the establishment of the central medical claims data platform 1. Licensed ITOs shall collectively and in collaboration with the relevant industry associations agree on an arrangement to design, establish, set up, operationalise and maintain the central medical claims data platform55 and perform industry-wide analysis of the collected medical claims data. 2. Licensed ITOs shall collectively ensure that the central medical claims data platform is managed by an appointed operator that takes into account the following considerations in designing, establishing, setting up, operationalising and maintaining the central medical claims data platform: Considerations Details Resilience Ensure a secure information technology (IT) ecosystem and preserve the continuity of critical services in adverse situations, including adherence to applicable laws and relevant requirements, and implementation of necessary safeguards to manage risks56. Interoperability Develop an open data architecture adopting interoperable design principles to transmit and analyse medical claims data in a more efficient and systematic manner. This may include allowing the licensed ITOs to transmit data through open Application Programming Interface (API). Comparability Facilitate standardisation of MHIT claims data to enable greater data comparability across the industry. This may include developing technical standards and business rules in standardising procedural and billing codes. Adaptability Allow flexibility to adapt to emerging developments or process enhancements, including new technologies and operating models. Personal data protection Protect consumer interests by safeguarding consumers' data confidentiality and privacy. Proper data management framework57 must be in place covering aspects on, including but not limited to, information handling, authentication and authorisation consistent with relevant laws, policies, guidelines etc. dealing with data privacy and security. 3. Licensed ITOs shall ensure that the appointed operator of the central medical claims data platform is able to perform an annual58 industry-wide analysis of the MHIT claims data collected from the licensed ITOs through the central medical claims data platform in meeting the objectives set out in paragraph 12.2 of this policy document. 55 Without limiting the scope, this may include the appointment of a third-party platform operator. 56 Including provisions under the Policy Document on Risk Management in Technology (RMiT). 57 Data management framework includes the creation and implementation of architectures, policies, and procedures that manage the full data lifecycle, including data preparation and analysis, data architecture, data governance and data security. 58 For the period of 1 January to 31 December of that calendar year. Medical and Health Insurance/Takaful Business 39 of 52 4. In relation to paragraph 3 of this appendix, licensed ITOs shall ensure that the annual industry-wide analysis performed by the appointed operator of the central medical claims data platform shall include, but is not limited to the following information: (a) Three-year average medical inflation rate; (b) Three-year average claims ratio59; (c) Average medical bill amount for MHIT products (e.g. by surgical and non- surgical treatments, by cashless60 and non-cashless claims61, by length of stay, by geographical regions); (d) Average bill breakdown in percentage by types of benefit (e.g. fees and charges for anaesthetist, in-hospital physician visit, surgical, hospital room and board, intensive care unit, operating theatre, laboratory and imaging, medicine, nursing, other hospital supplies and services); and (e) Top ten diagnoses for medical treatments by frequency and severity. Licensed ITOs shall ensure that the appointed operator of the central medical claims data platform has the annual industry-wide analysis readily available to the Bank by 1 July of the subsequent calendar year beginning 1 July 202562, and submits the same63 in writing to the Bank upon being requested by the Bank. 5. In relation to paragraph 12.2 of this policy document and paragraph 4 of this appendix, prior to the submission of MHIT claims data onto the central medical claims data platform, licensed ITOs shall, collectively and in collaboration with the relevant industry associations, identify and undertake interim measure(s) to facilitate the analysis and disclosure of a three-year industry-average medical inflation rate and claims ratio as outlined in paragraph 13.6 of this policy document. 6. In relation to paragraphs 2, 3 and 4 of this appendix, licensed ITOs may, in consultation with the Bank, adopt a phased approach in enhancing the central medical claims data platform to cater to the different objectives as may be specified by the Bank. Without limiting the scope, this may include gradual incorporation of additional objectives beyond those set out in paragraph 12.2 of this policy document, inclusion of more granular data parameters and more comprehensive industry-wide analysis, as well as more efficient submission and analysis timelines. 59 To facilitate computation of the industry-average medical claims ratio, the industry premium/takaful contribution data will be provided by the Bank. 60 Where the bill is settled between a licensed ITO and hospital. 61 Where the bill is settled by the policy owner/takaful participant before filing a claim with the licensed ITO. 62 For example, for the inaugural annual industry-wide analysis to be made readily available by 1 July 2025, the annual industry-wide analysis of the medical claims data shall include the data from 1 January to 31 December 2023 and 1 January to 31 December 2024. For subsequent years, for instance, by 1 July 2026, the annual industry-wide analysis of medical claims data shall be for the preceding year (i.e. 1 January to 31 December 2025). 63 Including any other information on the submitted MHIT claims data as requested by the Bank. Medical and Health Insurance/Takaful Business 40 of 52 Appendix 7 Reporting template for medical reimbursement insurance/takaful product(s) with co-payment feature Title and Details Reporting Frequency MHIT Co-payment A licensed ITO shall submit to the Bank information on medical reimbursement insurance/takaful product(s) with co-payment feature, for the period between 1 January and 31 December on the following: (i) total number of policies/takaful certificates; (ii) total number of lives insured/covered; (iii) total premium/takaful contribution or COI/tabarru’ rates; and (iv) total claims paid. Annually Please refer to the attachment to this policy document – MHIT Co-payment Reporting Templates.xlsx. The reporting template will also be made available online and can be downloaded from the Integrated Submission Platform (ISP) at https://statsmart- sub.bnm.gov.my/statsmart/. Medical and Health Insurance/Takaful Business 41 of 52 Appendix 8 Sample Product Disclosure Sheet 5.1 For Standalone MHI and Premium Paying Riders [Name of Insurer] [Name of medical reimbursement insurance product] The Product Disclosure Sheet (PDS) provides some of the key information that you should consider before you buy a medical insurance policy that best meet your needs. You should read your insurance policy contract carefully for full details on your coverage. Step 1 Is this policy right for you? • This policy covers hospitalisation and surgical expenses (“H&S”) incurred due to illnesses covered under the policy until <age>. • Your premiums will be pooled with other policy owners’ premiums to pay claims. If the total claims paid out from the pool of fund is high, the premium for all policy owners in the same pool may increase, including your premiums even if you did not make a claim. Step 2 Does it meet your needs? What is covered? What is not covered? • Hospital Room & Board: __________ • Surgical expenses: __________ Benefits payable are on <cashless/pay first, claim later> basis and subject to: • Annual limit: __________ • Lifetime limit: __________ • Medical conditions that you had, or had symptoms of, before buying the plan (i.e. pre- existing condition) • Specified illnesses (e.g. hypertension, diabetes) • Diseases required quarantine by law (e.g. COVID-19) This is not a complete list. Please read your policy contract carefully for full details on what is and is not covered. Step 3 Can you afford the increase in premiums over time? Premium Projection Table Age Current premium upon attained age (RM) Estimated premium based on medical inflation of [7]% per annum1 (RM) Over the long term, you can reduce premiums payable by choosing plans with: (a) A higher deductible. (b) A higher co-insurance. (c) A lower annual/lifetime limit. <28> ZZ XX <33> ZZ XX <38> ZZ XX <43> ZZ XX <48> ZZ XX • The projection above is solely for illustration purposes only. • The estimated premium is based on both increase by age and an average medical inflation of [7]% per annum1. The actual premium you will have to pay depends on the actual medical inflation of the plan you purchased. Arising from medical inflation, current premium level may not be enough to cover future claims. Factors that may lead to medical inflation include advancements in medical technology, higher treatment costs and increases in the prevalence of non-communicable diseases over time. • Bulk of premiums goes to claims. On average, for every RM1.00 of premium paid, RM[0.75]2 is allocated to pay claims. The remainder goes to pay commissions to [insurance agent], management expenses and profits of the insurers. 1 This is the year-on-year increase in the average treatment cost as billed by hospitals to the insurance and takaful industry from years 20XX to 20YY. 2 This is based on insurance and takaful industry average data from years 20XX to 20YY. The actual experience of the plan you purchase may differ from the industry average. PRODUCT DISCLOSURE SHEET ABC COMPANY LOGO QR CODE FIND OUT MORE: Medical and Health Insurance/Takaful Business 42 of 52 Step 4 What else should you be aware of? • You must answer the questions that we ask fully and accurately. Failure to take reasonable care in answering the questions may result in rejection of your claim or termination of your policy. • If you decide you do not want this policy within 15 calendar days after the policy has been delivered to you, you can contact us to cancel your policy and receive a full refund (less any medical examination expenses incurred). • Your coverage will only start [30] calendar days after the effective date of the policy. • [For yearly renewable standalone MHI] The commissions3 paid to the [insurance agent] is RMxx or xx% of the annual premium. • [For standalone MHI with term exceeding 12 months, guaranteed yearly renewable standalone MHI and MHI premium paying rider] The commissions3 paid to the [insurance agent] is RMxx or xx% of total premiums over [6] years. This is not a complete list. Please read your policy contract carefully for full details on the key terms and conditions. 3 These figures are based on the current premium upon attained age. Step 5 Have you considered other products that might suit your needs? Product Options Table Recommended Product Alternative Product Options Name [Product Name] Example: Premium Paying Rider ABC Plan 1 Option 1 (Plan with co-payment feature, if any) [Product Name] Example: Standalone XYZ Plan 1 Option 2 [Product Name] Example: Standalone XYZ Plan 2 Annual Premium RM2,292 This includes the annual premium for a basic life insurance policy RM1,585 The annual premium is [lower/higher] by RM707 RM790 The annual premium is [lower/higher] by RM1,502 Type Cashless facility ‘We pay direct to hospitals’ Cashless facility ‘We pay direct to hospitals’ Pay First, Claim Later ‘You pay for treatment first and claim from us later’ Coverage Term Until age 70 ‘Renewal is guaranteed but premium rates are not guaranteed’ Until age 70 ‘Renewal is guaranteed but premium rates are not guaranteed’ Until age 70 ‘Renewal and premium rates are not guaranteed’ Co- insurance/ Deductible RM300 deductible H&S: 10% co-insurance up to RMXX, Outpatient treatment: 10% co- insurance up to RMXX RM300 deductible Now: Premium sufficiently covers Claims and Others Claims Current Premium Others Claims Future: Arising from medical inflation, Premium may not be enough to cover Claims and Others Current Premium Deficit Others* Note: This chart is not drawn to scale * Others include Commissions, Management Expenses and Profits Medical and Health Insurance/Takaful Business 43 of 52 Hospital Room & Board RM200 per day RM200 per day RM150 per day Surgical Expenses As charged As charged As charged Annual Limit RM100,000 RM75,000 RM100,000 Lifetime Limit RM1,000,000 RM750,000 Not Applicable • Deductible: Fixed amount you have to pay before your actual coverage begins. E.g. RM300 deductible means you have to pay RM300 out of your own pocket and we will pay the balance (up to the relevant limits). • Co-insurance: Fixed percentage of a medical charge that you have to pay. E.g. 20% co-insurance means you have to pay only 20% of each medical bill (up to the relevant limits), and we will cover 80%. • Annual limit: Maximum amount you can claim in a year. • Lifetime limit: Maximum amount you can claim throughout your lifetime. This table does not capture all of the features of products compared. Please ask us/your [agent] for more information on the differences in features of these products. Customer’s Acknowledgement* (Optional) Please ensure you are filling this section yourself and are aware of what you are placing your signature for. I acknowledge that [FSP name] has provided me with a copy of the PDS. ✓ I have read and understood the key information contained in this PDS. ……………………………… Name: Date: * A customer’s acknowledgement of this PDS shall not prejudice his/her right to seek redress in the event of subsequent disputes over the product terms and conditions. Medical and Health Insurance/Takaful Business 44 of 52 5.2 For MHI Unit Deducting Riders [Name of Insurer] [Name of medical reimbursement insurance product] The Product Disclosure Sheet (PDS) provides some of the key information that you should consider before you buy a medical insurance policy that best meet your needs. You should read your insurance policy contract carefully for full details on your coverage. Step 1 Is this policy right for you? • This policy covers hospitalisation and surgical expenses (“H&S”) incurred due to illnesses covered under the policy until <age>. • Units will be deducted from your investment-linked account value into the insurance risk fund to pay for cost of insurance (COI). Your COI will be pooled with other policy owners’ COI to pay claims. If the total claims paid out from the pool of COI is high, the COI for all policy owners in the same pool may increase, including your COI even if you did not make a claim. Step 2 Does it meet your needs? What is covered? What is not covered? • Hospital Room & Board: __________ • Surgical expenses: __________ Benefits payable are on <cashless/pay first, claim later> basis and subject to: • Annual limit: __________ • Lifetime limit: __________ • Medical conditions that you had, or had symptoms of, before buying the plan (i.e. pre- existing condition) • Specified illnesses (e.g. hypertension, diabetes) • Diseases required quarantine by law (e.g. COVID-19) This is not a complete list. Please read your policy contract carefully for full details on what is and is not covered. Step 3 Can you afford the increase in cost of insurance (COI) over time? COI Projection Table Age Current COI upon attained age (RM) Estimated COI based on medical inflation of [7]% per annum1 (RM) Over the long term, you can reduce COI payable by choosing plans with: (a) A higher deductible. (b) A higher co-insurance. (c) A lower annual/lifetime limit. <28> ZZ XX <33> ZZ XX <38> ZZ XX <43> ZZ XX <48> ZZ XX • The projection above is solely for illustration purposes only. • The estimated COI is based on both increase by age and an average medical inflation of [7]% per annum1. The actual COI you will have to pay depends on the actual medical inflation of the plan you purchased. Arising from medical inflation, current COI level may not be enough to cover future claims. Factors that may lead to medical inflation include advancements in medical technology, higher treatment costs and increases in the prevalence of non-communicable diseases over time. 1 This is the year-on-year increase in the average treatment cost as billed by hospitals to the insurance and takaful industry from years 20XX to 20YY. PRODUCT DISCLOSURE SHEET ABC COMPANY LOGO QR CODE FIND OUT MORE: Medical and Health Insurance/Takaful Business 45 of 52 Step 4 What else should you be aware of? • You must answer the questions that we ask fully and accurately. Failure to take reasonable care in answering the questions may result in rejection of your claim or termination of your policy. • If you decide you do not want this policy within 15 calendar days after the policy has been delivered to you, you can contact us to cancel your policy and receive a full refund (less any medical examination expenses incurred). • Your coverage will only start [30] calendar days after the effective date of the policy. • The commissions paid to the [insurance agent] forms part of your premium for your base policy. Please refer to the Sales Illustration for more information. This is not a complete list. Please read your policy contract carefully for full details on the key terms and conditions. Step 5 Have you considered other products that might suit your needs? Product Options Table Recommended Product Alternative Product Options Name [Product Name] Example: Unit Deducting Rider ABC Plan 1 Option 1 (Plan with co-payment feature, if any) [Product Name] Example: Standalone XYZ Plan 1 Option 2 [Product Name] Example: Standalone XYZ Plan 2 Annual Premium RM2,292 This includes the annual premium for a basic life insurance policy RM1,585 The annual premium is [lower/higher] by RM707 RM790 The annual premium is [lower/higher] by RM1,502 Type Cashless facility ‘We pay direct to hospitals’ Cashless facility ‘We pay direct to hospitals’ Pay First, Claim Later ‘You pay for treatment first and claim from us later’ Coverage Term Until age 70 ‘Renewal is guaranteed but premium rates are not guaranteed’ Until age 70 ‘Renewal is guaranteed but premium rates are not guaranteed’ Until age 70 ‘Renewal and premium rates are not guaranteed’ Co- insurance/ Deductible RM300 deductible H&S: 10% co-insurance up to RMXX, Outpatient treatment: 10% co- insurance up to RMXX RM300 deductible Hospital Room & Board RM200 per day RM200 per day RM150 per day Surgical Expenses As charged As charged As charged Annual Limit RM100,000 RM75,000 RM100,000 Lifetime Limit RM1,000,000 RM750,000 Not Applicable Now: COI sufficiently covers Claims and Profits Claims Current COI Claims Future: Arising from medical inflation, COI may not be enough to cover Claims and Profits Current COI Deficit Note: This chart is not drawn to scale Profits Profits Medical and Health Insurance/Takaful Business 46 of 52 • Deductible: Fixed amount you have to pay before your actual coverage begins. E.g. RM300 deductible means you have to pay RM300 out of your own pocket and we will pay the balance (up to the relevant limits). • Co-insurance: Fixed percentage of a medical charge that you have to pay. E.g. 20% co-insurance means you have to pay only 20% of each medical bill (up to the relevant limits), and we will cover 80%. • Annual limit: Maximum amount you can claim in a year. • Lifetime limit: Maximum amount you can claim throughout your lifetime. This table does not capture all of the features of products compared. Please ask us/your [agent] for more information on the differences in features of these products. Customer’s Acknowledgement* (Optional) Please ensure you are filling this section yourself and are aware of what you are placing your signature for. I acknowledge that [FSP name] has provided me with a copy of the PDS. ✓ I have read and understood the key information contained in this PDS. ……………………………… Name: Date: * A customer’s acknowledgement of this PDS shall not prejudice his/her right to seek redress in the event of subsequent disputes over the product terms and conditions. Medical and Health Insurance/Takaful Business 47 of 52 5.3 For Standalone MHT and Contribution Paying Riders [Name of Takaful Operator] [Name of medical reimbursement takaful product] The Product Disclosure Sheet (PDS) provides some of the key information that you should consider before you participate in a medical takaful certificate that best meet your needs. You should read your takaful certificate contract carefully for full details on your coverage. Step 1 Is this takaful certificate right for you? • This takaful certificate covers hospitalisation and surgical expenses (“H&S”) incurred due to illnesses covered under the certificate until <age>. • Your takaful contributions will be pooled with other takaful participants’ contributions to pay claims. If the total claims paid out from the pool of fund is high, the takaful contribution for all takaful participants in the same pool may increase, including your takaful contributions even if you did not make a claim. Step 2 Does it meet your needs? What is covered? What is not covered? • Hospital Room & Board: __________ • Surgical expenses: __________ Benefits payable are on <cashless/pay first, claim later> basis and subject to: • Annual limit: __________ • Lifetime limit: __________ • Medical conditions that you had, or had symptoms of, before participating in the plan (i.e. pre-existing condition) • Specified illnesses (e.g. hypertension, diabetes) • Diseases required quarantine by law (e.g. COVID-19) This is not a complete list. Please read your certificate contract carefully for full details on what is and is not covered. Step 3 Can you afford the increase in takaful contributions over time? Takaful Contribution Projection Table Age Current takaful contribution upon attained age (RM) Estimated takaful contribution based on medical inflation of [7]% per annum1 (RM) Over the long term, you can reduce takaful contributions payable by choosing plans with: (a) A higher deductible. (b) A higher co-takaful. (c) A lower annual/lifetime limit. <28> ZZ XX <33> ZZ XX <38> ZZ XX <43> ZZ XX <48> ZZ XX • The projection above is solely for illustration purposes only. • The estimated takaful contribution is based on both increase by age and an average medical inflation of [7]% per annum1. The actual takaful contribution you will have to pay depends on the actual medical inflation of the plan you participated in. Arising from medical inflation, current takaful contribution level may not be enough to cover future claims. Factors that may lead to medical inflation include advancements in medical technology, higher treatment costs and increases in the prevalence of non- communicable diseases over time. • Bulk of takaful contributions goes to claims. On average, for every RM1.00 of takaful contribution paid, RM[0.75]2 is allocated to pay claims. The remainder goes to pay commissions to [takaful agent], management expenses and profits of the takaful operators. 1 This is the year-on-year increase in the average treatment cost as billed by hospitals to the insurance and takaful industry from years 20XX to 20YY. 2 This is based on insurance and takaful industry average data from years 20XX to 20YY. The actual experience of the plan you purchase may differ from the industry average. PRODUCT DISCLOSURE SHEET ABC COMPANY LOGO QR CODE FIND OUT MORE: Medical and Health Insurance/Takaful Business 48 of 52 Step 4 What else should you be aware of? • You must answer the questions that we ask fully and accurately. Failure to take reasonable care in answering the questions may result in rejection of your claim or termination of your takaful certificate. • If you decide you do not want this takaful certificate within 15 calendar days after the certificate has been delivered to you, you can contact us to cancel your takaful certificate and receive a full refund (less any medical examination expenses incurred). • Your coverage will only start [30] calendar days after the effective date of the takaful certificate. • [For yearly renewable standalone MHT] The wakalah fees3 you have to pay are RMxx or x% of annual takaful contribution, of which commission to [takaful agent] is RMyy or y% and management expenses is RMzz or z%. • [For standalone MHT with term exceeding 12 months, guaranteed yearly renewable standalone MHT and MHT takaful contribution paying rider] The wakalah fees3 you have to pay are RMxx or x% of total takaful contributions over [6] years, of which commission to [takaful agent] is RMyy or y% and management expenses is RMzz or z%. This is not a complete list. Please read your takaful certificate contract carefully for full details on the key terms and conditions. 3 These figures are based on the current takaful contribution upon attained age. Step 5 Have you considered other products that might suit your needs? Product Options Table Recommended Product Alternative Product Options Name [Product Name] Example: Unit Deducting Rider ABC Plan 1 Option 1 (Plan with co-payment feature, if any) [Product Name] Example: Standalone XYZ Plan 1 Option 2 [Product Name] Example: Standalone XYZ Plan 2 Annual Takaful Contribution RM2,292 This includes the annual takaful contribution for a basic family takaful certificate RM1,585 The annual takaful contribution is [lower/higher] by RM707 RM790 The annual takaful contribution is [lower/higher] by RM1,502 Type Cashless facility ‘We pay direct to hospitals’ Cashless facility ‘We pay direct to hospitals’ Pay First, Claim Later ‘You pay for treatment first and claim from us later’ Coverage Term Until age 70 ‘Renewal is guaranteed but takaful contribution rates are not guaranteed’ Until age 70 ‘Renewal is guaranteed but takaful contribution rates are not guaranteed’ Until age 70 ‘Renewal and takaful contribution rates are not guaranteed’ Co-takaful/ Deductible RM300 deductible H&S: 10% co-takaful up to RMXX, Outpatient treatment: 10% co-takaful up to RMXX RM300 deductible Now: Takaful contribution sufficiently covers Claims and Others Claims Current Takaful Contribution Others* Claims Future: Arising from medical inflation, Takaful Contribution may not be enough to cover Claims and Others Current Takaful Contribution Deficit Others* Note: This chart is not drawn to scale * Others include Commissions, Management Expenses and Profits Medical and Health Insurance/Takaful Business 49 of 52 Hospital Room & Board RM200 per day RM200 per day RM150 per day Surgical Expenses As charged As charged As charged Annual Limit RM100,000 RM75,000 RM100,000 Lifetime Limit RM1,000,000 RM750,000 Not Applicable • Deductible: Fixed amount you have to pay before your actual coverage begins. E.g. RM300 deductible means you have to pay RM300 out of your own pocket and we will pay the balance (up to the relevant limits). • Co-takaful: Fixed percentage of a medical charge that you have to pay. E.g. 20% co-takaful means you have to pay only 20% of each medical bill (up to the relevant limits), and we will cover 80%. • Annual limit: Maximum amount you can claim in a year. • Lifetime limit: Maximum amount you can claim throughout your lifetime. This table does not capture all of the features of products compared. Please ask us/your [agent] for more information on the differences in features of these products. Customer’s Acknowledgement* (Optional) Please ensure you are filling this section yourself and are aware of what you are placing your signature for. I acknowledge that [FSP name] has provided me with a copy of the PDS. ✓ I have read and understood the key information contained in this PDS. ……………………………… Name: Date: * A customer’s acknowledgement of this PDS shall not prejudice his/her right to seek redress in the event of subsequent disputes over the product terms and conditions. Medical and Health Insurance/Takaful Business 50 of 52 5.4 For MHT Unit Deducting Riders [Name of Takaful Operator] [Name of medical reimbursement takaful product] The Product Disclosure Sheet (PDS) provides some of the key information that you should consider before you participate in a medical takaful certificate that best meet your needs. You should read your takaful certificate contract carefully for full details on your coverage. Step 1 Is this takaful certificate right for you? • This takaful certificate covers hospitalisation and surgical expenses (“H&S”) incurred due to illnesses covered under the certificate until <age>. • Units will be deducted from your [Participant’s Investment Fund] into the [Participants Risk Fund] to pay for tabarru’. Your tabarru’ will be pooled with other takaful participants’ tabarru’ to pay claims. If the total claims paid out from the pool of tabarru’ is high, the tabarru’ for all takaful participants in the same pool may increase, including your tabarru’ even if you did not make a claim. Step 2 Does it meet your needs? What is covered? What is not covered? • Hospital Room & Board: __________ • Surgical expenses: __________ Benefits payable are on <cashless/pay first, claim later> basis and subject to: • Annual limit: __________ • Lifetime limit: __________ • Medical conditions that you had, or had symptoms of, before participating in the plan (i.e. pre-existing condition) • Specified illnesses (e.g. hypertension, diabetes) • Diseases required quarantine by law (e.g. COVID-19) This is not a complete list. Please read your takaful certificate contract carefully for full details on what is and is not covered. Step 3 Can you afford the increase in tabarru’ over time? Tabarru’ Projection Table Age Current tabarru’ upon attained age (RM) Estimated tabarru’ based on medical inflation of [7]% per annum1 (RM) Over the long term, you can reduce tabarru’ payable by choosing plans with: (a) A higher deductible. (b) A higher co-takaful. (c) A lower annual/lifetime limit. <28> ZZ XX <33> ZZ XX <38> ZZ XX <43> ZZ XX <48> ZZ XX • The projection above is solely for illustration purposes only. • The estimated tabarru’ is based on both increase by age and an average medical inflation of [7]% per annum1. The actual tabarru’ you will have to pay depends on the actual medical inflation of the plan you participated in. Arising from medical inflation, current tabarru’ level may not be enough to cover future claims. Factors that may lead to medical inflation include advancements in medical technology, higher treatment costs and increases in the prevalence of non-communicable diseases over time. 1 This is the year-on-year increase in the average treatment cost as billed by hospitals to the insurance and takaful industry from years 20XX to 20YY. PRODUCT DISCLOSURE SHEET ABC COMPANY LOGO QR CODE FIND OUT MORE: Medical and Health Insurance/Takaful Business 51 of 52 Step 4 What else should you be aware of? • You must answer the questions that we ask fully and accurately. Failure to take reasonable care in answering the questions may result in rejection of your claim or termination of your takaful certificate. • If you decide you do not want this takaful certificate within 15 calendar days after the takaful certificate has been delivered to you, you can contact us to cancel your takaful certificate and receive a full refund (less any medical examination expenses incurred). • Your coverage will only start [30] calendar days after the effective date of the takaful certificate. • The commissions paid to the [takaful agent] forms part of your takaful contribution for your base takaful certificate. Please refer to the Marketing Illustration for more information. This is not a complete list. Please read your takaful certificate contract carefully for full details on the key terms and conditions. Step 5 Have you considered other products that might suit your needs? Product Options Table Recommended Product Alternative Product Options Name [Product Name] Example: Unit Deducting Rider ABC Plan 1 Option 1 (Plan with co-payment feature, if any) [Product Name] Example: Standalone XYZ Plan 1 Option 2 [Product Name] Example: Standalone XYZ Plan 2 Annual Takaful Contribution RM2,292 This includes the annual contribution for a basic family takaful certificate RM1,585 The annual takaful contribution is [lower/higher] by RM707 RM790 The annual takaful contribution is [lower/higher] by RM1,502 Type Cashless facility ‘We pay direct to hospitals’ Cashless facility ‘We pay direct to hospitals’ Pay First, Claim Later ‘You pay for treatment first and claim from us later’ Coverage Term Until age 70 ‘Renewal is guaranteed but takaful contribution rates are not guaranteed’ Until age 70 ‘Renewal is guaranteed but takaful contribution rates are not guaranteed’ Until age 70 ‘Renewal and takaful contribution rates are not guaranteed’ Co-takaful/ Deductible RM300 deductible H&S: 10% co-takaful up to RMXX, Outpatient treatment: 10% co- takaful up to RMXX RM300 deductible Hospital Room & Board RM200 per day RM200 per day RM150 per day Surgical Expenses As charged As charged As charged Annual Limit RM100,000 RM75,000 RM100,000 Lifetime Limit RM1,000,000 RM750,000 Not Applicable Now: Tabarru’ sufficiently covers Claims and Profits Claims Current Tabarru’ Claims Future: Arising from medical inflation, Tabarru’ may not be enough to cover Claims and Profits Current Tabarru’ Deficit Note: This chart is not drawn to scale. Profits Profits Medical and Health Insurance/Takaful Business 52 of 52 • Deductible: Fixed amount you have to pay before your actual coverage begins. E.g. RM300 deductible means you have to pay RM300 out of your own pocket and we will pay the balance (up to the relevant limits). • Co-takaful: Fixed percentage of a medical charge that you have to pay. E.g. 20% co-takaful means you have to pay only 20% of each medical bill (up to the relevant limits), and we will cover 80%. • Annual limit: Maximum amount you can claim in a year. • Lifetime limit: Maximum amount you can claim throughout your lifetime. This table does not capture all of the features of products compared. Please ask us/your [agent] for more information on the differences in features of these products. Customer’s Acknowledgement* (Optional) Please ensure you are filling this section yourself and are aware of what you are placing your signature for. I acknowledge that [FSP name] has provided me with a copy of the PDS. ✓ I have read and understood the key information contained in this PDS. ……………………………… Name: Date: * A customer’s acknowledgement of this PDS shall not prejudice his/her right to seek redress in the event of subsequent disputes over the product terms and conditions.	Public Notice
29 Feb 2024	Kertas Kerja Climate Risk Stress Testing Methodology	https://www.bnm.gov.my/-/kertas-kerja-climate-risk-stress-testing-methodology	https://www.bnm.gov.my/documents/20124/938039/pd_CRST_29Feb2024.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/kertas-kerja-climate-risk-stress-testing-methodology&languageId=ms_MY	Reading: Kertas Kerja Climate Risk Stress Testing Methodology Share: Kertas Kerja Climate Risk Stress Testing Methodology Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1804 pada Khamis, 29 Februari 2024 29 Feb 2024 Bank Negara Malaysia telah menerbitkan Kertas Kerja Climate Risk Stress Testing (CRST) Methodology pada 29 Februari 2024. Kertas kerja ini menetapkan kehendak BNM terhadap institusi kewangan yang melaksanakan ujian CRST seluruh industri pada tahun 2024. Ujian ini bertujuan untuk memberikan pengalaman langsung kepada institusi kewangan untuk mengukur risiko iklim, memperhalus strategi pengurusan risiko mereka yang sedia ada serta mengkaji pendekatan ujian tekanan baharu yang relevan untuk menilai risiko berkaitan iklim. Baca Climate Risk Stress Testing Methodology Paper. Bank Negara Malaysia 29 Februari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	2024 Climate Risk Stress Testing Exercise - Discussion Paper Issued on: 29 February 2024 BNM/RH/PD 028-132 2024 Climate Risk Stress Testing Exercise Methodology Paper Applicable to: 1. Licensed banks, including licensed digital banks 2. Licensed investment banks 3. Licensed Islamic banks, including licensed Islamic digital banks 4. Prescribed development financial institutions 5. Licensed insurers, including professional reinsurers 6. Licensed takaful operators, including professional retakaful operators 2024 Climate Risk Stress Testing Exercise – Methodology Paper 2 of 34 Issued on: 29 February 2024 TABLE OF CONTENTS TABLE OF CONTENTS ....................................................................................................... 2 PART A OVERVIEW ............................................................................................................ 3 1. Introduction ............................................................................................................. 3 2. Applicability ............................................................................................................. 4 3. Legal provision ........................................................................................................ 4 4. Interpretation ........................................................................................................... 4 5. Related legal instruments and policy documents .................................................... 5 PART B GENERAL REQUIREMENTS ................................................................................. 6 6. Participation ............................................................................................................ 6 7. Governance ............................................................................................................ 7 8. Compliance ............................................................................................................. 7 PART C SCENARIOS .......................................................................................................... 8 9. Overview ................................................................................................................. 8 PART C1 LONG-TERM ADVERSE CLIMATE SCENARIOS ............................................... 8 10. Scenario specifications ........................................................................................... 8 11. Time horizon ......................................................................................................... 12 12. Balance sheet assumptions .................................................................................. 13 13. Assessing climate-related risks to financial institutions’ exposures ....................... 15 PART C2 SHORT-TERM ACUTE PHYSICAL RISK SCENARIO ....................................... 22 14. Scenario specifications ......................................................................................... 22 15. Exercise parameters for banks ............................................................................. 23 16. Exercise parameters for ITOs ............................................................................... 24 PART D CONDUCT OF THE 2024 CRST EXERCISE ........................................................ 25 17. Information to be reported to the Bank .................................................................. 25 18. Submission deadline ............................................................................................. 25 APPENDICES..................................................................................................................... 26 Appendix 1 References for modelling approaches ........................................................ 26 Appendix 2 Indicative list of sectoral breakdowns ......................................................... 28 Appendix 3 Glossary..................................................................................................... 29 Appendix 4 Acronyms ................................................................................................... 32 Appendix 5 List of domestic banking groups, Islamic banks and LIFBs ........................ 33 Appendix 6 List of Insurers and Takaful Operators ....................................................... 34 2024 Climate Risk Stress Testing Exercise – Methodology Paper 3 of 34 Issued on: 29 February 2024 PART A OVERVIEW 1. Introduction 1.1 Climate change and its impact on the environment and economic agents may pose material risks to the safety and soundness of financial institutions, giving rise to broader implications to the economy and financial system. Recognising the risk from climate change to the financial system in Malaysia, financial institutions are required to conduct climate risk stress testing to assess potential vulnerabilities to various climate scenarios. 1.2 The 2024 Climate Risk Stress Test (CRST) exercise is primarily intended to facilitate financial institutions’ learning and capacity building in addressing risks from climate change. Financial institutions must aim to gain vital hands-on experience in measuring the impact of climate-related risks on their assets, insurance/takaful liabilities and business operations through the 2024 CRST exercise. Although current risk measurement approaches may not yet be sufficiently comprehensive and accurate to produce robust estimates of climate-related risks impact, the 2024 CRST exercise will provide financial institutions an opportunity to refine their existing risk management strategy and explore new stress testing approaches that are relevant for assessing climate-related risks. 1.3 More specifically, the 2024 CRST exercise aims to enhance financial institutions’ capabilities in the following areas: (a) Improve understanding and appreciation among board, senior management, and staff of financial institutions on how the business and operations of the financial institutions could be impacted by climate-related risks; (b) Explore novel approaches that could lead to better identification and measurement of financial institutions’ exposures at risk to climate change; and (c) Identify current gaps, specifically those related to data, measurement, methodology, technology, and capabilities, as well as potential solutions to these challenges. In carrying out the 2024 CRST exercise, financial institutions are strongly encouraged to collaborate with one another to share experiences, build capacity, and collectively address relevant challenges, for example, sharing of climate-related data that may not be widely available. Financial institutions may leverage on existing industry platforms such as the Joint Committee on Climate Change (JC3) for this purpose. 1.4 Given the uncertainty surrounding future climate pathways and evolving approaches for identifying and measuring climate-related risks, the Bank expects the climate risk stress test to become a recurring exercise moving forward. Therefore, financial institutions are expected to continue investing in and improving on the foundations that they have built in preparation for the 2024 CRST exercise. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 4 of 34 Issued on: 29 February 2024 2. Applicability 2.1 This methodology paper is applicable to financial institutions as defined in paragraph 4.2. 3. Legal provision 3.1 This methodology paper is issued pursuant to– (a) sections 47, 143 and 266 of the Financial Services Act 2013 (FSA); (b) sections 57, 155 and 277 of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 41, 116 and 126 of the Development Financial Institutions Act 2002 (DFIA). 4. Interpretation 4.1 The terms and expressions used in this methodology paper shall have the same meanings assigned to them in the FSA, IFSA or DFIA, unless otherwise defined in this methodology paper. 4.2 For the purposes of this methodology paper– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “board” refers to the board of directors of a financial institution; “climate-related risks” refers to potential risks that may arise from climate change, their related impact and their economic and financial consequences, which include drivers of climate-related risks, namely physical, transition and insurance/takaful risks. “financial institution”1 refers to– (a) a licensed bank, a licensed digital bank, a licensed investment bank, a licensed Islamic bank, a licensed Islamic digital bank, a licensed international Islamic bank, and a prescribed development financial institution (each herein referred to individually as “bank” or collectively as "banks”); and (b) a licensed insurer, a licensed professional reinsurer, a licensed takaful operator, and a licensed professional retakaful operator (each herein referred to 1 Notwithstanding the definition of the term "financial institution" which includes a licensed digital bank, a licensed Islamic digital bank and a licensed investment bank, the participation of licensed digital banks, a licensed Islamic digital bank, and a licensed investment banks in 2024 CRST exercise is optional. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 5 of 34 Issued on: 29 February 2024 individually as “insurer and takaful operator” or collectively as “insurers and takaful operators”); and “senior management” refers to the chief executive officer (CEO) and senior officers of a financial institution. 4.3 The glossary set out in Appendix 3 describes selected terms used in this methodology paper. 4.4 The acronyms used in this methodology paper and their meaning are set out in Appendix 4 of this methodology paper. 5. Related legal instruments and policy documents 5.1 This methodology paper must be read together with other relevant legal instruments, policy documents, guidelines, circulars, etc. that have been issued by the Bank, in particular– (a) Climate Change and Principle-based Taxonomy (CCPT) issued on 30 April 2021; (b) Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) issued on 1 November 2019; (c) Stress Testing (for insurers and takaful operators) issued on 30 June 2016; (d) Stress Testing (for banking institutions) issued on 15 June 2017; and (e) Climate Risk Management and Scenario Analysis (CRMSA) issued on 30 November 2022. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 6 of 34 Issued on: 29 February 2024 PART B GENERAL REQUIREMENTS 6. Participation S 6.1 Financial institutions must ensure that the participation and coverage for the 2024 CRST exercise is as wide as possible considering the fact that all parts of the financial system could be affected by climate change in diverse and distinct ways. S 6.2 Financial institutions are required to participate in the 2024 CRST exercise and observe the requirements set out in this methodology paper at the entity level. G 6.3 Financial institutions may exclude the following from the 2024 CRST exercise: (a) exposures of the financial institutions’ overseas branches; and (b) financial institutions’ overseas subsidiaries. This is in recognition that financial institutions may not have sufficient data, the relevant data for other countries’ climate scenarios may not be readily available in the format required to facilitate the 2024 CRST exercise or the financial institution may not have the capability or capacity to stress test the relevant exposures at this juncture. However, financial institutions are encouraged to submit the outstanding exposures of their overseas branches and subsidiaries which are at risk to climate change to provide a better indication to the Bank on the financial institutions’ overall exposures to climate-related risks. G 6.4 For this inaugural 2024 CRST exercise, the participation of licensed digital banks, licensed Islamic digital banks, and licensed investment banks is optional. This mainly reflects the early operations of licensed digital banks in Malaysia and challenges in directly linking physical and transition risks from climate change to the underlying risk drivers for the business of investment banks2 at this juncture. S 6.5 In deciding whether to participate in the 2024 CRST exercise, investment banks should consider the specificities of their business mix and their vulnerability to physical and transition risks arising from climate change. For instance, some investment banks may have structured finance portfolios which could be significantly affected by climate- related risks. Licensed investment banks that are part of a domestic banking group should also consider the degree of business interlinkages they may have with other entities in the group, their ability to leverage on group-wide stress testing capabilities, and the potential benefits of deriving a broader group-wide view of the impact of climate-related risks and their portfolios. G 6.6 The Bank will continue to monitor investment banks’ assessment of climate risks via their compliance with the policy document on CRMSA and may require their involvement in future stress tests once there is a better understanding of the nature of climate-related risks faced by licensed investment banks. 2 Investment banks’ main lines of business are either very short-term and volatile in nature (such as for their share margin-financing portfolios) or are fee-based (such as merger and acquisition advisories). 2024 Climate Risk Stress Testing Exercise – Methodology Paper 7 of 34 Issued on: 29 February 2024 7. Governance S 7.1 In running the 2024 CRST exercise, financial institutions shall observe the governance process as stipulated in the policy documents on Stress Testing for licensed banks, licensed insurers and takaful operators, respectively. S 7.2 This includes ensuring that the board exercises oversight on the development and implementation of the 2024 CRST exercise. Among others, the board must be responsible for ensuring that the design of the 2024 CRST exercise, including the input parameters, key assumptions and methodologies, is appropriate to the nature, scale, complexity of its risk-taking activities. G 7.3 The board should provide constructive challenge on the results of 2024 CRST exercise, and consider insights from the exercise in informing the financial institution’s risk and business strategies. G 7.4 Prescribed development financial institutions are encouraged to observe the governance process stipulated in the policy document on Stress Testing for licensed banks for the purpose of the 2024 CRST exercise. 8. Compliance G 8.1 The Bank does not intend to use the quantitative outcome of the 2024 CRST exercise to calibrate institution-specific capital requirements for climate-related risks. G 8.2 However, this does not preclude the ongoing supervisory review process of ensuring that all material risks including those that are climate-related are adequately managed by financial institutions. The Bank will use insights from the 2024 CRST exercise, including the level of exposure and progress in strengthening capabilities to manage climate risk to facilitate supervisory reviews and engagements with financial institutions. Where progress by a financial institution towards strengthening its resilience to climate-related risks remains inadequate, the Bank may consider broader use of its supervisory toolkit as appropriate, including the use of capital add-ons. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 8 of 34 Issued on: 29 February 2024 PART C SCENARIOS 9. Overview S 9.1 To achieve the intended outcomes of the 2024 CRST exercise as described in this methodology paper, financial institutions shall conduct the 2024 CRST exercise by employing the following three long-term adverse climate scenarios to capture the impact from a range of different combinations of physical and transition risks: (a) Net Zero 2050 (NZ 2050); (b) Divergent Net Zero 2050 (DNZ 2050); and (c) Nationally Determined Contributions (NDCs). G 9.2 The three climate scenarios for the 2024 CRST exercise are based on internationally recognised scenarios developed by the Network for Greening the Financial System (NGFS). S 9.3 In addition to the scenarios prescribed in paragraph 9.1, financial institutions shall conduct a short-term acute physical risk scenario, which considers a one-off 1-in-200- years flood event in Malaysia. PART C1 LONG-TERM CLIMATE SCENARIOS 10. Scenario specifications S 10.1 Financial institutions must conduct the 2024 CRST exercise based on the three long- term climate scenarios as per the NGFS Phase III3 integrated assessment model outputs that were released in September 2022. G 10.2 These NGFS scenarios include member countries’ commitments to reach net-zero emissions made at COP26, 4 and have been enriched with additional sectoral granularity (e.g., further breakdown of the transport sector to reflect modes of transportation, and increased granularity in industrial carbon dioxide (CO2) gas emissions). G 10.3 The selection of these climate scenarios reflects the potential different pathways on how physical risk and transition risk could evolve in Malaysia between now until 2050. For example, reaching net zero emissions as early as 2050 will require Malaysia to embark on an ambitious coordinated transition journey across all sectors of the economy. On the other hand, the impact from severe physical risk will lead to larger negative impacts on economic growth under the NDCs scenario. An overview of each NGFS climate scenario that will be used for the 2024 CRST exercise is set out as follows: (a) Orderly: NZ 2050 This climate scenario rests on strong climate policies and significant green technology breakthroughs to rapidly reduce greenhouse gas (GHG) emissions, limiting global warming to 1.5°C. It reflects key features of an early and orderly 3 For the avoidance of doubt, financial institutions must use the NGFS Phase III climate scenario parameters that were released in September 2022. This considers the fact that the NGFS may release updated versions of these climate parameters in future publications. 4 COP 26 refers to the 26th United Nations Climate Change Conference held in Glasgow, Scotland in 2021. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 9 of 34 Issued on: 29 February 2024 transition to a low carbon world. To achieve this goal, stringent climate policies are applied immediately across all sectors of the economy, while significant innovation and technology breakthrough will have to take place. This includes major strides in the carbon dioxide removal (CDR) technology and a sharp shift toward renewable energy production, resulting in high transition risk. (b) Disorderly: DNZ 2050 This scenario differs from the NZ 2050 scenario in several aspects. Here, global climate policies are much more stringent in selected economic sectors, reflecting a quicker phase-out of fossil fuels and the impact thereof. The distributional impacts from climate policies are uneven, with some sectors being affected even more relative to the rest suggesting varied focus of climate policies being introduced at different points in time. This could result from the imposition of differentiated carbon taxes or carbon prices across certain economic sectors. Moreover, technology advancements in CDR and renewable energy are lower relative to NZ 2050 reflecting inherent limitations of adequate financial funding and constraints within existing economic structure. The combination of these factors is expected to result in a medium to higher transition risks, relative to the NZ 2050 scenario, while the impact from physical risk on the economy will be lower than the NDCs scenario. (c) Hot House World: NDCs The NDCs scenario assumes both implemented and pledged policy measures are fully implemented but remains inadequate to facilitate an orderly transition. While emissions decline, the limited policy actions taken are insufficient and will lead to an approximately 2.5°C increase in temperatures, and a materialisation of moderate to severe physical risks. Compared to the other two scenarios, impact from transition risks is expected to be lower for this scenario. Limitations of NGFS Long-term Climate Scenarios for the 2024 CRST exercise G 10.4 The entire set of NGFS climate scenarios is based on the Shared Socioeconomic Pathway 2 (SSP2), which describes a world that follows a path where social, economic, and technological trends do not deviate sharply from historical trends. These long-term climate scenarios were designed to consider global and regional conditions and were downscaled to specific countries. However, they do not comprehensively capture extreme and catastrophic climate events, nor do they sufficiently address the intricate nonlinear relationships between climate events and their economic impacts. For example, these climate scenarios do not consider tipping point events such as the collapse of the Antarctica ice sheets, which could contribute to accelerated sea-level rise, resulting in irreversible ecological damage and financial losses in certain parts of the world. G 10.5 Similarly, these climate scenarios do not incorporate specific national policies to address climate risks. Specifically, government climate-related policies are not directly embedded in these climate scenarios, instead they are approximated through shadow carbon prices, which may not always align with local conditions. These limitations could lead to an understated assessment of the actual impact of government climate- related policies, potentially downplaying their eventual outcomes to the economy and financial system. G 10.6 In the case of Malaysia, the Government launched the National Energy Transition Roadmap (NETR) in 2023, with the aim of providing support to the nation’s aspiration to achieve net-zero emissions as early as 2050. As NETR is a country-specific climate-related policy, which is excluded from consideration in NGFS climate 2024 Climate Risk Stress Testing Exercise – Methodology Paper 10 of 34 Issued on: 29 February 2024 scenarios, its implementation over time may lead to its impact not being fully captured under the current set of NGFS climate scenarios. Financial institutions should consider how the impact of domestic policies such as the NETR might evolve under the DNZ 2050 and NDCs scenarios and impact certain transition variables such as the shadow carbon price pathway, emissions trajectory, domestic energy prices, and energy consumption and energy mix. These qualitative considerations should be reported to the Bank in the reporting template. G 10.7 Given the limitations and consequences described in paragraphs 10.4, 10.5 and 10.6, the Bank intends to continue exploring approaches to better reflect national-level policy developments in future iterations of the CRST exercise. In the meantime, the Bank expects financial institutions to exercise prudence when interpreting results from the 2024 CRST exercise. G 10.8 Financial institutions are encouraged to refine, calibrate, or introduce more granular stress test parameters and assumptions to enhance the accuracy of their 2024 CRST results. They may expand on the above climate scenarios, with the intention to improve the robustness and realism of the stress test. S 10.9 However, any new assumption or climate scenario expansion must be aligned with the long-term and short-term scenario narratives prescribed by the Bank. The additional parameters and assumptions must be clearly explained to the Bank in the reporting template. Table 1: Additional details on the NGFS Scenarios (Phase III) NZ 2050 DNZ 2050 NDCs Physical risk Limited Limited High Mean global warming relative to pre-industrial average in 2050 1.4°C 1.4°C 2.6°C Malaysia’s surface temperature based on IPCC’s AR6 95th Percentile (in 2050) 26.9 °C 26.9 °C 27.8 °C Transition risk High Moderate to higher Lower Estimated average shadow carbon price in Malaysia (in 2050, USD per tCO2e based on 2010 prices, and regional carbon prices) USD 325.40 USD 698.90 USD 41.60 Source: Intergovernmental Panel on Climate Change, NGFS and Bank Negara Malaysia 2024 Climate Risk Stress Testing Exercise – Methodology Paper 11 of 34 Issued on: 29 February 2024 Scenario variables G 10.10 The Bank provides selected climate and macroeconomic variables for all prescribed climate scenarios. These climate variables, embodying physical risk and transition risk, are based on the high-level global and regional pathways as simulated by the NGFS and have been downscaled and calibrated to Malaysia 5 via the National Institute Global Econometric Model. Consequently, the impact from these climate variables under the above scenarios on the rest of the economy are reflected in the macroeconomic and financial market data provided by the Bank. G 10.11 To elaborate further, the physical risk and transition risk variables for Malaysia are mapped to key aggregate macroeconomic and financial variables, as seen in Table 2. These variables would simulate the combined impact from the physical risk and transition risk associated with each scenario. No additional shocks beyond the climate-related ones have been incorporated into the macroeconomic model simulation. The evolution of macroeconomic and financial variables following the climate-related shocks also consider fiscal and monetary policy reactions. For fiscal policy, this would include assumptions on how revenue from carbon tax is earmarked for public investment or recycled as households tax reliefs. Regarding monetary policy, these assumptions pertain to reactions concerning risks to inflation and gross domestic product (GDP) growth. G 10.12 The variables supplied under the various scenarios are meant to serve as a starting point for financial institutions’ modelling and assessments. Notwithstanding this, financial institutions are encouraged to perform further scenario expansion,6 as stated in paragraph 10.8, to enhance the accuracy of their assessments. For example, financial institutions with large exposures to the agricultural sector could consider expanding the scenario paths to more granular geographical locations in Malaysia. Financial institutions may leverage the variables provided by the NGFS, JC3’s Climate Data Catalogue or other data sources for this purpose.7 S 10.13 Financial institutions must ensure that any additional assumptions or climate scenario expansions taken as prescribed in paragraph 10.12, are aligned with the long-term and short-term scenarios prescribed by the Bank. The additional parameters and assumptions must be clearly explained by the financial institution to the Bank in the reporting template. G 10.14 For the avoidance of doubt, the supplied macroeconomic, financial, and climate- related data in this document are for the purpose of the 2024 CRST exercise and should not be taken as an assessment of the efficacy of domestic climate policy to address future risks from climate change nor should they be construed as actual forecasts of the future. 5 Refers to NGFS Phase 3 Scenario Explorer and NGFS Climate Impact Explorer by Climate Analytics. 6 Scenario expansion in this context refers to the process of extrapolating or calibrating additional scenario variables from the set of variables provided by the Bank. 7 For an indicative list of potential data sources, refers to Appendix 4 of the 2024 Climate Risk Stress Testing Exercise Discussion Paper, published on 30 June 2022. https://data.ece.iiasa.ac.at/ngfs-phase-3/#/login http://climate-impact-explorer.climateanalytics.org/ 2024 Climate Risk Stress Testing Exercise – Methodology Paper 12 of 34 Issued on: 29 February 2024 Table 2: Scenario Variables8 Climate Variables Macroeconomic Variables Financial Market Variables Physical variables • Near-surface temperature Transition variables • Shadow carbon price pathway • Emissions pathway • Global and domestic energy prices • Energy consumption and energy mix • GDP • Gross value added (GVA) by selected sectors • Private/government consumption • Private/government investment • Exports and imports (goods and services) • Headline Inflation • Unemployment rate • House price index (residential, 2015=100) • Central Bank policy interest rate (%) • 3-year, 5-year, 10-year and 15-year Malaysian Government Securities yield • 3-year, 5-year, 10-year and 15-year private debt security yield (by rating) • Real effective exchange rate (index; 2017=100) • Exchange rate (domestic per USD) • Equity prices (index; 2017=100) 11. Time horizon G 11.1 In coming up with a suitable time horizon, the Bank considered that some aspects of physical risk such as rising average temperature and sea level would only materialise over the long-term. S 11.2 To ensure that the 2024 CRST exercise can adequately capture these risks, financial institutions must consider the time horizon for the long-term climate scenarios that will span over a 27-year period from December 2023 (as the starting position) until 2050. Financial institution shall report to the Bank the projected impact of the CRST on an annual basis from 2024 until 2029, followed by a 5-year interval throughout the rest of the stress horizon. Financial institutions are required to submit to the Bank the following: (a) The first projection reporting point is on 31 December 2024; (b) An annual recurring projection report at the end-of calendar years 2025, 2026, 2027, 2028 and 2029; and (c) Subsequent projection reporting at the end of calendar years 2030, 2035, 2040, 2045 and 2050, respectively. For the avoidance of doubt, financial institutions must submit the projection reports to the Bank by the deadlines stipulated in paragraph 18.1. 8 All variables are for Malaysia only unless otherwise indicated. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 13 of 34 Issued on: 29 February 2024 G 11.3 The more frequent reporting intervals for the first six years reflects that many macroeconomic variables (e.g., real GDP and headline inflation) tend to exhibit greater volatility in the initial years of the climate scenarios. This arises following the initial transition shocks due to the imposition of climate-related policies, and the ensuing adjustments that one might expect from it. For instance, under the DNZ 2050 scenario, the implementation of an energy tax (e.g., carbon tax), which tends to be relatively higher compared to the NZ 2050 scenario, raises energy costs in the short- term, impacting the final demand for consumer goods and services. The increase in energy costs, however, also contributes to higher general price levels resulting in an uptick in headline inflation. These effects are expected to be transitory and will moderate over time as the economy adjusts to these new conditions. 12. Balance sheet assumptions S 12.1 Financial institutions shall adopt a static balance sheet assumption for their quantitative assessments. This means that financial institutions must not factor in planned management actions such as strategic portfolio changes as part of the climate scenario to ease the challenge of projecting the composition of the balance sheet over the long assessment horizon (up to 2050). G 12.2 This approach considers that many financial institutions still face considerable challenge in forecasting their strategies and modelling the climate impact over a long horizon. S 12.3 Financial institutions shall conduct the quantitative assessment by assuming the starting balance sheet for each year of the stress test horizon is identical to the balance sheet as of end-2023. This enables financial institutions to focus on assessing the outcomes of their current risk management approach and business strategy as climate risks materialise. S 12.4 For each reporting year (referred to in paragraph 11.2 for the reporting periods), financial institutions shall incorporate the impact of climate-related risks between the base starting position of 2023 and the specific reporting year. G 12.5 To illustrate, consider a hypothetical scenario involving a bank’s projections for impairments based on shocks from the climate scenarios. In 2024, the bank projects an increase in impairments compared to its baseline in 2023, but no further increase in impairments for the rest of the CRST horizon, 2025 to 2050. The bank would therefore only report an increase in expected credit losses (ECL) in the 2024 reporting year. The losses incurred in 2024 should not be added to subsequent years’ reporting. Thus, there would be no increase in ECL for reporting year 2025 to 2050. In this case, the impairments at the end of each reporting year during the period 2025 to 2050 are assumed to be the same as those in 2023. G 12.6 Consider another hypothetical scenario involving insurers and takaful operators’ (ITOs) assessing their equity investment portfolios. If there is a decline in equity market’s performance in 2024, all mark-to-market valuation losses will be reported for the 2024 reporting year. Assuming a relative stable equity market for the remainder of the CRST horizon, 2025 to 2050, ITOs will consistently report “nil” for mark-to-market valuation changes, as the fair value for their equity investment portfolios remains unchanged from the recorded value in 2023. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 14 of 34 Issued on: 29 February 2024 S 12.7 For simplicity, financial institutions are to assume that the remaining maturity of their assets remains constant throughout the CRST horizon. G For example, a 30-year mortgage or bond with a remaining maturity of 20 years at the end of 2023 (i.e., the starting position of the 2024 CRST exercise), will be treated as a mortgage or bond with a remaining maturity of 20 years throughout the CRST horizon. G 12.8 As the 2024 CRST exercise is intended to facilitate capacity building, financial institutions are still encouraged to reflect upon possible management actions in response to the impact of the prevailing climate scenario on its static balance sheet. This may be documented qualitatively in the reporting template rather than in the quantitative assessment. S 12.9 Financial institutions shall record key details of the assessment methodologies and assumptions in the reporting template provided to facilitate the interpretation of the results of the 2024 CRST exercise by the Bank. Diagram 1: Illustration of Assessment using the Static Balance Sheet Assumption Assumptions: • A financial institution starts with an exposure of RM10,000 at the end of 2023, which could represent a loan exposure for banks or an invested assets/liability exposure for ITOs. • Shock parameters for time +1, time +2, and time +3 are 10%, 15%, and 0%, respectively. These shocks encompass factors such as increased probability of default, decline in equity market performance, or increased insurance claims (whichever is applicable to the financial institution). • Estimated losses are calculated based on the exposure as of end-2023 for each reporting period (time +1, time +2, and time +3). These estimated losses could represent ECL, mark-to-market losses from invested assets, or insurance payouts for medical/fire claims. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 15 of 34 Issued on: 29 February 2024 13. Assessing climate-related risks to financial institutions’ exposures S 13.1 The Bank acknowledges the current limitations in data and modelling capabilities constraining a comprehensive quantitative assessment of the impact of various climate scenarios on all financial risk exposures. Therefore, only selected risks will be required to be assessed quantitatively for the 2024 CRST exercise. S 13.2 Financial institutions shall assess the impact of the climate scenarios on significant financial risk exposures. The assessment approach, quantitative or qualitative, will be differentiated by the materiality of the risk, depending on the type of financial institution: (a) Banks shall adopt a quantitative approach when assessing the credit risk portfolio. They may adopt a qualitative approach when assessing the market risk, liquidity risk and operational risk portfolios; and (b) ITOs shall adopt a quantitative approach when assessing the market risk as well as insurance and takaful risk. They may adopt a qualitative approach when assessing credit risk, liquidity risk and operational risk. G 13.3 In relation to insurance and takaful risk, the Bank acknowledges the significance of liability risk that may arise from environmental or climate-related litigations. However, such scope of liability risk is excluded from consideration in this inaugural 2024 CRST exercise to reduce modelling complexities. G 13.4 The qualitative impact assessment approach for the selected risk types specified above acknowledges the current limitations in data and modelling capabilities, while still providing financial institutions with an opportunity to enhance their understanding of the various risk transmission channels and the overall impact from climate-related risks. The quantification of these risks will be considered in future CRST iterations. G 13.5 Financial institutions are encouraged to broaden their range of quantitatively assessed risks beyond the minimum list stated in paragraph 13.2, subject to their own individual capabilities for doing so. S 13.6 In assessing the impact from the climate scenarios, financial institutions are reminded to be conservative and mindful of the expectations provided in paragraph 10.7. For example, financial institutions shall not assume growth in the value of collateral, or improvement in borrowers’ debt servicing capacity following improvements in corporates’ profitability or household income, which effectively reduces the risks in financial institutions’ exposures. S 13.7 In the same vein, given the limitations of the NGFS climate scenarios mentioned in paragraphs 10.4, 10.5, and 10.6 and in the absence of new climate shocks modelled over the long-run, financial institutions could see their CRST results moderating over the long-term across all climate scenarios. This may lead to an underestimation of losses arising from climate-related events. In tandem with paragraph 10.7, financial institutions shall exercise caution and care when interpreting their 2024 CRST results, particularly when considering appropriate management action to reduce financial institutions’ vulnerabilities to climate risks. G 13.8 Financial institutions should seek to leverage their assessment and classification of economic activities as provided for in the CCPT in relevant areas for the CRST exercise. This is to ensure CRST input assumptions and results are consistent with the financial institutions’ ongoing efforts to appropriately categorise risk exposures based on the extent to which they meet climate objectives and promote transition to a 2024 Climate Risk Stress Testing Exercise – Methodology Paper 16 of 34 Issued on: 29 February 2024 low-carbon economy. For instance, counterparty-level due diligence assessments conducted for CCPT purposes could serve as valuable inputs for the 2024 CRST exercise. Financial institutions should also assess if the classification and reporting of exposures under the CCPT are consistent with the areas and magnitude of risks derived from the results of their 2024 CRST exercise. S 13.9 Financial institutions shall also ensure that the CRST models used to size up the climate-impact on the balance sheet are sufficiently granular to meaningfully differentiate between the drivers of losses across the various climate scenarios. G 13.10 Where there is a reliance on third party service providers to assist financial institutions to carry out this inaugural 2024 CRST exercise, financial institutions should have relevant processes in place to ensure that financial institutions understand how the data and models are being developed. This is intended to ensure that the data and models used are appropriate to capture the climate-related risks to the financial institutions and to maximise learning opportunities. Banks Quantitative Assessment of Credit Risk S 13.11 Given that credit risk exposures make up a significant portion of banks’ balance sheet, banks shall quantitatively assess how climate-related risk could lead to changes in their borrowers’ repayment ability, collateral value, or loan recovery in the event of default, thus increasing the expected credit losses. S 13.12 At minimum, banks shall measure the credit risk of both their on- and off-balance sheet exposures in the following segments: (a) all business lending (including lending to large corporates and small and medium enterprises), comprising of loans, sukuk and bonds; and (b) selected household lending comprising of loans to purchase residential properties, loans to purchase non-residential properties and hire purchase loan/financing. Banks shall document any deviation from the above minimum requirements in the reporting template. S 13.13 For other segments not specified in paragraph 13.12, such as underwriting activities or counterparty risk from derivatives transactions, banks shall apply proportionality in deciding whether to quantitatively assess the associated credit risk. In this regard, banks shall prioritise exposures that are more material and vulnerable to climate- related risks. Banks shall document these additional segments in the reporting template. G 13.14 The Bank is cognisant that there are various approaches to measure climate-related credit risks of businesses and households. However, to ensure a more consistent level of quality and comparability across different banks, the Bank has specified some minimum expectations for this assessment. These are detailed in the subsequent paragraphs. G 13.15 Banks may recognise insurance policies or takaful certificates, such as fire insurance policies, that are already in place to offset the estimated losses from credit risk. However, they should not assume additional insurance coverage beyond that which was already in force as of 31 December 2023. Banks should document the assumptions underpinning their treatment of insurance and takaful coverage in the reporting template. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 17 of 34 Issued on: 29 February 2024 Businesses Credit Risk – Sectoral Level Assessment G 13.16 Climate-related risks have the potential to affect businesses through transition risk (e.g., increase in operating costs due to carbon pricing) and physical risk (e.g., severe disruption to operations due to damage to premises and equipment from flooding or damage to crops due to drought). Businesses across the different economic sectors may be affected differently by these risks and as such, banks are expected to carry out the credit risk assessment on businesses at the sectoral level, as well as at the counterparty level for selected sectors. S 13.17 In this regard, banks shall assess the creditworthiness of their business borrowers, considering the potential default risk arising from changes in financial conditions because of climate change, such as variations in cash flow, increased operational costs, or reductions in asset values. Banks shall also take into consideration the potential deterioration of recoverable collateral value in its credit risk assessment. For instance, the collateral value of real estate and commodities may be heavily affected by physical risk induced by climate change. S 13.18 Climate-related risks are typically sectoral specific and highly localised by geography. Therefore, in quantifying the impact of climate-related risks, banks shall consider the relevant sectoral- as well as geographical-specific attributes of the businesses in their portfolio that may have a bearing on credit risk. For example, a business’ main sources of revenue, operations and collateral values may be impacted differently depending on the location of its operations and assets. The climate impact across the sectors and geographical location should be reasonably differentiated in line with the scenarios provided. While the Bank does not provide any climate or macroeconomic variables for jurisdictions outside Malaysia, banks may utilise data available in the NGFS portal or other data sources to model the climate-impact for businesses with operations or assets outside Malaysia. S 13.19 There are various approaches to modelling the impact of climate-related risks on banks’ business portfolio. For instance, banks may (i) model the climate-related impact for each individual business in their portfolio and sum the impact; (ii) model the climate-related impact on a sample of businesses and extrapolate the magnitude of impact for the rest of the sector; or (iii) use existing credit risk models and apply a climate-related risk factor to differentiate the climate-related impact across sectors and scenarios. Should banks decide to leverage existing Basel or MFRS 9 credit risk models by imputing the climate-adjusted macroeconomic variables provided by the Bank, they must assess if these models are sufficiently robust to capture climate- related risks, particularly across the longer time horizons of the 2024 CRST exercise. Businesses Credit Risk – Counterparty Level Assessment S 13.20 Banks shall conduct a counterparty-level analysis which involves deeper scrutiny of the cashflows and earnings of individual businesses operating in selected economic sectors that are deemed more vulnerable to physical risk and transition risk. Banks may refer to Appendix 2 for a detailed breakdown of the selected economic sectors. S 13.21 Banks should not take into consideration the counterparties’ climate mitigation and adaptation plans in their assessment, unless these plans are already announced, underway and are judged to be highly likely to be completed. In this regard, banks are expected to leverage on their CCPT classifications for each counterparty to inform an exposure’s degree of transition to sustainable practices. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 18 of 34 Issued on: 29 February 2024 G 13.22 Banks are encouraged to use their counterparty’s actual data (e.g., emission data, climate-related strategies, and location) where available. S 13.23 Where assumptions and proxy data are being used in place of banks’ counterparty’s actual data, banks must be able to identify how the methodology and data sources could influence the results of the 2024 CRST. S 13.24 For this inaugural 2024 CRST exercise, banks shall assess at least the top 10 individual business counterparties (entity level) by exposure size in each of the economic sectors listed in Appendix 2. These sectors were identified based on their sensitivity to transition risk and physical risk. For counterparties with diversified business lines that are not listed in Appendix 2, banks shall classify these counterparties based on their main economic activity or sector of their parent group. Household Credit Risk G 13.25 Households are also increasingly vulnerable to climate change, affecting both their probability of default (e.g., loss of income) and loss given default (e.g., decline in the value of their collateral pledged) due to the materialisation of transition risk and physical risk. S 13.26 For specific household lending portfolios, additional climate-related drivers may also amplify the impact of climate change on these portfolios. As such, banks shall consider the following drivers: (a) Purchase of residential properties and non-residential properties • Increased transition risk due to low energy efficiency of properties, leading to property price discounts and higher cost on their properties to retrofit to greener standards; and • Increased physical risk as severe physical climate perils can cause significant damage to properties in a particular location and lead to property price discounts and lack of insurability. (b) Purchase of passenger cars • Increased transition risk due to the implementation of carbon tax (congestion tax or other traffic limitation regulations) on vehicles to reduce GHG emissions or higher adoption of electric vehicles impacting the demand for internal combustion engine vehicles; and • Increased physical risk due to damages to vehicles from nature-related events like floods. G 13.27 Banks may use their existing stress test models by imputing climate-adjusted macroeconomic variables to size up the impact of credit losses from its household portfolio. S 13.28 If banks decide to use their existing stress test models, they should assess whether there are any enhancements to the models necessary to capture climate-related drivers for credit losses, since existing models may not have been designed for CRST purposes. This may entail for example, applying an adjustment scalar/factor multiplier over the model-derived expected losses for certain segments of the household sector that the banks have identified to be more vulnerable to climate change. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 19 of 34 Issued on: 29 February 2024 Insurers and Takaful Operators (ITOs) Quantitative Assessment of Market Risk G 13.29 The unpredictable nature of severe weather events and natural disasters, coupled with uncertainties in timing and intensity, can amplify the volatility in financial markets. Additionally, changes in policies, shifts in investor sentiment, and technological advances may lead to business disruptions and sudden change in prices for financial assets. ITOs are particularly susceptible to market risk due to their significant holdings of invested assets. This risk is not limited to life and family ITOs; but also affects general ITOs’ financial assets, notably through collective investment schemes (CIS) and direct investment in bonds. S 13.30 ITOs shall conduct quantitative assessments to understand how climate-induced changes in financial markets could impact the valuation and performance of their investments. G 13.31 ITOs may consider the following aspects when measuring the impact from climate- related risks on their investment portfolios: (a) Potential changes in the ratings and valuations of assets, influenced by changes in the landscape of the economic sector or the profiles of financial asset issuers. This includes factors such as shifts in consumer preferences, stranded assets, and the imposition of new climate-related policies; and (b) Examination of correlations between assets affected by climate-related risks, leading to potential breakdowns that could diminish the effectiveness of hedges and challenge prevailing risk management assumptions. G 13.32 As the development of climate-related risk modelling and methodologies for assessing long-term market risk is ongoing, ITOs have the flexibility to leverage on their existing models (with additional considerations detailed in the preceding paragraph) or apply new methodologies. S 13.33 When submitting results, ITOs must also report a brief description of their approach. S 13.34 ITOs shall report their assessments by the type of assets in the reporting template. For instance, ITOs must evaluate the impact of climate-induced changes on selected financial market instruments, such as Government bonds, corporate bonds, equities, and CIS. For corporate bonds, ITOs shall assess the impact by rating categories. Quantitative Assessment of Insurance and Takaful Risk G 13.35 The unique nature of insurance and takaful risk, which can be independent from macroeconomic and financial market developments, underscores their distinct importance to ITOs’ business activities. It is crucial to note that insurance and takaful risk is another primary risk for ITOs. This highlights the need for ITOs to quantify and understand the potential losses from payouts for claims under the long-term climate scenarios. For this inaugural 2024 CRST, the assessment on insurance and takaful risk will focus on the impact from climate change in Malaysia. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 20 of 34 Issued on: 29 February 2024 S 13.36 The assessment shall be conducted at the insurance funds or takaful sub-funds level (for life and family ITOs) and respective lines of business (for general ITOs) and reported in accordance with the reporting template. G 13.37 ITOs can consider the following examples (these are illustrative and not the minimum standard; ITOs are encouraged to employ best, and reasonable efforts based on their available resources and capabilities): (a) Life and family ITOs can formulate assumptions around mortality shocks and changes to payouts for medical claims resulting from physical risk events within specific scenarios. ITOs may explore methods such as studying the correlation between near-surface air temperature, heat waves, and mortality rates or collaborating with consultants or experts to devise appropriate methodologies; and (b) General ITOs can approximate property price shocks in specific geographical locations based on changes in property price indices, supplemented with historical flood occurrence data. This could be used to estimate losses from higher claims arising from physical risk events under the long-term scenarios. S 13.38 In estimating losses, ITOs shall assume that claims are payable within the specific reporting year and calculate losses for both gross and net of reinsurance or retakaful recoverable. When estimating recoverable from reinsurance or retakaful arrangements, where appropriate, ITOs should adjust the amounts recoverable in consideration of losses due to potential defaults of reinsurers or retakaful operators, taking into account their financial ratings and reinstatement premiums or contributions. S 13.39 Specifically, ITOs only need to report the estimated impact of the assessment and the broad assumptions used, if any, in the reporting template. While the Bank does not require the details of projection and assessment methodologies, ITOs should document these internally, as the Bank may engage selected ITOs when reviewing the results. Please refer to the reporting template for the detailed submission scope and granularity. Qualitative Assessment of Market Risk (banks only), Credit Risk (ITOs only), Liquidity Risk and Operational Risk (all financial institutions) S 13.40 Please refer to the reporting template for the list of guiding questions for these risks. Financial institutions shall also submit their qualitative assessment of these risks if an assessment has been conducted. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 21 of 34 Issued on: 29 February 2024 Table 3: Summary of Assumptions for Long-term Climate Scenarios Banks ITOs Balance Sheet Starting Position 31 December 2023 Exercise Horizon End-2023 until end-2050 Portfolio Coverage Required Loans for the purchase of residential and non-residential properties Construction and bridging loans Encouraged Loans for the purchase motor vehicles, other types of loans that are collateralised by properties Required Respective life insurance funds, family takaful sub-funds and general ITOs’ lines of business Scenario Parameters NZ 2050: SSP2, Year 2050 DNZ 2050: SSP2, Year 2050 NDCs: SSP2, Year 2050 Insurance / Takaful Coverage Insurance/takaful coverage may be considered for assessed loans, based on coverage already in force as of 31 December 2023 Not applicable Reinsurance Not applicable Assume claims are payable within the reporting year, accounting for both gross and net of reinsurance/retakaful Make appropriate adjustments for losses from potential defaults of re- ITOs, considering their credit ratings, and reinstatement premiums/contributions 2024 Climate Risk Stress Testing Exercise – Methodology Paper 22 of 34 Issued on: 29 February 2024 PART C2 SHORT-TERM ACUTE PHYSICAL RISK SCENARIO 14. Scenario specifications S 14.1 The short-term acute physical risk scenario considers a one-off 1-in-200 years flood event, occurring nationwide in Malaysia consistent with climate conditions in the Intergovernmental Panel on Climate Change (IPCC)’s Representative Concentration Pathway (RCP) 8.5 scenario in the year 2050. (a) This scenario specification is deemed suitable for stress testing, taking into consideration that the 1-in-200 years flood event is significantly more severe than past flood events in Malaysia. Furthermore, the RCP 8.5 scenario considers a future where no global policy change is adopted, leading to a climate pathway with the highest increase in physical risks compared to other RCPs. (b) Additionally, the above specification, which seeks to bring forward the expected impact of future climate conditions from the year 2050, is particularly important when establishing the severity of the one-off flood event given that climate change is expected to exacerbate the impact of future floods. S 14.2 Financial institutions shall quantitatively assess the direct impact of the short-term acute physical risk scenario on their portfolio based on the scenario specification given by the Bank. G 14.3 Financial institutions are encouraged but not required to incorporate possible indirect impacts of the flood event into their assessments. Examples of these indirect impacts include possible spillovers to overall macroeconomic conditions and supply chain disruptions. G 14.4 Given the capacity-building goal of this inaugural 2024 CRST exercise, financial institutions should explore the use of flood risk-specific models that are able to establish a clearer and more direct link between flood damage in a given location and their portfolio exposures. In contrast, the use of traditional stress test models that correlate losses with macroeconomic variables may not be sufficiently sensitive to capture the actual losses financial institutions may face in the event of a flood. Such events may produce severe yet highly localised damages that may not necessarily translate to commensurate movements in macroeconomic variables. S 14.5 Financial institutions must assume no policy interventions from the Government which may reduce losses estimated for the 2024 CRST exercise. S 14.6 Historically, the east coast of peninsular Malaysia has been more susceptible to riverine floods (i.e., fluvial floods) while major urban areas have experienced more frequent flash floods (i.e., pluvial floods). Financial institutions shall consider the impact from both types of flooding. In determining the areas affected by the nationwide flood, financial institutions must include key economic areas such as Selangor, Penang, Johor, Wilayah Persekutuan Kuala Lumpur, and other areas where the financial institutions have large exposures to such that their cumulative exposures account for more than 75% of their portfolio. S 14.7 At a minimum, financial institutions must conduct their assessment of flood risk at the postcode level. As a clarification of this requirement, financial institutions must be able to meaningfully differentiate the severity of estimated hazard impacts by postcode. For example, assigning the same hazard impact to all postcodes within Kuala Lumpur would not meet the expectations set out for the 2024 CRST exercise. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 23 of 34 Issued on: 29 February 2024 G 14.8 Financial institutions may opt for a more granular spatial resolution (e.g., based on longitudes/latitudes or other coordinate systems) for their assessment of flood risk. However, in instances where the resolution of a given portfolio is only available at the postcode level whereas the hazard impacts are available at a more granular resolution, care must be taken to ensure that risks are appropriately captured. For example, assigning the same set of granular coordinates to all loans with the same postcode may unintentionally lead to financial institutions greatly underestimating losses if the said coordinates happen to be in a low-risk area. Similarly, losses may be greatly overestimated should coordinates happen to be grouped into a high-risk area. Time horizon S 14.9 Financial institutions shall assume that the one-off flood event occurs on 1 January 2024. This assumption seeks to simplify and standardise how financial institutions assess the risk event by eliminating the need to consider other flood events and their timings throughout the year. S 14.10 Financial institutions shall apply the shocks from the flood event to their balance sheet position as of 31 December 2023. 15. Exercise parameters for banks S 15.1 At minimum, banks shall quantitatively assess the impact of the flood event on all loans for the purchase of residential and non-residential properties, and construction and bridging loans for the business segment. S 15.2 For other segments that are not referred in paragraph 15.1, banks shall apply proportionality in determining whether such segments warrant inclusion in their flood risk assessment. In this regard, banks shall prioritise the inclusion of exposures that are material and vulnerable to flood risk. These additional segments shall be documented accordingly in the reporting template. G 15.3 Banks are particularly encouraged to assess loans for the purchase of motor vehicles and other types of loans collateralised by properties that are not already covered in the 2024 CRST exercise. Banks which are unable to assess these loans at the current juncture should build their capacity to do so, as future iterations of the CRST may require an assessment of these exposures. S 15.4 In assessing its loan portfolio under the short-term acute physical risk event, banks must also adopt the balance sheet treatment specified under the long-term climate scenarios, as detailed in Part C1. S 15.5 Banks must assess the direct impact of the flood event. This includes how the flood event will decrease collateral values and affect the repayment capacity of flood- affected borrowers. S 15.6 Banks may recognise flood insurance policies or takaful certificates that may offset projected losses. However, they should not assume additional insurance coverage beyond that which was already in force as of 31 December 2023. Banks shall document the assumptions underpinning their treatment of insurance and takaful coverage in the reporting template. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 24 of 34 Issued on: 29 February 2024 S 15.7 Where possible, banks shall assess their loans based on the location of loan utilisation. This is to ensure that the location of the physical collateral corresponds with the location of estimated flood hazards. In instances where information on the location of loan utilisation is not available, banks may opt to proxy this via the use of the borrower’s address. Banks shall report what share of their portfolios have their locations proxied by the borrower’s address. 16. Exercise parameters for ITOs S 16.1 ITOs must quantitatively assess the impact of the flood event on all flood risk coverage for properties and motor vehicles within insurance policies and takaful certificates. G 16.2 ITOs are encouraged but not required to assess impact on insurance policies and takaful certificates for contractors’ all risks and engineering segments. S 16.3 In assessing their insurance and takaful portfolios under the short-term physical risk event, ITOs shall adopt the balance sheet treatment specified under the long-term climate scenarios, as detailed in Part C1. S 16.4 ITOs must adopt the approach specified in paragraph 13.38 when accounting for the impact of reinsurance and retakaful recoverables. Table 4: Summary of Assumptions for 1-Year Acute Physical Risk Scenario Banks ITOs Balance Sheet Starting Position 31 December 2023 Exercise Horizon 1 year Portfolio Coverage Required Loans for the purchase of residential and non-residential properties Construction and bridging loans Encouraged Loans for the purchase of motor vehicles, other types of loans that are collateralised by properties Required Property- and motor vehicle- related flood insurance policies/takaful certificates Encouraged Contractors’ all risk and engineering insurance policies/takaful certificates Flood Parameters Pathway: RCP 8.5, Year 2050 Return Period: 1-in-200 years flood Date of flood: 1st January 2024 Insurance/ Takaful Coverage Insurance/takaful coverage may be considered for assessed loans, based on coverage already in force as of 31 December 2023 Not applicable Minimum Assessment Granularity Postcode-level 2024 Climate Risk Stress Testing Exercise – Methodology Paper 25 of 34 Issued on: 29 February 2024 PART D CONDUCT OF THE 2024 CRST EXERCISE 17. Information to be reported to the Bank S 17.1 The 2024 CRST reporting template consists of two sections: (a) Section 1 consists of quantitative data templates which must be used by the financial institutions to report to the Bank key metrics for the long-term climate scenarios and the 1-year acute physical risk scenario; and (b) Section 2 contains qualitative questionnaires which financial institutions must complete and submit to the Bank. S 17.2 In addition to the quantitative and qualitative assessments, financial institutions are required to submit to the Bank a detailed report on: (a) The methods to validate the suitability of models and datasets used in the 2024 CRST exercise, particularly those provided by a third-party service provider; (b) The approach to identify the location of the borrowers and collateral to facilitate physical risk assessment; and (c) Financial institutions’ learning points and challenges in running the 2024 CRST exercise. This is expected to inform, among others, future work priorities for both the financial industry and the Bank. 18. Submission deadline S 18.1 Financial institutions are required to submit the results of the 2024 CRST exercise, in particular, data templates, supporting documents, and responses to the qualitative questions in accordance with the submission deadlines for each respective cohort of financial institutions as detailed in Table 5. The list of financial institutions and their respective cohorts can be found in Appendix 5 and Appendix 6 respectively. Table 5: Submission by Cohorts Cohort 1 Cohort 2 Financial institutions Domestic banking groups, selected locally incorporated foreign banks (LIFBs) & ITOs Other banks, development financial institutions (DFIs) & ITOs Submission deadline By 30 June 2025 By 31 December 2025 G 18.2 The submission deadline for each cohort takes into consideration the financial institution’s size, potential portfolio exposure to climate-related risks and their internal state of readiness. This approach is also intended to facilitate industry sharing, where financial institutions can learn and improve on the experience of peers. Depending on their current state of readiness, financial institutions may request to be upgraded to an earlier cohort, for example, from Cohort 2 to Cohort 1 at the start of the 2024 CRST exercise. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 26 of 34 Issued on: 29 February 2024 APPENDICES Appendix 1 References for modelling approaches The Bank has compiled a list of papers on modelling approaches, which financial institutions may find useful to construct their own models. This list shall not be treated as exhaustive and does not signal the Bank’s preference for a particular modelling approach. Paper Source Managing Flood Risks: Leveraging Finance for Business Resilience in Malaysia World Bank (2023) Overview of Environmental Risk Analysis by Financial Institutions NGFS (2020) Case Studies of Environmental Risk Analysis Methodologies See ‘Part I ERA for Banks’ and ‘Part II ERA for Institutional Investors and Insurers’ NGFS (2020) Climate-Related Scenarios for Financial Stability Assessment: An Application to France Bank of France (2020) Getting Started on Physical Climate Risk Analysis in Finance – Available Approaches and The Way Forward Institute for Climate Economics (2018) Climate Stress Testing Federal Reserve Bank of New York, Staff Report (2023) Navigating a New Climate: Assessing Credit Risk and Opportunity in a Changing Climate UNEP-FI (2018) Integrating Climate Risks into Credit Risk Assessment Monnin (2018) A Framework for Assessing Financial Impacts of Physical Climate Change: A Practitioner’s Aide for the General Insurance Sector Bank of England, Prudential Regulation Authority (2019) Methodological Principles of Insurance Stress Testing – Climate Change Component EIOPA (2022) Methodological Principles of Insurance Stress Testing EIOPA (2020) Climate Financial Risk Forum Various guides and resources. ‘Scenario Analysis – Data and tools providers spreadsheet’, in particular, contains a list of 3rd party vendors for climate models/frameworks CFRF https://www.ngfs.net/sites/default/files/medias/documents/overview_of_environmental_risk_analysis_by_financial_institutions.pdf https://www.ngfs.net/sites/default/files/medias/documents/case_studies_of_environmental_risk_analysis_methodologies.pdf https://publications.banque-france.fr/en/climate-related-scenarios-financial-stability-assessment-application-france https://www.i4ce.org/en/publication/getting-started-on-physical-climate-risk-analysis-in-finance-available-approaches-and-the-way-forward-3/ https://www.i4ce.org/en/publication/getting-started-on-physical-climate-risk-analysis-in-finance-available-approaches-and-the-way-forward-3/ https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1059.pdf https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1059.pdf https://www.unepfi.org/wordpress/wp-content/uploads/2018/07/NAVIGATING-A-NEW-CLIMATE.pdf https://www.cepweb.org/wp-content/uploads/2019/02/CEP-DN-Integrating-climate-risks-into-credit-risk-analysis.pdf https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/2019/a-framework-for-assessing-financial-impacts-of-physical-climate-change.pdf https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/2019/a-framework-for-assessing-financial-impacts-of-physical-climate-change.pdf https://www.eiopa.europa.eu/document-library/methodology/methodological-principles-of-insurance-stress-testing-climate-change_en?source=search https://www.eiopa.europa.eu/document-library/methodology/methodological-principles-of-insurance-stress-testing_en?source=search https://www.fca.org.uk/transparency/climate-financial-risk-forum 2024 Climate Risk Stress Testing Exercise – Methodology Paper 27 of 34 Issued on: 29 February 2024 [General/Overall] Climate Risk Stress Testing: A Conceptual Review Rotterdam School of Management, Erasmus University (2023) [General/Overall] Climate-related Financial Stability Risks for the United States: Methods and Applications Federal Reserve Board (2022) [For flood risk] Bank Stress Testing of Physical Risks under Climate Change Macro Scenarios: Typhoon Risks to the Philippines IMF (2022) [For flood risk] Flood risk and financial stability: Evidence from a stress test for the Netherlands De Nederlandsche Bank (2021) https://www.rsm.nl/fileadmin/Faculty-Research/Centres/EPSVC/Papers/Review_of_Climate_Risk_Stress_Testing.pdf https://www.rsm.nl/fileadmin/Faculty-Research/Centres/EPSVC/Papers/Review_of_Climate_Risk_Stress_Testing.pdf https://www.rsm.nl/fileadmin/Faculty-Research/Centres/EPSVC/Papers/Review_of_Climate_Risk_Stress_Testing.pdf https://www.federalreserve.gov/econres/feds/files/2022043pap.pdf https://www.imf.org/en/Publications/WP/Issues/2022/08/19/Bank-Stress-Testing-of-Physical-Risks-under-Climate-Change-Macro-Scenarios-Typhoon-Risks-to-522486 https://www.dnb.nl/media/ednhkcwq/cj_floodrisk_211102.pdf https://www.dnb.nl/media/ednhkcwq/cj_floodrisk_211102.pdf 2024 Climate Risk Stress Testing Exercise – Methodology Paper 28 of 34 Issued on: 29 February 2024 Appendix 2 Indicative list of sectoral breakdowns9 As detailed in paragraph 13.19, banks shall assess at least the top 10 individual business counterparties (entity level) by exposure size in each of the economic sectors and subsectors listed below. For example, banks must assess the top 10 individual business counterparties in the manufacturing of food and beverages sector defined as businesses classified with the Malaysia Standard Industrial Classification 2008 (MSIC 2008) with codes 11xxx and 10xxx. Different economic sectors may be affected by climate-related risks to varying degrees. The following sectors or subsectors have been identified based on a best-efforts estimate of their vulnerability to climate-related risks and the size of the exposure to the financial system. Should a bank find that they do not have enough counterparties for the listed subsectors under the Manufacturing sector, they are encouraged to expand the assessment to include other subsectors of Manufacturing that are not listed below, based on their own assessment of materiality to climate change risks. The same expectation applies for the Agriculture, Forestry and Fishing sector and Transportation sectors for which specific subsectors were identified. Sector (MSIC code) Number of Counterparties A. Agriculture, Forestry and Fishing • Oil palm (01261 and 01262) 10 B. Mining and quarrying 10 C. Manufacturing Food and beverages • Manufacture of beverages (11xxx) • Manufacture of food products (10xxx) 10 Vehicles • Manufacture of motor vehicles, trailers and semi-trailers (29xxx) • Manufacture of other transport equipment (30xxx) 10 Building materials, rubber and plastic products • Manufacture of basic metals (24xxx) • Manufacture of fabricated metal products, except machinery and equipment (25xxx) • Manufacture of rubber and plastics products 22xxx) 10 D. Electricity, Gas, Steam and Air Conditioning Supply 10 E. Water supply; sewerage, waste management and remediation activities 10 F. Construction 10 H. Transportation and Storage Land transport and transport via pipelines (49xxx) 10 Water transport (50xxx) 10 Air transport (51xxx) 10 L. Real Estate 10 9 The indicative list of sectoral breakdowns was identified based on their vulnerability to transition and physical risks. Financial institutions to take note that this is a first attempt by the Bank to conduct such a mapping exercise and further refinements are to be expected, going forward. As such, future iterations of the CRST may include different mapping methodologies from what is published in the 2024 CRST Methodology Paper. 2024 Climate Risk Stress Testing Exercise – Methodology Paper 29 of 34 Issued on: 29 February 2024 Appendix 3 Glossary Carbon dioxide removal (CDR) Anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products. It includes existing and potential anthropogenic enhancement of biological or geochemical sinks and direct air capture and storage, but excludes natural CO2 uptake not directly caused by human activities. Climate adaptation Refers to the process or actions taken to lower the negative effects and/or moderate harm caused by climate change. Climate mitigation Refers to the process of reducing or preventing emission of GHG into the atmosphere. Climate-related risks The potential risks that may arise from climate change, their related impacts and their economic and financial consequences. Drivers of climate-related risks, namely physical, transition and liability risks. Climate resilience Iterative processes for managing change within complex systems in order to reduce disruptions and enhance opportunities associated with climate change. Counterparty A counterparty is the other party participating in a transaction, which could be a legal entity, unincorporated entity or collection of entities to which an exposure of financial risk may exist. Credit risk Credit risk (including counterparty credit risk) is the risk of a counterparty failing to perform its obligations. Greenhouse gas (GHG) Emissions Refers to gases that absorb and emit radiation at specific wavelengths within the spectrum of terrestrial radiation emitted by the Earth’s surface, the atmosphere itself and by clouds. This property causes the greenhouse effect. Water vapour (H2O), carbon dioxide (CO₂), nitrous oxide (N₂O), methane (CH₄) and ozone (O₃) are the primary GHGs in the Earth’s atmosphere. Moreover, there are a number of entirely human-made GHGs in the atmosphere, such as the halocarbons and other chlorine- and bromine-containing substances, dealt with under the Montreal Protocol. Besides CO₂, N₂O and CH₄, the Kyoto Protocol deals with the GHGs sulphur hexafluoride (SF6), hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs). GHG emissions are separated into three scopes as follows: • Scope 1 covers direct emissions from owned or controlled sources; • Scope 2 covers indirect emissions from purchased electricity consumed by the reporting entity; and • Scope 3 covers indirect emissions from assets not owned or activities not controlled by the reporting entity along its value chain (upstream and downstream). Insurance and takaful risk Risk that an ITO underestimates its insurance/takaful liabilities given the uncertainty associated with the forecasted impact of climate 2024 Climate Risk Stress Testing Exercise – Methodology Paper 30 of 34 Issued on: 29 February 2024 change on the business written, leading to insufficient reserves held to cover those liabilities. Liability risk Risks stemming from parties that are seeking compensation for losses these parties may have suffered from the physical or transition risks from climate change. The climate-related litigations can directly and indirectly impact financial losses of financial institutions. Liquidity risk Ability of the financial institution to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses, including both market and funding liquidity. The risk that an ITO is unable to realise its investments and other assets in a timely manner to meet its financial obligations, including collateral needs, as they fall due. Market risk Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. Nationally Determined Contributions (NDCs) A term used under the United Nations Framework Convention on Climate Change (UNFCCC) whereby a country that has joined the Paris Agreement outlines its plans for reducing its GHG emissions. In some countries the NDC would also address how the countries will adapt to climate change impacts and what support they need from, or will provide to, other countries to adopt low-carbon pathways and to build climate resilience. Operational risk Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk may result in direct financial losses as well as indirect financial losses (e.g., loss of business and market share) due to reputational damage. Paris Agreement An international agreement signed in 2015 to keep the average global temperature rise this century well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C. Pathways The temporal evolution of natural and/or human systems towards a future state. Pathway concepts range from sets of quantitative and qualitative scenarios or narratives of potential futures to solution oriented decision-making processes to achieve desirable societal goals. Pathway approaches typically focus on biophysical, techno- economic and/or socio-behavioural trajectories and involve various dynamics, goals and actors across different scales. Physical risks Economic costs and financial losses resulting from the increasing severity and frequency of • extreme climate change-related weather events (or extreme weather events) such as heatwaves, landslides, floods, wildfires and storms (i.e. acute physical risks); • longer-term gradual shifts of the climate such as changes in precipitation, extreme weather variability, ocean acidification and rising sea levels and average temperatures (i.e. chronic physical risks or chronic risks); and 2024 Climate Risk Stress Testing Exercise – Methodology Paper 31 of 34 Issued on: 29 February 2024 • indirect effects of climate change such as loss of ecosystem services (e.g. desertification, water shortage, degradation of soil quality or marine ecology). Physical risk drivers are the changes in weather and climate mentioned above that lead to physical risks and impacts on economies and financial institutions. Scenario A plausible description of how the future may develop based on a coherent and internally consistent set of assumptions about key driving forces (e.g., rate of technological change) and relationships. Note that scenarios are neither predictions nor forecasts but are used to provide a view of the implications of developments and actions. Transition risks The risks related to the process of adjustment towards a low-carbon economy. These drivers represent climate-related changes that could generate, increase or reduce transition risks. They include changes in public sector (generally government) policies, legislation and regulation, changes in technology and changes in market and customer sentiment, each of which has the potential to generate, accelerate, slow or disrupt the transition towards a low-carbon economy. Transmission channels The causal chains that explain how climate-related risk drivers give rise to financial risks that impact financial institutions directly or indirectly through their counterparties, the assets they hold and the economy in which they operate. Source: Adapted from IPCC, IEA, NGFS, BCBS 2024 Climate Risk Stress Testing Exercise – Methodology Paper 32 of 34 Issued on: 29 February 2024 Appendix 4 Acronyms BCBS Basel Committee on Banking Supervision CCPT Climate Change and Principle-based Taxonomy CDR Carbon dioxide removal CIS Collective Investment Schemes CRMSA Climate Risk Management and Scenario Analysis CRST Climate risk stress testing DFIs Development Financial Institutions DFIA Development Financial Institutions Act 2002 DNZ 2050 Divergent Net Zero 2050 ESG Environmental, social and governance FSA Financial Services Act 2013 GDP Gross domestic product GHG Greenhouse gas GVA Gross value added IEA International Energy Agency IFSA Islamic Financial Services Act 2013 IPCC Intergovernmental Panel on Climate Change ITOs Insurers and takaful operators JC3 Joint Committee on Climate Change LIFBs Locally incorporated foreign banks NDCs Nationally Determined Contributions NETR New Energy Transition Roadmap NGFS Network for Greening the Financial System NZ 2050 Net Zero 2050 SSP Shared Socioeconomic Pathways VBIAF Value-based Intermediation Financing and Investment Impact Assessment Framework 2024 Climate Risk Stress Testing Exercise – Methodology Paper 33 of 34 Issued on: 29 February 2024 Appendix 5 List of domestic banking groups, Islamic banks and LIFBs Cohort 1: Large FIs and selected LIFBs Cohort 2: Other financial institutions 1. AmBank Group 2. CIMB Group 3. Hong Leong Bank Group 4. HSBC Amanah Malaysia Berhad 5. HSBC Bank Malaysia Berhad 6. Malayan Banking Berhad Group 7. OCBC Al-Amin Bank Berhad 8. OCBC Bank (Malaysia) Berhad 9. Public Bank Berhad Group 10. RHB Bank Berhad Group 11. Standard Chartered Bank Malaysia Berhad 12. United Overseas Bank (Malaysia) Berhad 1. Affin Bank Berhad Group 2. Agrobank 3. Al Rajhi Banking & Investment Corporation (Malaysia) Berhad 4. Alliance Bank Malaysia Berhad 5. Bangkok Bank Berhad 6. Bank Islam Malaysia Berhad 7. Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat) 8. Bank Muamalat Malaysia Berhad 9. Bank of America Malaysia Berhad 10. Bank of China (Malaysia) Berhad 11. Bank Pembangunan Malaysia Berhad 12. Bank Simpanan Nasional 13. BNP Paribas Malaysia Berhad 14. China Construction Bank (Malaysia) Berhad 15. Citibank Berhad 16. Deutsche Bank (Malaysia) Berhad 17. Export-Import Bank of Malaysia Berhad (EXIM Bank) 18. India International Bank (Malaysia) Berhad 19. Industrial and Commercial Bank of China (Malaysia) Berhad 20. J.P. Morgan Chase Bank Berhad 21. Kuwait Finance House (Malaysia) Berhad 22. MBSB Bank Berhad 23. Mizuho Bank (Malaysia) Berhad 24. MUFG Bank (Malaysia) Berhad 25. Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank) 26. Sumitomo Mitsui Banking Corporation Malaysia Berhad 27. The Bank of Nova Scotia Berhad 2024 Climate Risk Stress Testing Exercise – Methodology Paper 34 of 34 Issued on: 29 February 2024 Appendix 6 List of Insurers and Takaful Operators Cohort 1 ITOs Cohort 2 ITOs 1. AIA Berhad 2. Allianz General Insurance Company Berhad 3. Etiqa General Insurance Berhad 4. Etiqa General Takaful Berhad 5. Generali Insurance Malaysia Berhad 6. Great Eastern Life Assurance (Malaysia) Berhad 7. Hannover Rueck SE 8. Liberty General Insurance Berhad 9. Lonpac Insurance Berhad 10. Malaysian Reinsurance Berhad 11. MSIG Insurance (Malaysia) Berhad 12. Prudential Assurance Malaysia Berhad 13. Zurich General Insurance Malaysia Berhad 14. Zurich General Takaful Berhad 1. AIA General Berhad 2. AIA Public Takaful Berhad 3. AIG Malaysia Insurance Berhad 4. Allianz Life Insurance Malaysia Berhad 5. AmMetLife Insurance Berhad 6. AmMetLife Takaful Berhad 7. Berjaya Sompo Insurance Berhad 8. Chubb Insurance Malaysia Berhad 9. Etiqa Family Takaful Berhad 10. Etiqa Life Insurance Berhad 11. FWD Insurance Berhad 12. FWD Takaful Berhad 13. Generali Life Insurance Malaysia Berhad 14. Great Eastern General Insurance (Malaysia) Berhad 15. Great Eastern Takaful Berhad 16. Hong Leong Assurance Berhad 17. Hong Leong MSIG Takaful 18. Malaysian Life Reinsurance Group Berhad 19. Manulife Insurance Berhad 20. MCIS Insurance Berhad 21. Munich Retakaful 22. Pacific & Orient Insurance Co. Berhad 23. Pacific Insurance Berhad 24. Progressive Insurance Berhad 25. Prudential BSN Takaful Berhad 26. QBE Insurance (Malaysia) Berhad 27. RHB Insurance Berhad 28. Sun Life Malaysa Takaful Berhad 29. Sun Life Malaysia Assurance Berhad 30. Swiss Re Asia Pte. Ltd./Swiss ReTakaful 31. Syarikat Takaful Malaysia Am Berhad 32. Syarikat Takaful Malaysia Berhad 33. Takaful Ikhlas Family Berhad 34. Takaful Ikhlas General Berhad 35. Toa Reinsurance Company Ltd. 36. Tokio Marine Insurance (Malaysia) Berhad 37. Tokio Marine Life Insurance Malaysia Berhad 38. Tune Insurance Malaysia Berhad 39. Zurich Life Insurance Malaysia Berhad 40. Zurich Takaful Malaysia Berhad	Public Notice
29 Feb 2024	Draf Dedahan Mengenai Ketelusan dan Penzahiran Produk	https://www.bnm.gov.my/-/draf-dedahan-mengenai-ketelusan-dan-penzahiran-produk	https://www.bnm.gov.my/documents/20124/938039/ED-Product-Transparency-Disclosure-Feb24.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/draf-dedahan-mengenai-ketelusan-dan-penzahiran-produk&languageId=ms_MY	Reading: Draf Dedahan Mengenai Ketelusan dan Penzahiran Produk Share: Draf Dedahan Mengenai Ketelusan dan Penzahiran Produk Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1800 pada Khamis, 29 Februari 2024 29 Feb 2024 Draf dedahan ini memperkenalkan keperluan penzahiran yang baharu dan ditambah baik. Draf ini bertujuan untuk memastikan penzahiran produk terus memenuhi matlamat memudahkan pengguna menilai kesesuaian produk dan membuat pilihan kewangan dengan maklumat yang mencukupi. Keperluan berasaskan prinsip di bawah Bahagian B menetapkan obligasi penzahiran minimum yang dikehendaki daripada penyedia perkhidmatan kewangan (Financial Service Providers, FSP). Selain itu, FSP dikehendaki memenuhi keperluan penzahiran produk khusus yang terkandung dalam Jadual. Bank Negara Malaysia (BNM) mengalu-alukan maklum balas secara bertulis mengenai keperluan pengawalseliaan dalam draf dedahan ini. Maklum balas ini termasuk cadangan berkenaan isu-isu atau bidang khusus yang memerlukan penjelasan yang lebih lanjut atau cadangan alternatif yang memerlukan pertimbangan BNM. Maklum balas bertulis perlu disokong dengan rasional, bukti atau ilustrasi yang jelas dan sesuai untuk memudahkan penilaian. Maklum balas perlu dikemukakan secara elektronik kepada BNM selewat-lewatnya pada 29 Mac 2024 melalui pautan https://forms.office.com/r/Jcmig4dW0d. Tarikh Penerbitan 29 Februari 2024 Jabatan yang Menerbitkan Dokumen Jabatan Konsumer dan Amalan Pasaran Dokumen Draf Dedahan Mengenai Ketelusan dan Penzahiran Produk Bank Negara Malaysia 29 Februari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Exposure Draft on Product Transparency and Disclosure TERHAD TERHAD Product Transparency and Disclosure Exposure Draft Applicable to: 1. Licensed banks, including digital banks 2. Licensed Islamic banks, including Islamic digital banks 3. Licensed insurers 4. Licensed takaful operators 5. Prescribed development financial institutions 6. Approved insurance brokers and takaful brokers 7. Approved financial advisers and Islamic financial advisers 8. Approved issuers of designated payment instrument and designated Islamic payment instrument Issued on: 29 February 2024 BNM/RH/ED 028-29 Product Transparency and Disclosure 1 of 83 Issued on: 29 February 2024 TERHAD TERHAD TABLE OF CONTENTS PART A OVERVIEW ....................................................................................................................................... 1 Introduction ........................................................................................................... 3 2 Applicability ........................................................................................................... 3 3 Legal provisions .................................................................................................... 4 4 Effective date ........................................................................................................ 4 5 Interpretation ......................................................................................................... 4 6 Related policy documents and legal instruments ................................................... 7 7 Guidelines superseded ......................................................................................... 7 PART B GENERAL POLICY REQUIREMENTS ............................................................... 10 8 Effective oversight and accountability.................................................................... 8 9 Key disclosure principles ....................................................................................... 9 10 Timing of disclosure ............................................................................................ 12 11 Digital disclosure ................................................................................................. 14 12 Disclosure of customer information ..................................................................... 17 13 Disclosure for advertisements ............................................................................. 18 14 Language requirement ........................................................................................ 21 15 Product specific disclosure requirements ............................................................ 22 16 Product Disclosure Sheet (PDS) ......................................................................... 22 17 Compliance ......................................................................................................... 24 SCHEDULE I : BANKING PRODUCTS ........................................................................... 25 1. Loan/Financing Products..................................................................................... 25 2. Loan/Financing Products - Disclosure to social guarantor ................................... 30 3. Deposit Products ................................................................................................. 31 4. Negotiable Instruments of Deposit (NID)/Islamic Negotiable Instruments (INI) .... 34 5. Investment linked to derivatives (ILD)/Islamic investments linked to derivatives (IILD)……………… .............................................................................................. 38 6. Electronic Banking Services ................................................................................ 41 7. Safe Deposit Box/Safe Deposit Box-i .................................................................. 44 Appendix I Requirement for Product Disclosure Sheet ......................................................................... 45 Appendix II Sample of Product Disclosure Sheet (home loan/financing) .................................... 46 SCHEDULE II : INSURANCE/TAKAFUL PRODUCTS ..................................................... 48 1. Insurance/Takaful Products Distributed via Digital Channel ............................... 52 2. Ordinary Life Insurance/Family Takaful Products ................................................ 53 3. Investment-Linked (IL) Insurance/Takaful Products............................................. 59 4. General Insurance/Takaful Products (other than Medical and Health Insurance/Takaful) .............................................................................................. 63 5. Medical and Health Insurance/Takaful (MHIT) .................................................... 69 Appendix III Requirement for Product Disclosure Sheet .............................................................. 74 Appendix IV Sample of Product Disclosure Sheet (motor insurance) .......................................... 75 SCHEDULE III : PAYMENT INSTRUMENTS .................................................................... 77 1. Electronic money ................................................................................................ 77 SCHEDULE IV : CROSS-BORDER TRADE SETTLEMENT SERVICES ........................... 81 1. Disclosure Requirements .................................................................................... 81 Appendix V Template for disclosure of cross-border trade settlement services .......................... 82 Appendix VI Foreign exchange counter rates ............................................................................... 83 Product Transparency and Disclosure 2 of 83 Issued on: 29 February 2024 TERHAD TERHAD This Exposure Draft (ED) introduces new and enhanced disclosure requirements, aimed at ensuring that product disclosure continues to serve its purpose in facilitating consumers to assess product suitability and make informed financial choices. The principle-based requirements under Part B of the ED establish the minimum disclosure obligations expected of financial service providers (FSPs). In addition, FSPs are required to meet the product specific disclosure requirements contained in the Schedules. The Bank invites written feedback on the regulatory requirements in this ED, including suggestions on specific issues or areas which need further clarification, or alternative proposals which the Bank should consider. The written feedback should be supported with clear rationale, evidence or illustrations, as may be appropriate, to facilitate the Bank’s assessment. Feedback must be submitted electronically to the Bank by 29 March 2024 through https://forms.office.com/r/Jcmig4dW0d. In the course of preparing the feedback, you may direct any query to [email protected]. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. https://forms.office.com/r/Jcmig4dW0d Product Transparency and Disclosure 3 of 83 Issued on: 29 February 2024 TERHAD TERHAD PART A OVERVIEW 1 Introduction 1.1 Financial consumers are constantly challenged by the increasing diversity and complexity when acquiring financial products and services (collectively referred to as “financial products”). Consequently, there is a need to enhance product specific transparency and disclosure in ensuring financial consumers are making informed decisions. Given the greater use of financial products and services, financial consumers need to be provided with relevant, timely, reliable and comparable information that enable them to select financial products that best meet their financial circumstances and needs. 1.2 This Policy Document establishes minimum requirements for enhanced consistency and comprehensive transparency aimed at improving information disclosure on financial products offered by financial service providers (“FSPs”). 1.3 This Policy Document sets out the timing and content on disclosure of information on financial products to financial consumers. 1.4 The objectives of this Policy Document are to- a) promote financial consumers’ awareness and understanding of financial products offered by FSPs; b) ensure consistency in disclosure of essential information on financial products to enable comparison by financial consumers; c) minimise mis-selling of financial products and ensure that financial products sold are suitable to the needs and financial circumstances of financial consumers; d) promote informed decision-making by financial consumers; and e) facilitate financial consumers in safeguarding their own best interests. 2 Applicability 2.1 This Policy Document is applicable to FSPs as defined in paragraph 5.2. 2.2 This Policy Document is applicable to financial products developed and offered by a FSP, either directly or through the FSP’s intermediaries, to individuals, micro and small enterprises (collectively referred to as ‘financial consumers’). FSPs are encouraged to adopt similar disclosure standards for other types of customers. However, the disclosure requirements for Negotiable Instruments of Deposit and Islamic Negotiable Instruments apply to both financial consumers and institutional customers. Product Transparency and Disclosure 4 of 83 Issued on: 29 February 2024 TERHAD TERHAD 3 Legal provisions 3.1 The requirements in this Policy Document are specified pursuant to- (a) sections 123(1) and 123(3) of the Financial Services Act 2013 (FSA); (b) sections 135(1) and 135(3) of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 42C(1) and 42C(3) of the Development Financial Institutions Act 2002 (DFIA). 3.2 The guidance in this policy document is specified pursuant to section 266 of the FSA, section 277 of the IFSA and section 126 of the DFIA. 4 Effective date 4.1 This Policy Document comes into effect on [day] [month] [year]. 5 Interpretation 5.1 The terms and expressions used in this Policy Document shall have the same meanings assigned to them in the FSA, IFSA or DFIA, as the case may be, unless otherwise defined in this Policy Document. 5.2 For the purpose of this Policy Document- “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretive, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; Question 1 The Bank is considering effecting the requirements proposed in this ED six months from the date of issuance of the Policy Document. This is to ensure that FSPs have sufficient time to enhance their existing systems, processes and product disclosure materials to comply with the new and revised requirements in this Policy Document. What are the anticipated challenges in implementing the proposed requirements within the proposed timeframe? Please elaborate on the extent to which your FSP will need to enhance existing processes and systems to implement the requirements, including relevant data, illustration and justification to support your feedback. Product Transparency and Disclosure 5 of 83 Issued on: 29 February 2024 TERHAD TERHAD “advertisement” refers to the disseminating or conveying of information, invitation or solicitation by any means or in any form including oral and written communication by means of print, electronic and any other media; “Board” refers to the board of directors of a FSP, including a committee of such board where the responsibilities of the Board set out in this Policy Document have been delegated to such a committee. However, the Board remains fully accountable for any authority and responsibilities delegated to such committee; “customer” refers to any person who uses, has used or may be intending to use1 any financial product including- (a) a representative of the customer (such as the parents of a minor child or authorised representative2 of the customer); and (b) a person who has entered into or intends to enter into an agreement or arrangement with a FSP (such as a guarantor or third-party security provider) on account of or for the benefit of a customer; “digital channel” refers to any digital or electronic means that enable the marketing and selling of financial products and the provision of information to financial consumers, which includes but is not limited to: (a) email; (b) Short Message Service (SMS); (c) a particular application such as a mobile application; (d) online platform; (e) instant messaging services such as WhatsApp, Telegram, WeChat; (f) social media; and (g) website; regardless of whether the digital channel is operated, administered or maintained by the FSP; “digital advertisement” refers to any form of advertising or marketing of financial products via a digital channel; “financial consumer” refers to any person- (a) who uses, has used or may be intending to use any financial product: (i) for personal, domestic or household purposes; or (ii) in connection with a micro and small enterprise as defined in Guideline for SME Definition issued by the SME Corporation Malaysia; or (b) insured under a group policy or covered under a group takaful certificate where the premiums or contributions are paid by the person insured or the person covered, as the case may be; “financial group” refers to entities within the same financial group as the FSP which are involved in the promotion, sale, delivery and distribution of financial products; 1 Any person who may be intending to use refers to a potential customer who has provided his/her information to the FSP for purposes of using the FSP’s financial product, including a person who subsequently withdraws his/her application or whose application has been rejected by the FSP. 2 Any person authorised by a customer to act on his/her behalf, for example, a trustee, someone with power of attorney, a legal guardian, an insurance agent authorised by a customer. Product Transparency and Disclosure 6 of 83 Issued on: 29 February 2024 TERHAD TERHAD “financial product” refers to financial product or service developed or offered by FSPs; “financial service provider” or “FSP” refers to- (a) a licensed bank; (b) a licensed digital bank; (c) a licensed Islamic bank; (d) a licensed digital Islamic bank; (e) a licensed insurer; (f) a licensed takaful operator; (g) a prescribed development financial institution; (h) an approved insurance broker; (i) an approved takaful broker; (j) an approved financial adviser; (k) an approved Islamic financial adviser; (l) an approved issuer of a designated payment instrument; and (m) an approved issuer of a designated Islamic payment instrument; “intermediaries” refers to persons, both individuals and firms involved in the marketing and selling of financial products for and on behalf of a FSP, including representatives and agents, through any means including digital channel; “licensed ITOs” refer to licensed insurers and licensed takaful operators; “plain language” refers to a clear presentation of information in a manner that is easy for a layman to understand which avoids the use of convoluted sentence structures and unnecessary use of legal and technical jargons; “product information” refers to any information about a financial product that would facilitate financial consumers in making an informed decision; “senior management” refers to the chief executive officer and senior officers of a FSP as defined in the FSA, IFSA and DFIA; “social guarantor” refers to a person who provides, not for the purpose of making profit, the following guarantees- (a) a guarantee for a loan, scholarship or grant for educational or research purposes; (b) a guarantee for a hire-purchase transaction of a vehicle for personal or non- business use; and (c) a guarantee for a housing loan transaction solely for personal dwelling; “staff” refers to persons employed by a FSP, including temporary or contract staff, and officers on attachment from an entity within the group of the FSP. Product Transparency and Disclosure 7 of 83 Issued on: 29 February 2024 TERHAD TERHAD 6 Related policy documents and legal instruments 6.1 This Policy Document must be read together with any relevant legal instruments, policy documents and guidelines issued by the Bank, including any amendments or reissuance thereafter, in particular- (a) Medical and Health Insurance and Takaful issued on 29 February 2024 (BNM/RH/PD 029-29); (b) Management of Participating Life Business issued on 10 July 2023 (BNM/RH/PD 032-1); (c) Universal Life Business issued on 13 February 2023 (BNM/RH/PD 032-22); (d) Investment-linked Business issued on 13 February 2023 (BNM/RH/PD 029- 36); (e) Fair Treatment of Financial Consumers issued on 6 November 2019 (BNM/RH/PD 028-103); (f) Credit Card issued on 2 July 2019 (BNM/RH/PD 036-1); (g) Credit Card-i issued on 2 July 2019 (BNM/RH/PD 034-1); (h) Investment Account issued on 10 October 2017 (BNM/RH/PD 028-63); (i) Debit Card issued on 2 December 2016 (BNM/RH/PD 036-2); (j) Debit Card-i issued on 2 December 2016 (BNM/RH/PD 034-2); (k) Charge Card issued on 2 December 2016 (BNM/RH/PD 036-3); and (l) Charge Card-i issued on 2 December 2016 (BNM/RH/PD 034-3). 7 Guidelines superseded 7.1 This Policy Document supersedes the following- (a) Guidelines on Product Transparency and Disclosure issued on 31 May 2013 (BNM/RH/GL 000-3); (b) Circular on Additional Requirements to the Guidelines on Product Transparency and Disclosure: Cross-border Trade Settlement Service issued on 20 January 2015; (c) Guidelines on Accepting Guarantee as Security (BNM/RH/GL 001-19); (d) Paragraph 26 under Guidelines on the Provision of Electronic Banking Services by Financial Institutions (BNM/RH/GL 008-10); and (e) Letter on Specifications pursuant to sections 123 and 143 of the Financial Services Act 2013 and sections 135 and 155 of the Islamic Financial Services Act 2013 relating to Disclosure Requirements for Insurance and Takaful Products Distributed via Non-Direct Digital Platforms issued on 2 November 2023. Product Transparency and Disclosure 8 of 83 Issued on: 29 February 2024 TERHAD TERHAD PART B GENERAL POLICY REQUIREMENTS This Policy Document specifies minimum requirements and a FSP is expected to adopt higher disclosure standards. Any example given in the Policy Document is meant to illustrate and provide clarity on the regulatory expectations and is not intended as the only information that needs to be disclosed to financial consumers. 8 Effective oversight and accountability Roles and responsibilities of Board and Senior Management S 8.1 Executive level support and commitment are critical to the effective implementation of good disclosure practices. Hence, the Board and senior management of a FSP shall provide effective leadership, direction and oversight to ensure that good disclosure practices for financial products are adopted throughout the FSP. S 8.2 The Board shall ensure that the FSP’s governance arrangements with respect to disclosure practices are consistent with the requirements in this Policy Document. S 8.3 The Board shall provide and exercise adequate oversight to monitor the FSP’s compliance with the requirements under this Policy Document and ensure that proper policies, systems and processes are in place to implement such requirements. S 8.4 Senior management shall ensure the effective implementation of disclosure requirements in this Policy Document in line with principles of fair treatment of financial consumers, including ensuring that adequate resources are allocated to effectively implement the requirements. S 8.5 Senior management shall ensure that proper processes are in place for the development and review of product disclosure materials to ensure compliance with the requirements under this Policy Document. Senior management must ensure that the business function responsible for developing the product disclosure materials seeks inputs from other business functions3 to ensure that key features and terms of the financial products are communicated in a manner that financial consumers are able to understand. S 8.6 Senior management shall ensure that the FSP’s staff and intermediaries, particularly those involved in the selling or marketing of financial products are adequately trained and have sufficient knowledge of the disclosure requirements related to the financial products. 3 While the responsibility for developing product disclosure materials may reside with the product development unit, it must seek inputs from other business functions such as marketing, sales and customer services. Product Transparency and Disclosure 9 of 83 Issued on: 29 February 2024 TERHAD TERHAD 9 Key disclosure principles S 9.1 A FSP shall give due regard to the information needs of financial consumers by adopting the following disclosure principles- (a) timely; (b) clear and simple; (c) accurate, relevant and sufficient; (d) highlight important information; and (e) consistent and comparable. The principles are aimed at improving the quality of disclosure and facilitate comparison and informed decision-making by financial consumers. The FSP shall disclose product information to financial consumers in a written form, via the FSP’s website or other digital channels. 9.2 Timely disclosure S 9.2.1 Since financial consumers need information at an early stage to assess the suitability of financial products, a FSP shall ensure that the provision of product information to financial consumers is timely and up-to-date, where applicable, to facilitate informed decision-making by financial consumers. S 9.2.2 A FSP shall adequately inform financial consumers about a financial product at each of the three stages of the contractual process: the pre-contractual stage, at the point of entering into a contract and during the term of the contract. G 9.2.3 Individual notification to financial consumers (whether by written notice or via electronic means) is likely to be more effective in achieving the objective of timely disclosure. However, where this is impractical or inappropriate on grounds of disproportionate costs, a FSP may adopt the most cost-effective alternative or one or more of the following means of notification- a) statements sent to financial consumers; b) prominent display of notices at the FSP’s business premises; or c) notices posted on the FSP’s website. S 9.2.4 Notwithstanding paragraph 9.2.3, when disclosing product information via the alternative modes, particularly for information which has a significant impact on financial consumers’ decision-making, a FSP is required to ensure that the means of notification adopted by the FSP allows the relevant information to reach the financial consumers in a timely manner. 9.3 Clear and simple disclosure S 9.3.1 Given that provision of excessive information can be counter-productive and confusing to financial consumers, a FSP must ensure that the disclosure on financial products is made in a manner that is concise and focused to serve its intended purpose. Product Transparency and Disclosure 10 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 9.3.2 A FSP must present product information in a clear and understandable format by employing methods such as using short and direct sentences, active verbs, clear headings, boldface, key words, tables, diagrams and bullet lists, where appropriate, to improve the clarity of the disclosure. S 9.3.3 Given that font size is a key factor in determining whether a disclosure is conspicuous, a FSP shall present key product information that is likely to affect financial consumers’ decisions in an easily readable font size and shall not be in a font size smaller than the rest of the contents. S 9.3.4 A FSP must ensure contracts, agreements and disclosure documents are written in plain language. The FSP shall avoid the use of legal and technical jargon whenever possible. Where a FSP cannot avoid the use of legal and technical terminology, the FSP must explain the meaning of these terminologies in a glossary of technical terms which must also be provided to financial consumers for reference. G 9.3.5 A FSP may consider adopting credible readability tests4 to ensure its contracts, agreements and disclosure documents are written in a manner that is easy for financial consumers to understand. S 9.3.6 For more complex financial products, a FSP must simplify and explain product information to financial consumers in a manner which promotes product understanding by using appropriate examples or illustrations. 9.4 Accurate, relevant and sufficient disclosure S 9.4.1 A FSP shall disclose accurate, relevant and sufficient information to enable financial consumers to make informed decisions on financial products, including but not limited to product features, benefits and risks, fees and charges, as well as key contractual rights and obligations. S 9.4.2 Where precise quantitative information cannot be quoted and an estimated figure is provided at the pre-contractual stage, a FSP shall make it clear to financial consumers that the figure is only an estimate and more accurate information will be provided, when available. S 9.4.3 In ensuring accuracy in disclosure, a FSP must not exaggerate the benefits of financial products. A FSP must ensure that disclosure of product risks shall have equal prominence with information on product benefits. In particular, a FSP must disclose information on investment-related products in an objective and unbiased manner, with prospective financial information only included if there is any reasonable basis for its inclusion and the information is vital for financial consumers to make an informed decision on the financial product. 4 A readability test is an algorithm that scores a text on how easy the text is to understand. The scores are usually based on the number and length of the words and sentences in the text. For example, the Flesch–Kincaid test measures word length and sentence length. The scores range from “very easy to read” to “extremely difficult to read”. The Dall-Chall readability test gauges the comprehension difficulty that readers face when reading a text. Product Transparency and Disclosure 11 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 9.4.4 A FSP shall avoid using hypothetical circumstances or unrealistic assumptions to project future returns which are likely to be misleading. A FSP must ensure that any projected future return is accompanied by a prominent statement indicating that the information is predictive in nature and may be affected by the underlying assumptions. Where a FSP expresses an opinion, the FSP must ensure that such an opinion is supported by a reasonable basis and the FSP shall unambiguously state that it is a statement of opinion. S 9.4.5 A FSP shall ensure that graphs and visual illustrations are designed with care to avoid misleading financial consumers. S 9.4.6 A FSP must ensure that an investment-related product that merely adopts an investment strategy aimed at returning financial consumers’ capital is not represented as a capital-guaranteed product or any other name that connotes a similar meaning. An investment-related product can only be represented as capital-guaranteed by the FSP if the guarantee is explicitly provided for by the FSP or a third party which is a FSP licensed under the laws administered by Bank Negara Malaysia. S 9.4.7 For financial products where the funds are invested in Shariah-approved investment instruments, a FSP is prohibited from using any term for such products or funds that could give rise to the perception that it is an Islamic or Shariah- compliant product. This includes the use of terms such as “Islamic”, “Shariah”, “Shariah-approved” and “Shariah-compliant”, or Arabic terms or references in the descriptions or names of products or funds of financial products. 9.5 Highlight important information S 9.5.1 A FSP is required to draw financial consumers’ attention to key terms and features of a financial product, which includes but is not limited to the following: a) give due prominence to key product information through the enhancement of presentation, including the use of separate headings, key words, bullet points, boldface, tables, diagrams and infographics; b) highlight major terms and conditions applicable to a financial product such as penalties, restrictions, exclusions, consequences of early termination of contract, financial consumers’ rights and obligations; c) display warnings on a financial product, such as the associated risks, where applicable; d) include a warning that information disclosed on past performance of a financial product is not indicative of future performance, wherever such information is shown; and e) disclose the underlying assumptions and any specific circumstance or condition that may affect future performance of a financial product, where necessary. S 9.5.2 Financial consumers shall be referred to the relevant sources or instructions to obtain additional information on a financial product. Product Transparency and Disclosure 12 of 83 Issued on: 29 February 2024 TERHAD TERHAD 9.6 Consistent and comparable disclosure S 9.6.1 A FSP must make the disclosure of product information in a consistent manner to facilitate comparison between similar products offered by the FSP or other FSPs. A FSP shall provide a Product Disclosure Sheet (PDS) to financial consumers to facilitate comparison with similar products offered by the FSP and other FSPs, i.e. product characteristics, risks and benefits, costs and returns. 10 Timing of disclosure G 10.1 The timing of disclosure can influence its effectiveness. Disclosure is effective when product information is given to financial consumers at a time that is most relevant to enable the financial consumers to make informed decisions at each of the three stages of the contractual process i.e. the pre-contractual stage, at the point of entering into a contract and during the term of the contract. 10.2 Pre-contractual disclosure G 10.2.1 Financial consumers need information at an early stage in the buying process, particularly before they apply for a specific financial product. S 10.2.2 At the pre-contractual stage, a FSP must make sufficient disclosure on a financial product to ensure financial consumers can gain a basic understanding of the financial product’s features, benefits, risks, charges, rights and obligations before making a choice. Key features and costs of the financial product shall be made clear and prominently displayed by the FSP. S 10.2.3 Information that shall be disclosed by a FSP to financial consumers includes but is not limited to- a) key features of the financial product; b) significant risks associated with the financial product; c) benefits to which financial consumers will or may become entitled to, the circumstances in which and times at which those benefits will or may be provided; d) fees and charges that may be imposed; and e) salient terms and conditions that affect financial consumers’ rights and obligations. S 10.2.4 Pre-contractual disclosure, including the PDS, shall be made available on a dedicated page on a FSP’s website or other digital channel used to distribute the FSP’s financial products. G 10.2.5 A FSP may wish to include the following statement to provide prominence on the intent of pre-contractual disclosure: “This page is specially designed to help you better understand the financial product or service you are about to purchase. You are advised to read and understand the information provided.” Product Transparency and Disclosure 13 of 83 Issued on: 29 February 2024 TERHAD TERHAD 10.3 Disclosure at the point of entering into a contract G 10.3.1 “At the point of entering into a contract” refers to the initial stage of financial consumers accepting a financial product offer made by a FSP. S 10.3.2 Product information shall be provided in a timely manner before financial consumers enter into a contract with a FSP. This is particularly important in a digital environment whereby financial consumers tend to proceed swiftly through an application or purchase process. S 10.3.3 A FSP shall highlight to financial consumers the key contractual terms and conditions before concluding the sale or securing the contract. Information that shall be disclosed at this stage includes but is not limited to: a) rights and obligations of the financial consumer and the FSP; b) fees and charges that will be payable by the financial consumer after the acquisition, and when those amounts will be payable; c) cooling-off rights including its duration, if applicable; d) key exclusions, conditions and limits, if applicable; e) liability for loss, if applicable; and f) contact details of the FSP and channels for feedback, enquiry or complaint. S 10.3.4 A FSP shall advise financial consumers to read the PDS and contract, understand the key contractual terms and seek clarification from the FSP should they face any difficulties in understanding any of the contractual terms, prior to entering into the contract. S 10.3.5 If financial consumers are required to acknowledge that they have read and understood the terms and conditions disclosed by ticking a box or signing on the PDS, a FSP shall not use such acknowledgement as its sole defence in the event of a dispute5 between the FSP and the financial consumer. S 10.3.6 A FSP is prohibited from using pre-ticked boxes in a product application form through which financial consumers are, by default, being opted into buying a product or any additional product without their explicit consent. 10.4 Disclosure during the term of the contract S 10.4.1 Where applicable, a FSP shall adopt continuous disclosure during the term of a financial product contract through the following methods: (a) Notice of changes: Any change, including but not limited to the terms and conditions, features of products and financial consumers’ rights and obligations shall be communicated by a FSP to financial consumers via adequate notices before the changes are introduced. The mode of notification may be in writing via mail or digital means or displayed at the FSP’s business premises and website. 5 “Dispute” in this context refers to any dispute involving the terms and conditions disclosed in the PDS. Product Transparency and Disclosure 14 of 83 Issued on: 29 February 2024 TERHAD TERHAD (b) Disclosure on statements: Statements, which include electronic statements, issued at regular intervals for financial products are necessary to communicate important information to financial consumers during the term of the contract. Periodic statements shall be given by a FSP as soon as practicable without any charge to financial consumers. However, for financial products for which periodic statements are issued only upon request, the FSP shall ensure that financial consumers have timely access to the information through other channels without undue cost. (c) Disclosure following a specific request: A FSP shall provide relevant and accurate information as and when requested by financial consumers during the term of the contract. Where a fee may be levied on financial consumers, the FSP shall inform them of the charges and the basis for such charges at the time the financial consumers request for the information. 11 Digital disclosure G 11.1 Financial consumers’ poor engagement with product disclosure is more pronounced in a digital environment due to peculiarities such as smaller screen size and information overload. The speed and ease of proceeding from the selection process to securing the purchase when transacting digitally can also contribute to financial consumers ignoring important pre-contractual disclosure or impede meaningful consideration of product information in their decision- making. The absence of human interaction in the decision-making process heightens the likelihood of financial consumers purchasing a financial product without fully understanding the risks and obligations associated with the product. It is therefore crucial for FSPs to promote effective consumer engagement by enhancing the presentation of product disclosures provided in a digital environment. S 11.2 With the growing use of digital channels to offer financial products, a FSP shall ensure that product disclosure is compatible with the digital channel used, whilst ensuring compliance with other disclosure requirements in this Policy Document, particularly the requirements specified under paragraphs 9 and 10. S 11.3 A FSP must ensure that product information disclosed to financial consumers through digital channels is easily accessible, clear and conspicuous to promote consumer engagement and understanding of key product information to facilitate informed decision-making by financial consumers. S 11.4 A FSP must disclose product information in a manner that enables financial consumers to print or save a copy of the product information for future reference. G 11.5 A good practice to implement paragraph 11.4 is to prominently display the download button to draw financial consumers’ attention on the available option to save a digital copy. Product Transparency and Disclosure 15 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 11.6 A FSP must include critical product information in the PDS which shall be displayed prominently on the digital channel to draw financial consumers’ attention to such information. A FSP shall not include any promotional information within the same page to avoid diverting financial consumers’ attention away from the PDS. S 11.7 A FSP shall ensure that the product information provided on its digital channels are accurate and up to date at the point of disclosure so that financial consumers are able to use such information for making informed decisions. S 11.8 A FSP shall ensure that financial consumers cannot proceed to the next stage of the contractual process unless they confirm that they have read the entire PDS. When scrolling is necessary, the FSP shall use appropriate techniques to encourage financial consumers to scroll to view the disclosure. G 11.9 Good practices to implement paragraph 11.8 include using clearly displayed text prompts or visual cues at different parts of the page to convey the importance of reading the PDS and to encourage financial consumers to scroll further to read the PDS. S 11.10 During the contract term, a FSP shall notify the affected financial consumers of important disclosures on its website or other digital channels in a timely manner using instant communication modes such as SMS or push notification, with details on how to access the disclosure. Notwithstanding this, the FSP shall not use hyperlinks in a SMS to direct financial consumers to the disclosure on its website or other digital channels to prevent the risk of financial scams. S 11.11 When designing product disclosure materials for a digital channel, a FSP shall pay particular attention to the font size, colour and graphics used to disclose key product information. This is to ensure that these elements enhance the readability and prominence of the product information in relation to other contents displayed on the screen. A FSP must ensure that the disclosure does not include features that draw financial consumers’ attention away from the key product information. G 11.12 The use of more interactive and engaging methods to improve how key product information is presented would entice financial consumers to read and understand such information. A FSP is encouraged to- a) add a “reading time” cue (e.g. it takes less than five minutes to read the PDS); b) use interactive tools to help financial consumers understand complex information; and c) incorporate digital tools such as a loan calculator. G 11.13 Good practices to enhance readership and improve understanding include incorporating video or audio to explain complex information, FAQs, pop-up warnings on major product risks and quizzes to assist financial consumers in understanding key terms. Product Transparency and Disclosure 16 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 11.14 When access to relevant product information is provided through a hyperlink on a FSP’s digital channels, the FSP shall make it clear that financial consumers will not be asked to provide their personal details online in order to access the product information. This is to mitigate against the risk of phishing and financial scams. The FSP shall also ensure that the hyperlink is- a) prominent and easy to navigate; b) labelled appropriately to convey the relevance of information it leads to; and c) programmed to lead financial consumers directly to the relevant information on the click-through page. S 11.15 A FSP shall ensure that financial consumers are adequately assisted in their interactions with the FSP in the digital environment by making available a hotline, live chat, chatbot or other interactive tools that are proportionate to the complexity of the financial product offered. S 11.16 For financial products offered via a digital channel, a FSP shall clearly inform financial consumers at the point of entering into a contract that they will only receive the product disclosure in a digital form6. S 11.17 In relation to financial products offered through non-digital channels, prior to implementing disclosure through only digital means7, a FSP shall notify financial consumers that disclosure will be made in digital form moving forward and enquire if such change in the form of disclosure is acceptable to the affected financial consumers. The FSP shall- a) give prior written notice of at least seven (7) calendar days to financial consumers before the change takes effect; b) in the written notice, provide an option for financial consumers to “opt out” and continue with the existing communication mode; and c) clearly disclose the relevant fees in the event the financial consumers request for a physical copy of the information. S 11.18 A FSP shall ensure that in making a disclosure via a digital channel, it does not expose financial consumers to heightened security risks, such as phishing, scam, and identity theft. S 11.19 A FSP shall ensure that any personal information including financial information communicated to financial consumers via a digital channel is adequately protected, such as by using password protection or encryption. S 11.20 A FSP shall ensure that its website and other digital channels used to deliver product information are accessible to all financial consumers, including vulnerable consumers with visual impairments. 6 For the avoidance of doubt, for financial products offered via a digital channel, a FSP is not required to provide a physical copy of the product disclosure. 7 Paragraph 11.17 is applicable when a FSP decides to change the way in which disclosure is communicated to existing customers, i.e. from physical copy to disclosure via digital means only. For example, the FSP will only send soft copy of account statements to the customers. Product Transparency and Disclosure 17 of 83 Issued on: 29 February 2024 TERHAD TERHAD G 11.21 A FSP is encouraged to adopt internationally recognised web accessibility best practice standards such as the World Wide Web Consortium’s (“W3C”) Web Content Accessibility Guidelines when developing their websites. 12 Disclosure of customer information S 12.1 A FSP intending to disclose customer information (excluding information relating to the account of a customer) with other entities within the financial group or third parties, such as strategic alliances for marketing and promotional purposes, shall obtain the prior written consent of financial consumers expressly authorising such disclosure. S 12.2 For purposes of paragraph 12.1 and in line with the Policy Document on Management of Customer Information, a FSP that is seeking financial consumers’ consent to disclose their information to another person for marketing and promotional purposes shall comply with the following conditions- a) Specific - The FSP shall ensure that the terms providing financial consumers’ consents are clear, concise, and written in plain language. The relevant terms shall be specific in relation to the following: i. to whom the disclosure will be made8; ii. the purpose of such disclosure; and iii. the information that will be disclosed; b) Voluntary9 - The FSP shall not, as a condition of providing a financial product, compel or coerce financial consumers to give their consent for the FSP to disclose their information for marketing and promotional purposes; c) Explicit and deliberate - Financial consumers must explicitly opt in or deliberately agree10 for the disclosure of their information by the FSP. The FSP is prohibited from obtaining consent using pre-ticked 11 consent statement; and d) Revocable upon request - Financial consumers shall be allowed to withdraw their consent given for the disclosure of their information for marketing and 8 It would be sufficient for a FSP to indicate broadly to whom the customer information will be shared for the marketing and promotion of financial products. E.g. another entity within the financial group or business partners. 9 Consent is not considered as “voluntary” if the consent was secured using a pre-ticked box which requires financial consumers to opt-out of such arrangement. 10For example, signing a consent form, ticking an opt-in box on paper or electronically, or clicking an opt-in button online. 11A pre-ticked consent box in an application form does not meet the requirement of “explicit and deliberate” consent by a financial consumer as there is no way to establish that the financial consumer had consented to the pre-ticked box and the applicable term. Question 2 What challenges do you anticipate your FSP may face in implementing the new requirements on digital disclosure? Please elaborate on the specific challenges and supplement your feedback with relevant rationale and data, if available. Product Transparency and Disclosure 18 of 83 Issued on: 29 February 2024 TERHAD TERHAD promotional purposes at any time. Financial consumers shall be informed of their rights to withdraw their consent and the means to affect such withdrawal of consent. The process for withdrawing the consent must be as straightforward as it was to obtain the consent, for example via online platforms. The FSP shall cease the disclosure of customer information for marketing and promotional purposes as soon as practicable after the withdrawal of the consent by the financial consumers. A reasonable time frame would be not more than seven (7) calendar days from the day the FSP receives the notification on withdrawal of consent. S 12.3 In relation to paragraph 12.2, a FSP shall allow existing financial consumers to withdraw the consents obtained from them for the disclosure of their information for marketing and promotional purposes, which were given to the FSP prior to the effective date of this Policy Document and the requirement under paragraph 12.2(d) shall apply accordingly. S 12.4 From the effective date of this Policy Document, paragraphs 12.1 and 12.2 shall apply to all new financial consumers as well as existing financial consumers when they renew their contracts. 13 Disclosure for advertisements S 13.1 A FSP shall formulate and implement adequate and effective internal systems, processes and procedures to ensure that all advertising materials relating to its financial products comply with the requirements in this Policy Document as well as applicable laws, rules, guidelines and codes of practice in order to protect financial consumers from misleading advertisements and their adverse consequences. In the event of any conflicts, the existing provisions of laws, rules, guidelines and codes of practice imposing a higher standard of conduct shall be applied by the FSP. 13.2 Advertisements shall be clear and not misleading S 13.2.1 The name of the FSP publishing the advertisement shall be clearly displayed in all advertisements. A FSP shall ensure that its intermediaries only use advertisements that are approved by the FSP. Such advertisements shall contain the intermediary’s registered name and the FSP that the intermediary is representing. S 13.2.2 A FSP must ensure that any advertisements are published in a manner that enables financial consumers to immediately identify it as a promotional material. S 13.2.3 A FSP must ensure that any information disclosed in any advertisement or promotional material in any media is presented in a manner that is clear and easily understood by financial consumers. Product Transparency and Disclosure 19 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 13.2.4 A FSP must ensure that an advertisement by the FSP is not misleading, i.e. its presentation deceives or is likely to deceive the person to whom it reaches. G 13.2.5 Misleading advertisements include, but are not limited to, those containing a false statement of fact, those which conceal important facts or create a false impression, or those that emphasise the benefits without indicating the risks involved. S 13.2.6 A FSP shall not describe a financial product as “free” or “at no cost” in an advertisement if any charges or conditions may be imposed during the term of the contract. S 13.2.7 A FSP shall not describe a promotional gift as “free” in an advertisement if additional costs will be charged to financial consumers, or there will be conditions attached to the promotional gift. A FSP shall provide financial consumers with sufficient information about any cost or conditions to be eligible for the promotional gift. S 13.2.8 A FSP shall highlight important product information in its advertisements. For print media advertisement, a FSP must use legible fonts to bring financial consumers’ attention to important information, such as pricing and charges. S 13.2.9 A FSP shall consider the perspective of financial consumers when determining which key product information to provide prominence on, in particular, the placement and presentation of such information in terms of font size, colour and other design elements. The FSP shall ensure that the contrast between the colour of text on important product information and the background of an advertisement does not make it hard to read or less likely to be noticed by financial consumers. S 13.2.10 Where a FSP uses footnotes in its advertisements, the font size shall be proportionate to the rest of the text to be easily readable. 13.3 Advertisements shall disclose accurate and relevant information S 13.3.1 A FSP must ensure that information relevant to financial consumers, such as product features, risks, costs and benefits which are included in the FSP’s advertisements is accurate. Where rates are given in promotional materials, a FSP shall disclose the effective lending rate or effective deposit rate, where applicable, to facilitate comparison by financial consumers. S 13.3.2 A FSP must ensure that its advertisements do not seek to influence financial consumers’ understanding of the advertised financial product through the use of inaccurate or ambiguous explanations or material omissions. S 13.3.3 The benefits of a financial product shall not be exaggerated. A FSP must ensure that any benefit, such as projected future returns, is accompanied by unambiguous statements indicating that the information is predictive in nature and may be affected by the underlying assumptions. Product Transparency and Disclosure 20 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 13.3.4 A FSP must ensure that an advertisement does not focus only on the benefits without providing a balanced view of the risks associated with a financial product. A FSP shall ensure that statements on risks are prominently disclosed, contain sufficient details and risks are not disguised. The FSP must determine the level of details required to be included in the risk description depending on the form of the advertisement materials and the complexity of the risks. S 13.3.5 A FSP shall not claim in an advertisement its intention to offer a financial product at a promotional price when in fact the FSP does not intend to supply such financial product at that specified price. S 13.3.6 In an advertisement notifying financial consumers of a new promotion, a FSP shall clearly disclose to them the duration of the promotional period and the terms and conditions which apply to that particular promotion. S 13.3.7 If an advertisement is short or general in its content, a FSP shall inform financial consumers of the availability and how to access additional explanatory material on the financial product. All relevant information shall be made available by the FSP upon request by financial consumers. S 13.3.8 A FSP shall display appropriate warnings, such as the risks associated with a financial product, as a boxed warning statement, where applicable. The FSP must ensure that the warning statement is in a font size proportionate to the rest of the text and highlighted in bold print. For audio advertisement with no visual display, the FSP must ensure that such warning statement is clearly announced at the end of each broadcast. S 13.3.9 A FSP must ensure that any risk or warnings published in an advertisement shall not be obscured or disguised in any way by the design of the advertisement. S 13.3.10 A FSP shall ensure that any disclaimer is not hidden or difficult for financial consumers to read and understand. 13.4 Illustration of past and future performance S 13.4.1 A FSP shall assess if there is a reasonable basis for including future performance information in an advertisement and whether such information is likely to mislead financial consumers. The FSP shall not include future performance information that is supported only by hypothetical or unrealistic assumptions or based solely on an opinion. S 13.4.2 In advertising a financial product, a FSP shall: (a) not advertise a financial product in a manner that may give rise to undue expectations by financial consumers based on the projected returns of the financial product; (b) prominently state that the projected returns are for illustrative purposes only and are not indicative or to be construed as the likely returns; (c) ensure that any statement or forecast does not mislead financial consumers at the time it is made and clearly state any assumption used; and Product Transparency and Disclosure 21 of 83 Issued on: 29 February 2024 TERHAD TERHAD (d) not market an investment-related financial product solely based on the projected returns of the financial product. S 13.4.3 When presenting the past performance of a financial product, a FSP shall: (a) use the actual, accurate and up-to-date returns of the most recent 5 preceding years (or the available period, if less than 5 years); (b) ensure that such information is accompanied by a prominent statement to warn financial consumers that past performance is not indicative of future performance; and (c) clearly state the source of data and period used in the illustration. 13.5 Requirements on digital advertisements S 13.5.1 A FSP must comply with the requirements under paragraphs 13.2 to 13.4 in respect of digital advertising and marketing of financial products. S 13.5.2 When advertising financial products through a digital channel, a FSP shall ensure that the digital advertisements are easily identifiable as promotional materials. S 13.5.3 A FSP shall ensure that important product information is presented in a clear and conspicuous manner, regardless of the type of advertisements or digital channels on which they are displayed. If the product information is too small to be read on a mobile device and the text cannot be enlarged, the FSP shall avoid using such channels for its digital advertisements. 14 Language requirement S 14.1 A FSP shall prioritise the use of Bahasa Malaysia in disclosing product information to financial consumers. In this regard, the FSP shall ensure that all forms and pamphlets are available in Bahasa Malaysia. S 14.2 A FSP shall make available all product forms and the PDS in languages, including Bahasa Malaysia, that meet the needs of its customer segments. G 14.3 For comprehensive and lengthy documents such as contracts, agreements, insurance policies and takaful certificates, such documents may be made available in a single language (either Bahasa Malaysia or English). Question 3 What challenges do you anticipate your FSP may face in implementing the new requirements on digital advertisement? Please elaborate on the specific challenges and supplement your feedback with relevant rationale. Product Transparency and Disclosure 22 of 83 Issued on: 29 February 2024 TERHAD TERHAD G 14.4 It is important for financial consumers to understand the relevant forms or the terms and conditions of the contract/agreement and to sign in a language that the consumers can understand. S 14.5 If a financial consumer requests for the Bahasa Malaysia version of the relevant form or contract/agreement, a FSP must allow the financial consumer to complete the relevant form and sign the contract/agreement in Bahasa Malaysia. 15 Product specific disclosure requirements S 15.1 Financial consumers require different information for different financial products at each of the three stages of the contractual process12 to facilitate their informed decision-making. A FSP is required to adhere to product specific disclosure requirements contained in the Schedules apart from complying with general policy requirements under Part B. S 15.2 A FSP offering financial products with a combination of different features shall observe the respective product specific disclosure requirements set out in the Schedules. S 15.3 A FSP offering Islamic financial products is required to ensure compliance with Shariah requirements at all times. S 15.4 The disclosure requirements for insurance and takaful products specified in this Policy Document are applicable to the following types of plans- a) individual plans; b) group plans whereby the group master policy owner/takaful participant has no insurable interest/permissible takaful interest; and c) group plans involving credit-related products. For group plans under paragraphs 15.4(b) and 15.4(c), the disclosure must be made to all the individuals covered under such group plans. S 15.5 For group plans other than those mentioned under paragraphs 15.4(b) and 15.4(c), the disclosure must be made to the group master policy owner/takaful participant. 16 Product Disclosure Sheet (PDS) S 16.1 A FSP shall provide a PDS (following the order and sequence of items as specified in the format provided in the Schedules) for financial consumers to make product comparisons and informed decisions. G 16.2 For the avoidance of doubt, a FSP may use appropriate infographics, illustrations or colours to draw the attention of financial consumers to important terms in the PDS. 12 Refers to pre-contractual stage, at the point of entering into a contract and during the term of the contract. Product Transparency and Disclosure 23 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 16.3 A FSP shall keep the PDS to only two A4 pages and ensure that the information is presented in an easily readable font size. S 16.4 A FSP shall use active verbs and short sentences of not more than twenty words13 per sentence to make the PDS easy to read and understand. S 16.5 A FSP shall ensure the PDS is clearly distinguishable from other marketing materials to enable financial consumers to refer to the PDS for comparison and decision-making. S 16.6 A FSP shall put in place adequate measures to ensure financial consumers read and understand the PDS prior to entering into a contract. The extent to which the FSP implement the measures shall commensurate with the complexity of the financial product (i.e. adopting a risk-based approach). For example, the level of measures that must be put in place by FSPs to ensure that the financial consumers read and understand the PDS for more complex financial products would be higher as compared to less complex financial products. G 16.7 To comply with paragraph 16.6, a FSP may consider introducing measures such as requiring financial consumers to complete a quiz after the consumers have read the PDS to test their understanding of the key information disclosed in the PDS, or making calls to financial consumers to verify that they are aware of all the critical terms and conditions of the product purchased by the consumers. S 16.8 A FSP must provide a copy of the PDS to financial consumers: (a) before the financial consumers purchase a financial product; (b) at the point of entering into a contract, if there is a material change in the information; and (c) at the product renewal stage, if there is a material change in the information. S 16.9 In the event it is not practical to provide the PDS at the pre-contractual stage, particularly for telemarketing transactions, a FSP must send a copy of the PDS to financial consumers at the point of entering the contract together with the agreement, contract, insurance policy or takaful certificate, as the case may be. S 16.10 A FSP that distributes its financial products through intermediaries, including through a digital channel, shall customise the information contained in the PDS according to the distribution channel. The FSP shall also disclose specific charges to be borne by financial consumers for securing the sale through its intermediaries, such as the platform, processing or administrative fees. S 16.11 For financial products that are not set out in the Schedules, a FSP must also provide a PDS on such financial products based on a similar format in the Schedules. S 16.12 A FSP offering an Islamic financial product must clearly explain to financial consumers on the applicable Shariah contract, including the key terms and conditions if the Shariah contract in use differs from that illustrated in the standard PDS format provided in the Policy Document. 13 Keeping sentences short will make product disclosure easier to read. Most experts agree that clear writing should have an average sentence length of 15 to 20 words. Product Transparency and Disclosure 24 of 83 Issued on: 29 February 2024 TERHAD TERHAD G 16.13 The Bank reserves the right to require a FSP to make appropriate amendments to a PDS if information contained in the PDS is found to be inaccurate, incomplete or misleading. S 16.14 A FSP must immediately make appropriate amendments to the information contained in the PDS upon being informed by the Bank in writing that the PDS is inaccurate or misleading. 17 Compliance S 17.1 A FSP shall ensure that its intermediaries comply with the requirements under this Policy Document and take appropriate action against any intermediary who fails to make the necessary product disclosure, including to provide the PDS to financial consumers. However, the FSP remains fully accountable for such failure by its intermediaries. S 17.2 A FSP shall ensure an independent function, such as its internal audit or compliance, assesses the FSP’s compliance with the requirements in this Policy Document at least once in every two years. S 17.3 A FSP must ensure that any non-compliance with the requirements in this Policy Document is properly documented by the FSP. Upon completion of the review, a FSP shall report material non-compliances and the remedial actions to address the relevant non-compliances to the Board. S 17.4 Senior management shall ensure that timely and appropriate actions are taken by the FSP to rectify any deficiencies detected in the implementation of the requirements in this Policy Document. Question 4 Do you foresee any practical challenges in implementing the requirements on PDS? Please elaborate on the specific challenges including details on any material changes to processes to meet the requirements. Please provide suggestions for a more effective and interactive PDS format that would enhance consumer engagement and understanding. Question 5 Do you foresee any practical challenges in implementing the requirements for this section? Please elaborate on the specific challenges including details on any material changes to processes to meet the requirements. Product Transparency and Disclosure 25 of 83 Issued on: 29 February 2024 TERHAD TERHAD SCHEDULE I: BANKING PRODUCTS 1. Loan/Financing Products14 1.1 Pre-contractual stage S 1.1.1 Interest rate/profit charges a. A FSP shall inform financial consumers of the expected interest/profit rate that will be imposed on the loan/financing facility and whether it is on a fixed rate, variable rate or a combination of fixed and variable rate basis; b. A FSP shall disclose the effective interest/profit rate and total repayment/payment amount, including in advertisements and in any promotional materials when interest/profit rate is published, to facilitate comparison by financial consumers; c. For Islamic financing products, the effective profit rate of a variable rate sale-based financing product refers to the profit rate that financial consumers will effectively pay for the financing, based on the existing reference rate; d. A FSP shall disclose how interest/profit on the loan/financing facility will be calculated, whether on a daily or monthly rest basis; and e. For variable rate loans/financing, a FSP shall inform financial consumers of the circumstances under which the interest/profit rate may increase and the effect of a rate increase. For example, whether it would result in an increase in the instalment amount or the loan/financing tenure. S 1.1.2 On margin of financing, a FSP shall disclose the amount of loan/financing the FSP is able to grant (expressed as a percentage of the value of asset, where applicable) to financial consumers. S 1.1.3 On tenure, a FSP shall inform financial consumers of the duration of a loan/financing facility. S 1.1.4 On collateral, a FSP shall disclose to financial consumers whether a collateral is required for a loan/financing facility. S 1.1.5 Fees and charges a. A FSP shall inform financial consumers of all fees and charges that are applicable to a loan/financing facility; and b. A FSP shall clearly disclose the fee for each item, the basis for such fee, when the fee is payable and factors that affect the level of imposition of the fee, if any. S 1.1.6 Panel lawyers a. A FSP may provide financial consumers with a list of its panel lawyers; b. A FSP shall inform the financial consumers that they are not obliged to utilise the FSP’s panel lawyers; 14 Insurers and takaful operators offering loan/financing products to financial consumers must also comply with these disclosure requirements. Product Transparency and Disclosure 26 of 83 Issued on: 29 February 2024 TERHAD TERHAD c. A FSP shall not pressure or coerce financial consumers to use its panel lawyers; and d. A FSP must ensure that the use of non-panel lawyers by financial consumers will not affect the loan/financing approval. S 1.1.7 Insurance/takaful a. A FSP shall indicate any insurance/takaful requirement and the coverage required as a condition of a loan/financing facility, for example, mortgage reducing term assurance (MRTA), mortgage reducing term takaful (MRTT) or mortgage level term takaful (MLTT); b. A FSP may provide quotations to financial consumers on any compulsory insurance/takaful coverage offered by the FSP’s panel of insurers/takaful operators; c. A FSP shall inform the consumers that they are not obliged to purchase any insurance/takaful coverage from the FSP’s panel of insurers/takaful operators; d. A FSP shall not purchase any policy/takaful certificate on behalf of financial consumers from the FSP’s panel of insurers/takaful operators without the expressed written consent of the financial consumers; and e. For Islamic financing products, a FSP shall inform financial consumers that the FSP can only finance the cost of MRTT/MLTT but not the cost of the MRTA. S 1.1.8 On guarantor, a FSP shall indicate to financial consumers of any requirement for a guarantor and inform the guarantor of his rights and obligations as a guarantor. S 1.1.9 Disclosure by FSP’s representatives and agents a. A FSP’s sales and marketing representatives and agents when contacting financial consumers must clearly identify the FSP it is representing; and b. The FSP’s representatives and agents must explain the key terms, benefits and risks of the product or service being offered to financial consumers. S 1.1.10 Shariah concepts: For Islamic financing products, a FSP shall inform financial consumers of the Shariah concepts applicable to the financing facility. For example, financing facility under a Murabahah concept is a method of sale with a marked-up price where financial consumers pay a price over an agreed period of time. For equity-based financing, the FSP is required to disclose the profit and loss-sharing ratio to financial consumers. 1.2 At the point of entering into a contract S 1.2.1 Amount and terms of loan/financing a. A FSP shall inform financial consumers of the loan/financing amount, the applicable terms and total repayment amount at the end of the tenure, including the total amount of interest/profit charges on an approved loan/financing facility; b. For Islamic financing products, a FSP shall also disclose the financing amount that includes the selling price or total rental, whichever is applicable; c. In disclosing the total repayment/instalments amount and the total interest/profit charges for a variable rate loan/financing facility, a FSP shall Product Transparency and Disclosure 27 of 83 Issued on: 29 February 2024 TERHAD TERHAD inform financial consumers that such information is accurate only if the interest/profit rate remains unchanged; and d. A FSP shall inform financial consumers of the timing when interest/profit charges will be debited into the loan/financing account. S 1.2.2 Repayment/payment schedule15 a. A FSP shall provide financial consumers with a repayment/payment schedule containing the date of the first instalment, the number of instalments to be paid, the frequency of payment and the amount to be paid for each instalment; b. For a variable rate loan/financing, a FSP shall inform financial consumers that the repayment/payment schedule is based on the interest/profit rate that was in effect at the time the loan/financing agreement is signed; and c. A FSP shall highlight to financial consumers that the actual payments will be higher than the amount shown in the schedule if the interest/profit rate increases during the tenure of the loan/financing facility. S 1.2.3 Late payment/compensation charges15 a. A FSP shall disclose to financial consumers when late payment/compensation charges will be imposed on them and the rate of late payment/compensation charges to be imposed; and b. A FSP shall also disclose the manner in which the late payment/compensation charges will be computed. S 1.2.4 Lock-in period and early settlement15 a. A FSP shall clearly inform financial consumers of any applicable lock-in period; b. A FSP shall disclose any early settlement charges payable by financial consumers if a loan/financing facility is terminated before the end of the lock-in period, the method for calculation of such charges and when they are due; c. If a rebate for early settlement is applicable, a FSP shall inform financial consumers of the rebate entitlement and the method for calculating such rebate; and d. A FSP must inform financial consumers of any rebate for MRTA/MRTT, if applicable. S 1.2.5 Pre-payment/Overpayment15 a. A FSP shall inform financial consumers on whether pre-payment or overpayment of the monthly instalment is allowed and the impact on the calculation of interest/profit charges; b. The FSP shall alert financial consumers of the amount of any pre-payment or overpayment penalty/charge that may be imposed; and c. The FSP shall inform financial consumers of the process for making such payments. 15 The FSP must observe any relevant requirements in the Guidelines on Ibra’(Rebate) for Sale-Based Financing and Guidelines on Late Payment Charges for Islamic Banking Institutions. Product Transparency and Disclosure 28 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 1.2.6 Right to set-off a. A FSP shall inform financial consumers of the FSP’s right to set-off any credit balance in the financial consumers’ accounts against any debit balance in other accounts maintained with the FSP; and b. The FSP shall disclose the circumstances in which the FSP will exercise its right to set off the consumers’ accounts. S 1.2.7 A FSP shall inform financial consumers of its right to outsource debt collection to a third-party debt collection agency and to sell impaired loan/financing to a third party. S 1.2.8 A FSP shall highlight to financial consumers the implications on the loan/financing facility in the event of the death of the borrower or joint borrower during the tenure of the loan/financing facility. S 1.2.9 Default a. A FSP shall inform financial consumers of the possible actions that may be taken by the FSP in the event of default by the financial consumers; and b. For Islamic financing products, a FSP shall clearly explain the default mechanism based on the different Shariah concepts applicable to the financing facility. Relevant illustrations shall be provided by the FSP to ease financial consumers’ understanding of the default mechanism. S 1.2.10 A FSP shall inform financial consumers of the importance of notifying the FSP of any change in the financial consumers’ contact details. 1.3 During the term of the contract S 1.3.1 Loan/financing statement a. A FSP shall provide a loan/financing statement to financial consumers at least once a year. The statement shall indicate the outstanding balance at the beginning and end of the period covered by the statement, the amount credited and charged and the dates when those amounts were posted to the account; and b. A FSP shall deliver the loan/financing statement to financial consumers via mail, unless they request for electronic statements. The FSP shall also inform financial consumers on any alternative means of obtaining the loan/financing statement. S 1.3.2 Change in interest/profit rate a. A FSP shall inform financial consumers of any change in the interest/profit rate of a loan/financing facility at least seven (7) calendar days prior to the date the revised instalment amount comes into effect; b. A FSP shall provide financial consumers with particulars of the revised instalment or rental payable; and c. A FSP shall ensure that the mode of notification allows the information to reach financial consumers in a timely manner in order for the consumers to make repayment/payment on time. Product Transparency and Disclosure 29 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 1.3.3 Change to terms and conditions a. A FSP shall inform financial consumers at least twenty-one (21) calendar days prior to the effective date of implementation of the revised terms and conditions of the loan/financing facility, including fees and charges; and b. Communication with financial consumers shall be done in writing or electronically. S 1.3.4 Intention to set-off a. If a FSP has the right to set-off any credit balance in financial consumers’ accounts against any outstanding balance in the loan/financing accounts, the financial consumers shall be informed at least seven (7) calendar days in advance on the FSP’s intention to set-off a credit balance in the financial consumers’ accounts against a debit balance in the loan/financing accounts; and b. The FSP shall only earmark the available funds in the financial consumers’ accounts against the outstanding balance in the loan/financing accounts upon the issuance of the notice to the financial consumers. S 1.3.5 Delinquent accounts a. A FSP shall ensure that delinquent financial consumers are given sufficient reminders on the amount outstanding and interest/profit charges incurred on the delinquent accounts. The FSP shall warn financial consumers of possible actions that the FSP may take if reminders to keep up with the repayment of amount outstanding and interest/profit charges incurred are ignored; b. A FSP shall inform financial consumers at least seven (7) calendar days in advance if the collection of the outstanding amount and interest/profit charges incurred for a delinquent account is to be outsourced to a third party debt collection agency. This notification time frame also applies to consumers whose delinquent accounts have been classified as impaired loan/financing and sold to a third party. In this regard, a FSP shall notify the affected financial consumers within seven (7) calendar days of obtaining a vesting order from the Court; c. In the notice to financial consumers, a FSP shall inform them of the impact on their rights and obligations after the debt collection has been outsourced to a third party debt collection agency or the impaired loan/financing has been sold to a third party. A FSP must also send a copy of the notice to the guarantor, if applicable; d. Under specific circumstances where financial consumers are not contactable, a FSP is considered to have fulfilled its obligation if such notice has been sent to the last known address of financial consumers at least seven (7) calendar days in advance before the outsourcing of the debt collection or the sale of the impaired loan/financing; e. A FSP shall provide financial consumers with the name and contact details of the appointed third-party debt collection agency or the third party to whom the impaired loan/financing has been sold; and f. A FSP shall inform financial consumers of the services of Agensi Kaunseling Dan Pengurusan Kredit (AKPK) by incorporating the following note in all reminders sent to financial consumers in a legible font size: Product Transparency and Disclosure 30 of 83 Issued on: 29 February 2024 TERHAD TERHAD English version “Agensi Kaunseling Dan Pengurusan Kredit has been established by Bank Negara Malaysia to provide free services on money management, credit counselling, financial education and debt restructuring for individuals.” Bahasa Malaysia version “Agensi Kaunseling Dan Pengurusan Kredit telah ditubuhkan oleh Bank Negara Malaysia untuk menyediakan perkhidmatan pengurusan kewangan, kaunseling kredit, pendidikan kewangan dan penstrukturan semula pinjaman secara percuma kepada individu.” 2. Loan/Financing Products - Disclosure to social guarantor S 2.1 A FSP shall observe the disclosure requirements under this section when accepting a guarantee from a social guarantor as security for a loan/financing product. G 2.2 The requirements under this part are not applicable to a loan/financing product granted to: a) an individual for business use; and b) an individual whose spouse is the guarantor of the loan/financing product. 2.3 Pre-signing stage S 2.3.1 Prior to the signing of a guarantee by a social guarantor, a FSP shall ensure that- a) the financial consumer discloses in writing to the social guarantor, all credit facilities granted to the financial consumer by any other FSP and all guarantees given by the financial consumer personally, for which the consumer is personally liable. The FSP must obtain a copy of the disclosure letter from the financial consumer for its record; b) the financial consumer provides a written permission to the FSP for the FSP to disclose to the social guarantor all correspondence between the FSP and the financial consumer during the loan/financing tenure; c) the social guarantor is informed in writing by the FSP of his/her rights and obligations in respect of the loan/financing applied by the financial consumer; and d) the social guarantor confirms in writing his/her receipt of the disclosure and his/her willingness to act as a guarantor for the loan/financing product. Upon receipt of the confirmation letter, the FSP shall give the social guarantor a consideration period of five (5) working days to reconsider his/her decision before the social guarantor executes the contract of guarantee. 2.4 Post-signing stage S 2.4.1 After the disbursement of the loan/financing, a FSP shall send to the social guarantor a copy of the financial consumer’s account statement (at least once a year), reminders of late payment and letter of demand, as the case may be. Product Transparency and Disclosure 31 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 2.4.2 On the application of the social guarantor, a FSP shall allow him to withdraw himself/herself as a guarantor, provided that the new social guarantor agrees to take on the present, past and future liabilities of the existing guarantee in respect of the loan/financing. S 2.4.3 A FSP shall comply with all the pre-signing disclosure requirements under paragraphs 2.3.1 to 2.3.4 for the new social guarantor. 2.5 Requirements upon default by the consumer S 2.5.1 Upon a financial consumer’s default in repaying the loan/financing, a FSP shall seek debt repayment, commence debt recovery action and exhaust all modes of execution and enforcement to recover the debt from the financial consumer first before initiating an action in court against the social guarantor. G 2.5.2 For the purpose of paragraph 2.5.1, modes of execution and enforcement include seizure and sale, judgment debtor summon, garnishment and bankruptcy proceedings against the financial consumer. G 2.5.3 If a FSP is still unable to recover the debt from the financial consumer after one year from the date of initiation of legal action against the financial consumer, the FSP may initiate an action in court against the social guarantor. 3. Deposit Products (including Islamic Deposits) 3.1 Pre-contractual stage S 3.1.1 A FSP shall inform financial consumers of the availability of the basic savings account (BSA) and basic current account (BCA) and the key features of such accounts. S 3.1.2 Deposit amount a. A FSP shall disclose to financial consumers the initial deposit amount required to open an account other than BSA and BCA as well as the minimum deposit to be maintained in the account; and b. A FSP shall inform financial consumers of the consequences of not maintaining the minimum deposit in the account, for example, the imposition of a monthly service fee. S 3.1.3 A FSP shall inform financial consumers whether a deposit account is insured by Perbadanan Insurans Deposit Malaysia and other related information, including the limit of coverage for the deposit account. S 3.1.4 Fees and charges a. A FSP shall disclose all applicable fees and charges imposed on the deposit account that must be borne by the financial consumer; and b. If a FSP’s ATM card allows withdrawals from ATMs abroad, the FSP shall disclose the relevant transaction fees and the basis used in determining the conversion rate on the amount withdrawn abroad. Product Transparency and Disclosure 32 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 3.1.5 Deposit rate16 a. A FSP shall disclose to financial consumers, the interest/profit rate that will be paid on the deposit, the frequency of interest/profit payment and any circumstances that might affect the interest/profit payment; b. For deposit products with fixed tenure, a FSP shall disclose to financial consumers the effective annual yield including in its advertisements and any promotional materials when the deposit rate is given to facilitate comparison by financial consumers; c. A FSP must inform financial consumers if a minimum deposit amount is required for the account to be eligible for interest/profit sharing; and d. Information on deposit rates including the effective dates of these rates shall be prominently displayed by a FSP at its business premises and website. For Islamic deposit products S 3.1.6 A FSP shall inform financial consumers of the Shariah concepts applicable to the deposit product, including the rights and obligations of financial consumers. For example, the concept of qard refers to a lending contract where a FSP acts as a borrower. Therefore, the FSP is bound to repay the principal amount in full to the financial consumer upon request. In the case of fixed deposit, the concept of tawarruq refers to an arrangement of two sale and purchase contracts. Under the tawarruq arrangement, the FSP acts as an agent of the financial consumer to purchase commodity on spot basis and subsequently sells the commodity to the FSP on deferred basis, where the FSP pays the amount due to the financial consumers based on the agreed terms, e.g. lump sum upon maturity. 3.2 At the point of entering into a contract S 3.2.1 A FSP shall inform financial consumers of the applicable charges that will be imposed if the account is overdrawn without a prior overdraft arrangement or beyond the overdraft limit when overdraft arrangement exists. S 3.2.2 Right to set-off a. A FSP shall inform financial consumers of its right to set-off any credit balance in financial consumers’ deposit accounts against any debit balance in other accounts maintained with the FSP; and b. The FSP shall disclose the circumstances in which the FSP will exercise its right to set off the consumers’ accounts. S 3.2.3 A FSP shall inform financial consumers of any charges on any “stop payment” instruction received from the financial consumers. S 3.2.4 Early closure of account/Early withdrawal of fixed deposit a. A FSP shall disclose any applicable charges on the early closure of a deposit account within a specified time frame; and b. A FSP shall inform financial consumers of the implication of uplifting a fixed deposit before its maturity. 16 For Islamic deposit products, FSP must adhere to Shariah requirements outlined in the respective Shariah standards. For example, the disclosure of indicative deposit rates in advertisements or promotional materials is prohibited under the Qard PD. Product Transparency and Disclosure 33 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 3.2.5 Operation of a joint account a. Should financial consumers choose to operate a joint account, a FSP shall disclose the following information- i. the rights and responsibilities of each accountholder of the joint account; ii. implications of the signing arrangement as specified in the account mandate; and iii. the manner in which such designated signatories or signing arrangement can be varied by one or both of the joint accountholders; b. A FSP shall inform financial consumers of its right to set-off the credit balance in the joint account against the debit balance in another account which is held by one or both of the joint accountholders; and c. A FSP shall also inform financial consumers of the implications to the joint account in the event of the death of one of the joint accountholders. S 3.2.6 A FSP shall inform financial consumers of the importance of proper safekeeping of the savings passbook/certificate of deposit, the procedures involved if the savings passbook/certificate of deposit is lost and any applicable charges in obtaining a new savings passbook/certificate of deposit. S 3.2.7 A FSP shall inform financial consumers of the circumstances under which a deposit account is designated as dormant/inactive. S 3.2.8 A FSP shall inform financial consumers of the importance of notifying the FSP of any change in the financial consumers’ contact details. 3.3 During the term of the contract S 3.3.1 Account statement a. For a deposit account without a passbook, a FSP shall provide an account statement to financial consumers at least on a quarterly basis in a calendar year; b. If financial consumers request for additional statements, a FSP shall inform them of any applicable charges upon the request for such statements; and c. For a deposit account for which statements are made available via a digital channel, a FSP shall clearly disclose the applicable fees in the event financial consumers request for a physical copy of the account statement. S 3.3.2 Change in deposit rate a. A FSP shall notify financial consumers of any revision to the deposit rate; and b. Notice on the revision must be prominently displayed by a FSP at the FSP’s business premises and website. S 3.3.3 Change to the terms and conditions a. Should there be any change in the terms and conditions, including fees and charges applicable to the deposit account, a FSP shall notify financial consumers at least twenty-one (21) calendar days prior to the effective date of implementation of the revised terms and conditions; and b. Communication by FSP to financial consumers must be done in writing or electronically. Product Transparency and Disclosure 34 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 3.3.4 Dormant/Inactive account a. A FSP shall send a reminder without any charge to financial consumers informing about the impending dormancy and ultimate transfer of funds from the account to the Registrar of Unclaimed Moneys (RUM). The reminder by the FSP shall be given within a reasonable time; b. In the reminder, the FSP shall inform financial consumers of the option to reactivate or close the account before funds in the account are transferred to the RUM; c. A FSP shall notify financial consumers at least twenty-one (21) calendar days before the transfer to the RUM takes place; and d. A FSP shall inform financial consumers on the procedures involved in claiming the moneys from the RUM, upon request by financial consumers. 3.4 Investment Account S 3.4.1 A FSP shall comply with the disclosure requirements as set out in the policy document on Investment Account in relation to an investment account. 4. Negotiable Instruments of Deposit (NID)/Islamic Negotiable Instruments (INI) S 4.1 As indicated in paragraph 2.2 under Part A, a FSP must comply with the disclosure requirements for Negotiable Instruments of Deposit (NID) and Islamic Negotiable Instruments (INI) offered to both financial consumers and institutional customers. G 4.2 A FSP may refer to the “Explanatory Notes on NID and INI” for additional guidance.17 Part I. General disclosure requirements for NID and INI 4.3 Pre-contractual stage S 4.3.1 Description and terms and conditions A FSP shall provide financial consumers and institutional customers with a description and key terms and conditions of the financial product, including but not limited to the following information- a. Type and features- i. Tenure; ii. Issue amount; iii. Issuance at par, premium or discount; iv. Format (e.g. scripless without NID/INI certificates); v. Applicable Shariah contract (for INI); and vi. Underlying asset(s) for INI based on sale contract; b. Interest/profit- i. Proceeds computation; and ii. Frequency of payment; c. Procedures for redemption of interest/profit; and d. Redemption procedures upon maturity. 17 The "Explanatory Notes on NID and INI" can be obtained from the FAST website at https://fast.bnm.gov.my/fastweb. https://fast.bnm.gov.my/fastweb Product Transparency and Disclosure 35 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 4.3.2 A FSP shall clearly inform financial consumers and institutional customers that a NID and INI are not insured by Perbadanan Insurans Deposit Malaysia. A FSP must prominently present such information in a warning box in all advertisements and promotion materials. S 4.3.3 A FSP shall disclose to financial consumers and institutional customers the nature, amount and frequency of payment of all applicable fees and charges. S 4.3.4 Suitability (only applicable to financial consumers) a. A FSP shall inform financial consumers of situations in which the financial product will be suitable for them. The FSP shall assess whether- i. the NID or INI matches the financial consumers’ investment objective and risk appetite; ii. the consumers understand the financial risks and potential losses that may arise from investing in the financial product; and iii. the tenure of NID or INI matches the financial consumers’ investment horizon. 4.4 At the point of entering into a contract S 4.4.1 Early withdrawal by financial consumers a. A FSP shall inform financial consumers of the tenure of the NID/INI and that the principal amount is only guaranteed if held to maturity; b. A FSP shall also inform financial consumers and institutional customers of the possibility of partial losses on the principal amount due to early withdrawal; and c. For an INI, the FSP shall clearly disclose that any reduction in the principal or profit payment upon early withdrawal shall be based on the Shariah contract applied for the INI. S 4.4.2 Early termination by issuer and callability feature a. A FSP shall inform financial consumers and institutional customers of any early termination or callability feature of the NID/INI. The FSP shall also clearly disclose the terms and conditions, including the return of principal and any accrued interest/income, and how the accrued interest/income is calculated. S 4.4.3 A NID/INI that merely adopts an investment strategy aimed at returning financial consumers’ and institutional customers’ capital but is not guaranteed, shall not be represented as a capital protected product or any other name that connotes a similar meaning. S 4.4.4 A FSP shall clearly disclose to financial consumers and institutional customers any significant risks (e.g. credit risk and market risk) associated with the NID/INI. S 4.4.5 Availability of information a. The FSP shall inform financial consumers and institutional customers of the availability of the following information- i. Buy-back price of the NID/INI; ii. Performance of the underlying assets in pricing the NID (only applicable to floating rate NID) or INI (e.g. for INI based on Mudarabah); and iii. Any other prevailing general and operational information on the NID/INI. Product Transparency and Disclosure 36 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 4.4.6 Risk warning statement a. A FSP shall provide the following risk warning statement in the product document and according to the format below for NID/INI products with investment tenure of 5 years or less; and b. For NID/INI products with investment tenure above 5 years, the FSP shall comply with the risk warning statement requirement imposed by the Securities Commission. Format for NID: Format for INI based on equity contract: Format for INI based on sale contract: A FSP shall present the risk warning statement in: i. Arial 12-point font in bold capital letters, at the bottom of every page of any document released pertaining to an issue or offer of NID/INI products; and ii. Arial font bold capital letters, on the first and last page of any advertising or promotional materials, in a font size no smaller than the rest of the content. The text must be capable of being read with reasonable ease. S 4.4.7 A FSP shall inform financial consumers and institutional customers of the importance of notifying the FSP of any change in contact details. WARNING THIS PRODUCT IS PRINCIPAL GUARANTEED BY THE ISSUING BANK UPON MATURITY ONLY. IF THE PRODUCT IS REDEEMED OR SOLD PRIOR TO MATURITY, THE CUSTOMER MAY LOSE PART OF THE INITIAL DEPOSIT. THE CUSTOMER IS REMINDED THAT THIS PRODUCT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA. WARNING THIS PRODUCT IS NOT PRINCIPAL GUARANTEED. CUSTOMER MAY LOSE PART OR ALL OF THE INITIAL DEPOSIT. THE RETURNS ON THIS PRODUCT ARE UNCERTAIN AND CUSTOMER RISKS EARNING NO RETURNS AT ALL. THIS PRODUCT IS NOT COVERED BY PERBADANAN INSURANS DEPOSIT MALAYSIA. WARNING THIS PRODUCT IS PRINCIPAL GUARANTEED. CUSTOMER WILL BE PAID THE SELLING PRICE UPON MATURITY. IF THE PRODUCT IS REDEEMED OR SOLD PRIOR TO MATURITY, THE CUSTOMER MAY LOSE PART OF THE SELLING PRICE. THIS PRODUCT IS NOT COVERED BY PERBADANAN INSURANS DEPOSIT MALAYSIA. Product Transparency and Disclosure 37 of 83 Issued on: 29 February 2024 TERHAD TERHAD Part II. Additional disclosure requirements for Floating Rate NID (FRNID) S 4.5 For FRNID, a FSP shall market and term such product in all advertising materials and contract as “Floating Rate Negotiable Instruments of Deposit”. A FSP shall not use terms such as “structured deposits”, “structured investment” or any other terms that may be construed as a product other than FRNID. 4.6 Pre-contractual stage S 4.6.1 Apart from meeting the requirement under paragraph 4.3.1(a), the FSP shall make available the following information in relation to any issue or offer of FRNID- a. type and features specification; b. index or underlying assets used; and c. potential interest rate and/or proceeds. 4.7 At the point of entering into a contract S 4.7.1 Illustration of past and/or future performance a. A FSP shall highlight to financial consumers and institutional customers that past performance of the FRNID is not indicative of future performance; b. A FSP shall include three forward looking scenarios - bull (best case where feasible), flat (moderate case) and bear (worst case) to enhance financial consumers’ and institutional customers’ understanding of the impact of different scenarios. The assumptions used by the FSP shall be reasonable and clearly disclosed; and c. When using past performance of the underlying instruments to project future performance, a FSP shall use actual returns of the most recent 5 years (or the available period, if shorter). S 4.7.2 A FSP shall inform financial consumers that in the event the financial consumers sell the FRNID to another financial consumer, the FSP that issued the FRNID will be required to conduct an assessment on the buyer’s suitability prior to transferring the FRNID to the new buyer and the FSP has the right to refuse such transfer if the assessment indicates a lack of customer suitability. S 4.7.3 Risk warning statement a. For FRNID products with an investment tenure of 5 years or less, the FSP shall substitute the risk warning statement in paragraph 4.4.6 (the font size requirements still apply) with the format below; and b. For FRNID products with an investment tenure exceeding 5 years, the FSP shall comply with the risk warning statement requirement imposed by the Securities Commission. Product Transparency and Disclosure 38 of 83 Issued on: 29 February 2024 TERHAD TERHAD 4.8 During the term of the contract S 4.8.1 A FSP shall provide a statement detailing the performance of the FRNID product to financial consumers and institutional customers at least once a year. 5. Investment linked to derivatives (ILD) / Islamic investments linked to derivatives (IILD) 5.1 Pre-contractual stage S 5.1.1 Product description a. A FSP shall provide a description of the financial product to financial consumers, including but not limited to the following information- i. brief explanation of the applicable Shariah concepts, if applicable; ii. capital guaranteed or non-capital guaranteed; iii. investment tenure; iv. yield computation and frequency of yield payment; v. index or underlying asset(s); and vi. key terms and conditions. S 5.1.2 Deposit insurance a. A FSP shall inform financial consumers whether an ILD/IILD is covered by Perbadanan Insurans Deposit Malaysia. The FSP shall present such information prominently in all advertisements and promotional materials; and b. A FSP shall not label an ILD/IILD as “structured deposit” to avoid giving financial consumers the impression that such product is a deposit product. S 5.1.3 Suitability a. A FSP shall alert financial consumers to assess the suitability of the ILD/IILD by considering whether: i. the tenure of the ILD/IILD matches the financial consumers’ investment horizon; ii. the ILD/IILD matches the financial consumers’ investment objectives and risk appetite; and iii. the consumers understand the financial risks and potential losses that may arise from investing in the ILD/IILD. WARNING THIS PRODUCT IS PRINCIPAL GUARANTEED BY THE ISSUING BANK UPON MATURITY ONLY. IF THE PRODUCT IS REDEEMED OR SOLD PRIOR TO MATURITY, THE CUSTOMER MAY LOSE PART OF THE INITIAL DEPOSIT AMOUNT. THE RETURNS ON THIS PRODUCT ARE UNCERTAIN AND THE CUSTOMER RISKS EARNING NO RETURNS AT ALL. THE CUSTOMER IS REMINDED THAT THIS PRODUCT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA. Product Transparency and Disclosure 39 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 5.1.4 A FSP shall disclose and explain to the financial consumers, the nature, amount and frequency of payment of all applicable fees and charges. S 5.1.5 Disclosure by sales and marketing representatives a. A FSP must ensure that the FSP’s sales and marketing representatives contacting financial consumers clearly identify the FSP being represented; and b. A FSP must ensure that the sales and marketing representatives shall explain to the financial consumers, the key terms, benefits and risks of the investment product being offered. 5.2 At the point of entering into a contract S 5.2.1 Risks and returns a. A FSP shall provide clear and adequate explanation to financial consumers of all material risks of investing in the ILD/IILD, including potential loss of the principal sum invested if such product is not held to maturity, so that financial consumers could make an informed investment decision. A FSP shall determine the level of detail required to be disclosed to financial consumers depending on the complexity and nature of the risks involved; and b. In disclosing the benefits of the ILD/IILD product, the FSP shall provide a balanced view by highlighting the ILD/IILD’s potential upside and downside and clearly state key assumptions made. S 5.2.2 Illustration of past and future performance a. When using past performance of the underlying instruments to project future returns of the ILD/IILD, a FSP shall use actual returns of the most recent five (5) years (or the available period, if shorter). The FSP shall clearly state that past performance is not indicative of future performance. Likewise, when using any forecast of the economic trends of the markets, the FSP shall include a prominent warning that such forecast is not indicative of the ILD/IILD’s future returns; b. A FSP is not allowed to market an ILD/IILD based on projected/expected returns. Illustrations of potential gains and losses through numerical examples based on bull, flat and bear scenarios are allowed to enhance financial consumers’ understanding of the impact of different scenarios in relation to such product. If numerical examples are illustrated, a FSP must ensure that all three scenarios are given and shall illustrate losses under the bear scenario, where applicable. A FSP must ensure that the assumptions used shall be reasonable and shall clearly state such assumptions in the disclosure to financial consumers; c. A FSP must ensure that any comparison of performance figures shall be relevant and accurate, comparing “like to like” so that the presentation to financial consumers is not misleading; and d. A FSP must ensure that there is reasonable basis for any opinion expressed by the FSP including the opinion and must clearly stated that it is a statement of opinion. Product Transparency and Disclosure 40 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 5.2.3 Risk warning statement a. For ILD/IILD whose market price, value, delivery or payment obligations are solely derived from, referenced to or based on exchange rates, the FSP shall highlight the following risk warning statement at the bottom of every page of any document released and any advertisement on the ILD/IILD For ILD/IILD products other than ILD/IILD whose market price, value, delivery or payment obligations are solely derived from, referenced to or based on, exchange rates, a FSP must adopt the following risk warning statement. A FSP shall present the risk warning statement in: i. Arial 12-point font in bold capital letters, at the bottom of every page of any document released pertaining to an issue or offer of ILD/IILD products; and ii. Arial font bold capital letters, on the first and last pages of any advertising or promotional materials, in a font size no smaller than the rest of the content. The text must be capable of being read with reasonable ease. S 5.2.4 Early termination a. For ILD/IILD product where the principal sum invested is only guaranteed if is held to maturity, a FSP shall highlight to financial consumers the consequence, restriction and procedures of terminating the investment before maturity. The FSP shall alert the financial consumers of any potential loss of the principal amount for early termination. The FSP shall also clearly disclose early termination charges, if any; b. If a FSP has the right to redeem the ILD/IILD before its maturity and with no compensation to financial consumers, the FSP shall highlight to the consumers of such right. A FSP shall clearly explain to the financial consumer the WARNING THE RETURNS ON THIS INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION. [WHERE THE ILD/IILD IS NOT INSURED BY PIDM TO ADD: “THIS INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA”] WARNING THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET / REFERENCE. THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION. [WHERE THE ILD/IILD IS NOT INSURED BY PIDM TO ADD: “THIS INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA”] Product Transparency and Disclosure 41 of 83 Issued on: 29 February 2024 TERHAD TERHAD computation of the impact on returns shall be clearly explained to the consumers; and c. A FSP shall ensure that the maximum potential loss to financial consumers is limited to the amount of capital invested. S 5.2.5 Use of the term "Capital guarantee" a. A FSP must ensure that an ILD/IILD that merely adopts an investment strategy aimed at returning financial consumers’ capital but is not guaranteed, is not represented as a capital protected or capital guaranteed product or by any other name that connotes a similar meaning; and b. A FSP must ensure that an ILD/IILD is represented as capital guaranteed only if the guarantee is explicitly provided for by the FSP or a third party which is a FSP licensed under the laws administered by the Bank and which fulfils the principles outlined in the Policy Document on Mudarabah. The FSP shall disclose the following information to financial consumers- i. the name and credit rating of the guarantor, if the guarantor is a third party; ii. the material terms and scope of the guarantee (for example, where capital is only guaranteed if held to maturity); and iii. appropriate cautions with regard to counterparty risks associated with any guarantee, in particular those associated with any third-party guarantor. S 5.2.6 A FSP shall inform financial consumers if a cooling-off period18 is applicable to the ILD/IILD and the relevant conditions under which the cooling-off period is applicable. S 5.2.7 A FSP shall inform financial consumers of the availability of pertinent information on their investments, for example, recent performance of the index or relevant information on the underlying assets. S 5.2.8 Change of contact details: A FSP shall inform financial consumers of the importance of notifying the FSP of any change in their contact details. 5.3 During the term of the contract S 5.3.1 A FSP shall provide a statement on the performance of the ILD/IILD to financial consumers at least once a year. 6. Electronic Banking Services 6.1 Pre-contractual stage S 6.1.1 A FSP shall inform financial consumers of the following before they sign up for e- banking services- a. a description of the types of transaction that financial consumers can perform via e-banking; b. the risks involved in the use of e-banking, including the types of fraud; c. all applicable fees and charges (i.e. one-time, periodic or transaction basis); 18 A cooling-off period allows financial consumers to terminate the contract within a specified period and obtain a full refund of the money paid. Product Transparency and Disclosure 42 of 83 Issued on: 29 February 2024 TERHAD TERHAD d. the default daily or transaction limits and the option for financial consumers to change and set their own limits based on their needs and risk appetite; e. the precautionary measures that should be taken by the financial consumer in ensuring the safe use of e-banking services; and f. the importance of providing an accurate and up-to-date mobile number to receive transaction alerts. 6.2 At the point of entering into a contract S 6.2.1 a. A FSP shall provide the terms and conditions for e-banking services to financial consumers at the point they sign up for e-banking services. The FSP must also make available the terms and conditions on the FSP’s website, which shall be accessible to financial consumers at any time. A FSP must ensure that the terms and conditions for e-banking shall at a minimum cover the following- i. rights and responsibilities of financial consumers; ii. duties of the FSP to financial consumers; iii. details on how financial consumers must notify the FSP of any unauthorised use of the e-banking services; iv. the circumstances and the extent to which financial consumers are liable for any unauthorised transaction; and v. information relating to the FSP’s dispute resolution avenues and procedures; S 6.2.2 A FSP shall inform financial consumers of the importance of reading and understanding the terms and conditions for e-banking services, particularly those terms relating to the consumers’ responsibilities in using the e-banking services. S 6.2.3 A FSP shall clearly inform financial consumers of their responsibilities, which include financial consumers’ obligations- a. to abide by the terms and conditions and use the e-banking services in a responsible manner; b. take reasonable steps to keep the access identification (ID), pass code and any authentication device secure at all times, including at the financial consumer’s place of residence. These include- i. not to keep a record of the ID and pass code in a manner that is easily recognisable and accessible to any other person; ii. not to disclose the ID and pass code to anyone, including family members, friends and the FSP’s staff; iii. not to allow anyone to use the financial consumer’s e-banking services; and iv. not to disclose the ID and pass code to any unsolicited email or SMS and on any website or mobile application other than the FSP’s official website to access the e-banking services; c. notify the FSP as soon as reasonably practicable after having discovered that the pass code or authentication device for accessing the e-banking services has been compromised, lost or stolen, or that an unauthorised transaction has occurred on the e-banking account; Product Transparency and Disclosure 43 of 83 Issued on: 29 February 2024 TERHAD TERHAD d. notify the FSP immediately upon receiving transaction alert if the transaction was unauthorised; and e. notify the FSP when there is a change in the financial consumer’s contact number that receives transaction alerts. S 6.2.4 A FSP shall inform financial consumers, through a clear and prominent notice that they will be liable for losses arising from an unauthorised transaction if the financial consumers have acted fraudulently or failed to perform their responsibilities as specified under paragraph 6.2.3. S 6.2.5 A FSP shall raise awareness on the safety measures that financial consumers must undertake to prevent unauthorised use of their e-banking services which shall include the following- a. create a strong pass code that cannot be easily predicted such as one that uses a mixture of alphabets, numbers and symbols as well as to regularly change the pass code; b. access the e-banking services only via the FSP’s legitimate website or mobile application and not to access the FSP’s website through hyperlinks from emails or other websites; c. ensure that the device being used to perform e-banking transaction has installed an updated anti-virus software and to update the device’s browser and operating system to the latest version; d. check all transaction alerts in a timely manner and report to the FSP as soon as practicable of any unauthorised transaction; e. check their e-banking account transactions regularly and report any suspicious transaction to the FSP without delay; f. regularly read security warnings posted on the FSP’s website; g. avoid using public computers for e-banking transactions, such as those at internet café or airport lounge; and h. not to respond to any e-mail or SMS with request for personal information without first validating its authenticity. 6.3 During the term of the contract S 6.3.1 A FSP shall take proactive measures and adopt the most effective communication method to regularly remind financial consumers of their responsibilities described under paragraph 6.2.3 and the safety measures that must be undertaken by the financial consumers stated under paragraph 6.2.5 to prevent any unauthorised use of their e-banking services. S 6.3.2 A FSP shall take reasonable steps to provide timely information to financial consumers on the current modus operandi of fraudsters and precautionary measures that should be undertaken by financial consumers to avoid becoming a victim of e-banking fraud. G 6.3.3 Information on the latest modus operandi of fraudsters may be provided to financial consumers through a pop-up warning or prominent notice on the front page of the FSP’s website to bring to the attention of financial consumers prior to logging into their e-banking accounts. Product Transparency and Disclosure 44 of 83 Issued on: 29 February 2024 TERHAD TERHAD 7. Safe Deposit Box/Safe Deposit Box-i S 7.1 A FSP shall clearly disclose to financial consumers, the annual rental and other charges applicable to safe deposit boxes. S 7.2 A FSP shall inform financial consumers of the maximum insurance/takaful coverage provided by the FSP and the circumstances under which the coverage applies to the contents of the safe deposit box. The FSP shall highlight the need for financial consumers to obtain additional insurance/takaful coverage if the coverage provided by the FSP is insufficient to protect the financial consumers’ interests. S 7.3 A FSP shall clearly disclose to financial consumers the limit of the FSP’s liability, if applicable. S 7.4 A FSP shall inform financial consumers of the types of items that can be stored in a safe deposit box and those which are prohibited. S 7.5 A FSP shall notify financial consumers of any change in the rental rates and other charges at least twenty-one (21) calendar days prior to the effective date of implementation of such change. S 7.6 A FSP shall notify financial consumers at least thirty (30) calendar days prior to the effective date of relocating the safe deposit boxes or terminating the service. S 7.7 A FSP shall inform financial consumers of the importance of notifying the FSP of any change in their contact details. Product Transparency and Disclosure 45 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix I Requirement for Product Disclosure Sheet Type of Financial Product Requirement for Product Disclosure Sheet (as specified under paragraph 16.1) Yes No Loan/Financing Housing Loan/Financing ✓ Personal Loan/Financing ✓ Other Loan/Financing ✓ Deposit Products Savings Account ✓ Current Account ✓ Fixed Deposit Account ✓ Investment Products Negotiable Instruments of Deposit (NID) and Islamic Negotiable Instruments (INI) NID/INI products with investment tenure of 5 years or less- ✓ NID/INI products with tenure exceeding five (5) years- To comply with the Guidelines on Sales Practices of Unlisted Capital Market Products issued by the Securities Commission, and to incorporate information required under paragraph 4 of this Schedule. Investments Linked to Derivatives (ILD) and Islamic Investments Linked to Derivatives (IILD) For ILD/IILD whose market price, value, delivery or payment obligations are solely derived from, referenced to or based on exchange rates ✓ For other types of ILD/IILD product- To comply with Guidelines on Sales Practices of Unlisted Capital Market Products issued by the Securities Commission, and to incorporate information required under paragraph 5 of this Schedule. Electronic Banking ✓ Safe Deposit Box ✓ Other Products ✓ Product Transparency and Disclosure 46 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix II Sample of Product Disclosure Sheet (home loan/financing) PRODUCT DISCLOSURE SHEET Dear Customer s Name] This Product Disclosure Sheet (PDS) is designed to provide you with key information on your home loan financing product name]. ther customers have read this PDS and found it helpful, ou should read too. FSP Logo and Name Date Kno Your O ligations For this product name] our financing amount RM our monthly instalment RM our financing tenure ears Standardi e base rate (SBR) Effective financing rate p a In total ou ill pa RM You have to pa the follo ing charges: Stamp duty of financing amount Disbursement fee RM Processing fee RM Wakalah fee RM Remem er it is our responsi ilit to: Read the loan financing contract and understand the terms before you sign the contract. Pa our monthl instalment timely and in full for xx years. Contact us if you plan to settle your loan/financing earlier . Contact us immediatel , should you find yourself unable to pay your monthly instalments . If ou have an uestion a out our loan financing ou can: Page / Make sure you can afford to pa a higher monthl instalment in case the financing rate increases. Call us at xx xxx xxxx isit us at https // products webpage .com Email us at xx email.com Scan the R code Applica le Shariah contract FSP to briefly describe the applicable Shariah contract for Islamic financing products Product Transparency and Disclosure 47 of 83 Issued on: 29 February 2024 TERHAD TERHAD Kno Your Ris s Your monthl instalment ma increase during the financing tenure hat happens if ou ignore our o ligations . ou may pa more in total due to late payment charges. . We may deduct mone from your savings account with us to set off your outstanding loan/financing. 3. We may foreclose our propert or ta e legal action against you. . our credit rating may be affected. The SBR for this loan/financing product may increase due to a rise in the vernight Policy Rate ( PR) set by Bank Negara Malaysia. An increase in the SBR means that your monthly instalment will be higher, as illustrated in table below SBR increases SBR increases Current Rate RM xxxRM xxRM xMonthly instalment RM yyyRM yyRM yTotal interest/profit cost RM RM RM Total repayment/payment Page / Customer s Ac no ledgment Optional Please ensure you are filling this section yourself and aware of what you are placing your signature for. I acknowledge that FSP name has provided me with a copy of the PDS. I have read and understood the key information contained in this PDS. Name Date Product Transparency and Disclosure 48 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix III - Sample of Product Disclosure Sheet (NID/INI) PRODUCT DISCLOSURE SHEET Dear Customer s Name] This Product Disclosure Sheet (PDS) is designed to provide you with key information on your NID INI name]. ther customers have read this PDS and found it helpful, ou should read too. FSP Logo and Name Date Kno the NID INI Name] Page / ou should read and understand the terms and conditions of this NID INI name . The principal amount of this Negotiable Instrument of Deposit (NID)/Islamic Negotiable Instrument (INI) is guaranteed if the NID/INI is held to maturity. This product is NOT insured by Perbadanan Insurans Deposit Malaysia (PIDM). Ma imum rate of charge Pa a leT pe of Service ToB RM xx per certificate Issuer ou(Examples) Delivery of certificate to authorised depository which is another institution at primary issue RM xx per certificate Issuer ouSplitting/combining denominations RM xx per yearAuthorised Depository ouMaintenance of depository account For this NID Maturity date Minimum nominal value Issuance Interest rate/profit margin y p.a. Interest/profit payment frequency Kno Your Costs Applica le Shariah contract FSP to briefly describe the applicable Shariah contract Product Transparency and Disclosure 49 of 83 Issued on: 29 February 2024 TERHAD TERHAD Page / If ou have an uestions a out this product ou can: Call us at xx xxx xxxx isit us at https // product webpage .com Email us at xx email.com Scan the R code Kno Your Ris s and Benefits RISKS BENEFITS The principal of this NID/INI is guaranteed only if held to maturity. If you redeem or sell this NID/INI before its maturity date, you may lose part of your initial deposit amount . This NID/INI is not insured by Perbadanan Insurans Deposit Malaysia. Customer s Ac no ledgment Optional Please ensure you are filling this section yourself and aware of what you are placing your signature for. I acknowledge that FSP name has provided me with a copy of the PDS. I have read and understood the key information contained in this PDS. Name Date Product Transparency and Disclosure 50 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix IV - Sample of Product Disclosure Sheet (ILD/IILD) PRODUCT DISCLOSURE SHEET Dear Customer s Name] This Product Disclosure Sheet (PDS) is designed to provide you with key information on your ILD IILD product name . ther customers have read this PDS and found it helpful, ou should read too. FSP Logo and Name Date Kno Your Product Name] Page / ou should read and understand the terms and conditions of this ILD IILD product name This is a foreign exchange rate structured product with an embedded derivative linked to the performance of xxx rates. The returns on our investment depend on the performance of ] rates For this ILD IILD Minimum investment amount RM Investment tenure ears Principal protection Interest/Profit payable p.a. Interest/Profit payment frequency Kno Your Costs RM RM Management fees Wakalah fee/Commission RM Penalties for early withdrawal Further information: nderlying asset(s) ther key terms we may repay the investment at an earlier date. Reminder Past performance is not indicative of future performance of this product. Applica le Shariah contract FSP to briefly describe the applicable Shariah contract Product Transparency and Disclosure 51 of 83 Issued on: 29 February 2024 TERHAD TERHAD Page / If ou have an uestions a out this product ou can: Call us at xx xxx xxxx isit us at https // product webpage .com Email us at xx email.com Scan the R code Kno Your Ris s and Benefits RISKS Reminder ou should understand and consider all risk factors carefully before making an investment decision. BENEFITS Reminder: Payment of interest/profit is dependent upon the performance of the underlying assets as stated in the contract. The returns on this investment will be affected by the performance of the underlying asset/reference. ou may not receive your full principal amount if you make an early redemption. This investment product is not insured by Perbadanan Insurans Deposit Malaysia. Customer s Ac no ledgment Optional Please ensure you are filling this section yourself and aware of what you are placing your signature for. I acknowledge that FSP name has provided me with a copy of the PDS. I have read and understood the key information contained in this PDS. Name Date Product Transparency and Disclosure 52 of 83 Issued on: 29 February 2024 TERHAD TERHAD SCHEDULE II: INSURANCE TAKAFUL PRODUCTS S A FSP shall comply with the disclosure documents under the policy document (PD) on Medical and Health Insurance and Takaful, PD on Investment-linked Business, PD on Universal Life Business, PD on Management of Participating Life Business and Exposure Draft on Broader Implementation of Ta’awun in relation to the respective insurance and takaful products. 1. Insurance/Takaful Products Distributed via Digital Channels S 1.1 A FSP that distributes its insurance/takaful products through a digital channel19 shall comply with the digital disclosure requirements as specified in Paragraph 11 under Part B. S 1.2 A FSP shall ensure that all advertisements and promotional materials used for the purpose of disclosure in digital channels are clear, not misleading and approved by the FSP. The name of the digital channel and the FSP it represents must be clearly stated. S 1.3 A FSP shall ensure that its digital channel clearly and prominently discloses the following information to financial consumers- a. the type of relationship between the FSP and the digital channel; b. the level of services20 to be expected from the digital channel; c. a statement explaining the availability of options (if any) to purchase other similar financial products that provide a rebate on commission or is commission free if purchased from the FSP’s direct distribution channels such as from the FSP’s branches or website; d. a detailed breakdown of premium or contribution amount, commission or remuneration to be received by the digital channel for distributing the insurance/takaful products; e. a detailed breakdown of fees and charges21 arising from the use of the digital channel that is to be borne by the financial consumers; and f. the free-look period and premium/takaful contribution refund policy, where applicable. S 1.4 A FSP shall ensure that the digital channel obtains explicit consent from financial consumers to confirm their agreement to pay the digital channel’s remuneration and applicable fees and charges. The FSP must ensure that pre-ticked acceptance box stating financial consumers’ consent is prohibited on the digital channel. 19 This includes product aggregators and E-commerce platforms. 20 This includes where a financial consumer can obtain more product information or advice and whether consumers can lodge a complaint or make a claim via the digital channel. 21 This includes platform fees or transactional charges per policy/takaful certificate, which forms part of the premium/takaful contribution (if any). Product Transparency and Disclosure 53 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 1.5 A FSP shall ensure that the digital channel is prohibited from marking up 22 premium/takaful contribution set by the FSP or imposing any additional fees and charges to financial consumers on the digital channel. S 1.6 A FSP shall establish appropriate policies, procedures and mechanisms to ensure effective monitoring and handling of consumer complaints received by the type of intermediaries, including its digital channel. 2. Ordinary Life Insurance/Family Takaful Products 2.1 Pre-contractual stage S 2.1.1 Disclosure by FSP a. A FSP must inform financial consumers that it is licensed under the FSA or IFSA and regulated by Bank Negara Malaysia; and b. Where insurance/takaful is to be arranged through an intermediary, the name and address of the intermediary and the FSP underwriting the policy/ takaful must be disclosed to financial consumers. S 2.1.2 A FSP shall inform financial consumers of the importance of providing sufficient and accurate information to enable the FSP to advise the financial consumers on the suitability of the life insurance/family takaful product, taking into consideration the appropriateness of such product to the financial consumers’ needs and circumstances. S 2.1.3 Product features a. A FSP shall provide financial consumers with a description of the life insurance/family takaful product, including: i. The types of life insurance/family takaful and scope of cover For example: (a) Temporary term insurance/term takaful offers insurance protection/takaful coverage for a limited period only, e.g. 10 years. The benefits will be paid only if the insured/takaful participant passes away or if the insured/takaful participant suffers total and permanent disability during the term of the policy/ takaful certificate. (b) Whole life insurance offers life-long protection and premiums are paid ’ insured passes away or if the insured suffers total and permanent disability during the term of the policy. (c) Endowment insurance/takaful combines protection and savings. The benefits will be paid either at the maturity of the policy/ takaful certificate, death of the insured/participant or the occurrence of permanent 22For example, if premium/takaful contribution as priced by a licensed ITO (and documented in the Product Documentation submitted to the Bank, as per the requirements under the Policy Document on Introduction of New Products by Insurers and Takaful Operators) is RM100, the digital channel is prohibited from offering the product to consumers at RM110, i.e. RM10 mark-up by the digital channel. Product Transparency and Disclosure 54 of 83 Issued on: 29 February 2024 TERHAD TERHAD disability during the term of the policy/ takaful certificate, whichever is earlier. ii. Whether the insurance/takaful is meant for protection, savings, investment or a combination; iii. For life insurance products, whether the policy is participating in profits immediately or whether it is participating in profits with a deferment period to be specified or whether it does not participate in profits. iv. For insurance/takaful products with guaranteed features, such as guaranteed survival benefits during the policy/takaful certificate term and/or guaranteed maturity benefits, a FSP shall prominently disclose the annualised returns23 with the disclosure of any guaranteed feature under the policy/takaful certificates in all marketing materials24 (including sales illustration and brochures) that contain any illustration of returns. In this respect, where guaranteed cash pay-outs are offered as part of an insurance/takaful product, a FSP shall not express or illustrate in absolute value or as a percentage, the total or cumulative amount of the guaranteed cash pay-out payable to policyholder/takaful participant. v. The details of the riders attached to the main policy/takaful certificate, if any. S 2.1.4 Additional requirements for family takaful products a. Applicable Shariah concepts: i. between takaful participants of the takaful fund for mutual financial assistance; and ii. between the takaful operator and takaful participants in managing the takaful funds. b. The types of funds available under the family takaful certificate, e.g. the Participants’ Investment Fund (PIF) and Participants’ Risk Fund (PRF) i. the PIF refers to the fund which is a portion of the takaful contributions paid by takaful participants for a takaful product is allocated for the purpose of savings and/or investment; ii. the PRF refers to the fund used to pool the portion of takaful contribution paid by the takaful participants on the basis of tabarru’ (donation) for the purpose of meeting claims on events/risks covered under the takaful contracts. c. In the case of PIF, a FSP must disclose the following information to the participant: 23 Refers to the estimated average annual return on the survival/savings benefits that a policyholder/takaful participant will receive over the period of the policy/ takaful certificate until its maturity with respect to the premium/ takaful contribution that the policyholder/takaful participant had paid. 24 For the avoidance of doubt, the disclosure of annualised returns must be clearly visible and legible in the relevant marketing materials and shall not be disclosed at the bottom of the page and in an obscure manner e.g. in footnotes or in small fonts. Product Transparency and Disclosure 55 of 83 Issued on: 29 February 2024 TERHAD TERHAD i. the investment strategy, types of assets invested to meet the illustrated takaful benefits, future tabarru’ payments and other liabilities of the takaful fund; and ii. the potential shortfall of the PIF to meet tabarru’, its consequences as well as remedial options available to the participant, e.g. top-up by the participant. d. For products with savings or investment elements, where participants bear the investment risks, information disclosed must be sufficient to enable understanding of market movements and implications on the takaful funds, including potential shortfall of the Participants’ Investment Fund and possibility of certificate lapsation. S 2.1.5 Policy/takaful benefits payable and exclusions a. A FSP shall disclose the following information to financial consumers: i. the policy/takaful benefits payable and circumstances or contingencies upon which policy/takaful benefits are payable by the FSP to the consumers; ii. limitation on policy/takaful benefits and the duration for which it is applicable, if any; iii. restrictions of policy/takaful benefits (including lien imposed on the policy/takaful certificate) and exclusions of the insurance policy/takaful certificate to ensure the consumers understand what is not covered under the policy/takaful certificate; and iv. the surrender value payable under the life policy/family takaful certificate and whether it is guaranteed or not guaranteed. S 2.1.6 Premium/takaful contribution payments a. A FSP must provide to financial consumers the details of the premium/takaful contribution payments, including: i. the amount of premiums/contribution, frequency with which and period over which payment is to be made in respect of the life insurance policy/family takaful certificate. The FSP shall qualify that the premium/takaful contribution rate is applicable to standard risks and that the policy/takaful certificate terms and rates may vary depending on the underwriting requirements of the FSP; ii. for life insurance products, whether the premium rate is guaranteed or non- guaranteed; iii. for family takaful products, the allocation of the takaful contribution to the respective funds available under the takaful certificate, e.g. PIF and PRF and whether such product participates in the investment profit and/or surplus of the respective funds available under the takaful certificate and the details of participation. The FSP must advise financial consumers to refer to the product illustration for further information; and iv. the grace period, which gives the financial consumers additional period after the due date, for the payment of premium/ takaful contribution. Product Transparency and Disclosure 56 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 2.1.7 Disclosure of commissions/wakalah fees and charges: a. A FSP shall disclose and explain the nature, amount and frequency of the payment of all applicable fees and charges borne by financial consumers (e.g. policy/takaful certificate fees and surrender charges), including: i. commission/wakalah fees borne by financial consumers expressed both in terms of aggregate amount and as a percentage of takaful contributions payable and the purpose of charging the commission/wakalah fees. 2.2 At the point of entering into a contract S 2.2.1 Contractual rights and obligations a. A FSP must inform financial consumers of the following: i. any significant condition or obligation which the financial consumers must meet; ii. duty of financial consumers in relation to disclosure and representations to the FSP for insurance/takaful contracts and the consequences of failure to disclose the relevant information, provision of inaccurate or false information, misrepresentation, etc.; iii. the importance of financial consumers ensuring that the proposal form is completed accurately as it forms the basis of the insurance/takaful contract; iv. the requirement for financial consumers to provide proof of age to FSP; v. the date of commencement of risk, the duration of the life insurance/family takaful contract and the date of maturity or date on which the insurance/takaful benefits are payable, if applicable; vi. the consequences of failure to pay premium/takaful contribution within the due date and grace period and reinstatement provisions; vii. the importance of receiving and keeping the receipt from the FSP as proof of payment of premiums/contributions by the financial consumers; and viii. time frame required by the FSP to issue a policy/takaful certificate. S 2.2.2 Additional requirements for family takaful products a. A FSP must highlight to financial consumers the contents of the proposal form, such as: i. the aqad (contract) that binds the takaful participants; ii. the aqad that binds the takaful participants and the licensed takaful operator; iii. the method of distribution of investment profits and surplus, in particular, the sharing ratio; and iv. the allocation of investment profit, surplus or fees to the licensed takaful operator. S 2.2.3 Free-look period a. A FSP shall inform financial consumers clearly about the free-look period/cooling-off period of 15 calendar days from the delivery date of the policy/takaful certificate to review the suitability of the newly purchased policy/takaful certificate. b. The FSP must highlight that the consumers have the right to return the policy/takaful certificate within 15 calendar days of the delivery of the Product Transparency and Disclosure 57 of 83 Issued on: 29 February 2024 TERHAD TERHAD policy/takaful certificate, after reviewing the terms and conditions of the policy/takaful certificate. c. Should the consumers return the policy/ takaful certificate within the free-look period, the FSP shall immediately refund any premium/contribution which has been paid in respect of the life insurance/family takaful subject to the deduction of expenses incurred by the FSP for the consumers’ medical examinations. S 2.2.4 Replacement of policies/takaful certificates: A FSP must warn financial consumers on the possible implications and disadvantages of switching from one type of life insurance/family takaful policy/takaful certificate to another or from one FSP to another FSP. S 2.2.5 A FSP must explain to financial consumers the claim procedures and the consumers’ responsibilities in relation to making a claim against the policy/ takaful certificate. S 2.2.6 Other important notices a. A FSP shall provide notices on nomination and assignment, including the importance of making a nomination and its implications. Financial consumers must be advised to nominate a nominee and ensure that the nominee is aware of the life insurance policy/family takaful certificate that the consumers have purchased/participated. b. Where a FSP provides provisional insurance protection/takaful coverage from the date of receipt of a payment towards the premium/ takaful contribution, the FSP must disclose to financial consumers the terms and conditions, and limitations attaching to such insurance protection/takaful coverage during the period up to the date of issue of the life policy/family takaful certificate. c. Where a FSP does not provide insurance/takaful coverage until the proposal has been examined and accepted by the FSP, the FSP must disclose to financial consumers that insurance protection/takaful coverage will only be provided effective from the date of issue of the life policy/family takaful certificate. S 2.2.7 Additional requirements for family takaful products a. A FSP shall provide notices on the nature of the benefits from the various takaful funds. i.e. whether it is guaranteed or not guaranteed. A benefit is considered as guaranteed if in the event that the takaful fund is unable to meet the participant’s claim, there is an arrangement made by the FSP to address deficiency in the fund such as through qard or outright transfer; and b. In the event of deficiency in the PRF, the FSP must rectify the deficit through qard or outright transfer. S 2.2.8 A FSP shall inform financial consumers on the importance of notifying the FSP of any change in contact details, including the address of the financial consumers, the nominee and/or trustee. Product Transparency and Disclosure 58 of 83 Issued on: 29 February 2024 TERHAD TERHAD 2.3 During the term of the contract S 2.3.1 For life insurance contracts: a. Non-forfeiture options i. prior to the activation of an automatic premium loan (APL), a FSP must send a reminder to financial consumers before the premium payment due date another reminder within the grace period of the premium payment. b. In the event of first non-payment of premium by financial consumers, a FSP must inform the financial consumers within thirty (30) calendar days after the premium payment due date: i. the APL that has been applied in accordance to the life policy to keep the policy in-force and the interest rate that will be charged outstanding APL. A FSP must also inform financial consumers must be informed that the outstanding APL will be deducted from the cash value of the policy; and ii. the various non-forfeiture options that are available to the financial consumers and the advantages and disadvantages of each option: (a) cash/surrender value with the caution that financial consumers will only receive an amount which is much less than the premiums paid if the policy is surrendered; (b) reduced paid-up and its effect on the sum assured; and (c) other non-forfeiture options offered by the FSP such as extended term insurance. c. After the APL has been applied for a maximum period of 12 months: i. the FSP is required to write to financial consumers to offer all available non- forfeiture options. ii. the FSP may exercise its discretion to inform the consumers of all available non-forfeiture options prior to the expiry of the 12-month period during which APL is applied; iii. the FSP shall give the consumers ninety (90) calendar days to decide whether to continue the policy on APL or choose another non-forfeiture option such as reduced paid-up or extended term insurance; iv. in the case of trust policies, the FSP must alert the financial consumers to obtain the trustee’s consent for conversion to reduced paid-up or extended term insurance; and v. once the financial consumers confirm in writing of the chosen non-forfeiture option, the new non-forfeiture option shall be effected on the date of election. The FSP shall continue to apply the default option pending the reply from financial consumers. S 2.3.2 For family takaful certificates: a. Non-payment of contribution i. A FSP must inform financial consumers of the various non-forfeiture options that are available and the advantage and disadvantages of each option should the financial consumers fail to pay takaful contributions within the grace period: (a) cash/surrender value, and the surrender charges, if applicable, with the caution that the financial consumer will only receive an amount Product Transparency and Disclosure 59 of 83 Issued on: 29 February 2024 TERHAD TERHAD which is much less than the takaful contributions paid if the takaful certificate is surrendered; and (b) an advance will be made from the PIF to pay the outstanding takaful contributions and the possibility of the takaful certificate lapsing upon exhaustion of the amount in the PIF. ii. A FSP must include sufficient warning of potential shortfall of the PIF to meet tabarru’, the consequences of the PIF shortfall and remedial actions to rectify the shortfall, e.g. top-up by the participant, in the annual statements to takaful participants. S 2.3.3 Cessation of business with insurance/takaful agents a. In the event a FSP’s agent ceases to operate or ceases to continue to arrange its life policies/family takaful certificates, the FSP must inform the affected consumers (either by written notice or via electronic means) of the following: i. that the insurance/takaful agent has ceased to operate or has ceased to continue to arrange its life policies/family takaful certificates; ii. the new point of contact for policy/ takaful certificate servicing; and iii. how future premiums/ takaful contributions can be transmitted to the FSP, if applicable. 3. Investment-Linked (IL) Insurance/Takaful Products 3.1 Pre-contractual stage S 3.1.1 Disclosure by FSP a. A FSP must inform financial consumers that it is licensed under the FSA/IFSA and regulated by Bank Negara Malaysia. b. Where insurance/takaful is to be arranged through an intermediary, a FSP must ensure that the name and address of the intermediary and that the FSP underwrites the policy/takaful certificate is disclosed to financial consumers. S 3.1.2 Advising and selling/marketing: A FSP must inform financial consumers of the importance of providing sufficient and accurate information to enable the FSP to advise the consumer on the suitability of the IL product, taking into consideration the appropriateness of such product to the financial consumer’s needs and circumstances. S 3.1.3 Nature and objective of the IL product a. A FSP shall provide financial consumers with a description of the IL product, such as: i. the type of IL product; ii. the nature of investment including the underlying assets, objectives of the fund and investment strategy of the IL product, to enable the consumers to make a proper assessment of the fund and its potential risks; iii. product information contained in the relevant sales/marketing materials; iv. the availability of the top-up facility and its use as a method to maximise the financial consumer’s investment value; and v. the basic insurance/takaful coverage, in the event of death and total permanent disability, and the multiple of the premium/takaful contribution paid. Product Transparency and Disclosure 60 of 83 Issued on: 29 February 2024 TERHAD TERHAD Additional requirements for IL takaful products: vi. applicable Shariah concepts, between takaful participants of the takaful fund for mutual financial assistance and between the licensed takaful operator and takaful participants in managing the takaful funds; and vii. sufficient information to enable financial consumers’ understanding of market movements and implications on the takaful funds, including potential shortfall of the PIF and possibility of takaful certificate lapsing. S 3.1.4 Insurance/takaful benefits payable and exclusions a. A FSP shall disclose the following information to financial consumers: i. the insurance/takaful benefits payable and circumstances or contingencies upon which insurance/takaful benefits are payable by the FSP to the financial consumer; ii. insurance/takaful benefits will fluctuate based on the underlying performance of the IL fund; iii. limitation on insurance/takaful benefits and the duration for which it is applicable, if any; iv. restrictions of insurance/takaful benefits (including lien imposed on the policy/takaful certificate) and exclusions under the insurance policy/takaful certificate to ensure that the consumer understands what is not covered under the policy/takaful certificate; and v. the surrender value payable under the IL policy/certificate and whether it is guaranteed or not guaranteed. S 3.1.5 Premium/ takaful contribution payments a. A FSP must provide financial consumers the details of the premium/ takaful contribution payments, including: i. whether it is a single lump-sum premium/ takaful contribution payment product or a regular premium/ takaful contribution product; ii. the amount of premiums/ takaful contributions, frequency with which and period over which payment is to be made in respect of regular premium/ takaful contribution product. The FSP shall qualify that the premium/ takaful contribution rate is applicable to standards risks and that the policy/takaful certificate terms and rates may vary, depending on the underwriting requirements of the FSPs; and iii. the grace period, which gives consumers additional period of time after the due date, for the payment of premium/contribution. S 3.1.6 Disclosure of commissions/wakalah fees and charges a. A FSP shall disclose and explain the nature, amount and frequency of the payment of all applicable fees and charges borne by financial consumers, including: i. details of commissions/wakalah fees borne by consumers expressed both in terms of aggregate amount and as a percentage of premiums/ takaful contributions payable for each policy/ takaful certificate year; and ii. other fees and charges borne by consumers which are not included in the premiums/ takaful contributions and the purpose for each fee or charge. Product Transparency and Disclosure 61 of 83 Issued on: 29 February 2024 TERHAD TERHAD 3.2 At the point of entering into a contract S 3.2.1 Risks and returns a. A FSP shall advise financial consumers of the significant risks and benefits of investing in the IL product in order to make informed decisions. A FSP shall advise the financial consumers to refer to the sales/marketing literature for further information. b. In disclosing the benefits, a FSP shall highlight to the financial consumers the potential upside and downside of the product. Given that returns on IL products are often contingent on the performance of underlying assets, a FSP shall highlight to the financial consumers that past performance is not indicative of future performance. S 3.2.2 Suitability of IL product a. A FSP shall ask financial consumers to at least consider the following: i. whether the allocation of insurance premiums/takaful contributions towards protection and investment meets the consumers’ financial circumstances; ii. whether the IL funds chosen match the consumers’ investment objectives and risk appetite; iii. whether the consumers understand the financial risks and potential losses that may arise from investing in the IL product; and iv. whether the financial consumers are satisfied that the IL product would best serve the consumers’ needs and that the premium/takaful contribution payable under the policy/takaful certificate is affordable. S 3.2.3 Contractual rights and obligations a. A FSP shall inform financial consumers of the following: i. any significant condition or obligation which the consumers must meet; ii. duty of financial consumers in relation to disclosure and representations to the FSP for insurance/takaful contracts and the consequences of failure to disclose the relevant information, provision of inaccurate or false information, misrepresentation etc.; iii. the importance for financial consumers to ensure that the proposal form is completed accurately as it forms the basis of the insurance/takaful contract; iv. the requirement for financial consumers to provide proof of age to the FSP; v. the date of commencement of risk; vi. the consequences of failure to pay premiums/takaful contributions within the due date and grace period and reinstatement provisions; vii. the importance of receiving and keeping the receipt from the FSP as proof of payment of premiums/takaful contributions by consumers; and viii. time frame required by the FSP to issue a policy/takaful certificate. S 3.2.4 Free-look period a. A FSP shall inform financial consumers clearly about the free-look period or cooling-off period of fifteen (15) calendar days from the date of delivery of the policy/takaful certificate to review the suitability of the newly purchased policy/takaful certificate. A FSP must highlight to financial consumers that they have the right to return the policy/takaful certificate within fifteen (15) calendar days of the delivery of the policy/takaful certificate to the financial Product Transparency and Disclosure 62 of 83 Issued on: 29 February 2024 TERHAD TERHAD consumer, after reviewing the terms and conditions of the policy/ takaful certificate, and the FSP shall refund: i. the unallocated premiums/takaful contributions; ii. value of units that have been allocated (if any) at unit price at the next valuation date; and iii. any insurance/takaful charge and policy/ takaful certificate fee that have been deducted, less medical expenses which may have been incurred. S 3.2.5 Replacement of policies/certificates: A FSP must warn financial consumers on the possible implications and disadvantages of switching from one type of IL policy/ takaful certificate to another or from one FSP to another FSP. S 3.2.6 A FSP must explain to financial consumers the claim procedures and the consumers’ responsibilities in relation to making a claim against the policy/ takaful certificate. S 3.2.7 Other important notices a. A FSP shall disclose to financial consumers other important information notices including: i. the availability of a surrender/cash value with the caution that the consumers will only receive an amount which is less than the premiums/ takaful contributions paid if the policy/takaful certificate is surrendered, and the surrender charges, if applicable; ii. in the case of premium/takaful contribution holidays, a FSP shall advise financial consumers on the consequences of taking a premium/takaful contribution holiday, including the possibility of the policy/takaful certificate lapsing when the required charges, including rider charges exceed the value of IL fund units available; iii. the provisions for nomination and assignment, including the importance of making a nomination and its implications. A FSP shall advise consumers to nominate a nominee and ensure that the nominee is aware of the policy/takaful certificate that the consumers have purchased; iv. where the fund is a guaranteed or capital-guaranteed (by a third-party) and the guarantee is only valid at a certain point in time, it must be disclosed that the guarantee is not valid on premature withdrawal; v. the availability of options to vary the level of death benefits and premiums/ takaful contributions, and switch IL fund; and vi. the availability of top-up facility on the consumers’ existing IL policy/ takaful certificate at any time to enhance the investment portion of both single and regular premium/takaful contribution policy/takaful certificate, with or without any change in the insurance/takaful coverage. S 3.2.8 A FSP shall inform financial consumers of the importance of notifying the FSP of any change in contact details, including the address of consumers, nominee and/or trustee. S 3.2.9 Additional requirements for IL takaful products: Contents of proposal form: A FSP shall highlight to financial consumers the contents of the proposal form, such as: i. the aqad that binds the takaful participants of takaful; Product Transparency and Disclosure 63 of 83 Issued on: 29 February 2024 TERHAD TERHAD ii. the aqad that binds the takaful participants and the licensed takaful operator; and iii. the method of distribution of investment profits and surplus in particular, the sharing ratio. 3.3 During the term of the contract S 3.3.1 Cessation of business with insurance/takaful agents a. In the event where the insurance/takaful agent ceases to operate or ceases to continue to arrange its IL product, a FSP shall inform the affected financial consumers (either by written notice or via electronic means) of the following: i. that the insurance/takaful agent has ceased to operate or has ceased to continue to arrange its IL product; ii. the new point of contact for policy/takaful certificate servicing; and iii. how future premiums/takaful contributions can be transmitted to the FSP, if applicable. S 3.3.2 Additional requirements for IL takaful products: A FSP shall include sufficient warning of potential shortfall of the PIF to meet tabarru’, the consequences of the PIF shortfall and remedial actions to rectify the shortfall, e.g. top-up by the takaful participant in the annual statements to the financial consumer. 4. General Insurance/Takaful Products (other than Medical and Health Insurance/Takaful) 4.1 Pre-contractual stage S 4.1.1 Disclosure by FSP a. A FSP must inform financial consumers that it is licensed under the FSA or IFSA and regulated by Bank Negara Malaysia. b. Where insurance/takaful is to be arranged through an intermediary, the FSP must ensure that the intermediary discloses to the financial consumers the name and address of the intermediary and the FSP underwriting the policy/ takaful certificate. S 4.1.2 Principles of insurance/takaful a. To enhance understanding of the nature of insurance/takaful products, a FSP shall explain to financial consumers the main principles of insurance/takaful which are applicable to the insurance/takaful product that the financial consumers intend to purchase/participate in: i. Insurable/permissible takaful interest - an insured/takaful participant must have insurable/permissible takaful interest, i.e. right, title or interest in a property/item/life such that a loss or damage to the property/item/life would result in a financial loss to the insured/takaful participant; Product Transparency and Disclosure 64 of 83 Issued on: 29 February 2024 TERHAD TERHAD ii. duty of financial consumers in relation to disclosure and representation25 to the FSP for insurance/takaful contracts, the consequences of failure to disclose the relevant information, provision of inaccurate or false information, misrepresentation etc. as well as duty of utmost good faith in dealing with licensed ITOs; iii. contract of indemnity26 - financial compensation to restore, as best as possible, the insured/takaful participant to the same position the insured/ takaful participant had enjoyed immediately before the loss; and iv. contribution - the FSP is liable only for the FSP’s ‘rateable proportion’ of the loss in the event an insured/takaful participant has more than one policy/takaful certificate to cover a particular property. S 4.1.3 Product features a. A FSP must explain the main features of the insurance/takaful product to financial consumers, including: i. Types of cover offered and the scope of each cover; For example: (a) Motor insurance/takaful: the available covers are third party; comprehensive; and third party, fire and theft. Third party policy/takaful certificate covers financial consumers against claims for bodily injuries or deaths caused to other persons and loss or damage to third party property caused by the financial ’ vehicles. (b) Houseowner/householder insurance/takaful: the available covers are basic fire policy/takaful certificate; houseowner policy/takaful certificate; and householder policy/takaful certificate. The basic fire policy/takaful certificate provides financial consumers with coverage for the building only and covers loss or damage by fire, lightning or explosion. (c) Personal accident (PA) insurance: the available covers are accidental death, permanent total or partial disablement, temporary total or partial disablement, medical expenses, hospitalisation benefits and funeral expenses. To refer financial consumers to the scale of benefits for death and disablement in the insurance policy/takaful certificate. ii. Exclusions which can be covered with the payment of additional premiums/takaful contribution; For example: (a) Motor insurance/takaful: the comprehensive motor policy/takaful certificate can be extended to cover flood, landslide and windscreen damage and/or extensions to cover the passengers. (b) Houseowner/householder insurance/takaful: the houseowner insurance/takaful policy/takaful certificate can be extended to cover subsidence, landslip, riot, strike and malicious damage. (c) PA insurance/takaful: the policy/takaful certificate can be extended to cover death or injury while operating or riding a motorcycle. 25 Including in relation to subject matter of insurance/takaful and the circumstances pertaining to it. 26 Not applicable to most personal accident product policies. Product Transparency and Disclosure 65 of 83 Issued on: 29 February 2024 TERHAD TERHAD iii. The importance of ensuring that the property is insured/covered at the market value and the effect of over-insurance/over-covered and under- insurance/under-covered, particularly during the duration of the policy/takaful certificate (not applicable for PA insurance/takaful); (a) Motor insurance/takaful: Financial consumers must be advised on the present market value of the vehicle, based on reference to a credible vehicle valuation database. The present market value must be indicated in the renewal notice or PDS. Financial consumers must also be advised of the betterment charges which may be applicable in their motor insurance/takaful claim. Financial consumers must be advised to insure/cover the vehicle at the market value of the vehicle. Where it is provided in the motor policy/takaful certificate that a particular vehicle valuation database will serve as the reference point to determine the market value of a vehicle, the FSP must refer to the same vehicle of the valuation database in providing the market value of the vehicle during the purchase of the insurance/takaful certificate as well as in the event of a claim. (b) Houseowner/householder insurance/takaful: Financial consumers must be advised to ensure the property is adequately insured/covered taking into account the renovations made to the property. The sum insured/covered should cover the cost of rebuilding the property in the event of loss/damage. The basis of compensation for householder policy/takaful certificate, i.e. whether it is on reinstatement or replacement value must be explained to financial consumers. iv. Restrictions and exclusions of the policy/takaful certificate to ensure that financial consumers understand what are not covered under the policy/takaful certificate. For example: (a) Motor insurance/takaful: the standard comprehensive motor policy/takaful certificate does not cover certain losses such as death of, or bodily injury to, the driver and passengers due to a motor accident and damage to vehicle arising from an act of nature such as flood and landslide. In addition, a warning that it is an offence under the laws of the Republic of Singapore to enter the country without extending passenger liability cover must also be informed to financial consumers. (b) Houseowner/householder insurance/takaful: householder policy/takaful certificate does not cover theft claims if there is no evidence of forced and violent entry/exit. (c) PA insurance/takaful: PA insurance/takaful does not cover death, disability or injury due to war, terrorism, suicide, dangerous sports, and while taking part in military, naval, air force, police or fire service duties. In addition, the range of age limits that can be insured under the PA policy/takaful certificate must be informed to financial consumers. S 4.1.4 Costs a. A FSP must provide financial consumers the full details of the costs charged, including: Product Transparency and Disclosure 66 of 83 Issued on: 29 February 2024 TERHAD TERHAD i. Premium/takaful contribution breakdown for each cover being purchased by the financial consumers. The FSP must qualify its explanation that the total premium/contribution payable may vary depending on the underwriting requirements of the FSP, where applicable; For example: (a) Motor insurance/takaful: premium/takaful contribution payable will depend on no-claim-discount entitlement of financial consumers and the underwriting requirements of the FSP such as risks of the driver and claims experience. ii. Other fees and charges which are not included in the premiums/takaful contributions, and the purpose of each fee or charge (including any possible future fees or charges, such as for changing or cancelling the policy/takaful certificate, handling claims or any other services); iii. Details of commission/wakalah fee borne by financial consumers, expressed both in terms of aggregate amount and as a percentage of the insurance premium/takaful contribution payable and the purpose of charging the wakalah fee; iv. The timing of the premium/takaful contribution payment and the methods of payment available. For example: (a) Motor insurance/takaful: cash-before-cover requirements. Financial consumers are advised to pay the premium/contribution directly to the FSP, either by cash, credit card or cheque. Cheque shall be made ’ (b) Houseowner/householder insurance/takaful: premium warranty requirements. S 4.1.5 Additional requirements for general takaful products: a. Applicable Shariah concepts i. Between takaful participants of the takaful fund for mutual financial assistance; and ii. Between the licensed takaful operator and takaful participants in managing the takaful funds. 4.2 At the point of entering into a contract S 4.2.1 Contractual rights and obligations a. A FSP shall inform financial consumers of the following: i. Any significant condition, warranty or obligation which financial consumers must meet, failing which the FSP may repudiate liability or cancel the cover; For example: (a) Motor insurance/takaful: authorised drivers, limitations of use, and limitation on choice of repairers, if any Product Transparency and Disclosure 67 of 83 Issued on: 29 February 2024 TERHAD TERHAD ii. Duty of financial consumers in relation to disclosure and representations to the FSP for insurance/takaful contracts and the consequences of failure to disclose the relevant information, provision of inaccurate or false information, misrepresentation, etc.; For example: (a) Motor insurance/takaful: previous accident and modification to the vehicle. (b) PA insurance/takaful: the occupation and personal pursuits of financial consumers which would affect the risk profile of the consumers and the number of PA policies/takaful certificates that the consumers have purchased from other FSP. iii. The importance for financial consumers to ensure that the proposal form is completed accurately as it forms the basis of the insurance/takaful contract; For example: (a) PA insurance/takaful: financial consumers must also be advised to nominate a nominee and ensure that the nominee is aware of the PA policy/takaful certificate that financial consumers have purchased/ participated. iv. The period of coverage; v. The importance of receiving and keeping the receipt from the FSP as proof of payment of premiums/takaful contributions by financial consumers; and vi. The time frame required by the FSP to issue a policy/takafulcertificate. S 4.2.2 Additional requirement for general takaful products: a. The contents of the proposal form, such as: i. the aqad that binds the takaful participants of takaful; and ii. the aqad that binds the takaful participants and the licensed takaful operator. S 4.2.3 Claims a. A FSP must explain to financial consumers the claims procedures and the consumers’ responsibilities in relation to making a claim against the policy/takaful certificate; (a) Motor insurance/takaful: the steps to be taken by financial consumers when involved in an accident which include the requirements to obtain details of the accident such as the vehicles involved, to lodge a police report within 24 hours of the incident, to notify the FSP immediately and to submit the claims form with complete supporting documents. The FSP must advise the financial consumers the repairers they are allowed to use under their policy/takaful certificate in the event of a claim. The FSP must advise financial consumers holding comprehensive cover on the option to submit a third-party claim to their own licensed ITOs under Own Damage Knock-For-Knock (OD KfK) arrangement and financial Product Transparency and Disclosure 68 of 83 Issued on: 29 February 2024 TERHAD TERHAD consumers must be informed that their No Claims Discount (NCD) is not affected if an OD KfK is submitted, if the financial consumers are not at fault. The financial consumers must also be informed of the excess that they need to bear for vehicle damage claims. The FSP shall also explain to the consumers on claims for the compensation for assessed repair time (CART), including how the amount for CART is derived. (b) Houseowner/householder insurance/takaful: the amount of compensation depends on the basis of cover (i.e. replacement basis or reinstatement basis). Financial consumers must be advised to specifically declare each item to be insured/covered and keep the purchase receipts of the household items to support a claim under the householder policy/takaful certificate. (c) PA insurance/takaful: the FSP must inform that if financial consumers have purchased/participated in multiple PA policies/takaful certificates, certain losses such as medical expenses are compensated on reimbursement basis. Therefore, the consumers will be compensated only once for the actual loss suffered. b. Possible implications of the claim on financial consumers’ policy/takaful certificate in future renewals. For example: (a) Motor insurance/takaful: imposition of excess or loading, loss of no- claim-discount and increase in premium/takaful contribution. S 4.2.4 Notice of cancellation a. A FSP must inform financial consumers that: i. The policy/takaful certificate can be cancelled by financial consumers at any time by giving a written notice to the FSP; and ii. Upon cancellation, the financial consumers are entitled to a refund of the premium/takaful contribution. For example: (a) Motor insurance/takaful and Houseowner/householder insurance/takaful: Refund of the premium/takaful contribution is on short period rates. (b) PA insurance/takaful: Refund of the premium/takaful contribution can be either based on short period rates or pro-rated basis. S 4.2.5 Change of contact/personal details a. A FSP shall inform financial consumers of the importance of notifying the FSP of any change in their contact details. b. For PA policy/takaful certificate, the consumers must be advised to inform the FSP of any change in their life profile, including the occupation and personal pursuits which would affect the risk profile of the financial consumers. Product Transparency and Disclosure 69 of 83 Issued on: 29 February 2024 TERHAD TERHAD 4.3 During the term of the contract S 4.3.1 a. A FSP shall issue a notice of the expiry of the existing policy/certificate to financial consumers at least thirty (30) calendar days before the expiry date, to ensure that the financial consumers are given sufficient notice to obtain or renew the insurance/takaful cover. b. For motor insurance/takaful, where the market value of the vehicle is provided in the notice of expiry, the market value must be current based on reference to a credible vehicle valuation database. However, if the market value of the motor vehicle is not available in the vehicle valuation database, the FSP shall provide the previous year’s sum insured/covered of the vehicle in the notice of expiry and clarify that the indicated value is based on the previous year’s sum insured/covered. The FSP shall also highlight that the current market value of the vehicle may have depreciated. A FSP shall inform the financial consumers on the applicable discount or rebate if the financial consumers choose to renew the policy/takaful certificate directly with the FSP. In addition, the FSP shall disclose the no-claim-discount entitlement to the financial consumers together with the notice of the expiry. The FSP shall also include a warning statement that it is an offence under the laws of the Republic of Singapore to enter the country without extending passenger liability cover. 5. Medical and Health Insurance/Takaful (MHIT) S A FSP shall comply with the disclosure requirements under this paragraph for all types of individual MHIT policies/certificates, including MHIT riders attached to individual life policies/family takaful certificates, and group MHIT policies/takaful certificates referred to paragraph 3 of Schedule 8 of the FSA and paragraph 3 of Schedule 8 of the IFSA, where the master group policy/takaful certificate owners have no insurable interest/permissible takaful interest in the life of persons insured/covered under the policies/takaful certificates. A FSP must comply with the disclosure requirements stipulated in this policy document to all individuals covered under such group policies/takaful certificates. For other group MHIT policies/certificates where the group policy/takaful certificate owners have insurable interest/permissible takaful interest, the FSP shall ensure that the disclosures are made to the master policy/certificate owners. 5.1 Pre-contractual stage S 5.1.1 Disclosure by FSP a. A FSP must inform financial consumers that it is licensed under the FSA or IFSA and regulated by Bank Negara Malaysia. b. Where insurance/takaful is to be arranged through an intermediary, a FSP must ensure that its intermediary discloses to the financial consumers, the name and address of the intermediary and the FSP underwriting the policy/takaful certificate. S 5.1.2 A FSP shall inform financial consumers of the importance of providing sufficient and accurate information to enable the FSP to advise the consumers on the suitability of the MHIT product, taking into consideration the appropriateness of such product to the consumers’ needs and circumstances. Product Transparency and Disclosure 70 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 5.1.3 Product features a. A FSP shall provide financial consumers with sufficient details of the essential features of a MHIT product, including: i. types of MHIT products offered, such as hospitalisation and surgical insurance/takaful, critical illness insurance/takaful, disability income insurance/takaful and hospital income insurance/takaful, and the scope of cover for each type of MHIT product; ii. details of the benefits covered under the MHIT policy/takaful certificate such as what is and what is not covered. For example, hospitalisation and surgical insurance/takaful covers hospital accommodation and nursing expenses, surgical expenses, physicians’ expenses and in-patient tests but it does not cover maternity, congenital abnormalities and cosmetic or plastic surgery; iii. the amount of insurance/takaful benefits payable under the policy/takaful certificate, when benefits will be payable, and the manner it will be paid such as, reimbursement of medical expenses incurred by the consumer and a lump sum payment of sum insured/participated or payment of an income stream at regular intervals for the period that the financial consumer is incapacitated or hospitalized; iv. details of the events, circumstances or contingencies upon which insurance/takaful benefits are payable. Additional requirements for takaful products: v. applicable Shariah concepts between takaful participants of the takaful fund for mutual financing assistance and between the licensed takaful operator and takaful participants in managing the takaful funds. S 5.1.4 Exclusions and limitations of insurance/takaful benefits a. A FSP shall adequately disclose and clearly explain to financial consumers the information regarding insurance/takaful benefit exclusions and limitations, pre-existing conditions, specified illnesses and waiting period as specified in the Policy Document on Medical and Health Insurance/Takaful Business. b. A FSP shall also inform the consumer whether any particular cover ceases at a pre-determined age of policy/takaful certificate anniversary. S 5.1.5 Premium/contribution payments a. A FSP must provide to financial consumers the full details of the premium/takaful contribution payments, including: i. the amount of premiums/takaful contributions, the frequency of payment and the period over which the premiums/takaful contributions are payable. The FSP must qualify that the total premiums/takaful contributions payable may vary, depending on the underwriting requirements of the FSP, where applicable; ii. the premiums/takaful contributions rates table showing the premiums/takaful contributions of the MHIT product for all ages at entry; iii. the possible conditions that would lead to the following scenarios on policy/takaful certificate renewals: (a) policy/takaful certificate is renewed with a level premium/contribution; Product Transparency and Disclosure 71 of 83 Issued on: 29 February 2024 TERHAD TERHAD (b) policy/takaful certificate is renewed with an increased premium/takaful contribution; or (c) policy/takaful certificate is not renewed. A FSP must alert the financial consumer that the possible conditions disclosed are not exhaustive and that premium/takaful contribution rates may be reviewed or policy/takaful certificate renewal declined under other justified circumstances; iv. whether the premiums/takaful contributions remain at the same level or may vary on renewal. Where premiums/takaful contributions have varied before, statistics on the annual increases in the standard premiums/takaful contributions for the MHIT product over the last three years for selected sample ages at entry of 30, 40, 50 and 60 shall be disclosed. A FSP must also alert the financial consumer that the past trends on the increase in premium/takaful contribution rates do not necessarily reflect the future trend; v. highlight the FSP’s right to revise the premiums/takaful contributions on policy/takaful certificate renewals; and vi. co-payments borne by the consumer under cost-sharing or co- insurance/co-takaful terms, if applicable, shall be made clear to the financial consumer. S 5.1.6 Disclosure of commissions/wakalah fees and charges a. A FSP must provide financial consumers the full details of the costs charged, including: i. commissions/wakalah fees borne by the consumer, expressed both in terms of the aggregate amount and as a percentage of premiums/takaful contributions payable for each policy/takaful certificate year, for stand- alone and group policies/takaful certificates. For MHIT riders, A FSP must express commissions payable in aggregate amount in each policy/takaful certificate year; and ii. other fees and charges which are not included in the premiums/takaful contributions and the purpose of each fee or charge. 5.2 At the point of entering into a contract S 5.2.1 Contractual rights and obligations a. A FSP shall inform financial consumers of the following: i. any significant condition or obligation which the financial consumer must meet, failing which the FSP may repudiate liability or cancel the MHIT policy/takaful certificate; ii. duty of financial consumers in relation to disclosure and representations to the FSP for insurance/takaful contracts and the consequences of failure to disclose the relevant information, provision of inaccurate or false information, misrepresentation etc.; iii. the importance for the consumer to ensure that the proposal form is completed accurately as it forms the basis of the insurance/takaful contract; iv. the period of coverage; v. the importance of receiving and keeping the receipt from the FSP as proof of payment of premiums/takaful contributions by the consumer; and vi. time frame required by the FSP to issue a policy/takaful certificate. Product Transparency and Disclosure 72 of 83 Issued on: 29 February 2024 TERHAD TERHAD vii. Additional requirement for takaful products: the contents of the proposal form, such as the aqad that binds the takaful participants of takaful and the aqad that binds the takaful participants and the licensed takaful operator. S 5.2.2 A FSP shall inform financial consumers clearly about the free-look period/cooling-off period of fifteen (15) calendar days from the delivery date of the policy/takaful certificate to review the suitability of the newly purchased policy/takaful certificate. A FSP must highlight to the financial consumers they have the right to return the policy/certificate within 15 calendar days of the delivery of the policy/takaful certificate, after reviewing the terms and conditions of the policy/takaful certificate and that any expenses incurred by the FSP for the consumer’s medical examination could be deducted from the premiums/takaful contributions. S 5.2.3 Replacement of policies/takaful certificates: A FSP shall inform financial consumers on possible implications and disadvantages of switching policy/takaful certificate from one type of MHIT policy/takaful certificate to another or from one FSP to another FSP. For example, the consumer may be subject to new terms and conditions of the new policy/takaful certificate or of the new FSP. S 5.2.4 Claims a. A FSP must explain to financial consumers the claims procedures and the consumer’s responsibilities in relation to making a claim against the policy/takaful certificate. b. A FSP shall provide the list of panel hospitals/clinics where the consumer can seek treatment, if applicable. S 5.2.5 Notice of cancellation a. A FSP must inform financial consumers that: i. the MHIT policy/takaful certificate can be cancelled by the financial consumer at any time by giving a written notice to the FSP; and ii. for certain types of MHIT policies/takaful certificates, the financial consumer is entitled to a certain amount of premium/takaful contribution refund provided the consumer has not made a claim on the policy/takaful certificate. S 5.2.6 A FSP shall inform financial consumers of the importance of notifying the FSP of any change in contact details. 5.3 During the term of the contract S 5.3.1 a. Termination of coverage: To ensure that financial consumers are given sufficient notice, a FSP shall issue a notice of the expiry of the existing policy/takaful certificate to the financial consumer, at least thirty (30) calendar days before the expiry date. For example, a notice shall be issued by the FSP to inform the consumer that the MHIT policy/takaful certificate or rider will automatically terminate if the policy/takaful certificate anniversary nearest to the 70th birthday of the insured/takaful participant is reached. Product Transparency and Disclosure 73 of 83 Issued on: 29 February 2024 TERHAD TERHAD b. Change to insurance/takaful benefits and premiums/takaful contributions: A FSP shall notify financial consumers in writing of all changes to critical insurance/takaful benefits and premiums/takaful contributions of a particular MHIT policy/takaful certificate and preferably, the reasons for the change, at least thirty (30) calendar days before any change is made. This is to ensure that the financial consumers are aware of the change made and given adequate time to reassess the insurance/takaful needs and to look for alternative products, if necessary. Changes to insurance/takaful benefits and premiums/takaful contributions of MHIT policies/takaful certificates can be made by a FSP on policy/takaful certificate anniversary or upon renewal only. c. Change to panel hospitals/clinics: A FSP must ensure that financial consumers are informed of any change in its panel hospitals/clinics at least thirty (30) calendar days prior to the effective date of the change. d. Cessation of business with insurance/takaful agents In the event the insurance/takaful agents ceases to operate or continue to arrange its MHIT policies/takaful certificates, a FSP must inform the affected financial consumers (either by written notice or via electronic means) of the following: i. that the insurance/takaful agent has ceased to operate or has ceased to continue to arrange his MHIT policies/takaful certificates; ii. the new point of contact for policy/takaful certificate servicing; and iii. how future premiums/takaful contributions can be transmitted to the FSP, if applicable. 5.4 Disclosure requirements for marketing materials S 5.4.1 A FSP shall as far as practicable, disclose all possible exclusions or limitations in a MHIT policy/takaful certificate in marketing and sales materials. Disclosures shall at least cover the following areas: a. a statement alerting financial consumers that there are exclusions and limitations in insurance/takaful benefits, and how and where additional information on the exclusions and limitations could be obtained; b. important exclusions and limitations of insurance/takaful benefits and circumstances in which the exclusions and limitations apply; c. important pre-existing conditions, specified illnesses and the qualifying period applicable; d. waiting period, deductibles, reimbursements, co-insurance/takaful, residence overseas, overseas treatment and the circumstances in which the limitations and exclusions apply; and e. a statement alerting the financial consumer that the exclusions and limitations of insurance/takaful benefits highlighted are not exhaustive and that the full information are stipulated in the insurance/takaful contract. The FSP shall use simple examples to illustrate the above disclosures. Product Transparency and Disclosure 74 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix V Requirement for Product Disclosure Sheet Type of Product Requirement for Product Disclosure Sheet1 Yes No Ordinary Life Insurance/Family Takaful ✓ Investment-Linked Insurance/Takaful ✓ Motor Insurance/Takaful ✓ Houseowner/Householder Insurance/Takaful ✓ Personal Accident Insurance/Takaful ✓ Medical and Health Insurance/Takaful ✓ 2 Other Products ✓ Note: 1. The PDS must be given to financial consumers when they purchase a new policy/takaful certificate as well as when the financial consumers renew the insurance policy/takaful certificate, if there is a material change in the information contained in the PDS. 2. The sample PDS for medical reimbursement insurance/takaful products (i.e. hospital/surgical) is specified in the PD on Medical and Health Insurance/Takaful Business. For other types of MHIT products (i.e. critical illness, hospitalisation income, etc.), the sample PDS is specified in this Policy Document. Product Transparency and Disclosure 75 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix VI - Sample of Product Disclosure Sheet (Motor Insurance/Takaful) [Note: This format will be replicated for other ITO products] PRODUCT DISCLOSURE SHEET Dear Customer s Name] This Product Disclosure Sheet (PDS) is designed to provide you with some key information on your motor insurance ta aful product name]. ther customers have read this PDS and found it helpful, e thin ou should read this too. FSP Logo and Name Date Kno Your Coverage For our Product T pe] Proton Gen Your ehicle earsAge of ehicle ccCu ic Capacit RM 3 , . Sum Insured Sum Covered 3 No Claim Discount NCD Entitlement Windscreen coverage with sum insured / sum covered RM . Basic flood coverage (Additional to your basic premium/takaful contribution price) Additional Coverage (This is purchased with an additional premium/takaful contribution) Your motor polic ta aful covers: Liabilities to other parties for injury or death. Damages to other parties property Accidental or fire damage to your vehicle. Theft of your vehicle. Wind screen damage. Damage arising from floods and landslide. Your motor polic ta aful e cludes: our own death or bodily injury due to motor incident. our liability against claims from passengers in your vehicle. Consequential loss, depreciation, wear and tear, rust and corrosion, mechanical/electronic breakdowns, failures/breakdown, equipment/computer malfunction. If ou have an uestions a out our insurance ta aful ou can: Call us at isit us at https // productspecifi cwebpage .com Email us at mail.com Scan the R code above Page / Product Transparency and Disclosure 76 of 83 Issued on: 29 February 2024 TERHAD TERHAD Kno Your O ligations For this Product T pe] ou must pa a premium ta aful contri ution of: RM Base premium ta aful contri ution (RM3 . ) NCD entitlement RM .3 RM Additional indscreen cover RM . Additional asic flood cover RM . (RM .33) Discount direct purchase RM . RM . Service Ta RM . 3Total premium ta aful contri ution RM Stamp dut RM Total premium ta aful contri ution pa a le Customer s Ac no ledgment Optional Please ensure you are filling this section yourself and aware of what you are placing your signature for. I acknowledge that FSP name has provided me with a copy of the PDS. I have read and understood the key information contained in this PDS. Name Date Page / IMPORTANT INFORMATION YOU SHOULD KNO The insurance/takaful will only be effective once you have paid the premium/contribution (cash efore cover). ou must ensure that your vehicle is insured/covered at the appropriate amount as it will affect the amount you can claim ou must notify us of all accidents within hours, no matter how small, even if there is no visible damage, regardless whether you are claiming from any insurer or third party Scan here to submit a claim The duration of coverage is year. ou need to renew the insurance/takaful cover annually . Product Transparency and Disclosure 77 of 83 Issued on: 29 February 2024 TERHAD TERHAD SCHEDULE III: PAYMENT INSTRUMENTS A FSP shall comply with disclosure requirements in respect of the relevant payment instruments as provided under the Policy Documents on Credit Card, Credit Card-i, Charge Card, Charge Card-i, Debit Card and Debit Card-i. 1. Electronic money 1.1 Pre-contractual stage S 1.1.1 Basic features a. A FSP shall inform financial consumers of the basic features of the electronic money (E-money), including the types of payment or transaction that can be made with the e-money. b. A FSP shall highlight to financial consumers that the e-money is not a deposit account and will not earn any interest/profit. S 1.1.2 A FSP shall clearly disclose to financial consumers all applicable fees and charges in relation to the e-money, the amount and frequency of payment. S 1.1.3 Disclosure by intermediary a. A FSP must ensure that its sales and marketing representatives contacting financial consumers identify the FSP being represented. b. A FSP must ensure its sales and marketing representative explain to financial consumers the key terms, benefits and risks of the e-money instrument being offered by the FSP. 1.2 At the point of entering into a contract S 1.2.1 Terms and conditions a. A FSP shall ensure that the written terms and conditions of the e-money are made readily available to financial consumers. . b. A FSP shall advise financial consumers to read and understand the terms and conditions before entering into the contract with the FSP. The FSP shall also highlight to the financial consumers the terms that have implication on the financial consumers’ liabilities or obligations. S 1.2.2 A FSP shall inform financial consumers of the relevant charges for retail e-money transactions made outside Malaysia. S 1.2.3 Liability for lost, stolen and malfunction of e-money a. A FSP shall highlight to financial consumers of their obligations to take reasonable steps to protect the e-money and personal identification number (PIN). The FSP shall also alert the financial consumers not to disclose e- money instrument or PIN details to any unauthorised party. b. A FSP shall inform financial consumers that the FSP is not liable for any losses due to the negligence of the financial consumers. c. A FSP shall inform financial consumers on the procedures to notify the FSP of the loss, theft or malfunction of the e-money. Product Transparency and Disclosure 78 of 83 Issued on: 29 February 2024 TERHAD TERHAD S 1.2.4 A FSP shall inform financial consumers of the circumstances under which the credit balance in the e-money account will be refunded to the financial consumers, the time frame required for a FSP to process a refund as well as the applicable fees and charges. S 1.2.5 A FSP shall provide financial consumers with the contact details of its customer service unit for financial consumers to make an enquiry or complaint and clearly state the procedures for financial consumers to lodge a complaint shall be clearly stated. 1.3 During the term of the contract S 1.3.1 A FSP shall notify financial consumers of any change in fees and charges applicable to the e-money at least twenty one (21) calendar days prior to the effective date of implementation of such change. S 1.3.2 A FSP shall notify financial consumers of any change in the terms and conditions at least twenty one (21) calendar days before the new terms and conditions take effect. A FSP’s communication to the consumers shall be done through written or electronic notification. Product Transparency and Disclosure 79 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix VII - Sample of Product Disclosure Sheet (e-money) PRODUCT DISCLOSURE SHEET Dear Customer s Name] This Product Disclosure Sheet (PDS) is designed to provide you with some key information on e mone product name]. ther customers have read this PDS and found it helpful, ou should read this too. FSP Logo and Name Date Kno our Product name] is an e money which contains a monetary value that has been pre loaded by you. The amount stored in your account will be deducted whenever you make a purchase using this . ou must make sure there is enough balance in your account before making payments using your . The balance in your will not earn any interest/profit. Page / It is our responsi ilit to read and understand the follo ing e terms: . FSPs to clearly highlight the key terms that affect the customer s obligations. . ou must safeguard your and must not disclose the personal identification number (PIN) to any person. 3. aaa . bbb Contact us immediatel if you lose your or an unauthorised transaction has been made using your . Calling us at xx xxx xxxx Lodging a report via https // webpage .com Email us at xx email.com Scan the R code Kno our o ligations Product Transparency and Disclosure 80 of 83 Issued on: 29 February 2024 TERHAD TERHAD Page / Customer s Ac no ledgment Optional Please ensure you are filling this section yourself and aware of what you are placing your signature for. I acknowledge that FSP name has provided me with a copy of the PDS. I have read and understood the key information contained in this PDS. Name Date Kno the relevant fees AmountFees Charges RM xxAnnual fee (if any) RM xx oining fee (if any) RM xx verseas transaction conversion fee (if applicable) RM xx ther fees If ou have an uestions a out our ou can: Call us at xx xxx xxxx isit us at https // products webpage .com Email us at xx email.com Scan the R code Product Transparency and Disclosure 81 of 83 Issued on: 29 February 2024 TERHAD TERHAD SCHEDULE IV: CROSS-BORDER TRADE SETTLEMENT SERVICES 1. Disclosure Requirements S 1.1 A FSP shall provide relevant information relevant information specified under paragraphs 1.2 and 1.3 to financial consumers in a timely, comparable, easily accessible and understandable manner. S 1.2 A FSP shall disclose, at a minimum, the following material information to financial consumers: a. prior to the execution of the payment- i. a detailed breakdown of fee components payable by the sender for making outward payments and by the beneficiary for receiving inward payments; ii. the daily actual, contracted or reference exchange rate, where applicable, used for the payment transaction; iii. the cut-off time for same-day processing of the sender’s request by the sending FSP and the corresponding estimated timeframe taken for the crediting of funds by the receiving FSP; and b. after the execution of the payment: the status of the transaction to be made available to the sender by the timeframe specified in paragraph 1.2(a)(iii) above in an easily accessible manner. S 1.3 A FSP shall disclose financial consumers, the material information specified under paragraph 1.2 for all trade settlement services to facilitate comparison. The information that shall be disclosed by a FSP to a financial consumer, shall, at minimum include the information specified in the standard template in Appendices V and VI. S 1.4 A FSP shall make available to financial consumers the information described in paragraphs 1.2 and 1.3 above at all its branches and website. Product Transparency and Disclosure 82 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix VIII Template for disclosure of cross-border trade settlement services Type of Services Fees and charges Cut-off time for transaction to be processed i.IMPORT Example: 1.1 Import Letter of Credit Issuance Amendment Cancellation Cost of wire/TT/SWIFT/cable charges Service charges (e.g. handling, advising, commission, etc.) ii.EXPORT Example: 2.1 Export Letter of Credit Confirmation Cost of wire/TT/SWIFT/cable charges Service charges (e.g. handling, advising, commission, etc.) Other charges (e.g. stamp duty, postage, courier, etc.) Note: TT refers to Telegraphic Transfer *SWIFT refers to the Society for Worldwide Interbank Financial Telecommunication Product Transparency and Disclosure 83 of 83 Issued on: 29 February 2024 TERHAD TERHAD Appendix IX - Foreign exchange counter rates Code Foreign currency Unit Selling TT/OD* Buying TT* OD* Note: TT refers to Telegraphic Transfer *OD refers to On Demand rate	Public Notice
29 Feb 2024	Dokumen Dasar Rangka Kerja Pengawalseliaan Sandbox Teknologi Kewangan	https://www.bnm.gov.my/-/sandbox-pd24-bm	https://www.bnm.gov.my/documents/20124/938039/pd-sandbox-feb24.pdf, https://www.bnm.gov.my/documents/20124/938039/form-sandbox-greenlane.pdf, https://www.bnm.gov.my/documents/20124/938039/form-sandbox-standard.pdf, https://www.bnm.gov.my/documents/20124/938039/faq-sandbox-feb24.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/sandbox-pd24-bm&languageId=ms_MY	Reading: Dokumen Dasar Rangka Kerja Pengawalseliaan Sandbox Teknologi Kewangan Share: 4 Dokumen Dasar Rangka Kerja Pengawalseliaan Sandbox Teknologi Kewangan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1700 pada Khamis, 29 Februari 2024 29 Feb 2024 Ringkasan Dokumen dasar ini menetapkan dokumen dasar Rangka Kerja Pengawalseliaan Sandbox Teknologi Kewangan (Fintech) yang disemak semula oleh Bank Negara Malaysia (BNM), yang mengandungi penambahbaikan pada dokumen dasar dengan nama yang sama, yang dikeluarkan pada 18 Oktober 2016 [BNM/RH/PD 030-1]. Penambahbaikan ini tertumpu pada memastikan kemudahan pengawalseliaan yang berkadar dan meningkatkan kecekapan operasi prosedur sandbox sedia ada melalui: a) memudahkan penilaian Tahap 1 (kelayakan) sandbox ; dan b) memperkenalkan Lorong Hijau, yang bertujuan untuk menyediakan laluan yang berkadar risiko dan dipercepatkan untuk penyelesaian inovatif oleh institusi kewangan dengan keupayaan pengurusan risiko yang kukuh. Dokumen Soalan Lazim memberikan penjelasan tambahan tentang tafsiran dan pelaksanaan Rangka Kerja yang dipertingkatkan. Keterpakaian Orang yang diberi kuasa atau berdaftar di bawah Akta Perkhidmatan Kewangan 2013 (FSA) Orang yang diberi kuasa di bawah Akta Perkhidmatan Kewangan Islam 2013 (IFSA) Pemegang lesen di bawah Akta Perniagaan Perkhidmatan Wang 2011 (MSBA) Institusi yang ditetapkan di bawah Akta Institusi Kewangan Pembangunan 2002 (DFIA) Syarikat fintech yang berhasrat untuk meneruskan: a) perniagaan yang dibenarkan atau berdaftar seperti yang ditakrifkan dalam FSA; b) perniagaan yang dibenarkan seperti yang ditakrifkan dalam IFSA; atau c) perniagaan perkhidmatan wang seperti yang ditakrifkan dalam MSBA. Tarikh Penerbitan 29 Februari 2024 Tarikh Berkuat Kuasa 29 Februari 2024 Jabatan Pengeluar Jabatan Pembangunan dan Inovasi Kewangan Akta Berkaitan Akta Perkhidmatan Kewangan 2013 Akta Perkhidmatan Kewangan Islam 2013 Akta Perniagaan Perkhidmatan Wang 2011 Akta Institusi Kewangan Pembangunan 2002 Dokumen Dokumen Dasar Rangka Kerja Pengawalseliaan Sandbox Teknologi Kewangan Soalan Lazim Borang Permohonan Sandbox Standard Borang Permohonan Lorong Hijau Lihat juga: Laman Sandbox Pengawalseliaan Bank Negara Malaysia 29 Februari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Policy Document on Fintech Regulatory Sandbox Framework Issued on: 29 February 2024 BNM/RH/PD 030-15 Financial Technology Regulatory Sandbox Framework Regulatory Sandbox 2 of 39 Issued on: 29 February 2024 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 3 1. Introduction ............................................................................................... 3 2. Applicability ............................................................................................... 4 3. Legal provision .......................................................................................... 5 4. Effective date and policy document superseded ....................................... 5 5. Interpretation ............................................................................................. 6 PART B STANDARD SANDBOX .......................................................................... 10 6. Standard Sandbox assessment procedure ............................................. 10 PART C GREEN LANE ......................................................................................... 14 7. Approval mechanism and safeguards ..................................................... 14 PART D GENERAL REQUIREMENTS ................................................................. 21 8. Application requirements ......................................................................... 21 9. Expiry and revocation of approval ........................................................... 21 10. Submission of information and reports .................................................... 25 PART E APPENDICES ........................................................................................ 26 Appendix I Overview of application and assessment process ........................... 26 Appendix II Information requirements for Standard Sandbox application ............ 27 (fill up where applicable) ...................................................................................... 27 Appendix III Overview of prototype development for Standard Sandbox .......... 32 Appendix IV Overview of Green Lane’s operational mechanism ...................... 33 Appendix V Information required for Green Lane application .............................. 34 Regulatory Sandbox 3 of 39 Issued on: 29 February 2024 PART A OVERVIEW 1. Introduction 1.1 The Financial Technology Regulatory Sandbox Framework (“Framework”) was first introduced in October 2016 to provide a regulatory environment that is conducive for the deployment of financial technology (“fintech”) and to facilitate meaningful innovation in the Malaysian financial sector. Through the regulatory sandbox (“sandbox”), regulatory flexibilities may be granted to applicants to allow experimentation of fintech solutions in a live environment, subject to appropriate safeguards and regulatory requirements. 1.2 The sandbox has played an important role in advancing digital innovation for both incumbents and start-ups, with over 110 applications received over six years since it began operation. The sandbox has enabled the testing of various new technologies (e.g. electronic Know-Your-Customer) and business models (e.g. digital insurance, peer-to-peer family takaful, buy-now-pay-later, digital remittance) in the market which has helped inform the Bank’s developmental policy considerations and contributed to several policy enhancements. The sandbox also strengthened collaborative efforts between stakeholders in the fintech ecosystem by acting as a platform for active and open engagements with the Bank. 1.3 More importantly, past sandbox experiences have provided key learnings in anticipating future development and ensuring objectives of proportionate requirements and responsible innovation are met. In particular, two key insights have been helpful in formulating policies and appropriate regulatory requirements: (a) a one-size-fit-all type of framework for sandbox may be less suited to foster financial innovation in the current market given growing innovation capabilities and appetite within the financial sector to conduct the test- and-learn approach; and (b) based on engagements with sandbox applicants thus far, it is noted that the past sandbox eligibility assessment may be challenging for early stage fintech startups to navigate. This could potentially lead to challenges for applicants to secure the necessary resources to support further development of their solutions. Regulatory Sandbox 4 of 39 Issued on: 29 February 2024 1.4 Reflecting on the feedback received, the Bank is introducing two key enhancements to the Framework issued in October 2016, as follows: (a) simplification of the Stage 1 eligibility assessment criteria of the Standard Sandbox pathway (Stage 1 – Eligibility Stage). This is to ensure that the rigour of assessment is proportional and better aligned with the development cycle of new innovations; and (b) introduction of a risk-proportionate accelerated track under the Framework, referred to as the Green Lane, to facilitate faster testing of innovative solutions by granting regulatory flexibility to financial institutions, with strong track record in risk management, governance, and compliance capabilities. A comparison of the application and assessment process for both tracks is illustrated in Appendix I. 1.5 It should be emphasised that while the enhancements are intended to accelerate testing via the sandbox, it cannot be used to circumvent existing laws and regulations merely for the purpose of facilitating market entry of new entrants. Regulated activities involving solutions that are not suitable to be tested under the sandbox will be guided towards the appropriate regulatory pathways and assessed accordingly. 2. Applicability 2.1 This policy document is applicable to – (a) a financial institution as defined in paragraph 5.2; (b) an approved and registered intermediary as defined in paragraph 5.2; (c) an approved operator of a payment system as defined in paragraph 5.2; (d) a registered merchant acquirer as defined in paragraph 5.2; (e) a fintech company as defined in paragraph 5.2 which collaborates with a financial institution, an approved and registered intermediary, an approved operator of a payment system or a registered merchant acquirer; and (f) a fintech company intending to carry on: Regulatory Sandbox 5 of 39 Issued on: 29 February 2024 (i) an authorised or registered business as defined in the Financial Services Act 2013 (FSA); (ii) an authorised business as defined in the Islamic Financial Services Act 2013 (IFSA); or (iii) a money services business as defined in the Money Services Business Act 2011 (MSBA). 3. Legal provision 3.1 The requirements in this policy document, including the requirements in paragraph 7, are issued pursuant to: (a) sections 47, 123, 143 and 144 of the FSA; (b) sections 57, 135, 155 and 156 of the IFSA; (c) sections 34 and 74 of the MSBA; and (d) sections 41, 42C and 116 of the Development Financial Institutions Act 2002 (DFIA). 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA, section 277 of the IFSA, section 74 of the MSBA and section 126 of the DFIA. 4. Effective date and policy document superseded 4.1 This policy document comes into effect on 29 February 2024. 4.2 This policy document supersedes the Policy Document on Financial Technology Regulatory Sandbox Framework issued on 18 October 2016. Any reference to the Framework issued on 18 October 2016 shall be construed as a reference to this policy document on or after its effective date. Regulatory Sandbox 6 of 39 Issued on: 29 February 2024 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA, MBSA or DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document – “applicant” means a financial institution, an approved and registered intermediary, an approved operator of a payment system and a registered merchant acquirer either on its own or in collaboration with a fintech company, or a fintech company which intends to apply or has applied for the Bank’s approval to participate in the sandbox; “approved and registered intermediaries” refer to – (a) approved insurance brokers including marine, aviation and transit (MAT) insurance brokers; (b) approved financial advisers; (c) approved Islamic financial advisers; (d) approved money brokers; (e) approved takaful brokers including approved takaful brokers (specialised); (f) approved electronic trading platforms (ETP); and (g) registered adjusters; “approved operator of a payment system” refers to an approved operator of a payment system under FSA or IFSA, as the case may be; “customer” refers to either individuals or business entities or a combination of both who subscribe to the solutions offered by participants during sandbox testing; “fintech” means technology or any other innovation to be utilised in the provision of financial services; Regulatory Sandbox 7 of 39 Issued on: 29 February 2024 “fintech company” means a company (excluding a financial institution) that utilises or plans to utilise fintech to test solutions within the sandbox environment subject to the Bank’s approval under this policy document; “financial services” means services provided by a licensed, approved, registered or prescribed institutions or entities under the FSA, IFSA, DFIA and MSBA, as the case may be; “financial institution” refers to – (a) licensed banks, including licensed digital banks; (b) licensed Islamic banks, including licensed Islamic digital banks; (c) licensed investment banks; (d) prescribed development financial institutions; (e) licensed insurers, including professional reinsurers; (f) licensed takaful operators, including professional retakaful operators; (g) licensed money services business; (h) approved issuers of designated payment instruments; and (i) approved issuers of designated Islamic payment instruments; “fully functional prototype” refers to a high-fidelity level prototype to demonstrate the actual solution to be deployed for live testing using the actual systems, protocols and technologies encompassing the front-end to back-end process; “Green Lane” refers to an alternative to the Standard Sandbox track that provides a simpler and quicker way for financial institutions with strong track record in risk management, governance, and compliance capabilities, to test solutions in a sandbox environment by addressing the relevant regulatory impediments; “Green Lane participating institution” refers to a financial institution which has been approved by the Bank to participate in the sandbox through the Green Lane; Regulatory Sandbox 8 of 39 Issued on: 29 February 2024 “participants” refer to entities approved by the Bank to participate in the Standard Sandbox or Green Lane; “participating fintech company” means a fintech company which has been approved by the Bank to participate in the sandbox; “registered merchant acquirer” refers to a person registered pursuant to section 17(1) of the FSA to carry on merchant acquiring services; “regulatory impediment” refers to any requirements under the laws, regulations or standards administered by the Bank which may either be wholly or partly incompatible with the business model of fintech companies or provision of fintech solution. For the avoidance of doubt, the regulatory impediment does not include any regulatory impediment arising from laws, regulations, or requirements imposed by other authorities; “sandbox” refers to a live, contained environment in which participants may test their product, service, or solution subject to the requirements under this policy document; “semi-functional prototype” refers to a medium-fidelity level prototype that provides a comprehensive and clear description as well as visualisation of the envisioned concept of the proposed solution which may or may not be demonstrated using the actual systems, protocols, or technologies; “Shariah principle” refers to any existing ruling specified under the recognised sources of Islamic law, or any legal judgment (hukm shar`i) deduced by a qualified jurist (a mujtahid) via the ijtihad process; “Shariah ruling” refers to any ruling made by Shariah Advisory Council (SAC) established by the Bank pursuant to section 51(1) of the Central Bank of Malaysia Act 2009 for the ascertainment of Islamic law for the purposes of Islamic financial business; “solution” refers to products or services that an applicant is proposing to offer or test in the sandbox, or product or services that are being offered or tested by a participant in the sandbox; Regulatory Sandbox 9 of 39 Issued on: 29 February 2024 “Standard Sandbox” refers to the Standard Sandbox track that allows applicants to test fintech solutions that are not eligible for testing pursuant to the Green Lane. Regulatory Sandbox 10 of 39 Issued on: 29 February 2024 PART B STANDARD SANDBOX 6. Standard Sandbox assessment procedure 6.1 An application to participate in the Standard Sandbox will be reviewed in two stages. The first stage starts with an assessment to determine the eligibility for participation in accordance with the eligibility criteria as specified under paragraph 6.2. Eligible participants will be assessed in the second stage to determine their ability to satisfy the Bank’s considerations as specified in paragraphs 6.5 and 6.6. Standard Sandbox Stage 1 – Eligibility 6.2 An applicant i s eligible to participate in the Standard Sandbox if the applicant satisfies the following criteria: Criteria 1: Identification of Regulatory Impediment (a) An applicant must demonstrate the existence of any regulatory impediment in respect of its proposed provision of solution; (b) For the avoidance of doubt, in respect of a proposed provision of Islamic financial services, any non-compliance or inability to comply with Shariah principles or Shariah ruling shall not be construed as a regulatory impediment in determining the eligibility to participate in the sandbox; Criteria 2: Value Proposition (c) An applicant’s proposed solution must be innovative with clear potential to improve accessibility, efficiency, or quality of financial services, or enhance the effectiveness of risk management in financial services; Criteria 3: Business Plan and State of Readiness (d) An applicant is reasonably resourced to demonstrate a semi-functional prototype as specified in Appendix III within three (3) months from the time of application, which at minimum shall illustrate the envisioned user journey, system workflow and integration, and flow of funds between transacting parties, where applicable. The Bank may grant an extension of time to the applicant to demonstrate the semi-functional prototype on Regulatory Sandbox 11 of 39 Issued on: 29 February 2024 a case-by-case basis depending on the nature and complexity of the solution to be tested; (e) In addition to paragraph 6.2 (d), when assessing the state of readiness of an applicant, the Bank may also require the applicant to provide the following, including but not limited to: (i) a realistic business plan that outlines the applicant’s readiness, including development timeline, to test the practical feasibility of the applicant’s solution; (ii) indicative plans to secure the necessary resources to support the testing in the sandbox; and (iii) strategies to operate as a sustainable business and for the deployment of the solution on a commercial scale in Malaysia, beyond the period of testing in the sandbox; Criteria 4: Risk Management (f) An applicant must demonstrate its ability to identify and mitigate risks associated with its proposed solution in a manner that is proportionate with the projected scale of business activity and the nature of risk associated with such business activity. This includes having adequate resources or plans to employ the necessary resources with risk management expertise in the immediate term; and Criteria 5: Fit-and-proper (g) An applicant must demonstrate a proven track record of the credibility and integrity of its key management personnel1 and persons with significant decision-making authority in relation to the proposed solution. 6.3 The Bank endeavours to inform an applicant of its eligibility to participate in the sandbox within 15 working days after receiving a complete set of information necessary for the assessment as specified in Appendix II. 6.4 However, eligibility to participate in the sandbox must not be construed as an approval for an applicant to test in the sandbox. Stage 1 of the Standard 1 Refers to persons that are accountable or responsible for the management or oversight of the applicant. These comprise (i) directors; (ii) chief executive officers (CEOs); (iii) any person performing a senior management function who has primary or significant responsibility for the management and performance of significant business activities of the applicant; or (iv) any person who has primary or significant responsibility for key control functions. Regulatory Sandbox 12 of 39 Issued on: 29 February 2024 Sandbox serves to inform an applicant of its potential suitability to participate in the sandbox and to help the applicant with its business and resource planning. Standard Sandbox Stage 2 – Preparation 6.5 Once an applicant is notified by the Bank of its eligibility to participate in the Standard Sandbox, the applicant will then proceed to Stage 2. During Stage 2, the Bank will consider whether to approve the applicant to test a solution in the Standard Sandbox by determining the applicant’s ability to satisfy the following: (a) an applicant must demonstrate the practical feasibility of its solution via a fully functional prototype as specified in Appendix III, exhibiting the end-to-end simulation of the actual user journey, system workflow and integration as well as flow of funds between transacting parties, where applicable. This includes the readiness of its front-end and back-end infrastructure supplemented by proper product documentation (such as functional, technical design document, user guide, etc.); (b) an applicant must demonstrate that it has sufficient resources to support the testing of its solution in the sandbox prior to the live testing with proper evidence (such as letter of funding); (c) an applicant must be able to identify the potential risks to financial institutions and financial consumers that may arise from the testing of the solution in the sandbox and to propose appropriate safeguards to address the identified risks; and (d) in respect of Islamic financial services, an applicant must provide an attestation by an appointed Shariah committee or consultant that the new solution to be tested is consistent with prevailing Shariah ruling. In the event that there is no Shariah ruling made in relation to the new solution in the market, the appointed Shariah committee or consultant shall assess and deliberate on such matters and provide an attestation that the solution is in line with Shariah principles. 6.6 In addition to paragraph 6.5, the Bank may also require the applicant to provide the following, including but not limited to: (a) testing parameters, including the scope and duration of the test, regulatory flexibilities requested, and frequency of reporting; (b) specific measures to determine the success or failure of the test at the Regulatory Sandbox 13 of 39 Issued on: 29 February 2024 end of the testing period; (c) an exit strategy should the test fail or be discontinued; and (d) a transition plan for the deployment of the solution on a commercial scale upon successful testing and exit from the sandbox. 6.7 In assessing the risks identified by the applicant pursuant to paragraph 6.5 (c), the Bank will give due regard to: (a) sound financial and business practices consistent with the objectives of preserving monetary and financial stability; (b) promoting the fair treatment of consumers; (c) preventing money laundering and financing of terrorism; (d) preserving security principles which include confidentiality, integrity, and availability of relevant data such as customer information; (e) promoting the safety, reliability, and efficiency of payment systems and payment instruments; (f) ensuring solutions for Islamic financial services are consistent with Shariah principles and Shariah ruling; and (g) encouraging healthy competition for financial products and services. 6.8 The potential safeguards intended to mitigate risks referred to in paragraph 6.5 (c) shall include, but are not limited to: (a) providing adequate disclosure of the potential risks to its customers and confirmation from such customers that they fully understand and accept the attendant risks; (b) limiting the number of customers and/ or the aggregate value or frequency of transactions; (c) restricting customers to a certain segment or profile of customers; (d) limiting the duration of the testing period; (e) providing a consumer redress mechanism, including the possibility for financial compensation claimable against the applicants under clearly specified circumstances; and (f) committing adequate and competent resources to undertake the testing and implement risk mitigation solutions that have been proven to be effective in containing the consequences of failure. Regulatory Sandbox 14 of 39 Issued on: 29 February 2024 PART C GREEN LANE 7. Approval mechanism and safeguards Overview 7.1 Eligibility to participate in the sandbox through the Green Lane entails two levels of assessment: (a) a one-off assessment of a financial institution’s risk management, compliance, and governance capabilities based on existing track record where the Bank will determine whether or not to grant an approval for the applicant to utilise the Green Lane; and (b) subsequent simplified registration procedures for Green Lane participating institutions to test individual solutions that would otherwise face regulatory impediments. 7.2 Although the Bank’s assessment is simplified and focused at the solution-level to facilitate innovation, the Bank maintains prevailing standards of assessment and supervision of Green Lane participating institutions at an entity-level. Applicants must seek the Bank’s prior written approval in order to utilise the Green Lane and are required to comply with the minimum safeguards detailed in Part C. 7.3 An overview of the Green Lane’s operational mechanism is illustrated in Appendix IV. Approved institutions – Application procedure and assessment process 7.4 All financial institutions may apply to participate in the sandbox through the Green Lane. For the avoidance of doubt, fintech companies are not eligible to participate in the sandbox through the Green Lane. 7.5 Applications to use the Green Lane by financial institutions may include activities involving financial institutions’ collaboration with fintech companies. However, the Bank reserves the right to determine whether or not the testing of a solution involving a collaboration between financial institutions and fintech Regulatory Sandbox 15 of 39 Issued on: 29 February 2024 companies should be performed in the sandbox through the Green Lane or the Standard Sandbox track. 7.6 Admission of financial institutions to the Green Lane will be performed on a cohort basis, where the application will be opened twice a year, from 1st to 31st January and 1st to 31st July. Any changes to the application timeline will be communicated through the sandbox website (https://www.bnm.gov.my/sandbox). Further details on the submission requirements for admission to the Green Lane can be found in Part D of this policy document. 7.7 Financial institutions intending to utilise the Green Lane must have a strong track record in risk management, compliance, and governance. In considering an application to participate in the sandbox through the Green Lane, the Bank will assess the financial institution’s risk management, compliance, and governance capabilities based on its existing track record. The assessment will place emphasis on risks associated with the following: (a) management of credit risk, operational risk, and underwriting risk, where relevant; (b) fair treatment of financial consumers and data privacy; (c) cybersecurity and information technology infrastructure; (d) anti-money laundering and countering financing of terrorism (AML/CFT); and (e) Shariah compliance and governance, where applicable. 7.8 Financial institutions seeking the Bank’s application to utilise the Green Lane must provide the Bank with the following information together with its application to utilise the Green Lane: (a) a list of all the potential solutions to be tested in the Green Lane together with a short description of the business model, target segment, list of potential regulatory impediments, and planned date for testing of the solution; and (b) an assessment on the aggregate cap of the expected financial losses, which can be either in absolute or percentage-based cap, for all potential solutions to be tested. Such assessment shall be supported by the submission of an attestation by the Chief Executive Officer (CEO) and https://www.bnm.gov.my/sandbox Regulatory Sandbox 16 of 39 Issued on: 29 February 2024 Chief Risk Officer (CRO) of the financial institution that the cap is considered a ‘conservative’ estimation with minimal solvency impact. 7.9 The Bank endeavours to inform the financial institution of its decision to approve the financial institution’s participation in the sandbox through the Green Lane, within 30 working days of receiving a complete application as specified in Part A of Appendix V. 7.10 In the event that there are changes to the information specified in paragraph 7.8 which has been submitted to the Bank, financial institutions must submit the updated information to the Bank at least one month before the planned date to register their solutions in the Green Lane. 7.11 The Bank’s approval granted to a Green Lane participating institution shall remain effective unless otherwise revoked by the Bank. The Bank may revoke an approval granted to a Green Lane participating institution at any time in the event of adverse developments observed which may include, but are not limited to those stipulated in paragraph 9.4. 7.12 The Bank may revoke the approval accorded to a Green Lane participating institution either by giving a 30 calendar day notice pursuant to paragraph 9.6 or with immediate effect in accordance with paragraph 9.7. In the event of a revocation of an approval granted by the Bank to a Green Lane participating institution, any ongoing registered solution being tested in the Green Lane shall be ended in an orderly manner by the Green Lane participating institution within a reasonable timeframe to be determined in consultation with the Bank. 7.13 In addition to paragraph 7.12, the Bank reserves the right to undertake supervisory actions against a Green Lane participating institution as the Bank deems appropriate pursuant to the laws, regulations or regulatory requirements administered by the Bank. 7.14 A Green Lane participating institution whose approval was revoked earlier by the Bank may apply for a new approval in accordance with the provisions of the policy document. Regulatory Sandbox 17 of 39 Issued on: 29 February 2024 Qualified solutions – Parameters and safeguards 7.15 Green Lane participating institutions may avail themselves to a simplified registration procedure to commence testing of a new solution in the Green Lane, having regard to the requirements in the following paragraphs. 7.16 Green Lane participating institutions intending to test a solution offered to the general public must limit the offering to 20,000 unique customers per registered solution throughout the testing period, which shall not exceed 12 months. 7.17 Notwithstanding paragraph 7.16, the Bank reserves the right to accord a customer limit lower than 20,000 for registered solutions that are deemed of higher risk. 7.18 Upon receiving a written application by a Green Lane participating institution on an upward revision to the limit of unique customers, the Bank may allow such revision on a case-by-case basis depending on: (a) the testing performance in relation to the Key Performance Indicators (KPIs) set by the Green Lane participating institution; (b) the value proposition of the solution; and (c) the Green Lane participating institution’s ability to effectively detect and mitigate risks as well as provide for customer redress amongst others. For the avoidance of doubt, the Bank will only consider an upward revision of the limit of the unique customer during the testing of the solution in the Green Lane to ensure a data-supported review. 7.19 A Green Lane participating institution’s written application pursuant to paragraph 7.18 to seek the Bank’s approval for an upward revision of the limit of the unique customer must be submitted to the Bank at least 30 working days prior to when the institution plans to utilise the revised limit. The application must state the increment required to the unique customer limit supported by clear justification. For the avoidance of doubt, a Green Lane participating institution may proceed with the testing of the registered solution under the revised limit upon receiving notification from the Bank. Regulatory Sandbox 18 of 39 Issued on: 29 February 2024 7.20 A Green Lane participating institution must consider the potential direct financial losses related to its solution that all customers may risk losing and must provide appropriate compensation should such a risk materialise. 7.21 A Green Lane participating institution is required to register with the Bank of its intent to test any new solution at least 15 working days before the planned date for its testing (hereafter referred to as a ‘registration’ of a Green Lane solution) by submitting the complete information as specified in Part B of Appendix V, including a detailed listing of regulatory impediments that the Green Lane participating institution is seeking flexibility on. 7.22 With reference to paragraph 7.21 when registering a solution with the Bank for the purpose of participating in the sandbox through the Green Lane, a Green Lane participating institution must submit the following document/ information to the Bank: (a) an attestation by the CEO and CRO of the Green Lane participating institution that it has taken the following measures in relation to the new solution to be tested in the sandbox: (i) ensured product-specific risks are comprehensively identified and mitigated accordingly. This includes, but is not limited to, credit risk, operational risk, underwriting risk, money laundering and terrorism financing risks and Shariah risk, where relevant; (ii) ensured adherence to the six principles relating to corporate culture, fair terms, provision of information, fair dealing, advice and recommendation, and redress as specified in the Bank’s policy document on Fair Treatment of Financial Consumers; (iii) ensured compliance with the Bank’s Policy Document on Anti- Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) and the Bank’s Foreign Exchange Policy Notices issued pursuant to section 214 FSA and section 225 IFSA, where applicable; (iv) commit to fully indemnifying customers for any direct financial losses2 arising from problems attributable to the solution including 2 For the avoidance of doubt, a Green Lane participating institution is not required to indemnify the customers for financial losses other than the direct financial losses described in paragraph 7.22(a)(iv) such as financial losses arising from the risks taken or decisions made by the customers. Regulatory Sandbox 19 of 39 Issued on: 29 February 2024 technical issues faced by the solution or any failure of the solution; and (v) ensure that its Board of Directors has oversight over the testing activities conducted by the Green Lane participating institution in the sandbox; and (b) In respect of Islamic financial services, an attestation by the Shariah committee of the Green Lane participating institution that the new solution to be tested is consistent with prevailing Shariah rulings3. In the event that there is no Shariah ruling made in relation to the new solution, the Shariah committee of the Green Lane participating institution shall assess and deliberate such matters and provide attestation that the new solution is in line with Shariah principles. 7.23 Where the Bank does not express any concern or specifically prohibits a solution that has been duly registered within the timeline specified by the Bank in this policy document, a Green Lane participating institution may proceed with the testing of the registered Green Lane solution on the planned testing date upon receiving notification from the Bank. 7.24 Subject to paragraph 7.23, the regulatory flexibilities listed by the Green Lane participating institution in the application form for registration of individual solutions are to be deemed to have been granted by the Bank, subject to the expiry or revocation of the approval to participate in the sandbox or any written instruction from the Bank to stop the testing of the particular registered Green Lane solution. 7.25 Regulatory flexibilities will not be provided under any of the following circumstances: (a) the regulatory flexibilities require an exemption from a provision of the FSA, IFSA, DFIA, MSBA or Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001, or any subsidiary legislation of these Acts; (b) the regulatory flexibilities require an exemption from laws, regulations or requirements imposed by other authorities; or (c) upon notification by the Bank that a particular regulatory flexibility will not 3 This means that the solution does not require SAC’s deliberation or approval and do not involve new Shariah contract or changes in Shariah contract. Regulatory Sandbox 20 of 39 Issued on: 29 February 2024 be provided or is withheld based on the details provided in the registration of the Green Lane solution. For example, regulatory flexibilities related to market conduct or fair treatment of financial consumers will not be accorded under the Green Lane. Such notification by the Bank will be made prior to the planned testing date. 7.26 Each Green Lane participating institution may register more than one solution to be tested in the Green Lane throughout the year. Regulatory Sandbox 21 of 39 Issued on: 29 February 2024 PART D GENERAL REQUIREMENTS 8. Application requirements 8.1 An applicant interested to test its solution in the sandbox must submit to the Bank: (a) an application letter signed by the CEO of the applicant or an officer of the applicant as duly authorised by the CEO; (b) the application form, in the format set out in Appendix II (for applicants using the Standard Sandbox track) or Part A of Appendix V (for applicants seeking approval to use the Green Lane); and (c) supporting documents to substantiate the information provided in the application form. 8.2 A guide illustrating the application process is set out in Appendix I. 8.3 An applicant must submit the complete application to: Pengarah Jabatan Pembangunan dan Inovasi Kewangan Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Email: [email protected] 8.4 Applicants are encouraged to make an electronic submission via e-mail. 9. Expiry and revocation of approval 9.1 The testing period in the sandbox, regardless of whether it is under the Standard Sandbox or the Green Lane, shall not exceed 12 months from the start date of the test. Upon expiry of the testing period, approval to participate in the sandbox and any regulatory flexibility accorded to the participants will automatically expire, unless the participant has obtained the prior written approval from the Bank for an extension of the testing period. 9.2 To extend the testing period, a written application must be submitted to the Bank no later than 30 calendar days before the expiry of the testing period. The mailto:[email protected] Regulatory Sandbox 22 of 39 Issued on: 29 February 2024 application must state the additional time required and clearly explain reasons for requiring the extension. To minimise market distortion, the Bank will not generally approve a protracted extension of the testing period unless the solution has tested positively, and it can be demonstrated by the applicant that the extended testing is necessary to respond to specific issues or risks identified during the initial testing. 9.3 Upon completion of the testing, the Bank will decide on whether to allow the solution to be introduced in the market on a wider scale. If the Bank decides to allow, participating fintech companies intending to carry out regulated businesses will be assessed by the Bank based on applicable provision of the laws and regulatory requirements including licensing, approval, and registration criteria under the FSA, IFSA and MSBA, as the case may be. 9.4 Where there are adverse developments observed, subject to paragraph 9.6, the Bank may revoke an approval granted to participant to participate in the Standard Sandbox or require a Green Lane participating institution to terminate the testing of a particular registered solution in the Green Lane at any time before the end of the testing period. Such adverse developments may include, but are not limited to events where the participant: (a) fails to carry out the safeguards referred to in paragraph 6.8; (b) submits false, misleading or inaccurate information, or has concealed or failed to disclose material facts in the application; (c) contravenes any applicable law administered by the Bank or any other written law or foreign law, or is involved in civil suits, especially those which may affect the participant’s integrity and reputation or overall financial stability and market confidence in Malaysia; (d) is undergoing or has gone into liquidation; (e) breaches data security and confidentiality requirements; (f) carries on business in a manner detrimental to customers or the public at large; (g) fails to effectively address any technical defects, flaws or vulnerabilities in the solution which gives rise to recurring service disruptions or fraud incidents; (h) with reference to paragraph 7.22, breaches any of the performance as set out in the attestation by the Green Lane participating institution; or Regulatory Sandbox 23 of 39 Issued on: 29 February 2024 (i) with regards to Islamic financial services, the new solution being tested is not consistent with the prevailing Shariah ruling or Shariah principles. 9.5 The Bank may also prohibit the deployment of the solution in the market upon the completion or termination of the testing in the sandbox due to the following reasons: (a) in the event of an unsuccessful testing based on agreed testing parameters between the Bank and the participant; (b) the participant is not able to comply with the applicable relevant regulatory requirements upon completion of the testing; or (c) the solution has unintended negative consequences upon the public and/ or financial stability. 9.6 Before revoking an approval to participate in the sandbox or terminating the testing of a registered solution, the Bank will: (a) give the participant 30 calendar days’ notice in writing of its intention to revoke the approval or terminate the testing; and (b) provide an opportunity for the participant to make a representation in writing to the Bank on the grounds for the revocation of the Bank’s approval or termination of the testing within 7 calendar days of receiving the Bank’s notice referred to in paragraph (a). 9.7 Where any delay in revoking the Bank’s approval or terminating the testing would be detrimental to the interests of the participant, its customers, the financial system or the general public, the Bank may revoke the approval or order the termination of testing immediately and provide the opportunity for the participant to make a representation in writing under paragraph 9.6 after the effective date of revocation of the approval or termination of the testing. Upon considering the written representation made by the participant, the Bank may decide to reinstate the approval for the participant to participate in the sandbox or allow the continuation of the testing, with or without any additional conditions. 9.8 Upon being notified by the Bank regarding the revocation of an approval to participate in the sandbox or termination of the testing, the participant must: (a) immediately implement its exit plan to cease the provision of the solution to new and existing customers; Regulatory Sandbox 24 of 39 Issued on: 29 February 2024 (b) provide a written notification to customers informing them of the cessation of the solution and the customers’ rights to redress where relevant; (c) comply with the obligations imposed by the Bank to securely dispose of or destroy all confidential information including customers’ personal information collected over the duration of the testing; (d) compensate any customers who had suffered direct financial losses arising from problems attributable to the solution in accordance with the applicant’s statement or commitment in providing consumer redress mechanism including possibility for financial compensation as submitted by the participant to the Bank pursuant to paragraph 6.8(e) and 7.22(a)(iv); and (e) submit a report to the Bank on the actions taken under paragraphs 9.8 (a) – (d) within 30 working days after the revocation of the approval or termination of the testing. Regulatory Sandbox 25 of 39 Issued on: 29 February 2024 10. Submission of information and reports 10.1 The participant must submit progress reports and a final report within 30 calendar days from the expiry of the testing period or termination of the testing to the Bank, which shall comprise of the following information: Progress report Final report (a) statistical information in relation to or arising from the testing such as key performance indicators and key milestones; (b) key issues observed including fraud incidents or other operational incidents; and (c) actions or steps taken to address the key issues referred to in paragraph (b) (a) key outcomes, key performance indicators against agreed measures for the success or failure of the testing, and findings from the testing conducted; (b) a full account of all incident reports and resolution of customer complaints; and (c) in the case of a failed testing, lessons learnt from the testing conducted. 10.2 The Bank will determine the frequency of the interim reports and specific details to be included in the interim reports upon the Bank’s consultation with the participant, taking into account the duration, complexity, scale, and risks associated with the test. 10.3 The interim and final reports must be attested by the CEO of the participant that all information submitted is true and accurate. 10.4 In a situation of a joint testing by a financial institution or an approved or registered intermediaries and a fintech company either in the Standard Sandbox or Green Lane, the reports must be attested by both the CEOs of the financial institution and fintech company. Regulatory Sandbox 26 of 39 Issued on: 29 February 2024 PART E APPENDICES Appendix I Overview of application and assessment process Regulatory Sandbox 27 of 39 Issued on: 29 February 2024 Appendix II Information requirements for Standard Sandbox application (fill up where applicable) 1. Prospective applicants are encouraged to visit the Bank’s sandbox webpage at https://www.bnm.gov.my/sandbox and contact the Bank at [email protected] if there are any queries on whether the sandbox is an appropriate platform for an applicant’s intended testing of a new solution. 2. Applicants shall refer to the application forms set out in this policy document as a general guidance on the required information to be submitted to the Bank. Applicants are encouraged to attach supporting documents and information to support the details provided in the application form. Illustrated visuals (e.g. process flow, customer journey) are preferred to better facilitate the Bank’s understanding of the solution to be tested in the sandbox. 3. The Bank will review and endeavour to inform the applicant of its eligibility to participate in the Standard Sandbox within 15 working days after receiving a complete set of information necessary for the assessment. A. Applicant details Applicant 1: Fintech company Name of company SSM registration number Website URL Name of key management personnel4 (e.g., CEO, CRO) Email address Phone number Mailing address Shareholders and shareholding structure Describe the nature and scale of your operations in Malaysia Provide details of high-skilled jobs that your company is creating in Malaysia 4 An applicant is required to submit the curriculum vitae and a copy of the identification document of the key personnel for an application submitted individually by a fintech company as defined in paragraph 5.2. https://www.bnm.gov.my/sandbox mailto:[email protected] Regulatory Sandbox 28 of 39 Issued on: 29 February 2024 Applicant 2: Financial institution Name of financial institution Name of designated officer (e.g., CEO or Head of Innovation) Email address Phone number Mailing address B. Information on the solution Describe the solution (i.e. features, design, process flow chart and target market or customers). (Please keep the response below 200 words. Additional information may be provided as supporting documents) Where the solution is intended for the purpose of Islamic finance services, describe the type of Shariah contract used and the relevant SAC resolution that approved the structure similar to the proposed solution. The application must be supplemented by the appointed Shariah committee or consultant’s attestation and minutes of deliberation that the proposed solution complies with the existing SAC ruling or relevant requirements under the applicable policy document. Where the solution to be applied in relation to Islamic financial services involves areas which have not been deliberated by the SAC, the applicant must provide justification that the solution is in line with Shariah principles as deliberated and attested by the appointed Shariah committee or consultant. (Applicant is required to submit at least the following information to the Bank: 1. product description including name and features; 2. product structure including transaction flows; 3. types of Shariah contract(s) used; and 4. assessment of compliance with the relevant SAC rulings and/ or Shariah principles relating to the product structure) Eligibility criteria (as per paragraph 6.2) Criteria 1: Regulatory Impediment Identify the legal or regulatory requirements that are incompatible with or impede the proposed solution and the regulatory flexibilities needed to undertake the testing of the solution. The application may be supplemented by a legal opinion, if available, from an appropriate legal consultant/ practitioner. Regulatory Sandbox 29 of 39 Issued on: 29 February 2024 Criteria 2: Value Proposition Describe how the solution has the potential to improve accessibility, efficiency, and quality of financial services, or enhance the security and effectiveness of risk management in financial services. Criteria 3: Business Planning and State of Readiness Explain the readiness of the applicant’s prototype and development timeline including an estimate on the readiness to provide an end-to-end demonstration of the proposed solution to the Bank. State the staff strength allocated to support testing in the sandbox and the roles and responsibilities of each staff. For fintech companies, this may include describing the broad governance structure (e.g. a proposed organisational chart, prospective Board or Senior Management candidates etc., as appropriate). State the applicant’s current funding capacity (i.e. financial resources), shareholding structure and describe indicative plans for obtaining adequate funding moving forward (if any) Explain the business plan (e.g. marketing strategy) for the solution to be offered on a wider commercial scale. Criteria 4: Risk Management Describe the risks (including Shariah risk, where relevant) associated with the testing of the solution and identify appropriate risk mitigation measures/ safeguards C. Details of sandbox testing State the expected duration of the testing Explain the intended key outcomes of the testing Regulatory Sandbox 30 of 39 Issued on: 29 February 2024 State the location of the IT infrastructure Other information (if relevant) Describe the collaboration between the financial institution and fintech company (e.g. outsourcing of service, equity stake participation, joint venture etc.) D. Attestation (template samples) Attestation by Shariah committee/ consultant for solution in relation to Islamic financial services5 (if applicable) Please tick whichever is applicable. I, on behalf of the appointed Shariah committee/ consultant of [name of applicant], hereby confirm that [name of solution] to be tested in the sandbox is in conformity with the prevailing rulings of the SAC. I, on behalf of the appointed Shariah committee/ consultant of [name of applicant], confirm that [name of solution] to be tested in the sandbox is in conformity with the Shariah principles in the absence of Shariah rulings made by the SAC in relation to [name of solution]. Name: Designation: Signature: Date: 5 The applicants must provide the relevant information either at the point of application (if readily available) or as part of documentation submission for stage 2 assessment. Regulatory Sandbox 31 of 39 Issued on: 29 February 2024 Attestation on fit-and-proper6 (if applicable) We hereby confirm that the key responsible person(s) of the partnering fintech company have been assessed to be fit and proper based on, at minimum, factors relating to: (i) probity, personal integrity, and reputation; (ii) competency and capability; and (iii) financial integrity. Name of CEO: Signature: Date: Name of CRO: Signature: Date: 6 This requirement is only applicable to applications submitted by a financial institution that is partnering with a fintech company to test a joint solution in the Standard Sandbox. The attestation must be made by the CEO and CRO of the financial institution. Regulatory Sandbox 32 of 39 Issued on: 29 February 2024 Appendix III Overview of prototype development for Standard Sandbox Regulatory Sandbox 33 of 39 Issued on: 29 February 2024 Appendix IV Overview of Green Lane’s operational mechanism Regulatory Sandbox 34 of 39 Issued on: 29 February 2024 Appendix V Information required for Green Lane application Part A: Application form to participate in the Green Lane A. Details of applicants Contact representative Name of financial institution Name of designated officer (e.g. CEO or Head of Innovation) Email address Phone number Mailing address B. Risk management Elaborate how risk management, compliance and governance processes are integrated within the applicant’s innovation process. Guidance: The information to be provided shall focus on the following risk elements: 1. Market conduct and customer protection; 2. Cybersecurity, IT-related risks and data privacy; 3. Outsourcing and third-party reliance risks; 4. AML/CFT (including ML/TF risk assessment for introduction of new technology or business practices, e-KYC, name screening, transactions monitoring, etc); and 5. Shariah governance and Shariah risks Provide a list7 of all the potential solutions to be registered and tested in the Green Lane together with the relevant details, including short description of the business model, target segment, list of potential regulatory impediments and planned date for testing. Provide an assessment on the aggregate cap of the expected financial losses for all potential solutions to be tested (e.g. RM xx or % of total exposure/ assets/ capital). The assessment shall be supplemented by the methodology used to derive the cap and why it is considered ‘conservative’. 7 If there are any changes to the information submitted, financial institutions must submit the updated information at least one month prior to registration of solution. Regulatory Sandbox 35 of 39 Issued on: 29 February 2024 C. Attestation on aggregate cap (template sample) We hereby confirm that the aggregate cap of the expected financial losses estimated for all potential solution projects to be tested in the Green Lane is assessed to be a conservative amount with minimal solvency impact to [name of FI]. Name of CEO: Signature: Date: Name of CRO: Signature: Date: Part B: Application form for registration of individual solution A. Applicant details Contact representative Name of financial institution Name of designated officer (e.g., CEO or Head of Innovation) Email address Phone number Mailing address B. Information on the solution Describe the solution (i.e. features, design, process flow chart and target market or customers). (Please limit the response to less than 200 words. Additional information may be provided as supporting documents) Where the solution is to be applied in relation to Islamic financial services, describe the type of Shariah contract used and the relevant SAC resolution that approved the structure similar to the proposed solution. The information submitted by the applicant must be supplemented by the Green Lane participating institution’s Shariah committee’s attestation and minutes of deliberation that the proposed solution complies with the existing SAC ruling or requirements under the relevant policy documents. (Applicant is required to submit at least the following information to the Bank: 1. product description including name and features; 2. product structure including transaction flows; 3. types of Shariah contract(s) used; and 4. assessment of compliance with the relevant SAC rulings and/ or Shariah principles relating to the product structure) Regulatory Sandbox 36 of 39 Issued on: 29 February 2024 Where the solution to be provided in relation to Islamic financial services involves areas which have not been deliberated by the SAC, the applicant must provide justification that the solution is in line with Shariah principles as deliberated by the Green Lane participating institution’s Shariah committee/ consultant. Describe how the solution has the potential to improve accessibility, efficiency, and quality of financial services, or enhance the security and effectiveness of risk management in financial services. Regulatory impediment Identify the specific legal or regulatory requirements that are incompatible with the proposed solution and the regulatory flexibilities needed to undertake the testing. The applicant shall include justification and may be supplemented by a legal opinion, if available, from an appropriate legal consultant/ practitioner. C. Business planning Explain the business plan (e.g. marketing strategy) for the solution to be offered on a wider commercial scale and the financial projection. State the resources (staff strength including their roles and responsibilities and expected funding) allocated to support testing in the Green Lane. D. Potential risks and safeguards Describe the risks (including Shariah risk, where relevant) associated with the testing and identify appropriate risk mitigation measures/ safeguards. E. Testing parameters State the number of customers targeted (note: shall not exceed the limit stipulated Regulatory Sandbox 37 of 39 Issued on: 29 February 2024 in paragraph 7.16) State the expected duration of the testing (note: shall not exceed the limit stipulated in paragraph 7.16) Explain the intended key outcomes of the testing, including a list of specific measures to determine the success or failure of the testing at the end of the testing period, and the proposed KPI(s) for Green Lane testing. F. Collaboration with fintech company (if applicable) Name of fintech company SSM registration number Website URL Name of key management personnel (e.g., CEO, CFO) Email address Describe the collaboration between the financial institution and fintech company (e.g. outsourcing of service, equity stake participation, joint venture etc.) G. Exit strategy Describe the exit and transition plan for customers in the Green Lane as well as the resolution plans in the event that the solution has to be discontinued. H. Attestation (template samples) Attestation by consultant/ Shariah committee for solution to be provided in relation to Islamic financial services (if applicable) Please tick whichever is applicable. I, on behalf of the Shariah committee of [name of FI], hereby confirm that [name of solution] to be tested in the Green Lane is in conformity with prevailing rulings of the SAC. I, on behalf of the Shariah committee of [name of FI], confirm that [name of solution] to be tested in the Green Lane is in conformity with the Regulatory Sandbox 38 of 39 Issued on: 29 February 2024 Shariah principles in the absence of Shariah rulings made by the SAC in relation to [name of solution]. Name: Designation: Signature: Date: Attestation by CEO and CRO of participating institution We hereby confirm that the following measures have been taken in relation to the new solution to be tested in the Green Lane: (i) ensured product-specific risks are comprehensively identified and mitigated accordingly. This includes, but is not limited to, credit risk, operational risk, underwriting risk, money laundering and terrorism financing risks and Shariah risk, where relevant; (ii) ensured adherence to the six principles specified in the Bank’s policy document on Fair Treatment of Financial Consumers; (iii) ensured compliance with the Bank's policy document on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) and the Bank’s foreign exchange rules if applicable; (iv) commit to fully indemnifying direct financial losses incurred by customers arising from non-performance of its new solution; (v) ensured the Board of Directors of the participating institution has oversight over the testing activities conducted by the participating institution in the sandbox through the Green Lane; and (vi) (if applicable) ensured that the key responsible person(s) of the partnering fintech company have been assessed to be fit and proper based on, at minimum, factors relating to: (a) probity, personal integrity, and reputation; (b) competency and capability; and (c) financial integrity. We solemnly and sincerely declare that all the information submitted above is true and [name of participating institution] understands that if we have furnished any information required which is false, inaccurate, misleading or contains material errors or omissions, Bank Negara Malaysia may revoke its Regulatory Sandbox 39 of 39 Issued on: 29 February 2024 approval granted for the participation in the Green Lane or terminate the testing of a registered solution. Name of CEO: Signature: Date: Name of CRO: Signature: Date: Application form for Sandbox Green Lane application Application form for Green Lane application Part A: Application form to participate in the Green Lane A. Details of applicants Contact representative Name of financial institution Name of designated officer (e.g. CEO or Head of Innovation) Email address Phone number Mailing address B. Risk management Elaborate how risk management, compliance and governance processes are integrated within the applicant’s innovation process. Guidance: The information to be provided shall focus on the following risk elements: 1. Market conduct and customer protection; 2. Cybersecurity, IT-related risks and data privacy; 3. Outsourcing and third-party reliance risks; 4. AML/CFT (including ML/TF risk assessment for introduction of new technology or business practices, e-KYC, name screening, transactions monitoring, etc); and 5. Shariah governance and Shariah risks Provide a list1 of all the potential solutions to be registered and tested in the Green Lane together with the relevant details, including short description of the business model, target segment, list of potential regulatory impediments and planned date for testing. Provide an assessment on the aggregate cap of the expected financial losses for all potential solutions to be tested (e.g. RM xx or % of total exposure/ assets/ capital). The assessment shall be supplemented by the methodology used to derive the cap and why it is considered ‘conservative’. C. Attestation on aggregate cap (template sample) We hereby confirm that the aggregate cap of the expected financial losses estimated for all potential solution projects to be tested in the Green Lane is assessed to be a conservative amount with minimal solvency impact to [name of FI]. 1 If there are any changes to the information submitted, financial institutions must submit the updated information at least one month prior to registration of solution. Name of CEO: Signature: Date: Name of CRO: Signature: Date: Part B: Application form for registration of individual solution A. Applicant details Contact representative Name of financial institution Name of designated officer (e.g., CEO or Head of Innovation) Email address Phone number Mailing address B. Information on the solution Describe the solution (i.e. features, design, process flow chart and target market or customers). (Please limit the response to less than 200 words. Additional information may be provided as supporting documents) Where the solution is to be applied in relation to Islamic financial services, describe the type of Shariah contract used and the relevant SAC resolution that approved the structure similar to the proposed solution. The information submitted by the applicant must be supplemented by the Green Lane participating institution’s Shariah committee’s attestation and minutes of deliberation that the proposed solution complies with the existing SAC ruling or requirements under the relevant policy documents. Where the solution to be provided in relation to Islamic financial services involves areas which have not been deliberated by the SAC, the applicant must provide justification that the solution is in line with Shariah principles as deliberated by the Green Lane participating institution’s Shariah committee/ consultant. (Applicant is required to submit at least the following information to the Bank: 1. product description including name and features; 2. product structure including transaction flows; 3. types of Shariah contract(s) used; and 4. assessment of compliance with the relevant SAC rulings and/ or Shariah principles relating to the product structure) Describe how the solution has the potential to improve accessibility, efficiency, and quality of financial services, or enhance the security and effectiveness of risk management in financial services. Regulatory impediment Identify the specific legal or regulatory requirements that are incompatible with the proposed solution and the regulatory flexibilities needed to undertake the testing. The applicant shall include justification and may be supplemented by a legal opinion, if available, from an appropriate legal consultant/ practitioner. C. Business planning Explain the business plan (e.g. marketing strategy) for the solution to be offered on a wider commercial scale and the financial projection. State the resources (staff strength including their roles and responsibilities and expected funding) allocated to support testing in the Green Lane. D. Potential risks and safeguards Describe the risks (including Shariah risk, where relevant) associated with the testing and identify appropriate risk mitigation measures/ safeguards. E. Testing parameters State the number of customers targeted (note: shall not exceed the limit stipulated in paragraph 7.16) State the expected duration of the testing (note: shall not exceed the limit stipulated in paragraph 7.16) Explain the intended key outcomes of the testing, including a list of specific measures to determine the success or failure of the testing at the end of the testing period, and the proposed KPI(s) for Green Lane testing. F. Collaboration with fintech company (if applicable) Name of fintech company SSM registration number Website URL Name of key management personnel (e.g., CEO, CFO) Email address Describe the collaboration between the financial institution and fintech company (e.g. outsourcing of service, equity stake participation, joint venture etc.) G. Exit strategy Describe the exit and transition plan for customers in the Green Lane as well as the resolution plans in the event that the solution has to be discontinued. H. Attestation (template samples) Attestation by consultant/ Shariah committee for solution to be provided in relation to Islamic financial services (if applicable) Please tick whichever is applicable. I, on behalf of the Shariah committee of [name of FI], hereby confirm that [name of solution] to be tested in the Green Lane is in conformity with prevailing rulings of the SAC. I, on behalf of the Shariah committee of [name of FI], confirm that [name of solution] to be tested in the Green Lane is in conformity with the Shariah principles in the absence of Shariah rulings made by the SAC in relation to [name of solution]. Name: Designation: Signature: Date: Attestation by CEO and CRO of participating institution We hereby confirm that the following measures have been taken in relation to the new solution to be tested in the Green Lane: (i) ensured product-specific risks are comprehensively identified and mitigated accordingly. This includes, but is not limited to, credit risk, operational risk, underwriting risk, money laundering and terrorism financing risks and Shariah risk, where relevant; (ii) ensured adherence to the six principles specified in the Bank’s policy document on Fair Treatment of Financial Consumers; (iii) ensured compliance with the Bank's policy document on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) and the Bank’s foreign exchange rules if applicable; (iv) commit to fully indemnifying direct financial losses incurred by customers arising from non-performance of its new solution; (v) ensured the Board of Directors of the participating institution has oversight over the testing activities conducted by the participating institution in the sandbox through the Green Lane; and (vi) (if applicable) ensured that the key responsible person(s) of the partnering fintech company have been assessed to be fit and proper based on, at minimum, factors relating to: (a) probity, personal integrity, and reputation; (b) competency and capability; and (c) financial integrity. We solemnly and sincerely declare that all the information submitted above is true and [name of participating institution] understands that if we have furnished any information required which is false, inaccurate, misleading or contains material errors or omissions, Bank Negara Malaysia may revoke its approval granted for the participation in the Green Lane or terminate the testing of a registered solution. Name of CEO: Signature: Date: Name of CRO: Signature: Date: Application form for Standard Sandbox application Application form for Standard Sandbox application (fill up where applicable) A. Applicant details Applicant 1: Fintech company Name of company SSM registration number Website URL Name of key management personnel1 (e.g., CEO, CRO) Email address Phone number Mailing address Shareholders and shareholding structure Describe the nature and scale of your operations in Malaysia Provide details of high-skilled jobs that your company is creating in Malaysia Applicant 2: Financial institution Name of financial institution Name of designated officer (e.g., CEO or Head of Innovation) Email address Phone number Mailing address B. Information on the solution Describe the solution (i.e. features, design, process flow chart and target market or customers). (Please keep the response below 200 words. Additional information may be provided as supporting documents) Where the solution is intended for the purpose of Islamic finance services, describe the type of Shariah contract used and the relevant SAC resolution that approved the structure similar to the proposed solution. The application must be supplemented by the appointed Shariah committee or consultant’s attestation and minutes of deliberation that the proposed solution complies with the existing SAC ruling or relevant requirements under the applicable policy document. (Applicant is required to submit at least the following information to the Bank: 1. product description including name and features; 2. product structure including transaction flows; 3. types of Shariah contract(s) used; and 4. assessment of compliance with the relevant SAC rulings and/ or Shariah principles relating to the product structure) 1 An applicant is required to submit the curriculum vitae and a copy of the identification document of the key personnel for an application submitted individually by a fintech company as defined in paragraph 5.2. Where the solution to be applied in relation to Islamic financial services involves areas which have not been deliberated by the SAC, the applicant must provide justification that the solution is in line with Shariah principles as deliberated and attested by the appointed Shariah committee or consultant. Eligibility criteria (as per paragraph 6.2) Criteria 1: Regulatory Impediment Identify the legal or regulatory requirements that are incompatible with or impede the proposed solution and the regulatory flexibilities needed to undertake the testing of the solution. The application may be supplemented by a legal opinion, if available, from an appropriate legal consultant/ practitioner. Criteria 2: Value Proposition Describe how the solution has the potential to improve accessibility, efficiency, and quality of financial services, or enhance the security and effectiveness of risk management in financial services. Criteria 3: Business Planning and State of Readiness Explain the readiness of the applicant’s prototype and development timeline including an estimate on the readiness to provide an end-to-end demonstration of the proposed solution to the Bank. State the staff strength allocated to support testing in the sandbox and the roles and responsibilities of each staff. For fintech companies, this may include describing the broad governance structure (e.g. a proposed organisational chart, prospective Board or Senior Management candidates etc., as appropriate). State the applicant’s current funding capacity (i.e. financial resources), shareholding structure and describe indicative plans for obtaining adequate funding moving forward (if any) Explain the business plan (e.g. marketing strategy) for the solution to be offered on a wider commercial scale. Criteria 4: Risk Management Describe the risks (including Shariah risk, where relevant) associated with the testing of the solution and identify appropriate risk mitigation measures/ safeguards C. Details of sandbox testing State the expected duration of the testing Explain the intended key outcomes of the testing State the location of the IT infrastructure Other information (if relevant) Describe the collaboration between the financial institution and fintech company (e.g. outsourcing of service, equity stake participation, joint venture etc.) D. Attestation (template samples) Attestation by Shariah committee/ consultant for solution in relation to Islamic financial services2 (if applicable) Please tick whichever is applicable. I, on behalf of the appointed Shariah committee/ consultant of [name of applicant], hereby confirm that [name of solution] to be tested in the sandbox is in conformity with the prevailing rulings of the SAC. I, on behalf of the appointed Shariah committee/ consultant of [name of applicant], confirm that [name of solution] to be tested in the sandbox is in conformity with the Shariah principles in the absence of Shariah rulings made by the SAC in relation to [name of solution]. Name: Designation: Signature: Date: 2 The applicants must provide the relevant information either at the point of application (if readily available) or as part of documentation submission for stage 2 assessment. Attestation on fit-and-proper3 (if applicable) We hereby confirm that the key responsible person(s) of the partnering fintech company have been assessed to be fit and proper based on, at minimum, factors relating to: (i) probity, personal integrity, and reputation; (ii) competency and capability; and (iii) financial integrity. Name of CEO: Signature: Date: Name of CRO: Signature: Date: 3 This requirement is only applicable to applications submitted by a financial institution that is partnering with a fintech company to test a joint solution in the Standard Sandbox. The attestation must be made by the CEO and CRO of the financial institution. FAQs Policy Document on Fintech Regulatory Sandbox Framework Frequently Asked Questions Policy Document on Financial Technology Regulatory Sandbox Framework Last updated: 29 February 2024 This document supplements the policy document on Financial Technology Regulatory Sandbox Framework issued on 29 February 2024 (Framework) by providing an explanation to interpretation issues likely to be faced by applicants while applying to participate in the Standard Sandbox1 and the Green Lane2. The questions are grouped according to the requirements and content of the policy document. 1 Refers to the Standard Sandbox track that allows fintech companies and financial institutions to test innovative solutions that are not eligible for testing in the Green Lane. 2 An alternative to the Standard Sandbox track that provides a simpler and quicker way for financial institutions with strong track record in risk management, governance and compliance capabilities, to test innovative solutions that face regulatory impediments. Applicability 1. Which entities are eligible to apply to participate in the Standard Sandbox and Green Lane? [Paragraph 5.2] *Refer to section 11(b) of this document for more information. Regulatory impediments 2. How should an applicant determine if its proposed solution is applicable and regulated under the law, regulation, or standards etc. administered by the Bank? [Paragraph 6.2 (a)] It is incumbent upon applicants to ensure that the laws, regulations and standards etc. applicable to their business and solutions, including the legislative and regulatory requirements administered by the Bank, are observed. As such, applicants should first seek appropriate legal consultation to determine whether the provision of the proposed solution/ concept/ business model falls within the Bank's or any other regulatory authorities’ purview. The Bank has published supplementary resources in the sandbox website3 to help applicants determine whether the provision of the proposed solution falls within the Bank's purview. For the avoidance of doubt, there is no exclusion for any specific technology to be tested in the sandbox given that the Bank is technology neutral and agnostic. 3 www.bnm.gov.my/sandbox/regulations https://www.bnm.gov.my/sandbox/regulations This is provided that the proposed solutions meet the relevant eligibility criteria as outlined in the Framework. 3. What are detailed examples of regulatory impediments? [Paragraph 6.2 (a)] Some examples of regulatory impediments based on past sandbox participants include: Policy Document / Guidelines Details of regulatory impediment Appointed Actuary: Appointment and Duties Policy Document (Paragraph 7.4) • The regulatory requirements applicable to licensed insurers and takaful operators (collectively referred to as “ITOs”) require that an appointed actuary must be an employee of the ITO. • However, for purpose of sandbox testing, the Bank may consider the case for an appointed actuary not to be an employee of the applicant if supported by strong justification. Policy Document on Outsourcing (Paragraph 12.1) • The policy requires a financial institution to obtain the Bank’s written approval before entering into a new material outsourcing arrangement or making a significant change to an existing material outsourcing arrangement. • However, for purpose of sandbox testing, the Bank may consider exempting applicants from such requirements but to include submission of information on the outsourcing plan as part of the sandbox application process. Shariah Governance Policy Document (Paragraph 13.2) • The policy requires an Islamic Financial Institution to appoint a Shariah committee of a sufficient size that reflects the business needs and enables a conducive and sound deliberation, at minimum comprising of at least five (5) Shariah committee members. • However, for purpose of sandbox testing, the Bank may consider the case for applicants 4 intending to test an Islamic finance solution to appoint a single Shariah Advisor/ consultant with relevant qualifications and expertise. 4. Are applicants expected to demonstrate compliance with the Bank’s capital requirements in order to be approved for the Standard Sandbox? The Bank expects all applicants to be adequately capitalised for the business it undertakes, with adequacy typically guided by the Bank's existing risk-based 4 Only applicable to fintech companies. capital requirements, where relevant. Nevertheless, the specific regulatory treatment and flexibilities may be calibrated on a case-by-case basis, based on merits of the application. Development of prototype 5. What is the level of prototype expected for a Standard Sandbox applicant? [Paragraph 6.2 (d), Paragraph 6.5 (a)] In Stage 1, the applicant is expected to have in place a realistic business plan to demonstrate a semi-functional prototype within 3 months from the point of application. In Stage 2, applicants will be assessed for readiness of solutions based on a fully functional prototype. Minimum expectations for prototypes at each level include, but are not limited to, the following: Stage 1: Semi-functional prototype Stage 2: Fully functional prototype A medium-fidelity level prototype to provide a comprehensive and clear description and visualisation of the envisioned concept of the proposed solution. A high-fidelity level prototype to demonstrate readiness of the actual solution to be deployed for the sandbox. May or may not be demonstrated using the actual systems, protocols or technologies. Uses the actual systems, protocols and technologies, including from the front-end to back-end process. Ability to demonstrate conceptually and clearly envision the: • user experience and/ or customer journey; • end-to-end system workflows and all interactive components including systems integration; and • flow of funds between transacting parties, where applicable. Ability to simulate the actual solution to demonstrate comprehensively and clearly the: • user experience and/ or customer journey, • end-to-end system workflows and all interactive components including systems integration; and • flow of funds between transacting parties, where applicable. Example: Semi-functional prototype may be developed using wireframing and prototyping tools to create an interactive prototype with clickable elements simulating visual layout, user experience and interlinked process flows. Example: Fully functional prototype may be developed in a testing environment to demonstrate actual end-to-end functionalities of the solution, user experience and process flows using dummy input or data. Technology risk management 6. Are sandbox applicants expected to fully comply with the requirements stipulated under the Policy Document (PD) on Risk Management in Technology (RMiT)? Compliance with RMiT PD during live testing does not form part of the criteria for sandbox approval. Notwithstanding, there are non-negotiable safeguards for cyber and technology risk that form baseline requirements for all proposed solutions in the sandbox. These requirements will be set on a case-by-case basis depending on the proposed solutions. Generally, these include, but are not limited to, the following: a) customer data confidentiality and information security; b) comprehensive penetration testing by accredited third party on applicants’ internal and external facing applications and network infrastructures; and c) high availability and scalability of cloud infrastructures, if any, including strong recovery, resumption capabilities and retained ownership, control and management of all data pertaining to customer and counterparty information, proprietary data and services hosted on the cloud. Notwithstanding, upon sandbox graduation or scaling up prior to wider commercial launch, participants will be expected to conduct a comprehensive RMiT compliance gap assessment and indicate efforts as well as action plans to address identified gaps. Shariah governance for solutions for Islamic financial services 7. What are the expectations for sandbox applications to test the provision of solutions for Islamic financial services that is in line with the existing Shariah rulings? [Paragraph 6.5 (d), Paragraph 7.22 (b)] An applicant with proposed solutions for Islamic financial services involving straight forward Shariah contracts that are within the existing Shariah ruling are expected to submit information to the Bank covering: a) product description, including name and features; b) product structure, including transaction flows; c) types of Shariah contract(s) used; and d) assessment of compliance against the relevant SAC ruling and/ or Shariah requirements relating to the product structure. 8. Does the Bank also consider an application for solutions for Islamic financial services with no existing Shariah rulings? [Paragraph 6.5 (d), Paragraph 7.22 (b)] Yes. For a proposed solution for Islamic financial services where there is no existing Shariah ruling, the Bank may consider allowing it to be tested in the sandbox subject to the applicant demonstrating the following: Standard Sandbox a) in Stage 1, a clear business plan and timeline for Shariah committee/ consultants to be appointed in order to deliberate and issue a ruling on areas without existing Shariah ruling, supported by solid justification and rationales; and b) in Stage 2, an attestation by the appointed Shariah committee/ consultants that the proposed solution is in line with Shariah principles, supported by accurate and detailed documentation on minutes of meeting with Shariah committee/ Shariah consultants, which include, among others, records of decisions or advice, key deliberations, rationale for each decision or advice made, and any significant concerns and dissenting views. The attestation and supporting documentations may also be provided early to the Bank during Stage 1, if available. Green Lane c) an attestation by the participating financial institution’s Shariah Committee that the new solution to be tested is in line with Shariah principles. Similar to the Standard Sandbox, this shall be supported by accurate and detailed documentation on minutes of Shariah committee meetings, which record the decisions or advice, the key deliberations, rationale for each decision or advice made, and any significant concerns and dissenting views. Notwithstanding this, the Bank will not consider an application if the proposed solution for Islamic financial services is deemed in contravention to any existing Shariah ruling. 9. Who can fintech companies appoint as Shariah consultants? Fintech companies may consult an accredited Shariah advisory firm or qualified Muslim individuals (either Malaysian or non-Malaysian) who possess relevant qualifications, skills, knowledge and experience as Shariah consultants. For the appointment of an individual as a consultant, fintech companies shall assess whether the person fulfils the following: a) is a Muslim individual; b) has been assessed to have met the requirements specified in the policy document on Fit and Proper Criteria on a continuous basis; c) holds, at minimum, a bachelor’s degree in Shariah, which includes study in Usul Fiqh (principles of Islamic jurisprudence) or Fiqh Muamalat (Islamic transaction/ commercial law); d) possesses solid knowledge in Shariah with reasonable Islamic finance knowledge and experience of the relevant industry; and e) demonstrates strong proficiency and knowledge in written and verbal Arabic, with good command in the preferred language of either Bahasa Malaysia or English language. 10. Are conventional financial institutions allowed to test the provision of solution for Islamic financial services and/ or to collaborate with fintech companies to test a proposed solution for Islamic financial services under the sandbox? Financial institutions are subjected to prior written approval of the Bank in accordance with sections 14, 15 and 16 of the Financial Services Act 2013 and the Islamic Financial Services Act 2013 in order to carry on an Islamic financial business. This includes any collaboration or partnership with fintech companies to offer solutions for Islamic financial services via the sandbox. Application procedure and assessment process for the Green Lane 11. Can a fintech company that has not received prior regulatory approvals from the Bank apply individually to participate in the Green Lane? [Paragraph 7.4] a) No, at this juncture the Green Lane is only applicable to financial institutions as defined in paragraph 5.2 of the Framework. This is given that the Green Lane assessment is primarily based on an applicant’s past record of compliance, which is not applicable to a fintech company. b) However, a fintech company may participate in the Green Lane by way of partnership with a financial institution where the financial institution must initiate the application, own the solution to be tested and be accountable for the safeguards. c) Alternatively, a fintech company can also opt to apply to the Standard Sandbox for standalone applications, which has been simplified to better cater to the innovation development cycle of solutions. 12. Why is an applicant required to submit the assessment of aggregate cap of financial losses supported with the attestation by the Chief Executive Officer (CEO) and Chief Risk Officer (CRO)? [Paragraph 7.8 (b)] In the risk context, performing the said assessment at solution-level will be beneficial to both the applicants and the Bank. As the sandbox is aimed to promote responsible innovation in a conducive environment, thus, customers' risk exposure is an important factor not only for the Bank, but also potential participants of the Green Lane to consider. Nevertheless, it is necessary for both the CEO and CRO of the applicant to provide attestation to ensure credibility of the assessment performed. 13. Will applicants be able to test multiple solutions at a time in the Green Lane? [Paragraph 7.26] a) Yes, the Bank allows testing of multiple solutions for the purposes of the Green Lane. Therefore, a Green Lane participating institution can either choose to test the solutions concurrently or stagger them across the year. b) Notwithstanding, Green Lane participating institutions must provide an overview of the solutions proposed to be tested in the Green Lane, which must include a short description of the business model, target segment, list of potential regulatory impediments and planned date for testing as stipulated in paragraph 7.8 (a) of the Framework.	Public Notice
28 Feb 2024	Kertas Perbincangan Pelan Pemodenan RENTAS	https://www.bnm.gov.my/-/rentas-dp-bm	https://www.bnm.gov.my/documents/20124/943361/dp-RENTAS-modernisation-Feb2024.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/rentas-dp-bm&languageId=ms_MY	Reading: Kertas Perbincangan Pelan Pemodenan RENTAS Share: Kertas Perbincangan Pelan Pemodenan RENTAS Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1730 pada Rabu, 28 Februari 2024 28 Feb 2024 Kertas perbincangan ini membentangkan pelan cadangan Bank Negara Malaysia (BNM) untuk memodenkan Sistem Pemindahan Dana dan Sekuriti Elektronik Masa Nyata (RENTAS). Pelan pemodenan ini tertumpu kepada dua tema menyeluruh, iaitu mengkaliskan RENTAS pada masa hadapan dan meningkatkan pengurusan risiko dan fungsi penggunanya. Bidang pembangunan utama termasuklah menyokong operasi yang menghampiri 24/7, akses peserta ke RENTAS yang lebih meluas, meningkatkan perkongsian data dan keupayaan analitik, serta alat pengurusan kecairan yang lebih berkesan. Kertas perbincangan ini bertujuan untuk mengumpul maklum balas tentang pelan yang dikenal pasti dan kes penggunaan dalam strategi pemodenan RENTAS yang dicadangkan. BNM mempelawa maklum balas bertulis mengenai cadangan dalam kertas perbincangan ini, termasuk cadangan untuk isu khusus, bidang yang perlu dijelaskan atau dihuraikan dengan lebih lanjut, dan cadangan alternatif yang perlu dipertimbangkan oleh BNM. Maklum balas bertulis hendaklah disokong dengan rasional yang jelas, bukti yang disertakan atau ilustrasi yang sesuai untuk memudahkan semakan berkesan kertas perbincangan ini. Maklum balas mesti diserahkan secara elektronik kepada BNM selewat-lewatnya pada 15 April 2024 kepada [email protected]. Maklum balas yang diterima boleh didedahkan kepada umum tanpa nama melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau sebahagian daripada maklum balas tersebut. Sila rujuk: Kertas Perbincangan Rancangan Pemodenan RENTAS Bank Negara Malaysia 28 Februari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	RENTAS Modernisation Plans Discussion Paper Issued on: 23 February 2024 BNM/RH/DP 028-19 RENTAS Modernisation Plans Discussion Paper Applicable to − RENTAS Participants RENTAS Modernisation Plans – Discussion Paper Issued on: 23 February 2024 This discussion paper sets out Bank Negara Malaysia’s (the Bank) proposed plan for modernising the Real Time Electronic Transfer of Funds and Securities System (RENTAS). This paper aims to gather feedback and views from all RENTAS participants on the identified plans within the RENTAS modernisation strategy. The Bank invites feedback from all RENTAS participants with responses from each institution expected to encompass insights from all relevant departments. This includes those overseeing strategic investment in payment services, such as Treasury and Payments Operations, Transaction Banking, Client Service Delivery, IT Services, Risk Management, Innovation and Product Strategy. Submission of feedback for the discussion paper: a) Please provide written feedback on the proposals, including suggestions on areas to be clarified or elaborated and any alternative proposals that the Bank should consider. In addition to providing general feedback, respondents are expected to respond to the specific questions set out throughout this discussion paper. b) The written feedback should be supported with clear rationale, accompanying evidence or illustrations as appropriate, to facilitate the Bank’s assessment. c) All responses to the discussion paper are to be submitted electronically to the Bank via Microsoft Forms (https://forms.office.com/r/NM1xm99Esu) by 22 March 2024. Feedback received may be made public unless confidentiality is specifically requested for the whole or part of the submission. If you have any queries on the discussion paper or access to Microsoft Forms, you may direct them to the Payment Services Policy Department of BNM at [email protected]. mailto:[email protected] RENTAS Modernisation Plans – Discussion Paper Issued on: 23 February 2024 TABLE OF CONTENTS Executive summary ................................................................................................. 1 PART A OVERVIEW ............................................................................................. 2 Introduction……………………………………...……………………………………….. 2 PART B PROPOSED INITIATIVES FOR RENTAS MODERNISATION ............... 4 Scope and guiding principles…………………………………………………………... 4 Theme 1: Futureproofing RENTAS……………………………………………………. 5 Proposal 1: Supporting near 24/7 operations……………………………………….5 Proposal 2: Enabling open access…………………………………………………...8 Theme 2: Enhancing risk management and user functionality…………………….. 9 Overview………………………………………………………………………………...9 Proposal 3: Data provisioning and analytics capabilities…………………………10 Proposal 4: Redesigning of Liquidity Savings Mechanism……………………….12 Other future considerations…………………………………………………………… 15 RENTAS Modernisation Plans – Discussion Paper 1 of 15 EXECUTIVE SUMMARY The Real Time Electronic Transfer of Funds and Securities System (RENTAS) is a critical financial market infrastructure (FMI) in Malaysia, facilitating real-time and gross settlement of large value payments. RENTAS plays a vital role in connecting financial institutions nationwide and thus, is a systemically important payment system (SIPS). Currently, many central banks globally are proactively modernising their Real-Time Gross Settlement (RTGS) systems to futureproof and enhance system resiliency, efficiency and interoperability. Key drivers underlying these efforts include infrastructure refresh needs, enhancing cross-border payments, adoption of ISO 20022, exploration of emerging technologies (e.g. application programming interface (API) and distributed ledger technology (DLT)), as well as evolving user demands. Recognising similar trends and drivers in Malaysia, the Bank has embarked on its own RENTAS modernisation exercise, as outlined in the Bank’s Financial Sector Blueprint 2022-2026. The Bank proposes several key initiatives, under two overarching themes: 1. Futureproofing RENTAS a. Supporting near 24/7 operations: Ensuring system readiness to support an extension of RENTAS operating hours and to pursue the roll-out of near real- time retail payment settlement. b. Enabling open access: Facilitating open and flexible connectivity, through alternative access channels to RENTAS, ensuring flexible data retrieval and facilitating future integration with other FMIs and asset ledgers. 2. Enhancing risk management and user functionality a. Data provisioning and analytics capabilities: Improving business analytics functionality with additional indicators and real-time access to data, focusing on essential metrics. Additionally, participants are envisioned to have direct access to transactional data for their own personalised data analytics. b. Redesigning of Liquidity Savings Mechanism (LSM): Enhancing LSM in RENTAS with the aim to optimise liquidity use, support crisis preparedness and promote better payment behaviour. Note: Additional proposals or modifications may emerge after this Discussion Paper as the Bank will continue engaging RENTAS participants for insights on modernisation efforts in response to evolving developments. https://www.bnm.gov.my/publications/fsb3 https://www.bnm.gov.my/publications/fsb3 RENTAS Modernisation Plans – Discussion Paper 2 of 15 PART A OVERVIEW Introduction 1.1 In 2023 alone, RENTAS facilitated over 400,000 transactions, valued at RM6.9 trillion, with on average 24,400 transactions settled daily totalling RM361.2 billion. This underscores the need for continued reliability and resiliency of RENTAS to support the efficient functioning of the economy. 1.2 While RENTAS has been continually enhanced to meet the changing needs of participants and the economy, it must continue to evolve to remain fit-for-purpose in the medium to long term. The payment landscape is increasingly evolving, shaped by the emergence of new technologies (e.g. API, DLT, machine learning (ML) and artificial intelligence (AI)). Non-bank payment services providers (PSP) are also growing in prominence, with the blurring functions/line between new PSPs and traditional banks adding to the complexity in the payment ecosystem. In addition, the adoption of common standards like ISO 20022 messages and shifting user demands for improved customer experience further drive these developments. 1.3 In terms of risks, cyber-threats and operational risks are escalating, posing rising threats to the financial system. Effective prevention strategies, emphasising on robust systems and processes are crucial for mitigating these risks and ensuring the continued resilience of RTGS operations. 1.4 Against this backdrop, many central banks globally have embarked on RTGS modernisation exercises, focusing on an infrastructure refresh to replace legacy systems and ensuring agility for seamless integration with latest innovations in the changing payment landscape. These efforts aim to deliver a more resilient, efficient and innovative settlement system to promote monetary and financial stability. 1.5 The renewal of these RTGS systems also seek to ensure greater alignment with international standards set by the Committee on Payments and Market Infrastructure (CPMI)1 such as the Principles for Financial Market Infrastructures (PFMI). Further, these exercises also support global efforts to enhance cross- border payments (e.g. G20 Roadmap for Enhancing Cross-border Payments). 1.6 In recent years, the Bank has already initiated efforts to respond to these developments. Most notably, this includes ISO 20022 messages adoption in RENTAS and enhancing end-to-end risk management of RENTAS with the transfer of its operations to the Bank. In 2022, modernisation efforts for RENTAS 1 CPMI is an international standard setter under the Bank for International Settlements (BIS) that promotes, monitors and makes recommendations about the safety and efficiency of payment, clearing, settlement and related arrangements. https://www.fsb.org/wp-content/uploads/P131021-1.pdf RENTAS Modernisation Plans – Discussion Paper 3 of 15 have become a key priority for the Bank with its inclusion in the Financial Sector Blueprint 2022-2026. Accordingly, the Bank has conducted a survey (the 2022 Survey) to assess the current landscape and gather feedback on potential areas to explore in modernising RENTAS. Multiple engagements with RENTAS participants have also been conducted since then. 1.7 Participants are generally supportive of the modernisation initiative and key feedback noted from the 2022 Survey are as follows: a) There is a need to streamline compliance checks, given the uneven practices across participants. Many participants still rely on manual processes, especially to comply with Foreign Exchange Policy (FEP) and Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) requirements. b) Participants are receptive to exploring emerging technologies particularly API, DLT and AI in RENTAS, recognising the potential to enhance system agility and enable new offerings. c) While intraday liquidity management is not an immediate concern, improvements to strengthen industry practices and surveillance capabilities would be beneficial to deliver further efficiency gains in liquidity management. d) Participants express a need for richer data and increased data access to support analytics, including introduction of critical triggers or notification feature and the use of APIs for data analytics. 1.8 This paper outlines the proposals of key initiatives to modernise RENTAS with the two overarching themes i.e. futureproofing RENTAS and enhancing risk management and user functionality. The details of proposals are discussed in Part B of this paper. RENTAS Modernisation Plans – Discussion Paper 4 of 15 PART B PROPOSED INITIATIVES FOR RENTAS MODERNISATION Scope and guiding principles 2.1 The outlined use cases and initiatives in this paper address the plans for RENTAS modernisation, guided by two overarching themes: a) Futureproofing of RENTAS; and b) Enhancing risk management and user functionality. 2.2 Guiding principles: In determining the use cases and initiatives, the Bank adheres to the following principles: a) Agile Ensuring an agile system design, capable of adapting to operational and developmental demands in serving current and future needs, with minimal configuration. b) Intuitive Developing simple, intuitive and user-friendly RENTAS functionalities, while maintaining efficient transaction processes. c) Fair and open Promoting fair and open access to RENTAS to foster innovation and competition, delivering value across the industry, from participants to corporates and end-users. d) Resilient and secure While embracing rapid technological developments, the modernised RENTAS shall continue to prioritise resiliency and security to facilitate smooth transaction processes, with enhanced features to enhance risk management by participants. 2.3 The Bank remains open to additional proposals that may emerge post- infrastructure design assessment or as they arise, and the Bank will continue engaging RENTAS participants for insights. RENTAS Modernisation Plans – Discussion Paper 5 of 15 Theme 1: Futureproofing RENTAS Proposal 1: Supporting near 24/7 operations 3.1 On working days, RENTAS currently operates for 13 hours (8:00 a.m. to 9:00 p.m.) for settlement of wholesale and retail payments2 e.g. DuitNow or Real-time Retail Payments Platform (RPP), Financial Process Exchange (FPX), Interbank GIRO (IBG) and Direct Debit. The evening settlement window between 6:00 p.m. to 9:00 p.m. is dedicated to facilitate settlement for IBG and Direct Debit. Figure 1: RENTAS operating hours on business days 3.2 In October 2023, RENTAS extended its operations to weekends and public holidays, from 8.00 a.m. to 6.00 p.m., to facilitate settlement of Real-time Retail Payment Systems (RT-RPS) i.e. RPP and FPX. This expansion was aimed to reduce FI’s net debit exposures and mitigate settlement risk arising from the current deferred net settlement mechanism of RT-RPS. Figure 2: RENTAS operating hours for weekends and public holidays 3.3 Building Block 12 (BB12)3 of the G20 Roadmap for Enhancing Cross-border Payments underscores the need to align the operating hours of key payment systems globally. This building block aims to minimise delays in cross-border payments, which are partly driven by the varying operating hours of RTGS systems across jurisdictions. This alignment could enable faster payments, better liquidity management, reduced settlement risk and enhanced performance of systems used for cross-border transactions. Consequently, these considerations are incorporated in efforts to extend RTGS operating hours. 3.4 The recent CPMI report on ‘Extending and aligning payment system operating hours for cross-border payments’ outlines three potential end states for RTGS operations: 2 Other retail payment systems include Shared ATM Network, MyDebit and National Electronic Cheque Information Clearing System (eSPICK). 3 The Cross-border Payment Task Force of the CPMI identifies 19 building blocks in supporting a global approach to address the four main challenges in cross-border payments i.e. high cost, low speed, limited access and limited transparency. https://www.bis.org/cpmi/publ/d203.htm https://www.bis.org/cpmi/publ/d203.htm https://www.bis.org/cpmi/publ/d194.pdf RENTAS Modernisation Plans – Discussion Paper 6 of 15 a) End state 1: Extended hours on current operating days, with a proposed Global Settlement Window (06:00 – 11:00 GMT)4. b) End state 2: Expanded hours into current non-operating days (i.e. weekends and public holidays)5. c) End state 3: 24/7 operations (or near 24/7), with zero or minimal downtime for maintenance processes. 3.5 Several major central banks have announced plans to explore extending their RTGS operating hours, with a focus on ensuring technical capability to support near 24/7 operating hours. 3.6 In Malaysia, the Bank's current assessment suggests that existing RENTAS operating hours are adequate to facilitate the needs of wholesale payments: a) The 2022 Survey indicates that majority of participants have no immediate demand or need to extend RENTAS operating hours from a wholesale payments perspective. b) Malaysia already benefits from the overlapping operating hours between RENTAS and the RTGS of other countries, such as US Fedwire, for USD settlement of cash and bonds while the remaining cross-border settlement largely occurs within the region (e.g. via USD CHATS in Hong Kong and other correspondent banking arrangements). c) RENTAS operating hours are already largely aligned with CPMI’s proposal on the Global Settlement Window. Questions 1. While there is no immediate need to support 24/7 operations for wholesale payments, does your institution foresee any potential use cases in the medium to long term? Please provide details. 2. We seek input from participants on the expected effort for your institution in the event RENTAS operation for wholesale payment moves to near 24/7. Please specify which sections/departments (e.g. front-end, IT, risk, etc.) and systems (e.g. core banking, treasury, etc.) of your institution that will be impacted by such an extension of operating hours. 4 5-hour period when the largest number of RTGS systems simultaneously operate, i.e. 2:00 – 7:00 p.m. Malaysian time. 5 With extended operations to weekend and public holidays, RENTAS is currently at end state 2. RENTAS Modernisation Plans – Discussion Paper 7 of 15 3.7 Nevertheless, given plans to transition to near real-time settlement for retail payment, the Bank views that ensuring system readiness to enable an extension of RENTAS operating hours, will be pivotal in facilitating the potential roll-out of near real-time settlement for retail payment. 3.8 Currently, the settlement for RT-RPS is based on a deferred net basis. To mitigate the credit risk present in this settlement arrangement, several interim measures were rolled out in October 2023 namely – (a) introduction of additional settlement windows on weekends and public holidays; and (b) requirement for retail payment participants to set aside a pre-determined amount of collateral to secure against RPP transactions (Deferred Net Settlement (DNS) collateralisation control)6. 3.9 Cognisant of issues7 surrounding the DNS collateralisation control, the Bank is considering for a long-term solution to address credit and settlement risks in RT- RPS by transitioning to a near real-time settlement model. This is supported by majority of participants based on a survey8 conducted in 2023. The Bank will continuously engage the industry for the plan to transition to near real-time settlement for retail payment. 3.10 Moving forward, as RENTAS is envisioned to be technically capable for near 24/7 operations, the Bank will explore additional use cases for wholesale payment. Despite the lack of demand for extended hours from the wholesale perspective, the Bank will continue to monitor the global development and engage participants on any potential use cases in the future. 6 The DNS collateralisation control is supported by contractual protection under the Operational Procedures for MYR Settlement in RENTAS which reserves the right to BNM and Perbadanan Insurans Deposit Malaysia (PIDM) to manage DNS collateral to ensure “business-as-usual” of retail payment settlements in the event of a participant’s gone concern. 7 DNS collateralisation control may be subject to residual risk in situations where the net debit exposure of retail payment transactions exceeds the amount of DNS collateral, and the high implementation cost in the long run particularly considering that DNS collateral cannot be recognised as high-quality liquid assets (HQLA) under Liquidity Coverage Ratio (LCR) requirements as it is deemed to be encumbered. 8 Based on survey issued to retail payment participants in June 2023 entitled “Survey on Real-time Retail Payment Systems (RT-RPS) Controls”. RENTAS Modernisation Plans – Discussion Paper 8 of 15 Proposal 2: Enabling open access 4.1 To support greater competition and innovation, the modernised RENTAS shall facilitate open and flexible connectivity. This may, among others, involve providing access to new participants, flexible access channel including data retrieval (e.g. via API) and potential connectivity to other ledgers and RTGS in other countries. With an agile system design, the modernised RENTAS will be able to adapt to current and future demands. 4.2 The Bank has identified several uses cases for open connectivity as follows: a) Alternative access channel to RENTAS • Allow RENTAS to cater for wider range of participants in the future (e.g. non-bank e-money issuers, non-resident banks). Currently, RENTAS participants can access the system via three terminals i.e., RENTAS Bank Gateway (RBG), SWIFT Access and RENTAS iLINK. With open connectivity, an alternative connection method such as API, could lower access costs for smaller players and reduce dependency on designated vendors. b) Future integration with other FMIs or other asset ledgers • Considering developments in the retail payment space, potential linkages with other RTGS or FMIs, particularly within the region, may also be explored in the future to enhance the regional financial ecosystem. • An open and flexible connection to RENTAS would also facilitate potential integration with a central bank digital currency (CBDC) platform (domestic or multi-CBDC platform), hence enabling efficient liquidity movement between RTGS and CBDC platforms. c) Flexible data retrieval • Enable flexibility for participants to retrieve transactional data or information from a secured-zone database. This allows participants to develop their own tools or analytics for operational and risk management purposes (will be discussed further under Proposal 3 of this Discussion Paper). RENTAS Modernisation Plans – Discussion Paper 9 of 15 Figure 3: Illustration on proposed use cases for open connectivity to RENTAS 4.3 Despite the considerable opportunities, enabling more open access to RENTAS may at the same time elevate cyber security risks as well as operational risks. Such concern stems from the growing number and complexity of cyber threats, especially on a large payment ecosystem like RENTAS. Operationally, resources and processes would be also largely impacted with the enablement of open connectivity to RENTAS. 4.4 Thus, enhanced security measures to manage the risks will be implemented and this may include strengthening the security of existing interface, coupled with robust access controls and data loss prevention. These may include multi-layer access control, implementation of firewalls and intensified monitoring of network traffic. In addition, enhanced business continuity plans shall also be in place to address any disruption in systems and operations. Questions 3. Please provide your institution’s response and views on the proposed plans for open and flexible connectivity for RENTAS. Does your institution agree with the proposal and are there strong opinions or immediate needs to any of the outlined points? Additionally, does your institution have other suggestions for use cases? 4. What other potential risks does your institution foresee with this initiative? Please elaborate on these risks and suggest potential mitigation measures. Theme 2: Enhancing risk management and user functionality Overview 5.1 As a large value payment system that processes settlement on real-time gross basis, RENTAS requires its participants to have sufficient liquidity. Accordingly, RENTAS participants need to effectively manage their liquidity risk, especially RENTAS Modernisation Plans – Discussion Paper 10 of 15 intraday liquidity risk in RENTAS. Such risks are heightened in times of stress. Recognising the increasing liquidity risks, the Bank has issued the Exposure Draft on Liquidity Risk9 that includes strengthened expectations for financial institutions to manage intraday liquidity risk to ensure the smooth functioning of payment and settlement in RENTAS. 5.2 Although the Bank observed minimal settlement failures in RENTAS transactions and minimal incidents of insufficient funds among participants, there are certain limitations in participants’ practices regarding intraday liquidity management, particularly in liquidity optimisation: a) Many participants lack analytical tools for intraday liquidity analysis (e.g. manual projection in Excel, retrieving information from branches, etc.). This limitation impairs the participants’ ability to align with prudential measures for managing settlement exposures. b) Limited use of existing LSMs, i.e. the Liquidity Optimisation Settlement Facility (LOSF) and Gridlock Resolution Mechanism by participants. This leads to sub-optimal use of liquidity despite high liquidity buffers at certain times for some participants. 5.3 To bridge these gaps, the Bank envisions tools to support enhanced institutional and system-wide management of intraday liquidity within RENTAS. A comprehensive approach for end-to-end intraday liquidity management in RENTAS is being considered, encompassing on-going surveillance using RENTAS tools, facilities to support on-going liquidity needs and implementation of liquidity savings mechanism for heightened efficiency across the financial system. The proposals include: a) Provision of intraday liquidity monitoring data in RENTAS to facilitate participants’ effective monitoring; and b) Exploration of LSM enhancements to optimise liquidity savings. Proposal 3: Data provisioning and analytics capabilities 6.1 While RENTAS iLINK currently provides essential reports and monitoring indicators such as account balance listing, ICF utilisation and settlement status, there are notable gaps that necessitate functional improvements. This includes limited historical data series (up to 45 days only) and rigid data formats for analysis (e.g. Excel, PDF). 9 Exposure Draft on Liquidity Risk issued on 23 August 2023 outlines several prudential requirements on managing intraday liquidity risk. https://www.bnm.gov.my/documents/20124/938039/ed_Liquidity_Risk_Aug2023.pdf https://www.bnm.gov.my/documents/20124/938039/ed_Liquidity_Risk_Aug2023.pdf RENTAS Modernisation Plans – Discussion Paper 11 of 15 6.2 Functionality 1: Enhanced Business Intelligence (BI) Tool Based on the 2022 Survey on RENTAS modernisation, 78% of respondents support the introduction of intraday liquidity monitoring indicators in RENTAS. • The Bank intends to provide the essential metrics aligned with recommendations in the Basel Committee on Banking Supervision (BCBS) paper on Monitoring tools for intraday liquidity management, based on data availability in RENTAS10: i. Daily maximum intraday liquidity usage ii. Available intraday liquidity at the start of the business day iii. Total payments sent/received in Large Value Payment System (LVPS) i.e. RENTAS iv. Time-specific obligations v. Intraday throughput • This aims to facilitate participants to identify potential liquidity shortfalls promptly, enabling timely and informed actions. 6.3 Functionality 2: Enabling transactional data access • In the pursuit of advanced analytics capabilities, as per one of the use cases in Proposal 2, the Bank is planning to provide access to transactional data via open and flexible connectivity (e.g. API) to address existing data and functionality gaps. • Participants may retrieve necessary data and conduct their analysis, tailored to their specific requirement. This is intended to empower participants to conduct in-depth trend analysis using transaction-level data on exposures for their respective institution. Questions 5. In addition to the indicators outlined in the BCBS paper, are there other essential data points that your institution deems necessary and should be provided by RENTAS? 6. What is your institution’s opinion on the Bank’s plan to furnish transactional data via open connectivity? What potential benefits do you anticipate for your institution, and how do you plan to capitalise on more efficient access to granular data? 10 BCBS Intraday liquidity monitoring tool indicators that are not available in RENTAS include 1) value of payments made on behalf of correspondent banking customers; and 2) intraday credit lines extended to customers. https://www.bis.org/publ/bcbs248.htm RENTAS Modernisation Plans – Discussion Paper 12 of 15 Proposal 4: Redesigning of Liquidity Savings Mechanism 7.1 Incorporating LSM in RTGS will facilitate more efficient liquidity planning and cost management, particularly with the potential increase in the allocation of cash and securities needed to support DNS collateralisation and transition towards near real-time retail payment settlement. Furthermore, LSM helps participants manage settlement risk for crisis preparedness, especially during stress conditions. It will enable more efficient use of excess liquidity and collateral, reinforcing participants’ liquidity buffer. Finally, LSM can encourage prompt settlement, minimise liquidity hoarding and foster improved payment behaviour. 7.2 Liquidity Optimisation Settlement Facility (LOSF) – manual opt-in requirement The LOSF is designed to match transactions, thereby reducing net obligations and minimising liquidity needs for participants. It combines the transactions of incoming and outgoing payments to achieve a reduced net obligation. However, its operational efficiency is currently hampered by the necessity for manual opt- in and the requirement for transactions to be queued in separate settlement queues (refer to Figure 4 below). Participants that would like to utilise this facility need to manually request other participant(s) to also opt-in and set the relevant transactions in the separate queue. To-date, there has been no utilisation of LOSF since it was made available in RENTAS since 2012. 7.3 Gridlock11 resolution mechanism – reactive nature This module resolves settlement gridlock via automatic multilateral netting on a gross basis. The mechanism will identify an optimal set of queued transactions across affected participants that can be settled simultaneously. However, the mechanism only kicks in after liquidity in both cash and K-accounts are fully depleted with detection intervals set at 20 minutes, which further limits its utilisation. In 2023, only 10% of the gridlocked transactions were actually resolved through this mechanism. The remaining unresolved transactions were moved back to the queue for settlement upon availability of liquidity. 11 Gridlock occurs in RENTAS when the inability of some participants to settle their outgoing transactions, usually due to insufficient funds or securities, prevents a substantial number of transactions from other participants from settling. RENTAS Modernisation Plans – Discussion Paper 13 of 15 Figure 4: Current LSMs in RENTAS 7.4 Recognising the advantages of incorporating an LSM module in RTGS, the Bank is initiating an exploration to identify the most effective mechanism for integration into RENTAS. Some of the features that are being considered for the new LSM include the splitting of transactions into separate streams (e.g. urgent and non- urgent payments), more frequent intervals, and combination of different algorithms (e.g. multilateral/bilateral netting, bypass First In First Out (FIFO), resequencing, etc.). 7.5 Our benchmarking 12 of selected countries have highlighted a common LSM feature that entails the segregation of urgent and non-urgent payments, which is determined by the individual RTGS participants (e.g. time-bound). Another common feature adopted by other RTGS is the multilateral netting in shorter time intervals. Notably, the Bank of England (BOE)’s implementation of such LSM tool, which runs every 2 minutes, has resulted in a 20-30% savings in liquidity usage for the industry in 201913. Meanwhile, with adoption of LSM in the Bank of Canada (BOC)’s new RTGS system, Lynx, also has led to a higher liquidity efficiency ratio14 (average LER of 8.4) in 2021, compared to its old Large Value Transfer System (LVTS) that works on a deferred net settlement basis (average LER of 7.0). 7.6 In considering the adoption of a similar mechanism within RENTAS, we have outlined a potential flow in the diagram below as an illustration based on our benchmarking findings. The Bank seeks feedback from RENTAS participants on 12 The RTGS systems adopting this approach are Bank of England’s RTGS and Payment Canada’s Lynx. 13 Based on Bank of England’s Liquidity Saving Mechanism User Guide (February 2021). 14 The Bank of Canada uses the liquidity efficiency ratio (LER), which is the value of payments settled for every dollar of liquidity used, which is described in their staff paper on From LVTS to Lynx: Quantitative Assessment of Payment System Transition. https://www.bankofengland.co.uk/-/media/boe/files/payments/liquidity-saving-mechanism-user-guide.pdf https://publications.gc.ca/collections/collection_2023/banque-bank-canada/FB3-5-2023-24-eng.pdf https://publications.gc.ca/collections/collection_2023/banque-bank-canada/FB3-5-2023-24-eng.pdf RENTAS Modernisation Plans – Discussion Paper 14 of 15 the areas that would build up a more effective LSM. In addition, the Bank plans to conduct a tailored simulation study for RENTAS to identify the most effective solution that can be implemented. Figure 5: Potential flow for LSM in RENTAS Questions 7. If RENTAS adopts a mechanism similar to BOE and BOC, how would your institution classify transactions as urgent and non-urgent? Additionally, what types of payments are considered as non-urgent and eligible for the LSM? 8. Does your institution have additional proposals to enhance liquidity optimisation in RENTAS? RENTAS Modernisation Plans – Discussion Paper 15 of 15 Other future considerations 8.1 In addition to the previously mentioned initiatives, the Bank is embarking on Phase 2 CBDC exploration (Domestic Wholesale CBDC). This project aims to explore innovative solutions using wholesale CBDC and DLT to enhance and futureproof RENTAS. One of the use cases involve testing the potential of smart contracts to address compliance bottlenecks for RENTAS transactions, in addition to exploring tokenisation of securities and settlement using CBDC. 8.2 These use cases were determined after taking into consideration the feedback provided by participants in the 2022 Survey. The Bank noted on suggestions to explore enhancing efficiency in the compliance process and pre-matching activities in securities settlement. The Bank intends to continue engaging with participants for additional feedback and project findings will be shared. 8.3 Efforts are also ongoing to futureproof the debt securities issuance system, namely the Fully Automated System for Issuing/Tendering (FAST). The Bank gathered feedback from FAST users in 2022 and conducted internal feasibility studies to establish requirements to support developments in the debt capital market. In addition, the Bank also plans to adopt the latest technology to replace existing ones with the aim of providing a more scalable, efficient and user-friendly system. This initiative is scheduled to kick off later in 2024. 8.4 In addition to these ongoing initiatives, some jurisdictions have enabled or plan to enable synchronisation functionality in their RTGS, which allows cash movements to synchronise with the movement of other assets (e.g. house purchase). Meanwhile, a central bank is looking into linking of RTGS between jurisdictions particularly ASEAN countries, upon successful implementation of cross-border linkages for retail payment. Question 9. The Bank is cognisant of related efforts taken by other countries to enhance their RTGS, as shared in paragraph 8.4. Does your institution have suggestions for additional initiatives that should be considered by the Bank in the RENTAS modernisation exercise? If so, please elaborate on your recommendations and provide justification for their inclusion.	Public Notice
07 Feb 2024	Draf Dedahan Skim Perbankan Islam	https://www.bnm.gov.my/-/ed-ibw-bm	https://www.bnm.gov.my/documents/20124/938039/ed-islamic-banking-window-jan24.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/ed-ibw-bm&languageId=ms_MY	Reading: Draf Dedahan Skim Perbankan Islam Share: 3 Draf Dedahan Skim Perbankan Islam Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1900 pada Rabu, 7 Februari 2024 7 Feb 2024 Draf dedahan ini mengemukakan cadangan penambahbaikan kepada Guidelines on Skim Perbankan Islam oleh Bank Negara Malaysia (BNM) dan menggariskan keperluan-keperluan yang merangkumi aspek pemberian kebenaran, tadbir urus, kehematan, dan pengawalseliaan operasi yang terpakai pada Skim Perbankan Islam. BNM mempelawa orang ramai untuk memberikan maklum balas bertulis mengenai cadangan dalam draf dedahan ini, termasuk cadangan untuk isu-isu khusus, keperluan-keperluan yang perlu dijelaskan atau dihuraikan dengan lebih lanjut. Ini termasuk cadangan alternatif yang memerlukan pertimbangan BNM. Maklum balas bertulis hendaklah disokong oleh rasional yang jelas berserta bukti atau ilustrasi yang sesuai untuk memudahkan semakan draf dedahan ini dilakukan secara berkesan. Maklum balas untuk draf dedahan ini hendaklah dikemukakan secara elektronik kepada BNM selewat-lewatnya pada 31 Mac 2024 melalui [email protected] Maklum balas yang diterima boleh dimaklumkan kepada orang ramai secara tanpa nama melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau sebahagian daripada maklum balas tersebut. Baca Draf Dedahan Skim Perbankan Islam Bank Negara Malaysia 7 Februari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Exposure Draft: Islamic Banking Window Issued on: 31 January 2024 BNM/RH/ED 034-44 Islamic Banking Window Exposure Draft Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Prescribed development financial institutions Islamic Banking Window – Exposure Draft This Exposure Draft sets out Bank Negara Malaysia (BNM)’s proposed enhancements to the Guidelines on Skim Perbankan Islam and outlines authorisation, prudential and operational regulatory requirements applicable to Islamic Banking Window (IBW). The enhancements seek to ensure that the requirements cover all IBW players, including prescribed institutions under the Development Financial Institutions Act 2002 (DFIA) and overseas branches of licensed persons. These proposals have taken into consideration practicality and relevancy of the requirements of the IBW to both domestic and overseas business which may experience different operating and regulatory environment. BNM invites written feedback on the proposed regulatory requirements, including suggestions on areas to be clarified and alternative proposals that BNM should consider, particularly on the newly introduced requirements under paragraphs 8.16 and 10.6. The written feedback should be supported by a clear rationale, accompanying evidence or practical examples, where appropriate, to facilitate greater understanding of its context. Responses must be submitted to BNM by 31 March 2024 to– Pengarah Jabatan Sistem Kewangan Islam Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Electronic submission to ([email protected]) is encouraged. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. In the course of preparing your feedback, you may direct any queries to the following officers– i. Abdul Haq bin Mohaidin ([email protected]) ii. Ateefa binti Zulkifli ([email protected]) mailto:[email protected] mailto:[email protected] mailto:[email protected] Islamic Banking Window – Exposure Draft TABLE OF CONTENTS PART A OVERVIEW 1 1 Introduction ....................................................................................................... 1 2 Applicability ...................................................................................................... 1 3 Legal provisions................................................................................................ 2 4 Effective date .................................................................................................... 2 5 Interpretation .................................................................................................... 2 6 Related legal instruments and policy documents .............................................. 3 7 Policy documents superseded .......................................................................... 3 PART B POLICY REQUIREMENTS 4 8 General requirements for IBW operations (domestic and overseas) ................. 4 9 Specific requirements for IBW domestic operations ......................................... 8 10 Specific requirements for IBW operations by overseas branches ..................... 9 PART C APPENDIX 11 Appendix: Contact points for submission ............................................................................. 11 Islamic Banking Window – Exposure Draft 1 of 11 PART A OVERVIEW 1 Introduction 1.1 The Islamic Banking Window (IBW) framework, introduced in 1993, allows conventional financial institutions to conduct Islamic banking operations with appropriate legal and regulatory standards to ensure compliance with Shariah. The IBW has since contributed to the steady growth of Islamic banking in Malaysia and enabled business opportunities in markets abroad to be explored by Malaysian Islamic financial institutions. 1.2 A review of the Guidelines on Skim Perbankan Islam (SPI Guidelines)1 was undertaken to reflect authorisation, prudential and operational regulatory requirements applicable to domestic and overseas IBWs based on relevant changes in legislative and regulatory requirements. The revisions outlined in this policy document also aims to ensure comprehensive coverage of players including prescribed institutions under the Development Financial Institutions Act 2002 (DFIA). 1.3 The new policy document on Islamic Banking Windows will supersede the SPI Guidelines. Therefore, any reference to the SPI Guidelines in other policy documents issued by Bank Negara Malaysia (BNM) shall refer to this policy document and any reference to “SPI” provided therein shall refer to “IBW institutions” accordingly. 1.4 This policy document specifies the following: (a) scope of Islamic banking business or Islamic financial business that can be carried out by a licensed person under the Financial Services Act 2013 (FSA) or a prescribed institution under the DFIA 2002 which has been approved to carry on such business respectively; (b) submission and operational requirements to facilitate approvals under the FSA or DFIA for an IBW institution to carry on its IBW operations; (c) relevant requirements to be complied with by an IBW institution to ensure that the IBW operations are in compliance with Shariah requirements at all times; and (d) specific requirements that must be complied with in respect of IBW operations conducted by overseas branches of a licensed person or a prescribed institution. 2 Applicability 2.1 This policy document is applicable to IBW institutions as defined in paragraph 5.2 of this policy document, that intend to offer and carry on Islamic banking business or Islamic financial business in addition to the overall conventional business of the IBW institutions, excluding International Currency Business Unit. 1 Last revised on 2 November 2012. Islamic Banking Window – Exposure Draft 2 of 11 2.2 In relation to paragraph 2.1, any licensed investment bank that undertake only fee-based Shariah compliant activities2 is not subject to this policy document. 2.3 Specific requirements under paragraph 9 of this policy document are ongoing requirements which are only applicable to domestic IBW operations, while specific requirements under paragraph 10 are only applicable to IBW operations of overseas branches. 3 Legal provisions 3.1 This policy document is issued pursuant to– (a) sections 15, 47(1), 143, 144 and 266 of the FSA; (b) sections 14, 29, 57(1), 135, 155, 156 and 277 of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 33B, 33C, 33E, 41(1), 42C, 116 and 126 of the DFIA. 4 Effective date 4.1 This policy document comes into effect on XXX (the date to be specified in the finalised policy document). 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA and DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For purposes of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “branch” refers to a domestic or overseas branch of a licensed person or prescribed institution; “IBW institution” refers to a licensed bank and licensed investment bank approved under section 15 of the FSA, and a prescribed institution approved under section 33B(1)(b) of the DFIA, to carry on IBW operations; 2 For example, a licensed investment bank that conducts only lead arranging activities for sukuk would not be deemed as conducting Islamic banking business as defined under the IFSA. Islamic Banking Window – Exposure Draft 3 of 11 “IBW operations” refers to an Islamic banking business or Islamic financial business carried on by an IBW institution in and outside Malaysia; “Islamic banking division” or “IBD” refers to the Islamic banking division established at the head office of an IBW institution; “Islamic banking fund” or “IBF” refers to the Islamic banking fund established by an IBW institution to fund its IBW operations; “licensed person” refers to a licensed bank or licensed investment bank under the FSA; “Shariah non-compliance risk” has the same meaning as assigned to it in the policy document on Shariah Governance issued by BNM. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by BNM, in particular– (a) Specification on Permitted Business or Activity for Licensed Person under Financial Services Act 2013 and Islamic Financial Services Act 2013 (BNM/RH/GL 029-3) issued on 14 May 2015; (b) Shariah Governance (BNM/RH/PD 028-100) issued on 20 September 2019; (c) “Perbankan Islam” Logo (BNM/RH/GL 028-5) issued on 30 May 2014; (d) Operational Procedures for Malaysian Ringgit (MYR) Settlement in the Real Time Electronic Transfer of Funds and Securities System (RENTAS) (BNM/RH/PD 028-28) issued on 4 January 2022; and (e) Operational Procedures for Sistem Penjelasan Informasi Cek Kebangsaan Secara Elektronik (eSPICK) (BNM/RH/PD 028-48) issued on 27 December 2021. 7 Policy documents superseded 7.1 This policy document supersedes the Guidelines on Skim Perbankan Islam issued by BNM on 2 November 2012. Islamic Banking Window – Exposure Draft 4 of 11 PART B POLICY REQUIREMENTS 8 General requirements for IBW operations (domestic and overseas operations) Eligibility criteria S 8.1 A licensed person or prescribed institution which intends to carry on IBW operations shall comply with the following requirements: (a) the minimum total capital ratio (TCR) for a licensed person or minimum risk-weighted capital ratio (RWCR) for a prescribed institution, as well as the prevailing minimum capital funds requirement3 for the respective licensed person or prescribed institution as specified by BNM; and (b) no major adverse finding4 has been made by BNM against the licensed person or prescribed institution. Submission requirements S 8.2 A licensed person or prescribed institution shall submit an application to carry on IBW operations to the relevant department in BNM listed in Appendix together with the following information and documents: (a) a copy of the board resolution and approval on the proposed IBW operations by the licensed person or prescribed institution; (b) proposed value propositions and business lines including products to be offered; (c) method of segregating5 the funds of its IBW operations6 from the funds of its conventional operations7; (d) proposed application of funds including investment in Shariah-compliant instruments; (e) identification of its branches which will carry on Islamic banking business or Islamic financial business; (f) plans to ensure full and ongoing compliance with the requirements specified in the policy document on Shariah Governance and any relevant Shariah standards; (g) infrastructure and logistic plan to be developed by a licensed person or a prescribed institution in carrying on IBW operations; and (h) capacity building plans to support requisite knowledge and skills. 3 Policy documents on Capital Funds, Capital Funds for Islamic Banks and Capital Framework for Development Financial Institutions. 4 This includes Shariah non-compliance finding or major regulatory breaches. 5 In line with Shariah principles, any commingling of funds between the Islamic and conventional business operations is prohibited. 6 In practice, such segregation of funds may be observed by establishing- a. an Islamic Banking Fund or IBF (quasi-capital) to fund the operations of the Islamic banking business; b. dedicated systems and controls; and c. a separate access to system and clearing network. 7 This is also to assess whether the licensed person or prescribed institution has the ability to comply with sections 15(3) of the FSA and 33C of the DFIA once it is approved by the Bank to carry on IBW operations. Islamic Banking Window – Exposure Draft 5 of 11 Post approval requirements S 8.3 Where the IBW’s application has been approved by BNM, an IBW institution shall set up an IBD at the head office. For avoidance of doubt, this requirement is not applicable to IBW operations by overseas branches. S 8.4 An IBW institution shall only commence its IBW operations subject to the completion of the operational readiness assessment to the satisfaction of BNM. S 8.5 An IBW institution must have a robust mechanism in place to ensure that the implementation of its IBW operations promotes end-to-end compliance with Shariah requirements, and include the following: (a) business plan for the IBW operations covering business growth and financial projection as well as target market segment(s) and product offerings, which shall be integrated with the IBW institution’s overall business and risk strategies; (b) internal policies and procedures including system and product development, marketing, processing, approving limits, branch supervision, business development, reporting and credit control, with emphasis to address specific requirements for IBW operations. In addition, the IBW institution’s internal policies and procedures shall provide for the appropriate Shariah governance processes and compliance with relevant regulatory and Shariah requirements; and (c) proficient, qualified and knowledgeable staff in dealing with the IBW operations, directly or indirectly. S 8.6 An IBW institution shall designate a member of senior management who has the authority, professional competence, knowledge and skillsets in areas relevant to Islamic banking to manage the overall IBW operations and discharge his duties and responsibilities effectively. S 8.7 An IBW institution shall ensure that the IBW operations adheres to other roles and responsibilities as determined by BNM from time to time. Islamic Banking Fund (IBF) S 8.8 For purposes of funding the operations of its Islamic banking business or Islamic financial business, an IBW institution shall allocate a minimum amount of IBF at the point of entry as per the following: (a) RM20 million for licensed banks and prescribed institutions; and (b) RM6 million for licensed investment banks, and the IBW institution shall maintain the said minimum amount throughout the IBW operations. G 8.9 The minimum amount of IBF is subject to change as may be specified by BNM from time to time. S 8.10 An IBW institution shall ensure that the IBF must be clearly segregated from the capital designated for conventional operations and cannot be reallocated for the conventional operations. Islamic Banking Window – Exposure Draft 6 of 11 S 8.11 An IBW institution shall ensure that all expenditures in running the IBW operations are to be funded using the IBF. G 8.12 Income generated from the IBW operations may be used by an IBW institution for making a dividend payment to its shareholders, subject to section 51 of the FSA or section 36 of the DFIA, as the case may be. S 8.13 In the event that an IBW institution decides to use the income generated from its IBW operations for the purpose set out in paragraph 8.12, the IBW institution shall ensure that such usage is subject to the minimum requirements on IBF, capital adequacy ratio and compliance with other standards, order, direction, requirement, condition, specification, restriction or otherwise specified, made or imposed by BNM. S 8.14 Where the income generated from the IBW operations is not utilised for the purpose set out in paragraph 8.12, the IBW institution shall retain the income generated in the IBF. G 8.15 In maintaining the minimum amount of IBF as outlined in paragraph 8.8, the IBW institution may source its funding from any Shariah-compliant instruments available in the market, including Islamic interbank money market or placement of its conventional funds in the IBF via restricted investment account8. Compliance with Shariah and Shariah Governance requirements S 8.16 An IBW institution shall comply with the Shariah Advisory Council of Bank Negara Malaysia (SAC) rulings as well as any standards, order, direction, requirement, condition, specification, restriction or otherwise specified, made or imposed pursuant to the IFSA and DFIA9 in so far as the requirements are applicable to the IBW institution for its IBW operations including the policy documents on Shariah Governance and any relevant Shariah standard(s). S 8.17 An IBW institution shall ensure full compliance with requirements set out in the policy document on Shariah Governance. This includes ensuring the integration of Shariah governance considerations within the business and risk strategies of the IBW institution, where appropriate, for a smooth implementation of its IBW operations. In fulfilling this role, the IBW institution must ensure that the IBW operations are provided with– (a) the necessary support by relevant divisions/departments within the IBW institution, particularly in areas where similar infrastructure is shared; and (b) sufficient resources that are commensurate with the expected costs and profitability of the IBW operations, including ongoing development of knowledge and skills in Islamic finance by board members and management of the IBW institution as well as its relevant employees. 8 Therefore, the IBW institution shall observe the requirements in the policy document on Investment Account. 9 This is referring to the relevant Shariah standards issued by the Bank pursuant to sections 29 of the IFSA as well as sections 33E of the DFIA. Islamic Banking Window – Exposure Draft 7 of 11 System and controls S 8.18 An IBW institution shall have sound and robust internal controls to ensure effectiveness of its IBW operations and its compliance with Shariah, legal and regulatory requirements. S 8.19 An IBW institution shall ensure that the reporting system is able to address the separation between Islamic and conventional banking transactions. S 8.20 An IBW institution shall ensure proper reporting and disclosure of its IBW operations as required under the policy documents on Financial Reporting, Financial Reporting for Islamic Banking Institutions and Financial Reporting for Development Financial Institutions. Financial protection for Islamic financing facility S 8.21 An IBW institution shall offer a takaful coverage as the first option to its customer who applies for an Islamic financing facility that requires coverage.10 S 8.22 In the event that a customer decides to include such coverage as part of his Islamic financing facility, an IBW institution is only permitted to include takaful coverage as part of the facility. S 8.23 In the event that a customer decides to opt for an insurance coverage for his Islamic financing facility, the IBW institution shall ensure that the insurance premium shall be excluded from the Islamic financing package. G 8.24 Notwithstanding paragraph 8.23, for ijarah financing, in the case where the insurance coverage is subscribed based on certain circumstances as ascertained by the SAC11, the amount of insurance premium may be included in the total ijarah financing. 10 The Shariah Advisory Council of Bank Negara Malaysia (SAC), at its 41st meeting dated 8 March 2004 and 43rd meeting dated 29 April 2004, has resolved the following: i. For an Islamic financing package which does not include an amount of contribution for coverage, the Islamic financial institution (IFI) shall offer a takaful plan as the first option to the customer who applied for the Islamic financing that requires coverage. If the customer refuse the takaful plan on particular reasons, the customer may choose any conventional insurance as he wishes. Such as an exemption is only given in consideration of the following factors; a. the insurance premium is totally borne by the customer; b. there is a sector or specific class in insurance whereby takaful has no expertise; or c. the customer’s application was rejected by takaful company on certain grounds. ii. For an Islamic financing package that includes the amount for contribution of coverage, the IFI shall ensure that only takaful plan is used to cover such Islamic financing. Conventional insurance premium shall not be included in Islamic financing package; and iii. If a customer who has taken a conventional insurance coverage for an Islamic financing pass away or suffers any kind of peril that results in his inability to pay for the financing, the IFI is entitled to receive compensation from the conventional insurance. 11 The SAC at its 181st meeting on 27 October 2017 also ruled that for the first year of ijarah financing, an IFI should ensure takaful be the first option for the coverage plan. The IFI is required to promote the subscription of takaful in the second year of financing and thereafter. Customers are given the flexibility to take up insurance under the following circumstances: i. Takaful protection is not offered in particular sectors or classes; Islamic Banking Window – Exposure Draft 8 of 11 Notification on cessation of IBW operations S 8.25 In the event that an IBW institution decides to cease its IBW operations, the IBW institution shall submit a written notification to the relevant department in BNM as listed out in Appendix within 60 working days prior to the cessation. S 8.26 In relation to paragraph 8.25, the IBW institution must ensure that submission of the written notification to BNM is supported with the following documents and information: (a) the deliberations and approval by the IBW institution’s board; (b) the rationale for such decision made; (c) the manner of which the cessation of IBW operations will be conducted, including the plan on managing affected stakeholders (e.g. existing customers); and (d) the effective cessation date of its IBW operations. 9 Specific requirements for domestic IBW operations Post approval requirements Scope of business S 9.1 An IBW institution shall ensure that the scope of its IBW operations in Malaysia shall be confined to, in the case of a licensed person, the permitted scope of its conventional business and in the case of a prescribed institution, its mandated role. G 9.2 An IBW institution may invest in Islamic financial instruments including those issued by BNM, Government and corporates. Separate compliance on prudential requirements S 9.3 An IBW institution shall fully comply with all regulatory requirements including prudential requirements and any directives issued by BNM in relation to the IBW operations. S 9.4 In respect of its IBW operations, an IBW institution shall observe separate compliance from its conventional operations on prudential requirements. These include the minimum total capital ratio, statutory reserve requirement (SRR) and liquidity requirements, single counterparty exposure limit (SCEL) and financial and risk disclosure requirements12. ii. None of the available takaful operators approves the customer’s application for takaful protection; or iii. The cost of insurance coverage is significantly more competitive compared to takaful. The SAC also agreed that in the case where the insurance coverage is subscribed based on the above circumstances, the amount of insurance premium may be included in the total ijarah financing. 12 In the case of prescribed institutions, it is required to comply with applicable prudential requirements as may be specified by the Bank under the DFIA. Islamic Banking Window – Exposure Draft 9 of 11 S 9.5 In respect of SCEL, an IBW institution shall ensure that the SCEL computation of its IBW operations shall be based on its IBF. Notwithstanding this, for the purpose of the SCEL computation of the IBW institution, the IBW institution shall ensure that the amount set aside for IBF must be factored in as part of its capital funds. S 9.6 An IBW institution shall submit complete and accurate statistical reports on its IBW operations to BNM in timely manner and in compliance with the requirements in other standards, order, direction, condition, specification, restriction or otherwise specified, made or imposed by BNM. System and clearing network S 9.7 Upon obtaining approval from BNM to set up its IBW operations, an IBW institution shall submit an application to the Head of Financial Market Infrastructure Department of BNM to be a participant in the Real-Time Electronic Transfer of Funds and Securities System (RENTAS) system using the prescribed form as per Appendix VI (Form A) of BNM’s policy document on Operational Procedures for Malaysian Ringgit (MYR) Settlement in RENTAS issued on 4 January 2022. S 9.8 An IBW institution shall open an Islamic IBW MYR Settlement Account with BNM13 and ensure compliance with the requirements under policy document on Operational Procedures for Malaysian Ringgit (MYR) Settlement in RENTAS. IBW operations prominence S 9.9 An IBW institution shall ensure visibility of its IBW operations to its stakeholders and the public at large including the documentations. In terms of the physical set-up, an IBW institution shall observe the requirements in BNM’s policy document of Perbankan Islam Logo in respect of its IBW operations. 10 Specific requirements for IBW operations by overseas branches Submission requirements S 10.1 Where a licensed person or prescribed institution intends to conduct IBW operations in an overseas branch, the licensed person or prescribed institution shall submit an application to the relevant department in BNM as per Appendix, with information and documents outlined in paragraph 8.2, and the regulatory framework (including Shariah regulatory framework, if any) adopted by the host country in regulating Islamic banking business. G 10.2 In processing the application for IBW operations via overseas branches, BNM may consult the supervisory authorities in the host country. 13 IBW institutions may refer to Appendix I of the policy document on the Operational Procedures for Malaysian Ringgit (MYR) Settlement in RENTAS for contact details. Islamic Banking Window – Exposure Draft 10 of 11 Post approval requirements Scope of business G 10.3 An IBW institution with IBW operations at overseas branches is allowed to carry on Islamic banking business as defined under section 2(1) of the IFSA and section 33(A) of the DFIA. S 10.4 For purpose of paragraph 10.3, the IBW institution shall comply with the following requirements: (a) the scope of the IBW operations shall be consistent with the scope of activities permitted by the host regulator or host jurisdiction; and (b) where the IBW institution has within its banking group an existing subsidiary carrying on Islamic banking business or Islamic financial business in the home jurisdiction, the licensed person may optimise its resources by leveraging on the existing subsidiary, to manage both the business and risks arising from such expanded scope. Separate compliance on prudential requirements S 10.5 IBW operations conducted at overseas branches are not required to observe separate compliance to regulatory prudential requirements. However, the IBW institution shall ensure that all risk exposures are appropriately observed in the overall compliance with the prudential requirements at both the entity and consolidated levels. S 10.6 In relation to paragraph 8.16 and in accordance with the requirements outlined in the Shariah Governance policy document, the Shariah committee of an IBW institution shall provide objective and sound advice to the IBW operations conducted at overseas branches to ensure that its aims and operations, business, affairs and activities are in compliance with Shariah. G 10.7 In the case where BNM finds that the risk management practices of the IBW operations at overseas branches are unsatisfactory, or in situations where risk exposures of the IBW operations are significant and are likely to have adverse effects on the overall safety and soundness of the relevant licensed person or prescribed institution, BNM may review applicability of paragraph 10.5 and specify additional requirements as deemed appropriate pursuant to sections 47 of the FSA, 57 of the IFSA and 41 of the DFIA. Islamic Banking Window – Exposure Draft 11 of 11 PART C APPENDIX Appendix: Contact points for submission An application or a notification referred to in this policy document, together with the required documents and information, shall be submitted to the following departments: (i) In relation to paragraphs 8.2, 8.25 and 10.1: (a) Pengarah, Jabatan Sistem Kewangan Islam for a licensed person under the FSA; or (b) Pengarah, Jabatan Rangkuman Kewangan for a prescribed institution under the DFIA. PART A Overview 1 Introduction 2 Applicability 3 Legal provisions 4 Effective date 5 Interpretation 6 Related legal instruments and policy documents 7 Policy documents superseded PART B POLICY REQUIREMENTS 8 General requirements for IBW operations (domestic and overseas operations) 9 Specific requirements for domestic IBW operations 10 Specific requirements for IBW operations by overseas branches PART C APPENDIx Appendix: Contact points for submission	Public Notice
05 Feb 2024	Dokumen Dasar Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan, Pencegahan Pembiayaan Percambahan dan Sekatan Kewangan Bersasar untuk Perniagaan dan Profesion Bukan Kewangan yang Ditentukan dan Institusi Kewangan Bukan Bank	https://www.bnm.gov.my/-/pd-amlcftcpftfs-dnfbp-nbfi	https://www.bnm.gov.my/documents/20124/13380097/pd-AMLCFTCPF-TFS-DNFBI-NBFI-Feb2024.pdf	null	null	Policy Document on Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions and Non-Bank Financial Institutions Issued on: 5 February 2024 BNM/FIED/DNFBP Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) and Non-Bank Financial Institutions (NBFIs) (AML/CFT/CPF and TFS for DNFBPs and NBFIs) Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) Issued on: 5 February 2024 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction ................................................................................................ 1 2 Objective .................................................................................................... 2 3 Applicability ................................................................................................ 2 4 Legal Provisions ........................................................................................ 5 5 Effective Date ............................................................................................ 5 6 Definition and Interpretation ....................................................................... 6 7 Related Legal Instruments and Policy Documents .................................. 15 8 Policy Documents Superseded ................................................................ 15 9 Non-Compliance ...................................................................................... 15 PART B AML/CFT/CPF/TFS REQUIREMENTS ................................................... 16 10 Application of Risk-Based Approach ........................................................ 16 11 AML/CFT/CPF Compliance Programme .................................................. 21 12 New Products and Business Practices .................................................... 32 13 Applicability to Financial/DNFBP Group, Foreign Branches and Subsidiaries and Other DNFBP Structures .............................................. 33 14 Customer Due Diligence (CDD) ............................................................... 35 14A Customer Due Diligence: Licensed Casino .............................................. 45 14B Customer Due Diligence: Licensed Gaming Outlets ................................ 47 14C Customer Due Diligence: Accountants, Company Secretaries and Lawyers ................................................................................................................ 48 14D Customer Due Diligence: Trust Companies ............................................. 49 14E Customer Due Diligence: Dealers in Precious Metals or Precious Stones ................................................................................................................ 50 14F Customer Due Diligence: Registered Estate Agents ................................ 51 14G Customer Due Diligence: Moneylenders .................................................. 52 14H Customer Due Diligence: Pawnbrokers ................................................... 53 15 Politically Exposed Persons (PEPs)......................................................... 54 16 Reliance on Third Parties ......................................................................... 57 17 Higher Risk Countries .............................................................................. 59 18 Cash Threshold Report ............................................................................ 60 19 Suspicious Transaction Report ................................................................ 62 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) Issued on: 5 February 2024 20 Disclosure of Suspicious Transaction Reports, Cash Threshold Reports and Related Information .......................................................................... 65 21 Record Keeping ....................................................................................... 66 22 Management Information System ............................................................ 67 23 Targeted Financial Sanctions on Terrorism Financing ............................. 68 24 Targeted Financial Sanctions on Proliferation Financing and Other UN- Sanctions Regimes ................................................................................. 74 25 Other Reporting Obligations .................................................................... 80 PART C GLOSSARY, TEMPLATES AND FORMS ................................................. 81 APPENDIX 1 Glossary ..................................................................................... 82 APPENDIX 2 Definition of Small-sized Reporting Institutions ........................... 83 APPENDIX 3 Customer Due Diligence Form.................................................... 84 APPENDIX 4 Required Information in CTR ...................................................... 91 APPENDIX 5A Targeted Financial Sanctions Reporting (NBFIs) – Upon Determination ............................................................................. 93 APPENDIX 5B Targeted Financial Sanctions Reporting (DNFBPs) – Upon Determination ............................................................................. 94 APPENDIX 6A Targeted Financial Sanctions Reporting (NBFIs) – Periodic Reporting on Positive Name Match ............................................ 95 APPENDIX 6B Targeted Financial Sanctions Reporting (DNFBPs) – Periodic Reporting on Positive Name Match ............................................ 96 PART D GUIDANCE ................................................................................................ 97 APPENDIX 7 Guidance on Application of Risk-Based Approach ..................... 98 APPENDIX 8 Institutional Risk Assessment Template ................................... 113 APPENDIX 9 Infographic on Risk Based Approach ........................................ 119 APPENDIX 10 Infographic on Compliance Officer’s Role and Responsibilities 121 APPENDIX 11 Infographic on Customer Due Diligence ................................... 122 APPENDIX 12 Infographic on Suspicious Transaction Reports ....................... 126 APPENDIX 13 Infographic on Targeted Financial Sanctions ............................ 128 PART E RED FLAGS ............................................................................................ 131 APPENDIX 14 Examples of Red Flags ............................................................. 132 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 1 of 140 Issued on: 5 February 2024 PART A OVERVIEW 1 Introduction Background 1.1 Money laundering and terrorism financing (ML/TF) are financial crimes with far- reaching and deleterious socio-economic effects. Criminal networks, money launderers and terrorist financiers are highly adaptive and quick to exploit any weak links within an increasingly borderless world to obscure detection of such illicit funds. The globalisation and advancement in technology, including the emergence of new players and innovative products, pose challenges to regulators and law enforcement agencies alike in curbing criminal activities. 1.2 In line with the international standards established by the Financial Action Task Force (FATF)1, the anti-money laundering, countering financing of terrorism, countering proliferation financing (AML/CFT/CPF) reporting obligations imposed on reporting institutions are risk-informed, and subject to periodic review in tandem with any material changes to the international standards or the evolving risk of ML/TF and proliferation financing (PF) situation in Malaysia. In view of potential development opportunities brought about by the era of digitalisation, enhancements to the existing AML/CFT/CPF reporting obligations are important to ensure areas of higher risk are subject to enhanced controls, while areas of low risk are accorded some policy accommodation, to ensure that the integrity of the financial system is preserved, just as development objectives are facilitated. 1.3 Consistent with the FATF’s action to strengthen the response to the growing threat of weapons of mass destruction (WMD) PF, reporting institutions are required to assess PF risks and implement commensurate mitigation measures. This aims to ensure that reporting institutions are not subject to abuse, unwittingly support or become part of the PF networks, given the emerging trends on PF risks and techniques adopted by the designated individuals and entities to evade targeted financial sanctions on PF. 1 The Financial Action Taskforce (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering (ML), terrorism financing (TF) and financing of proliferation of weapons of mass destruction (PF). The FATF International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation (The FATF Recommendations), issued in February 2012, and updated from time to time, sets out a comprehensive and consistent framework of measures which countries should adapt to their particular circumstances, and implement to ensure the robustness of their respective jurisdiction’s AML/CFT/CPF regime. Malaysia was accepted as a FATF member in February 2016. For further information on FATF, please visit their website at www.fatf-gafi.org Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 2 of 140 Issued on: 5 February 2024 1.4 Domestically, the National Risk Assessment (NRA) by the National Coordination Committee to Counter Money Laundering (NCC) that assesses and identifies the key threats and sectoral vulnerabilities that Malaysia’s financial system and economy is exposed to, has guided the strategies and policies of Malaysia’s overall AML/CFT/CPF regime. The NRA is the primary tool used for periodic assessment and tracking of effectiveness of the relevant Ministries, law enforcement agencies, supervisory authorities and reporting institutions in preventing and combating ML/TF/PF. 1.5 In line with the United Nations Security Council Resolutions (UNSCR), reporting institutions are also required to adhere to, and implement sanctions imposed on designated countries and persons to combat terrorism, TF, proliferation of weapons of mass destruction and PF as well as suppress other forms of armed conflicts or violence against humanity. These obligations have been further elaborated and clarified in accordance with the relevant UNSCR. 2 Objective 2.1 This policy document is intended to set out: (b) obligations of reporting institutions with respect to the requirements imposed under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA); (c) requirements on reporting institutions in implementing a comprehensive risk-based approach in managing ML/TF/PF risks; and (d) requirements on reporting institutions in implementing targeted financial sanctions. 3 Applicability 3.1 Where a reporting institution is subject to more than one document relating to AML/CFT/CPF matters issued pursuant to the AMLA, the more stringent set of requirements shall apply. 3.2 Where necessary, the competent authority may issue guidelines, circulars or notices to vary, delete, add to, substitute or modify this policy document. 3.3 In relation to the AML/CFT/CPF and targeted financial sanctions requirements to combat TF, PF and to suppress other forms of armed conflict related requirements, this policy document is applicable to: (a) any reporting institution carrying out any activity specified in paragraph 9 of the First Schedule to AMLA (referred to as “accountants” in this policy document), when the reporting institution prepares or carries out the following activities for its clients: (i) buying and selling of immovable property; (ii) managing of client’s money, securities or other property; (iii) managing of accounts including savings and securities accounts; (iv) organising of contributions for the creation, operation or management of companies; or Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 3 of 140 Issued on: 5 February 2024 (v) creating, operating or managing of legal entities or arrangements and buying and selling of business entities2. (b) any reporting institution carrying out any activity specified in paragraph 13 of the First Schedule to AMLA (referred to as “company secretaries” in this policy document), when the reporting institution prepares or carries out the following activities for its clients: (i) act as formation agent of legal entities; (ii) act as (or arrange for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal entities; (iii) provide a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership, or any other legal entities or arrangement; (iv) act as (or arrange for another person to act as) a trustee of an express trust; or (v) act as (or arrange for another person to act as) a nominee shareholder for another person3. (c) companies incorporated under the Companies Act 2016 and businesses as defined and registered under the Registration of Businesses Act 1956 which are carrying on activities of dealing in precious metals or precious stones (referred to as “dealers in precious metals or precious stones” in this policy document). (d) any reporting institution carrying out any activity specified in paragraphs 10, 11 and 12 of the First Schedule to AMLA (collectively referred to as “lawyers” in this policy document), when the reporting institution prepares or carries out the following activities for its clients: (i) buying and selling of immovable property; (ii) managing client’s money, securities or other property; (iii) managing accounts including savings and securities accounts; (iv) organising of contributions for the creation, operation or management of companies; or (v) creating, operating or managing of legal entities or arrangements and buying and selling of business entities4. (e) licensed casinos carrying on gaming business under the Common Gaming Houses Act 1953; (f) (i) licensee as defined in the Pool Betting Act 1967; (ii) totalizator agency as defined in the Racing (Totalizator Board) Act 1961; and (iii) racing club as defined in the Racing Club (Public Sweepstakes) Act 1965. 2 As published in P.U. (A) 340/2004, P.U. (A) 293/2006, P.U. (A) 494/2021 and P.U. (A) 495/2021 3 As published in P.U. (A) 340/2004, P.U. (A) 293/2006, P.U. (A) 494/2021 and P.U. (A) 495/2021 4 As published in P.U. (A) 340/2004, P.U. (A) 293/2006, P.U. (A) 494/2021 and P.U. (A) 495/2021 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 4 of 140 Issued on: 5 February 2024 (referred to collectively as “licensed gaming outlets” in this policy document); (g) notaries public as defined in the Notaries Public Act 1959 when they exercise their powers and functions under that Act in relation to the following activities for their clients: (i) buying and selling of immovable property; (ii) managing of client’s money, securities or other property; (iii) managing of accounts including savings and securities accounts; (iv) organising of contributions for the creation, operation or management of companies; or (v) creating, operating or managing of legal entities or arrangements and buying and selling of business entities5. (h) any reporting institution carrying out any activity specified in paragraph 23 of the First Schedule to AMLA (referred to as “registered estate agents” in this policy document); (i) the Corporation as defined in the Public Trust Corporation Act 1995 and trust companies as defined in the Trust Companies Act 1949 when they carry out the following activities for their clients: (i) act as (or arrange for another person to act as) a director or secretary of a company, a partner of a partnership, or any similar position in relation to other legal entities; (ii) act as (or arrange for another person to act as) a trustee of an express trust; or (iii) act as (or arrange for another person to act as) a nominee shareholder for another person6. (j) activities relating to building credit business, development finance business, factoring business or leasing business carried out by companies incorporated pursuant to the Companies Act 1965 and businesses as defined and registered under the Registration of Businesses Act 1956; (k) moneylenders licensed under the Moneylenders Act 1951; (l) pawnbrokers as defined under the Pawnbrokers Act 1972; (m) any other reporting institution as may be specified by the competent authority; and (n) branches and subsidiaries of reporting institutions, in and outside Malaysia, which carry on any activity listed in the First Schedule of the AMLA, where relevant. 5 As published in P.U. (A) 113/2005 and P.U. (A) 293/2006 6 As published in P.U. (A) 293/2006 and P.U.(A) 103/2007 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 5 of 140 Issued on: 5 February 2024 3.4 This policy document is applicable to accountants, company secretaries and lawyers who are sole practitioners, partners or employed professionals within professional firms. This policy document is not intended to be applicable to lawyers, accountants and company secretaries who are ‘internal’ professionals that are employees of other types of businesses, nor to professionals working for government agencies. 4 Legal Provisions 4.1 In relation to the AML/CFT provisions, this policy document is issued pursuant to: sections 8, 13, 14, 14A, 15, 16, 17, 18, 19, 20 and 83 of the AMLA; and section 143(2) of the Financial Services Act 2013 (FSA). 4.2 In relation to the targeted financial sanctions on terrorism financing requirements, this policy document is issued pursuant to section 14(1)(c) of the AMLA. 4.3 In relation to CPF, targeted financial sanctions on proliferation financing and other UN-Sanctions Regimes requirements, this policy document is issued for the purposes of monitoring and supervising the implementation of the obligations and restrictions under the Strategic Trade Act 2010 (STA), Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010 and Directive on Implementation of Targeted Financial Sanctions Relating to Proliferation Financing7 (Directive on TFS-PF) issued by the Strategic Trade Controller, Ministry of Investment, Trade and Industry in April 2018, as may be amended or superseded from time to time. 5 Effective Date 5.1 This policy document comes into effect on 6 February 2024. 5.2 Compliance to the requirements outlined in this policy document shall take effect immediately, unless otherwise specified by the competent authority. 5.3 Notwithstanding paragraph 5.2, CPF requirements in this policy document shall come into effect on such date as shall be specified by the competent authority. 7 Directive on Implementation of Targeted Financial Sanctions Relating to Proliferation Financing (TFS-PF) under the Strategic Trade Act 2010, Strategic Trade (United Nations Security Council Resolutions) Regulations 2010 and Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 6 of 140 Issued on: 5 February 2024 6 Definition and Interpretation 6.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the AMLA, STA, Strategic Trade (Restricted End- Users and Prohibited End-Users) Order 2010 and Directive on TFS-PF, as the case may be, unless otherwise defined in this policy document or the context requires otherwise. 6.2 For the purpose of this policy document: “accurate information” Refers to information that has been verified for accuracy. In the context of beneficial owners, it refers to information that has been verified to confirm its accuracy by verifying the identity and status of the beneficial owner using reliable, independently sourced or obtained documents, data or information. The extent of verification may vary depending on the level of risk. “authorised person” Refers to a natural person appointed in writing by a legal person to establish business relations or conduct business transactions or activities with a reporting institution including to give any instruction for the conduct of transactions or activities on behalf of the legal person. In writing includes by means of a letter of authority or directors’ resolution or by electronic means, as permitted under the legal person’s constitution. “beneficial owner” In the context of legal person, beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those natural persons who exercise ultimate effective control over a legal person. Only a natural person can be an ultimate beneficial owner, and more than one natural person can be the ultimate beneficial owner of a given legal person. Reference to “ultimately owns or control” or “ultimate effective control” refers to situations in which ownership or control is exercised through a chain of ownership or by means of control other than direct control. For insurance and takaful products, this also refers to any natural person(s) who ultimately owns or controls a beneficiary, as specified in this policy document. In the context of legal arrangements, beneficial owner includes: (i) the settlor(s); (ii) the trustee(s); (iii) the protector(s) (if any); (iv) each beneficiary, or where applicable, the class of beneficiaries and objects of a power; and (v) any other natural person(s) exercising ultimate effective control over the Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 7 of 140 Issued on: 5 February 2024 arrangement. In the case of a legal arrangement similar to an express trust, beneficial owner refers to the natural person(s) holding an equivalent position to those referred above. When the trustee and any other party to the legal arrangement is a legal person, the beneficial owner of that legal person should be identified. Reference to “ultimate effective control” over trusts or similar legal arrangements includes situations in which ownership or control is exercised through a chain of ownership or control. “beneficiary” Depending on the context: In trust law, a beneficiary refers to the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary can be a natural or legal person or arrangement. All trusts (other than charitable or statutory permitted non-charitable trusts) are required to have ascertainable beneficiaries. While trusts must always have some ultimately ascertainable beneficiary, trusts may have no defined existing beneficiaries but only objects of a power until some person becomes entitled as beneficiary to income or capital on the expiry of a defined period, known as the accumulation period or following exercise of trustee discretion in the case of a discretionary trust. The accumulation period is normally co-extensive with the trust perpetuity period which is usually referred to in the trust deed as the trust period. In clubs, societies and charities, refers to the natural person(s), or groups of natural persons who receive charitable, humanitarian or other types of services of the clubs, societies and charities. “Board” In relation to a company, refers to: (a) directors of the company who number not less than the required quorum acting as a board of directors; or (b) if the company has only one director, that director. In relation to: (a) a sole proprietorship, refers to the sole proprietor; or (b) a partnership, including limited liability partnership, refers to the senior or equity partners. “cash transaction” Refers to a transaction where cash or cash equivalent is paid by or on behalf of a customer in the form of: (a) bank notes and coins to the reporting institution or into a bank account of the reporting institution; (b) bearer negotiable instruments including traveller’s cheques, vouchers and others; or (c) precious metals and/or stones. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 8 of 140 Issued on: 5 February 2024 “close associate of PEP” Refers to any individual closely connected to a politically exposed person (PEP), either socially or professionally. A close associate in this context includes: (a) extended family members, such as relatives (biological or non-biological relationship); (b) financially dependent individuals (e.g. persons salaried by the PEP such as drivers, bodyguards, secretaries); (c) business partners or associates of the PEP; (d) prominent members of the same organisation as the PEP; (e) individuals working closely with the PEP (e.g. work colleagues or providing professional services); or (f) close friends. “competent authority” Refers to a person appointed by the Minister of Finance by order published in the Gazette, pursuant to section 7(1) of the AMLA. As of the date of issuance, this refers to Bank Negara Malaysia. “customer” Refers to a person for whom the reporting institution undertakes or intends to undertake business transaction. The term also refers to a client. “customer due diligence (CDD)” Refers to any measure undertaken pursuant to section 16 of the AMLA. “Designated Non-Financial Businesses and Professions (DNFBPs)” Refers to reporting institutions listed in paragraph 3.3 (a) to (i) of this policy document. “director” Refers to any person who occupies the position of director, however styled, of a body corporate and includes a person in accordance with whose directions or instructions the majority of directors or officers are accustomed to act and an alternate or substitute director. In relation to: (a) a sole proprietorship, refers to the sole proprietor; or (b) a partnership, including limited liability partnership, refers to the senior or equity partners. “DNFBP Group” Refers to a group that consists of a parent company incorporated in Malaysia or any other type of legal person exercising control and coordinating functions over the rest of the group, together with branches and/or subsidiaries that are subject to AML/CFT/CPF policies and procedures at the group level. “family members of PEP” Refers to individuals who are related to a PEP either directly (consanguinity) or through marriage. A family member in this context includes: (a) parent; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 9 of 140 Issued on: 5 February 2024 (b) sibling; (c) spouse; (d) child; or (e) spouse's parent, for both biological or non-biological relationships. “financial group” Refers to a group that consists of a holding company incorporated in Malaysia or of any other type of legal person exercising control and coordinating functions over the rest of the group, together with branches and/or subsidiaries that are subjected to AML/CFT/CPF policies and procedures at the group level. “financing of proliferation” or “proliferation financing” Refers to the act of raising, moving, or making available funds, other assets or other economic resources, or financing, in whole or in part, to persons or entities for purposes of WMD proliferation, including the proliferation of their means of delivery or related materials (including both dual-use technologies and dual-use goods for non-legitimate purposes). “fund-in transaction” Refers to transactions where a licensed casino accepts funds from its customers or junkets. The transactions can be in cash or other forms. “fund-out transaction” Refers to transactions where a licensed casino pays the winning or non-winning funds, commission, rebates and other payment to its customers or junkets. The transactions can be in cash or other forms. “G” Denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted. “higher risk” Refers to circumstances where the reporting institutions assesses the ML/TF/PF risks as higher, taking into consideration, and not limited to the following factors: (a) Customer risk factors: • the business relationship is conducted in unusual circumstances; • non-resident customers; • legal persons or arrangements that are personal asset- holding vehicles; • companies that have nominee shareholders or shares in bearer form; • businesses that are cash-intensive; • the ownership structure of the company appears unusual or excessively complex given the nature of the company’s business; • high net worth individuals; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 10 of 140 Issued on: 5 February 2024 • persons from locations known for their high rates of crime; • circumstances, businesses or activities identified by the FATF as having higher ML/TF/PF risks; • legal arrangements that are complex (e.g. nominee relationships or layering with legal persons); and • persons who match the red flag criteria of the reporting institutions. (b) Country or geographic risk factors: • countries identified by credible sources, such as mutual evaluation or published follow-up reports, as having inadequate AML/CFT/CPF systems; • countries subject to sanctions, embargos or similar measures issued by, for example, the United Nations; • countries identified by the FATF, other FATF-style regional bodies or other international bodies as having higher ML/TF/PF risks; • countries identified by credible sources as having significant levels of corruption or other criminal activities; and • countries or geographic areas identified by credible sources as providing funding or support for terrorist activities, or that have designated terrorist organisations operating within their country. (c) Product, service, transaction or delivery channel risk factors: • anonymous transactions (which may include cash); • non face-to-face business relationships or transactions; • payment received from multiple persons and/or countries that do not match the person’s nature of business and risk profile; • payment received from unknown or unrelated third parties; and • nominee services. “higher risk countries” Refers to countries that are called by the FATF or the Government of Malaysia that pose a risk to the international financial system. “international organisations” Refers to entities established by formal political agreements between their member States that have the status of international treaties; their existence is recognised by law in their member countries; and they are not treated as residential institutional units of the countries in which they are located. Examples of international organisations include the following: (a) United Nations and its affiliated international organisations; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 11 of 140 Issued on: 5 February 2024 (b) regional international organisations such as the Association of Southeast Asian Nations, the Council of Europe, institutions of the European Union, the Organisation for Security and Co-operation in Europe and the Organization of American States; (c) military international organisations such as the North Atlantic Treaty Organization; and (d) economic organisations such as the World Trade Organization. “junkets” Refers to individuals or legal persons, including their representatives, approved, registered or appointed by a licensed casino to introduce, organise and/or facilitate the playing of any game in a licensed casino by one or more customers including local and foreign customers. “legal arrangement” Refers to express trusts or other similar legal arrangements. “legal person” Refers to any entity other than a natural person that can establish a permanent customer relationship with a reporting institution or otherwise own property. This includes companies, bodies corporate, government-linked companies (GLCs), foundations, partnerships, or associations and other similar entities. GLC refers to an entity where the government is the majority shareholder or single largest shareholder and/or has the ability to exercise and influence major decisions such as appointment of board members and senior management. “mobile channel” Refers to conducting transactions through any electronic device using a mobile phone application provided by the reporting institutions. “National Risk Assessment (NRA)” Reference to NRA under paragraph 1.4 of this policy document is not limited to the National ML/TF Risk Assessment and includes any sectoral, thematic or emerging risk assessments undertaken by the NCC. “nominator” Refers to an individual (or group of individuals) or legal person that issues instructions (directly or indirectly) to a nominee to act on its behalf in the capacity of a director or a shareholder, also sometimes referred to as a “shadow director” or “silent partner”. “nominee director and shareholder” Refers to an individual or legal person instructed by another individual or legal person (“the nominator”) to act on behalf in a certain capacity regarding a legal person. A Nominee Director (also known as a “resident director”) is an individual or legal entity that routinely exercises the functions of the director in the company on behalf of and subject to the direct Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 12 of 140 Issued on: 5 February 2024 or indirect instructions of the nominator. A Nominee Director is never the beneficial owner of a legal person. A Nominee Shareholder exercises the associated voting rights according to the instructions of the nominator and/or receives dividends on behalf of the nominator. A nominee shareholder is never the beneficial owner of a legal person based on the shares it holds as a nominee. “Non-Bank Financial Institutions” Refers to reporting institutions listed in paragraph 3.3 (j) to (l) of this policy document. “online channel” Refers to conducting transactions through any electronic device other than transactions conducted via the mobile channel. “other DNFBP structures” Refers to DNFBP structures that do not operate like financial groups but share common ownership, management or compliance control, that refer to but not limited to the following: (a) Common ownership • Common shareholder(s) or partner(s). (b) Common management • There is a group governing or managing body, each entity works on the basis of a group-wide business strategy and/or business model; • Group level reporting e.g. directors and other senior management; • Group audit or reporting function overseeing implementation of common/group policies and procedures; • Arrangements exist requiring two or more entities/ offices to implement and operate to common policies and procedures; or • Where responsibility for developing group policies and procedures rests with one entity in the group/network/franchise. (c) Common compliance controls • Existing group-wide policies, compliance and audit functions; • Where an entity is obliged to periodically report to another connected individual/entity on compliance and/or risk management matters; or • Periodic central administration/compliance costs being charged to the local entity by a connected individual/ entity. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 13 of 140 Issued on: 5 February 2024 “person” Includes a body of persons, corporate or unincorporate. “person conducting the transaction” Refers to any natural person conducting the transaction or purporting to act on behalf of the customer, such as the person depositing into another customer’s account or person undertaking a transaction on behalf of another person. “politically exposed persons (PEPs)” Refers to: (a) foreign PEPs – individuals who are or who have been entrusted with prominent public functions by a foreign country. For example, Heads of State or Government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations and important political party officials; (b) domestic PEPs – individuals who are or have been entrusted domestically with prominent public functions. For example, Heads of State or Government, senior politicians, senior government (includes federal, state and local government), judiciary or military officials, senior executives of state-owned corporations and important political party officials; or (c) persons who are or have been entrusted with a prominent function by an international organisation which refers to members of senior management. For example, directors, deputy directors and members of the Board or equivalent functions. The definition of PEPs is not intended to cover middle ranking or more junior individuals in the foregoing categories. “S” Denotes a standard, obligation, requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non- compliance may result in enforcement action. “satisfied” Where reference is made to a reporting institution being “satisfied” as to a matter, the reporting institution must be able to justify its assessment to the competent authority or supervisory authority in documentary form. “Self-Regulatory Body (SRB)” Refers to a body that represents a profession (e.g. lawyers, accountants or company secretaries), and which is made up of members from the profession, has a role in regulating the persons that are qualified to enter and who practice in the profession, and/or also performs certain supervisory or monitoring type functions. Such bodies should enforce rules to Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 14 of 140 Issued on: 5 February 2024 ensure that high ethical and moral standards are maintained by those practising the profession. “Senior Management” Refers to any person having authority and responsibility for planning, directing or controlling the activities of a reporting institution, legal person or legal arrangement including the management and administration of a reporting institution, legal person or legal arrangement. “small-sized reporting institution” Refers to reporting institutions that satisfy the criteria and parameter relevant to respective DNFBPs and non-bank financial institutions as listed in Appendix 2 of this policy document. “supervisory authority” Refers to ministries, agencies or SRBs which may exercise powers pursuant to section 21 of the AMLA. “targeted financial sanctions” Refers to asset freezing and prohibitions to prevent funds or other assets from being made available, directly or indirectly, for the benefit of persons designated or entities specified by the relevant United Nations Security Council Sanctions Committee or by the Minister of Home Affairs. “third parties” Refers to reporting institutions that are supervised by a relevant competent authority and that meet the requirements under paragraph 16 on Reliance on Third Parties, namely persons or businesses who are relied upon by the reporting institution to conduct the customer due diligence process. Reliance on third parties often occurs through introductions made by another member of the same financial group, DNFBP group or by another reporting institution. This definition does not include outsourcing or agency relationships because the outsourced service provider or agent is regarded as synonymous with the reporting institution. Outsourced service providers or agents may include registered estate negotiators, marketing agents or outsourced telemarketers and others. “up-to-date information” Refers to information which is as current and up-to-date as possible, and is updated within a reasonable period following any change. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 15 of 140 Issued on: 5 February 2024 7 Related Legal Instruments and Policy Documents 7.1 This policy document shall be read together with other documents issued by the competent authority relating to compliance with AML/CFT/CPF requirements and in relation to the implementation of targeted financial sanctions against countries or persons designated by the United Nations (UN). 8 Policy Documents Superseded 8.1 This policy document supersedes the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non- Financial Businesses and Professions (DNFBPs) & Non-Bank Financial Institutions (NBFIs) which came into effect on 1 January 2020. 9 Non-Compliance 9.1 Enforcement and/or supervisory actions can be taken against the reporting institution including its directors, officers and employees for any non- compliance with any provision marked as “S” in Part B of this policy document. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 16 of 140 Issued on: 5 February 2024 PART B AML/CFT/CPF/TFS REQUIREMENTS 10 Application of Risk-Based Approach 10.1 Risk Management Function S 10.1.1 Reporting institutions are required to apply risk-based approach to identify, assess and understand the ML/TF/PF risks to which they are exposed and take AML/CFT/CPF measures commensurate to those risks in order to mitigate them effectively and efficiently. S 10.1.2 Reporting institutions are required to ensure that the risk-based approach is aligned to the size, nature and complexity of their business operations. S 10.1.3 For a licensed casino and non-bank financial institutions, in addition to paragraphs 10.1.1 and 10.1.2, the AML/CFT/CPF risk management function must be aligned and integrated with their overall risk management control function. 10.2 ML/TF Risk Assessment S 10.2.1 Reporting institutions are required to take appropriate steps to identify, assess and understand their ML/TF risks at the institutional level, in relation to their customers, countries or geographical areas, products, services, transactions or delivery channels, and other relevant risk factors. S 10.2.2 In assessing ML/TF risks, reporting institutions are required to have the following processes in place: (a) documenting their risk assessments and findings; (b) considering all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied; (c) keeping the assessment up-to-date through a periodic review; and (d) having appropriate mechanism to provide risk assessment information to the competent authority or supervisory authority. S 10.2.3 Reporting institutions are required to conduct additional assessment as and when required by the competent authority or supervisory authority. S 10.2.4 Reporting institutions shall be guided by the results of the NRA issued by the NCC in conducting their own risk assessments and shall take enhanced measures to manage and mitigate the risks identified in the NRA. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 17 of 140 Issued on: 5 February 2024 G 10.2.5 In conducting the risk assessment in paragraph 10.2.1, reporting institutions may consider whether: (a) it is susceptible to the key emerging crimes as well as higher risk sectors identified in the NRA when assessing their institutional ML/TF risk; and (b) enhancements to their AML/CFT Compliance Programme are warranted to ensure any areas of higher ML/TF risk are appropriately mitigated. 10.3 ML/TF Risk Control and Mitigation S 10.3.1 Reporting institutions are required to: (a) have policies, procedures and controls to manage and mitigate ML/TF risks that have been identified; (b) monitor the implementation of those policies, procedures and controls and to enhance them if necessary; and (c) take enhanced measures to manage and mitigate the risks where higher risks are identified and where specified by the competent authority or supervisory authority. S 10.3.2 In addition to paragraph 10.3.1, a licensed casino and non-bank financial institutions shall conduct independent control testing on their policies, procedures and controls for the purpose of monitoring the implementation thereof under paragraph 10.3.1(b). 10.4 PF Risk Assessment S 10.4.1 Reporting institutions are required to identify, assess and understand PF risks, where the extent of the assessment shall be appropriate to the nature, size and complexity of their business. The PF risk in this context is limited to potential breach, non- implementation or evasion of the targeted financial sanctions on PF under paragraph 24 of this policy document. G 10.4.2 In conducting the risk assessment, reporting institutions may consider if the existing ML/TF risk assessments methodologies are adequate to incorporate PF risks and may not necessarily require a stand-alone or an entirely new methodology. S 10.4.3 For the purpose of paragraph 10.4.1, reporting institutions are required to identify, assess and understand their PF risks at the institutional level, in relation to their customers, countries or geographical areas and products, services transactions or delivery channels and other relevant risk factors. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 18 of 140 Issued on: 5 February 2024 S 10.4.4 In assessing PF risks, reporting institutions are required to have the following processes in place: (a) documenting their PF risk assessments and findings; (b) keeping the assessment up-to-date through a periodic review; and (c) having appropriate mechanism to provide risk assessment information to the competent authority or supervisory authority. S 10.4.5 Reporting institutions shall be guided by the results of the NRA and related thematic risk assessment issued by the NCC in conducting their own risk assessments and shall take enhanced measures to manage and mitigate the risks identified in the NRA. 10.5 PF Risk Mitigation S 10.5.1 Reporting institutions are required to: (a) have policies, procedures and controls to manage and mitigate PF risks that have been identified; (b) monitor the implementation of those policies, procedures and controls and to enhance them if necessary; and (c) take commensurate measures to manage and mitigate the risks: (i) where higher PF risks are identified, reporting institutions shall introduce enhanced controls to detect possible breaches, non-implementation or evasion of targeted financial sanctions on PF under paragraph 24 of this policy document; and (ii) where lower PF risks are identified, reporting institutions shall ensure that measures to manage and mitigate the risks are commensurate with the level of risk while ensuring full implementation of the targeted financial sanctions on PF under paragraph 24 of this policy document. S 10.5.2 Reporting institutions shall ensure full implementation of the targeted financial sanctions on PF under paragraph 24 of this policy document irrespective of the institutional PF risk level. 10.6 Customer Risk Profiling S 10.6.1 Reporting institutions are required to conduct risk profiling on their customers and assign an ML/TF/PF risk rating that is commensurate with their risk profile. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 19 of 140 Issued on: 5 February 2024 S 10.6.2 A risk profile must consider the following factors, where relevant: (a) customer risk (e.g. resident or non-resident, type of customers, occasional or one-off, legal person structure, types of PEP, types of occupation); (b) country or geographical risk (e.g. location of business, origin of customers); (c) products, services, transactions or delivery channels (e.g. cash-based or non cash-based, face-to-face or non face-to- face, domestic or cross-border); and (d) any other information suggesting that the customer is of higher risk. G 10.6.3 In identifying countries and geographic risk factors under paragraph 10.6.2(b), reporting institutions may refer to credible sources such as mutual evaluation reports, follow up reports and other relevant reports published by international organisations and other inter-governmental bodies. S 10.6.4 The risk control and mitigation measures implemented by reporting institutions shall be commensurate with the risk profile of the particular customer or type of customer. S 10.6.5 After the initial acceptance of the customer, reporting institutions are required to regularly review and update the customer’s risk profile based on their level of ML/TF/PF risks. S 10.6.6 In addition to paragraph 10.6.1, a licensed casino is required to conduct ML/TF/PF risk profiling on junkets. 10.7 AML/CFT/CPF Risk Reporting S 10.7.1 A licensed casino and non-bank financial institutions shall provide timely reporting of the risk assessment, ML/TF/PF risk profile and the effectiveness of risk control and mitigation measures to their Board and Senior Management. The frequency of reporting shall be commensurate with the level of risks involved and their operating environment. G 10.7.2 The report referred to under paragraph 10.7.1 above may include the following: (a) results of AML/CFT/CPF monitoring activities carried out by a licensed casino and non-bank financial institutions such as the level of their exposure to ML/TF/PF risks, break-down of ML/TF/PF risk exposures based on key activities or customer and junket segments, trends of suspicious transaction reports and cash threshold reports, trends of orders received from law enforcement agencies, where relevant; (b) details of recent significant risk events, that occur either internally or externally, modus operandi and its impact or Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 20 of 140 Issued on: 5 February 2024 potential impact to the licensed casino and non-bank financial institutions; and (c) recent developments in AML/CFT/CPF laws and regulations, and its implications to the licensed casino and non-bank financial institutions. 10.8 Risk Guidance G 10.8.1 Reporting institutions may refer to documents provided in Parts C and D of this policy document, other documents issued by the competent authority or guidance papers on the implementation of risk-based approach published by the FATF, FATF style regional bodies or any other internationally recognised institution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 21 of 140 Issued on: 5 February 2024 11 AML/CFT/CPF Compliance Programme 11.1 Application for Small-sized Reporting Institutions S 11.1.1 For small-sized reporting institutions as defined under paragraph 6.2, the following exemption or simplification applies: (a) Paragraph 11.2 on Policies, Procedures and Controls requirements does not apply. However, such reporting institutions shall, at a minimum, adopt this policy document as their policies and procedures; (b) Paragraphs 11.3.4 (c) and (f) of requirements on Board do not apply; (c) Paragraphs 11.4.2 (b), (c) and (h) of requirements on Senior Management do not apply. However, the approval of overall Compliance Programme and enhanced due diligence is still within the accountability of the individual with control on the overall operations of the reporting institution; (d) Paragraph 11.7 on Employee Screening requirements shall apply upon initial hiring only; (e) Paragraph 11.8 on Employee Training and Awareness Programmes requirements shall be adopted in a simplified approach, such as via on-the-job training and third party training programme; and (f) Paragraph 11.9 on Independent Audit Functions requirements shall be exempted. S 11.1.2 Notwithstanding paragraph 11.1.1, such reporting institutions are required to comply with the AML/CFT/CPF Compliance Programme requirements as and when specified by the competent authority or supervisory authority. 11.2 Policies, Procedures and Controls S 11.2.1 Reporting institutions are required to develop AML/CFT/CPF policies, procedures and controls which correspond to their ML/TF/PF risks and the size, nature and complexity of their business operations. S 11.2.2 Reporting institutions must ensure that policies and procedures are kept up-to-date with the regulatory requirements. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 22 of 140 Issued on: 5 February 2024 S 11.2.3 For purpose of paragraph 11.2.2, reporting institutions are required to: (a) document any changes to the policies, procedures and controls; (b) document the communication of the changes to employees; and (c) make (a) and (b) available to the competent authority or supervisory authority upon request. 11.3 Board General S 11.3.1 Board members must understand their roles and responsibilities in managing ML/TF/PF risks identified by the reporting institution. S 11.3.2 Board members must have knowledge and awareness of the ML/TF/PF risks associated with business strategies, delivery channels, segment of customers and geographical coverage of its business products and services. S 11.3.3 Board members must understand the AML/CFT/CPF measures required by the relevant laws, instruments issued under the AMLA, as well as the industry's standards and best practices in implementing AML/CFT/CPF measures. Roles and Responsibilities S 11.3.4 The Board has the following roles and responsibilities: (a) maintain accountability and oversight for establishing AML/CFT/CPF policies and minimum standards; (b) approve policies regarding AML/CFT/CPF measures within the reporting institution, including those required for risk assessment, mitigation and profiling, customer due diligence (CDD), record keeping, enhanced CDD and on-going due diligence, suspicious transaction report and targeted financial sanctions; (c) approve appropriate mechanisms to ensure the AML/CFT/CPF policies are periodically reviewed and assessed in line with changes and developments in the reporting institution’s products and services, technology as well as trends in ML/TF/PF; (d) approve an effective internal control system for AML/CFT/CPF and maintain adequate oversight of the overall AML/CFTCPF measures undertaken by the reporting institution; (e) define the lines of authority and responsibility for implementing AML/CFT/CPF measures and ensure that Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 23 of 140 Issued on: 5 February 2024 there is a separation of duty between those implementing the policies and procedures and those enforcing the controls; (f) ensure effective internal audit function in assessing and evaluating the robustness and adequacy of controls implemented to prevent ML/TF/PF; (g) assess the implementation of the approved AML/CFT/CPF policies through regular reporting and updates by the Senior Management and Audit Committee; and (h) establish a Management Information System (MIS) that is reflective of the nature of the reporting institution’s operations, size of business, complexity of business operations and structure, risk profiles of products and services offered and geographical coverage. 11.4 Senior Management S 11.4.1 Senior Management is accountable for the implementation and management of AML/CFT/CPF compliance programmes in accordance with policies, procedures and controls approved by the Board, requirements of the law, regulations, guidelines and the industry’s standards and best practices. Roles and Responsibilities S 11.4.2 The Senior Management has the following roles and responsibilities: (a) be aware of and understand the ML/TF/PF risks associated with business strategies, delivery channels and geographical coverage of its business products and services offered and to be offered including new products, new delivery channels and new geographical coverage; (b) formulate AML/CFT/CPF policies to ensure that they are in line with the risks profiles, nature of business, complexity, volume of the transactions undertaken by the reporting institution and its geographical coverage; (c) establish appropriate mechanisms and formulate procedures to effectively implement AML/CFT/CPF policies and internal controls approved by the Board, including the mechanism and procedures to monitor and detect complex and unusual transactions; (d) undertake review and propose to the Board the necessary enhancements to the AML/CFT/CPF policies to reflect changes in the reporting institution’s risk profiles, institutional and group business structure, delivery channels and geographical coverage; (e) provide timely periodic reporting to the Board on the level of ML/TF/PF risks facing the reporting institution, strength and adequacy of risk management and internal controls implemented to manage the risks and the latest development Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 24 of 140 Issued on: 5 February 2024 on AML/CFT/CPF which may have an impact on the reporting institution; (f) allocate adequate resources to effectively implement and administer AML/CFT/CPF compliance programmes that are reflective of the size, nature and complexity of the reporting institution’s operations and risk profiles; (g) appoint a Compliance Officer at management level at the Head Office and designate a Compliance Officer at management level at each branch or subsidiary; (h) ensure appropriate levels of AML/CFT/CPF training for its employees at all levels within the organisation, where relevant; (i) ensure that there is a proper channel of communication in place to effectively communicate the AML/CFT/CPF policies and procedures to all levels of employees; (j) ensure that AML/CFT/CPF issues raised are addressed in a timely manner; and (k) ensure integrity of its employees by establishing appropriate employee assessment procedures. 11.5 Compliance Management Arrangements at the Head Office S 11.5.1 The Compliance Officer shall act as the reference point for AML/CFT/CPF matters within the reporting institution. S 11.5.2 The Compliance Officer must have sufficient stature, authority and seniority within the reporting institution to participate and be able to effectively influence decisions relating to AML/CFT/CPF matters. S 11.5.3 The Compliance Officer is required to be “fit and proper” to carry out his AML/CFT/CPF responsibilities effectively. S 11.5.4 For the purpose of paragraph 11.5.3, “fit and proper” shall include minimum criteria relating to: (a) probity, personal integrity and reputation; (b) competency and capability; and (c) financial integrity. G 11.5.5 With reference to requirements under paragraph 11.5.4(a), reporting institutions may take into consideration, the following factors or examples that may impair the effective discharging of the Compliance Officer’s responsibilities, whether the person: (a) is or has been the subject of any proceedings of a severe disciplinary or criminal nature; (b) has contravened any provision made by or under any written law designed to protect members of the public against Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 25 of 140 Issued on: 5 February 2024 financial loss due to dishonesty, incompetence or malpractice; (c) has contravened any of the requirements and standards in relation to fitness and propriety, of a regulatory body, government or its agencies or SRBs; (d) has engaged in any business practices which are deceitful, oppressive or otherwise improper (whether unlawful or not), or which otherwise reflect discredit on his professional conduct; (e) has been dismissed, asked to resign or has been resigned from employment or from a position of trust, fiduciary appointment or similar position because of questions about his honesty and integrity; and (f) has acted unfairly or dishonestly in the past, in his dealings with his customers, employer, auditors and regulatory authorities. G 11.5.6 With reference to requirements under paragraph 11.5.4 (b), reporting institutions may consider whether the person has satisfactory past performance or expertise, in consideration of the size, nature and complexity of their business operations. G 11.5.7 With reference to requirements under paragraph 11.5.4 (c), reporting institutions may consider the following factors: (a) whether he has been and will be able to fulfil his financial obligations, whether in Malaysia or elsewhere, as and when they fall due; and (b) whether the person has been the subject of a judgment debt which is unsatisfied, either in whole or in part. . G 11.5.8 In conducting assessment under paragraphs 11.5.4 (c) and 11.5.7, reporting institutions may refer to commercially available financial or credit databases, require the person to submit relevant credit reports or to complete self-declarations on the required information, depending on the size, nature and complexity of their business operations. S 11.5.9 The Compliance Officer must have the necessary knowledge and expertise to effectively discharge his roles and responsibilities, including keeping abreast with the latest developments in ML/TF/PF techniques and the AML/CFT/CPF measures undertaken by the industry. G 11.5.10 The Compliance Officer is encouraged to have the relevant AML/CFT/CPF certification or professional qualifications to carry out his responsibilities effectively. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 26 of 140 Issued on: 5 February 2024 S 11.5.11 Reporting institutions are required to ensure that the roles and responsibilities of the Compliance Officer are clearly defined and documented. S 11.5.12 The Compliance Officer has a duty to ensure: (a) compliance with the AML/CFT/CPF requirements; (b) effective implementation of appropriate AML/CFT/CPF policies and procedures, including CDD, record-keeping, on- going due diligence, suspicious transaction report and targeted financial sanctions; (c) regular assessment of the AML/CFT/CPF mechanism such that it is effective and sufficient to address any change in ML/TF/PF trends; (d) security and confidentiality of communication from the respective employees to the branch or subsidiary compliance officer and subsequently to the Compliance Officer; (e) all employees are aware of the reporting institution’s AML/CFT/CPF measures, including policies, control mechanism and reporting channels; (f) establish and maintain relevant internal criteria (red-flags) to enable identification and detection of suspicious transactions; (g) appropriate evaluation of internal suspicious transaction reports by the branch or subsidiary compliance officers before being promptly reported to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia; (h) proper identification of ML/TF/PF risks associated with new products or services or risks arising from the reporting institution’s operational changes, including the introduction of new technology and processes; and (i) compliance with any other obligations that are imposed under the AMLA, subsidiary legislation and relevant instruments. S 11.5.13 Reporting institutions are required to inform the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, in writing or by completing the form at https://amlcft.bnm.gov.my/co, within ten working days, on the appointment or change in the appointment of the Compliance Officer, including such details as the name, designation, office address, office telephone number, e-mail address and such other information as may be required. 11.6 Fit and Proper Test on Junkets S 11.6.1 A licensed casino is required to ensure that all junkets are “fit and proper” before appointing, registering or approving the application of any junkets. For existing junkets, a licensed casino must take reasonable measures to ensure that they are “fit and proper”. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 27 of 140 Issued on: 5 February 2024 S 11.6.2 For the purpose of paragraph 11.6.1, “fit and proper” shall include minimum criteria relating to: (a) probity, personal integrity and reputation; (b) competency and capability; and (c) financial integrity. S 11.6.3 After the initial appointment, registration or approval of junkets, a licensed casino is required to regularly assess the fitness and propriety of the junkets based on the level of ML/TF/PF risks. G 11.6.4 With reference to the requirements under paragraph 11.6.2, a licensed casino may take into consideration the factors provided under paragraphs 11.5.5, 11.5.6, 11.5.7 and 11.5.8. 11.7 Employee Screening Procedures S 11.7.1 Reporting institutions are required to establish employee assessment procedures that are commensurate with the size, nature and complexity of their business operations and ML/TF/PF risk exposure. S 11.7.2 For a licensed casino, employee screening shall be conducted on junkets assessed to have higher ML/TF/PF risks. S 11.7.3 The screening procedures shall apply upon initial hiring of the employee and throughout the course of employment. S 11.7.4 The employee assessment procedures under paragraph 11.7.1 shall include: (a) an evaluation of an employee’s personal information, including employment and financial history; and (b) clear parameters or circumstances to trigger re-screening of employees during the course of their employment. G 11.7.5 In conducting financial history assessment, reporting institutions may refer to commercially available financial or credit databases, require employees to submit relevant credit reports or to complete self-declarations on the required information. G 11.7.6 The parameters to trigger re-screening may include change in job function or responsibility, promotion, or being in a position for a long period of time. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 28 of 140 Issued on: 5 February 2024 G 11.7.7 Reporting institutions may determine that several functions may not be subject to screening requirements, provided that such functions do not have direct dealings with customers and/or are not involved in the monitoring of transactions, based on the size, nature, and complexity of their business operations and ML/TF/PF risk profile. S 11.7.8 Reporting institutions shall maintain comprehensive records of documents and information relating to, or relied on in, the employee screening process. 11.8 Employee Training and Awareness Programmes S 11.8.1 Reporting institutions shall conduct awareness and training programmes on AML/CFT/CPF practices and measures for their employees. Such training programmes must be conducted regularly and supplemented with refresher courses at appropriate intervals. S 11.8.2 The training conducted for employees must be appropriate to their level of responsibilities in detecting ML/TF/PF activities and the risks of ML/TF/PF identified by reporting institutions. S 11.8.3 Employees who deal directly with customers shall be trained on AML/CFT/CPF practices and measures prior to dealing with the customer. S 11.8.4 The scope of training shall include, at a minimum: (a) ML/TF/PF risks; (b) CDD, enhanced CDD and on-going due diligence; (c) targeted financial sanctions screening; (d) risk profiling and risk assessment; (e) suspicious transaction reporting mechanism and red flags; and (f) record keeping. G 11.8.5 Reporting institutions may consider distribution of circulars, guidance, publications and attendance of continuing education programs provided by the competent authority, SRBs and/or other relevant agencies in developing, and as part of their internal training programmes. S 11.8.6 Reporting institutions shall document the provision of training to employees, including details on the date and nature of the training given. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 29 of 140 Issued on: 5 February 2024 S 11.8.7 Reporting institutions must make available its AML/CFT/CPF policies and procedures for all employees and its documented AML/CFT/CPF measures must contain at least the following: (a) the relevant documents on AML/CFT/CPF issued by the competent authority or relevant supervisory authorities; and (b) the reporting institution’s internal AML/CFT/CPF policies and procedures. S 11.8.8 The employees must be made aware that they may be held personally liable for any failure to observe the AML/CFT/CPF requirements. G 11.8.9 Reporting institutions may determine that several functions may not be subject to the AML/CFT/CPF training requirements, provided that such functions do not have direct dealings with customers and/or are not involved in the monitoring of transactions, based on the size, nature and complexity of their business operations and ML/TF/PF risk profile. Training for Junkets S 11.8.10 A licensed casino shall conduct awareness and training programmes on AML/CFT/CPF practices and measures for its junkets. S 11.8.11 The frequency of and scope of training and awareness programmes shall commensurate with the level of ML/TF/PF risks posed by the junkets based on their risk profiles as assessed under paragraph 10.6.6. S 11.8.12 The scope of training for the junkets shall include, at a minimum: (a) AML/CFT/CPF policies and procedures of the licensed casino; (b) CDD, enhanced CDD and on-going due diligence; and (c) the identification and escalation of suspicious transactions. S 11.8.13 Upon identification of any suspicious transaction, the junkets must report the suspicious transaction to the AML/CFT/CPF Compliance Officer at the licensed casino in accordance with its reporting mechanism. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 30 of 140 Issued on: 5 February 2024 11.9 Independent Audit Functions S 11.9.1 The Board shall ensure regular independent audits of the internal AML/CFT/CPF measures to determine their effectiveness and compliance with the AMLA, subsidiary legislations and instruments, the relevant documents on AML/CFT/CPF issued by the competent authority as well as the requirements of the relevant laws and regulations of other supervisory authorities, where applicable. S 11.9.2 For the purpose of paragraph 11.9.1, the independent audit function must be separate from the compliance function. G 11.9.3 Reporting institutions may appoint internal or external auditors to carry out the independent audit function. S 11.9.4 The Board shall ensure that the roles and responsibilities of the auditor are clearly defined and documented. The roles and responsibilities of the auditor shall include, at a minimum: (a) checking and testing the compliance with the AML/CFT/CPF policies, procedures and controls and effectiveness thereof; and (b) assessing whether current measures are in line with the latest developments and changes to the relevant AML/CFT/CPF requirements. S 11.9.5 The Board shall determine and ensure the frequency and scope of independent audits conducted commensurate with the ML/TF/PF risks and vulnerabilities assessed by the reporting institution. S 11.9.6 The scope of the independent audit shall include, at a minimum: (a) compliance with the AMLA, its subsidiary legislation and instruments issued under the AMLA; (b) compliance with the reporting institution’s internal AML/CFT/CPF policies and procedures; (c) adequacy and effectiveness of the AML/CFT/CPF Compliance Programme; and (d) reliability, integrity and timeliness of the internal and regulatory reporting and management of information systems. G 11.9.7 In determining the frequency of the independent audit, reporting institutions may be guided by the following circumstances: (a) structural changes to the business of the reporting institutions such as mergers and acquisition; (b) changes to the number or volume of transactions reported to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 31 of 140 Issued on: 5 February 2024 (c) introduction of new products and services or new delivery channels; or (d) previous non-compliance relating to AML/CFT/CPF requirements which resulted in supervisory and/or enforcement action taken against the reporting institutions. S 11.9.8 Reporting institutions shall comply with any additional requirements on the frequency and scope of the independent audit as specified by the competent authority. S 11.9.9 The auditor must submit a written audit report to the Board to highlight the assessment on the effectiveness of established AML/CFT/CPF measures and inadequacies in internal controls and procedures including recommended corrective measures. S 11.9.10 Reporting institutions must ensure that such audit report including audit findings and the necessary corrective measures undertaken are made available to the competent authority or supervisory authority, upon request. S 11.9.11 Notwithstanding paragraph 11.9.10, a licensed casino and non- bank financial institutions shall ensure that the audit report including audit findings and the necessary corrective measures undertaken are submitted to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia within ten working days of their submission to the Board. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 32 of 140 Issued on: 5 February 2024 12 New Products and Business Practices S 12.1 Reporting institutions are required to identify and assess the ML/TF/PF risks that may arise in relation to the development of new products and business practices, including new delivery mechanisms and the use of new or developing technologies for both new and pre-existing products. S 12.2 Reporting institutions are required to: undertake risk assessment prior to the launch or use of such products, practices and technologies; and take appropriate measures to manage and mitigate the risks. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 33 of 140 Issued on: 5 February 2024 13 Applicability to Financial/DNFBP Group, Foreign Branches and Subsidiaries and Other DNFBP Structures 13.1 Financial/DNFBP Group 13.1.1 The requirements under this paragraph are only applicable to reporting institutions that are part of a financial and/or DNFBP group. S 13.1.2 A parent company in a group of corporations, as the case may be, is required to implement group-wide programmes against ML/TF/PF. These programmes must be applicable and appropriate to all branches and subsidiaries of the group. These shall include the following measures: (a) framework for AML/CFT/CPF compliance programme at the group level; (b) appoint a Group Compliance Officer at management level; (c) policies and procedures for sharing information required for the purposes of CDD and ML/TF/PF risk management; (d) the provision of customer, account and transaction information from branches and subsidiaries when necessary for AML/CFT/CPF purposes; and (e) safeguards on the confidentiality and use of information exchanged. S 13.1.3 A Group Compliance Officer is responsible for developing, coordinating and making a group-wide assessment for the implementation of a single AML/CFT/CPF strategy, including mandatory policies and procedures, and the authorisation to give directions to all branches and subsidiaries. 13.2 Foreign Branches and Subsidiaries S 13.2.1 Reporting institutions and financial/ DNFBP groups are required to closely monitor their foreign branches or subsidiaries operating in jurisdictions with inadequate AML/CFT/CPF laws and regulations as highlighted by the FATF or the Government of Malaysia. S 13.2.2 Reporting institutions and financial/DNFBP groups shall ensure that their foreign branches and subsidiaries apply AML/CFT/CPF measures in a manner that is consistent with the AML/CFT/CPF requirements in Malaysia. Where the minimum AML/CFT/CPF requirements of the host country are less stringent than those of Malaysia, the reporting institution must apply Malaysia’s AML/CFT/CPF requirements, to the extent that host country laws and regulations permit. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 34 of 140 Issued on: 5 February 2024 S 13.2.3 If the host country does not permit the proper implementation of AML/CFT/CPF measures in a manner that is consistent with the AML/CFT/CPF requirements in Malaysia, the reporting institution is required to apply additional measures to manage the ML/TF/PF risks, and report to the competent authority or supervisory authority in Malaysia on the AML/CFT/CPF gaps and additional measures implemented to manage the ML/TF/PF risks arising from the identified gaps. G 13.2.4 The reporting institution may consider ceasing the operations of the said branch or subsidiary that is unable to put in place the necessary mitigating controls as required under paragraph 13.2.3. 13.3 Other DNFBP Structures 13.3.1 The requirements under this paragraph are only applicable to reporting institutions that operate under other DNFBP structures, as defined in paragraph 6.2 of this policy document and meet the following conditions: (a) reliance on other reporting institutions under the same structure to conduct CDD; and (b) undertake more than one type of activity within and across more than one jurisdiction. S 13.3.2 Reporting institutions are required to have common policies and procedures that is consistent with the AML/CFT/CPF requirements in Malaysia. Where the minimum AML/CFT/CPF requirements of the host country are less stringent than those of Malaysia, the reporting institution must apply Malaysia’s AML/CFT/CPF requirements, to the extent that the host country laws and regulations permit. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 35 of 140 Issued on: 5 February 2024 14 Customer Due Diligence (CDD) S 14.1 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: (a) establishing business relations; (b) carrying out any or occasional transaction involving the circumstances or amount as specified under paragraphs 14A to 14H; (c) they have any suspicion of ML/TF/PF, regardless of amount; or (d) they have any doubt about the veracity or adequacy of previously obtained information. S 14.2 Reporting institutions are also required to comply with other specific CDD requirements as may be specified by the competent authority from time to time. S 14.3 When conducting CDD, reporting institutions are required to: (a) identify the customer and verify that customer’s identity using reliable, independent source documents, data or information; (b) verify that any person acting on behalf of the customer is so authorised, and identify and verify the identity of that person; (c) identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner, using the relevant information or data obtained from a reliable source, such that the reporting institution is satisfied that it knows who the beneficial owner is; and (d) understand, and where relevant, obtain information on, the purpose and intended nature of the business relationship. S 14.4 Where applicable, in conducting CDD, reporting institutions are required to comply with the requirements on targeted financial sanctions in relation to: terrorism financing under paragraph 23; and proliferation financing of weapons of mass destruction and other UN- sanctions under paragraph 24. Verification S 14.5 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. S 14.6 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. S 14.7 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14.5 when verifying the identity of a customer or a beneficial owner. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 36 of 140 Issued on: 5 February 2024 S 14.8 Reporting institutions shall verify the identity of a customer or a beneficial owner before or during the course of establishing a business relationship or conducting a transaction for an occasional customer. G 14.9 For the purpose of paragraph 14.5, reporting institutions may obtain information available through commercial or public databases in verifying the identity of the customer or beneficial owner. 14.10 Standard CDD Measures Individual Customer and Beneficial Owner S 14.10.1 In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: (a) full name; (b) National Registration Identity Card (NRIC) number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and mailing address; (d) date of birth; (e) nationality; (f) occupation type; (g) name of employer or nature of self-employment or nature of business; (h) contact number (home, office or mobile); and (i) purpose of transaction. S 14.10.2 Reporting institutions shall verify the identity of the customer and beneficial owner. Legal Persons S 14.10.3 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14.10.4 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as Certificate of Incorporation/Constitution/Partnership Agreement (certified true copies/duly notarised copies, may be accepted), unique identifier such as tax identification number or any other reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer such as directors’ resolution, as well as the names of relevant persons having a Senior Management position; and Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 37 of 140 Issued on: 5 February 2024 (c) the address of the registered office and, if different, a principal place of business. S 14.10.5 Reporting institutions are required to identify and verify the person authorised to represent the company or business either by means of a letter of authority or directors’ resolution when dealing with such person. S 14.10.6 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the cascading steps: (a) the identity of the natural person(s) (if any) who ultimately has a controlling ownership interest in a legal person. At a minimum, this includes identifying the directors/shareholders with equity interest of more than twenty-five percent/partners; (b) to the extent that there is doubt as to whether the person(s) with the controlling ownership interest is the beneficial owner(s) referred to in paragraph 14.10.6(a) or where no natural person(s) exert control through ownership interests, the identity of the natural person (if any) exercising control of the legal person through other means; and (c) where no natural person is identified under paragraphs 14.10.6(a) or (b), the identity of the relevant natural person who holds the position of Senior Management. For the avoidance of doubt, reporting institutions are not required to pursue steps (b) and (c) in circumstances where beneficial owner(s) have been identified through step (a). Similarly, where beneficial owner(s) have been identified at step (b), reporting institutions are not required to pursue step (c). G 14.10.7 For the purpose of paragraph 14.10.6(b), exercising control of the legal person through other means may include exercising control through nominees or another person who has the right to appoint or remove any member of the Board of the legal person. S 14.10.8 Where there is any doubt as to the identity of persons referred to under paragraphs 14.10.4, 14.10.5 and 14.10.6, the reporting institution shall: (a) conduct a basic search or enquiry on the background of such person to ensure that the person has not been or is not in the process of being dissolved or liquidated, or is a bankrupt; and (b) verify the authenticity of the information provided by such person with the Companies Commission of Malaysia, Labuan Financial Services Authority or any other relevant authority. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 38 of 140 Issued on: 5 February 2024 S 14.10.9 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of directors and shareholders of the legal person which fall under the following categories: (a) public listed companies or corporations listed in Bursa Malaysia; (b) foreign public listed companies: (i) listed in recognised exchanges; and (ii) not listed in higher risk countries; (c) foreign financial institutions that are not from higher risk countries; (d) an authorised person under the FSA and the Islamic Financial Services Act 2013 (i.e. any person that has been granted a licence or approval); (e) persons licensed or registered under the Capital Markets and Services Act 2007; (f) licensed entities under the Labuan Financial Services and Securities Act 2010 and the Labuan Islamic Financial Services and Securities Act 2010; (g) prescribed institutions under the Development Financial Institutions Act 2002; or (h) licensed entities under the Money Services Businesses Act 2011. S 14.10.10 Notwithstanding the above, reporting institutions are required to identify and maintain information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14.10.9 (a) to (h) through a public register, other reliable sources or based on information provided by the customer. G 14.10.11 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Legal Arrangements S 14.10.12 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 39 of 140 Issued on: 5 February 2024 S 14.10.13 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as trust deed or equivalent document, the unique identifier such as tax identification number or equivalent, or any reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer as well as the names of relevant persons having a Senior Management position; and (c) the address of the trustee’s registered office and if different, a principal place of business. S 14.10.14 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: (a) for trusts, the identity of the settlor, the trustee(s), the protector (if any), the beneficiary or class of beneficiaries and objects of a power, and any other natural person exercising ultimate effective control over the trust (including through the chain of control/ownership); or (b) for other types of legal arrangements, the identity of persons in equivalent or similar positions. S 14.10.15 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any or an occasional transaction. G 14.10.16 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. S 14.10.17 Where reliance is placed on third parties under paragraph 14.10.16, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Clubs, Societies and Charities S 14.10.18 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal persons or legal arrangements, as the case may be, and require the customers to furnish the relevant identification documents including Certificate of Registration and other constituent documents. In addition, reporting institutions are required to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 40 of 140 Issued on: 5 February 2024 S 14.10.19 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. S 14.10.20 Where there is any doubt as to the identity of persons referred to under paragraphs 14.10.18 and 14.10.19, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission of Malaysia, Bahagian Hal Ehwal Undang-Undang, Jabatan Perdana Menteri or any other relevant authority. Delayed Verification G 14.10.21 In certain circumstances where the ML/TF/PF risks are assessed as low and verification is not possible at the point of establishing the business relationship, the reporting institution may complete verification after the establishment of the business relationship to allow some flexibilities for its customer or beneficial owner to furnish the relevant documents. S 14.10.22 Where delayed verification applies, the following conditions must be satisfied: (a) this occurs as soon as reasonably practicable; (b) the delay is essential so as not to interrupt the reporting institution’s normal conduct of business; (c) the ML/TF/PF risks are effectively managed; and (d) there is no suspicion of ML/TF/PF. S 14.10.23 The term “reasonably practicable” under paragraph 14.10.22(a) shall not exceed ten working days or any other period as may be specified by the competent authority. S 14.10.24 Reporting institutions are required to adopt risk management procedures relating to the conditions under which the customer may utilise the business relationship prior to verification, and procedures to mitigate or address the risk of delayed verification. G 14.10.25 The measures that reporting institutions may take to manage such risks of delayed verification may include limiting the number, types and/or amount of transactions that can be performed. 14.11 Enhanced CDD S 14.11.1 Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: (a) obtaining CDD information under paragraph 14.10; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 41 of 140 Issued on: 5 February 2024 (b) obtaining additional information on the customer and beneficial owner (e.g. volume of assets and other information from commercial or public databases); (c) enquiring on the source of wealth or source of funds. In the case of PEPs, both sources must be obtained; and (d) obtaining approval from the Senior Management of the reporting institution before establishing (or continuing, for existing customer) such business relationship with the customer. In the case of PEPs, Senior Management refers to Senior Management at the head office. G 14.11.2 In addition to paragraph 14.11.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: (a) obtaining additional information on the intended level and nature of the business relationship; (b) where relevant, obtain additional information on the beneficial owner of the beneficiaries (for example, occupation, volume of assets, information available through commercial or public databases); and (c) enquiring on the reasons for intended or performed transactions. 14.12 On-Going Due Diligence S 14.12.1 Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: (a) scrutinising transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the reporting institution’s knowledge of the customer, their business and risk profile, including where necessary, the source of funds; and (b) ensuring that documents, data or information collected under the CDD process is kept up-to-date and relevant, by undertaking reviews of existing records particularly for higher risk customers. G 14.12.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: (a) appears unusual; (b) is inconsistent with the expected type of activity and business model when compared to the volume of transaction; (c) does not have any apparent economic purpose; or (d) casts doubt on the legality of such transactions, especially with regard to complex and large transactions or involving higher risk customers. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 42 of 140 Issued on: 5 February 2024 S 14.12.3 The frequency in implementing paragraph 14.12.1(a) under on- going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. S 14.12.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. S 14.12.5 In conducting enhanced on-going due diligence, reporting institutions are required to: (a) increase the number and timing of controls applied; and (b) select patterns of transactions that need further examination. 14.13 Existing Customer – Materiality and Risk 14.13.1 Existing customers in this paragraph refer to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. S 14.13.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. S 14.13.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. G 14.13.4 In assessing materiality and risk of the existing customer under paragraph 14.13.2, reporting institutions may consider the following circumstances: (a) the nature and circumstances surrounding the transaction including the significance of the transaction; (b) any material change in the way the account or business relationship is operated; or (c) insufficient information held on the customer or change in customer’s information. 14.14 Non Face-to-Face Business Relationship G 14.14.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. S 14.14.2 Reporting institutions shall obtain approval from their Board prior to the implementation of non-FTF business relationships. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 43 of 140 Issued on: 5 February 2024 S 14.14.3 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by the competent authority. S 14.14.4 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. S 14.14.5 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. S 14.14.6 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through non-FTF are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of non-FTF business relationship. G 14.14.7 In relation to paragraph 14.14.6, where reference is made to face- to-face processes, this should mainly serve as a guide on the minimum expected baseline. S 14.14.8 In relation to paragraph 14.14.6, reporting institutions shall take measures to identify and verify the customer’s identity through any of the following: (a) establishing independent contact with the customer; (b) verifying the customer’s information against reliable and independent sources to confirm the customer’s identity and identifying any known or suspected ML/TF/PF risks associated with the customer; or (c) requesting, sighting and maintaining records of additional documents required to perform face-to-face customer verifications. G 14.14.9 In relation to paragraph 14.4.6, reporting institutions may identify and verify a customer’s identity by: (a) conducting video calls with the customer before establishing business relationship or allowing the customer to perform transactions; (b) communicating with the customer at a verified residential or office address where such communication shall be acknowledged by the customer; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 44 of 140 Issued on: 5 February 2024 (c) verifying the customer’s information against a database maintained by relevant authorities including the National Registration Department or Immigration Department of Malaysia; telecommunication companies, sanctions lists issued by credible domestic or international sources in addition to the mandatory sanctions lists or social media platforms with a broad outreach; or (d) requesting to sight additional documents such as recent utility bills, bank statements, student identification or confirmation of employment. S 14.14.10 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF Compliance Programme. 14.15 Failure to Satisfactorily Complete CDD S 14.15.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 19. 14.16 CDD and Tipping-Off S 14.16.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis of not completing the CDD and immediately file a suspicious transaction report under paragraph 19. G 14.16.2 Notwithstanding paragraph 14.16.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. 14.17 Customer Due Diligence Guidance G 14.17.1 Reporting institutions may refer to guidance and templates provided in parts C and D of this policy document in implementing the CDD and risk profiling requirements. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 45 of 140 Issued on: 5 February 2024 14A Customer Due Diligence: Licensed Casino When CDD is required S 14A.1.1 A licensed casino is required to conduct CDD on the customer, the person conducting the transaction and junket, when engaging in any transaction equivalent to RM10,000 and above. This includes circumstances where the transaction is carried out in a single transaction or in several transactions in a day that appear to be linked. S 14A.1.2 For the purpose of paragraph 14A.1.1, “engaging in any transaction” includes: (a) all fund-in and fund-out transactions received and paid by the licensed casino, in cash or other forms that carry the same value; (b) bank intermediated transaction prior to the customer, the person conducting the transaction or junket, being allowed to use the funds; (c) request for payment to be made to any other person, by the customer, the person conducting the transaction and junket; and (d) any other transaction specified by the competent authority. S 14A.1.3 In relation to paragraph 14A.1.2(b), for bank intermediated transactions, a licensed casino is required to identify and maintain the information on the relationship: (a) between a customer and junket, and other fund-in remitter; and (b) between a customer and junket, and beneficiary of fund-out transactions. S 14A.1.4 In relation to paragraph 14A.1.2(c), for payment to other persons, a licensed casino is required to obtain the following information: (a) the relationship between the other person, and the customer and junket; and (b) the purpose of payment to the other person. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 46 of 140 Issued on: 5 February 2024 Specific CDD Measures Junkets who are Individuals S 14A.2.1 In conducting CDD on junkets who are individuals, a licensed casino is required to conduct CDD as specified under paragraphs 14.1 to 14.9 and 14.10.1 to 14.10.2. Junkets which are Legal Persons S 14A.2.2 For junkets which are legal persons, a licensed casino is required to conduct CDD as specified under paragraphs 14.1 to 14.9 and 14.10.3 to 14.10.11. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 47 of 140 Issued on: 5 February 2024 14B Customer Due Diligence: Licensed Gaming Outlets 14B.1 When CDD is required S 14B.1.1 Licensed gaming outlets are required to conduct CDD on the customer and the person conducting the transaction when a customer’s winning is equivalent to RM50,000 and above, including in situations where the transaction is carried out in a single transaction or through several transactions that appear to be linked. S 14B.1.2 In addition to the requirements under paragraph 14B.1.1, licensed gaming outlets are required to obtain and check the accuracy of the following information: (a) ticket number; (b) registration number and address of the outlet where the winning ticket was purchased; and (c) winning amount. S 14B.1.3 Licensed gaming outlets are required to conduct CDD on any other person specified by the winner when the winner requests for payment to such person’s account for an amount equivalent to RM50,000 and above. S 14B.1.4 In addition to the requirement in paragraph 14B.1.3, licensed gaming outlets must obtain the following information: (a) the relationship between the winner and the other person specified by the winner; and (b) the purpose for payment to the other persons specified by the winner. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 48 of 140 Issued on: 5 February 2024 14C Customer Due Diligence: Accountants, Company Secretaries and Lawyers 14C.1 When CDD is required S 14C.1.1 Accountants and lawyers are required to conduct CDD, as specified under paragraphs 3.3 (a) and (d) respectively. S 14C.1.2 Company secretaries are required to conduct CDD, as specified under paragraph 3.3 (b). 14C.2 Enhanced CDD S 14C.2.1 In relation to paragraphs 14C.1.1 and 14C.1.2, where nominee services are provided, such business relations must be subjected to enhanced CDD and enhanced on-going due diligence. S 14C.2.2 For the purpose of paragraph 14C.2.1, nominee services refer to nominee shareholding, directorship or partnership services, where applicable. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 49 of 140 Issued on: 5 February 2024 14D Customer Due Diligence: Trust Companies 14D.1 When CDD is required S 14D.1.1 Trust companies are required to conduct CDD, as specified under paragraph 3.3 (i). 14D.2 Enhanced CDD S 14D.2.1 In relation to paragraph 14D.1.1, where nominee services are provided, the business relations must be subjected to enhanced CDD and enhanced on-going due diligence. S 14D.2.2 For the purpose of paragraph 14D.2.1, nominee services refer to nominee shareholding, directorship or partnership services, where applicable. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 50 of 140 Issued on: 5 February 2024 14E Customer Due Diligence: Dealers in Precious Metals or Precious Stones 14E.1 When CDD is required S 14E.1.1 Dealers in precious metals or precious stones are required to conduct CDD on the customer and the person conducting the transaction when they engage in any cash transaction equivalent to RM50,000 and above with the customer, or any other amount as may be specified by the competent authority. This includes: (a) transaction conducted as in a single transaction or through several transactions in a day that appear to be linked and across all branches of the reporting institution; and (b) aggregate payments over a period of time for a single purchase. S 14E.1.2 In relation to the requirements under paragraph 14E.1.1, CDD shall be conducted on both buying and selling of precious metals or precious stones from or to customers. Notice to Customers G 14E.1.3 For the purpose of CDD, dealers in precious metals or precious stones may display at its business premises (both physical and digital) a notice, in the format provided below, informing its customers of the CDD requirements: Notice to Customer (Dealers in precious metals or precious stones) Customer Due Diligence (CDD) is a requirement under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). CDD shall be conducted on customers conducting cash transactions equivalent to RM50,000 and above. Please produce your identification document before making any cash transaction equivalent to RM50,000 and above. Notis kepada Pelanggan (Peniaga logam berharga atau batu berharga) Pelaksanaan Usaha Wajar Pelanggan (Customer Due Diligence/CDD) adalah satu keperluan di bawah Akta Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan dan Hasil daripada Aktiviti Haram 2001 (AMLA). Usaha Wajar Pelanggan akan dilaksanakan terhadap pelanggan yang melakukan transaksi tunai dengan nilai bersamaan atau melebihi RM50,000. Sila sediakan dokumen pengenalan anda sebelum menjalankan transaksi tunai dengan nilai bersamaan atau melebihi RM50,000. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 51 of 140 Issued on: 5 February 2024 14F Customer Due Diligence: Registered Estate Agents 14F.1 When CDD is required S 14F.1.1 Registered estate agents are required to conduct CDD on both purchaser and seller, or landlord and tenant of a property. Notice to Customers G 14F.1.2 For the purpose of CDD, registered estate agents may display at its business premises (both physical and digital) a notice, in the format provided below, informing its customers of the CDD requirements: Notice to Customer (Registered estate agent) Customer Due Diligence (CDD) is a requirement under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). CDD shall be conducted on both purchaser and seller, or landlord and tenant of a property. Please produce your identification document before making the transactions. Notis kepada Pelanggan (Ejen Harta Tanah Berdaftar) Pelaksanaan Usaha Wajar Pelanggan (Customer Due Diligence/CDD) adalah satu keperluan di bawah Akta Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan dan Hasil daripada Aktiviti Haram 2001 (AMLA). Usaha Wajar Pelanggan akan dilaksanakan terhadap kedua-dua pembeli dan penjual, atau tuan tanah dan penyewa sesuatu harta tanah. Sila sediakan dokumen pengenalan anda sebelum menjalankan transaksi tersebut. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 52 of 140 Issued on: 5 February 2024 14G Customer Due Diligence: Moneylenders 14G.1 When CDD is required S 14G.1.1 Moneylenders are required to conduct CDD on the customer and the person conducting the transaction, when giving out financing equivalent to RM3,000 and above, including in situations where the transaction is carried out in a single transaction or through several transactions in a day that appear to be linked. S 14G.1.2 In addition to paragraph 14G.1.1, moneylenders must also conduct CDD on a guarantor when an agreement between a reporting institution and a customer or borrower involves a guarantor. Notice to Customers G 14G.1.3 For the purpose of CDD, moneylenders may display at its business premises (both physical and digital) a notice, in the format provided below, informing its customers of the CDD requirements: Notice to Customer (Moneylenders) Customer Due Diligence (CDD) is a requirement under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). CDD shall be conducted on customers with financing amount equivalent to RM3,000 and above within a day. Please produce your identification document before making the transactions. Notis kepada Pelanggan (Pemberi Pinjam Wang) Pelaksanaan Usaha Wajar Pelanggan (Customer Due Diligence/CDD) adalah satu keperluan di bawah Akta Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan dan Hasil daripada Aktiviti Haram 2001 (AMLA). Usaha Wajar Pelanggan akan dilaksanakan terhadap pelanggan dengan nilai pembiayaan bersamaan atau melebihi RM3,000 dalam satu hari. Sila sediakan dokumen pengenalan anda sebelum menjalankan transaksi tersebut. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 53 of 140 Issued on: 5 February 2024 14H Customer Due Diligence: Pawnbrokers 14H.1 When CDD is required S 14H.1.1 Pawnbrokers are required to conduct CDD on the customer and the person conducting the transaction, when the pledge amount is equivalent to RM3,000 and above, including in situations where the transaction is carried out in a single transaction or through several transactions in a day that appear to be linked. Notice to Customers G 14H.1.2 For the purpose of CDD, pawnbrokers may display at its business premises (both physical and digital) a notice, in the format provided below, informing its customers of the CDD requirements: Notice to Customer (Pawnbrokers) Customer Due Diligence (CDD) is a requirement under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). CDD shall be conducted on customers with pawn amount equivalent to RM3,000 and above within a day. Please produce your identification document before making the transactions. Notis kepada Pelanggan (Pemegang Pajak Gadai) Pelaksanaan Usaha Wajar Pelanggan (Customer Due Diligence/CDD) adalah satu keperluan di bawah Akta Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan dan Hasil daripada Aktiviti Haram 2001 (AMLA). Usaha Wajar Pelanggan akan dilaksanakan terhadap pelanggan dengan nilai pajakan bersamaan atau melebihi RM3,000 dalam satu hari. Sila sediakan dokumen pengenalan anda sebelum menjalankan transaksi tersebut. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 54 of 140 Issued on: 5 February 2024 15 Politically Exposed Persons (PEPs) 15.1 General S 15.1.1 The requirements set out in this paragraph are applicable to all types of PEPs and family members or close associates of those PEPs. S 15.1.2 In identifying individuals who fall within the definition of a close associate of a PEP, reporting institutions must take reasonable measures to determine the extent to which these individuals are directly engaged or involved in the activity of the PEP. 15.2 Foreign PEPs S 15.2.1 Reporting institutions are required to put in place a risk management system to determine whether a customer or a beneficial owner is a foreign PEP. S 15.2.2 Upon determination that a customer or a beneficial owner under paragraph 15.2.1 is a foreign PEP, the requirements of enhanced CDD specified in paragraph 14.11 and enhanced on-going due diligence as specified in paragraph 14.12.5 must be conducted. 15.3 Domestic PEPs or person entrusted with a prominent function by an international organisation S 15.3.1 Reporting institutions are required to take reasonable measures to determine whether a customer or beneficial owner is a domestic PEP or a person entrusted with a prominent function by an international organisation. S 15.3.2 If the customer or beneficial owner is determined to be a domestic PEP or a person entrusted with a prominent function by an international organisation, reporting institutions are required to assess the level of ML/TF/PF risks posed by the business relationship with the domestic PEP or person entrusted with a prominent function by an international organisation. S 15.3.3 The assessment of the ML/TF/PF risks as specified under paragraph 15.3.2, shall take into account the profile of the customer under paragraph 10.6.2 on Risk Profiling. S 15.3.4 The requirements on enhanced CDD as specified under paragraph 14.11 and enhanced on-going due diligence as set out under paragraph 14.12.5 must be conducted in respect of domestic PEPs or persons entrusted with a prominent function by an international organisation who are assessed as higher risk. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 55 of 140 Issued on: 5 February 2024 G 15.3.5 Reporting institutions may apply CDD measures similar to other customers for domestic PEPs or persons entrusted with a prominent function by an international organisation if the reporting institution is satisfied that the domestic PEPs or persons entrusted with a prominent function by an international organisation are not assessed as higher risk. G 15.3.6 In assessing the ML/TF/PF risk level of the customer, beneficial owner or beneficiary identified as a family member or close associate of a domestic PEP or a person entrusted with prominent public function by an international organisation, reporting institutions may consider the following factors: (a) the family members or close associates have business interests related to the PEP’s public functions (possible conflict of interest); (b) the social standing or official capacity of the family members or close associates are such that it can be controlled, directed or influenced by the PEP; (c) country from which the family members or close associates originate or reside; or (d) the family members or close associates are known to be involved in businesses or activities that have a high probability of being abused as a vehicle for ML/TF/PF by the PEP. 15.4 Sources of Information G 15.4.1 Reporting institutions may refer to any of the following sources in identifying a PEP, a family member or a close associate of a PEP: (a) in-house or commercial database; (b) risk-information or guidance shared by the competent authority, supervisory or regulatory authorities; (c) public or open source information; or (d) customer’s self-declaration. G 15.4.2 The examples of sources referred under paragraph 15.4.1 are not exhaustive and reporting institutions are encouraged to develop internal references in identifying PEPs, family members or close associates of PEPs. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 56 of 140 Issued on: 5 February 2024 15.5 Cessation of PEP status S 15.5.1 Reporting institutions shall consider the following factors in determining whether the status of a PEP who no longer holds a prominent public function should cease: (a) the level of informal influence that the PEP could still exercise, even though the PEP no longer holds a prominent public function; and (b) whether the PEP’s previous and current functions, in official capacity or otherwise, are linked to the same substantive matters. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 57 of 140 Issued on: 5 February 2024 16 Reliance on Third Parties Customer Due Diligence G 16.1 Reporting institutions may rely on third parties to conduct CDD or to introduce business. S 16.2 The ultimate responsibility and accountability for CDD measures shall remain with the reporting institution relying on third parties. S 16.3 Reporting institutions shall have internal policies and procedures in place to mitigate the risks when relying on third parties, including those from jurisdictions that have been identified as having strategic AML/CFT/CPF deficiencies that pose ML/TF/PF risks to the international financial system. S 16.4 Reporting institutions are prohibited from relying on third parties located in higher risk countries that have been identified in accordance with paragraph 17. S 16.5 The relationship between reporting institutions and the third parties relied upon by the reporting institutions to conduct CDD shall be governed by an arrangement that clearly specifies the rights, responsibilities and expectations of all parties. In placing reliance on the third party, the reporting institution, at a minimum: (a) must be able to obtain immediately the necessary information concerning CDD as required under paragraph 14; and (b) must be reasonably satisfied that the third party: (i) has an adequate CDD process; (ii) has measures in place for record keeping requirements; (iii) can provide the CDD information and provide copies of the relevant documentation immediately upon request; and (iv) is properly regulated and subjected to AML/CFT/CPF supervision by the relevant supervisory authority. S 16.6 Reporting institutions shall obtain an attestation from the third party to satisfy itself that the requirements in paragraph 16.5 have been met. G 16.7 Reporting institutions may obtain written confirmation from the third party that it has conducted CDD on the customer or beneficial owner, as the case may be, in accordance with paragraph 14. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 58 of 140 Issued on: 5 February 2024 G 16.8 The requirements under paragraphs 16.1, 16.3 and 16.5 may be fulfilled if the reporting institution relies on a third party that is part of the same financial and/or DNFBP group, subject to the following conditions: (a) the group applies CDD, record keeping and AML/CFT/CPF programmes in line with the requirements in this policy document; (b) the implementation of CDD, record keeping and AML/CFT/CPF programmes is supervised at a group level by the relevant authority; and (c) any higher country risk is adequately mitigated by the group’s AML/CFT/CPF policies. On-going Due Diligence S 16.9 Reporting institutions shall not rely on third parties to conduct on-going due diligence of its customers. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 59 of 140 Issued on: 5 February 2024 17 Higher Risk Countries S 17.1 Reporting institutions are required to conduct enhanced CDD proportionate to the risk, on business relationships and transactions with any person from higher risk countries for which this is called for by the FATF or by the Government of Malaysia. S 17.2 Notwithstanding the generality of paragraph 17.1, the enhanced CDD shall include any specific CDD measure as may be imposed by the FATF or by the Government of Malaysia. S 17.3 Reporting institutions are required to apply appropriate countermeasures, proportionate to the risks, when called upon to do so by the FATF or by the Government of Malaysia. G 17.4 For the purpose of paragraph 17.3, the countermeasures may include the following: (a) limiting business relationships or financial transactions with the identified country or persons located in the country concerned; (b) maintaining a report with a summary of exposure to customers and beneficial owners from the country concerned and must be made available to the competent authority or relevant supervisory authorities upon request; (c) conducting enhanced external audits, by increasing the intensity and frequency, for branches and subsidiaries of the reporting institution or group, located in the country concerned; or (d) conducting any other countermeasures as may be specified by the competent authority. S 17.5 In addition to the above, where ML/TF/PF risks are assessed as higher risk, reporting institutions are required to conduct enhanced CDD for business relationships and transactions with any person from other jurisdictions that have strategic AML/CFT/CPF deficiencies for which they have developed an action plan with the FATF. S 17.6 For the purpose of requirements under paragraphs 17.1, 17.2, 17.3 and 17.5, reporting institutions shall refer to the FATF website: https://www.fatf-gafi.org http://www.fatf-gafi.org/ Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 60 of 140 Issued on: 5 February 2024 18 Cash Threshold Report 18.1 General S 18.1.1 Where the requirement of cash threshold report applies, reporting institutions are required to submit cash threshold reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. 18.2 Definition S 18.2.1 For the purpose of paragraph 18: (a) cash transactions refer to transactions involving physical currencies (domestic or foreign currency) and bearer negotiable instruments such as a bill of exchange, promissory note, bearer bond, traveller’s cheque, cash cheque, money order and postal order. However, this does not include bank drafts, cheques, electronic transfers or fixed deposit rollovers or renewals; and (b) cash transactions include transactions involving withdrawal of cash from accounts or exchange of bearer negotiable instruments for cash. 18.3 Applicability S 18.3.1 The requirements for cash threshold reports are applicable to customers and person conducting the transaction in single or multiple cash transactions within the same account in a day for the amount equivalent to RM25,000 and above. S 18.3.2 Reporting institutions shall not offset the cash transactions against one another. Where there are deposit and withdrawal transactions, the amount must be aggregated. For example, a deposit of RM20,000 and a withdrawal of RM10,000 must be aggregated to the amount of RM30,000 and hence, must be reported as it exceeds the amount specified by Bank Negara Malaysia. S 18.3.3 Transactions referred to under paragraph 18.3.1 include cash contra from an account to different account(s) transacted over-the- counter by any customer. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 61 of 140 Issued on: 5 February 2024 18.4 Reporting of Cash Threshold Report S 18.4.1 Reporting institutions are required to establish a reporting system for the submission of cash threshold reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. S 18.4.2 The Compliance Officer of a reporting institution that has been granted access to the Financial Intelligence System (FINS) administered by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia must submit the cash threshold report through the following website: https://fins.bnm.gov.my/ S 18.4.3 Reporting institutions must ensure that the cash threshold report is submitted within five working days, from the date of the transaction. S 18.4.4 Reporting institutions must ensure all required information specified in Appendix 4 are submitted and all submitted information are accurate and complete. S 18.4.5 Submission of a cash threshold report does not preclude the reporting institution’s obligation to submit a suspicious transaction report. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 62 of 140 Issued on: 5 February 2024 19 Suspicious Transaction Report 19.1 General S 19.1.1 Reporting institutions are required to promptly submit a suspicious transaction report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia whenever the reporting institution suspects or has reasonable grounds to suspect that the transaction or activity (including attempted or proposed), regardless of the amount: (a) appears unusual; (b) has no clear economic purpose; (c) appears illegal; (d) involves proceeds from an unlawful activity or instrumentalities of an offence; or (e) indicates that the customer is involved in ML/TF/PF. S 19.1.2 Reporting institutions must provide the required and relevant information that gave rise to doubt in the suspicious transaction report form, which includes but is not limited to the nature or circumstances surrounding the transaction and business background of the person conducting the transaction that is connected to the unlawful activity. S 19.1.3 Reporting institutions must establish a reporting mechanism for the submission of suspicious transaction reports. 19.2 Reporting Mechanisms S 19.2.1 Reporting institutions are required to ensure that the designated branch or subsidiary compliance officer is responsible for channelling all internal suspicious transaction reports received from the employees of the respective branch or subsidiary to the Compliance Officer at the head office. In the case of employees at the head office, such internal suspicious transaction reports shall be channelled directly to the Compliance Officer. S 19.2.2 Reporting institutions are required to have in place policies on the duration upon which internal suspicious transaction reports must be reviewed by the Compliance Officer, including the circumstances when the timeframe can be exceeded, where necessary. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 63 of 140 Issued on: 5 February 2024 S 19.2.3 Upon receiving any internal suspicious transaction report whether from the head office, branch or subsidiary, the Compliance Officer must evaluate the grounds for suspicion. Once the suspicion is confirmed, the Compliance Officer must promptly submit the suspicious transaction report. In the case where the Compliance Officer decides that there are no reasonable grounds for suspicion, the Compliance Officer must document and file the decision, supported by the relevant documents. S 19.2.4 The Compliance Officer of a reporting institution that has been granted access to the FINS administered by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia must submit the suspicious transaction report through the following website: https://fins.bnm.gov.my/ S 19.2.5 For reporting institutions that have not been granted access to FINS, the Compliance Officer must submit the suspicious transaction report, using the specified reporting form as provided in Bank Negara Malaysia’s AML/CFT website: https://amlcft.bnm.gov.my/aml/cft-policies through any of the following channels: Mail : Director Financial Intelligence and Enforcement Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur (To be opened by addressee only) E-mail : [email protected] S 19.2.6 The Compliance Officer must ensure that the suspicious transaction report is submitted within the next working day, from the date the Compliance Officer establishes the suspicion. S 19.2.7 Reporting institutions must ensure that in the course of submitting the suspicious transaction report, utmost care must be undertaken to ensure that such reports are treated with the highest level of confidentiality. The Compliance Officer has the sole discretion and independence to report suspicious transactions. mailto:[email protected] Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 64 of 140 Issued on: 5 February 2024 S 19.2.8 Reporting institutions must provide additional information and documentation as may be requested by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia and must respond promptly to any further enquiries with regard to any report received under section 14 of the AMLA. S 19.2.9 Reporting institutions must ensure that the suspicious transaction reporting mechanism, including management of internal suspicious transaction reports, is operated in a secured environment to maintain confidentiality and preserve secrecy. G 19.2.10 Where a suspicious transaction report has been lodged, reporting institutions may update or make a fresh suspicious transaction report as and when a new suspicion arises. 19.3 Triggers for Submission of Suspicious Transaction Report S 19.3.1 Reporting institutions are required to establish internal criteria (“red flags”) to detect suspicious transactions. S 19.3.2 Reporting institutions must consider submitting a suspicious transaction report when any of its customer’s transactions or attempted transactions fits the reporting institution’s description of “red flags”. G 19.3.3 Reporting institutions may refer to Part E of this policy document for examples of transactions that may constitute triggers or any other examples that may be issued by the competent authority, regulatory bodies, SRBs and international organisations for the purpose of reporting suspicious transactions. 19.4 Internal Suspicious Transaction Reports S 19.4.1 Reporting institutions must ensure that the Compliance Officer maintains a complete file on all internal suspicious transaction reports and any supporting documentary evidence regardless of whether such reports have been submitted. S 19.4.2 Pursuant to paragraph 19.4.1, if no suspicious transaction reports are submitted to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, the internal suspicious transaction reports and the relevant supporting documentary evidence must be made available to the competent authority or relevant supervisory authority upon request. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 65 of 140 Issued on: 5 February 2024 20 Disclosure of Suspicious Transaction Reports, Cash Threshold Reports and Related Information S 20.1 Reporting institutions are prohibited from disclosing any suspicious transaction report, and where applicable, cash threshold reports, as well as any information related to these reports, in accordance with section 14A of the AMLA. This includes any information on the subject or counterparties reported on, such as personal identification, account details, transaction details, the suspected offence or suspicious activities reported on, and any other information contained in the report. S 20.2 The prohibition under paragraph 20.1 does not apply where the exceptions under section 14A(3) of the AMLA apply. S 20.3 Where the exceptions under section 14A(3) of the AMLA apply, reporting institutions must have the following measures in place: a set of parameters on: (i) the circumstances where disclosure is required; (i) types of information that can be disclosed; and (ii) to whom it can be disclosed; internal governance procedures to ensure that any disclosure is properly justified, duly authorised and managed in a controlled and secured environment; apprise all employees and intended recipients who are privy to the reports and related information to maintain confidentiality; and an effective audit trail is maintained in respect of the disclosure of such information. G 20.4 For any disclosure of reports and related information pursuant to section 14A(3)(d) of the AMLA, reporting institutions may make a written application to the Director, Financial Intelligence and Enforcement Department, Bank Negara Malaysia for a written authorisation. S 20.5 In making an application under paragraph 20.4, the reporting institution shall provide the following: details and justification for the disclosure; details on the safeguards and measures in place to ensure confidentiality of information transmitted at all times; information on persons authorised by the reporting institution to have access to the reports and related information; any other documents or information considered relevant by the reporting institution; and any other documents or information requested or specified by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 66 of 140 Issued on: 5 February 2024 21 Record Keeping S 21.1 Reporting institutions are required to keep the relevant records including any accounts, files, business correspondence and documents relating to transactions, in particular, those obtained during the CDD process. This includes documents used to verify the identity of customers and beneficial owners, and the results of any analysis undertaken. The records maintained must remain up-to-date and relevant. S 21.2 Reporting institutions must ensure that all relevant records relating to transactions which are kept are sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal activity. S 21.3 Reporting institutions are required to keep the records for at least six years following the completion of the transaction, the termination of the business relationship or after the date of the occasional transaction. S 21.4 In situations where the records are subjected to on-going investigation or prosecution in court, they shall be retained beyond the stipulated retention period until such time reporting institutions are informed by the relevant law enforcement agency that such records are no longer required. S 21.5 Reporting institutions are required to retain the relevant records in a form that is admissible as evidence in court pursuant to the Evidence Act 1950, and make such records available to the competent authority or supervisory authorities and law enforcement agencies in a timely manner. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 67 of 140 Issued on: 5 February 2024 22 Management Information System S 22.1 Reporting institutions must have in place an adequate manual or electronic management information system (MIS) to complement its CDD process. The MIS is required to provide the reporting institution with timely information on a regular basis to enable the reporting institution to detect irregularities and/or any suspicious activity. S 22.2 The MIS shall be commensurate with the size, nature and complexity of the reporting institution’s business operations and ML/TF/PF risk profile. S 22.3 The MIS shall include, at a minimum, information on multiple transactions over a certain period, large transactions, anomalies in transaction patterns, customer’s risk profile and transactions exceeding any internally specified thresholds. S 22.4 The MIS shall be able to aggregate customer’s transactions from multiple accounts and/or from different systems, agents and across all branches of the reporting institution. G 22.5 The MIS may be integrated with the reporting institution’s information system that contains its customer’s normal transactions or business profile, which is accurate, up-to-date and reliable. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 68 of 140 Issued on: 5 February 2024 23 Targeted Financial Sanctions on Terrorism Financing 23.1 Definition and Interpretation 23.1.1 For the purpose of paragraph 23, “customer” includes “beneficial owner” and “beneficiary”. “Domestic List” refers to names and particulars of specified entities as declared by the Minister of Home Affairs under the relevant subsidiary legislation made under section 66B(1) of the AMLA. “related party” refers to: a person related to the properties or funds that are wholly or jointly owned or controlled, directly or indirectly, by a specified entity; and a person acting on behalf or at the direction of a specified entity. “UNSCR List” refers to names and particulars of persons as designated by the United Nations Security Council (UNSC) or its relevant Sanctions Committee pursuant to the relevant United Nations Security Council Resolutions (UNSCR) and are deemed as specified entities by virtue of section 66C(2) of the AMLA. 23.2 General S 23.2.1 Reporting institutions are required to keep updated with the relevant UNSCR relating to combating the financing of terrorism, which includes: (a) UNSCR 1267(1999), 1373(2001), 1988(2011), 1989(2011) and 2253(2015) which require sanctions against individuals and entities belonging or related to Taliban, ISIL (Da’esh) and Al-Qaida; and (b) new UNSCR published by the UNSC or its relevant Sanctions Committee as published in the UN website. 23.3 Maintenance of Sanctions List UNSCR List S 23.3.1 Reporting institutions are required to maintain a sanctions database on the UNSCR List. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 69 of 140 Issued on: 5 February 2024 S 23.3.2 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon the publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. G 23.3.3 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: https://www.un.org S 23.3.4 The UNSCR List shall remain in the sanctions database until the delisting of the specified entities by the relevant Sanctions Committee is published in the UN website. Domestic List S 23.3.5 Reporting institutions are required to keep updated with the Domestic List as and when published in the Gazette. S 23.3.6 Reporting institutions are required to maintain a sanctions database on the Domestic List. S 23.3.7 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication in the Gazette. G 23.3.8 Reporting institutions may refer to the Domestic List published in the following website: https://lom.agc.gov.my S 23.3.9 The Domestic List shall remain in the sanctions database until the delisting of the specified entities is published in the Gazette. Other requirements S 23.3.10 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary and where relevant, to the outsourced service providers or agents. G 23.3.11 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. G 23.3.12 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 70 of 140 Issued on: 5 February 2024 23.4 Sanctions Screening – Customers S 23.4.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the Domestic List and UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. S 23.4.2 For the avoidance of doubt, sanctions screening obligations apply to all customers and transactions regardless of any thresholds for CDD or features of a product or service. S 23.4.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number or passport number or reference number of any other official documents; and (c) date of birth of customers. S 23.4.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the: (a) Domestic List, upon publication in the Gazette; and (b) UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. G 23.4.5 When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each specified entity to prevent unintended omissions. S 23.4.6 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to competent authority or supervisory authority, upon request. Dealing with False Positives S 23.4.7 Reporting institutions are required to ascertain potential matches with the UNSCR List or the Domestic List are true matches to eliminate false positives. S 23.4.8 Reporting institutions are required to make further inquiries for additional information and identification documents from the customer, counter-party or credible sources to assist in determining whether the potential match is a true match. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 71 of 140 Issued on: 5 February 2024 G 23.4.9 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a specified entity, in the case of similar or common names. 23.5 Related Parties S 23.5.1 Reporting institutions shall undertake due diligence on related parties. S 23.5.2 In undertaking due diligence on the related parties, reporting institutions are required to examine and analyse past transactions of the specified entities and related parties, and maintain records on the analysis of these transactions. G 23.5.3 In ascertaining whether an entity is owned or controlled by a specified entity, reporting institutions may refer to the definition of “beneficial owner” in paragraph 6.2, and requirements under paragraph 14 in relation to CDD on beneficial owners. 23.6 Freezing, Blocking and Rejecting – Customers and Related Parties S 23.6.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a specified entity and/or related parties: (a) freeze the customer’s funds and properties; or (b) block transactions (where applicable), to prevent the dissipation of the funds. S 23.6.2 Reporting institutions are required to reject a potential customer, where there is a positive name match. S 23.6.3 The freezing of funds and properties or blocking of transactions, as the case may be, shall remain in effect until the specified entity is removed from the Domestic List or UNSCR List in accordance with paragraphs 23.3.4 and 23.3.9. Allowable Transactions S 23.6.4 Any dealings with frozen funds or properties, whether by the specified entity, related party or any interested party, requires prior written authorisation from the Minister of Home Affairs. S 23.6.5 The frozen funds and properties, may continue receiving deposits, dividends, interests, bonus or other benefits. However, such funds and benefits must remain frozen as long as the specified entity continues to be listed under the Domestic List and UNSCR List. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 72 of 140 Issued on: 5 February 2024 Exemption for Basic and Extraordinary Expenditures G 23.6.6 Reporting institutions may advise the specified entity, a related party or any interested party of the frozen funds or properties, or to the blocked or rejected transactions, to make an application to the Minister of Home Affairs for exemptions on basic and extraordinary expenditures. S 23.6.7 Reporting institutions shall only proceed with payments for basic and extraordinary expenditures upon receiving written authorisation from the Minister of Home Affairs. 23.7 Reporting on Positive Name Match Reporting upon Determination of a Positive Name Match S 23.7.1 Reporting institutions are required to immediately report upon determination that they are in possession or in control of funds or properties, of any specified entity and/or related party, using the form attached in Appendix 5A or 5B, where applicable, to the: (a) Financial Intelligence and Enforcement Department, Bank Negara Malaysia; and (b) Inspector-General of Police. Periodic Reporting on Positive Name Match S 23.7.2 Reporting institutions that have reported positive name matches and are in possession or in control of frozen or blocked funds or properties of any specified entity and/or related party are required to report any changes to those funds, other financial assets and economic resources, using the form and at intervals as specified in Appendix 6A or 6B, where applicable. S 23.7.3 Notwithstanding paragraph 23.7.2, reporting institutions are not required to submit periodic reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. 23.8 Reporting of Suspicious Transaction On Related Transactions S 23.8.1 Reporting institutions are required to submit a suspicious transaction report, upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any specified entity or related party. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 73 of 140 Issued on: 5 February 2024 S 23.8.2 Reporting institutions are also required to submit a suspicious transaction report on any attempted transactions undertaken by specified entity or related party. On Name Match with Other Unilateral Sanctions Lists S 23.8.3 Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 74 of 140 Issued on: 5 February 2024 24 Targeted Financial Sanctions on Proliferation Financing and Other UN- Sanctions Regimes 24.1 General 24.1.1 This paragraph applies for the purposes of ensuring compliance with reporting institutions’ obligations under Strategic Trade Act 2010 (STA), Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010 and Directive on Implementation of Targeted Financial Sanctions Relating to Proliferation Financing8 (Directive on TFS-PF) issued by the Strategic Trade Controller, Ministry of Investment, Trade and Industry in April 2018, as may be amended or superseded from time to time. 24.2 Definition and Interpretation 24.2.1 For the purpose of paragraph 24, “customer” includes “beneficial owner” and “beneficiary”. “related party” refers to: a person related to the funds, other financial assets or economic resources that are wholly or jointly owned or controlled, directly or indirectly, by a designated person; and a person acting on behalf or at the direction of a designated person. “UNSCR List” refers to names and particulars of persons as designated by the UNSC or its relevant Sanctions Committee and are deemed as designated persons under the relevant STA subsidiary legislation. 24.3 Maintenance of Sanctions List S 24.3.1 Reporting institutions are required to keep updated with the list of countries and persons designated as restricted end-users and prohibited end-users under the STA, in accordance with the relevant UNSCR relating to prevention of proliferation of weapons of mass destruction (WMD) as published in the UN website, as and when there are new decisions by the UNSC or its relevant Sanctions Committee. 8 Directive on Implementation of Targeted Financial Sanctions Relating to Proliferation Financing (TFS- PF) under the Strategic Trade Act 2010, Strategic Trade (United Nations Security Council Resolutions) Regulations 2010 and Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 75 of 140 Issued on: 5 February 2024 S 24.3.2 Reporting institutions are also required to keep updated with the list of designated countries and persons under the STA in accordance with the relevant UNSCRs relating to upholding of peace and security, through prevention of armed conflicts and human rights violations, as published on the UN website, as and when there are new decisions by the UNSC or its relevant Sanctions Committee. S 24.3.3 Reporting institutions are required to maintain a sanctions database on the UNSCR List. S 24.3.4 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN Website. G 24.3.5 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: https://www.un.org S 24.3.6 The UNSCR List shall remain in the sanctions database until the delisting of the designated country or person by the UNSC or its relevant Sanctions Committee is published in the UN website. S 24.3.7 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary, and where relevant, to the outsourced service providers or agents. G 24.3.8 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. G 24.3.9 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 24.4 Sanctions Screening – Customers S 24.4.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. S 24.4.2 For the avoidance of doubt, sanctions screening obligations applies to all customers and transactions regardless of any thresholds for CDD or features of a product or service. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 76 of 140 Issued on: 5 February 2024 S 24.4.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number of passport number or reference number of any other official documents; and (c) date of birth of customers. S 24.4.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. G 24.4.5 When conducting the sanction screening process, reporting institutions may perform name searches based on a set of possible permutations for each designated person to prevent unintended omissions. S 24.4.6 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to competent authority or supervisory authority, upon request. Dealing with False Positives S 24.4.7 Reporting institutions are required to ascertain potential matches with the UNSCR List are true matches to eliminate false positives. S 24.4.8 Reporting institutions are required to make further inquiries for additional information and identification documents from the customer, counter-party or credible sources to assist in determining whether the potential match is a true match. G 24.4.9 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a designated person, in the case of similar or common names. 24.5 Related Parties S 24.5.1 Reporting institutions shall undertake due diligence on related parties. S 24.5.2 In undertaking due diligence on the related parties, reporting institutions are required to examine and analyse past transactions of the designated persons and related parties, and maintain records on the analysis of these transactions. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 77 of 140 Issued on: 5 February 2024 G 24.5.3 In ascertaining whether an entity is owned or controlled by a designated person, reporting institutions may refer to the definition of “beneficial owner” in paragraph 6.2 and requirements under paragraph 14 in relation to customer due diligence on beneficial owners. 24.6 Freezing, Blocking and Rejecting - Customers and Related Parties S 24.6.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a designated person and/or related parties: (a) freeze the customer’s funds, other financial assets and economic resources; or (b) block transactions (where applicable), to prevent the dissipation of the funds, other financial assets and economic resources. S 24.6.2 Reporting institutions are required to reject a potential customer, when there is a positive name match. S 24.6.3 The freezing of funds, other financial assets and economic resources or blocking of transactions, as the case may be, shall remain in effect until the designated country or person is removed from the UNSCR List in accordance with paragraph 24.3.6. Allowable Transactions S 24.6.4 Any dealings with frozen funds, other financial assets or economic resources, whether by the designated country, person, identified related party or any interested party, requires prior written authorisation from the Strategic Trade Controller under the STA. S 24.6.5 The frozen funds, other financial assets, or economic resources may continue receiving deposits, dividends, interests, bonuses or other benefits. However, such funds and benefits must remain frozen as long as the countries and persons continue to be listed under the UNSCR List. Exemption for Basic and Extraordinary Expenditures G 24.6.6 Reporting institutions may advise the designated person, a related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transactions, to make an application to the Strategic Trade Controller under the STA for exemptions on basic and extraordinary expenditures. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 78 of 140 Issued on: 5 February 2024 S 24.6.7 Reporting institutions shall only proceed with the payments for basic and extraordinary expenditures upon receiving written authorisation from the Strategic Trade Controller under the STA. Exemption for Payments Due under Existing Contracts G 24.6.8 Reporting institutions may advise the designated person, related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transaction, to make an application to the Strategic Trade Controller under the STA to allow payments due under contracts entered into prior to the designation. S 24.6.9 Reporting institutions shall only proceed with the payments due under existing contracts upon receiving prior written authorisation from the Strategic Trade Controller under the STA. 24.7 Reporting on Positive Name Match Reporting upon Determination of a Positive Name Match S 24.7.1 Reporting institutions are required to immediately report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia on any detection, freezing, blocking or rejection actions undertaken with regard to any identified funds, other financial assets and economic resources or transactions, using the form attached in Appendix 5A or 5B, where applicable. Periodic Reporting on Positive Name Match S 24.7.2 Reporting institutions that have reported positive name matches and are in possession or in control of frozen or blocked funds, other financial assets or economic resources of any designated person and/or related party are required to report any changes to those funds, other financial assets and economic resources using the form and at intervals specified in Appendix 6A or 6B, which applicable. S 24.7.3 Notwithstanding paragraph 24.7.2, reporting institutions are not required to submit period reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 79 of 140 Issued on: 5 February 2024 24.8 Reporting of Suspicious Transactions On Related Transactions S 24.8.1 Reporting institutions are required to submit a suspicious transaction report upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any designated country, person or related party. S 24.8.2 Reporting institutions are also required to submit a suspicious transaction report on any attempted transaction undertaken by designated countries, persons or related parties. On Name Match with Other Unilateral Sanctions Lists S 24.8.3 Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. Imposition of New Measures S 24.9 In the event the UNSC or its relevant Sanctions Committee imposes new measures relating to the prevention of PF or proliferation of WMD, reporting institutions are required to adhere to such measures as specified by the Strategic Trade Controller under the STA. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 80 of 140 Issued on: 5 February 2024 25 Other Reporting Obligations S 25.1 Reporting institutions are required to submit the following reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, as and when applicable: Data and Compliance Report issued by Bank Negara Malaysia; and any other report as may be specified by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 81 of 140 Issued on: 5 February 2024 PART C GLOSSARY, TEMPLATES AND FORMS Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 82 of 140 Issued on: 5 February 2024 APPENDIX 1 Glossary No Abbreviation Description 1. AMLA Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 2. AML/CFT Anti-Money Laundering and Counter Financing of Terrorism 3. CDD Customer Due Diligence 4. CO Compliance Officer 5. CRP Customer Risk Profiling 6. CSC Club, Societies and Charities 7. CTR Cash Threshold Report 8. CPF Counter Proliferation Financing 9. Directive on TFS- PF Directive on Implementation of Targeted Financial Sanctions Relating to Proliferation Financing 10. DNFBPs Designated Non-Financial Businesses and Professions 11. DPMS Dealers in Precious Metals or Precious Stones 12. EDD Enhanced Customer Due Diligence 13. FATF Financial Action Task Force 14. FATF Recommendations FATF International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation 15. FINS Financial Intelligence System 16. FSA Financial Services Act 2013 17. GLCs Government-Linked Companies 18. MIS Management Information System 19. ML/TF Money Laundering and Terrorism Financing 20. NCC National Coordination Committee to Counter Money Laundering 21. Non-FTF Non Face-to-Face 22. NRIC National Registration Identity Card 23. ODD On-going Due Diligence 24. PEPs Politically Exposed Persons 25. PF Proliferation Financing 26. RBA Risk-Based Approach 27. SRB Self-Regulatory Body 28. STA Strategic Trade Act 2010 29. STR Suspicious Transaction Report 30. TFS Targeted Financial Sanctions 31. TFS-PF Targeted Financial Sanctions Relating to Proliferation Financing 32. UN United Nations 33. UNSC United Nations Security Council 34. UNSCR United Nations Security Council Resolutions 35. WMD Weapons of Mass Destruction Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 83 of 140 Issued on: 5 February 2024 APPENDIX 2 Definition of Small-sized Reporting Institutions Reporting institutions that satisfy the below criteria are subject to the application of simplification or exemption of Compliance Programme requirements, pursuant to paragraph 11.1 of this policy document. Sector Criteria • Non-bank Financial Institutions • Moneylenders • Pawnbrokers • Trust Companies • Total annual sales turnover of less than RM 3 million; AND • Total number of employees less than 30. • Dealers in Precious Metals or Precious Stones (DPMS) • Companies or businesses carrying on retail business • Total annual sales turnover of less than RM 10 million; AND • Total number of employees less than 30. • Companies or businesses carrying on wholesale business, i.e. business to business dealings only • All such businesses are subject to the exemptions and simplification of AML/CFT/CPF Compliance Programme. • Lawyers • Accountants • Number of practising certificate holders of 5 and below • Company Secretaries • 5 members and below of a body prescribed by the Minister under section 235(2)(a) of Companies Act 2016; or • 5 persons and below licensed as company secretary by the Companies Commission of Malaysia; or • 5 persons and below with any combination of the above. • Registered Estate Agents • Total annual fees of less than RM 3 million Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 84 of 140 Issued on: 5 February 2024 APPENDIX 3 Customer Due Diligence Form Customer Due Diligence Identification and verification of a customer as required under: • Section 16 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA); and • Paragraph 14 of the Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) policy document. Disclaimer: • This document is intended for guidance on the implementation of CDD, TFS, CRP and EDD in complying with the AML/CFT/CPF and TFS requirements under the AMLA only. Reporting institutions may develop their own forms or checklists in consideration of the size, nature and complexity of the business operations. • This document does not contain exhaustive advice or information relating to the subject matter nor should it be used as substitute for legal advice. • In the event that the information on Bank Negara Malaysia’s official printed documents or any Acts differ from the information contained within this document, the information on such Act and official documents shall prevail and take precedence. Date: 1) INDIVIDUAL Full Name NRIC/Passport No. Date of Birth Residential Address Town State Postcode Country Mailing Address (if different from the above address) Town State Postcode Country Nationality Occupation Type Name of Employer/Nature of Business (if self-employed) Contact Number (home/office/mobile) Purpose of Transaction 2) For LEGAL PERSON Company/Business Name Business Registration No. Business Type ☐ Sole Proprietorship ☐ Partnership ☐ Limited Liability Partnership ☐ Public Company ☐ Private Limited Company ☐ Trust ☐ Club/Society/Charity ☐ Other:_________________ Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 85 of 140 Issued on: 5 February 2024 Country of Incorporation/Registration Address of Registered Office (trustee for trust) Town State Postcode Country Address of the Principal Place of Business (If different from above) Town State Postcode Country Principle Business Contact No. Purpose of Transaction Name of Directors(s)/Partner(s) Name of Shareholder(s)/Beneficial Owner(s) Name Types of shares Percentage Name of Beneficial Owners through other means (e.g., Nominee shareholders etc.) Name Type of ownership/control/relationship Name of Senior Management 3) For LEGAL ARRANGMENT Name Registration No. Type ☐ Trust ☐ Club/Society/Charity ☐ Others:_________________(please specify) Country of Registration Address of Registered Office (trustee for trust) Town State Postcode Country Address of the Principal Place of activity (If different from above) Town State Postcode Country Principle activity Contact No. Purpose of Transaction Name of Directors(s)/Partner(s) Name ID Address Settlor Trustee Protector (if any) Beneficiary/class of beneficiary Other BO information Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 86 of 140 Issued on: 5 February 2024 PERSON TRANSACTING ON BEHALF OF INDIVIDUAL/LEGAL PERSON/LEGAL ARRANGEMENT Full Name NRIC/Passport No. Date of Birth Address Town State Postcode Country Nationality Occupation Name of Employer/Nature of Business Contact Number (home/office/mobile) Relationship with trust: VERIFICATION (For Office Use) Individual Legal Persons/Legal Arrangement  To verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that the reporting institution deem necessary, for example: o Identity Card issued by Malaysian government o Employee Identity Card issued by ministries and statutory bodies o Foreign passport or identity card issued by the United Nations o Documents issued by Malaysian government o Biometric identification o Organisation that maintains reliable and independent electronic data to verify customer’s identity  To verify the identity of the customer through the following information/documents, for example: o Constitution/Certificate of Incorporation/Partnership o Reliable references to verify the identity of customer;  To verify the identity of directors/shareholders with equity interest of more than twenty five percent/Partners through the following documents, for example, o Sections 58 and 78 Forms as prescribed by the Companies Commission of Malaysia or equivalent documents for Labuan companies or foreign incorporations o Other equivalent documents for other types of legal person o Authorisation for any person to represent the o Letter of authority or directors’ resolution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 87 of 140 Issued on: 5 February 2024 Targeted Financial Sanctions (TFS) TFS as required under: • Section 14(1)(c) of the AMLA; • Paragraphs 23 and 24 of the AML/CFT/CPF and TFS for DNFBPs and NBFIs policy document; and • Directive on Implementation of Targeted Financial Sanctions Relating to Proliferation Financing (TFS-PF) under the Strategic Trade Act 2010, Strategic Trade (United Nations Security Council Resolutions) Regulations 2010 and Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010. Screen the name of customer against the MOHA 9 and UNSCR Sanctions List for Terrorism 10 and for Proliferation 11 and Other UN-Sanctions Lists ☐ Positive name match ☐ Negative name match If POSITIVE name match: ☐ freeze the customer’s funds, other financial assets and economic resources OR block the transaction (where applicable), if existing customer; ☐ reject a potential customer, if the transaction has not commenced; ☐ submit a suspicious transaction report (STR) to Bank Negara Malaysia; and ☐ report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia and Inspector- General Police using the form attached in Appendix 5A, 5B, 6A or 6B where applicable. 9 MOHA: Ministry of Home Affairs http://www.moha.gov.my/index.php/en/maklumat-perkhidmatan/membanteras-pembiayaan- keganasan2/senarai-kementerian-dalam-negeri 10 UNSCR: United Nations Security Council Resolutions (Terrorism) https://www.un.org/sc/suborg/en/sanctions/1267/aq_sanctions_list; and https://www.un.org/sc/suborg/en/sanctions/1988/materials 11 UNSCR: United Nations Security Council Resolutions (Proliferation of Weapons of Mass Destruction) https://www.un.org/sc/suborg/en/sanctions/1718/materials Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 88 of 140 Issued on: 5 February 2024 Customer Risk Profiling (CRP) CRP as required under paragraph 10 of the AML/CFT/CPF and TFS for DNFBPs and NBFIs policy document. In profiling the risk of its customers, reporting institutions must consider the following factors: a) Customer Risk, e.g. Is the customer or the beneficial owner a foreign or domestic PEP? ☐ Foreign PEP By default higher ML/TF/PF risks & subject to EDD ☐ Domestic PEP Nationality (resident or non-resident) of the customer/director/partner and shareholder/beneficial owner ☐ Malaysian ☐ Foreigner Is the customer/director/partner and shareholder/beneficial owner classified as High Net Worth individual? ☐ Yes ☐ No Type of customer ☐ New customer ☐ Repeating customer ☐ Occasional/One-Off Size and structure customer’s business? ☐ Large and complex structure ☐ Small and simple structure Type of occupation/business ☐ Lower risk occupation/business ☐ Higher risk occupation/business i.e. cash intensive business/occupation Is there any adverse remark on the customer/company’ background from research via public or commercial database such as Google? ☐ Yes Please state:_______________ ☐ No Other consideration b) Geographical Risk, e.g. What is the country of origin of the customer, location of business, branches, beneficial owner, beneficiaries or related parties? List of higher risk countries is available at: - http://www.fatf-gafi.org ☐ Low risk countries ☐ Countries having strategic AML/CFT/CPF deficiencies ☐ Countries subject to a FATF call to apply countermeasures By default higher ML/TF/PF risk & subject to EDD and countermeasures Other consideration c) Products/Services Risk, e.g. Does the product/service offered provide anonymity to the customer? ☐ Yes ☐ No Does the product/service offered commensurate with the profile of the customer? ☐ Yes ☐ No Does the product/service offered involve complex and unusual transaction? ☐ Yes ☐ No Does the customer require nominee services? ☐ Yes ☐ No Does the company have nominee shareholder(s) or nominee director(s)? (for nominee service dispensed by lawyers, accountants and company secretaries) ☐ Yes ☐ No ☐ Yes Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 89 of 140 Issued on: 5 February 2024 Does the product/service offered involve cross-border transactions? ☐ No Other consideration d) Transaction and Delivery Channel Risk, e.g. Mode of payment ☐ Bank transfer or cheques ☐ Physical cash Delivery Channel ☐ Face-to-face ☐ Through agent/intermediaries ☐ Non face-to-face Other consideration Other factors that affect the customer’s ML/TF/PF risk rating? Overall risk assessment: ☐ Low ☐ Medium ☐ High Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 90 of 140 Issued on: 5 February 2024 Enhanced Customer Due Diligence (EDD) EDD as required under: • Section 16 of the AMLA; and • Paragraph 14 of the AML/CFT/CPF and TFS for DNFBPs and NBFIs policy document. Circumstances when EDD applies: • Dealing with foreign PEPs • Dealing with person from higher risk countries • For gatekeepers (lawyers, accountants, company secretaries and trust companies), where nominee services are provided • Dealing with domestic PEPs or customers assessed as having higher ML/TF/PF risks based on customer risk profiling Note: For enhanced on-going due diligence, higher frequency of transaction monitoring is required to enable reporting institutions to identify any anomalies. Individual name of higher risk customer/PEP Customer/PEP’s role in Legal Person/Legal Arrangement, where relevant For higher ML/TF/PF risk customers Source of Fund/ Source of Wealth In the case of PEPs, both sources must be obtained Additional Information on Customer and Beneficial Owner E.g. volume of assets and other information from public database, or customer declaration For customer subject to EDD – To be approved by Senior Management of the Firm Approval ☐ Approved ☐ Not approved Justification: __________________________________________________ __________________________________________________ Name of Senior Management Position/Designation Date Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 91 of 140 Issued on: 5 February 2024 APPENDIX 4 Required Information in CTR Element of CTR Required Information Account Transaction Details i. Transaction Type ii. Transaction Date iii. Transaction Amount (RM) iv. Transaction Amount (FC)* Customer Information Individual: i. Name ii. Gender iii. Nationality iv. NRIC/ Passport/Other ID* v. Date of Birth vi. Residential Address vii. Contact Number viii. Occupation Non-Individual: i. Business/ Company Name ii. Country of incorporation iii. BR No iv. Date of Incorporation v. Business Address vi. Contact Number (Office) vii. Nature of Business Signatory/Director/BO/Joint Accountholder i. Role ii. Name iii. Gender iv. Nationality v. NRIC/ Passport/Other ID* vi. Date of Birth vii. Residential Address viii. Contact Number Legal Arrangement: i. Trustee Name ii. Country of Establishment/Nationality iii. Date of Establishment/ Birth iv. Business/ Residential Address v. Contact Number (Office/Mobile) vi. Nature of Business/Employment Sector Settler/Protector/Beneficiary i. Role ii. Name iii. Gender iv. Nationality/Place of Incorporation v. NRIC/ Passport/Other ID* vi. Date of Birth/Establishment vii. Residential/Business Address Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 92 of 140 Issued on: 5 February 2024 viii. Contact Number Person Conducting Transaction i. Name ii. Gender* iii. Nationality* iv. NRIC/Passport/Other ID* v. Date of Birth* vi. Address* vii. Contact Number* Information of Beneficiaries i. Name ii. Gender* iii. Nationality* iv. NRIC/Passport/Other ID* v. Date of Birth* vi. Residential Address* vii. Contact Number* viii. Occupation* * Field will only become required if the preceding fields are filled up. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 93 of 140 Issued on: 5 February 2024 APPENDIX 5A Targeted Financial Sanctions Reporting (NBFIs) – Upon Determination REPORTING UPON DETERMINATION: ( ) TERRORISM FINANCING ( ) PROLIFERATION FINANCING ( ) OTHER UN-SANCTIONS REGIMES Please tick () at the appropriate bracket ALL Sanctions Regimes Terrorism Financing UNSCR No (If Available) : Date of UN Listing : Type of Lists : Domestic List ( ) UNSCR List ( ) Circular/Gazette Reference No. : Circular/Gazette Reference Date : N o. U N SC R P er m an en t R ef N o/ M O H A R ef er en ce N o (e .g . K Pi .0 01 /K D N .I. 01 -2 01 4) C us to m er N am e Ad dr es s N R IC /P as sp or t N o. R ep or tin g In st itu tio n N am e Br an ch m ai nt ai ni ng th e ac co un t a nd fa ci lit y Ac co un t n o. Ac co un t/F ac ilit y/ Fi na nc ia l S er vi ce s Ty pe D at e fin an ci al s er vi ce s gi ve n (D D /M M /Y YY Y) Ac co un t/F ac ilit y St at us (b ef or e de si gn at io n) Status of Account/facility/ financial services status (after designation) (e.g. frozen, expired/terminat ed, lapsed, etc.) Date account/facility/fina ncial services frozen/expire/termi nated/lapsed, etc.) (DD/MM/YYYY) Balance as at (for each account/facility/financial services) : R el at ed P ar tie s R em ar ks · Banking (CR)/ · Banking (DR) Please state the type and value of property for loan accounts 1. 2. Reporting Institution Details Reporting Institution Name : (please state all entities under the group if reporting done on group basis) Sector : Contact Person : Designation : Tel No. : E-mail : Reporting Date : Notes: Please submit the completed form to - Reporting for ALL sanctions regimes In addition, reporting for TFS on Terrorism Financing Email Address Financial Intelligence and Enforcement Department, Bank Negara Malaysia • Address : [email protected] • Subject : Reporting upon Determination (CTF/CPF/OSR) to specify relevant sanctions regime Ketua Polis Negara (a) u/p: Pasukan Siasatan Jenayah Pengubahan Wang Haram dan Pembiayaan Keganasan Urusetia Pejabat Ketua Polis Negara, Tingkat 23, Menara 238, Jalan Tun Razak, 50400, Kuala Lumpur (b) u/p : Bahagian E8,Cawangan Khas Tingkat 24, Menara 2, Ibu Pejabat Polis, Bukit Aman, 50560, Kuala Lumpur mailto:[email protected] Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 94 of 140 Issued on: 5 February 2024 APPENDIX 5B Targeted Financial Sanctions Reporting (DNFBPs) – Upon Determination REPORTING UPON DETERMINATION: ( ) TERRORISM FINANCING ( ) PROLIFERATION FINANCING ( ) OTHER SANCTIONED REGIMES Please tick () at the appropriate bracket ALL Sanctions Regimes Terrorism Financing UNSCR No (If Available) : Date of UN Listing : Type of Lists : Domestic List ( ) UNSCR List ( ) Circular/Gazette Reference No. : Circular/Gazette Reference Date : No. UNSCR Permanent Ref No/MOHA Reference No (e.g. KPi.001/KDN.I.0 1-2014) Customer Name Address NRIC/Pa ssport No. Reporting Institution Name Branch providing the product/ser vice/facility (if applicable) Product/service /facility offered, e.g. pawn, loan Date of funds received by the reporting institution (DD/MM/YY) Customer status (before designation) e.g. existing/new on-boarding Status of product/service facility (after designation) (e.g. frozen, terminated, etc.) Date product/servi ce/facility frozen/termin ated etc.) (DD/MM/YY) Value of product/ser vice/facility Please state the type and value of property for transactions relating to a property Related Parties Remarks 1. 2. 3. 4. Reporting Institution Details Reporting Institution Name : Sector : Contact Person : Designation : Tel No. : E-mail : Reporting Date : Notes: Please submit the completed form to - Reporting for ALL sanctions regimes In addition, reporting for TFS on Terrorism Financing Email Address Financial Intelligence and Enforcement Department, Bank Negara Malaysia • Address : [email protected] • Subject : Reporting upon Determination (CTF/CPF/OSR) to specify relevant sanctions regime Ketua Polis Negara (c) u/p: Pasukan Siasatan Jenayah Pengubahan Wang Haram dan Pembiayaan Keganasan Urusetia Pejabat Ketua Polis Negara, Tingkat 23, Menara 238, Jalan Tun Razak, 50400, Kuala Lumpur (d) u/p: Bahagian E8,Cawangan Khas Tingkat 24, Menara 2, Ibu Pejabat Polis, Bukit Aman, 50560, Kuala Lumpur mailto:[email protected] Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 95 of 140 Issued on: 5 February 2024 APPENDIX 6A Targeted Financial Sanctions Reporting (NBFIs) - Periodic Reporting on Positive Name Match PERIODIC REPORTING ON POSITIVE NAME MATCH: ( ) TERRORISM FINANCING ( ) PROLIFERATION FINANCING ( ) OTHER SANCTIONED REGIMES Please tick () at the appropriate bracket Only for reporting on Terrorism Financing* Type of Lists : Domestic List ( ) UNSCR List ( ) N o. U N SC R P er m an en t R ef N o/ M O H A R ef er en ce N o (e g K Pi 00 1/ KD N I0 1- 20 14 ) C us to m er N am e Ad dr es s N R IC /P as sp or t N o. R ep or tin g In st itu tio n N am e Br an ch m ai nt ai ni ng th e ac co un t a nd fa ci lit y Ac co un t n o. Ac co un t/F ac ilit y/ Fi na nc ia l S er vi ce s Ty pe D at e fi na nc ia l s er vi ce s gi ve n (D D /M M /Y YY Y) C us to m er s ta tu s (b ef or e de si gn at io n) e .g . ex is tin g/ ne w o n- bo ar di ng Status of Account/facil ity/financial services (after designation) (e.g. frozen, expired/term inated, lapsed, etc.) Date account/facility /financial services frozen, expired/termin ated/lapsed, etc. (DD/MM/YY) Previous Account Balance (Previous Reporting) Transaction Details (line by line transaction) New Account Balance as at: (DD/MM/YYYY) R el at ed P ar tie s R em ar ks · B an ki ng (C R ) · B an ki ng (D R ) Pl ea se s ta te th e ty pe a nd v al ue of p ro pe rty fo r l oa n ac co un ts Tr an sa ct io n N o D at e (D D /M M /Y Y) Ty pe (C R /D R ) Am ou nt (M YR ) R em ar ks · B an ki ng (C R ) · B an ki ng (D R ) Pl ea se s ta te th e ty pe a nd v al ue of p ro pe rty fo r l oa n ac co un ts 1. 1. 2. 2. 3. Reporting Institution Details Reporting Institution Name : (please state all entities under the group if reporting done on group basis) Sector : Contact Person : Designation : Tel No. : E-mail : Reporting Date : Notes: Please submit the completed form to Submission dates Financial Intelligence and Enforcement Department, Bank Negara Malaysia • Email Address : [email protected] • Subject : Reporting upon Determination (CTF/CPF/OSR) to specify relevant sanctions regime Terrorism Financing: UNSC List: Every 5th January and 5th July Domestic List: Every 15th May and 15th November mailto:[email protected] Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 96 of 140 Issued on: 5 February 2024 APPENDIX 6B Targeted Financial Sanctions Reporting (DNFBPs) - Periodic Reporting on Positive Name Match PERIODIC REPORTING ON POSITIVE NAME MATCH: ( ) TERRORISM FINANCING ( ) PROLIFERATION FINANCING ( ) OTHER SANCTIONED REGIMES Please tick () at the appropriate bracket Only for reporting on Terrorism Financing* Type of Lists : Domestic List ( ) UNSCR List ( ) N o. U N SC R P er m an en t R ef N o/ M O H A R ef er en ce N o (e .g . K Pi .0 01 /K D N .I. 01 -2 01 4) C us to m er N am e Ad dr es s N R IC /P as sp or t N o. R ep or tin g In st itu tio n N am e Br an ch p ro vi di ng th e pr od uc t/s er vi ce /fa ci lit y (if a pp lic ab le ) Pr od uc t/s er vi ce /fa ci lit y of fe re d, e .g . p aw n, lo an D at e of fu nd s re ce iv ed b y th e re po rti ng in st itu tio n (D D /M M /Y Y) Ac co un t/F ac ilit y St at us (b ef or e de si gn at io n) Status of product/servic e facility (after designation) (e.g. frozen, terminated, etc.) Date of funds received by the reporting institution (DD/MM/YY) Value of product/ser vice/facility Transaction Details (line by line transaction) New Account Balance as at: (DD/MM/YY) R el at ed P ar tie s R em ar ks Tr an sa ct io n N o D at e (D D /M M /Y Y) Ty pe (C R /D R ) Am ou nt (M YR ) R em ar ks · B an ki ng (C R ) · B an ki ng (D R ) Pl ea se s ta te th e ty pe a nd v al ue of p ro pe rty fo r l oa n ac co un ts 1. 1. 2. 2. 3. Reporting Institution Details Reporting Institution Name : (please state all entities under the group if reporting done on group basis) Sector : Contact Person : Designation : Tel No. : E-mail : Reporting Date : Notes: Please submit the completed form to Submission dates Financial Intelligence and Enforcement Department, Bank Negara Malaysia • Email Address : [email protected] • Subject : Reporting upon Determination (CTF/CPF/OSR) to specify relevant sanctions regime Terrorism Financing: UNSC List: Every 5th January and 5th July Domestic List: Every 15th May and 15th November Proliferation Financing & Other Sanctioned Regimes: Only if there is any changes to the frozen funds (after first time reporting on positive name match) and latest by 15 January of the following calendar year mailto:[email protected] Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 97 of 140 Issued on: 5 February 2024 PART D GUIDANCE Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 98 of 140 Issued on: 5 February 2024 APPENDIX 7 Guidance on Application of Risk-Based Approach 1.0 Introduction 1.1 The risk-based approach (RBA) is central to the effective implementation of the anti-money laundering, countering financing of terrorism and countering proliferation financing (AML/CFT/CPF) preventive requirements and the FATF Recommendations. The focus on risk is intended to ensure a reporting institution is able to identify, assess and understand the money laundering, terrorism financing and proliferation financing (ML/TF/PF) risks to which it is exposed to and take the necessary AML/CFT/CPF control measures to mitigate them. 1.2 This Guidance seeks to: (a) assist the reporting institution to design and implement AML/CFT/CPF control measures by providing a common understanding of what the RBA encompasses; and (b) clarify the policy expectations in relation to the assessment of business- based and customer-based ML/TF/PF risk in applying the RBA. In the event a reporting institution has developed its own RBA, the reporting institution is expected to ensure its RBA achieves the outcomes as specified in this policy document and as further clarified in this Guidance. 1.3 This Guidance is not intended to supersede or replace any of the existing mandatory requirements on RBA that are provided in paragraph 10 of this policy document. 1.4 For reporting institutions under a group structure, the requirements on the RBA as provided for in the policy document and this Guidance are applicable to reporting institutions at the entity level, not group level, whether as a parent company in a group of corporations or subsidiary entity. 1.5 The RBA– (a) recognises that the ML/TF/PF threats to a reporting institution vary across customers, countries, products and services, transactions and distribution channels; (b) allows the reporting institution to apply appropriate policies, procedures, systems and controls to manage and mitigate the ML/TF/PF risks identified based on the nature, scale and complexity of the reporting institution’s business and ML/TF/PF risk profile; and (c) facilitates more effective allocation of the reporting institution’s resources and internal structures to manage and mitigate the ML/TF/PF risks identified. 1.6 The RBA provides an assessment of the threats and vulnerabilities of the reporting institution from being used as a conduit for ML/TF/PF. By regularly assessing the reporting institution’s ML/TF/PF risks, it allows the reporting institution to protect and maintain the integrity of its business and the financial system as a whole. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 99 of 140 Issued on: 5 February 2024 2.0 Institutional Risk Assessment and Customer Risk Profiling 2.1 The RBA entails two (2) assessments: Institutional Risk Assessment (IRA) A reporting institution is expected to identify ML/TF/PF risk factors that affect its business and address the impact on the reporting institution’s overall ML/TF/PF risks. • Refer to requirements in paragraphs 10.2, 10.3, 10.4 and 10.5 in this policy document. I. Perform risk assessment - A reporting institution is expected to perform an assessment on the degree of ML/TF/PF risks that the reporting institution's business is exposed to and determine its risk appetite level. To this end, a reporting institution is expected to formulate specific parameters of the ML/TF/PF risk factors considered. II. Formulate and implement business risk management and mitigation control measures - A reporting institution is expected to establish and implement policies, controls and procedures to manage and mitigate the identified ML/TF/PF risks. Such measures should be sufficiently adequate to manage and mitigate the ML/TF/PF risks identified. Customer Risk Profiling (CRP) For CRP, a reporting institution is expected to consider the inherent risks arising from the types of products, services, distribution channels, etc. that the customers are using and implement appropriate measures to manage and mitigate the ML/TF/PF risks identified therein. • Refer to requirements in paragraph 10.6 in this policy document. I. Determine the risk parameters for customer risk profiling - A reporting institution is expected to identify specific ML/TF/PF risk factors and parameters for customers’ profiling. Where relevant, the reporting institution may adopt similar parameters that have been used for the assessment of the ML/TF/PF risk factors considered under the IRA. II. Conduct risk profiling on customers – Based on the Customer Due Diligence (CDD) information obtained at point of on-boarding new customers, or ongoing CDD information obtained from existing customers, as the case may be, a reporting institution is expected to determine the ML/TF/PF risk profile of each customer (e.g. high, medium or low) by applying the risk parameters determined above, in order to determine the appropriate level of CDD (i.e. standard or enhanced) that is applicable in respect of each customer. The resulting ML/TF/PF risk Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 100 of 140 Issued on: 5 February 2024 profile may also have a bearing on the frequency and intensity of on- going CDD that is applicable throughout the duration of the business relationship with the customer. III. Apply customer risk management and mitigation control measures – A reporting institution is expected to apply the necessary risk management and mitigation policies, procedures and controls that are commensurate with the ML/TF/PF risk profile of each customer, to effectively manage and mitigate the ML/TF/PF risks identified. For example, customers assessed as having higher ML/TF/PF risks should be subject to enhanced CDD procedures, senior management’s approval should be obtained before offering or continuing to transact or provide professional services and the customer should be subject to more frequent and intense on-going CDD procedures throughout the duration of the business relationship with the customer. 2.2 The RBA is expected to be tailored to the nature, scale and complexity of the reporting institution’s business, size, structure and activities. 2.3 A reporting institution is expected to incorporate the RBA into its existing policies and procedures. All steps and processes in relation to the RBA for purpose of IRA and CRP are expected to be documented and supported by appropriate rationale and be subject to approval by senior management and/or the Board of Directors, as appropriate. 2.4 Recognising that ML/TF/PF risks evolve and are subject to change over time (arising from the emergence of new threats, introduction of new products/services, new technologies, expansion to new customer base etc.) a reporting institution is expected to understand that assessing and mitigating ML/TF/PF risks is not a static exercise. Therefore, a reporting institution is expected to periodically review, evaluate and update the RBA accordingly. 2.5 The outcome of the IRA and CRP complement each other. Therefore, to effectively implement the RBA– (a) a reporting institution is expected to determine reasonable risk factors and parameters for the IRA and CRP; and (b) over a period of time, data from the CRP may also be useful in updating the parameters of the IRA. 3.0 Institutional Risk Assessment (IRA) A. Perform Risk Assessment 3.1 While there is no prescribed methodology, the IRA is expected to reflect material and foreseeable ML/TF/PF threats and vulnerabilities which a reporting institution is exposed to for the period under review. Hence, a reporting institution may establish a manual or automated system to perform its risk assessment. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 101 of 140 Issued on: 5 February 2024 3.2 The reporting institution is expected to evaluate the likelihood and extent of its ML/TF/PF risks at a macro level. When assessing the ML/TF/PF risks, a reporting institution is expected to consider all relevant risk factors that affect their business and operations, which may include the following: (a) Specific risk factors or high risk crimes that the reporting institution may consider for the purpose of identifying its ML/TF/PF risks; (b) Type of customers; (c) Geographic location of the reporting institution; (d) Transactions and distribution channels offered by the reporting institution; (e) Products and services offered by the reporting institution; (f) Structure of the reporting institution; and (g) Findings of the National Risk Assessment (NRA). 3.3 The ML/TF/PF risks may be measured based on a number of factors. The weight or materiality given to these factors (individually or in combination) when assessing the overall risks of potential ML/TF/PF may vary from one reporting institution to another, depending on their respective circumstances. Consequently, a reporting institution is expected to make its own determination as to the risk weightage or materiality for each factor under consideration. These factors either individually or in combination, may increase or decrease potential ML/TF/PF risks posed to the reporting institution. 3.4 To assist a reporting institution in assessing the extent of its ML/TF/PF risks, the reporting institution may consider the following examples of risk factors: (a) Customers – in conducting business transactions, the reporting institution is exposed to various types of customers that may pose varying degrees of ML/TF/PF risks. In analysing its customers’ risk, a reporting institution may consider the non-exhaustive examples below: • Exposure by type of customer, individuals and non-individuals (companies, businesses, legal arrangements, associations, etc.); • Exposure by nationality i.e. local or foreign; • Nature and type of business or occupation of the customers; • Exposure to foreign PEP customers; • Exposure to domestic PEP customers assessed as higher risk; • Exposure to customers related to PEPs assessed as higher risk; • Exposure to customers that are legal arrangements (e.g. trusts) and legal persons and the level of complexity of such legal structures; • Exposure to customers that authorise a proxy/agent to represent on their behalf; • Exposure to companies that have nominee shareholders or shares in bearer form; • Exposure to legal persons or arrangements that are personal asset holding vehicles; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 102 of 140 Issued on: 5 February 2024 • Exposure to customers originating from or domiciled in, and/or transactions conducted in or through higher risk countries (called by FATF or Government of Malaysia) or tax haven jurisdictions; • Exposure to customers that provide vague or incomplete information about their proposed business activities during on- boarding and resistant to provide additional information when queried; • Exposure to customers with their beneficial owners or senior management appear in unilateral sanctions lists or adverse news; • Exposure to customers engage in complex trade deals involving numerous third-party intermediaries in lines of business that do not accord with their stated business profile established at onboarding; • Exposure to customers dealing with dual-use goods or goods subject to export control goods or complex equipment for which the person lacks technical background, or which is incongruent with their stated line of activity; and/or • Exposure to customers affiliated with universities or research institutions are involved in the trading of dual-use goods or goods subject to export control. (b) Countries or geographic location – a reporting institution should take into account such factors including the location of the reporting institution’s parent company, head office, branches and subsidiaries and agents (where applicable), and whether its parent company is located within a jurisdiction with full AML/CFT/CPF compliance as identified by a credible source. Further non-exhaustive examples are as below: Location of its holding company, branches, subsidiaries, merchants and/or agents in: • Tourist hotspots, crime hotspots, country’s border and entry- points; • High risk countries called by the FATF or by the Government of Malaysia; • Jurisdictions that have been identified by credible sources as having significant levels of corruption or other criminal activities e.g. reports by Transparency International, United Nations Office on Drugs and Crimes etc.; and/or • Jurisdictions that have been identified by credible sources as providing funding or support for money laundering, terrorism or proliferation of weapons of mass destruction. (c) Transactions and distribution channels – A reporting institution has various modes of transaction and distribution of its products and services. Some of the modes of transaction and distribution channels may be more susceptible to ML/TF/PF risks. For example, products sold Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 103 of 140 Issued on: 5 February 2024 via non-face-to-face channels are more susceptible to ML/TF/PF as compared to products sold via face-to-face channels, and transactions conducted with third party agents of the reporting institution may be more vulnerable to ML/TF/PF in comparison to those conducted at the reporting institution’s own branches. In this regard, a reporting institution is expected to consider the appropriate ML/TF/PF risks attributed to all available modes of transactions and distribution that are offered to customers by the reporting institution, including the following non- exhaustive examples: • Mode of distribution e.g. direct channel, or via agents, brokers, financial advisors, introducers, online or technology based transaction; • Volume and frequency of non-face-to-face business relationships or transactions; • Mode of payment e.g. cash-based transactions, e-payments; • Cash intensive or other forms of anonymous transactions; • Volume and frequency of transactions carried out in high risk areas or jurisdictions; • Number of distribution channels located in high risk areas or jurisdictions; • Exposure to cross-border transactions and/or transactions in high risk jurisdictions; and/or • Transactions that involve possible companies with opaque ownership structures, front companies, e.g.: companies do not have high level of capitalisation or display other shell company indicators, including long period of dormancy followed by surge of activity. (d) Products and services – a reporting institution is expected to identify the appropriate level of ML/TF/PF risks attached to the types of products and services offered. Some of the non-exhaustive examples that the reporting institution may take into account are as follows: Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 104 of 140 Issued on: 5 February 2024 • Nature of the products and services; • Level of complexity of the products and services; • Cash intensity related to the products and services; • Market segments of the products and services; • Products that are easily transferable to another party; • Product’s ownership not easily traceable to the owner; • Product can be easily converted to cash or exchanged to another form; • Customer can place deposit for a period of time for purchasing a product; • Product can be easily transported or concealed; • Product can be used as an alternative form of currency; • Product that has high value in nature; • Product can be purchased through non face-to-face channel; • Allow use of virtual asset and other anonymous means of payment; • Allow use of unusual means of payment e.g. high value items such as real estate, precious metals and precious stones; • Services that enable clients to move funds anonymously; and/or • Nominee services that may obscure ownership of legal person or legal arrangements; • Transactions involve trading of dual-use goods or goods subject to export control; and/or • Inadequate information and inconsistencies in trade documents and financial flows; such as names, companies, addresses, final destination, etc. (e) Reporting institution’s structure – the ML/TF/PF risk of a reporting institution may differ according to its size, nature and complexity of the reporting institution’s business operations. Appropriate assessment of its business model and structure may assist a reporting institution to identify the level of ML/TF/PF risks that it is exposed to. In this regard, a reporting institution may take into account the following non- exhaustive examples: • Number of branches, subsidiaries and/or agents; • Size of the reporting institution relative to industry/sector; • Number and profile of employees; • Degree of dependency on technology; • Volume and value of cross border transactions; • Volume and value of high-valued products; • Cash intensity of the business; and/or • Level of staff turnover, especially in key personnel positions. (f) Findings of the National Risk Assessment (NRA) or any other risk assessments issued by relevant authorities – in identifying, assessing and understanding the ML/TF/PF risks, a reporting institution Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 105 of 140 Issued on: 5 February 2024 is expected to fully consider the outcome of the NRA or any other equivalent risk assessments by relevant authorities: Under the NRA, a reporting institution is expected to take into account the following: • Sectors identified as highly vulnerable to ML/TF/PF risks and the reporting institutions exposure to such sectors in relation to customer segments served; • Crimes identified as high risk or susceptible to ML/TF/PF and the adequacy of the reporting institutions’ mitigating measures to detect and deter such illegal proceeds or in preventing dealings with customers involved in such illicit activities; and/or • TF and/or PF risks faced by the industry. (g) Other factors – a reporting institution may also take into account other factors in determining its risk assessment such as: • Current trends and typologies for the sector in relation to ML/TF/PF and other crimes; • The reporting institution’s internal audit and regulatory findings; • Current trends and typologies for other sectors with similar business model or product/service offerings in relation to ML/TF/PF and other crimes; • The number of suspicious transaction reports it has filed with Financial Intelligence and Enforcement Department, Bank Negara Malaysia; and/or • Whether the reporting institution has been subjected to service any freeze or seize order by any law enforcement agencies, for example pursuant to AMLA, Dangerous Drugs (Forfeiture of Property) Act 1988, Malaysian Anti-Corruption Commission Act 2009, etc. 3.5 In considering each risk factor mentioned above, a reporting institution is expected to formulate parameters that indicate their risk appetite in relation to the potential ML/TF/PF risks it may be exposed to. The reporting institution is expected to set its own parameters according to the size, complexity of its business. Example 1 below is strictly for illustration purpose and is intended to facilitate better understanding on how the risk factors and parameters may be applied. It is not intended to serve as a prescription or recommendation on the parameters or specific thresholds to be adopted by the reporting institution: Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 106 of 140 Issued on: 5 February 2024 Example 1 for all sectors: Risk Factor Examples Formulated Parameters Customer Higher risk customer • Number of higher risk customers more than 20% of total customer base for a year • Number of politically exposed person (PEP) customers who are high risk is more than 5% of total customers Local and foreign customers • Percentage of local and foreign customer for a year Companies with nominee shareholders or shares in bearer form • Percentage of such companies against total non-individual customer base Transactions and Distribution Channels Cash intensive or other forms of anonymous transactions • High volume of cash transactions above RM50,000 within a year • High volume of anonymous/proxy transactions exceeding RM50,000 per transaction within a year Percentage of non-face-to- face transactions • Non-face-to-face transactions exceeding 50% of total transactions Frequency and amount of cash payments • Cash transactions above RM10,000 Wide array of e- banking products and services • More than 30% of new accounts are opened via internet, mail or telephone without prior relationship Findings of the NRA or any other risk assessments issued by Sectors identified as highly vulnerable to ML/TF/PF risks • Number of customers with occupation or nature of business from highly vulnerable sectors identified under the NRA or any other risk assessments Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 107 of 140 Issued on: 5 February 2024 relevant authorities issued by relevant authorities. Note: The above is not meant to serve as exhaustive examples or prescriptions on specific risk factors or parameters which reporting institutions should apply in assessing the ML/TF/PF risks of the business. Reporting institutions are expected to determine which risk factors and parameters are most appropriate in the context of the nature, scale and complexity of their respective businesses. 3.6 By applying all the risk factors and parameters in performing its risk assessment, a reporting institution should be able to determine the extent of ML/TF/PF risks that it is exposed to, on a quantitative and/or qualitative basis. 3.7 The outcome of the risk assessment would determine the level of ML/TF/PF risks the reporting institution is willing to accept (i.e. the reporting institution’s risk appetite) and its appropriate risk rating. The risk appetite and risk rating will have a direct impact on the proposed risk management and mitigation policies, controls and procedures adopted by the reporting institution. 3.8 Apart from ensuring that the risk assessment is reflected in its policies and procedures, a reporting institution is also expected to justify the outcome of the risk assessment conducted. Reporting institutions are reminded of the requirement under the AMLA and this policy document to maintain proper records on any assessments and approvals by senior management and/or the Board of Directors on the ML/TF/PF risk assessments conducted to enable reviews to be conducted as and when it is requested by the competent authority or supervisory authority. B. Formulate and implement institutional risk management and mitigation control measures 3.9 Once a reporting institution has identified and assessed the ML/TF/PF risks it faces after performing its risk assessment under paragraph 3A above, a reporting institution is expected to formulate and implement appropriate risk control measures in order to manage and mitigate those risks. 3.10 The intended outcome is that the mitigation measures and controls are commensurate with the ML/TF/PF risks that have been identified. 3.11 The type and extent of the AML/CFT/CPF controls will depend on a number of factors, including: (a) nature, scale and complexity of the reporting institution’s operating structure; (b) diversity of the reporting institution’s operations, including geographical locations; (c) types of customers; (d) products or services offered; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 108 of 140 Issued on: 5 February 2024 (e) distribution channels used either directly, through third parties or agents or on non face-to-face basis; (f) volume and size of transactions; and (g) degree to which the reporting institution has outsourced its operations to other entities or at group level, where relevant. 3.12 The following are non-exhaustive examples of the risk controls that a reporting institution may adopt: (a) restrict or limit financial transactions; (b) improved on-boarding processes for customers, including beneficial owners; (c) require additional internal approvals for certain segment of customers, transactions and products or services; (d) conduct regular training programmes for directors and employees on ML/TF/PF risks, typologies or increase resources where applicable; (e) improved controls for effective sanctions screening and transaction monitoring, including tailored risk-based measures to mitigate sanctions evasion, employment of technology-based screening, advanced technology to facilitate network analysis or system-based monitoring of transaction; and (f) employ biometric system for better customer verification. 4.0 Customer Risk Profiling (CRP) A. Determine the risk parameters for customer profiling 4.1 A reporting institution is expected to determine the appropriate risk parameters when considering the risk factors such as customer, country or geographic location, product or service and transaction or distribution channel. These risk parameters will assist the reporting institution in identifying the ML/TF/PF risk factors for customers for the purpose of risk profiling. Refer to the example below for illustration purposes: Example for all sectors: Risk Factor Parameters determined for risk profiling Risk Rating Customer Type Individual Low Legal Person Medium Legal Arrangement High Social status Non-PEP Low Local PEP Medium Foreign PEP High Nationality Malaysian Low Other countries Medium High-risk or sanctioned High Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 109 of 140 Issued on: 5 February 2024 countries e.g. North Korea Country of Residence Malaysia Low Other countries Medium High-risk or sanctioned countries e.g. North Korea High Transaction or Distribution Channel Face-to-face Low On behalf/Through intermediaries and/or agents Medium Non Face-to-face High Note 1: The above is not meant to serve as exhaustive examples or prescriptions on specific risk factors or parameters which reporting institutions should apply for purpose of client risk profiling. Reporting institutions are expected to determine which risk factors and parameters are most appropriate in the context of the nature and complexity of clients served, products/services offered etc. Note 2: In relation to ‘Risk Rating’, while the examples above are based on a simple three-scale rating model (i.e. Low, Medium or High), this is not intended to restrict the client risk rating models adopted by reporting institutions, which could be based on more granular approach e.g. four-scale or five-scale or more rating model. 4.2 Where relevant, a reporting institution may adopt similar risk factors and parameters that have been used for the assessment of the ML/TF/PF risks considered under the IRA. 4.3 The different CRP parameters considered within the customer, country or geographic, product or service and transaction or distribution channel risk factors, may either individually or in combination impact the level of risk posed by each customer. 4.4 Identifying one high risk indicator for a customer does not necessarily mean that the customer is high risk12. The CRP ultimately requires a reporting institution to draw together all risk factors, parameters considered, including patterns of transaction and activity throughout the duration of the business relationship to determine how best to assess the risk of such customers on an on-going basis. 4.5 Therefore, a reporting institution is expected to ensure that the CDD information obtained at the point of on-boarding and on-going due diligence is accurate and up to date. 12 Except for high risk customer relationships that have already been prescribed, for example Foreign PEPs or customers from high risk jurisdiction identified by FATF. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 110 of 140 Issued on: 5 February 2024 B. Conduct risk profiling on customers 4.6 Based on the processes under paragraph 4A above, a reporting institution is expected to formulate its own risk scoring mechanism for the purpose of risk profiling its customers, e.g. high, medium or low. This will assist the reporting institution to determine whether to apply standard or enhanced CDD measures in respect of each customer. 4.7 A reporting institution is expected to document the reason and basis for each risk profiling and risk scoring assigned to its customers. 4.8 Accurate risk profiling of its customers is crucial for the purpose of applying effective control measures. Customers who are profiled as higher risk should be subject to more stringent control measures including more frequent monitoring compared to customers rated as low risk. 4.9 While CDD measures and risk profiling of customers are performed at the inception of the business relationship, the risk profile of a customer may change once the customer has commenced transactions. On-going monitoring would assist in determining whether the transactions are consistent with the customer’s last known information. C. Apply customer risk management and mitigation control measures 4.10 Based on the risk profiling conducted on customers, a reporting institution is expected to apply the risk management and mitigation procedures, systems and control measures proportionate to the customers’ risk profile to effectively manage and mitigate such ML/TF/PF risks. 4.11 Non-exhaustive examples of risk management and mitigation control measures for CRP include: (a) Develop and implement clear customer acceptance policies and procedures; (b) Obtain, and where appropriate, verify additional information on the customer; (c) Update regularly the identification of the customer and beneficial owners, (d) Obtain additional information on the intended nature of the business relationship; (e) Obtain information on the source of funds and/or source of wealth of the customer; (f) Obtain information on the reasons for the intended or performed transactions; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 111 of 140 Issued on: 5 February 2024 (g) Obtain the approval of senior management to commence or continue business relationship; (h) Conduct appropriate level and frequency of ongoing monitoring commensurate with risks identified; (i) Scrutinise transactions based on a reasonable monetary threshold and/or pre-determined transaction patterns; and (j) Impose transaction limit or set a certain threshold. 5.0 Continuous application of RBA 5.1 The application of RBA is a continuous process to ensure that RBA processes for managing and mitigating ML/TF/PF risks are kept under regular review. 5.2 A reporting institution is expected to conduct periodic assessment of its ML/TF/PF risks (preferably every two years or sooner if there are any changes to the reporting institution’s business model) taking into account the growth of the business, nature of new products/services and latest trends and typologies in the sector. 5.3 Through the periodic assessment, a reporting institution may be required to update or review either its IRA or CRP. 5.4 A reporting institution is expected to take appropriate measures to ensure that its policies and procedures are updated in light of the continuous risk assessments and ongoing monitoring of its customers. 6.0 Documentation of the RBA process 6.1 A reporting institution is expected to ensure the RBA process is properly documented. 6.2 Documentation by the reporting institution is expected to include: (a) Process and procedures of the RBA; (b) Information that demonstrates higher risk indicators have been considered, and where they have been considered and discarded, reasonable rationale for such decision; (c) Analysis of the ML/TF/PF risks and conclusions of the ML/TF/PF threats and vulnerabilities to which the reporting institution is exposed to; and Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 112 of 140 Issued on: 5 February 2024 (d) Measures put in place for higher risk indicators and to ensure that these measures commensurate with the higher risks identified. 6.3 In addition, on a case-by-case basis, a reporting institution is expected to document the rationale for any additional due diligence measures it has undertaken compared to the standard CDD approach. 6.4 The documented risk assessment is expected to be presented, discussed and deliberated with the senior management (including the CEO) and the Board of Directors of the reporting institution, where applicable. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 113 of 140 Issued on: 5 February 2024 APPENDIX 8 Institutional Risk Assessment Template Risk Assessment Template As required under: • Section 19 of the AMLA; and • Paragraphs 10.2, 10.3, 10.5 and 10.6 of the AML/CFT/CPF and TFS for DNFBPs and NBFIs. Please also refer to Guidance on Application of Risk-Based Approach Application. Disclaimer: • This document is intended for guidance on the implementation of institutional risk assessment to assist the reporting institution to comply with the requirements of the AMLA only. Reporting institutions may develop their own template in consideration of the size, nature and complexity of the business operations. • This document does not contain exhaustive advice or information relating to the subject matter nor should it be used as substitute for legal advice. • In the event that the information on Bank Negara Malaysia’s official printed documents or any Acts differ from the information contained within this document, the information on such Act and official documents shall prevail and take precedence. In conducting risk assessment i.e. to identify, assess and understand their ML/TF/PF risks at the institutional level, the reporting institution may consider the following examples of risk factors: a) Overall Business Risk Identifying higher risk business activities: No Main Business Activities ML Risk TF Risk PF Risk % Contribution to Total Business 1 E.g. Selling of gold jewelleries including precious stones e.g. diamonds E.g. High E.g High E.g High E.g. 90% Firm’s structure: No of Branches No of Agents No of Employees Mapping of AMLA and other related requirements to respective division/department/job-scope: No AMLA Requirements Responsible/Related Division/Department/Job Scope Policies and Procedures? Awareness Level & Training 1 E.g. Customer Due Diligence E.g. Front Counter Staff E.g. Yes E.g. Weak/Inadequate Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 114 of 140 Issued on: 5 February 2024 b) Product and Services Risk i. Product For each product, reporting institutions may consider the following risk factors: No Risk Factor 1 Product can be easily transferable to another party ☐ Yes ☐ No 2 Product’s ownership not easily traceable to customer ☐ Yes ☐ No 3 Product can be easily converted to cash or exchange to another form ☐ Yes ☐ No 4 Customer can place deposit for a period of time for product purchase ☐ Yes ☐ No 5 Product can easily be transported or concealed ☐ Yes ☐ No 6 Product can be used as an alternative form of currency ☐ Yes ☐ No 7 Product is high value in nature ☐ Yes ☐ No 8 Customer can purchase product through non-face-to-face channel ☐ Yes ☐ No 9 Allow use of virtual asset and other anonymous means of payment. ☐ Yes ☒ No 10 Allow use of unusual mean of payment e.g. high value items such as real estate, precious metals and stones. ☐ Yes ☐ No 11 Others (Please specify): Product risk assessment: ☐ Low ☐ Medium ☐ High ii. Services For each service, reporting institutions may consider the following risk factors: No Risk Factor 1 Services that allow deposit/payment from third-party/unknown parties ☐ Yes ☐ No 2 Services that allow transfer of fund to third-party/unknown parties ☐ Yes ☐ No 3 Services that allow cross-border fund transfer ☐ Yes ☐ No 4 Services allow customer to deposit/transfer fund through the firm's client account ☐ Yes ☐ No 5 Services include creation/setting up of complex legal arrangements ☐ Yes ☐ No 6 Services that are capable of concealing beneficial ownership from competent authorities ☐ Yes ☐ No 7 Services that provide nominee director/shareholders ☐ Yes Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 115 of 140 Issued on: 5 February 2024 ☐ No 8 Services that provide anonymity in relation to the client’s identity ☐ Yes ☐ No 9 Services are offered through use of agent or intermediary ☐ Yes ☐ No 10 Services that allow the use of shell companies or companies with ownership through nominee shares or bearer shares or control through nominee and corporate directors ☐ Yes ☐ No 11 Customer can acquire services through non face-to-face channel ☐ Yes ☐ No 12 Services allow use of virtual asset and other anonymous means of payment ☐ Yes ☐ No 13 Services allow use of unusual mean of payment e.g. high value items such as real estate, precious metals and stones ☐ Yes ☐ No 14 Others (please specify): Services risk assessment: ☐ Low ☐ Medium ☐ High Overall product and services risk assessment: ☐ Low ☐ Medium ☐ High c) Customer Risk No Risk Factors Total Percentage (%) 1 Type of customers Individual customers Legal persons Legal arrangements Clubs, Societies and Charities Others (Please specify): 2 Type of occupation for individual customers Salaried Self-employed Trading Services Others 3 Nature and type of business of legal persons Trading Services Cash intensive business (e.g. retail) Others 4 Risk Level (based on RI’s own customer risk profiling) Low risk Medium risk High risk Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 116 of 140 Issued on: 5 February 2024 5 Characteristics of customers High net worth Domestic PEPs Foreign PEPs 6 Structure/nature of customer Legal persons which has complex structure or multiple layer of ownership Legal persons which has nominee relationship Customers that are cash intensive businesses Others (please specify): 7 Geographical location of customer Domestic All local customers From within business area Outstation customers Foreign All foreign customers Customer from higher risk countries* 8 Other factors (please specify): Overall customer risk assessment: ☐ Low ☐ Medium ☐ High d) Geographical Location Risk Total Percentage (%) Local Headquarters and Branch Location No of branches including headquarters located at/near tourist hotspots No of branches including headquarters located at/near crime hotspots No of branches including headquarters located at/near country’s border No of branches including headquarters located at/near country’s entry points Foreign Branch Location No of branches located in higher risk countries and/or countries of proliferation concern Geographical location risk assessment: ☐ Low ☐ Medium ☐ High Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 117 of 140 Issued on: 5 February 2024 e) Transactions and Delivery Channel Risk No Risk Factors Total Percentage (%) 1 Mode of delivery Volume of non-face-to-face transactions e.g. online, agents Value of non-face-to-face transactions (RM) e.g. online, agents 2 Mode of payment Cash Volume of cash transaction (no. of cash transaction/total no. of all transaction) Value of cash transaction (total value of cash transaction/total value of all transaction) Average cash transaction (Total value of cash transaction/total no. of cash transaction) Electronic payment Volume of e-payment (no. of e- payment transaction/total no. of all transaction) Value of e-payment transaction (total value of e-payment transaction/total value of all transaction) Average e-payment transaction (Total value of e-payment transaction/total no. of e-payment transaction) 3 Transaction location Local Fund received from outside your business area Fund transferred to outside your business area Foreign Fund received from outside Malaysia Fund transferred to outside Malaysia Volume of transactions from/to higher risk countries Value of transactions from/to higher risk countries Transaction and delivery channel risk assessment: ☐ Low ☐ Medium ☐ High Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 118 of 140 Issued on: 5 February 2024 f) Total Institutional ML/TF/PF Risk Level Total Institutional ML/TF/PF Risk Level ☐ Low ☐ Medium ☐ High g) Risk Control and Mitigation No. Identified High Risk ML/TF/PF Areas: Product/Services/Locations/Work- Process/Division/Customer or Group of Customers/Transaction Type/Delivery Channel Proposed Control Measures – Policies, procedures and controls to manage and mitigate ML/TF/PF risks that have been identified 1 E.g. High exposure to higher risk customers E.g. monitor higher risk customer’s transactions with greater sensitivity 2 E.g. High exposure to politically exposed persons E.g. employ technology-based screening for effective enhanced due diligence 3 E.g. Identified higher risk transactions E.g. introduce limit for identified higher risk transactions Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 119 of 140 Issued on: 5 February 2024 APPENDIX 9 Infographic on Risk Based Approach Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 120 of 140 Issued on: 5 February 2024 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 121 of 140 Issued on: 5 February 2024 APPENDIX 10 Infographic on Compliance Officer’s Role and Responsibilities Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 122 of 140 Issued on: 5 February 2024 APPENDIX 11 Infographic on Customer Due Diligence Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 123 of 140 Issued on: 5 February 2024 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 124 of 140 Issued on: 5 February 2024 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 125 of 140 Issued on: 5 February 2024 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 126 of 140 Issued on: 5 February 2024 APPENDIX 12 Infographic on Suspicious Transaction Reports Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 127 of 140 Issued on: 5 February 2024 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 128 of 140 Issued on: 5 February 2024 APPENDIX 13 Infographic on Targeted Financial Sanctions Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 129 of 140 Issued on: 5 February 2024 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 130 of 140 Issued on: 5 February 2024 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 131 of 140 Issued on: 5 February 2024 PART E RED FLAGS Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 132 of 140 Issued on: 5 February 2024 APPENDIX 14 Examples of Red Flags Examples of Red Flags/Triggers for suspicion Disclaimer: These examples of red flags are intended as guidance in complying to the AMLA only. Reporting institutions are required to establish internal red flags to detect suspicious transactions. Generic red flags A. Red Flags involving Customers who are Individuals 1. Customer refuses to provide information required by the reporting institutions, attempts to minimise the level of information provided or provides information that is misleading or difficult to verify. 2. Client who avoids personal contact without logical explanation. 3. Financial activities and transactions of the customer are inconsistent with the customer profile. 4. Unexplained inconsistencies arising from the process of identifying or verifying the customer. 5. Customer insists on the use of an intermediary (either professional or informal) without logical justification. 6. Customer who has previously been convicted for any serious crime. 7. Customer who is under investigation or has known connections with criminals. 8. Customer uses multiple bank accounts (from domestic or foreign jurisdiction) to complete a transaction without logical explanation. 9. Customer provides falsified records or counterfeit documentation. 10. Customer conducts large or frequent transactions using foreign currency without any economic rationale. 11. Customer is unusually concerned and/or makes inquiries about the AML/CFT/CPF requirements and internal compliance policies, procedures or controls. B. Red Flags involving Customers who are Legal Persons or Legal Arrangements 1. Legal person which demonstrated a long period of inactivity following incorporation, followed by a sudden and unexplained increase in activities. 2. Legal person which is registered under a name that indicates that the company performs activities or services that it does not provide without good reason. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 133 of 140 Issued on: 5 February 2024 3. Legal person or legal arrangement which is registered under a name that appears to mimic the name of other companies, particularly high-profile multinational corporations without good reason. 4. Legal person or legal arrangement which is registered at an address that does not match the profile of the company without good reason. 5. Legal person or legal arrangement which is registered at an address that is also listed for numerous other companies or legal arrangements, indicating the use of a mailbox service without good reason. 6. Where the director or controlling shareholder(s) cannot be located or contacted. 7. Where the director or controlling shareholder(s) do not appear to have an active role in the company without logical explanation. 8. Where the director, controlling shareholder(s) and/or beneficial owner(s) are listed against the accounts of other legal persons or arrangements, indicating the use of professional nominees. 9. Legal arrangement or trust which declared an unusually large number of beneficiaries or controlling interests. 10. Legal person, legal arrangement or trust which authorised numerous signatories without logical explanation or business justification. 11. Legal person or legal arrangement which is incorporated/formed in a jurisdiction that is considered to pose high ML/TF/PF risk. 12. Legal person which conducts financial activities and transactions inconsistent with its corporate profile. 13. Legal person which involves multiple shareholders who each hold an ownership interest just below the identification of beneficial ownership threshold. 14. Legal person which has indication of being used as a shell company e.g. use of informal nominees, no real business activities undertaken, does not have physical presence. 15. Media or other reliable sources suggest that the customer may be linked to criminal activity. C. Red Flags involving Transactions 1. Transactions conducted are questionable, or generate doubts that cannot be sufficiently explained by the client. 2. Transaction involves the use of multiple large cash payments without logical explanation. 3. Customer regularly conducts transactions with international companies without sufficient corporate or trade justification. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 134 of 140 Issued on: 5 February 2024 4. Frequent and cumulatively large transactions without any apparent or visible economic or lawful purpose. 5. Payments received for products/services from a third party who is not the owner of the funds, without any apparent reasons. 6. Transactions that require the use of complex and opaque legal entities or legal arrangements without logical explanation. 7. Transactions or instructions involve unnecessary complexity or which do not constitute the most logical, convenient and secure way to do business. 8. High volume of transactions within short period of time without economic purpose or commercial justification. 9. Unnecessary routing of funds or payments from/to/through third party account without logical explanation. 10. Transactions conducted via multiple payments from the same or different accounts/mode of payment which are broken down into smaller amounts without logical explanation. 11. Transactions which are conducted hastily or without due consideration a person would normally give to such transactions. D. Red Flags involving Geographical Location 1. Large numbers of incoming or outgoing fund transfers take place for no logical business or other economic purpose, to or from locations of ML/TF/PF concern. 2. Legal persons or legal arrangements are incorporated/formed in a jurisdiction that has ML/TF/PF concern. 3. Customer has unexplained geographic distance from the reporting institutions. E. Red Flags involving Delivery Channel 1. Use of a third party to avoid personal contact without logical explanation. Sector Specific Red Flags A. Licensed Gaming Outlets 1. Transaction conducted indicates that the same punter frequently wins and the amount is above the threshold set. 2. Punter requests the winning amount to be paid using separate cheques for different individuals. 3. Punter presents multiple winning tickets. 4. Different punters requesting for the winning cheques to be issued to the same individual. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 135 of 140 Issued on: 5 February 2024 5. Punters requesting the winning amount to be paid using multiple methods e.g. cheques, cash, bank transfer. B. Lawyers and Accountants 1. “Structuring” a down payment or escrow money transaction in order to conceal the true source of the funds used or split transfers without logical explanation. 2. Transactions aborted after funds are received in client account, where subsequently client requests for the deposited funds to be sent to a third party and avoids personal contact without logical explanation. 3. Use of multiple accounts to collect and then funnel funds to a small number of foreign beneficiaries situated in locations of ML/TF/PF concern. 4. Receive large sums of capital funding quickly following incorporation or formation, which is spent or transferred elsewhere in a short period of time without commercial justification. 5. Client has multiple shareholders who each hold an ownership interest just below the identification of beneficial ownership threshold. 6. Make frequent payments to foreign professional intermediaries without apparent economic or logical reasons. 7. Transactions occurring between two or more parties that are connected without an apparent business rationale. 8. Business transaction that involves family members of one or more of the parties without a legitimate business rationale. 9. Transactions executed from a business account but appears to fund personal purchases, including the purchase of assets or recreational activities that are inconsistent with the company’s profile. 10. Transaction executed from a business account and involves a large sum of cash, either as a deposit or withdrawal, which is inconsistent with the company’s profile. 11. Request for formation of complex trusts or legal arrangements involving complex structure or multiple offshore financial centres. Additional for Lawyers 12. Transfer of real estate between parties in an unusually short time period with no logical explanation. 13. Payment of deposits via multiple transactions below cash threshold reporting into the firm’s client account. 14. Client who offers to pay extraordinary fees for services that would not warrant such a premium with no logical explanation. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 136 of 140 Issued on: 5 February 2024 15. Funds deposited into the firm’s client account which do not match with the client’s profile. 16. Purchase of real estate property without end financing and logical explanation. 17. Depositing payment into the firm’s client account from various locations without logical explanation. 18. Purchase of property below or beyond market value without reasonable explanation. Additional for Accountants 19. Clients having history or tendency in changing accountants frequently without logical explanation. 20. Creation of fictitious employees under payroll list. 21. Company instructs to transfer sum of money to offshore companies via the clients’ account without logical explanation. 22. Funds deposited into client account is relatively larger than the client’s modest income or income generated from the underlying business activity, whereby the surplus fund is remitted to a third party instead of returned to the client. 23. Repeat transaction between parties over a contracted period of time without economic purpose. 24. Large or repeat transaction, and the executing customer is a signatory to the account, but is not identified as having a controlling interest in the company or assets. C. Company Secretaries 1. A significant increase in capital for a recently incorporated company or successive contributions over a short period of time to the same company. 2. Receipt by the company of an injection of capital or assets that is high in comparison with the business, size or market value of the company. 3. A large financial transaction, especially if requested by a recently created company, where it is not justified by the corporate purpose, the activity of the client or its group companies. 4. Provision of nominee director or shareholder services without a clear and legitimate commercial purpose or some reasonable justification. 5. Use of shell companies where foreign ownership is spread across multiple jurisdictions. 6. Request for the establishment of shell companies for unclear purposes or for the sole purpose to open bank accounts. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 137 of 140 Issued on: 5 February 2024 7. Family members with no role or involvement in the running of the business are identified as beneficial owners of legal persons. 8. Client receives large sums of capital funding quickly following incorporation/formation, which is spent or transferred elsewhere in a short period of time without commercial justification. 9. Client has multiple shareholders who each hold an ownership interest just below the identification of beneficial ownership threshold. 10. Client makes frequent payments to foreign professional intermediaries without any logical reasons or without commercial justification. 11. Clients are interested in foreign company formation, particularly in jurisdictions known to offer low-tax or secrecy incentives, without commercial explanation. 12. Company with complex structures or multiple layers of shareholders, i.e. intertwining with multiple legal persons or legal arrangements without logical explanation. 13. Transactions occurring between two or more parties that are connected without an apparent business rationale. 14. Business transaction that involves family members of one or more of the parties without a business rationale. 15. Large or repeat transaction, and the executing customer is a signatory to the account, but is not identified as having a controlling interest in the company or assets. 16. Transactions executed from a business account but appears to fund personal purchases, including the purchase of assets or recreational activities that are inconsistent with the company’s profile. 17. Transaction executed from a business account and involves a large sum of cash, either as a deposit or withdrawal, which is inconsistent with the company’s profile. 18. Clients are interested in foreign company formation, particularly in jurisdictions known to offer low-tax or secrecy incentives, without commercial explanation. D. Trust Companies 1. Client declared an unusually large number of beneficiaries. 2. Withdrawal of trust assets immediately after being settled into the trust account without plausible reason. 3. Previously inactive trust account is now used intensively without any plausible reason. 4. Activities of the trust are unclear or different from the stated purposes under trust deeds. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 138 of 140 Issued on: 5 February 2024 5. Management of any trustee appears to be acting according to instructions of unknown or inappropriate person(s). 6. Transactions relating to the trust account are conducted with countries or entities that are reported to be associated with terrorist activities or with persons that have been designated as terrorists. 7. Trust structure or transactions relating to the trust account utilise complex and opaque legal entities and arrangements, or foreign private foundations that operate in jurisdictions with secrecy laws, wherein the trust company is unable to fully understand the purpose or activities of their usage. 8. Discrepancy between the supposed wealth of the settlor and the object of the settlement. E. Dealers in Precious Metals or Precious Stones Risk associated with customer and customer behaviour: 1. Customer does not consider the value, size, quality and/or colour of the precious metal, precious stone metal or jewellery when making purchases. 2. Frequent transactions by a customer over a short period of time below the threshold for customer due diligence. 3. Established customer dramatically increasing his purchase of gold bullion for no apparent reason. 4. Previously unknown customer requesting a refiner to turn gold into bullion for no apparent reason. 5. Customer cancels the order after making large down payment amount and seeks for a refund in the form of cheques or telegraphic transfer for no apparent reason. 6. Frequent purchases by a PEP which do not commensurate with his or her profile. 7. Purchases that involve significant amount of cash without apparent reason. Risk associated with business counter parties: 8. Business counter parties appear to have no business knowledge of the industry in which he proposes to deal in. 9. Business counter parties do not have a place of business, equipment or finances necessary to support the business activities. F. Registered Estate Agents 1. Purchaser titles the property in the name of a nominee. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 139 of 140 Issued on: 5 February 2024 2. Customer substitutes the purchasing party’s name at the last minute without reasonable explanation. 3. Purchaser resells the property within a short period of time without a reasonable explanation. 4. Purchase of multiple properties within a short period of time and it is inconsistent with the profile of the purchaser. 5. Payment for purchase of property does not come from customer’s country of origin without logical explanation. 6. Purchase made without viewing the property without logical explanation. 7. Seller or property owner sells the property for significantly less than the purchase price without logical explanation. 8. There is a significant and unexplained geographic distance between the buyer and the location of the property. 9. Purchase of property without end financing. 10. Purchases which are not consistent with customers’ profiles. 11. Deposits for property are paid in a significant amount of cash. 12. Purchases by legal persons/legal arrangements which obscure the true beneficial owner of the customer. 13. Payments or deposits are paid by third parties without logical explanation. 14. Payments or deposits are paid by multiple parties. G. Moneylenders, Pawnbrokers, Leasing and Factoring 1. Customer is reluctant to provide the purpose of the loan, or that the stated purpose is ambiguous. 2. Customer suddenly repays a problem loan unexpectedly without logical explanation. 3. Customer makes a large, unexpected loan payment with unknown source of funds, or with the source of funds that does not match with the known profile of the client. 4. Customer repays a long term loan within a relatively short time period without logical explanation. 5. Customer shows income from foreign sources on loan application and is reluctant to provide details. 6. Customer's documentation to ascertain identification, support income or verify employment is provided by an intermediary who has no apparent reason to be involved. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for DNFBPs and NBFIs (AML/CFT/CPF and TFS for DNFBPs and NBFIs) 140 of 140 Issued on: 5 February 2024 7. Customer offers large deposits or some other form of incentive in return for favourable treatment of loan request without commercial justification. 8. Customer asks to borrow against its assets as collaterals to apply the loan where the origin of the assets is not known. 9. Customer asks to borrow against high value goods or real estate provided by unrelated third party as collaterals or guarantees to apply the loan without reasonable justification. 10. The loan transaction does not make economic sense e.g. the client has significant asset, hence does not appear to have a sound business reason for the transaction. 11. Customer seems unconcerned with terms of credit or costs associated with completion of a loan transaction. 12. Customer applies for loans on the strength of a financial statement reflecting major investments in or income from businesses incorporated in countries known for highly secretive banking and corporate law and the application is outside the ordinary course of business of the client. 13. Frequent default or intentionally default on loan secured by high value items or assets that can be easily converted into cash. 14. Customer making multiple pledges in close successions for an aggregated loan of a substantial value without commercial justification. 15. Customer uses notes in denominations that are unusual for the customer when making repayments. 16. Customer applies for a loan of an amount that is unusual compared with amounts of past transactions. 17. Application for financial leasing does not seem reasonable in terms of the intended use of the equipment or the client’s business activity (e.g. obvious inconsistency between size of investment and lessee’s business activity, or inadequacy of the equipment in comparison to the business activity the lessee engages in or intends to engage in). 18. The client repays debt under leasing contract, using funds transferred from countries known for highly secretive banking and corporate law. 19. Customer is found to produce fictitious invoice with an overstated amount to obtain factoring services. 20. Customers who frequently pawn items in a large quantity. 21. Customers who indicate disinterest in redeeming pawned items. 22. Customers who reveal that funds from pawned items will be used for travelling to conflict areas. PART A OVERVIEW 1 Introduction Background 1.1 Money laundering and terrorism financing (ML/TF) are financial crimes with far-reaching and deleterious socio-economic effects. Criminal networks, money launderers and terrorist financiers are highly adaptive and quick to exploit any weak links within an increasingly borderless world to obscure detection of such illicit funds. The globalisation and advancement in technology, including the emergence of new players and innovative products, pose challenges to regulators and law enforcement agencies alike in curbing criminal activities. 1.2 In line with the international standards established by the Financial Action Task Force (FATF), the anti-money laundering, countering financing of terrorism, countering proliferation financing (AML/CFT/CPF) reporting obligations imposed on reporting institutions are risk-informed, and subject to periodic review in tandem with any material changes to the international standards or the evolving risk of ML/TF and proliferation financing (PF) situation in Malaysia. In view of potential development opportunities brought about by the era of digitalisation, enhancements to the existing AML/CFT/CPF reporting obligations are important to ensure areas of higher risk are subject to enhanced controls, while areas of low risk are accorded some policy accommodation, to ensure that the integrity of the financial system is preserved, just as development objectives are facilitated. 1.3 Consistent with the FATF’s action to strengthen the response to the growing threat of weapons of mass destruction (WMD) PF, reporting institutions are required to assess PF risks and implement commensurate mitigation measures. This aims to ensure that reporting institutions are not subject to abuse, unwittingly support or become part of the PF networks, given the emerging trends on PF risks and techniques adopted by the designated individuals and entities to evade targeted financial sanctions on PF. 1.4 Domestically, the National Risk Assessment (NRA) by the National Coordination Committee to Counter Money Laundering (NCC) that assesses and identifies the key threats and sectoral vulnerabilities that Malaysia’s financial system and economy is exposed to, has guided the strategies and policies of Malaysia’s overall AML/CFT/CPF regime. The NRA is the primary tool used for periodic assessment and tracking of effectiveness of the relevant Ministries, law enforcement agencies, supervisory authorities and reporting institutions in preventing and combating ML/TF/PF. 1.5 In line with the United Nations Security Council Resolutions (UNSCR), reporting institutions are also required to adhere to, and implement sanctions imposed on designated countries and persons to combat terrorism, TF, proliferation of weapons of mass destruction and PF as well as suppress other forms of armed conflicts or violence against humanity. These obligations have been further elaborated and clarified in accordance with the relevant UNSCR. 2 Objective 2.1 This policy document is intended to set out: 3 Applicability 3.1 Where a reporting institution is subject to more than one document relating to AML/CFT/CPF matters issued pursuant to the AMLA, the more stringent set of requirements shall apply. 3.2 Where necessary, the competent authority may issue guidelines, circulars or notices to vary, delete, add to, substitute or modify this policy document. 3.3 In relation to the AML/CFT/CPF and targeted financial sanctions requirements to combat TF, PF and to suppress other forms of armed conflict related requirements, this policy document is applicable to: 3.4 This policy document is applicable to accountants, company secretaries and lawyers who are sole practitioners, partners or employed professionals within professional firms. This policy document is not intended to be applicable to lawyers, accountants and company secretaries who are ‘internal’ professionals that are employees of other types of businesses, nor to professionals working for government agencies. 4 Legal Provisions In relation to the AML/CFT provisions, this policy document is issued pursuant to: In relation to the targeted financial sanctions on terrorism financing requirements, this policy document is issued pursuant to section 14(1)(c) of the AMLA. 4.3 In relation to CPF, targeted financial sanctions on proliferation financing and other UN-Sanctions Regimes requirements, this policy document is issued for the purposes of monitoring and supervising the implementation of the obligations and restrictions under the Strategic Trade Act 2010 (STA), Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010 and Directive on Implementation of Targeted Financial Sanctions Relating to Proliferation Financing (Directive on TFS-PF) issued by the Strategic Trade Controller, Ministry of Investment, Trade and Industry in April 2018, as may be amended or superseded from time to time. 5 Effective Date 5.1 This policy document comes into effect on 6 February 2024. 5.2 Compliance to the requirements outlined in this policy document shall take effect immediately, unless otherwise specified by the competent authority. 5.3 Notwithstanding paragraph 5.2, CPF requirements in this policy document shall come into effect on such date as shall be specified by the competent authority. 6 Definition and Interpretation The terms and expressions used in this policy document shall have the same meanings assigned to them in the AMLA, STA, Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010 and Directive on TFS-PF, as the case may be, unless otherwise defined in this policy document or the context requires otherwise. 6.2 For the purpose of this policy document: 7 Related Legal Instruments and Policy Documents This policy document shall be read together with other documents issued by the competent authority relating to compliance with AML/CFT/CPF requirements and in relation to the implementation of targeted financial sanctions against countries or persons designated by the United Nations (UN). 8 Policy Documents Superseded 8.1 This policy document supersedes the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) & Non-Bank Financial Institutions (NBFIs) which came into effect on 1 January 2020. 9 Non-Compliance 9.1 Enforcement and/or supervisory actions can be taken against the reporting institution including its directors, officers and employees for any non-compliance with any provision marked as “S” in Part B of this policy document. PART B AML/CFT/CPF/TFS REQUIREMENTS 10 Application of Risk-Based Approach 10.1 Risk Management Function 10.1.1 Reporting institutions are required to apply risk-based approach to identify, assess and understand the ML/TF/PF risks to which they are exposed and take AML/CFT/CPF measures commensurate to those risks in order to mitigate them effectively and efficiently. 10.1.2 Reporting institutions are required to ensure that the risk-based approach is aligned to the size, nature and complexity of their business operations. 10.1.3 For a licensed casino and non-bank financial institutions, in addition to paragraphs 10.1.1 and 10.1.2, the AML/CFT/CPF risk management function must be aligned and integrated with their overall risk management control function. 10.2 ML/TF Risk Assessment 10.2.1 Reporting institutions are required to take appropriate steps to identify, assess and understand their ML/TF risks at the institutional level, in relation to their customers, countries or geographical areas, products, services, transactions or delivery channels, and other relevant risk factors. 10.2.2 In assessing ML/TF risks, reporting institutions are required to have the following processes in place: Reporting institutions are required to conduct additional assessment as and when required by the competent authority or supervisory authority. 10.2.4 Reporting institutions shall be guided by the results of the NRA issued by the NCC in conducting their own risk assessments and shall take enhanced measures to manage and mitigate the risks identified in the NRA. 10.2.5 In conducting the risk assessment in paragraph 10.2.1, reporting institutions may consider whether: 10.3 ML/TF Risk Control and Mitigation 10.3.1 Reporting institutions are required to: 10.3.2 In addition to paragraph 10.3.1, a licensed casino and non-bank financial institutions shall conduct independent control testing on their policies, procedures and controls for the purpose of monitoring the implementation thereof under paragraph 10.3.1(b). 10.4 PF Risk Assessment Reporting institutions are required to identify, assess and understand PF risks, where the extent of the assessment shall be appropriate to the nature, size and complexity of their business. The PF risk in this context is limited to potential breach, non-implementation or evasion of the targeted financial sanctions on PF under paragraph 24 of this policy document. 10.4.2 In conducting the risk assessment, reporting institutions may consider if the existing ML/TF risk assessments methodologies are adequate to incorporate PF risks and may not necessarily require a stand-alone or an entirely new methodology. 10.4.3 For the purpose of paragraph 10.4.1, reporting institutions are required to identify, assess and understand their PF risks at the institutional level, in relation to their customers, countries or geographical areas and products, services transactions or delivery channels and other relevant risk factors. 10.4.4 In assessing PF risks, reporting institutions are required to have the following processes in place: (a) documenting their PF risk assessments and findings; (b) keeping the assessment up-to-date through a periodic review; and (c) having appropriate mechanism to provide risk assessment information to the competent authority or supervisory authority. 10.4.5 Reporting institutions shall be guided by the results of the NRA and related thematic risk assessment issued by the NCC in conducting their own risk assessments and shall take enhanced measures to manage and mitigate the risks identified in the NRA. 10.5 PF Risk Mitigation 10.5.1 Reporting institutions are required to: 10.5.2 Reporting institutions shall ensure full implementation of the targeted financial sanctions on PF under paragraph 24 of this policy document irrespective of the institutional PF risk level. 10.6 Customer Risk Profiling 10.6.1 Reporting institutions are required to conduct risk profiling on their customers and assign an ML/TF/PF risk rating that is commensurate with their risk profile. 10.6.2 A risk profile must consider the following factors, where relevant: (a) customer risk (e.g. resident or non-resident, type of customers, occasional or one-off, legal person structure, types of PEP, types of occupation); (b) country or geographical risk (e.g. location of business, origin of customers); (c) products, services, transactions or delivery channels (e.g. cash-based or non cash-based, face-to-face or non face-to-face, domestic or cross-border); and (d) any other information suggesting that the customer is of higher risk. 10.6.3 In identifying countries and geographic risk factors under paragraph 10.6.2(b), reporting institutions may refer to credible sources such as mutual evaluation reports, follow up reports and other relevant reports published by international organisations and other inter-governmental bodies. 10.6.4 The risk control and mitigation measures implemented by reporting institutions shall be commensurate with the risk profile of the particular customer or type of customer. 10.6.5 After the initial acceptance of the customer, reporting institutions are required to regularly review and update the customer’s risk profile based on their level of ML/TF/PF risks. 10.6.6 In addition to paragraph 10.6.1, a licensed casino is required to conduct ML/TF/PF risk profiling on junkets. 10.7 AML/CFT/CPF Risk Reporting 10.7.1 A licensed casino and non-bank financial institutions shall provide timely reporting of the risk assessment, ML/TF/PF risk profile and the effectiveness of risk control and mitigation measures to their Board and Senior Management. The frequency of reporting shall be commensurate with the level of risks involved and their operating environment. 10.7.2 The report referred to under paragraph 10.7.1 above may include the following: 10.8 Risk Guidance 10.8.1 Reporting institutions may refer to documents provided in Parts C and D of this policy document, other documents issued by the competent authority or guidance papers on the implementation of risk-based approach published by the FATF, FATF style regional bodies or any other internationally recognised institution. 11 AML/CFT/CPF Compliance Programme 11.1 Application for Small-sized Reporting Institutions For small-sized reporting institutions as defined under paragraph 6.2, the following exemption or simplification applies: 11.1.2 Notwithstanding paragraph 11.1.1, such reporting institutions are required to comply with the AML/CFT/CPF Compliance Programme requirements as and when specified by the competent authority or supervisory authority. 11.2 Policies, Procedures and Controls 11.2.1 Reporting institutions are required to develop AML/CFT/CPF policies, procedures and controls which correspond to their ML/TF/PF risks and the size, nature and complexity of their business operations. 11.2.2 Reporting institutions must ensure that policies and procedures are kept up-to-date with the regulatory requirements. 11.2.3 For purpose of paragraph 11.2.2, reporting institutions are required to: (a) document any changes to the policies, procedures and controls; (b) document the communication of the changes to employees; and (c) make (a) and (b) available to the competent authority or supervisory authority upon request. 11.3 Board General 11.3.1 Board members must understand their roles and responsibilities in managing ML/TF/PF risks identified by the reporting institution. 11.3.2 Board members must have knowledge and awareness of the ML/TF/PF risks associated with business strategies, delivery channels, segment of customers and geographical coverage of its business products and services. 11.3.3 Board members must understand the AML/CFT/CPF measures required by the relevant laws, instruments issued under the AMLA, as well as the industry's standards and best practices in implementing AML/CFT/CPF measures. Roles and Responsibilities 11.3.4 The Board has the following roles and responsibilities: 11.4 Senior Management Senior Management is accountable for the implementation and management of AML/CFT/CPF compliance programmes in accordance with policies, procedures and controls approved by the Board, requirements of the law, regulations, guidelines and the industry’s standards and best practices. Roles and Responsibilities 11.4.2 The Senior Management has the following roles and responsibilities: 11.5 Compliance Management Arrangements at the Head Office 11.5.1 The Compliance Officer shall act as the reference point for AML/CFT/CPF matters within the reporting institution. 11.5.2 The Compliance Officer must have sufficient stature, authority and seniority within the reporting institution to participate and be able to effectively influence decisions relating to AML/CFT/CPF matters. 11.5.3 The Compliance Officer is required to be “fit and proper” to carry out his AML/CFT/CPF responsibilities effectively. 11.5.4 For the purpose of paragraph 11.5.3, “fit and proper” shall include minimum criteria relating to: 11.5.5 With reference to requirements under paragraph 11.5.4(a), reporting institutions may take into consideration, the following factors or examples that may impair the effective discharging of the Compliance Officer’s responsibilities, whether the person: (a) is or has been the subject of any proceedings of a severe disciplinary or criminal nature; (b) has contravened any provision made by or under any written law designed to protect members of the public against financial loss due to dishonesty, incompetence or malpractice; (c) has contravened any of the requirements and standards in relation to fitness and propriety, of a regulatory body, government or its agencies or SRBs; (d) has engaged in any business practices which are deceitful, oppressive or otherwise improper (whether unlawful or not), or which otherwise reflect discredit on his professional conduct; (e) has been dismissed, asked to resign or has been resigned from employment or from a position of trust, fiduciary appointment or similar position because of questions about his honesty and integrity; and (f) has acted unfairly or dishonestly in the past, in his dealings with his customers, employer, auditors and regulatory authorities. 11.5.6 With reference to requirements under paragraph 11.5.4 (b), reporting institutions may consider whether the person has satisfactory past performance or expertise, in consideration of the size, nature and complexity of their business operations. 11.5.7 With reference to requirements under paragraph 11.5.4 (c), reporting institutions may consider the following factors: (a) whether he has been and will be able to fulfil his financial obligations, whether in Malaysia or elsewhere, as and when they fall due; and (b) whether the person has been the subject of a judgment debt which is unsatisfied, either in whole or in part. . 11.5.8 In conducting assessment under paragraphs 11.5.4 (c) and 11.5.7, reporting institutions may refer to commercially available financial or credit databases, require the person to submit relevant credit reports or to complete self-declarations on the required information, depending on the size, nature and complexity of their business operations. 11.5.9 The Compliance Officer must have the necessary knowledge and expertise to effectively discharge his roles and responsibilities, including keeping abreast with the latest developments in ML/TF/PF techniques and the AML/CFT/CPF measures undertaken by the industry. 11.5.10 The Compliance Officer is encouraged to have the relevant AML/CFT/CPF certification or professional qualifications to carry out his responsibilities effectively. 11.5.11 Reporting institutions are required to ensure that the roles and responsibilities of the Compliance Officer are clearly defined and documented. 11.5.12 The Compliance Officer has a duty to ensure: 11.5.13 Reporting institutions are required to inform the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, in writing or by completing the form at https://amlcft.bnm.gov.my/co, within ten working days, on the appointment or change in the appointment of the Compliance Officer, including such details as the name, designation, office address, office telephone number, e-mail address and such other information as may be required. 11.6 Fit and Proper Test on Junkets 11.6.1 A licensed casino is required to ensure that all junkets are “fit and proper” before appointing, registering or approving the application of any junkets. For existing junkets, a licensed casino must take reasonable measures to ensure that they are “fit and proper”. 11.6.2 For the purpose of paragraph 11.6.1, “fit and proper” shall include minimum criteria relating to: 11.6.3 After the initial appointment, registration or approval of junkets, a licensed casino is required to regularly assess the fitness and propriety of the junkets based on the level of ML/TF/PF risks. 11.6.4 With reference to the requirements under paragraph 11.6.2, a licensed casino may take into consideration the factors provided under paragraphs 11.5.5, 11.5.6, 11.5.7 and 11.5.8. 11.7 Employee Screening Procedures 11.7.1 Reporting institutions are required to establish employee assessment procedures that are commensurate with the size, nature and complexity of their business operations and ML/TF/PF risk exposure. 11.7.2 For a licensed casino, employee screening shall be conducted on junkets assessed to have higher ML/TF/PF risks. 11.7.3 The screening procedures shall apply upon initial hiring of the employee and throughout the course of employment. 11.7.4 The employee assessment procedures under paragraph 11.7.1 shall include: 11.7.5 In conducting financial history assessment, reporting institutions may refer to commercially available financial or credit databases, require employees to submit relevant credit reports or to complete self-declarations on the required information. 11.7.6 The parameters to trigger re-screening may include change in job function or responsibility, promotion, or being in a position for a long period of time. 11.7.7 Reporting institutions may determine that several functions may not be subject to screening requirements, provided that such functions do not have direct dealings with customers and/or are not involved in the monitoring of transactions, based on the size, nature, and complexity of their business operations and ML/TF/PF risk profile. 11.7.8 Reporting institutions shall maintain comprehensive records of documents and information relating to, or relied on in, the employee screening process. 11.8 Employee Training and Awareness Programmes 11.8.1 Reporting institutions shall conduct awareness and training programmes on AML/CFT/CPF practices and measures for their employees. Such training programmes must be conducted regularly and supplemented with refresher courses at appropriate intervals. 11.8.2 The training conducted for employees must be appropriate to their level of responsibilities in detecting ML/TF/PF activities and the risks of ML/TF/PF identified by reporting institutions. 11.8.3 Employees who deal directly with customers shall be trained on AML/CFT/CPF practices and measures prior to dealing with the customer. 11.8.4 The scope of training shall include, at a minimum: (a) ML/TF/PF risks; (b) CDD, enhanced CDD and on-going due diligence; (c) targeted financial sanctions screening; (d) risk profiling and risk assessment; (e) suspicious transaction reporting mechanism and red flags; and (f) record keeping. 11.8.5 Reporting institutions may consider distribution of circulars, guidance, publications and attendance of continuing education programs provided by the competent authority, SRBs and/or other relevant agencies in developing, and as part of their internal training programmes. 11.8.6 Reporting institutions shall document the provision of training to employees, including details on the date and nature of the training given. 11.8.7 Reporting institutions must make available its AML/CFT/CPF policies and procedures for all employees and its documented AML/CFT/CPF measures must contain at least the following: 11.8.8 The employees must be made aware that they may be held personally liable for any failure to observe the AML/CFT/CPF requirements. 11.8.9 Reporting institutions may determine that several functions may not be subject to the AML/CFT/CPF training requirements, provided that such functions do not have direct dealings with customers and/or are not involved in the monitoring of transactions, based on the size, nature and complexity of their business operations and ML/TF/PF risk profile. Training for Junkets 11.8.10 A licensed casino shall conduct awareness and training programmes on AML/CFT/CPF practices and measures for its junkets. 11.8.11 The frequency of and scope of training and awareness programmes shall commensurate with the level of ML/TF/PF risks posed by the junkets based on their risk profiles as assessed under paragraph 10.6.6. 11.8.12 The scope of training for the junkets shall include, at a minimum: 11.8.13 Upon identification of any suspicious transaction, the junkets must report the suspicious transaction to the AML/CFT/CPF Compliance Officer at the licensed casino in accordance with its reporting mechanism. 11.9 Independent Audit Functions 11.9.1 The Board shall ensure regular independent audits of the internal AML/CFT/CPF measures to determine their effectiveness and compliance with the AMLA, subsidiary legislations and instruments, the relevant documents on AML/CFT/CPF issued by the competent authority as well as the requirements of the relevant laws and regulations of other supervisory authorities, where applicable. 11.9.2 For the purpose of paragraph 11.9.1, the independent audit function must be separate from the compliance function. 11.9.3 Reporting institutions may appoint internal or external auditors to carry out the independent audit function. 11.9.4 The Board shall ensure that the roles and responsibilities of the auditor are clearly defined and documented. The roles and responsibilities of the auditor shall include, at a minimum: 11.9.5 The Board shall determine and ensure the frequency and scope of independent audits conducted commensurate with the ML/TF/PF risks and vulnerabilities assessed by the reporting institution. 11.9.6 The scope of the independent audit shall include, at a minimum: 11.9.7 In determining the frequency of the independent audit, reporting institutions may be guided by the following circumstances: (a) structural changes to the business of the reporting institutions such as mergers and acquisition; (b) changes to the number or volume of transactions reported to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia; (c) introduction of new products and services or new delivery channels; or (d) previous non-compliance relating to AML/CFT/CPF requirements which resulted in supervisory and/or enforcement action taken against the reporting institutions. 11.9.8 Reporting institutions shall comply with any additional requirements on the frequency and scope of the independent audit as specified by the competent authority. 11.9.9 The auditor must submit a written audit report to the Board to highlight the assessment on the effectiveness of established AML/CFT/CPF measures and inadequacies in internal controls and procedures including recommended corrective measures. 11.9.10 Reporting institutions must ensure that such audit report including audit findings and the necessary corrective measures undertaken are made available to the competent authority or supervisory authority, upon request. 11.9.11 Notwithstanding paragraph 11.9.10, a licensed casino and non-bank financial institutions shall ensure that the audit report including audit findings and the necessary corrective measures undertaken are submitted to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia within ten working days of their submission to the Board. 12 New Products and Business Practices 12.1 Reporting institutions are required to identify and assess the ML/TF/PF risks that may arise in relation to the development of new products and business practices, including new delivery mechanisms and the use of new or developing technologies for both new and pre-existing products. 12.2 Reporting institutions are required to: 13 Applicability to Financial/DNFBP Group, Foreign Branches and Subsidiaries and Other DNFBP Structures 13.1 Financial/DNFBP Group 13.1.1 The requirements under this paragraph are only applicable to reporting institutions that are part of a financial and/or DNFBP group. 13.1.2 A parent company in a group of corporations, as the case may be, is required to implement group-wide programmes against ML/TF/PF. These programmes must be applicable and appropriate to all branches and subsidiaries of the group. These shall include the following measures: (a) framework for AML/CFT/CPF compliance programme at the group level; (b) appoint a Group Compliance Officer at management level; (c) policies and procedures for sharing information required for the purposes of CDD and ML/TF/PF risk management; (d) the provision of customer, account and transaction information from branches and subsidiaries when necessary for AML/CFT/CPF purposes; and (e) safeguards on the confidentiality and use of information exchanged. 13.1.3 A Group Compliance Officer is responsible for developing, coordinating and making a group-wide assessment for the implementation of a single AML/CFT/CPF strategy, including mandatory policies and procedures, and the authorisation to give directions to all branches and subsidiaries. 13.2 Foreign Branches and Subsidiaries 13.2.1 Reporting institutions and financial/ DNFBP groups are required to closely monitor their foreign branches or subsidiaries operating in jurisdictions with inadequate AML/CFT/CPF laws and regulations as highlighted by the FATF or the Government of Malaysia. 13.2.2 Reporting institutions and financial/DNFBP groups shall ensure that their foreign branches and subsidiaries apply AML/CFT/CPF measures in a manner that is consistent with the AML/CFT/CPF requirements in Malaysia. Where the minimum AML/CFT/CPF requirements of the host country are less stringent than those of Malaysia, the reporting institution must apply Malaysia’s AML/CFT/CPF requirements, to the extent that host country laws and regulations permit. 13.2.3 If the host country does not permit the proper implementation of AML/CFT/CPF measures in a manner that is consistent with the AML/CFT/CPF requirements in Malaysia, the reporting institution is required to apply additional measures to manage the ML/TF/PF risks, and report to the competent authority or supervisory authority in Malaysia on the AML/CFT/CPF gaps and additional measures implemented to manage the ML/TF/PF risks arising from the identified gaps. 13.2.4 The reporting institution may consider ceasing the operations of the said branch or subsidiary that is unable to put in place the necessary mitigating controls as required under paragraph 13.2.3. 13.3 Other DNFBP Structures 13.3.1 The requirements under this paragraph are only applicable to reporting institutions that operate under other DNFBP structures, as defined in paragraph 6.2 of this policy document and meet the following conditions: (a) reliance on other reporting institutions under the same structure to conduct CDD; and (b) undertake more than one type of activity within and across more than one jurisdiction. 13.3.2 Reporting institutions are required to have common policies and procedures that is consistent with the AML/CFT/CPF requirements in Malaysia. Where the minimum AML/CFT/CPF requirements of the host country are less stringent than those of Malaysia, the reporting institution must apply Malaysia’s AML/CFT/CPF requirements, to the extent that the host country laws and regulations permit. 14 Customer Due Diligence (CDD) 14.1 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: 14.2 Reporting institutions are also required to comply with other specific CDD requirements as may be specified by the competent authority from time to time. 14.3 When conducting CDD, reporting institutions are required to: 14.4 Where applicable, in conducting CDD, reporting institutions are required to comply with the requirements on targeted financial sanctions in relation to: Verification 14.5 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. 14.6 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. 14.7 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14.5 when verifying the identity of a customer or a beneficial owner. 14.8 Reporting institutions shall verify the identity of a customer or a beneficial owner before or during the course of establishing a business relationship or conducting a transaction for an occasional customer. 14.9 For the purpose of paragraph 14.5, reporting institutions may obtain information available through commercial or public databases in verifying the identity of the customer or beneficial owner. 14.10 Standard CDD Measures Individual Customer and Beneficial Owner 14.10.1 In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: 14.10.2 Reporting institutions shall verify the identity of the customer and beneficial owner. Legal Persons 14.10.3 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14.10.4 Reporting institutions are required to identify the customer and verify its identity through the following information: 14.10.5 Reporting institutions are required to identify and verify the person authorised to represent the company or business either by means of a letter of authority or directors’ resolution when dealing with such person. 14.10.6 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the cascading steps: 14.10.7 For the purpose of paragraph 14.10.6(b), exercising control of the legal person through other means may include exercising control through nominees or another person who has the right to appoint or remove any member of the Board of the legal person. 14.10.8 Where there is any doubt as to the identity of persons referred to under paragraphs 14.10.4, 14.10.5 and 14.10.6, the reporting institution shall: 14.10.9 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of directors and shareholders of the legal person which fall under the following categories: 14.10.10 Notwithstanding the above, reporting institutions are required to identify and maintain information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14.10.9 (a) to (h) through a public register, other reliable sources or based on information provided by the customer. 14.10.11 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Legal Arrangements 14.10.12 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14.10.13 Reporting institutions are required to identify the customer and verify its identity through the following information: 14.10.14 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: 14.10.15 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any or an occasional transaction. 14.10.16 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. 14.10.17 Where reliance is placed on third parties under paragraph 14.10.16, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Clubs, Societies and Charities 14.10.18 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal persons or legal arrangements, as the case may be, and require the customers to furnish the relevant identification documents including Certificate of Registration and other constituent documents. In addition, reporting institutions are required to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. 14.10.19 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. 14.10.20 Where there is any doubt as to the identity of persons referred to under paragraphs 14.10.18 and 14.10.19, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission of Malaysia, Bahagian Hal Ehwal Undang-Undang, Jabatan Perdana Menteri or any other relevant authority. Delayed Verification 14.10.21 In certain circumstances where the ML/TF/PF risks are assessed as low and verification is not possible at the point of establishing the business relationship, the reporting institution may complete verification after the establishment of the business relationship to allow some flexibilities for its customer or beneficial owner to furnish the relevant documents. 14.10.22 Where delayed verification applies, the following conditions must be satisfied: 14.10.23 The term “reasonably practicable” under paragraph 14.10.22(a) shall not exceed ten working days or any other period as may be specified by the competent authority. 14.10.24 Reporting institutions are required to adopt risk management procedures relating to the conditions under which the customer may utilise the business relationship prior to verification, and procedures to mitigate or address the risk of delayed verification. 14.10.25 The measures that reporting institutions may take to manage such risks of delayed verification may include limiting the number, types and/or amount of transactions that can be performed. 14.11 Enhanced CDD Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: 14.11.2 In addition to paragraph 14.11.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: 14.12 On-Going Due Diligence Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: 14.12.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: 14.12.3 The frequency in implementing paragraph 14.12.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. 14.12.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. 14.12.5 In conducting enhanced on-going due diligence, reporting institutions are required to: 14.13 Existing Customer – Materiality and Risk 14.13.1 Existing customers in this paragraph refer to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. 14.13.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. 14.13.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. 14.13.4 In assessing materiality and risk of the existing customer under paragraph 14.13.2, reporting institutions may consider the following circumstances: 14.14 Non Face-to-Face Business Relationship 14.14.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. 14.14.2 Reporting institutions shall obtain approval from their Board prior to the implementation of non-FTF business relationships. 14.14.3 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by the competent authority. 14.14.4 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. 14.14.5 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. 14.14.6 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through non-FTF are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of non-FTF business relationship. 14.14.7 In relation to paragraph 14.14.6, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. 14.14.8 In relation to paragraph 14.14.6, reporting institutions shall take measures to identify and verify the customer’s identity through any of the following: 14.14.9 In relation to paragraph 14.4.6, reporting institutions may identify and verify a customer’s identity by: (a) conducting video calls with the customer before establishing business relationship or allowing the customer to perform transactions; (b) communicating with the customer at a verified residential or office address where such communication shall be acknowledged by the customer; (c) verifying the customer’s information against a database maintained by relevant authorities including the National Registration Department or Immigration Department of Malaysia; telecommunication companies, sanctions lists issued by credible domestic or international sources in addition to the mandatory sanctions lists or social media platforms with a broad outreach; or (d) requesting to sight additional documents such as recent utility bills, bank statements, student identification or confirmation of employment. 14.14.10 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF Compliance Programme. 14.15 Failure to Satisfactorily Complete CDD 14.15.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 19. 14.16 CDD and Tipping-Off 14.16.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis of not completing the CDD and immediately file a suspicious transaction report under paragraph 19. 14.16.2 Notwithstanding paragraph 14.16.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. 14.17 Customer Due Diligence Guidance 14.17.1 Reporting institutions may refer to guidance and templates provided in parts C and D of this policy document in implementing the CDD and risk profiling requirements. 14A Customer Due Diligence: Licensed Casino 14A.1 When CDD is required 14A.1.1 A licensed casino is required to conduct CDD on the customer, the person conducting the transaction and junket, when engaging in any transaction equivalent to RM10,000 and above. This includes circumstances where the transaction is carried out in a single transaction or in several transactions in a day that appear to be linked. 14A.1.2 For the purpose of paragraph 14A.1.1, “engaging in any transaction” includes: 14A.1.3 In relation to paragraph 14A.1.2(b), for bank intermediated transactions, a licensed casino is required to identify and maintain the information on the relationship: 14A.1.4 In relation to paragraph 14A.1.2(c), for payment to other persons, a licensed casino is required to obtain the following information: 14A.2 Specific CDD Measures Junkets who are Individuals 14A.2.1 In conducting CDD on junkets who are individuals, a licensed casino is required to conduct CDD as specified under paragraphs 14.1 to 14.9 and 14.10.1 to 14.10.2. Junkets which are Legal Persons 14A.2.2 For junkets which are legal persons, a licensed casino is required to conduct CDD as specified under paragraphs 14.1 to 14.9 and 14.10.3 to 14.10.11. 14B Customer Due Diligence: Licensed Gaming Outlets 14B.1 When CDD is required 14B.1.1 Licensed gaming outlets are required to conduct CDD on the customer and the person conducting the transaction when a customer’s winning is equivalent to RM50,000 and above, including in situations where the transaction is carried out in a single transaction or through several transactions that appear to be linked. 14B.1.2 In addition to the requirements under paragraph 14B.1.1, licensed gaming outlets are required to obtain and check the accuracy of the following information: (a) ticket number; (b) registration number and address of the outlet where the winning ticket was purchased; and (c) winning amount. 14B.1.3 Licensed gaming outlets are required to conduct CDD on any other person specified by the winner when the winner requests for payment to such person’s account for an amount equivalent to RM50,000 and above. 14B.1.4 In addition to the requirement in paragraph 14B.1.3, licensed gaming outlets must obtain the following information: (a) the relationship between the winner and the other person specified by the winner; and (b) the purpose for payment to the other persons specified by the winner. 14C Customer Due Diligence: Accountants, Company Secretaries and Lawyers 14C.1 When CDD is required 14C.1.1 Accountants and lawyers are required to conduct CDD, as specified under paragraphs 3.3 (a) and (d) respectively. 14C.1.2 Company secretaries are required to conduct CDD, as specified under paragraph 3.3 (b). 14C.2 Enhanced CDD 14C.2.1 In relation to paragraphs 14C.1.1 and 14C.1.2, where nominee services are provided, such business relations must be subjected to enhanced CDD and enhanced on-going due diligence. 14C.2.2 For the purpose of paragraph 14C.2.1, nominee services refer to nominee shareholding, directorship or partnership services, where applicable. 14D Customer Due Diligence: Trust Companies 14D.1 When CDD is required 14D.1.1 Trust companies are required to conduct CDD, as specified under paragraph 3.3 (i). 14D.2 Enhanced CDD 14D.2.1 In relation to paragraph 14D.1.1, where nominee services are provided, the business relations must be subjected to enhanced CDD and enhanced on-going due diligence. 14D.2.2 For the purpose of paragraph 14D.2.1, nominee services refer to nominee shareholding, directorship or partnership services, where applicable. (a) transaction conducted as in a single transaction or through several transactions in a day that appear to be linked and across all branches of the reporting institution; and (b) aggregate payments over a period of time for a single purchase. Notice to Customers Notice to Customers Notice to Customers Notice to Customers General The requirements set out in this paragraph are applicable to all types of PEPs and family members or close associates of those PEPs. 15.1.2 In identifying individuals who fall within the definition of a close associate of a PEP, reporting institutions must take reasonable measures to determine the extent to which these individuals are directly engaged or involved in the activity of the PEP. 15.2 Foreign PEPs 15.2.1 Reporting institutions are required to put in place a risk management system to determine whether a customer or a beneficial owner is a foreign PEP. 15.2.2 Upon determination that a customer or a beneficial owner under paragraph 15.2.1 is a foreign PEP, the requirements of enhanced CDD specified in paragraph 14.11 and enhanced on-going due diligence as specified in paragraph 14.12.5 must be conducted. 15.3 Domestic PEPs or person entrusted with a prominent function by an international organisation 15.3.1 Reporting institutions are required to take reasonable measures to determine whether a customer or beneficial owner is a domestic PEP or a person entrusted with a prominent function by an international organisation. 15.3.2 If the customer or beneficial owner is determined to be a domestic PEP or a person entrusted with a prominent function by an international organisation, reporting institutions are required to assess the level of ML/TF/PF risks posed by the business relationship with the domestic PEP or person entrusted with a prominent function by an international organisation. 15.3.3 The assessment of the ML/TF/PF risks as specified under paragraph 15.3.2, shall take into account the profile of the customer under paragraph 10.6.2 on Risk Profiling. 15.3.4 The requirements on enhanced CDD as specified under paragraph 14.11 and enhanced on-going due diligence as set out under paragraph 14.12.5 must be conducted in respect of domestic PEPs or persons entrusted with a prominent function by an international organisation who are assessed as higher risk. 15.3.5 Reporting institutions may apply CDD measures similar to other customers for domestic PEPs or persons entrusted with a prominent function by an international organisation if the reporting institution is satisfied that the domestic PEPs or persons entrusted with a prominent function by an international organisation are not assessed as higher risk. 15.3.6 In assessing the ML/TF/PF risk level of the customer, beneficial owner or beneficiary identified as a family member or close associate of a domestic PEP or a person entrusted with prominent public function by an international organisation, reporting institutions may consider the following factors: 15.4 Sources of Information 15.4.1 Reporting institutions may refer to any of the following sources in identifying a PEP, a family member or a close associate of a PEP: 15.4.2 The examples of sources referred under paragraph 15.4.1 are not exhaustive and reporting institutions are encouraged to develop internal references in identifying PEPs, family members or close associates of PEPs. 15.5 Cessation of PEP status 15.5.1 Reporting institutions shall consider the following factors in determining whether the status of a PEP who no longer holds a prominent public function should cease: (a) the level of informal influence that the PEP could still exercise, even though the PEP no longer holds a prominent public function; and (b) whether the PEP’s previous and current functions, in official capacity or otherwise, are linked to the same substantive matters. Reporting institutions may rely on third parties to conduct CDD or to introduce business. 16.2 The ultimate responsibility and accountability for CDD measures shall remain with the reporting institution relying on third parties. 16.3 Reporting institutions shall have internal policies and procedures in place to mitigate the risks when relying on third parties, including those from jurisdictions that have been identified as having strategic AML/CFT/CPF deficiencies that pose ML/TF/PF risks to the international financial system. 16.4 Reporting institutions are prohibited from relying on third parties located in higher risk countries that have been identified in accordance with paragraph 17. 16.5 The relationship between reporting institutions and the third parties relied upon by the reporting institutions to conduct CDD shall be governed by an arrangement that clearly specifies the rights, responsibilities and expectations of all parties. In placing reliance on the third party, the reporting institution, at a minimum: (a) must be able to obtain immediately the necessary information concerning CDD as required under paragraph 14; and (b) must be reasonably satisfied that the third party: 16.6 Reporting institutions shall obtain an attestation from the third party to satisfy itself that the requirements in paragraph 16.5 have been met. 16.7 Reporting institutions may obtain written confirmation from the third party that it has conducted CDD on the customer or beneficial owner, as the case may be, in accordance with paragraph 14. 16.8 The requirements under paragraphs 16.1, 16.3 and 16.5 may be fulfilled if the reporting institution relies on a third party that is part of the same financial and/or DNFBP group, subject to the following conditions: (a) the group applies CDD, record keeping and AML/CFT/CPF programmes in line with the requirements in this policy document; (b) the implementation of CDD, record keeping and AML/CFT/CPF programmes is supervised at a group level by the relevant authority; and (c) any higher country risk is adequately mitigated by the group’s AML/CFT/CPF policies. 16.9 Reporting institutions shall not rely on third parties to conduct on-going due diligence of its customers. Reporting institutions are required to conduct enhanced CDD proportionate to the risk, on business relationships and transactions with any person from higher risk countries for which this is called for by the FATF or by the Government of Malaysia. 17.2 Notwithstanding the generality of paragraph 17.1, the enhanced CDD shall include any specific CDD measure as may be imposed by the FATF or by the Government of Malaysia. 17.3 Reporting institutions are required to apply appropriate countermeasures, proportionate to the risks, when called upon to do so by the FATF or by the Government of Malaysia. 17.4 For the purpose of paragraph 17.3, the countermeasures may include the following: 17.5 In addition to the above, where ML/TF/PF risks are assessed as higher risk, reporting institutions are required to conduct enhanced CDD for business relationships and transactions with any person from other jurisdictions that have strategic AML/CFT/CPF deficiencies for which they have developed an action plan with the FATF. 17.6 For the purpose of requirements under paragraphs 17.1, 17.2, 17.3 and 17.5, reporting institutions shall refer to the FATF website: 18.1 General Where the requirement of cash threshold report applies, reporting institutions are required to submit cash threshold reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. 18.2 Definition 18.2.1 For the purpose of paragraph 18: 18.3 Applicability 18.3.1 The requirements for cash threshold reports are applicable to customers and person conducting the transaction in single or multiple cash transactions within the same account in a day for the amount equivalent to RM25,000 and above. 18.3.2 Reporting institutions shall not offset the cash transactions against one another. Where there are deposit and withdrawal transactions, the amount must be aggregated. For example, a deposit of RM20,000 and a withdrawal of RM10,000 must be aggregated to the amount of RM30,000 and hence, must be reported as it exceeds the amount specified by Bank Negara Malaysia. 18.3.3 Transactions referred to under paragraph 18.3.1 include cash contra from an account to different account(s) transacted over-the-counter by any customer. 18.4 Reporting of Cash Threshold Report 18.4.1 Reporting institutions are required to establish a reporting system for the submission of cash threshold reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. 18.4.2 The Compliance Officer of a reporting institution that has been granted access to the Financial Intelligence System (FINS) administered by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia must submit the cash threshold report through the following website: 19.1 General 19.2 Reporting Mechanisms 19.3 Triggers for Submission of Suspicious Transaction Report 19.4 Internal Suspicious Transaction Reports 20.1 Reporting institutions are prohibited from disclosing any suspicious transaction report, and where applicable, cash threshold reports, as well as any information related to these reports, in accordance with section 14A of the AMLA. This includes any information on the subject or counterparties reported on, such as personal identification, account details, transaction details, the suspected offence or suspicious activities reported on, and any other information contained in the report. 20.2 The prohibition under paragraph 20.1 does not apply where the exceptions under section 14A(3) of the AMLA apply. 20.3 Where the exceptions under section 14A(3) of the AMLA apply, reporting institutions must have the following measures in place: 20.4 For any disclosure of reports and related information pursuant to section 14A(3)(d) of the AMLA, reporting institutions may make a written application to the Director, Financial Intelligence and Enforcement Department, Bank Negara Malaysia for a written authorisation. 20.5 In making an application under paragraph 20.4, the reporting institution shall provide the following: 21.1 Reporting institutions are required to keep the relevant records including any accounts, files, business correspondence and documents relating to transactions, in particular, those obtained during the CDD process. This includes documents used to verify the identity of customers and beneficial owners, and the results of any analysis undertaken. The records maintained must remain up-to-date and relevant. 21.2 Reporting institutions must ensure that all relevant records relating to transactions which are kept are sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal activity. 21.3 Reporting institutions are required to keep the records for at least six years following the completion of the transaction, the termination of the business relationship or after the date of the occasional transaction. 21.4 In situations where the records are subjected to on-going investigation or prosecution in court, they shall be retained beyond the stipulated retention period until such time reporting institutions are informed by the relevant law enforcement agency that such records are no longer required. 21.5 Reporting institutions are required to retain the relevant records in a form that is admissible as evidence in court pursuant to the Evidence Act 1950, and make such records available to the competent authority or supervisory authorities and law enforcement agencies in a timely manner. 22.1 Reporting institutions must have in place an adequate manual or electronic management information system (MIS) to complement its CDD process. The MIS is required to provide the reporting institution with timely information on a regular basis to enable the reporting institution to detect irregularities and/or any suspicious activity. 22.2 The MIS shall be commensurate with the size, nature and complexity of the reporting institution’s business operations and ML/TF/PF risk profile. 22.3 The MIS shall include, at a minimum, information on multiple transactions over a certain period, large transactions, anomalies in transaction patterns, customer’s risk profile and transactions exceeding any internally specified thresholds. 22.4 The MIS shall be able to aggregate customer’s transactions from multiple accounts and/or from different systems, agents and across all branches of the reporting institution. 22.5 The MIS may be integrated with the reporting institution’s information system that contains its customer’s normal transactions or business profile, which is accurate, up-to-date and reliable. 23.1 Definition and Interpretation 23.1.1 For the purpose of paragraph 23, “customer” includes “beneficial owner” and “beneficiary”. “Domestic List” refers to names and particulars of specified entities as declared by the Minister of Home Affairs under the relevant subsidiary legislation made under section 66B(1) of the AMLA. “UNSCR List” refers to names and particulars of persons as designated by the United Nations Security Council (UNSC) or its relevant Sanctions Committee pursuant to the relevant United Nations Security Council Resolutions (UNSCR) and are deemed as specified entities by virtue of section 66C(2) of the AMLA. 23.2 General 23.2.1 Reporting institutions are required to keep updated with the relevant UNSCR relating to combating the financing of terrorism, which includes: 23.3 Maintenance of Sanctions List 23.3.3 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: https://www.un.org 23.3.4 The UNSCR List shall remain in the sanctions database until the delisting of the specified entities by the relevant Sanctions Committee is published in the UN website. Domestic List 23.3.5 Reporting institutions are required to keep updated with the Domestic List as and when published in the Gazette. 23.3.6 Reporting institutions are required to maintain a sanctions database on the Domestic List. 23.3.7 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication in the Gazette. 23.3.8 Reporting institutions may refer to the Domestic List published in the following website: 23.3.9 The Domestic List shall remain in the sanctions database until the delisting of the specified entities is published in the Gazette. Other requirements 23.3.10 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary and where relevant, to the outsourced service providers or agents. 23.3.11 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. 23.3.12 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 23.4 Sanctions Screening – Customers 23.4.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the Domestic List and UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. 23.4.2 For the avoidance of doubt, sanctions screening obligations apply to all customers and transactions regardless of any thresholds for CDD or features of a product or service. 23.4.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number or passport number or reference number of any other official documents; and (c) date of birth of customers. 23.4.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the: 23.4.5 When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each specified entity to prevent unintended omissions. 23.4.6 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to competent authority or supervisory authority, upon request. Dealing with False Positives 23.4.7 Reporting institutions are required to ascertain potential matches with the UNSCR List or the Domestic List are true matches to eliminate false positives. 23.4.9 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a specified entity, in the case of similar or common names. 23.5 Related Parties 23.5.1 Reporting institutions shall undertake due diligence on related parties. 23.5.2 In undertaking due diligence on the related parties, reporting institutions are required to examine and analyse past transactions of the specified entities and related parties, and maintain records on the analysis of these transactions. 23.5.3 In ascertaining whether an entity is owned or controlled by a specified entity, reporting institutions may refer to the definition of “beneficial owner” in paragraph 6.2, and requirements under paragraph 14 in relation to CDD on beneficial owners. 23.6 Freezing, Blocking and Rejecting – Customers and Related Parties 23.6.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a specified entity and/or related parties: 23.6.2 Reporting institutions are required to reject a potential customer, where there is a positive name match. 23.6.3 The freezing of funds and properties or blocking of transactions, as the case may be, shall remain in effect until the specified entity is removed from the Domestic List or UNSCR List in accordance with paragraphs 23.3.4 and 23.3.9. 23.6.4 Any dealings with frozen funds or properties, whether by the specified entity, related party or any interested party, requires prior written authorisation from the Minister of Home Affairs. 23.6.5 The frozen funds and properties, may continue receiving deposits, dividends, interests, bonus or other benefits. However, such funds and benefits must remain frozen as long as the specified entity continues to be listed under the Domestic List and UNSCR List. Exemption for Basic and Extraordinary Expenditures 23.6.6 Reporting institutions may advise the specified entity, a related party or any interested party of the frozen funds or properties, or to the blocked or rejected transactions, to make an application to the Minister of Home Affairs for exemptions on basic and extraordinary expenditures. 23.6.7 Reporting institutions shall only proceed with payments for basic and extraordinary expenditures upon receiving written authorisation from the Minister of Home Affairs. 23.7 Reporting on Positive Name Match Reporting upon Determination of a Positive Name Match Reporting institutions are required to immediately report upon determination that they are in possession or in control of funds or properties, of any specified entity and/or related party, using the form attached in Appendix 5A or 5B, where applicable, to the: Periodic Reporting on Positive Name Match 23.8 Reporting of Suspicious Transaction On Name Match with Other Unilateral Sanctions Lists 23.8.3 Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. 24.1 General 24.1.1 This paragraph applies for the purposes of ensuring compliance with reporting institutions’ obligations under Strategic Trade Act 2010 (STA), Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010 and Directive on Implementation of Targeted Financial Sanctions Relating to Proliferation Financing (Directive on TFS-PF) issued by the Strategic Trade Controller, Ministry of Investment, Trade and Industry in April 2018, as may be amended or superseded from time to time. 24.2 Definition and Interpretation 24.2.1 For the purpose of paragraph 24, “customer” includes “beneficial owner” and “beneficiary”. “UNSCR List” refers to names and particulars of persons as designated by the UNSC or its relevant Sanctions Committee and are deemed as designated persons under the relevant STA subsidiary legislation. 24.3 Maintenance of Sanctions List 24.3.1 Reporting institutions are required to keep updated with the list of countries and persons designated as restricted end-users and prohibited end-users under the STA, in accordance with the relevant UNSCR relating to prevention of proliferation of weapons of mass destruction (WMD) as published in the UN website, as and when there are new decisions by the UNSC or its relevant Sanctions Committee. 24.3.2 Reporting institutions are also required to keep updated with the list of designated countries and persons under the STA in accordance with the relevant UNSCRs relating to upholding of peace and security, through prevention of armed conflicts and human rights violations, as published on the UN website, as and when there are new decisions by the UNSC or its relevant Sanctions Committee. 24.3.3 Reporting institutions are required to maintain a sanctions database on the UNSCR List. 24.3.4 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN Website. 24.3.5 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: 24.3.6 The UNSCR List shall remain in the sanctions database until the delisting of the designated country or person by the UNSC or its relevant Sanctions Committee is published in the UN website. 24.3.7 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary, and where relevant, to the outsourced service providers or agents. 24.3.8 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. 24.3.9 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 24.4 Sanctions Screening – Customers 24.4.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. 24.4.2 For the avoidance of doubt, sanctions screening obligations applies to all customers and transactions regardless of any thresholds for CDD or features of a product or service. 24.4.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number of passport number or reference number of any other official documents; and (c) date of birth of customers. 24.4.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. 24.4.5 When conducting the sanction screening process, reporting institutions may perform name searches based on a set of possible permutations for each designated person to prevent unintended omissions. 24.4.6 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to competent authority or supervisory authority, upon request. Dealing with False Positives 24.4.7 Reporting institutions are required to ascertain potential matches with the UNSCR List are true matches to eliminate false positives. 24.4.8 Reporting institutions are required to make further inquiries for additional information and identification documents from the customer, counter-party or credible sources to assist in determining whether the potential match is a true match. 24.4.9 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a designated person, in the case of similar or common names. 24.5 Related Parties 24.5.1 Reporting institutions shall undertake due diligence on related parties. 24.5.2 In undertaking due diligence on the related parties, reporting institutions are required to examine and analyse past transactions of the designated persons and related parties, and maintain records on the analysis of these transactions. 24.5.3 In ascertaining whether an entity is owned or controlled by a designated person, reporting institutions may refer to the definition of “beneficial owner” in paragraph 6.2 and requirements under paragraph 14 in relation to customer due diligence on beneficial owners. 24.6 Freezing, Blocking and Rejecting - Customers and Related Parties 24.6.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a designated person and/or related parties: to prevent the dissipation of the funds, other financial assets and economic resources. 24.6.2 Reporting institutions are required to reject a potential customer, when there is a positive name match. 24.6.3 The freezing of funds, other financial assets and economic resources or blocking of transactions, as the case may be, shall remain in effect until the designated country or person is removed from the UNSCR List in accordance with paragraph 24.3.6. 24.6.4 Any dealings with frozen funds, other financial assets or economic resources, whether by the designated country, person, identified related party or any interested party, requires prior written authorisation from the Strategic Trade Controller under the STA. 24.6.5 The frozen funds, other financial assets, or economic resources may continue receiving deposits, dividends, interests, bonuses or other benefits. However, such funds and benefits must remain frozen as long as the countries and persons continue to be listed under the UNSCR List. 24.6.6 Reporting institutions may advise the designated person, a related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transactions, to make an application to the Strategic Trade Controller under the STA for exemptions on basic and extraordinary expenditures. 24.6.7 Reporting institutions shall only proceed with the payments for basic and extraordinary expenditures upon receiving written authorisation from the Strategic Trade Controller under the STA. Exemption for Payments Due under Existing Contracts 24.6.8 Reporting institutions may advise the designated person, related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transaction, to make an application to the Strategic Trade Controller under the STA to allow payments due under contracts entered into prior to the designation. 24.6.9 Reporting institutions shall only proceed with the payments due under existing contracts upon receiving prior written authorisation from the Strategic Trade Controller under the STA. 24.7 Reporting on Positive Name Match Reporting institutions are required to immediately report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia on any detection, freezing, blocking or rejection actions undertaken with regard to any identified funds, other financial assets and economic resources or transactions, using the form attached in Appendix 5A or 5B, where applicable. Reporting institutions that have reported positive name matches and are in possession or in control of frozen or blocked funds, other financial assets or economic resources of any designated person and/or related party are required to report any changes to those funds, other financial assets and economic resources using the form and at intervals specified in Appendix 6A or 6B, which applicable. 24.7.3 Notwithstanding paragraph 24.7.2, reporting institutions are not required to submit period reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. 24.8 Reporting of Suspicious Transactions On Related Transactions 24.8.1 Reporting institutions are required to submit a suspicious transaction report upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any designated country, person or related party. 24.8.2 Reporting institutions are also required to submit a suspicious transaction report on any attempted transaction undertaken by designated countries, persons or related parties. On Name Match with Other Unilateral Sanctions Lists 24.8.3 Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. Imposition of New Measures 24.9 In the event the UNSC or its relevant Sanctions Committee imposes new measures relating to the prevention of PF or proliferation of WMD, reporting institutions are required to adhere to such measures as specified by the Strategic Trade Controller under the STA. 25.1 Reporting institutions are required to submit the following reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, as and when applicable: 15 Politically Exposed Persons (PEPs) 16 Reliance on Third Parties 17 Higher Risk Countries 18 Cash Threshold Report 19 Suspicious Transaction Report 20 Disclosure of Suspicious Transaction Reports, Cash Threshold Reports and Related Information 21 Record Keeping 22 Management Information System 23 Targeted Financial Sanctions on Terrorism Financing 24 Targeted Financial Sanctions on Proliferation Financing and Other UN-Sanctions Regimes 25 Other Reporting Obligations APPENDIX 1 Glossary APPENDIX 2 Definition of Small-sized Reporting Institutions APPENDIX 3 Customer Due Diligence Form APPENDIX 4 Required Information in CTR APPENDIX 5A Targeted Financial Sanctions Reporting (NBFIs) – Upon Determination APPENDIX 5B Targeted Financial Sanctions Reporting (DNFBPs) – Upon Determination APPENDIX 6A Targeted Financial Sanctions Reporting (NBFIs) - Periodic Reporting on Positive Name Match APPENDIX 6B Targeted Financial Sanctions Reporting (DNFBPs) - Periodic Reporting on Positive Name Match APPENDIX 7 Guidance on Application of Risk-Based Approach 1.0 Introduction 2.0 Institutional Risk Assessment and Customer Risk Profiling 3.0 Institutional Risk Assessment (IRA) A. Perform Risk Assessment B. Formulate and implement institutional risk management and mitigation control measures 4.0 Customer Risk Profiling (CRP) A. Determine the risk parameters for customer profiling B. Conduct risk profiling on customers 3 4 5 6 7 8 C. Apply customer risk management and mitigation control measures 5.0 Continuous application of RBA 5.1 The application of RBA is a continuous process to ensure that RBA processes for managing and mitigating ML/TF/PF risks are kept under regular review. 5.2 A reporting institution is expected to conduct periodic assessment of its ML/TF/PF risks (preferably every two years or sooner if there are any changes to the reporting institution’s business model) taking into account the growth of the business, ... 5.3 Through the periodic assessment, a reporting institution may be required to update or review either its IRA or CRP. 5.4 A reporting institution is expected to take appropriate measures to ensure that its policies and procedures are updated in light of the continuous risk assessments and ongoing monitoring of its customers. 6.0 Documentation of the RBA process APPENDIX 8 Institutional Risk Assessment Template APPENDIX 9 Infographic on Risk Based Approach APPENDIX 10 Infographic on Compliance Officer’s Role and Responsibilities APPENDIX 11 Infographic on Customer Due Diligence APPENDIX 12 Infographic on Suspicious Transaction Reports APPENDIX 13 Infographic on Targeted Financial Sanctions APPENDIX 14 Examples of Red Flags	null
05 Feb 2024	Dokumen Dasar Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan, Pencegahan Pembiayaan Percambahan dan Sekatan Kewangan Bersasar untuk Institusi Kewangan	https://www.bnm.gov.my/-/dokumen-dasar-pencegahan-pengubahan-wang-haram-pencegahan-pembiayaan-keganasan-pencegahan-pembiayaan-percambahan-dan-sekatan-kewangan-bersasar-untuk-institusi-kewangan	https://www.bnm.gov.my/documents/20124/938039/pd-AMLCFTCPF-TFS-FI-Feb2024_+2.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/dokumen-dasar-pencegahan-pengubahan-wang-haram-pencegahan-pembiayaan-keganasan-pencegahan-pembiayaan-percambahan-dan-sekatan-kewangan-bersasar-untuk-institusi-kewangan&languageId=ms_MY	Reading: Dokumen Dasar Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan, Pencegahan Pembiayaan Percambahan dan Sekatan Kewangan Bersasar untuk Institusi Kewangan Share: 2 Dokumen Dasar Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan, Pencegahan Pembiayaan Percambahan dan Sekatan Kewangan Bersasar untuk Institusi Kewangan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1700 pada Isnin, 5 Februari 2024 5 Feb 2024 Dokumen Dasar Pencegahan Pengubahan Wang Haram (Anti-Money Laundering, AML), Pencegahan Pembiayaan Keganasan (Countering Financing of Terrorism, CFT), Pencegahan Pembiayaan Percambahan (Countering Proliferation Financing, CPF) dan Sekatan Kewangan Bersasar (Targeted Financial Sanctions, TFS) untuk Institusi Kewangan merupakan semakan semula kepada dokumen dasar AML/CFT and TFS for FIs yang diterbitkan pada 31 Disember 2019. Dokumen dasar ini menyertakan kemas kini terbaharu dalam piawaian yang diterbitkan oleh Financial Action Task Force, termasuk memperjelas keperluan AML/CFT/CPF yang dikenakan terhadap institusi pelapor. Institusi pelapor dikehendaki melaksanakan pendekatan berasaskan risiko dalam menguruskan risiko ML/TF/PF dan mematuhi keperluan TFS. Tarikh Penerbitan 5 Februari 2024 Tarikh Kuat Kuasa 6 Februari 2024 Jabatan yang menerbitkan dokumen Jabatan Perisikan Kewangan dan Penguatkuasaan Terpakai pada: 1. Bank berlesen 2. Bank pelaburan berlesen 3. Bank Islam berlesen 4. Penanggung insurans berlesen 5. Pengendali takaful berlesen 6. Institusi kewangan pembangunan yang ditetapkan 7. Perniagaan perkhidmatan wang berlesen 8. Pengeluar instrumen pembayaran tertentu yang diluluskan 9. Pengeluar instrumen pembayaran Islam tertentu yang diluluskan 10. Lembaga Tabung Haji 11. Penasihat kewangan yang diluluskan 12. Penasihat kewangan Islam yang diluluskan 13. Broker insurans yang diluluskan 14. Broker takaful yang diluluskan Dokumen Dokumen Dasar Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan, Pencegahan Pembiayaan Percambahan dan Sekatan Kewangan Bersasar untuk Institusi Kewangan Bank Negara Malaysia 5 Februari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Policy Document on Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions Issued on: 5 February 2024 BNM/RH/PD 030-14 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed insurers 5. Licensed takaful operators 6. Prescribed development financial institutions 7. Licensed money services businesses 8. Approved issuers of designated payment instruments 9. Approved issuers of designated Islamic payment instruments 10. Lembaga Tabung Haji 11. Approved financial advisers 12. Approved Islamic financial advisers 13. Approved insurance brokers 14. Approved takaful brokers Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) Issued on: 5 February 2024 BNM/RH/PD 030-14 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction ................................................................................................ 1 2 Objective .................................................................................................... 2 3 Applicability ................................................................................................ 2 4 Legal Provisions......................................................................................... 4 5 Effective Date ............................................................................................ 4 6 Definition and Interpretation ....................................................................... 5 7 Related Legal Instruments and Policy Documents................................... 17 8 Policy Documents and Guidance(s) Superseded .................................... 17 9 Non-Compliance ...................................................................................... 17 PART B AML/CFT/CPF/TFS REQUIREMENTS ................................................... 18 10 Application of Risk-Based Approach ........................................................ 18 11 AML/CFT/CPF Compliance Programme .................................................. 22 12 New Products and Business Practices .................................................... 30 13 Applicability to Financial Group, Foreign Branches and Subsidiaries ...... 31 14 Customer Due Diligence (CDD) ............................................................... 33 14A CDD: Banking and Deposit-Taking Institutions ............................... 33 14B CDD: Insurance and Takaful ........................................................... 48 14C CDD: Money Services Business ..................................................... 61 14D CDD: Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments ................................ 78 15 Politically Exposed Persons (PEPs) ......................................................... 92 16 Reliance on Third Parties ......................................................................... 94 17 Higher Risk Countries .............................................................................. 96 18 Money or Value Transfer Services (MVTS) ............................................. 97 19 Wire Transfers ......................................................................................... 98 20 Correspondent Banking ......................................................................... 101 21 Cash Threshold Report .......................................................................... 102 22 Suspicious Transaction Report .............................................................. 104 23 Disclosure of Suspicious Transaction Report, Cash Threshold Report and Related Information ........................................................................ 107 24 Record Keeping ..................................................................................... 108 25 Management Information System .......................................................... 110 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) Issued on: 5 February 2024 BNM/RH/PD 030-14 26 Enforcement Orders ............................................................................... 111 27 Targeted Financial Sanctions on Terrorism Financing ........................... 112 28 Targeted Financial Sanctions on Proliferation Financing ....................... 118 29 Targeted Financial Sanctions under Other UN-Sanctions Regimes ...... 123 30 Other Reporting Obligations .................................................................. 128 APPENDICES ........................................................................................................ 129 APPENDIX 1 Guidance on Application of Risk Based Approach ........................ 129 APPENDIX 2 Customer Due Diligence Form for MSBs ...................................... 145 APPENDIX 3 CDD Measures for E-money ......................................................... 149 APPENDIX 4 Transactions That May Trigger Suspicion ..................................... 150 APPENDIX 4a For Banking and Deposit-Taking Institutions ....... 150 APPENDIX 4b For Insurance and Takaful ................................... 156 APPENDIX 4c For Money Services Business ............................. 159 APPENDIX 4d For Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments .......................................................... 160 APPENDIX 5 Required Information in Cash Threshold Report ........................... 161 APPENDIX 6 Relevant UNSCR and UNSC Sanctions Committee for Targeted Financial Sanctions on Proliferation Financing .............. 163 APPENDIX 7 Relevant UNSCR and UNSC Sanctions Committee for Targeted Financial Sanctions on Other UN-Sanctions Regimes .................. 164 APPENDIX 8a Template for Reporting upon Determination of Match .................. 166 APPENDIX 8b Template for Periodic Reporting on Positive Name Match ............ 167 APPENDIX 9 Annual Summary Report on Exposure to Customers and Beneficial Owners from High Risk Countries ................................ 168 APPENDIX 9a For Banking and Deposit-Taking Institutions ....... 168 APPENDIX 9b For Insurance and Takaful ................................... 175 Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 1 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 PART A OVERVIEW 1 Introduction Background 1.1 Money laundering and terrorism financing (ML/TF) are financial crimes with far- reaching and deleterious socio-economic effects. Criminal networks, money launderers and terrorist financiers are highly adaptive and quick to exploit any weak links within an increasingly borderless world to obscure detection of such illicit funds. The globalisation and advancement in technology, including the emergence of new players and innovative products, pose challenges to regulators and law enforcement agencies alike in curbing criminal activities. 1.2 In line with the international standards established by the Financial Action Task Force (FATF)1, the anti-money laundering, countering financing of terrorism and countering proliferation financing (AML/CFT/CPF) reporting obligations imposed on reporting institutions are risk-informed, and subject to periodic review in tandem with any material changes to the international standards or the evolving risk of ML/TF and proliferation financing (PF) situation in Malaysia. In view of potential development opportunities brought about by the era of digitalisation, enhancements to the existing AML/CFT/CPF reporting obligations are important to ensure areas of higher risk are subject to enhanced controls, while areas of low risk are accorded some policy accommodation, to ensure that the integrity of the financial system is preserved, just as development objectives are facilitated. 1.3 Consistent with the FATF’s action to strengthen the response to the growing threat of weapons of mass destruction (WMD) PF, reporting institutions are required to assess PF risks and implement commensurate mitigation measures. This aims to ensure that reporting institutions are not subject to abuse, unwittingly support or become part of the PF networks, given the emerging trends on PF risks and techniques adopted by the designated individuals and entities to evade targeted financial sanctions on PF. 1 The Financial Action Taskforce (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering (ML), terrorism financing (TF) and financing of proliferation of weapons of mass destruction (PF). The FATF International Standards on Combating Money Laundering and Financing of Terrorism & Proliferation (The FATF Recommendations) (issued in February 2012, and updated from time to time) sets out a comprehensive and consistent framework of measures which countries should adapt to their particular circumstances, and implement to ensure the robustness of their respective jurisdiction’s AML/CFT/CPF regime. Malaysia was accepted as a FATF member in February 2016. For further information on FATF, please visit their website at www.fatf-gafi.org Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 2 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 1.4 Domestically, the National Risk Assessment (NRA) by the National Coordination Committee to Counter Money Laundering (NCC) assesses and identifies the key threats and sectoral vulnerabilities that Malaysia’s financial system and economy is exposed to, has guided the strategies and policies of Malaysia’s overall AML/CFT/CPF regime. The NRA is the primary tool used for periodic assessment and tracking of effectiveness of the relevant Ministries, law enforcement agencies, supervisory authorities and reporting institutions in preventing and combating ML/TF/PF. 1.5 In line with the United Nations Security Council Resolutions (UNSCR), financial institutions are also required to adhere to, and implement sanctions imposed on designated countries and persons to combat terrorism, TF, proliferation of weapons of mass destruction and PF as well as suppress other forms of armed conflicts or violence against humanity. These obligations have been further elaborated and clarified in accordance with the relevant UNSCR. 2 Objective 2.1 This policy document is intended to set out: (a) obligations of reporting institutions with respect to the requirements imposed under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA); (b) requirements on reporting institutions in implementing a comprehensive risk-based approach in managing ML/TF/PF risks; and (c) targeted financial sanctions requirements on financial institutions regulated or supervised by Bank Negara Malaysia. 3 Applicability 3.1 This policy document consolidates: (a) AML/CFT/CPF standards and guidance that are applicable to all reporting institutions in the financial sector regulated or supervised by Bank Negara Malaysia; and (b) targeted financial sanctions requirements that are applicable to all financial institutions regulated or supervised by Bank Negara Malaysia. 3.2 Where a reporting institution is subject to more than one document relating to AML/CFT/CPF matters issued pursuant to the AMLA, the more stringent requirement shall apply. 3.3 Where necessary, Bank Negara Malaysia may issue guidelines, circulars or notices to vary, delete, add to, substitute or modify this policy document. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 3 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 AML/CFT/CPF Requirements under Paragraphs 9 to 26 and 30 3.4 The AML/CFT/CPF requirements are applicable to a reporting institution carrying on the following activities listed in the First Schedule to the AMLA: (a) in relation to banking and deposit taking, (i) banking business and investment banking business as defined in the Financial Services Act 2013 (FSA); (ii) Islamic banking business as defined in the Islamic Financial Services Act 2013 (IFSA); (iii) activities carried out by a prescribed institution as defined in the Development Financial Institutions Act 2002 (DFIA); (iv) activities carried out by the Lembaga Tabung Haji established under the Tabung Haji Act 1995; (b) in relation to insurance and takaful, (i) life business as defined in the FSA; (ii) family takaful business as defined in the IFSA; (iii) insurance broking business and financial advisory business as defined in the FSA in relation to life insurance products; (iv) takaful broking business and Islamic financial advisory business as defined in the IFSA in relation to family takaful products; (c) in relation to money services business, activities carried out by a licensee as defined in the Money Services Business Act 2011 (MSBA); and (d) in relation to a non-bank issuer of designated payment instrument and designated Islamic payment instrument, an approved issuer of designated payment instrument, or designated Islamic payment instrument which is not a licensed bank under the FSA, a licensed Islamic bank under the IFSA or a prescribed institution under the DFIA. 3.5 The AML/CFT/CPF requirements are also applicable to the following: (a) a branch or subsidiary of a reporting institution, in and outside Malaysia, carrying on any activity listed in paragraph 3.4 above; (b) any product or service offered by a reporting institution carrying on any activity listed in paragraph 3.4 above; and (c) any other person as specified by Bank Negara Malaysia. Targeted Financial Sanctions Requirements under Paragraphs 27, 28 and 29 3.6 The targeted financial sanctions requirements to combat TF, PF and to suppress other forms of armed conflict, are applicable to all financial institutions regulated or supervised by Bank Negara Malaysia that carry out the following activities: (a) a licensed bank and a licensed investment bank under the FSA; (b) a licensed Islamic bank including a licensed International Islamic bank under the IFSA; (c) a prescribed institution under the DFIA; (d) a licensed insurer (life and general insurer) under the FSA; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 4 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (e) a licensed takaful operator (family and general takaful) under the IFSA; (f) an insurance broking business and a financial advisory business as defined in the FSA in relation to life insurance products; (g) a takaful broking business and an Islamic financial advisory business as defined in the IFSA in relation to family takaful products; (h) a licensee under the MSBA; (i) an approved issuer of designated payment instrument, which is not a licensed bank under the FSA, a licensed Islamic bank under the IFSA or a prescribed institution under the DFIA; and (j) an approved issuer of designated Islamic payment instrument, which is not a licensed bank under the FSA, IFSA or prescribed institution under the DFIA. 4 Legal Provisions 4.1 In relation to the AML/CFT/CPF provisions, this policy document is issued pursuant to: (a) sections 8, 13, 14, 14A, 15, 16, 17, 18, 19, 20 and 83 of the AMLA; (b) sections 47(1), 47(2)(h), 143, 261(1) and 266 of the FSA; (c) sections 57(1), 57(2)(h), 155, 272(1) and 277 of the IFSA; (d) sections 41(1), 41(2)(c), 116, 123A(1) and 126 of the DFIA; and (e) sections 34(1) and 74(1) of the MSBA. 4.2 In relation to the targeted financial sanction provisions, this policy document is issued pursuant to: (a) sections 66B, 66E and 83 of the AMLA; (b) section 95 of the Central Bank of Malaysia Act 2009 (CBA); (c) sections 47(1), 47(2)(h), 143 and 261(1) of the FSA; (d) sections 57(1), 57(2)(h), 155 and 272(1) of the IFSA; (e) sections 41(1), 41(2)(c), 116 and 123A(1) of the DFIA; and (f) sections 34(1) and 74(1) of the MSBA. 5 Effective Date 5.1 This policy document comes into effect on 6 February 2024. 5.2 Compliance to the requirements outlined in this policy document shall take effect immediately, unless otherwise specified by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 5 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 6 Definition and Interpretation 6.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the CBA, AMLA, FSA, IFSA, MSBA and DFIA, as the case may be, unless otherwise defined in this policy document or the context requires otherwise. 6.2 For the purpose of this policy document: “accurate information” Refers to information that has been verified for accuracy. In the context of beneficial owners, it refers to information that has been verified to confirm its accuracy by verifying the identity and status of the beneficial owner using reliable, independently sourced or obtained documents, data or information. The extent of verification may vary depending on the level of risk. “approved issuers” Refers to any person (other than a licensed bank under the FSA or IFSA, or a prescribed institution under the DFIA), (a) approved under section 11 of the FSA to issue a designated payment instrument; or (b) approved under section 11 of the IFSA to issue a designated Islamic payment instrument. “beneficial owner” In the context of legal person, beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those natural persons who exercise ultimate effective control over a legal person. Only a natural person can be an ultimate beneficial owner, and more than one natural person can be the ultimate beneficial owner of a given legal person. Reference to “ultimately owns or control” or “ultimate effective control” refers to situations in which ownership or control is exercised through a chain of ownership or by means of control other than direct control. In insurance and takaful sectors, this also refers to any natural person(s) who ultimately owns or controls a beneficiary, as specified in this policy document. In the context of legal arrangements, beneficial owner includes: (i) the settlor(s); (ii) the trustee(s); (iii) the protector(s) (if any); (iv) each beneficiary, or where applicable, the class of beneficiaries and objects of a Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 6 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 power; and (v) any other natural person(s) exercising ultimate effective control over the arrangement. In the case of a legal arrangement similar to an express trust, beneficial owner refers to the natural person(s) holding an equivalent position to those referred above. When the trustee and any other party to the legal arrangement is a legal person, the beneficial owner of that legal person should be identified. Reference to “ultimate effective control” over trusts or similar legal arrangements includes situations in which ownership or control is exercised through a chain of ownership or control. “beneficiary” Depending on the context: In trust law, a beneficiary refers to the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary can be a natural or legal person or arrangement. All trusts (other than charitable or statutory permitted non-charitable trusts) are required to have ascertainable beneficiaries. While trusts must always have some ultimately ascertainable beneficiary, trusts may have no defined existing beneficiaries but only objects of a power until some person becomes entitled as beneficiary to income or capital on the expiry of a defined period, known as the accumulation period or following exercise of trustee discretion in the case of a discretionary trust. The accumulation period is normally co-extensive with the trust perpetuity period which is usually referred to in the trust deed as the trust period. In wire transfer, refers to the natural or legal person or legal arrangement identified by the originator as the receiver of the requested wire transfer. In clubs, societies and charities, refers to the natural person(s), or groups of natural persons who receive charitable, humanitarian or other types of services of the clubs, societies and charities. For insurance and takaful, beneficiary refers to the natural or legal persons, or a legal arrangement, or insured person under an insurance policy or takaful certificate, or nominees, or category of person, who will be paid the policy proceeds when or if an insured event occurs, which is covered by the insurance policy or takaful certificate. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 7 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 “beneficiary account” Includes trust accounts, nominee accounts, fiduciary accounts, accounts opened for companies with nominee shareholders, accounts for mutual fund and fund managers, accounts for personal asset holding vehicles, pooled accounts, accounts opened by professional third parties and other relevant accounts. “beneficiary institutions” Refers to the institution which receives the wire transfer from the ordering institution directly or through an intermediary institution and makes the funds available to the beneficiary. For money services business sector, beneficiary institution refers to institutions conducting inward remittance. “Board” In relation to a company, refers to (a) directors of the company who number not less than the required quorum acting as a board of directors; or (b) if the company has only one director, that director. “close associate of PEP” Refers to any individual closely connected to a politically exposed person (PEP), either socially or professionally. A close associate in this context includes: (a) extended family members, such as relatives (biological and non-biological relationship); (b) financially dependent individuals (e.g. persons salaried by the PEP such as drivers, bodyguards, secretaries); (c) business partners or associates of the PEP; (d) prominent members of the same organisation as the PEP; (e) individuals working closely with the PEP (e.g. work colleagues); or (f) close friends. “correspondent bank” Refers to a reporting institution in Malaysia that provides or intends to provide correspondent banking services. “cover payment” Refers to a wire transfer that combines a payment message sent directly by the ordering institution to the beneficiary institution where the routing of the funding instruction (the cover) is carried out or performed through one or more intermediary institutions. “cross-border wire transfer” Refers to any wire transfer where the ordering institution and beneficiary institution are located in different countries. This term also refers to any chain of wire Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 8 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 transfer in which at least one of the institutions involved is located in a different country. “customer” Refers to both account holder and non-account holder. The term also refers to a client. For insurance and takaful sector, refers to parties related to an insurance/takaful contract including potential parties such as proposer/policyholder/policy owner, payor, assignee and company representative, but does not include insurance agent. In the case of group policies, “customer” refers to the master policy holder, that is, the owner of the master policy issued or intended to be issued. In addition, for money service business and designated payment instruments, customer refers to a person for whom the licensee or approved issuer of designated payment instruments undertakes or intends to undertake business relations. “customer due diligence (CDD)” Refers to any measure undertaken pursuant to section 16 of the AMLA. “designated payment instrument” Refers to a payment instrument prescribed as a designated payment instrument under section 31 of the FSA. “designated Islamic payment instrument” Refers to an Islamic payment instrument prescribed as a designated Islamic payment instrument under section 41 of the IFSA. “director” Refers to any person who occupies the position of director, however styled, of a body corporate and includes a person in accordance with whose directions or instructions the majority of directors or officers are accustomed to act and an alternate or substitute director. “domestic wire transfers” Refers to any wire transfer where the ordering institution and beneficiary institution are located in Malaysia. This term therefore refers to any chain of wire transfer that takes place entirely within the borders of Malaysia, even though the system used to transfer the payment message may be located outside Malaysia. “electronic Know Your Customer (e-KYC)” Refers to establishing business relationships and conducting CDD by way of electronic means, including online and mobile channels. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 9 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 “expatriate” Refers to a foreign national who meets the eligibility criteria for expatriate employment and is approved by the Immigration Department of Malaysia (Ministry of Home Affairs) to be employed in Malaysia. “family members of PEP” Refers to individuals who are related to a PEP either directly (consanguinity) or through marriage. A family member in this context, includes: (a) parent; (b) sibling; (c) spouse; (d) child; or (e) spouse's parent, for both biological or non-biological relationships. “financial group” Refers to a group that consists of a holding company incorporated in Malaysia or of any other type of legal person exercising control and coordinating functions over the rest of the group, together with branches and/or subsidiaries that are subjected to AML/CFT/CPF policies and procedures at the group level. “financial holding company” Refers to a company approved as a financial holding company under section 112 of the FSA or section 124 of the IFSA, as the case may be. “financing of proliferation” or “proliferation financing” Refers to the act of raising, moving, or making available funds, other assets or other economic resources, or financing, in whole or in part, to persons or entities for purposes of weapons of mass destruction (WMD) proliferation, including the proliferation of their means of delivery or related materials (including both dual-use technologies and dual-use goods for non-legitimate purposes). “foreign worker” Refers to a foreign national who is employed in Malaysia, other than expatriates. “G” Denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 10 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 “higher risk” Refers to circumstances where the reporting institution assesses the ML/TF/PF risks as higher, taking into consideration, and not limited to the following factors: (a) Customer risk factors: • the business relationship is conducted in unusual circumstances; • non-resident customers; • legal persons or arrangements that are personal asset-holding vehicles; • companies that have nominee shareholders or shares in bearer form; • businesses that are cash-intensive; • the ownership structure of the company appears unusual or excessively complex given the nature of the company’s business; • high net worth individuals; • persons from locations known for their high rates of crime; • businesses or activities identified by the FATF as having higher risk for ML/TF/PF; • legal arrangements that are complex (e.g. nominee relationships or layering with legal persons); and • persons who match the red flag criteria of the reporting institution. (b) Country or geographic risk factors: • countries identified by credible sources, such as mutual evaluation or published follow-up reports, as having inadequate AML/CFT/CPF systems; • countries subject to sanctions, embargos or similar measure issued by, for example, the United Nations; • countries identified by the FATF, other FATF- style regional bodies or other international bodies as having higher ML/TF/PF risk; • countries identified by credible sources as having significant levels of corruption or other criminal activities; and • countries or geographic areas identified by credible sources as providing funding or support for terrorist activities, or that have designated terrorist organisations operating within their country. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 11 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (c) Product, service, transaction or delivery channel risk factors: • anonymous transactions (which may include cash); • non face-to-face business relationships or transactions; • payment received from multiple persons and/or countries that do not match the person’s nature of business and risk profile; and • payment received from unknown or unrelated third parties. “higher risk countries” Refers to countries that are called by FATF or the Government of Malaysia that pose a risk to the international financial system. “intermediary institution” Refers to the institution in a serial or cover payment chain that receives and transmits a wire transfer on behalf of the ordering institution and the beneficiary institution, or another intermediary institution. “international organisations” Refers to entities established by formal political agreements between their member States that have the status of international treaties; their existence is recognised by law in their member countries; and they are not treated as residential institutional units of the countries in which they are located. Examples of international organisations include the following: (a) United Nations and its affiliated international organisations; (b) regional international organisations such as the Association of Southeast Asian Nations, the Council of Europe, institutions of the European Union, the Organisation for Security and Co- operation in Europe and the Organization of American States; (c) military international organisations such as the North Atlantic Treaty Organization; and (d) economic organisations such as the World Trade Organization. “legal arrangement” Refers to express trusts or other similar legal arrangements. “legal person” Refers to any entity other than a natural person that can establish a permanent customer relationship with a reporting institution or otherwise own property. This includes companies, bodies corporate, government- Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 12 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 linked companies (GLC), foundations, partnerships, or associations and other similar entities. GLC refers to an entity where the government is the majority shareholder or single largest shareholder and/or has the ability to exercise and influence major decisions such as appointment of board members and senior management. “mobile channel” Refers to conducting transactions through any electronic device using a mobile application provided by the reporting institution. “money- changing business” Refers to the following businesses: (a) the business of entering into an exchange transaction at a rate of exchange; or (b) the business of buying or selling travellers’ cheques, on behalf of an issuer of travellers’ cheques, at a rate of exchange. “Money or Value Transfer Services (MVTS)” Refers to financial services that involve the acceptance of cash, cheques, other monetary instruments or other stores of value and the payment of a corresponding sum in cash or other forms to a beneficiary by means of communication, message, transfer, or to a clearing network to which the MVTS provider belongs. Transactions performed by such services can involve one or more intermediaries and a final payment to a third party, and may include any new payment methods. “National Risk Assessment (NRA)” Reference to NRA under paragraph 1.4 of this policy document is not limited to the National ML/TF Risk Assessment and includes any sectoral, thematic or emerging risk assessments undertaken by the NCC. “nominator” Refers to an individual (or group of individuals) or legal person that issues instructions (directly or indirectly) to a nominee to act on its behalf in the capacity of a director or a shareholder, also sometimes referred to as a “shadow director” or “silent partner”. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 13 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 “nominee director and shareholder” Refers to an individual or legal person instructed by another individual or legal person (“the nominator”) to act on its behalf in a certain capacity regarding a legal person. A Nominee Director (also known as a “resident director”) is an individual or legal entity that routinely exercises the functions of the director in the company on behalf of and subject to the direct or indirect instructions of the nominator. A Nominee Director is never the beneficial owner of a legal person. A Nominee Shareholder exercises the associated voting rights according to the instructions of the nominator and/or receives dividends on behalf of the nominator. A nominee shareholder is never the beneficial owner of a legal person based on the shares it holds as a nominee. “occasional transaction” Refers to transactions carried out by non-account holder or account holder who conducts transactions that are not normal and customary to the account profile of the customer. “online channel” Refers to conducting transactions through any electronic device other than transactions conducted via the mobile channel. “ordering institution” Refers to the institution which initiates the wire transfer and transfers the funds upon receiving the request for a wire transfer on behalf of the originator. For money services business, ordering institution refers to institutions conducting outward remittance. “originator” Refers to the account holder who allows the wire transfer from that account, or where there is no account, the natural or legal person that places the order with the ordering institution to perform the wire transfer. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 14 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 “payment instrument” Refers to any instrument, whether tangible or intangible, that enables a person to obtain money, goods or services, or to make payment. “payable through account” Refers to correspondent accounts that are used directly by a third party to transact business on their own behalf. “person” Includes a body of persons, corporate or unincorporate. “person conducting the transaction” Refers to any natural person conducting the transaction or purporting to act on behalf of the customer, such as the person depositing into another customer’s account or person undertaking a transaction on behalf of another person. “politically exposed persons (PEPs)” Refers to: (a) foreign PEPs – individuals who are or who have been entrusted with prominent public functions by a foreign country. For example, Heads of State or Government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations and important political party officials; (b) domestic PEPs – individuals who are or have been entrusted domestically with prominent public functions. For example, Heads of State or Government, senior politicians, senior government (includes federal, state and local government), judicial or military officials, senior executives of state-owned corporations and important political party officials; or (c) persons who are or have been entrusted with a prominent function by an international organisation which refers to members of senior management. For example, directors, deputy directors and members of the Board or equivalent functions. The definition of PEPs is not intended to cover middle ranking or more junior individuals in the foregoing categories. “remittance account” Refers to a customer account which contains customer information including personal details and remittance transaction records of the customer that is maintained by a reporting institution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 15 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 “respondent institution” Refers to financial institutions outside Malaysia to which correspondent banking services in Malaysia are provided. “S” Denotes a standard, obligation, requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action. “satisfied” Where reference is made to a reporting institution being “satisfied” as to a matter, the reporting institution must be able to justify its assessment to the supervisory authority in documentary form. “Senior Management” Refers to any person having authority and responsibility for planning, directing or controlling the activities of a reporting institution or legal person or legal arrangement including the management and administration of a reporting institution, legal person or legal arrangement. “serial payment” Refers to a direct sequential chain of payment where the wire transfer and accompanying payment message travel together from the ordering institution to the beneficiary institution directly or through one or more intermediary institutions (e.g. correspondent banks). “shell bank” Refers to a bank that has no physical presence in the country in which it is incorporated and licensed, and which is unaffiliated with a regulated financial group that is subject to effective consolidated supervision. Physical presence means meaningful mind and management located within a country. The existence simply of a local agent or low level staff does not constitute physical presence. “straight - through processing” Refers to payment transactions that are conducted electronically without the need for manual intervention. “supervisory authority” Refers to Bank Negara Malaysia, Securities Commission Malaysia and the Labuan Financial Services Authority. “targeted financial sanctions” Refers to asset freezing and prohibitions to prevent funds or other assets from being made available, directly or indirectly, for the benefit of persons designated or entities specified by the relevant United Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 16 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Nations Security Council Sanctions Committee or the Minister of Home Affairs. “third parties” Refers to reporting institutions that are supervised by a relevant competent authority and that meet the requirements under paragraph 16 on Reliance on Third Parties, namely persons or businesses who are relied upon by the reporting institution to conduct the customer due diligence process. Reliance on third parties often occurs through introductions made by another member of the same financial group or by another financial institution. This definition does not include outsourcing or agency relationships because the outsourced service provider or agent is regarded as synonymous with the reporting institution. “unique transaction reference number” Refers to a combination of letters, numbers, or symbols, determined by the payment service provider, in accordance with the protocols of the payment and settlement system or messaging system used for the wire transfer. “up-to-date information” Refers to information which is as current and up-to-date as possible, and is updated within a reasonable period following any change. ‘’wholesale currency business’’ Refers to the business of: (a) buying or selling foreign currency with an authorised dealer, a money services business licensee under the MSBA or any person outside Malaysia, as the case may be; or (b) importing foreign currency notes from, or exporting foreign currency notes to, any person outside Malaysia. “wire transfer” Refers to any transaction carried out on behalf of an originator through an institution by electronic means with a view to making an amount of funds available to a beneficiary person at a beneficiary institution, irrespective of whether the originator and the beneficiary are the same person. For money service businesses as well as non-bank issuers of designated payment instruments and designated Islamic payment instruments, wire transfer refers to remittance. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 17 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 7 Related Legal Instruments and Policy Documents 7.1 This policy document shall be read together with other documents issued by Bank Negara Malaysia relating to compliance with AML/CFT/CPF requirements and in relation to the implementation of targeted financial sanctions against countries or persons designated by United Nations (UN). 8 Policy Documents and Guidance(s) Superseded 8.1 This policy document supersedes the following Policy Documents: (a) Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) which came into effect on 1 January 2020; and (b) Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) (Supplementary Document No.1) – Money Services Business Sector which came into effect on 30 June 2021. 8.2 This policy document supersedes paragraphs 10.3, 10.4, 10.5 and Appendix 2 of the Interoperable Credit Transfer Framework issued on 23 December 2019. 8.3 This policy document supersedes the following Technical Notes and Guidance, having incorporated the relevant guidance: (a) Technical Note on Implementation of Targeted Financial Sanctions on Terrorism Financing issued on 14 July 2016; (b) Technical Note on Family Members and Close Associate of a PEP issued on 20 June 2017; and (c) Technical Note on Risk-Based Approach on AML/CFT for Reporting Institutions Supervised by Bank Negara Malaysia issued on 23 October 2017. 9 Non-Compliance 9.1 Enforcement and/or supervisory actions can be taken against the reporting institutions including its directors, officers and employees for any non- compliance with any provision marked as “S” in Part B of this policy document. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 18 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 PART B AML/CFT/CPF/TFS REQUIREMENTS 10 Application of Risk-Based Approach 10.1 Risk Management Functions S 10.1.1 In the context of a “Risk-Based Approach”, the intensity and extensiveness of risk management functions shall be proportionate to the nature, scale and complexity of the reporting institution’s activities and ML/TF/PF risk profile. S 10.1.2 The reporting institution’s AML/CFT/CPF risk management function must be aligned and integrated with its overall risk management control function. 10.2 ML/TF Risk Assessment S 10.2.1 Reporting institutions are required to take appropriate steps to identify, assess and understand their ML/TF risks at the institutional level, in relation to their customers, countries or geographical areas and products, services, transactions or delivery channels, and other relevant risk factors. S 10.2.2 In assessing ML/TF risks, reporting institutions are required to have the following processes in place: (a) documenting their risk assessments and findings; (b) considering all the relevant risk factors before determining what is the level of overall risk and the appropriate level and type of mitigation to be applied; (c) keeping the assessment up-to-date through a periodic review; and (d) having appropriate mechanisms to provide risk assessment information to the supervisory authority. S 10.2.3 Reporting institutions are required to conduct additional assessment as and when required by the supervisory authority. S 10.2.4 Reporting institutions shall be guided by the results of the NRA issued by the NCC in conducting their own risk assessments and shall take enhanced measures to manage and mitigate the risks identified in the NRA. G 10.2.5 In conducting the risk assessment in paragraph 10.2.1, reporting institutions may consider whether: (a) it is susceptible to the key and emerging crimes as well as higher risk sectors identified in the NRA when assessing their institutional ML/TF risk; and (b) enhancements to their AML/CFT Compliance Programme are warranted to ensure any areas of higher ML/TF risk are appropriately mitigated. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 19 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 10.3 ML/TF Risk Control and Mitigation S 10.3.1 Reporting institutions are required to: (a) have policies, procedures and controls to manage and mitigate ML/TF risks that have been identified; (b) monitor the implementation of those policies, procedures, controls and to enhance them if necessary; and (c) take enhanced measures to manage and mitigate the risks where higher risks are identified. S 10.3.2 Reporting institutions shall conduct independent control testing on their policies, procedures and controls for the purpose of monitoring the implementation thereof under paragraph 10.3.1(b). 10.4 PF Risk Assessment S 10.4.1 Reporting institutions are required to identify, assess and understand PF risks, where the extent of the assessment shall be appropriate to the nature, size and complexity of their business. The PF risk in this context is limited to potential breach, non-implementation or evasion of the targeted financial sanctions on PF under paragraph 28 of this policy document. G 10.4.2 In conducting the risk assessment, reporting institutions may consider if the existing ML/TF risk assessments methodologies are adequate to incorporate PF risks and may not necessarily require a stand-alone or an entirely new methodology. S 10.4.3 For the purpose of paragraph 10.4.1, reporting institutions are required to identify, assess and understand their PF risks at the institutional level, in relation to their customers, countries or geographical areas and products, services, transactions or delivery channels, and other relevant risk factors. S 10.4.4 In assessing the PF risks, reporting institutions are required to have the following processes in place: (a) documenting their PF risk assessments and findings; (b) keeping the assessment up-to-date through a periodic review; and (c) having appropriate mechanisms to provide PF risk assessment information to the supervisory authority. S 10.4.5 Reporting institutions shall be guided by the results of the NRA and related thematic risk assessment issued in conducting their own risk assessments and shall take enhanced measures to manage and mitigate the risks identified in the NRA. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 20 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 10.5 PF Risk Mitigation S 10.5.1 Reporting institutions are required to: (a) have policies, procedures and controls to manage and mitigate PF risks that have been identified; (b) monitor the implementation of those policies, procedures, controls and to enhance them if necessary; and (c) take commensurate measures to manage and mitigate the risks: (i) where higher PF risks are identified, reporting institutions shall introduce enhanced controls to detect possible breaches, non-implementation or evasion of targeted financial sanctions on PF under paragraph 28 of this policy document; and (ii) where lower PF risks are identified, reporting institutions shall ensure that measures to manage and mitigate the risks are commensurate with the level of risk while ensuring full implementation of the targeted financial sanctions on PF under paragraph 28 of this policy document. S 10.5.2 Reporting institutions shall ensure full implementation of the targeted financial sanctions on PF under paragraph 28 of this policy document irrespective of the institutional PF risk level. 10.6 Customer Risk Profiling S 10.6.1 Reporting institutions are required to conduct risk profiling on their customers and assign an ML/TF/PF risk rating that is commensurate with their risk profile. S 10.6.2 A risk profile must consider the following factors: (a) customer risk (e.g. resident or non-resident, type of customers, occasional or one-off, legal person structure, types of PEP, types of occupation); (b) country or geographical risk (e.g. location of business, origin of customers); (c) products, services, transactions or delivery channels (e.g. cash-based, face-to-face or non face-to-face, cross- border); and (d) any other information suggesting that the customer is of higher risk. G 10.6.3 In identifying countries and geographic risk factors under paragraph 10.6.2(b), reporting institutions may refer to credible sources such as mutual evaluation reports, follow up reports and other relevant reports published by international organisations and other inter-governmental bodies. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 21 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 10.6.4 The risk control and mitigation measures implemented by reporting institutions shall be commensurate with the risk profile of the particular customer or type of customer. S 10.6.5 After the initial acceptance of the customer, reporting institutions are required to regularly review and update the customer’s risk profile based on their level of ML/TF/PF risks. 10.7 AML/CFT/CPF Risk Reporting S 10.7.1 Reporting institutions shall provide timely reporting of the risk assessment, ML/TF/PF risk profile and the effectiveness of risk control and mitigation measures to the Board and Senior Management. The frequency of reporting shall be commensurate with the level of risks involved and the reporting institution’s operating environment. G 10.7.2 The report referred to under paragraph 10.7.1 may include the following: (a) results of AML/CFT/CPF monitoring activities carried out by the reporting institution such as the level of the reporting institution’s exposure to ML/TF/PF risks, break- down of the ML/TF/PF risk exposures based on key activities or customer segments, trends of suspicious transaction reports and cash threshold reports, trends of orders received from law enforcement agencies; (b) details of recent significant risk events, that occur either internally or externally, modus operandi and its impact or potential impact to the reporting institution; and (c) recent developments in AML/CFT/CPF laws and regulations, and its implications to the reporting institution. 10.8 Risk Guidance G 10.8.1 Reporting institutions may refer to the guidance provided in Appendix 1 and guidance papers on the implementation of risk- based approach published by the FATF, FATF style regional bodies or any other internationally recognised institution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 22 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 11 AML/CFT/CPF Compliance Programme 11.1 Policies, Procedures and Controls S 11.1.1 Reporting institutions are required to implement AML/CFT/CPF programmes which correspond to their ML/TF/PF risks and the size of their business. 11.2 Board General S 11.2.1 Board members must understand their roles and responsibilities in managing ML/TF/PF risks identified by the reporting institution. S 11.2.2 Board members must be cognisant of the ML/TF/PF risks associated with business strategies, delivery channels, segment of customers, and geographical coverage of its business products and services. S 11.2.3 Board members must understand the AML/CFT/CPF measures required by the relevant laws, instruments issued under the AMLA as well as industry's standards and best practices in implementing AML/CFT/CPF measures. Roles and Responsibilities S 11.2.4 The Board has the following roles and responsibilities: (a) maintain accountability and oversight for establishing AML/CFT/CPF policies and minimum standards; (b) approve policies regarding AML/CFT/CPF measures within the reporting institution, including those required for risk assessment, mitigation and profiling, customer due diligence (CDD), record keeping, enhanced CDD and on- going due diligence, suspicious transaction report and targeted financial sanctions; (c) approve appropriate mechanisms to ensure the AML/CFT/CPF policies are periodically reviewed and assessed in line with changes and developments in the reporting institution’s products and services, technology as well as trends in ML/TF/PF; (d) approve an effective internal control system for AML/CFT/CPF and maintain adequate oversight of the overall AML/CFT/CPF measures undertaken by the reporting institution; (e) define the lines of authority and responsibility for implementing AML/CFT/CPF measures and ensure that there is a separation of duty between those implementing the policies and procedures and those enforcing the controls; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 23 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (f) ensure effective internal audit function in assessing and evaluating the robustness and adequacy of controls implemented to prevent ML/TF/PF; (g) assess the implementation of the approved AML/CFT/CPF policies through regular reporting and updates by the Senior Management and Audit Committee; and (h) establish a Management Information System (MIS) that is reflective of the nature of the reporting institution’s operations, size of business, complexity of business operations and structure, risk profiles of products and services offered and geographical coverage. 11.3 Senior Management S 11.3.1 Senior Management is accountable for the implementation and management of AML/CFT/CPF compliance programmes in accordance with policies and procedures established by the Board, requirements of the law, regulations, guidelines and the industry’s standards and best practices. Roles and Responsibilities S 11.3.2 The Senior Management has the following roles and responsibilities: (a) be aware of and understand the ML/TF/PF risks associated with business strategies, delivery channels and geographical coverage of its business products and services offered and to be offered including new products, new delivery channels and new geographical coverage; (b) formulate AML/CFT/CPF policies to ensure that they are in line with the risks profiles, nature of business, complexity, volume of the transactions undertaken by the reporting institution and its geographical coverage; (c) establish appropriate mechanisms and formulate procedures to effectively implement AML/CFT/CPF policies and internal controls approved by the Board, including the mechanism and procedures to monitor and detect complex and unusual transactions; (d) undertake review and propose to the Board the necessary enhancements to the AML/CFT/CPF policies to reflect changes in the reporting institution’s risk profiles, institutional and group business structure, delivery channels and geographical coverage; (e) provide timely periodic reporting to the Board on the level of ML/TF/PF risks facing the reporting institution, strength and adequacy of risk management and internal controls implemented to manage the risks and the latest development on AML/CFT/CPF which may have an impact on the reporting institution; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 24 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (f) allocate adequate resources to effectively implement and administer AML/CFT/CPF compliance programmes that are reflective of the size and complexity of the reporting institution’s operations and risk profiles; (g) appoint a Compliance Officer at management level at the Head Office and designate a Compliance Officer at management level at each branch or subsidiary; (h) provide appropriate levels of AML/CFT/CPF training for its employees at all levels within the organisation; (i) ensure that there is a proper channel of communication in place to effectively communicate the AML/CFT/CPF policies and procedures to all levels of employees; (j) ensure that AML/CFT/CPF issues raised are addressed in a timely manner; and (k) ensure the integrity of its employees by establishing appropriate employee assessment system. 11.4 Compliance Management Arrangements at the Head Office S 11.4.1 The Compliance Officer acts as the reference point for AML/CFT/CPF matters within the reporting institution. S 11.4.2 The Compliance Officer must have sufficient stature, authority and seniority within the reporting institution to participate and be able to effectively influence decisions relating to AML/CFT/CPF. S 11.4.3 The Compliance Officer is required to be “fit and proper” to carry out his AML/CFT/CPF responsibilities effectively. S 11.4.4 For the purpose of paragraph 11.4.3, “fit and proper” shall include minimum criteria relating to: (a) probity, personal integrity and reputation; (b) competency and capability; and (c) financial integrity. S 11.4.5 The Compliance Officer must have the necessary knowledge and expertise to effectively discharge his roles and responsibilities, including keeping abreast with the latest developments in ML/TF/PF techniques and the AML/CFT/CPF measures undertaken by the industry. G 11.4.6 The Compliance Officer is encouraged to have the relevant AML/CFT/CPF certification or professional qualifications to carry out his responsibilities effectively. S 11.4.7 Reporting institutions are required to ensure that the roles and responsibilities of the Compliance Officer are clearly defined and documented. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 25 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 11.4.8 The Compliance Officer has a duty to ensure the following: (a) compliance with the AML/CFT/CPF requirements; (b) proper implementation of AML/CFT/CPF policies; (c) effective implementation of appropriate AML/CFT/CPF procedures, including CDD, record-keeping, on-going due diligence, suspicious transaction report and targeted financial sanctions; (d) regular assessment of AML/CFT/CPF mechanism such that it is effective and sufficient to address any change in ML/TF/PF trends; (e) channels of communication from the respective employees to the branch or subsidiary compliance officer and subsequently to the Compliance Officer is secured and information is kept confidential; (f) all employees are aware of the reporting institution’s AML/CFT/CPF measures, including policies, control mechanism and reporting channels; (g) internal suspicious transaction reports by the branch or subsidiary compliance officers are appropriately evaluated before being promptly reported to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia; (h) proper identification of ML/TF/PF risks associated with new products or services or risks arising from the reporting institution’s operational changes, including the introduction of new technology and processes; and (i) compliance with any other obligations that are imposed under this policy document. S 11.4.9 Reporting institutions are required to inform the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, in writing, within ten working days, on the appointment or change in the appointment of the Compliance Officer, including such details as the name, designation, office address, office telephone number, e-mail address and such other information as may be required. 11.5 Employee Screening Procedures 11.5.1 For the purpose of paragraph 11.5, reference to employees includes insurance agents. S 11.5.2 Reporting institutions are required to establish an employee assessment system that is commensurate with the size of operations and risk exposure of reporting institutions to ML/TF/PF. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 26 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 11.5.3 The screening procedures under the employee assessment system shall apply upon hiring the employee and throughout the course of employment. S 11.5.4 The employee assessment system under paragraph 11.5.2 shall include: (a) an evaluation of an employee’s personal information, including criminal records, employment and financial history; and (b) clear parameters or circumstances to trigger re-screening of employees during the course of their employment. G 11.5.5 In conducting financial history assessment, reporting institutions may require employees to submit relevant credit reports or to complete self-declarations on the required information. S 11.5.6 Reporting institutions shall maintain comprehensive records of documents and information relating to, or relied on in, the employee screening process. 11.6 Employee Training and Awareness Programmes S 11.6.1 Reporting institutions shall conduct awareness and training programmes on AML/CFT/CPF practices and measures for their employees. Such training programmes must be conducted regularly and supplemented with refresher courses at appropriate intervals. S 11.6.2 The employees must be made aware that they may be held personally liable for any failure to observe the AML/CFT/CPF requirements. S 11.6.3 Reporting institutions must make available its AML/CFT/CPF policies and procedures for all employees and its documented AML/CFT/CPF measures must contain at least the following: (a) the relevant documents on AML/CFT/CPF issued by Bank Negara Malaysia or relevant supervisory authorities; and (b) the reporting institution’s internal AML/CFT/CPF policies and procedures. S 11.6.4 The training conducted for employees must be appropriate to their level of responsibilities in detecting ML/TF/PF activities and the risks of ML/TF/PF identified by reporting institutions. S 11.6.5 Employees who deal directly with customers shall be trained on AML/CFT/CPF prior to dealing with the customer. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 27 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 11.6.6 Training for all employees may provide a general background on ML/TF/PF, the requirements of CDD and obligations to monitor and report suspicious transactions to the Compliance Officer. G 11.6.7 In addition, training may be provided to specific categories of employees depending on the nature and scope of their functions: (a) Employees who deal directly with customers or establish business relationships may be trained to conduct CDD and on-going due diligence, including circumstances where enhanced CDD is required in higher risk situations. This includes detecting suspicious transactions and taking necessary measures upon determining a transaction to be suspicious; and (b) Employees who are supervisors and managers may be trained on the overall aspects of AML/CFT/CPF procedures and the appropriate risk-based approach to CDD. This includes consequences of non-compliance with requirements set out under this policy document. Training for Insurance and Takaful Agents S 11.6.8 Reporting institutions are required to ensure their insurance and takaful agents received initial and on-going training on relevant AML/CFT/CPF obligations. S 11.6.9 The training programme for the insurance and takaful agents shall include the following: (a) AML/CFT/CPF policies and procedures of reporting institutions including CDD, verification and record keeping requirements; and (b) the identification and escalation of suspicious transactions to the reporting institution. S 11.6.10 Upon identification of any suspicious transaction, the insurance and takaful agents must report the suspicious transaction to the AML/CFT/CPF Compliance Officer at the reporting institution in accordance with its reporting mechanism. 11.7 Independent Audit Function S 11.7.1 Where relevant, the requirements on independent audit functions shall be read together with any relevant legal instruments, policy documents, guidelines and circulars issued by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 28 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 11.7.2 The Board shall ensure regular independent audits of the internal AML/CFT/CPF measures to determine their effectiveness and compliance with the AMLA, its subsidiary legislation, and the relevant documents on AML/CFT/CPF issued by Bank Negara Malaysia as well as the requirements of the relevant laws and regulations of other supervisory authorities, where applicable. S 11.7.3 The Board shall ensure that the roles and responsibilities of the auditor is clearly defined and documented. The roles and responsibilities of the auditor shall include, at a minimum: (a) checking and testing the compliance with the AML/CFT/CPF policies, procedures and controls, and effectiveness thereof; and (b) assessing whether current measures are in line with the latest developments and changes to the relevant AML/CFT/CPF requirements. S 11.7.4 The Board shall determine and ensure that the frequency and scope of independent audits conducted commensurate with the ML/TF/PF risks and vulnerabilities assessed by the reporting institution. S 11.7.5 The scope of the independent audit shall include, at a minimum: (a) compliance with the AMLA, its subsidiary legislation and instruments issued under the AMLA; (b) compliance with the reporting institution’s internal AML/CFT/CPF policies and procedures; (c) adequacy and effectiveness of the AML/CFT/CPF compliance programme; and (d) reliability, integrity and timeliness of the internal and regulatory reporting and management of information systems. G 11.7.6 In determining the frequency of the independent audit, reporting institutions may be guided by the following circumstances: (a) structural changes to the business of the reporting institutions such as mergers and acquisition; (b) changes to the number or volume of transactions reported to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia; (c) introduction of new products and services or new delivery channels; or (d) previous non-compliance relating to AML/CFT/CPF requirements which resulted in enforcement and/or supervisory actions taken against the reporting institution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 29 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 11.7.7 Reporting institutions shall comply with any additional requirements on the frequency and scope of the independent audit as specified by Bank Negara Malaysia. S 11.7.8 The auditor must submit a written audit report to the Board to highlight the assessment on the effectiveness of established AML/CFT/CPF measures and inadequacies in internal controls and procedures including recommended corrective measures. S 11.7.9 Reporting institutions must ensure that such audit findings and the necessary corrective measures undertaken are made available to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia and relevant supervisory authorities, upon request. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 30 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 12 New Products and Business Practices S 12.1 Reporting institutions are required to identify and assess the ML/TF/PF risks that may arise in relation to the development of new products and business practices, including new delivery mechanisms and the use of new or developing technologies for both new and pre-existing products. S 12.2 Reporting institutions are required to: (a) undertake risk assessment prior to the launch or use of such products, practices and technologies; and (b) take appropriate measures to manage and mitigate the risks. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 31 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 13 Applicability to Financial Group, Foreign Branches and Subsidiaries 13.1 Financial Group 13.1.1 The requirements under this paragraph are only applicable to reporting institutions that are part of a financial group. S 13.1.2 A financial holding company under the FSA or IFSA or a licensed person under the FSA or IFSA who is a holding company in a group of corporations, as the case may be, is required to implement group-wide programmes against ML/TF/PF. These programmes must be applicable and appropriate to all branches and subsidiaries of the group. These shall include the following measures: (a) framework for AML/CFT/CPF Compliance programme at the group level; (b) appoint a Group Compliance Officer at management level; (c) policies and procedures for sharing information required for the purposes of CDD and ML/TF/PF risk management; (d) the provision of customer, account and transaction information from branches and subsidiaries when necessary for AML/CFT/CPF purposes; and (e) safeguards on the confidentiality and use of information exchanged. S 13.1.3 A Group Compliance Officer is responsible for developing, coordinating and making a group-wide assessment for the implementation of a single AML/CFT/CPF strategy, including mandatory policies and procedures, and the authorisation to give directions to all branches and subsidiaries. 13.2 Foreign Branches and Subsidiaries S 13.2.1 Reporting institutions are required to closely monitor their foreign branches or subsidiaries operating in jurisdictions with inadequate AML/CFT/CPF laws and regulations as highlighted by the FATF or the Government of Malaysia. S 13.2.2 Reporting institutions and financial groups shall ensure that their foreign branches and subsidiaries apply AML/CFT/CPF measures in a manner that is consistent with the AML/CFT/CPF requirements in Malaysia. Where the minimum AML/CFT/CPF requirements of the host country are less stringent than those of Malaysia, the reporting institution must apply Malaysia’s AML/CFT/CPF requirements, to the extent that host country laws and regulations permit. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 32 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 13.2.3 If the host country does not permit the proper implementation of AML/CFT/CPF measures in a manner that is consistent with the AML/CFT/CPF requirements in Malaysia, the reporting institution and financial group are required to apply additional measures to manage the ML/TF/PF risks, and report to their supervisors in Malaysia on the AML/CFT/CPF gaps and additional measures implemented to manage the ML/TF/PF risks arising from the identified gaps. G 13.2.4 The reporting institution and financial group may consider ceasing the operations of the said branch or subsidiary that is unable to put in place the necessary mitigating controls as required under paragraph 13.2.3. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 33 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14 Customer Due Diligence (CDD) 14A CDD: Banking and Deposit-Taking Institutions S 14A.1 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: (a) establishing business relations; (b) providing money-changing and wholesale currency business; (c) providing wire transfer services; (d) providing electronic-money (e-money); (e) carrying out occasional transactions involving an amount equivalent to RM25,000 and above, including in situations where the transaction is carried out in a single transaction or through several transactions in a day that appear to be linked; (f) carrying out cash transactions involving an amount equivalent to RM25,000 and above; (g) it has any suspicion of ML/TF/PF, regardless of amount; or (h) it has any doubt about the veracity or adequacy of previously obtained information. S 14A.2 Reporting institutions shall refer to paragraph 14A.11 on specific CDD measures in relation to paragraphs 14A.1(b), (c) and (d). S 14A.3 When conducting CDD, reporting institutions are required to: (a) identify the customer and verify that customer’s identity using reliable, independent source documents, data or information; (b) verify that any person acting on behalf of the customer is so authorised, and identify and verify the identity of that person; (c) identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner, using the relevant information or data obtained from a reliable source, such that the reporting institution is satisfied that it knows who the beneficial owner is; and (d) understand, and where relevant, obtain information on the purpose and intended nature of the business relationship. S 14A.4 Where applicable, in conducting CDD, reporting institutions are required to comply with requirements on targeted financial sanctions in relation to: (a) terrorism financing under paragraph 27; (b) proliferation financing of weapons of mass destruction under paragraph 28; and (c) other UN-sanctions under paragraph 29. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 34 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Verification S 14A.5 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. S 14A.6 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. S 14A.7 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14A.5 when verifying the identity of customer or beneficial owner. S 14A.8 Reporting institutions shall verify the identity of the customer or beneficial owner before, or during, the course of establishing a business relationship or conducting a transaction for an occasional customer. 14A.9 Standard CDD Measures Individual Customer and Beneficial Owner S 14A.9.1 In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: (a) full name; (b) National Registration Identity Card (NRIC) number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and mailing address; (d) date of birth; (e) nationality; (f) occupation type; (g) name of employer or nature of self-employment or nature of business; (h) contact number (home, office or mobile); and (i) purpose of transaction. S 14A.9.2 Reporting institutions shall verify the identity of the customer and beneficial owner. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 35 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Legal Persons S 14A.9.3 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14A.9.4 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as Certificate of Incorporation/ Constitution/ Partnership Agreement (certified true copies/duly notarised copies, may be accepted), unique identifier such as tax identification number or any other reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer such as directors’ resolution, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office and, if different, a principal place of business. S 14A.9.5 Reporting institutions are required to identify and verify the person authorised to represent the company or business in writing either by means of a letter of authority or directors’ resolution when dealing with such person. S 14A.9.6 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the following cascading steps: (a) the identity of the natural person(s) (if any) who ultimately has a controlling ownership interest in a legal person. At a minimum, this includes identifying the directors/ shareholders with equity interest of more than twenty-five percent/partners; (b) to the extent that there is doubt as to whether the person(s) with the controlling ownership interest is the beneficial owner(s) referred to in paragraph 14A.9.6(a) or where no natural person(s) exert control through ownership interests, the identity of the natural person (if any) exercising control of the legal person through other means; and (c) where no natural person is identified under paragraphs 14A.9.6(a) or (b), the identity of the relevant natural person who holds the position of Senior Management. For the avoidance of doubt, reporting institutions are not required to pursue steps (b) and (c) in circumstances where beneficial owner(s) have been identified through step (a). Similarly, where beneficial owner(s) have been identified at step (b), reporting institutions are not required to pursue step (c). Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 36 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14A.9.7 Where there is any doubt as to the identity of persons referred to under paragraphs 14A.9.4, 14A.9.5 and 14A.9.6, the reporting institution shall: (a) conduct a basic search or enquiry on the background of such person to ensure that the person has not been or is not in the process of being dissolved or liquidated, or is a bankrupt; and (b) verify the authenticity of the information provided by such person with the Companies Commission of Malaysia, Labuan Financial Services Authority or any other relevant authority. S 14A.9.8 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of directors and shareholders of the legal person which fall under the following categories: (a) public listed companies or corporations listed in Bursa Malaysia; (b) foreign public listed companies: (i) listed in recognised exchanges; and (ii) not listed in higher risk countries; (c) foreign financial institutions that are not from higher risk countries; (d) an authorised person under the FSA and the IFSA (i.e. any person that has been granted a license or approval); (e) persons licensed or registered under the Capital Markets and Services Act 2007; (f) licensed entities under the Labuan Financial Services and Securities Act 2010 and Labuan Islamic Financial Services and Securities Act 2010; (g) prescribed institutions under the DFIA; or (h) licensed entities under the MSBA. S 14A.9.9 Notwithstanding the above, reporting institutions are required to identify and maintain the information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14A.9.8(a) to (h), through a public register, other reliable sources or based on information provided by the customer. G 14A.9.10 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R 6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 37 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Legal Arrangements S 14A.9.11 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14A.9.12 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as trust deed or equivalent document, the unique identifier such as tax identification number or equivalent, or any reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office, and if different, a principal place of business. S 14A.9.13 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: (a) for trusts, the identity of the settlor, the trustee(s), the protector (if any), the beneficiary or class of beneficiaries and objects of a power, and any other natural person exercising ultimate effective control over the trust (including through the chain of control/ownership); or (b) for other types of legal arrangements, the identity of persons in equivalent or similar positions. S 14A.9.14 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any or an occasional transaction. G 14A.9.15 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. S 14A.9.16 Where reliance is placed on third parties under paragraph 14A.9.15, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 38 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Clubs, Societies and Charities S 14A.9.17 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal persons or legal arrangements, as the case may be, and require them to furnish the relevant identification documents including Certificate of Registration and other constituent documents. In addition, reporting institutions are required to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. S 14A.9.18 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. S 14A.9.19 Where there is any doubt as to the identity of persons referred to under paragraphs 14A.9.17 and 14A.9.18, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission of Malaysia, Legal Affairs Division under the Prime Minister’s Department or any other relevant authority. Counter-party S 14A.9.20 Where the reporting institution establishes a relationship with a counter-party, the reporting institution must be satisfied that the counter-party is properly regulated and supervised. S 14A.9.21 Reporting institutions are required to ensure that the counter- party’s CDD process is adequate and the mechanism to identify and verify its customers is reliable and consistent with the requirements in Malaysia. Beneficiary account S 14A.9.22 In the case of beneficiary accounts, reporting institutions are required to perform CDD on the beneficiary and the person acting on behalf of the beneficiary, on an individual basis. S 14A.9.23 In the event that identification on an individual basis cannot be performed, for example where the interests of a group of beneficiaries are pooled together without specific allocation to known individuals, the reporting institution is required to satisfy itself that the funds in the account are not maintained in the interest of other parties which have no relationship with the account. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 39 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 14A.9.24 Reporting institutions may rely on a third party when they are unable to conduct CDD on the clients of professionals, such as legal firms or accountants acting on behalf of their clients. S 14A.9.25 Where reliance is placed on a third party under paragraph 14A.9.24, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. S 14A.9.26 In the event where the person acting on behalf of the beneficiary is unable or refuses to provide the information on the identity of the beneficiaries or give a written undertaking (where applicable), reporting institutions are to comply with the requirements under paragraph 14A.16 on Failure to Satisfactorily Complete CDD. Private Banking S 14A.9.27 Reporting institutions are required to conduct CDD in accordance with the assessed level of ML/TF/PF risks of private banking customers. Credit Cards S 14A.9.28 Reporting institutions are required to conduct appropriate CDD on the supplementary cardholders associated with the personal card account or employees holding corporate cards for the purpose of identification and verification. Custody or Safe Deposit Box Services S 14A.9.29 Reporting institutions are required to be aware of the associated risks arising out of the use of custody or safe deposit box services by its customers. S 14A.9.30 CDD measures for custody or safe deposit box services must be conducted on non-account holders intending to obtain the services. S 14A.9.31 For the purpose of paragraph 14A.9.29, reporting institutions are required to have in place a centralised database on its customers using the custody or safe deposit box services. 14A.10 Simplified CDD G 14A.10.1 Reporting institutions may conduct simplified CDD where ML/ TF/PF risks are assessed to be low except where there are instances of higher risks or suspicion of ML/TF/PF. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 40 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14A.10.2 In relation to paragraph 14A.10.1, reporting institutions are required to have the following processes in place: (a) conduct adequate analysis of ML/TF/PF risk; (b) establish appropriate mechanisms and internal controls for effective on-going monitoring of customers and transactions to ensure prompt detection of unusual or suspicious transactions; (c) obtain the approval of the Board for the implementation of simplified CDD and document all assessments and approvals; and (d) establish appropriate mechanisms to ensure periodic review of the ML/TF/PF risks where simplified CDD is applied. S 14A.10.3 For simplified CDD, reporting institutions are required to obtain the following information from the customer and beneficial owner: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; and (e) nationality. S 14A.10.4 Reporting institutions shall verify the identity of the customer and beneficial owner. Delayed Verification G 14A.10.5 In certain circumstances where the ML/TF/PF risks are assessed as low and verification is not possible at the point of establishing the business relationship, the reporting institution may complete verification after the establishment of the business relationship to allow some flexibilities for its customer and beneficial owner to furnish the relevant documents. S 14A.10.6 Where delayed verification applies, the following conditions must be satisfied: (a) this occurs as soon as reasonably practicable; (b) the delay is essential so as not to interrupt the reporting institution’s normal conduct of business; (c) the ML/TF/PF risks are effectively managed; and (d) there is no suspicion of ML/TF/PF. S 14A.10.7 The term “reasonably practicable” under paragraph 14A.10.6(a) shall not exceed ten working days or any other period as may be specified by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 41 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14A.10.8 Reporting institutions are required to adopt risk management procedures relating to the conditions under which the customer may utilise the business relationship prior to verification, and procedures to mitigate or address the risk of delayed verification. G 14A.10.9 The measures that reporting institutions may take to manage such risks of delayed verification may include limiting the number, types and/or amount of transactions that can be performed. 14A.11 Specific CDD CDD on Money-Changing Business and Wholesale Currency Business S 14A.11.1 Reporting institutions must conduct CDD and obtain the following information, for transactions involving an amount between RM3,000 to RM10,000: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; (e) nationality; and (f) purpose of transaction. S 14A.11.2 Reporting institutions shall conduct standard CDD measures for transactions involving an amount equivalent to RM10,000 and above. CDD on Wire Transfer S 14A.11.3 Reporting institutions must conduct CDD and obtain the following information, for transactions involving an amount below RM3,000: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; (e) nationality; and (f) purpose of transaction. S 14A.11.4 Reporting institutions shall conduct standard CDD measures for transactions involving an amount equivalent to RM3,000 and above. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 42 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 CDD on E-Money S 14A.11.5 Reporting institutions are subject to standard CDD measures when any of the following conditions are met: (a) the account limit is equivalent to RM5,000 and above; (b) the monthly transaction is equivalent to RM5,000 and above; (c) the annual transaction is equivalent to RM60,000 and above; (d) the account is for payments of goods and/or services outside Malaysia; (e) the account is for cross-border wire transfers; or (f) the account is used for cash withdrawal. G 14A.11.6 Reporting institutions may conduct simplified CDD for account limits between RM3,000 and RM4,999, when all the following conditions are met: (a) the monthly transaction is below RM5,000; (b) the annual transaction is below RM60,000; (c) the account is used for payments of goods and/or services within Malaysia only; (d) the account is used for domestic wire transfers; and (e) cash withdrawal or cross-border wire transfers are not permitted. S 14A.11.7 Reporting institutions are required to conduct simplified CDD at a minimum, where the account limit is below RM3,000 and may be used for domestic wire transfers. S 14A.11.8 In relation to paragraphs 14A.11.6 and 14A.11.7, reporting institutions shall ensure the e-money account is linked to the following for reload and refund purposes: (a) customer’s current or savings account maintained with a licensed bank under the FSA or licensed Islamic bank under the IFSA, or any other prescribed institution under the DFIA; or (b) customer’s credit card, credit card-i, debit card, debit card- i, charge card or charge card-i account maintained with approved issuers under the FSA or IFSA. G 14A.11.9 Notwithstanding the account limits, reporting institutions may apply simplified CDD for e-money accounts used for specific purpose payments only, with prior approval from Bank Negara Malaysia. The term “specific purpose payments” refer to payments of goods and/or services for a limited and well-defined usage, accepted at specific points of sales. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 43 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 14A.11.10 Reporting institutions may refer to Appendix 3 for guidance on CDD measures for e-money. 14A.12 Enhanced CDD S 14A.12.1 Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: (a) obtaining CDD information under paragraph 14A.9; (b) obtaining additional information on the customer and beneficial owner (e.g. volume of assets and other information from public databases); (c) enquiring on the source of wealth or source of funds. In the case of PEPs, both sources must be obtained; and (d) obtaining approval from the Senior Management of the reporting institution before establishing (or continuing, for existing customer) such business relationship with the customer. In the case of PEPs, Senior Management refers to Senior Management at the head office. G 14A.12.2 In addition to paragraph 14A.12.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: (a) obtaining additional information on the intended level and nature of the business relationship; (b) where relevant, obtain additional information on the beneficial owner of the beneficiaries (e.g. occupation, volume of assets, information available through public databases); (c) inquiring on the reasons for intended or performed transactions; and (d) requiring the first payment to be carried out through an account in the customer’s name with a bank subject to similar CDD measures. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 44 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14A.13 On-Going Due Diligence S 14A.13.1 Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: (a) scrutinising transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the reporting institution’s knowledge of the customer, their business and risk profile, including where necessary, the source of funds; and (b) ensuring that documents, data or information collected under the CDD process is kept up-to-date and relevant, by undertaking reviews of existing records particularly for higher risk customers. G 14A.13.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: (a) appears unusual; (b) is inconsistent with the expected type of activity and business model when compared to the volume of transaction; (c) does not have any apparent economic purpose; or (d) casts doubt on the legality of such transactions, especially with regard to complex and large transactions or involving higher risk customers. S 14A.13.3 The frequency in implementing paragraph 14A.13.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. S 14A.13.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. S 14A.13.5 When conducting enhanced on-going due diligence, reporting institutions are required to: (a) increase the number and timing of controls applied; and (b) select patterns of transactions that need further examination. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 45 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14A.14 Existing Customers – Materiality and Risk 14A.14.1 Existing customers in this paragraph refers to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. S 14A.14.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. S 14A.14.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. G 14A.14.4 In assessing materiality and risk of existing customers under paragraph 14A.14.2, reporting institutions may consider the following circumstances: (a) the nature and circumstances surrounding the transaction including the significance of the transaction; (b) any material change in the way the account or business relationship is operated; or (c) insufficient information held on the customer or change in customer’s information. 14A.15 Non Face-to-Face Business Relationship G 14A.15.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. S 14A.15.2 The requirements on non-FTF business relationship shall be read together with the Electronic Know Your Customer (e-KYC) policy document and any relevant policy document, guidelines or circulars issued pursuant to the e-KYC policy document. S 14A.15.3 Reporting institutions shall obtain approval from their Board prior to the implementation of non-FTF business relationships. S 14A.15.4 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by Bank Negara Malaysia. S 14A.15.5 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 46 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14A.15.6 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. S 14A.15.7 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through e-KYC are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of e-KYC. G 14A.15.8 In relation to paragraph 14A.15.7, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. S 14A.15.9 In relation to paragraph 14A.15.7, reporting institutions shall take measures to identify and verify the customer’s identity through any of the following: (a) establishing independent contact with the customer; (b) verifying the customer’s information against reliable and independent sources to confirm the customer’s identity and identifying any known or suspected ML/TF/PF risks associated with the customer; or (c) requesting, sighting and maintaining records of additional documents required to perform face-to-face customer verifications. S 14A.15.10 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF compliance programme. 14A.16 Failure to Satisfactorily Complete CDD S 14A.16.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 22. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 47 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14A.17 CDD and Tipping-Off S 14A.17.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis for not completing the CDD and immediately file a suspicious transaction report under paragraph 22. G 14A.17.2 Notwithstanding paragraph 14A17.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 48 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14B CDD: Insurance and Takaful 14B.1 General S 14B.1.1 For any business transactions secured through agents, reporting institutions shall ensure their agents perform CDD as specified in this policy document. S 14B.1.2 Reporting institutions are required to set out the processes that must be undertaken by the agents in conducting CDD as well as appropriate enforceable action by reporting institutions in the arrangement or agreement with agents. S 14B.2 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: (a) establishing business relations; (b) it has any suspicion of ML/TF/PF, regardless of amount; or (c) it has any doubt about the veracity or adequacy of previously obtained information. S 14B.3 When conducting CDD, reporting institutions are required to: (a) identify the customer and verify that customer’s identity using reliable, independent source documents, data or information; (b) verify that any person acting on behalf of the customer is so authorised, and identify and verify the identity of that person; (c) identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner, using the relevant information or data obtained from a reliable source, such that the reporting institution is satisfied that it knows who the beneficial owner is; and (d) understand, and where relevant, obtain information on the purpose and intended nature of the business relationship. S 14B.4 Where applicable, in conducting CDD, reporting institutions are required to comply with requirements on targeted financial sanctions in relation to: (a) terrorism financing under paragraph 27; (b) proliferation financing of weapons of mass destruction under paragraph 28; and (c) other UN-sanctions under paragraph 29. Verification S 14B.5 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. S 14B.6 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 49 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14B.7 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14B.5 when verifying the identity of customer or beneficial owner. S 14B.8 Reporting institutions are not required to conduct verification on insurance policy / takaful certificate owners sold via any banking institution if it is satisfied that prior verification has been conducted by the banking institution in accordance with paragraph 16 on Reliance on Third Parties. S 14B.9 Reporting institutions shall verify the identity of the customer or beneficial owner before, or during, the course of establishing a business relationship. G 14B.10 Reporting institutions may choose not to conduct further verification on previously conducted CDD in the following circumstances: (a) for renewal and reinstatement of policies/certificates with no significant changes to the terms and conditions of the insurance policy/takaful certificate (including benefits under the insurance policy/takaful certificate); or (b) for applications of pure insurance/takaful covers which do not provide for payment of surrender values, including hospital and surgical insurance, critical illness insurance and pure term life insurance/family takaful covers. 14B.11 Standard CDD Measures Individual Customer and Beneficial Owner S 14B.11.1 In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: (a) full name; (b) National Registration Identity Card (NRIC) number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and mailing address; (d) date of birth; (e) nationality; (f) occupation type; (g) name of employer or nature of self-employment or nature of business; (h) contact number (home, office or mobile); and (i) purpose of transaction. S 14B.11.2 Reporting institutions shall verify the identity of the customer and beneficial owner. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 50 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Beneficiaries S 14B.11.3 In addition to the CDD measures required under paragraph 14B.3, reporting institutions are also required to conduct the following CDD measures on the beneficiary, as soon as the beneficiary is identified/designated: (a) for a beneficiary that is identified as a specifically named natural person, by identifying the following: (i) full name; (ii) NRIC number or passport number or reference number of any other official documents of the beneficiary; (iii) date of birth; and (iv) address. (b) for a beneficiary that is identified as a specifically named legal person or legal arrangement, by identifying the following: (i) name, legal form and proof of existence; (ii) date of incorporation; and (iii) address. (c) for a beneficiary that is designated by characteristics or by class or by other means, the reporting institution shall obtain sufficient information (e.g. under a will of testament) concerning the beneficiary so as to satisfy itself that it will be able to establish the identity of the beneficiary at the time of the payout. S 14B.11.4 For the purposes of paragraphs 14B.11.3 (a), (b) and (c), the verification of the identity of the beneficiary must occur latest at the time of the payout. G 14B.11.5 Reporting institutions may rely on a third party to verify the identity of the beneficiaries. Group Customers S 14B.11.6 Reporting institutions are required to identify and verify the customer (i.e. master policy/certificate owner) at the point of sale. S 14B.11.7 Reporting institutions are required to establish the necessary mechanisms to identify the beneficiaries (i.e. insured members) of group policies/group takaful certificates at the point of sale, either from the master policy/certificate owner or directly from the insured members, to ensure compliance with CDD obligations and requirements on targeted financial sanctions under paragraphs 27, 28 and 29. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 51 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14B.11.8 Reporting institutions are required to verify the identity of beneficiaries of group policies/group takaful certificates latest at the time of payout. Legal Persons S 14B.11.9 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14B.11.10 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as Certificate of Incorporation/ Constitution/ Partnership Agreement (certified true copies/duly notarised copies, may be accepted), unique identifier such as tax identification number or any other reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer such as directors’ resolution, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office and, if different, a principal place of business. S 14B.11.11 Reporting institutions are required to identify and verify the person authorised to represent the company or business either by means of a letter of authority or directors’ resolution when dealing with such person. S 14B.11.12 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the following cascading steps: (a) the identity of the natural person(s) (if any) who ultimately has a controlling ownership interest in a legal person. At a minimum, this includes identifying the directors/ shareholders with equity interest of more than twenty-five percent/partners; (b) to the extent that there is doubt as to whether the person(s) with the controlling ownership interest is the beneficial owner(s) referred to in paragraph 14B.11.12(a) or where no natural person(s) exert control through ownership interests, the identity of the natural person (if any) exercising control of the legal person through other means; and (c) where no natural person is identified under paragraphs 14B.11.12(a) or (b), the identity of the relevant natural person who holds the position of Senior Management. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 52 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 For the avoidance of doubt, reporting institutions are not required to pursue steps (b) and (c) in circumstances where beneficial owner(s) have been identified through step (a). Similarly, where beneficial owner(s) have been identified at step (b), reporting institutions are not required to pursue step (c). S 14B.11.13 Where there is any doubt as to the identity of persons referred to under paragraphs 14B.11.10, 14B11.11 and 14B.11.12, the reporting institution shall: (a) conduct a basic search or enquiry on the background of such person to ensure that the person has not been or is not in the process of being dissolved or liquidated, or is a bankrupt; and (b) verify the authenticity of the information provided by such person with the Companies Commission of Malaysia, Labuan Financial Services Authority or any other relevant authority. S 14B.11.14 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of directors and shareholders of the legal person which fall under the following categories: (a) public listed companies or corporations listed in Bursa Malaysia; (b) foreign public listed companies: (i) listed in recognised exchanges; and (ii) not listed in higher risk countries; (c) foreign financial institutions that are not from higher risk countries; (d) an authorised person under the FSA and the IFSA (i.e. any person that has been granted a license or approval); (e) persons licensed or registered under the Capital Markets and Services Act 2007; (f) licensed entities under the Labuan Financial Services and Securities Act 2010 and Labuan Islamic Financial Services and Securities Act 2010; (g) prescribed institutions under the DFIA; or (h) licensed entities under the MSBA. S 14B.11.15 Notwithstanding the above, reporting institutions are required to identify and maintain the information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14B.11.14(a) to (h), through a public register, other reliable sources or based on information provided by the customer. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 53 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 14B.11.16 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R 6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Legal Arrangements S 14B.11.17 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14B.11.18 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as trust deed or equivalent document, the unique identifier such as tax identification number or equivalent, any reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office, and if different, a principal place of business. S 14B.11.19 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: (a) for trusts, the identity of the settlor, the trustee(s), the protector (if any), the beneficiary or class of beneficiaries and objects of a power, and any other natural person exercising ultimate effective control over the trust (including through the chain of control/ownership); or (b) for other types of legal arrangements, the identity of persons in equivalent or similar positions. S 14B.11.20 For the purpose of identifying beneficiaries of trusts that are designated by characteristics or by class under paragraph 14B.11.19, reporting institutions are required to obtain sufficient information concerning the beneficiary in order to be satisfied that it would be able to establish the identity of the beneficiary at the time of the payout or when the beneficiary intends to exercise vested rights. S 14B.11.21 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any transaction. G 14B.11.22 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 54 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14B.11.23 Where reliance is placed on third parties under paragraph 14B.11.22, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Clubs, Societies and Charities S 14B.11.24 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal person or legal arrangements, as the case may be, and require them to furnish the relevant identification documents including Certificate of Registration and constituent documents. In addition, reporting institutions are required to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. S 14B.11.25 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. S 14B.11.26 Where there is any doubt as to the identity of persons referred to under paragraphs 14B.11.24 and 14B.11.25, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission of Malaysia, Legal Affairs Division under the Prime Minister’s Department or any other relevant authority. Reinsurance/Retakaful Arrangement S 14B.11.27 Under a reinsurance/ retakaful arrangement, reporting institutions are required to carry out verification only on the ceding company, and not on the ceding company’s customers. The following verification procedure applies: (a) verification is not required where the ceding company is licensed under the FSA, takaful operator licensed under the IFSA, licensed entities under the Labuan Financial Services and Securities Act 2010 or Labuan Islamic Financial Services and Securities Act 2010; and (b) reinsurers/retakaful operators are required to take necessary steps to verify that the ceding company is authorised to carry on insurance/takaful business in its home jurisdiction which enforces AML/CFT/CPF standards equivalent to those in the AMLA. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 55 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14B.12 Simplified CDD G 14B.12.1 Reporting institutions may conduct simplified CDD where ML/TF/PF risks are assessed to be low except where there are instances of higher risks or suspicion of ML/TF/PF. G 14B.12.2 Reporting institutions may refer to the features of low risk insurance policies/takaful certificates as may be issued by Bank Negara Malaysia. S 14B.12.3 In relation to paragraph 14B.12.1, reporting institutions are required to have the following processes in place: (a) conduct adequate analysis of ML/TF/PF risk; (b) establish appropriate mechanisms and internal controls for effective on-going monitoring of customers and transactions to ensure prompt detection of unusual or suspicious transactions; (c) obtain the approval of the Board for the implementation of simplified CDD and document all assessments and approvals; and (d) establish appropriate mechanisms to ensure periodic review of the ML/TF/PF risks where simplified CDD is applied. S 14B.12.4 For simplified CDD, reporting institutions are required to obtain the following information from the customer and beneficial owner: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; and (e) nationality. S 14B.12.5 Reporting institutions shall verify the identity of the customer and beneficial owner. 14B.13 Delayed Verification G 14B.13.1 Reporting institutions may apply delayed verification, where: (a) simplified CDD measures apply; or (b) insurance policy/takaful certificate sold with insurance premiums/takaful contribution of below RM5,000 per annum or below RM10,000 for any single premium/takaful contribution insurance policy/takaful certificate. S 14B.13.2 The delayed verification of the customers, beneficial owners and beneficiaries must take place latest at the time of payout. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 56 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14B.13.3 Reporting institutions must have in place measures to prevent transactions from being artificially split to avoid the thresholds as specified in paragraph 14B.13.1(b). Therefore, the aggregated premium/takaful contribution size of multiple policies per customer must be taken into consideration. 14B.14 Enhanced CDD S 14B.14.1 Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: (a) obtaining CDD information under paragraph 14B.11; (b) obtaining additional information on the customer and beneficial owner (e.g. volume of assets and other information from public databases); (c) inquiring on the source of wealth or source of funds. In the case of PEPs, both sources must be obtained; and (d) obtaining approval from the Senior Management of the reporting institution before establishing (or continuing, for existing customer) such business relationship with the customer. In the case of PEPs, Senior Management refers to Senior Management at the head office. S 14B.14.2 Reporting institutions are required to include the beneficiary of a life insurance policy/family takaful certificate as a relevant risk factor in determining whether enhanced CDD measures are applicable. If the reporting institutions determine that a beneficiary who is a legal person or a legal arrangement presents a higher risk, reporting institutions are required to take enhanced measures which include taking reasonable measures to identify and verify the identity of the beneficial owner of the beneficiary, latest at the time of payout. G 14B.14.3 In addition to paragraph 14B.14.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: (a) obtaining additional information on the beneficial owner of the beneficiaries (e.g. occupation, volume of assets, information available through public databases); and (b) requiring the first payment to be carried out through an account in the customer’s name with a bank subject to similar CDD measures. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 57 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 In relation to PEPs S 14B.14.4 Where the beneficiaries or the beneficial owner of the beneficiaries are PEPs and assessed as higher risk at the latest, at the time of payout, reporting institutions are required to: (a) inform Senior Management before the payout of the policy/certificate proceeds; (b) conduct enhanced scrutiny on the whole business relationship with the policyholder; and (c) consider lodging a suspicious transaction report. 14B.15 On-Going Due Diligence S 14B.15.1 Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: (a) scrutinising transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the reporting institution’s knowledge of the customer, their business and risk profile, including where necessary, the source of funds; and (b) ensuring that documents, data or information collected under the CDD process is kept up-to-date and relevant, by undertaking reviews of existing records particularly for higher risk customers. G 14B.15.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: (a) appears unusual; (b) is inconsistent with the expected type of activity and business model when compared to the volume of transaction; (c) does not have any apparent economic purpose; or (d) casts doubt on the legality of such transactions, especially with regard to complex and large transactions or involving higher risk customers. S 14B.15.3 The frequency in implementing paragraph 14B.15.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. S 14B.15.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 58 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14B.15.5 When conducting enhanced on-going due diligence, reporting institutions are required to: (a) increase the number and timing of controls applied; and (b) select patterns of transactions that need further examination. 14B.16 Existing Customers – Materiality and Risk 14B.16.1 Existing customers in this paragraph refers to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. S 14B.16.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. S 14B.16.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. G 14B.16.4 In assessing materiality and risk of existing customers under paragraph 14B.16.2, reporting institutions may consider the following circumstances: (a) the nature and circumstances surrounding the transaction including the significance of the transaction; (b) any material change in the way the account or business relationship is operated; or (c) insufficient information held on the customer or change in customer’s information. 14B.17 Non Face-to-Face Business Relationship G 14B.17.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. S 14B.17.2 The requirements on non-FTF business relationship shall be read together with the Electronic Know Your Customer (e-KYC) policy document and any relevant policy document, guidelines or circulars issued pursuant to the e-KYC policy document. S 14B.17.3 Reporting institutions shall obtain approval from their Board prior to the implementation of non-FTF business relationships. S 14B.17.4 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 59 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14B.17.5 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. S 14B.17.6 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. S 14B.17.7 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through e-KYC are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of e-KYC. G 14B.17.8 In relation to paragraph 14B.17.7, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. S 14B.17.9 In relation to paragraph 14B.17.7, reporting institutions shall take measures to identify and verify the customer’s identity through any of the following: (a) establishing independent contact with customer; (b) verifying the customer’s information against reliable and independent sources to confirm the customer’s identity and identifying any known or suspected ML/TF/PF risks associated with the customer; or (c) requesting, sighting and maintaining records of additional documents required to perform face-to-face customer verifications. S 14B.17.10 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF compliance programme. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 60 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14B.18 Failure to Satisfactorily Complete CDD S 14B.18.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 22. 14B.19 CDD and Tipping-Off S 14B.19.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis for not completing the CDD and immediately file a suspicious transaction report under paragraph 22. G 14B.19.2 Notwithstanding paragraph 14B.19.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 61 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14C CDD: Money Services Business S 14C.1 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: (a) establishing business relations, where applicable; (b) providing money-changing and wholesale currency business; (c) providing wire transfer/remittance services; (d) it has any suspicion of ML/TF/PF, regardless of the amount transacted; or (e) it has any doubt about the veracity or adequacy of previously obtained information. S 14C.2 Reporting institutions shall refer to paragraph 14C.12 on specific CDD measures in relation to paragraph 14C.1(b) and (c). Notice to Customer S 14C.3 For the purpose of CDD under paragraphs 14C.1(b) and (c), reporting institutions shall display in a conspicuous position at its approved premises (both physical and digital) a notice, in the format provided below, informing its customers of the CDD requirements: Notice to Customer (Money-changing and wholesale currency business) Customer Due Diligence (CDD) is a requirement under the Anti-Money Laundering, Anti- Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) and Money Services Business Act 2011 (MSBA). CDD shall be conducted on customer conducting transactions involving an amount equivalent to RM3,000 and above. Please produce your identification document before making any transaction involving an amount equivalent to RM3,000 and above. Where new business relationships are established through non face-to-face channels, CDD shall be conducted for all such customers, including for transactions below RM3,000. Notis kepada Pelanggan (Pengurupan wang dan perniagaan matawang borong) Pelaksanaan Usaha Wajar Pelanggan (Customer Due Diligence / CDD) adalah satu keperluan di bawah Akta Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan dan Hasil daripada Aktiviti Haram 2001 (AMLA) dan Akta Perniagaan Perkhidmatan Wang 2011 (MSBA). Usaha Wajar Pelanggan akan dilaksanakan terhadap pelanggan yang melakukan transaksi dengan nilai bersamaan atau melebihi RM3,000 untuk setiap transaksi. Sila sediakan dokumen pengenalan anda sebelum menjalankan transaksi dengan nilai bersamaan atau melebihi RM3,000 untuk setiap transaksi. Sekiranya hubungan perniagaan yang baharu dimulakan melalui saluran tanpa bersemuka, Usaha Wajar Pelanggan hendaklah dilaksanakan terhadap semua pelanggan tersebut, termasuk transaksi di bawah RM3,000. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 62 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14C.4 When conducting CDD, reporting institutions are required to: (a) identify the customer and verify that customer’s identity using reliable, independent source documents, data or information; (b) verify that any person acting on behalf of the customer is so authorised, and identify and verify the identity of that person; (c) identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner, using the relevant information or data obtained from a reliable source, such that the reporting institution is satisfied that it knows who the beneficial owner is; and (d) understand, and where relevant, obtain information on the purpose and intended nature of the business relationship. S 14C.5 Where applicable, in conducting CDD, reporting institutions are required to comply with requirements on targeted financial sanctions in relation to: (a) terrorism financing under paragraph 27; (b) proliferation financing of weapons of mass destruction under paragraph 28; and (c) other UN-sanctions under paragraph 29. Notice to Customer (Remittance service) Customer Due Diligence (CDD) is a requirement under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) and Money Services Business Act 2011 (MSBA). CDD shall be conducted on customer conducting any remittance transaction. Please produce your identification document before making any transaction. Notis kepada Pelanggan (Perkhidmatan pengirim wang) Pelaksanaan Usaha Wajar Pelanggan (Customer Due Diligence / CDD) adalah satu keperluan di bawah Akta Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan dan Hasil daripada Aktiviti Haram 2001 (AMLA) dan Akta Perniagaan Perkhidmatan Wang 2011 (MSBA). Usaha Wajar Pelanggan akan dilaksanakan terhadap pelanggan yang melakukan transaksi pengiriman wang. Sila sediakan dokumen pengenalan anda sebelum menjalankan sebarang transaksi. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 63 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Verification S 14C.6 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. S 14C.7 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. S 14C.8 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14C.6 when verifying the identity of customer or beneficial owner. S 14C.9 Reporting institutions shall verify the identity of the customer or beneficial owner before, or during, the course of establishing a business relationship or conducting a transaction for an occasional customer. 14C.10 Standard CDD Measures Individual Customer and Beneficial Owner S 14C.10.1 In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: (a) full name; (b) National Registration Identity Card (NRIC) number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and mailing address; (d) date of birth; (e) nationality; (f) occupation type; (g) name of employer or nature of self-employment or nature of business; (h) contact number (home, office or mobile); and (i) purpose of transaction. S 14C.10.2 Reporting institutions shall verify the identity of the customer and beneficial owner. G 14C.10.3 Reporting institutions may refer to Appendix 2 for the customer due diligence form. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 64 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Legal Persons S 14C.10.4 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14C.10.5 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as Certificate of Incorporation/ Constitution/ Partnership Agreement (certified true copies/duly notarised copies, may be accepted), unique identifier such as tax identification number or any other reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer such as directors’ resolution, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office and, if different, a principal place of business. S 14C.10.6 Reporting institutions are required to identify and verify the person authorised to represent the company or business either by means of a letter of authority or directors’ resolution when dealing with such person. S 14C.10.7 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the following cascading steps: (a) the identity of the natural person(s) (if any) who ultimately has a controlling ownership interest in a legal person. At a minimum, this includes identifying the directors/ shareholders with equity interest of more than twenty-five percent/partners; (b) to the extent that there is doubt as to whether the person(s) with the controlling ownership interest is the beneficial owner(s) referred to in paragraph 14C.10.7(a) or where no natural person(s) exert control through ownership interests, the identity of the natural person (if any) exercising control of the legal person through other means; and (c) where no natural person is identified under paragraphs 14C.10.7(a) or (b), the identity of the relevant natural person who holds the position of Senior Management. For the avoidance of doubt, reporting institutions are not required to pursue steps (b) and (c) in circumstances where beneficial owner(s) have been identified through step (a). Similarly, where beneficial owner(s) have been identified at step (b), reporting institutions are not required to pursue step (c). Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 65 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14C.10.8 Where there is any doubt as to the identity of persons referred to under paragraphs 14C.10.5, 14C.10.6 and 14C.10.7, the reporting institution shall: (a) conduct a basic search or enquiry on the background of such person to ensure that the person has not been or is not in the process of being dissolved or liquidated, or is a bankrupt; and (b) verify the authenticity of the information provided by such person with the Companies Commission of Malaysia, Labuan Financial Services Authority or any other relevant authority. S 14C.10.9 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of the directors and shareholders of the legal person which fall under the following categories: (a) public listed companies or corporations listed in Bursa Malaysia; (b) foreign public listed companies: (i) listed in recognised exchanges; and (ii) not listed in higher risk countries; (c) foreign financial institutions that are not from higher risk countries; (d) an authorised person under the FSA and the IFSA (i.e. any person that has been granted a license or approval); (e) persons licensed or registered under the Capital Markets and Services Act 2007; (f) licensed entities under the Labuan Financial Services and Securities Act 2010 and Labuan Islamic Financial Services and Securities Act 2010; (g) prescribed institutions under the DFIA; or (h) licensed entities under the MSBA. S 14C.10.10 Notwithstanding the above, reporting institutions are required to identify and maintain the information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14C.10.9 (a) to (h), through a public register, other reliable sources or based on information provided by the customer. G 14C.10.11 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R 6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 66 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Legal Arrangements S 14C.10.12 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14C.10.13 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as trust deed or equivalent document, the unique identifier such as tax identification number or equivalent, or any reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office, and if different, a principal place of business. S 14C.10.14 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: (a) for trusts, the identity of the settlor, the trustee(s), the protector (if any), the beneficiary or class of beneficiaries and objects of a power, and any other natural person exercising ultimate effective control over the trust (including through the chain of control/ownership); or (b) for other types of legal arrangements, the identity of persons in equivalent or similar positions. S 14C.10.15 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any or an occasional transaction. G 14C.10.16 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. S 14C.10.17 Where reliance is placed on third parties under paragraph 14C.10.16, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 67 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Clubs, Societies and Charities S 14C.10.18 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal persons or legal arrangements, as the case may be, and require the customers to furnish the relevant identification documents including Certificate of Registration and constituent documents. In addition, reporting institutions are require to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. S 14C.10.19 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. S 14C.10.20 Where there is any doubt as to the identity of persons referred to under paragraphs 14C.10.18 and 14C.10.19, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission of Malaysia, Legal Affairs Division under the Prime Minister’s Department or any other relevant authority. 14C.11 Simplified CDD G 14C.11.1 Reporting institutions may conduct simplified CDD where ML/TF/PF risks are assessed to be low except where there are instances of higher risks or suspicion of ML/TF/PF. S 14C.11.2 In relation to paragraph 14C.11.1, reporting institutions are required to have the following processes in place: (a) conduct adequate analysis of ML/TF/PF risk; (b) establish appropriate mechanisms and internal controls for effective on-going monitoring of customers and transactions to ensure prompt detection of unusual or suspicious transactions; (c) obtain the approval of the Board for the implementation of simplified CDD and document all assessments and approvals; and (d) establish appropriate mechanisms to ensure periodic review of the ML/TF/PF risks where simplified CDD is applied. S 14C.11.3 Reporting institutions shall obtain prior written approval from Bank Negara Malaysia (addressed to Pengarah, Jabatan Pemantauan Perkhidmatan Pembayaran, Bank Negara Malaysia) to implement simplified CDD. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 68 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14C.11.4 For simplified CDD, reporting institutions are required to obtain the following information from the customer and beneficial owner: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; and (e) nationality. S 14C.11.5 Reporting institutions shall verify the identity of the customer and beneficial owner. Delayed Verification G 14C.11.6 In certain circumstances where the ML/TF/PF risks are assessed as low and verification is not possible at the point of establishing the business relationship, the reporting institution may complete verification after the establishment of the business relationship to allow some flexibilities for its customer and beneficial owner to furnish the relevant documents. S 14C.11.7 Where delayed verification applies, the following conditions must be satisfied: (a) this occurs as soon as reasonably practicable; (b) the delay is essential so as not to interrupt the reporting institution’s normal conduct of business; (c) the ML/TF/PF risks are effectively managed; and (d) there is no suspicion of ML/TF/PF. S 14C.11.8 The term “reasonably practicable” under paragraph 14C.11.7(a) shall not exceed ten working days or any other period as may be specified by Bank Negara Malaysia. S 14C.11.9 Reporting institutions are required to adopt risk management procedures relating to the conditions under which the customer may utilise the business relationship prior to verification, and procedures to mitigate or address the risk of delayed verification. G 14C.11.10 The measures that reporting institutions may take to manage such risks of delayed verification may include limiting the number, types and/or amount of transactions that can be performed. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 69 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14C.12 Specific CDD CDD on Money-Changing and Wholesale Currency Business S 14C.12.1 Reporting institutions must conduct CDD and obtain the following information, for transactions involving an amount between RM3,000 to RM10,000: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; (e) nationality; and (f) purpose of transaction. S 14C.12.2 Reporting institutions shall conduct standard CDD measures for transactions involving an amount equivalent to RM10,000 and above. CDD on Wire Transfer / Remittance Services S 14C.12.3 Reporting institutions must conduct CDD and obtain the following information, for transactions involving an amount below RM3,000: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; (e) nationality; and (f) purpose of transaction. S 14C.12.4 Reporting institutions shall conduct standard CDD measures for transactions involving an amount equivalent to RM3,000 and above. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 70 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14C.13 Enhanced CDD S 14C.13.1 Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: (a) obtaining CDD information under paragraph 14C.10; (b) obtaining additional information on the customer and beneficial owner (e.g. volume of assets and other information from public databases); (c) inquiring on the source of wealth or source of funds. In the case of PEPs, both sources must be obtained; and (d) obtaining approval from the Senior Management of the reporting institution before establishing (or continuing, for existing customer) such business relationship with the customer. In the case of PEPs, Senior Management refers to Senior Management at the head office. G 14C.13.2 In addition to paragraph 14C.13.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: (a) obtaining additional information on the intended level and nature of the business relationship; (b) inquiring on the reasons for intended or performed transactions; and (c) requiring the first payment to be carried out through an account in the customer’s name with a bank subject to similar CDD measures. 14C.14 On-Going Due Diligence S 14C.14.1 Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: (a) scrutinising transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the reporting institution’s knowledge of the customer, their business and risk profile, including where necessary, the source of funds; and (b) ensuring that documents, data or information collected under the CDD process is kept up-to-date and relevant, by undertaking reviews of existing records particularly for higher risk customers. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 71 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 14C.14.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: (a) appears unusual; (b) is inconsistent with the expected type of activity and business model when compared to the volume of transaction; (c) does not have any apparent economic purpose; or (d) casts doubt on the legality of such transactions, especially with regard to complex and large transactions or involving higher risk customers. S 14C.14.3 The frequency in implementing paragraph 14C.14.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. S 14C.14.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. S 14C.14.5 When conducting enhanced on-going due diligence, reporting institutions are required to: (a) increase the number and timing of controls applied; and (b) select patterns of transactions that need further examination. 14C.15 Existing Customers – Materiality and Risk 14C.15.1 Existing customers in this paragraph refers to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. S 14C.15.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. S 14C.15.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. G 14C.15.4 In assessing materiality and risk of existing customers under paragraph 14C.15.2, reporting institutions may consider the following circumstances: (a) the nature and circumstances surrounding the transaction including the significance of the transaction; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 72 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (b) any material change in the way the account or business relationship is operated; or (c) insufficient information held on the customer or change in customer’s information. 14C.16 Non Face-to-Face Business Relationship G 14C.16.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. S 14C.16.2 The requirements on non-FTF business relationship shall be read together with the Electronic Know Your Customer (e- KYC) policy document and any relevant policy document, guidelines or circulars issued pursuant to the e-KYC policy document. S 14C.16.3 Reporting institutions shall obtain prior written approval from Bank Negara Malaysia (addressed to Pengarah, Jabatan Pemantauan Perkhidmatan Pembayaran, Bank Negara Malaysia) to implement non-FTF for the provision of online or mobile remittance and money-changing business. S 14C.16.4 The application for implementation of non-FTF shall include relevant information to demonstrate the reporting institution’s ability to comply with the requirements in this policy document, as approved by the Board. S 14C.16.5 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by Bank Negara Malaysia. S 14C.16.6 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. S 14C.16.7 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. S 14C.16.8 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through e-KYC are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of e-KYC. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 73 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 14C.16.9 In relation to paragraph 14C.16.8, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. S 14C.16.10 In relation to paragraph 14C.16.8, reporting institutions shall take measures to identify and verify a customer’s identity which include, at a minimum: (a) establishing independent contact with customer; (b) verifying a customer’s information against reliable and independent sources to confirm a customer’s identity and identifying any known or suspected ML/TF/PF risks associated with a customer; and (c) requesting, sighting and maintaining records of additional documents required to perform face-to-face customer verifications. S 14C.16.11 Reporting institutions are required to conduct CDD on all new customers when establishing business relationship through non-FTF for conducting remittance and money changing transactions. G 14C.16.12 In relation to paragraph 14C.16.8, reporting institutions may identify and verify a customer’s identity by: (a) conducting video calls with the customer before setting up the customer’s account or allowing the customer to perform transactions; (b) communicating with the customer at a verified residential or office address where such communication shall be acknowledged by the customer; (c) verifying the customer’s information against a database maintained by relevant authorities including the National Registration Department or Immigration Department of Malaysia; telecommunication companies, sanctions lists issued by credible domestic or international sources in addition to the mandatory sanctions lists or social media platforms with a broad outreach; or (d) requesting to sight additional documents such as recent utility bills, bank statements, student identification or confirmation of employment. S 14C.16.13 Reporting institutions shall clearly define parameters for higher risk customers that are not allowed to transact with the reporting institutions through non-FTF. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 74 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14C.16.14 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF compliance programme. Non-FTF Business Relationship with Individuals S 14C.16.15 In addition, reporting institutions shall comply with the following requirements for remittance and money-changing transactions performed using non-FTF: (a) only transact with an individual who has a bank account with any licensed bank or licensed Islamic bank under the FSA and IFSA respectively, or any prescribed institution under the DFIA; and (b) put in place robust and appropriate information technology security control measures which include, but are not limited to linking the customer’s account to only one mobile device for the purpose of authenticating the transaction. Bank Negara Malaysia may at any time impose specific controls as it deems appropriate. S 14C.16.16 For remittance transactions performed using non-FTF, in addition to paragraph 14C.16.15, reporting institutions shall also comply with the following requirements: (a) for remittance transactions performed by an individual (including an expatriate), a total transaction limit not exceeding an aggregate amount of RM30,000 per day shall be observed, unless otherwise approved by Bank Negara Malaysia; and (b) for remittance transactions performed by an individual who is a foreign worker: (i) a total transaction limit not exceeding an aggregate amount of RM5,000 per month shall be observed, unless otherwise approved by Bank Negara Malaysia; and (ii) funds can only be remitted to the individual’s home country, and, beneficiaries must be pre-registered by the individual with the reporting institution when the business relationship is established. Reporting institutions shall also establish proper internal processes, including having in place appropriate controls and procedures to manage its customers’ requests for any alterations or changes made to the list of pre-registered beneficiaries. This shall include procedures for monitoring such requests to identify suspicious patterns. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 75 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Non-FTF Business Relationship with Legal Persons S 14C.16.17 For non-FTF with legal persons, as part of identification and verification of the legal person, reporting institutions must verify the existence of the legal person’s business activity through a mandatory verification method supported by at least an additional verification method that is relevant to the nature or business model of the legal person, as follows: Mandatory verification (a) make video calls to the chief executive officer (CEO), directors or authorised person assigned to the legal person. During the video call, reporting institutions may request the person to show proof of business existence such as signboard or inventories (if any); and Additional verification methods (b) identify the location of the legal person to ensure that the location matches the registered or business address of the corporate customer. Reporting institutions may also verify location of the CEO, directors or authorised person during the video call; (c) verify the legal person’s information against a database maintained by credible independent sources such as relevant regulatory authorities, government agencies or associations of the regulated sectors. Reporting institutions may also request for the legal person’s active bank account or audited financial statement as proof of on-going business activity; or (d) any other credible verification methods approved by Bank Negara Malaysia. G 14C.16.18 In relation to paragraph 14C.16.17(a), reporting institutions may consider making unannounced video calls depending on the ML/TF/PF risk identified on a particular customer. Such unannounced call may be effective in identifying circumstances where a fraudulent business had staged its premise in advance of the call. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 76 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S S 14C.16.19 Reporting institutions shall comply with the following requirements for remittance and money-changing transactions undertaken based on non-FTF: (a) all payments or transfer of funds for remittance and money-changing transactions made to the reporting institutions shall only be made from a bank account with any licensed bank or Islamic licensed bank under the FSA and IFSA respectively, or any prescribed institution under the DFIA, registered under the name of the legal person. The legal person details (i.e. name or business identity number) obtained in relation to the bank account must be consistent with the details provided by the legal person when establishing the non-FTF business relationship; (b) put in place robust and appropriate information technology security control measures which include, but are not limited to, linking each authorised person’s account to only one mobile device, with unique login credentials for the purposes of authenticating the transaction. Bank Negara Malaysia may at any time impose additional specific controls as it deems appropriate; and (c) no more than two authorised persons shall be registered under each legal person’s transaction account at any one time. 14C.16.20 For remittance transactions undertaken based on non-FTF, in addition to paragraph 14C.16.19, reporting institutions shall comply with the following requirements: (a) observe the daily outward transactions limits set out under paragraph 3(a) and (b) of Money Services Business (Remittance Business) Regulations 2012, and paragraph 2 of Money Services Business (Remittance Business)(Amendment) Regulations 2015; and (b) sight and obtain relevant documentary proof of business transactions such as invoices, loan documentation, etc., prior to undertaking the transactions. Revocation of Approval 14C.16.21 An approval given under paragraph 14C.16.3 may be revoked where Bank Negara Malaysia is satisfied that the requirements in this policy document have not been adequately met. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 77 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14C.17 Failure to Satisfactorily Complete CDD S 14C.17.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 22. 14C.18 CDD and Tipping-Off S 14C.18.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis for not completing the CDD and immediately file a suspicious transaction report under paragraph 22. G 14C.18.2 Notwithstanding paragraph 14C.18.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 78 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14D CDD: Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments For Non-Bank Issuers of Credit Card and Charge Card S 14D.1 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: (a) establishing business relations; (b) providing wire transfer services; (c) it has any suspicion of ML/TF/PF, regardless of amount; or (d) it has any doubt about the veracity or adequacy of previously obtained information. For Non-Bank Issuers of E-Money S 14D.2 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: (a) establishing business relations, where applicable; (b) the account limit and/or condition is as specified in paragraph 14D.12; (c) it has any suspicion of ML/TF/PF, regardless of amount; or (d) it has any doubt about the veracity or adequacy of previously obtained information. S 14D.3 When conducting CDD, reporting institutions are required to: (a) identify the customer and verify that customer’s identity using reliable, independent source documents, data or information; (b) verify that any person acting on behalf of the customer is so authorised, and identify and verify the identity of that person; (c) identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner, using the relevant information or data obtained from a reliable source, such that the reporting institution is satisfied that it knows who the beneficial owner is; and (d) understand, and where relevant, obtain information on the purpose and intended nature of the business relationship. S 14D.4 Where applicable, in conducting CDD, reporting institutions are required to comply with requirements on targeted financial sanctions in relation to: (a) terrorism financing under paragraph 27; (b) proliferation financing of weapons of mass destruction under paragraph 28; and (c) other UN-sanctions under paragraph 29. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 79 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Verification S 14D.5 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. S 14D.6 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. S 14D.7 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14D.5 when verifying the identity of customer or beneficial owner. S 14D.8 Reporting institutions shall verify the identity of the customer or beneficial owner before, or during, the course of establishing a business relationship. 14D.9 Standard CDD Measures Individual Customer and Beneficial Owner S 14D.9.1 In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: (a) full name; (b) National Registration Identity Card (NRIC) number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and mailing address; (d) date of birth; (e) nationality; (f) occupation type; (g) name of employer or nature of self-employment or nature of business; (h) contact number (home, office or mobile); and (i) purpose of transaction. S 14D.9.2 Reporting institutions shall verify the identity of the customer and beneficial owner. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 80 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Legal Persons S 14D.9.3 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14D.9.4 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as Certificate of Incorporation/ Constitution/ Partnership Agreement (certified true copies/duly notarised copies, may be accepted), unique identifier such as tax identification number or any other reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer such as directors’ resolution, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office and, if different, a principal place of business. S 14D.9.5 Reporting institutions are required to identify and verify the person authorised to represent the company or business either by means of a letter of authority or directors’ resolution when dealing with such person. S 14D.9.6 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the following cascading steps: (a) the identity of the natural person(s) (if any) who ultimately has a controlling ownership interest in a legal person. At a minimum, this includes identifying the directors/ shareholders with equity interest of more than twenty-five percent/partners; (b) to the extent that there is doubt as to whether the person(s) with the controlling ownership interest is the beneficial owner(s) referred to in paragraph 14D.9.6(a) or where no natural person(s) exert control through ownership interests, the identity of the natural person (if any) exercising control of the legal person through other means; and (c) where no natural person is identified under paragraphs 14D.9.6(a) or (b), the identity of the relevant natural person who holds the position of Senior Management. For the avoidance of doubt, reporting institutions are not required to pursue steps (b) and (c) in circumstances where beneficial owner(s) have been identified through step (a). Similarly, where beneficial owner(s) have been identified at step (b), reporting institutions are not required to pursue step (c). Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 81 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14D.9.7 Where there is any doubt as to the identity of persons referred to under paragraphs 14D.9.4, 14D9.5 and 14D.9.6, the reporting institution shall: (a) conduct a basic search or enquiry on the background of such person to ensure that the person has not been or is not in the process of being dissolved or liquidated, or is a bankrupt; and (b) verify the authenticity of the information provided by such person with the Companies Commission of Malaysia, Labuan Financial Services Authority or any other relevant authority. S 14D.9.8 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of directors and shareholders of the legal person which fall under the following categories: (a) public listed companies or corporations listed in Bursa Malaysia; (b) foreign public listed companies: (i) listed in recognised exchanges; and (ii) not listed in higher risk countries; (c) foreign financial institutions that are not from higher risk countries; (d) an authorised person under the FSA and the IFSA (i.e. any person that has been granted a license or approval); (e) persons licensed or registered under the Capital Markets and Services Act 2007; (f) licensed entities under the Labuan Financial Services and Securities Act 2010 and Labuan Islamic Financial Services and Securities Act 2010; (g) prescribed institutions under the DFIA; or (h) licensed entities under the MSBA. S 14D.9.9 Notwithstanding the above, reporting institutions are required to identify and maintain the information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14D.9.8 (a) to (h), through a public register, other reliable sources or based on information provided by the customer. G 14D.9.10 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R 6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 82 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Legal Arrangements S 14D.9.11 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. S 14D.9.12 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as trust deed or equivalent document, the unique identifier such as tax identification number or equivalent, or any reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office, and if different, a principal place of business. S 14D.9.13 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: (a) for trusts, the identity of the settlor, the trustee(s), the protector (if any), the beneficiary or class of beneficiaries, and objects of a power, and any other natural person exercising ultimate effective control over the trust (including through the chain of control/ownership); or (b) for other types of legal arrangements, the identity of persons in equivalent or similar positions. S 14D.9.14 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any or an occasional transaction. G 14D.9.15 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. S 14D.9.16 Where reliance is placed on third parties under paragraph 14D.9.15, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 83 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Clubs, Societies and Charities S 14D.9.17 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal persons or legal arrangements, as the case may be, and require them to furnish the relevant identification documents including Certificate of Registration and constituent documents. In addition, reporting institutions are required to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. S 14D.9.18 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. S 14D.9.19 Where there is any doubt as to the identity of persons referred to under paragraphs 14D.9.17 and 14D.9.18, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission Malaysia, Legal Affairs Division under the Prime Minister’s Department or any other relevant authority. 14D.10 Non-Bank Issuers of Credit Card and Charge Card S 14D.10.1 Where applicable, in addition to primary cardholders, reporting institutions are required to conduct CDD on the supplementary or corporate cardholders (secondary persons). S 14D.10.2 In conducting CDD under paragraph 14D.10.1, reporting institutions are required to comply with the requirements on targeted financial sanctions in relation to: (a) terrorism financing under paragraph 27; (b) proliferation financing of weapon of mass destruction under paragraph 28; and (c) other UN-sanctions under paragraph 29. 14D.11 Simplified CDD G 14D.11.1 Reporting institutions may conduct simplified CDD where ML/TF/PF risks are assessed to be low except where there are instances of higher risks or suspicion of ML/TF/PF. S 14D.11.2 In relation to paragraph 14D.11.1, reporting institutions are required to have the following processes in place: (a) conduct adequate analysis of ML/TF/PF risk; (b) establish appropriate mechanisms and internal controls for effective on-going monitoring of customers and transactions to ensure prompt detection of unusual or suspicious transactions; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 84 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (c) obtain the approval of the Board for the implementation of simplified CDD and document all assessments and approvals; and (d) establish appropriate mechanisms to ensure periodic review of the ML/TF/PF risks where simplified CDD is applied. S 14D.11.3 For simplified CDD, reporting institutions are required to obtain the following information from the customer and beneficial owner: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; and (e) nationality. S 14D.11.4 Reporting institutions shall verify the identity of the customer and beneficial owner. Delayed Verification G 14D.11.5 In certain circumstances where the ML/TF/PF risks are assessed as low and verification is not possible at the point of establishing the business relationship, the reporting institution may complete verification after the establishment of the business relationship to allow some flexibilities for its customer and beneficial owner to furnish the relevant documents. S 14D.11.6 Where delayed verification applies, the following conditions must be satisfied: (a) this occurs as soon as reasonably practicable; (b) the delay is essential so as not to interrupt the reporting institution’s normal conduct of business; (c) the ML/TF/PF risks are effectively managed; and (d) there is no suspicion of ML/TF/PF. S 14D.11.7 The term “reasonably practicable” under paragraph 14D.11.6(a) shall not exceed ten working days or any other period as may be specified by Bank Negara Malaysia. S 14D.11.8 Reporting institutions are required to adopt risk management procedures relating to the conditions under which the customer may utilise the business relationship prior to verification, and procedures to mitigate or address the risk of delayed verification. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 85 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 14D.11.9 The measures that reporting institutions may take to manage such risks of delayed verification may include limiting the number, types and/or amount of transactions that can be performed. 14D.12 Specific CDD CDD for Non-Bank Issuers of E-Money S 14D.12.1 Reporting institutions are subject to standard CDD measures when any of the following conditions are met: (a) the account limit is equivalent to RM5,000 and above; (b) the monthly transaction is equivalent to RM5,000 and above; (c) the annual transaction is equivalent to RM60,000 and above; (d) the account is used for payments of goods and/or services outside Malaysia; (e) the account is used for cross-border wire transfers; or (f) the account is used for cash withdrawal. G 14D.12.2 Reporting institutions may conduct simplified CDD for e-money account limits between RM3,000 and RM4,999, when all the following conditions are met: (a) the monthly transaction is below RM5,000; (b) the annual transaction is below RM60,000; (c) the account is used for payments of goods and/or services within Malaysia only; (d) the account is used for domestic wire transfers; and (e) cash withdrawal or cross-border wire transfers are not permitted. S 14D.12.3 Reporting institutions are required to conduct simplified CDD at a minimum, where the account limit is below RM3,000 and may be used for domestic wire transfers. S 14D.12.4 In relation to paragraphs 14D.12.2 and 14D.12.3, reporting institutions shall ensure the e-money account is linked to the following for reload and refund purposes: (a) customer’s current or savings account maintained with a licensed bank under the FSA, or licensed Islamic bank under the IFSA, or any other prescribed institution under the DFIA; or (b) customer’s credit card, credit card-i, debit card, debit card-i, charge card or charge card-i account maintained with approved issuers under the FSA or IFSA. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 86 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 14D.12.5 Notwithstanding the account limits, reporting institutions may apply simplified CDD for e-money accounts used for specific purpose payments only, with prior approval from Bank Negara Malaysia. The term “specific purpose payments” refers to payments of goods and/or services for a limited and well-defined usage, accepted at specific points of sales. G 14D.12.6 Reporting institutions may refer to Appendix 3 for guidance on CDD measures for e-money. 14D.13 Enhanced CDD S 14D.13.1 Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: (a) obtaining CDD information under paragraph 14D.9; (b) obtaining additional information on the customer and beneficial owner (e.g. volume of assets and other information from public databases); (c) inquiring on the source of wealth or source of funds. In the case of PEPs, both sources must be obtained; and (d) obtaining approval from the Senior Management of the reporting institution before establishing (or continuing, for existing customer) such business relationship with the customer. In the case of PEPs, Senior Management refers to Senior Management at the head office. G 14D.13.2 In addition to paragraph 14D.13.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: (a) obtaining additional information on the intended level and nature of the business relationship; (b) inquiring on the reasons for intended or performed transactions; and (c) requiring the first payment to be carried out through an account in the customer’s name with a bank subject to similar CDD measures. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 87 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14D.14 On-Going Due Diligence S 14D.14.1 Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: (a) scrutinising transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the reporting institution’s knowledge of the customer, their business and risk profile, including where necessary, the source of funds; and (b) ensuring that documents, data or information collected under the CDD process is kept up-to-date and relevant, by undertaking reviews of existing records particularly for higher risk customers. G 14D.14.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: (a) appears unusual; (b) is inconsistent with the expected type of activity and business model when compared to the volume of transaction; (c) does not have any apparent economic purpose; or (d) casts doubt on the legality of such transactions, especially with regard to complex and large transactions or involving higher risk customers. S 14D.14.3 The frequency in implementing paragraph 14D.14.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. S 14D.14.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. S 14D.14.5 When conducting enhanced on-going due diligence, reporting institutions are required to: (a) increase the number and timing of controls applied; and (b) to select patterns of transactions that need further examination. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 88 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14D.15 Existing Customers – Materiality and Risk 14D.15.1 Existing customers in this paragraph refers to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. S 14D.15.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. S 14D.15.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. G 14D.15.4 In assessing materiality and risk of existing customers under paragraph 14D.15.2, reporting institutions may consider the following circumstances: (a) the nature and circumstances surrounding the transaction including the significance of the transaction; (b) any material change in the way the account or business relationship is operated; or (c) insufficient information held on the customer or change in customer’s information. 14D.16 Non Face-to-Face Business Relationship G 14D.16.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. S 14D.16.2 The requirements on non-FTF business relationship shall be read together with the Electronic Know Your Customer (e-KYC) policy document and any relevant policy document, guidelines or circulars issued pursuant to the e-KYC policy document. S 14D.16.3 Reporting institutions shall obtain prior written approval from Bank Negara Malaysia (addressed to Pengarah, Jabatan Pemantauan Perkhidmatan Pembayaran, Bank Negara Malaysia) to implement non-FTF. S 14D.16.4 The application for implementation of non-FTF shall include relevant information to demonstrate the reporting institution’s ability to comply with the requirements in this policy document, as approved by the Board. S 14D.16.5 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 89 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 14D.16.6 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. S 14D.16.7 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. S 14D.16.8 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through non-FTF are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of non-FTF business relationship. G 14D.16.9 In relation to paragraph 14D.16.8, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. S 14D.16.10 In relation to paragraph 14D.16.8, reporting institutions shall take measures to identify and verify the customer’s identity through any of the following: (a) establishing independent contact with customer; (b) verifying the customer’s information against reliable and independent sources to confirm a customer’s identity and identifying any known or suspected ML/TF/PF risks associated with the customer; or (c) requesting, sighting and maintaining records of additional documents required to perform face-to-face customer verifications. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 90 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 14D.16.11 In relation to paragraph 14D.16.8, reporting institutions may identify and verify a customer’s identity by: (a) conducting video calls with the customer before setting up the customer’s account or allowing the customer to perform transactions; (b) communicating with the customer at a verified residential or office address where such communication shall be acknowledged by the customer; (c) verifying the customer’s information against a database maintained by relevant authorities including the National Registration Department or Immigration Department of Malaysia; telecommunication companies, sanctions lists issued by credible domestic or international sources in addition to the mandatory sanctions lists or social media platforms with a broad outreach; or (d) requesting to sight additional documents such as recent utility bills, bank statements, student identification or confirmation of employment. S 14D.16.12 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF compliance programme. S 14D.16.13 For non-bank issuers of designated payment instruments and designated Islamic payment instruments which offer cross-border wire transfer and money-changing services using non-FTF channels, paragraph 14C.16 shall apply. Revocation for Approval 14D.16.14 An approval given under paragraph 14D.16.3 may be revoked where Bank Negara Malaysia is satisfied that the requirements in this policy document have not been adequately met. 14D.17 Failure to Satisfactorily Complete CDD S 14D.17.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 22. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 91 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 14D.18 CDD and Tipping-Off S 14D.18.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis for not completing the CDD and immediately file a suspicious transaction report under paragraph 22. G 14D.18.2 Notwithstanding paragraph 14D.18.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 92 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 15 Politically Exposed Persons (PEPs) 15.1 General S 15.1.1 The requirements specified in this paragraph are applicable to all types of PEPs and family members or close associates of those PEPs. S 15.1.2 In identifying individuals who fall within the definition of a close associate of a PEP, reporting institutions must take reasonable measures to determine the extent to which these individuals are directly engaged or involved in the activity of the PEP. 15.2 Foreign PEPs S 15.2.1 Reporting institutions are required to put in place a risk management system to determine whether a customer or a beneficial owner is a foreign PEP. S 15.2.2 For insurance and takaful operators, reporting institutions are required to take reasonable measures to determine whether the beneficiary and/or, where required, the beneficial owner of the beneficiary, is a foreign PEP. S 15.2.3 Upon determination that a customer or a beneficial owner under paragraph 15.2.1 and beneficiary or a beneficial owner of a beneficiary under paragraph 15.2.2, is a foreign PEP, the requirements of enhanced CDD as specified in paragraphs 14A.12, 14B.14, 14C.13, 14D.13 and enhanced on-going due diligence as specified in paragraphs 14A.13.5, 14B.15.5, 14C.14.5, 14D.14.5 must be conducted. 15.3 Domestic PEPs or person entrusted with a prominent function by an international organisation S 15.3.1 Reporting institutions are required to take reasonable measures to determine whether a customer or beneficial owner is a domestic PEP or a person entrusted with a prominent function by an international organisation. S 15.3.2 If the customer or beneficial owner is determined to be a domestic PEP or a person entrusted with a prominent function by an international organisation, reporting institutions are required to assess the level of ML/TF/PF risks posed by the business relationship with the domestic PEP or the person entrusted with a prominent function by an international organisation. For insurance and takaful operators, this includes beneficiaries and beneficial owner of a beneficiary. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 93 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 15.3.3 The assessment of the ML/TF/PF risks as specified in paragraph 15.3.2, shall take into account the profile of the customer under paragraph 10.6.2 on Risk Profiling. S 15.3.4 The requirements on enhanced CDD as specified in paragraphs 14A.12, 14B.14, 14C.13, 14D.13 and enhanced on-going due diligence as specified in paragraphs 14A.13.5, 14B.15.5, 14C.14.5, 14D.14.5 must be conducted in respect of domestic PEPs or persons entrusted with a prominent function by an international organisation who are assessed as higher risk. G 15.3.5 Reporting institutions may apply CDD measures similar to other customers for domestic PEPs or persons entrusted with a prominent function by an international organisation if the reporting institution is satisfied that the domestic PEPs or persons entrusted with a prominent function by an international organisation are not assessed as higher risk. 15.4 Cessation of PEP status S 15.4.1 Reporting institutions shall consider the following factors in determining whether the status of a PEP who no longer holds a prominent public function should cease: (a) the level of informal influence that the PEP could still exercise, even though the PEP no longer holds a prominent public function; and (b) whether the PEP’s previous and current functions, in official capacity or otherwise, are linked to the same substantive matters. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 94 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 16 Reliance on Third Parties Customer Due Diligence G 16.1 Reporting institutions may rely on third parties to conduct CDD or to introduce business. S 16.2 The ultimate responsibility and accountability for CDD measures shall remain with the reporting institution relying on third parties. S 16.3 Reporting institutions shall have internal policies and procedures in place to mitigate the risks when relying on third parties, including those from jurisdictions that have been identified as having strategic AML/CFT/CPF deficiencies that pose ML/TF/PF risk to the international financial system. S 16.4 Reporting institutions are prohibited from relying on third parties located in higher risk countries that have been identified in accordance with paragraph 17. S 16.5 The relationship between reporting institutions and the third parties relied upon by the reporting institutions to conduct CDD shall be governed by an arrangement that clearly specifies the rights, responsibilities and expectations of all parties. In placing reliance on the third party, the reporting institution, at a minimum: (a) must be able to obtain immediately the necessary information concerning CDD as required under paragraph 14; and (b) must be reasonably satisfied that the third party: (i) has an adequate CDD process; (ii) has measures in place for record keeping requirements; (iii) can provide the CDD information and provide copies of the relevant documentation immediately upon request; and (iv) is properly regulated and subjected to AML/CFT/CPF supervision by the relevant supervisory authority. S 16.6 Reporting institutions shall obtain an attestation from the third party to satisfy itself that the requirements in paragraph 16.5 have been met. G 16.7 Reporting institutions may obtain written confirmation from the third party that it has conducted CDD on the customer or beneficial owner, as the case may be, in accordance with paragraph 14. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 95 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 16.8 The requirements under paragraphs 16.1, 16.3 and 16.5 may be fulfilled if the reporting institution relies on a third party that is part of the same financial group, subject to the following conditions: (a) the group applies CDD, record keeping and AML/CFT/CPF programmes in line with requirements under this policy document; (b) the implementation of CDD, record keeping and AML/CFT/CPF programmes is supervised at a group level by the relevant authority; and (c) any higher country risk is adequately mitigated by the financial group’s AML/CFT/CPF policies. On-going Due Diligence S 16.9 Reporting institutions shall not rely on third parties to conduct on-going due diligence of its customers. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 96 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 17 Higher Risk Countries S 17.1 Reporting institutions are required to conduct enhanced CDD proportionate to the risk, on business relationships and transactions with any person from higher risk countries for which this is called for by the FATF or by the Government of Malaysia. S 17.2 Notwithstanding the generality of paragraph 17.1, the enhanced CDD shall include any specific CDD measure as may be imposed by the FATF or by the Government of Malaysia. S 17.3 Reporting institutions are required to apply appropriate countermeasures, proportionate to the risks, when called upon to do so by the FATF or by the Government of Malaysia. G 17.4 For the purpose of paragraph 17.3, the countermeasures may include the following: (a) limiting business relationships or financial transactions with the identified country or persons located in the country concerned; (b) reviewing and amending, or if necessary terminating, correspondent banking relationships with financial institutions in the country concerned; (c) conducting enhanced external audits, by increasing the intensity and frequency, for branches and subsidiaries of the reporting institution or financial group, located in the country concerned; (d) submitting an annual report with a summary of exposure to customers and beneficial owners from the country concerned as specified by Bank Negara Malaysia; or (e) conduct any other countermeasures as may be specified by Bank Negara Malaysia. S 17.5 In addition to the above, where ML/TF/PF risks are assessed as higher risk, reporting institutions are required to conduct enhanced CDD for business relationships and transactions with any person from other jurisdictions that have strategic AML/CFT/CPF deficiencies for which they have developed an action plan with the FATF. S 17.6 For the purpose of requirements under paragraphs 17.1, 17.2, 17.3 and 17.5, reporting institutions shall refer to the FATF website: https://www.fatf-gafi.org https://www.fatf-gafi.org/ Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 97 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 18 Money or Value Transfer Services (MVTS) S 18.1 Reporting institutions offering MVTS either directly or as an agent to MVTS operators or providers are required to comply with all of the relevant requirements under paragraph 19 on Wire Transfer in the countries they operate, directly or through their agents. S 18.2 Where the reporting institutions offering MVTS control both the ordering and the beneficiary side of a wire transfer, reporting institutions are required to: (a) take into account all the information from both the ordering and beneficiary sides in order to determine whether a suspicious transaction report has to be filed; and (b) file a suspicious transaction report in any country affected by the suspicious wire transfer, and make relevant transaction information available to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 98 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 19 Wire Transfers 19.1 General S 19.1.1 The requirements under this paragraph are applicable to reporting institutions providing cross-border wire transfers and domestic wire transfers including serial payments and cover payments. S 19.1.2 Reporting institutions must comply with the requirements on targeted financial sanctions in relation to: (a) terrorism financing under paragraph 27; (b) proliferation financing of weapons of mass destruction under paragraph 28; and (c) other UN-sanctions under paragraph 29. S 19.1.3 Reporting institutions shall not execute the wire transfer if it does not comply with the requirements specified in this paragraph. S 19.1.4 Reporting institutions are required to maintain all originator and beneficiary information collected in accordance with record keeping requirements under paragraph 24. 19.2 Ordering Institutions Cross-border wire transfers S 19.2.1 Reporting institutions which are ordering institutions are required to ensure that the message or payment instruction for all cross- border wire transfers involving an amount equivalent to RM3,000 and above are accompanied by the following: (a) Required and accurate originator information pertaining to: (i) name; (ii) account number (or a unique reference number if there is no account number) which permits traceability of the transaction; and (iii) address or date and place of birth. (b) Required beneficiary information pertaining to: (i) name; and (ii) account number (or a unique reference number if there is no account number), which permits traceability of the transaction. S 19.2.2 Where several individual cross-border wire transfers from a single originator are bundled in a batch file for transmission to beneficiaries, the batch file shall contain required and accurate originator information, and full beneficiary information, that is fully traceable within the beneficiary country; and ordering institutions are required to include the originator’s account number or unique transaction reference number. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 99 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 19.2.3 Ordering institutions are required to ensure that the message or payment instruction for all cross-border wire transfers below RM3,000 are accompanied by the following: (a) Required originator information pertaining to: (i) name; and (ii) account number (or a unique reference number if there is no account number), which permits traceability of the transaction. (b) Required beneficiary information pertaining to: (i) name; and (ii) account number (or a unique reference number if there is no account number), which permits traceability of the transaction. S 19.2.4 The information required under paragraph 19.2.3 need not be verified for accuracy except when there is a suspicion of ML/TF/PF. Domestic wire transfers S 19.2.5 Ordering institutions are required to ensure that the information accompanying the wire transfer includes originator information as indicated for cross-border wire transfers, unless this information can be made available to the beneficiary institution and relevant authorities by other means. S 19.2.6 Where the information accompanying the domestic wire transfer can be made available to the beneficiary institution and relevant authorities by other means, the ordering institution shall include only the originator’s account number or if there is no account number, a unique identifier, within the message or payment form, provided that this account number or unique identifier will permit the transaction to be traced back to the originator or the beneficiary. Ordering institutions are required to provide the information within three working days of receiving the request either from the beneficiary institution or from the relevant authorities and must provide the information to law enforcement agencies immediately upon request. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 100 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 19.3 Intermediary Institutions S 19.3.1 For cross-border wire transfers, intermediary institutions are required to retain all originator and beneficiary information that accompanies a wire transfer as required under paragraphs 19.2.1 and 19.2.3. S 19.3.2 Where the required originator or beneficiary information accompanying a cross-border wire transfer cannot be transmitted due to technical limitations, intermediary institutions are required to keep a record in accordance with record keeping requirements under paragraph 24. S 19.3.3 Intermediary institutions are required to take reasonable measures, which are consistent with straight-through processing, to identify cross-border wire transfers that lack the required originator information or required beneficiary information. S 19.3.4 Intermediary institutions are required to have effective risk-based policies and procedures for determining: (a) when to execute, reject, or suspend a wire transfer lacking required originator or required beneficiary information; and (b) the appropriate follow-up action. 19.4 Beneficiary Institutions S 19.4.1 Beneficiary institutions are required to take reasonable measures, including post-event or real-time monitoring where feasible, to identify cross-border wire transfers that lack the required originator information or required beneficiary information. S 19.4.2 For cross-border wire transfers of an amount equivalent to RM3,000 and above, beneficiary institutions are required to verify the identity of the beneficiary, if the identity has not been previously verified, and maintain this information in accordance with record keeping requirements under paragraph 24. S 19.4.3 Beneficiary institutions are required to have effective risk-based policies and procedures for determining: (a) when to execute, reject, or suspend a wire transfer lacking the required originator or required beneficiary information; and (b) the appropriate follow-up action. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 101 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 20 Correspondent Banking 20.1 The requirements under this paragraph are only applicable to reporting institutions providing correspondent banking services and other similar relationships. S 20.2 Reporting institutions providing correspondent banking services to respondent institutions are required to take the necessary measures to ensure that they are not exposed to ML/TF/PF threat through the accounts of the respondent institutions such as being used by shell banks. S 20.3 In relation to cross-border correspondent banking and other similar relationships, reporting institutions are required to: (a) gather sufficient information about a respondent institution to understand fully the nature of the respondent institution’s business, and to determine from publicly available information the reputation of the respondent institution and the quality of supervision exercised on the respondent institution, including whether it has been subject to a ML/TF/PF investigation or regulatory action; (b) assess the respondent institution’s AML/CFT/CPF controls having regard to AML/CFT/CPF measures of the country or jurisdiction in which the respondent institution operates; (c) obtain approval from the Senior Management before establishing new correspondent banking relationships; and (d) clearly understand the respective AML/CFT/CPF responsibilities of each institution. S 20.4 In relation to “payable-through accounts”, reporting institutions are required to satisfy themselves that the respondent institution: (a) has performed CDD obligations on its customers that have direct access to the accounts of the reporting institution; and (b) is able to provide relevant CDD information to the reporting institution upon request. S 20.5 Reporting institutions shall not enter into, or continue, correspondent banking relationships with shell banks. Reporting institutions are required to satisfy themselves that respondent institutions do not permit their accounts to be used by shell banks. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 102 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 21 Cash Threshold Report 21.1 General S 21.1.1 Where the requirement of cash threshold report applies, reporting institutions are required to submit cash threshold reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. 21.2 Definition S 21.2.1 For the purpose of this paragraph: (a) cash transactions refer to transactions involving physical currencies (domestic or foreign currency) and bearer negotiable instruments such as a bill of exchange, promissory note, bearer bond, traveller’s cheque, cash cheque, money order and postal order. However, this does not include bank drafts, cheques, electronic transfers or fixed deposit rollovers or renewals; and (b) cash transactions include transactions involving withdrawal of cash from accounts or exchange of bearer negotiable instruments for cash. 21.3 Applicability S 21.3.1 The requirements for cash threshold reports are applicable to customers and person conducting the transaction in single or multiple cash transactions within the same account in a day for the amount equivalent to RM25,000 and above. S 21.3.2 Reporting institutions shall not offset the cash transactions against one another. Where there are deposit and withdrawal transactions, the amount must be aggregated. For example, a deposit of RM20,000 and a withdrawal of RM10,000 must be aggregated to the amount of RM30,000 and hence, must be reported as it exceeds the amount specified by Bank Negara Malaysia. S 21.3.3 Transactions referred to under paragraph 21.3.1 include cash contra from an account to different account(s) transacted over-the- counter by any customer. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 103 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 21.4 Reporting of Cash Threshold Report S 21.4.1 Reporting institutions are required to establish a reporting system for the submission of cash threshold reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. S 21.4.2 The Compliance Officer of a reporting institution that has been granted access to the Financial Intelligence System (FINS) administered by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia must submit the cash threshold report through the following website: https://fins.bnm.gov.my/ S 21.4.3 Reporting institutions must ensure that the cash threshold report is submitted within five working days, from the date of the transaction. S 21.4.4 Reporting institutions must ensure all required information specified in Appendix 5 are submitted and all submitted information are accurate and complete. S 21.4.5 Submission of a cash threshold report does not preclude the reporting institution’s obligation to submit a suspicious transaction report. https://fins.bnm.gov.my/ Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 104 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 22 Suspicious Transaction Report 22.1 General S 22.1.1 Reporting institutions are required to promptly submit a suspicious transaction report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia whenever the reporting institution suspects or has reasonable grounds to suspect that the transaction or activity (including attempted or proposed), regardless of the amount: (a) appears unusual; (b) has no clear economic purpose; (c) appears illegal; (d) involves proceeds from an unlawful activity or instrumentalities of an offence; or (e) indicates that the customer is involved in ML/TF/PF. S 22.1.2 Reporting institutions must provide the required and relevant information that gave rise to doubt in the suspicious transaction report form, which includes but is not limited to the nature or circumstances surrounding the transaction and business background of the person conducting the transaction that is connected to the unlawful activity. S 22.1.3 Reporting institutions must establish a reporting system for the submission of suspicious transaction reports. 22.2 Reporting Mechanisms S 22.2.1 Reporting institutions are required to ensure that the designated branch or subsidiary compliance officer is responsible for channelling all internal suspicious transaction reports received from the employees of the respective branch or subsidiary to the Compliance Officer at the head office. In the case of employees at the head office, such internal suspicious transaction reports shall be channelled directly to the Compliance Officer. S 22.2.2 Reporting institutions are required to have in place policies on the duration upon which internal suspicious transaction reports must be reviewed by the Compliance Officer, including the circumstances when the timeframe can be exceeded, where necessary. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 105 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 22.2.3 Upon receiving any internal suspicious transaction report whether from the head office, branch or subsidiary, the Compliance Officer must evaluate the grounds for suspicion. Once the suspicion is confirmed, the Compliance Officer must promptly submit the suspicious transaction report. In the case where the Compliance Officer decides that there are no reasonable grounds for suspicion, the Compliance Officer must document and file the decision, supported by the relevant documents. S 22.2.4 The Compliance Officer of a reporting institution that has been granted access to FINS, administered by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia must submit the suspicious transaction report through the following website: https://fins.bnm.gov.my/ S 22.2.5 For reporting institutions that have not been granted access to FINS, the Compliance Officer must submit the suspicious transaction report, using the specified reporting form, as provided in Bank Negara Malaysia’s AML/CFT website: https://amlcft.bnm.gov.my/aml/cft-policies through any of the following channels: Mail : Director Financial Intelligence and Enforcement Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur (To be opened by addressee only) E-mail : [email protected] S 22.2.6 The Compliance Officer must ensure that the suspicious transaction report is submitted within the next working day, from the date the Compliance Officer establishes the suspicion. S 22.2.7 Reporting institutions must ensure that in the course of submitting the suspicious transaction report, utmost care must be undertaken to ensure that such reports are treated with the highest level of confidentiality. The Compliance Officer has the sole discretion and independence to report suspicious transactions. https://fins.bnm.gov.my/ https://amlcft.bnm.gov.my/aml/cft-policies mailto:[email protected] Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 106 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 22.2.8 Reporting institutions must provide additional information and documentation as may be requested by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia and must respond promptly to any further enquiries with regard to any report received under section 14 of the AMLA. S 22.2.9 Reporting institutions must ensure that the suspicious transaction reporting mechanism, including management of internal suspicious transaction reports, is operated in a secured environment to maintain confidentiality and preserve secrecy. G 22.2.10 Where a suspicious transaction report has been lodged, reporting institutions may update or make a fresh suspicious transaction report as and when a new suspicion arises. 22.3 Triggers for Submission of Suspicious Transaction Report S 22.3.1 Reporting institutions are required to establish internal criteria (“red flags”) to detect suspicious transactions. S 22.3.2 Reporting institutions must consider submitting a suspicious transaction report when any of its customer’s transactions or attempted transactions fits the reporting institution’s list of “red flags”. G 22.3.3 Reporting institutions may refer to Appendix 4 of this policy document for examples of transactions that may constitute triggers for the purpose of reporting suspicious transactions. G 22.3.4 Reporting institutions may be guided by examples of suspicious transactions provided by Bank Negara Malaysia or other corresponding competent authorities, supervisory authorities and international organisations. 22.4 Internal Suspicious Transaction Reports S 22.4.1 Reporting institutions must ensure that the Compliance Officer maintains a complete file on all internal suspicious transaction reports and any supporting documentary evidence regardless of whether such reports have been submitted. S 22.4.2 Pursuant to paragraph 22.4.1, if no suspicious transaction reports are submitted to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, the internal suspicious transaction reports and the relevant supporting documentary evidence must be made available to the relevant supervisory authorities upon request. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 107 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 23 Disclosure of Suspicious Transaction Report, Cash Threshold Report and Related Information S 23.1 Reporting institutions are prohibited from disclosing any suspicious transaction report and where applicable, cash threshold report, as well as any information related to these reports, in accordance with section 14A of the AMLA. This includes any information on the subject or counterparties reported on, such as personal identification, account details, transaction details, the suspected offence or suspicious activities reported on, and any other information contained in the report. S 23.2 The prohibition under paragraph 23.1 does not apply where the exceptions under section 14A(3) of the AMLA apply. S 23.3 Where the exceptions under section 14A(3) of the AMLA apply, reporting institutions must have the following measures in place: (a) a set of parameters on: (i) the circumstances where disclosure is required; (ii) types of information that can be disclosed; and (iii) to whom it can be disclosed; (b) internal governance procedures to ensure that any disclosure is properly justified, duly authorised and managed in a controlled and secured environment; (c) apprise all employees and intended recipients who are privy to the reports and related information to maintain confidentiality; and (d) an effective audit trail is maintained in respect of the disclosure of such information. G 23.4 For any disclosure of reports and related information pursuant to section 14A(3)(d) of the AMLA, reporting institutions may make a written application to the Director, Financial Intelligence and Enforcement Department, Bank Negara Malaysia for a written authorisation. S 23.5 In making an application under paragraph 23.4, the reporting institution shall provide the following: (a) details and justification for the disclosure; (b) details on the safeguards and measures in place to ensure confidentiality of information transmitted at all times; (c) information on persons authorised by the reporting institution to have access to the reports and related information; (d) any other documents or information considered relevant by the reporting institution; and (e) any other documents or information requested or specified by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 108 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 24 Record Keeping S 24.1 Reporting institutions are required to keep the relevant records including any accounts, files, business correspondence and documents relating to transactions, in particular, those obtained during the CDD process. This includes documents used to verify the identity of customers and beneficial owners, and the results of any analysis undertaken. The records maintained must remain up-to-date and relevant. S 24.2 Reporting institutions must ensure that all relevant records relating to transactions which are kept are sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal activity. S 24.3 Reporting institutions are required to keep the records for at least six years following the completion of the transaction, the termination of the business relationship or after the date of the occasional transaction. S 24.4 In situations where the records are subjected to on-going investigation or prosecution in court, they shall be retained beyond the stipulated retention period until such time reporting institutions are informed by the relevant law enforcement agency that such records are no longer required. S 24.5 Reporting institutions are required to retain the relevant records in a form that is admissible as evidence in court pursuant to the Evidence Act 1950, and make such records available to the supervisory authorities and law enforcement agencies in a timely manner. Money Services Business S 24.6 For issuance of receipt by money services business, in addition to the obligations specified in paragraphs 24.1 to 24.5, reporting institutions shall comply with the requirements of paragraphs 24.7 and 24.8. S 24.7 The following information is required to be recorded in the receipt of transaction with the customer for money-changing/wholesale currency business: (a) the reporting institution’s name, business address and telephone number; (b) date of transaction; (c) receipt serial number; (d) amount and type of currency exchanged by the customer; (e) amount and type of currency the customer exchanged for; (f) exchange rate offered; (g) fees and charges for services provided to the customer; (h) name of customer (where applicable); and (i) customer’s identification number i.e. NRIC, passport number or other forms of identification (where applicable). Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 109 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 24.8 The following information is required to be recorded in the receipt of transaction with the customer for wire transfer (remittance) business: (a) the reporting institution’s name, business address and telephone number; (b) date of transaction; (c) receipt of serial number; (d) exchange rate offered; (e) the amount of funds to be remitted in ringgit and its equivalent amount in foreign currency to be received by the beneficiary; (f) fees and charges for services provided to the customer; (g) name of originator (where applicable); (h) name of beneficiary (where applicable); and (i) customer’s identification number i.e. NRIC, passport number or other forms of identification (where applicable). Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 110 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 25 Management Information System S 25.1 Reporting institutions must have in place an adequate manual/electronic management information system (MIS) to complement its CDD process. The MIS is required to provide the reporting institution with timely information on a regular basis to enable the reporting institution to detect irregularities and/or any suspicious activity. S 25.2 The MIS shall be commensurate with the nature, scale and complexity of the reporting institution’s activities and ML/TF/PF risk profile. S 25.3 The MIS shall include, at a minimum, information on multiple transactions over a certain period, large transactions, anomalies in transaction patterns, customer’s risk profile and transactions exceeding any internally specified thresholds. S 25.4 The MIS shall be able to aggregate customer’s transactions from multiple accounts and/or from different systems. G 25.5 The MIS may be integrated with the reporting institution’s information system that contains its customer’s normal transactions or business profile, which is accurate, up-to-date and reliable. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 111 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 26 Enforcement Orders S 26.1 Reporting institutions are required to produce any information or document requested by the relevant law enforcement agencies, pursuant to any investigation order under Part VI of the AMLA served on the reporting institutions, within a reasonable time frame that has been agreed upon between the investigating officer and the reporting institution. S 26.2 Reporting institutions shall establish the necessary policies, procedures and systems to ensure no undue delay in responding to such orders. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 112 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 27 Targeted Financial Sanctions on Terrorism Financing 27.1 Definition and Interpretation 27.1.1 For the purpose of paragraph 27, “customer” includes “beneficial owner” and “beneficiary”. “Domestic List” refers to names and particulars of specified entities as declared by the Minister of Home Affairs under the relevant subsidiary legislation made under section 66B(1) of the AMLA. “related party” refers to: (a) a person related to the properties or funds that are wholly or jointly owned or controlled, directly or indirectly, by a specified entity; and (b) a person acting on behalf or at the direction of a specified entity. “reporting institution” refers to a reporting institution or a financial institution regulated or supervised by Bank Negara Malaysia, which includes general insurers and general takaful operators. “UNSCR List” refers to names and particulars of persons as designated by the United Nations Security Council (UNSC) or its relevant Sanctions Committee pursuant to the relevant United Nations Security Council Resolutions (UNSCR) and are deemed as specified entities by virtue of section 66C(2) of the AMLA. 27.2 General S 27.2.1 Reporting institutions are required to keep updated with the relevant UNSCR relating to combating the financing of terrorism, which includes: (a) UNSCR 1267(1999), 1373(2001), 1988(2011), 1989(2011) and 2253(2015) which require sanctions against individuals and entities belonging or related to Taliban, ISIL (Da’esh) and Al-Qaida; and (b) new UNSCR published by the UNSC or its relevant Sanctions Committee as published in the UN website. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 113 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 27.3 Maintenance of Sanctions List UNSCR List S 27.3.1 Reporting institutions are required to maintain a sanctions database on the UNSCR List. S 27.3.2 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon the publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. G 27.3.3 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: https://www.un.org S 27.3.4 The UNSCR List shall remain in the sanctions database until the delisting of the specified entities by the relevant Sanctions Committee is published in the UN website. Domestic List S 27.3.5 Reporting institutions are required to keep updated with the Domestic List as and when published in the Gazette. S 27.3.6 Reporting institutions are required to maintain a sanctions database on the Domestic List. S 27.3.7 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication in the Gazette. G 27.3.8 Reporting institutions may refer to the Domestic List published in the following website: https://lom.agc.gov.my S 27.3.9 The Domestic List shall remain in the sanctions database until the delisting of the specified entities is published in the Gazette. Other requirements S 27.3.10 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary and where relevant, to the outsourced service providers or agents. https://www.un.org/ https://lom.agc.gov.my/ Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 114 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 27.3.11 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. G 27.3.12 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 27.4 Sanctions Screening – Customers S 27.4.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the Domestic List and UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. S 27.4.2 For the avoidance of doubt, sanctions screening obligations apply to all customers and transactions regardless of any thresholds for CDD or features of a product or service. S 27.4.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number or passport number or reference number of any other official documents; and (c) date of birth. S 27.4.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the: (a) Domestic List, upon publication in the Gazette; and (b) UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. S 27.4.5 Reporting institutions in the insurance and takaful sector, shall conduct sanctions screening upon establishing business relationships, during in-force period of the policy and before any payout. G 27.4.6 When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each specified entity to prevent unintended omissions. S 27.4.7 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to supervisory authorities, upon request. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 115 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Dealing with False Positives S 27.4.8 Reporting institutions are required to ascertain potential matches with UNSCR List or Domestic List are true matches to eliminate false positives. S 27.4.9 Reporting institutions are required to make further inquiries for additional information and identification documents from the customer, counter-party or credible sources to assist in determining whether the potential match is a true match. G 27.4.10 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a specified entity, in the case of similar or common names. 27.5 Related Parties S 27.5.1 Reporting institutions shall undertake due diligence on related parties. S 27.5.2 In undertaking due diligence on the related parties, reporting institutions are required to examine and analyse past transactions of the specified entities and related parties, and maintain records on the analysis of these transactions. G 27.5.3 In ascertaining whether an entity is owned or controlled by a specified entity, reporting institutions may refer to the definition of a “beneficial owner” in paragraph 6.2, and requirements under paragraph 14 in relation to CDD on beneficial owners. 27.6 Freezing, Blocking and Rejecting - Customers and Related Parties S 27.6.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a specified entity and/or related parties: (a) freeze the customer’s funds and properties; or (b) block transactions (where applicable), to prevent the dissipation of the funds. S 27.6.2 Reporting institutions are required to reject a potential customer, when there is a positive name match. S 27.6.3 The freezing of funds and properties, or blocking of transactions, as the case may be, shall remain in effect until the specified entity is removed from the Domestic List or UNSCR List in accordance with paragraphs 27.3.4 and 27.3.9. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 116 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Allowable Transactions S 27.6.4 Any dealings with frozen funds or properties, whether by the specified entity, related party, or any interested party, requires prior written authorisation from the Minister of Home Affairs. S 27.6.5 The frozen funds and properties, may continue receiving deposits, dividends, interests, bonus, premiums/contributions or other benefits. However, such funds and benefits must remain frozen as long as the specified entity continues to be listed under the Domestic List and UNSCR List. Exemption for Basic and Extraordinary Expenditures G 27.6.6 Reporting institutions may advise the specified entity, a related party or any interested party of the frozen funds or properties, or to the blocked or rejected transactions, to make an application to the Minister of Home Affairs for exemptions on basic and extraordinary expenditures. S 27.6.7 Reporting institutions shall only proceed with payments for basic and extraordinary expenditures upon receiving written authorisation from the Minister of Home Affairs. 27.7 Reporting on Positive Name Match Reporting upon Determination of a Positive Name Match S 27.7.1 Reporting institutions are required to immediately report upon determination that they are in possession or in control of funds or properties, of any specified entity and/or related party, using the form attached in Appendix 8a, to the: (a) Financial Intelligence and Enforcement Department, Bank Negara Malaysia; and (b) Inspector-General of Police. Periodic Reporting on Positive Name Match S 27.7.2 Reporting institutions that have reported positive name matches and are in possession or in control of frozen or blocked funds or properties of any specified entity and/or related party are required to report any changes to those funds, other financial assets and economic resources, using the form and at intervals as specified in Appendix 8b. S 27.7.3 Notwithstanding paragraph 27.7.2, reporting institutions are not required to submit periodic reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 117 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 27.8 Reporting of Suspicious Transaction On Related Transactions S 27.8.1 Reporting institutions are required to submit a suspicious transaction report, upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any specified entity or related party. S 27.8.2 Reporting institutions are also required to submit a suspicious transaction report on any attempted transactions undertaken by a specified entity or related party. On Name Match with Other Unilateral Sanctions Lists S 27.8.3 Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 118 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 28 Targeted Financial Sanctions on Proliferation Financing 28.1 Definition and Interpretation 28.1.1 For the purpose of paragraph 28, “customer” includes “beneficial owner” and “beneficiary”. “related party” refers to: (a) a person related to the funds, other financial assets or economic resources that are wholly or jointly owned or controlled, directly or indirectly, by a designated person; and (b) a person acting on behalf or at the direction of a designated person. “reporting institution” refers to a reporting institution or a financial institution regulated or supervised by Bank Negara Malaysia, which includes general insurers and takaful operators. “UNSCR List” refers to names and particulars of persons as designated by the UNSC or its relevant Sanctions Committee and are deemed as designated persons under the relevant Strategic Trade Act 2010 (STA) subsidiary legislation. 28.2 Maintenance of Sanctions List S 28.2.1 Reporting institutions are required to keep updated with the list of countries and persons designated as restricted end-users and prohibited end-users under the STA, in accordance with the relevant UNSCR relating to prevention of proliferation of weapons of mass destruction (WMD) as published in the UN website, as and when there are new decisions by the UNSC or its relevant Sanctions Committee as listed in Appendix 6. S 28.2.2 Reporting institutions are required to maintain a sanctions database on the UNSCR List. S 28.2.3 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN Website. G 28.2.4 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: https://www.un.org https://www.un.org/ Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 119 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 28.2.5 The UNSCR List shall remain in the sanctions database until the delisting of the designated country or person by the UNSC or its relevant Sanctions Committee is published in the UN website. S 28.2.6 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary, and where relevant, to the outsourced service providers or agents. G 28.2.7 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. G 28.2.8 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 28.3 Sanctions Screening – Customers S 28.3.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. S 28.3.2 For the avoidance of doubt, sanctions screening obligations apply to all customers and transactions regardless of any thresholds for CDD or features of a product or service. S 28.3.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number or passport number or reference number of any other official documents; and (c) date of birth. S 28.3.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. S 28.3.5 Reporting institutions in the insurance and takaful sector, shall conduct sanctions screening upon establishing business relationships, during in-force period of the policy and before any payout. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 120 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 28.3.6 When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each designated person to prevent unintended omissions. S 28.3.7 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to supervisory authority, upon request. Dealing with False Positives S 28.3.8 Reporting institutions are required to ascertain potential matches with UNSCR List are true matches to eliminate false positives. S 28.3.9 Reporting institutions are required to make further inquiries for additional information and identification documents from the customer, counter-party or credible sources, to assist in determining whether the potential match is a true match. G 28.3.10 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a designated person, in the case of similar or common names. 28.4 Related Parties S 28.4.1 Reporting institutions shall undertake due diligence on related parties. S 28.4.2 In undertaking due diligence on the related parties, reporting institutions are required to examine and analyse past transactions of the designated person and related parties, and maintain records on the analysis of these transactions. G 28.4.3 In ascertaining whether an entity is owned or controlled by a designated person, reporting institutions may refer to the definition of “beneficial owner” in paragraph 6.2, and requirements under paragraph 14 in relation to CDD on beneficial owners. 28.5 Freezing, Blocking and Rejecting - Customers and Related Parties S 28.5.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a designated person and/or related parties: (a) freeze the customer’s funds, other financial assets and economic resources; or (b) block transactions (where applicable), to prevent the dissipation of the funds, other financial assets and economic resources. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 121 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 28.5.2 Reporting institutions are required to reject a potential customer, when there is a positive name match. S 28.5.3 The freezing of funds, other financial assets and economic resources or blocking of transactions, as the case may be, shall remain in effect until the designated country or person is removed from the UNSCR List in accordance with paragraph 28.2.5. Allowable Transactions S 28.5.4 Any dealings with frozen funds, other financial assets or economic resources, whether by the designated country, person, identified related party or any interested party, requires prior written authorisation from the Strategic Trade Controller under the STA. S 28.5.5 The frozen funds, other financial assets or economic resources may continue receiving deposits, dividends, interests, bonuses, premiums / contributions or other benefits. However, such funds and benefits must remain frozen as long as the countries and persons continue to be listed under the UNSCR List. Exemption for Basic and Extraordinary Expenditures G 28.5.6 Reporting institutions may advise the designated person, a related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transactions, to make an application to the Strategic Trade Controller under the STA for exemptions on basic and extraordinary expenditures. S 28.5.7 Reporting institutions shall only proceed with the payments for basic and extraordinary expenditures upon receiving written authorisation from the Strategic Trade Controller under the STA. Exemption for Payments Due under Existing Contracts G 28.5.8 Reporting institutions may advise the designated person, related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transaction, to make an application to the Strategic Trade Controller under the STA to allow payments due under contracts entered into prior to the designation. S 28.5.9 Reporting institutions shall only proceed with the payments due under existing contracts upon receiving prior written authorisation from the Strategic Trade Controller under the STA. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 122 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 28.6 Reporting on Positive Name Match Reporting upon Determination of a Positive Name Match S 28.6.1 Reporting institutions are required to immediately report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia on any detection, freezing, blocking or rejection actions undertaken with regard to any identified funds, other financial assets and economic resources or transactions, using the form attached in Appendix 8a. Periodic Reporting on Positive Name Match S 28.6.2 Reporting institutions that have reported positive name matches and are in possession or in control of frozen or blocked funds, other financial assets or economic resources of any designated person and/or related party are required to report any changes to those funds, other financial assets or economic resources, using the form and at intervals as specified in Appendix 8b. S 28.6.3 Notwithstanding paragraph 28.6.2, reporting institutions are not required to submit periodic reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. 28.7 Reporting of Suspicious Transaction On Related Transactions S 28.7.1 Reporting institutions are required to submit a suspicious transaction report, upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any designated country, person or related party. S 28.7.2 Reporting institutions are also required to submit a suspicious transaction report on any attempted transaction undertaken by designated countries, persons or related parties. On Name Match with other Unilateral Sanctions Lists S 28.7.3 Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. Imposition of New Measures S 28.8 In the event the UNSC or its relevant Sanctions Committee imposes new measures relating to the prevention of PF or proliferation of WMD, reporting institutions are required to adhere to such measures as specified by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 123 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 29 Targeted Financial Sanctions under Other UN-Sanctions Regimes 29.1 Definition and Interpretation 29.1.1 For the purpose of paragraph 29, “customer” includes “beneficial owner” and “beneficiary”. “related party” refers to: (a) a person related to the funds, other financial assets or economic resources that are wholly or jointly owned or controlled, directly or indirectly, by a designated person; and (b) a person acting on behalf or at the direction of a designated person. “reporting institution” refers to a reporting institution or a financial institution regulated or supervised by Bank Negara Malaysia, which includes general insurers and takaful operators. “UNSCR List” refers to names and particulars of persons as designated by the UNSC or its relevant Sanctions Committee and are deemed as designated persons under the relevant Central Bank of Malaysia Act 2009 (CBA) Regulations. 29.2 Maintenance of Sanctions List S 29.2.1 Reporting institutions are required to keep updated with the list of designated countries and persons under the CBA Regulations, in accordance with the relevant UNSCR relating to upholding of peace and security, through prevention of armed conflicts and human rights violations, as published in the UN website, as and when there are new decisions by the UNSC or its relevant Sanctions Committee as listed in Appendix 7. S 29.2.2 Reporting institutions are required to maintain a sanctions database on the UNSCR List. S 29.2.3 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN Website. G 29.2.4 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: https://www.un.org https://www.un.org/ Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 124 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 29.2.5 The UNSCR List shall remain in the sanctions database until the delisting of the designated country or person by the UNSC or its relevant Sanctions Committee is published in the UN website. S 29.2.6 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch or subsidiary, and where relevant, to the outsourced service providers or agents. G 29.2.7 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. G 29.2.8 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 29.3 Sanctions Screening – Customers S 29.3.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. S 29.3.2 For the avoidance of doubt, sanctions screening obligations apply to all customers and transactions regardless of any thresholds for CDD or features of a product or service. S 29.3.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number or passport number or reference number of any other official documents; and (c) date of birth. S 29.3.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay for any positive name match against the UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. S 29.3.5 Reporting institutions in the insurance and takaful sector, shall conduct sanctions screening upon establishing business relationships, during in-force period of the policy and before any payout. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 125 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 G 29.3.6 When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each designated person to prevent unintended omissions. S 29.3.7 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to supervisory authorities, upon request. Dealing with False Positives S 29.3.8 Reporting institutions are required to ascertain potential matches with UNSCR List are true matches to eliminate false positives. S 29.3.9 Reporting institutions are required to make further inquiries for additional information and identification documents from the customer, counter-party or credible sources, to assist in determining whether it is a true match. G 29.3.10 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a designated person, in the case of similar or common names. 29.4 Related Parties S 29.4.1 Reporting institutions shall undertake due diligence on related parties. S 29.4.2 In undertaking due diligence on the related parties, reporting institutions are required to examine and analyse past transactions of the designated persons and related parties, and maintain records on the analysis of these transactions. G 29.4.3 In ascertaining whether an entity is owned or controlled by a designated person, reporting institutions may refer to the definition of “beneficial owner” in paragraph 6.2 and requirements under paragraph 14 in relation to CDD on beneficial owners. 29.5 Freezing, Blocking and Rejecting – Customers and Related Parties S 29.5.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a designated person and/or related parties: (a) freeze the customer’s funds, other financial assets and economic resources; or (b) block transactions (where applicable), to prevent the dissipation of the funds, other financial assets and economic resources. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 126 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 S 29.5.2 Reporting institutions are required to reject a potential customer, when there is a positive match. S 29.5.3 The freezing of funds, other financial assets and economic resources or blocking of transactions, as the case may be, shall remain in effect until the designated country or person is removed from the UNSCR List in accordance with paragraph 29.2.5. Allowable Transactions S 29.5.4 Any dealings with frozen funds, other financial assets or economic resources, whether by the designated person, related party or any interested party, requires prior written authorisation from the UNSC or its relevant Sanctions Committee. S 29.5.5 The frozen funds, other financial assets or economic resources may continue receiving deposits, dividends, interests, bonuses, premiums/contributions or other benefits. However, such funds and benefits must remain frozen as long as the countries and persons continue to be listed under the UNSCR List. Exemption for Basic and Extraordinary Expenditures G 29.5.6 Reporting institutions may advise the designated person, related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transactions, to make an application to the UNSC or its relevant Sanctions Committee for exemptions on basic and extraordinary expenditures. S 29.5.7 Reporting institutions shall only proceed with payments for basic and extraordinary expenditures upon receiving written authorisation from the UNSC or its relevant Sanctions Committee. Exemption for Payments Due under Existing Contracts G 29.5.8 Reporting institutions may advise the customer, related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transaction, to make an application to the UNSC or its relevant Sanctions Committee to allow payments due under contracts entered into prior to the designation. S 29.5.9 Reporting institutions shall only proceed with the payments due under existing contracts upon receiving prior written authorisation from the UNSC or its relevant Sanctions Committee. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 127 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 29.6 Reporting on Positive Name Match Reporting upon Determination of a Name Match S 29.6.1 Reporting institutions are required to immediately report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia on any detection, freezing, blocking or rejection actions undertaken with regard to any identified funds, other financial assets, economic resources or transactions, using the form as attached in Appendix 8a. Periodic Reporting on Positive Name Match S 29.6.2 Reporting institutions that have reported positive name matches and are in possession or in control of frozen or blocked funds, other financial assets or economic resources of any designated person and/or related party are required to report any changes to those funds, other financial assets or economic resources, using the form and at intervals as specified in Appendix 8b. S 29.6.3 Notwithstanding paragraph 29.6.2, reporting institutions are not required to submit periodic reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. 29.7 Reporting of Suspicious Transaction On Related Transactions S 29.7.1 Reporting institutions are required to submit a suspicious transaction report, upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any designated country, person or related party. S 29.7.2 Reporting institutions are also required to submit a suspicious transaction report on any attempted transaction undertaken by designated countries, persons or related parties. On Name Match with other Unilateral Sanctions Lists S 29.7.3 Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. Imposition of New Measures S 29.8 In the event the UNSC or its relevant Sanctions Committee impose new measures relating to upholding of peace and security, and prevention of conflicts and human rights violations, reporting institutions are required to adhere to such measures as specified by Bank Negara Malaysia. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 128 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 30 Other Reporting Obligations S 30.1 Reporting institutions are required to submit the following reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, where applicable: (a) Annual Summary Report on Exposure to Customers and Beneficial Owners from High Risk Countries, as may be specified by Bank Negara Malaysia; (b) Quarterly Statistics on Orders Issued by Law Enforcement Agencies; and (c) any other report as may be specified by Bank Negara Malaysia. G 30.2 Reporting institutions may refer to the template for submission of the report under paragraph 30.1, at the following website: https://amlcft.bnm.gov.my https://amlcft.bnm.gov.my/ Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 129 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDICES APPENDIX 1 Guidance on Application of Risk Based Approach 1.0 Introduction 1.1 The risk-based approach (RBA) is central to the effective implementation of the FATF Recommendations. The focus on risk is intended to ensure a reporting institution is able to identify, assess and understand the ML/TF/PF risks to which it is exposed to and take the necessary AML/CFT/CPF control measures to mitigate them. 1.2 This Guidance seeks to: (a) assist the reporting institution to design and implement AML/CFT/CPF control measures by providing a common understanding of what the RBA encompasses; and (b) clarify the policy expectations in relation to the assessment of business- based and customer-based ML/TF/PF risk in applying the RBA. In the event a reporting institution has developed its own RBA, the reporting institution is expected to ensure its RBA achieves the outcomes as specified in this policy document and as further clarified in this Guidance. 1.3 This Guidance is not intended to supersede or replace any of the existing mandatory requirements on RBA that are provided in paragraph 10 of the policy document. 1.4 For reporting institutions under a group structure, the requirements on the RBA as provided for in the policy document and this Guidance are applicable to reporting institutions at the entity level, not group level, whether as a holding or subsidiary entity. For example, for financial groups which comprise of a licensed conventional bank, a licensed Islamic bank and a licensed insurance company, these are considered as three separate reporting institutions/entities for the purpose of complying with the policy document. 1.5 The RBA: (a) recognises that the ML/TF/PF threats to a reporting institution vary across customers, countries, products and services, transactions and distribution channels; (b) allows the reporting institution to apply appropriate policies, procedures, systems and controls to manage and mitigate the ML/TF/PF risks identified based on the nature, scale and complexity of the reporting institution’s business and ML/TF/PF risk profile; and Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 130 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (c) facilitates more effective allocation of the reporting institution’s resources and internal structures to manage and mitigate the ML/TF/PF risks identified. 1.6 The RBA provides an assessment of the threats and vulnerabilities of the reporting institution from being used as a conduit for ML/TF/PF. By regularly assessing the reporting institution’s ML/TF/PF risks, it allows the reporting institution to protect and maintain the integrity of its business and the financial system as a whole. 2.0 Business-based and Relationship-Based Risk Assessment 2.1 The RBA entails two (2) assessments: Business-based Risk Assessment (BbRA) In a BbRA, a reporting institution is expected to identify ML/TF/PF risk factors that affect its business and address the impact on the reporting institution’s overall ML/TF/PF risks. • Refer to requirements in paragraphs 10.2, 10.3, 10.4 and 10.5 of this policy document. I. Perform risk assessment - A reporting institution is expected to perform an assessment on the degree of ML/TF/PF risks that the reporting institution's business is exposed to and determine its risk appetite level. To this end, a reporting institution is expected to formulate specific parameters of the ML/TF/PF risk factors considered. II. Formulate and implement business risk management and mitigation control measures - A reporting institution is expected to establish and implement policies, procedures and controls to manage and mitigate the identified ML/TF/PF risks. Such measures should be sufficiently adequate to manage and mitigate the ML/TF/PF risks identified. Relationship-based Risk Assessment (RbRA) In an RbRA or Customer Risk Profiling, a reporting institution is expected to consider the inherent risks arising from the types of products, services, distribution channels, etc. that the customers are using and implement appropriate measures to manage and mitigate the ML/TF/PF risks identified therein. • Refer to requirements in paragraph 10.6 of this policy document Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 131 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 I. Determine the risk parameters for customer risk profiling A reporting institution is expected to identify specific ML/TF/PF risk factors and parameters for customers’ profiling. Where relevant, the reporting institution may adopt similar parameters that have been used for the assessment of the ML/TF/PF risk factors considered under the BbRA. II. Conduct risk profiling on customers Based on the Customer Due Diligence (CDD) information obtained at point of on-boarding new customers, or ongoing CDD information obtained from existing customers, as the case may be, a reporting institution is expected to determine the ML/TF/PF risk profile of each customer (e.g. high, medium or low) by applying the risk parameters determined above, in order to determine the appropriate level of CDD (i.e. standard or enhanced) that is applicable in respect of each customer. The resulting ML/TF/PF risk profile may also have a bearing on the frequency and intensity of on-going CDD that is applicable throughout the duration of the business relationship with the customer. III. Apply customer risk management and mitigation control measures A reporting institution is expected to apply the necessary risk management and mitigation policies, procedures and controls that are commensurate with the ML/TF/PF risk profile of each customer, to effectively manage and mitigate the ML/TF/PF risks identified. For example, customers assessed as having higher ML/TF/PF risks should be subject to enhanced CDD procedures, Senior Management’s approval should be obtained before offering or continuing to provide financial services and the customer should be subject to more frequent and intense on-going CDD procedures throughout the duration of the business relationship with the customer. 2.2 The RBA is expected to be tailored to the nature, scale and complexity of the reporting institution’s business, size, structure and activities. 2.3 A reporting institution is expected to incorporate the RBA into its existing policies and procedures as part of its overall risk management function. All steps and processes in relation to the RBA for purpose of BbRA and RbRA are expected to be documented and supported by appropriate rationale and be subject to approval by Senior Management and/or the Board, as appropriate. • Refer to paragraph 10.7.1 in this policy document. 2.4 Recognising that ML/TF/PF risks evolve and are subject to change over time (arising from the emergence of new threats, introduction of new products/services, new technologies, expansion to new customer base etc.) a reporting institution is expected to understand that assessing and mitigating ML/TF/PF risks is not a static exercise. Therefore, a reporting institution is expected to periodically review, evaluate and update the RBA accordingly. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 132 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 2.5 The outcome of the BbRA and RbRA complement each other. Therefore, to effectively implement the RBA: (a) a reporting institution is expected to determine reasonable risk factors and parameters for the BbRA and RbRA ; and (b) over a period of time, data from the RbRA may also be useful in updating the parameters of the BbRA. 3.0 Business-based Risk Assessment (BbRA) A. Perform Risk Assessment 3.1 While there is no prescribed methodology, the BbRA is expected to reflect material and foreseeable ML/TF/PF threats and vulnerabilities which a reporting institution is exposed to for the period under review. Hence, a reporting institution may establish a manual or automated system to perform its risk assessment. 3.2 The reporting institution is expected to evaluate the likelihood and extent of its ML/TF/PF risks at a macro level. When assessing the ML/TF/PF risks, a reporting institution is expected to consider all relevant risk factors that affect their business and operations, which may include the following: (a) Specific risk factors or high risk crimes that the reporting institution may consider for the purpose of identifying its ML/TF/PF risks; (b) Type of customers; (c) Geographic location of the reporting institution; (d) Transactions and distribution channels offered by the reporting institution; (e) Products and services offered by the reporting institution; (f) Structure of the reporting institution; and (g) Findings of the National Risk Assessment (NRA). 3.3 The ML/TF/PF risks may be measured based on a number of factors. The weight or materiality given to these factors (individually or in combination) when assessing the overall risks of potential ML/TF/PF may vary from one reporting institution to another, depending on their respective circumstances. Consequently, a reporting institution is expected to make its own determination as to the risk weightage or materiality for each factor under consideration. These factors either individually or in combination, may increase or decrease potential ML/TF/PF risks posed to the reporting institution. 3.4 To assist a reporting institution in assessing the extent of its ML/TF/PF risks, the reporting institution may consider the following examples of risk factors: Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 133 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (a) Customers – in conducting business transactions, the reporting institution is exposed to various types of customers that may pose varying degrees of ML/TF/PF risks. In analysing its customers’ risk, a reporting institution may consider the non-exhaustive examples below: • Exposure to high-net-worth customers within the reporting institution; • Nature and type of business or occupation of the customers; • Nature and type of business of merchants; • Exposure to foreign PEP customers; • Exposure to domestic PEP customers assessed as higher risk; • Exposure to customers and/or merchants related to PEPs assessed as higher risk; • Exposure to customers that are legal arrangements (e.g. trusts and charities) and legal persons and the level of complexity of such legal structures; • Likelihood of the customers and/or transactions originating from FATF black or grey list countries or tax haven jurisdictions; • Exposure to customers from jurisdictions exposed to high levels of corruption, organised crime and/or drug production/distribution; • Exposure to customers that are mostly domiciled in, or conducting business in or through, countries that are listed by FATF in its Public Statement or the Government of Malaysia, or sanctioned by the United Nations Security Council; • High growth in customer account base; • Exposure to customers that authorise a proxy/agent to operate the account on their behalf; • Exposure to non-resident customers; • Exposure to companies that have nominee shareholders or shares in bearer form; • Exposure to legal persons or arrangements that are personal asset holding vehicles; • Exposure to customers that provide vague or incomplete information about their proposed trading activities during on- boarding and resistant to provide additional information when queried; • Exposure to customers with their beneficial owners or senior management appear in unilateral sanctions lists or adverse news; • Exposure to customers connected with a country of proliferation or diversion concern, e.g. through business or trade relations; • Exposure to customers dealing with dual-use goods or goods subject to export control goods or complex equipment for which the person lacks technical background, or which is Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 134 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 incongruent with their stated line of activity; • Exposure to customers engage in complex trade deals involving numerous third-party intermediaries in lines of business that do not accord with their stated business profile established at onboarding; • Exposure to customers declared to be a commercial business, conducts transactions that suggest that they are acting as a money-remittance business or a pay-through account, involving a rapid movement of high-volume transactions and a small end-of-day balance without clear business reasons; and/or • Exposure to customers affiliated with universities or research institutions are involved in the trading of dual-use goods or goods subject to export control. (b) Countries or geographic location – a reporting institution should take into account such factors including the location of the reporting institution’s holding company, head office, branches and subsidiaries and agents (where applicable), and whether its holding company is located within a jurisdiction with full AML/CFT/CPF compliance as identified by a credible source. Further non-exhaustive examples are as below: Location of its holding company, branches, subsidiaries, merchants and/or agents in: • Tourist hotspots, crime hotspots, country’s border and entry- points; • High risk countries e.g. countries identified by FATF in its Public Statement, countries designated by the Government of Malaysia, countries subjected to sanctions by the United Nations Security Council; • Jurisdictions that have been identified by credible sources as having significant levels of corruption or other criminal activities e.g. reports by Transparency International, United Nations Office on Drugs and Crimes etc.; and/or • Jurisdictions that have been identified by credible sources as providing funding or support for money laundering, terrorism or proliferation of weapons of mass destruction. (c) Transactions and distribution channels – A reporting institution has various modes of transaction and distribution of its products and services. Some of the modes of transaction and distribution channels may be more susceptible to ML/TF/PF risks. For example, products sold via non face-to-face channels are more susceptible to ML/TF/PF as compared to products sold via face-to-face channels, or in the case of money services business, transactions conducted with third party agents of the reporting institution may be more vulnerable to ML/TF/PF in comparison to those conducted at the reporting institution’s own Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 135 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 branches. In this regard, a reporting institution is expected to consider the appropriate ML/TF/PF risks attributed to all available modes of transactions and distribution that are offered to customers by the reporting institution, including the following non-exhaustive examples: • Mode of distribution e.g. direct channel, or via agents, brokers, bancassurance, financial advisors, introducers, online or technology based transaction; • Volume and frequency of non face-to-face business relationships or transactions; • Mode of payment e.g. cash-based transactions, e-payments; • Cash intensive or other forms of anonymous transactions; • Private banking relationships; • Volume and frequency of transactions carried out in high risk areas or jurisdictions; • Number of distribution channels located in high risk areas or jurisdictions; • Exposure to cross-border transactions and/or transactions in high risk jurisdictions; • Financial transaction conducted in a circuitous manner; • Accounts or transactions involve possible companies with opaque ownership structures, front companies, or shell companies, e.g. companies do not have a high level of capitalisation or displays other shell company indicators, including long periods of account dormancy followed by a surge of activity; • Account activity or transactions where the originator or beneficiary of associated financial institutions or correspondent banking services is domiciled in a country with weak implementation of relevant UNSCR obligations and FATF Standards or a weak export control regime; and/or • Use of a personal account to purchase industrial items that are under export control, or otherwise not associated with corporate activities or congruent lines of business. (d) Products and services – given the variety of financial products in the market, a reporting institution is expected to identify the appropriate level of ML/TF/PF risks attached to the types of products and services offered. Some of the non-exhaustive examples that the reporting institution may take into account are as follows: • Nature of the products i.e. transferability/liquidity of the products; • Level of complexity of the products and services; • Bearer instruments; • Cash-based products and services e.g. e-money, e-wallet etc.; • Domestic and international private banking facilities and/or Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 136 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 trust and asset management products/services; • E-banking or mobile banking products and services; • Volume of stored value cards offered with no restrictions; • Products that return a significant portion of premiums paid as surrender value in the event of surrender or early termination; • Products that allow top-up and/or partial/full withdrawal; • Products with a short maturity period; • Type of services offered i.e. single type of money service (e.g. money-changing or remittance only) or multiple money services (e.g. both money-changing and remittance); • Payment instruments with funds transfer /cross border facility; • Payment instruments with cash withdrawal facility; • Payment instruments accepted for retail transactions domestically and/or internationally; • Trade finance facilities; • Transactions involve trading of dual-use goods or goods subject to export control; • Inadequate information and inconsistencies in trade documents and financial flows; such as names, companies, addresses, final destination, etc; and/or • Transactions that include wire instructions or payment details from or due to parties not identified on the original letter of credit or other documentation. (e) Reporting institution’s structure – the ML/TF/PF risk of a reporting institution may differ according to its size, structure and nature of business. Appropriate assessment of its business model and structure may assist a reporting institution to identify the level of ML/TF/PF risks that it is exposed to. In this regard, a reporting institution may take into account the following non- exhaustive examples: • Number of branches, subsidiaries and/or agents; • Size of the reporting institution relative to industry/sector; • Number and profile of employees; • Degree of dependency on technology; • Number of foreign correspondent financial institution accounts with inadequate AML/CFT/CPF controls, policies and procedures; • Number of foreign correspondent financial institutions accounts located in higher risk jurisdictions; and/or • Level of staff turnover, especially in key personnel positions. (f) Findings of the National Risk Assessment (NRA) or any other risk assessments issued by relevant authorities – in identifying, assessing and understanding the ML/TF/PF risks, a reporting institution is expected to fully consider the outcome of the NRA or any other equivalent risk assessments by relevant authorities: Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 137 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Under the NRA, a reporting institution is expected to take into account the following: • Sectors identified as highly vulnerable to ML/TF/PF risks and the reporting institutions exposure to such sectors in relation to customer segments served; • Crimes identified as high risk or susceptible to ML/TF/PF and the adequacy of the reporting institutions’ mitigating measures to detect and deter such illegal proceeds or in preventing dealings with customers involved in such illicit activities; and/or • TF and/or PF risks faced by the industry. (g) Other factors – a reporting institution may also take into account other factors in determining its risk assessment such as: • Current trends and typologies for the sector in relation to ML/TF/PF and other crimes; • The reporting institution’s internal audit and regulatory findings; • Current trends and typologies for other sectors with similar business model or product/service offerings in relation to ML/TF/PF and other crimes; • The number of suspicious transaction reports it has filed with the Financial Intelligence and Enforcement Department, Bank Negara Malaysia; and/or • Whether the reporting institution has been subjected to service any freeze or seize order by any law enforcement agencies, for example, pursuant to the AMLA, Dangerous Drugs (Forfeiture of Property) Act 1988, Malaysian Anti-Corruption Commission Act 2009, etc. 3.5 In considering each risk factor mentioned above, a reporting institution is expected to formulate parameters that indicate their risk appetite in relation to the potential ML/TF/PF risks it may be exposed to. The reporting institution is expected to set its own parameters according to the size, complexity of its business. Example 1 below is strictly for illustration purpose and is intended to facilitate better understanding on how the risk factors and parameters may be applied. It is not intended to serve as a prescription or recommendation on the parameters or specific thresholds to be adopted by the reporting institution: Example 1 for all sectors: Risk Factor Examples Formulated Parameters Customer Significant growth of customer account base • Customer base increased more than 30% within a year • Number of high risk customers and Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 138 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 businesses totalling more than 30% of total loans and deposits Significant growth in percentage of high net worth customers • Customers with net worth of RM5 million or more Percentage of local and foreign customers • Customers originating from high- risk jurisdictions domestically, regionally and globally Transactions and Distribution Channels Cash intensive or other forms of anonymous transactions • High volume of cash transactions above RM50,000 within a year • High volume of conversion of ringgit to foreign currency by a single customer exceeding RM50,000 per transaction within a year • High volume of anonymous / proxy transactions exceeding RM50,000 per transaction within a year Percentage of non face-to-face transactions • Non face-to-face transactions exceeding 50% of total transactions Frequency and amount of cash payments • Cash transactions above RM10,000 Wide array of e- banking products and services • More than 30% of new accounts are opened via internet, mail or telephone without prior relationship Findings of the NRA or any other Sectors identified as highly vulnerable to • Number of customers with occupation or nature Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 139 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 risk assessments issued by relevant authorities ML/TF/PF risks of business from highly vulnerable sectors identified under the NRA or any other risk assessments issued by relevant authorities Note: The above is not meant to serve as exhaustive examples or prescriptions on specific risk factors or parameters which reporting institutions should apply in assessing the ML/TF/PF risks of the business. Reporting institutions are expected to determine which risk factors and parameters are most appropriate in the context of the nature, scale and complexity of their respective businesses. 3.6 By applying all the risk factors and parameters in performing its risk assessment, a reporting institution should be able to determine the extent of ML/TF/PF risks that it is exposed to, on a quantitative and/or qualitative basis. 3.7 The outcome of the risk assessment would determine the level of ML/TF/PF risks the reporting institution is willing to accept (i.e. the reporting institution’s risk appetite) and its appropriate risk rating. The risk appetite and risk rating will have a direct impact on the proposed risk management and mitigation policies, procedures and controls adopted by the reporting institution. 3.8 Apart from ensuring that the risk assessment is reflected in its policies and procedures, a reporting institution is also expected to justify the outcome of the risk assessment conducted. Reporting institutions are reminded of the requirement under the AMLA to maintain proper records on any assessments and approvals by Senior Management and/or the Board on the ML/TF/PF risk assessments conducted to enable reviews to be conducted as and when it is requested by the relevant supervisory authorities. B. Formulate and implement business risk management and mitigation control measures 3.9 Once a reporting institution has identified and assessed the ML/TF/PF risks it faces after performing its risk assessment under paragraph 3A above, a reporting institution is expected to formulate and implement appropriate risk control measures in order to manage and mitigate those risks. 3.10 The intended outcome is that the mitigation measures and controls are commensurate with the ML/TF/PF risks that have been identified. 3.11 The type and extent of the AML/CFT/CPF controls will depend on a number of factors, including: (a) nature, scale and complexity of the reporting institution’s operating structure; Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 140 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (b) diversity of the reporting institution’s operations, including geographical locations; (c) types of customers; (d) products or services offered; (e) distribution channels used either directly, through third parties or agents or on non face-to-face basis; (f) volume and size of transactions; and (g) degree to which the reporting institution has outsourced its operations to other entities (Group). 3.12 The following are non-exhaustive examples of the risk controls that a reporting institution may adopt: (a) restrict or limit financial transactions; (b) enhanced onboarding processes for relevant segment of customers, including beneficial owners; (c) require additional internal approvals for certain transactions and products or services; (d) conduct regular training programmes for directors and employees on ML/TF/PF risks, typologies or increase resources where applicable; (e) improved controls for effective sanctions screening and transaction monitoring, including tailored risk-based measures to mitigate sanctions evasion, employment of technology-based screening, advanced technology to facilitate network analysis or system-based monitoring of transactions; and (f) employ biometric system for better customer verification. 4.0 Relationship-based Risk Assessment (RbRA) A. Determine the risk parameters for customer profiling A reporting institution is expected to determine the appropriate risk parameters when considering the risk factors such as customer, country or geographic location, product or service and transaction or distribution channel. These risk parameters will assist the reporting institution in identifying the ML/TF/PF risk factors for customers for the purpose of risk profiling. Refer to Example 2 below for illustration purposes: Example 2 for all sectors: Risk Factor Parameters determined for risk profiling Risk Rating Customer Type Individual / Group insured members Low Legal Person Medium Legal Arrangement High Net Worth Less than RM500,000 Low Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 141 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 RM500,000 – RM3 million Medium Above RM3 million High Nationality Low risk countries Low Countries neighbouring high- risk or sanctioned countries Medium High-risk or sanctioned countries High Country of Origin Malaysia Low Singapore Medium North Korea High Country of Residence Malaysia Low Singapore Medium North Korea High Transaction or Distribution Channel Over the Counter / Direct / Bancassurance Low On behalf / Through intermediaries and/or agents Medium Non Face-to-face High Products and Services Savings Account Low Unit Trust Medium Private Banking High Product Features Pure insurance/takaful products with zero or minimal savings/investment element (e.g. group/individual policies with life/medical/PA coverage) Low Products with the following features but not limited to: • Products that return a portion of premiums paid as surrender value in the event of surrender or early termination Medium Products with the following features but not limited to: • Products that return a significant portion of premiums paid as surrender value in the event of surrender or early termination • Products that allow top-up and/or partial/full withdrawal • Products with a short maturity period High Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 142 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Note 1: The above is not meant to serve as exhaustive examples or prescriptions on specific risk factors or parameters which reporting institutions should apply for purpose of client risk profiling. Reporting institutions are expected to determine which risk factors and parameters are most appropriate in the context of the nature and complexity of clients served, products/services offered etc. Note 2: In relation to ‘Risk Rating’, while the examples above are based on a simple three-scale rating model (i.e. Low, Medium or High), this is not intended to restrict the client risk rating models adopted by reporting institutions, which could be based on more granular approach e.g. four-scale or five-scale or more rating model. 4.1 Where relevant, a reporting institution may adopt similar risk factors and parameters that have been used for the assessment of the ML/TF/PF risks considered under the BbRA. 4.2 The different RbBA parameters considered within the customer, country or geographic, product or service and transaction or distribution channel risk factors, may either individually or in combination impact the level of risk posed by each customer. 4.3 Identifying one high risk indicator for a customer does not necessarily mean that the customer is high risk2. The RbRA ultimately requires a reporting institution to draw together all risk factors, parameters considered, including patterns of transaction and activity throughout the duration of the business relationship to determine how best to assess the risk of such customers on an on-going basis. 4.4 Therefore, a reporting institution is expected to ensure that the CDD information obtained at the point of on-boarding and on-going due diligence is accurate and up to date. B. Conduct risk profiling on customers 4.5 Based on the processes under paragraph 5 below, a reporting institution is expected to formulate its own risk scoring mechanism for the purpose of risk profiling its customers, e.g. high, medium or low. This will assist the reporting institution to determine whether to apply standard or enhanced CDD measures in respect of each customer. 4.6 A reporting institution is expected to document the reason and basis for each risk profiling and risk scoring assigned to its customers. 2 Except for high risk customer relationships that have already been prescribed, e.g. foreign PEPs or customers from high risk jurisdiction identified by FATF. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 143 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 4.7 Accurate risk profiling of its customers is crucial for the purpose of applying effective control measures. Customers who are profiled as higher risk should be subject to more stringent control measures including more frequent monitoring compared to customers rated as low risk. 4.8 While CDD measures and risk profiling of customers are performed at the inception of the business relationship, the risk profile of a customer may change once the customer has commenced transactions. On-going monitoring would assist in determining whether the transactions are consistent with the customer’s last known information. C. Apply customer risk management and mitigation control measures 4.9 Based on the risk profiling conducted on customers, a reporting institution is expected to apply the risk management and mitigation procedures, systems and control measures proportionate to the customers’ risk profile to effectively manage and mitigate such ML/TF/PF risks. 4.10 Non-exhaustive examples of risk management and mitigation control measures for RbRA include: (a) Develop and implement clear customer acceptance policies and procedures; (b) Obtain, and where appropriate, verify additional information on the customer; (c) Update regularly the identification of the customer and beneficial owners, if any; (d) Obtain additional information on the intended nature of the business relationship; (e) Obtain information on the source of funds and/or source of wealth of the customer; (f) Obtain information on the reasons for the intended or performed transactions; (g) Obtain the approval of Senior Management to commence or continue business relationship; (h) Conduct appropriate level and frequency of ongoing monitoring commensurate with risks identified; (i) Scrutinise transactions based on a reasonable monetary threshold and/or pre-determined transaction patterns; and (j) Impose transaction limit or set a certain threshold. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 144 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 5.0 Continuous application of RBA 5.1 The application of RBA is a continuous process to ensure that RBA processes for managing and mitigating ML/TF/PF risks are kept under regular review. 5.2 A reporting institution is expected to conduct periodic assessment of its ML/TF/PF risks (preferably every two years or sooner if there are any changes to the reporting institution’s business model) taking into account the growth of the business, nature of new products/services and latest trends and typologies in the sector. 5.3 Through the periodic assessment, a reporting institution may be required to update or review either its BbRA or RbRA. 5.4 A reporting institution is expected to take appropriate measures to ensure that its policies and procedures are updated in light of the continuous risk assessments and ongoing monitoring of its customers. 6.0 Documentation of the RBA process 6.1 A reporting institution is expected to ensure the RBA process is properly documented. 6.2 Documentation by the reporting institution is expected to include: (a) Process and procedures of the RBA; (b) Information that demonstrates higher risk indicators have been considered, and where they have been considered and discarded, reasonable rationale for such decision; (c) Analysis of the ML/TF/PF risks and conclusions of the ML/TF/PF threats and vulnerabilities to which the reporting institution is exposed to; and (d) Measures put in place for higher risk indicators and to ensure that these measures commensurate with the higher risks identified. 6.3 In addition, on a case-by-case basis, a reporting institution is expected to document the rationale for any additional due diligence measures it has undertaken (or any which it has waived) compared to the standard CDD approach. 6.4 The documented risk assessment is expected to be presented, discussed and deliberated with the Senior Management (including the CEO) and the Board of the reporting institution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 145 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 2 Customer Due Diligence Form for MSBs Information to be captured in MIS of MSB licensees for purpose of: • developing parameters for the conduct of risk assessment on the level of ML/ TF/PF risks • establishing red flags and facilitate ongoing monitoring of their customers Customer Due Diligence Identification of customer is made pursuant to section 16 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001(AMLA) Type of Business: ☐ Money-Changing ☐ Remittance ☐ Wholesale Currency Business 1) INDIVIDUAL Full Name NRIC/Passport No. Date of Birth Residential Address Town State Postcode Country Mailing Address (if different from the above address) Town State Postcode Country Nationality Occupation Type Name of Employer/Nature of Business (if self-employed) Contact Number (home/office/mobile) Purpose of Transaction ☐ Traveling ☐ Business ☐ Education ☐ Medical ☐ Others:__(please specify) 2) For LEGAL PERSON / LEGAL ARRANGEMENTS Company/Business Name Business Registration No. Business Type ☐ Sole Proprietorship ☐ Partnership ☐ Limited Liability Partnership ☐ Public Company ☐ Private Limited Company ☐ Trust ☐ Club/Society/Charity ☐ Others:_________________(please specify) Country of Incorporation/Registration Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 146 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Address of Registered Office (trustee for trust) Town State Postcode Country Address of the Principal Place of Business (If different from above) Town State Postcode Country Principle Business Contact No. Purpose of Transaction Name of Directors(s)/Partner(s) A) Legal Person Name of Shareholder(s)/Beneficial Owner(s) Name Types of shares Percentage Name of Beneficial Owners through other means (e.g., Nominee shareholders etc.) Name Type of ownership/control/relationship Name of Senior Management 3) LEGAL ARRANGEMENTS Name Registration No. Type ☐ Trust ☐ Club/Society/Charity ☐ Others:_________________(please specify) Country of Incorporation/Registration Address of Registered Office (trustee for trust) Town State Postcode Country Address of the Principal Place of activity (If different from above) Town State Postcode Country Principle activity Contact No. Purpose of Transaction Name of Directors(s)/Partner(s) B) Legal Arrangement Name ID Address Settlor Trustee Protector (if any) Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 147 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 PERSON TRANSACTING ON BEHALF OF INDIVIDUAL/LEGAL PERSON/LEGAL ARRANGEMENT Are you transacting on behalf of another person? ☐ Yes (please fill up information below) ☐ No Full Name NRIC/Passport No. Date of Birth Address Town State Postcode Country Nationality Occupation Name of Employer/Nature of Business Contact Number (home/office/mobile) INFORMATION ON TRANSACTION (to be filled up by MSB licensee) Type of Customer ☐ New Customer ☐ Existing Customer Date of Transaction Amount Transacted (RM) Foreign Currency Involved Mode of Payment ☐ Cash ☐ Cheque ☐ Bank Draft ☐ Others:__ (please specify) Source of Fund (for EDD only) Mode of Delivery ☐ Over the Counter ☐ Bank Account ☐ Cash Delivery ☐ Others:__ (please specify) Beneficiary/class of beneficiary Other BO information Relationship with trust: Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 148 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 VERIFICATION (For Office Use) Individual Legal Persons/Legal Arrangement  To verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that the reporting institution deem necessary, for example: o Identity Card issued by Malaysian government o Employee Identity Card issued by ministries and statutory bodies o Foreign passport or identity card issued by the United Nations o Documents issued by Malaysian government o Biometric identification o Organisation that maintains reliable and independent electronic data to verify customer’s identity  To verify the identity of the customer through the following information/documents, for example: o Constitution/Certificate of Incorporation/Partnership o Reliable references to verify the identity of customer;  To verify the identity of directors/shareholders with equity interest of more than twenty five percent/Partners through the following documents, for example, o Sections 58 and 78 Forms as prescribed by the Companies Commission of Malaysia or equivalent documents for Labuan companies or foreign incorporations o Other equivalent documents for other types of legal person o Authorisation for any person to represent the o Letter of authority or directors’ resolution. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 149 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 3 CDD Measures for E-money 1 Payment card refers to credit card, credit card-i, debit card, debit card-i, charge card and charge card-i only. 2 Regulated institutions refer to licensed bank under the FSA, licensed Islamic bank under the IFSA, prescribed institutions under the DFIA or approved issuers under the FSA/IFSA. CDD Obligations Requirements Features Account limit Transaction limit Simplified CDD • Identify five data points and verify identity • The e-money account shall be linked with customer’s current/ savings account or payment card1 account maintained with regulated institutions2 for reload and refund purposes • Payments for goods and/or services in Malaysia only • Domestic wire transfers • No cash withdrawals Below RM5,000 • Below RM5,000 per month • Below RM60,000 per annum Standard CDD • Identify nine data points and verify identity • Payments for goods and/or services • Domestic and/or cross-border wire transfers • Cash withdrawals RM5,000 and above • RM5,000 and above per month • RM60,000 and above per annum Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 150 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 4 Transactions That May Trigger Suspicion APPENDIX 4a For Banking and Deposit-Taking Institutions Examples of Transactions3 That May Trigger Suspicion Cash Transactions 1. Unusually large cash deposits made by an individual or company whose ostensible business activities would normally be generated by cheques and other instruments. 2. Substantial increases in cash deposits of any individual or business without apparent cause, especially if such deposits are subsequently transferred within a short period out of the account and/or to a destination not normally associated with the customer. 3. Multiple cash deposits on the same day or within a short period of time by same or similar individuals into a specific account, and these deposits are made in different branches located within proximity to each other. 4. Customers who deposit cash by means of numerous deposit slips such that the total of each deposit is insignificant, but the total of all the deposits is significant. 5. Company accounts whose transactions, both deposits and withdrawals, are denominated in cash rather than the forms of debit and credit normally associated with commercial operations (e.g. cheques, Letters of Credit, Bills of Exchange, etc.). 6. Customers who constantly pay-in or deposit cash to cover requests for bankers’ draft, money transfers or other negotiable and readily marketable money instruments. 7. Customers who seek to exchange large quantities of low denomination notes for those of higher denomination. 8. Frequent exchange of cash into other currencies. 9. Customers whose deposits contain counterfeit notes or forged instruments. 10. Customers transferring large sums of money to or from overseas locations with instructions for payment in cash. 3 Modified from ‘A Model of Best Practices to Combat Money Laundering in the Financial Sector’ (September 2000) by the Commonwealth Secretariat. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 151 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 11. Large cash deposits using night safe facilities, thereby avoiding direct contact with the reporting institution’s staff. 12. Large cash deposit into the cash deposit machine (CDM). 13. Multiple cash deposits or withdrawals via the cash deposit machine (CDM) up to the maximum limit per day to avoid CDD verification over the counter. 14. Account received multiple cash deposits via the CDM at various locations throughout the country. 15. Customers who receive multiple cash deposits, typically under Cash Threshold Reporting (CTR) requirements of RM25,000 followed by immediate ATM withdrawals in another country or another region of the same country. Accounts 16. Accounts that appear to act as pass-through accounts with high volumes of credits and debits and low average monthly balances. 17. Customers who wish to maintain a number of trustee or client accounts, which do not appear consistent with the type of business, including transactions which involve nominee names. 18. Customers who have numerous accounts and pay in amounts of cash to each of them in circumstances in which the total amount of credits would be large. 19. Any individual or company whose account shows no normal personal banking or business related activities, but is used to receive or disburse large sums which have no obvious purpose or relationship to the account holder and/or his business (e.g. a substantial increase in turnover on an account). 20. Reluctance to provide normal information when opening an account or providing information that is difficult for the reporting institution to verify. 21. Customers who are PEPs with financial information that commingles personal and business transactions. 22. Customers who appear to have accounts with several reporting institutions within the same locality but choose to consolidate funds from such accounts on regular basis for onward transmission to a third party account. 23. Paying in large third party cheques endorsed in favour of the customer. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 152 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 24. Large cash withdrawals from a previously dormant/inactive account, or from an account which has just received an unexpectedly large credit from abroad. 25. Frequent use of safe deposit facilities, without valid explanation. 26. Substantial increases in deposits of cash or negotiable instrument by a professional firm or company, using client accounts or in-house company, or trust accounts, especially if the deposits are promptly transferred between other client’s company accounts and trust accounts. 27. Customers who show an apparent disregard for accounts offering more favourable terms, e.g. avoidance of high interest rate facilities for large credit balances. 28. Large number of individuals making payments into the same account without any adequate explanation. 29. Large deposit made into a newly opened company/business account and withdrawn in a short period within same or next few days. 30. Large and/or frequent placements in fixed deposit accounts or investment/ unit trust accounts that are inconsistent with customer’s earning profile. 31. Sudden change of transaction pattern(s) observed in customers’ account. 32. Customer deposits, withdraws or operates an account accompanied or watched or under instruction by a third party. 33. Common mobile number, address and employment reference being used by numerous individuals to open multiple bank accounts in different names. 34. Account is funded primarily via cash deposits and funds transfers from other individuals. 35. Incurring and payment of credit facilities, credit card charges, or deposits that does not commensurate with the customer's declared wealth, personal profile and/or stated occupation. 36. Transactions with apparent front, shell or shelf companies. 37. Lifestyle that does not commensurate with employment or business line. 38. High volume of small value fund transfers from numerous counterparties, followed by withdrawals via ATM and fund transfers. 39. High frequency and volume of deposits and fund transfers in account of customer with no fixed income or low income (students, housewives, retirees, driver, etc). Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 153 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 40. Purpose of transaction includes suspicious terminologies relating to various criminal offences. 41. Media or other reliable sources suggest that a customer may be linked to criminal activity which could generate proceeds of crime. 42. Company receiving high value projects or contracts which are not compatible with its background or profile and is usually linked to persons related to the projects or contracts awarding authority. 43. Transferring of funds from bank accounts to high risk vehicles abroad, such as corporate trusts. 44. Customer involved in regulated activities without proper license or approval by the relevant authorities. 45. The originator or beneficiary of a transaction is a person or an entity ordinarily resident of or domiciled in a country of proliferation or diversion concern (i.e. DPRK). International Banking/Trade Finance 1. Customers introduced by an overseas branch, affiliate or any other bank based in countries where crimes may be prevalent. 2. Use of Letter of Credit and other methods of trade finance to move money between countries where such trade is not consistent with the customer’s usual business. 3. Customers who make regular and large payments, including wire transfers, that cannot be clearly identified as bona fide transactions, or receive regular and large payments from high risk countries. 4. Building up of large account balances, which are not consistent with the known turnover of the customer’s business, and subsequent transfer to accounts held overseas. 5. Unexplained foreign fund transfers by customers on an in-and-out basis or without passing-through an account. 6. Frequent requests for travellers’ cheques or foreign currency drafts or other negotiable instruments to be issued. 7. Frequent paying in of travellers’ cheques or foreign currency drafts, particularly if originating from overseas. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 154 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 8. Customers who show apparent disregard for arrangements offering more favourable terms. 9. Items shipped that are inconsistent with the nature of the customer’s business. 10. Customers conducting business in higher risk countries. 11. Customers shipping items through higher risk countries. 12. Customers involved in potentially higher risk activities, including activities that may be subject to export or import restrictions (e.g. equipment for military of foreign governments, weapons, ammunition, chemical mixtures, classified defence articles and sensitive technical data). 13. Obvious over-pricing or under-pricing of goods and services. 14. Obvious misrepresentation of quantity or type of goods imported or exported. 15. Transaction structure appears unnecessarily complex and designed to obscure the true nature of the transaction. 16. Customers request payment of proceeds to an unrelated third party. 17. Shipment locations or description of goods not consistent with letter of credit. 18. Significantly amended letters of credits without reasonable justification or changes to the beneficiary or location of payment. 19. Use of misleading or non-specific description of goods on trade or financial documents. 20. Inconsistent information contained in trade and financial documents, i.e. names, companies, addresses, final destination, etc. 21. Shipment of goods incompatible with the technical level of the country to which it is being shipped, e.g. semiconductor manufacturing equipment being shipped to a country that has no electronics industry. 22. Shipment of goods is inconsistent with normal geographic trade patterns, e.g. the destination country does not normally export or import the goods listed in trade transaction documents. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 155 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Private Banking and Trust Services 23. The grantors of private banking trust accounts that direct loans from their accounts to other parties or business interests of account principals or beneficiaries. Secured and Unsecured Lending 24. Customers who repay problem loans unexpectedly and with no proper explanation as to the source of funds. 25. Request to borrow against assets held by the reporting institution or a third party, where the origin of the assets is not known, or the assets are inconsistent with the customer’s standing. 26. Request by a customer for a reporting institution to provide or arrange financial contribution to a deal which is unclear, particularly, where property is involved. 27. A customer who unexpectedly repays in part or in full a fixed loan or other loan that is inconsistent with his earning capacity or asset base. 28. A customer who applies for property or vehicle loan with a very low margin of finance that is not customary for the type of property or vehicle or profile of the customer. 29. Personal loan or collateral application which appear unjustified based on applicant’s economic and financial background and no repayment is made. Credit Cards 30. Overpayment of account where the customer subsequently requests for refunds from the reporting institution. 31. Depositing a substantial amount of funds into the card account and the cardholder uses the card to purchase items overseas. 32. Payment is credited into a cardholder’s account by a third party with no apparent relation to the cardholder. 33. Early settlement of account that does not commensurate with the cardholder’s financial standing. 34. Excessive spending or usage of card that is inconsistent with the cardholder’s earning capacity or profile. 35. Unknown or unrelated relationship between the primary and supplementary cardholder. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 156 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 4b For Insurance and Takaful Examples of Transactions That May Trigger Suspicion (A) Brokerage and Sales New Business 1. A customer is evasive or unwilling to provide full details or information for purposes of verification of identity. 2. For a corporate or trust customer, instances where there is difficulty and delay in verifying its incorporation. 3. A customer with no discernible reason for using the insurer’s service, e.g. customers with distant addresses who could find the same service nearer to their home base, or customers whose requirements are not in the normal pattern of or inconsistent with the insurer’s business and could be more easily serviced elsewhere. 4. Customer terminates insurance policies or takaful certificates without concern for the product’s investment performance. 5. Customer purchases insurance products using a single, large premium payment, particularly when payment is made through unusual methods such as cash or other bearer negotiable instruments. 6. Customer purchases a product that appears outside the customer’s normal range of financial wealth or estate planning needs. 7. Customer borrows against the cash surrender value of permanent life insurance policies, particularly when payments are asked to be made to apparently unrelated third parties. 8. Purchase of policies which allow for the transfer of beneficial ownership interests without the knowledge and consent of the insurance issuer. This would include second hand endowment and bearer insurance policies. 9. A customer is known to purchase several insurance products and uses the proceeds from an early policy surrender to purchase other financial assets. 10. Payment is made to unrelated third parties. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 157 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Transactions which are abnormal or do not make economic sense 1. Proposals from an intermediary which is not in accordance with the normal business introduced. 2. Proposals that are not in accordance with an insured’s normal requirements, the markets in which the insured or intermediary is active and the business which the insured operates. 3. Early cancellation of policies with return of insurance premium or surrender of policy with losses for no discernible purpose or in circumstances which appear unusual. 4. A number of policies entered into by the same insurer or intermediary for small amounts and then cancelled at the same time. 5. Any transaction in which the nature, size or frequency appears unusual, e.g. early termination or cancellation, especially where cash had been tendered and/or the refund cheque is to a third party or a sudden purchase of a lump sum contract from an existing customer whose current contracts are small and with regular payments only. 6. Assignment of policies to apparently unrelated third parties. 7. Transactions not in accordance with normal practice in the market to which they relate, e.g. with reference to the size or class of business. 8. Other transactions linked to the transaction in question which could be designed to disguise money and divert it into other forms or other destinations or beneficiaries. 9. Customer purchasing high number of insurance policies for self and family members which is not consistent with earning capacity or profile. (B) Settlement Payment 1. A number of policies with low insurance premiums taken out by the same insured person, each purchased for cash and then cancelled with return of insurance premium to a third party. 2. Large or unusual payment of insurance premiums or transaction settlement by cash. 3. Overpayment of insurance premiums with a request to refund the excess to a third party or different country. 4. Payment by way of third party cheque or money transfers where there is a variation between the account holder, the signatory and the prospective insured. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 158 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 5. A customer uses multiple bearer negotiable instruments (e.g. bank draft, traveller’s cheque, cashier’s cheques and money orders) from different banks and money services businesses to make payments for insurance policy or takaful certificate or annuity payments. 6. Abnormal settlement instructions, including payment to apparently unconnected parties or to countries in which the insured is not known to operate. Claims and Reinsurances 1. Claims which, while appearing legitimate, occurred with abnormal regularity. 2. Regular small claims within insurance premium limit. 3. Treaty reinsurances with high incidence of small claims. 4. Regular reinsurance claims paid overseas to third parties. 5. Recent change of ownership or assignment of policies just prior to a loss. 6. Payment of claims to a third party without any apparent connection to the insurance policy/takaful certificate owner. 7. Abnormal loss ratio for the nature and class of risk bound under a binding authority. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 159 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 4c For Money Services Business Examples of Transactions That May Trigger Suspicion 1. Customer is evasive or unwilling to provide information when requested. 2. Transactions conducted are out of character with the usual conduct or profile of customers executing such transactions. 3. Customer using different identification document each time when conducting a transaction. 4. A group of customers attempting to break up a large cash transaction into multiple small transactions. 5. The same customer conducting a few small transactions within a day or at different branches or locations. 6. Sudden or inconsistent changes in wire transfer or remittance sent or received. 7. Wire transfers or remittances from different customers or jurisdictions being sent to the same customer or vice versa. 8. Customer frequently remitting money to high risk countries. 9. Customer exchanging large quantities of small denomination notes into large denomination notes. 10. The same customer frequently exchanging local currency into foreign currency without any apparent economic or visible lawful purpose. 11. Customer frequently exchanging large amount of foreign currency below RM3,000 for each transaction. 12. Customer exchanging cash for numerous postal money orders in small amounts for numerous other parties. 13. Low value cross-border transfers sent or received with high frequency to or from seemingly unrelated individuals. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 160 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 4d For Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments Examples of Transactions that May Trigger Suspicion 1. Discrepancies between the information submitted by the customer and information detected by reporting institutions monitoring systems. 2. Individuals who hold unusual number of accounts with the same provider. 3. A large and diverse source of funds (i.e. bank transfers, credit card and cash reload from different locations) used to reload the same account. 4. Multiple reference bank accounts from banks located in various locations used to reload the same e-money account frequently. 5. Frequent re-loading of account by third parties. 6. Numerous cash reloads, just under the reporting threshold, of the same account, conducted by the same individual(s) on a number of occasions. 7. Multiple reload by third party followed by the immediate transfer of funds to beneficiary bank account. 8. Multiple occasions of reloading of an account, followed by ATM withdrawals. 9. Multiple withdrawals conducted at different ATMs (including those outside the country where the account was reloaded). 10. Account only used for withdrawals and not for purchases. 11. Multiple reloads using foreign credit cards of unrelated third parties into the same account followed by immediate ATM withdrawals or transfers. 12. Same email or home address being used by unrelated parties to open account with same provider. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 161 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 5 Required Information in CTR Element of CTR Required Information Account Transaction Details i. Account Number ii. Account Type iii. Transaction Type iv. Transaction Date v. Transaction Amount (RM) vi. Transaction Amount (FC)* Customer Information Individual: i. Name ii. Gender iii. Nationality iv. NRIC/ Passport/Other ID* v. Date of Birth vi. Residential Address vii. Contact Number viii. Occupation Non-Individual: i. Business/ Company Name ii. Country of incorporation iii. BR No iv. Date of Incorporation v. Business Address vi. Contact Number (Office) vii. Nature of Business Signatory/Director/BO/Joint Accountholder i. Role ii. Name iii. Gender iv. Nationality v. NRIC/ Passport/Other ID* vi. Date of Birth vii. Residential Address viii. Contact Number Legal Arrangement: i. Trustee Name ii. Country of Establishment/Nationality iii. Date of Establishment/ Birth iv. Business/ Residential Address v. Contact Number (Office/Mobile) vi. Nature of Business/Employment Sector Settler/Protector/Beneficiary i. Role ii. Name iii. Gender iv. Nationality/Place of Incorporation v. NRIC/ Passport/Other ID* Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 162 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 vi. Date of Birth/Establishment vii. Residential/Business Address viii. Contact Number Person Conducting Transaction i. Name ii. Gender* iii. Nationality* iv. NRIC/Passport/Other ID* v. Date of Birth* vi. Address* vii. Contact Number* Information of Beneficiaries i. Name ii. Gender* iii. Nationality* iv. NRIC/Passport/Other ID* v. Date of Birth* vi. Residential Address* vii. Contact Number* viii. Occupation* Field will only be required if the preceding fields are filled up. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 163 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 6 Relevant UNSCR and UNSC Sanctions Committee for Targeted Financial Sanctions on Proliferation Financing In relation to paragraph 28.2.1, the relevant UNSCR or UNSC Sanctions Committee relating to prevention of proliferation of weapons of mass destruction (WMD) are as follows: (i) Democratic People’s Republic of Korea UNSC Sanctions Committee established pursuant to Resolution 1718 (2006) concerning the Democratic People’s Republic of Korea (ii) Any other UNSCR or UNSC Sanctions Committee as specified by Bank Negara Malaysia in this policy document. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 164 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 7 Relevant UNSCR and UNSC Sanctions Committee for Targeted Financial Sanctions on Other UN-Sanctions Regimes In relation to paragraph 29.2.1, the relevant UNSCR, UNSC Sanctions Committee and its corresponding Central Bank of Malaysia Act 2009 Regulation for other UN-sanctioned regimes relating to upholding of peace and security, and prevention of conflicts and human right violations are as follows: (i) The Democratic Republic of Congo Sanctions Committee • United Nations Security Council Committee established pursuant to Resolution 1533 (2004) concerning the Democratic Republic of the Congo • Central Bank of Malaysia (Implementation of the United Nations Security Council Resolutions Relating to the Democratic Republic of Congo) Regulations 2014 (P.U.(A) 80/2014) (ii) 2140 Sanctions Committee (Yemen) • United Nations Security Council Committee established pursuant to Resolution 2140 (2014) • Central Bank of Malaysia (Implementation of the United Nations Security Council Resolutions Relating to the Republic of Yemen) Regulations 2016 (P.U.(A) 39/2016) (iii) South Sudan Sanctions Committee • United Nations Security Council Committee established pursuant to Resolution 2206 (2015) concerning South Sudan • Central Bank of Malaysia (Implementation of the United Nations Security Council Resolutions Relating to the Republic of South Sudan) Regulations 2016 (P.U.(A) 271/2016) (iv) Somalia Sanctions Committee • United Nations Security Council Committee pursuant to Resolution 751 (1992) concerning Somalia • Central Bank of Malaysia (Implementation of the United Nations Security Council Resolutions Relating to the Federal Republic of Somalia) Regulations 2017 (P.U.(A) 167/2017) (v) Libya Sanctions Committee • United Nations Security Council Committee established pursuant to Resolution 1970 (2011) concerning Libya • Central Bank of Malaysia (Implementation of the United Nations Security Council Resolutions Relating to Libya) Regulations 2017 (P.U.(A) 318/2017) Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 165 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 (vi) 1518 Sanctions Committee (Iraq) • United Nations Security Council Committee established pursuant to Resolution 1518 (2003) • Central Bank of Malaysia (Implementation of the United Nations Security Council Resolutions Relating to The Republic of Iraq) Regulations 2017 (P.U.(A) 349/2017) (vii) The Central African Republic Sanctions Committee • United Nations Security Council Committee established pursuant to Resolution 2127 (2013) concerning the Central African Republic • Central Bank of Malaysia (Implementation of the United Nations Security Council Resolutions Relating to the Central African Republic) Regulations 2018 (P.U.(A) 282/2018) (viii) The Sudan Sanctions Committee • United Nations Security Council Committee established pursuant to Resolution 1591 (2005) concerning the Sudan • Central Bank of Malaysia (Implementation of the United Nations Security Council Resolutions Relating to the State of Sudan) Regulations 2019 (P.U.(A) 38/2019) (ix) Any other UNSCR or UNSC Sanctions Committee as specified by Bank Negara Malaysia in this policy document. Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 166 of 178 Amendment date: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 8a Template for Reporting upon Determination of Match REPORTING UPON DETERMINATION: ( ) TERRORISM FINANCING ( ) PROLIFERATION FINANCING ( ) OTHER UN-SANCTIONS REGIMES Please tick () at the appropriate bracket ALL Sanctions Regimes Terrorism Financing UNSCR No (If Available) : Date of UN Listing : Type of Lists : Domestic List ( ) UNSCR List ( ) Circular / Gazette Reference No. : Circular / Gazette Reference Date : N o. U N SC R P er m an en t R ef N o / M O H A R ef er en ce N o (e .g . K Pi .0 01 / KD N .I. 01 -2 01 4) C us to m er N am e Ad dr es s N R IC / Pa ss po rt N o. In st itu tio n N am e (if re po rti ng o n gr ou p ba si s) Br an ch m ai nt ai ni ng th e ac co un t a nd fa ci lit y Ac co un t n o. Ac co un t / Fa ci lit y/ F in an ci al S er vi ce s Ty pe D at e fi na nc ia l s er vi ce s gi ve n (D D /M M /Y YY Y) Ac co un t / F ac ilit y St at us (b ef or e de si gn at io n) Status of Account/ facility/ financial services status (after designation) (e.g. frozen, expired/ terminated, lapsed, etc.) Date account/ facility/ financial services frozen/ expire/ terminated/lapsed, etc.) (DD/MM/YYYY) Balance as at (for each account/facility/financial services) : R el at ed P ar tie s R em ar ks · Banking (CR) / · Insurance (Surrender value) · Banking (DR) /Insurance (Premium received) Please state the type and value of property for loan accounts 1. 2. Reporting Institution Details Reporting Institution Details : (please state all entities under the group if reporting done on group basis) Contact Person : Designation : Tel & Fax No. : E-mail : Reporting Date : Notes: Please submit the completed form to - Reporting for ALL sanctions regimes In addition, reporting for TFS on Terrorism Financing Email Address Financial Intelligence and Enforcement Department, Bank Negara Malaysia • Address : [email protected] • Subject : Reporting upon Determination (CFT/CPF/OSR) to specify relevant sanctions regime Ketua Polis Negara (a) u/p: Pasukan Siasatan Jenayah Pengubahan Wang Haram dan Pembiayaan Keganasan Urusetia Pejabat Ketua Polis Negara, Tingkat 23, Menara 238, Jalan Tun Razak, 50400, Kuala Lumpur (b) u/p : Bahagian E8,Cawangan Khas Tingkat 24, Menara 2, Ibu Pejabat Polis, Bukit Aman, 50560, Kuala Lumpur mailto:[email protected] Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 167 of 178 Amendment date: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 8b Template for Periodic Reporting on Positive Name Match PERIODIC REPORTING ON POSITIVE NAME MATCH: ( ) TERRORISM FINANCING ( ) PROLIFERATION FINANCING ( ) OTHER UN-SANCTIONS REGIMES Please tick () at the appropriate bracket Only for reporting on Terrorism Financing Type of Lists : Domestic List ( ) UNSCR List ( ) N o. U N SC R P er m an en t R ef N o / M O H A R ef er en ce N o (e .g . K Pi .0 01 / KD N .I. 01 -2 01 4) C us to m er N am e Ad dr es s N R IC / Pa ss po rt N o. In st itu tio n N am e (if re po rti ng o n gr ou p ba si s) Br an ch m ai nt ai ni ng th e ac co un t a nd fa ci lit y Ac co un t n o. Ac co un t / Fa ci lit y/ F in an ci al S er vi ce s Ty pe D at e fi na nc ia l s er vi ce s gi ve n (D D /M M /Y YY Y) Ac co un t / F ac ilit y St at us (b ef or e de si gn at io n) Status of Account/ facility/ financial services (after designation) (e.g. frozen, expired/ terminated, lapsed, etc.) Date account/ facility/ financial services frozen, expired/ terminated/ lapsed, etc. (DD/MM/YYYY) Previous Account Balance (Previous Reporting) Transaction Details (line by line transaction) New Account Balance as at: (DD/MM/YYYY) R el at ed P ar tie s R em ar ks ·B an ki ng (C R ) / ·I ns ur an ce (S ur re nd er v al ue ) ·B an ki ng (D R ) / In su ra nc e (P re m iu m re ce iv ed ) Pl ea se s ta te th e ty pe a nd v al ue of p ro pe rty fo r l oa n ac co un ts Tr an sa ct io n N o D at e (D D /M M /Y YY Y) Ty pe (C R /D R ) Am ou nt (M YR ) R em ar ks ·B an ki ng (C R ) / ·I ns ur an ce (S ur re nd er v al ue ) ·B an ki ng (D R ) / In su ra nc e (P re m iu m re ce iv ed ) Pl ea se s ta te th e ty pe a nd v al ue of p ro pe rty fo r l oa n ac co un ts 1. 1. 2. 2. 3. Reporting Institution Details Reporting Institution Details : (please state all entities under the group if reporting done on group basis) Contact Person : Designation : Tel & Fax No. : E-mail : Reporting Date : Notes: Please submit the completed form to: Submission dates Financial Intelligence and Enforcement Department, Bank Negara Malaysia • Email Address : [email protected] • Subject : Periodic Reporting on Positive Name Match (CFT/CPF/OSR) to specify relevant sanctions regime Terrorism Financing: UNSC List: Every 5th January and 5th July Domestic List: Every 15th May and 15th November Proliferation Financing & Other UN-Sanctions Regimes: Only if there is any changes to the frozen funds (after first time reporting on positive name match) and latest by 15 January of the following calendar year mailto:[email protected] Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 168 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 9 Annual Summary Report on Exposure to Customers and Beneficial Owners from High Risk Countries APPENDIX 9a For Banking and Deposit-Taking Institutions SULIT Guides to complete the survey - Please answer all questions below with mandatory fields marked in yellow - Please provide amount as at 31 December YYYY (except for Question 2 & 3 which require full year data) - Please input "n/a" for unused text field and "0" for unused number field Category: 1. Customers and beneficial owners from jurisdictions subject to a FATF call on its members and other jurisdictions to apply counter- measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/TF/PF) risks emanating from the jurisdiction. 2. Customers and beneficial owners from jurisdictions subject to a FATF call on its members and other jurisdictions to apply enhanced due diligence measures proportionate to the risks arising from the jurisdiction. QUESTION 1: No. of customer and account balance by: - product/services used, & - customer profile Country A Country B No. of customers Account balance @ 31 Dec YYYY (RM) No. of customers Account balance @ 31 Dec YYYY (RM) 1. Savings Account Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement 2. Current Account Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 169 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 QUESTION 1: No. of customer and account balance by: - product/services used, & - customer profile Country A Country B No. of customers Account balance @ 31 Dec YYYY (RM) No. of customers Account balance @ 31 Dec YYYY (RM) 3. Fixed Deposit Account Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement 4. Foreign Currency Account Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement 5. Housing Loan Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 170 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 QUESTION 1: No. of customer and account balance by: - product/services used, & - customer profile Country A Country B No. of customers Account balance @ 31 Dec YYYY (RM) No. of customers Account balance @ 31 Dec YYYY (RM) 6. Personal Loan Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement 7. Hire Purchase Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement 8. Credit Card Individual Expatriate Foreign Labour Government Representative PEP Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 171 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 172 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 QUESTION 1: No. of customer and account balance by: - product/services used, & - customer profile Country A Country B No. of customers Account balance @ 31 Dec YYYY (RM) No. of customers Account balance @ 31 Dec YYYY (RM) 9. CDS Account Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement 10. Investment Account Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement 11. Debit Card Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 173 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 QUESTION 2: Funds transferred to/received from in YYYY Country A Country B Total funds transferred to (in RM) Total funds received from (in RM) Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement QUESTION 1: No. of customer and account balance by: - product/services used, & - customer profile Country A Country B No. of customers Account balance @ 31 Dec YYYY (RM) No. of customers Account balance @ 31 Dec YYYY (RM) 12. Safe Deposit Box Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement 13. Others Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Legal Arrangement Trust Other Legal Arrangement Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 174 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 QUESTION 3: Transactions with correspondent bank (operating in these countries) in YYYY (in RM) Country A Country B Bank 1: Bank 2: Bank 3: Bank 4: Bank 5: Bank 6: Bank 7: Bank 8: Bank 9: Bank 10: Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 175 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 APPENDIX 9b For Insurance and Takaful SULIT Guides to complete the survey - Please answer all questions below with mandatory fields marked in yellow - Please provide amount as at 31 December YYYY - Please input "n/a" for unused text field and "0" for unused number field - The institution is required to provide the overall number of customer of each jurisdiction regardless of how many policies held by the same customers (refer column “Total number of customers from the jurisdiction”) Category: 1. Customers and beneficial owners from jurisdictions subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/TF) risks emanating from the jurisdiction. 2. Customers and beneficial owners from jurisdictions subject to a FATF call on its members and other jurisdictions to apply enhanced due diligence measures proportionate to the risks arising from the jurisdiction. No. of customer and account balance by: - product/services used, & - customer profile Country A Country B No. of customers Premium/ Contribution received @ 31 Dec YYYY (RM) Sum Insured/ Participated (RM) No. of customers Premium/ Contribution received @ 31 Dec YYYY (RM) Sum Insured/ Participated (RM) 1. Whole life Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Government Legal Arrangement Trust Other Legal Arrangement 2. Annuity Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Government Legal Arrangement Trust Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 176 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Other Legal Arrangement No. of customer and account balance by: - product/services used, & - customer profile Country A Country B No. of customers Premium/ Contribution received @ 31 Dec YYYY (RM) Sum Insured/ Participated (RM) No. of customers Premium/ Contribution received @ 31 Dec YYYY (RM) Sum Insured/ Participated (RM) 3. Endowment Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Government Legal Arrangement Trust Other Legal Arrangement 4. Investment-linked Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Government Legal Arrangement Trust Other Legal Arrangement 5. Temporary Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 177 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 Government Legal Arrangement Trust Other Legal Arrangement No. of customer and account balance by: - product/services used, & - customer profile Country A Country B No. of customers Premium/ Contribution received @ 31 Dec YYYY (RM) Sum Insured/ Participated (RM) No. of customers Premium/ Contribution received @ 31 Dec YYYY (RM) Sum Insured/ Participated (RM) 6. Medical & health Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Government Legal Arrangement Trust Other Legal Arrangement 7. Other [Please provide the product type and brief description] Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business NGOs Government Legal Arrangement Trust Other Legal Arrangement 8. Other [Please provide the product type and brief description] Individual Expatriate Foreign Labour Government Representative PEP Student Businessman / Businesswoman Housewife Retiree Others (please specify) Legal Person Resident Company/Business Foreign Company/Business Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT/CPF and TFS for FIs) 178 of 178 Issued on: 5 February 2024 BNM/RH/PD 030-14 NGOs Government Legal Arrangement Trust Other Legal Arrangement Total number of customers from the jurisdiction PART A OVERVIEW 1 Introduction 1.1 Money laundering and terrorism financing (ML/TF) are financial crimes with far-reaching and deleterious socio-economic effects. Criminal networks, money launderers and terrorist financiers are highly adaptive and quick to exploit any weak links within an increasingly borderless world to obscure detection of such illicit funds. The globalisation and advancement in technology, including the emergence of new players and innovative products, pose challenges to regulators and law enforcement agencies alike in curbing criminal activities. 1.2 In line with the international standards established by the Financial Action Task Force (FATF), the anti-money laundering, countering financing of terrorism and countering proliferation financing (AML/CFT/CPF) reporting obligations imposed on reporting institutions are risk-informed, and subject to periodic review in tandem with any material changes to the international standards or the evolving risk of ML/TF and proliferation financing (PF) situation in Malaysia. In view of potential development opportunities brought about by the era of digitalisation, enhancements to the existing AML/CFT/CPF reporting obligations are important to ensure areas of higher risk are subject to enhanced controls, while areas of low risk are accorded some policy accommodation, to ensure that the integrity of the financial system is preserved, just as development objectives are facilitated. 1.3 Consistent with the FATF’s action to strengthen the response to the growing threat of weapons of mass destruction (WMD) PF, reporting institutions are required to assess PF risks and implement commensurate mitigation measures. This aims to ensure that reporting institutions are not subject to abuse, unwittingly support or become part of the PF networks, given the emerging trends on PF risks and techniques adopted by the designated individuals and entities to evade targeted financial sanctions on PF. 1.4 Domestically, the National Risk Assessment (NRA) by the National Coordination Committee to Counter Money Laundering (NCC) assesses and identifies the key threats and sectoral vulnerabilities that Malaysia’s financial system and economy is exposed to, has guided the strategies and policies of Malaysia’s overall AML/CFT/CPF regime. The NRA is the primary tool used for periodic assessment and tracking of effectiveness of the relevant Ministries, law enforcement agencies, supervisory authorities and reporting institutions in preventing and combating ML/TF/PF. 1.5 In line with the United Nations Security Council Resolutions (UNSCR), financial institutions are also required to adhere to, and implement sanctions imposed on designated countries and persons to combat terrorism, TF, proliferation of weapons of mass destruction and PF as well as suppress other forms of armed conflicts or violence against humanity. These obligations have been further elaborated and clarified in accordance with the relevant UNSCR. 2 Objective 2.1 This policy document is intended to set out: 3 Applicability 3.1 This policy document consolidates: (a) AML/CFT/CPF standards and guidance that are applicable to all reporting institutions in the financial sector regulated or supervised by Bank Negara Malaysia; and (b) targeted financial sanctions requirements that are applicable to all financial institutions regulated or supervised by Bank Negara Malaysia. 3.2 Where a reporting institution is subject to more than one document relating to AML/CFT/CPF matters issued pursuant to the AMLA, the more stringent requirement shall apply. 3.3 Where necessary, Bank Negara Malaysia may issue guidelines, circulars or notices to vary, delete, add to, substitute or modify this policy document. AML/CFT/CPF Requirements under Paragraphs 9 to 26 and 30 3.4 The AML/CFT/CPF requirements are applicable to a reporting institution carrying on the following activities listed in the First Schedule to the AMLA: 3.5 The AML/CFT/CPF requirements are also applicable to the following: Targeted Financial Sanctions Requirements under Paragraphs 27, 28 and 29 3.6 The targeted financial sanctions requirements to combat TF, PF and to suppress other forms of armed conflict, are applicable to all financial institutions regulated or supervised by Bank Negara Malaysia that carry out the following activities: In relation to the AML/CFT/CPF provisions, this policy document is issued pursuant to: In relation to the targeted financial sanction provisions, this policy document is issued pursuant to: 5.1 This policy document comes into effect on 6 February 2024. 5.2 Compliance to the requirements outlined in this policy document shall take effect immediately, unless otherwise specified by Bank Negara Malaysia. The terms and expressions used in this policy document shall have the same meanings assigned to them in the CBA, AMLA, FSA, IFSA, MSBA and DFIA, as the case may be, unless otherwise defined in this policy document or the context requires otherwise. 6.2 For the purpose of this policy document: 7.1 This policy document shall be read together with other documents issued by Bank Negara Malaysia relating to compliance with AML/CFT/CPF requirements and in relation to the implementation of targeted financial sanctions against countries or persons designated by United Nations (UN). 8.1 This policy document supersedes the following Policy Documents: 8.2 This policy document supersedes paragraphs 10.3, 10.4, 10.5 and Appendix 2 of the Interoperable Credit Transfer Framework issued on 23 December 2019. 8.3 This policy document supersedes the following Technical Notes and Guidance, having incorporated the relevant guidance: 9.1 Enforcement and/or supervisory actions can be taken against the reporting institutions including its directors, officers and employees for any non-compliance with any provision marked as “S” in Part B of this policy document. Risk Management Functions 10.1.1 In the context of a “Risk-Based Approach”, the intensity and extensiveness of risk management functions shall be proportionate to the nature, scale and complexity of the reporting institution’s activities and ML/TF/PF risk profile. 10.1.2 The reporting institution’s AML/CFT/CPF risk management function must be aligned and integrated with its overall risk management control function. 10.2 ML/TF Risk Assessment 10.2.1 Reporting institutions are required to take appropriate steps to identify, assess and understand their ML/TF risks at the institutional level, in relation to their customers, countries or geographical areas and products, services, transactions or delivery channels, and other relevant risk factors. 10.2.2 In assessing ML/TF risks, reporting institutions are required to have the following processes in place: 10.2.3 Reporting institutions are required to conduct additional assessment as and when required by the supervisory authority. 10.2.4 Reporting institutions shall be guided by the results of the NRA issued by the NCC in conducting their own risk assessments and shall take enhanced measures to manage and mitigate the risks identified in the NRA. 10.2.5 In conducting the risk assessment in paragraph 10.2.1, reporting institutions may consider whether: 10.3 ML/TF Risk Control and Mitigation 10.3.1 Reporting institutions are required to: 10.3.2 Reporting institutions shall conduct independent control testing on their policies, procedures and controls for the purpose of monitoring the implementation thereof under paragraph 10.3.1(b). 10.4 PF Risk Assessment 10.4.1 Reporting institutions are required to identify, assess and understand PF risks, where the extent of the assessment shall be appropriate to the nature, size and complexity of their business. The PF risk in this context is limited to potential breach, non-implementation or evasion of the targeted financial sanctions on PF under paragraph 28 of this policy document. 10.4.2 In conducting the risk assessment, reporting institutions may consider if the existing ML/TF risk assessments methodologies are adequate to incorporate PF risks and may not necessarily require a stand-alone or an entirely new methodology. 10.4.3 For the purpose of paragraph 10.4.1, reporting institutions are required to identify, assess and understand their PF risks at the institutional level, in relation to their customers, countries or geographical areas and products, services, transactions or delivery channels, and other relevant risk factors. 10.4.4 In assessing the PF risks, reporting institutions are required to have the following processes in place: 10.4.5 Reporting institutions shall be guided by the results of the NRA and related thematic risk assessment issued in conducting their own risk assessments and shall take enhanced measures to manage and mitigate the risks identified in the NRA. 10.5 PF Risk Mitigation 10.5.1 Reporting institutions are required to: 10.5.2 Reporting institutions shall ensure full implementation of the targeted financial sanctions on PF under paragraph 28 of this policy document irrespective of the institutional PF risk level. 10.6 Customer Risk Profiling 10.6.1 Reporting institutions are required to conduct risk profiling on their customers and assign an ML/TF/PF risk rating that is commensurate with their risk profile. 10.6.2 A risk profile must consider the following factors: (a) customer risk (e.g. resident or non-resident, type of customers, occasional or one-off, legal person structure, types of PEP, types of occupation); (b) country or geographical risk (e.g. location of business, origin of customers); (c) products, services, transactions or delivery channels (e.g. cash-based, face-to-face or non face-to-face, cross-border); and (d) any other information suggesting that the customer is of higher risk. 10.6.3 In identifying countries and geographic risk factors under paragraph 10.6.2(b), reporting institutions may refer to credible sources such as mutual evaluation reports, follow up reports and other relevant reports published by international organisations and other inter-governmental bodies. 10.6.4 The risk control and mitigation measures implemented by reporting institutions shall be commensurate with the risk profile of the particular customer or type of customer. 10.6.5 After the initial acceptance of the customer, reporting institutions are required to regularly review and update the customer’s risk profile based on their level of ML/TF/PF risks. 10.7 AML/CFT/CPF Risk Reporting Reporting institutions shall provide timely reporting of the risk assessment, ML/TF/PF risk profile and the effectiveness of risk control and mitigation measures to the Board and Senior Management. The frequency of reporting shall be commensurate with the level of risks involved and the reporting institution’s operating environment. 10.7.2 The report referred to under paragraph 10.7.1 may include the following: 10.8 Risk Guidance Reporting institutions may refer to the guidance provided in Appendix 1 and guidance papers on the implementation of risk-based approach published by the FATF, FATF style regional bodies or any other internationally recognised institution. 11.1 Policies, Procedures and Controls 11.1.1 Reporting institutions are required to implement AML/CFT/CPF programmes which correspond to their ML/TF/PF risks and the size of their business. 11.2 Board General 11.2.1 Board members must understand their roles and responsibilities in managing ML/TF/PF risks identified by the reporting institution. 11.2.2 Board members must be cognisant of the ML/TF/PF risks associated with business strategies, delivery channels, segment of customers, and geographical coverage of its business products and services. 11.2.3 Board members must understand the AML/CFT/CPF measures required by the relevant laws, instruments issued under the AMLA as well as industry's standards and best practices in implementing AML/CFT/CPF measures. Roles and Responsibilities 11.2.4 The Board has the following roles and responsibilities: 11.3 Senior Management Senior Management is accountable for the implementation and management of AML/CFT/CPF compliance programmes in accordance with policies and procedures established by the Board, requirements of the law, regulations, guidelines and the industry’s standards and best practices. Roles and Responsibilities 11.3.2 The Senior Management has the following roles and responsibilities: 11.4 Compliance Management Arrangements at the Head Office 11.4.1 The Compliance Officer acts as the reference point for AML/CFT/CPF matters within the reporting institution. 11.4.2 The Compliance Officer must have sufficient stature, authority and seniority within the reporting institution to participate and be able to effectively influence decisions relating to AML/CFT/CPF. 11.4.3 The Compliance Officer is required to be “fit and proper” to carry out his AML/CFT/CPF responsibilities effectively. 11.4.4 For the purpose of paragraph 11.4.3, “fit and proper” shall include minimum criteria relating to: 11.4.5 The Compliance Officer must have the necessary knowledge and expertise to effectively discharge his roles and responsibilities, including keeping abreast with the latest developments in ML/TF/PF techniques and the AML/CFT/CPF measures undertaken by the industry. 11.4.6 The Compliance Officer is encouraged to have the relevant AML/CFT/CPF certification or professional qualifications to carry out his responsibilities effectively. 11.4.7 Reporting institutions are required to ensure that the roles and responsibilities of the Compliance Officer are clearly defined and documented. 11.4.8 The Compliance Officer has a duty to ensure the following: 11.4.9 Reporting institutions are required to inform the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, in writing, within ten working days, on the appointment or change in the appointment of the Compliance Officer, including such details as the name, designation, office address, office telephone number, e-mail address and such other information as may be required. 11.5 Employee Screening Procedures 11.5.1 For the purpose of paragraph 11.5, reference to employees includes insurance agents. 11.5.2 Reporting institutions are required to establish an employee assessment system that is commensurate with the size of operations and risk exposure of reporting institutions to ML/TF/PF. 11.5.3 The screening procedures under the employee assessment system shall apply upon hiring the employee and throughout the course of employment. 11.5.4 The employee assessment system under paragraph 11.5.2 shall include: 11.5.5 In conducting financial history assessment, reporting institutions may require employees to submit relevant credit reports or to complete self-declarations on the required information. 11.5.6 Reporting institutions shall maintain comprehensive records of documents and information relating to, or relied on in, the employee screening process. 11.6 Employee Training and Awareness Programmes 11.6.1 Reporting institutions shall conduct awareness and training programmes on AML/CFT/CPF practices and measures for their employees. Such training programmes must be conducted regularly and supplemented with refresher courses at appropriate intervals. 11.6.2 The employees must be made aware that they may be held personally liable for any failure to observe the AML/CFT/CPF requirements. 11.6.3 Reporting institutions must make available its AML/CFT/CPF policies and procedures for all employees and its documented AML/CFT/CPF measures must contain at least the following: 11.6.4 The training conducted for employees must be appropriate to their level of responsibilities in detecting ML/TF/PF activities and the risks of ML/TF/PF identified by reporting institutions. 11.6.5 Employees who deal directly with customers shall be trained on AML/CFT/CPF prior to dealing with the customer. 11.6.6 Training for all employees may provide a general background on ML/TF/PF, the requirements of CDD and obligations to monitor and report suspicious transactions to the Compliance Officer. 11.6.7 In addition, training may be provided to specific categories of employees depending on the nature and scope of their functions: Training for Insurance and Takaful Agents 11.6.8 Reporting institutions are required to ensure their insurance and takaful agents received initial and on-going training on relevant AML/CFT/CPF obligations. 11.6.9 The training programme for the insurance and takaful agents shall include the following: 11.6.10 Upon identification of any suspicious transaction, the insurance and takaful agents must report the suspicious transaction to the AML/CFT/CPF Compliance Officer at the reporting institution in accordance with its reporting mechanism. 11.7 Independent Audit Function 11.7.1 Where relevant, the requirements on independent audit functions shall be read together with any relevant legal instruments, policy documents, guidelines and circulars issued by Bank Negara Malaysia. 11.7.2 The Board shall ensure regular independent audits of the internal AML/CFT/CPF measures to determine their effectiveness and compliance with the AMLA, its subsidiary legislation, and the relevant documents on AML/CFT/CPF issued by Bank Negara Malaysia as well as the requirements of the relevant laws and regulations of other supervisory authorities, where applicable. 11.7.3 The Board shall ensure that the roles and responsibilities of the auditor is clearly defined and documented. The roles and responsibilities of the auditor shall include, at a minimum: 11.7.4 The Board shall determine and ensure that the frequency and scope of independent audits conducted commensurate with the ML/TF/PF risks and vulnerabilities assessed by the reporting institution. 11.7.5 The scope of the independent audit shall include, at a minimum: 11.7.6 In determining the frequency of the independent audit, reporting institutions may be guided by the following circumstances: 4 Legal Provisions 5 Effective Date 6 Definition and Interpretation 7 Related Legal Instruments and Policy Documents 8 Policy Documents and Guidance(s) Superseded 9 Non-Compliance PART B AML/CFT/CPF/TFS REQUIREMENTS 10 Application of Risk-Based Approach 11 AML/CFT/CPF Compliance Programme (a) structural changes to the business of the reporting institutions such as mergers and acquisition; (b) changes to the number or volume of transactions reported to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia; (c) introduction of new products and services or new delivery channels; or (d) previous non-compliance relating to AML/CFT/CPF requirements which resulted in enforcement and/or supervisory actions taken against the reporting institution. 11.7.7 Reporting institutions shall comply with any additional requirements on the frequency and scope of the independent audit as specified by Bank Negara Malaysia. 11.7.8 The auditor must submit a written audit report to the Board to highlight the assessment on the effectiveness of established AML/CFT/CPF measures and inadequacies in internal controls and procedures including recommended corrective measures. 11.7.9 Reporting institutions must ensure that such audit findings and the necessary corrective measures undertaken are made available to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia and relevant supervisory authorities, upon request. 12.1 Reporting institutions are required to identify and assess the ML/TF/PF risks that may arise in relation to the development of new products and business practices, including new delivery mechanisms and the use of new or developing technologies for both new and pre-existing products. 12.2 Reporting institutions are required to: 13.1 Financial Group 13.1.1 The requirements under this paragraph are only applicable to reporting institutions that are part of a financial group. A financial holding company under the FSA or IFSA or a licensed person under the FSA or IFSA who is a holding company in a group of corporations, as the case may be, is required to implement group-wide programmes against ML/TF/PF. These programmes must be applicable and appropriate to all branches and subsidiaries of the group. These shall include the following measures: 13.1.3 A Group Compliance Officer is responsible for developing, coordinating and making a group-wide assessment for the implementation of a single AML/CFT/CPF strategy, including mandatory policies and procedures, and the authorisation to give directions to all branches and subsidiaries. 13.2 Foreign Branches and Subsidiaries Reporting institutions are required to closely monitor their foreign branches or subsidiaries operating in jurisdictions with inadequate AML/CFT/CPF laws and regulations as highlighted by the FATF or the Government of Malaysia. Reporting institutions and financial groups shall ensure that their foreign branches and subsidiaries apply AML/CFT/CPF measures in a manner that is consistent with the AML/CFT/CPF requirements in Malaysia. Where the minimum AML/CFT/CPF requirements of the host country are less stringent than those of Malaysia, the reporting institution must apply Malaysia’s AML/CFT/CPF requirements, to the extent that host country laws and regulations permit. If the host country does not permit the proper implementation of AML/CFT/CPF measures in a manner that is consistent with the AML/CFT/CPF requirements in Malaysia, the reporting institution and financial group are required to apply additional measures to manage the ML/TF/PF risks, and report to their supervisors in Malaysia on the AML/CFT/CPF gaps and additional measures implemented to manage the ML/TF/PF risks arising from the identified gaps. The reporting institution and financial group may consider ceasing the operations of the said branch or subsidiary that is unable to put in place the necessary mitigating controls as required under paragraph 13.2.3. 12 New Products and Business Practices 13 Applicability to Financial Group, Foreign Branches and Subsidiaries 14 Customer Due Diligence (CDD) 14A CDD: Banking and Deposit-Taking Institutions 14A.1 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: 14A.2 Reporting institutions shall refer to paragraph 14A.11 on specific CDD measures in relation to paragraphs 14A.1(b), (c) and (d). When conducting CDD, reporting institutions are required to: 14A.4 Where applicable, in conducting CDD, reporting institutions are required to comply with requirements on targeted financial sanctions in relation to: Verification 14A.5 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. 14A.6 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. 14A.7 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14A.5 when verifying the identity of customer or beneficial owner. 14A.8 Reporting institutions shall verify the identity of the customer or beneficial owner before, or during, the course of establishing a business relationship or conducting a transaction for an occasional customer. 14A.9 Standard CDD Measures Individual Customer and Beneficial Owner In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: (a) full name; (b) National Registration Identity Card (NRIC) number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and mailing address; (d) date of birth; (e) nationality; (f) occupation type; (g) name of employer or nature of self-employment or nature of business; (h) contact number (home, office or mobile); and (i) purpose of transaction. 14A.9.2 Reporting institutions shall verify the identity of the customer and beneficial owner. Legal Persons 14A.9.3 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14A.9.4 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as Certificate of Incorporation/ Constitution/ Partnership Agreement (certified true copies/duly notarised copies, may be accepted), unique identifier such as tax identification number or any other reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer such as directors’ resolution, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office and, if different, a principal place of business. 14A.9.5 Reporting institutions are required to identify and verify the person authorised to represent the company or business in writing either by means of a letter of authority or directors’ resolution when dealing with such person. 14A.9.6 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the following cascading steps: (a) the identity of the natural person(s) (if any) who ultimately has a controlling ownership interest in a legal person. At a minimum, this includes identifying the directors/ shareholders with equity interest of more than twenty-five percent/partners; (b) to the extent that there is doubt as to whether the person(s) with the controlling ownership interest is the beneficial owner(s) referred to in paragraph 14A.9.6(a) or where no natural person(s) exert control through ownership interests, the identity of the natural person (if any) exercising control of the legal person through other means; and (c) where no natural person is identified under paragraphs 14A.9.6(a) or (b), the identity of the relevant natural person who holds the position of Senior Management. For the avoidance of doubt, reporting institutions are not required to pursue steps (b) and (c) in circumstances where beneficial owner(s) have been identified through step (a). Similarly, where beneficial owner(s) have been identified at step (b), reporting institutions are not required to pursue step (c). 14A.9.7 Where there is any doubt as to the identity of persons referred to under paragraphs 14A.9.4, 14A.9.5 and 14A.9.6, the reporting institution shall: (a) conduct a basic search or enquiry on the background of such person to ensure that the person has not been or is not in the process of being dissolved or liquidated, or is a bankrupt; and (b) verify the authenticity of the information provided by such person with the Companies Commission of Malaysia, Labuan Financial Services Authority or any other relevant authority. 14A.9.8 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of directors and shareholders of the legal person which fall under the following categories: (a) public listed companies or corporations listed in Bursa Malaysia; (b) foreign public listed companies: (c) foreign financial institutions that are not from higher risk countries; (d) an authorised person under the FSA and the IFSA (i.e. any person that has been granted a license or approval); (e) persons licensed or registered under the Capital Markets and Services Act 2007; (f) licensed entities under the Labuan Financial Services and Securities Act 2010 and Labuan Islamic Financial Services and Securities Act 2010; (g) prescribed institutions under the DFIA; or (h) licensed entities under the MSBA. 14A.9.9 Notwithstanding the above, reporting institutions are required to identify and maintain the information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14A.9.8(a) to (h), through a public register, other reliable sources or based on information provided by the customer. 14A.9.10 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R 6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Legal Arrangements 14A.9.11 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14A.9.12 Reporting institutions are required to identify the customer and verify its identity through the following information: (a) name, legal form and proof of existence, such as trust deed or equivalent document, the unique identifier such as tax identification number or equivalent, or any reliable references to verify the identity of the customer; (b) the powers that regulate and bind the customer, as well as the names of relevant persons having a Senior Management position; and (c) the address of the registered office, and if different, a principal place of business. 14A.9.13 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: (a) for trusts, the identity of the settlor, the trustee(s), the protector (if any), the beneficiary or class of beneficiaries and objects of a power, and any other natural person exercising ultimate effective control over the trust (including through the chain of control/ownership); or (b) for other types of legal arrangements, the identity of persons in equivalent or similar positions. 14A.9.14 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any or an occasional transaction. 14A.9.15 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. 14A.9.16 Where reliance is placed on third parties under paragraph 14A.9.15, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Clubs, Societies and Charities 14A.9.17 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal persons or legal arrangements, as the case may be, and require them to furnish the relevant identification documents including Certificate of Registration and other constituent documents. In addition, reporting institutions are required to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. 14A.9.18 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. 14A.9.19 Where there is any doubt as to the identity of persons referred to under paragraphs 14A.9.17 and 14A.9.18, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission of Malaysia, Legal Affairs Division under the Prime Minister’s Department or any other relevant authority. Counter-party 14A.9.20 Where the reporting institution establishes a relationship with a counter-party, the reporting institution must be satisfied that the counter-party is properly regulated and supervised. 14A.9.21 Reporting institutions are required to ensure that the counter-party’s CDD process is adequate and the mechanism to identify and verify its customers is reliable and consistent with the requirements in Malaysia. Beneficiary account 14A.9.22 In the case of beneficiary accounts, reporting institutions are required to perform CDD on the beneficiary and the person acting on behalf of the beneficiary, on an individual basis. 14A.9.23 In the event that identification on an individual basis cannot be performed, for example where the interests of a group of beneficiaries are pooled together without specific allocation to known individuals, the reporting institution is required to satisfy itself that the funds in the account are not maintained in the interest of other parties which have no relationship with the account. 14A.9.24 Reporting institutions may rely on a third party when they are unable to conduct CDD on the clients of professionals, such as legal firms or accountants acting on behalf of their clients. 14A.9.25 Where reliance is placed on a third party under paragraph 14A.9.24, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. 14A.9.26 In the event where the person acting on behalf of the beneficiary is unable or refuses to provide the information on the identity of the beneficiaries or give a written undertaking (where applicable), reporting institutions are to comply with the requirements under paragraph 14A.16 on Failure to Satisfactorily Complete CDD. Private Banking 14A.9.27 Reporting institutions are required to conduct CDD in accordance with the assessed level of ML/TF/PF risks of private banking customers. Credit Cards 14A.9.28 Reporting institutions are required to conduct appropriate CDD on the supplementary cardholders associated with the personal card account or employees holding corporate cards for the purpose of identification and verification. Custody or Safe Deposit Box Services 14A.9.29 Reporting institutions are required to be aware of the associated risks arising out of the use of custody or safe deposit box services by its customers. 14A.9.30 CDD measures for custody or safe deposit box services must be conducted on non-account holders intending to obtain the services. 14A.9.31 For the purpose of paragraph 14A.9.29, reporting institutions are required to have in place a centralised database on its customers using the custody or safe deposit box services. 14A.10 Simplified CDD 14A.10.1 Reporting institutions may conduct simplified CDD where ML/TF/PF risks are assessed to be low except where there are instances of higher risks or suspicion of ML/TF/PF. 14A.10.2 In relation to paragraph 14A.10.1, reporting institutions are required to have the following processes in place: (a) conduct adequate analysis of ML/TF/PF risk; (b) establish appropriate mechanisms and internal controls for effective on-going monitoring of customers and transactions to ensure prompt detection of unusual or suspicious transactions; (c) obtain the approval of the Board for the implementation of simplified CDD and document all assessments and approvals; and (d) establish appropriate mechanisms to ensure periodic review of the ML/TF/PF risks where simplified CDD is applied. 14A.10.3 For simplified CDD, reporting institutions are required to obtain the following information from the customer and beneficial owner: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; and (e) nationality. 14A.10.4 Reporting institutions shall verify the identity of the customer and beneficial owner. Delayed Verification 14A.10.5 In certain circumstances where the ML/TF/PF risks are assessed as low and verification is not possible at the point of establishing the business relationship, the reporting institution may complete verification after the establishment of the business relationship to allow some flexibilities for its customer and beneficial owner to furnish the relevant documents. 14A.10.6 Where delayed verification applies, the following conditions must be satisfied: (a) this occurs as soon as reasonably practicable; (b) the delay is essential so as not to interrupt the reporting institution’s normal conduct of business; (c) the ML/TF/PF risks are effectively managed; and (d) there is no suspicion of ML/TF/PF. 14A.10.7 The term “reasonably practicable” under paragraph 14A.10.6(a) shall not exceed ten working days or any other period as may be specified by Bank Negara Malaysia. 14A.10.8 Reporting institutions are required to adopt risk management procedures relating to the conditions under which the customer may utilise the business relationship prior to verification, and procedures to mitigate or address the risk of delayed verification. 14A.10.9 The measures that reporting institutions may take to manage such risks of delayed verification may include limiting the number, types and/or amount of transactions that can be performed. 14A.11 Specific CDD CDD on Money-Changing Business and Wholesale Currency Business 14A.11.1 Reporting institutions must conduct CDD and obtain the following information, for transactions involving an amount between RM3,000 to RM10,000: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; (e) nationality; and (f) purpose of transaction. 14A.11.2 Reporting institutions shall conduct standard CDD measures for transactions involving an amount equivalent to RM10,000 and above. CDD on Wire Transfer 14A.11.3 Reporting institutions must conduct CDD and obtain the following information, for transactions involving an amount below RM3,000: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; (e) nationality; and (f) purpose of transaction. 14A.11.4 Reporting institutions shall conduct standard CDD measures for transactions involving an amount equivalent to RM3,000 and above. CDD on E-Money 14A.11.5 Reporting institutions are subject to standard CDD measures when any of the following conditions are met: (a) the account limit is equivalent to RM5,000 and above; (b) the monthly transaction is equivalent to RM5,000 and above; (c) the annual transaction is equivalent to RM60,000 and above; (d) the account is for payments of goods and/or services outside Malaysia; (e) the account is for cross-border wire transfers; or (f) the account is used for cash withdrawal. 14A.11.6 Reporting institutions may conduct simplified CDD for account limits between RM3,000 and RM4,999, when all the following conditions are met: (a) the monthly transaction is below RM5,000; (b) the annual transaction is below RM60,000; (c) the account is used for payments of goods and/or services within Malaysia only; (d) the account is used for domestic wire transfers; and (e) cash withdrawal or cross-border wire transfers are not permitted. 14A.11.7 Reporting institutions are required to conduct simplified CDD at a minimum, where the account limit is below RM3,000 and may be used for domestic wire transfers. 14A.11.8 In relation to paragraphs 14A.11.6 and 14A.11.7, reporting institutions shall ensure the e-money account is linked to the following for reload and refund purposes: (a) customer’s current or savings account maintained with a licensed bank under the FSA or licensed Islamic bank under the IFSA, or any other prescribed institution under the DFIA; or (b) customer’s credit card, credit card-i, debit card, debit card-i, charge card or charge card-i account maintained with approved issuers under the FSA or IFSA. 14A.11.9 Notwithstanding the account limits, reporting institutions may apply simplified CDD for e-money accounts used for specific purpose payments only, with prior approval from Bank Negara Malaysia. The term “specific purpose payments” refer to payments of goods and/or services for a limited and well-defined usage, accepted at specific points of sales. 14A.11.10 Reporting institutions may refer to Appendix 3 for guidance on CDD measures for e-money. 14A.12 Enhanced CDD Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: (a) obtaining CDD information under paragraph 14A.9; (b) obtaining additional information on the customer and beneficial owner (e.g. volume of assets and other information from public databases); (c) enquiring on the source of wealth or source of funds. In the case of PEPs, both sources must be obtained; and (d) obtaining approval from the Senior Management of the reporting institution before establishing (or continuing, for existing customer) such business relationship with the customer. In the case of PEPs, Senior Management refers to Senior Management at the head office. 14A.12.2 In addition to paragraph 14A.12.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: (a) obtaining additional information on the intended level and nature of the business relationship; (b) where relevant, obtain additional information on the beneficial owner of the beneficiaries (e.g. occupation, volume of assets, information available through public databases); (c) inquiring on the reasons for intended or performed transactions; and (d) requiring the first payment to be carried out through an account in the customer’s name with a bank subject to similar CDD measures. 14A.13 On-Going Due Diligence Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: (a) scrutinising transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the reporting institution’s knowledge of the customer, their business and risk profile, including where necessary, the source of funds; and (b) ensuring that documents, data or information collected under the CDD process is kept up-to-date and relevant, by undertaking reviews of existing records particularly for higher risk customers. 14A.13.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: (a) appears unusual; (b) is inconsistent with the expected type of activity and business model when compared to the volume of transaction; (c) does not have any apparent economic purpose; or (d) casts doubt on the legality of such transactions, especially with regard to complex and large transactions or involving higher risk customers. 14A.13.3 The frequency in implementing paragraph 14A.13.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. 14A.13.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. 14A.13.5 When conducting enhanced on-going due diligence, reporting institutions are required to: (a) increase the number and timing of controls applied; and (b) select patterns of transactions that need further examination. 14A.14 Existing Customers – Materiality and Risk 14A.14.1 Existing customers in this paragraph refers to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. 14A.14.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. 14A.14.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. 14A.14.4 In assessing materiality and risk of existing customers under paragraph 14A.14.2, reporting institutions may consider the following circumstances: (a) the nature and circumstances surrounding the transaction including the significance of the transaction; (b) any material change in the way the account or business relationship is operated; or (c) insufficient information held on the customer or change in customer’s information. 14A.15 Non Face-to-Face Business Relationship 14A.15.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. 14A.15.2 The requirements on non-FTF business relationship shall be read together with the Electronic Know Your Customer (e-KYC) policy document and any relevant policy document, guidelines or circulars issued pursuant to the e-KYC policy document. 14A.15.3 Reporting institutions shall obtain approval from their Board prior to the implementation of non-FTF business relationships. 14A.15.4 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by Bank Negara Malaysia. 14A.15.5 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. 14A.15.6 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. 14A.15.7 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through e-KYC are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of e-KYC. 14A.15.8 In relation to paragraph 14A.15.7, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. 14A.15.9 In relation to paragraph 14A.15.7, reporting institutions shall take measures to identify and verify the customer’s identity through any of the following: (a) establishing independent contact with the customer; (b) verifying the customer’s information against reliable and independent sources to confirm the customer’s identity and identifying any known or suspected ML/TF/PF risks associated with the customer; or (c) requesting, sighting and maintaining records of additional documents required to perform face-to-face customer verifications. 14A.15.10 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF compliance programme. 14A.16 Failure to Satisfactorily Complete CDD 14A.16.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 22. 14A.17 CDD and Tipping-Off 14A.17.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis for not completing the CDD and immediately file a suspicious transaction report under paragraph 22. 14A.17.2 Notwithstanding paragraph 14A17.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. 14B CDD: Insurance and Takaful 14B.1 General 14B.1.1 For any business transactions secured through agents, reporting institutions shall ensure their agents perform CDD as specified in this policy document. 14B.1.2 Reporting institutions are required to set out the processes that must be undertaken by the agents in conducting CDD as well as appropriate enforceable action by reporting institutions in the arrangement or agreement with agents. 14B.2 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: (a) establishing business relations; (b) it has any suspicion of ML/TF/PF, regardless of amount; or (c) it has any doubt about the veracity or adequacy of previously obtained information. When conducting CDD, reporting institutions are required to: 14B.4 Where applicable, in conducting CDD, reporting institutions are required to comply with requirements on targeted financial sanctions in relation to: Verification 14B.5 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. 14B.6 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. 14B.7 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14B.5 when verifying the identity of customer or beneficial owner. 14B.8 Reporting institutions are not required to conduct verification on insurance policy / takaful certificate owners sold via any banking institution if it is satisfied that prior verification has been conducted by the banking institution in accordance with paragraph 16 on Reliance on Third Parties. 14B.9 Reporting institutions shall verify the identity of the customer or beneficial owner before, or during, the course of establishing a business relationship. 14B.10 Reporting institutions may choose not to conduct further verification on previously conducted CDD in the following circumstances: 14B.11 Standard CDD Measures Individual Customer and Beneficial Owner In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: 14B.11.2 Reporting institutions shall verify the identity of the customer and beneficial owner. Beneficiaries 14B.11.3 In addition to the CDD measures required under paragraph 14B.3, reporting institutions are also required to conduct the following CDD measures on the beneficiary, as soon as the beneficiary is identified/designated: 14B.11.4 For the purposes of paragraphs 14B.11.3 (a), (b) and (c), the verification of the identity of the beneficiary must occur latest at the time of the payout. 14B.11.5 Reporting institutions may rely on a third party to verify the identity of the beneficiaries. Group Customers 14B.11.6 Reporting institutions are required to identify and verify the customer (i.e. master policy/certificate owner) at the point of sale. 14B.11.7 Reporting institutions are required to establish the necessary mechanisms to identify the beneficiaries (i.e. insured members) of group policies/group takaful certificates at the point of sale, either from the master policy/certificate owner or directly from the insured members, to ensure compliance with CDD obligations and requirements on targeted financial sanctions under paragraphs 27, 28 and 29. 14B.11.8 Reporting institutions are required to verify the identity of beneficiaries of group policies/group takaful certificates latest at the time of payout. Legal Persons 14B.11.9 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14B.11.10 Reporting institutions are required to identify the customer and verify its identity through the following information: 14B.11.11 Reporting institutions are required to identify and verify the person authorised to represent the company or business either by means of a letter of authority or directors’ resolution when dealing with such person. 14B.11.12 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the following cascading steps: 14B.11.13 Where there is any doubt as to the identity of persons referred to under paragraphs 14B.11.10, 14B11.11 and 14B.11.12, the reporting institution shall: 14B.11.14 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of directors and shareholders of the legal person which fall under the following categories: 14B.11.15 Notwithstanding the above, reporting institutions are required to identify and maintain the information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14B.11.14(a) to (h), through a public register, other reliable sources or based on information provided by the customer. 14B.11.16 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R 6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Legal Arrangements 14B.11.17 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14B.11.18 Reporting institutions are required to identify the customer and verify its identity through the following information: 14B.11.19 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: 14B.11.20 For the purpose of identifying beneficiaries of trusts that are designated by characteristics or by class under paragraph 14B.11.19, reporting institutions are required to obtain sufficient information concerning the beneficiary in order to be satisfied that it would be able to establish the identity of the beneficiary at the time of the payout or when the beneficiary intends to exercise vested rights. 14B.11.21 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any transaction. 14B.11.22 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. 14B.11.23 Where reliance is placed on third parties under paragraph 14B.11.22, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Clubs, Societies and Charities 14B.11.24 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal person or legal arrangements, as the case may be, and require them to furnish the relevant identification documents including Certificate of Registration and constituent documents. In addition, reporting institutions are required to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. 14B.11.25 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. 14B.11.26 Where there is any doubt as to the identity of persons referred to under paragraphs 14B.11.24 and 14B.11.25, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission of Malaysia, Legal Affairs Division under the Prime Minister’s Department or any other relevant authority. Reinsurance/Retakaful Arrangement 14B.11.27 Under a reinsurance/ retakaful arrangement, reporting institutions are required to carry out verification only on the ceding company, and not on the ceding company’s customers. The following verification procedure applies: 14B.12 Simplified CDD 14B.12.1 Reporting institutions may conduct simplified CDD where ML/TF/PF risks are assessed to be low except where there are instances of higher risks or suspicion of ML/TF/PF. 14B.12.2 Reporting institutions may refer to the features of low risk insurance policies/takaful certificates as may be issued by Bank Negara Malaysia. 14B.12.3 In relation to paragraph 14B.12.1, reporting institutions are required to have the following processes in place: 14B.12.4 For simplified CDD, reporting institutions are required to obtain the following information from the customer and beneficial owner: 14B.12.5 Reporting institutions shall verify the identity of the customer and beneficial owner. 14B.13 Delayed Verification 14B.13.1 Reporting institutions may apply delayed verification, where: 14B.13.2 The delayed verification of the customers, beneficial owners and beneficiaries must take place latest at the time of payout. 14B.13.3 Reporting institutions must have in place measures to prevent transactions from being artificially split to avoid the thresholds as specified in paragraph 14B.13.1(b). Therefore, the aggregated premium/takaful contribution size of multiple policies per customer must be taken into consideration. 14B.14 Enhanced CDD Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: 14B.14.2 Reporting institutions are required to include the beneficiary of a life insurance policy/family takaful certificate as a relevant risk factor in determining whether enhanced CDD measures are applicable. If the reporting institutions determine that a beneficiary who is a legal person or a legal arrangement presents a higher risk, reporting institutions are required to take enhanced measures which include taking reasonable measures to identify and verify the identity of the beneficial owner of the beneficiary, latest at the time of payout. 14B.14.3 In addition to paragraph 14B.14.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: In relation to PEPs 14B.14.4 Where the beneficiaries or the beneficial owner of the beneficiaries are PEPs and assessed as higher risk at the latest, at the time of payout, reporting institutions are required to: 14B.15 On-Going Due Diligence Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: 14B.15.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: 14B.15.3 The frequency in implementing paragraph 14B.15.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. 14B.15.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. 14B.15.5 When conducting enhanced on-going due diligence, reporting institutions are required to: (a) increase the number and timing of controls applied; and (b) select patterns of transactions that need further examination. 14B.16 Existing Customers – Materiality and Risk 14B.16.1 Existing customers in this paragraph refers to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. 14B.16.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. 14B.16.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. 14B.16.4 In assessing materiality and risk of existing customers under paragraph 14B.16.2, reporting institutions may consider the following circumstances: 14B.17 Non Face-to-Face Business Relationship 14B.17.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. 14B.17.2 The requirements on non-FTF business relationship shall be read together with the Electronic Know Your Customer (e-KYC) policy document and any relevant policy document, guidelines or circulars issued pursuant to the e-KYC policy document. 14B.17.3 Reporting institutions shall obtain approval from their Board prior to the implementation of non-FTF business relationships. 14B.17.4 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by Bank Negara Malaysia. 14B.17.5 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. 14B.17.6 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. 14B.17.7 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through e-KYC are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of e-KYC. 14B.17.8 In relation to paragraph 14B.17.7, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. 14B.17.9 In relation to paragraph 14B.17.7, reporting institutions shall take measures to identify and verify the customer’s identity through any of the following: 14B.17.10 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF compliance programme. 14B.18 Failure to Satisfactorily Complete CDD 14B.18.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 22. 14B.19 CDD and Tipping-Off 14B.19.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis for not completing the CDD and immediately file a suspicious transaction report under paragraph 22. 14B.19.2 Notwithstanding paragraph 14B.19.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. 14C CDD: Money Services Business 14C.1 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: 14C.2 Reporting institutions shall refer to paragraph 14C.12 on specific CDD measures in relation to paragraph 14C.1(b) and (c). Notice to Customer 14C.3 For the purpose of CDD under paragraphs 14C.1(b) and (c), reporting institutions shall display in a conspicuous position at its approved premises (both physical and digital) a notice, in the format provided below, informing its customers of the CDD requirements: When conducting CDD, reporting institutions are required to: 14C.5 Where applicable, in conducting CDD, reporting institutions are required to comply with requirements on targeted financial sanctions in relation to: 14C.6 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. 14C.7 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. 14C.8 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14C.6 when verifying the identity of customer or beneficial owner. 14C.9 Reporting institutions shall verify the identity of the customer or beneficial owner before, or during, the course of establishing a business relationship or conducting a transaction for an occasional customer. 14C.10 Standard CDD Measures Individual Customer and Beneficial Owner 14C.10.1 In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: 14C.10.2 Reporting institutions shall verify the identity of the customer and beneficial owner. 14C.10.3 Reporting institutions may refer to Appendix 2 for the customer due diligence form. Legal Persons 14C.10.4 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14C.10.5 Reporting institutions are required to identify the customer and verify its identity through the following information: 14C.10.6 Reporting institutions are required to identify and verify the person authorised to represent the company or business either by means of a letter of authority or directors’ resolution when dealing with such person. 14C.10.7 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the following cascading steps: 14C.10.8 Where there is any doubt as to the identity of persons referred to under paragraphs 14C.10.5, 14C.10.6 and 14C.10.7, the reporting institution shall: 14C.10.9 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of the directors and shareholders of the legal person which fall under the following categories: 14C.10.10 Notwithstanding the above, reporting institutions are required to identify and maintain the information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14C.10.9 (a) to (h), through a public register, other reliable sources or based on information provided by the customer. 14C.10.11 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R 6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Legal Arrangements 14C.10.12 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14C.10.13 Reporting institutions are required to identify the customer and verify its identity through the following information: 14C.10.14 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: 14C.10.15 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any or an occasional transaction. 14C.10.16 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. 14C.10.17 Where reliance is placed on third parties under paragraph 14C.10.16, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Clubs, Societies and Charities 14C.10.18 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal persons or legal arrangements, as the case may be, and require the customers to furnish the relevant identification documents including Certificate of Registration and constituent documents. In addition, reporting institutions are require to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. 14C.10.19 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. 14C.10.20 Where there is any doubt as to the identity of persons referred to under paragraphs 14C.10.18 and 14C.10.19, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission of Malaysia, Legal Affairs Division under the Prime Minister’s Department or any other relevant authority. 14C.11 Simplified CDD 14C.11.1 Reporting institutions may conduct simplified CDD where ML/TF/PF risks are assessed to be low except where there are instances of higher risks or suspicion of ML/TF/PF. 14C.11.2 In relation to paragraph 14C.11.1, reporting institutions are required to have the following processes in place: 14C.11.3 Reporting institutions shall obtain prior written approval from Bank Negara Malaysia (addressed to Pengarah, Jabatan Pemantauan Perkhidmatan Pembayaran, Bank Negara Malaysia) to implement simplified CDD. 14C.11.4 For simplified CDD, reporting institutions are required to obtain the following information from the customer and beneficial owner: 14C.11.5 Reporting institutions shall verify the identity of the customer and beneficial owner. 14C.11.6 In certain circumstances where the ML/TF/PF risks are assessed as low and verification is not possible at the point of establishing the business relationship, the reporting institution may complete verification after the establishment of the business relationship to allow some flexibilities for its customer and beneficial owner to furnish the relevant documents. 14C.11.7 Where delayed verification applies, the following conditions must be satisfied: (a) this occurs as soon as reasonably practicable; (b) the delay is essential so as not to interrupt the reporting institution’s normal conduct of business; (c) the ML/TF/PF risks are effectively managed; and (d) there is no suspicion of ML/TF/PF. 14C.11.8 The term “reasonably practicable” under paragraph 14C.11.7(a) shall not exceed ten working days or any other period as may be specified by Bank Negara Malaysia. 14C.11.9 Reporting institutions are required to adopt risk management procedures relating to the conditions under which the customer may utilise the business relationship prior to verification, and procedures to mitigate or address the risk of delayed verification. 14C.11.10 The measures that reporting institutions may take to manage such risks of delayed verification may include limiting the number, types and/or amount of transactions that can be performed. 14C.12 Specific CDD CDD on Money-Changing and Wholesale Currency Business 14C.12.1 Reporting institutions must conduct CDD and obtain the following information, for transactions involving an amount between RM3,000 to RM10,000: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; (e) nationality; and (f) purpose of transaction. 14C.12.2 Reporting institutions shall conduct standard CDD measures for transactions involving an amount equivalent to RM10,000 and above. CDD on Wire Transfer / Remittance Services 14C.12.3 Reporting institutions must conduct CDD and obtain the following information, for transactions involving an amount below RM3,000: (a) full name; (b) NRIC number or passport number or reference number of any other official documents of the customer or beneficial owner; (c) residential and/or mailing address; (d) date of birth; (e) nationality; and (f) purpose of transaction. 14C.12.4 Reporting institutions shall conduct standard CDD measures for transactions involving an amount equivalent to RM3,000 and above. 14C.13 Enhanced CDD 14C.13.1 Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: 14C.13.2 In addition to paragraph 14C.13.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: 14C.14 On-Going Due Diligence 14C.14.1 Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: 14C.14.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: 14C.14.3 The frequency in implementing paragraph 14C.14.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. 14C.14.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. 14C.14.5 When conducting enhanced on-going due diligence, reporting institutions are required to: 14C.15 Existing Customers – Materiality and Risk 14C.15.1 Existing customers in this paragraph refers to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. 14C.15.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. 14C.15.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. 14C.15.4 In assessing materiality and risk of existing customers under paragraph 14C.15.2, reporting institutions may consider the following circumstances: 14C.16 Non Face-to-Face Business Relationship 14C.16.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. 14C.16.2 The requirements on non-FTF business relationship shall be read together with the Electronic Know Your Customer (e-KYC) policy document and any relevant policy document, guidelines or circulars issued pursuant to the e-KYC policy document. 14C.16.3 Reporting institutions shall obtain prior written approval from Bank Negara Malaysia (addressed to Pengarah, Jabatan Pemantauan Perkhidmatan Pembayaran, Bank Negara Malaysia) to implement non-FTF for the provision of online or mobile remittance and money-changing business. 14C.16.4 The application for implementation of non-FTF shall include relevant information to demonstrate the reporting institution’s ability to comply with the requirements in this policy document, as approved by the Board. 14C.16.5 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by Bank Negara Malaysia. 14C.16.6 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. 14C.16.7 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. 14C.16.8 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through e-KYC are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of e-KYC. 14C.16.9 In relation to paragraph 14C.16.8, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. 14C.16.10 In relation to paragraph 14C.16.8, reporting institutions shall take measures to identify and verify a customer’s identity which include, at a minimum: 14C.16.11 Reporting institutions are required to conduct CDD on all new customers when establishing business relationship through non-FTF for conducting remittance and money changing transactions. 14C.16.12 In relation to paragraph 14C.16.8, reporting institutions may identify and verify a customer’s identity by: 14C.16.13 Reporting institutions shall clearly define parameters for higher risk customers that are not allowed to transact with the reporting institutions through non-FTF. 14C.16.14 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF compliance programme. 14C.16.15 In addition, reporting institutions shall comply with the following requirements for remittance and money-changing transactions performed using non-FTF: 14C.16.16 For remittance transactions performed using non-FTF, in addition to paragraph 14C.16.15, reporting institutions shall also comply with the following requirements: Non-FTF Business Relationship with Legal Persons 14C.16.17 For non-FTF with legal persons, as part of identification and verification of the legal person, reporting institutions must verify the existence of the legal person’s business activity through a mandatory verification method supported by at least an additional verification method that is relevant to the nature or business model of the legal person, as follows: Mandatory verification (a) make video calls to the chief executive officer (CEO), directors or authorised person assigned to the legal person. During the video call, reporting institutions may request the person to show proof of business existence such as signboard or inventories (if any); and Additional verification methods (b) identify the location of the legal person to ensure that the location matches the registered or business address of the corporate customer. Reporting institutions may also verify location of the CEO, directors or authorised person during the video call; (c) verify the legal person’s information against a database maintained by credible independent sources such as relevant regulatory authorities, government agencies or associations of the regulated sectors. Reporting institutions may also request for the legal person’s active bank account or audited financial statement as proof of on-going business activity; or (d) any other credible verification methods approved by Bank Negara Malaysia. 14C.16.18 In relation to paragraph 14C.16.17(a), reporting institutions may consider making unannounced video calls depending on the ML/TF/PF risk identified on a particular customer. Such unannounced call may be effective in identifying circumstances where a fraudulent business had staged its premise in advance of the call. 14C.16.19 Reporting institutions shall comply with the following requirements for remittance and money-changing transactions undertaken based on non-FTF: (a) all payments or transfer of funds for remittance and money-changing transactions made to the reporting institutions shall only be made from a bank account with any licensed bank or Islamic licensed bank under the FSA and IFSA respectively, or any prescribed institution under the DFIA, registered under the name of the legal person. The legal person details (i.e. name or business identity number) obtained in relation to the bank account must be consistent with the details provided by the legal person when establishing the non-FTF business relationship; (b) put in place robust and appropriate information technology security control measures which include, but are not limited to, linking each authorised person’s account to only one mobile device, with unique login credentials for the purposes of authenticating the transaction. Bank Negara Malaysia may at any time impose additional specific controls as it deems appropriate; and (c) no more than two authorised persons shall be registered under each legal person’s transaction account at any one time. 14C.16.20 For remittance transactions undertaken based on non-FTF, in addition to paragraph 14C.16.19, reporting institutions shall comply with the following requirements: (a) observe the daily outward transactions limits set out under paragraph 3(a) and (b) of Money Services Business (Remittance Business) Regulations 2012, and paragraph 2 of Money Services Business (Remittance Business)(Amendment) Regulations 2015; and (b) sight and obtain relevant documentary proof of business transactions such as invoices, loan documentation, etc., prior to undertaking the transactions. Revocation of Approval 14C.16.21 An approval given under paragraph 14C.16.3 may be revoked where Bank Negara Malaysia is satisfied that the requirements in this policy document have not been adequately met. 14C.17 Failure to Satisfactorily Complete CDD 14C.17.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 22. 14C.18 CDD and Tipping-Off 14C.18.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis for not completing the CDD and immediately file a suspicious transaction report under paragraph 22. 14C.18.2 Notwithstanding paragraph 14C.18.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. For Non-Bank Issuers of Credit Card and Charge Card 14D CDD: Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments 14D.1 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: For Non-Bank Issuers of E-Money 14D.2 Reporting institutions are required to conduct CDD on customers and persons conducting the transaction, when: When conducting CDD, reporting institutions are required to: 14D.4 Where applicable, in conducting CDD, reporting institutions are required to comply with requirements on targeted financial sanctions in relation to: Verification 14D.5 Reporting institutions must verify and be satisfied with the identity of the customer or beneficial owner through reliable and independent documentation, electronic data or any other measures that reporting institutions deem necessary. 14D.6 Reporting institutions shall determine the extent of verification method that commensurate with the identified ML/TF/PF risks. 14D.7 Reporting institutions must be satisfied with the veracity of the information referred to in paragraph 14D.5 when verifying the identity of customer or beneficial owner. 14D.8 Reporting institutions shall verify the identity of the customer or beneficial owner before, or during, the course of establishing a business relationship. 14D.9 Standard CDD Measures Individual Customer and Beneficial Owner In conducting CDD, the reporting institution is required to identify an individual customer and beneficial owner, by obtaining at least the following information: 14D.9.2 Reporting institutions shall verify the identity of the customer and beneficial owner. Legal Persons 14D.9.3 For customers that are legal persons, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14D.9.4 Reporting institutions are required to identify the customer and verify its identity through the following information: 14D.9.5 Reporting institutions are required to identify and verify the person authorised to represent the company or business either by means of a letter of authority or directors’ resolution when dealing with such person. 14D.9.6 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners according to the following cascading steps: 14D.9.7 Where there is any doubt as to the identity of persons referred to under paragraphs 14D.9.4, 14D9.5 and 14D.9.6, the reporting institution shall: 14D.9.8 Reporting institutions are exempted from obtaining a copy of the Certificate of Incorporation or Constitution and from verifying the identity of directors and shareholders of the legal person which fall under the following categories: 14D.9.9 Notwithstanding the above, reporting institutions are required to identify and maintain the information relating to the identity of the directors and shareholders of legal persons referred to in paragraph 14D.9.8 (a) to (h), through a public register, other reliable sources or based on information provided by the customer. 14D.9.10 Reporting institutions may refer to the Directives in relation to Recognised Stock Exchanges (R/R 6 of 2012) issued by Bursa Malaysia in determining foreign exchanges that are recognised. Legal Arrangements 14D.9.11 For customers that are legal arrangements, reporting institutions are required to understand the nature of the customer’s business, its ownership and control structure. 14D.9.12 Reporting institutions are required to identify the customer and verify its identity through the following information: 14D.9.13 Reporting institutions are required to identify and take reasonable measures to verify the identity of beneficial owners through the following information: 14D.9.14 Reporting institutions are required to take measures to ensure that trustees or persons holding equivalent positions in similar legal arrangements disclose their status when, in their function, establishing business relations or carrying out any or an occasional transaction. 14D.9.15 Reporting institutions may rely on a third party to verify the identity of the beneficiaries when it is not practical to identify every beneficiary. 14D.9.16 Where reliance is placed on third parties under paragraph 14D.9.15, reporting institutions are required to comply with paragraph 16 on Reliance on Third Parties. Clubs, Societies and Charities 14D.9.17 For customers that are clubs, societies or charities, reporting institutions shall conduct the CDD requirements applicable for legal persons or legal arrangements, as the case may be, and require them to furnish the relevant identification documents including Certificate of Registration and constituent documents. In addition, reporting institutions are required to identify and verify the office bearer or any person authorised to represent the club, society or charity, as the case may be. 14D.9.18 Reporting institutions are also required to take reasonable measures to identify and verify the beneficial owners of the clubs, societies or charities. 14D.9.19 Where there is any doubt as to the identity of persons referred to under paragraphs 14D.9.17 and 14D.9.18, the reporting institution shall verify the authenticity of the information provided by such person with the Registrar of Societies, Labuan Financial Services Authority, Companies Commission Malaysia, Legal Affairs Division under the Prime Minister’s Department or any other relevant authority. 14D.10 Non-Bank Issuers of Credit Card and Charge Card 14D.10.1 Where applicable, in addition to primary cardholders, reporting institutions are required to conduct CDD on the supplementary or corporate cardholders (secondary persons). 14D.10.2 In conducting CDD under paragraph 14D.10.1, reporting institutions are required to comply with the requirements on targeted financial sanctions in relation to: 14D.11 Simplified CDD 14D.11.1 Reporting institutions may conduct simplified CDD where ML/TF/PF risks are assessed to be low except where there are instances of higher risks or suspicion of ML/TF/PF. 14D.11.2 In relation to paragraph 14D.11.1, reporting institutions are required to have the following processes in place: 14D.11.3 For simplified CDD, reporting institutions are required to obtain the following information from the customer and beneficial owner: 14D.11.4 Reporting institutions shall verify the identity of the customer and beneficial owner. Delayed Verification 14D.11.5 In certain circumstances where the ML/TF/PF risks are assessed as low and verification is not possible at the point of establishing the business relationship, the reporting institution may complete verification after the establishment of the business relationship to allow some flexibilities for its customer and beneficial owner to furnish the relevant documents. 14D.11.6 Where delayed verification applies, the following conditions must be satisfied: 14D.11.7 The term “reasonably practicable” under paragraph 14D.11.6(a) shall not exceed ten working days or any other period as may be specified by Bank Negara Malaysia. 14D.11.8 Reporting institutions are required to adopt risk management procedures relating to the conditions under which the customer may utilise the business relationship prior to verification, and procedures to mitigate or address the risk of delayed verification. 14D.11.9 The measures that reporting institutions may take to manage such risks of delayed verification may include limiting the number, types and/or amount of transactions that can be performed. 14D.12 Specific CDD CDD for Non-Bank Issuers of E-Money 14D.12.1 Reporting institutions are subject to standard CDD measures when any of the following conditions are met: 14D.12.2 Reporting institutions may conduct simplified CDD for e-money account limits between RM3,000 and RM4,999, when all the following conditions are met: 14D.12.3 Reporting institutions are required to conduct simplified CDD at a minimum, where the account limit is below RM3,000 and may be used for domestic wire transfers. 14D.12.4 In relation to paragraphs 14D.12.2 and 14D.12.3, reporting institutions shall ensure the e-money account is linked to the following for reload and refund purposes: 14D.12.5 Notwithstanding the account limits, reporting institutions may apply simplified CDD for e-money accounts used for specific purpose payments only, with prior approval from Bank Negara Malaysia. The term “specific purpose payments” refers to payments of goods and/or services for a limited and well-defined usage, accepted at specific points of sales. 14D.12.6 Reporting institutions may refer to Appendix 3 for guidance on CDD measures for e-money. 14D.13 Enhanced CDD 14D.13.1 Reporting institutions are required to perform enhanced CDD where the ML/TF/PF risks are assessed as higher risk. An enhanced CDD, shall include at least, the following: 14D.13.2 In addition to paragraph 14D.13.1, reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF/PF risks identified: 14D.14 On-Going Due Diligence Reporting institutions are required to conduct on-going due diligence on the business relationship with its customers. Such measures shall include: 14D.14.2 In conducting on-going due diligence, reporting institutions may take into consideration the economic background and purpose of any transaction or business relationship which: 14D.14.3 The frequency in implementing paragraph 14D.14.1(a) under on-going due diligence and enhanced on-going due diligence shall be commensurate with the level of ML/TF/PF risks posed by the customer based on the risk profiles and nature of transactions. 14D.14.4 Reporting institutions shall periodically review its on-going due diligence measures to ensure it remains relevant and effective for accurate customer risk profiles and proportionate risk-based measures. 14D.14.5 When conducting enhanced on-going due diligence, reporting institutions are required to: (a) increase the number and timing of controls applied; and (b) to select patterns of transactions that need further examination. 14D.15 Existing Customers – Materiality and Risk 14D.15.1 Existing customers in this paragraph refers to those that are customers prior to the CDD obligations under section 16 of the AMLA becoming applicable to the reporting institution. 14D.15.2 Reporting institutions are required to apply CDD requirements to existing customers on the basis of materiality and risk. 14D.15.3 Reporting institutions are required to conduct CDD on such existing relationships at appropriate times, taking into account whether and when CDD measures have previously been undertaken and the adequacy of data obtained. 14D.15.4 In assessing materiality and risk of existing customers under paragraph 14D.15.2, reporting institutions may consider the following circumstances: 14D.16 Non Face-to-Face Business Relationship 14D.16.1 Reporting institutions may establish non face-to-face (non-FTF) business relationships with its customers. 14D.16.2 The requirements on non-FTF business relationship shall be read together with the Electronic Know Your Customer (e-KYC) policy document and any relevant policy document, guidelines or circulars issued pursuant to the e-KYC policy document. 14D.16.3 Reporting institutions shall obtain prior written approval from Bank Negara Malaysia (addressed to Pengarah, Jabatan Pemantauan Perkhidmatan Pembayaran, Bank Negara Malaysia) to implement non-FTF. 14D.16.4 The application for implementation of non-FTF shall include relevant information to demonstrate the reporting institution’s ability to comply with the requirements in this policy document, as approved by the Board. 14D.16.5 Reporting institutions must comply with any additional measures imposed on the implementation of non-FTF as deemed necessary by Bank Negara Malaysia. 14D.16.6 Reporting institutions are required to be vigilant in establishing and conducting business relationships via electronic means, which includes mobile channel and online channel. 14D.16.7 The Board shall set and ensure the effective implementation of appropriate policies and procedures to address any specific ML/TF/PF risks associated with the implementation of non-FTF business relationships, as well as operational and information technology risks. 14D.16.8 Reporting institutions shall ensure and be able to demonstrate on a continuing basis that appropriate measures for identification and verification of the customer’s identity through non-FTF are secure and effective. Measures for identification and verification shall be proportionate to the risk dimensions of non-FTF business relationship. 14D.16.9 In relation to paragraph 14D.16.8, where reference is made to face-to-face processes, this should mainly serve as a guide on the minimum expected baseline. 14D.16.10 In relation to paragraph 14D.16.8, reporting institutions shall take measures to identify and verify the customer’s identity through any of the following: 14D.16.11 In relation to paragraph 14D.16.8, reporting institutions may identify and verify a customer’s identity by: (a) conducting video calls with the customer before setting up the customer’s account or allowing the customer to perform transactions; (b) communicating with the customer at a verified residential or office address where such communication shall be acknowledged by the customer; (c) verifying the customer’s information against a database maintained by relevant authorities including the National Registration Department or Immigration Department of Malaysia; telecommunication companies, sanctions lists issued by credible domestic or international sources in addition to the mandatory sanctions lists or social media platforms with a broad outreach; or (d) requesting to sight additional documents such as recent utility bills, bank statements, student identification or confirmation of employment. 14D.16.12 Reporting institutions must ensure the systems and technologies developed and used for the purpose of establishing business relationships using non-FTF channels (including verification of identification documents) have capabilities to support an effective AML/CFT/CPF compliance programme. 14D.16.13 For non-bank issuers of designated payment instruments and designated Islamic payment instruments which offer cross-border wire transfer and money-changing services using non-FTF channels, paragraph 14C.16 shall apply. Revocation for Approval 14D.16.14 An approval given under paragraph 14D.16.3 may be revoked where Bank Negara Malaysia is satisfied that the requirements in this policy document have not been adequately met. 14D.17 Failure to Satisfactorily Complete CDD 14D.17.1 Where a reporting institution is unable to comply with CDD requirements; (a) the reporting institution shall not open the account, commence business relations or perform any transaction in relation to a potential customer, or shall terminate business relations in the case of an existing customer; and (b) the reporting institution must consider lodging a suspicious transaction report under paragraph 22. 14D.18 CDD and Tipping-Off 14D.18.1 In cases where the reporting institution forms a suspicion of ML/TF/PF and reasonably believes that performing the CDD process would tip-off the customer, the reporting institution is permitted not to pursue the CDD process, document the basis for not completing the CDD and immediately file a suspicious transaction report under paragraph 22. 14D.18.2 Notwithstanding paragraph 14D.18.1, the reporting institution may consider proceeding with the transaction itself for purposes of furthering any inquiry or investigation of the ML/TF/PF suspicion. 15.1 General The requirements specified in this paragraph are applicable to all types of PEPs and family members or close associates of those PEPs. 15.1.2 In identifying individuals who fall within the definition of a close associate of a PEP, reporting institutions must take reasonable measures to determine the extent to which these individuals are directly engaged or involved in the activity of the PEP. 15.2 Foreign PEPs 15.2.1 Reporting institutions are required to put in place a risk management system to determine whether a customer or a beneficial owner is a foreign PEP. 15.2.2 For insurance and takaful operators, reporting institutions are required to take reasonable measures to determine whether the beneficiary and/or, where required, the beneficial owner of the beneficiary, is a foreign PEP. 15.2.3 Upon determination that a customer or a beneficial owner under paragraph 15.2.1 and beneficiary or a beneficial owner of a beneficiary under paragraph 15.2.2, is a foreign PEP, the requirements of enhanced CDD as specified in paragraphs 14A.12, 14B.14, 14C.13, 14D.13 and enhanced on-going due diligence as specified in paragraphs 14A.13.5, 14B.15.5, 14C.14.5, 14D.14.5 must be conducted. 15.3 Domestic PEPs or person entrusted with a prominent function by an international organisation 15.3.1 Reporting institutions are required to take reasonable measures to determine whether a customer or beneficial owner is a domestic PEP or a person entrusted with a prominent function by an international organisation. 15.3.2 If the customer or beneficial owner is determined to be a domestic PEP or a person entrusted with a prominent function by an international organisation, reporting institutions are required to assess the level of ML/TF/PF risks posed by the business relationship with the domestic PEP or the person entrusted with a prominent function by an international organisation. For insurance and takaful operators, this includes beneficiaries and beneficial owner of a beneficiary. 15.3.3 The assessment of the ML/TF/PF risks as specified in paragraph 15.3.2, shall take into account the profile of the customer under paragraph 10.6.2 on Risk Profiling. 15.3.4 The requirements on enhanced CDD as specified in paragraphs 14A.12, 14B.14, 14C.13, 14D.13 and enhanced on-going due diligence as specified in paragraphs 14A.13.5, 14B.15.5, 14C.14.5, 14D.14.5 must be conducted in respect of domestic PEPs or persons entrusted with a prominent function by an international organisation who are assessed as higher risk. 15.3.5 Reporting institutions may apply CDD measures similar to other customers for domestic PEPs or persons entrusted with a prominent function by an international organisation if the reporting institution is satisfied that the domestic PEPs or persons entrusted with a prominent function by an international organisation are not assessed as higher risk. 15.4 Cessation of PEP status 15.4.1 Reporting institutions shall consider the following factors in determining whether the status of a PEP who no longer holds a prominent public function should cease: Reporting institutions may rely on third parties to conduct CDD or to introduce business. 16.2 The ultimate responsibility and accountability for CDD measures shall remain with the reporting institution relying on third parties. 16.3 Reporting institutions shall have internal policies and procedures in place to mitigate the risks when relying on third parties, including those from jurisdictions that have been identified as having strategic AML/CFT/CPF deficiencies that pose ML/TF/PF risk to the international financial system. 16.4 Reporting institutions are prohibited from relying on third parties located in higher risk countries that have been identified in accordance with paragraph 17. 16.5 The relationship between reporting institutions and the third parties relied upon by the reporting institutions to conduct CDD shall be governed by an arrangement that clearly specifies the rights, responsibilities and expectations of all parties. In placing reliance on the third party, the reporting institution, at a minimum: 16.6 Reporting institutions shall obtain an attestation from the third party to satisfy itself that the requirements in paragraph 16.5 have been met. 16.7 Reporting institutions may obtain written confirmation from the third party that it has conducted CDD on the customer or beneficial owner, as the case may be, in accordance with paragraph 14. 16.8 The requirements under paragraphs 16.1, 16.3 and 16.5 may be fulfilled if the reporting institution relies on a third party that is part of the same financial group, subject to the following conditions: 16.9 Reporting institutions shall not rely on third parties to conduct on-going due diligence of its customers. Reporting institutions are required to conduct enhanced CDD proportionate to the risk, on business relationships and transactions with any person from higher risk countries for which this is called for by the FATF or by the Government of Malaysia. 17.2 Notwithstanding the generality of paragraph 17.1, the enhanced CDD shall include any specific CDD measure as may be imposed by the FATF or by the Government of Malaysia. 17.3 Reporting institutions are required to apply appropriate countermeasures, proportionate to the risks, when called upon to do so by the FATF or by the Government of Malaysia. 17.4 For the purpose of paragraph 17.3, the countermeasures may include the following: 17.5 In addition to the above, where ML/TF/PF risks are assessed as higher risk, reporting institutions are required to conduct enhanced CDD for business relationships and transactions with any person from other jurisdictions that have strategic AML/CFT/CPF deficiencies for which they have developed an action plan with the FATF. 17.6 For the purpose of requirements under paragraphs 17.1, 17.2, 17.3 and 17.5, reporting institutions shall refer to the FATF website: https://www.fatf-gafi.org 18.1 Reporting institutions offering MVTS either directly or as an agent to MVTS operators or providers are required to comply with all of the relevant requirements under paragraph 19 on Wire Transfer in the countries they operate, directly or through their agents. 18.2 Where the reporting institutions offering MVTS control both the ordering and the beneficiary side of a wire transfer, reporting institutions are required to: 19.1 General 19.1.1 The requirements under this paragraph are applicable to reporting institutions providing cross-border wire transfers and domestic wire transfers including serial payments and cover payments. 19.1.2 Reporting institutions must comply with the requirements on targeted financial sanctions in relation to: 19.1.3 Reporting institutions shall not execute the wire transfer if it does not comply with the requirements specified in this paragraph. 19.1.4 Reporting institutions are required to maintain all originator and beneficiary information collected in accordance with record keeping requirements under paragraph 24. 19.2 Ordering Institutions Cross-border wire transfers 19.2.1 Reporting institutions which are ordering institutions are required to ensure that the message or payment instruction for all cross-border wire transfers involving an amount equivalent to RM3,000 and above are accompanied by the following: 19.2.2 Where several individual cross-border wire transfers from a single originator are bundled in a batch file for transmission to beneficiaries, the batch file shall contain required and accurate originator information, and full beneficiary information, that is fully traceable within the beneficiary country; and ordering institutions are required to include the originator’s account number or unique transaction reference number. 19.2.3 Ordering institutions are required to ensure that the message or payment instruction for all cross-border wire transfers below RM3,000 are accompanied by the following: 19.2.4 The information required under paragraph 19.2.3 need not be verified for accuracy except when there is a suspicion of ML/TF/PF. Domestic wire transfers 19.2.5 Ordering institutions are required to ensure that the information accompanying the wire transfer includes originator information as indicated for cross-border wire transfers, unless this information can be made available to the beneficiary institution and relevant authorities by other means. 19.2.6 Where the information accompanying the domestic wire transfer can be made available to the beneficiary institution and relevant authorities by other means, the ordering institution shall include only the originator’s account number or if there is no account number, a unique identifier, within the message or payment form, provided that this account number or unique identifier will permit the transaction to be traced back to the originator or the beneficiary. Ordering institutions are required to provide the information within three working days of receiving the request either from the beneficiary institution or from the relevant authorities and must provide the information to law enforcement agencies immediately upon request. 19.3 Intermediary Institutions 19.3.1 For cross-border wire transfers, intermediary institutions are required to retain all originator and beneficiary information that accompanies a wire transfer as required under paragraphs 19.2.1 and 19.2.3. 19.3.2 Where the required originator or beneficiary information accompanying a cross-border wire transfer cannot be transmitted due to technical limitations, intermediary institutions are required to keep a record in accordance with record keeping requirements under paragraph 24. 19.3.3 Intermediary institutions are required to take reasonable measures, which are consistent with straight-through processing, to identify cross-border wire transfers that lack the required originator information or required beneficiary information. 19.3.4 Intermediary institutions are required to have effective risk-based policies and procedures for determining: 19.4 Beneficiary Institutions 19.4.1 Beneficiary institutions are required to take reasonable measures, including post-event or real-time monitoring where feasible, to identify cross-border wire transfers that lack the required originator information or required beneficiary information. 19.4.2 For cross-border wire transfers of an amount equivalent to RM3,000 and above, beneficiary institutions are required to verify the identity of the beneficiary, if the identity has not been previously verified, and maintain this information in accordance with record keeping requirements under paragraph 24. 19.4.3 Beneficiary institutions are required to have effective risk-based policies and procedures for determining: 20.1 The requirements under this paragraph are only applicable to reporting institutions providing correspondent banking services and other similar relationships. 20.2 Reporting institutions providing correspondent banking services to respondent institutions are required to take the necessary measures to ensure that they are not exposed to ML/TF/PF threat through the accounts of the respondent institutions such as being used by shell banks. 20.3 In relation to cross-border correspondent banking and other similar relationships, reporting institutions are required to: 20.4 In relation to “payable-through accounts”, reporting institutions are required to satisfy themselves that the respondent institution: 20.5 Reporting institutions shall not enter into, or continue, correspondent banking relationships with shell banks. Reporting institutions are required to satisfy themselves that respondent institutions do not permit their accounts to be used by shell banks. 21.1 General Where the requirement of cash threshold report applies, reporting institutions are required to submit cash threshold reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. 21.2 Definition 21.2.1 For the purpose of this paragraph: 21.3 Applicability 21.3.1 The requirements for cash threshold reports are applicable to customers and person conducting the transaction in single or multiple cash transactions within the same account in a day for the amount equivalent to RM25,000 and above. 21.3.2 Reporting institutions shall not offset the cash transactions against one another. Where there are deposit and withdrawal transactions, the amount must be aggregated. For example, a deposit of RM20,000 and a withdrawal of RM10,000 must be aggregated to the amount of RM30,000 and hence, must be reported as it exceeds the amount specified by Bank Negara Malaysia. 21.3.3 Transactions referred to under paragraph 21.3.1 include cash contra from an account to different account(s) transacted over-the-counter by any customer. 21.4 Reporting of Cash Threshold Report Reporting institutions are required to establish a reporting system for the submission of cash threshold reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia. 21.4.2 The Compliance Officer of a reporting institution that has been granted access to the Financial Intelligence System (FINS) administered by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia must submit the cash threshold report through the following website: https://fins.bnm.gov.my/ 21.4.3 Reporting institutions must ensure that the cash threshold report is submitted within five working days, from the date of the transaction. 21.4.4 Reporting institutions must ensure all required information specified in Appendix 5 are submitted and all submitted information are accurate and complete. 21.4.5 Submission of a cash threshold report does not preclude the reporting institution’s obligation to submit a suspicious transaction report. 22.1 General 22.1.1 Reporting institutions are required to promptly submit a suspicious transaction report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia whenever the reporting institution suspects or has reasonable grounds to suspect that the transaction or activity (including attempted or proposed), regardless of the amount: (a) appears unusual; (b) has no clear economic purpose; (c) appears illegal; (d) involves proceeds from an unlawful activity or instrumentalities of an offence; or (e) indicates that the customer is involved in ML/TF/PF. 22.1.2 Reporting institutions must provide the required and relevant information that gave rise to doubt in the suspicious transaction report form, which includes but is not limited to the nature or circumstances surrounding the transaction and business background of the person conducting the transaction that is connected to the unlawful activity. 22.1.3 Reporting institutions must establish a reporting system for the submission of suspicious transaction reports. 22.2 Reporting Mechanisms 22.2.1 Reporting institutions are required to ensure that the designated branch or subsidiary compliance officer is responsible for channelling all internal suspicious transaction reports received from the employees of the respective branch or subsidiary to the Compliance Officer at the head office. In the case of employees at the head office, such internal suspicious transaction reports shall be channelled directly to the Compliance Officer. 22.2.2 Reporting institutions are required to have in place policies on the duration upon which internal suspicious transaction reports must be reviewed by the Compliance Officer, including the circumstances when the timeframe can be exceeded, where necessary. 22.2.3 Upon receiving any internal suspicious transaction report whether from the head office, branch or subsidiary, the Compliance Officer must evaluate the grounds for suspicion. Once the suspicion is confirmed, the Compliance Officer must promptly submit the suspicious transaction report. In the case where the Compliance Officer decides that there are no reasonable grounds for suspicion, the Compliance Officer must document and file the decision, supported by the relevant documents. 22.2.4 The Compliance Officer of a reporting institution that has been granted access to FINS, administered by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia must submit the suspicious transaction report through the following website: https://fins.bnm.gov.my/ 22.2.5 For reporting institutions that have not been granted access to FINS, the Compliance Officer must submit the suspicious transaction report, using the specified reporting form, as provided in Bank Negara Malaysia’s AML/CFT website: https://amlcft.bnm.gov.my/aml/cft-policies through any of the following channels: 22.2.6 The Compliance Officer must ensure that the suspicious transaction report is submitted within the next working day, from the date the Compliance Officer establishes the suspicion. 22.2.7 Reporting institutions must ensure that in the course of submitting the suspicious transaction report, utmost care must be undertaken to ensure that such reports are treated with the highest level of confidentiality. The Compliance Officer has the sole discretion and independence to report suspicious transactions. 22.2.8 Reporting institutions must provide additional information and documentation as may be requested by the Financial Intelligence and Enforcement Department, Bank Negara Malaysia and must respond promptly to any further enquiries with regard to any report received under section 14 of the AMLA. 22.2.9 Reporting institutions must ensure that the suspicious transaction reporting mechanism, including management of internal suspicious transaction reports, is operated in a secured environment to maintain confidentiality and preserve secrecy. 22.2.10 Where a suspicious transaction report has been lodged, reporting institutions may update or make a fresh suspicious transaction report as and when a new suspicion arises. 22.3 Triggers for Submission of Suspicious Transaction Report 22.3.1 Reporting institutions are required to establish internal criteria (“red flags”) to detect suspicious transactions. 22.3.2 Reporting institutions must consider submitting a suspicious transaction report when any of its customer’s transactions or attempted transactions fits the reporting institution’s list of “red flags”. 22.3.3 Reporting institutions may refer to Appendix 4 of this policy document for examples of transactions that may constitute triggers for the purpose of reporting suspicious transactions. 22.3.4 Reporting institutions may be guided by examples of suspicious transactions provided by Bank Negara Malaysia or other corresponding competent authorities, supervisory authorities and international organisations. 22.4 Internal Suspicious Transaction Reports 22.4.1 Reporting institutions must ensure that the Compliance Officer maintains a complete file on all internal suspicious transaction reports and any supporting documentary evidence regardless of whether such reports have been submitted. Pursuant to paragraph 22.4.1, if no suspicious transaction reports are submitted to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, the internal suspicious transaction reports and the relevant supporting documentary evidence must be made available to the relevant supervisory authorities upon request. 23.1 Reporting institutions are prohibited from disclosing any suspicious transaction report and where applicable, cash threshold report, as well as any information related to these reports, in accordance with section 14A of the AMLA. This includes any information on the subject or counterparties reported on, such as personal identification, account details, transaction details, the suspected offence or suspicious activities reported on, and any other information contained in the report. 23.3 Where the exceptions under section 14A(3) of the AMLA apply, reporting institutions must have the following measures in place: 23.4 For any disclosure of reports and related information pursuant to section 14A(3)(d) of the AMLA, reporting institutions may make a written application to the Director, Financial Intelligence and Enforcement Department, Bank Negara Malaysia for a written authorisation. 23.5 In making an application under paragraph 23.4, the reporting institution shall provide the following: 24.1 Reporting institutions are required to keep the relevant records including any accounts, files, business correspondence and documents relating to transactions, in particular, those obtained during the CDD process. This includes documents used to verify the identity of customers and beneficial owners, and the results of any analysis undertaken. The records maintained must remain up-to-date and relevant. 24.2 Reporting institutions must ensure that all relevant records relating to transactions which are kept are sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal activity. 24.3 Reporting institutions are required to keep the records for at least six years following the completion of the transaction, the termination of the business relationship or after the date of the occasional transaction. 24.4 In situations where the records are subjected to on-going investigation or prosecution in court, they shall be retained beyond the stipulated retention period until such time reporting institutions are informed by the relevant law enforcement agency that such records are no longer required. 24.5 Reporting institutions are required to retain the relevant records in a form that is admissible as evidence in court pursuant to the Evidence Act 1950, and make such records available to the supervisory authorities and law enforcement agencies in a timely manner. Money Services Business 24.6 For issuance of receipt by money services business, in addition to the obligations specified in paragraphs 24.1 to 24.5, reporting institutions shall comply with the requirements of paragraphs 24.7 and 24.8. 24.7 The following information is required to be recorded in the receipt of transaction with the customer for money-changing/wholesale currency business: 24.8 The following information is required to be recorded in the receipt of transaction with the customer for wire transfer (remittance) business: 25.1 Reporting institutions must have in place an adequate manual/electronic management information system (MIS) to complement its CDD process. The MIS is required to provide the reporting institution with timely information on a regular basis to enable the reporting institution to detect irregularities and/or any suspicious activity. 25.2 The MIS shall be commensurate with the nature, scale and complexity of the reporting institution’s activities and ML/TF/PF risk profile. 25.3 The MIS shall include, at a minimum, information on multiple transactions over a certain period, large transactions, anomalies in transaction patterns, customer’s risk profile and transactions exceeding any internally specified thresholds. 25.4 The MIS shall be able to aggregate customer’s transactions from multiple accounts and/or from different systems. 25.5 The MIS may be integrated with the reporting institution’s information system that contains its customer’s normal transactions or business profile, which is accurate, up-to-date and reliable. 26.1 Reporting institutions are required to produce any information or document requested by the relevant law enforcement agencies, pursuant to any investigation order under Part VI of the AMLA served on the reporting institutions, within a reasonable time frame that has been agreed upon between the investigating officer and the reporting institution. Reporting institutions shall establish the necessary policies, procedures and systems to ensure no undue delay in responding to such orders. 27.1 Definition and Interpretation 27.1.1 For the purpose of paragraph 27, “customer” includes “beneficial owner” and “beneficiary”. “Domestic List” refers to names and particulars of specified entities as declared by the Minister of Home Affairs under the relevant subsidiary legislation made under section 66B(1) of the AMLA. “reporting institution” refers to a reporting institution or a financial institution regulated or supervised by Bank Negara Malaysia, which includes general insurers and general takaful operators. “UNSCR List” refers to names and particulars of persons as designated by the United Nations Security Council (UNSC) or its relevant Sanctions Committee pursuant to the relevant United Nations Security Council Resolutions (UNSCR) and are deemed as specified entities by virtue of section 66C(2) of the AMLA. 27.2 General 27.2.1 Reporting institutions are required to keep updated with the relevant UNSCR relating to combating the financing of terrorism, which includes: 27.3 Maintenance of Sanctions List 27.3.1 Reporting institutions are required to maintain a sanctions database on the UNSCR List. 27.3.2 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon the publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. 27.3.3 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: 27.3.4 The UNSCR List shall remain in the sanctions database until the delisting of the specified entities by the relevant Sanctions Committee is published in the UN website. 27.3.5 Reporting institutions are required to keep updated with the Domestic List as and when published in the Gazette. 27.3.9 The Domestic List shall remain in the sanctions database until the delisting of the specified entities is published in the Gazette. Other requirements 27.3.10 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary and where relevant, to the outsourced service providers or agents. 27.3.11 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. 27.3.12 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 27.4 Sanctions Screening – Customers 27.4.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the Domestic List and UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. 27.4.2 For the avoidance of doubt, sanctions screening obligations apply to all customers and transactions regardless of any thresholds for CDD or features of a product or service. 27.4.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number or passport number or reference number of any other official documents; and (c) date of birth. 27.4.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the: 27.4.5 Reporting institutions in the insurance and takaful sector, shall conduct sanctions screening upon establishing business relationships, during in-force period of the policy and before any payout. 27.4.6 When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each specified entity to prevent unintended omissions. 27.4.7 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to supervisory authorities, upon request. 27.4.8 Reporting institutions are required to ascertain potential matches with UNSCR List or Domestic List are true matches to eliminate false positives. 27.4.9 Reporting institutions are required to make further inquiries for additional information and identification documents from the customer, counter-party or credible sources to assist in determining whether the potential match is a true match. 27.4.10 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a specified entity, in the case of similar or common names. 27.5 Related Parties 27.5.3 In ascertaining whether an entity is owned or controlled by a specified entity, reporting institutions may refer to the definition of a “beneficial owner” in paragraph 6.2, and requirements under paragraph 14 in relation to CDD on beneficial owners. 27.6 Freezing, Blocking and Rejecting - Customers and Related Parties 27.6.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a specified entity and/or related parties: 27.6.2 Reporting institutions are required to reject a potential customer, when there is a positive name match. 27.6.3 The freezing of funds and properties, or blocking of transactions, as the case may be, shall remain in effect until the specified entity is removed from the Domestic List or UNSCR List in accordance with paragraphs 27.3.4 and 27.3.9. 27.6.4 Any dealings with frozen funds or properties, whether by the specified entity, related party, or any interested party, requires prior written authorisation from the Minister of Home Affairs. 27.6.5 The frozen funds and properties, may continue receiving deposits, dividends, interests, bonus, premiums/contributions or other benefits. However, such funds and benefits must remain frozen as long as the specified entity continues to be listed under the Domestic List and UNSCR List. 27.6.6 Reporting institutions may advise the specified entity, a related party or any interested party of the frozen funds or properties, or to the blocked or rejected transactions, to make an application to the Minister of Home Affairs for exemptions on basic and extraordinary expenditures. 27.6.7 Reporting institutions shall only proceed with payments for basic and extraordinary expenditures upon receiving written authorisation from the Minister of Home Affairs. 27.7 Reporting on Positive Name Match 27.7.1 Reporting institutions are required to immediately report upon determination that they are in possession or in control of funds or properties, of any specified entity and/or related party, using the form attached in Appendix 8a, to the: 27.7.3 Notwithstanding paragraph 27.7.2, reporting institutions are not required to submit periodic reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. 27.8 Reporting of Suspicious Transaction 27.8.1 Reporting institutions are required to submit a suspicious transaction report, upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any specified entity or related party. 27.8.3 Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. 28.1 Definition and Interpretation 28.1.1 For the purpose of paragraph 28, “customer” includes “beneficial owner” and “beneficiary”. “reporting institution” refers to a reporting institution or a financial institution regulated or supervised by Bank Negara Malaysia, which includes general insurers and takaful operators. “UNSCR List” refers to names and particulars of persons as designated by the UNSC or its relevant Sanctions Committee and are deemed as designated persons under the relevant Strategic Trade Act 2010 (STA) subsidiary legislation. 28.2 Maintenance of Sanctions List 28.2.1 Reporting institutions are required to keep updated with the list of countries and persons designated as restricted end-users and prohibited end-users under the STA, in accordance with the relevant UNSCR relating to prevention of proliferation of weapons of mass destruction (WMD) as published in the UN website, as and when there are new decisions by the UNSC or its relevant Sanctions Committee as listed in Appendix 6. 28.2.2 Reporting institutions are required to maintain a sanctions database on the UNSCR List. 28.2.3 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN Website. 28.2.4 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: 28.2.5 The UNSCR List shall remain in the sanctions database until the delisting of the designated country or person by the UNSC or its relevant Sanctions Committee is published in the UN website. 28.2.6 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary, and where relevant, to the outsourced service providers or agents. 28.2.7 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. 28.2.8 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 28.3 Sanctions Screening – Customers 28.3.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. 28.3.2 For the avoidance of doubt, sanctions screening obligations apply to all customers and transactions regardless of any thresholds for CDD or features of a product or service. 28.3.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number or passport number or reference number of any other official documents; and (c) date of birth. 28.3.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. 28.3.5 Reporting institutions in the insurance and takaful sector, shall conduct sanctions screening upon establishing business relationships, during in-force period of the policy and before any payout. 28.3.6 When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each designated person to prevent unintended omissions. 28.3.7 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to supervisory authority, upon request. 28.3.8 Reporting institutions are required to ascertain potential matches with UNSCR List are true matches to eliminate false positives. 28.3.10 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a designated person, in the case of similar or common names. 28.4 Related Parties 28.4.1 Reporting institutions shall undertake due diligence on related parties. 28.4.2 In undertaking due diligence on the related parties, reporting institutions are required to examine and analyse past transactions of the designated person and related parties, and maintain records on the analysis of these transactions. 28.4.3 In ascertaining whether an entity is owned or controlled by a designated person, reporting institutions may refer to the definition of “beneficial owner” in paragraph 6.2, and requirements under paragraph 14 in relation to CDD on beneficial owners. 28.5 Freezing, Blocking and Rejecting - Customers and Related Parties 28.5.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a designated person and/or related parties: (a) freeze the customer’s funds, other financial assets and economic resources; or (b) block transactions (where applicable), to prevent the dissipation of the funds, other financial assets and economic resources. 28.5.2 Reporting institutions are required to reject a potential customer, when there is a positive name match. 28.5.3 The freezing of funds, other financial assets and economic resources or blocking of transactions, as the case may be, shall remain in effect until the designated country or person is removed from the UNSCR List in accordance with paragraph 28.2.5. 28.5.4 Any dealings with frozen funds, other financial assets or economic resources, whether by the designated country, person, identified related party or any interested party, requires prior written authorisation from the Strategic Trade Controller under the STA. 28.5.5 The frozen funds, other financial assets or economic resources may continue receiving deposits, dividends, interests, bonuses, premiums / contributions or other benefits. However, such funds and benefits must remain frozen as long as the countries and persons continue to be listed under the UNSCR List. 28.5.6 Reporting institutions may advise the designated person, a related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transactions, to make an application to the Strategic Trade Controller under the STA for exemptions on basic and extraordinary expenditures. 28.5.7 Reporting institutions shall only proceed with the payments for basic and extraordinary expenditures upon receiving written authorisation from the Strategic Trade Controller under the STA. 28.5.8 Reporting institutions may advise the designated person, related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transaction, to make an application to the Strategic Trade Controller under the STA to allow payments due under contracts entered into prior to the designation. 28.5.9 Reporting institutions shall only proceed with the payments due under existing contracts upon receiving prior written authorisation from the Strategic Trade Controller under the STA. 28.6 Reporting on Positive Name Match Reporting institutions are required to immediately report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia on any detection, freezing, blocking or rejection actions undertaken with regard to any identified funds, other financial assets and economic resources or transactions, using the form attached in Appendix 8a. Reporting institutions that have reported positive name matches and are in possession or in control of frozen or blocked funds, other financial assets or economic resources of any designated person and/or related party are required to report any changes to those funds, other financial assets or economic resources, using the form and at intervals as specified in Appendix 8b. Notwithstanding paragraph 28.6.2, reporting institutions are not required to submit periodic reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. Reporting of Suspicious Transaction Reporting institutions are required to submit a suspicious transaction report, upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any designated country, person or related party. 28.7.2 Reporting institutions are also required to submit a suspicious transaction report on any attempted transaction undertaken by designated countries, persons or related parties. Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. Imposition of New Measures 28.8 In the event the UNSC or its relevant Sanctions Committee imposes new measures relating to the prevention of PF or proliferation of WMD, reporting institutions are required to adhere to such measures as specified by Bank Negara Malaysia. 29.1 Definition and Interpretation 29.1.1 For the purpose of paragraph 29, “customer” includes “beneficial owner” and “beneficiary”. “reporting institution” refers to a reporting institution or a financial institution regulated or supervised by Bank Negara Malaysia, which includes general insurers and takaful operators. “UNSCR List” refers to names and particulars of persons as designated by the UNSC or its relevant Sanctions Committee and are deemed as designated persons under the relevant Central Bank of Malaysia Act 2009 (CBA) Regulations. 29.2 Maintenance of Sanctions List 29.2.1 Reporting institutions are required to keep updated with the list of designated countries and persons under the CBA Regulations, in accordance with the relevant UNSCR relating to upholding of peace and security, through prevention of armed conflicts and human rights violations, as published in the UN website, as and when there are new decisions by the UNSC or its relevant Sanctions Committee as listed in Appendix 7. 29.2.2 Reporting institutions are required to maintain a sanctions database on the UNSCR List. 29.2.4 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: https://www.un.org 29.2.5 The UNSCR List shall remain in the sanctions database until the delisting of the designated country or person by the UNSC or its relevant Sanctions Committee is published in the UN website. 29.2.6 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch or subsidiary, and where relevant, to the outsourced service providers or agents. 29.2.7 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. 29.2.8 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database. 29.3 Sanctions Screening – Customers 29.3.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence. 29.3.2 For the avoidance of doubt, sanctions screening obligations apply to all customers and transactions regardless of any thresholds for CDD or features of a product or service. 29.3.3 Reporting institutions shall ensure reasonable measures are taken to adhere to sanctions screening requirements, including obtaining limited data points of the customers during on-boarding or conducting a transaction, to facilitate screening. At a minimum, reporting institutions shall obtain the following information: (a) full name; (b) NRIC number or passport number or reference number of any other official documents; and (c) date of birth. 29.3.4 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay for any positive name match against the UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website. 29.3.5 Reporting institutions in the insurance and takaful sector, shall conduct sanctions screening upon establishing business relationships, during in-force period of the policy and before any payout. 29.3.6 When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each designated person to prevent unintended omissions. 29.3.7 Reporting institutions shall maintain the records on the sanctions screening conducted and make such records available to supervisory authorities, upon request. 29.3.8 Reporting institutions are required to ascertain potential matches with UNSCR List are true matches to eliminate false positives. 29.3.9 Reporting institutions are required to make further inquiries for additional information and identification documents from the customer, counter-party or credible sources, to assist in determining whether it is a true match. 29.3.10 Reporting institutions may direct any query to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia to ascertain whether or not the customer is a designated person, in the case of similar or common names. 29.4 Related Parties 29.4.1 Reporting institutions shall undertake due diligence on related parties. 29.4.3 In ascertaining whether an entity is owned or controlled by a designated person, reporting institutions may refer to the definition of “beneficial owner” in paragraph 6.2 and requirements under paragraph 14 in relation to CDD on beneficial owners. 29.5 Freezing, Blocking and Rejecting – Customers and Related Parties 29.5.1 Reporting institutions are required to conduct the following, immediately and without delay, upon determination and confirmation of a customer’s identity as a designated person and/or related parties: 29.5.2 Reporting institutions are required to reject a potential customer, when there is a positive match. 29.5.3 The freezing of funds, other financial assets and economic resources or blocking of transactions, as the case may be, shall remain in effect until the designated country or person is removed from the UNSCR List in accordance with paragraph 29.2.5. 29.5.4 Any dealings with frozen funds, other financial assets or economic resources, whether by the designated person, related party or any interested party, requires prior written authorisation from the UNSC or its relevant Sanctions Committee. 29.5.5 The frozen funds, other financial assets or economic resources may continue receiving deposits, dividends, interests, bonuses, premiums/contributions or other benefits. However, such funds and benefits must remain frozen as long as the countries and persons continue to be listed under the UNSCR List. 29.5.6 Reporting institutions may advise the designated person, related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transactions, to make an application to the UNSC or its relevant Sanctions Committee for exemptions on basic and extraordinary expenditures. 29.5.7 Reporting institutions shall only proceed with payments for basic and extraordinary expenditures upon receiving written authorisation from the UNSC or its relevant Sanctions Committee. 29.5.8 Reporting institutions may advise the customer, related party or any interested party of the frozen funds, other financial assets or economic resources, or to the blocked or rejected transaction, to make an application to the UNSC or its relevant Sanctions Committee to allow payments due under contracts entered into prior to the designation. 29.5.9 Reporting institutions shall only proceed with the payments due under existing contracts upon receiving prior written authorisation from the UNSC or its relevant Sanctions Committee. 29.6 Reporting on Positive Name Match Reporting institutions are required to immediately report to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia on any detection, freezing, blocking or rejection actions undertaken with regard to any identified funds, other financial assets, economic resources or transactions, using the form as attached in Appendix 8a. Reporting institutions that have reported positive name matches and are in possession or in control of frozen or blocked funds, other financial assets or economic resources of any designated person and/or related party are required to report any changes to those funds, other financial assets or economic resources, using the form and at intervals as specified in Appendix 8b. 29.6.3 Notwithstanding paragraph 29.6.2, reporting institutions are not required to submit periodic reporting on positive name matches involving customers who conduct one-off transactions and where the customer does not maintain an account with the reporting institution. 29.7 Reporting of Suspicious Transaction Reporting institutions are required to submit a suspicious transaction report, upon determination of any positive match or has reason to suspect that the account or transaction is related or linked to, or is used or intended to be used for or by any designated country, person or related party. Reporting institutions are also required to submit a suspicious transaction report on any attempted transaction undertaken by designated countries, persons or related parties. Reporting institutions shall submit a suspicious transaction report if there is any positive name match with individuals or entities listed in other unilateral sanctions lists. 29.8 In the event the UNSC or its relevant Sanctions Committee impose new measures relating to upholding of peace and security, and prevention of conflicts and human rights violations, reporting institutions are required to adhere to such measures as specified by Bank Negara Malaysia. 30.1 Reporting institutions are required to submit the following reports to the Financial Intelligence and Enforcement Department, Bank Negara Malaysia, where applicable: https://amlcft.bnm.gov.my 15 Politically Exposed Persons (PEPs) 16 Reliance on Third Parties 17 Higher Risk Countries 18 Money or Value Transfer Services (MVTS) 19 Wire Transfers 20 Correspondent Banking 21 Cash Threshold Report 22 Suspicious Transaction Report 23 Disclosure of Suspicious Transaction Report, Cash Threshold Report and Related Information 24 Record Keeping 25 Management Information System 26 Enforcement Orders 27 Targeted Financial Sanctions on Terrorism Financing 28 Targeted Financial Sanctions on Proliferation Financing 29 Targeted Financial Sanctions under Other UN-Sanctions Regimes 30 Other Reporting Obligations APPENDICES APPENDIX 1 Guidance on Application of Risk Based Approach 3 4 5 6 7 8 APPENDIX 2 Customer Due Diligence Form for MSBs APPENDIX 3 CDD Measures for E-money APPENDIX 4 Transactions That May Trigger Suspicion APPENDIX 4a For Banking and Deposit-Taking Institutions APPENDIX 4b For Insurance and Takaful APPENDIX 4c For Money Services Business APPENDIX 4d For Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments APPENDIX 5 Required Information in CTR APPENDIX 6 Relevant UNSCR and UNSC Sanctions Committee for Targeted Financial Sanctions on Proliferation Financing APPENDIX 7 Relevant UNSCR and UNSC Sanctions Committee for Targeted Financial Sanctions on Other UN-Sanctions Regimes APPENDIX 8a Template for Reporting upon Determination of Match APPENDIX 8b Template for Periodic Reporting on Positive Name Match APPENDIX 9 Annual Summary Report on Exposure to Customers and Beneficial Owners from High Risk Countries APPENDIX 9a For Banking and Deposit-Taking Institutions APPENDIX 9b For Insurance and Takaful	Public Notice
24 Jan 2024	Keputusan Majlis Penasihat Shariah BNM berhubung Kemudahan Beli Sekarang Bayar Kemudian	https://www.bnm.gov.my/-/sac-ruling-bnpl-bm	https://www.bnm.gov.my/documents/20124/13282254/Keputusan_MPS_berhubung_BNPL_MPS_ke_220_228_231.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/sac-ruling-bnpl-bm&languageId=ms_MY	Reading: Keputusan Majlis Penasihat Shariah BNM berhubung Kemudahan Beli Sekarang Bayar Kemudian Share: Keputusan Majlis Penasihat Shariah BNM berhubung Kemudahan Beli Sekarang Bayar Kemudian Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1200 pada Rabu, 24 Januari 2024 24 Jan 2024 Menurut seksyen 52 Akta Bank Negara Malaysia 2009, Majlis Penasihat Shariah BNM (MPS) pada mesyuarat ke-220 pada 24 Januari 2022, mesyuarat ke-228 pada 28 Februari 2023, dan mesyuarat ke-231 pada 26 Jun 2023, telah membuat keputusan berhubung kemudahan Beli Sekarang Bayar Kemudian (Buy Now Pay Later, BNPL). Keputusan ini bertujuan untuk menjelaskan keperluan Syariah bagi kemudahan BNPL secara Islam. Keputusan MPS ini berkuat kuasa serta-merta sejurus keputusan ini diterbitkan dalam laman sesawang BNM pada 24 Januari 2024 Tarikh Penerbitan 24 Januari 2024 Tarikh Kuat Kuasa 24 Januari 2024 Terpakai pada Pemegang Lesen di bawah Akta Perkhidmatan Kewangan Islam (APKI) Pemegang Lesen di bawah Akta Perkhidmatan Kewangan (APK) Pemegang Lesen di bawah Akta Institusi Kewangan Pembangunan (AIKP) Jabatan yang menerbitkan dokumen Jabatan Sistem Kewangan Islam Dokumen Keputusan Majlis Penasihat Shariah Bank Negara Malaysia berhubung Kemudahan Beli Sekarang Bayar Kemudian (Buy Now Pay Later, BNPL)Bank Negara Malaysia 24 Januari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Keputusan Majlis Penasihat Syariah Bank Negara Malaysia (MPS) Berhubung Kemudahan Beli Sekarang Bayar Kemudian (Buy Now Pay Later, BNPL) Mesyuarat MPS 220, 228 dan 231 2024 1 Keputusan Majlis Penasihat Syariah Bank Negara Malaysia (MPS) Berhubung Kemudahan Beli Sekarang Bayar Kemudian (Buy Now Pay Later, BNPL) Mesyuarat MPS Ke-220 bertarikh 24 Januari 2022, MPS Ke-228 bertarikh 28 Februari 2023 dan MPS Ke-231 bertarikh 26 Jun 2023 Bahagian I: Keputusan MPS, Tarikh Kuat Kuasa dan Pemakaian Menurut seksyen 52 Akta Bank Negara Malaysia 2009, MPS pada mesyuarat ke-220 telah memutuskan bahawa kemudahan Beli Sekarang Bayar Kemudian (Buy Now Pay Later, BNPL) adalah dibenarkan, dengan syarat kemudahan tersebut distruktur menggunakan kontrak Syariah yang bersesuaian bagi memelihara hak dan kewajipan pihak-pihak yang berkontrak. Oleh itu, kelulusan secara bertulis daripada jawatankuasa Syariah bagi penyedia perkhidmatan kewangan Islam (Islamic financial service provider) adalah diperlukan dalam memastikan struktur kemudahan BNPL serta terma dan syarat kontrak mematuhi Syariah. Seterusnya, MPS pada mesyuarat ke-228 dan ke-231 telah memutuskan bahawa kemudahan BNPL yang melibatkan transaksi pembelian emas dan perak (barangan ribawi) yang mempunyai 'illah wang, mesti dilakukan secara lani. Walau bagaimanapun, tempoh penyelesaian sehingga T+2 adalah dibenarkan disebabkan oleh kekangan operasi dan amalan pasaran perniagaan ('urf tijari). Selaras dengan maqasid Syariah, MPS menggalakkan penyedia perkhidmatan kewangan Islam untuk menerapkan amalan bertanggungjawab dalam menilai kemampuan pengguna dengan mengadakan proses penilaian kredit secara menyeluruh. Hal ini bertujuan untuk menggalakkan penggunaan kemudahan BNPL secara berhemah dan bertanggungjawab, serta memastikan kesejahteraan kewangan pengguna agar tidak terjejas. 1.1. Keputusan ini berkuat kuasa serta merta sejurus keputusan ini diterbitkan dalam laman sesawang Bank Negara Malaysia pada 24 Januari 2024 dan terpakai ke atas institusi kewangan berikut: (a) bank-bank Islam berlesen menurut Akta Perkhidmatan Kewangan Islam 2013 (APKI) termasuk yang menjalankan perniagaan perbankan digital Islam; (b) bank berlesen dan bank pelaburan berlesen yang diluluskan di bawah seksyen 15(1) Akta Perkhidmatan Kewangan 2013 (APK) untuk menjalankan perniagaan kewangan Islam; dan (c) institusi ditetapkan yang diluluskan di bawah seksyen 33B(1) Akta Institusi Kewangan Pembangunan 2002 (AIKP) untuk menjalankan perniagaan kewangan Islam. Bagi maksud keputusan ini, mana-mana orang di atas hendaklah dirujuk sebagai "penyedia perkhidmatan kewangan Islam (PPK Islam)". 1.2. Selaras dengan seksyen 28(1) dan (2) APKI dan seksyen 33D(1) dan (2) AIKP, mengikut mana-mana yang berkenaan, PPK Islam dikehendaki mematuhi keputusan ini kerana pematuhan dengan apa-apa keputusan MPS berkenaan dengan sebarang matlamat tertentu dan pengendalian perniagaan, hal ehwal atau aktiviti PPK Islam tersebut adalah disifatkan sebagai pematuhan kepada Syariah. Mesyuarat MPS 220, 228 dan 231 2024 2 Bahagian II: Latar Belakang 2.1. Secara umumnya, kemudahan BNPL membolehkan pengguna membeli barangan atau perkhidmatan daripada peniaga dengan pilihan untuk menangguhkan pembayaran dan/atau membahagikan harga belian kepada ansuran bulanan. Penyedia BNPL kebiasaannya membuat pendahuluan penyelesaian penuh atau separa kepada peniaga bagi pihak pengguna, dan seterusnya pengguna akan membuat pembayaran kepada penyedia BNPL berdasarkan terma dan syarat yang dipersetujui1. 2.2. Dari sudut Syariah, kemudahan BNPL boleh dianggap sebagai lanjutan kontrak jualan tradisional2 sedia ada yang dibenarkan dalam Islam, dengan syarat transaksi penjualan dijalankan selaras dengan prinsip Syariah. 2.3. Buat masa ini, kemudahan BNPL yang ditawarkan oleh penyedia bukan bank tidak termasuk dalam bidang kuasa pengawalseliaan Bank atau mana-mana badan kawal selia. Cadangan penggubalan Akta Kredit Pengguna (Consumer Credit Act, CCA) akan membentuk Lembaga Pemantauan Kredit Pengguna (Consumer Credit Oversight Board, CCOB) sebagai pihak berkuasa kompeten dan bebas untuk mengawal selia, antara lain, BNPL Islamik. 2.4. Kemudahan BNPL membolehkan peniaga untuk mendapatkan penyelesaian (settlement) dengan lebih pantas, serta membolehkan pengguna menangguhkan pembayaran bagi pembelian barangan dan perkhidmatan tanpa tertakluk kepada kadar keuntungan, dengan syarat bayaran ansuran dilakukan tepat pada masanya. Terdapat peningkatan permintaan yang sederhana bagi kemudahan BNPL, dan disokong oleh peningkatan bilangan penyedia BNPL bukan bank yang memasuki ruang pasaran BNPL. Walaupun institusi kewangan berlesen masih belum menawarkan kemudahan BNPL pada masa ini, institusi kewangan berlesen boleh menawarkan kemudahan BNPL mereka secara mandiri atau melalui usaha sama dengan penyedia BNPL yang lain (sedia ada). 2.5. Secara ringkas, kemudahan BNPL (sedia ada) beroperasi mengikut struktur berikut: Ilustrasi: Contoh Struktur Kemudahan BNPL 1 Berdasarkan maklum balas yang diterima oleh Bank daripada industri. 2 Rujukan dibuat kepada perenggan 4.1. Mesyuarat MPS 220, 228 dan 231 2024 3 Isu syariah 2.6. Berdasarkan struktur di atas, MPS telah membincangkan aspek-aspek Syariah yang utama dalam penstrukturan kemudahan BNPL patuh Syariah bagi PPK Islam. Bahagian III: Perbincangan Utama Memastikan Pematuhan Syariah bagi kemudahan BNPL Islamik 3.1. MPS mengambil maklum bahawa terdapat pelbagai jenis model operasi yang diguna pakai oleh penyedia BNPL yang berbeza di pasaran global dan domestik. Di samping terus menyokong dan membuka ruang kepada inovasi, MPS menghendaki BNPL Islamik untuk mematuhi perkara berikut untuk memastikan struktur operasi dan model perniagaan kemudahan BNPL selaras dengan prinsip Syariah: a. Penggunaan kontrak Syariah secara kolektif3 sebagai struktur asas bagi kemudahan BNPL mesti mematuhi keperluan Syariah yang terpakai bagi setiap kontrak Syariah dan kontrak gabungan tersebut4; b. Penggunaan kontrak Syariah sedemikian dalam kemudahan BNPL mesti memelihara objektif kontrak (muqtada 'aqad) yang utama; c. Kontrak Syariah yang digunakan dalam kemudahan BNPL mesti mempertimbangkan hak dan kewajipan pihak-pihak yang berkontrak dengan sewajarnya; d. Penggunaan kontrak Syariah dalam penawaran ciri yang pelbagai dalam kemudahan BNPL tidak boleh distruktur dengan cara yang menimbulkan amalan riba; dan e. Sekiranya caj pembayaran lewat dikenakan, ia mesti mencerminkan kos sebenar yang ditanggung kesan daripada pembayaran lewat dan/atau keingkaran oleh pengguna, kerana ia dianggap sebagai pampasan (ta'widh). Penentuan komponen kos tersebut hendaklah mengikut keperluan yang ditetapkan oleh Bank dan diluluskan oleh jawatankuasa Syariah masing-masing. 3.2. Sekiranya kemudahan BNPL patuh Syariah ditawarkan di platform yang juga menjual barangan dan perkhidmatan yang tidak patuh Syariah, kemudahan BNPL tersebut tidak dianggap sebagai tidak patuh Syariah secara automatik, namun ia tertakluk kepada perkara berikut: 3 Penggunaan kolektif kontrak Syariah dianggap sebagai innominated contract ('uqud ghair musamma) dalam teks klasik, iaitu kontrak Syariah yang tidak mempunyai ketetapan dan klasifikasi khusus dalam penulisan fiqh klasik. (Mustafa al-Zarqa', al-Madkhal al-Fiqhi al- 'Am, Dar al-Qalam, Damsyik, 2004, ms. 605 هي التي لم تسم باسم خاص يميزها، أو لم يرتب لها التشريع أحكاما خاصة به ). 4 Rujukan dibuat kepada perenggan 4.5 dokumen ini. 1. Pengguna membeli barang daripada peniaga menggunakan kemudahan BNPL. 2. Penyedia BNPL membuat penyelesaian penuh atau separa bagi pembelian antara pengguna dengan peniaga, tertakluk kepada pengaturan antara penyedia BNPL dan peniaga. 3. Penyedia BNPL mengenakan fi kepada peniaga berdasarkan kontrak perjanjian antara penyedia BNPL dengan peniaga. 4. Pengguna membayar kepada penyedia BNPL berdasarkan terma dan syarat kontrak yang dipersetujui, termasuk tempoh ansuran, serta struktur fi dan caj. Mesyuarat MPS 220, 228 dan 231 2024 4 a. Transaksi yang dijalankan menggunakan kemudahan BNPL patuh Syariah hanya terhad kepada barangan dan perkhidmatan patuh Syariah sahaja; b. Jawatankuasa Syariah PPK Islam masing-masing telah meluluskan penawaran kemudahan BNPL patuh Syariah di platform tersebut; dan c. Kemudahan BNPL patuh Syariah telah meletakkan langkah pencegahan yang sewajarnya untuk memastikan tiada transaksi yang melibatkan barangan dan perkhidmatan tidak patuh syariah. 3.3. PPK Islam yang menawarkan perkhidmatan jual beli emas dan perak (barangan ribawi) yang mempunyai 'illah wang, mestilah mematuhi syarat-syarat berikut: a. Urus niaga mesti dijalankan secara lani. Walau bagaimanapun, tempoh penyelesaian sehingga T+2 adalah dibenarkan disebabkan kekangan operasi dan amalan pasaran perniagaan ('urf tijari)5; b. Pemilikan emas dan perak yang dibeli oleh pengguna mesti berlaku pada masa transaksi, sama ada secara fizikal (haqiqi) atau konstruktif (hukmi)6. 3.4. Jawatankuasa Syariah PPK Islam bertanggungjawab memberikan nasihat yang objektif dan kukuh kepada PPK Islam untuk memastikan matlamat dan operasi, perniagaan, hal ehwal dan aktiviti tersebut mematuhi Syariah. Saranan ke arah penggunaan kemudahan BNPL secara bertanggungjawab dan berhemah 3.5. Secara tidak langsung, akses yang mudah dan proses kelulusan kredit yang cepat bagi kemudahan BNPL boleh mempengaruhi pengguna untuk berbelanja pada barangan dan perkhidmatan melebihi kemampuan pengguna. Memandangkan terdapat kekurangan laporan biro kredit pusat yang diperoleh daripada penyedia BNPL bukan bank untuk kemudahan BNPL, PPK Islam mungkin menghadapi cabaran dalam menilai pendedahan kredit keseluruhan pengguna, sekaligus mendedahkan pengguna kepada risiko mengumpul hutang tertunggak yang lebih besar, kesan daripada penggunaan BNPL yang diperolehi melalui pelbagai penyedia BNPL. Tanpa pengurusan kredit dan disiplin kewangan yang betul, perkara ini boleh menimbulkan risiko kepada kesejahteraan kewangan pengguna7. 3.6. Berdasarkan perkara di atas, dan selaras dengan prinsip maqasid syariah yang menggalakkan pemeliharaan harta (hifz al-mal), terutamanya dalam usaha mengekang pengambilan hutang secara berlebihan melebihi kemampuan kewangan seseorang, MPS menggesa perkara berikut: i. PPK Islam mestilah mengamalkan amalan perniagaan yang bertanggungjawab, di mana proses penilaian kredit dan kemampuan kewangan pengguna harus dilakukan dengan teliti dan mengambil kira tahap keberhutangan dan pendapatan pengguna sedia ada. PPK Islam hendaklah memastikan proses-proses tersebut mematuhi piawaian yang ditetapkan oleh Bank; dan ii. Amalan yang bertanggungjawab dalam menawarkan kemudahan BNPL, seperti menyediakan pendedahan (disclosure) yang jelas dan tepat pada masanya kepada 5 Kebenaran yang sama diberikan kepada transaksi bai' al-sarf (pertukaran mata wang), di mana pertukaran boleh dilanjutkan melebihi sesi kontrak berdasarkan amalan pasaran perniagaan ('urf tijari) akibat kekangan operasi. 6 Terutama bagi jual beli emas dan perak yang mempunyai 'illah wang secara dalam talian. Keperluan Syariah bagi pemilikan konstruktif mesti berlaku iaitu, pemindahan hak pemilikan (takhliyyah), hak faedah (tamkin) dan hak liabiliti (dhaman). 7 MPS telah dibentangkan dengan data risiko berkaitan kelakuan pasaran dan kelakuan buruk pembayaran pada peringkat global yang menunjukkan peratusan rendah pengguna BNPL yang telah terlepas pembayaran lebih daripada satu kali. Mesyuarat MPS 220, 228 dan 231 2024 5 pengguna, akan membantu pengguna membuat keputusan yang tepat dan seterusnya menggalakkan penggunaan kemudahan BNPL secara bertanggungjawab dan berhemah. Perenggan di atas bertujuan terutamanya untuk membendung potensi kesan buruk kewangan kepada pengguna. Bahagian IV: Asas Pertimbangan Kemudahan BNPL adalah perkembangan dari kontrak jualan tradisional dengan pembayaran tertangguh 4.1. Amalan jual beli dengan bayaran tertangguh (bai' bithaman ajil) dan bayaran tertangguh mengikut jadual tetap (bai' taqsith) diiktiraf sebagai suatu bentuk transaksi perdagangan sejak zaman Nabi (ملسو هيلع هللا ىلص). طعاما إىل أجل ورهنه درعا من حديداشرتى رسول هللا صلى هللا عليه وسلم من يهودي : َعْن َعاِئَشَة، قَاَلتْ "A'isha, isteri Nabi (ملسو هيلع هللا ىلص ) meriwayatkan: Nabi (ملسو هيلع هللا ىلص ) membeli makanan daripada seorang Yahudi secara kredit dan menggadaikan perisai besi baginda kepadanya" 8 4.2. Bagi bai' taqsith, para ulama9 yang mengharuskan berpandangan bahawa hutang yang dibenarkan berada dalam liabiliti/ kewajipan (zimmah) seseorang untuk satu tempoh, hendaklah juga, dibenarkan berbuat demikian dalam dua tempoh atau lebih. 4.3. Keberhutangan seseorang dalam transaksi tersebut mesti dibuktikan dengan dokumentasi yang bersesuaian beserta ketetapan yang jelas pada peringkat permulaan mengenai tempoh, jadual pembayaran dan jumlah ansuran. Ini selaras dengan ayat berikut: ى فَاْكتُ ُبوهُ ُتْم ِبَدْيٍن ِإىَل َأَجٍل ُمَسمًّ ََي أَي َُّها الَِّذيَن آَمُنوا ِإَذا َتَدايَ ن ْ "Wahai orang yang beriman! apabila kamu menjalankan sesuatu urusan berkait dengan hutang piutang yang diberi tempoh masa yang tertentu, maka hendaklah kamu menulis (hutang dan masa bayaran)”10 Fleksibiliti diberikan bagi menstruktur inovasi produk baharu dengan syarat-syarat tertentu 4.4. Fleksibiliti yang diberikan oleh Syariah membolehkan kemunculan pelbagai inovasi produk komersial yang boleh distruktur mengikut kontrak Syariah bersesuaian, untuk memastikan pematuhan Syariah serta memelihara hak dan kewajipan pihak-pihak yang berkontrak. Ini berdasarkan kaedah fiqh berikut: العقود والشروط اجلواز والصحةاألصل يف "Prinsip asas dalam perihal akad dan syarat adalah keharusan dan kesahihan"11 8 Imam al-Bukhari, Shahih Bukhari, دار األرقم للنشر والتوزيع، الكويت, v.3, p. 86, hadis no. 2252 dan Imam Muslim, Shahih Muslim , مطبعة عيسى البابي القاهرة وشركاه، الحلبي , jilid 3, ms. 1226, hadis no 1603 . 9 Mazhab Syafi’i dan Maliki dalam pendapat utama mereka berdasarkan Raudhatul al-Talibin, jilid 4, ms.11, Asna al-Matholib, jilid 2, ms 126, al-Mughni, jilid 4, ms 338, al-Isyraf 'ala al-Masa'il al-Khilaf, jilid 1, ms 280, al-Muhazzab, jilid 1, ms 307. 10 Surah Al-Baqarah, ayat no. 282. 11 Muhammad Mustafa Al-Zuhayli (2006), Al-Qawa'id al-Fiqhiyyah wa Tatbiqatuha fi al-Mazahib al-'Arba'ah, Damsyik, Dar al-Fikr, jilid 2, ms 815. Mesyuarat MPS 220, 228 dan 231 2024 6 4.5. Dalam menggunakan kontrak Syariah yang bersesuaian, penggunaan beberapa kontrak Syariah secara kolektif dalam satu produk adalah dibenarkan12 tertakluk kepada syarat-syarat berikut: (i) setiap kontrak yang diguna pakai dibenarkan oleh Syariah; (ii) tiada petunjuk Syariah yang jelas mengenai larangan untuk digunakan secara kolektif13, seperti larangan menggabungkan kontrak jualan dengan pinjaman (bai' wa salaf); (iii) tidak ada percanggahan antara prinsip Syariah yang mengawal setiap kontrak, seperti hibah dan sewaan aset yang sama kepada penerima sama secara serentak. 4.6. Penggunaan kontrak Syariah secara kolektif bertujuan memenuhi kehendak dan keperluan pihak-pihak yang berkontrak serta mencerminkan mekanisme operasi sebenar sesuatu produk14. Kemunculan kontrak sedemikian melalui ijtihad cendekiawan Syariah dapat memenuhi keperluan ekonomi yang berkembang dan menggalakkan inovasi dalam kewangan Islam, di samping mematuhi prinsip Syariah yang berkaitan secara konsisten. Transaksi emas dan perak 4.7. Transaksi pembelian serta penjualan emas dan perak (barangan ribawi) dengan mata wang hendaklah dilakukan secara lani berpandukan hadis berikut: َهِب َواْلِفضَُّة ِِبْلِفضَِّة َواْلُُبُّ قَاَل َرُسوُل اَّللَِّ صلى هللا عليه وسلم " :ُعَباَدَة ْبِن الصَّاِمِت، قَالَ َعْن َهُب ِِبلذَّ الذَّ ِعرِي َوالتَّْمُر ِِبلتَّْمِر َواْلِمْلُح ِِبْلِمْلِح ِمْثاًل ِبِْثٍل َسَواًء ِبَسَواٍء َيًدا ِعرُي ِِبلشَّ بَِيٍد فَِإَذا اْختَ َلَفْت َهِذِه ِِبْلُُبِر َوالشَّ ُتمْ ِإَذا َكاَن َيًدا بَِيدٍ اأَلْصَناُف فَِبيُعوا َكْيَف ِشئ ْ "Ubadah Ibn Samit meriwayatkan: Nabi (ملسو هيلع هللا ىلص) bersabda: emas hendaklah dibayar dengan emas, perak dengan perak, gandum dengan gandum, barli dengan barli, kurma dengan kurma, garam dengan garam, apabila ia sama jenisnya, hendaklah sama kadar atau timbangannya dan hendaklah dibayar secara lani. Sekiranya berlainan jenis, maka berjual-belilah mengikut kehendak kamu tetapi dengan syarat pertukaran dua barangan tersebut berlaku secara lani”15 4.8. Walau bagaimanapun, kekangan operasi dalam melaksanakan penyelesaian secara lani dalam keadaan tertentu turut diambil kira berdasarkan kaedah fiqh berikut: التيسري جتلب املشقة 16Kesukaran membawa kepada keringanan” " 4.9. Amalan pasaran perniagaan ('urf tijari) diiktiraf dalam pertimbangan keputusan Syariah berdasarkan kaedah fiqh berikut: 12 Pandangan ini selaras dengan keputusan MPS pada Mesyuarat ke-140 dan 166 pada 28 Oktober 2013 dan 23 Februari 2016 yang menetapkan kebenaran untuk menggabungkan beberapa kontrak Syariah dalam satu perjanjian induk. 13 Hasan Ali al-Syazili, Ijtima' al-'Uqud al-Mukhtalifah fi 'Aqd Wahid, dalam A'maal al-Nadwah al-Fiqhiyyah al-Khamisah li Bait Tamwil al- Kuwaiti, Bait al-Tamwil al-Kuwaiti, 1998, ms. 506. 14 Mustafa al-Zarqa', al-Madkhal al-Fiqhi al-'Am, Dar al-Qalam, Damsyik, 2004, ms. 605. 15 Imam Muslim, Shahih Muslim, مطبعة عيسى البابي الحلبي وشركاه، القاهرة, jilid 3, ms.1211, hadis no. 1587. 16 Al-Suyuti, Al-Asybah wa al-Naza'ir, Dar al-Kutub al-'Ilmiyyah, 1983, ms. 76-77. Mesyuarat MPS 220, 228 dan 231 2024 7 مة العادة حمكَّ "Adat adalah asas penghakiman" Saranan ke arah amalan bertanggungjawab dan tingkah laku kewangan berhemat selaras dengan maqasid Syariah 4.10. Walaupun Syariah mengiktiraf konsep hutang, adalah digalakkan untuk amalan hutang dijalankan dengan cara yang bertanggungjawab dari perspektif pemiutang dan penghutang. Ini termasuk tanggungjawab pemberi pinjaman untuk membuat penilaian yang munasabah sama ada objektif peminjam untuk mendapatkan hutang sepadan dengan kemampuan kewangan. Nabi ( ملسو هيلع هللا ىلص) telah menunjukkan teladan baik dalam perihal melunaskan komitmen kewangan dan keupayaan menunaikan kewajipan hutang: ِه، قَاَل اْستَ ْقَرَض ِمّنِر النَِّبُّ صلى هللا عليه َعْن ِإْْسَاِعيَل ْبِن ِإبْ َراِهيَم ْبِن َعْبِد اَّللَِّ ْبِن َأِب رَبِيَعَة، َعْن َأبِيِه، َعْن َجدِر َا َجزَ ُ َلَك يف َأْهِلَك َوَماِلَك ِإَّنَّ َلِف اْْلَْمُد َواأَلَداءوسلم َأْربَِعنَي أَْلًفا َفَجاَءُه َماٌل َفَدفَ َعُه ِإىَلَّ َوقَاَل َِبَرَك اَّللَّ اُء السَّ "Diriwayatkan daripada Isma'il bin Ibrahim bin 'Abdullah bin Abi Rabi'ah, daripada bapanya, daripada datuknya berkata: Nabi ( ملسو هيلع هللا ىلص) meminjam empat puluh ribu daripada aku, lalu baginda menerima sejumlah harta, lalu baginda membayar kembali kepada aku sambil berkata: 'Semoga Allah memberkati keluarga dan harta kamu, sesungguhnya ganjaran untuk pinjaman (salaf) adalah kesyukuran dan penyelesaian hutang"17 4.11. Syariah menggalakkan tingkah laku penggunaan kemudahan kewangan secara bertanggungjawab ke arah mencapai manfaat dan pencegahan kemudaratan kepada individu. Oleh itu, adalah penting untuk seseorang mengetahui keupayaan kewangan serta mengelakkan keberhutangan yang melebihi keperluan dan keupayaan sebenar. Ini selaras dengan ayat berikut: ِلَك قَ َواًما َوٱلَِّذيَن ِإَذٓا أَنَفُقوْا ََلْ ُيْسرُِفوْا َوََلْ يَ ْقرُتُوْا وََكاَن َبنْيَ ذََٰ "Dan juga mereka (iaitu hamba Allah) yang apabila membelanjakan hartanya, tidak melampaui batas dan tidak kedekut (bakhil) dan (sebaliknya) perbelanjaan mereka adalah sederhana di antara kedua- dua itu”18 4.12. Secara kolektif, penerapan amalan bertanggungjawab dan tingkah laku kewangan yang berhemat akhirnya, akan menyumbang kepada transaksi perdagangan yang tidak memudaratkan pemiutang dan penghutang. Ini bersesuaian dengan kaedah fiqh berikut: ارَ َ الَ َضر َر َو الَ ََضَ " Tiada kemudaratan dan tidak boleh memudaratkan (dalam Islam)"19 17Imam Ahmad An-Nasa'i, Kitab al-Buyu' dalam Sunan An-Nasa'I, ms. 235. 18 Surah Al-Furqan, ayat no. 67. 19 Ahmad al-Zarqa', Syarh al-Qawaid al-Fiqhiyyah, Dar al-Qalam, 1985, ms. 165. Mesyuarat MPS 220, 228 dan 231 2024 8 Bahagian V: Implikasi Keputusan MPS 5.1. Keputusan MPS memberikan kejelasan berhubung pertimbangan utama Syariah yang mesti dipenuhi oleh PPK Islam yang berhasrat untuk menawarkan kemudahan BNPL patuh Syariah, seperti perenggan 1.1. Ini bagi memastikan struktur produk yang ditawarkan patuh Syariah secara keseluruhan. 5.2. Penyedia BNPL Islamik bukan bank yang berhasrat untuk menawarkan kemudahan BNPL patuh Syariah digalakkan merujuk kepada keputusan MPS sebagai panduan serta mendidik pengguna mengenai intipati kemudahan BNPL patuh Syariah.	Public Notice
23 Jan 2024	Senarai Amaran Pengguna Kewangan telah dikemaskini	https://www.bnm.gov.my/-/fca-update-240123-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/fca-update-240123-bm&languageId=ms_MY	Reading: Senarai Amaran Pengguna Kewangan telah dikemaskini Share: Senarai Amaran Pengguna Kewangan telah dikemaskini Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1002 pada Selasa, 23 Januari 2024 23 Jan 2024 Bank Negara Malaysia (BNM) telah mengemas kini Senarai Amaran Pengguna Kewangan. Senarai ini terdiri daripada syarikat dan laman web yang tidak dibenarkan atau diluluskan di bawah undang-undang dan peraturan berkaitan yang ditadbir oleh BNM. Sila maklum bahawa senarai ini tidak lengkap dan hanya berfungsi sebagai panduan kepada orang ramai berdasarkan maklumat dan pertanyaan yang diterima oleh BNM. Syarikat yang berikut telah ditambahkan ke dalam senarai: Opai FX Aneka Construction Trading Al Ihsan Robo Capital Al Ihsan Sila ambil maklum bahawa maklumat terkini berkenaan dengan Skim Pelaburan SMMG dan OctaFX juga telah dikemas kini dalam Senarai Amaran Pengguna Kewangan. Senarai ini akan dikemas kini secara berkala untuk rujukan orang ramai. Bagi mendapatkan senarai yang telah dikemas kini, sila layari: bnm.gov.my/fca Bank Negara Malaysia 23 Januari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	null	Public Notice
18 Jan 2024	Waspada terhadap hantaran yang menyalahgunakan nama, logo atau nama pegawai kanan BNM	https://www.bnm.gov.my/-/scam-alert-240118-bm	null	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/scam-alert-240118-bm&languageId=ms_MY	Reading: Waspada terhadap hantaran yang menyalahgunakan nama, logo atau nama pegawai kanan BNM Share: 2 Waspada terhadap hantaran yang menyalahgunakan nama, logo atau nama pegawai kanan BNM Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 2130 pada Khamis, 18 Januari 2024 18 Jan 2024 Jangan terpedaya dengan video, hantaran atau mesej yang menyalahgunakan nama, logo atau nama pegawai kanan Bank Negara Malaysia. Tindakan akan diambil terhadap pelaku. Sentiasa ingat, BNM TIDAK MEMPROMOSIKAN mana-mana skim pelaburan. Jika ragu-ragu, hubungi BNMLINK melalui bnmlink.bnm.gov.my #AmaranScam #ScamAlert #JanganKenaScam #SoalSekatSebar #AndaLebihBijak Bank Negara Malaysia 18 Januari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	null	Public Notice
17 Jan 2024	Draf Dedahan Perniagaan Pemprosesan Mata Wang	https://www.bnm.gov.my/-/ed-cpb-bm	https://www.bnm.gov.my/documents/20124/13204565/ed_currency_processing_Jan_2024.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/ed-cpb-bm&languageId=ms_MY	Reading: Draf Dedahan Perniagaan Pemprosesan Mata Wang Share: Draf Dedahan Perniagaan Pemprosesan Mata Wang Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1140 pada Rabu, 17 Januari 2024 17 Jan 2024 Draf Dedahan ini menetapkan cadangan standard dan garis panduan yang perlu diikuti oleh Pemproses Mata Wang Berdaftar (Registered Currency Processors, RCP) bagi memastikan amalan yang berhemat, profesionalisme, integriti, akauntabiliti dan ketelusan perniagaan pemprosesan mata wang. Draf dedahan ini merangkumi bidang utama yang berkaitan seperti yang berikut: tadbir urus; keperluan operasi; kawalan dalaman; dan keperluan teknologi maklumat (IT). Bank Negara Malaysia (BNM) mengundang maklum balas bertulis mengenai cadangan dalam draf dedahan ini, termasuk cadangan untuk isu-isu khusus, bidang-bidang yang perlu dijelaskan atau dihuraikan dengan lebih lanjut, serta sebarang cadangan alternatif yang perlu dipertimbangkan oleh BNM. Maklum balas bertulis perlu disokong dengan rasional yang jelas berserta bukti atau ilustrasi yang sesuai untuk memudahkan semakan draf dedahan ini secara berkesan. Maklum balas hendaklah dikemukakan secara elektronik kepada BNM selewat-lewatnya pada 15 Mac 2024 melalui [email protected]. Maklum balas yang diterima boleh didedahkan kepada umum secara tanpa nama melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau sebahagian daripadanya. Tarikh Penerbitan 17 Januari 2024 Jabatan yang Menerbitkan Dokumen Jabatan Mata Wang Dokumen Draf Dedahan Perniagaan Pemprosesan Mata Wang Bank Negara Malaysia 17 Januari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	ed_currency processing_Jan 2024 Issued on: 17 January 2024 BNM/RH/ED 041-1 Currency Processing Business Exposure Draft Applicable to: Registered currency processors Currency Processing Business Issued on: 17 January 2024 BNM/RH/ED 041-1 This exposure draft outlines the proposed standards and guidelines that Registered Currency Processors (RCPs) must observe to ensure prudent practice, professionalism, integrity, accountability and transparency of currency processing businesses. The exposure draft covers related key areas as follows– (a) governance; (b) operational requirements; (c) internal control; and (d) information technology (IT) requirements. Bank Negara Malaysia (the Bank) wishes to engage with RCPs to ensure the effectiveness and comprehensiveness of this document. For this, the Bank invites written feedback on the proposals in this exposure draft, including suggestions for specific issues, areas to be clarified or elaborated further, and alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale, accompanying evidence or appropriate illustrations to facilitate an effective review of this exposure draft. Responses must be submitted electronically to the Bank by 15 March 2024 to [email protected]. Submissions received may be made public on anonymous basis unless confidentiality is specifically requested for the whole or part of the submission. Any queries may be directed to the following officers: (a) Nik Mohd Assif Fathi – [email protected] (b) Nor Syafieza Temin – [email protected] mailto:[email protected] mailto:[email protected] Page 1 of 26 Currency Processing Business Issued on: 17 January 2024 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................ 2 1. Introduction.................................................................................................. 2 2. Applicability ................................................................................................. 2 3. Legal Provisions .......................................................................................... 2 4. Effective Date .............................................................................................. 2 5. Interpretation ............................................................................................... 3 6. Related legal instruments and policy documents ........................................ 6 PART B REGISTRATION REQUIREMENTS ...................................................... 7 7. Currency (Registration Requirement) .......................................................... 7 PART C GOVERNANCE ..................................................................................... 7 8. Governance arrangements .......................................................................... 7 9. The Board.................................................................................................... 7 10. Senior management .................................................................................. 10 11. Fit and proper ............................................................................................ 11 PART D OPERATIONAL REQUIREMENTS ..................................................... 12 12. Opening and closing of cash processing centre (CPC) ............................. 12 13. Outsourcing arrangement .......................................................................... 12 PART E RISK MANAGEMENT AND INTERNAL CONTROL ........................... 15 14. Risk management framework .................................................................... 15 15. Internal control ........................................................................................... 16 16. Fraud risk management ............................................................................ 20 PART F Information Technology (IT) Requirements ..................................... 21 17. Technology risk management ................................................................... 21 18. Technology operations management ........................................................ 22 PART G Other Requirements .......................................................................... 25 19. Other Compliance Requirements .............................................................. 25 Page 2 of 26 Currency Processing Business Issued on: 17 January 2024 PART A OVERVIEW 1. Introduction 1.1 Currency processing business is governed by the Currency Act 2020 (CA), an Act which provides for the management of currency of Malaysia, regulation of currency processing business and currency processing activities, and for other related matters. 1.2 A registered currency processor (RCP) performs a major fraction of the currency ecosystem by carrying on currency processing business. Hence, an RCP assumes an important role in ensuring the quality and integrity of currency in circulation. 1.3 Due to the increasingly important role played by an RCP in the currency ecosystem, Bank Negara Malaysia (the Bank) intends to specify regulatory requirements which must be adhered to by an RCP to promote prudent practice, professionalism, integrity, accountability and transparency, as well as to recommend best practices to be followed. 1.4 This policy document sets the minimum standards to be observed by an RCP and recommended best practices in the following areas– (a) governance; (b) operational requirements; (c) risk management and internal control; and (d) information technology (IT) requirements. 2. Applicability 2.1 This policy document is applicable to registered currency processor as defined in paragraph 5.2. 3. Legal Provisions 3.1 The requirements in this policy document are specified pursuant to sections 33, 41, 61 and 63 of the CA. 3.2 The guidelines in this policy document are issued pursuant to section 62 of the CA. 4. Effective Date 4.1 This policy document comes into effect on XX XXXX 2024, except for Parts C and F which come into effect on XX XXXX 2025. Page 3 of 26 Currency Processing Business Issued on: 17 January 2024 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the CA unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretive, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendation that are encouraged to be adopted; “active politician” refers to an individual in or outside Malaysia who - (a) is a member of any national or state legislative body; or (b) is an office bearer of, or holds any similar position in a political party; “board” refers to the board of directors of an RCP including a committee of the board where responsibilities of the board as set out in this policy document have been delegated to such a committee; “business continuity management” or “BCM” refers to an enterprise-wide framework that encapsulates policies, processes and practices that ensure the continuous functioning of an RCP in the event of disruption. It also prepares the RCP to resume and restore its operations and services in a timely manner in the event of disruption, thus minimising any material impact; “business continuity plan” or “BCP” refers to a comprehensive action plan that documents the processes, procedures, systems and resources necessary to resume and restore the operations and services of an RCP in the event of disruption; “control function” refers to a function that has a responsibility independent from business lines to provide objective assessments, reporting and assurance on the effectiveness of policies and operations, and its compliance with legal and regulatory obligations. This includes the risk management function, the compliance function and the internal audit function or equivalent functions that perform similar roles of risk management, compliance and internal audit, by whatever name called; Page 4 of 26 Currency Processing Business Issued on: 17 January 2024 “critical business functions” refer to business functions undertaken by RCPs, where the failure or discontinuance of such business functions is likely to– (a) critically impact the RCP financially or non-financially; and (b) impair the RCP’s provision of RCP’s services to customers. “critical system” refers to any application system that supports the provision of the RCP’s services, where failure of the system has the potential to significantly impair the RCP’s provision of services to customers, business operations, financial position, reputation, or compliance with applicable laws and regulatory requirements; “currency processing business” means the business of– (a) collecting currency note or currency coin; (b) sorting currency note or currency coin by authenticity and quality; and (c) packing currency note or currency coin by quality, quantity and denomination. by a person for or on behalf of another person or any activity declared as currency processing business under section 23 of the CA; “customer” refers to any person to whom an RCP renders the services of currency processing; “customer information” refers to any information relating to the affairs or the account of any customer of a RCP in whatever form; “disaster recovery plan” or “DRP” refers to a comprehensive action plan that documents the procedures and processes that are necessary to recover and restore information technology (IT) systems, applications and data in the event of a disruption; “executive director” refers to a director who has management responsibilities in the RCP; “framework” refers to the set of rules and controls governing an RCP’s organisational and operational structure, including reporting processes and control functions; “independent director” refers to a director of an RCP who is independent in character and judgement, and free from associations or circumstances that may impair the exercise of his independent judgement; Page 5 of 26 Currency Processing Business Issued on: 17 January 2024 “key responsible persons” refers to- (a) directors; (b) chief executive officer (CEO); and (c) senior officers but exclude a company secretary; “maximum tolerable downtime” or “MTD” refers to the timeframe allowable for a recovery to take place before a disruption compromises the critical business functions of an RCP; “outsourcing arrangement” refers to an arrangement whereby a service provider performs an activity on behalf of the RCP on a continuing basis, where the activity constitutes an essential element of currency processing business and would otherwise be undertaken by the RCP on its own; “outsourced service provider” or “OSP” refers to a service provider appointed by an RCP to perform an activity on behalf of the RCP under an outsourcing arrangement; “person” means any natural person, corporation, statutory body, local authority, society, trade union, co-operative society, partnership, or any other body, organisation, association or group of persons, whether corporate or unincorporated and includes the Government and any State Government. “recovery time objective” or “RTO” refers to the timeframe required for systems and applications of an RCP to be recovered and operationally ready to support its critical business functions after a disruption. A recovery time objective has the following two components: (a) the duration of time from the disruption to the activation of the BCP; and (b) the duration of time from the activation of the BCP to the recovery of the business operations; “registered currency processor” or “RCP” refers to a person registered under section 26(1) of CA to carry on currency processing business; “senior management” refers to the Chief Executive Officer (CEO) and senior officers of an RCP; and “senior officer” refers to a person, other than the CEO or a director, concerned with the operation or management of an RCP such as having the authority and responsibility for planning, directing or controlling the activities of an RCP, including the Chief Operating Officer, Chief Financial Officer, members of decision-making committees and persons performing key functions such as risk management, compliance and internal audit. Page 6 of 26 Currency Processing Business Issued on: 17 January 2024 6. Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy document that have been issued by the Bank, and any subsequent review on such documents, in particular – (a) Currency (Registration Requirement) Order 2021 P.U.(A) 127/2021 (CRR Order); and (b) Policy Document on Quality and Integrity of Currency issued on 12 September 2023. Page 7 of 26 Currency Processing Business Issued on: 17 January 2024 PART B REGISTRATION REQUIREMENTS 7. Currency (Registration Requirement) 7.1 When carrying on its currency processing business, an RCP shall continuously comply with the requirements under the CRR Order, as amended from time to time. PART C GOVERNANCE 8. Governance arrangements 8.1 A RCP shall establish appropriate governance arrangements including the following, which are effective and transparent to ensure continued integrity of its business: (a) the board and senior management that consist of people with calibre, credibility and integrity; (b) clearly defined and documented organisational arrangements, such as ownership and management structure; and (c) segregation of duties and control function to reduce potential mismanagement and fraud. 9. The Board 9.1 The board shall set out the mandate, responsibilities and procedures of the board and its committees (if any), including the matters reserved for the board’s decision. 9.2 The board has the overall responsibility for promoting sustainable business growth and financial soundness of the RCP, and preventing mismanagement, fraud, and abuse of the RCP for illegal purposes. In fulfilling this role, the board shall– (a) approve the risk appetite, business plans, and other initiatives which would individually or collectively, have a material impact on the RCP’s risk profile; (b) oversee the selection, appointment and performance of senior managements on an ongoing basis, in achieving the business objectives set by the board and in meeting the legal and fiduciary duties of the RCP. For this purpose, the board shall – S S S S Page 8 of 26 Currency Processing Business Issued on: 17 January 2024 (i) ensure adequate assessment1 (including fulfilment of requirement under paragraph 11.1) is conducted prior to appointment of a senior management; (ii) ensure senior managements appointed are fit and proper, competent and capable to effectively manage the business in compliance with relevant laws and regulations; and (iii) appoint a head of control function who has an adequate working knowledge and can effectively support the RCP’s compliance; (c) ensure that an effective oversight and risk management mechanism are put in place and are periodically reviewed for continued effectiveness. For this purpose, the board shall– (i) ensure appropriate policies, processes (including standard operating procedures), systems and controls to manage risks in its business are put in place. The board should establish a process to facilitate periodic review of the policies, processes, systems and controls to ensure they remain relevant; (ii) oversee implementation of the RCP’s governance framework and internal control policies, and periodically review whether they remain appropriate in light of material changes to the size, nature, and complexity of the RCP; (iii) ensure effectiveness of the audit function by reviewing and ensure appropriate audit scope, procedures and frequency of audits; (iv) ensure the senior management provides adequate reporting to the board on timely basis on the RCP’s compliance with regulatory requirements; and (v) ensure any rectification measures taken by management arising from any board concerns or supervisory findings by the Bank relating to the operations of the RCP are satisfactorily performed in a timely manner; (d) oversee the management of the RCP’s control function by– (i) ensuring an effective risk management framework that is appropriate to the nature, scale and complexity of the business is put in place by the RCP; (ii) ensuring that control functions are established within the RCP and sufficiently resourced with the officers2 accorded with appropriate stature, authority and independence; 1 the board may authorise and delegate the assessment or decision-making to an accountable person deems fit by the board. Nonetheless, the board shall remain accountable for such assessments and decisions. 2 Compliance, risk management and internal audit officer. Page 9 of 26 Currency Processing Business Issued on: 17 January 2024 (iii) ensuring the appointment of officers who have adequate working knowledge and can effectively support the RCP’s internal control framework; and (iv) where the risk management officer and compliance officer are the same person or performs the responsibilities of other control functions except for internal audit, being satisfied that a sound overall control environment will not be compromised by the multiple responsibilities performed by the same officer. Board appointments 9.3 An RCP shall only appoint as its director, a person who has been assessed by the RCP to have complied with paragraph 11.1. 9.4 An RCP shall not have a director who is an active politician. Composition of the Board 9.5 The board and its committees (if any) must be of a size and composition that promotes effective deliberation and encourages active participation of all directors. 9.6 The board shall be composed of suitable members with appropriate mix of skills, experience and knowledge to effectively carry out their responsibilities. 9.7 The board may include non-executive directors, including independent directors. Board meetings 9.8 An RCP shall ensure a person appointed as its director must be able to devote sufficient time to their roles and maintain a sound understanding of the business of the RCP as well as relevant market and regulatory developments. 9.9 The board must meet regularly, whereby the number and frequency of board meetings must be commensurate with the size and complexity of the RCP’s operations, to review the performance, including the status of its compliance with regulatory requirements and to deal with any issues pertaining to the operations of the RCP. 9.10 The board must ensure that clear and accurate minutes of board meetings are maintained to record the decisions of the board, including key deliberations, rationale for each decision made, and any significant concerns or dissenting views. S S S S G S S S Page 10 of 26 Currency Processing Business Issued on: 17 January 2024 10. Senior management 10.1 An RCP shall only appoint as its senior management, a person who has been assessed to have complied with the fit and proper requirements specified in paragraph 11.1. 10.2 An RCP that is involved in a business or activity other than currency processing business shall appoint a dedicated senior officer with relevant expertise and experience to assume the role of the Head of currency processing business. 10.3 The senior management primarily responsible for managing the day-to-day business operations of the RCP must ensure that the operation of the RCP is carried out ethically and professionally with integrity. In this regard, the specific responsibilities of the senior management shall include the following– (a) ensure effective policies and procedures are established and implemented for, among others, the following areas – (i) risk management and appropriate controls to manage and monitor risks; (ii) due diligence and oversight to manage outsourced arrangements supporting the operations; and (iii) sufficient and timely reporting or escalation of issues to the board. (b) oversee the formulation and effective implementation of any business or strategic plan, including strategic technology plan and associated technology policies and procedures; (c) ensure a robust assessment is conducted on any deviations3 from legal and regulatory requirements as well as internal policies and procedures. This includes addressing any supervisory concerns and the progress of remedial actions taken to address them, with material information to be reported to the board in a timely manner; and (d) effectively manage the internal control framework of the RCP by– (i) establishing a written policy for the control function and ensure that it is kept up to date; (ii) establishing a control function in accordance with paragraph 15.4.2; (iii) providing sufficient resources for the control function, including officers with the appropriate competencies and experience; and 3 For avoidance of doubt, the requirement is applicable to both internal policies and procedures as well as policy documents issued by the Bank S S S Page 11 of 26 Currency Processing Business Issued on: 17 January 2024 (iv) ensuring that the person performing the control function is kept informed of any organisational developments to facilitate the timely identification of compliance risk. 10.4 The senior management shall consist of individuals with the appropriate skill set and experience to adequately support the RCP’s business. This includes individuals from information technology (IT) related functions to provide guidance on the technology plans and operation to ensure the RCP’s compliance with the IT requirements under Part F. 10.5 The senior management shall ensure adequate allocation of resources as well as appropriately skilled and competent staff to support all critical functions. 11. Fit and proper 11.1 An RCP shall assess and ensure that its directors and senior management are persons that fulfil the criteria as stipulated in the CRR Order. 11.2 An RCP shall notify the Bank in writing together with the assessment made pursuant to paragraph 11.1 on– (a) new appointment of its directors or senior management within fourteen (14) days from the date of such appointment; or (b) existing appointment of its directors and senior management within fourteen (14) days from the effective date of this policy document. S S S S Page 12 of 26 Currency Processing Business Issued on: 17 January 2024 PART D OPERATIONAL REQUIREMENTS 12. Opening and closing of cash processing centre (CPC) Opening of CPC 12.1 In relation to the opening of an RCP’s CPC, the RCP shall – (a) ensure the premises is in compliance with the requirement outlined in the CRR Order; and (b) notify the Bank in writing on the opening of the CPC with the information below within 30 days, together with attestation that the newly opened premises has complied with paragraph 12.1(a)- (i) address of the CPC; (ii) target customer; (iii) processing and storage capacity (volume in pieces); (iv) head of CPC; and (v) contact details. Closing of CPC4 12.2 An RCP shall establish appropriate plans for the closing of its CPC and orderly exit, including its communication strategy with other relevant stakeholders5 to mitigate any unintended consequences. 12.3 An RCP shall notify the Bank in writing and consult the Bank for such closure of CPC together with information as required in the Appendix. 13. Outsourcing arrangement 13.1 An RCP shall remain responsible and accountable for any services performed by an outsourced service provider (OSP). 13.2 For an outsourcing arrangement, an RCP shall ensure– (a) the OSP that performs the collection of currency note or currency coin for or on behalf of the RCP fulfilled the requirement stipulated in paragraph 2 of the Schedule of the CRR Order; (b) availability of sufficient expertise within the RCP to oversee and manage the outsourcing relationship; 4 Including relocation of CPC outside of the original CPC’s region 5 For example, the RCP’s customers and the local authorities. S S S S S Page 13 of 26 Currency Processing Business Issued on: 17 January 2024 (c) the scope and nature of services and operations to be outsourced would not compromise the controls and risk management of the RCP. The RCP shall ensure the following – (i) the outsourcing of such processes does not take away the critical decision-making function of the RCP; (ii) the outsourcing of such processes does not threaten strategic arrangements, flexibility needed by the RCP on important areas and control of the RCP; (iii) the outsourcing of such processes would not impair the reputation, integrity, and credibility of the RCP; and (iv) processes are in place for the RCP to retain the ability to comply with the regulatory and supervisory requirements on the outsourced functions. 13.3 An RCP should conduct appropriate due diligence of the OSP, at the point of considering new outsourcing arrangements and when renewing or renegotiating existing outsourcing arrangements with the OSP. 13.4 An RCP shall identify and have an in-depth understanding of potential risks6 arising from the outsourcing arrangements with the OSP. The scope and nature of services and operations to be performed by the OSP should not compromise the risk management and internal controls of the RCP. 13.5 In relation to the requirement specified in paragraph 13.4, an RCP shall ensure that the outsourcing arrangements with the OSP are established in a manner which do not affect – (a) the RCP’s ability to effectively monitor the OSP and execute its BCP; and (b) the RCP’s ability to promptly recover data in the event of the OSP’s failure that would critically impact or disrupt the RCP’s operations. 13.6 An RCP should exercise effective oversight on the OSP. 13.7 For purposes of paragraph 13.6, an RCP may consider the following – (a) conduct regular review and monitoring of contracts and service-level arrangement (SLAs) with the OSP to ensure the integrity and quality of work conducted by the OSP is maintained; (b) ensure the storage of its data is at least logically segregated from the other clients of the OSP with appropriate controls and periodic review of user access; (c) ensure data residing in the OSP is recoverable in a timely manner; 6 Including operational, financial and IT related risk S S S S G Page 14 of 26 Currency Processing Business Issued on: 17 January 2024 (d) ensure any critical systems hosted by the OSP have strong recovery and resumption capabilities, and can facilitate an orderly exit in the event of failure or unsatisfactory performance by such OSP; and (e) to have a contingency plan or arrangements to secure business continuity in the event the arrangement with the OSP is suddenly terminated or fails to provide necessary support7. The contingency plan shall be periodically reviewed to ensure that the plan is current and remains appropriate for timely implementation. 7 Including insolvency or lack of resources issue. Page 15 of 26 Currency Processing Business Issued on: 17 January 2024 PART E RISK MANAGEMENT AND INTERNAL CONTROL 14. Risk management framework 14.1 An RCP shall establish a risk management framework taking into account its size, scope and complexity of business to facilitate identification, measurement and continuous monitoring of all relevant and material risks. 14.2 In establishing the risk management framework, the RCP shall– (a) align the framework with the RCP’s risk appetite; (b) clearly assign responsibilities and accountabilities for risk decisions; and (c) ensure the framework facilitates efficient decision making in crises. 14.3 An RCP shall periodically review the framework for continued effectiveness and be supported by a robust management information system that facilitates the timely and reliable monitoring and reporting of risks. 14.4 An RCP shall establish risk monitoring and reporting requirements, which include periodic reporting to the board and senior management on the assessment of material risks affecting the RCP, to ensure risks are managed and mitigated in a timely manner. The reports must be readily available to the internal audit function of the RCP and the Bank. 14.5 An RCP is required to effectively manage and control all material risks associated with the conduct of currency processing business, taking into account the size, scope and complexity of its business activities. 14.6 An RCP shall establish appropriate processes, systems and controls that are approved by the board to manage risks in its business. These shall be properly documented and reviewed by the key responsible persons and the board regularly to ensure its effectiveness. 14.7 The risk management measures that must be observed by the RCP to address specific risk associated with conduct of currency processing business include, but are not limited to the following – (a) theft and robbery; (b) accidents due to negligence of cash handlers or failure of equipment and machines; (c) failure to comply with legal and regulatory requirements; and (d) mismanagement resulting losses of monies or key information held in trust for customers. S S S S S S S Page 16 of 26 Currency Processing Business Issued on: 17 January 2024 15. Internal control 15.1 Internal policies and procedure 15.1.1 An RCP is required to put in place appropriate processes, systems, and controls which shall include, at a minimum the following: (a) written internal policies and processes (including standard operating procedures), as well as systems and controls to manage risks on the conduct of currency processing business to — (i) ensure compliance by staff with internal policies and regulatory requirements; (ii) ensure professional conduct in dealings with customers; and (iii) detect and escalate material operational lapses to key responsible persons and the Board. (b) policies on CPC oversight which include, but not limited to the following: (i) mechanisms for monitoring and reporting of business performance and compliance levels at the CPC to head office; (ii) procedures to support reconciliation and consolidation of currency processing at the CPC to ensure all currency processing are properly captured; and (iii) procedures to support record keeping of currency processing at all CPC to ensure compliance with standards issued by the Bank. (c) policies to ensure proper management of cash at the CPC, which include, but are not limited to the following: (i) setting of holding limit of cash at the RCP’s respective CPC; (ii) ensuring that only authorised personnel are allowed to process cash and handle machines; and (iii) putting in place procedures to track and record the stock and movement of cash. (d) policies to ensure clear levels of authority are assigned to staff to conduct business transactions in accordance with the risk profile of the transactions. For example, higher level approval may be required for higher risk / value transactions. 15.2 Maintenance of Records 15.2.1 An RCP shall maintain all relevant business records to provide a comprehensive view of the company’s operations and financial standing. S S Page 17 of 26 Currency Processing Business Issued on: 17 January 2024 15.2.2 An RCP may maintain the records in any of the following forms: (a) in the form of original documents; (b) duplicate copies of the original documents; (c) in scanned form; and (d) in digital or electronic form. 15.2.3 An RCP is required to establish a reliable management information system that is secure and robust to support its business operations and capable of performing functions which include, but not limited to the following: (a) the system must be able to record the processing activities and facilitate the aggregation of processing activities with customer across its branches for purposes of monitoring compliance with internal and regulatory limits; (b) able to detect and capture any alterations made to information maintained in the system; and (c) record details of transactions and generate reports on processing value and volumes for purposes of identifying, monitoring and reporting suspicious processing activities. 15.2.4 An RCP shall put in place adequate controls to protect key information and records maintained in the system to prevent access or alterations of records by unauthorised person. 15.3 Proper segregation of duties and functions to ensure check and balance 15.3.1 An RCP shall put in place proper segregation of duties and functions for critical operational functions, including cash processing, management and record keeping, to prevent the likelihood of mismanagement or fraud. 15.3.2 In a situation where the staff of a RCP is allowed to undertake several roles, dual controls8 must be instituted and the same person shall not be placed in charge of roles9 that could lead to potential conflicts of interest. 15.4 Control function 15.4.1 The board and senior management are encouraged to create an environment, which– 8 Dual control is the practice of ensuring that no one person has complete control of an activity. For example, where a person is assigned to process currency and keep custody of the currency, following control should be considered– (a) assign a checker to verify task perform under currency processing; or (b) impose additional authentication tool i.e. password and thumbprint for the access to vault. 9 For illustration, staff in charge of collection / distribution must not be the same person in responsible for cash custody / stock management. G S S S S G Page 18 of 26 Currency Processing Business Issued on: 17 January 2024 (a) promotes the RCP and its officers to comply with legal and regulatory requirements; (b) adopts relevant risk management practices; and (c) encourages ethical conduct that underlies the legal and regulatory requirements. 15.4.2 An RCP shall establish control function in line with the following requirements– (a) the RCP to provide the board with an independent assessment that the RCP is operating in compliance with its own internal policies (including the effectiveness of risk management and control systems) and with the applicable regulatory requirements; (b) the RCP shall organise its control function in a manner that provides assurance that compliance and risk are managed effectively, taking into account the size, nature of operations and complexity of its business; (c) the control function must be independent of the business lines in order to carry out its role effectively. As such, RCP must ensure the control function is not placed in a position where actual or potential conflicts may arise in respect of, amongst others, scope of responsibilities and reporting lines; (d) the RCP must have adequate staff to perform an internal audit, compliance function, regular reviews on the premises and reporting directly to the board; and (e) where two or more control function responsibilities (excluding internal audit) are performed by one officer, senior management must ensure that officer has the capacity and expertise to deliver his broader mandates while providing adequate focus to his control function responsibilities. 15.5 Business continuity management (BCM) 15.5.1 The board and senior management are responsible for ensuring identification and implementation of an effective BCM framework within the RCP. 15.5.2 An RCP shall undertake a structured risk assessment process to– (a) identify potential threats that could cause material business disruptions, resulting in inability to fulfil business obligations; and (b) assess the likelihood of the identified threats occurring and determine the impact on the RCP. S S S Page 19 of 26 Currency Processing Business Issued on: 17 January 2024 15.5.3 For purposes of paragraph 15.5.2, the RCP is encouraged to carry out a business impact analysis (BIA) on an annual basis and whenever there are material changes to the RCP’s business activity, as this forms the foundation of developing the BCP. 15.5.4 An RCP shall determine the MTD and RTO for each critical business function. The goal is to develop a BCP that details the procedures and the minimum level of resources required to recover the critical business functions within the recovery timeframe and maintain services at an acceptable level. 15.5.5 An RCP shall develop an effective BCP and disaster recovery plan (DRP) for at least all critical business functions. 15.5.6 To ensure the comprehensiveness of its BCM, the RCP shall ensure its OSP has an effective BCP and DRP and implements relevant safeguards to ensure continuity of the material10 outsourcing arrangements, with the objective to minimise the business disruptions. 15.5.7 The BCP and DRP of the RCP and its OSP must be tested regularly to ensure the functionality and effectiveness of the recovery strategies and procedures, preparedness of staff and other recovery resources. 15.5.8 An RCP shall put in place a robust BCP that sets out contingency arrangements to ensure continuity of critical business functions11 and safe keeping of important information relating to its business. This is to address risk of system disruptions and natural catastrophes resulting in operational failures, business disruptions and loss of key transaction records. The BCP shall include the following key features: (a) procedures for the regular back up of currency processing data to ensure information is not lost and can be retrieved in the event of a system failure or natural disaster; (b) clear policies and procedures needed for staff to respond to system and operational failures in order to resume business operations in a timely manner; and (c) instructions to ensure all information of currency processing and transactions taking place during the disruption period is properly recorded and promptly captured into systems once the systems have been restored to full functionality. 10 In assessing whether an outsourcing arrangement is material, an RCP may take into consideration the following factors: a) impact on the RCP’s continuing ability to meet its obligations to its customers in the event the service provider fails to provide the service or encounters a breach of data confidentiality or security; b) aggregate exposure to a particular service provider in cases where the RCP outsources multiple activities to the same service provider; or c) complexity of the outsourcing arrangement and number of parties involved, in particular where the service is sub-contracted or where more than one service provider collaborates to deliver an end-to-end outsourcing solution 11 Including functions that are outsourced to service providers G S S S S S Page 20 of 26 Currency Processing Business Issued on: 17 January 2024 16. Fraud risk management 16.1 An RCP shall put in place an effective mechanism, process and procedures on mitigation of fraud risk, fraud prevention, fraud detection and fraud monitoring which include, but are not limited to the following12: (a) necessary processes and procedures to enable authentication by customers based on the risk profile of customers and transactions, to effectively mitigate and manage potential risk identified; (b) the fraud risk management measures shall be reviewed periodically to ensure proactive actions are taken to address any inadequacies in such measures; (c) fraud incidents and their assessment shall be reported to the board and senior management in a timely manner if the impact is significant; and (d) reporting to the Bank shall be made in a timely manner if the impact is significant and in accordance with the fraud reporting requirement as issued by the Bank. 16.2 In relation to paragraph 16.1, an RCP may consider putting in place real time fraud detection and monitoring, effective early detection of unusual transactions and mechanism to halt or delay fraudulent or suspicious transactions. 12 In assessing the significance of the impact an RCP may take into consideration the impact towards RCP’s provision of services to customers, business operations, financial position, reputation, or compliance with applicable laws and regulatory requirements. S G Page 21 of 26 Currency Processing Business Issued on: 17 January 2024 PART F Information Technology (IT) Requirements 17. Technology risk management 17.1 An RCP shall establish a Technology Risk Management Framework (TRMF), to safeguard the RCP’s information infrastructure, systems and data, which shall be an integral part of the RCP’s risk management framework in relation to currency processing business. 17.2 RCP is encouraged to include the following in the TRMF– (a) a clear definition of technology risk; (b) clear responsibilities assigned for the management of technology risk at different levels and across functions, with appropriate governance and reporting arrangements; (c) the identification of technology risks to which the RCPs are exposed, including risks from the adoption of new or emerging technology; (d) risk classification of all information assets/systems based on their criticality; (e) risk measurement and assessment approaches and methodologies; (f) risk controls and mitigations13; and (g) continuous monitoring to timely detect and address any material risks. 17.3 An RCP is encouraged to establish an independent enterprise-wide technology risk management function which should be responsible for— (a) implementing the TRMF; (b) advising on critical technology projects and ensuring critical issues that may have an impact on the RCPs’ risk tolerance are adequately deliberated or escalated in a timely manner; and (c) providing independent views to the board and senior management on third party assessment14, where necessary. 17.4 An RCP must deploy preventive and detective technology controls to mitigate technology risk to systems and must regularly monitor the effectiveness of these controls to ensure that they remain responsive to manage the risks from evolving cyberattack. 13 The risk controls and mitigation may include, among others, distributed denial of service (DDoS) Attacks, data loss prevention (DLP) and cyber response and recovery (CRR). 14 Relevant third-party assessment may include the Data Centre Risk Assessment (DCRA), Network Resilience and Risk Assessment (NRA) and independent assurance for introduction of new or enhanced digital services. S G G S Page 22 of 26 Currency Processing Business Issued on: 17 January 2024 18. Technology operations management Data Centre Infrastructure 18.1 An RCP shall ensure proper management of data centres and specify the resilience and availability objectives15 of its data centres which are aligned with its business needs. 18.2 An RCP shall ensure its network infrastructure is designed to be resilient, secure and scalable proportionate to the RCP’s business risk and model. Potential data centre failures or disruptions shall not significantly degrade the delivery of its services or impede its internal operations. Network Resilience 18.3 An RCP is encouraged to design a reliable, scalable and secure enterprise network that is able to support its business activities, including future growth plans. 18.4 An RCP is encouraged to ensure the network services for its critical systems are reliable and have no single point of failure (SPOF) in order to protect the critical systems against potential network faults and cyber threats. 18.5 An RCP shall ensure network services supporting critical systems are designed and implemented to ensure the confidentiality, integrity and availability of data. Access controls 18.6 An RCP must implement an appropriate access controls policy for identification, authentication and authorisation of users (internal and external users such as OSP). 18.7 In observing paragraph 18.6, a RCP is encouraged to adopt the following: (a) implement principles of ‘segregation of duties’ and ‘least privilege' when granting access to information assets; (b) regularly review the access rights of staff and immediately revoke the access rights of a staff leaving or changing to a new role or position that does not require access to customer information to prevent the theft of customer information; (c) only authorised system administrators are provided access to its database for administrative duties, segregation of data access between user profiles and documented procedures for access control and authorization; 15 Availability objectives refer to the level of availability of the data centre, which needs to be specified as an internal policy. S S G G S S G Page 23 of 26 Currency Processing Business Issued on: 17 January 2024 (d) identify the location of customer information residing in different systems and establish adequate access controls at different levels (i.e. application level, database level, operating system level and network level) to prevent unauthorised access, modification or disclosure by whatever means of customer information to external parties. 18.8 An RCP shall establish a password policy and process to enforce strong password controls for the users’ access to IT systems. Physical security 18.9 An RCP shall implement appropriate physical access control to the RCP’s IT equipment (e.g. physical access controls to its servers, firewalls, routers and switches). The access control should include identification, authentication and authorization of the user (internal and external users16) accessing IT equipment. 18.10 An RCP is encouraged to conduct continuous training and awareness programmes to promote cyber hygiene17 and understanding on cyber security risks18. Technology Service Provider Management 18.11 Where a RCP subscribes to services offered by an OSP, the RCP shall establish the following controls to safeguard themselves in the service level agreement (SLA): (a) clearly define roles and responsibilities between the RCP and the OSP; (b) arrangements for disaster recovery and backup capabilities, where applicable; (c) written undertaking by the OSP on compliance with secrecy provisions under relevant legislation. The SLA shall clearly provide that the OSP is bound by confidentiality provisions stipulated under the contract even after the engagement has ended; (d) clearly affirm the RCP’s ownership of its data stored on the OSP’s system; and (e) arrangements to secure business continuity in the event of exit or termination of the OSP. 16 External users include service providers, auditors, etc 17 Examples of good cyber hygiene includes usage of strong password, ensuring user’s password are not written and posted on the workstations, sharing of IDs and passwords, etc. 18 Examples of cyber security risk includes phishing attacks, malware attacks, social engineering, ransomware, trojan viruses, etc. S S G S Page 24 of 26 Currency Processing Business Issued on: 17 January 2024 Patch and End-of-Life System Management 18.12 An RCP shall ensure that critical systems are not running on outdated systems with known security vulnerabilities or end-of-life (EOL) technology systems. In this regard, the RCP must clearly assign responsibilities to identified functions: (a) to continuously monitor and implement latest patch releases in a timely manner; and (b) identify critical technology systems that are approaching EOL for further remedial action. 18.13 An RCP is encouraged to establish a patch and EOL management framework which addresses among others the following requirements: (a) identification and risk assessment of all technology assets for potential vulnerabilities arising from undeployed patches or EOL systems; (b) conduct of compatibility testing for critical patches; (c) specification of turnaround time for deploying patches according to the severity of the patches; and (d) adherence to the workflow for end-to-end patch deployment processes including approval, monitoring and tracking of activities. S G Page 25 of 26 Currency Processing Business Issued on: 17 January 2024 PART G Other Requirements 19. Other Compliance Requirements Changes to business model 19.2 An RCP shall notify the Bank in writing, to the Director of the department in charge of oversight/supervision of RCPs of any proposed changes to their business or operating model which are significant or changes the risk profile of their business. 19.3 In the event that the Bank considers the proposed change to business model will cause risk to quality and integrity of currency, the Bank may require the RCP to implement risk mitigating measures before such change is implemented. Information and data submission19 19.4 An RCP shall submit the following to the Bank: (a) its annual audited financial statements not later than three (3) months after its financial year end; (b) statistical report on the operation of its business on a monthly basis; and (c) any other information as required by the Bank. 19 Submission via email at [email protected] unless otherwise stated in the Bank’s request. S S S mailto:[email protected] Page 26 of 26 Currency Processing Business Issued on: 17 January 2024 Appendix: List of information to be submitted to the Bank for notification for closure of currency processing centre (CPC) 1. Information on closure Name of registered currency processor: Reason for closure: No. Affected Customer Processing volume 1. 2. 2. Exit plan as required in paragraph 12.2. At a minimum, the exit plan must include the following– a. plausible internal triggers for exiting the business, which demonstrate unsustainable business, inability to fulfil the value proposition for its business or materialisation of risks beyond own risk appetite; b. likely options and related measures to be taken for exit that minimises disruption to its customer and the currency ecosystem where it operates; c. potential impediments to the execution of identified exit options and measures to mitigate the impact of such impediments; d. sources of funding and liquidity for exit (in addition to safeguarding customer funds) and the estimated timeframe to exit the business; and e. the necessary capabilities and resources required to ensure continuity of services throughout the implementation of the exit plan, including the continuity of services under outsourcing arrangements.	Public Notice
12 Jan 2024	JC3 SC1 Kemas Kini Dokumen untuk Pelaksanaan Klasifikasi CCPT oleh Institusi Kewangan	https://www.bnm.gov.my/-/jc3-sc1-kemas-kini-dokumen-untuk-pelaksanaan-klasifikasi-ccpt-oleh-institusi-kewangan	https://www.bnm.gov.my/documents/20124/3770663//DDQ-for-GP3-GP4-10Jan24.pdf, https://www.bnm.gov.my/documents/20124/3770663/FAQs-for-BNM-CCPT-10Jan24.pdf, https://www.bnm.gov.my/documents/20124/3770663/Guidance-Notes-DDQ-GP3-GP4-10Jan24.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/jc3-sc1-kemas-kini-dokumen-untuk-pelaksanaan-klasifikasi-ccpt-oleh-institusi-kewangan&languageId=ms_MY	Reading: JC3 SC1 Kemas Kini Dokumen untuk Pelaksanaan Klasifikasi CCPT oleh Institusi Kewangan Share: JC3 SC1 Kemas Kini Dokumen untuk Pelaksanaan Klasifikasi CCPT oleh Institusi Kewangan Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1037 pada Jumaat, 12 Januari 2024 12 Jan 2024 Jawatankuasa Bersama bagi Perubahan Iklim Jawatankuasa Kecil 1 (JC3 SC1) melalui Kumpulan Pelaksana Taksonomi Berasaskan Perubahan Iklim dan Prinsip (CCPT IG) dan rakan kongsi teknikal, World Wide Fund for Nature (WWF) Malaysia telah mengemas kini dokumen berikut untuk memudahkan pelaksanaan klasifikasi CCPT secara berkesan oleh institusi kewangan (IK). Dokumen yang dikemas kini ialah: Soalan Ketekunan Wajar (DDQ) untuk penilaian BNM CCPT Prinsip Panduan 3 & 4 (GP3 & GP4) DDQ mengandungi set soalan asas untuk penerimaan mandatori oleh IK, dalam menilai pematuhan GP3 dan GP4, khususnya kesan negatif pelanggan terhadap alam sekitar dan iklim (iaitu, tiada bahaya yang ketara) dan langkah-langkah yang diambil untuk memulihkan kesan negatif (iaitu, langkah pemulihan kepada peralihan). Pertama kali diterbitkan pada April 2023, DDQ telah diperhalusi untuk memasukkan skop GP3 pada pelepasan GHG, serta meningkatkan kejelasan dan kemesraan pengguna. Nota Panduan (GN) kepada memudahkan penggunaan DDQ untuk GP3 & GP4: GN menyediakan panduan terperinci untuk menyokong penggunaan DDQ untuk GP3 & penilaian GP4. Dokumen itu telah dikemas kini untuk memasukkan sumber data yang berkaitan dalam Katalog Data Iklim yang diterbitkan oleh Jawatankuasa Bersama bagi Perubahan Iklim Jawatankuasa Kecil 5 (JC3 SC5) serta alat dan rujukan penilaian lain yang berkaitan. Soalan Lazim (Soalan Lazim): Soalan Lazim melibatkan soalan lazim mengenai penilaian CCPT. Dokumen itu telah dikemas kini untuk memasukkan penjelasan mengenai jangkaan yang diperlukan dalam surat BNM kepada Ketua Pegawai Eksekutif (Semakan CCPT 2023 - Pemerhatian dan Jangkaan terhadap Institusi Kewangan) yang dikeluarkan pada 14 November 2023.Bank Negara Malaysia 12 Januari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Due Diligence Questions for BNM CCPT GP3 & GP4 PUBLIC Due Diligence Questions In assessing BNM Climate Change Principle-based Taxonomy’s Guiding Principles 3 and 4 CCPT Implementation Group Version 2.0 \| January 2024 2 Preface Joint Committee on Climate Change Sub Committee 1 - Risk Management (hereinafter referred to as the “JC3 SC1”) was established in September 2019 as part of Bank Negara Malaysia (BNM) and Securities Commission’s (SC) collective effort to further strengthen and upskill the financial industry in climate action. In April 2021, BNM and JC3 SC1 published the Climate Change Principle-based Taxonomy (hereinafter referred to as the “CCPT”), a guidance document to facilitate financial institutions (hereinafter referred to as “FIs”) in identifying and classifying economic activities that could contribute to the financial sector’s climate change objectives. The CCPT aims to provide an overview of climate change risk and its impact to the financial system as well as promoting financial flows to activities that will support just transition to low carbon and a climate resilient economy. Subsequent to this, the CCPT Implementation Group (hereinafter referred to as the “CCPT IG”) was established under the purview of the JC3 SC1. The CCPT IG was initially co-led by Maybank and AIA Insurance Group, followed by Bank Islam and Etiqa, and represented by members of various domestic and foreign FIs, including banks, insurance companies, takaful operators as well as asset management companies. The CCPT IG serves as a collaborative platform for financial industry players to share knowledge, experiences and common issues on the operationalisation and implementation of CCPT within their respective institutions. As part of the effort to standardise CCPT classification across the financial industry and promote consistency for reporting and analyses, the CCPT IG Co-Leads in collaboration with WWF-Malaysia, have developed this document that comprises structured due diligence assessments designed to evaluate a client’s impact to climate change and measures undertaken to remediate the negative impact. This is in line with the questions set out in the CCPT Guiding Principle 3 (hereinafter referred to as “GP3”) ‘no significant harm to the environment’ and Guiding Principle 4 (hereinafter referred to as “GP4”) ‘remedial measures to transition’. As such, FIs are required to embed these assessment questions into their existing due diligence and screening criteria. Upon issuance of BNM’s Dear CEO letter on 14 November 2023, this document has been refined to improve its clarity and user-friendliness, and to expand GP3 assessment to cover GHG emissions. Should there be any clarifications required on the content of this document, please direct your queries to [email protected]. mailto:[email protected] 3 General Guide 1. 2. 3. 4. 5. 6. 7. 8. This document consists of foundational due diligence questions to assess compliance with GP3 and GP4. FIs may also refer to the accompanying guidance notes to support the due diligence assessment process. The following GP3 and GP4 assessments are to be conducted at the borrowing entity/ customer (hereinafter collectively referred to as the “Client”) level only. The due diligence consists of questions covering these 5 categories: i. General ii. Pollution iii. Ecosystem & Biodiversity iv. Efficient Use of Resources v. GHG Emissions The due diligence in each of these 5 categories consists of risk identification and management questions. Response to all risk identification questions is mandatory. If the response to the risk identification question is ‘yes’, the Client is required to proceed to answer the corresponding risk management questions of that category. The Client would be deemed to be in compliance with GP3 ‘no significant harm to the environment’ provided that the Client has commenced1 at least 1 remedial measure for every concern identified from the risk identification questions from each category. This may include having relevant sustainability certifications such as RSPO, MSPO, FSC, PEFC, GRESB, BREEAM or ISO 14001 to address the harm identified. The Client must ensure that all remedial measures are able to address all concerns which have been identified as causing significant harm to the environment for the Client to comply with GP3. For example, if a Client is deemed to cause significant harm in 4 out of the 5 above categories, the Client will only comply with GP3 provided that all remedial measures are able to address all the concerns in the 4 identified categories. Hence, the Client will not be deemed to comply with GP3 should the remedial measures only address say 3 out of the 4 categories with concerns which have been identified as causing significant harm to the environment. Non-compliance with GP3 signifies that the Client is causing significant harm to the environment. Hence, it is mandatory for the Client to proceed in answering all due diligence questions in GP4 to ascertain the remedial plans. Remedial plans need to be time-bound, feasible to implement and effectively monitored to be recognised under GP4. FIs should support their GP3 and GP4 assessments with relevant and adequate justification which have the following attributes: • With documentary evidence. • For assessment that requires quantitative justification, FIs to leverage customers' declaration, coupled with data points already available in SC5’s Data Catalogue. • In instances where data is unavailable, the utilisation of proxies is recommended. • Where possible, to benchmark Client's data against industry standards when assessing its significance. Summary Risk Identification Risk Management Yes/ No Yes/ No General Pollution Ecosystem & Biodiversity Efficient Use of Resources GHG Emissions GP3 – No significant harm to the environment Met/ Not met GP4 – Remedial measures to transition Met/ Not met 1 Where the implementation of the remedial plan has started (i.e., beyond the planning stage), but not necessarily have been completed. For example, where the remedial plan entails the installation of solar panels, the remedial plan would be deemed to have commenced when the installation of solar panels has started but may not have been completed. 4 Due Diligence Questions: GP3 – No Significant Harm to the Environment No Question Answer Remarks Yes No GP3 – General 1.1 Risk identification (General) a) Has there been any legal, compliance issues and/or complaints, negative coverage received from media/NGOs etc. associated with the Client’s environmental performance in the last 3 years? Provide details of the nature of the incident, and whether there was any corresponding regulatory action (enforcement/ prosecution/ quantity of fine). 1.2 Risk management (General) a) Are there any remedial measures which have commenced or are on-going to address the identified issues or complaints above? Provide details of measures undertaken to address the concerns. GP3 – Pollution 2.1 Risk identification (Pollution) a) Are any of the Client’s activities involved in the release, and/or use of: • Hazardous chemicals/materials; and/or • Waste/pollutants (other than the above) that cannot be recovered, reused, and/or disposed of in an environmentally sound manner? Provide details of hazardous chemical/materials and/or waste/pollutants released and/or used. 2.2 Risk management (Pollution) a) Are there any remedial measures which have commenced or are on-going: • to avoid or reduce the use of hazardous chemicals/materials and waste/pollutants within the Client’s operations; and/or • which entail environmentally sound disposal mechanisms? Provide details of measures undertaken to address the concerns. GP3 – Ecosystem & Biodiversity 3.1 Risk identification (Ecosystem & Biodiversity) a) Are the Client’s operations located in or near environmentally sensitive areas (“ESAs”) or key biodiversity areas (“KBAs”)? Provide details of the ESAs and KBAs which are located at the Client’s operating areas. b) Does the Client’s operations create negative impacts on biodiversity and surrounding ecosystem? Provide details of negative impact on biodiversity and surrounding ecosystem. 5 3.2 Risk management (Ecosystem & Biodiversity) a) Are there any remedial measures which have commenced or are on-going on the protection and conservation of biodiversity and surrounding ecosystem which are impacted by the Client’s operations? Provide details of measures undertaken to address the concerns. GP3 – Efficient Use of Resources 4.1 Risk identification (Efficient Use of Resources) a) Does the Client’s core activities involve significant consumption of: • Water • Natural resources (e.g. fossil fuel, minerals, timber, etc.)? Provide details of the significant consumption. 4.2 Risk management (Efficient Use of Resources) a) Are there any remedial measures which have commenced or are on-going to monitor, reduce and improve efficiencies in resource consumption? Provide details of measures undertaken to address the concerns. GP3 – GHG Emissions 5.1 Risk identification (GHG Emissions) a) Do the Client’s core activities lead to significant greenhouse gas (“GHG”) emissions? Provide details of the significant emissions. 5.2 Risk management (GHG Emissions) a) Are there any remedial measures which have commenced or are on-going to reduce GHG emissions and/or in relation to de-carbonisation efforts? Provide details of measures undertaken to address the concerns. 6 Due Diligence Questions: GP4 – Remedial Measures to Transition No Question Answer Remarks Yes No Note: This section consists of questions covering remedial measures which are planned but the implementation has yet to commence at the time of the assessment. Kindly note that measures described should address the specific areas of harm identified in the above GP3 assessment. a) Harm identified in GP3 where: • remedial measures have been identified/ planned but yet to commence; or • no remedial measures have been identified/ planned. To list based on GP3 assessment above. b) Has the Client established time-bound remedial measures to address the specific significant harm identified in (a)? To elaborate details of remedial measures established by the Client. c) Does the Client plan to monitor the progress and effectiveness of the remedial measures against an appropriate set of performance evaluation criteria (including subsequent review conducted post- remediation), indicators and time-bound targets? To explain progress of remedial measures planned at the Client level for the above. d) Does the Client have financial capacity and/or secured financing facilities to fund its remedial measures? FAQs on BNM CCPT Frequently Asked Questions On BNM Climate Change Principle-based Taxonomy CCPT Implementation Group Version 4.0 \| January 2024 FAQ on BNM CCPT \| Version 4.0 1 Preface Joint-Committee on Climate Change Sub-committee 1 - Risk Management (“JC3 SC1”) was established in September 2019 as part of the Bank’s collective efforts to further strengthen and upskill the financial industry in climate action. In April 2021, Bank Negara Malaysia (BNM) and JC3 SC1 has published the Climate Change Principle-based Taxonomy (“CCPT”), a guidance document to facilitate financial institutions in identifying and classifying economic activities that could contribute to the climate change objectives. The CCPT aims to provide an overview of climate change risk and its impact to the financial system as well as promoting financial flows to activities that will support the transition to low carbon and climate resilient economy. Subsequent to this, as mandated by the JC3 SC1, the CCPT Implementation Group (“CCPT IG”) was established. The CCPT IG was initially co-led by Maybank and AIA Insurance Group, followed by Bank Islam and Etiqa, and represented by members of various domestic and foreign FIs, including banks, insurance companies, takaful operators as well as asset management companies. The CCPT IG serves as a collaborative platform for the financial industry players to share knowledge, experiences and common issues on the operationalisation of CCPT within their institution. This document was developed by the CCPT IG leads comprising of commonly asked queries raised by the CCPT IG members via discussions and deliberations during the CCPT IG meeting. Through this document, the CCPT IG provides its views and recommendations to guide financial industry players on the recommended best practices to effectively implement CCPT reporting requirements with an objective to promote coherent industry-wide adoption. Should there be any further clarification required, please direct your queries to [email protected] In January 2024, this document was further updated to provide greater clarification on areas pertaining to BNM’s Dear CEO letter issued 14 November 2023. Changes made are highlighted in green for ease of reference. mailto:[email protected] FAQ on BNM CCPT \| Version 4.0 2 No. FREQUENTLY ASKED QUESTIONS - GENERAL 1. (a) (b) (c) Guiding Principles Assessment Question In reference to the BNM CCPT document, FIs would need to assess GP1 and GP2 at the transactional level while GP3, GP4 and GP5 at the overall business level. Could the classification be based on assessment conducted only at the overall business level? For example, financing to a solar panel manufacturer would qualify C1 classification for all its transactions. Answer No, FIs would still be required to conduct transactional (for GP1 & GP2) and overall business (GP3 & GP4) assessments on its client prior to deciding the appropriate CCPT classification. This is further explained below: - i. For GP1 and GP2 assessments, FIs should be assessing whether the purpose of financing/investment or use of proceeds support climate change mitigation and/or adaptation objectives. In situations where FIs cannot ascertain the purpose of financing/ investment due to various reasons, including absence of information in prospectus (e.g., for bonds), FIs can fall back to evaluate the primary economic activity of the company to determine whether the core operations of the company have a notable impact on climate change mitigation and adaptation efforts. For example, a bond issued by/working capital loan provided to a solar panel manufacturer can qualify to meet GP1. Conversely, a bond issued by/working capital loan provided to a mining company will not qualify to meet GP1. ii. For GP3 and GP4 assessments, FIs shall be guided by the CCPT IG’s GP3 and GP4 Due Diligence questionnaire. iii. For GP5 assessment, FI should be assessing whether the business activities contravene laws or regulation prescribed by the jurisdiction where the company operates. Question What is the threshold that FIs need to use in determining if the client has made substantial contribution in meeting GP1 and/or GP2? Answer FIs are not required to provide specific thresholds and quantitative justifications to substantiate their GP1 and/or GP2 assessments. If the exposures at the transaction level align with the activities outlined in Appendices 3 and 4 of the CCPT GD, then these activities can be considered as meeting GP1 and/or GP2. Question Is the scope of coverage for GP3 limited to environmental factors? Answer GP3 covers environmental and climate factors. Under environmental factors, FIs should assess clients’ overall business impact on pollution, loss of biodiversity and use of energy, water and other natural resources. Under climate factors, FIs should assess the significant GHG emissions and adverse impact to climate arising from overall business operations. FAQ on BNM CCPT \| Version 4.0 3 No. FREQUENTLY ASKED QUESTIONS - GENERAL (d) (e) (f) (g) (h) Question Should the scope of GP3 and GP4 assessment include client’s supply chain? Answer FIs are encouraged to conduct supply chain assessment for GP3 and GP4 where possible, on best effort basis. Question How does transactional level assessment apply to fixed income assets and equities? Answer In general, transactional level assessments are to be conducted by looking at the use of proceeds, i.e., whether the proceeds are being channelled to activities that will contribute to GP1 and GP2 objectives. For fixed income securities, assessments shall be based on information specified in the prospectus. Refer to Q1a(i) for more details. Question Should the guiding principles assessment be expanded to include assessment for facilities that the client has with other FIs? Answer No, the guiding principles assessment shall be conducted only to FIs’ own facility. Question How should FIs justify GP3 and GP4 assessment? Answer The justification to support GP3 and GP4 assessment can be both qualitative and quantitative. Quantitative justification may entail providing data (e.g., GHG emissions, land usage, energy consumption metrics, and the volume of water utilised by their clients). For this purpose, FIs should consider sourcing for relevant data from the SC5 data catalogue. In the absence of available data, FIs to consider using proxy (e.g., relative asset size, revenue, energy consumption), where relevant. More importantly, the justification should be properly documented by FIs. Question Assuming an FI lends to an IHC which owns companies in a myriad of activities, is there an expectation to assess compliance of GP3 and GP4 at the investee company level? Answer Yes, FI should still assess GP3/GP4 at investee company level, but to focus on investee companies with the highest utilisation of funds provided by the IHC, or investees with the most substantial impact to the IHC's performance. Example of proxy info is investees' utilisation of funds, revenue contribution or investment proportion, to IHC. Essentially, the IHC's significant harm to environment and remedial measures are premised based on its most significant investee companies. FAQ on BNM CCPT \| Version 4.0 4 No. FREQUENTLY ASKED QUESTIONS - GENERAL 2. (a) CCPT classification table Question How should exposures that do not meet GP1 and/or GP2, but meet GP3 be classified? Answer Such exposures will be reported under C5b. Kindly refer to updated CCPT classification table below: GP1 GP2 GP3 GP4 Classification GP1 or GP2 or both ✓ C1 Supporting GP1 or GP2 or both ✘ ✓ C2 Transitioning ✘ ✘ ✓ C3 GP1 or GP2 or both ✘ ✘ C4 Watchlist ✘ ✘ ✘ C5a ✘ ✓ C5b 3. (a) (b) Classification of exposures in ‘not elsewhere classified’ and ‘excluded’ from reporting Question Under what circumstances that loans/financing and financial investments can be reported under ‘not elsewhere classified’? Answer Loans/financing and financial investment should only be reported under ‘not elsewhere classified’ if the exposures are pending reviews. These exposures should be gradually classified by January 2025. Question What are the exposures that are excluded from CCPT reporting? Answer a. Corporate credit card loans/financing facilities; b. Current account excess that is reported as overdraft loans/financing; and c. Financial investment instruments exempted from CCPT reporting (refer to list provided in reporting template). 4. (a) Certification and Global Environmental Standards Question In reference to the CCPT document, FIs could rely on certification as one of the criteria in assessing GP3. i. Shall GP3 be considered as met if only a small subset of a client’s business is certified? For example, the client is an integrated palm oil company but only its refinery business is certified. ii. Is it sufficient for FIs to rely on certification obtained to decide as to whether the client’s overall business activities are meeting GP3? FAQ on BNM CCPT \| Version 4.0 5 No. FREQUENTLY ASKED QUESTIONS - GENERAL (b) Answer i. To be considered as meeting GP3 criteria, assessments are to be conducted on the client’s overall business, rather than a small subset of the client’s business. ii. While certification is not mandatory, the crucial aspect lies in FIs comprehending the certification's content and ensuring its adequacy in addressing the relevant GP3 criteria. In cases where the certification lacks comprehensive coverage, FIs should conduct additional assessments on client’s overall business activities to ascertain whether the client meets GP3 requirements. Question How should FIs conduct assessment for areas where local policy requirements/standards differ from global environmental standards? Answer In instances where local requirements are contradictory to global environmental standards, the local requirements shall prevail. 5. (a) (b) Validation and Reconciliation of CCPT Classification and Exposures Question Would there be any penalty for wrongful CCPT classification? Answer While currently there will be no penalty imposed for wrongful classification, FIs are strongly encouraged to ensure accuracy of the CCPT classification. Question Are there any recommendations for reconciliation of CCPT exposures? Answer The CCPT exposures reported should reconcile with exposures reported in the financial statements for the same period, where relevant. This should also tie in with the numbers reported for statistical submission (total and by sector/segment) to the Bank and the same data governance procedures shall apply. 6. Question How should FIs classify new loans/financing and financial investments under ‘prohibited activities’? Answer It is highly unlikely that FIs will be investing in prohibited activities upfront (during onboarding). However, in the event that customers are subsequently found to be involved in illegal activities (post on-boarding), FIs should then reassess and reclassify these exposures as ‘prohibited activities’ while determining the next course of action. 7. Question Do FIs need to review the classification of existing and additional loans/financing and investments, and how frequent should the review be conducted? Answer Yes, FIs need to proactively review existing loans/financing and investments (for event triggered accounts) and reassess additional loans/financing and investments to ensure that the CCPT classification are reflecting the current state of affairs at reporting date. For normal accounts, CCPT classification review should be conducted at least once a year. FAQ on BNM CCPT \| Version 4.0 6 No. FREQUENTLY ASKED QUESTIONS - GENERAL 8. Question In the context of Special Purpose Vehicle (“SPV”), a subsidiary created by a parent company commonly to isolate financial risks, could the parent’s environmental or climate initiatives be considered as part of the SPV’s remedial measures to transition? Answer For a company’s environmental or climate initiatives to be recognized as part of its subsidiary’s remedial measures, the following principles should be evaluated: - i. Depth of relationship between the parent and subsidiary i.e. power of control a parent has on its subsidiary to show evidence that the subsidiary is legally bound to adopt and is adopting its parent’s remedial measures to transition; and ii. Whether or not the parent’s environmental or climate initiatives addresses subsidiary’s harm caused to the environment and other climate risk concerns identified from GP3 assessment. Please note that this principle could be applied to all types of parent-subsidiary relationship other than SPV. - The remaining page is left blank intentionally - FAQ on BNM CCPT \| Version 4.0 7 No. FREQUENTLY ASKED QUESTIONS - LOANS & FINANCING (1) & (2) 9. Question In reference to Loans & Financing (1), does the classification of ‘others’ refer to the aggregation of industry sectors other than those listed in the reporting template? Answer Yes, all loans & financing are to be reported based on the industry sectors listed in the reporting template while the remaining are to be aggregated under ‘others’. 10. Question In reference to Loans & Financing (1), tables (a) and (b) refer to the reporting template applicable to Business non-SME and SME loans. If FIs offer loans only to retail customers, would these FIs be required to report their retail mortgages under the real estate sector classification? Answer No, FIs that offer loans to only retail customers are not required to submit reporting for tables (a) and (b). Retail mortgage loans/financing are to be reported under Loans & Financing (2) tables (c) to (f), provided that the loans/financing satisfy FIs’ green/sustainable product criteria. 12. Question In reference to Loans & Financing (1) and (2), does the reporting of off-balance sheet exposures include undrawn commitments? Answer Yes, the reporting of off-balance sheet exposures for loans/financing does include undrawn commitments. 13. Question In reference to Loans & Financing (1) and (2), does the classification of outstanding loans/financing include defaulted/impaired accounts? Answer Yes, the reporting for outstanding loans/financing does include defaulted/impaired accounts that has yet to be written-off. 14. Question Does the scope of CCPT reporting cover exposures from vendor financing program? If yes, how shall the CCPT assessment be conducted? Answer Yes, the scope of CCPT reporting does cover exposures from vendor financing program. Vendor financing program is a form of lending in which FIs grant working capital credit lines to a vendor who then recommends extension of the credit lines (commonly in the form of corporate purchasing cards) to its principal clients. The credit lines shall be utilised to purchase vendor’s products and inventories. In such scenario, CCPT assessment shall be based on the credit lending principles i.e. to whom the FIs has exposure with. 15. Question How should loans/financing to high net worth clients be classified? Should the transaction be reported under Loans & Financing (1) for non-retail or Loans & Financing (2) for retail product? Answer FAQ on BNM CCPT \| Version 4.0 8 No. FREQUENTLY ASKED QUESTIONS - LOANS & FINANCING (1) & (2) The best way to determine how CCPT should be classified and treated (whether retail or non- retail) is to look at the segmentation of these clients under FIs’ regulatory reporting. If the client falls under retail segmentation, the exposure should be aggregated at product level and reported under Loans & Financing (2). On the other hand, if the client falls under non-retail segmentation, the transaction should be classified C1 to C5 and to be reported under Loans & Financing (1) accordingly. 17. Question In reference to Loans & Financing (2), does the scope of reporting cover personal unsecured loans/financing and credit card facilities? Answer Yes, only if the above mentioned facilities meet the FIs’ green/sustainable product criteria. 18. (a) (b) (c) (d) (a- c) (d) Loans & Financing (2) – Retail Green/Sustainable Product Question What is the scope of 'sustainable product' in this context? Does it only include environmental factors? For auto loan portfolio, shall fuel efficient vehicles and alternatively-fueled vehicles be considered as meeting green/sustainable product criteria? Shall other retail consumer products such as ASB and unit trust loans be considered as green/sustainable? What should be reported in Loans & Financing (2) if FIs do not provide green/sustainable retail loans/financing? Answer While the Bank does not specify scope or criteria for sustainable financial products, the BNM CCPT guiding principles may be used as a baseline in developing the features of FIs’ green/sustainable financial products. FIs should leave the Loans & Financing (2) blank. - The remaining page is left blank intentionally - FAQ on BNM CCPT \| Version 4.0 9 No. FREQUENTLY ASKED QUESTIONS - FINANCIAL INVESTMENT 19. Question What are the figures to be reported for new and outstanding financial investments? Is it based on outstanding amount or approved limit? Answer The reporting figures for new and outstanding financial investments will be based on outstanding amount. 20. Question Would the reporting of new and outstanding financial investments (FVOCI and amortised cost) be based on exposures that are still in the book at the end of reporting period? Answer a) New financial investment for the 6 month period: To reflect the movements in investment assets, the reporting would be based on the change of outstanding amount between two reporting periods (i.e. the difference between outstanding amount for the reporting period and outstanding amount reported for the last reporting period). For example: New financial investments for the 6-month period ended 31 December 2022 = Outstanding financial investments as at 31 December 2022 – Outstanding financial investments as at 30 June 2022 b) Outstanding financial investments as at reporting period: Equivalent to the outstanding amount of exposures that are still in the book at the end of reporting period. 21. Question Would real estate properties purchased by FIs be considered as financial investment asset? Answer No, real estate properties purchased by FIs (regardless of the purpose) would not be considered as financial investment asset. The CCPT reporting template requires FIs to report financial assets as per MFRS 9 financial instruments definition. Real estate properties (physical assets) would not be considered as financial assets as they were not traded on the financial markets and the value was not derived from contractual claims. FIs’ investments in Real Estate Investment Trusts (REITs) on the other hand, would be considered as financial investment assets. In addition, the CCPT IG opined that FIs’ ownership of real estate properties would have been included in its Scope 1 and 2 GHG emissions computation. Hence, the assets should not be reported as part of the CCPT reporting. 22. (a) Scope of Reporting for Financial Investment Assets Question What are the types of financial investment assets subjected to the CCPT classification and reporting? FAQ on BNM CCPT \| Version 4.0 10 No. FREQUENTLY ASKED QUESTIONS - FINANCIAL INVESTMENT (b) (c) (d) Answer All financial investment assets in the banking book as reported in the financial statements except those that are exempted as per 20 (b). Question What are the types of financial investment assets exempted from CCPT classification and reporting? Answer The types of financial investment assets exempted from CCPT classification and reporting are as follows:- i. Instruments issued by sovereign entities (including supranational organisations) ii. Instruments issued by Bank Negara Malaysia iii. Collective investment scheme (CIS) iv. Exchange traded funds (ETS) v. Derivatives and structured products vi. Fixed and call deposits/placements with FIs (classified under amortized cost by ITOs) vii. Investment-linked funds (applicable to ITOs only) Question Are corporate bonds guaranteed by sovereign entities, government-owned entities and Bank Negara Malaysia subjected to the CCPT classification and reporting? Answer Yes, corporate bonds guaranteed by these entities are required to be classified and reported. While it is noted that the information to conduct CCPT assessment for financial instruments issued by these entities may not be sufficient or available at this juncture, but in the spirit of ensuring that financial flows are channeled towards climate resilient and low carbon economy, the CCPT classification and reporting for these financial instruments should not be exempted. Question Does the scope of CCPT reporting include financial instruments issued by local and foreign issuers? Answer Yes, the scope of CCPT reporting include financial instruments issued by both local and foreign issuers. 23. Question Should the reporting requirement for financial investment assets be based on MFRS 9 or MFRS 139 requirements? Answer Financial investment assets should be reported based on MFRS 9 requirement for classification of FVTPL, FVOCI and financial investments at amortised cost. Please note that the MFRS 139 requirement is only applicable to licensed insurer that has applied for temporary exemption from the MFRS 9 requirement. 24. Question Are the CCPT reporting requirements for financial investment assets the same for both commercial banks and ITOs? FAQ on BNM CCPT \| Version 4.0 11 No. FREQUENTLY ASKED QUESTIONS - FINANCIAL INVESTMENT Answer No, the CCPT reporting requirements for financial investment assets are different for commercial banks and ITOs. The reporting for FVTPL is only applicable to ITOs while investment-linked funds are exempted. 25. Question What is the rationale behind reporting of FVTPL (trading book instruments) for ITOs? Answer The rationale is that ITOs could hold FVTPL instruments up to maturity in contrast to the banking institutions. 26. Question Should soft underwritten exposures be included in the CCPT reporting? Answer No, soft underwritten exposures are to be excluded from the CCPT reporting. 27. Question Is there any reference provided for FIs to classify financial investment assets and instruments to streamline the CCPT classification across financial industry? Answer No, FIs are required to make own assessment on the CCPT classification for financial investment assets and instruments. While the Bank does not have a specific reference for classifying these assets, the CCPT guiding principles may be used as a baseline for assessment and classification. - The remaining page is left blank intentionally - FAQ on BNM CCPT \| Version 4.0 12 No. FREQUENTLY ASKED QUESTIONS - INSURANCE / TAKAFUL 28. Question Would life insurers and family takaful operations be required to classify and report investment assets from its investment-linked policy? Answer No, life insurers and family takaful operators would not be required to classify and report investment assets from their investment-linked policies. 29. Question Does the Bank plan to extend the classification of assets by industry sector categorisation to insurance books? Answer As communicated in various platforms, the Bank is currently exploring the applicability of CCPT for insurance and takaful underwriting under Phase 2. 30. Question Does the reporting apply to new products/investments starting from January 2022 onwards? Answer The reporting will be applicable to both new and existing products/investments. Kindly refer to the headings of each table and the Instructions section of the 'Insurance or Takaful Cover' tab. 31. Question Is the information required for Claim Count, Gross Claims Incurred and Net Claims Incurred generated based on the corresponding policy/certificate count for each cover between the corresponding periods or generated based on all claims that occur between the corresponding periods? Answer As per the CCPT Reporting Template Glossary, the Gross Claim Incurred and Net Claims Incurred refer to the claims paid plus increase/less decrease in provisions for outstanding claims liabilities during the 6 month period, gross and net of reinsurance/retakaful recoveries respectively, regardless of the date of occurrence of the claims. 32. Question Do the Gross Claims Incurred and Net Claims Incurred inputs refer to the relevant product claims experience (inclusive of non-flood claims) or confined to the claims related to flood events only? Answer For Crops/Plantations, Electric/Hybrid cars, Solar-energy production, Wind-energy production and Hydro-energy production, the ‘Gross Claims Incurred’ and ‘Net Claims Incurred’ inputs refer to the relevant product claims experience (inclusive of non-flood claims). For Flood under Motor class, Flood under Fire class and Flood under Other class, please refer to the response in question no. 31 below. 33. Question In reference to Insurance or Takaful Cover (1), some FIs are unable to separate the gross earned premium/contribution and net earned premium/contribution for the flood peril and non-flood FAQ on BNM CCPT \| Version 4.0 13 No. FREQUENTLY ASKED QUESTIONS - INSURANCE / TAKAFUL perils for the items Flood under Motor class, Flood under Fire class and Flood under Other class. As such, do they include both flood claims and non-flood claims in the Gross Claims Incurred and Net Claims Incurred? Answer For the items Flood under Motor class, Flood under Fire class and Flood under Other class, the Bank’s objective is to monitor the policy/certificate and claims exposure on flood only. However, the Bank takes note of the difficulties for some FIs to separate the Gross Earned Premium/Contribution and Net Earned Premium/Contribution for the flood peril and non-flood perils. In this regard, the items 13, 14, 15 and 17 of Glossary in the reporting template are superseded with the following definitions: Tab No. Data Item Remarks Insurance or Takaful Cover (1) and (2) 13 Flood under Motor class Refers to all Motor policies/certificates (including for electric/hybrid cars) that cover flood and the premium/contribution for flood can be segregated. 14 Flood under Fire class Refers to all Fire policies/certificates that cover flood and the premium/contribution for flood can be segregated. These shall exclude covers for crops/plantations as well as solar- energy, wind-energy and hydro-energy production. 15 Flood under Other class Refers to all other policies/certificates that cover flood. These shall exclude covers for crops/plantations as well as solar-energy, wind-energy and hydro-energy production. For gross earned premium/contribution and net earned premium/contribution only, these may include all basic covers and add- ons/extensions that cover both flood peril and non-flood perils that cannot be separated from the flood peril. In addition, Motor and Fire policies/certificates that cover both flood peril and non-flood perils that cannot be separated from the flood peril shall be reported here. 17 Electric/Hybrid cars Refers to all Motor policies/certificates that cover electric/hybrid cars. FAQ on BNM CCPT \| Version 4.0 14 No. FREQUENTLY ASKED QUESTIONS - INSURANCE / TAKAFUL The Gross Claims Incurred and Net Claims Incurred shall exclude non-flood claims. For better clarity, FIs shall report the data items under each class based on the following illustration: The Bank expects FIs to improve their internal capabilities to separate the Gross Earned Premium/Contribution and Net Earned Premium/Contribution for the flood peril and other non- flood perils over time. 34. Question Should Contractors' All Risks policy / Erection All Risks policy be included as part of covers for Flood under other class? Answer Yes, if the above mentioned policies include flood cover. 35. Question Which classes of flood data are required for CCPT reporting? Answer Flood data is only required for ‘Flood Cover under Motor/Fire/Other class’. For other classes, please provide the total exposure for both flood and non-flood covers. 36. Question Would this new CCPT reporting replace the current quarterly flood exposure reporting (i.e. by state)? Answer Yes, the new BNM CCPT reporting (version Sep 2022) replaces the current quarterly flood exposure reporting. 37. Question Which worksheet should be populated for policy with flood coverage attached to the standalone green product and would it be acceptable to indicate the policies attached with the premium for flood (if bundled with other products)? Number of Policies/ Certificates Number of Claims Gross Earned Premium/Contribution (RM) Net Earned Premium/Contribution (RM) Gross Claims Incurred (RM) Net Claims Incurred (RM) Flood under Motor class Flood Only Flood Only Flood Only Flood Only Flood Only Flood Only Flood under Fire class Flood Only Flood Only Flood Only Flood Only Flood Only Flood Only Flood under Other class Flood Only Flood Only All Perils (Flood & Non-Flood) All Perils (Flood & Non-Flood) Flood Only Flood Only Insurance/Takaful cover for For the period from 1 Jan 2022 to 30 Jun 2022 FAQ on BNM CCPT \| Version 4.0 15 No. FREQUENTLY ASKED QUESTIONS - INSURANCE / TAKAFUL Answer For policy with flood coverage attached to the standalone green product, FIs are to populate the data in Insurance or Takaful Cover (2). This includes any other additional insurance/takaful products that aid the management of climate-related risks and are not covered by Insurance or Takaful Cover (1). Please provide 'all basic covers and add-ons/extensions that cover flood peril and other non-flood perils that cannot be separated from the flood peril' as per the instructions provided. 38. Question What are the products covered under Insurance or Takaful Cover (2)? Answer Insurance or Takaful Cover (2) is applicable to all Insurance/Takaful products that aid the management of climate-related risks, i.e. not just standalone green products. 39. Question Should environmental liability product be reported under Insurance or Takaful cover (2)? Answer Yes, environmental liability product should be reported under Insurance or Takaful cover (2) if an ITO underwrites this business. 40. Question What is the rationale behind the use of Gross Earned Premium instead of Gross Written Premium? Answer The rationale of using Gross Earned Premium instead of Gross Written Premium is to be consistent with the basis of computing claims ratio (i.e. Gross Claimed Incurred divided by Gross Earned Premium) to assess the adequacy of premium earned for paying claims incurred. Gross Written Premium includes both earned and unearned premium which is deemed not fit for purpose. 41. Question Should the Gross Claimed Incurred count correspond to the policy underwritten during the accounting period? Answer Yes, the Gross Claims Incurred count should be based on all claims that occur during the accounting period. 42. Question Is there any guidance provided on categorizing the data if the required information is unavailable via system? Answer FAQ on BNM CCPT \| Version 4.0 16 No. FREQUENTLY ASKED QUESTIONS - INSURANCE / TAKAFUL In reference to the 'Instructions' section, the data should be provided on a best effort basis and an ITO should ensure that requisite efforts are made to obtain the required data. 43. Question If there is a Fire or All Risks policy being arranged to insure solar panel installed on roof top for energy savings or in return, the energy be generated is sold back to TNB, where should we classify the risk? Answer This should be reported under "Solar-energy production". 44. Question Where the Bioenergy risks should be reported? Answer Bioenergy risks should be reported in the Insurance or Takaful Cover (2). 45. Question In reference to Insurance or Takaful Cover (1), where should ‘Directors and Officers Liability’ cover for hydro-energy production be reported? Answer ‘Directors and Officers Liability’ cover for hydro-energy production should be reported under hydro-energy production cover. 46. Question For General Insurance, the largest segment is Motor where it is catered for individuals. How would GP1 and GP2 be applied to individuals? Answer Currently this provision is out of scope, the CCPT reporting template does not require it at the moment. 47. Question Are policy loans required to be classified in the CCPT reporting template? Answer Policy loans are considered individual loans as opposed to retail loans. As such, they are not required to be classified. - The remaining page is left blank intentionally - FAQ on BNM CCPT \| Version 4.0 17 Acronyms ASB Amanah Saham Bumiputera CCPT Climate Change Principle-based Taxonomy C1 Category 1 – Climate supporting C2 Category 2 – Transitioning C3 Category 3 – Transitioning C4 Category 4 – Watchlist C5 Category 5 - Watchlist FI Financial Institution FVOCI Financial investments at fair value through other comprehensive income FVTPL Financial investments at fair value through profit and loss GP1 Guiding Principle 1 – Climate change mitigation GP2 Guiding Principle 2 – Climate change adaptation GP3 Guiding Principle 3 – No significant harm to the environment GP4 Guiding Principle 4 – Transition and remedial efforts GP5 Guiding Principle 5 – Prohibited activities GHG Greenhouse Gas ITO Insurance and Takaful Operators MFRS Malaysia Financial Reporting Standards REIT Real Estate Investment Trust SME Small Medium Enterprise FAQ on BNM CCPT \| Version 4.0 18 Acknowledgements PRIMARY AUTHORS Commercial Bank Insurance Company ▪ Maybank ▪ AIA Insurance CONTRIBUTORS Commercial Bank Insurance Company ▪ Agrobank ▪ AIA General ▪ Bangkok Bank ▪ AIA Public Takaful ▪ Bank Islam ▪ AIG ▪ Bank of America ▪ Am General Insurance ▪ CIMB Bank ▪ Am Met Life ▪ Hong Leong Bank ▪ Etiqa ▪ Mizuho Bank Malaysia ▪ Gibraltar BSN Life ▪ OCBC Al-Amin Bank ▪ Great Eastern Life Insurance ▪ OCBC Bank Malaysia ▪ Hong Leong Assurance ▪ Public Bank ▪ Hong Leong MSIG Takaful ▪ RHB Bank ▪ Liberty Insurance ▪ Standard Chartered Malaysia ▪ Lonpac Insurance ▪ Malaysian Life Reinsurance ▪ Manulife Insurance Asset Management Company ▪ MCIS Insurance ▪ MPI General ▪ MNRB Holdings ▪ Pacific & Orient Insurance Co ▪ UOB Asset Management ▪ Prudential Assurance Malaysia ▪ Sun Life Malaysia Assurance ▪ Swiss Re Malaysia ▪ Syarikat Takaful Malaysia Keluarga ▪ Syarikat Takaful Malaysia Am ▪ Tokio Marine Life Insurance Malaysia ▪ Tokio Marine Insurance Malaysia ▪ Tune Malaysia ▪ Zurich Insurance A special thanks to BNM Climate Change Team. Guidance Notes for DDQ for GP3 & GP4 1 Guidance Notes In answering the due diligence questions for Guiding Principles 3 and 4 2 Due Diligence Questions: GP3 – No Significant Harm to the Environment No Guidance Notes GP3 – General 1.1 Risk identification (General) a) Use existing internal databases or any other publicly available source to screen for the Client’s related legal/ negative news vis-à-vis climate/ environmental related issues. see SC5 Climate Data Catalogue Data Items: No.127 - Litigation claims and cases 1.2 Risk management (General) a) The client should list down measures being taken to address the climate/ environmental concerns. This may include obtaining necessary approvals or permits under the jurisdiction where it operates. GP3 – Pollution 2.1 Risk identification (Pollution) a) Hazardous chemicals and materials Hazardous chemicals and materials include Dichlorodiphenyltrichloroethane (“DDT”), Polychlorinated biphenyl (“PCBs”) and other chemicals listed in the Industry Code of Practice on Chemical Classification and Hazard Communication issued by the Department of Occupational Safety and Health Malaysia (“DOSH”), as well as those listed in international conventions such as the Stockholm Convention on Persistent Organic Pollutants, the Montreal Protocol, or Basel Convention (Annex VIII hazardous wastes list). Note: See list of Hazardous Substances under Regulation 15, Environment Quality Act 2014. Waste and pollutants The Client should avoid the release and use of waste and pollutants or, when avoidance is not feasible but still within permissible limits, minimise and/or control the intensity and mass flow of their release to air, water and/or soil. Assessment of waste and pollutions can be considered in accordance with the Environmental Quality Act (1974). Specifically for water pollution: Water quality parameters that can be assessed include, but not limited to the following: • Biochemical oxygen demand (“BOD”) • Chemical oxygen demand (“COD”) • Total suspended solids (“TSS”) • Mass of nutrients (e.g. nitrogen and phosphorous) • Mass of inorganic pollutants (e.g. heavy metals and chemical compounds) Sectoral data can be used as a benchmark in assessing the significance of hazardous chemical/ materials and waste/ pollutants produced by the Client. see SC5 Climate Data Catalogue Data Items: No.84 - Waste Management Indicators (e.g. Solid Waste Disposed) No. 85 - Waste recycled No.86 - Treated Wastewater https://www.jc3malaysia.com/data-catalogue https://www.doe.gov.my/wp-content/uploads/2021/08/list-of-hazardous-substances.pdf https://www.jc3malaysia.com/data-catalogue 3 No.88 - Water management indicators (e.g. water allocation and management) No.89 - Water quality at river basins No. 90 - Marine water quality No. 91 - Water: Standardised Precipitation - Evapotranspiration Index No. 92 - Soil Water Index No. 93 - Groundwater quality No. 103 - Volume of pesticides No. 104 - Volume of plastics No. 105 - Coastal and freshwater eutrophication No. 106 - Air Quality No. 107 - Air pollution index (“API”) 2.2 Risk management (Pollution) a) Hazardous chemicals and materials The Client should implement internal control measures for hazardous waste management relevant to the substances resulting from its business activities, in line with regulatory requirements. This should cover production cycles from hazardous waste generation, transportation, recycling, disposal and treatment. For further reference, can refer to DOE’s Hazardous Substances Management. Waste and pollutants Where waste cannot be recovered or reused, the Client should treat, destroy, or dispose of waste in an environmentally sound manner that includes the appropriate control of emissions and residues resulting from the handling and processing of the waste material. • The Client should demonstrate within its waste and effluent management effort the separation process between hazardous waste (listed by the regulators), characteristic waste (not listed, but nevertheless might still be hazardous due to it being ignitable, corrosive, reactive or toxic) and universal waste. Hazardous waste would require stricter handling than characteristic and universal wastes. • The Client should provide details of the key waste streams generated and how these are managed and disposed of, including any particular waste management initiatives that have been implemented to minimise and/or recycle waste. • The Client should, as best practice, report evidence of reduction in plastic use and waste from operations, identifying the proportion of recycled plastic products and proportion of virgin polymer use and single-use plastics, with indications on reduction targets. • The Client should, as best practice, regularly report air quality parameters of air emissions identified as harmful pollutants by the relevant regulations and international bodies for its industry. This shall include nitrous oxides (“NOx”), sulphur oxides (“SOx”), persistent organic pollutants (“POP”), volatile organic compounds (“VOC”), hazardous air pollutants (“HAP”), particular matter (“PM”) and other standard categories of air pollutants. For further reference, can refer to: DOE’s Environmental Quality Air Regulations 1978 and DOE’s guidelines on emission monitoring systems. • A Client in the agriculture sector should demonstrate that it has implemented an integrated pest management and/or integrated vector management approach, where the use of chemical pesticides has minimal effects on non-target species and the environment. Pest management activities include the use of chemical pesticides, where the Client should select chemical pesticides that are low in human toxicity, that are known to be effective against the target species and have minimal effects on non-target species as well as the environment. The selection of chemical pesticides should consider its packaging (i.e. packaged in safe containers), labelling (i.e. clearly labelled for safe and proper use) and that the pesticides have been manufactured by an entity licensed by relevant regulatory agencies. For further reference, can refer to DOE’s Regulations on Scheduled Waste Management. https://www.doe.gov.my/en/hazardous-substances-management/ https://www.doe.gov.my/wp-content/uploads/2021/11/Environmental_Quality_Clean_Air_Regulations_1978_-_P.U.A_280-78.pdf https://www.doe.gov.my/wp-content/uploads/2021/11/Environmental_Quality_Clean_Air_Regulations_1978_-_P.U.A_280-78.pdf https://www.doe.gov.my/wp-content/uploads/2021/08/Volume-I-Guideline-for-the-Installation-Maintenance-of-Continuous-Emission-Monitoring-Systems-CEMS-Version-6.pdf https://www.doe.gov.my/en/environmental-quality-scheduled-waste-amendment-regulations-2007-p-u-a-158-2007/ 4 GP3 – Ecosystem & Biodiversity 3.1 Risk identification (Ecosystem & Biodiversity) a) Environmentally sensitive areas (“ESAs”) or key biodiversity areas (“KBAs”) typically refer to geographic regions or locations that are recognised for their high ecological significance and the presence of diverse and often unique species of flora and fauna. Such areas are considered important for the conservation of biodiversity due to the richness and variety of life forms they support. These areas are commonly: • Protected areas on national, regional, and international lists • Areas of high biodiversity value and high conservation value (“HCV”) • Biodiversity hotspots • IUCN Protected Area Management Categories • IUCN Green List • UNESCO Man and the Biosphere Reserves • UNESCO Natural World Heritage Sites • Ramsar Convention The Client should disclose the location of its business operations that are in or adjacent to ESAs and KBAs. As best practice, this is to be done by including GPS coordinates in decimal degrees, i.e. Decimal degrees (“DD”): 41.40338, 2.17403. Degrees, minutes, and seconds (“DMS”): 41°24'12.2"N 2°10'26.5"E. Degrees and decimal minutes (“DMM”): 41 24.2028, 2 10.4418. To identify key biodiversity areas, the Client can use data from tools such as Integrated Biodiversity Assessment Tool (“IBAT”) and Global Forest Watch. Maps of ESAs can be referred to those published in the National Physical Plan 3 and 4. see SC5 Climate Data Catalogue Data Items: No. 95 - Map of Biodiversity Risks Hotspots (e.g. high conservation value forests, high biodiversity value ecosystems etc.) No. 97 - Map of ESAs No. 98 - Forest Change (e.g. Forest Loss, Tree Cover Loss, Location of Tree Cover Loss, FAO Deforestation) b) Business activities may impact nature through, but not limited to the following: • Habitat Destruction: Clearing land/ deforestation for infrastructure, agriculture, or other business activities can lead to the destruction of natural habitats, directly impacting the species living there. • Invasive Species: The introduction of non-native species through business activities (intentionally or unintentionally) can disrupt local ecosystems, outcompeting or preying on native species. To gain a comprehensive understanding of the Client's operations, including production processes and distribution channels to identify key activities that may have an impact on biodiversity, the following can be considered: • Lifecycle analysis of the Client's products or services to understand the environmental impact throughout their entire lifecycle. • Land use changes associated with the Client's operations. This includes deforestation, habitat conversion, or changes in land cover. • Threat to endangered or vulnerable species (e.g. protected species on national and regional conservation lists and IUCN Red List) and consider the presence of invasive species associated with the Client's operations. Examples of tools that can be used to include ENCORE, WWF’s Biodiversity Risk Filter1 (“BRF”) and IBAT. 1 WWF’s BRF tool uses location-specific company and supply chain data to help companies screen, assess and respond to biodiversity risks and potential opportunities across direct operations and value chains. The tool launched in January 2023, as part of an integrated WWF Risk Filter Suite, which will also host WWF’s Water Risk Filter tool. https://www.ibat-alliance.org/ https://www.ibat-alliance.org/ https://www.globalforestwatch.org/ https://myplan.planmalaysia.gov.my/www/ https://myplan.planmalaysia.gov.my/www/ https://www.jc3malaysia.com/data-catalogue https://www.encorenature.org/en https://riskfilter.org/ https://www.ibat-alliance.org/ 5 3.2 Risk management (Ecosystem & Biodiversity) a) Internal measures incorporated into the processes by the Client may include the following: • Produce and expand production exclusively on lands that were deforested or converted prior to any agreed cut-off date. • Rehabilitate degraded land and preserve ecosystem services through responsible production practices on already converted land. • Reduce the need for expansion into natural ecosystems by improving smallholders’ yields through the implementation of more sustainable and efficient agricultural practices. • Adopt No Deforestation, Peat, and Exploitation (“NDPE”) policy. • Have science-based metrics that integrate biodiversity (e.g. IUCN Guidelines for planning and monitoring corporate biodiversity performance and Species Threat Abatement and Restoration (“STAR”) metric). GP3 – Efficient Use of Resources 4.1 Risk identification (Efficient Use of Resources) a) Clients with high dependencies on water/other natural resources must show good resource management within their business to ensure the sustainability of the natural resources. Sectoral data can be used as a benchmark in assessing the significance of water/other natural resource consumption within a Client’s business operations. Tools such as ENCORE and WWF’s BRF can be used to identify and assess a Client’s dependence on natural capital based on its geographic location and sector. see SC5 Climate Data Catalogue Data Items: No. 87- Water consumption No. 88 - Water management indicators (e.g. water allocation and management) No. 89 - Water quality at river basins No. 90 - Marine water quality No. 91 - Water: Standardised Precipitation - Evapotranspiration Index No. 92 - Soil Water Index No. 93 - Groundwater quality No. 94 - Water stress area 4.2 Risk management (Efficient Use of Resources) a) Internal measures incorporated into the processes by the Client may include the following: • Use appliances that fulfil requirements of relevant national legislations • Use of additional technically feasible resource conservation measures within the Client’s operations • Use of alternative resource supplies to reduce total demand for resources to be within the available supply • Evaluation of alternative project locations to areas where resources are abundant • Disclose resources and inputs used according to an international standard • Disclose organisms that was exploited for commercial uses, including wild animal and plant species • Disclose remediation measures related to direct exploitation of resources, to avoid overexploitation negative effects on rare, endangered or threatened species GP3 – GHG Emissions 5.1 Risk identification (GHG Emissions) a) Annual GHG assessment must be complete, accurate, transparent, consistent, and relevant. Factors to consider: • The intensity of the company’s GHG emissions in comparison with the industry average or other acceptable benchmark (e.g. sectoral data) • Indicating GHG emission verification or assurance status, if any https://www.jc3malaysia.com/data-catalogue 6 Examples of GHG emission metrics: • Absolute Scope 1, Scope 2, and Scope 3 GHG emissions • Weighted average carbon intensity • GHG emissions per MWh of electricity produced/ per physical unit (e.g. building floor area) / per economic unit (e.g. revenue) The production and consumption of energy contribute significantly to GHG emissions, primarily through the burning of fossil fuels such as coal, oil, and natural gas. The key aspects related to energy usage that are considered in assessing GHG emissions include: 1. Scope 1 Emissions: These are direct emissions from sources that are owned or controlled by the client. This can include on-site combustion of fossil fuels for heating, cooling, or power generation. 2. Scope 2 Emissions: These are indirect emissions associated with the generation of purchased or acquired electricity, heat, or steam. The carbon intensity of the electricity grid in the region where the client operates plays a significant role in determining Scope 2 emissions. Organisations can assess and report these emissions by using factors such as the emissions factor of the grid. 3. Scope 3 Emissions: These are indirect emissions that occur in both upstream and downstream activities of the client. Energy usage throughout the transportation of goods, and the use of products and services by clients fall under Scope 3 emissions. To quantify the GHG emissions from energy usage, client may often use emission factors that represent the amount of carbon dioxide or other greenhouse gases emitted per unit of energy consumed. These factors can vary based on the type of energy source (e.g., coal, natural gas, renewable sources) and the location. see SC5 Climate Data Catalogue Data Items: No. 1 - Greenhouse Gas (GHG) emissions Scope 1, Scope 2 No. 2 - GHG emissions Scope 3 No. 3 - GHG inventory No. 5 - GHG emission intensity No. 6 - Economic sectors’ contribution to gross domestic product (GDP) and GHG emissions No. 7 - Vehicle GHG emissions No. 11 - Emission intensity performance of buildings in Malaysia No. 12 - Emission factors by Scope 1, 2 and 3 No. 13 - Emission intensity per revenue No. 14 - Monitoring of insurance-related emissions No. 16 - Source of the global warming potential (GWP) rates used 5.2 Risk management (GHG Emissions) a) Common measures to reduce emission/decarbonisation strategy, include but not limited to: • Use renewable energy o Onshore and/or offshore wind power generation o Onshore and floating solar photovoltaic (“PV”) power generation • Rehabilitation, retrofitting and/or replacement with energy-efficient technology o Replacement of existing heating/cooling systems in buildings with non-fossil fuel powered systems o Energy-efficient vehicles and transport (e.g. hybrid cars) • Restoring, maintaining, conserving, and strengthening of natural land-based carbon stock and sinks (for LULUCF only) o Avoidance/ suspension of deforestation o Afforestation and reforestation o Restoration or rehabilitation of forests, croplands, peatlands, grasslands and wetlands o Sustainable forest and agricultural management o Forest and peatland conservation https://www.jc3malaysia.com/data-catalogue 7 Due Diligence Questions: GP4 – Remedial Measures No Guidance Notes Plans undertaken for remediation of significant harm to the environment b) The planned remediation measures should be significant enough to address the issues in concern and commensurate with the Client’s capital structure, risk appetite, complexity, activities, size, and other appropriate risk-related factors. The plan should have a clearly defined and realistic timeline for completion. For instance, the Client’s net zero target can include the following criteria: • Targets should have clear and detailed plans outlining the specific steps and strategies to achieve them. • Targets should be designed in consideration of the Client’s strategy and risk management processes. The Client should set targets at the level (e.g. aggregate, sector, portfolio) that best suits its business activities and strategy. • Targets should be linked to defined metrics in order to measure and track progress against targets. c) The Client should engage relevant impacted stakeholders for better responsiveness, coordination and effectiveness of risk reduction and management policies targeted at addressing the identified significant harm.	Public Notice
08 Jan 2024	Draf Dedahan Skim Pembiayaan Mikro	https://www.bnm.gov.my/-/draf-dedahan-skim-pembiayaan-mikro	https://www.bnm.gov.my/documents/20124/938039/ed_Skim_Pembiayaan_Mikro_Policy.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/draf-dedahan-skim-pembiayaan-mikro&languageId=ms_MY	Reading: Draf Dedahan Skim Pembiayaan Mikro Share: 2 Draf Dedahan Skim Pembiayaan Mikro Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1210 pada Isnin, 8 Januari 2024 8 Jan 2024 Draf dedahan ini menggariskan keperluan dan panduan yang disemak semula mengenai Skim Pembiayaan Mikro (SPM), Kemudahan Perusahaan Mikro (MEF) dan dasar berkaitan kewangan mikro yang lain. Ini termasuklah pemboleh strategik untuk melengkapkan rangka kerja SPM, keperluan dasar untuk menyediakan rangka kerja kawal selia yang lebih memudahkan dan sesuai untuk tujuan pelaksanaan SPM, serta keperluan operasi yang disemak semula yang mesti dipatuhi oleh institusi kewangan sebelum dan semasa penyertaan mereka dalam SPM dan untuk penggunaan MEF. Bank Negara Malaysia (BNM) mempelawa maklum balas bertulis mengenai cadangan dalam draf dedahan ini, termasuk cadangan mengenai perkara yang perlu dijelaskan atau dihuraikan dan sebarang cadangan alternatif yang perlu dipertimbangkan oleh BNM. Maklum balas bertulis hendaklah disokong dengan rasional yang jelas, disertakan dengan bukti atau ilustrasi yang sesuai, untuk memudahkan penilaian BNM. Maklum balas mesti diserahkan secara elektronik kepada Bank sebelum 5 April 2024 kepada [email protected]. Maklum balasyang diterima boleh didedahkan kepada umum melainkan kerahsiaan diminta secara khusus untuk keseluruhan atau sebahagian daripadanya. Tarikh Penerbitan 5 Januari 2024 Jabatan Pengeluar Jabatan Rangkuman Kewangan Dokumen Draf Pendedahan Skim Pembiayaan Mikro Bank Negara Malaysia 8 Januari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Issued on: 05 January 2024 BNM/RH/ED 028-26 Skim Pembiayaan Mikro Exposure Draft Applicable to: 1. Licensed banks, including licensed digital banks 2. Licensed Islamic banks, including licensed Islamic digital banks 3. Prescribed development financial institutions Skim Pembiayaan Mikro Issued on: 05 January 2024 As part of the Financial Sector Blueprint 2022-2026 (FSBP) initiative to reinforce the finance ecosystem for microentrepreneurs (MEs), Bank Negara Malaysia (BNM) is holistically reviewing the microfinance ecosystem, including the Skim Pembiayaan Mikro (SPM) and Micro Enterprises Facility (MEF). The review seeks to ensure these policy measures remain relevant and effective in providing access to loan/financing for the unserved or underserved MEs. This exposure draft sets out BNM’s proposed requirements and guidance on SPM that aims to better serve the needs of the MEs and to attract greater participation of financial institutions to achieve greater financial inclusion. BNM invites written feedback on the proposed requirements of this exposure draft, including suggestions on areas to be clarified or elaborated and any alternative proposals that BNM should consider. The written feedback should be supported with clear rationale, accompanied with evidence or illustrations as appropriate, to facilitate BNM’s assessment. In addition to providing general feedback, respondents are also requested to respond to the specific questions set out in this exposure draft. Responses must be submitted by 05 April 2024 to: Director Financial Inclusion Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur E-mail: [email protected] Electronic submission is encouraged. Submissions received may be made public unless confidentiality is specifically requested for the whole or part(s) of the submission. In the course of providing your feedback, you may direct any queries to the following officers: 1. Sherina Supartin ([email protected]) 2. Wan Nur Lyana Md Yusof ([email protected]) 3. Anas Naqieb Muda ([email protected]) 4. Thum Chiean Tien ([email protected]) Skim Pembiayaan Mikro Issued on: 05 January 2024 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction...................................................................................................... 2 2 Applicability ..................................................................................................... 4 3 Legal provisions .............................................................................................. 4 4 Effective date................................................................................................... 4 5 Interpretation ................................................................................................... 4 6 Related legal instruments and policy documents ............................................ 7 7 Policy document and and circulars superseded .............................................. 8 PART B POLICY REQUIREMENTS ....................................................................... 9 8 Skim Pembiayaan Mikro (SPM) .................................................................... 10 9 Incentives for Participating Financial Institutions .......................................... 14 10 Microfinance delivery channels .................................................................... 16 11 Digitalisation and technology-driven innovations .......................................... 18 12 Microfinance logo and client charter ............................................................. 19 PART C OPERATIONAL REQUIREMENTS ........................................................ 22 Application and notification procedures related to SPM, MEF and microfinance branches ................................................................................ 23 14 Reporting requirements ................................................................................ 25 Appendices ............................................................................................................. 26 Appendix 1 Guiding Principles of Unserved and/or Underserved MEs ..................... 26 Appendix 2 Application Template to Classify Product under SPM ........................... 29 Appendix 3 Report Template for Microfinance Access Points .................................. 35 Appendix 4 National Microfinance Logo ................................................................... 37 13 Skim Pembiayaan Mikro 1 of 37 Issued on: 05 January 2024 Skim Pembiayaan Mikro 2 of 37 Issued on: 05 January 2024 PART A OVERVIEW 1 Introduction 1.1 Skim Pembiayaan Mikro (SPM) is a scheme that was launched in 2006 to enable viable microentrepreneurs (MEs) to have easy, fast and convenient access to business financing without collateral from participating financial institutions (PFIs). Prior to 2006, the microfinance ecosystem was mainly spearheaded by Amanah Ikhtiar Malaysia (AIM) and Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN) Nasional. The microfinance landscape in Malaysia has evolved and continues to grow with wider options in terms of financial service providers, financial instruments and product range. SPM has, thus far, positively contributed to the sustained rise in microfinancing supply by PFIs over the years. To date, a total of 11 PFIs offer more than 30 microfinancing products under SPM, providing access to financing to more than 300,000 MEs. This initiative has also expanded the accessibility of microfinancing to the unserved or underserved (U/US) segments of the MEs, such as informal businesses, B40 and low income MEs, as well as young businesses as outlined in Appendix 1. 1.2 The Financial Sector Blueprint 2022-2026 (FSBP) has introduced various initiatives to reinforce the finance ecosystem for MEs while promoting an inclusive and sustainable microfinance sector within Malaysia’s financial system. BNM is introducing an enhanced SPM framework with strategic enablers that aims to achieve the following desired outcomes: (a) higher access to and take up of financing by MEs from PFIs; (b) better outreach and service quality by PFIs to MEs, particularly to the U/US segments; (c) wider options of financing products and non-financial services (e.g. capacity building programmes) for MEs to support upward migration; Skim Pembiayaan Mikro 3 of 37 Issued on: 05 January 2024 (d) improved capability of MEs to secure loan/financing and to allow PFIs to accurately assess the MEs; and (e) more vibrant landscape with greater participation by financial institutions (FIs) and players within the microfinance ecosystem (e.g., Credit Guarantee Corporation Malaysia Berhad (CGC), CGC Digital Sdn Bhd (CGC Digital), Agensi Kaunseling dan Pengurusan Kredit (AKPK)) offering innovative products and non-financial services. 1.3 This policy document outlines the enhanced SPM framework, which contains requirements which must be complied with by FIs, as follows: (a) Part B – consolidated, revised and proportionated policy requirements to provide a more enabling and fit-for-purpose regulatory framework for the implementation of SPM; and (b) Part C – revised operational requirements to be undertaken by FIs before and during their participation in SPM and for the utilisation of MEF. 1.4 The SPM framework is complemented by six identified strategic enablers. The strategic enablers are designed to play a pivotal role in ensuring the success and resilience of the SPM initiative, fostering a robust and sustainable environment within the broader microfinance landscape. Diagram 1: Strategic Enablers for Enhancement of Microfinance Ecosystem Skim Pembiayaan Mikro 4 of 37 Issued on: 05 January 2024 2 Applicability 2.1 This policy document is applicable to all FIs as defined in paragraph 5.2. 3 Legal provisions 3.1 The requirements in this policy document are specified pursuant to: (a) sections 47, 123, 143 and 144 of the Financial Services Act 2013 (FSA); (b) sections 57, 135, 155 and 156 of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 41, 42C and 116of the Development Financial Institutions Act 2002 (DFIA). 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA, section 277 of the IFSA and section 126 of the DFIA. 4 Effective date 4.1 This policy document comes into effect on [the issuance of the final policy document]. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA and DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document- “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplement and transitional provisions that must be complied with. Non-compliance may result in enforcement actions; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; Skim Pembiayaan Mikro 5 of 37 Issued on: 05 January 2024 “collateral” refers to collateral to be pledged by a customer with an FI as security to the SPM loan/financing and claims are enforceable under the Law of Malaysia. This may include property, cash, unit trust, gold and deposit; “credit guarantee provider” refers to an institution that assists MEs to gain access to loan/financing facilities from PFIs, by providing guarantee cover on such facilities such as CGC and Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP); “financial institution” or “FI” refers to the following: (a) a licensed bank under the FSA (including a licensed digital bank); (b) a licensed Islamic bank under the IFSA (including a licensed Islamic digital bank); and (c) a prescribed development financial institution under the DFIA; “licensed digital bank” refers to- (a) a person licensed under section 10 of the FSA to carry on banking business which is carried on wholly or almost wholly through digital or electronic means; or (b) a person licensed under section 10 of the IFSA to carry on Islamic banking business which is carried on wholly or almost wholly through digital or electronic means; “Micro Enterprises Facility” or “MEF” refers to a facility under BNM’s Fund for SMEs (the BNM Fund) that is channelled through PFIs of SPM with the objective of increasing access of collateral-free loan/financing for MEs; “microentrepreneurs” or “MEs” refer to: (a) microenterprises as defined in the Guideline for SME Definition1 issued by SME Corporation Malaysia; and 1 Guideline for SME Definition issued by SME Corporation Malaysia is available at www.smecorp.gov.my http://www.smecorp.gov.my/ Skim Pembiayaan Mikro 6 of 37 Issued on: 05 January 2024 (b) self-employed individuals who undertake his/her own business activities to earn a living and his/her business is not registered with any authorities outlined in the Guideline for SME Definition. This may include gig workers on digital platforms2, participants of the iTEKAD programme3 and social enterprises4; “microfinance access point” or “MAP” refers to a place or designated location, either physical or virtual that at a minimum, displays information, provides marketing and/or facilitates an application for an SPM product. This includes: (a) a PFI’s bank branch, business centre, microfinance centre or digital channels (e.g., internet banking, website); (b) an appointed agent or strategic partner; and/or (c) a third-party digital channel such as imSME platform5; “participating financial institution” or “PFI” refers to an FI that is participating in SPM by offering SPM products to MEs; “SPM products” refer to the products offered by a PFI which fulfils the eligibility criteria stipulated in paragraph 8.1; “unserved or underserved segment” or “U/US segment” refers to a group of MEs whose needs for financial products and services are not adequately served or met, amongst others, as determined in accordance with the guiding principles in Appendix 1. 5.3 For the purposes of sections 121(b) and 121(c)(ii) of the FSA, 133(b) and 133(c)(ii) of the IFSA and 42A(b) and 42A(c)(ii) of the DFIA, BNM specifies that a financial consumer means microentrepreneurs as defined in paragraph 5.2. 2 Gig workers on digital platforms as defined by PENJANAGIG (i.e., individuals involved in carrying out tasks or work through a service provider platform on digital applications to earn income). 3 Participants of the iTEKAD programme refers to eligible low-income micro entrepreneurs, subject to the terms and conditions outlined by respective participating FI. 4 Refers to social enterprises that comply to the definition of microenterprises. 5 imSME (www.imsme.com.my) is an online SME financing platform which identifies suitable financing solutions offered by FIs for SMEs and connects them via one platform. http://www.imsme.com.my/ Skim Pembiayaan Mikro 7 of 37 Issued on: 05 January 2024 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments, policy documents, guidelines or circulars issued by BNM, as amended from time to time, in particular: (a) Circular on Fair Debt Collection Practices issued on 1 October 2007; (b) Dear CEO Letter on Update on Khidmat Nasihat Pembiayaan @ CGC and AKPK issued on 20 September 2023. (c) eFIRST Participation and Operational Rules issued on 30 June 2016; (d) Guidelines on Basic Banking Services issued on 10 December 2004; (e) Guidelines on Basic Banking Services for Islamic Banking Institutions issued on 16 December 2004; (f) Guidelines on Basic Banking Services for Development Financial Institutions issued on 15 April 2009; (g) Guidelines on Complaints Handling issued on 17 December 2009; (h) Guidelines on Imposition of Fees and Charges on Financial Products and Services issued on 10 December 2004; (i) Operational Guidelines on BNM’s Fund for SMEs issued on 1 December 2020; (j) Policy Document on Agent Banking issued on 16 June 2022; (k) Policy Document on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) issued on 31 December 2019; (l) Policy Document on Central Credit Reference Information System (CCRIS) issued on 15 December 2022; (m) Policy Document on Financial Technology Regulatory Sandbox Framework issued on 18 October 2016; (n) Policy Document on the Introduction of New Products issued on 7 March 2014; (o) Policy Document on Personal Financing issued on 15 December 2023; (p) Guidelines on Product Transparency and Disclosure issued on 31 May 2013; (q) Policy Document on Prohibited Business Conduct issued on 15 July 2016; (r) Policy Document on Responsible Financing issued on 6 May 2019; Skim Pembiayaan Mikro 8 of 37 Issued on: 05 January 2024 (s) Specification on Enhancing Access to Financing for Small and Medium Enterprises (SMEs) through imSME, an Online SME Financing Platform issued on 19 January 2018; and (t) Specification on Product Submission for Development Financial Institutions issued on 1 March 2023. 7 Policy document and circulars superseded 7.1 This policy document supersedes the following documents that have been issued by BNM: (a) Dear CEO Letter on Eligible Products that Meet the Bank’s Definition of a Microfinance Product issued on 16 July 2007; and (b) Circular on Establishment of Microfinance Branches by Locally Incorporated Foreign Banks issued on 27 April 2007. Skim Pembiayaan Mikro 9 of 37 Issued on: 05 January 2024 Skim Pembiayaan Mikro 10 of 37 Issued on: 05 January 2024 PART B POLICY REQUIREMENTS 8 Skim Pembiayaan Mikro (SPM) Eligibility Criteria for SPM Product S 8.1 An FI with one or more product(s) that in aggregate fulfils all the following criteria is eligible to classify its product as microfinance product(s) under SPM, thus to be recognised as a PFI of SPM. (a) minimum loan/financing amount of RM5,000; (b) maximum loan/financing amount of up to RM50,000; (c) the purpose of the loan/financing is for business activities, which includes working capital and/or capital expenditure; (d) the loan/financing is offered to MEs; and (e) collateral shall not be required from MEs as a pre-condition to obtain the loan/financing. An FI intending to classify its product as SPM product must comply with the application procedures as set out in paragraph 13.1 and 13.5. Existing products approved by BNM under SPM shall be deemed classified as SPM products and the PFIs offering such SPM products shall be subject to all requirements of this policy document. Question 1: BNM is reviewing to relax the requirement on the minimum loan/financing amount. Based on this, we would like to seek feedback from: (a) MEs – If RM5,000 is no longer the minimum loan/financing amount that must be offered by PFIs under SPM, would this hinder you from obtaining microfinancing? Please provide your views and rationales as well as the proposed minimum loan/financing amount that suits your needs. (b) FIs – How would this impact your institution’s appetite in participating in SPM and offering SPM products? Please provide your views and rationales. Skim Pembiayaan Mikro 11 of 37 Issued on: 05 January 2024 Question 2: BNM is reviewing the adequacy of the current RM50,000 loan/financing limit in meeting the needs of MEs. Based on this, we would like to seek feedback from: (a) MEs – Do you view this amount as sufficient to fulfil your business financing needs? Please provide your views and rationales as well as to illustrate situations when the amount of loan/financing required is beyond the RM50,000 limit. (b) FIs – Based on past experiences in dealing with MEs, does your institution view that the current loan/financing limit of RM50,000 for SPM is sufficient for the MEs? If no, please illustrate: (i) the profiles of such MEs, and their estimated percentage from total volume of ME business; and (ii) the purpose of loan/financing and propose new limit for cases where their needs exceed the limit. G 8.2 Notwithstanding the minimum loan/financing amount set out in paragraph 8.1(a), FIs are encouraged to offer an SPM product with a minimum loan/financing amount of lower than RM5,000. G 8.3 With respect to paragraph 8.1, for the purpose of classifying a product of an FI under SPM, the product can either be a new or existing product. S 8.4 Once the product is classified as SPM product, the PFI shall ensure that the product features of the SPM product continue to fulfil the eligibility criteria stipulated in paragraph 8.1 at all times. A PFI shall notify BNM should the PFI discontinue or change the features of any SPM product(s) or product line(s) in accordance with paragraph 13.3. Illustration for Question 2(b): Ali is an ME who would like to expand his road-side stall business by purchasing a food truck. However, the average price of food trucks is above RM50,000. With the purchase of supplies, equipment fittings and refurbishment of the truck, the total start-up capital required exceeds the current financing limit of RM50,000. Hence, he would not be eligible for financing under SPM. Skim Pembiayaan Mikro 12 of 37 Issued on: 05 January 2024 Source of Funding G 8.5 A PFI has the discretion to determine its source of funding to finance SPM customers, including but not limited to social and/or commercial funds, and MEF. Notwithstanding this, a PFI is highly encouraged to utilise funding sources that could deepen its reach to the U/US segment and/or lower the cost of financing for MEs. De-risking instruments G 8.6 A PFI may establish a financial or credit guarantee arrangement with third parties for risk sharing of the SPM loan/financing on individual or portfolio basis to enhance access to financing. This may include the use of guarantee from credit guarantee providers such as CGC and Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP). G 8.7 A PFI may establish and use risk-absorbent funds to provide more accessible, affordable, and flexible SPM loan/financing to vulnerable segments that face challenges in accessing or fulfilling obligations as customers of commercially driven microfinance. Examples of customers within these vulnerable segments are zakat recipients (asnaf) and low-income MEs. The aforesaid risk-absorbent funds may include: (a) funds sourced from social finance instruments (e.g. donations, corporate social responsibility (CSR) contributions, zakat and cash waqf) as the funding sources for microfinance; (b) social impact investment funds that are sourced from investment accounts6 as the funding sources for microfinance; and/or 6 For example, an investment account based on the concept of two tier Mudarabah, a contract between the capital provider (rabbul mal) and the entrepreneur (mudarib) whereby: • Returns are based on performance of the underlying asset. Any investment profit generated from the Mudarabah venture is shared between the capital provider (rabbul mal) and the entrepreneur (mudarib) according to mutually agreed upfront profit-sharing ratio. • Any investment losses will be borne by the capital provider up to the amount invested and provided that such losses are not attributed by the entrepreneur’s willful misconduct, negligence, fraud or breach of specified terms. Skim Pembiayaan Mikro 13 of 37 Issued on: 05 January 2024 (c) zakat wakalah fund7 for the settlement of microfinance debt to ease the burden of the indebted zakat recipient (asnaf al-gharimin) MEs after all efforts to recover their business are exhausted. Business conduct S 8.8 A PFI that requires its prospective SPM customers to open a dedicated business bank account is not regarded as engaging in prohibited business conduct8 under the Policy Document on Prohibited Business Conduct. S 8.9 The features and terms of the dedicated business bank account referred to in paragraph 8.8 shall be equivalent to or not less favourable than the features and terms of basic current accounts specified under the Guidelines on Basic Banking Services issued on 10 December 2004, Guidelines on Basic Banking Services for Islamic Banking Services issued on 16 December 2004 and Guidelines on Basic Banking Services for Development Financial Institutions issued on April 2009 as may be amended from time to time. G 8.10 A PFI may require its existing and prospective SPM customers to: (a) utilise non-financial value-added services9 as a condition before or after obtaining microfinance under SPM; and (b) report data or information on business performance for impact monitoring by the PFI. S 8.11 Notwithstanding paragraph 8.10(a), any cost arising from the non-financial value- added services, if passed on by PFIs to SPM customers, shall be made affordable10. 7 Refers to the portion of zakat being refunded for the purpose of self-distribution by the zakat payers (on behalf of zakat authorities) directly to asnaf. This is subject to specific rulings and approval by the respective zakat authorities. 8 As set out in Paragraph 5 of Schedule 7 of the FSA and IFSA and paragraph 5 of the Second Schedule of the DFIA. 9 For examples, capacity building programmes, business management solutions. 10 For examples, advanced capacity building programmes and business management solutions (e.g., all- in-one business management solutions that includes e-payments and bookkeeping). Skim Pembiayaan Mikro 14 of 37 Issued on: 05 January 2024 G 8.12 The Policy Document on Responsible Financing issued on 6 May 2019 and Policy Document on Personal Financing issued on 15 December 2023 as may be amended from time to time does not apply to loan/financing under SPM which is solely for business purposes, whether the loan/financing is under an individual’s name or a company’s name. S 8.13 Notwithstanding paragraph 8.12, for loan/financing under an individual’s name, a PFI shall perform due diligence to establish that such loan/financing is for legitimate business purposes and conduct credit assessment on the viability of the customer to make repayment based on the income of the business. S 8.14 In line with the Dear CEO Letter on Update on Khidmat Nasihat Pembiayaan @ CGC and AKPK issued on 20 September 2023, a PFI shall provide adequate explanation, and refer the unsuccessful ME applicants, to Khidmat Nasihat Pembiayaan (MyKNP)@CGC. The MyKNP@CGC platform provides advisory services and alternative sources upon rejection of ME applications to have access to loan/financing. Disclosure of Financing Rate S 8.15 A PFI shall specify the type of financing rate chargeable11 in advertisements, marketing materials and the Product Disclosure Sheet (PDS). In addition, the PFI shall disclose an indicative effective financing rate based on a loan/financing amount of RM50,000 and tenure of five years to facilitate comparison and informed decisions by customers. 9 Incentives for Participating Financial Institutions Micro Enterprises Facility (MEF) S 9.1 An FI intending to utilise MEF as its source of funding for SPM shall comply with the application procedures as set out in paragraph 13.1 and 13.5. 11 Examples of types of financing rates are flat rate, fixed rate or floating rate. Skim Pembiayaan Mikro 15 of 37 Issued on: 05 January 2024 S 9.2 A PFI that obtains funding at concessionary rate under MEF shall ensure that the cost savings from the lower funding cost of MEF is passed on to SPM customers through the loan/financing to be extended to the SPM customers. G 9.3 With respect to paragraph 9.2, a PFI may take into consideration the following in determining the financing rate chargeable to SPM customers for loan/financing funded by MEF, which may vary from time to time: (a) operational costs associated with the usage of MEF; and (b) funding rate of MEF. G 9.4 A PFI may apply for MEF either through individual application (per customer basis) or upfront fund placement (portfolio basis). S 9.5 A PFI that utilises MEF must comply with the following operational requirements issued by BNM, as may be amended from time to time: (a) Operational Guidelines on BNM’s Funds for SMEs; (b) eFIRST Participation and Operational Rule12; and (c) other relevant requirements that BNM may specify from time to time. Stamp duty exemption G 9.6 A PFI is eligible for stamp duty exemption for the instrument of agreement for a loan/financing between the customer and the PFI under SPM for an amount not exceeding RM50,000 in accordance with the Stamp Duty (Exemption) (No. 4) Order 2011 [P.U.(A) 446]13. S 9.7 The information on the exact product name(s) that will be used in the loan/financing agreement between an SPM customer and the FI shall be submitted to BNM as part of the information to be submitted together with the application to classify the FI’s product as an SPM product as set out under item 1(b) of Appendix 2. 12 BNM’s Electronic Funds Integrated System (eFIRST) is an online financing administration system that allows access to FIs to facilitate the approval, disbursement, repayments and interest/profit computation of the financing and advances made by BNM via the BNM Fund. 13 The Stamp Duty (Exemption) (No. 4) Order 2011, and the list of PFIs and their approved Micro Financing Scheme products for stamp duty exemption are available at www.hasil.gov.my/en/stamp- duty/stamp-duty-order. http://www.hasil.gov.my/en/stamp-duty/stamp-duty-order http://www.hasil.gov.my/en/stamp-duty/stamp-duty-order Skim Pembiayaan Mikro 16 of 37 Issued on: 05 January 2024 G 9.8 Upon obtaining confirmation from Lembaga Hasil Dalam Negeri (LHDN) that the product listing eligible for stamp duty exemption on LHDN’s website has been updated, BNM will notify PFIs via email accordingly. S 9.9 A PFI shall ensure that the name of the SPM product in the loan/financing agreement is the same as the information submitted to BNM and the product listing published on LHDN’s website14. 10 Microfinance delivery channels Microfinance branches G 10.1 Following the liberalisation measures announced for the financial services sector on 27 April 2009, a participating locally incorporated foreign bank (participating LIFB) is allowed to establish up to ten microfinance branches in Malaysia, subject to BNM’s prior approval under section 25 of the FSA and section 22 of the IFSA respectively. This is to accord greater branching flexibility for participating LIFBs in promoting financial inclusion by establishing microfinance branches in Malaysia and to expand their outreach in supporting viable MEs and cater to the needs of the U/US. S 10.2 A participating LIFB with microfinance branch(es) is subject to the following requirements: (a) the microfinance branch can only offer SPM products as outlined under paragraph 8.1; and (b) the establishment of additional branches are subject to the effectiveness of the existing ten branches in serving microenterprises. S 10.3 The Chief Executive Officer of a participating LIFB shall provide an annual declaration to BNM on the microfinance branch’s compliance with the requirements stipulated in paragraph 10.2(a). 14 This is to be verified by LHDN for all stamp duty exemption requests received via stamp duty office or Stamp Assessment and Payment Systems (STAMPS). Skim Pembiayaan Mikro 17 of 37 Issued on: 05 January 2024 S 10.4 BNM reserves the rights to revoke the approval granted for the establishment of microfinance branches under section 25 of the FSA and section 22 of the IFSA, as the case may be, should any participating LIFB fail to comply with the requirements stipulated in paragraph 10.2. Leveraging on agents G 10.5 In addition to the services specified under paragraphs 8.6 and 8.8 of the Policy Document on Agent Banking issued on 16 June 2022 as may be amended from time to time, other microfinance-related services that may be provided by agents on behalf of a PFI without BNM’s prior approval, electronically or otherwise, to improve the accessibility of SPM are as follows: (a) act as an alternative customer interface15; (b) provide referral/leads on microfinance application to PFI; and (c) facilitate due diligence on customer identity for microfinance application via devices/system connected to PFI’s back-end system on behalf of PFI. S 10.6 In leveraging on its agent to provide microfinance-related services as stipulated in paragraph 10.5, a PFI shall comply with the following requirements: (a) relevant requirements which include, but not limited to paragraphs 8.14, 9 and 10.2.3(d) of the Policy Document on Agent Banking issued on 16 June 2022 as may be amended from time to time, and other relevant guidelines and policy documents; (b) all potential risks from such arrangement are mitigated with appropriate action plans; (c) PFI shall ensure that there are internal policies and procedures in place to assess the suitability and feasibility of these agents in offering such services; and (d) only agents that facilitate the opening of saving account services are allowed to offer the service stipulated in paragraph 10.5(c), subject to the 15 For example, advertising of SPM product at agents’ premises, postal and courier services to PFI, facilitate or guide customers to apply to the PFI via devices/ system connected to the PFI’s back-end system and facilitate collection of information or data on applicant/ business on behalf of PFI via devices/ system connected to PFI’s bank-end system. Skim Pembiayaan Mikro 18 of 37 Issued on: 05 January 2024 requirements in section 16 of the Policy Document on AML/CFT and TFS for FIs issued on 31 December 2019 as may be amended from time to time. S 10.7 Where agents are appointed to provide microfinance-related services as stipulated in paragraph 10.5, the PFI shall ensure that the agent and agent’s staff do not undertake the following services on the PFI’s behalf: (a) market and provide explanations regarding the SPM product beyond the marketing materials provided by the PFI; (b) receive physical documents from customer; and (c) conduct SPM loan/financing appraisal. S 10.8 In addition to the requirements under paragraphs 10.6 and 10.7, a PFI shall comply with the following requirements: (a) the PFI shall put in place an awareness programme for MEs on the importance of understanding their rights and responsibilities before signing the loan/financing agreement as well as precautionary measures to be taken when dealing with agents; and (b) the PFI shall ensure that agents who facilitate microfinance-related services prominently display the contact details of the PFI’s customer service centre for SPM to facilitate any further inquiry on SPM products and lodging of complaints on agent’s services and misconduct (e.g. the imposition of unauthorised additional charges on MEs). 11 Digitalisation and technology-driven innovations G 11.1 To enhance the efficiency and effectiveness of SPM, a PFI is encouraged to: (a) scale up technology driven innovations in their microfinance business model and products; (b) accelerate and promote adoption of e-payments via business bank accounts among its ME customers, to improve MEs’ traceability and track record building; (c) adopt use of fintech in microfinancing application, origination and processing, such as through the use of automated credit decision and disbursement; and/or Skim Pembiayaan Mikro 19 of 37 Issued on: 05 January 2024 (d) introduce digital microfinancing products 16 with greater outreach capabilities and service quality to provide convenient access to SPM, particularly by the U/US segments. G 11.2 With respect to paragraph 11.1(c), a PFI is highly encouraged to leverage on the imSME platform 17 to ensure that MEs are adequately supported in obtaining loan/financing and to facilitate the loan/financing application process. G 11.3 A PFI is encouraged to adopt alternative data or credit scoring methods to facilitate onboarding of SPM customers and supplement credit decisioning for a more informed decision. G 11.4 A PFI may also adopt digital solutions for self-reporting by SPM customers to facilitate progress and impact monitoring. 12 Microfinance logo and client charter S National Microfinance Logo 12.1 To promote awareness on the availability of SPM products, a PFI shall ensure that the following steps are taken: (a) the national microfinance logo as set out in Appendix 4 (the Logo) for door stickers is displayed at the PFI’s bank branches that offer SPM products. The Logo shall be clearly visible to all customers; (b) the Logo is printed on all new documents and materials related to the PFI’s SPM products, such as application forms, promotional materials, and other applicable materials; and (c) the Logo is displayed at other MAPs that accept SPM loan/financing applications or display information related to SPM, including digital channels18. 16 Digital microfinancing product refers to microfinancing products that are delivered fully via digital channels. 17 imSME (www.imsme.com.my) is an online SME financing platform which identifies suitable financing solution offered by FIs for SMEs and connect them via one platform. 18 For examples, PFI’s website/portal, PFI’s internet banking, imSME platform. http://www.imsme.com.my/ Skim Pembiayaan Mikro 20 of 37 Issued on: 05 January 2024 G 12.2 In addition to the requirements in paragraph 12.1, a PFI is encouraged to: (a) distribute the Logo stickers to customers of SPM; and (b) encourage customers of SPM to display the Logo at their business premises. S 12.3 A PFI shall reproduce the Logo as stickers as per the requirement in paragraph 12.1 based on the following specifications: (a) Colour (i) the Logo shall appear in green19; and (ii) the background of the Logo that forms the frame shall be in white. (b) Logo size and wordings (i) the minimum size of the Logo for stickers to be displayed at a PFI’s physical MAPs20, a strategic partner’s business premises or a SPM customer’s business premises shall be 15.0 cm x 18.5 cm; and (ii) the words “PEMBIAYAAN MIKRO” shall be in capital letters. S 12.4 For the purpose of using the Logo in other documents and materials mentioned in paragraph 12.1(b) and 12.1(c), a PFI shall ensure that the colour and aspect ratio of the Logo are duly observed. G 12.5 With respect to paragraph 12.3, a PFI may request for the softcopy of the Logo by emailing to [email protected]. S 12.6 The Logo is the property of BNM and shall not be used otherwise than as stipulated in this paragraph 12 without the prior written permission of BNM. Microfinance Client Charter S 12.7 A PFI shall prepare a Microfinance Client Charter (the Client Charter) which emphasises on the easy, fast and convenient features of the SPM product and states, at least, the following salient features: 19 Colour coding of ‘Pantone 3165’ for coated and ‘Pantone 322’ for uncoated materials respectively. 20 For examples, bank branches, business centres, microfinance centres, agents. mailto:[email protected] Skim Pembiayaan Mikro 21 of 37 Issued on: 05 January 2024 (a) Easy (i) collateral is not required for SPM loan/financing up to RM50,000; (ii) the application form is simple and easily understood; (iii) the eligibility criteria; and (iv) the necessary documents which must be provided by applicants. (b) Fast (i) the duration for a PFI to approve an application is subject to the receipt of complete documentation from the applicants. A PFI shall ensure that the target approval time21 of an average of six working days is met; and (ii) the duration for a PFI to disburse the loan/financing is subject to acceptance of all parties of the relevant legal documentation and/or completion of training. A PFI shall ensure that the target disbursement time22 of an average of four working days is met. (c) Convenient (i) The SPM product is available at all MAPs that display the Logo. S 12.8 To improve customers’ awareness on SPM, a PFI shall display the Client Charter at relevant MAPs, either through physical and/or digital means to ensure high visibility and accessibility by MEs. 21 Approval time refers to the number of working days upon receipt of complete documentation from the applicants until approval of loan/financing by the PFI. 22 Disbursement time refers to the number of working days from acceptance of all parties (e.g., borrower, guarantor) of the relevant legal documentation and/or completion of training until disbursement of loan/financing. Skim Pembiayaan Mikro 22 of 37 Issued on: 05 January 2024 Skim Pembiayaan Mikro 23 of 37 Issued on: 05 January 2024 13 Application and notification procedures related to SPM, MEF and microfinance branches Application and notification procedures related to SPM and MEF S 13.1 For applications to classify a product of an FI as an SPM product and/or to utilise MEF, an FI shall submit an official letter addressed to the Director of Financial Inclusion Department together with complete information as set out in Appendix 2. G 13.2 In completing the information as set out in Appendix 2, FIs may refer to the examples of existing SPM products of PFIs that are available at www.bnm.gov.my/microfinance. S 13.3 With respect to the requirement in paragraph 8.4, a PFI shall notify BNM in the following events: (a) A PFI that wishes to discontinue any SPM product(s) or product line(s) shall submit an official letter addressed to the Director of Financial Inclusion Department and provide justification for the discontinuance at least 14 working days prior to the discontinuation date. (b) A PFI that wishes to change the features of any SPM product(s) or product line(s) shall provide BNM with updated information as set out in Appendix 2 by emailing to [email protected] at least 14 working days before the effective date. S 13.4 A new PFI shall submit a copy of the Client Charter via official letter addressed to the Director of Financial Inclusion Department by emailing to [email protected] within 14 working days upon receiving notification from BNM that the application to classify its product as an SPM product is successful. http://www.bnm.gov.my/microfinance Skim Pembiayaan Mikro 24 of 37 Issued on: 05 January 2024 S 13.5 The application and/or notification letters to be submitted by a PFI based on the requirements of paragraphs 13.1, 13.3(a) and 13.4 shall be addressed to: Director Financial Inclusion Department Bank Negara Malaysia Jalan Dato’ Onn 50480, Kuala Lumpur Application procedures for microfinance branch S 13.6 Applications for opening of a microfinance branch shall be submitted by a PFI via the Regulatory Approval (eApps portal). The application letter shall be addressed to: Director Banking Supervision Department (JP2) Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Application to participate in Financial Technology Regulatory Sandbox G 13.7 PFIs may submit an application to participate in BNM’s Financial Technology Regulatory Sandbox to test out new microfinance related technology-led innovations and business models that meet the eligibility requirements as set out in the Policy Document on Financial Technology Regulatory Sandbox Framework issued on 18 October 2016 as may be amended from time to time. Skim Pembiayaan Mikro 25 of 37 Issued on: 05 January 2024 S 13.8 Applications to participate in BNM’s Financial Technology Regulatory Sandbox shall be addressed to: Director Financial Development and Innovation Department Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Email: [email protected], cc [email protected] 14 Reporting requirements S 14.1 In monitoring the growth of the microfinance industry, a PFI shall submit the following information to BNM: (a) monthly status report of SPM, Lending Financing Rate/Lending Financing Rate Islamic (LFR/LFRI) and MEF through STATSmart ISP Platform no later than 15 days after each reporting month unless otherwise specified by BNM; and (b) information regarding the MAPs addressed to the Director of Financial Inclusion Department via [email protected] no later than 15 days after 30 June and 31 December of each year. The information required shall be submitted using the template in Appendix 3. S 14.2 In addition to the requirements in paragraph 14.1, a PFI shall submit and update the information pertaining to SPM and MEF (previously known as Micro Enterprise Fund) in the Central Credit Reference Information System (CCRIS) in accordance with the requirements of the Policy Document on Central Credit Reference Information System (CCRIS) issued on 15 December 2022 as may be amended from time to time. S 14.3 A PFI shall submit any other information on SPM or MEF as may be required by BNM from time to time. mailto:[email protected] mailto:[email protected] Skim Pembiayaan Mikro 26 of 37 Issued on: 05 January 2024 APPENDICES Appendix 1 Guiding principles of unserved and/or underserved MEs23 Guiding principles of unserved and/or underserved segments Examples of unserved and/or underserved segments Limited geographical accessibility to financing • Self-employed individuals or micro enterprises living in areas with inconvenient accessibility to microfinance access points (MAPs) where the nearest MAPs are located more than 10km travelling distance away. • Hard-to-reach areas such as rural/remote areas with no proper transportation infrastructure or inaccessible via normal mode of transportation. Low financial take-up or usage or awareness of loan/financing products by FIs • Self-employed individuals or micro enterprises without business banking account or low usage of business banking products. • Self-employed individuals or micro enterprises with low awareness/understanding on business banking products and services. • Individuals or businesses who are discouraged from visiting bank branches. 23 The guiding principles in this policy document are aligned with the principle-based guidance on the financially unserved and underserved under BNM’s Strategy Paper on Financial Inclusion Framework 2023-2026. Skim Pembiayaan Mikro 27 of 37 Issued on: 05 January 2024 Guiding principles of unserved and/or underserved segments Examples of unserved and/or underserved segments • Individuals or businesses conducting transactions or having loan/financing with informal or illegal platforms and financial service provider. Unable to conduct digital/online banking/mobile transactions due to lack of digital literacy, capability or connectivity • Communities who are not technology-savvy or due to physical disabilities. • Micro business owned by persons with disabilities and require assistance to perform financial transactions. • Does not have or use business’s mobile or internet banking for banking and payment transactions. • Resides in areas with poor internet connectivity and unable to subscribe to internet services. Profiles of MEs – high risk, less agile, vulnerable due to personal circumstances • Less agile to adapt to changes in circumstances or life events and falls into financial hardship easily. • Low ability to withstand financial shocks. • Lack of capacity to make own decision and requires assistance to deal with financial institutions. • New business which is less than 3 years in operations. Skim Pembiayaan Mikro 28 of 37 Issued on: 05 January 2024 Guiding principles of unserved and/or underserved segments Examples of unserved and/or underserved segments • Lack of credit history/income history/collateral/document, e.g. audited accounts. • Has limited understanding of the formal processes and procedures to obtain financial services. • Has adverse financial/credit track records. • Business owned by low income individual and gig worker. • Home based business and business without a permanent business location/premise (e.g., night market sellers, hawkers) Difficulty in accessing financial products due to information asymmetry or concerns on commercial viability especially in new growth areas • Not typically suited to traditional bank-based financing and/or risk protection solutions. • Difficulty in accessing loan/financing and/or protection solutions due to information asymmetry or commercial viability concerns given the infancy stage of development. Skim Pembiayaan Mikro 29 of 37 Issued on: 05 January 2024 Appendix 2 Application Template to Classify Product as an SPM Product The application to BNM must be sent to the Financial Inclusion Department via official letter addressed to Director of the Financial Inclusion Department at [email protected]. The application must be sent together with information on the product containing at minimum, the information included in the template below: Criteria to fulfil or information to be provided to classify product as an SPM product Details 1) Product/Programme Name To state: a) The name of product/programme for the following application to be classified as an SPM product; and b) The exact names of the product/programme that will be used in the loan/financing agreement between the SPM customer and PFI. 2) Contract type (for Islamic product only) To state the Islamic contract type i.e. tawarruq, mudharabah etc. Skim Pembiayaan Mikro 30 of 37 Issued on: 05 January 2024 Criteria to fulfil or information to be provided to classify product as an SPM product Details 3) Compliance to the requirements of the Policy Document on the Introduction of New Products and/or other relevant requirements specified by BNM 24 Please indicate ‘Yes’/‘No’, product status (e.g., existing product, new product, material or immaterial change of an existing product) and the date of approval or confirmation obtained from the Chief Risk Officer or other designated senior risk officer identified by the FI. 4) Source and size of fund To clearly indicate the source of fund for the product i.e., FI’s own internal fund/Micro Enterprises Facility (MEF), Others (please specify). If there is a specific allocated fund size, state the amount and whether it is a one-off allocation or on revolving basis. 24 E.g., Specification on Product Submission for Development Financial Institutions issued on 1 March 2023. Skim Pembiayaan Mikro 31 of 37 Issued on: 05 January 2024 Criteria to fulfil or information to be provided to classify product as an SPM product Details 5) Credit Default Risk To indicate who will bear credit risk in case of default e.g., solely by FI, shared between FI and 3rd party. If the risk is shared with 3rd party, please indicate the name of the 3rd party (e.g., CGC, SJPP, Government) and details of risk sharing (e.g., ratio of risk sharing between FI and the 3rd party, threshold of guarantee by 3rd party). 6) Collateral Requirement No collateral shall be imposed for loan/financing under SPM, including SPM funded by MEF 7) Loan/financing Amount – Maximum loan/financing amount of up to RM50,000, with a minimum loan/financing amount of RM5,000 Please specify: • Minimum loan/financing amount; and • Maximum loan/financing amount. Skim Pembiayaan Mikro 32 of 37 Issued on: 05 January 2024 Criteria to fulfil or information to be provided to classify product as an SPM product Details 8) Financing rate chargeable to SPM customer (p.a), inclusive of guarantee fee (if any) 25 For SPM funded by MEF, please specify the distinction of financing rate chargeable to SPM customer for financing funded by FI's own internal fund against MEF (Note: FIs are required to pass the cost-saving from MEF lower funding cost to SPM customer). 9) Purpose of loan/financing - for business activities E.g., working capital; and/or capital expenditure. 10) Target segments To list down: • Target segments (e.g., microenterprises as defined in the Guideline for SME Definition issued by SME Corporation Malaysia and/or self-employed individuals); and 25 FI to specify the type of financing rate chargeable and disclose an indicated effective financing rate p.a. (based on financing amount of RM50,000 for 5 years). Skim Pembiayaan Mikro 33 of 37 Issued on: 05 January 2024 Criteria to fulfil or information to be provided to classify product as an SPM product Details • Target sub-segment, if any (e.g., B40 MEs, startup, women entrepreneurs). 11) Tenure The tenure of loan/financing to SPM customer. 12) Committed approval time26 BNM’s requirement: loan/financing to be approved at an avg. of six days. 13) Committed disbursement time27 BNM’s requirement: loan/financing to be disbursed at an avg. of four days. 14) Eligible economic sector 26 Approval time refers to the number of working days upon receipt of complete documentation from the applicants until approval of loan/financing by the PFI. 27 Disbursement time refers to the number of working days from acceptance of all parties (e.g., borrower, guarantor) of the relevant legal documentation and/or completion of training until disbursement of loan/financing. Skim Pembiayaan Mikro 34 of 37 Issued on: 05 January 2024 Criteria to fulfil or information to be provided to classify product as an SPM product Details 15) Eligibility criteria to apply To list down the criteria of applicants that is considered for the product. 16) List of common documents required To provide the list of necessary documents which must be provided by applicants. 17) Application procedures To list down the microfinance access point for the application of this product e.g., branch, online etc. 18) Public Hotline Numbers To list down the contact numbers to the dedicated officers managing application queries from the public. Skim Pembiayaan Mikro 35 of 37 Issued on: 05 January 2024 Appendix 3 Report Template for Microfinance Access Points All PFIs are required to update and submit the following bi-annual report to BNM no later than 15 days after 30 June and 31 December of each year. Name of financial institution: _________________________ Report of month: (Jun / Dec) Year: _________________________ (A) Microfinance access point (by type) Type of Microfinance Access Point Functions or Services Provided e.g. inquiry only, marketing only, referral or leads on application/product, accept application, conduct credit assessment, facilitate loan repayment/collection PFI’s bank branches Business centres Microfinance centres Agents Strategic partners (please specify) E.g., State Islamic Religious Council Other physical channels (please specify) PFI’s own digital channels (please specify) E.g., website/portal, internet banking Third party’s digital channels (please specify) E.g., imSME platform Skim Pembiayaan Mikro 36 of 37 Issued on: 05 January 2024 (B) Number of microfinance access points (by state) Type of Microfinance Access Points State PFI’s bank branches Business centres Microfinance centres Agents Strategic partners Others (please specify) Johor Kedah Kelantan Melaka Negeri Sembilan Pahang Perak Perlis Pulau Pinang Sabah Sarawak Selangor Terengganu W.P. Kuala Lumpur W.P. Putrajaya W.P. Labuan Total Skim Pembiayaan Mikro 37 of 37 Issued on: 05 January 2024 Appendix 4 National Microfinance Logo	Public Notice
05 Jan 2024	Keputusan Majlis Penasihat Shariah BNM berhubung Pengagihan Risiko Takaful Secara Alir Keluar kepada Syarikat Insurans dalam Situasi Kesukaran	https://www.bnm.gov.my/-/sacbnm-226mtg-ruling-bm	https://www.bnm.gov.my/documents/20124/38335/sacbnm-mtg-226-bm.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/sacbnm-226mtg-ruling-bm&languageId=ms_MY	Reading: Keputusan Majlis Penasihat Shariah BNM berhubung Pengagihan Risiko Takaful Secara Alir Keluar kepada Syarikat Insurans dalam Situasi Kesukaran Share: 4 Keputusan Majlis Penasihat Shariah BNM berhubung Pengagihan Risiko Takaful Secara Alir Keluar kepada Syarikat Insurans dalam Situasi Kesukaran Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1630 pada Jumaat, 5 Januari 2024 5 Jan 2024 Keterpakaian Pengendali takaful berlesen (termasuk pengendali takaful semula profesional) di bawah Akta Perkhidmatan Kewangan Islam 2013 Ringkasan MPS pada mesyuarat ke-226 bertarikh 26 Oktober 2022 telah memutuskan bahawa perkara (ii) dalam keputusan MPS pada mesyuarat ke-113 bertarikh 23 Jun 2011 dan mesyuarat ke-114 bertarikh 28 Julai 2011 berhubung “Takaful semula dengan Syarikat Insurans dan Insurans Semula Konvensional” (Keputusan Sedia Ada) telah disemak seperti berikut: (ii) Pengendali takaful berlesen (termasuklah pengendali takaful semula profesional berlesen) tidak dibenarkan untuk mengagihkan risiko takaful secara alir keluar kepada penanggung insurans (termasuklah penanggung insurans semula profesional berlesen) kecuali dalam keadaan berikut: i. pengendali takaful berlesen sedia ada tidak menerima atau tidak mampu menerima risiko tersebut; ii. pengendali takaful berlesen sedia ada tidak mempunyai kapasiti atau kepakaran untuk menerima risiko tersebut; atau iii. suatu pengaturan pengagihan risiko secara alir keluar kepada pengendali takaful berlesen yang lain menyebabkan atau boleh menyebabkan kemudaratan kepada dana takaful bagi pengendali takaful berlesen. Keputusan ini menggantikan item (ii) Keputusan Sedia Ada, manakala baki bahagian Keputusan Sedia Ada adalah tetap terpakai. Keputusan ini berkuat kuasa serta merta sejurus Keputusan ini diterbitkan dalam laman sesawang Bank Negara Malaysia pada pada 5 Januari 2024. Tarikh Penerbitan 5 Januari 2024 Tarikh Efektif 5 Januari 2024 Jabatan yang menerbitkan dokumen Jabatan Sistem Kewangan Islam Dokumen Keputusan Majlis Penasihat Shariah Bank Negara Malaysia (MPS) Berhubung Pengagihan Risiko Takaful Secara Alir Keluar kepada Syarikat Insurans dalam Situasi Kesukaran Bank Negara Malaysia 5 Januari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Mesyuarat MPS ke-226 2022 1 Keputusan Majlis Penasihat Shariah Bank Negara Malaysia (MPS) Berhubung Pengagihan Risiko Takaful Secara Alir Keluar kepada Syarikat Insurans dalam Situasi Kesukaran Mesyuarat MPS ke-226 bertarikh 26 Oktober 20221 Bahagian I: Keputusan MPS, Tarikh Kuat Kuasa dan Pemakaian Menurut seksyen 52 Akta Bank Negara Malaysia 2009, MPS pada mesyuarat ke-226 bertarikh 26 Oktober 2022 telah memutuskan bahawa perkara (ii) dalam keputusan MPS pada mesyuarat ke-113 bertarikh 23 Jun 2011 dan mesyuarat ke-114 bertarikh 28 Julai 2011 berhubung “Takaful semula dengan Syarikat Insurans dan Insurans Semula Konvensional” (Keputusan Sedia Ada) telah disemak seperti berikut: (ii) Pengendali takaful berlesen (termasuklah pengendali takaful semula profesional berlesen) tidak dibenarkan untuk mengagihkan risiko takaful secara alir keluar kepada penanggung insurans (termasuklah penanggung insurans semula profesional berlesen) kecuali dalam keadaan berikut: i. pengendali takaful berlesen sedia ada tidak menerima atau tidak mampu menerima risiko tersebut; ii. pengendali takaful berlesen sedia ada tidak mempunyai kapasiti atau kepakaran untuk menerima risiko tersebut; atau iii. pengaturan pengagihan risiko secara alir keluar kepada pengendali takaful berlesen yang lain menyebabkan atau boleh menyebabkan kemudaratan kepada dana takaful bagi pengendali takaful berlesen. Dalam keadaan di atas, keperluan (hajah) untuk mengagihkan risiko takaful melalui pengaturan pengagihan risiko secara alir keluar kepada penanggung insurans untuk menangani sebarang situasi kesukaran yang dihadapi pengendali takaful berlesen perlu dinilai dan diperakui oleh jawatankuasa Syariah pengendali takaful berlesen. Keputusan ini menggantikan item (ii) Keputusan Sedia Ada, manakala baki bahagian Keputusan Sedia Ada adalah tetap terpakai. Nota: Sila rujuk Lampiran 1 bagi Keputusan Sedia Ada 1.1. Keputusan ini berkuat kuasa pada 5 Januari 2024 dan ianya terpakai kepada pengendali takaful berlesen (termasuk pengendali takaful semula profesional)2 yang diluluskan di bawah Akta Perkhidmatan Kewangan Islam 2013 (APKI) untuk menjalankan perniagaan takaful. Sebarang rujukan kepada "penanggung insurans" dalam kenyataan ini adalah termasuk rujukan kepada "penanggung insurans semula". 1.2. Selaras dengan seksyen 28(1) dan (2) APKI, pengendali takaful berlesen dikehendaki mematuhi keputusan ini. Pematuhan dengan apa-apa keputusan MPS berkenaan dengan sebarang matlamat tertentu dan pengendalian, perniagaan, hal ehwal dan aktiviti institusi kewangan Islam (IKI) adalah disifatkan sebagai pematuhan kepada Syariah. 1 Kenyataan ini diterbitkan lanjutan daripada penerbitan Dokumen Polisi Hajah dan Darurah bagi memberikan panduan tambahan dan jangkaan yang jelas berhubung pelaksanaan hajah yang efektif. 2 Rujukan kepada "pengendali takaful berlesen" dalam kenyataan ini termasuklah rujukan kepada "pengendali takaful semula profesional", sekiranya berkenaan. Mesyuarat MPS ke-226 2022 2 Bahagian II: Latar Belakang 2.1. Pengaturan takaful semula merujuk kepada perkongsian risiko takaful antara pengendali takaful berlesen dengan pengendali takaful berlesen yang lain. Melalui pengaturan takaful semula yang berkesan, pengendali takaful berlesen dapat meningkatkan kapasitinya dan menstabilkan prestasi pengunderaitannya, serta dapat melindungi dana takaful daripada beban kewangan yang signifikan sekiranya terdapat pengalaman tuntutan tidak dijangka yang memudaratkan. 2.2. MPS terdahulu telah memutuskan3 bahawa pengendali takaful berlesen tidak dibenarkan untuk mengagih risiko takaful melalui pengaturan takaful semula alir keluar kepada penanggung insurans kecuali bagi menangani situasi kesukaran. Dalam keadaan sedemikian, pengendali takaful berlesen dikehendaki mendapatkan pandangan dan pengesahan jawatankuasa Syariah berhubung keperluan (hajah) untuk mengagih risiko takaful kepada penanggung insurans. Lembaga pengarah bagi pengendali takaful berlesen mempunyai tanggungjawab pengawasan terhadap pelaksanaan keputusan jawatankuasa Syariah berhubung pengaturan pengagihan risiko secara alir keluar tersebut. 2.3. Dalam pemerhatian Bank Negara Malaysia (Bank) terhadap isu-isu yang meluas dalam industri takaful berhubung pengagihan perniagaan takaful kepada penanggung insurans, terdapat pengaturan pengagihan risiko secara alir keluar yang dilaksanakan oleh pengendali takaful berlesen yang tidak termasuk di bawah keadaan yang ditetapkan di dalam Keputusan Sedia Ada. Ini termasuk pengaturan pengagihan risiko takaful secara alir keluar dengan penanggung insurans yang dilaksanakan semata-mata berdasarkan pertimbangan perniagaan pengendali takaful berlesen untuk menangani risiko kehilangan peluang perniagaan atau risiko keberuntungan4 bagi pengendali takaful berlesen tersebut (sila rujuk Ilustrasi 1). Isu Syariah 2.4. MPS membincangkan sama ada keputusan pengendali takaful berlesen untuk mengagihkan risiko takaful secara alir keluar kepada penanggung insurans berdasarkan pertimbangan perniagaan termasuk di bawah keadaan yang ditetapkan dalam Keputusan Sedia Ada? 3 Keputusan MPS yang diputuskan pada mesyuarat MPS ke-113 (23 Jun 2011) dan ke-114 (28 Julai 2011). Keputusan tersebut telah diterbitkan dalam Kompilasi Keputusan Syariah dalam Kewangan Islam Edisi Ketiga Terbitan 2017. 4 Sebagai contoh, kehilangan komisen keuntungan daripada aturan pengagihan risiko takaful secara alir keluar atau kerugian kewangan yang timbul daripada usaha untuk memperbetulkan insiden ketidakpatuhan Syariah. Contoh ini tidak menyeluruh (exhaustive) dan tidak boleh ditafsirkan sebagai satu-satunya contoh yang ada. Mesyuarat MPS ke-226 2022 3 Ilustrasi 1: Pengaturan pengagihan risiko takaful secara alir keluar kepada penanggung insurans berasaskan pertimbangan perniagaan Bahagian III: Perbincangan Utama Risiko terhadap keberuntungan IKI tidak termasuk dalam situasi kesukaran 3.1. Secara prinsip, pengendali takaful berlesen dilarang daripada terlibat dalam aktiviti tidak patuh Syariah seperti menyediakan perlindungan takaful untuk aktiviti tidak patuh Syariah. 3.2. Penglibatan dalam aktiviti tidak patuh Syariah juga boleh berlaku daripada perkongsian risiko takaful dengan penanggung insurans. Pengendali takaful berlesen tidak dibenarkan berkongsi risiko takaful dengan penanggung insurans kerana perniagaan dan operasi insurans mengandungi unsur terlarang seperti kesamaran (gharar), unsur perjudian (maysir) dan faedah (riba). Sebagai sebuah IKI, pengendali takaful berlesen mestilah mengelak daripada terlibat dalam perkara yang dapat menjejaskan keharusan Syariah bagi aktiviti yang dijalankan. 3.3. Walau bagaimanapun, pengendali takaful berlesen dibenarkan mengagihkan risikonya melalui pengaturan pengagihan risiko secara alir keluar kepada penanggung insurans berdasarkan keperluan (hajah) yang mana: (i) pengendali takaful berlesen sedia ada tidak menerima atau tidak mampu menerima risiko tersebut; (ii) pengendali takaful berlesen sedia ada tidak mempunyai kapasiti atau kepakaran untuk menerima risiko tersebut; atau (iii) pengaturan pengagihan risiko takaful secara alir keluar kepada pengendali takaful berlesen yang lain menyebabkan atau boleh menyebabkan kemudaratan kepada dana takaful bagi pengendali takaful berlesen tersebut. 3.4. Memandangkan keharusan pengaturan pengagihan risiko secara alir keluar kepada penanggung insurans adalah berdasarkan hajah seperti yang digariskan dalam tiga (3) keadaan di atas, sebarang pengaturan pengagihan risiko secara alir keluar dengan Mesyuarat MPS ke-226 2022 4 penanggung insurans yang tidak berdasarkan situasi hajah dianggap sebagai aktiviti yang tidak patuh Syariah. 3.5. MPS menekankan penggunaan hajah yang wajar di mana penilaian mesti dilaksanakan secara mencukupi dan menyeluruh disokong dengan justifikasi dan analisis impak yang jelas. Bahagian IV: Asas Pertimbangan Syariah melarang sebarang bentuk penglibatan secara langsung dalam aktiviti insurans konvensional 4.1. Pada dasarnya, pengaturan pengagihan risiko takaful secara alir keluar kepada penanggung insurans adalah dilarang sama sekali kerana pengaturan tersebut secara langsung akan menyebabkan perniagaan takaful terlibat dalam amalan riba dan aktiviti lain yang dilarang syarak. Dana takaful yang dipindahkan kepada penanggung insurans akan diuruskan mengikut amalan dan operasi insurans yang melibatkan pelaburan dana dalam aktiviti atau perniagaan tidak patuh Syariah. 4.2. Selain itu, melalui pengaturan pengagihan risiko secara alir keluar kepada penanggung insurans, pengendali takaful berlesen dianggap seperti mengiktiraf kontrak dan aktiviti insurans konvensional sebagai suatu amalan yang patuh Syariah. 4.3. Ini jelas bertentangan dengan prinsip dan objektif asas Syariah seperti yang diperuntukkan dalam ayat al-Quran berikut: نِ 5 ْثِم َوٱْلعُْدَوٰ َوتَعَاَونُو۟ا َعلَى ٱْلبِر ِ َوٱلتَّْقَوٰى َوََل تَعَاَونُو۟ا َعلَى ٱْْلِ “...dan hendaklah kamu bertolong-tolongan untuk membuat kebajikan dan taqwa, dan janganlah kamu bertolong-tolongan pada melakukan dosa (maksiat) dan permusuhan...” Aplikasi hajah dalam situasi kesukaran tidak diaplikasikan secara longgar 4.4. MPS membenarkan pengaturan pengagihan risiko takaful oleh pengendali takaful berlesen kepada penanggung insurans yang disebabkan oleh salah satu situasi yang ditetapkan dalam keputusan ini, dan ia tidak boleh diaplikasikan secara longgar di luar situasi kesukaran, seperti risiko untuk menguruskan hubungan perniagaan sedia ada bagi pengendali takaful berlesen atau risiko untuk menguruskan keberuntungan. Pendekatan ini berdasarkan kaedah fiqah berikut: الضرورة تقدر بقدرها 6 “Keadaan yang mendesak perlu dinilai dan ditangani menurut kadarnya.” إن األمر إذا ضاق اتسع وإذا اتسع ضاق7 “Apabila sesuatu perkara itu terdapat kekangan (disebabkan kesukaran tersebut), kelonggaran akan diberikan, tetapi apabila kekangan tersebut ditangani, kelonggaran akan dimansuhkan (bagi memenuhi keperluan syarak).” 5 Surah al-Ma’idah, ayat ke-2. 6 Ibnu Nujaim, Al-Ashbah wa Al-Naza’ir, Dar Al-Kutub Al-`Ilmiyyah, 1999, h. 73. 7 Ibid, j. 1 h. 72. Mesyuarat MPS ke-226 2022 5 Terma dan syarat kontrak tidak boleh bercanggah dengan prinsip Syariah 4.5. Berdasarkan prinsip kebebasan berkontrak, kedua-dua pihak yang berkontrak bebas untuk menetapkan sebarang terma dan syarat kontrak yang dipersetujui bersama. Bagaimanapun, syarat yang ditetapkan mestilah selari dengan prinsip Syariah dan tidak membawa kepada sebarang larangan syarak. Dalam situasi di mana terdapat terma dan syarat bercanggah dengan prinsip Syariah yang dipersetujui antara pihak berkontrak, terma dan syarat tersebut akan dianggap tidak boleh dikuatkuasakan dan tidak sepatutnya dipenuhi. Ini selaras dengan hadis Rasulullah SAW berikut: المسلمون على شروطهم إَل شرطا عن أبي هريرة رضى هللا عنه قال، قال رسول هللا ملسو هيلع هللا ىلص: أحل حراما أو حرم حالَل 8 “Diriwayatkan daripada Abu Hurairah RA bahawa Rasulullah SAW bersabda: (Urusan) orang Islam adalah berasaskan kepada syarat-syarat yang (dipersetujui) oleh mereka, kecuali syarat yang menghalalkan apa yang haram atau mengharamkan apa yang halal.” Bahagian V: Implikasi Keputusan MPS 5.1. Keputusan ini memberikan kejelasan dan kepastian kepada industri tentang keterpakaian keputusan ini dan peranan pihak yang terlibat dalam pengaturan pengagihan risiko secara alir keluar, untuk memastikan pematuhannya terhadap Syariah. 5.2. Di samping itu, kenyataan ini juga memberi mesej yang jelas kepada industri untuk mengambil langkah yang sewajarnya dalam memastikan aplikasi hajah yang sebenar seperti yang ditetapkan dalam keputusan ini, dokumen polisi atau rangka kerja yang dikeluarkan oleh Bank. 5.3. Selain itu, keputusan ini menjelaskan bahawa keputusan terdahulu mengenai pengaturan pengagihan risiko secara alir keluar (item ii Keputusan MPS berhubung Takaful Semula dengan Syarikat Insurans dan Insurans Semula Konvensional) dimansuhkan dengan keputusan ini. 8 Abu Daud, Sunan Abi Daud, Bait al-Afkar al-Dawliyyah, 1999, h. 398, hadis no. 3594. Mesyuarat MPS ke-226 2022 6 Lampiran 1 Takaful Semula dengan Syarikat Insurans dan Insurans Semula Konvensional Keputusan MPS Berhubung Alir Keluar Risiko Takaful kepada Syarikat Insurans / Insurans Semula Merujuk kepada perkara (ii) dibawah, MPS pada mesyuarat ke-113 bertarikh 23 Jun 2011 dan mesyuarat ke-114 bertarikh 28 Julai 2011 telah memutuskan: (ii) Pengendali takaful (dan takaful semula) tidak dibenarkan untuk mengagihkan risiko secara takaful semula alir keluar kepada syarikat insurans (dan insurans semula) kecuali untuk kes-kes yang tidak dapat dielakkan iaitu: (a) Pengendali takaful (dan takaful semula) sedia ada tidak menerima risiko tersebut; (b) Pengendali takaful (dan takaful semula) sedia ada tidak mempunyai kapasiti atau kepakaran untuk menerima risiko tersebut; dan (c) Pengaturan takaful semula dengan pengendali takaful (dan takaful semula) yang bersedia menerima risiko tersebut akan lebih memudaratkan dana takaful. Sekiranya berlaku kes-kes di atas, keperluan untuk mengagihkan risiko secara takaful semula alir keluar kepada syarikat insurans (dan insurans semula) perlu mendapatkan penilaian dan pengesahan daripada jawatankuasa atau penasihat Syariah dan diluluskan oleh lembaga pengarah pengendali takaful (dan takaful semula) tersebut. Rujukan : Resolusi no. 10 - Takaful Semula dengan Syarikat Insurans dan Insurans Semula Konvensional, Kompilasi Keputusan Syariah dalam Kewangan Islam Edisi Ketiga Terbitan 2017	Public Notice
03 Jan 2024	Dokumen Dasar Hajah dan Darurah	https://www.bnm.gov.my/-/pd-hajah-darurah-bm	https://www.bnm.gov.my/documents/20124/938039/pd-Hajah-Darurah-Jan2024.pdf, https://www.bnm.gov.my/documents/20124/938039/faq-Hajah-Darurah-Jan2024.pdf	https://www.bnm.gov.my/c/portal/update_language?p_l_id=182&redirect=/-/pd-hajah-darurah-bm&languageId=ms_MY	Reading: Dokumen Dasar Hajah dan Darurah Share: 3 Dokumen Dasar Hajah dan Darurah Embargo : Untuk siaran segera Tidak boleh disiarkan atau dicetak sebelum jam 1500 pada Rabu, 3 Januari 2024 3 Jan 2024 Dokumen dasar ini menggariskan keperluan dan kehendak pihak Bank Negara Malaysia (BNM) bagi pelaksanaan pengecualian daripada pematuhan Syariah berdasarkan konsep hajah (keperluan) dan darurah (keperluan yang mendesak) oleh institusi kewangan Islam (IKI) dalam menjalankan aktiviti perniagaan perbankan Islam dan takaful. Keperluan dan kehendak utama adalah seperti yang berikut: (a) menggariskan takrifan kesukaran (hardship), prasyarat, skop permohonan yang dilarang dan parameter kategori yang berbeza bagi hajah dan darurah; (b) memperjelas dan memperkukuh akauntabiliti para individu yang bertanggungjawab terhadap penilaian, deduksi serta pelaksanaan aplikasi hajah dan darurah; dan (c) menggariskan keperluan operasi dan panduan dalam memudahkan perbincangan Syariah serta proses membuat keputusan mengenai aplikasi hajah dan darurah. Dokumen dasar ini bertujuan untuk memperkukuh metodologi dan proses IKI yang sedia ada bagi mengatasi kesukaran yang dihadapi semasa menawarkan perniagaan kewangan Islam, supaya aplikasi hajah dan darurah adalah selaras dengan kehendak Bank. Tarikh Penerbitan 3 Januari 2024 Tarikh Berkuat Kuasa 2 Januari 2025 Jabatan yang Menerbitkan Dokumen Jabatan Sistem Kewangan Islam Dokumen Dokumen Dasar Hajah dan Darurah Soalan LazimBank Negara Malaysia 3 Januari 2024 © Bank Negara Malaysia, 2024. All rights reserved.	Hajah and Darurah Policy Document Issued on: 3 January 2024 BNM/RH/PD 028-129 Hajah and Darurah Applicable to: 1. Licensed Islamic banks 2. Licensed takaful operators and professional retakaful operators 3. Licensed banks and licensed investment banks approved to carry on Islamic banking business 4. Prescribed development financial institutions approved to carry on Islamic financial business Hajah and Darurah TABLE OF CONTENTS PART A OVERVIEW ...................................................................................................... 1 1 Introduction ....................................................................................................... 1 2 Applicability ...................................................................................................... 2 3 Legal provisions................................................................................................ 3 4 Effective date .................................................................................................... 3 5 Interpretation .................................................................................................... 3 6 Related legal instruments and policy documents .............................................. 4 PART B SHARIAH REQUIREMENTS FOR HAJAH AND DARURAH APPLICATION .. 5 7 Compliance with this part .................................................................................. 5 8 Aspects of hardship .......................................................................................... 5 9 Hajah and darurah parameters ......................................................................... 6 Part C OPERATIONAL REQUIREMENTS ................................................................ 10 10 Compliance with this part ................................................................................ 10 11 Governance and oversight .............................................................................. 10 12 Decision-making process ................................................................................ 12 13 Implementation plan ....................................................................................... 16 Appendix 1 Definition of Hajah and Darurah .................................................................. 17 Appendix 2 Decision Tree in Applying the General Parameters ................................... 19 Appendix 3 Summary of Criteria and Parameters in Dealing with Hajah and Darurah 20 Appendix 4 Process Flow in Applying Hajah and Darurah ............................................ 21 Hajah and Darurah 1 of 21 PART A OVERVIEW 1 Introduction 1.1 The Islamic financial system in Malaysia has seen significant advancement in scale, diversity and sophistication of institutions and financial offerings in recent years, reflective of a maturing market. As the Islamic banking and takaful industry continues to develop, challenges in the business and operating environment would require attendant risks to be well-managed. This framework aims to clarify parameters on hajah and darurah1 to facilitate contemporary application in Islamic financial business in accordance with Shariah. 1.2 Hajah and darurah concepts have been applied in Islamic financial business to address hardship2 or difficulties in executing financial transactions or arrangements based on Shariah principles. The application of hajah and darurah arises during unfavourable circumstances or distress situations facing an Islamic financial institution (IFI) to prevent harm3 (mafsadah) and ultimately attain benefit (maslahah) of effective financial intermediation. 1.3 The Shariah Advisory Council of Bank Negara Malaysia (the SAC) has, on case- by-case basis, issued several Shariah rulings4 that outline broad Shariah parameters5 relating to the application of hajah and darurah. Taking into consideration the implementation of these rulings by IFIs, a more robust governance process and assessment approach are warranted to promote effective application of hajah and darurah by IFIs. 1.4 This policy document sets out the Shariah and operational requirements and expectations concerning the application of hajah and darurah, as follows: (a) outline the definition, preconditions, scope of prohibited application and parameters of different categories of hajah and darurah; (b) clarify and strengthen the accountability of individuals responsible for the assessment, deduction as well as implementation of hajah and darurah6; and 1 Refer to Appendix 1 for general definition of hajah and darurah from perspectives of classical and contemporary scholars. 2 Refer to paragraph 8.1 for definition of hardship. 3 For example, in the context of Islamic finance, flexibility permitted by Shariah may be used to prevent failure of an IFI which causes systemic impact to the financial system. 4 Examples of the Shariah rulings, among others are as follows: (a) the permissibility for a licensed takaful operator to cede out its risks to a licensed insurer or a professional reinsurer in the absence of the capacity or expertise of a licensed takaful operator or a professional retakaful operator to underwrite takaful risks; (b) the application of bai` istijrar (sale of supplies with deferred price) for Islamic trade finance; and (c) the permissibility to benchmark interest rate in the pricing component of Islamic financial products. 5 The Shariah rulings focus on main principles without outlining the detailed processes, where some would be supported with requirements and guidance in relevant policy documents. For instance, the SAC ruling on the application of hajah with regard to the ceding out of takaful risk to a licensed insurer or professional reinsurer is supplemented with relevant policy expectation in the policy document on Takaful Operational Framework, but it does not comprehensively cover additional operational guidance as outlined in this policy document. 6 Refers to paragraphs 9.3, 9.5 and 9.7 for the categorisation of hajah and darurah. Hajah and Darurah 2 of 21 (c) outline the operational requirements and guidance in facilitating Shariah deliberation and decision-making on the application of hajah and darurah. 1.5 Given the specific nature of hajah and darurah, Bank Negara Malaysia (the Bank) expects all governance organs in IFIs to play their role in supporting effective implementation of hajah and darurah by ensuring– (a) a comprehensive assessment is being carried out and supported with clear justifications and business impact analysis; (b) robust deliberation and informed decision-making are performed by the Shariah committee; and (c) appropriate ex-ante and ex-post assessment as well as review are performed by the control functions to serve as a check and balance to the implementation of the Shariah rulings and decisions or advice of the Shariah committee. Overview of hajah and darurah 1.6 Hajah and darurah have been widely discussed by both classical and contemporary Shariah scholars. However, these discussions are mostly focused on the hardships experienced by a person aiming to preserve life when facing a hardship situation. Both concepts have generally been divided into the following two (2) categories: (a) usuliyyah7; and (b) fiqhiyyah8. 1.7 This policy document introduces hajah type 1, hajah type 29 and darurah under the fiqhiyyah perspective to ensure relevancy and rigour in the application of hajah and darurah by the IFIs. 1.8 The application of hajah and darurah under usuliyyah perspective is permitted10 and not subject to the requirements in this policy document. Such application is allowed permanently by Shariah to address public needs11 and therefore, the permissibility does not require further deduction12 by the Shariah committee nor the SAC. For instance, the permissibility of the application of ijarah (lease) and salam (forward sale). 2 Applicability 2.1 This policy document is applicable to IFIs as defined in paragraph 5.2. 7 Usuliyyah means a circumstance faced by a scholar where there is an established Shariah principle on the application of hajah and darurah and it has been allowed permanently by Shariah. 8 Fiqhiyyah means a circumstance faced by a scholar where it requires a new deduction of a Shariah requirement on the application of hajah and darurah, and its permissibility of the period and quantum will be determined based on the severity of hardships faced by the people. 9 Refer to paragraphs 9.3 and 9.5 for the parameters of hajah type 1 and hajah type 2. 10 The permissibility has been allowed through the Bank’s policy documents on relevant Shariah standards and issuance of the SAC meeting statement on Shariah rulings. 11 May not only be confined to the needs related to Islamic finance sector. 12 The Shariah evidence for hajah usuliyyah and darurah usuliyyah have been used as basis to deduce the Shariah legal judgment (hukm shar`i) from fiqhiyyah perspective. Hajah and Darurah 3 of 21 3 Legal provisions 3.1 The requirements in Part B of this policy document are specified pursuant to– (a) sections 29(1) and 155 of the Islamic Financial Services Act 2013 (IFSA); and (b) sections 33E(1) and 116 of the Development Financial Institutions Act 2002 (DFIA). 3.2 The requirements in Part C of this policy document are specified pursuant to– (a) sections 29(2), 57(1) and 155 of the IFSA; and (b) sections 33E(2), 41 and 116 of the DFIA. 3.3 The guidance in this policy document is issued pursuant to section 277 of the IFSA and section 126 of the DFIA. 4 Effective date 4.1 This policy document comes into effect on 2 January 2025 except for paragraph 13 which takes effect immediately upon issuance of this policy document. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the Financial Services Act 2013 (FSA), IFSA and DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For purposes of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that shall be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “Islamic financial institutions” (IFIs) refer to– (a) licensed Islamic banks; (b) licensed takaful operators including professional retakaful operators; (c) licensed banks and licensed investment banks approved under section 15(1)(a) of the FSA to carry on Islamic banking business; and (d) prescribed development financial institutions approved under section 33B(1) of the DFIA to carry on Islamic financial business; “hajah” refers to specific categories of hajah type 1 and hajah type 2 parameters in the context of Islamic finance application which can be referred in paragraphs 9.3 and 9.5; Hajah and Darurah 4 of 21 “Shariah principle” refers to any existing ruling specified under the recognised sources of Islamic law, or any legal judgment (hukm shar`i) deduced by a qualified jurist (a mujtahid) via the ijtihad13 process; and “Shariah ruling” refers to any ruling made by the SAC in accordance with its functions under section 52(1)(a) of the Central Bank of Malaysia Act 2009 for the ascertainment of Islamic law for the purposes of Islamic financial business. 6 Related legal instruments and policy documents 6.1 This policy document shall be read together with– (a) other relevant legal instruments and policy documents that have been issued by the Bank, including any amendments or reissuance thereafter, in particular– (i) Corporate Governance issued on 3 August 2016; (ii) Corporate Governance for Prescribed Development Financial Institutions issued on 13 December 2019; (iii) Shariah Governance issued on 20 September 2019; (iv) Fit and Proper Criteria issued on 28 June 2013; (v) Fit and Proper Criteria (for prescribed development financial institutions) issued on 14 June 2017; (vi) Recovery Planning issued on 27 July 2021; (vii) Stress Testing issued on 15 June 2017; (viii) Risk Governance issued on 1 March 2013; (ix) Takaful Operational Framework issued on 26 June 2019; and (b) Manual Rujukan Institusi Kewangan Islam kepada Majlis Penasihat Shariah issued on 15 March 2016. 13 Refers to rigorous thinking and efforts by scholars who have attained the degree of mujtahid in order to issue certain Shariah ruling definitely in a matter which is not clearly provided in al-Quran or Sunnah (as defined in Shariah Resolutions in Islamic Finance: Second Edition) Hajah and Darurah 5 of 21 PART B SHARIAH REQUIREMENTS FOR HAJAH AND DARURAH APPLICATION 7 Compliance with this part S S 7.1 An IFI that applies hajah and darurah shall ensure that such application is in compliance with Part B of this policy document. 7.2 The Bank retains its discretion in assessing whether an IFI is in compliance with this policy document to the satisfaction of the Bank. 8 Aspects of hardship Definition of hardship G 8.1 Hardship is a situation of unfavourable circumstances, severe adversity or intolerable levels of distress, arising from internal or external factors that require a person to resort to a different solution(s) which may permit an exception in applying existing Shariah principles or Shariah rulings. G 8.2 Generally, if the hardship is not addressed, it may detrimentally affect the five (5) main objectives of Shariah (maqasid Shariah) which are the preservation of religion, life, intellect, lineage and wealth (property). In the context of fiqh muamalat or Islamic finance, the hardship experienced by a person predominantly involves Shariah rulings aiming at preserving wealth (hifz al-mal) (as provided in Illustration 1). Illustration 1 As part of a general takaful operator’s risk management strategy, it may decide to cede out certain specialised risks such as oil and gas, and aviation covers to another takaful or retakaful operator in managing its risk exposure. However, in cases where there is insufficient retakaful capacity and expertise to fully absorb the particular risk and/or it creates detrimental effects to the takaful funds, the takaful operator is allowed to cede out the risks to an insurer or a reinsurer on the basis of difficulty/hardship. This would ensure preservation of the takaful fund managed by the general takaful operator. Preconditions in applying hajah and darurah S 8.3 An IFI shall ensure that the following preconditions are fulfilled in evaluating the application of hajah and darurah to address hardship: (a) Certainty – there is certainty (al-yaqin) or high possibility (ghalib al-zann)14 on the materialisation or occurrence of hardship, and it is not based on mere assumption; (b) Deviation from Shariah principle or Shariah ruling – the elimination of hardship requires deviation from existing Shariah principles or Shariah ruling whether temporarily or permanently; 14 Certainty (al-yaqin) can be achieved based on undisputable evidences and high possibility (ghalib al- zann) can be achieved with clear leading of signs and indicators but with insignificant dispute. Hajah and Darurah 6 of 21 (c) Absence or impracticality of Shariah compliant alternatives – there is an absence of a Shariah compliant alternative, or there is an available Shariah compliant alternative to address the hardship, but such alternative is impractical to be implemented given the prevailing situation(s); and (d) Impact – the application of hajah and darurah does not cause greater or equal harm to stakeholders related to the hardship, and the impact shall be assessed based on fiqh al-muwazanah15. S 8.4 In relation to paragraph 8.3, an IFI is prohibited from applying hajah and darurah to address hardships arising solely from the risk to its profitability or due to weakness in the IFI’s governance and internal control environment16. G 8.5 In relation to paragraph 8.3, the following method may be adopted by an IFI in applying hajah and darurah in accordance with the severity of the hardship: (a) Reducing obligation – compliance with Shariah is achieved by reducing the appropriate level of a person’s capability, e.g., in ensuring the sustainability of a takaful fund particularly to prevent the situation of fund deficit which requires continuous loan (qard), a licensed takaful operator may be allowed to cede out a certain percentage of its takaful risk to reinsurers instead of fully retaining the risk; or (b) Exemption/exception – allow the utilisation or adoption of transactions that are not in compliance with Shariah in view of the absence of a Shariah compliant alternative for such transactions or widespread public needs, e.g., subscription to insurance protection in the absence of takaful protection for a particular risk or application of settlement in two (2) days after the transaction (T+2) in currency exchange (bai` al-sarf) in the absence of immediate exchange practices. 9 Hajah and darurah parameters Application of hajah and darurah G 9.1 Hajah and darurah that may be applied by an IFI can be divided into the following categories: (a) hajah type 1; (b) hajah type 2; or (c) darurah. S 9.2 In line with paragraph 10.6 of the policy document on Shariah Governance, an IFI shall refer to the SAC for a ruling in the case of any hardship with no prior Shariah rulings that warrants the application of hajah and darurah. 15 Fiqh al-muwazanah is a structured method and processes applied by jurist in making Shariah decision through weighing up between multiple benefits (to attain), harms (to avoid), and/or to determine which between the two (2) shall prevail and be prioritised. 16 For examples, losing profit commission from ceding out arrangement, downside risk in meeting top line and bottom line, hardship resulted from poor risk management control, business decision or negligence by the IFI or financial loss arising from the effort or as measure to rectify Shariah non- compliance events. These examples are non-exhaustive and should not be construed as the only examples available. Hajah and Darurah 7 of 21 Hajah Type 1 S 9.3 In addition to paragraph 8.3, an IFI shall categorise any hardship under hajah type 1 if such hardship meets all of the following parameters: (a) the hardship arises due to practices or situations which are difficult to avoid (`umum al-balwa) or are widely accepted as a customary commercial practice (`urf tijari); (b) the SAC issues a ruling on the permissibility of the application of hajah type 1 without stipulating specific conditions or limitations; and (c) the Shariah ruling remains applicable until it is overridden by a later Shariah ruling. G 9.4 Examples of application of hajah type 1 are provided in Illustration 2. The examples are subject to the fulfilment of the parameters in paragraph 9.3. Illustration 2 (a) Practice of T+2 for foreign currency exchange (bai` al-sarf) The Shariah principle for foreign currency exchange (bai` al-sarf) transaction requires contracting parties to conclude their transaction on an immediate basis. However, in the context of the current financial system, the conclusion of a contract or settlement could not be done on an immediate basis due to difficulties and operational constraints. Therefore, an IFI may conduct the settlement in two (2) days after the transaction date (T+2) as it has been accepted and recognised as a customary commercial practice. (b) Use of a conventional nostro account In the event where an IFI needs to perform international trade or foreign exchange transactions, it may use a conventional nostro account if there is an absence or lack of Shariah compliant nostro accounts in other jurisdictions. Typically, the nostro account balances earn zero or minimal returns. Therefore, the IFI may use the conventional nostro account to address frictions in its transactions with international counterparts on need basis and be recognised as a difficult situation to avoid. Hajah Type 2 S 9.5 In addition to paragraph 8.3, an IFI shall categorise any hardship under hajah type 2 if such hardship meets all of the following parameters: (a) the hardship does not arise from practices or situations which are widely accepted as customary commercial practice (`urf tijari); (b) the hardship is experienced by a specific person(s) and the severity of the hardship does not reach the stage of darurah; (c) the SAC issues a ruling on the permissibility of the application of hajah type 2 with specific conditions or limitations; and Hajah and Darurah 8 of 21 (d) the Shariah ruling needs to be applied temporarily and proportionately depending on the complexity of the hardship by considering the appropriate duration and quantum17. G 9.6 Examples of application of hajah type 2 are provided in Illustration 3. The examples are subject to the fulfilment of the parameters in paragraph 9.5. Illustration 3 (a) Insurance coverage for Islamic financing In a wakalah financing deal, an IFI has appointed a client as its agent (wakil) to source for a takaful coverage to mitigate oil and gas risk. The client has exhausted all reasonable endeavours to source for a takaful coverage, in fulfilling his duty as an agent. However, due to the huge coverage amount needed to mitigate the risk and limited accessibility due to location constraints i.e., such oil and gas businesses located outside Malaysia, the client faces difficulty in getting takaful protection for the project. Hence, the IFI as principal (muwakkil) has allowed the client to obtain insurance coverage to fulfil the project financing requirements. (b) Liquidity risk management A full-fledged licensed Islamic bank has been receiving huge capital support to develop its Islamic banking business, and it has translated into better capital and asset position for the Islamic banking business. However, during a financial crisis or stress event, its banking group is in need of financial assistance. The licensed Islamic bank, as an entity within the group, can be well positioned to provide financial assistance such as transferring its funds or excess high quality liquid assets (HQLA) to the group18. The assistance provided is important to avoid the contagion risk to the licensed Islamic bank should the stress scenario become more serious and severe to the detriment of the group. This considers interdependencies on critical shared services, access to financial market infrastructures as well as the reputation of its conventional parent bank to obtain funding and carry out banking business. (c) Financing Shariah non-compliant business by a prescribed institution A prescribed institution performs its role based on mandates determined by the government. For a full-fledged Islamic prescribed institution, the institution should not perform any Shariah non-compliant transaction or dealing such as financing Shariah non-compliant industry. However, in the event where there is no other commercial banking institution or prescribed institution that could provide the financing and the financing has been mandated by the government, the full-fledged Islamic prescribed 17 This is based on Islamic legal maxim: "الضرورة تقدر بقدرها" (Dire necessity is to be assessed and treated proportionately), Ibnu Nujaim, Al-Ashbah wa al-Naza’ir, Dar al-Kutub al-`Ilmiyyah, 1999, p. 73. 18 The IFI funding shall be the last resort arrangement i.e., the banking group must first exhaust the funding available at its conventional counterpart or its parent before soliciting funding from the IFI. Hajah and Darurah 9 of 21 institution may execute the Shariah non-compliant transaction to fulfil its mandate. Darurah S 9.7 In addition to paragraph 8.3, an IFI shall categorise any hardship under darurah if it meets all of the following parameters: (a) the hardship does not arise from practices or situations which are widely accepted as customary commercial practice (`urf tijari); (b) the hardship experienced by a specific person(s) may or may not cause systemic impact, but trigger recovery or resolution actions19; (c) the SAC issues a ruling on the permissibility of the darurah application with specific conditions or limitations in light of the extreme stress situation; and (d) the Shariah ruling needs to be applied temporarily and proportionately based on the complexity of the hardship by considering the appropriate duration and quantum17. G 9.8 Example of application of darurah is provided in Illustration 4. The example is subject to the fulfilment of the parameters in paragraph 9.7. Illustration 4 An IFI has been identified to undergo a resolution phase by a resolution authority (RA). During that phase, the RA has exhausted all possible funding options in the resolution actions to avoid systemic risk to the financial industry. However, additional funding is still required, and the only possible solution to address the issue is to obtain funding from an international body – which can only be offered through a conventional loan arrangement. In this situation, the RA may execute the only possible solution due to the dire necessity of the situation. G 9.9 The hardship situations which warrant for the categories of hajah and darurah in paragraph 9.1 are not permanent and may change depending on the nature and severity of the hardship as stated in the fiqh legal maxim “a necessity possibly falls under the category of dire necessity whether it is in general or specific form20”. For instance, any of the Shariah rulings which are considered as hajah type 1 may be recategorised to hajah type 2 in the event where the hardship is no longer considered as a customary commercial practice (`urf tijari) of the Islamic finance industry, and vice versa. 19 Refer to policy document on Recovery Planning. Muhammad Al-Zuhaili, Al-Qawaid al-Feqhiyyah wa Tatbiqatuha fi" احلاجة تنزل منزلة الضرورة عامة كانت أو خاصة " 20 al-Mazahib al-Arba`ah, Dar al-Fikr, 2006, v. 1 p. 288. Hajah and Darurah 10 of 21 PART C OPERATIONAL REQUIREMENTS 10 Compliance with this part S S 10.1 Part C of this policy document shall be applicable to the hardship that meets the parameters of hajah type 2 or darurah as described in paragraphs 9.5 and 9.7 respectively. 10.2 The Bank retains its discretion in assessing whether an IFI is in compliance with this policy document to the satisfaction of the Bank. 11 Governance and oversight G 11.1 The requirements under Part C focus on the roles and responsibilities of key organs of the IFIs to promote effective governance arrangements and sound Shariah compliance culture within the IFIs, guided by the intended outcomes of this policy document. It complements the existing policy documents issued by the Bank which promote the long-term safety and soundness of the IFIs. G 11.2 Given the specific nature of the application of hajah type 2 and darurah, the Bank expects heightened oversight and strengthened responsibilities of every key organ of the IFIs to ensure rigorous assessment, deliberation, implementation and monitoring. The board S 11.3 The board, in overseeing the application of hajah type 2 and darurah within the IFI, shall have the overall responsibility to ensure an appropriate governance system is established to facilitate effective implementation of hajah type 2 and darurah that reflects the importance of strategy formulation and risk management practices and promotes end-to-end compliance with Shariah. In doing so, the board shall– (a) oversee the implementation of the decisions and advice of the Shariah committee and ensure that appropriate internal controls are in place; (b) approve internal policies and procedures relating to the decision-making process on hajah type 2 and darurah, including policies on dissemination of decisions or advice of the Shariah committee as well as their implementation monitoring; and (c) constructively challenge the IFI’s proposed application of hajah type 2 and darurah, including providing inputs on the adequacy of plausible scenarios, stress testing results, and key assumptions used in justifying the application of hajah type 2 and darurah, and give due consideration to the applicable duration and exit strategy, with due regard to the decision or advice of the Shariah committee. Shariah committee S 11.4 The Shariah committee in providing objective and sound decision or advice to the IFI on the application of hajah type 2 and darurah shall– (a) ensure that assessment on the proposed application of hajah type 2 and darurah by the IFI are in compliance with the requirements as specified in paragraphs 8.3, 8.4, 9.5 and 9.7 of this policy document; Hajah and Darurah 11 of 21 (b) ensure rigour in deliberating hajah type 2 and darurah application, highlight any significant concerns and dissenting views, and provide proper justifications for any decision or advice; and (c) satisfy that all possible efforts which have been demonstrated by the IFI prior to applying hajah type 2 and darurah could not address the particular hardship in line with the established internal policies and procedures on application of hajah type 2 and darurah. S 11.5 An IFI shall ensure that all Shariah committee members shall deliberate the proposed application of hajah type 2 and darurah and must ascertain views and insights on such matters, except under exceptional circumstances21. S 11.6 In relation to paragraph 11.5, an IFI shall ensure that views of the Shariah committee members who are not in attendance are obtained in writing. S 11.7 In line with paragraph 11.8 of the policy document on Shariah Governance, an IFI shall, at minimum, ensure that any decision of the Shariah committee is made on the basis of simple majority. S 11.8 In line with paragraph 11.14 of the policy document on Shariah Governance on the responsibility of the IFI to ensure clear and accurate minutes of Shariah committee meetings, the Shariah committee shall ensure that the minutes prepared relating to the proposed application of hajah type 2 and darurah are accurate, comprehensive and clear. In this regard, the Shariah committee has the responsibility to ensure the deliberations, considerations and justifications on the decision or advice, including assessment on the relevant parameters provided in this policy document for allowing the application of hajah type 2 and darurah, as well as any significant concerns and dissenting views are reflected appropriately. S 11.9 Where the Shariah committee is unable to finalise its decision or has reasonable doubt on the robustness of hajah type 2 and darurah assessment performed by an IFI, as provided in paragraph 11.11 of the policy document on Shariah Governance, the IFI shall provide the Shariah committee with access to the advice from third party experts to enable the Shariah committee to make an informed decision. Senior management S 11.10 In discharging the primary responsibility over the day-to-day management of the IFI on the application of hajah type 2 and darurah, the senior management shall– (a) ensure that the differences in the application of hajah type 2 and darurah (against normal operating environment) are properly understood and reflected effectively in its policies, processes and practices. This includes putting in place a robust communication plan on hajah type 2 and darurah; (b) implement effective policies and procedures for the application of hajah type 2 and darurah based on the rulings of the SAC and the decision or advice of the Shariah committee; (c) provide balanced assessment and opinion to the Shariah committee, supported with the relevant information during the identification and 21 This would include unavailability of a Shariah committee member due to medical reasons. Hajah and Darurah 12 of 21 assessment stage as outlined in paragraphs 12.4 to 12.11 of this policy document; and (d) ensure a robust internal control framework is in place to effectively monitor the application of hajah type 2 and darurah by the IFI. Control functions S 11.11 An IFI shall ensure the effectiveness and independence of control functions22 in reviewing and monitoring the application of hajah type 2 and darurah implemented by the business organs as described in paragraph 12.22 of this policy document. This includes assessment on areas for improvements that can prevent an IFI from resorting to apply hajah type 2 and darurah continuously. 12 Decision-making process S 12.1 An IFI shall establish a comprehensive internal policy and procedure on the application of hajah type 2 and darurah, to facilitate a more structured approach of decision-making by the Shariah committee and ensure effective implementation by the IFI. S 12.2 An IFI shall ensure that the internal policies and procedures relating to the decision-making process on the application of hajah type 2 and darurah to include the following: (a) identification of the scope of hardship; (b) assessment on the severity of the hardship and categorisation as described in paragraphs 9.5 and 9.7, as well as its impact on financial position and operations of the IFI; (c) robust and objective deliberation of possible solutions by the Shariah committee and the board; and (d) monitoring of hajah type 2 and darurah implementation by the appropriate control functions, as well as reporting to the Bank in line with paragraphs 12.13 to 12.18 of this policy document as and when hajah type 2 and darurah are being applied. S 12.3 In the event where an extended period is needed for the application of hajah type 2 and darurah, an IFI is required to comply with the decision-making process requirements as described in paragraphs 12.4 to 12.22 and provide compelling justifications on the need for such extension and a feasible exit plan for deliberations by the Shariah committee and the board. Identification S 12.4 In relation to paragraphs 8.1 and 8.3(a) to 8.3(c), an IFI shall prepare a comprehensive description of the hardship experienced by its stakeholders by gathering information on: (a) the nature of the hardship; and (b) the efforts performed by the IFI in complying with Shariah principles or rulings prior to proposing for the application of hajah type 2 and darurah, as well as the outcome of its efforts. 22 Roles and responsibilities of respective control functions (i.e., Shariah risk management, Shariah review and Shariah audit) as outlined in the policy document on Shariah Governance. Hajah and Darurah 13 of 21 G 12.5 In relation to paragraph 12.4(a), the comprehensive description on the nature of the hardship may include but not limited to the following perspectives: (a) institutional – issues that may affect operational resiliency of the IFI; (b) legal and regulatory – issues that may affect the effectiveness of regulations in achieving policy objectives; (c) macroeconomic – a condition that stems from, or relates to, a large aspect of an economy; (d) customer – issues that may deteriorate customers experience or cause inability to meet customers’ needs and expectations; and (e) external event – incidents outside the control of the IFI. Assessment S 12.6 An IFI shall demonstrate the severity of the hardship(s) based on its internal parameters taking into consideration the requirements and guidance set out by the Bank in this policy document and shall support the severity analysis by covering both qualitative and quantitative aspects. S 12.7 Notwithstanding paragraph 12.6, in the case where there is difficulty in assessing the quantitative aspect of the severity, the IFI shall ensure that the absence of quantitative assessment is supported with compelling justifications. G 12.8 In determining the certainty and severity of hardship in relation to paragraphs 8.3(a) to 8.3(c) as well as its categorisation in relation to paragraphs 9.3 to 9.8, an IFI may assess the certainty of the occurrence and adversity of the hardship situation based on its existing overall risk appetite framework, stress severity analysis or recovery planning components (as described in Illustration 5) or any relevant data that could provide a comprehensive perspective on the accurate level of hardship experienced by the IFI. Such integration in the assessment process is essential for timely identification of stress events and the formulation of actionable and credible options to ensure the IFI is well-positioned to respond to viability threats, regardless of their origins. Illustration 5 Integration between assessment on certainty and adversity of hardship in the application of hajah type 2 and darurah level into stress severity analysis, risk appetite framework and recovery planning components of the IFI. Hajah and Darurah 14 of 21 G 12.9 In relation to paragraphs 8.3(d) and 12.6, a comprehensive assessment to support the severity analysis and impact on internal and external stakeholders may include the following: (a) impact on customers and relevant stakeholders (e.g., counterparties related to main customers, service providers, suppliers, market utilities, public services and government) which stems from Shariah principles or Shariah rulings, taking into account– (i) the impact and speed of disruption to financial health, customers, businesses, and short-term liquidity needs of customers and relevant stakeholders; and (ii) the capacity or speed of reaction to the disruption by counterparties, customers and the public; (b) impact on other financial institutions and financial markets, taking into account the magnitude and speed at which such disruption would materially affect market participants or market functioning (e.g., liquidity, operations and structure of other financial institutions, financial markets concerned); (c) impact on economy, taking into account the lack of financial resources for an IFI to continue its operations as its customers or other stakeholders become negatively affected, both directly and indirectly (e.g., defaults which may cause further financial repercussions); and (d) impact on environment, social and infrastructure, taking into account the non-availability of Shariah compliant options to fulfil societal and environmental needs. S 12.10 An IFI shall develop proposed solutions supported with comprehensive assessment, consisting of options available in dealing with hardship circumstances, facts and rationale, Shariah justifications, impact assessment and assumption, unintended consequences, applicable duration, mitigation measures and exit strategy for each proposed solution23. S 12.11 In relation to paragraph 9.2, an IFI shall ensure that any reference for ruling of the SAC is supported with comprehensive assessment and proposed solutions as described in paragraphs 12.6, 12.7 and 12.10. Deliberation S 12.12 In reinforcing sound decision for the application of hajah type 2 and darurah, an IFI shall ensure completeness and robustness of the following: (a) information provided in the identification and assessment steps as specified under paragraphs 8.3 and 12 of this policy document; (b) deliberation of the Shariah committee and the board, particularly on the appropriateness of the proposed solutions and duration to address the risks and vulnerabilities identified in the hajah type 2 and darurah assessment as well as its exit strategy; and (c) consistency in providing views on the application of the Shariah rulings. 23 For example, an IFI is expected to identify the profit/loss (such as profit commission on risk ceded to the reinsurers) which may arise in a situation where hajah is adopted and establish a proper treatment/plan to manage such profit/loss, for instance purifying the impermissible profit via charity. Hajah and Darurah 15 of 21 Reporting S 12.13 In the event where the Shariah committee decides that the hardship falls under the category of hajah type 2 and the board agrees with the proposal to pursue such application, an IFI shall notify the Bank of that fact and submit a report in line with paragraph 12.16 within 14 working days after such decision is being made. S 12.14 In the event where the Shariah committee decides that the hardship falls under the category of darurah and the board agrees with the deliberations of the Shariah committee, an IFI shall refer to the SAC for a ruling and write to the Bank within 14 working days after such decision is being made. G 12.15 The SAC, with advice from the Bank or a resolution authority, will advise the IFI on the appropriate ruling and period for the application of darurah. S 12.16 In relation to paragraphs 12.13 and 12.14, an IFI shall ensure that notification on application of hajah type 2 to the Bank to be submitted to Jabatan Penyeliaan Konglomerat Kewangan, Jabatan Penyeliaan Perbankan or Jabatan Penyeliaan Insurans dan Takaful, as the case may be, and shall submit reference for darurah application to the SAC24 via Jabatan Sistem Kewangan Islam. S 12.17 In relation to paragraph 12.16, an IFI shall ensure that submission to the Bank includes the following information: (a) detailed description and assessment as described in paragraphs 12.4 to 12.11; (b) record of deliberations of the Shariah committee meeting(s), including resolutions, rationale and any significant concerns and dissenting views; and (c) record of deliberations of the board. S 12.18 An IFI shall report to the Shariah committee and the board on a timely basis the progress of the application of hajah type 2 and darurah, and its exit strategy. G G G Application 12.19 An IFI that meets the requirements stipulated in Part B may proceed to apply the hajah type 2 and darurah to address its hardship upon the notification to the Bank and the complete submission of information pursuant to paragraph 12.17. 12.20 In relation to paragraphs 9.2, 12.14 and 12.19, for situation of hardship with no prior Shariah rulings that warrants urgent application of hajah type 2 and darurah, the IFI may apply the exceptional rule prior to obtaining the Shariah ruling, based on the Shariah committee’s decision and the board’s approval. 12.21 In relation to paragraph 12.20, upon completion of review by the SAC, the IFI shall ensure that the relevant application of hajah type 2 and darurah to be consistent with the new Shariah ruling, which may include reversing any application that is deemed impermissible by the SAC. 24 As per Manual Rujukan Institusi Kewangan Islam kepada Majlis Penasihat Shariah. Hajah and Darurah 16 of 21 Monitoring S S S S 12.22 An IFI shall perform periodic assessments on the compliance of the implementation of hajah type 2 and darurah with the rulings of the SAC and decision or advice of the Shariah committee with due regard by the board, as well as requirements set out by the Bank. 13 Implementation Plan 13.1 An IFI is required to submit an implementation plan to comply with this policy document to Jabatan Sistem Kewangan Islam latest by 30 April 2024. 13.2 An IFI must conduct an assessment on impact of complying with the requirements in this policy document. An IFI must immediately notify Jabatan Sistem Kewangan Islam if the IFI identifies– (a) any cause that will affect full compliance of the requirements set forth under this policy document; and (b) any material adverse impact on the IFI’s business or operational matters. 13.3 In relation to paragraph 13.1, the board and the Shariah committee must respectively approve and endorse the IFI’s implementation plan to ensure compliance with this policy document. Hajah and Darurah 17 of 21 APPENDIX 1 DEFINITION OF HAJAH AND DARURAH Definition Classical scholars Hajah Hajah consists of what is required by the people for the realisation of their interests and the proper execution of their affairs. The social order would not, in fact, collapse, but will not function properly, if it is ignored25. Darurah A situation where one needs to consume forbidden items to prevent death or severe harm26. Contemporary scholars Hajah A situation where a need of a person or a community to be met by lifting the distress situation temporarily or permanently. If it is not addressed, it may reach the darurah (dire necessity) situation27. Darurah A dire necessity that permits the forbidden except for what is excluded (such as murder and adultery)28. Shariah basis of hajah and darurah The following verse of the al-Quran and the hadith imply the general permissibility for application of hajah: Allah intends ease for you, not hardship. (Surah Al-Baqarah, 2:185) هللا عنهما يللزبري وعبد الرمحن بن عوف رض ملسو هيلع هللا ىلصرخص رسول هللا :هللا عنه قال يعن أنس رض .رواه البخاري ومسلم .يف لبس احلرير حلكة هبما Anas (may Allah be pleased with him) reported: The Messenger of Allah (peace and blessing of Allah be upon him) permitted Zubair and `Abd al-Rahman bin `Auf (may Allah be pleased with them) to wear silk because they were suffering from an itch. 25 Al-Syatibi, al-Muwafaqat, Dar al-Kutub al-`Ilmiyah, 2004. على -احلرج واملشقة الالحقة لفوت املطلوب فإذا مل تراع دخل على املكلفني أهنا مفتقر إليها من حيث التوسعة ورفع الضيق املؤدي يف الغالب إىل يبلغ مبلغ الفساد املتوقع يف املصاحل العامة. احلرج واملشقة ولكنه ال -اجلملة 26 Al-Suyuti, al-Ashbah wa al-Nazair, Dar al-Kutub al-`Ilmiyah, 1983. .يتناول املمنوع هلك أو قارب، وهذا يبيح تناول احلرامفالضرورة: بلوغه حّداً إن مل 27 Ahmad Kafi, Al-Hajah al-Syar’iyyah Hududuha wa Qawaiduha, Dar al-Kutub al-Ilmiyah, 2004. - على اجلملة -دخل على املكلفني احلاجة هي ما حيتاجه األفراد أو حتتاجه األمة للتوسعة ورفع الضيق إما على جهة التأقيت أو التأبيد، فإذا مل تراع احلرج واملشقة وقد تبلغ مبلغ الفساد املتوقع يف الضرورة. 28 Abdullah bin Bayyah, Sina`ah al-Fatwa wa Feqh al-Aqalliyat, al-Muwatta Center, 2018. .ضرورة قصوى تبيح احملّرم سوى ما اسُتثن Hajah and Darurah 18 of 21 The following verse of the al-Quran and the hadith imply the general permissibility for application of darurah: But whoever is forced [by dire necessity], neither desiring [it] nor transgressing [its limit], there is no sin upon him. Indeed, Allah is Forgiving and Merciful. (Surah Al-Baqarah, 2:173) عن أيب واقد الليثي قال: قلت: اي رسول هللا، إان أبرض تصيبنا هبا خممصة، فما حيل لنا من رواه أمحد وصححه . (إذا مل تصطبحوا، ومل تغتبقوا، ومل حتتفئوا بقال، فشأنكم هبا)امليتة؟ قال: .احلاكم Abu Waqid al-Laithi said, "Messenger of Allah, we live in a land where we are afflicted by hunger, so when may we eat animals which have died a natural death?" He replied: "As long as you do not have a morning drink or an evening drink or gather vegetables, you may eat them." The following Islamic legal maxims provide basis for the general permissibility of hajah and darurah application, and the list is non-exhaustive: (a) hardship begets flexibility29; (b) harm must be removed30; (c) dire necessity lifts prohibitions31; (d) the greater harm is to be removed or replaced by the lesser harm32; and (e) when a matter is constricted/constrained (by the hardship), flexibility is accorded but when the hardship is addressed, the flexibility is rescinded33. .Al-Suyuti, Al-Ashbah wa Al-Naza’ir, Dar Al-Kutub Al-`Ilmiyyah, 1983, p. 76 " املشقة جتلب التيسري " 29 .Ibid, p. 83" الضرر يزال " 30 .Ibnu Nujaim, Al-Ashbah wa Al-Naza’ir, Dar Al-Kutub Al-`Ilmiyyah,1999, p. 73 " الضرورات تبيح احملظورات " 31 األخف " 32 ابلضرر األشد الضرر -Muhammad Al-Zuhaili, Al-Qawaid Al-Feqhiyyah wa Tatbiqatuha fi Al " يزال Mazahib Al-Arba`ah, Dar Al-Fikr, 2006, v. 1 p. 219. .Ibid, v. 1 p. 272 " إذا ضاق األمر اتسع وإذا اتسع ضاق " 33 Hajah and Darurah 19 of 21 APPENDIX 2 DECISION TREE IN APPLYING THE GENERAL PARAMETERS Hajah and Darurah 20 of 21 APPENDIX 3 SUMMARY OF CRITERIA AND PARAMETERS IN DEALING WITH HAJAH AND DARURAH Types Hajah Type 1 Hajah Type 2 Darurah Parameters 1. Preconditions • Ensure certainty of the hardship • Deviation from Shariah principle or ruling • Absence or impracticality of Shariah compliant alternatives • Does not cause greater or equal harm to stakeholders 2. Specific parameters a) Nature of hardship Difficult to avoid (`umum al-balwa) / customary commercial practice (`urf tijari) Not a customary commercial practice (`urf tijari) b) Coverage of hardship For general needs For specific needs, but has yet to reach darurah level For specific needs, may or may not cause systemic impact, but trigger recovery or resolutions actions c) Applicability and conditionality of ruling Shariah ruling is applicable to all without specific condition or limitation Shariah ruling is applicable to specific institution with specific condition or limitation Shariah ruling is applicable to specific institution or all with specific condition or limitation d) Time and quantum Allowable until revision of current Shariah ruling Temporary and proportionately based on complexity of the issue Example T+2 in currency exchange (bai` al- sarf), nostro account Ceding out of takaful risk to reinsurance company Loan from International Monetary Fund (IMF) during resolution Hajah and Darurah 21 of 21 APPENDIX 4 PROCESS FLOW IN APPLYING HAJAH AND DARURAH FAQs on Hajah & Darurah Policy Document Page \| 1 Hajah and Darurah Policy Document Frequently Asked Questions and Answers (FAQs) FAQs issued on: 3 January 2024 Introduction This document is intended to provide clarification to the requirements that are specified in Hajah and Darurah Policy Document (the PD), and it does not replace or supersede the requirements. Any updates to the document will be notified to Islamic financial institutions (IFIs) from time to time. If you have any further inquiries regarding implementation of the PD, kindly direct the queries to the following email address: [email protected] No. Question Answer Applicability 1. Is the PD applicable to digital banks? Yes, the PD is applicable to licensed digital banks that carry on Islamic digital banking business. Definition of Hardship 2. Context setting i. Why does Bank Negara Malaysia (the Bank) define “hardship” instead of hajah in the PD? • “Hardship” is the central concept for the PD. Subject to preconditions as specified in paragraph 8.3 of the PD, IFIs may apply hajah or darurah to depart from the current Shariah principle or Shariah ruling to address hardship in executing financial transactions or arrangements. • Instead of defining hajah and darurah, these concepts are reflected as the categories of the application of exceptional rules, which comprise of hajah type 1, hajah type 2 and darurah, and such categories are differentiated by parameters, including nature of hardship, degree of severity, etc. 3. Scope of the definition i. Does the definition of hardship cover the application of hajah and darurah? • Yes. The definition of hardship specified in the PD intends to cover application of hajah and darurah based on the relevant parameters on hardship (as specified in paragraphs 9.3, 9.5 and 9.7). • Use of words such as “unfavourable circumstances”, mailto:[email protected] Page \| 2 “severe adversity” and “intolerable levels of distress” aim to reflect the different nature and severity level of the hardship, which are reflected in the application of hajah and darurah. ii. Does the PD only focus on hardship of the IFIs, or should the assessment also cover hardship that is experienced by other stakeholders of the IFIs? • As specified in paragraphs 12.6 and 12.9 of the PD, the assessment on the nature, severity and impact of the hardship may include hardship experienced by other stakeholders such as customers, counterparties related to the IFIs’ customers, service providers, suppliers, market utilities, public services, government, other financial institutions and financial markets, overall economy, environment, social and infrastructure. • In other words, hajah or darurah may be applied to alleviate hardship of other stakeholders that has an adverse impact to the safety and soundness of the IFIs. For instance, hajah may be applied in the event where Shariah compliant solutions are not available to fulfil societal and environmental needs. iii. Does the coverage of the PD extend to hardship situations that are classified as potential Shariah Non-Compliance (PSNC) events? • The PD does not cover situations of hardship that are due to poor risk management control, bad business decision or negligence by the IFIs. • However, Shariah committee may review and assess the root cause of the PSNC event and may categorise such situation under application of hajah or darurah subject to fulfilment of the hardship definition, the preconditions, and the parameters of hajah or darurah as specified in the PD, as well as within the permissibility of existing Shariah ruling. Page \| 3 iv. What is the definition of a “person” in the PD? “Person” in the definition is similar to interpretation of a “person” in Islamic Financial Services Act 2013, which includes an individual, any corporation, statutory body, local authority, society, trade union, co- operative society, partnership and any other body, organization, association or group of persons, whether corporate or unincorporate. Interpretation of “Shariah Principle” and "Shariah Ruling” 4. “Shariah Principle” Does the scope of “Shariah principle” in the PD cover ruling in classical or contemporary texts, as well as whether the ruling is based on either weak or strong Shariah opinion? “Shariah principle” in the PD intends to cover any existing ruling from source(s) other than Shariah rulings made by the Bank’s Shariah Advisory Council (SAC), which may cover both classical and contemporary ruling and comprises of strong or consensus Shariah opinions (excluding weak Shariah opinions). 5. "Shariah Ruling” Does the scope of “Shariah Ruling” in the PD also cover the SAC rulings that are published as policy documents, for instance Shariah Contracts PD? “Shariah ruling” refers to all decision made by the SAC regardless of its medium of publication. The Shariah ruling may be documented as the published SAC resolutions and statements, related policy documents, dear CEO letters or any other issuance(s) by the Bank. Preconditions for application of hajah and darurah 6. Precondition: Certainty i. Can hajah or darurah be applied to address new situation i.e., without precedent or without existing Shariah ruling? Current preconditions cover possible “new situation” since it also includes situations of hardship with a high probability of occurrence (ghalib al- zann), which is supported with adequate quantitative and qualitative evidence. ii. Does “certainty” mean that a situation of hardship must be backed with historical evidence (precedent)? 7. Precondition: Deviation from Shariah Principle or Shariah Ruling Whether the precondition refers to Shariah non-compliant (SNC) event? • The precondition does not refer to SNC event since the presence Page \| 4 of hardship has necessitated the deviation from Shariah principle or Shariah ruling, which is not similar to SNC event that is due to other root causes and not due to hardship as defined in the PD e.g., human error or operational lapse. • All preconditions must be fulfilled for an application of hajah or darurah to be deemed permissible. 8. Precondition: Impact Seeking further guidance regarding application of fiqh muwazanah in impact assessment of the identified hardship, considering that the assessment will also be conducted by non-Shariah team e.g., the business team. • The Bank provides discretion to Shariah committee to apply fiqh al- muwazanah in assessing impact of applying hajah or darurah and whether such impact creates greater or equal harm to relevant stakeholders. • Relevant stakeholders (including the non-Shariah team) may be further guided by the internal policy and procedure relating to decision-making process on application of hajah type 2 and darurah endorsed by the Shariah committee. For instance, development of internal impact assessment framework that is based on fiqh al-muwazanah as well as internal parameter or indicator for situation of high possibility (ghalib al-zann). Parameter of hajah type 1, hajah type 2 & darurah 9. Parameters i. Does a situation need to meet all parameters to be classified under certain category i.e., hajah type 1, hajah type 2 or darurah? • Yes, it is necessary for a situation to fulfill all the parameters to be classified under certain category. • On the availability of the Shariah ruling, and particularly for situation(s) that has yet to be covered by the existing Shariah ruling, paragraph 9.2 of the PD specifies that the IFIs shall refer to the SAC to obtain Shariah ruling, based on guidance provided by Manual Rujukan Institusi Page \| 5 Kewangan Islam kepada Majlis Penasihat Shariah. ii. What is the key difference between hajah type 2 and darurah? The key differentiating parameter between hajah type 2 and darurah relates to the triggering of recovery or resolution actions (i.e., paragraph 9.7(b)) 10. How should the Development Financial Institutions (DFIs) determine whether the hardship situation has triggered recovery or resolution actions, considering that the Recovery Planning Policy Document does not apply to them? Paragraph 12.8 of the PD provides guidance on how to assess the certainty of the occurrence and severity level of the hardship situation, where the IFIs may leverage on its existing overall risk appetite framework, stress severity analysis or recovery planning components. In the absence of these internal framework and analysis, the DFIs can use any relevant data that could provide a comprehensive perspective on the hardship situation. For instance, the DFIs may use data from capital adequacy framework, liquidity management, business continuity management etc. 11. Hardship arising from fulfilling mandate by the government i. In view that it is common for all DFIs to fulfil the government’s instruction that may involve financing of Shariah non- compliant activities, is it possible to categorise such hardship under hajah type 1? • Hardship arising from fulfilling mandate from the government, particularly involvement in Shariah non-compliant activities such as financing of Shariah non- compliant industry falls under the category of hajah type 2. • Such situation of hardship is unique for each DFIs, based on the following observations: o different DFIs have different mandated roles i.e., serving different business segments; and o different structure (i.e., full- fledged Islamic or Islamic window) has different way to address such hardship e.g., DFIs with Islamic window operation can fulfil their Page \| 6 mandate via the conventional side. • Given the specificity of such hardship, it is important to assess it on a case-by-case basis. ii. What are the examples of hardship situation faced by the DFIs that may be triggered while fulfilling the government’s mandate? • The examples include financing of e-sport or movie production that consists of any Shariah non- compliant element. • Financing of such activities with Shariah non-compliant element may be permitted based on hajah type 2 since Shariah acknowledges that fulfilling the mandated role by the government can be justified under the concept of siyasah syar’iyyah (public policy) in serving multi-religion community. 12. Permissibility with specific condition or limitation In accordance with Illustration 3, if a situation exceeds the established threshold or limit determined by the Shariah committee of IFIs or the SAC, would it still fall under the classification of hajah type 2? • A situation of hardship must meet the conditions or the parameters specified in relevant Shariah ruling to be categorised under hajah type 2. • Any deviation from the existing Shariah ruling would require different deliberation and, in some cases, new rulings, depending on the significance of the deviation. • IFIs are encouraged to consult the SAC’s secretariat on such matters. • In the event where the IFIs exceed the Shariah committee’s internal thresholds or limit, such situation may be categorised under hajah type 2 if it is still within the parameter of the Shariah ruling. 13. Hajah type 2 or Darurah i. Is the SAC’s decision regarding darurah application subject to recommendations or suggestions from the industry? • In general, Shariah rulings consider feedback and input provided by the IFIs. • Also, the SAC may deliberate and make decision on issues arising Page \| 7 from the Bank’s surveillance on the IFIs’ safety and soundness. ii. Who determines the appropriate duration and quantum of temporary and proportionate application of Shariah rulings categorised as hajah type 2 and darurah? With advice from the Bank or a resolution authority, the SAC will advise the IFI on the appropriate ruling as well as the duration and the proportionality of application of hajah type 2 and darurah, considering the IFIs’ data and justification 14. Recategorisation i. Is it possible to recategorise hajah type 1, hajah type 2, or darurah based on data gathering and the Shariah committee's decision? Yes, paragraph 9.9 of the PD acknowledges the possibility for categorisation of hajah and darurah to change due to either change(s) in the situation of hardship, the IFIs’ internal factors or other external factors. It is possible to recategorise hajah type 1, hajah type 2, or darurah based on Shariah committee’s decision supported with relevant data and the change is still within the existing Shariah ruling. ii. What is the regulatory expectation for a situation of recategorisation? Recategorisation of hajah type 1, hajah type 2 or darurah is subject to similar Shariah and operational requirements specified in the PD. These include expectation for the IFIs to report/notify the Bank on the change in category and monitor its implementation. For recategorisation that falls beyond/ outside the permissibility of existing Shariah ruling, the IFIs are required to request for a ruling. Governance and Oversight 15. Board i. What is the rationale of imposing the heightened oversight expectation to the board? • Application of hajah and darurah involves deviation from compliance to Shariah principle or Shariah ruling, which is considered as Shariah non-compliance under normal circumstance. Therefore, the Bank expects the board to pay closer attention to such proposed application. • Such heightened oversight expectation to the board has been similarly imposed to situation Page \| 8 where a financial institution goes beyond the approved risk appetite as well as on matters related to the safety and soundness of the financial institution e.g., Recovery Planning Policy Document. ii. Should IFIs establish internal hajah and darurah parameter that reflect their risk appetite? Paragraph 12.8 of the PD guides that an IFI may assess the certainty of the occurrence and severity level of the hardship situation based on its existing risk appetite framework, stress severity analysis and recovery planning components or any relevant data that could provide comprehensive perspective on the hardship situation. 16. Shariah Committee i. Should the written opinion of Shariah committee member(s) who did not attend the meeting deliberating the proposed application of hajah or darurah be considered in determining a simple majority decision? • Yes, the written opinion received from the absent Shariah committee member(s) must be considered in determining the simple majority. • Although the absent Shariah committee member(s) did not have access to Shariah deliberation during the meeting, their views will be formed based on the information and other meeting materials provided by the secretariat. ii. Should the Shariah committee members be allowed to request for information or advice from third parties to obtain clarity and to make an informed decision? As specified in paragraph 11.11 of Shariah Governance Policy Document and paragraph 11. 9 of the PD, Shariah committee members should have access to relevant information or advice from third party experts to enable the Shariah committee to make informed decision, particularly where the Shariah committee is unable to finalise its decision or has reasonable doubt on the robustness of hajah type 2 and darurah assessment performed by the IFI. iii. Does the Shariah committee have the authority to make immediate implementation decisions regarding hajah or darurah As specified in paragraphs 12.19, 12.20 and 12.21 of the PD, in an urgent situation of hardship with no prior Shariah ruling, an IFI may Page \| 9 issues, prior to issuance of Shariah ruling by the Bank? proceed to apply hajah or darurah, subject to the Shariah committee's decision and the board’s approval. However, the IFI shall realign the relevant application with the new Shariah ruling, and such realignment may include complying with additional conditions or limitations as well as reversing current application that is prohibited by the SAC. 17. Control Functions Who should be assigned with the functions and activities required under the decision-making process? In view that each IFI has different organisational structure, it is practical to leave such matter to the IFIs’ discretion – subject to the roles and responsibilities of respective control functions (as specified by Shariah Governance Policy Document). Decision Making Process 18. Effective date of Shariah ruling In the event where an IFI chooses to apply hajah or darurah to address urgent and critical situation of hardship prior to obtaining the Shariah ruling, and later the SAC rules that such application is impermissible, when will the effective date of the new Shariah rulings be? Will it be retrospective? and therefore should the IFI report to the Bank of its previous decision and application as an SNC event? • Effective date of the Shariah ruling is not retrospective and therefore, the IFI will be given sufficient time to realign its application of hajah or darurah to be consistent with the newly published Shariah ruling. • Such situation will not be immediately considered as an SNC event due to the PD provides flexibility to an IFI to apply the exceptional rules to address urgent situation of hardship prior to obtaining the Shariah ruling, subject to the Shariah committee’s decision and the board’s approval (as specified in paragraph 12.20 of the PD). 19. Assessment Notwithstanding paragraph 12.6, please provide an example of cases where there is difficulty in assessing the quantitative aspect of the severity of the hardship. Examples of difficulty in assessing the quantitative aspect of the severity of the hardship include the following (but not limited to): • the availability of or accessibility to data or information • limited resources that are required to obtain the data or information Page \| 10 (e.g., time, capital, labour) given the urgency of the hardship situation 20. Reporting Please confirm that the IFIs are required to notify the Bank within 14 working days after obtaining approval from the Shariah committee as well as the board on the proposed application of hajah type 2 and darurah. • Yes, paragraph 12.13 of the PD specifies that the IFIs are required to submit to the Bank the required information specified in the PD within 14 working days after obtaining both Shariah committee’s decision and board’s approval. • For application of hajah and darurah that has yet to be deliberated and decided by the SAC, paragraphs 9.2 and 12.14 of the PD specify that the IFIs are expected to submit a referral to the SAC’s secretariat to request for a ruling within 14 working days after obtaining both Shariah committee’s decision and board’s approval. 21. Public Disclosure Does the PD require IFIs to publicly disclose the application of hajah and darurah? • The PD does not specify any disclosure requirement in view that information relating to specific application of hajah and darurah might be market sensitive, and therefore can affect public confidence in the integrity of the Islamic financial system. • However, any application of hajah and darurah resulting in material financial impact may still need to comply with applicable reporting standards and listing requirements.	Public Notice
28 Dec 2009	Concept Paper on Shariah Parameter Reference 3: Mudarabah Contract (closed)	https://www.bnm.gov.my/-/concept-paper-3-mudarabah	null	null	Reading: Concept Paper on Shariah Parameter Reference 3: Mudarabah Contract (closed) Share: Concept Paper on Shariah Parameter Reference 3: Mudarabah Contract (closed) Release Date: 28 Dec 2009 Bank Negara Malaysia is in the midst of developing a set of 'Shariah Parameters' to provide a standard guidance on operationalizing and applying the Shariah contracts in Islamic finance. Identified Shariah contracts for purpose of the Shariah Parameter initiatives are Murabahah, Ijarah, Mudarabah, Musharakah, Istisna' and Wadiah. Concept papers for Murabahah and Ijarah parameters have been issued to relevant parties for feedback and comment. This concept paper on Shariah Parameters Reference 3: Mudarabah Contract (SPR3) sets out the Shariah requirements for application of the Mudarabah contract. In this regard, Bank Negara Malaysia wishes to invite general public especially who have interest in Islamic finance to provide and submit written feedback on the concept paper by 29 January 2010. The written feedback in the form of softcopy is preferable and may be submitted to [email protected] or [email protected]. The hardcopy of the written feedback may also be submitted to: © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
25 Nov 2009	The Central Bank of Malaysia Act 2009	https://www.bnm.gov.my/-/the-central-bank-of-malaysia-act-2009	null	null	Reading: The Central Bank of Malaysia Act 2009 Share: The Central Bank of Malaysia Act 2009 Release Date: 25 Nov 2009 The Central Bank of Malaysia Act 2009 has come into force on 25 November 2009. With the coming into force of this Act, the Central Bank of Malaysia Act 1958 is repealed and thus, ceases to apply. Although the Central Bank of Malaysia Act 1958 is repealed, all existing appointments, transactions, arrangements and subsidiary legislation made or any act done under the Central Bank of Malaysia Act 1958 shall be deemed to be made or done under the Central Bank of Malaysia Act 2009. A copy of the Central Bank of Malaysia Act 2009 can be downloaded here. © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
17 Nov 2009	List of Licensed Financial Advisers has been updated. Click to find out.	https://www.bnm.gov.my/-/financial-adviser-list-16112009	null	null	Reading: List of Licensed Financial Advisers has been updated. Click to find out. Share: List of Licensed Financial Advisers has been updated. Click to find out. Release Date: 17 Nov 2009 We have updated the List of Licensed Financial Advisers. The list is up to date as of 2009-11-17. © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
13 Nov 2009	Participate in BNM website's User Satisfaction Survey today! Click to find out. (closed)	https://www.bnm.gov.my/-/survey-bnm	null	null	Reading: Participate in BNM website's User Satisfaction Survey today! Click to find out. (closed) Share: Participate in BNM website's User Satisfaction Survey today! Click to find out. (closed) Release Date: 13 Nov 2009 Help us make our web site more responsive to your needs by submitting your feedback in this survey. http://bnmsurvey.questionpro.com/ © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
26 Aug 2009	Pembiayaan Mikro comparative table has been updated. Click to find out.	https://www.bnm.gov.my/-/pembiayaan-mikro-comparative-table-has-been-updated.-click-to-find-out	https://www.bnm.gov.my/documents/20124/761712/Comparative_Table_Pembiayaan_Mikro_2023_BM.pdf, https://www.bnm.gov.my/documents/20124/761712/Comparative_Table_Pembiayaan_Mikro_2023_Eng.pdf, https://www.bnm.gov.my/documents/20124/761712/FAQ_on_Pembiayaan_Mikro_English.pdf, https://www.bnm.gov.my/documents/20124/761712/FAQ_on_Pembiayaan_Mikro_BM.pdf	null	null	FEATURES JADUAL PERBANDINGAN CIRI-CIRI PRODUK PEMBIAYAAN MIKRO (OKTOBER 2023) Penafian: Jadual perbandingan yang dipaparkan di sini hanya berfungsi sebagai panduan, bukan cadangan. Sila berunding dengan institusi kewangan sebelum membuat sebarang keputusan CIRI-CIRI AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK Nama Produk • AGRO MUS1M-i - MEF (Islamik) • Skim Pembiayaan Mikro-i (MUsK) (Modal Usahawan Kecil) (Islamik) • Skim Pembiayaan Mikro-i Individu (MIND) (Islamik) • Skim Pembiayaan Mikro-i (MUsK) MEF (Islamik) • Skim Pembiayaan Mikro-i (MUsK) Tanpa Panel (Islamik) • BRPlus Financing-i (BRPlus-i) (Islamik) • Pembiayaan Mikro Rakyat2E (Rakyat 2E) (Islamik) • Micro-BRJohorNiaga-i (Islamik) • BSN Micro/i TemaNiaga (Konvensional & Islamik) • BSN Micro/i TemanMesra (Konvensional & Islamik) • BSN Micro/i Kasih (Konvensional & Islamik) i. BSN Micro/i Kasih-Nita ii. BSN Micro/i Kasih- Belia iii. BSN Micro/i Kasih iv. BSN Micro/i Kasih- Bumiputera v. BSN Micro/i Kasih- Bumiputera Sabah/Sarawak/ vi. BSN Micro/i Kasih- Veteran vii. BSN Micro/i Kasih- Taska • BSN Micro/i Penjaja Kasih (Konvensional & Islamik) i. BSN Micro/i Penjaja Kasih-Bumiputera ii. BSN Micro/i Penjaja Kasih-Bukan Bumiputera iii. BSN Micro/i Penjaja Kasih-Muda • BSN Micro-i Hasanah (Islamik) • BSN Micro-i Cashline (Islamik) • Cash First Personal Loan (Konvensional) • Cash Vantage Personal Financing-i (Islamik) AmBank • AmMicro Enterprises Facility (Konvensional) AmBank Islamic • AmMoneyLine Facility-i (Islamik) • Xpress Cash Financing-i (Islamik) • iTEKAD Maju Microfinance (Islamik) • iTEKAD BangKIT Microfinance (Islamik) • Muamalat Term Financing (Tawaruq) (BNM Micro) (Islamik) • SME Micro Financing (Konvensional) • SME Micro Financing-i (Islamik) • Micro Enterprises Facility (Konvensional) • Micro Enterprises Facility-i (Islamik) • UOB Personal Loan (Konvensional) Saiz Pinjaman / Pembiayaan • RM1,000 – RM50,000 • RM1,000 – RM50,000 • RM5,000 – RM50,000 • RM5,000 – RM50,000 AmMicro Enterprises Facility (Konventional): • RM5,000 RM50,000 AmMoneyLine Facility-i: • RM2,000 – RM50,000 • Sehingga RM10,000 (untuk peserta iTEKAD) • RM3,000 – RM50,000 iTEKAD Maju Microfinance • RM10,000 - RM50,000 iTEKAD BangKIT Microfinance • RM5,000 - RM20,000 • RM5,000 – RM50,000 • RM3,000 – RM50,000 • RM3,000 – RM50,000 • RM5,000 – RM50,000 Tujuan Pinjaman / Pembiayaan • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) • Pengubahsuaian • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) • Modal kerja • Modal kerja • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) • Modal kerja • Perbelanjaan modal (cth: pembelian aset perniagaan) JADUAL PERBANDINGAN CIRI-CIRI PRODUK PEMBIAYAAN MIKRO (OKTOBER 2023) Penafian: Jadual perbandingan yang dipaparkan di sini hanya berfungsi sebagai panduan, bukan cadangan. Sila berunding dengan institusi kewangan sebelum membuat sebarang keputusan CIRI-CIRI AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK Tempoh Pinjaman / Pembiayaan • 3 bulan – 5 tahun • 1 bulan – 5 tahun BSN Micro/i TemaNiaga, BSN Micro/i TemanMesra & BSN Micro-i Hasanah • 1 – 5 tahun BSN Micro/i Kasih & BSN Micro/i Penjaja Kasih • Sehingga 5.5 tahun (termasuk moratorium untuk enam bulan pertama ansuran bulanan) BSN Micro-i Cashline: • Sehingga 5 tahun (tertakluk kepada penilaian tahunan) • 1 – 7 tahun AmMicro Enterprises Facility • 1 – 5 tahun AmMoneyLine Facility-i • 1 – 7 tahun • 6 bulan – 5 tahun iTEKAD Maju Microfinance • 1 – 5 tahun iTEKAD BangKIT Microfinance • 6 bulan – 3 tahun • Sehingga 7 tahun • 1 – 5 tahun • 1 – 5 tahun • 1 – 5 tahun Kadar Pinjaman Setahun1 • Kadar Efektif: Dari 4.5% Skim Pembiayaan Mikro-i (MUsK) (Modal Usahawan Kecil), Skim Pembiayaan Mikro-i (MUsK) MEF, Skim Pembiayaan Mikro-i (MUsK) Individu (MIND) & Skim Pembiayaan Mikro-i (MUsK) Tanpa Panel • Kadar Rata: 4.00% – 14.55% (bersamaan dengan Kadar Efektif 7.42% - 24.08%1) BRPlus Financing-i (BRPlus-i) & Pembiayaan Mikro Rakyat2E (Rakyat 2E) • Kadar Rata: 7.50% (bersamaan dengan Kadar Efektif 13.36%1) Micro-BRJohorNiaga-i • Kadar Rata: 9.50% (bersaman dengan Kadar Efektif 15.12%1) BSN Micro/i TemaNiaga: • Kadar Rata: 6.38% - 17.00% (bersamaan dengan Kadar Efektif 11.48% - 27.50%1) BSN Micro/iTemanMesra: • Kadar Rata: 6.38% - 14.00% (bersamaan dengan Kadar Efektif 11.48% - 23.25%1) BSN Micro/i Kasih & Micro/i Penjaja Kasih • Kadar Rata: 4% (bersamaan dengan Kadar Efektif 7.42%1) BSN Micro-i Hasanah: • Kadar Keuntungan: 0% BSN Micro-i Cashline: • Kadar Asas Standard (KAS) + 7.95% • Kadar Rata: 9.78% – 15.28% (bersamaan dengan Kadar Efektif 16.93% - 25.08%1) AmMicro Enterprises Facility (Konventional): • Kadar Efektif: dari BLR+2% AmMoneyLine Facility-i: • Kadar Rata 8.0% - 11.99% (bersamaan dengan Kadar Efektif 14.13% - 21.55%1) • Kadar rata: 18% - 21% (bersamaan dengan kadar efektif 28.88% - 32.92%1) iTEKAD Maju Microfinance: • Kadar Efektif: 4% iTEKAD BangKIT Microfinance: • Kadar Efektif: 0% • Kadar Rata: 5.25% (bersamaan dengan Kadar Efektif 9.58%1) • Kadar Efektif: 8.5% - 12.5% (MEF) • Kadar Rata: 15% - 18% (bersamaan dengan Kadar Efektif 24.68% - 28.88%1) • Kadar Rata: 9.99% - 11.99% (bersamaan dengan Kadar Efektif 17.26% – 20.30%1) Masa Kelulusan2 yang Dijanjikan (selepas menerima dokumen yang lengkap) • 6 hari bekerja • 6 hari bekerja • 6 hari bekerja • 2 - 5 hari bekerja • 6 - 7 hari bekerja • 2 - 5 hari bekerja • 6 hari bekerja • 6 hari bekerja • 1 - 5 hari bekerja • 6 hari bekerja • 4 - 5 hari bekerja Masa Pengeluaran yang Dijanjikan • 4 hari bekerja3 • 4 hari bekerja3 • 4 hari bekerja3 • 1 hari bekerja3 • 2 - 4 hari bekerja3 • 1 - 2 hari bekerja3 • 4 hari bekerja (setelah menyelesaikan latihan pra- pengeluaran pembiayaan) • 5 hari bekerja3 • 2 - 4 hari bekerja3 • 4 hari bekerja3 • 2 - 4 hari bekerja3 Sektor Ekonomi yang Layak • Semua sektor yang patuh Syariah • Perkhidmatan • Perdagangan runcit • Pembuatan • Pertanian • Pembuatan • Peruncitan / pemborongan • Perkhidmatan • Semua sektor • Semua sektor • Semua sektor • Semua sektor • Semua sektor • Semua sektor / Sektor tertentu (berdasarkan produk) • Pertanian • Perkhidmatan & perdagangan • Pembuatan • Semua sektor 1 Dianggarkan berdasarkan andaian bahawa tempoh pinjaman/pembiayaan adalah 5 tahun 2 Masa kelulusan merujuk kepada bilangan hari bekerja setelah dokumen lengkap diterima sehingga kelulusan pembiayaan 3 Masa pengeluaran merujuk kepada bilangan hari bekerja selepas peminjam dan/ahau penjamin menerima surat tawaran sehingga pembayaran pembiayaan JADUAL PERBANDINGAN CIRI-CIRI PRODUK PEMBIAYAAN MIKRO (OKTOBER 2023) Penafian: Jadual perbandingan yang dipaparkan di sini hanya berfungsi sebagai panduan, bukan cadangan. Sila berunding dengan institusi kewangan sebelum membuat sebarang keputusan CIRI-CIRI AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK Kriteria Kelayakan untuk Memohon • Perusahaan mikro / individu yang bekerja sendiri • Individu berumur antara 21 - 65 tahun pada tarikh permohonan • Mempunyai lesen / permit / pendaftaran perniagaan yang sah • Perniagaan/projek telah beroperasi sekurang- kurangnya 6 bulan • Tempat kediaman terletak berhampiran kawasan perniagaan / projek • Perusahaan mikro seperti yang ditakrifkan oleh SME Corporation Malaysia ATAU individu yang bekerja sendiri • Berumur antara 18 dan 65 tahun • Mempunyai lesen / permit / pendaftaran perniagaan yang sah • Pengusaha mikro secara sepenuh masa • Sekurang-kurangnya 2 tahun pengalaman dalam perniagaan • Tempat kediaman terletak di sekitar kawasan perniagaan Kriteria Kelayakan Tambahan: Skim Pembiayaan Mikro-i (MUsK) (Modal Usahawan Kecil) • Anggota Koperasi ATAU Ahli Persatuan Penjaja dan Peniaga Kecil • Mempunyai ahli Kumpulan Bantu Diri (KBD) Skim Pembiayaan Mikro-i (MUsK) Individu (MIND) • Anggota Koperasi ATAU Ahli Persatuan Penjaja dan Peniaga Kecil Skim Pembiayaan Mikro-i (MUsK) Tanpa Panel • Mempunyai ahli Kumpulan Bantu Diri (KBD) Skim Pembiayaan Mikro-i (MUsK) MEF & BRPlus Financing-i (BRPlus-i) • Perniagaan telah beroperasi sekurang- kurangnya selama 2 tahun dengan aktiviti perniagaan yang sama Pembiayaan Mikro Rakyat2E (Rakyat 2E) • Menghadiri kursus perniagaan anjuran BKRM / INSKEN / agensi pelatih lain yang • Perusahaan mikro / individu bekerja sendiri (termasuk golongan profesional) • Syarikat yang berdaftar dengan Suruhanjaya Syarikat Malaysia (SSM) / mempunyai lesen daripada Pihak Berkuasa Tempatan / Pejabat Daerah di Sabah dan Sarawak atau Permit Operasi - termasuk Pemilikan perseorangan / Perkongsian / Syarikat Sendirian Berhad • Mempunyai lesen perniagaan / permit / pendaftaran yang sah • Pemohon mengendalikan perniagaan secara sepenuh masa / sambilan • Telah menjalankan perniagaan secara berterusan selama sekurang-kurangnya 2 tahun (perniagaan telah berdaftar sekurangnya 6 bulan bagi BSN Micro/i Kasih, BSN Micro/i Penjaja Kasih and BSN Micro-i Hasanah) • Melepasi semakan rekod kredit dengan BSN dan lain-lain institusi Kriteria Kelayakan Tambahan: BSN Micro/i Kasih • BSN Mikro/i Kasih-Nita: Perusahaan mikro yang dimiliki oleh usahawan wanita • BSN Mikro/i Kasih-Belia: Perusahaan mikro yang dimiliki oleh usahawan belia berumur tiga puluh (30) tahun dan ke bawah • BSN Mikro/i Kasih- Umum: Terbuka kepada semua perusahaan mikro yang layak • BSN Mikro/i Kasih- Bumiputera: Perusahaan mikro yang dimiliki oleh usahawan Bumiputera • BSN Mikro/i Kasih- Bumiputera • Individu bekerja sendiri • Mempunyai pendaftaran perniagaan yang sah • Berumur antara 21– 65 tahun • Telah menjalankan perniagaan sekurang- kurangnya 2 tahun dalam bidang perniagaan semasa AmMicro Enterprises Facility • Perusahaan mikro • Syarikat yang berdaftar dengan Suruhanjaya Syarikat Malaysia (SSM) • Pemilikan perseorangan / Perkongsian / Syarikat Sendirian Berhad • Berumur antara 25 – 70 tahun (had umur pada tarikh pinjaman matang) • Lulus pemeriksaan kredit (i.e., CTOS, CCRIS, AMLA, pemeriksaan dalaman bank seperti yang diperlukan oleh AmBank • Startup yang telah beroperasi sekurang- kurangnya 12 bulan AmMoneyLine Facility-i • Perusahaan mikro • Pemilikan perseorangan atau perkongsian yang telah berdaftar sekurang- kurangnya 3 tahun • Berumur antara 21 dan 60 tahun • Lulus pemeriksaan kredit (i.e., CTOS, CCRIS, AMLA, pemeriksaan dalaman bank seperti yang diperlukan oleh AmBank Islamic • Individu yang bekerja sendiri • Berumur antara 21 – 60 tahun • Pendapatan kasar sekurang- kurangnya RM800 sebulan • Bekerja lebih daripada 6 bulan / aktif dalam perniagaan selama lebih dari 6 bulan • Perusahaan mikro • Warganegara Malaysia yang bermastautin di Malaysia yang memegang sekurang- kurangnya 51% pegangan saham • Berdaftar dengan Suruhanjaya Syarikat Malaysia (SSM), pihak berkuasa/ Pejabat Daerah di Sabah dan Sarawak atau adan berkanun untuk penyedia perkhidmatan profesional • Mempunyai pelan perniagaan yang mengunjurkan aliran tunai positif untuk membayar pinjaman Kriteria Kelayakan Tambahan: iTEKAD Maju Microfinance: • Umur antara 21 hingga 60 tahun • Penglibatan dalam perniagaan sekurang- kurangnya 1 tahun iTEKAD BangKIT Microfinance: • Umur antara 18 dan 60 tahun • Penglibatan dalam perniagaan sekurang- kurangnya 6 bulan • Perusahaan mikro • Syarikat yang berdaftar dengan Suruhanjaya Syarikat Malaysia (SSM) / mempunyai lesen daripada Pihak Berkuasa Tempatan / Pejabat Daerah di Sabah dan Sarawak atau Permit Operasi - termasuk pemilik tunggal/ perkongsian/ syarikat sendirian berhad • Telah beroperasi sekurang- kurangnya 3 tahun • Pelanggan sedia ada Akaun Semasa Bank Muamalat (sekurang- kurangnya 6 bulan hubungan perbankan) • Perusahaan mikro • Syarikat yang berdaftar dengan Suruhanjaya Syarikat Malaysia (SSM) / mempunyai lesen daripada Pihak Berkuasa Tempatan / Pejabat Daerah di Sabah dan Sarawak atau Permit Operasi - termasuk pemilik tunggal/ perkongsian/ syarikat sendirian berhad • Telah beroperasi sekurang-kurangnya 1 tahun • Berumur antara 21 hingga 60 tahun (SPP) & 21 hingga 65 tahun (Sdn Bhd) • Hubungan perbankan sekurang-kurangnya 2 tahun (pinjaman & bukan pinjaman) dengan Maybank & 3 tahun dengan Institusi Kewangan lain • Perusahaan mikro • Syarikat yang berdaftar dengan Suruhanjaya Syarikat Malaysia (SSM) / mempunyai lesen daripada Pihak Berkuasa Tempatan / Pejabat Daerah di Sabah dan Sarawak atau Permit Operasi - termasuk pemilik tunggal/ perkongsian/ syarikat sendirian berhad • Individu yang bekerja sendiri • Pekerja gig di platform digital • Peserta program iTEKAD • Berumur antara 21– 60 tahun • Mempunyai lesen / permit perniagaan yang sah • Perniagaan mestilah dikendalikan oleh pemilik dan secara sepenuh masa • Mempunyai alamat kediaman tetap • Beroperasi sekurang- kurangnya 1 tahun adalah diutamakan. Perniagaan yang beroperasi kurang daripada 1 tahun akan dinilai berdasarkan kes demi kes • Individu bekerja sendiri • Berumur antara 21 dan 55 tahun • Pendapatan minimum RM36,000 setahun • Terlibat dalam perniagaan yang sama secara berterusan selama sekurang- kurangnya 2 tahun JADUAL PERBANDINGAN CIRI-CIRI PRODUK PEMBIAYAAN MIKRO (OKTOBER 2023) Penafian: Jadual perbandingan yang dipaparkan di sini hanya berfungsi sebagai panduan, bukan cadangan. Sila berunding dengan institusi kewangan sebelum membuat sebarang keputusan CIRI-CIRI AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK diterima oleh Bank Rakyat Micro-BRJohorNiaga-i • Mesti memperolehi kebenaran Perbadanan Usahawan Johor (PUJB) melalui sistem pendaftaran Pusat Data Usahawan Johor (PADU) Sabah/Sarawak: Perusahaan mikro yang dimiliki oleh usahawan Bumiputera di Sabah/ Sarawak • BSN Mikro/i Kasih- veteran: Perusahaan mikro yang dimiliki oleh usahawan veteran dari sektor kerajaan (pesara badan beruniform) • BSN Mikro/i Kasih-Taska: Perusahaan mikro yang menjalankan perkhidmatan penjagaan kanak-kanak atau taska BSN Micro/i Penjaja Kasih - Untuk food truck, penjaja tepi jalan, pengendali medan selera dan sebagainya • BSN Mikro/i Penjaja Kasih-Bumiputera: Perusahaan mikro yang dimiliki oleh usahawan Bumiputera • BSN Mikro/i Penjaja Kasih-Bukan Bumiputera: Perusahaan mikro yang dimiliki oleh usahawan Bukan-Bumiputera • BSN Mikro/i Penjaja Kasih-Muda: Perusahaan mikro yang dimiliki oleh usahawan belia berumur 30 tahun dan ke bawah BSN Micro-i Hasanah • Golongan B40 yang layak termasuk siswazah fasa 1 program iTEKAD Dokumen Lazim yang Diperlukan • Kad pengenalan pemohon • Bukti operasi perniagaan / projek (seperti pendaftaran / lesen / permit perniagaan) • Bukti pendapatan (seperti penyata bank 6 bulan terkini, atau rekod jualan) • Dokumen berkenaan yang • Kad pengenalan pemohon • Bukti operasi perniagaan (seperti pendaftaran / lesen / permit perniagaan) • Bukti pendapatan (seperti penyata bank bagi 6 bulan terkini, rekod jual beli) • Surat sokongan daripada koperasi- panel dan ahli –ahli Kumpulan Bantu Diri (KBD) • Bukti operasi perniagaan (cth. pendaftaran / lesen / permit perniagaan yang sah) • Kad pengenalan pemilik perniagaan / rakan kongsi / pengarah • Bukti pendapatan - salinan penyata bank bagi 6 bulan terkini, kecuali BSN Micro/i Kasih, BSN Micro/i Penjaja Kasih and BSN Micro-i Hasanah) (penyata bank 3 bulan terkini) • Kad pengenalan pemohon • Bukti operasi perniagaan (seperti pendaftaran / lesen / permit perniagaan) • Bukti pendapatan melalui salinan penyata bank bagi 6 bulan terkini; Borang B terkini dengan resit bayaran cukai; atau AmMicro Enterprises Facility • Kad pengenalan pemohon • Bukti operasi perniagaan (seperti pendaftaran / lesen / permit perniagaan) • Penyata bank bagi 6 bulan terkini • Dokumen lain yang berkenaan (iaitu penyata • Kad pengenalan pemohon • Bukti operasi perniagaan (cth. pendaftaran / lesen / permit perniagaan) • Bukti pendapatan (cth. penyata bank bagi 6 bulan terkini) • Dokumen lain yang berkaitan • Kad pengenalan pemohon • Set lengkap Borang Permohonan • Bukti pendapatan (cth. borang cukai pendapatan B, penyata bank bagi 6 bulan terkini) • Bukti operasi perniagaan (cth. pendaftaran perniagaan) • Pendaftaran perniagaan • Salinan penyata bank untuk 6 bulan terkini • Pengisytiharan cukai pendapatan terkini (jika ada) • Dokumen berkenaan yang lain • Bukti pendapatan (seperti penyata bank selama 6 bulan, penyata cukai pendapatan) • Pendaftaran perniagaan • Penyata kewangan bagi 2 tahun terkini (akaun yang telah diaudit / akaun pengurusan) • Dokumen lain yang berkaitan • Kad pengenalan pemohon • Bukti operasi perniagaan (cth. pendaftaran / lesen / permit perniagaan) • Bukti pendapatan (cth. penyata bank bagi 6 bulan terkini atau Borang B terkini dengan resit bayaran cukai) • Bil utiliti • Dokumen lain yang berkaitan • Kad pengenalan pemohon • Borang 9 & 24 atau Sijil Pendaftaran Perniagaan • Borang B/BE terkini dengan resit bayaran cukai • Penyata bank bagi 6 bulan terkini yang menunjukkan jualan perniagaan JADUAL PERBANDINGAN CIRI-CIRI PRODUK PEMBIAYAAN MIKRO (OKTOBER 2023) Penafian: Jadual perbandingan yang dipaparkan di sini hanya berfungsi sebagai panduan, bukan cadangan. Sila berunding dengan institusi kewangan sebelum membuat sebarang keputusan CIRI-CIRI AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK lain • Dokumen sokongan (jika ada) contohnya akaun yang telah diaudit/cukai pendapatan terkini, akaun pengurusan, rekod jualan • Dokumen lain yang berkaitan Dokumen Tambahan: BSN Mikro/i Kasih- Bumiputera Sabah/Sarawak • Kad pengenalan / bukti identiti Bumiputera Sabah / Sarawak BSN Mikro/i Kasih-Veteran • Kad pesara / penyata pembayaran pencen / bukti status pesara badan Kerajaan BSN Mikro/i Kasih-Taska • Pusat penjagaan tidak formal: sijil pendaftaran perniagaan dengan SSM • Pusat penjagaan formal: o Sijil pendaftaran perniagaan dengan SSM / ROS / lesen perniagaan daripada Pihak Berkuasa Tempatan / Jabatan Kebajikan Masyarakat (JKM) o Memenuhi keperluan standard oleh JKM o Lesen sah terkini daripada agensi teknikal seperti Jabatan Bomba dan Penyelamat, Jabatan Kesihatan, Jabatan Tanah dan Survei BSN Micro/i Penjaja Kasih • Sebutharga untuk tujuan penaiktarafan perniagaan penyata KWSP terkini • Dokumen berkenaan yang lain pembayaran KWSP kepada pekerja) AmMoneyLine Facility-i • Kad pengenalan pemohon • Borang A & D pendaftaran perniagaan • Penyata bank bagi 6 bulan terkini (akaun individu ataupun perniagaan) • Bil utiliti • Dokumen lain yang berkaitan Permohonan secara online: • Pelanggan PKS Maybank yang sedia ada: Tiada dokumen diperlukan • Pelanggan PKS baru kepada Maybank: Kad Pengenalan atau pasport semua Pengarah dan pemilik Syarikat, penyata bank (6 bulan) dan lesen perniagaan (Sabah & Sarawak sahaja) Prosedur Permohonan • Kunjungi cawangan yang memaparkan • Kunjungi cawangan & Pusat Perbankan Perniagaan yang memaparkan • Permohonan dalam talian melalui portal Quick-Response-to- Entrepreneur (QR2E) (qr2e.bankrakyat.com. my) • Kunjungi cawangan & Pusat Kewangan Mikro yang memaparkan • Permohonan dalam talian melalui laman web BSN (https://www.bsn.com.my/ BusinessBanking) dan imSME (imsme.com.my) • Lawati laman web ABMB (www.allianceba nk.com.my) • Kunjungi cawangan yang memaparkan • Permohonan dalam talian melalui AmOnline • Kunjungi cawangan yang memaparkan • Kunjungi cawangan yang memaparkan • Emel kepada microfinance@ba nkislam.com.my • Kunjungi cawangan yang memaparkan • Kunjungi Cawangan Maybank & Pusat Perniagaan Komersial yang memaparkan • Permohonan dalam talian melalui Maybank2u • Kunjungi cawangan yang memaparkan • Permohonan dalam talian melalui laman web imSME (imsme.com.my) • Kunjungi cawangan yang memaparkan • Laman web UOB (www.uob.com.my) file:///C:/Users/ixlyana/AppData/Local/Temp/notesC7A056/www.alliancebank.com.my file:///C:/Users/ixlyana/AppData/Local/Temp/notesC7A056/www.alliancebank.com.my JADUAL PERBANDINGAN CIRI-CIRI PRODUK PEMBIAYAAN MIKRO (OKTOBER 2023) Penafian: Jadual perbandingan yang dipaparkan di sini hanya berfungsi sebagai panduan, bukan cadangan. Sila berunding dengan institusi kewangan sebelum membuat sebarang keputusan CIRI-CIRI AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK Nombor Talian Penting Umum • Ibu pejabat: 03-27311600 ext: 2033 / 2034 / 2035 / 2036 / 2041 / 2064 / 2042 • Kuala Lumpur: 03-26912754 • Shah Alam: 03-55198250 • Melaka: 06-2811495 • Seremban: 06-7639541 • Butterworth: 04-3314539 • Johor Bahru: 07-2344761 • Ipoh: 05-2548742 • Alor Star: 04-7332545 • Kuala Terengganu: 09-6222044 • Kota Bharu: 09-7481211 • Kuantan: 09-5158164 • Kota Kinabalu: 088-288288 • Kuching 082-410126 • Ibu pejabat: 03-26129600 • Talian terus Pusat Perbankan Perniagaan o Kuala Lumpur: 03-26004751 o Selangor: 03-55198427 / 03-55126124 / 03-55126560 / 03-55101630 o Melaka / Negeri Sembilan: 06-2310498 / 06-2310684 / 06-2310262 o Kedah / Perlis / Pulau Pinang: 04-4404685 / 04-4446743 / 04-4445245 / 04-4447613 o Kelantan / Terengganu: 09-7642436 / 09-7643265 / 09-7648684 / 09-7648045 o Perak: 05-5280757 / 05-5280679 / 05-5280504 o Johor: 07-2446481 / 07-2448547 / 07-2447316 / 07-2447179 o Pahang: 09-5133432 / 09-5135517 / 09-5133521 / 09-5132976 o Sabah: 08-8763525 / 08-8764525 / 08-8765525 / 08-8766525 o Sarawak: 082-612594 / 082-614045 / 082-614154 / 082-614519 • Pusat Perhubungan: 1300-80-5454 • Kuala Lumpur: 03-21623222 samb. 71714 • Sabah: 088-355600 samb. 76610 • Sarawak: 082-227888 samb. 76008 • Kedah: 04-7740444 samb. 73062 • Kelantan: 09-7457070 samb. 75109 • Selangor: 03-55433000 samb. 72206 • Johor: 07-2083555 samb. 74007 • Pahang: 09-5650565 samb. 50532 • Terengganu: 09-6200400 samb. 75265 • Melaka: 06-2895800 samb. 74103 • Penang: 04-2226400 samb. 73107 • Perak: 05-2452222 samb. 73207 • Negeri Sembilan: 06-7686500 samb. 74208 • Selangor: 03-55169988 • 03-21783188 • 03-62047788 • Pusat Perhubungan & Khidmat Pelanggan: 03-26900900 • 03-2600-5500 • Khidmat Pelanggan (24 jam): 1-300-80-8668 • 03-21708000 • Kuala Lumpur: 03-26128121 • Penang: 04-2401121 • Johor Bahru: 07-2881121 • Kuching: 082-287121 • Kota Kinabalu: 088-477121 Untuk maklumat lanjut, sila lawati www.bnm.gov.my/microfinance https://www.bnm.gov.my/microfinance COMPARATIVE TABLE ON PEMBIAYAAN MIKRO PRODUCT FEATURES AS AT OCTOBER 2023 Disclaimer: Comparative table displayed here serves only as a guide, not recommendation. Please consult the financial institutions before making any decision. FEATURES AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK Product Name • AGRO MUS1M-i - MEF (Islamic) • Skim Pembiayaan Mikro-i (MUsK) (Modal Usahawan Kecil) (Islamic) • Skim Pembiayaan Mikro-i Individu (MIND) (Islamic) • Skim Pembiayaan Mikro-i (MUsK) MEF (Islamic) • Skim Pembiayaan Mikro-i (MUsK) Tanpa Panel (Islamic) • BRPlus Financing-i (BRPlus-i) (Islamic) • Pembiayaan Mikro Rakyat2E (Rakyat 2E) (Islamic) • Micro- BRJohorNiaga-i (Islamic) • BSN Micro/i TemaNiaga (Conventional & Islamic) • BSN Micro/i TemanMesra (Conventional & Islamic) • BSN Micro/i Kasih (Conventional & Islamic) i. BSN Micro/i Kasih- Nita ii. BSN Micro/i Kasih- Belia iii. BSN Micro/i Kasih iv. BSN Micro/i Kasih- Bumiputera v. BSN Micro/i Kasih- Bumiputera Sabah/Sarawak/ vi. BSN Micro/i Kasih- Veteran vii. BSN Micro/i Kasih- Taska • BSN Micro/i Penjaja Kasih (Conventional & Islamic) i. BSN Micro/i Penjaja Kasih- Bumiputera ii. BSN Micro/i Penjaja Kasih- Bukan Bumiputera iii. BSN Micro/i Penjaja Kasih- Muda • BSN Micro-i Hasanah (Islamic) • BSN Micro-i Cashline (Islamic) • Cash First Personal Loan (Conventional) • Cash Vantage Personal Financing-i (Islamic) AmBank • AmMicro Enterprises Facility (Conventional) AmBank Islamic • AmMoneyLine Facility-i (Islamic) • Xpress Cash Financing-i (Islamic) • iTEKAD Maju Microfinance (Islamic) • iTEKAD BangKIT Microfinance (Islamic) • Muamalat Term Financing (Tawaruq) (BNM Micro) (Islamic) • SME Micro Financing (Conventional) • SME Micro Financing-i (Islamic) • Micro Enterprises Facility (Conventional) • Micro Enterprises Facility-i (Islamic) • UOB Personal Loan (Conventional) Loan/ Financing Size • RM1,000 – RM50,000 • RM1,000 – RM50,000 • RM5,000 – RM50,000 • RM5,000 – RM50,000 AmMicro Enterprises Facility • RM5,000 - RM50,000 AmMoneyLine Facility-i • RM2,000 - RM50,000 • Up to RM10,000 (for iTEKAD participants) • RM3,000 – RM50,000 iTEKAD Maju Microfinance • RM10,000 - RM50,000 iTEKAD BangKIT Microfinance • RM5,000 – RM20,000 • RM5,000 – RM50,000 • RM3,000 – RM50,000 • RM3,000 – RM50,000 • RM5,000 – RM50,000 Purpose of Financing • Working capital • Capital expenditure • Working capital • Capital expenditure • Working capital • Capital expenditure • Renovations • Working capital • Capital expenditure • Working capital • Capital expenditure • Working capital • Capital expenditure • Working capital • Capital Expenditure • Working capital • Working capital • Working capital • Capital expenditure • Working capital • Capital expenditure Tenure of Financing • 3 months – 5 years • 1 month – 5 years BSN Micro/i TemaNiaga,BSN Micro/i TemanMesra & BSN Micro-i Hasanah • 1 – 5 years • 1 – 7 years AmMicro Enterprises Facility • 1 – 5 years • 6 months – 5 years iTEKAD Maju Microfinance • 1 - 5 years • Up to 7 years • 1 – 5 years • 1 – 5 years • 1 – 5 years COMPARATIVE TABLE ON PEMBIAYAAN MIKRO PRODUCT FEATURES AS AT OCTOBER 2023 Disclaimer: Comparative table displayed here serves only as a guide, not recommendation. Please consult the financial institutions before making any decision. 1 Estimated based on assumption that the tenure of loan/financing is 5 years. 2 Approval time refers to number of working days upon receipt of complete documentation until approval of financing 3 Disbursement time refers to number of working days upon borrower’s and/or guarantor’s acceptance of letter of offer until disbursement of financing FEATURES AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK BSN Micro/i Kasih & BSN Micro/i Penjaja Kasih • Up to 5.5 years (including moratorium for the first six 6 months of monthly instalment) BSN Micro-i Cashline • Up to 5 years (subject to annual review) AmMoneyLine Facility-i • 1 - 7 years iTEKAD BangKIT Microfinance • 6 months - 3 years Financing Rate (Per Annum)1 • Effective Rate: From 4.5% Skim Pembiayaan Mikro-i (MUsK) (Modal Usahawan Kecil), Skim Pembiayaan Mikro-i (MUsK) MEF, Skim Pembiayaan Mikro-i (MUsK) Individu (MIND) & Skim Pembiayaan Mikro-i (MUsK) Tanpa Panel • Flat Rate: 4.00% - 14.55% (equivalent to Effective Rate of 7.42% - 24.08%1) BRPlus Financing-i (BRPlus-i) & Pembiayaan Mikro Rakyat2E (Rakyat 2E) • Flat Rate: 7.50% (equivalent to Effective Rate of 13.36%1) Micro-BRJohorniaga-i • Flat Rate: 9.5% (equivalent to Effective Rate of 15.12%1) BSN Micro/i TemaNiaga • Flat Rate: 6.38% - 17.00% (equivalent to Effective Rate of 11.48% - 27.50%1) BSN Micro/i TemanMesra • Flat Rate: 6.38% - 14.00% (equivalent to Effective Rate of 11.48% - 23.25%1) BSN Micro/i Kasih & Micro/i Penjaja Kasih • Flat Rate: 4% (equivalent to effective rate of 7.42%1) BSN Micro-i Hasanah • 0% BSN Micro-i Cashline • Standardised Base Rate (SBR) + 7.95% • Flat Rate: 9.78% – 15.28% (equivalent to Effective Rate of 16.93% - 25.08%1) AmMicro Enterprises Facility • Effective Rate: from Base Lending Rate (BLR) + 2% AmMoneyLine Facility-i • Flat Rate: 8.0% - 11.99% (equivalent to Effective Rate of 14.13% - 21.55%1) • Flat Rate: 18% - 21% (equivalent to Effective Rate of 28.88% - 32.92%1) iTEKAD Maju Microfinance • Effective Rate: 4% iTEKAD BangKIT Microfinance • Effective Rate: 0% • Flat Rate: Up to 5.25% (equivalent to Effective Rate of up to 9.58%1) • Effective Rate: 8.5% - 12.5% (MEF) • Flat Rate: 15% - 18% (equivalent to Effective Rate of 24.68% - 28.88%1) • Flat Rate: 9.99% - 11.99% (equivalent to Effective Rate of 17.26% – 20.30%1) Committed Approval Time2 (upon receipt of full documentation) • 6 working days • 6 working days • 6 working days • 2 - 5 working days • 6 - 7 working days • 2 - 5 working days • 6 working days • 6 working days • 1 - 5 working days • 6 working days • 4 - 5 working days Committed Disbursement Time • 4 working days3 • 4 working days3 • 4 working days3 • 1 working day3 • 2 – 4 working days3 • 1 – 2 working days3 • 4 working days (upon completion of pre- disbursement training) • 5 working days3 • 2 - 4 working days3 • 4 working days3 • 2 - 4 working days3 Eligible Economic Sector • All Shariah compliant sectors • Services • Retailing & trade • Manufacturing • Agriculture • Manufacturing • Retailing/wholesale • Services • All sectors • All Sectors • All sectors • All sectors • All sectors • All sectors / selected sectors based on products • Agriculture • Services & trade • Manufacturing • All sectors Eligibility Criteria to Apply • Micro enterprises / self-employed individuals • Micro enterprises as defined by SME Corp OR self- • Micro enterprises / self-employed including professional • Self-employed individuals • Has valid business AmMicro Enterprises Facility • Micro enterprises • Self-employed individuals • Age between 21 – • Micro enterprises • Malaysians Micro Enterprises • Micro enterprises • Companies registered with • Micro enterprises • Companies registered with • Micro enterprises • Companies registered with • Self-employed individuals • Age between COMPARATIVE TABLE ON PEMBIAYAAN MIKRO PRODUCT FEATURES AS AT OCTOBER 2023 Disclaimer: Comparative table displayed here serves only as a guide, not recommendation. Please consult the financial institutions before making any decision. FEATURES AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK • Age between 21 – 65 years old on the date of application • Have valid business license / permit / registration • With at least 6 months business / project experience • Place of residence close to business / project site employed individuals • Age between 18 and 65 years old • Have valid business license / permit / registration • Full time entreprenuer • At least with 2 years business experience • Place of residence is within the business vicinity Additional eligibility criteria: Skim Pembiayaan Mikro-i (MUsK) (Modal Usahawan Kecil) • Belongs to a self- help group (SHG) • Members of cooperatives OR Hawkers and Petty Traders Association Skim Pembiayaan Mikro-i (MUsK) Individu (MIND) • Members of cooperatives OR Hawkers and Petty Traders Association Skim Pembiayaan Mikro-i (MUsK) Tanpa Panel • Belongs to a self- help group (SHG) Skim Pembiayaan Mikro-i (MUsK) MEF & BRPlus Financing-i (BRPlus-i) • The business has been in operation for at least 2 years with similar business activity Pembiayaan Mikro Rakyat2E (Rakyat 2E) • Attended a business course provided by BKRM / INSKEN / other training providers deemed acceptable to Bank Rakyat Micro-BRJohorNiaga-i • Must obtained prior approval from • Companies registered with Companies Commission of Malaysia (CCM) / have license from Local Authority / District Offices (for Sabah & Sarawak) or Operation Permit - including sole proprietors / partnerships / private limited companies • Have valid business license / permit / registration • Applicant operates the business on full-time / part-time basis • At least with 2 years business experience (minimum 6 months registered for BSN Micro/i Kasih, BSN Micro/i Penjaja Kasih and BSN Micro-i Hasanah) • Passed credit record checking with BSN and other institutions Additional eligibility criteria: BSN Micro/i Kasih • BSN Mikro/i Kasih- Nita: Micro enterprise business owned by women • BSN Mikro/i Kasih- Belia: Micro enterprise business owned by youth aged 30 years old or younger • BSN Mikro/i Kasih- Umum: Micro enterprise business • BSN Mikro/i Kasih- Bumiputera: Micro enterprise business owned by Bumiputera • BSN Mikro/i Kasih- Bumiputera Sabah/Sarawak: Micro enterprise business owned by Bumiputera Sabah/ Sarawak • BSN Mikro/i Kasih- veteran: Micro enterprise business owned by veterans from government sectors (i.e., retirees of government uniform bodies) • BSN Mikro/i Kasih- registration • Age between 21 – 65 • Minimum 2 years in current line of business • Companies registered with Companies Commission of Malaysia (CCM) • Sole proprietors / partnerships / private limited companies • Aged between 25 – 70 years old (age limit at maturity date) • Pass credit checking (i.e., CTOS, CCRIS, AMLA, bank’s internal checks) as required by AmBank • Startup which has been at least 1 year in operation AmMoneyLine Facility-i • Micro enterprises • Sole proprietors / partnerships which has been registered for at least 3 years • Aged between 21 – 60 years old • Pass credit checking (i.e., CTOS, CCRIS, AMLA, bank’s internal checks) as required by AmBank Islamic 60 years old • Minimum gross monthly income of RM800 • Employment more than 6 months / active in business for more than 6 months residing in Malaysia that holds a minimum of 51% shareholding • Registered with the Companies Co mmission of Malay sia (CCM), authorit ies/district offices in Sabah and Sarawak or statutory bodies for professional service providers • Having business plan projecting positive cash flow to repay the loan Additional eligibility criteria: iTEKAD Maju Microfinance • Age between 21 and 60 years • Minimum 1 year in business iTEKAD BangKIT Microfinance • Aged between 18 and 60 years old • Minimum 6 months in business Companies Commission of Malaysia (CCM) / have license from Local Authority/ District Offices (for Sabah & Sarawak) or Operation Permit - including sole proprietors/ partnerships/ private limited companies • Minimum 3 years in operation • Existing Current Account Customer with at least 6 months relationship Companies Commission of Malaysia (CCM) / have license from Local Authority/ District Offices (for Sabah & Sarawak) or Operation Permit - including sole proprietors/ partnerships/ private limited companies • Minimum 1 year in operation • Aged between 21-60 years (SPP) & 21 – 65 years old (Sdn Bhd) • At least 2 years banking relationship (borrowing & non- borrowing) with Maybank & 3 years with other FIs Companies Commission of Malaysia (CCM) / have license from Local Authority/ District Offices (for Sabah & Sarawak) or Operation Permit - including sole proprietors/ partnerships/ private limited companies • Self-employed individuals • Gig workers on digital platforms • Participants of iTEKAD programme • Aged between 21– 60 years old • Have valid business license / permit • Business must be owner operated and on a full-time basis • Have permanent residential address • A minimum of 1 year in operation is preferred. Businesses with less than 1 year of operation will be evaluated on case-by -case basis 21 – 55 years old • Minimum of RM36,000 yearly income • Minimum 2 years consecutively in the same business COMPARATIVE TABLE ON PEMBIAYAAN MIKRO PRODUCT FEATURES AS AT OCTOBER 2023 Disclaimer: Comparative table displayed here serves only as a guide, not recommendation. Please consult the financial institutions before making any decision. FEATURES AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK Perbadanan Usahawan Johor (PUJB) via registration on Pusat Data Usahawan Johor (PADU) system Taska: Micro enterprise business that runs childcare services or nursery business BSN Micro/i Penjaja Kasih - For food truck, road stall owners, hawkers, food court operators etc • BSN Micro/i Penjaja Kasih-Bumiputera: Micro business owned by Bumiputera • BSN Micro/i Penjaja Kasih-Bukan Bumiputera: Micro business owned by non-Bumiputera • BSN Micro/i Penjaja Kasih-Muda: Micro business owned by youth aged 30 years old or younger BSN Micro-i Hasanah • Eligible B40 including Phase 1 graduates of iTEKAD programme Common Documents Required • Applicant identity card • Proof of business operations (e.g., business registration / license / permit) • Proof of income (e.g., bank statement of latest 6 months or sales record) • Other relevant documents • Applicant identity card • Proof of business operations (e.g., business registration / license / permit) • Proof of income (e.g., bank statement of latest 6 months, sales record) • Recommendation letter from panel cooperatives and self-help group members • Proof of business operations (e.g., valid business registration / license / permit) • Identity card of business owner / proprietor / partners/ Directors • Proof of income - copy of latest 6 months bank statement, except for BSN Micro/i Kasih, BSN Micro/i Penjaja Kasih and BSN Micro-i Hasanah (latest 3 months bank statement) • Supporting documents (if any) such as audited account / latest income tax, management account, sales record • Other relevant documents Additional Documents: BSN Mikro/i Kasih- Bumiputera Sabah/Sarawak • NRIC / any document to prove Sabah / Sarawak bumiputera • Applicant identity card • Proof of business operations (e.g., business registration / license / permit) • Proof of income - copy of latest 6 months bank statement; latest Borang B verified against tax receipt; OR latest EPF Statement • Other relevant documents AmMicro Enterprises Facility • Applicant identity card • Proof of business operations (e.g., business registration / license / permit) • Bank statements of latest 6 months • Other relevant documents (i.e., EPF payment to staffs) AmMoneyLine Facility-i • Applicant identity card • Form A and D of business registration • Latest 6 months bank statement (individual or business account) • Applicant identity card • Proof of business operations (e.g., business registration / license / permit) • Proof of income (e.g., bank statement of latest 6 months) • Other relevant documents • Applicant identity card • Complete set of Application Form • Proof of income (e.g., income tax form B, latest 6 months bank statement) • Proof of business operation (e.g. business registration) • Utilities bill • Other relevant documents • Business registration • Copy of latest 6 months bank statement • Latest income tax declaration (if any) • Other relevant documents • Proof of income (e.g., bank statement of latest 6 months, income tax return) • Business registration • Latest 2 years financial statements (audited account/ management account) • Other relevant documents • Application via online • For existing Maybank SME customers: no documents are required • For new SME customers to Maybank: NRIC / passport for all Company Directors and owners, 6 months bank statement and business license (Sabah & Sarawak only) • Applicant identity card • Proof of business operations (e.g., business registration / license / permit) • Proof of income (e.g., latest 6 months bank statement or latest Form B with tax receipt) • Utility bills • Other relevant documents • Applicant identity card • Form 9&24 or Business Registration Certificate • Latest Form B/BE - with tax receipt • Latest 6 months bank statements reflecting business turnover COMPARATIVE TABLE ON PEMBIAYAAN MIKRO PRODUCT FEATURES AS AT OCTOBER 2023 Disclaimer: Comparative table displayed here serves only as a guide, not recommendation. Please consult the financial institutions before making any decision. FEATURES AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK BSN Mikro/i Kasih- Veteran • Pensioner card / pension payment statement / any document to prove status of pensioner of government uniformed body. BSN Mikro/i Kasih- Taska • Informal care centre: CCM Business registration certificate • Formal care centres: o CCM Business registration certificate / ROS / Business license with local authority (LA) / Jabatan Kebajikan Masyarakat (JKM) o Meet standard requirements by JKM o Valid technical license e.g., fire and rescue department, health department, land and survey department BSN Micro/i Penjaja Kasih Quotation of purchase for the purpose of upgrading business Application procedures • Visit branches that display • Visit branches & Business Banking Centres (BBC) that display • Online application via Quick-Response-to- Entrepreneur (QR2E) online portal (qr2e.bankrakyat.com .my) • Visit branches and Micro Finance Centres that display • Online application via BSN website (https://www.bsn.com.m y/BusinessBanking) and imSME website (imsme.com.my) • Visit ABMB website (www.alliancebank. com.my) • Visit branches that display • Online application via AmOnline • Visit branches • Visit branches that display • Email to microfinance@bank islam.com.my • Visit branches that display • Visit branches & Commercial Business Centre that display • Online application via Maybank2u • Visit branches that display • Online application via imSME website (imsme.com.my) • Visit branches that display • UOB website (www.uob.com.my) Public Hotline Numbers • Headquarters: 03-27311600 ext: 2033/ 2034/ 2035/ 2036/ 2041/ 2064/ 2042 • Kuala Lumpur: 03-26912754 • Shah Alam: 03-551 8250 • Melaka: 06-2811495 • Headquarters: 03-26129600 • Business Banking Centre (BBC) Direct Line o Kuala Lumpur: 03-26004751 o Selangor: 03-55198427 / 03-55126124 / 03-55126560 / 03-55101630 • Kuala Lumpur: 03-21623222 ext. 71714 • Sabah: 088-355600 ext. 76610 • Sarawak: 082-227888 ext. 76008 • Kedah: 04-7740444 ext. 73062 • Selangor: 03-55169988 • 03-21783188 • 03-62047788 • Contact Centre & Customer Care: 03-26900900 • 03-2600-5500 • Customer Service (24 hours): 1-300-80-8668 • 03-21708000 • Kuala Lumpur: 03-26128121 • Penang: 04-2401121 • Johor Bahru: 07-2881121 • Kuching: 082-287121 • Kota Kinabalu: 088-477121 https://qr2e.bankrakyat.com.my/ https://qr2e.bankrakyat.com.my/ https://imsme.com.my/portal/en https://banknegaramy-my.sharepoint.com/personal/sherina_bnm_gov_my/Documents/Microsoft%20Teams%20Chat%20Files/www.alliancebank.com.my https://banknegaramy-my.sharepoint.com/personal/sherina_bnm_gov_my/Documents/Microsoft%20Teams%20Chat%20Files/www.alliancebank.com.my mailto:[email protected] mailto:[email protected] https://imsme.com.my/portal/en file:///C:/Users/nurhazlinj/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/61RAHN5K/www.uob.com.my COMPARATIVE TABLE ON PEMBIAYAAN MIKRO PRODUCT FEATURES AS AT OCTOBER 2023 Disclaimer: Comparative table displayed here serves only as a guide, not recommendation. Please consult the financial institutions before making any decision. For more information, please visit www.bnm.gov.my/microfinance FEATURES AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK & ALLIANCE ISLAMIC AMBANK & AMBANK ISLAMIC CIMB ISLAMIC BANK BANK ISLAM BANK MUAMALAT MAYBANK & MAYBANK ISLAMIC PUBLIC BANK & PUBLIC ISLAMIC UNITED OVERSEAS BANK • Seremban: 06-7639541 • Butterworth: 04-3314539 • Johor Bahru: 07-2344761 • Ipoh: 05-2548742 • Alor Star: 04-7332545 • Kuala Terengganu: 09-6222044 • Kota Bharu: 09-7481211 • Kuantan: 09-5158164 • Kota Kinabalu: 088-288288 • Kuching 082-410126 o Melaka / Negeri Sembilan: 06-2310498 / 06-2310684 / 06-2310262 o Kedah / Perlis / Pulau Pinang: 04-4404685 / 04-4446743 / 04-4445245 / 04-4447613 o Kelantan / Terengganu: 09-7642436 / 09-7643265 / 09-7648684 / 09-7648045 o Perak: 05-5280757 / 05-5280679 / 05-5280504 o Johor: 07-2446481 / 07-2448547 / 07-2447316 / 07-2447179 o Pahang: 09-5133432 / 09-5135517 / 09-5133521 / 09-5132976 o Sabah: 08-8763525 / 08-8764525 / 08-8765525 / 08-8766525 o Sarawak: 082-612594 / 082-614045 / 082-614154 / 082-614519 • Contact Centre: 1300-80-5454 • Kelantan: 09-7457070 ext. 75109 • Selangor: 03-55433000 ext. 72206 • Johor: 07-2083555 ext. 74007 • Pahang: 09-5650565 ext. 50532 • Terengganu: 09-6200400 ext. 75265 • Melaka: 06-2895800 ext. 74103 • Penang: 04-2226400 ext. 73107 • Perak: 05-2452222 ext. 73207 • Negeri Sembilan: 06-7686500 ext. 74208 https://www.bnm.gov.my/microfinance 1 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund PEMBIAYAAN MIKRO 1. What is micro financing (Pembiayaan Mikro)? • Micro financing are small business loans ranging from RM500 to RM50,000 for micro enterprises. Micro financing is meant for business financing only, such as for working capital and for capital expenditure. It is not a personal loan. 2. What are micro enterprises? The National SME Development Council defines micro enterprises as follows: Manufacturing and Manufacturing Related Services sectors Primary Agriculture and Services sectors Businesses with less than: • RM250,000 annual sales turnover; or • Five full-time employees. Businesses with less than: • RM200,000 annual sales turnover; or • Five full-time employees. 3. Who is eligible for micro financing? • All micro enterprises with viable businesses. • Micro financing is available to businesses in all economic sectors. Certain participating financial institutions may provide micro financing facilities to borrowers in specific sectors only. 4. Who are the participating financial institutions that offer micro financing? • There are 3 development financial institutions i.e. Agrobank, Bank Rakyat, Bank Simpanan Nasional. • A total of 6 commercial banks i.e. Alliance Bank, AmBank CIMB Bank, EONCAP Islamic Public Bank, United Overseas Bank. 5. Where can I apply for micro financing? • At branches and affiliates/agents of participating financial institutions that display the National Microfinance Logo. Loan applications will be assessed and processed by the respective participating financial institutions. 1 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund • To obtain further information on where to apply for micro financing, customers are advised to contact the relevant participating financial institutions that provide micro financing. Please refer to the Comparative Table on Microfinance Product Features for Hotline numbers of each participating financial institution 6. What does the National Microfinance Logo look like? 7. What are the key features of micro financing? • Loan Size : Ranges from RM 500 to RM 50,000 • Purpose of Financing : Business purposes i.e. for working capital or capital expenditure. • Loan Tenure : Varies from 1 month to 10 years • Collateral Requirement : No collateral requirement • Loan Application : Simple application form (as simple as 2 pages) • Loan Documentation : Minimal documents, such as Identity Card, proof of business (i.e. business registration/ license/permit), proof of income (i.e. bank statement), utility bills (i.e. electricity, water, phone bills) Please refer to the Comparative Table on Microfinance Product Features for more details on eligibility criteria for each participating financial institution. 2 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund 8. Do I need to have a guarantor? • Most participating financial institutions do not require any guarantors. • Some financial institutions will require guarantors when the loan applied for is above a certain amount. Please refer to the Comparative Table on Microfinance Product Features for more details on this. 9. What is the interest rate charged on micro financing loans? • Commercial interest rates are set by the respective participating financial institutions based on assessment of the borrower’s risk profile. • The participating financial institutions will be able to provide more detailed information on the interest rates and product features of their micro financing products. 10. How fast will my loan application take to be processed? • The committed duration to approve a loan is 1 to 10 working days, upon obtaining complete information/ documents from the applicant. • Upon approval of the loan, committed duration taken to disburse a loan is 1 – 7 working days. • Please refer to the Comparative Table on Microfinance Product Features for committed loan processing times at each participating financial institution. 11. Is there a lending quota for micro financing that needs to be achieved? • No. All viable micro businesses are eligible for micro financing, and approval of loan applications will rely solely on creditworthiness of borrowers. 12. Should I encounter difficulties in applying for micro financing and have related issues, who should I contact? • If you have any difficulties applying for micro financing at any of the branches or affiliates/agents of the participating financial institutions offering micro financing, please contact their micro financing Hot line to seek assistance. 3 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund • Please refer to the Comparative Table on Microfinance Product Features for Hot line numbers of each participating financial institution. MICRO ENTERPRISE FUND 13. What is the purpose of the Micro Enterprise Fund (MEF)? • To increase access to micro financing for micro enterprises with viable businesses, in the current more challenging business environment. • The fund is administered by Bank Negara Malaysia and is available from 5 November 2008 to 31 December 2009. A total of RM200 million has been allocated by Bank Negara Malaysia for this purpose. 14. Who is eligible to apply for MEF? • Any micro enterprise that is eligible to apply under Pembiayaan Mikro is eligible to apply for MEF. Please refer to the response to Question 3 above. 15. Where can micro enterprises apply for the MEF? • Micro enterprises can apply for MEF at any of the participating financial institutions of Pembiayaan Mikro. Please refer to the list of participating financial institutions provided under Question 4 above. 16. Who will be able to get financing from MEF? • Any micro enterprise that is deemed to be a viable business by a participating financial institution will be able to obtain financing. 17. How do I obtain more information on the micro financing product features offered by each participating financial institution? • The micro financing product features of each participating financial institution is published in the Comparative Table on Microfinance Product Features. This Comparative table can be obtained from the BNM Website (www.bnm.com.my), BankingInfo Website (www.bankinginfo.com.my) and the SMEinfo Portal Website (www.smeinfo.com.my). This table is updated as and when there are 4 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund changes to the product features by any participating financial institution. 18. What do I do if my loan application is rejected? • You can try to apply at another participating financial institution. Different participating financial institutions have different eligibility criteria. 19. What do I do if the bank rejects me without a proper reason? • All banks are required by Bank Negara Malaysia to provide you with a reason for being rejected. If you are rejected without a reason, you can contact the following at Bank Negara Malaysia to submit your complaint: BNMLINK (Customer Service Walk-In Centre) Ground Floor, Block D, Bank Negara Malaysia Jalan Dato’ Onn, 50480 Kuala Lumpur (Operating Hours: Monday to Friday, 9.00 a.m. – 5.00 p.m.) BNMTELELINK (Customer Service Call-In Centre) Tel: 1-300-88-5465 or 1-300-88-LINK Fax: 03-2174 1515 Email: [email protected] 20. Is refinancing allowed under the MEF? • No, the fund is not meant for refinancing of existing loans. 21. Can I get financing from different banks to a total of amount of more than RM 50,000? • Yes. Even if you have an outstanding micro financing loan of RM50,000, you can approach another participating financial institution to submit a new micro financing loan application. However, your credit evaluation will be based your repayment capacity and your total outstanding loan amount with all financial institutions. 5 mailto:[email protected] Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund Bank Negara Malaysia Last Updated: 20 November 2008 6 1 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro PEMBIAYAAN MIKRO 1. Apakah Pembiayaan Mikro? • Pembiayaan mikro ialah pembiayaan untuk perniagaan kecil-kecilan dan jumlah pembiayaan yang ditawarkan adalah antara RM500 hingga RM50,000 untuk membiayai sesebuah perniagaan perusahaan mikro. Pembiayaan mikro ini diberikan untuk tujuan perniagaan sahaja seperti membiayai modal pusingan dan pembelian aset tetap. Pembiayaan ini bukan untuk pembiayaan peribadi. 2. Apakah definisi perusahaan mikro? • Definisi perusahaan mikro yang diluluskan oleh Majlis Pembangunan Perusahaan Kecil dan Sederhana (PKS) Kebangsaan adalah seperti yang berikut: Sektor Perkilangan dan Sektor Perkhidmatan Berkaitan Perkilangan Sektor Pertanian Asas dan Sektor Perkhidmatan Perniagaan yang mempunyai: • Jualan tahunan yang kurang daripada RM250,000; atau • Pekerja sepenuh masa yang kurang daripada 5 orang. Perniagaan yang mempunyai: • Jualan tahunan yang kurang daripada RM200,000; atau • Pekerja sepenuh masa yang kurang daripada 5 orang. 3. Siapakah yang layak mendapat pembiayaan mikro? • Semua perusahaan mikro yang mempunyai perniagaan yang berdaya maju. • Pembiayaan mikro ditawarkan kepada perniagaan dalam semua sektor ekonomi. Namun, beberapa institusi kewangan mengehadkan pembiayaan kepada beberapa sektor tertentu sahaja. 4. Institusi kewangan manakah yang menawarkan pembiayaan mikro? • 3 institusi kewangan pembangunan iaitu Agrobank, Bank Rakyat dan Bank Simpanan Nasional. • 6 bank perdagangan iaitu Alliance Bank, AmBank, CIMB Bank, EONCAP Islamic, Public Bank dan United Overseas Bank. 1 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 5. Di manakah boleh saya dapatkan pembiayaan mikro? • Pembiayaan mikro boleh didapati di cawangan-cawangan serta wakil/ejen institusi kewangan yang menyertai skim ini yang mempamerkan Logo Pembiayaan Mikro Kebangsaan. Setiap permohonan pinjaman adalah tertakluk kepada proses penilaian setiap institusi kewangan yang menyertai skim ini. • Bagi mendapatkan maklumat lanjut berkaitan tempat untuk memohon skim ini, pelanggan dinasihatkan untuk menghubungi institusi kewangan yang menyertai skim pembiayaan mikro ini. Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui nombor talian penting setiap institusi kewangan tersebut. 6. Bagaimanakah rupa Logo Pembiayaan Mikro Kebangsaan? 7. Apakah ciri-ciri utama produk pembiayaan mikro? • Saiz pinjaman : Antara RM500 hingga RM50,000 • Tujuan pinjaman : Untuk membiayai perniagaan seperti modal pusingan atau pembelian aset tetap. • Tempoh pinjaman : Antara 1 bulan hingga 10 tahun • Keperluan cagaran : Tiada • Permohonan pinjaman : Borang permohonan yang mudah ( 2 muka surat sahaja) 2 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro • Keperluan dokumentasi : Dokumen yang minimum seperti kad pengenalan, bukti perniagaan (seperti pendaftaran perniagaan/lesen/permit), bukti pendapatan (seperti penyata bank), bil-bil utiliti (seperti elektrik, air, telefon) Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui dengan terperinci kriteria kelayakan setiap institusi kewangan yang menyertai skim ini. 8. Adakah saya perlukan seorang penjamin? • Kebanyakan institusi pembiayaan tidak memerlukan penjamin. • Hanya beberapa institusi kewangan yang menyertai skim ini memerlukan penjamin bagi pinjaman yang melebihi sesuatu had. Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk keterangan lanjut. 9. Apakah kadar faedah yang dikenakan bagi pinjaman skim pembiayaan mikro ini? • Kadar faedah komersial ditentukan oleh institusi kewangan yang menyertai skim ini sendiri dan bergantung pada penilaian profil risiko setiap peminjam. • Institusi kewangan yang menyertai skim ini boleh memberikan maklumat yang lebih terperinci mengenai kadar faedah dan ciri-ciri bagi produk pembiayaan mikro yang ditawarkan. 10. Berapa lamakah permohonan pinjaman saya akan diproses? • Tempoh yang diperlukan bagi meluluskan sesuatu pinjaman adalah antara 1 hingga 10 hari bekerja, setelah maklumat lengkap diperoleh daripada pemohon. • Setelah pinjaman diluluskan, tempoh pengeluaran dijamin antara 1 hingga 7 hari bekerja. • Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui tempoh memproses pinjaman setiap institusi kewangan yang menyertai skim ini. 3 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 11. Adakah terdapat kuota bagi pinjaman mikro yang perlu ditawarkan? • Tiada. Semua perusahaan mikro yang berdaya maju layak untuk mendapat pembiayaan mikro, dan kelulusan permohonan bergantung sepenuhnya pada penilaian kewangan (creditworthiness) setiap pemohon. 12. Jika saya menghadapi kesukaran untuk mendapat pembiayaan mikro dan sebarang isu yang berkaitan, siapakah yang perlu saya hubungi? • Jika anda menghadapi kesukaran mendapat pembiayaan mikro di cawangan- cawangan atau wakil/ejen institusi kewangan yang menyertai skim ini, anda boleh menghubungi talian penting pembiayaan mikro untuk mendapatkan bantuan. • Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui talian penting pembiayaan mikro setiap institusi kewangan yang menyertai skim ini. TABUNG PERUSAHAAN MIKRO 13. Apakah tujuan penubuhan Tabung Perusahaan Mikro (TPM)? • Bagi meningkatkan akses kepada pembiayaan buat perusahaan mikro yang berdaya maju, dalam keadaan ekonomi yang semakin mencabar ini. • Tabung ini dikendalikan oleh Bank Negara Malaysia dan ditawarkan dari 5 November 2008 hingga 31 Disember 2009. Sebanyak RM200 juta telah diperuntukkan oleh Bank Negara Malaysia bagi tujuan ini. 14. Siapakah yang layak memohon TPM? • Setiap perusahaan mikro yang layak memohon Pembiayaan Mikro adalah layak untuk memohon TPM. Sila rujuk jawapan bagi Soalan 3 di atas. 15. Di manakah perusahaan mikro boleh memohon TPM? • Perusahaan mikro boleh memohon TPM di institusi kewangan yang menyertai skim pembiayaan mikro. Sila rujuk jawapan bagi Soalan 4 di atas untuk senarai institusi kewangan yang menyertai skim ini. 4 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 16. Siapakah yang boleh mendapatkan pembiayaan daripada TPM? • Setiap perusahaan mikro yang dinilai sebagai berdaya maju oleh institusi kewangan yang menyertai skim ini boleh mendapat pembiayaan. 17. Di manakah boleh saya dapatkan maklumat lanjut mengenai ciri-ciri produk pembiayaan mikro yang ditawarkan oleh setiap institusi kewangan yang menyertai skim ini? • Ciri-ciri produk pembiayaan mikro yang ditawarkan oleh setiap institusi kewangan yang menyertai skim ini terkandung di dalam Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro. Jadual ini boleh didapati di laman web Bank Negara Malaysia (www.bnm.com.my), laman web BankingInfo (www.bankinginfo.com.my) dan laman web portal SMEinfo (www.smeinfo.com.my). Jadual ini akan dikemaskinikan sekiranya terdapat sebarang perubahan terhadap ciri-ciri produk institusi kewangan yang menyertai skim ini. 18. Apakah yang perlu saya lakukan jika permohonan saya ditolak? • Anda boleh membuat permohonan di institusi kewangan lain yang menyertai skim ini. Setiap institusi kewangan yang menyertai skim ini mempunyai kriteria kelayakan yang berbeza-beza. 19. Apakah yang perlu saya lakukan jika institusi kewangan menolak permohonan saya tanpa alasan yang munasabah? • Bank Negara Malaysia menghendaki semua institusi kewangan memberikan alasan sekiranya sesuatu permohonan ditolak. Sekiranya permohonan anda ditolak tanpa alasan, anda boleh menghubungi Bank Negara Malaysia untuk mengemukakan aduan anda di alamat berikut: BNMLINK (Laman Informasi Nasihat dan Khidmat) Tingkat Bawah, Blok D, Bank Negara Malaysia Jalan Dato’ Onn, 50480 Kuala Lumpur (Masa urusan : Isnin - Jumaat, 9.00 pagi – 5.00 petang) 5 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro BNMTELELINK (Laman Informasi Nasihat dan Khidmat Melalui Telefon) nm.gov.my Tel: 1-300-88-5465 or 1-300-88-LINK Faks: 03-2174 1515 E-mel: bnmtelelink@b 0. Adakah pembiayaan semula dibenarkan di bawah TPM? semula pinjaman yang 1. Bolehkah saya dapatkan pinjaman daripada institusi kewangan lain bagi mpunyai baki pinjaman sebanyak RM50,000, anda Bank Negara Malaysia November 2008 c 2 • Tidak. Tabung ini tidak boleh digunakan untuk pembiayaan sedia ada. 2 pembiayaan melebihi RM50,000? • Boleh. Walaupun anda masih me masih boleh memohon pembiayaan mikro baharu daripada institusi kewangan lain yang menyertai skim pembiayaan mikro ini. Walau bagaimanapun, penilaian kredit adalah berdasarkan keupayaan anda membayar balik dan jumlah baki pinjaman anda dengan semua institusi kewangan. Tarikh dikemaskini: 21 C:\ADHOC-FAQ MICROFINANCE(FY)-ACCEPT.do 6	null
07 Jul 2009	Microfinance Comparative Table & FAQs	https://www.bnm.gov.my/-/microfinance-comparative-table-faqs	https://www.bnm.gov.my/documents/20124/761712/FAQ_on_Pembiayaan_Mikro_English.pdf, https://www.bnm.gov.my/documents/20124/761712/Comparative_table_on_Pembiayaan_Mikro_English.pdf	null	Reading: Microfinance Comparative Table & FAQs Share: Microfinance Comparative Table & FAQs Embargo : For immediate release Not for publication or broadcast before 2001 on Tuesday, 7 July 2009 7 Jul 2009 View the Comparative Table and FAQs Bank Negara Malaysia 7 July 2009 © Bank Negara Malaysia, 2009. All rights reserved.	1 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund PEMBIAYAAN MIKRO 1. What is micro financing (Pembiayaan Mikro)? • Micro financing are small business loans ranging from RM500 to RM50,000 for micro enterprises. Micro financing is meant for business financing only, such as for working capital and for capital expenditure. It is not a personal loan. 2. What are micro enterprises? The National SME Development Council defines micro enterprises as follows: Manufacturing and Manufacturing Related Services sectors Primary Agriculture and Services sectors Businesses with less than: • RM250,000 annual sales turnover; or • Five full-time employees. Businesses with less than: • RM200,000 annual sales turnover; or • Five full-time employees. 3. Who is eligible for micro financing? • All micro enterprises with viable businesses. • Micro financing is available to businesses in all economic sectors. Certain participating financial institutions may provide micro financing facilities to borrowers in specific sectors only. 4. Who are the participating financial institutions that offer micro financing? • There are 3 development financial institutions i.e. Agrobank, Bank Rakyat, Bank Simpanan Nasional. • A total of 6 commercial banks i.e. Alliance Bank, AmBank CIMB Bank, EONCAP Islamic Public Bank, United Overseas Bank. 5. Where can I apply for micro financing? • At branches and affiliates/agents of participating financial institutions that display the National Microfinance Logo. Loan applications will be assessed and processed by the respective participating financial institutions. 1 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund • To obtain further information on where to apply for micro financing, customers are advised to contact the relevant participating financial institutions that provide micro financing. Please refer to the Comparative Table on Microfinance Product Features for Hotline numbers of each participating financial institution 6. What does the National Microfinance Logo look like? 7. What are the key features of micro financing? • Loan Size : Ranges from RM 500 to RM 50,000 • Purpose of Financing : Business purposes i.e. for working capital or capital expenditure. • Loan Tenure : Varies from 1 month to 10 years • Collateral Requirement : No collateral requirement • Loan Application : Simple application form (as simple as 2 pages) • Loan Documentation : Minimal documents, such as Identity Card, proof of business (i.e. business registration/ license/permit), proof of income (i.e. bank statement), utility bills (i.e. electricity, water, phone bills) Please refer to the Comparative Table on Microfinance Product Features for more details on eligibility criteria for each participating financial institution. 2 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund 8. Do I need to have a guarantor? • Most participating financial institutions do not require any guarantors. • Some financial institutions will require guarantors when the loan applied for is above a certain amount. Please refer to the Comparative Table on Microfinance Product Features for more details on this. 9. What is the interest rate charged on micro financing loans? • Commercial interest rates are set by the respective participating financial institutions based on assessment of the borrower’s risk profile. • The participating financial institutions will be able to provide more detailed information on the interest rates and product features of their micro financing products. 10. How fast will my loan application take to be processed? • The committed duration to approve a loan is 1 to 10 working days, upon obtaining complete information/ documents from the applicant. • Upon approval of the loan, committed duration taken to disburse a loan is 1 – 7 working days. • Please refer to the Comparative Table on Microfinance Product Features for committed loan processing times at each participating financial institution. 11. Is there a lending quota for micro financing that needs to be achieved? • No. All viable micro businesses are eligible for micro financing, and approval of loan applications will rely solely on creditworthiness of borrowers. 12. Should I encounter difficulties in applying for micro financing and have related issues, who should I contact? • If you have any difficulties applying for micro financing at any of the branches or affiliates/agents of the participating financial institutions offering micro financing, please contact their micro financing Hot line to seek assistance. 3 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund • Please refer to the Comparative Table on Microfinance Product Features for Hot line numbers of each participating financial institution. MICRO ENTERPRISE FUND 13. What is the purpose of the Micro Enterprise Fund (MEF)? • To increase access to micro financing for micro enterprises with viable businesses, in the current more challenging business environment. • The fund is administered by Bank Negara Malaysia and is available from 5 November 2008 to 31 December 2009. A total of RM200 million has been allocated by Bank Negara Malaysia for this purpose. 14. Who is eligible to apply for MEF? • Any micro enterprise that is eligible to apply under Pembiayaan Mikro is eligible to apply for MEF. Please refer to the response to Question 3 above. 15. Where can micro enterprises apply for the MEF? • Micro enterprises can apply for MEF at any of the participating financial institutions of Pembiayaan Mikro. Please refer to the list of participating financial institutions provided under Question 4 above. 16. Who will be able to get financing from MEF? • Any micro enterprise that is deemed to be a viable business by a participating financial institution will be able to obtain financing. 17. How do I obtain more information on the micro financing product features offered by each participating financial institution? • The micro financing product features of each participating financial institution is published in the Comparative Table on Microfinance Product Features. This Comparative table can be obtained from the BNM Website (www.bnm.com.my), BankingInfo Website (www.bankinginfo.com.my) and the SMEinfo Portal Website (www.smeinfo.com.my). This table is updated as and when there are 4 Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund changes to the product features by any participating financial institution. 18. What do I do if my loan application is rejected? • You can try to apply at another participating financial institution. Different participating financial institutions have different eligibility criteria. 19. What do I do if the bank rejects me without a proper reason? • All banks are required by Bank Negara Malaysia to provide you with a reason for being rejected. If you are rejected without a reason, you can contact the following at Bank Negara Malaysia to submit your complaint: BNMLINK (Customer Service Walk-In Centre) Ground Floor, Block D, Bank Negara Malaysia Jalan Dato’ Onn, 50480 Kuala Lumpur (Operating Hours: Monday to Friday, 9.00 a.m. – 5.00 p.m.) BNMTELELINK (Customer Service Call-In Centre) Tel: 1-300-88-5465 or 1-300-88-LINK Fax: 03-2174 1515 Email: [email protected] 20. Is refinancing allowed under the MEF? • No, the fund is not meant for refinancing of existing loans. 21. Can I get financing from different banks to a total of amount of more than RM 50,000? • Yes. Even if you have an outstanding micro financing loan of RM50,000, you can approach another participating financial institution to submit a new micro financing loan application. However, your credit evaluation will be based your repayment capacity and your total outstanding loan amount with all financial institutions. 5 mailto:[email protected] Questions and Answers on Pembiayaan Mikro and Micro Enterprise Fund Bank Negara Malaysia Last Updated: 20 November 2008 6 1 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro PEMBIAYAAN MIKRO 1. Apakah Pembiayaan Mikro? • Pembiayaan mikro ialah pembiayaan untuk perniagaan kecil-kecilan dan jumlah pembiayaan yang ditawarkan adalah antara RM500 hingga RM50,000 untuk membiayai sesebuah perniagaan perusahaan mikro. Pembiayaan mikro ini diberikan untuk tujuan perniagaan sahaja seperti membiayai modal pusingan dan pembelian aset tetap. Pembiayaan ini bukan untuk pembiayaan peribadi. 2. Apakah definisi perusahaan mikro? • Definisi perusahaan mikro yang diluluskan oleh Majlis Pembangunan Perusahaan Kecil dan Sederhana (PKS) Kebangsaan adalah seperti yang berikut: Sektor Perkilangan dan Sektor Perkhidmatan Berkaitan Perkilangan Sektor Pertanian Asas dan Sektor Perkhidmatan Perniagaan yang mempunyai: • Jualan tahunan yang kurang daripada RM250,000; atau • Pekerja sepenuh masa yang kurang daripada 5 orang. Perniagaan yang mempunyai: • Jualan tahunan yang kurang daripada RM200,000; atau • Pekerja sepenuh masa yang kurang daripada 5 orang. 3. Siapakah yang layak mendapat pembiayaan mikro? • Semua perusahaan mikro yang mempunyai perniagaan yang berdaya maju. • Pembiayaan mikro ditawarkan kepada perniagaan dalam semua sektor ekonomi. Namun, beberapa institusi kewangan mengehadkan pembiayaan kepada beberapa sektor tertentu sahaja. 4. Institusi kewangan manakah yang menawarkan pembiayaan mikro? • 3 institusi kewangan pembangunan iaitu Agrobank, Bank Rakyat dan Bank Simpanan Nasional. • 6 bank perdagangan iaitu Alliance Bank, AmBank, CIMB Bank, EONCAP Islamic, Public Bank dan United Overseas Bank. 1 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 5. Di manakah boleh saya dapatkan pembiayaan mikro? • Pembiayaan mikro boleh didapati di cawangan-cawangan serta wakil/ejen institusi kewangan yang menyertai skim ini yang mempamerkan Logo Pembiayaan Mikro Kebangsaan. Setiap permohonan pinjaman adalah tertakluk kepada proses penilaian setiap institusi kewangan yang menyertai skim ini. • Bagi mendapatkan maklumat lanjut berkaitan tempat untuk memohon skim ini, pelanggan dinasihatkan untuk menghubungi institusi kewangan yang menyertai skim pembiayaan mikro ini. Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui nombor talian penting setiap institusi kewangan tersebut. 6. Bagaimanakah rupa Logo Pembiayaan Mikro Kebangsaan? 7. Apakah ciri-ciri utama produk pembiayaan mikro? • Saiz pinjaman : Antara RM500 hingga RM50,000 • Tujuan pinjaman : Untuk membiayai perniagaan seperti modal pusingan atau pembelian aset tetap. • Tempoh pinjaman : Antara 1 bulan hingga 10 tahun • Keperluan cagaran : Tiada • Permohonan pinjaman : Borang permohonan yang mudah ( 2 muka surat sahaja) 2 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro • Keperluan dokumentasi : Dokumen yang minimum seperti kad pengenalan, bukti perniagaan (seperti pendaftaran perniagaan/lesen/permit), bukti pendapatan (seperti penyata bank), bil-bil utiliti (seperti elektrik, air, telefon) Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui dengan terperinci kriteria kelayakan setiap institusi kewangan yang menyertai skim ini. 8. Adakah saya perlukan seorang penjamin? • Kebanyakan institusi pembiayaan tidak memerlukan penjamin. • Hanya beberapa institusi kewangan yang menyertai skim ini memerlukan penjamin bagi pinjaman yang melebihi sesuatu had. Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk keterangan lanjut. 9. Apakah kadar faedah yang dikenakan bagi pinjaman skim pembiayaan mikro ini? • Kadar faedah komersial ditentukan oleh institusi kewangan yang menyertai skim ini sendiri dan bergantung pada penilaian profil risiko setiap peminjam. • Institusi kewangan yang menyertai skim ini boleh memberikan maklumat yang lebih terperinci mengenai kadar faedah dan ciri-ciri bagi produk pembiayaan mikro yang ditawarkan. 10. Berapa lamakah permohonan pinjaman saya akan diproses? • Tempoh yang diperlukan bagi meluluskan sesuatu pinjaman adalah antara 1 hingga 10 hari bekerja, setelah maklumat lengkap diperoleh daripada pemohon. • Setelah pinjaman diluluskan, tempoh pengeluaran dijamin antara 1 hingga 7 hari bekerja. • Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui tempoh memproses pinjaman setiap institusi kewangan yang menyertai skim ini. 3 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 11. Adakah terdapat kuota bagi pinjaman mikro yang perlu ditawarkan? • Tiada. Semua perusahaan mikro yang berdaya maju layak untuk mendapat pembiayaan mikro, dan kelulusan permohonan bergantung sepenuhnya pada penilaian kewangan (creditworthiness) setiap pemohon. 12. Jika saya menghadapi kesukaran untuk mendapat pembiayaan mikro dan sebarang isu yang berkaitan, siapakah yang perlu saya hubungi? • Jika anda menghadapi kesukaran mendapat pembiayaan mikro di cawangan- cawangan atau wakil/ejen institusi kewangan yang menyertai skim ini, anda boleh menghubungi talian penting pembiayaan mikro untuk mendapatkan bantuan. • Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui talian penting pembiayaan mikro setiap institusi kewangan yang menyertai skim ini. TABUNG PERUSAHAAN MIKRO 13. Apakah tujuan penubuhan Tabung Perusahaan Mikro (TPM)? • Bagi meningkatkan akses kepada pembiayaan buat perusahaan mikro yang berdaya maju, dalam keadaan ekonomi yang semakin mencabar ini. • Tabung ini dikendalikan oleh Bank Negara Malaysia dan ditawarkan dari 5 November 2008 hingga 31 Disember 2009. Sebanyak RM200 juta telah diperuntukkan oleh Bank Negara Malaysia bagi tujuan ini. 14. Siapakah yang layak memohon TPM? • Setiap perusahaan mikro yang layak memohon Pembiayaan Mikro adalah layak untuk memohon TPM. Sila rujuk jawapan bagi Soalan 3 di atas. 15. Di manakah perusahaan mikro boleh memohon TPM? • Perusahaan mikro boleh memohon TPM di institusi kewangan yang menyertai skim pembiayaan mikro. Sila rujuk jawapan bagi Soalan 4 di atas untuk senarai institusi kewangan yang menyertai skim ini. 4 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 16. Siapakah yang boleh mendapatkan pembiayaan daripada TPM? • Setiap perusahaan mikro yang dinilai sebagai berdaya maju oleh institusi kewangan yang menyertai skim ini boleh mendapat pembiayaan. 17. Di manakah boleh saya dapatkan maklumat lanjut mengenai ciri-ciri produk pembiayaan mikro yang ditawarkan oleh setiap institusi kewangan yang menyertai skim ini? • Ciri-ciri produk pembiayaan mikro yang ditawarkan oleh setiap institusi kewangan yang menyertai skim ini terkandung di dalam Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro. Jadual ini boleh didapati di laman web Bank Negara Malaysia (www.bnm.com.my), laman web BankingInfo (www.bankinginfo.com.my) dan laman web portal SMEinfo (www.smeinfo.com.my). Jadual ini akan dikemaskinikan sekiranya terdapat sebarang perubahan terhadap ciri-ciri produk institusi kewangan yang menyertai skim ini. 18. Apakah yang perlu saya lakukan jika permohonan saya ditolak? • Anda boleh membuat permohonan di institusi kewangan lain yang menyertai skim ini. Setiap institusi kewangan yang menyertai skim ini mempunyai kriteria kelayakan yang berbeza-beza. 19. Apakah yang perlu saya lakukan jika institusi kewangan menolak permohonan saya tanpa alasan yang munasabah? • Bank Negara Malaysia menghendaki semua institusi kewangan memberikan alasan sekiranya sesuatu permohonan ditolak. Sekiranya permohonan anda ditolak tanpa alasan, anda boleh menghubungi Bank Negara Malaysia untuk mengemukakan aduan anda di alamat berikut: BNMLINK (Laman Informasi Nasihat dan Khidmat) Tingkat Bawah, Blok D, Bank Negara Malaysia Jalan Dato’ Onn, 50480 Kuala Lumpur (Masa urusan : Isnin - Jumaat, 9.00 pagi – 5.00 petang) 5 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro BNMTELELINK (Laman Informasi Nasihat dan Khidmat Melalui Telefon) nm.gov.my Tel: 1-300-88-5465 or 1-300-88-LINK Faks: 03-2174 1515 E-mel: bnmtelelink@b 0. Adakah pembiayaan semula dibenarkan di bawah TPM? semula pinjaman yang 1. Bolehkah saya dapatkan pinjaman daripada institusi kewangan lain bagi mpunyai baki pinjaman sebanyak RM50,000, anda Bank Negara Malaysia November 2008 c 2 • Tidak. Tabung ini tidak boleh digunakan untuk pembiayaan sedia ada. 2 pembiayaan melebihi RM50,000? • Boleh. Walaupun anda masih me masih boleh memohon pembiayaan mikro baharu daripada institusi kewangan lain yang menyertai skim pembiayaan mikro ini. Walau bagaimanapun, penilaian kredit adalah berdasarkan keupayaan anda membayar balik dan jumlah baki pinjaman anda dengan semua institusi kewangan. Tarikh dikemaskini: 21 C:\ADHOC-FAQ MICROFINANCE(FY)-ACCEPT.do 6	Public Notice
28 Dec 2010	Notification: Companies which are no longer permitted to conduct remittance business	https://www.bnm.gov.my/-/notification-companies-which-are-no-longer-permitted-to-conduct-remittance-business-1	null	null	Reading: Notification: Companies which are no longer permitted to conduct remittance business Share: Notification: Companies which are no longer permitted to conduct remittance business Release Date: 28 Dec 2010 Bank Negara Malaysia would like to inform members of the public that the following companies are no longer permitted to conduct remittance business: LBC Remittance Express Sdn. Bhd. Worldwide Remittance (M) Sdn. Bhd. Members of the public are reminded not to remit funds through these companies as there is the risk of the funds not being received by the beneficiaries. Any person who engages in money laundering commits an offence under the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA), including engaging in a transaction that involves proceeds of an unlawful activity, such as the operation of remittance services without permission. Members of the public who deal with persons not permitted to operate remittance services may be affected if the funds involved are frozen pursuant to an investigation under the AMLATFA. © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
10 Nov 2010	Notification: Companies which are no longer permitted to conduct remittance business	https://www.bnm.gov.my/-/notification-companies-which-are-no-longer-permitted-to-conduct-remittance-business	null	null	Reading: Notification: Companies which are no longer permitted to conduct remittance business Share: Notification: Companies which are no longer permitted to conduct remittance business Release Date: 10 Nov 2010 Bank Negara Malaysia would like to inform members of the public that the following companies are no longer permitted to conduct remittance business: PPTKI RemitXpress Sdn. Bhd. Herald Remittance Sdn. Bhd. Members of the public are reminded not to remit funds through these companies as there is the risk of the funds not being received by the beneficiaries. Any person who engages in money laundering commits an offence under the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA), including engaging in a transaction that involves proceeds of an unlawful activity, such as the operation of remittance services without permission. Members of the public who deal with persons not permitted to operate remittance services may be affected if the funds involved are frozen pursuant to an investigation under the AMLATFA. © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
27 Oct 2010	Newly published: Shariah Resolutions in Islamic Finance (Second Edition) Book	https://www.bnm.gov.my/-/newly-published-shariah-resolutions-in-islamic-finance-second-edition-book	https://www.bnm.gov.my/documents/20124/761709/shariah_resolutions_2nd_edition.pdf	null	Reading: Newly published: Shariah Resolutions in Islamic Finance (Second Edition) Book Share: Newly published: Shariah Resolutions in Islamic Finance (Second Edition) Book Release Date: 27 Oct 2010 The Shariah Resolutions in Islamic Finance (Second Edition) book is now available for download. Click here to download the book. Note: Currently, only Bahasa Malaysia version is available. © 2024 Bank Negara Malaysia. All rights reserved.	Layout 1 BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA RESOLUSI SYARIAH DALAM KEWANGAN ISLAM EDISI KEDUA E D I S I K E D U A RESOLUSI SYARIAH DALAM KEWANGAN ISLAM EDISI KEDUA ii Edisi Pertama Cetakan 2007 Edisi Kedua Cetakan 2010 www.bnm.gov.my Oktober 2010 © Bank Negara Malaysia, 2010. Hakcipta terpelihara. Perutusan Gabenor Bank Negara Malaysia xi Prakata Pengerusi Majlis Penasihat Syariah Bank Negara Malaysia xiii Majlis Penasihat Syariah Bank Negara Malaysia xv Ahli-Ahli Majlis Penasihat Syariah Bank Negara Malaysia (1997 – 2010) xvi Pengenalan xviii BAHAGIAN I: KONTRAK SYARIAH IJARAH 3 1. Penggunaan al-Ijarah thumma al-Bai` dalam Pembiayaan Kenderaan 2. Pemindahan Tanggungan dalam al-Ijarah thumma al-Bai` 3. Status Pemilikan Aset Ijarah 4. Pembatalan Kontrak Ijarah 5. Terbitan Nota Boleh Niaga Bank Negara Berasaskan Konsep Ijarah 6. Kontrak Ijarah dengan Kadar Sewa Boleh Ubah 7. Penanggungan Kos Berkaitan Hak Milik Aset dalam Ijarah 8. Liabiliti Penyewa ke atas Aset Pihak Ketiga 9. Keutamaan Penyewa untuk Membeli Aset dalam Kes Kemungkiran Pembayaran Sewa 10. Perkongsian Lebihan atas Penjualan Aset Ijarah antara Pemberi Sewa dengan Penyewa 11. Penggunaan Aset Pihak Ketiga yang Diperoleh Melalui Kontrak Mudarabah sebagai Aset Sandaran (Underlying Asset) dalam Terbitan Sukuk Ijarah 12. Penggunaan Konsep Ijarah Mawsufah fi al-Zimmah bagi Pembiayaan Perumahan dalam Pembinaan Berasaskan Musyarakah Mutanaqisah 13. Pembayaran Deposit dalam Sewa Beli secara Islam 14. Penggunaan Aset Pihak Ketiga yang Diperoleh Melalui Konsep Jual dan Beli dalam Terbitan Sukuk Ijarah KANDUNGAN iii iv ISTISNA` 21 15. Pembiayaan Projek Berasaskan Istisna` dengan Cagaran Bon Konvensional MUDARABAH 24 16. Instrumen Deposit Boleh Niaga secara Islam Berasaskan Mudarabah dengan Berkadar Terapung 17. Penggunaan Kontrak Mudarabah dalam Produk Akaun Semasa 18. Sijil Pelaburan Mudarabah sebagai Subjek Gadaian 19. Rizab Penyamaan Keuntungan (Profit Equalisation Reserve) 20. Kos Penyelenggaraan dalam Akaun Deposit Mudarabah 21. Urus Niaga Harian (Intra-Day Transaction) sebagai Satu Instrumen Pasaran Wang secara Islam 22. Perbelanjaan Tak Langsung (Indirect Expenses) 23. Penggunaan Wajaran (Weightage) 24. Amalan Institusi Kewangan Islam Mengalihkan Keuntungan Pelaburan Mudarabah kepada Pelanggan untuk Mengelakkan Risiko Komersil Teralih (Displaced Commercial Risk) 25. Jaminan Pihak Ketiga ke atas Liabiliti Pihak yang Berurusan dengan Mudarib bagi Urus Niaga Mudarabah 26. Jaminan Mudarib ke atas Liabiliti Pihak yang Berurusan dengannya dalam Usaha Niaga Mudarabah 27. Sumbangan Modal Mudarib dalam Usaha Niaga Mudarabah 28. Jaminan Pihak Ketiga ke atas Modal dan/atau Keuntungan dalam Urus Niaga Mudarabah MUSYARAKAH 40 29. Produk Pembiayaan Berasaskan Musyarakah 30. Pembiayaan Berasaskan Kontrak Musyarakah Mutanaqisah 31. Penggunaan Konsep Wa`d sebagai Mekanisme Menangani Kemungkiran Pelanggan dalam Pembiayaan Berasaskan Musyarakah Mutanaqisah QARD 47 32. Prinsip Qard dalam Kewangan Islam 33. Instrumen Pengurusan Mudah Tunai Berasaskan Qard 34. Penggabungan Pembayaran Awal secara Qard dengan Kontrak Murabahah RAHN 53 35. Dua Kemudahan Pembiayaan yang Bersandarkan Aset Cagaran yang Sama 36. Berurusan dengan Aset yang Masih dalam Cagaran 37. Sijil Deposit Tetap Konvensional sebagai Cagaran bagi Pembiayaan secara Islam 38. Penggunaan Sekuriti Hutang secara Islam sebagai Aset Cagaran 39. Penjualan Aset Cagaran Sekiranya Penerima Biaya Gagal Membayar Semula Amaun Pembiayaan kepada Pembiaya 40. Keuntungan yang Terhasil daripada Aset Cagaran Sepanjang Tempoh Cagaran TAKAFUL 62 41. Model Takaful Berasaskan Tabarru` dan Wakalah 42. Pelaksanaan Konsep Musahamah dalam Pelan Takaful Am Komersial 43. Model Perniagaan Takaful Semula Berasaskan Wakalah - Wakaf 44. Perlindungan Takaful bagi Pembiayaan secara Islam 45. Perlindungan Takaful bagi Pinjaman secara Konvensional 46. Perlindungan Takaful ke atas Produk Kad Kredit Konvensional 47. Takaful Semula dengan Syarikat Insurans dan Insurans Semula Konvensional 48. Yuran Perkhidmatan Takaful Semula sebagai Pendapatan Dana Pemegang Saham 49. Perjanjian Takaful secara Bersama (Co-Takaful) 50. Pengasingan Dana Takaful 51. Pengenaan Fi Pengurusan ke atas Caruman Peserta Takaful 52. Pengagihan Lebihan Dana Risiko Peserta 53. Pengagihan Keuntungan Pelaburan daripada Dana Pelaburan Peserta dan Dana Risiko Peserta 54. Peruntukan Rizab dalam Perniagaan Takaful 55. Mekanisme Menangani Defisit dalam Dana Risiko Peserta 56. Hibah dalam Takaful 57. Penamaan di bawah Skim Takaful yang Berasaskan Konsep Hibah 58. Penggunaan Prinsip Penuh Percaya (Principle of Utmost Good Faith) dalam Takaful 59. Kepentingan Boleh Lindung (Insurable Interest) dalam Takaful v TAWARRUQ 94 60. Produk Deposit Berasaskan Tawarruq 61. Produk Pembiayaan Berasaskan Tawarruq 62. Sukuk Ijarah dan Saham Berlandaskan Syariah sebagai Aset Sandaran dalam Urus Niaga Tawarruq 63. Penggunaan Tawarruq dalam Sukuk Murabahah Komoditi 64. Cadangan Model Operasi Commodity Murabahah House (Kini dikenali sebagai Suq Al-Sila`) WADI`AH 101 65. Takyif Wadi`ah Yad Dhamanah sebagai Qard WAKALAH 103 66. Penggunaan Wakalah bi al-Istithmar dalam Produk Deposit BAI` DAYN 106 67. Pembelian Semula Sijil Hutang Boleh Niaga secara Islam 68. Jual Beli Hutang yang Bakal Terhasil daripada Perkhidmatan BAI` `INAH 109 69. Penggunaan Konsep Bai` ̀ Inah dalam Terbitan Sijil Hutang Boleh Niaga secara Islam 70. Penggunaan Konsep Bai` ̀ Inah dalam Pasaran Wang antara Bank secara Islam 71. Penggunaan Kontrak “Jual dan Beli Balik“ 72. Syarat-syarat Sah Akad Bai` `Inah 73. Pemasukan Syarat Pembelian Semula Aset ke dalam Akad Bai` `Inah vi BAHAGIAN II: KONSEP SYARIAH SOKONGAN HIBAH 117 74. Hibah dalam Kontrak Pelaburan Mudarabah antara Bank 75. Penggunaan Konsep Hibah dalam Kontrak al-Ijarah thumma al-Bai` 76. Hibah dalam KontrakWadi`ah 77. Hibah dalam Kontrak Qard IBRA’ 123 78. Ibra’ dalam Pembiayaan secara Islam 79. Dua Bentuk Ibra’ dalam Satu Perjanjian Pembiayaan 80. Ibra’ ke atas Produk Pembiayaan Perumahan yang Dihubungkan dengan Akaun Deposit Wadi`ah atau Akaun Deposit Mudarabah TA`WIDH DAN GHARAMAH 129 81. Pengenaan Ta`widh dan Gharamah dalam Pembiayaan Kewangan Islam 82. Pengenaan Ganti Rugi ke atas Pelanggan yang Membuat Penyelesaian Awal 83. Kaedah Caj Lewat Bayar ke atas Hutang Penghakiman BAHAGIAN III: PRODUK KEWANGAN ISLAM INSTRUMEN KEWANGAN DERIVATIF 137 84. Urus Niaga Pertukaran Mata Wang Asing secara Lani (Spot) dan secara Hadapan (Forward) 85. Swap Kadar Keuntungan (Profit Rate Swap) secara Islam Berasaskan Bai` `Inah 86. Urus Niaga Hadapan (Forward) Mata Wang secara Bai` Mu’ajjal 87. Opsyen Mata Wang Asing Berasaskan Konsep Hamish Jiddiyyah, Wa`d dan Tawarruq 88. Opsyen Mata Wang Asing Berasaskan Konsep Wa`d dan Dua Urus Niaga Tawarruq yang Dibuat secara Berasingan vii KAD KREDIT SECARA ISLAM 148 89. Kad Kredit secara Islam Berasaskan Konsep Bai` `Inah dan Wadi`ah 90. Kad Kredit secara Islam Berasaskan Konsep Ujrah 91. Manfaat Perlindungan Takaful bagi Pemegang Kad Kredit secara Islam 92. Rebat dalam Bentuk Pemberian Tunai (Cashback) ke atas Fi Tahunan Kad Kredit 93. Kad Kredit secara Islam Berasaskan Konsep Wakalah dan Kafalah PRODUK HIBRID 155 94. Produk Akaun Semasa Berasaskan Himpunan Kontrak Wadi`ah Yad Dhamanah dan Mudarabah 95. Produk Deposit Berasaskan Himpunan Kontrak Mudarabah dan Qard 96. Produk Deposit Berasaskan Himpunan Kontrak Wadi`ah dan Mudarabah 97. Pembiayaan Perumahan dalam Pembinaan Berasaskan Himpunan Kontrak Istisna` Muwazi, Ijarah Mawsufah fi al-Zimmah dan Ijarah Muntahia bi al-Tamlik SUKUK BERASASKAN BAI` BITHAMAN AJIL (BBA) 160 98. Pelaburan Mudarabah antara Bank sebagai Aset Sandaran dalam Jual Beli secara Tangguh 99. Kewujudan Aset Sandaran Sepanjang Tempoh Matang Sukuk 100. Kaedah Pembidaan bagi Sukuk BBA BAHAGIAN IV: ISU-ISU SYARIAH BERKAITAN OPERASI INSTITUSI-INSTITUSI SOKONGAN DALAM KEWANGAN ISLAM CREDIT GUARANTEE CORPORATION (M) BERHAD 165 101. Konsep Syariah bagi Operasi Kemudahan Jaminan secara Islam oleh Credit Guarantee Coorporation 102. Jaminan Terhadap Harga Jualan viii DANAJAMIN NASIONAL BERHAD 168 103. Konsep Syariah untuk Operasi Kemudahan Jaminan Danajamin Nasional Berhad 104. Pengasingan Modal dalam Operasi Danajamin 105. Skop Jaminan Danajamin ke atas Sukuk 106. Jaminan ke atas Obligasi yang Terhasil daripada Aku Janji Pembelian 107. Caj Lewat Bayar dan Caj Tambahan Rekursa 108. Pemilikan Aset Sandaran dalam Sukuk yang Berasaskan Kontrak Ijarah PERBADANAN INSURANS DEPOSIT MALAYSIA 175 109. Konsep Syariah bagi Operasi Insurans Deposit Islam 110. Percampuran Dana yang Disumbangkan oleh Institusi Kewangan Islam dan Konvensional dalam Insurans Deposit 111. Had Jaminan Deposit Perbankan Islam oleh PIDM 112. Definisi Terma “Deposit“ dalam Insurans Deposit Islam 113. Kedudukan Tuntutan PIDM Berbanding dengan Tuntutan Pendeposit dalam Kes Pembubaran Sesebuah Institusi Perbankan Islam 114. Penggunaan Muqasah (Tolak Selesai) dalam Insurans Deposit Islam PERBADANAN GADAI JANJI NASIONAL 182 115. Kemudahan Jaminan Gadai Janji (Mortgage Guarantee Facility) BAHAGIAN V: ISU-ISU SYARIAH BERKAITAN KEWANGAN ISLAM PEMBUBARAN INSTITUSI PERBANKAN ISLAM 187 116. Keutamaan Pendeposit Mendapatkan Semula Deposit dalam Kes Pembubaran Sesebuah Institusi Perbankan Islam 117. Perkongsian Lebihan Selepas Proses Pencairan dan Pembayaran Tuntutan antara Dana Perbankan Islam dengan Konvensional 118. Status Dana Konvensional yang Diletakkan dalam Akaun Pelaburan Khas Mudarabah dalam Kes Pembubaran Institusi Perbankan Islam ix x PIAWAIAN PERAKAUNAN DAN PELAPORAN KEWANGAN ISLAM 190 119. Kaedah Pembahagian Untung 120. Kaedah Pengiktirafan Pendapatan 121. Penggunaan Prinsip “Substance Over Form“ dalam Kewangan Islam 122. Penggunaan Prinsip Kebarangkalian (Probability) dalam Kewangan Islam 123. Penggunaan Prinsip Nilai Masa dalam Kewangan (Time Value of Money) LAIN-LAIN 197 124. Deposit atau Dana Pelaburan Pelanggan daripada Sumber yang Diragui 125. Pembiayaan kepada Pihak yang secara Jelas Menjalankan Aktiviti Bertentangan dengan Syariah 126. Penggunaan Overdraf secara Konvensional untuk Menampung Kekurangan Akaun Semasa Wadi`ah 127. Yuran Komitmen ke atas Baki Kemudahan Overdraf atau Kredit Pusingan secara Islam yang Tidak Digunakan 128. Instrumen Kewangan Islam sebagai Aset Sandaran dalam Urus Niaga secara Konvensional 129. Instrumen Pasaran Kewangan sebagai Aset Sandaran dalam Urus Niaga Bertangguh 130. Mekanisme Penentuan Jumlah Harga Penyelesaian dalam Pasaran Kewangan 131. Penstrukturan Semula (Restructuring) dan Penjadualan Semula (Rescheduling) dalam Perjanjian Pembiayaan secara Islam 132. Konsep Pembidaan oleh Peniaga Utama (Principal Dealer) dalam Pasaran Wang Islam 133. Penyelesaian Pembiayaan Menerusi Pembiayaan Baharu 134. Harga Jualan yang Tidak Ditentukan dalam Perjanjian Jual Beli 135. Konsep Sandaran bagi Urus Niaga Pendiskaunan Blok secara Islam (Islamic Block Discounting) GLOSARI 215 xi Bismillahirrahmanirrahim, Edisi Kedua Resolusi Syariah dalam Kewangan Islam (Resolusi Syariah) ini mengandungi semua keputusan Majlis Penasihat Syariah (MPS) Bank Negara Malaysia. Penerbitan edisi kedua buku ini bertujuan untuk menjadikannya sebagai panduan dan rujukan penting bagi seluruh komuniti kewangan Islam. Dekad yang baru berlalu jelas menggambarkan era perkembangan kewangan Islam. Sepanjang tempoh tersebut yang bercirikan pengantarabangsaan yang lebih pesat dan pengembangan global yang berterusan, kewangan Islam telah berkembang pesat dan menjadi komponen yang semakin penting dalam sistem kewangan global. Kewangan Islam telah memudahkan aliran kewangan merentas sempadan dan ini terbukti khususnya menerusi sukuk yang lebih dinamik dalam pasaran kewangan Islam antarabangsa. Pada peringkat antarabangsa, usaha telah dipergiatkan lagi untuk memperkukuh urus tadbir Syariah institusi kewangan Islam di pelbagai negara. Walaupun kewangan Islam telah menunjukkan daya tahan sewaktu berlakunya krisis kewangan global baru-baru ini, usaha terus dilaksanakan bagi memperkukuh lagi infrastruktur kewangan antarabangsa dan pengawasan pengawalseliaan terhadap kewangan Islam. Ini bagi memastikan kewangan Islam terus berkesan dan berdaya saing dalam persekitaran kewangan antarabangsa yang semakin mencabar. Sejajar dengan jangkauan antarabangsanya yang semakin meluas, inovasi produk kewangan Islam dan penembusan ke dalam pelbagai pasaran semakin giat dilakukan. Rangkaian produk kewangan Islam kini telah berkembang menjadi spektrum produk pembiayaan runcit dan produk kewangan canggih yang lebih luas, merangkumi produk ekuiti swasta, pembiayaan projek, originasi dan terbitan sukuk, serta produk pengurusan harta. Kedinamikan Syariah merupakan faktor penggerak utama yang menggalakkan inovasi kewangan Islam yang lebih pesat. Usaha gigih bagi memenuhi permintaan masyarakat global yang semakin meningkat dan berbeza-beza terhadap produk kewangan Islam kini melangkaui kontrak tradisional seperti murabahah, musyarakah dan mudarabah, kepada struktur Syariah lain yang inovatif dan berkonsepkan hibrid seperti wakalah bi al-istithmar dan musyarakah mutanaqisah. Ini membuktikan keupayaan para ulama dan penasihat Syariah dalam memanfaatkan kepakaran Syariah mereka dalam membantu penstrukturan ciri-ciri produk yang kompetitif dan inovatif. Kesemua inisiatif ini telah menyumbang kepada perkembangan pesat produk dan perkhidmatan kewangan Islam kontemporari. PERUTUSAN GABENOR BANK NEGARA MALAYSIA xii MPS sebagai badan berkuasa tertinggi dalam menentukan perkara berhubung dengan isu-isu Syariah dalam kewangan Islam mempunyai peranan yang penting dalam memastikan keputusan-keputusan Syariah yang dibuat adalah berwibawa dan berintegriti. Sebagai pusat rujukan bagi komuniti kewangan Islam, MPS mendukung matlamat (maqasid) Syariah dan memelihara kemurniannya menerusi keputusan-keputusan yang terhasil daripada perbincangan yang mendalam dan proses perundingan yang teliti lantas memberikan sumbangan yang besar kepada keberkesanan rangka kerja urus tadbir Syariah di Malaysia. Resolusi Syariah ini yang mengandungi resolusi Syariah yang diputuskan antara tahun 1997 hingga tahun 2009, merupakan kesinambungan usaha-usaha yang dilaksanakan sebelum ini dalam memperdalam pemahaman berhubung dengan tafsiran Syariah dan pertimbangan perundangan fiqah bagi keputusan-keputusan tersebut. Bersama- sama dengan usaha yang berterusan untuk menghasilkan Rujukan Parameter Syariah, Resolusi Syariah ini merupakan sebahagian daripada komitmen Bank Negara Malaysia untuk membangunkan industri ini. Inisiatif ini bertujuan untuk meningkatkan tahap ketelusan berhubung dengan pertimbangan perundangan fiqah dalam kewangan Islam, yang seterusnya akan meningkatkan kesedaran dan penerimaan terhadap keputusan-keputusan Syariah. Ia juga akan menjadikan urus tadbir Syariah lebih cekap di peringkat institusi di samping menjadi pemangkin bagi pengharmonian pentafsiran dan aplikasi Syariah merentas sempadan yang lebih luas. Akhir kata, saya ingin merakamkan ucapan terima kasih kepada semua yang terlibat dalam penerbitan buku ini, terutamanya ahli-ahli MPS, yang menerusi kepakaran dan pengalaman luas serta dedikasi yang tinggi, telah dapat memberikan sumbangan yang penting lagi bermakna kepada perkembangan dan kemajuan kewangan Islam. Dr. Zeti Akhtar Aziz Gabenor Bank Negara Malaysia Assalamualaikum Warahmatullahi Wabarakatuh, Segala puji-pujian dipanjatkan ke hadrat Allah SWT dan Rasul-Nya, Nabi Muhammad SAW, ahli keluarga, para sahabat dan pengikut baginda. Bank Negara Malaysia sentiasa berada di barisan hadapan dalam usaha murni negara untuk memberikan sokongan dinamik dan serba maju kepada industri kewangan Islam. Selaras dengan minat yang semakin mendalam terhadap kewangan Islam di seluruh dunia, baik dalam kalangan mereka yang beragama Islam mahupun yang bukan beragama Islam, Bank Negara Malaysia telah mengambil beberapa langkah utama untuk menggalakkan pengembangan ilmu pengetahuan dan pemahaman mengenai kewangan Islam bagi memenuhi permintaan industri ini yang semakin bertambah. Salah satu usaha tersebut, dengan izin Allah SWT, ialah penerbitan buku Resolusi Syariah dalam Kewangan Islam (Edisi Kedua) oleh Bank Negara Malaysia. Buku ini merupakan kompilasi ilmiah resolusi yang terhasil daripada siri mesyuarat Majlis Penasihat Syariah Bank Negara Malaysia sepanjang tahun 1997-2009. Buku ini dijangka dapat membantu usaha memperkaya korpus ilmu pengetahuan dalam bidang kewangan Islam, dan akan menjadi asas kepada industri kewangan Islam dalam pembangunan dan penambahbaikan produk. Kompilasi yang berasaskan fatwa ini merupakan manifestasi Ijtihad secara bersama oleh barisan cendekiawan yang menjadi penasihat kepada Bank Negara Malaysia berhubung dengan perkara-perkara Syariah yang berkaitan dengan kewangan Islam. Ijtihad secara bersama ini merupakan fenomena baharu dalam undang- undang Islam sejak abad ke-20 dan ternyata lebih ketara dalam industri kewangan Islam melalui amalan khidmat nasihat Syariah. Kompilasi fatwa atau resolusi ini menjadi lebih relevan dalam konteks Malaysia memandangkan resolusi Majlis Penasihat Syariah Bank Negara Malaysia ini adalah mengikat ke atas semua institusi perbankan Islam, syarikat takaful, mahkamah dan penimbang tara. Manfaat daripada kompilasi ini akan menjadi lebih bermakna apabila resolusi ini dianalisis dalam skop perbincangan bidang kuasa perundangan Islam dan Ijtihad dalam falsafah Islam, khususnya Ijtihad secara bersama. PRAKATA PENGERUSI MAJLIS PENASIHAT SYARIAH BANK NEGARA MALAYSIA xiii Saya berharap agar kompilasi yang terkandung dalam buku ini akan dapat memenuhi matlamat penerbitannya. Wassalam. Dr. Mohd Daud Bakar Pengerusi Majlis Penasihat Syariah Bank Negara Malaysia 2006 – 2010 xiv Majlis Penasihat Syariah (MPS) Bank Negara Malaysia ditubuhkan pada tahun 1997 sebagai badan berkuasa tertinggi dalam menentukan perkara-perkara Syariah berhubung dengan kewangan Islam di Malaysia. MPS telah diberikan mandat untuk menentukan hukum Syarak bagi perniagaan perbankan Islam, takaful, kewangan Islam, pembangunan kewangan Islam atau perniagaan lain yang berlandaskan prinsip Syariah yang di bawah kawal seliaan Bank Negara Malaysia. MPS sebagai badan rujukan dan penasihat Bank Negara Malaysia berhubung dengan perkara Syariah juga bertanggungjawab untuk mengesahkan semua produk perbankan Islam dan takaful bagi memastikan produk-produk tersebut mematuhi prinsip Syariah. Selain itu, MPS juga berperanan sebagai penasihat Bank Negara Malaysia berhubung dengan isu-isu berkaitan dengan urus niaga atau urusan kewangan Islam Bank Negara Malaysia dan badan-badan berkaitan yang lain. Berdasarkan peruntukan Akta Bank Negara Malaysia 2009, peranan dan fungsi MPS telah diperkukuh lagi dengan pemberian status badan berautoriti tunggal dalam menentukan perkara-perkara Syariah berhubung dengan perbankan Islam, takaful dan kewangan Islam. Keputusan MPS bukan sahaja terpakai bagi institusi kewangan Islam, malah juga oleh mahkamah dan penimbang tara yang perlu merujuk kepada keputusan MPS untuk setiap prosiding yang berkaitan dengan perniagaan kewangan Islam, dan juga memperakui bahawa keputusan MPS adalah mengikat. MPS dianggotai oleh para ilmuwan Syariah dan pakar kewangan Islam terkemuka, yang mempunyai kelayakan, pengalaman dan pengetahuan yang mendalam dalam pelbagai bidang, khususnya dalam bidang kewangan dan perundangan Islam. MAJLIS PENASIHAT SYARIAH BANK NEGARA MALAYSIA xv xvi AHLI-AHLI MAJLIS PENASIHAT SYARIAH BANK NEGARA MALAYSIA (1997 - 2010) Dr. Mohd Daud Bakar Sesi Pelantikan: 1997 - 2010 Dato’ Dr. Abdul Halim Ismail Sesi Pelantikan: 1997 - 2010 Tun Abdul Hamid Mohamad Sesi Pelantikan: 2004 - 2010 Tan Sri Datuk Sheikh Ghazali Abdul Rahman Sesi Pelantikan: 1999 - 2010 Datuk Haji Md. Hashim Yahaya Sesi Pelantikan: 1997 - 2010 Sahibus Samahah Dato’ Haji Hassan Ahmad Sesi Pelantikan: 1997 - 2010 Dato’ Wan Mohamad Dato’ Sheikh Abd Aziz Sesi Pelantikan: 2008 - 2010 Prof. Madya Dr. Engku Rabiah Adawiah Engku Ali Sesi Pelantikan: 2006 - 2010 Prof. Madya Dr. Mohamad Akram Laldin Sesi Pelantikan: 2008 - 2010 Dr. Muhammad Syafii Antonio Sesi Pelantikan: 2006 - 2010 Prof. Madya Dr. Abdul Halim Muhammad Sesi Pelantikan: 2004 - 2008 xvii Dr. Mohd Parid Sheikh Ahmad Sesi Pelantikan: 2004 - 2008 Dr. Aznan Hasan Sesi Pelantikan: 2006 - 2008 Prof. Datuk Dr. Abdul Monir Yaacob Sesi Pelantikan: 1999 - 2006 Dr. Mohd Ali Baharum Sesi Pelantikan: 2001 - 2006 Prof. Dr. Joni Tamkin Borhan Sesi Pelantikan: 1999 - 2003 Prof. Dato’ Dr. Haji Othman Ishak Sesi Pelantikan: 1997 - 1999 Dato’ Dr. Haron Din Sesi Pelantikan: 1997 - 1999 Dr. Ahmed Ali Abdalla Sesi Pelantikan: 1997 - 1999 Allahyarham Prof. Emeritus Tan Sri Datuk Ahmad Ibrahim Sesi Pelantikan: 1997 - 1999 Allahyarham Dato’ Sheikh Azmi Ahmad Sesi Pelantikan: 1997 - 1999 Allahyarham Dr. Abdullah Ibrahim Sesi Pelantikan: 1997 - 1999 Akta Bank Negara Malaysia 2009 (Akta) mengiktiraf Majlis Penasihat Syariah (MPS) Bank Negara Malaysia sebagai badan berkuasa tertinggi dalam menentukan perkara berhubung dengan isu-isu Syariah dalam kewangan Islam. Sehubungan dengan itu, Bank Negara Malaysia telah menerbitkan buku Resolusi Syariah dalam Kewangan Islam (Edisi Kedua) untuk dijadikan sebagai rujukan Syariah yang penting bagi pengamal industri kewangan Islam, mahkamah dan penimbang tara. Ini sejajar dengan keperluan Akta yang mengkehendaki semua institusi kewangan Islam, mahkamah dan penimbang tara untuk merujuk kepada MPS bagi perkara atau prosiding yang berkaitan dengan perniagaan kewangan Islam. Buku ini mengandungi keputusan MPS sejak awal penubuhannya pada tahun 1997 hingga tahun 2009. Ia telah disemak dan disahkan oleh MPS sebagai edisi terkini dan terpakai dalam rujukan terhadap keputusan Syariah yang berkaitan dengan kewangan Islam. Edisi ini menggantikan Resolusi Syariah dalam Kewangan Islam (Edisi Pertama) yang diterbitkan pada tahun 2007 dan Ringkasan Keputusan Majlis Penasihat Syariah Kebangsaan untuk Perbankan Islam dan Takaful (Ringkasan Keputusan MPS) yang dikeluarkan pada tahun 2002. Sehubungan dengan itu, produk kewangan Islam baharu yang ingin ditawarkan oleh institusi kewangan atau sebarang produk sedia ada yang ingin ditawarkan kepada pelanggan baharu hendaklah mematuhi Resolusi Syariah dalam Kewangan Islam (Edisi Kedua). Walau bagaimanapun, bagi kontrak produk kewangan Islam sedia ada dalam pasaran yang telah dimeterai antara pelanggan dengan institusi kewangan berdasarkan keputusan Syariah yang terkandung dalam Edisi Pertama dan Ringkasan Keputusan MPS, kontrak berkenaan masih lagi terpakai sehingga tempoh matangnya. Sebarang pertanyaan berhubung dengan Resolusi Syariah dalam Kewangan Islam (Edisi Kedua) ini boleh dikemukakan kepada Sekretariat MPS melalui e-mel: [email protected] PENGENALAN xviii xix AAOIFI Accounting and Auditing Organisation for Islamic Financial Institutions/Pertubuhan Perakaunan dan Pengauditan untuk Institusi Kewangan Islam AITAB Al-ijarah thumma al-bai` b. Bilangan BBA Bai` bithaman ajil Cagamas Perbadanan Gadai Janji Nasional CGC Credit Guarantee Corporation (Malaysia) Berhad CMH Commodity Murabahah House CPO Crude palm oil/Minyak sawit mentah Danajamin Danajamin Nasional Berhad FAST Fully Automated System for Issuing/Tendering Sistem Automatik Sepenuhnya untuk Terbitan /Tender h. Halaman IDBN Instrumen Deposit Boleh Niaga IT Information technology/Teknologi maklumat j. Jilid MPS Majlis Penasihat Syariah Bank Negara Malaysia NBNBN-Ijarah Nota Boleh Niaga Bank Negara berasaskan konsep ijarah no. Nombor xx OIC Organisation of the Islamic Conference/ Pertubuhan Persidangan Islam PIDM Perbadanan Insurans Deposit Malaysia PMB Pelaburan Mudarabah antara bank RENTAS Real Time Electronic Transfer of Funds and Securities/ Sistem Pemindahan Eletronik Data dan Sekuriti RPK Rizab Penyamaan Keuntungan ‘r’ Kadar pulangan institusi kewangan SAW Sallallahu `alaihi wasallam SHBN Sijil Hutang Boleh Niaga SPI Skim Perbankan Islam SPV Special Purpose Vehicle/Syarikat Tujuan Khas SWT Subhanahu wa ta`ala t.t. Tanpa tarikh T+2 2 hari selepas tarikh urus niaga 1 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM BAHAGIAN I: KONTRAK SYARIAH 2 Ijarah merujuk kepada akad sewa atau upah yang melibatkan pertukaran antara faedah atau manfaat daripada sesuatu aset atau tenaga kerja dengan bayaran atau upah tertentu dalam tempoh yang dipersetujui. Dalam konteks kewangan Islam, konsep ijarah sering digunakan dalam kontrak-kontrak pembiayaan seperti pembiayaan harta tanah, pembiayaan kenderaan, pembiayaan projek dan pembiayaan peribadi. Terdapat juga produk kewangan yang membolehkan pelanggan menyewa aset daripada institusi kewangan Islam berasaskan konsep ijarah dengan pilihan (option) untuk memiliki aset sewaan tersebut pada akhir tempoh sewaan berasaskan konsep ijarah muntahia bi al-tamlik atau al-ijarah thumma al-bai`. 1. Penggunaan al-Ijarah thumma al-Bai` dalam Pembiayaan Kenderaan Terdapat cadangan daripada institusi kewangan Islam untuk memperkenalkan konsep al-ijarah thumma al-bai` (AITAB) bagi membiayai pembelian kenderaan. Pembiayaan secara AITAB ini melibatkan dua jenis kontrak, iaitu kontrak sewaan (ijarah) disusuli kontrak jual beli (al-bai`). Pada peringkat awal, institusi kewangan Islam akan memeterai satu perjanjian ijarah dengan pelanggan. Melalui perjanjian ijarah ini, institusi kewangan Islam akan melantik pelanggan sebagai ejen untuk membeli kenderaan yang telah dikenal pasti oleh pelanggan. Seterusnya, institusi kewangan Islam akan menyewakan kenderaan tersebut kepada pelanggan bagi satu tempoh masa tertentu. Pada akhir tempoh sewaan, pelanggan mempunyai pilihan untuk membeli kenderaan berkenaan daripada institusi kewangan Islam. Sekiranya pelanggan memilih untuk membeli kenderaan tersebut, institusi kewangan Islam dan pelanggan akan memeterai satu perjanjian al-bai` dan hak milik kenderaan tersebut akan berpindah daripada institusi kewangan Islam kepada pelanggan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penggunaan AITAB dalam pembiayaan kenderaan seperti di atas dibenarkan Syarak. Keputusan MPS pada mesyuarat pertama bertarikh 8 Julai 1997 dan mesyuarat ke-36 bertarikh 26 Jun 2003 telah memutuskan bahawa penggunaan konsep AITAB dalam pembiayaan kenderaan adalah dibenarkan, tertakluk kepada perkara berikut: IJARAH 3 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 4 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM i. Modus operandi AITAB hendaklah mengandungi dua akad yang berasingan iaitu akad ijarah dan akad al-bai`; ii. Harga jualan selepas tamat tempoh sewaan boleh berbentuk jumlah amaun sewaan terakhir bagi ijarah; iii. Surat wakil bagi melantik pelanggan sebagai ejen atau wakil kepada institusi kewangan Islam hendaklah diperkenalkan dalam modus operandi AITAB; iv. Suratcara AITAB perlu memasukkan klausa “akan beli kenderaan” tersebut pada akhir sewaan dan klausa penebusan bagi penyewa yang membuat bayaran balik awal; v. Deposit yang dibayar kepada penjual kenderaan tidak melibatkan jual beli kenderaan kerana ia dianggap sebagai bayaran pendahuluan yang perlu dibayar oleh institusi kewangan Islam; vi. Selaras dengan prinsip ijarah, institusi kewangan Islam sebagai pemilik aset harus menanggung risiko berkaitan yang munasabah; dan vii. Bagi kes-kes pembiayaan semula dengan pembiaya baharu, penyewa perlu menamatkan kontrak AITAB yang sedang berkuat kuasa sebelum memasuki perjanjian AITAB yang baharu. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan ke atas perkara berikut: i. Pilihan untuk melaksanakan akad jual beli pada akhir tempoh sewaan merupakan salah satu ciri AITAB dan ijarah muntahia bi al-tamlik yang telah diluluskan dan dilaksanakan dalam pasaran. Pilihan ini tidak bertentangan dengan Syarak memandangkan kontrak ijarah dan kontrak pemilikan berasaskan jual beli dijalankan secara berasingan;1 dan ii. Di samping itu, Akademi Fiqah OIC dalam keputusan no. 110 (12/4) turut membenarkan ijarah muntahia bi al-tamlik berdasarkan syarat-syarat tertentu.2 1 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 9 (Al-Ijarah wa al-Ijarah al-Muntahia bi al-Tamlik), perenggan 2/2. 2 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 2000, b. 12, j. 1, h. 697 - 698. 5 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 2. Pemindahan Tanggungan dalam al-Ijarah thumma al-Bai` Sebahagian besar daripada pembiayaan kenderaan oleh institusi kewangan Islam dilaksanakan melalui konsep al-ijarah thumma al-bai` (AITAB). Walau bagaimanapun, terdapat beberapa kes melibatkan penyewa tidak lagi berhasrat untuk meneruskan sewaan dan ingin mendapatkan orang lain sebagai pengganti dirinya bagi meneruskan sewaan, dan seterusnya membeli aset tersebut daripada institusi kewangan Islam. Ini adalah selari dengan peruntukan Akta Sewa Beli 1967 yang membenarkan seseorang penyewa memindahkan hak dan tanggungannya di bawah perjanjian sewa beli kepada orang lain. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada kaedah pemindahan tanggungan seperti yang termaktub dalam Akta Sewa Beli 1967 boleh diterima pakai dalam pembiayaan kenderaan yang berasaskan AITAB. Keputusan MPS pada mesyuarat ke-7 bertarikh 29 Oktober 1998 telah memutuskan bahawa pembiayaan kenderaan yang berasaskan AITAB dibenarkan untuk menerima pakai kaedah pemindahan tanggungan seperti yang termaktub dalam Akta Sewa Beli 1967. Asas Pertimbangan Konsep pemindahan hak atau tanggungan tidak bertentangan dengan Syariah kerana Islam mengiktiraf pemindahan hak dan tanggungan berdasarkan persetujuan antara pihak yang terlibat. Dalam konteks pembiayaan yang berasaskan AITAB, sekiranya penyewa tidak lagi berhasrat untuk meneruskan sewaan, beliau boleh memindahkan hak dan tanggungannya kepada orang lain untuk meneruskan sewaan dan seterusnya membeli aset tersebut daripada institusi kewangan Islam. 6 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 3. Status Pemilikan Aset Ijarah Dalam kontrak ijarah, pemberi sewa adalah pemilik aset ijarah manakala penyewa hanya mempunyai hak ke atas manfaat aset tersebut sahaja. Memandangkan dalam amalan semasa, nama pemberi sewa tidak dinyatakan dalam surat pendaftaran harta, MPS dirujuk berhubung dengan isu sama ada pemilikan aset oleh pemberi sewa boleh berlaku dalam keadaan sedemikian. Keputusan MPS pada mesyuarat ke-29 bertarikh 25 September 2002 telah memutuskan bahawa pemberi sewa merupakan pemilik kepada harta yang disewa walaupun namanya tidak dinyatakan dalam surat pendaftaran harta. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa Syariah mengiktiraf kedua-dua pemilikan secara perundangan dan pemilikan bermanfaat (beneficial ownership).3 Dalam konteks ijarah, pemberi sewa mempunyai pemilikan bermanfaat walaupun pemilikan tersebut tidak dinyatakan dalam surat pendaftaran harta. Pemilikan bermanfaat ini boleh dibuktikan menerusi dokumentasi perjanjian ijarah yang dimeterai antara pemberi sewa dengan penyewa. 4. Pembatalan Kontrak Ijarah Pembatalan kontrak adalah dibenarkan oleh Syariah apabila pihak-pihak yang berkontrak memilih untuk tidak meneruskan kontrak yang dimeterai bersama. Pembatalan kontrak boleh berlaku atas pelbagai sebab, antaranya bagi mengelakkan berlakunya ketidakadilan, menghindarkan kerugian dan sebagainya. Dalam hal ini, MPS dirujuk berhubung dengan asas-asas pembatalan kontrak ijarah. 3 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1990, b. 6, j. 1, h. 771. 7 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-29 bertarikh 25 September 2002 telah memutuskan bahawa kontrak ijarah adalah terbatal sekiranya aset sewaan didapati tidak berfungsi dan hilang manfaatnya, pihak yang berkontrak tidak memenuhi terma dan syarat kontrak, atau pembatalan kontrak ijarah tersebut dipersetujui oleh kedua-dua pihak yang berkontrak. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan ke atas perkara berikut: i. Manfaat merupakan subjek akad dalam ijarah dan sekiranya manfaat tersebut tidak lagi wujud, kontrak ijarah adalah terbatal.4 ii. Kedua-dua pihak yang berkontrak boleh meletakkan terma dan syarat perjanjian berdasarkan persetujuan bersama atas dasar kebebasan berakad. Sehubungan dengan itu, kontrak ijarah boleh terbatal sekiranya mana-mana pihak yang berkontrak tidak memenuhi terma dan syarat yang telah dipersetujui bersama. Ini selari dengan hadis Rasulullah SAW yang berikut: 4 Al-Syatibi, Al-Muwafaqat fi Usul al-Syari`ah, Dar al-Ma`rifah, 1999, j. 3, h. 165; Ibnu Qudamah, Al-Mughni, Dar `Alam al-Kutub, 1997, j. 8, h. 125. 5 Ibnu Majah, Sunan Ibnu Majah, Dar al-Fikr, (t.t.), j. 2, h. 737, hadis no. 2185. 6 Abu Daud, Sunan Abi Daud, Bait al-Afkar al-Dawliyyah, 1999, h. 398, hadis no. 3594. “Sesungguhnya jual beli berdasarkan keredhaan.”5 “(Urusan) orang Islam adalah berasaskan kepada syarat-syarat yang (dipersetujui) oleh mereka, kecuali syarat-syarat menghalalkan apa yang haram atau mengharamkan apa yang halal.”6 iii. Kontrak ijarah ialah kontrak lazim yang memerlukan persetujuan pembatalan daripada kedua-dua belah pihak. 8 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 5. Terbitan Nota Boleh Niaga Bank Negara Berasaskan Konsep Ijarah Terdapat cadangan daripada Bank Negara Malaysia untuk menerbitkan Nota Boleh Niaga Bank Negara berasaskan konsep ijarah (NBNBN-Ijarah). Struktur NBNBN-Ijarah yang dicadangkan adalah seperti yang berikut: i. Bank Negara Malaysia akan menjual kepentingan bermanfaat bagi harta tanah miliknya (misalnya tanah dan bangunan) kepada sebuah Syarikat Tujuan Khas (Special Purpose Vehicle (SPV)). SPV seterusnya akan menyewakan harta tanah tersebut kepada Bank Negara Malaysia bagi suatu tempoh tertentu melalui perjanjian ijarah muntahia bi al-tamlik. Sebagai balasan, Bank Negara Malaysia akan membayar sewa (pada kadar yang dipersetujui semasa akad dimeterai) pada setiap 6 bulan sepanjang tempoh tersebut; ii. Bank Negara Malaysia akan memberi wa`d kepada SPV untuk membeli semula harta tanah tersebut berdasarkan harga yang dipersetujui pada tarikh matang; iii. SPV kemudiannya akan mewujudkan amanah terhadap harta tanah tersebut dan menerbitkan NBNBN-Ijarah kepada para peserta pasaran. Pelabur yang membeli NBNBN-Ijarah akan membayar kepada SPV dan wang yang diterima ini akan digunakan oleh SPV untuk membuat pembayaran kepada Bank Negara Malaysia bagi harga belian harta tanah tersebut. Lanjutan daripada urus niaga ini, peserta pasaran selaku pelabur kini merupakan pemilik amanah yang diwujudkan oleh SPV dan berhak ke atas sewa yang dibayar oleh Bank Negara Malaysia; dan iv. Memandangkan NBNBN-Ijarah mewakili hak milik bermanfaat secara pro rata terhadap harta tanah tersebut, pemegang NBNBN-Ijarah boleh menjualnya dalam pasaran sama ada pada harga par, diskaun atau premium. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada cadangan terbitan Nota Boleh Niaga Bank Negara yang berasaskan konsep ijarah seperti di atas dibenarkan Syarak. 9 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-33 bertarikh 27 Mac 2003 telah memutuskan bahawa struktur cadangan terbitan Nota Boleh Niaga Bank Negara yang berasaskan konsep ijarah seperti di atas dibenarkan dengan syarat terdapat dua akad yang berasingan dari segi masa, iaitu akad jual beli dibuat selepas akad ijarah, atau terdapat janji pemilikan (al-wa`d bi al-tamlik) melalui jual beli atau hibah pada akhir tempoh sewaan. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan asas pertimbangan yang dinyatakan dalam perkara 1.7 6. Kontrak Ijarah dengan Kadar Sewa Boleh Ubah Pada peringkat awal perkembangan kewangan Islam, sebahagian besar pembiayaan secara Islam adalah pada kadar tetap dan mempunyai tempoh matang yang panjang. Ini menyebabkan institusi kewangan Islam terikat kepada kadar keuntungan yang rendah dan menyukarkannya untuk memberi pulangan yang memuaskan kepada pelabur. Sehubungan dengan itu, sebuah jawatankuasa telah ditubuhkan bagi mengkaji model-model pembiayaan berkadar terapung atau boleh ubah yang boleh diterima pakai agar institusi kewangan Islam dapat menguruskan aset dan liabiliti dengan lebih berkesan dan dapat memberikan pulangan yang kompetitif kepada pelanggan. Antara model pembiayaan yang dikenal pasti menerima pakai kaedah kadar boleh ubah ini ialah kontrak pembiayaan yang berasaskan ijarah. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada pembiayaan secara kadar boleh ubah boleh digunakan dalam kontrak ijarah. 7 Penggunaan al-Ijarah thumma al-Bai` dalam Pembiayaan Kenderaan. 10 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-33 bertarikh 27 Mac 2003, mesyuarat ke-35 bertarikh 22 Mei 2003 dan mesyuarat ke-38 bertarikh 28 Ogos 2003 telah memutuskan bahawa kadar sewa dalam kontrak ijarah boleh diubah berdasarkan persetujuan awal untuk menyandarkan kadar sewa kepada suatu pemboleh ubah yang dipersetujui bersama dalam tempoh tertentu. Asas Pertimbangan Dalam kontrak ijarah, kadar sewaan aset boleh dipersetujui antara pemberi sewa dengan penyewa sama ada ia secara kadar tetap sepanjang tempoh sewaan sehingga tarikh matang atau berubah-ubah mengikut kaedah tertentu. Bagi mengelakkan berlakunya gharar (ketidakpastian), kaedah yang dipersetujui hendaklah dijelaskan semasa akad dimeterai. Dalam hal ini, kedua-dua pihak terikat dengan kontrak tersebut sehingga sampai tempoh matang kontrak. Sebarang perubahan yang berlaku pada kadar pemboleh ubah yang dipersetujui dikira sebagai risiko yang diambil oleh kedua-dua belah pihak berdasarkan persetujuan awal secara bersama. Di samping itu, kadar sewaan perlu diketahui oleh kedua-dua belah pihak yang berkontrak.8 Penetapan kadar tersebut boleh dibuat untuk seluruh tempoh sewaan atau secara beransur-ansur. Ia juga boleh dibuat secara kadar tetap atau kadar boleh ubah mengikut kesesuaian yang dimaklumi oleh kedua-dua pihak penyewa dan pemberi sewa.9 7. Penanggungan Kos Berkaitan Hak Milik Aset dalam Ijarah Secara umumnya, institusi kewangan Islam selaku pemberi sewa dan pemilik aset berkewajipan untuk menanggung kos penyelenggaraan aset tersebut terutamanya kos-kos yang berkaitan hak milik aset seperti cukai tanah dan cukai pintu. Selain itu, sekiranya berlaku kerosakan terhadap aset ijarah, kerugian yang dialami akibat daripada kerosakan tersebut perlu ditanggung oleh institusi kewangan Islam. Sehubungan dengan itu, aset ijarah lazimnya dilindungi oleh skim perlindungan takaful bagi mengurangkan beban risiko kewangan yang bakal ditanggung sekiranya berlaku sebarang kerosakan terhadap aset ijarah tersebut. 8 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 9 (Al-Ijarah wa al-Ijarah al-Muntahia bi al-Tamlik), perenggan 5/2/1. 9 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 9 (Al-Ijarah wa al-Ijarah al-Muntahia bi al-Tamlik), perenggan 5/2/1. 11 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada pemilik aset boleh memindahkan kewajipan untuk menanggung kos penyelenggaraan aset ijarah dan kos perlindungan takaful kepada penyewa iaitu pelanggan. Keputusan MPS pada mesyuarat ke-29 bertarikh 25 September 2002, mesyuarat ke-36 bertarikh 26 Jun 2003 dan mesyuarat ke-104 bertarikh 26 Ogos 2010 telah memutuskan bahawa pemilik aset tidak boleh memindahkan kewajipan untuk menanggung kos penyelenggaraan aset yang disewa serta kos perlindungan takaful kepada penyewa. Namun, pemilik aset boleh mewakilkan kepada penyewa untuk menanggung kos-kos penyelenggaraan aset dan kos perlindungan takaful yang akan ditolak selesai dalam urus niaga jual beli pada akhir tempoh sewaan. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan ke atas perkara berikut: i. Pemberi sewa bertanggungjawab ke atas kos penyelenggaraan dan kos perlindungan takaful aset sewaan sekiranya ada.10 Cukai tanah misalnya, merupakan kos penyelenggaraan yang berkaitan hak milik aset dan sepatutnya ditanggung oleh pemberi sewa. Namun demikian, penyewa dibenarkan membayar cukai tanah dan perlindungan takaful bagi pihak pemberi sewa, dan jumlah bayaran ini dianggap sebagai sebahagian daripada wang pendahuluan dan akan ditolak selesai (muqasah) dalam urus niaga jual beli pada akhir tempoh sewaan; dan ii. Pengguguran hutang secara sepakat (al-muqasah al-ittifaqiyyah) adalah dibenarkan walaupun terdapat perbezaan dari segi jenis, sifat dan tempoh hutang, kerana keredhaan dianggap sebagai persetujuan bersama (ittifaqiyyah) kedua-dua pihak penghutang dan pemberi pinjaman terhadap kelebihan hutang masing-masing (jika ada).11 10 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 9 (Al-Ijarah wa al-Ijarah al-Muntahia bi al-Tamlik), perenggan 5/1/7. 11 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 4 (Al-Muqasah), perenggan 2/2/3. 12 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 8. Liabiliti Penyewa ke atas Aset Pihak Ketiga Secara asasnya, semua risiko berhubung dengan hak milik aset seperti kemalangan atau kerosakan ke atas aset pihak ketiga akibat kecuaian pemilik aset adalah ditanggung oleh pemilik aset tersebut. Namun demikian, dalam konteks ijarah, timbul persoalan sama ada institusi kewangan Islam sebagai pemilik aset ijarah masih perlu bertanggungjawab terhadap sebarang kerosakan ke atas aset pihak ketiga akibat kecuaian penyewa (atau pelanggan). Misalnya, jika berlaku kemalangan jalan raya yang berpunca daripada kecuaian penyewa melibatkan kenderaan pihak ketiga dan kenderaan yang disewa oleh penyewa melalui kontrak ijarah, adakah institusi kewangan Islam selaku pemilik aset ijarah perlu bertanggungjawab terhadap kerosakan yang dialami kenderaan pihak ketiga? Sehubungan dengan itu, MPS dirujuk berhubung dengan isu sama ada institusi kewangan Islam dibenarkan meminta surat ganti rugi (indemnity) daripada pelanggan yang menyatakan jaminan bahawa pelanggan akan membayar ganti rugi kepada pihak ketiga, sama ada dalam bentuk tunai, pembaikan atau penggantian, sekiranya berlaku kemalangan atau kerosakan kepada aset pihak ketiga yang disebabkan oleh kecuaian pelanggan. Keputusan MPS pada mesyuarat ke-36 pada 26 Jun 2003 telah memutuskan bahawa institusi kewangan Islam dibenarkan meminta surat ganti rugi daripada pelanggan dengan tujuan supaya pelanggan memberi jaminan untuk membayar ganti rugi kepada pihak ketiga, sama ada dalam bentuk tunai, pembaikan atau penggantian sekiranya kemalangan atau kerosakan yang berlaku kepada aset pihak ketiga adalah disebabkan oleh kecuaian pelanggan selaku penyewa. Asas Pertimbangan Liabiliti terhadap pihak ketiga yang berkaitan pemilikan aset seperti kemalangan atau kerosakan sepatutnya ditanggung oleh pemilik aset. Namun demikian, pemilik aset boleh memindahkan liabiliti tersebut kepada penyewa sekiranya tuntutan pihak ketiga adalah disebabkan kecuaian penyewa sendiri. 13 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 9. Keutamaan Penyewa untuk Membeli Aset dalam Kes Kemungkiran Pembayaran Sewa Dalam kontrak pembiayaan yang berasaskan ijarah muntahia bi al-tamlik atau al-ijarah thumma al-bai`, terdapat kemungkinan penyewa mengalami kegagalan untuk melunaskan pembayaran sewa aset ijarah. Hal ini akan mendatangkan kerugian kepada institusi kewangan Islam selaku pembiaya dan pemilik aset. Berdasarkan terma kontrak, institusi kewangan Islam selaku pemilik aset akan membuat tawaran untuk menjual aset berkenaan kepada pelanggan setelah mendapati pelanggan gagal melunaskan pembayaran sewa dalam suatu tempoh yang ditentukan. Sekiranya pelanggan enggan atau tidak mampu membeli aset tersebut, institusi kewangan Islam akan menjualnya dalam pasaran bagi mendapatkan kembali modal dan kos yang dikeluarkan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada pelanggan yang mungkir dalam melunaskan pembayaran boleh diberi keutamaan untuk membeli aset tersebut sebelum ia ditawarkan kepada pasaran, dan sama ada klausa berhubung dengan keutamaan tersebut boleh dimasukkan dalam perjanjian. Keputusan MPS pada mesyuarat ke-38 bertarikh 28 Ogos 2003 telah memutuskan bahawa sekiranya pelanggan selaku penyewa gagal melunaskan pembayaran sewa, pelanggan boleh diberi keutamaan dalam tawaran pembelian aset ijarah sebelum aset tersebut dijual dalam pasaran, dan keutamaan tersebut boleh dimasukkan dalam klausa perjanjian. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa tujuan asal pelanggan menandatangani kontrak ijarah muntahia bi al-tamlik atau al-ijarah thumma al-bai` ialah untuk memiliki aset berkenaan pada akhir tempoh pembiayaan. Oleh itu, pelanggan wajar diberi keutamaan untuk membeli aset tersebut sebelum ia ditawarkan kepada pasaran berpandukan syarat-syarat yang telah dipersetujui dalam kontrak ijarah. Amalan ini tidak bertentangan dengan objektif kontrak (muqtada al-`aqd) ijarah. 14 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 10. Perkongsian Lebihan atas Penjualan Aset Ijarah antara Pemberi Sewa dengan Penyewa Secara lazimnya, sekiranya seseorang pelanggan yang menerima pembiayaan berasaskan ijarah muntahia bi al-tamlik atau al-ijarah thumma al-bai` gagal untuk melunaskan bayaran sewa dan tidak mampu untuk membeli aset ijarah tersebut, institusi kewangan Islam selaku pembiaya akan menjual aset tersebut dalam pasaran bagi mendapatkan kembali modal dan kos yang dikeluarkan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada sebarang lebihan (iaitu harga jualan melebihi nilai tuntutan pihak institusi kewangan Islam) yang diperoleh daripada jualan aset tersebut dimiliki sepenuhnya oleh institusi kewangan Islam atau lebihan tersebut wajib dikongsi antara institusi kewangan Islam dengan pelanggan. Keputusan MPS pada mesyuarat ke-38 bertarikh 28 Ogos 2003 telah memutuskan bahawa institusi kewangan Islam selaku pemberi sewa tidak diwajibkan untuk menyerahkan lebihan harga jualan aset kepada pelanggan kerana aset tersebut dimiliki sepenuhnya oleh pemberi sewa. Walau bagaimanapun, pemberi sewa, atas budi bicaranya, boleh menghibahkan keseluruhan atau sebahagian lebihan tersebut kepada pelanggan. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa pemilik aset dalam kontrak ijarah mempunyai hak sepenuhnya terhadap aset yang disewakan. Oleh itu, sekiranya aset tersebut dijual kepada pihak yang lain, keseluruhan harga jualan merupakan hak pemilik aset tersebut. Sehubungan dengan itu, adalah tidak wajar untuk mewajibkan pemilik aset memberikan keseluruhan atau sebahagian daripada haknya kepada orang lain tanpa kerelaannya. Tambahan pula, penjualan atau lelongan aset tersebut dalam pasaran dibuat berikutan kemungkiran pelanggan untuk melunaskan bayaran sewa yang sepatutnya dilakukan berdasarkan terma dan syarat kontrak yang dimeterai. 15 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 11. Penggunaan Aset Pihak Ketiga yang Diperoleh Melalui Kontrak Mudarabah sebagai Aset Sandaran (Underlying Asset) dalam Terbitan Sukuk Ijarah Terdapat cadangan terbitan sukuk ijarah menggunakan aset pihak ketiga yang diperoleh melalui kontrak mudarabah. Di bawah mekanisme ini, entiti A akan bertindak sebagai mudarib untuk menerima modal mudarabah yang berbentuk aset tetap (capital in kind) daripada pihak ketiga. Entiti A seterusnya akan menjual aset tersebut kepada SPV dan kemudian, akan menyewa semula aset tersebut daripada SPV menerusi pembayaran sewa dua kali setahun. SPV akan menerbitkan sukuk ijarah dan membayar kupon kepada pelabur dua kali setahun melalui bayaran sewa yang diterima daripada entiti A. Pada tarikh matang, entiti A mempunyai pilihan untuk membeli aset tersebut daripada SPV dan seterusnya memulangkannya kepada pemilik asal berserta kadar keuntungan yang telah dipersetujui bersama. Keuntungan mudarabah ditentukan berdasarkan penjimatan kos yang terhasil daripada terbitan sukuk ijarah tersebut. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada cadangan terbitan sukuk ijarah menggunakan aset pihak ketiga yang diperoleh melalui kontrak mudarabah sebagai aset sandaran dibenarkan. Keputusan MPS pada mesyuarat ke-67 bertarikh 3 Mei 2007 telah memutuskan bahawa cadangan terbitan sukuk ijarah menggunakan aset pihak ketiga yang diperoleh melalui kontrak mudarabah seperti yang dibentangkan tidak dibenarkan. Ini kerana kaedah penentuan keuntungan mudarabah berdasarkan penjimatan kos hasil daripada terbitan sukuk ijarah tidak menyerupai prinsip keuntungan mudarabah seperti yang diterima pakai oleh para ulama. 16 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Definisi keuntungan dalam mudarabah yang diterima pakai oleh ulama silam, antaranya Ibnu Qudamah, merujuk kepada nilai tambah terhadap modal yang dilaburkan,12 dan jumlah keuntungan mudarabah ini boleh ditentukan melalui nisbah pembahagian keuntungan yang dipersetujui pada awal kontrak. Dalam konteks cadangan terbitan sukuk ijarah menggunakan aset pihak ketiga di atas, keuntungan mudarabah yang ditentukan berdasarkan penjimatan kos yang terhasil daripada terbitan sukuk ijarah tersebut dilihat tidak membawa maksud berlakunya penambahan dalam modal yang disumbangkan oleh para pelabur. 12. Penggunaan Konsep Ijarah Mawsufah fi al-Zimmah bagi Pembiayaan Perumahan dalam Pembinaan Berasaskan Musyarakah Mutanaqisah Sebuah institusi kewangan Islam telah mencadangkan penggunaan konsep ijarah mawsufah fi al-zimmah sebagai kontrak sokongan dalam produk pembiayaan perumahan yang masih dalam pembinaan berasaskan kontrak musyarakah mutanaqisah. Dalam produk ini, pelanggan dan institusi kewangan Islam mempunyai hak bersama ke atas aset dalam pembinaan berdasarkan kontrak musyarakah mutanaqisah. Seterusnya, institusi kewangan Islam akan menyewakan bahagian pemilikannya kepada pelanggan melalui kontrak ijarah mawsufah fi al-zimmah kerana aset sewaan masih dalam pembinaan. Pelanggan akan membayar sewa pendahuluan semasa aset tersebut masih dalam pembinaan. Apabila aset tersebut siap dibina, pelanggan akan menyambung pembayaran sewa sepenuhnya ke atas penggunaan manfaat aset tersebut. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penggunaan konsep ijarah mawsufah fi al-zimmah sebagai kontrak sokongan dalam produk pembiayaan perumahan yang berasaskan musyarakah mutanaqisah dibenarkan. Keputusan MPS pada mesyuarat ke-68 bertarikh 24 Mei 2007 telah memutuskan bahawa penggunaan ijarah mawsufah fi al-zimmah dalam produk pembiayaan perumahan yang masih dalam pembinaan yang berasaskan kontrak musyarakah mutanaqisah adalah dibenarkan. 12 Ibnu Qudamah, Al-Mughni, Dar `Alam al-Kutub, 1997, j. 7, h. 165. 17 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan ke atas pandangan- pandangan berikut: i. Al-Khatib Al-Sharbiniy dalam kitab Mughni al-Muhtaj, Al-Nawawi dalam Raudah al-Talibin dan Al-Juzairi dalam Kitab al-Fiqh ̀ ala al-Mazahib al-Arba`ah mengklasifikasikan ijarah kepada dua bahagian iaitu: a. Ijarah ke atas manfaat yang boleh didapati secara terus daripada aset sedia ada; atau b. Ijarah ke atas manfaat yang boleh didapati menerusi tanggungan (zimmah) seperti menyewa haiwan yang belum wujud untuk kegunaan yang dijelaskan sifatnya, atau tanggungan untuk membina sesuatu. ii. Barangan/aset yang boleh disewakan menurut pandangan mazhab Maliki dan Syafii terbahagi kepada dua iaitu sewaan manfaat barangan sedia ada dan sewaan manfaat dalam tanggungan.13 iii. Ijarah mawsufah fi al-zimmah telah diputuskan keharusannya berasaskan qiyas kepada akad salam. Walau bagaimanapun, berbeza dengan kontrak salam, pembayaran sewa pendahuluan semasa aset tersebut masih dalam pembinaan adalah tidak disyaratkan.14 13. Pembayaran Deposit dalam Sewa Beli secara Islam Di bawah peruntukan Akta Sewa Beli 1967, terdapat peruntukan berhubung dengan deposit yang mensyaratkan pemilik aset mengambil sekurang-kurangnya 10% daripada nilai harga tunai barangan yang disewa sebagai deposit minimum. Dalam amalan semasa, pelanggan lazimnya akan membayar deposit sewaan aset atau kenderaan tersebut kepada pengedar. Namun, terdapat juga amalan yang mensyaratkan deposit tersebut dibayar secara terus kepada institusi kewangan Islam selaku pembiaya. 13 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 2004, j. 1, h. 259. 14 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 9 (Al-Ijarah wa al-Ijarah al-Muntahia bi al-Tamlik), perenggan 3/5. Dalam hal ini, MPS dirujuk berhubung pendekatan terbaik dalam melaksanakan pembayaran deposit sewa beli Islam serta hubungan antara pengedar, pelanggan dan institusi kewangan Islam dalam perjanjian sewa beli tersebut. Keputusan MPS pada mesyuarat ke-69 bertarikh 27 Julai 2007 telah memutuskan bahawa pendekatan yang terbaik dalam melaksanakan pembayaran deposit sewa beli secara Islam adalah seperti yang berikut: i. Pelanggan membayar deposit sewaan (misalnya 10%) kepada institusi kewangan Islam. Institusi kewangan Islam seterusnya membeli aset atau kenderaan daripada pengedar dengan membayar keseluruhan harga (10% deposit pelanggan + baki 90%). Institusi kewangan Islam kemudiannya menyewakan aset atau kenderaan tersebut kepada pelanggan. ii. Namun demikian, sekiranya pelanggan telah membayar sejumlah wang (10%) kepada pengedar, dua pendekatan berikut boleh diterima pakai: a. Bayaran tersebut boleh dianggap sebagai deposit sekuriti (hamish jiddiyyah). Dalam hal ini, pelanggan boleh mewujudkan persefahaman dengan institusi kewangan Islam untuk menolak selesai deposit sekuriti dengan harga jualan aset atau sewaan; atau b. Bayaran deposit tersebut boleh dikira sebagai deposit sewaan (`urbun untuk ijarah) kepada pengedar. Apabila kenderaan dijual kepada institusi kewangan Islam, pengedar akan menyerah hak milik aset dan perjanjian sewaan kepada institusi kewangan Islam. Dalam hal ini, pengedar boleh mengadakan persefahaman dengan institusi kewangan Islam untuk menolak selesai deposit sewaan dengan harga jualan yang akan dibayar oleh institusi kewangan Islam. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 18 19 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM “Hadis daripada Zaid bin Aslam bahawasanya Rasulullah SAW telah ditanya oleh seseorang berkenaan hukum amalan ̀ urbun dalam jual beli maka Rasulullah SAW membenarkannya.”16 “Daripada Nafi` bin Abdul Haris: Bahawasanya beliau telah membelikan sebuah penjara untuk Umar daripada Sofwan bin Umayyah dengan harga empat ribu dirham, jikalau dipersetujui Umar, maka jual beli itu berlaku, jikalau tidak dipersetujuinya maka untuk Sofwan empat ratus dirham.”17 14. Penggunaan Aset Pihak Ketiga yang Diperoleh Melalui Konsep Jual dan Beli dalam Terbitan Sukuk Ijarah Terdapat cadangan untuk menerbitkan sukuk ijarah menggunakan aset pihak ketiga yang diperoleh melalui kontrak jual dan beli. Di bawah mekanisme ini, entiti A akan membeli aset satu pihak lain dan kemudian menjualnya kepada SPV. Urus niaga ini akan melibatkan pemindahan hak milik daripada entiti A kepada SPV. SPV seterusnya akan menerbitkan sukuk ijarah kepada institusi kewangan yang mewakili hak milik bersama (pro rata ownership) dalam kalangan pemegang sukuk ke atas aset tersebut. SPV akan menerima hasil (proceeds) daripada terbitan sukuk tersebut dan sebahagiannya akan digunakan untuk membayar harga aset kepada entiti A. 15 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 8 (Al-Murabahah li al-Amir bi al-Syira’), perenggan 2/5/3. 16 Al-Syawkani, Nail al-Awtar, Dar al-Kutub al-`Ilmiyyah, 1999, j. 5, h. 162. 17 Ibnu Qudamah, Al-Mughni, Dar `Alam al-Kutub, 1997, j. 6, h. 331. Asas Pertimbangan Pembayaran deposit sekuriti atau dikenali sebagai hamish jiddiyah boleh dilaksanakan dalam konteks deposit bagi sewa beli secara Islam kerana ia telah diterima oleh ulama semasa sebagai salah satu kaedah dalam produk kewangan Islam.15 Berhubung dengan bayaran deposit yang boleh dianggap sebagai deposit sewaan (`urbun untuk ijarah), terdapat beberapa riwayat yang menyebut tentang keharusan `urbun seperti berikut: SPV kemudiannya akan menyewakan aset tersebut kepada entiti A berdasarkan konsep ijarah muntahia bi al-tamlik. Sebagai balasan, entiti A akan membayar harga sewaan kepada SPV sebanyak dua kali setahun dan hasil sewaan ini akan diagihkan kepada pemegang sukuk ijarah. Pada tarikh matang, entiti A akan membeli semula aset tersebut daripada SPV dengan membayar harga aset yang bersamaan dengan nilai nominal sukuk ijarah tersebut kepada SPV pada tarikh matang. Kemudian SPV akan menebus semula sukuk ijarah tersebut daripada para pelabur. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada cadangan terbitan sukuk ijarah menggunakan aset pihak ketiga yang diperoleh melalui konsep jual dan beli ini selaras dengan Syarak. Keputusan MPS pada mesyuarat ke-70 bertarikh 12 September 2007 telah memutuskan bahawa struktur sukuk ijarahmenggunakan aset pihak ketiga yang diperoleh melalui konsep jual dan beli seperti yang dicadangkan adalah dibenarkan. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa kontrak jual dan beli yang dilakukan di bawah struktur sukuk ijarah ini adalah jelas dan ia adalah sah selagi ia mematuhi syarat-syarat jual beli seperti berlaku pemindahan hak milik dan sebagainya. Di samping itu, penggunaan kontrak ijarah muntahia bi al-tamlik atau turut dikenali sebagai al-ijarah thumma al-bai` turut diterima oleh majoriti fuqaha (sila rujuk perkara 118). 18 Penggunaan al-Ijarah thumma al-Bai` dalam Pembiayaan Kenderaan. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 20 ISTISNA` Istisna` merupakan satu akad jual beli yang melibatkan pembuatan, penghasilan atau pembinaan aset tertentu dengan spesifikasi dan syarat tertentu yang dipersetujui antara penjual, pengilang/pemaju dan pelanggan. Dalam konteks masa kini, istisna` lazimnya digunakan dalam sektor pembinaan dan pembuatan misalnya melalui istisna` selari (istisna` muwazi) bagi membiayai aktiviti pembinaan dan pembuatan. 15. Pembiayaan Projek Berasaskan Istisna` dengan Cagaran Bon Konvensional Sebuah institusi kewangan Islam berhasrat menawarkan pembiayaan projek berasaskan akad istisna` untuk membaharui dan menaik taraf bangunan premis perniagaan pelanggan. Cadangan modus operandi pembiayaan secara istisna` tersebut adalah seperti yang berikut: i. Pelanggan memberikan kontrak menaik taraf bangunan premis perniagaannya kepada institusi kewangan Islam pada harga contohnya RM2 juta yang akan dibayar secara ansuran; ii. Institusi kewangan Islam kemudiannya melantik kontraktor untuk menjalankan kerja menaik taraf bangunan tersebut mengikut spesifikasi yang ditetapkan dalam perjanjian pada harga contohnya RM1 juta yang akan dibayar secara tunai; iii. Bagi melindungi pembiayaan tersebut, pelanggan akan mencagarkan bon konvensional sebagai sekuriti. Cagaran bon tersebut akan dikuatkuasakan oleh institusi kewangan Islam (hanya terhad kepada nilai pokok bon sahaja tanpa faedah) sekiranya pelanggan gagal melunaskan pembayaran mengikut syarat-syarat perjanjian; dan iv. Sekiranya kerja penaiktarafan bangunan gagal diselesaikan, pelanggan tidak perlu membayar harga yang dipersetujui dan institusi kewangan Islam akan menguatkuasakan terma-terma dalam perjanjian bagi menuntut ganti rugi daripada kontraktor. 21 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 22 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Dalam hal ini, MPS dirujuk berhubung dengan isu berikut: i. Sama ada pembiayaan projek berasaskan akad istisna` seperti di atas dibenarkan; dan ii. Sama ada institusi kewangan Islam boleh menerima cagaran bon konvensional bagi melindungi pembiayaan secara Islam. Keputusan MPS pada mesyuarat khas pertama bertarikh 13 April 2007 telah memutuskan perkara berikut: i. Struktur dan mekanisme pembiayaan projek berasaskan akad istisna` seperti yang dicadangkan adalah dibenarkan. Namun, penggunaan bangunan premis perniagaan yang ingin dinaiktarafkan hendaklah berlandaskan Syarak; dan ii. Penggunaan bon konvensional sebagai cagaran bagi pembiayaan secara Islam adalah dibenarkan. Asas Pertimbangan Keputusan MPS berhubung dengan keharusan istisna` adalah berdasarkan hadis Rasulullah SAW berikut: “Daripada Jabir bin Abdillah, seorang wanita telah berkata: Wahai Rasulullah, bolehkah aku buatkan sesuatu untuk Engkau duduk di atasnya, sesungguhnya aku mempunyai seorang hamba yang pandai bertukang. Sabda Nabi SAW: Buatlah sekiranya engkau mahu. Maka wanita itu pun membuat mimbar tersebut.”19 19 Al-Bukhari, Sahih al-Bukhari, Al-Matba`ah al-Salafiyyah, 1982, j. 1, h. 162, hadis no. 449. 23 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 20 Al-Bukhari, Sahih al-Bukhari, Al-Matba`ah al-Salafiyyah, 1982, j. 4, h. 70, hadis no. 5876. 21 Majallah al-Ahkam al-`Adliyyah, Matba`ah al-Adabiyyah, 1302H, h. 67: 22 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 11 (Al-Istisna` wa al-Istisna` al-Muwazi), perenggan 2 dan 7. “Daripada Nafi’, sesungguhnya Abdullah telah membicarakan kepadanya: bahawa Rasulullah SAW telah menempah/membuat cincin emas untuk dirinya sendiri. Apabila baginda memakainya, baginda akan memusingkan batu permata ke arah tapak tangannya. Maka orang ramai pun mula menempah/membuat cincin emas untuk mereka sendiri. Rasulullah SAW menaiki mimbar dan memuji kebesaran Allah SWT dan bersabda: “Aku telah menempah/membuat cincin ini untukku, tapi aku tidak akan memakainya lagi”, maka baginda membuang cincin tersebut dan diikuti oleh orang ramai.”20 Majallah al-Ahkam al-`Adliyyah turut membenarkan istisna` (artikel 389) dengan syarat barang yang ditempah mestilah dipersetujui dari segi deskripsi dan sifatnya (artikel 390). Artikel 391 pula menetapkan bahawa bayaran istisna` tidak semestinya dibuat ketika akad.21 Istisna` dan istisna` muwazi turut dibenarkan oleh AAOIFI selagi dilakukan menurut cara yang betul.22 Berhubung dengan keharusan penerimaan bon konvensional sebagai cagaran ke atas pembiayaan secara Islam, sebahagian ulama menerima amalan tersebut kerana cagaran dibuat bukan bertujuan pemilikan tetapi hanya untuk sekuriti. Bon konvensional merupakan aset mudah tunai dan memenuhi syarat barangan yang boleh dicagarkan. Rasulullah SAW juga pernah menggunakan akad istisna` untuk menempah pembuatan cincin baginda SAW seperti yang diriwayatkan dalam hadis berikut: 24 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Mudarabahmerupakan kontrak antara dua pihak bagi menjalankan sesuatu usaha niaga. Ia melibatkan rabbul mal selaku pelabur yang menyediakan modal, dan mudarib selaku pengusaha yang menjalankan usaha niaga tersebut. Sebarang keuntungan yang terhasil daripada usaha niaga tersebut akan dikongsi antara pelabur dengan pengusaha berdasarkan syarat dan nisbah yang dipersetujui, manakala sebarang kerugian akan ditanggung sepenuhnya oleh pelabur. Dalam sistem kewangan Islam, kontrak mudarabah lazimnya diamalkan dalam penerimaan deposit seperti akaun semasa, akaun simpanan dan akaun pelaburan. Selain itu, kontrak mudarabah juga dilaksanakan dalam pelaburan antara bank dan terbitan sekuriti secara Islam. Dalam industri takaful pula, kontrak mudarabah digunakan sebagai salah satu model operasi dan asas pelaburan bagi dana takaful. 16. Instrumen Deposit Boleh Niaga secara Islam Berasaskan Mudarabah dengan Berkadar Terapung Terdapat cadangan untuk memperkenalkan Instrumen Deposit Boleh Niaga secara Islam (IDBN) dalam Pasaran Wang antara Bank secara Islam. IDBN merupakan instrumen pasaran wang yang distruktur berasaskan kontrak mudarabah dengan kadar keuntungan boleh ubah (terapung), bergantung pada jumlah dividen yang diumumkan oleh institusi kewangan Islam dari semasa ke semasa. Instrumen ini boleh diniagakan dalam pasaran sekunder bagi meningkatkan mudah tunainya. Di bawah mekanisme IDBN, pelabur akan mendeposit sejumlah wang ke dalam institusi kewangan Islam yang menerbitkan IDBN, dan institusi kewangan Islam selaku pengusaha akan mengeluarkan Sijil IDBN kepada pelabur sebagai bukti penerimaan deposit berkenaan. Pada tarikh matang, pelabur akan menyerahkan semula IDBN kepada institusi kewangan Islam dan menerima nilai prinsipal IDBN berserta dividen yang diumumkan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada produk IDBN berkadar terapung yang berasaskan mudarabah ini dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-3 bertarikh 28 Oktober 1997 telah memutuskan bahawa produk IDBN berkadar terapung yang berasaskan mudarabah adalah dibenarkan. 25 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Ciri kadar terapung adalah selari dengan ciri pelaburan mudarabah kerana keuntungan mudarabah dikongsi bersama berasaskan keuntungan yang dipengaruhi oleh prestasi aktiviti pelaburan atau perniagaan yang lazimnya tidak tetap dan berbeza dari semasa ke semasa. Majoriti ulama fiqah sependapat bahawa mudarabah adalah diharuskan di sisi Syarak berdasarkan dalil al-Quran, hadis dan ijmak seperti yang berikut: i. Dalil al-Quran: “...dan yang lainnya orang yang musafir di muka bumi untuk mencari rezeki dari kurniaan Allah...”23 “Apabila telah ditunaikan solat, maka bertebaranlah kamu di muka bumi dan carilah kurniaan Allah SWT dan ingatlah Allah SWT sebanyaknya supaya kamu beruntung.”24 23 Surah al-Muzammil, ayat 20. 24 Surah al-Jumu`ah, ayat 10. Berdasarkan ayat pertama di atas, perkataan membawa maksud keharusan melakukan perjalanan dalam mengusahakan sebahagian harta bagi mencari kurniaan Allah SWT. Manakala ayat kedua di atas secara umumnya merujuk kepada perintah ke atas manusia untuk bertebaran di muka bumi dalam usaha mencari rezeki dan kelebihan yang dikurniakan oleh Allah SWT, termasuklah usaha niaga dan berjual beli. Walaupun ayat-ayat di atas tidak merujuk kepada mudarabah secara langsung, kedua-dua ayat tersebut merujuk kepada keharusan perniagaan. Hadis di atas menyatakan tiga perkara yang mempunyai keberkatan di dalamnya termasuklah muqaradah. Istilah muqaradah yang berasal daripada perkataan qiradh kebiasaannya digunakan oleh ulama Hijaz manakala ulama Iraq menyebutnya dengan istilah mudarabah. Oleh itu, muqaradah dan mudarabah ialah dua istilah yang merujuk kepada maksud yang sama. iii. Ijmak Sebilangan sahabat diriwayatkan telah melaburkan harta anak yatim secara mudarabah.26 Tiada percanggahan pendapat dalam kalangan mereka dan ia dianggap ijmak. 17. Penggunaan Kontrak Mudarabah dalam Produk Akaun Semasa Terdapat cadangan daripada institusi perbankan Islam untuk memperkenalkan produk akaun semasa yang berasaskan kontrak mudarabah. Berbeza dengan akaun semasa yang berasaskan kontrak wadi`ah yang keuntungan atau dividen dibayar kepada pelanggan atas budi bicara pihak bank sahaja, akaun semasa mudarabah ini memberikan hak kepada pelanggan untuk mendapat sebahagian daripada keuntungan yang diperoleh berdasarkan nisbah perkongsian keuntungan yang dipersetujui semasa akaun dibuka. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada produk akaun semasa yang berasaskan konsep mudarabah ini dibenarkan Syarak. 25 Ibnu Majah, Sunan Ibnu Majah, Dar al-Fikr, (t.t.), j. 2, h. 768, hadis no. 2289. 26 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 5, h. 3925. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 26 “Daripada Soleh bin Suhaib daripada bapanya, beliau berkata: Bahawa Rasulullah SAW berkata: Tiga perkara yang terdapat berkat padanya: jual beli tangguh, muqaradah dan mencampurkan barli dan gandum untuk (kegunaan makanan di) rumah bukan untuk jual beli.”25 ii. Hadis Rasulullah SAW: Keputusan MPS pada mesyuarat ke-4 bertarikh 14 Februari 1998 dan mesyuarat ke-59 bertarikh 25 Mei 2006 telah memutuskan bahawa produk akaun semasa berasaskan konsep mudarabah adalah selaras dengan Syarak selagi ia memenuhi syarat-syarat mudarabah. Asas Pertimbangan Keputusan MPS ini selaras dengan keharusan kontrak mudarabah dalam instrumen deposit. Selain itu, pengeluaran deposit yang dibuat pada bila-bila masa boleh dilakukan bagi akaun semasa yang berasaskan mudarabah. Ini kerana keperluan had baki minimum tertentu dalam akaun semasa ini menjadikan syarat wujudnya modal mudarabah dipenuhi. Sehubungan dengan itu, sekiranya pendeposit mengeluarkan keseluruhan amaun deposit, kontrak mudarabah dianggap tamat kerana pengeluaran keseluruhan amaun deposit tersebut dilihat sebagai tindakan rabbul mal menarik balik mandat pengurusan modal. Ini dilihat selaras dengan kesepakatan dalam keempat-empat mazhab bahawa kontrak mudarabah terbatal atau tamat menerusi penyataan pembatalan secara jelas, atau menerusi tindakan rabbul mal menarik balik mandat pengurusan modal.27 18. Sijil Pelaburan Mudarabah sebagai Subjek Gadaian Keperluan terhadap cagaran dalam sesuatu pembiayaan merupakan suatu kelaziman sama ada bagi pembiayaan secara konvensional atau pembiayaan secara Islam. Pelbagai aset digunakan sebagai cagaran termasuklah aset ketara dan aset kewangan seperti Sijil Pelaburan Mudarabah. Dalam hal ini, MPS dirujuk berhubung dengan isu berikut: i. Sama ada Sijil Pelaburan Mudarabah boleh dijadikan subjek gadaian. Ini kerana terdapat pandangan yang menyatakan bahawa Sijil Pelaburan Mudarabah tidak boleh dicagarkan bagi pembiayaan yang diberikan oleh institusi kewangan atas alasan bahawa terdapat ciri-ciri yang bertentangan antara kontrak mudarabah dan rahn. Dalam kontrak rahn, sekiranya pemegang gadaian menggunakan aset gadaian (dengan izin penggadai), pemegang gadaian dikatakan mestilah menjamin aset tersebut daripada berkurangan, hilang dan musnah. Jaminan seumpama ini dikatakan bertentangan dengan kontrak mudarabah kerana nilai modal tidak boleh dijamin oleh mudarib; dan 27 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 5, h. 3925. 27 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 28 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ii. Sama ada Sijil Pelaburan Mudarabah boleh dijadikan sebagai cagaran bagi pembiayaan konvensional. Keputusan MPS pada mesyuarat ke-9 bertarikh 25 Februari 1999 dan mesyuarat ke-49 bertarikh 28 April 2005 telah memutuskan perkara berikut: i. Sijil Pelaburan Mudarabah boleh diniagakan dan boleh digunakan sebagai cagaran atau subjek gadaian; dan ii. Sijil Pelaburan Mudarabah boleh digunakan sebagai cagaran bagi pembiayaan secara Islam tetapi tidak boleh digunakan sebagai cagaran bagi pembiayaan konvensional. Sekiranya sijil ini digunakan oleh pelanggan sebagai cagaran bagi pembiayaan secara konvensional, ia menjadi tanggungjawab pelanggan itu sendiri dan di luar tanggungan institusi kewangan Islam. Asas Pertimbangan Keharusan penggunaan Sijil Pelaburan Mudarabah sebagai subjek gadaian adalah berdasarkan pertimbangan bahawa kontrak mudarabah dan rahnmerupakan dua kontrak yang berbeza dan berasingan. Penggunaan modal mudarabah oleh institusi kewangan Islam bagi tujuan pelaburan adalah berdasarkan kontrak pertama iaitu mudarabah dan bukannya berdasarkan kontrak rahn. Oleh itu, tidak timbul isu tentang institusi kewangan Islam perlu menjamin nilai aset gadaian tersebut. Situasi ini dilihat seperti menyamai penggunaan sijil saham sebagai aset gadaian iaitu penerima gadai tidak semestinya perlu menjamin nilai pasaran bagi saham yang digadaikan kepadanya. Di samping itu, Sijil Pelaburan Mudarabah merupakan aset yang mempunyai nilai (value). Sehubungan dengan itu, ia boleh dijual beli dan dijadikan sebagai subjek gadaian berdasarkan kaedah fiqah yang berikut: “Setiap aset yang boleh dijual beli, maka ia boleh dicagarkan.”28 28 Ibnu Qudamah, Al-Mughni, Dar `Alam al-Kutub, 1997, j. 6, h. 455. 29 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 19. Rizab Penyamaan Keuntungan (Profit Equalisation Reserve) Kadar keuntungan yang diumumkan oleh institusi kewangan Islam sering mengalami turun naik yang tidak menentu akibat daripada perubahan dalam pendapatan, peruntukan dan deposit. Jika kadar keuntungan yang diumumkan seringkali tidak menentu dan tidak stabil, ia berpotensi menjejaskan minat dan keyakinan para pelabur. Oleh itu, terdapat cadangan untuk memperkenalkan Rizab Penyamaan Keuntungan (RPK) bagi mewujudkan kesan kadar pulangan yang stabil dan ini mampu mendorong institusi kewangan Islam untuk kekal kompetitif. RPK merupakan sumbangan bersama antara pendeposit/pelabur dan institusi kewangan Islam. Ia melibatkan pengambilan sejumlah kecil daripada pendapatan kasar dan diperuntukkan sebagai RPK ketika institusi kewangan Islam mencatatkan pendapatan agak tinggi berbanding dengan kadar pasaran. RPK seterusnya akan digunakan bagi menampung kadar pulangan ketika institusi kewangan Islam mencatatkan pendapatan lebih rendah berbanding dengan kadar pasaran. Menerusi mekanisme RPK ini, kadar pulangan yang diisytiharkan oleh institusi kewangan Islam akan menjadi lebih stabil dalam jangka panjang. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada mekanisme RPK boleh dilaksanakan dalam kewangan Islam khususnya dalam konteks pelaburan mudarabah. Keputusan MPS pada mesyuarat ke-14 bertarikh 8 Jun 2000 telah memutuskan bahawa cadangan pelaksanaan RPK seperti yang dibentangkan adalah dibenarkan. Asas Pertimbangan Mengikut kaedah umum pelaksanaan pelaburan dalam Islam, pengagihan keuntungan institusi kewangan Islam kepada pelanggan hendaklah berdasarkan nisbah peratusan yang dipersetujui. Namun demikian, bagi memelihara kelangsungan sistem kewangan Islam agar kestabilan pasaran dapat dipelihara, mekanisme RPK adalah sesuai dilaksanakan dengan syarat aspek ketelusan hendaklah diambil kira. Walaupun kaedah ini boleh mengurangkan perolehan pelabur atau pendeposit semasa keuntungan yang tinggi dicatatkan, namun secara keseluruhannya ia membantu menstabilkan kadar pulangan dalam jangka panjang dan memberikan pulangan yang wajar kepada pelabur sewaktu institusi kewangan Islam mencatatkan pendapatan keseluruhan yang rendah. Kaedah ini dianggap lebih adil kerana kedua-dua pihak institusi kewangan Islam dan pelabur berkongsi daripada segi sumbangan dan penerimaan RPK. Keputusan ini juga selaras dengan konsep melepaskan hak (mubara’ah) yang diharuskan oleh Syarak iaitu melepaskan sebahagian hak untuk menerima keuntungan bagi mencapai maksud kestabilan pasaran pada masa hadapan.29 20. Kos Penyelenggaraan dalam Akaun Deposit Mudarabah MPS dirujuk berhubung dengan cadangan daripada institusi kewangan Islam selaku pengurus dana untuk mengenakan caj kos penyelenggaraan terhadap pendeposit selaku pelabur bagi akaun deposit pelaburan mudarabah. Keputusan MPS pada mesyuarat ke-16 bertarikh 11 November 2000 telah memutuskan bahawa institusi kewangan Islam tidak boleh mengenakan sebarang caj kos penyelenggaraan ke atas pendeposit bagi akaun deposit mudarabah. Sekiranya institusi kewangan Islam memerlukan amaun tambahan bagi menampung kos penyelenggaraan, ia sepatutnya diambil kira dalam penentuan nisbah perkongsian keuntungan yang dimeterai antara kedua pihak. Asas Pertimbangan Berdasarkan prinsip mudarabah, pengurus dana perlu mengurus sendiri semua pekerjaan yang berkaitan dengan pelaburan yang sepatutnya dilakukan olehnya berdasarkan `urf. Pengurus dana tidak berhak mengenakan sebarang fi ke atas perkhidmatan atau kos penyelenggaraan tidak langsung kerana ia merupakan sebahagian daripada tanggungjawabnya sebagai mudarib. 29 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 2000, Persidangan kali ke-13, resolusi no. 123 (13/5). RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 30 21. Urus Niaga Harian (Intra-Day Transaction) sebagai Satu Instrumen Pasaran Wang secara Islam Urus niaga harian merujuk kepada pelaburan dana secara mudarabah dengan tarikh matang dan penyelesaiannya berlaku pada hari yang sama. Ia telah diperkenalkan dalam Pasaran Wang antara Bank secara Islam bagi membolehkan para peserta pasaran memastikan keperluan kewangan mereka adalah seimbang pada waktu tertentu. Kaedah urus niaga harian adalah sama seperti Pelaburan Mudarabah antara Bank. Perbezaannya hanyalah dari segi tempoh matang, iaitu Pelaburan Mudarabah antara Bank melibatkan tempoh matang antara semalaman (overnight) sehingga setahun, manakala urus niaga harian melibatkan tempoh matang yang singkat iaitu antara pukul 9.00 pagi hingga 4.00 petang pada hari yang sama. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada urus niaga harian boleh dilaksanakan sebagai salah satu instrumen dalam Pasaran Wang antara Bank secara Islam kerana dikhuatiri faktor tempoh matang pelaburan yang singkat boleh menjejaskan kesahihan sesuatu kontrak mudarabah. Keputusan MPS pada mesyuarat ke-19 bertarikh 20 Ogos 2001 telah memutuskan bahawa urus niaga harian dibenarkan untuk dilaksanakan dalam Pasaran Wang antara Bank secara Islam. Asas Pertimbangan Kontrak mudarabah dalam urus niaga harian boleh dilaksanakan walaupun tempoh matangnya adalah singkat. Ini kerana sistem elektronik dan teknologi maklumat pada masa kini adalah efisien. Oleh itu, sesuatu dana yang diterima akan dapat digunakan untuk menjana keuntungan melalui sesuatu urus niaga dengan pantas. 31 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 22. Perbelanjaan Tak Langsung (Indirect Expenses) MPS dirujuk berhubung dengan isu sama ada perbelanjaan tak langsung boleh dikira sebagai kos yang boleh ditolak daripada dana mudarabah. Antara perbelanjaan tak langsung ialah perbelanjaan overhed, gaji pekerja, susut nilai aset tetap, belanja pelunasan, perbelanjaan am pentadbiran, perbelanjaan am pemasaran dan perbelanjaan IT. Keputusan MPS pada mesyuarat ke-82 bertarikh 17 Februari 2009 telah memutuskan bahawa kos perbelanjaan tak langsung tidak boleh ditolak daripada dana mudarabah. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap hujah-hujah berikut: i. Jumhur fuqaha antaranya Imam Abu Hanifah, Imam Malik dan Zaidiyyah berpendapat bahawa mudarib berhak mendapat kos perbelanjaan untuk perjalanan jauh (musafir) dan bukan kos ulang alik daripada keuntungan mudarabah (sekiranya ada) dan jika tiada, maka dia boleh mengambilnya daripada modal sekadar untuk keperluan makan dan minum serta pakaiannya; ii. Imam Syafii berpandangan bahawa mudarib tidak dibenarkan meminta tanggungan perbelanjaan sama ada secara langsung atau tak langsung kerana mudarib telah pun mempunyai peratusan daripada keuntungan mudarabah tersebut;30 dan iii. Bagi mengelak manipulasi kos dan menjaga kepentingan pendeposit, perbelanjaan tak langsung tidak boleh ditolak daripada dana mudarabah memandangkan ia sepatutnya diambil kira dalam penentuan kiraan nisbah pembahagian keuntungan yang dipersetujui. 30 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 5, h. 3956. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 32 33 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 23. Penggunaan Wajaran (Weightage) Dalam amalan semasa, terdapat institusi kewangan Islam yang memberikan wajaran (antara 0.76 hingga 1.24) kepada setiap jenis deposit bagi menentukan jumlah keuntungan untuk diagihkan kepada pendeposit bagi setiap kategori. Wajaran yang lebih tinggi daripada 1.0 menyebabkan pendeposit menerima keuntungan lebih tinggi berbanding dengan nisbah perkongsian keuntungan manakala wajaran yang lebih rendah daripada 1.0 mengakibatkan pendeposit menerima keuntungan yang lebih rendah daripada nisbah perkongsian keuntungan yang dipersetujui. Pada kebiasaannya, wajaran yang lebih tinggi diberikan kepada deposit yang mempunyai tempoh matang yang lebih panjang. Amalan mengenakan wajaran berbeza antara jenis deposit mengikut kesesuaian ini dilaksanakan bagi tujuan memudahkan institusi kewangan Islam menguruskan deposit mudarabah dengan nisbah perkongsian untung yang seragam. Sehubungan dengan itu, MPS dirujuk tentang isu sama ada penggunaan wajaran oleh institusi kewangan Islam dibenarkan. Keputusan MPS pada mesyuarat ke-82 pada 17 Februari 2009 telah memutuskan bahawa penggunaan wajaran oleh institusi kewangan Islam adalah tidak dibenarkan. Asas Pertimbangan Keputusan MPS berhubung larangan penggunaan wajaran oleh institusi kewangan Islam adalah berdasarkan pandangan Al-Kasani dalam Bada`i al-Sana`i fi Tartib al-Syara`i, yang menyatakan bahawa syarat yang fasid sekiranya membawa kepada kejahilan berhubung dengan keuntungan maka ia akan menjadikan akad tersebut fasid. Dalam kontrak mudarabah, subjek yang diakadkan ialah keuntungan dan kejahilan dalam subjek akad menjadikan akad tersebut fasid.31 31 Al-Kasani, Bada`i al-Sana`i fi Tartib al-Syara`i, Dar al-Kutub al-`Ilmiyyah, 1986, j. 13, h. 250: “Dan dari segi asasnya tentang syarat yang fasid (batal) bahawasanya jika ia (syarat yang fasid) berada dalam sesuatu akad, maka perlu dilihat, jika ia membawa kepada kejahilan berhubung keuntungan, maka akad tersebut menjadi fasid, kerana keuntungan ialah perkara yang diakadkan, dan kejahilan berhubung perkara yang diakadkan akan menjadikan akad tersebut fasid.” 34 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Di samping itu, berdasarkan penilaian yang dibuat, didapati bahawa: i. Pelaksanaan wajaran memberikan kesan kepada pengiraan keuntungan bersih kedua-dua pihak mudarib dan rabbul mal; ii. Ia mengubah nisbah pembahagian keuntungan yang dipersetujui kepada nisbah pembahagian keuntungan efektif yang baharu; iii. Andaian bahawa pelaburan bertempoh panjang lebih berisiko adalah tidak tepat kerana risiko berkait rapat dengan jenis dan bidang portfolio pelaburan tersebut; dan iv. Isu ketidaktelusan timbul kerana wajaran sebagai amalan dalaman tidak dimaklumkan kepada pendeposit selaku rabbul mal. 24. Amalan Institusi Kewangan Islam Mengalihkan Keuntungan Pelaburan Mudarabah kepada Pelanggan untuk Mengelakkan Risiko Komersial Teralih (Displaced Commercial Risk) Dalam amalan dwi-perbankan, apabila berlaku kenaikan dalam kadar pulangan pasaran semasa, pelanggan turut mengharapkan kenaikan dalam kadar pulangan yang bakal diterima daripada institusi kewangan Islam. Dalam konteks akaun pelaburan mudarabah, institusi kewangan Islam akan memindahkan sebahagian daripada keuntungan mereka kepada pelanggan untuk mengelakkan risiko komersial teralih supaya pulangan yang diisytiharkan adalah kompetitif dengan kadar pulangan pasaran semasa. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada institusi kewangan Islam dibenarkan untuk memindahkan sebahagian daripada keuntungan mereka kepada pelanggan bagi mengelakkan risiko komersial teralih dalam akaun pelaburan mudarabah. Keputusan MPS pada mesyuarat ke-82 bertarikh 17 Februari 2009 telah memutuskan bahawa amalan institusi kewangan Islam memindahkan sebahagian daripada keuntungan mereka kepada pelanggan untuk mengelakkan risiko komersial teralih dalam konteks akaun pelaburan mudarabah adalah dibenarkan. 35 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap hujah-hujah berikut: i. Keuntungan dalam akad mudarabah ialah hak eksklusif pihak-pihak yang berakad. Persetujuan bersama untuk menyemak nisbah perkongsian keuntungan tidak menyebabkan mana-mana pihak sama ada mudarib atau rabbul mal kehilangan hak ke atas keuntungan. Malah keuntungan adalah kekal menjadi hak kedua- duanya dan dikongsi antara mereka; dan ii. Amalan institusi kewangan Islam memindahkan sebahagian keuntungan pelaburan mudarabah kepada pelanggan bagi mengelakkan risiko komersial teralih diharuskan kerana ia dilaksanakan oleh institusi kewangan Islam tanpa menjejaskan hak pelanggan. Malah pelanggan akan mendapat keuntungan yang lebih berbanding dengan nisbah pembahagian keuntungan asal yang dipersetujui. 25. Jaminan Pihak Ketiga ke atas Liabiliti Pihak yang Berurusan dengan Mudarib bagi Urus Niaga Mudarabah Pada asasnya, pihak mudarib tidak boleh menjamin modal mudarabah. Namun demikian, MPS dirujuk berhubung dengan isu sama ada pihak ketiga boleh menjamin liabiliti pihak yang berurusan dengan mudarib bagi urus niaga mudarabah yang dijalankan. Keputusan MPS pada mesyuarat ke-90 bertarikh 15 Ogos 2009 telah memutuskan bahawa jaminan pihak ketiga ke atas liabiliti pihak yang berurusan dengan mudarib bagi urus niaga mudarabah yang dijalankan adalah dibenarkan. 36 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Jaminan modal dan prestasi oleh pihak ketiga ke atas liabiliti pihak yang berurusan dengan mudarib bagi urus niaga mudarabah yang dijalankan dibenarkan berdasarkan pertimbangan bahawa jaminan yang dibuat oleh pihak ketiga adalah selari dengan keharusan kontrak kafalah. Dalam kontrak kafalah, pihak ketiga yang memberi jaminan merupakan pihak yang tidak mempunyai kepentingan secara langsung dalam perniagaan mudarabah tersebut. Jaminan oleh pihak ketiga boleh dilakukan menerusi dua pendekatan berbeza, iaitu: i. Jaminan tanpa tuntutan semula/rekursa (recourse): Jaminan ini dilakukan secara tabarru` oleh pihak ketiga yang tidak terlibat atau mempunyai kaitan dengan mudarib. Menerusi pendekatan ini, penjamin tidak menuntut kembali daripada mudarib jumlah jaminan yang dibayar kepada rabbul mal. Menurut pandangan ulama semasa, tiada halangan dari segi hukum Syarak untuk satu pihak mengeluarkan sejumlah harta bagi tujuan tabarru`. Jika tabarru` tersebut disandarkan kepada syarat tertentu, maka pemberi tabarru` melaksanakan pemberiannya apabila syarat tersebut telah wujud;32 atau ii. Jaminan dengan tuntutan semula/rekursa: Menerusi pendekatan ini, pihak ketiga membayar nilai jaminan dan menuntut kembali daripada mudarib jumlah jaminan yang dibayar kepada rabbul mal. Jumlah bayaran tersebut merupakan hutang mudarib kepada penjamin. 26. Jaminan Mudarib ke atas Liabiliti Pihak yang Berurusan dengannya dalam Usaha Niaga Mudarabah Pada asasnya, mudarib tidak boleh menjamin prestasi mudarabah tetapi terdapat kemusykilan sama ada dalam usaha niaga mudarabah, pihak mudarib boleh menjamin liabiliti pihak lain yang berurusan dengannya bagi memastikan pulangan modal dan/atau keuntungan terjamin. Sehubungan dengan itu, MPS dirujuk tentang isu jaminan mudarib ke atas liabiliti pihak yang berurusan dengannya dalam usaha niaga mudarabah. 32 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1987, b. 4, j. 3, h. 1875 -1876. 37 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-90 bertarikh 15 Ogos 2009 telah memutuskan bahawa dalam usaha niaga mudarabah, mudarib tidak dibenarkan menjamin liabiliti pihak lain yang berurusan dengannya dengan maksud untuk menjamin modal atau modal dan keuntungan bagi sesuatu kontrak mudarabah. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap hujah-hujah berikut: i. Jaminan mudarib terhadap prestasi pihak ketiga dalam urus niaga berkaitan usaha niaga mudarabah yang diuruskannya akan menjadikan mudarib sebagai penjamin modal mudarabah tersebut; dan ii. Kecuaian mudarib dalam berurusan dengan pihak ketiga berkaitan modal mudarabah akan menyebabkan mudarib tersebut bertanggungjawab ke atas sebarang kerugian yang timbul dan bukannya pihak ketiga. Ini kerana mudarib bertanggungjawab untuk menggunakan segala kepakarannya dalam mengurus dana mudarabah. Jika dapat dibuktikan bahawa kerugian tersebut berpunca daripada kecuaian mudarib, maka mudarib perlu membayar modal tersebut kepada rabbul mal. Rabbul mal boleh mendapatkan jaminan yang mencukupi dan munasabah terhadap modal daripada mudarib. Ini dibenarkan dengan syarat rabbul mal tidak menuntut jaminan tersebut kecuali dalam kes- kes salah laku, kecuaian dan pelanggaran syarat-syarat kontrak oleh mudarib.33 33 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 13 (Al-Mudarabah), perenggan 4/4. 27. Sumbangan Modal Mudarib dalam Usaha Niaga Mudarabah MPS dirujuk berhubung dengan isu sumbangan modal oleh mudarib ke dalam dana usaha niaga mudarabah yang disumbangkan oleh lebih daripada seorang rabbul mal. Keputusan MPS pada mesyuarat ke-90 bertarikh 15 Ogos 2009 telah memutuskan bahawa sumbangan modal oleh mudarib dalam dana usaha niaga mudarabah adalah dibenarkan. Sumbangan modal tersebut adalah sah dan mengambil hukum musyarakah. Oleh itu, perkongsian untung dan rugi hendaklah dibuat mengikut prinsip musyarakah terlebih dahulu, dan diikuti pembahagian keuntungan berdasarkan nisbah perkongsian keuntungan yang dipersetujui dalam kontrak mudarabah. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap hujah-hujah berikut: i. Tiada halangan sekiranya rabbul malmencampurkan modal sesama mereka dan juga bersama modal mudarib sendiri kerana ia adalah berasaskan kepada persetujuan antara mereka; dan ii. Jika mudarib mencampurkan dananya sendiri dengan modal mudarabah, ia dikira sebagai rakan kongsi (musyarik) dalam konteks dana yang disumbangnya dan pada masa yang sama, dia juga merupakan mudarib kepada modal yang disumbangkan oleh rabbul mal. Dalam pembahagian keuntungan, mudarib akan mengambil bahagian keuntungan daripada sumbangan modalnya. Manakala keuntungan daripada modal mudarabah yang disumbangkan oleh para rabbul mal akan dibahagikan antara rabbul mal dan mudarib berdasarkan nisbah perkongsian keuntungan yang dipersetujui.34 34 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 13 (Al-Mudarabah), perenggan 9/1/6. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 38 28. Jaminan Pihak Ketiga ke atas Modal dan/atau Keuntungan dalam Urus Niaga Mudarabah MPS dirujuk berhubung dengan isu sama ada pihak ketiga boleh menjamin modal dan/atau keuntungan urus niaga mudarabah. Keputusan MPS pada mesyuarat ke-91 bertarikh 1 Oktober 2009 telah memutuskan bahawa jaminan pihak ketiga ke atas modal dan/atau keuntungan dijangka dalam urus niaga mudarabah adalah dibenarkan dengan syarat pihak ketiga yang beriltizam untuk memberi jaminan mestilah merupakan pihak ketiga yang bebas serta tidak mempunyai kaitan sama ada secara langsung atau tidak langsung dengan mudarib. Dalam hal ini, sekiranya pihak ketiga yang menjamin boleh menuntut semula amaun yang dijamin daripada penerbit sukuk jika berlaku kerugian, atau pihak ketiga yang menjamin mengenakan caj fi untuk jaminan yang diberikan, pihak penjamin sedemikian diklasifikasikan sebagai pihak ketiga yang terikat atau tidak bebas, seterusnya tidak memenuhi syarat yang ditetapkan. Asas Pertimbangan Jaminan modal dan/atau keuntungan dijangka oleh pihak ketiga dalam urus niaga mudarabah adalah atas dasar maslahah iaitu bagi memastikan keyakinan para pelabur untuk terus melabur dalam projek-projek berkepentingan negara. 39 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Musyarakah merupakan kontrak perkongsian antara dua pihak atau lebih untuk membiayai sesuatu usaha niaga perniagaan dan semua pihak yang terlibat menyumbangkan modal sama ada dalam bentuk tunai atau lain-lain. Keuntungan daripada perkongsian tersebut akan dikongsi bersama berdasarkan nisbah yang dipersetujui, manakala kerugian akan ditanggung bersama berdasarkan nisbah sumbangan modal masing-masing. Konsep musyarakah pada hari ini digunakan dalam aktiviti-aktiviti pelaburan dan juga pembiayaan. Pembiayaan berasaskan musyarakah merangkumi pembiayaan modal kerja (working capital financing), pembiayaan perdagangan (trade financing) dan pembiayaan aset (asset financing). 29. Produk Pembiayaan Berasaskan Musyarakah Sebuah institusi kewangan Islam bercadang untuk menawarkan dua bentuk produk pembiayaan berasaskan konsep musyarakah. Antara syarat umum kedua-dua pembiayaan musyarakah yang dicadangkan adalah seperti yang berikut: i. Semua pihak dalam musyarakah perlu menyumbang modal; ii. Institusi kewangan Islam sebagai rakan kongsi/pembiaya boleh meletakkan syarat-syarat tertentu (taqyid); iii. Pembahagian keuntungan adalah berasaskan nisbah yang dipersetujui manakala kerugian ditanggung berdasarkan nisbah sumbangan modal; iv. Tiada jaminan pada modal. Jaminan hanya boleh dibuat dalam kes kecuaian dan pelanggaran syarat-syarat perjanjian musyarakah; v. Nisbah pembahagian keuntungan boleh diubah dengan persetujuan bersama semua rakan kongsi; vi. Syarat pembelian semula bahagian mana-mana rakan kongsi adalah berdasarkan harga pasaran (qimah suqiyyah) atau harga yang dipersetujui bersama dan bukannya harga nominal (qimah ismiyyah); dan vii. Mana-mana rakan kongsi dalam musyarakah boleh meletakkan syarat bahawa sekiranya keuntungan melebihi had tertentu (siling), salah seorang rakan kongsi boleh melepaskan hak (tanazul) keuntungan yang melebihi had tersebut. MUSYARAKAH RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 40 41 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Dua bentuk pembiayaan secara musyarakah yang dicadangkan adalah seperti yang berikut: 1. Projek usaha sama atau perkongsian berasaskan akaun bersama tanpa penubuhan sebuah entiti yang berasingan Perjanjian pembiayaan musyarakah akan dimeterai antara institusi kewangan Islam dengan pelanggan. Pembiayaan akan disalurkan ke dalam akaun bersama secara sekaligus atau secara berperingkat. Akaun bersama tersebut akan didaftarkan atas nama pelanggan manakala perjalanan urus niaga akaun akan diselenggarakan secara bersama oleh institusi kewangan Islam dan pelanggan. 2. Penyertaan ekuiti yang melibatkan penubuhan sebuah syarikat usaha sama sendirian berhad di bawah Akta Syarikat 1965 Sebuah entiti korporat akan ditubuhkan oleh institusi kewangan Islam dan pelanggan bagi menjalankan projek tertentu. Pengurusan syarikat akan dilantik oleh kedua-dua pihak bagi mewakili kepentingan mereka dan bertanggungjawab terhadap kemajuan projek. Institusi kewangan Islam akan membuat pembayaran pembiayaan musyarakah secara sekaligus melalui penambahan modal berbayar syarikat sendirian berhad. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada cadangan kedua- dua bentuk pembiayaan berasaskan musyarakah seperti di atas dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-53 bertarikh 29 September 2005 telah memutuskan bahawa produk pembiayaan berasaskan musyarakah seperti yang dicadangkan adalah dibenarkan selagi tiada elemen jaminan modal dan/atau keuntungan oleh rakan kongsi ke atas rakan kongsi yang lain. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap dalil-dalil berkaitan keharusan musyarakah seperti yang berikut: i. Firman Allah SWT: “...dan sesungguhnya kebanyakan dari orang yang bergaul itu, setengahnya berlaku zalim kepada setengahnya yang lain, kecuali orang yang beriman dan beramal soleh, sedang mereka amatlah sedikit...” 35 Perkataan dalam ayat di atas membawa maksud perkongsian. Berdasarkan ayat di atas, musyarakah merupakan Syariat lama yang tidak dimansuhkan. Amalan ini telah sedia ada sejak zaman Nabi Daud dan tidak ditegah oleh Nabi Muhammad SAW. Namun, musyarakah perlu dilaksanakan secara adil dan berlandaskan Syarak. ii. Apabila Rasulullah SAW dilantik sebagai pesuruh Allah SWT, masyarakat Arab telah menjalankan mua`malah secara musyarakah dan Rasulullah SAW membenarkannya seperti sabda baginda: “Pertolongan Allah SWT ke atas dua orang yang bersyarikat adalah selagi mana salah seorang daripada kedua-duanya tidak mengkhianati rakan kongsinya. Sekiranya salah seorang mengkhianati rakan kongsinya maka Allah SWT akan mengangkat pertolonganNya daripada kedua-duanya.”36 iii. Terdapat riwayat sahabat Rasulullah SAW yang menyatakan tentang keharusan musyarakah seperti yang berikut: 35 Surah Sad, ayat 24. 36 Al-Daraqutni, Sunan al-Daraqutni, Mu’assasah al-Risalah, 2004, j. 3, h. 442, hadis no. 2934. 37 Al-Zaila`i, Nasb al-Rayah li Ahadis al-Hidayah, Mu’assasah al-Rayyan, 1997, j. 3, h. 475. 38 Abdul Razzaq al-San`ani, Musannaf Abdul Razzaq, Al-Maktab al-Islami, 1403H, j. 8, h. 248. “Keuntungan adalah berdasarkan apa yang telah disyaratkan dan kerugian adalah berdasarkan kadar harta (pihak yang berkongsi).”37 “Kerugian adalah berdasarkan kadar harta, dan keuntungan adalah berdasarkan apa yang disyaratkan.”38 iv. Secara umumnya, ulama bersependapat dalam mengharuskan syarikat atau musyarakah, walaupun mereka berselisih pendapat mengenai jenis-jenis musyarakah yang dibenarkan. 42 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 30. Pembiayaan Berasaskan Kontrak Musyarakah Mutanaqisah Terdapat cadangan daripada sebuah institusi kewangan Islam untuk menawarkan produk pembiayaan perumahan secara Islam berasaskan konsep musyarakah mutanaqisah. Secara umumnya, modus operandi produk pembiayaan perumahan berasaskan musyarakah mutanaqisah ini adalah seperti yang berikut: i. Pelanggan yang ingin membeli harta tanah memohon pembiayaan daripada institusi kewangan Islam; ii. Institusi kewangan Islam dan pelanggan akan membeli harta tanah tersebut secara bersama berdasarkan bahagian yang ditentukan (contohnya 90:10) bergantung pada pembiayaan yang dipohon; iii. Bayaran pendahuluan oleh pelanggan dikira sebagai bahagian permulaan pemilikan; iv. Bahagian aset yang dimiliki bersama oleh institusi kewangan Islam akan disewakan (secara ijarah) kepada pelanggan; dan v. Bayaran ansuran bulanan akan digunakan oleh pelanggan untuk membeli bahagian pemilikan institusi kewangan Islam secara beransur-ansur sehingga keseluruhan bahagian pemilikan institusi kewangan Islam dibeli sepenuhnya. Dalam hal ini, MPS dirujuk berhubung dengan isu-isu berikut: i. Sama ada perjanjian musyarakah dan ijarah boleh dihimpunkan dalam satu dokumen perjanjian musyarakah mutanaqisah kerana dibimbangi penggabungan ini menyebabkan berlakunya dua urus niaga dalam satu akad jual beli (bai`atain fi al-bai`ah) yang ditegah Syarak; dan ii. Sama ada cagaran boleh dilakukan oleh salah seorang pemilik aset ke atas sesuatu aset yang dimiliki secara bersama. 43 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-56 bertarikh 6 Februari 2006 telah memutuskan perkara berikut: i. Amalan menghimpunkan perjanjian musyarakah dan ijarah dalam satu dokumen perjanjian adalah dibenarkan selagi kedua-dua akad tersebut dimeterai secara berasingan dan jelas serta tidak bercampur aduk antara satu sama lain; dan ii. Amalan cagaran dalam musyarakah mutanaqisah boleh dilaksanakan sekiranya dokumen cagaran hanya melibatkan bahagian milik pelanggan yang digadaikan kepada institusi kewangan Islam. Ini adalah kerana hak milik bermanfaat ialah sesuatu yang diiktiraf oleh Syariah. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan bahawa kontrak musyarakah mutanaqisah yang menghimpunkan kedua-dua kontrak musyarakah dan ijarah merupakan satu bentuk kontrak bersifat akad-akad baharu (`uqud mustajiddah) yang telah diiktiraf oleh ulama fiqah semasa bagi memenuhi kehendak mua`malah Islam masa kini.39 Syarak membenarkan beberapa bentuk pengurusan (tasarruf) ke atas aset musyarakah. Antaranya, kedua-dua pihak yang berkongsi dalam kontrak musyarakahmempunyai hak untuk berjual beli atau menyewakan aset musyarakah, kerana pensyarikatan mempunyai maksud wakalah. Oleh itu, setiap rakan kongsi boleh menjadi wakil kepada rakan kongsinya untuk berjual beli atau melakukan sewaan termasuklah berjual beli atau menyewakan bahagian masing-masing dalam aset musyarakah sesama sendiri.40 Selain itu, rakan kongsi juga dibenarkan memberi dan menerima cagaran terhadap aset musyarakah dengan keizinan rakan kongsi yang lain. Ini adalah selaras dengan kaedah fiqah yang berikut: 39 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 12 (Al-Syirkah), perenggan 3/1/3/1. 40 Ibnu `Abidin, Hasyiyah Radd al-Muhtar `ala al-Durr al-Mukhtar Syarh Tanwir al-Absar, Dar `Alam al-Kutub, 2003, j. 6, h. 488. 41 Ali Ahmad al-Nadwi, Jamharah al-Qawa`id al-Fiqhiyyah fi al-Mu`amalat al-Maliyyah, Syarikah al-Rajhi al-Masrafiyyah li al-Istithmar, 2000, j. 2, h. 834, kaedah no. 1591. “Semua yang harus dijual beli, harus digadai”41 44 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 31. Penggunaan Konsep Wa`d sebagai Mekanisme Menangani Kemungkiran Pelanggan dalam Pembiayaan Berasaskan Musyarakah Mutanaqisah Dalam pembiayaan yang berasaskan musyarakah mutanaqisah, institusi kewangan Islam terdedah kepada pelbagai risiko antaranya risiko pasaran yang berkaitan dengan pemilikan bersama aset berkenaan, dan juga risiko kredit yang berkaitan dengan kewajipan pelanggan untuk membayar sewa kepada institusi kewangan Islam dan membeli aset daripadanya. Dalam hal ini, institusi kewangan Islam telah merujuk kepada MPS tentang penggunaan konsep wa`d sebagai pendekatan yang sesuai untuk menangani isu kemungkiran pembayaran oleh pelanggan dalam kontrak musyarakah mutanaqisah. Keputusan MPS pada mesyuarat ke-64 bertarikh 18 Januari 2007 dan mesyuarat ke-65 bertarikh 30 Januari 2007 telah memutuskan bahawa klausa wa`d daripada pelanggan untuk membeli aset musyarakah boleh dimasukkan ke dalam kontrak musyarakah mutanaqisah bagi menangani kemungkiran pelanggan. Namun demikian, wa`d tersebut hendaklah dilaksanakan secara adil dengan tidak menafikan elemen perkongsian untung rugi antara pihak yang berkontrak. Apabila berlaku kemungkiran pelanggan sehingga mengakibatkan aset terpaksa dijual kepada pihak ketiga, institusi kewangan Islam selaku pembiaya berhak menuntut kekurangan (merangkumi pembayaran sewa yang tertunggak dan pembelian bahagian institusi kewangan Islam oleh pelanggan) daripada pelanggan berdasarkan wa`d yang dipersetujui menurut tatacara berikut: i. Institusi kewangan Islam boleh mengambil bahagian pelanggan daripada hasil lelongan untuk menampung kekurangan yang terjadi; ii. Sebarang kekurangan yang berlaku selanjutnya (setelah institusi kewangan Islam mengambil bahagian pelanggan) boleh dituntut sepenuhnya oleh institusi kewangan Islam jika pelanggan berkemampuan dari segi kewangan; dan 45 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 46 iii. Jika pelanggan telah membuktikan ketidakupayaan kewangan untuk menjelaskan baki tuntutan, institusi kewangan Islam hendaklah menanggung kerugian tersebut. Sekiranya berlaku lebihan hasil daripada lelongan tersebut, institusi kewangan Islam boleh berkongsi dengan pelanggan mengikut nisbah peratusan pemilikan masing-masing terhadap aset yang dikongsi semasa lelongan dibuat. Asas Pertimbangan Al–Zarqa’ telah membuat kesimpulan bahawa hukum Syarak memberi ruang kepada pihak-pihak yang berakad untuk membuat syarat mengikut batas hak-hak mereka dalam sesuatu akad. Bagi `uqud mustajiddah (akad-akad baharu) yang sebahagiannya memiliki syarat yang berbeza daripada kontrak-kontrak yang diketahui dalam fiqah, perihal syarat tersebut perlu diteliti seperti yang berikut: i. Jika ia menggugurkan syarat yang dinaskan (oleh al-Quran atau Sunnah) maka hukumnya haram; ii. Jika ia menggugurkan syarat yang merupakan ijtihad para ulama maka hukumnya bergantung pada kewujudan sebab (`illah) syarat tersebut, ̀ urf yang berkaitan dan persekitaran ekonomi semasa; dan iii. Jika syarat yang wujud dalam kontrak baharu tidak diketahui dalam perbahasan fiqah yang terdahulu, maka syarat tersebut harus selagi ia mengandungi kepentingan pihak-pihak berkontrak dan tidak membatalkan atau menafikan objektif kontrak. Syarat tersebut dianggap fasid dan menjejaskan kontrak jika ia membawa kepada perkara haram dan menafikan tujuan kontrak.42 42 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 2000, b. 10, j. 2, h. 529. 43 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 33, h. 111. Selain itu, qard dari segi istilah bermaksud pemberian harta oleh seseorang kepada seseorang yang lain dengan sesuatu yang ditetapkan pada tanggungan penghutang berupa harta yang sama nilai (mumathil) dengan harta yang diambil. Ia adalah untuk dimanfaatkan oleh pihak penerima (penghutang). (Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 5, h. 3786). QARD Qard bermaksud memberikan harta kepada pihak yang memanfaatkan harta tersebut dan dikembalikan gantian yang sama jenis dengannya.43 Pada peringkat awal pelaksanaan kewangan Islam di Malaysia, beberapa produk yang berasaskan qard telah diperkenalkan, contohnya, sijil pelaburan Kerajaan dan pinjaman kebajikan. Kini, penggunaannya diperluas kepada produk-produk lain seperti pinjaman rahn, kad kredit, kad caj dan lain-lain. Ia juga menjadi asas kepada instrumen pengurusan mudah tunai bagi institusi kewangan Islam. 32. Prinsip Qard dalam Kewangan Islam Penggunaan konsep qard hasan pada landasan yang betul dan menepati kehendak Syarak tentunya akan memberikan manfaat kepada pihak yang berkontrak. Namun, jika konsep ini diamalkan secara tidak bersesuaian, ia boleh menjejaskan imej sistem kewangan Islam. Antara isu yang timbul dalam kewangan Islam berhubung dengan penggunaan qard hasan ialah: i. Sama ada maksud qard hasan yang sebenar ialah pemberian yang tidak perlu dibayar semula atau sebaliknya. Ini merujuk kepada situasi apabila institusi kewangan Islam bercadang untuk membawa kes pelanggan yang gagal melunaskan pembiayaan yang diberikan oleh institusi kewangan Islam berasaskan qard hasan ke mahkamah; dan ii. Memandangkan institusi kewangan Islam memberikan pembiayaan menggunakan deposit daripada pelanggan yang mengharapkan keuntungan, pembiayaan berasaskan qard hasan tidak begitu menepati keperluan tersebut kerana tujuan qard hasan bukan untuk keuntungan, sebaliknya ia bersifat tabarru` atau kebajikan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada produk pembiayaan menggunakan prinsip qard dibenarkan kerana penggunaan konsep ini dalam produk pembiayaan dikhuatiri bertentangan dengan maksud sebenar qardmengikut Syarak. MPS turut dirujuk berhubung dengan isu sama ada perkataan “hasan” boleh dikeluarkan daripada istilah “qard hasan” yang diterima pakai dalam sistem kewangan Islam. 47 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-51 bertarikh 28 Julai 2005 telah memutuskan bahawa produk pembiayaan yang menggunakan prinsip qard adalah dibenarkan. Namun demikian, perkataan “hasan” hendaklah digugurkan daripada istilah “qard hasan” bagi menggambarkan bahawa qard yang diberikan perlu dibayar semula oleh peminjam kepada pemberi pinjaman atau pembiaya dan tanggungjawab ini akan ditanggung oleh waris peminjam sekiranya peminjam meninggal dunia sebelum beliau sempat melunaskan kesemua jumlah obligasi hutangnya. Asas Pertimbangan Para ulama mentakrifkan qard sebagai pemberian sesuatu harta kepada pihak yang memanfaatkannya demi berkasih sayang dan dikembalikan gantinya.44 Para ulama sependapat bahawa hukum qard adalah harus berdasarkan dalil al-Quran, Sunnah dan ijmak.45 Antara dalil al-Quran yang dijadikan asas keharusan qard adalah seperti yang berikut: “Siapakah orangnya yang (mahu) memberikan pinjaman kepada Allah SWT sebagai pinjaman yang baik supaya Allah SWT melipat gandakan balasannya dengan berganda-ganda banyaknya? Dan Allah SWT menyempitkan dan meluaskan (pemberian rezeki) dan kepadaNyalah kamu semua dikembalikan.”46 Menurut ulama tafsir, istilah qard hasan dalam konteks ayat ini merujuk kepada perbuatan memberi infak ke jalan Allah SWT. Istilah qard secara literal bermaksud pinjaman dan bukan infak. Namun demikian, para ulama tafsir mengatakan bahawa istilah qard yang digunakan dalam ayat ini bertujuan memuliakan manusia kerana Allah SWT memilih untuk berbicara dengan manusia menggunakan perbendaharaan kata yang lazim dan difahami oleh manusia.47 Keharusan qard dalam erti kata pinjaman disandarkan kepada ayat ini berdasarkan makna zahir ayat tersebut kerana tidak mungkin Allah SWT membicarakan dan menyamakan sesuatu perkara yang dianjurkan seperti infak dengan sesuatu yang ditegah. Ini menunjukkan bahawa qard adalah harus. 44 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 33, h. 111. 45 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 33, h. 112. 46 Surah al-Baqarah, ayat 245. 47 Al-Syawkani, Fath al-Qadir, Dar al-Ma`rifah, 2007, h. 168. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 48 Berhubung dengan saranan agar institusi kewangan Islam tidak menggunakan perkataan “hasan” dalam terma qard hasan, MPS menyandarkan keputusannya kepada hujah berikut: i. Ulama fiqah tidak menghuraikan qard hasan secara khusus tetapi hanya membicarakan konsep qard dan keharusannya dari segi Syarak. Secara umumnya, qard hasan membicarakan perihal pemberian infak ke jalan Allah SWT; dan ii. Perkataan “hasan“ jika dirujuk kepada al-Quran memberi maksud infak yang diberikan secara ikhlas dan hanya mengharapkan ganjaran Allah SWT.48 Berdasarkan hakikat ini, disimpulkan bahawa penggunaan istilah qard hasan bagi merujuk kepada sesuatu pinjaman dalam konteks mua`malah khususnya kewangan Islam adalah tidak tepat. Ini kerana berdasarkan definisi qard oleh para ulama fiqah, sesuatu pinjaman (qard) hendaklah dilunaskan. Oleh itu, istilah qard dilihat lebih bertepatan dengan pinjaman tanpa faedah yang dipraktikkan oleh industri kewangan Islam semasa. 33. Instrumen Pengurusan Mudah Tunai Berasaskan Qard Instrumen pengurusan mudah tunai merupakan instrumen yang digunakan untuk memastikan tahap mudah tunai industri kewangan berada pada tahap optimum. Ia digunakan untuk menyerap lebihan mudah tunai yang wujud dalam pasaran. Institusi kewangan yang mempunyai lebihan mudah tunai akan menyalurkan lebihan mudah tunai mereka kepada Bank Negara Malaysia menerusi instrumen ini. Instrumen- instrumen pengurusan mudah tunai secara Islam sebelum ini kebanyakannya dikendalikan berasaskan konsep mudarabah dan wadi`ah. Sehubungan dengan itu, terdapat cadangan untuk memperkenalkan instrumen pengurusan mudah tunai berasaskan qard sebagai instrumen tambahan bagi menguruskan mudah tunai dalam sistem kewangan Islam. Cadangan mekanisme instrumen pengurusan mudah tunai berasaskan qard adalah seperti yang berikut: 48 Al-Suyuti, Al-Durr al-Manthur fi al-Tafsir bi al-Ma’thur, Dar Kutub al-`Ilmiyyah, 2000, j. 1, h. 554 - 556. 49 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM i. Bank Negara Malaysia akan mengeluarkan tender melalui sistem FAST (Fully Automated System for Issuing/Tendering) dengan menyatakan jumlah yang ingin dipinjam; ii. Tender adalah berasaskan bidaan tidak kompetitif iaitu pembida hanya membida amaun nominal yang ingin dipinjamkan kepada Bank Negara Malaysia; iii. Pembida yang berjaya akan memberikan pinjaman berdasarkan tempoh pemegangan (tenure) sehingga tarikh matang; dan iv. Pada tarikh matang, Bank Negara Malaysia akan membayar balik pinjaman sepenuhnya. Hibah (sekiranya ada) akan diberikan oleh Bank Negara Malaysia berdasarkan budi bicaranya. Dalam hal ini, MPS dirujuk sama ada instrumen mudah tunai berasaskan qard seperti yang dicadangkan dibenarkan. Keputusan MPS pada mesyuarat ke-55 bertarikh 29 Disember 2005 telah memutuskan bahawa instrumen pengurusan mudah tunai berasaskan qard, iaitu kontrak pinjaman tanpa faedah antara institusi kewangan Islam dengan Bank Negara Malaysia bagi memenuhi tuntutan pinjaman jangka masa pendek adalah dibenarkan. Bank Negara Malaysia sebagai pihak peminjam boleh membayar balik lebih daripada jumlah yang dipinjam dalam bentuk hibah berdasarkan budi bicaranya. Walau bagaimanapun, hibah tersebut tidak boleh disyaratkan terlebih dahulu. Asas Pertimbangan Keharusan instrumen pengurusan mudah tunai berasaskan qard disandarkan kepada keharusan kontrak qard. Produk seumpama ini penting bagi memenuhi keperluan negara untuk menguruskan mudah tunai. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 50 “Daripada Jabir r.a berkata: aku datang kepada Rasulullah SAW ketika baginda berada di dalam masjid (Mis`ar menyatakan Jabir datang pada waktu dhuha), Rasulullah SAW menyuruhku solat dua raka`at kemudian dia membayar pinjaman yang dia berhutang denganku, dan memberikan aku tambahan.”50 Membayar hutang dengan nilai atau manfaat tambahan adalah harus jika ia tidak disyaratkan dan selagi ia tidak menjadi `urf yang nyata. Namun begitu, jika ia menjadi kebiasaan dan dilakukan kerana hutang, maka ia wajar ditinggalkan kerana sesuatu yang menjadi `urf diibaratkan seperti syarat.51 34. Penggabungan Pembayaran Awal secara Qard dengan Kontrak Murabahah Sebuah institusi kewangan Islam berhasrat untuk menawarkan produk akaun deposit pelaburan secara Islam yang menawarkan pulangan tetap. Bagi melaksanakan produk ini, institusi kewangan Islam tersebut berhasrat untuk menggunakan kontrak murabahah komoditi bagi mewujudkan keberhutangan institusi kewangan Islam dengan pendeposit atau pelabur. Satu ciri baharu produk ini ialah pemberian keuntungan awal (advance profit) secara qard kepada pendeposit semasa pembukaan akaun. 49 Ibnu Hajar al-`Asqalani, Bulugh al-Maram min Adillah al-Ahkam, Matba`ah al-Salafiyyah, 1928, h. 176. 50 Al-Bukhari, Sahih al-Bukhari, Al-Matba`ah al-Salafiyyah, 1982, j. 2, h. 173, hadis no. 2934. 51 Abdul Hamid Mahmud Tahmaz, Al-Fiqh al-Hanafi fi Thawbihi al-Jadid, Dar al-Qalam, 2001, j. 4, h. 220 – 221. Secara asasnya, sebarang manfaat, hibah atau nilai tambahan yang disyaratkan atas sesuatu hutang adalah haram hukumnya. Ini disebutkan dalam hadis Rasulullah SAW yang berikut: “Daripada Ali r.a berkata, bahawa Rasulullah SAW bersabda: Semua pinjaman yang membawa manfaat (kepada pemberi pinjaman) maka ia adalah satu bentuk riba.”49 Walau bagaimanapun, jika manfaat, hibah atau nilai tambahan yang diberikan tidak disyaratkan, ia adalah diharuskan. Keharusan ini adalah berdasarkan hadis Rasulullah SAW yang berikut: 51 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 52 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penggabungan pembayaran keuntungan awal secara qard dengan murabahah seperti yang dicadangkan dalam struktur produk ini dibenarkan Syarak. Keputusan MPS pada mesyuarat khas ke-4 bertarikh 29 November 2007 telah memutuskan bahawa penggabungan pembayaran keuntungan awal secara qard dengan kontrak murabahah adalah tidak dibenarkan. Asas Pertimbangan Terdapat larangan jelas daripada sumber-sumber Syariah berhubung dengan pemberian qard yang digabungkan dengan akad-akad pertukaran (`uqud mu`awadhat). Antaranya ialah hadis Rasulullah SAW yang melarang penggabungan jual beli dan qard: “Ismail bin Mas`ud telah memberitahu kami daripada Khalid daripada Hussein al-Mu`allim daripada `Amru bin Shuaib daripada bapanya daripada datuknya: Sesungguh Rasulullah SAW melarang menggabungkan salaf (hutang) dengan jual beli, dua syarat dalam satu akad (jual beli), dan keuntungan tanpa ada jaminan (tanpa mengambil risiko).” 52 52 Al-Nasa’i, Sunan al-Nasa’i al-Kubra, Dar al-Kutub al-`Ilmiyyah, 1991, j. 4, h. 43, hadis no. 6225. RAHN Rahn dalam konteks kewangan Islam semasa merujuk kepada kontrak cagaran atau gadaian. Secara konsepnya, rahn ialah menjadikan sesuatu aset sebagai jaminan kepada pembiayaan atau pinjaman, agar pembiayaan atau pinjaman tersebut boleh dilunaskan dengan nilai aset pembiayaan atau jaminan tersebut sekiranya penerima biaya atau peminjam tidak mampu melunaskan obligasinya.53 Pada kebiasaannya, kemudahan kredit yang diberikan oleh sesebuah institusi kewangan Islam sama ada menerusi kaedah jual beli atau sebagainya akan dilindungi oleh cagaran atau gadaian yang bersesuaian dan mencukupi dari segi nilainya. Aset seperti harta tanah, sijil saham dan pelaburan merupakan bentuk cagaran atau gadaian yang diterima oleh institusi kewangan Islam bagi sepanjang tempoh sesuatu pembiayaan atau pinjaman. 35. Dua Kemudahan Pembiayaan yang Bersandarkan Aset Cagaran yang Sama Terdapat institusi kewangan yang menyediakan kemudahan pembiayaan bai` bithaman ajil (BBA) dan kemudahan overdraf konvensional yang disandarkan kepada satu aset cagaran yang sama dengan cagaran yang pertama dilakukan bagi melindungi kemudahan pembiayaan BBA. Sekiranya berlaku kemungkiran kepada kemudahan pembiayaan BBA dan harta tersebut dilelong, pihak institusi kewangan akan menarik kembali kemudahan overdraf konvensional memandangkan status kemudahan overdraf tersebut tidak lagi mempunyai cagaran. Penarikan semula kemudahan overdraf konvensional ini dilakukan melalui pelaksanaan klausa kemungkiran bersilang (cross default) yang termaktub di dalam perjanjian BBA antara institusi kewangan dengan pelanggan. Dalam hal ini, MPS dirujuk berhubung dengan isu berikut: i. Sama ada kemudahan pembiayaan BBA dan kemudahan overdraf konvensional boleh disandarkan kepada satu aset cagaran yang sama; dan ii. Sama ada institusi kewangan boleh memasukkan klausa kemungkiran bersilang dalam dokumen BBA. 53 Al-Subki, Takmilah al-Majmu’ Syarh al-Muhazzab, Maktabah al-Irshad, 1980, j. 12, h. 299; Ibnu Qudamah, Al-Mughni, Dar `Alam al-Kutub, 1997, j. 6, h. 443. 53 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 54 Keputusan MPS pada mesyuarat ke-4 bertarikh 14 Februari 1998 telah memutuskan bahawa amalan mencagarkan satu harta untuk lebih daripada satu kemudahan pembiayaan atau pinjaman adalah dibenarkan, tertakluk kepada syarat-syarat yang berikut: i. Mendapat keizinan daripada pemegang cagaran pertama; ii. Nilainya boleh menampung semua cagaran yang dibuat; dan iii. Tidak berlaku kemudaratan (dharar) terhadap mana-mana pihak. Di samping itu, MPS turut mambenarkan cadangan institusi kewangan untuk memasukkan klausa kemungkiran bersilang dalam dokumen BBA. Asas Pertimbangan Sekiranya cagaran meliputi sebahagian daripada aset, dan kemudian sebahagian lagi dicagarkan untuk kemudahan yang lain, hukum cagaran sebegini mengambil hukum hak tuntutan bersama ke atas aset cagaran (undivided right to claim security) ke atas aset cagaran (rahn al-musya`).54 Jumhur ulama di kalangan mazhab Maliki, Syafii dan Hanbali yang membenarkan rahn al-musya` berpendapat bahawa sekiranya sebahagian daripada aset yang tidak dapat dipisahkan telah dicagar bagi mendapatkan hutang (atau pembiayaan), maka bahagian yang selebihnya boleh dicagarkan (bagi mendapatkan hutang yang sama atau hutang yang lain) kepada pemegang cagaran yang pertama atau yang lain. Walau bagaimanapun, sekiranya cagaran (bagi bahagian selebihnya) dibuat kepada pemegang cagaran yang lain (bukan pemegang cagaran yang pertama), maka persetujuan pemegang cagaran yang pertama perlu diperoleh terlebih dahulu. 54 Al-Sawi, Hasyiyah Al-Sawi `ala Syarh al-Saghir, Dar al-Ma`arif, 1982, j. 3, h. 307. 55 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 36. Berurusan dengan Aset yang Masih dalam Cagaran Oleh sebab nilai aset yang digunakan sebagai cagaran, terutamanya harta tanah, berkemungkinan mengalami peningkatan nilai pasaran, maka akan wujud lebihan sekuriti (excess security) jika dibandingkan dengan nilai asal aset tersebut semasa ia mula dicagarkan. Tambahan pula, jika penghutang terus membayar hutangnya mengikut jadual yang dipersetujui, baki hutangnya akan terus berkurang dari semasa ke semasa. Dalam keadaan ini, pemilik aset cagaran mungkin berhasrat untuk menggunakan lebihan sekuriti tersebut bagi tujuan tertentu umpamanya mengadakan urus niaga baharu dengan cagaran terhadap aset berkenaan. Dalam hal ini, MPS dirujuk berhubung dengan isu berikut: i. Sama ada pemegang cagaran pertama dianggap bersetuju untuk melepaskan tuntutannya terhadap harta yang menjadi cagaran pertama sekiranya beliau memberi kebenaran bagi cagaran kedua; dan ii. Sama ada akad jual beli atau cagaran boleh dilaksanakan terhadap sebahagian daripada nilai semasa harta tersebut. Dalam hal ini, Imam Syafii telah menyatakan pendapatnya seperti berikut: ”Dibolehkan bagi seorang individu untuk menggadaikan separuh daripada tanahnya, dan separuh daripada rumahnya dan sebahagian daripada bahagian milikannya dalam tanah dan rumah tanpa dipisahkan harta tersebut sekiranya semua bahagian diketahui dengan jelas dan bahagian yang dicagar juga diketahui. Maka dalam hal ini, tiada perbezaan antara cagaran dan jual beli.”55 55 Al-Syafii, Al-Umm, Bait al-Afkar al-Dawliyyah, (t.t.), h. 575: 56 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-6 bertarikh 26 Ogos 1998 telah memutuskan perkara berikut: i. Sekiranya pemegang cagaran pertama memberi kebenaran bagi cagaran kedua, ia tidak bermaksud pemegang cagaran tersebut telah bersetuju untuk melepaskan tuntutannya terhadap harta yang menjadi cagaran pertama. Di samping itu, kebenaran daripada pemegang cagaran yang pertama perlu dibuat secara bertulis agar tidak timbul pertelingkahan atau pertikaian; dan ii. Akad jual beli atau cagaran yang dilaksanakan terhadap sebahagian daripada nilai keseluruhan harta dibenarkan tetapi harta tersebut dianggap sebagai harta milik bersama (musya`) dalam kalangan pembeli mengikut peratusan pegangan masing-masing. Hak atas harta cagaran yang dilelong juga dikongsi bersama antara penerima cagaran berdasarkan terma dan syarat yang dipersetujui. Asas Pertimbangan Sekiranya pemegang cagaran pertama memberi kebenaran untuk cagaran kedua, ini tidak bermaksud bahawa pemegang cagaran tersebut telah bersetuju untuk melepaskan tuntutannya terhadap harta yang menjadi cagaran pertama kerana: i. Pemegang cagaran pertama masih berhak ke atas aset tersebut selagi pencagar tidak melunaskan hutangnya; dan ii. Bahagian yang diharuskan bagi cagaran kedua adalah baki atau lebihan aset yang telah dicagarkan, bukannya bahagian yang telah dicagarkan kepada pemegang cagaran yang pertama. Kebenaran pemegang cagaran pertama terhadap urus niaga cagaran kedua pula perlu dibuat secara jelas bagi mengelak sebarang kekeliruan dalam penggunaan dan pemilikan aset cagaran tersebut. Di samping itu, akad jual beli atau cagaran yang dilaksanakan terhadap sebahagian daripada nilai sebenar aset dibenarkan berdasarkan pendapat-pendapat berikut: 57 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 37. Sijil Deposit Tetap Konvensional sebagai Cagaran bagi Pembiayaan secara Islam MPS dirujuk berhubung dengan isu sama ada Sijil Deposit Tetap konvensional boleh dijadikan sekuriti atau cagaran untuk pembiayaan secara Islam. Dalam hal ini, hanya nilai pokok deposit tetap tersebut yang akan dijadikan cagaran, manakala jumlah faedah atau riba tidak akan diambil kira. Keputusan MPS pada mesyuarat ke-9 bertarikh 25 Februari 1999 telah memutuskan bahawa Sijil Deposit Tetap konvensional (tidak termasuk jumlah faedah atau riba) merupakan hak atau harta pelanggan dan oleh itu, boleh dijadikan sekuriti atau cagaran bagi pembiayaan secara Islam. 56 Al-Syafii, Al-Umm, Bait al-Afkar al-Dawliyyah, (t.t.), h. 575; al-Dusuki, Hashiyah al-Dusuki ̀ ala Syarh al-Kabir, Dar Ihya’ Kutub al-Arabiyyah, (t.t.), j. 3, h. 235; Al-Bahuti, Kasshaf al-Qina` ̀ an Matn al-Iqna`, ̀ Alam al-Kutub, 1997, j. 3, h. 48. 57 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 6, h. 4255. 58 Al-Syafii, Al-Umm, Bait al-Afkar al-Dawliyyah, (t.t.), h. 575: ii. Imam Syafii turut berpendapat: ”Dibolehkan bagi seorang individu untuk menggadaikan separuh daripada tanahnya, dan separuh daripada rumahnya dan sebahagian daripada bahagian milikannya dalam tanah dan rumah tanpa dipisahkan harta tersebut sekiranya semua bahagian diketahui dengan jelas dan bahagian yang dicagar juga diketahui. Maka dalam hal ini, tiada perbezaan antara cagaran dan jual beli.”58 ”Apa sahaja yang diharuskan jual beli maka diharuskan juga cagarannya sama ada dari jenis pemilikan secara bersama atau sebaliknya.”57 i. Majoriti fuqaha melainkan mazhab Hanafi membenarkan cagaran terhadap sebahagian daripada nilai sebenar aset yang tidak dikenal pasti bahagiannya (rahn al-musya`).56 Kaedah yang dipegang oleh majoriti fuqaha tersebut ialah: 58 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Antara syarat utama bagi cagaran ialah aset cagaran mesti merupakan harta yang bernilai dan dapat diserahkan.59 Pada dasarnya, aset cagaran hendaklah berbentuk aset ketara (tangible). Namun, aset cagaran juga dibenarkan dalam bentuk hutang, mata wang tunai, atau aset yang boleh diterima pakai. Dalam konteks ini, Sijil Deposit Tetap konvensional (tidak termasuk jumlah faedah atau riba) didapati menepati ciri-ciri aset yang boleh digunakan sebagai aset cagaran. Selain itu, cagaran merupakan kontrak pelengkap bagi sesuatu urus niaga asas yang lain. Ia dibenarkan selagi aset yang digunakan sebagai cagaran adalah bernilai dari segi Syarak dan diterima oleh pihak yang menerima cagaran. 38. Penggunaan Sekuriti Hutang secara Islam sebagai Aset Cagaran Terdapat cadangan untuk memperkenalkan konsep cagaran dalam pasaran wang secara Islam bagi membolehkan para peserta pasaran mendapatkan dana dengan mencagar sekuriti hutang Islam yang mereka miliki kepada peserta pasaran lain. Sekuriti hutang Islam ini berbentuk tanpa skrip (scriptless) iaitu penerima biaya hanya perlu mengenal pasti sekuriti yang dicagarkan dalam sistem tanpa memindahkan sekuriti tersebut kepada pembiaya. Penerima biaya juga tidak akan membuat sebarang urus niaga terhadap sekuriti yang dicagarkan sama ada untuk dijual beli, dicagarkan kepada pihak lain dan sebagainya sepanjang tempoh cagaran tersebut. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada sekuriti hutang Islam boleh digunakan sebagai aset cagaran dalam kontrak rahn. Keputusan MPS pada mesyuarat ke-30 bertarikh 28 Oktober 2002 telah memutuskan bahawa penggunaan sekuriti hutang secara Islam sebagai aset cagaran dalam kontrak rahn adalah dibenarkan. Penerima biaya juga dibenarkan untuk sekadar mengenal pasti sekuriti yang dicagarkan dalam sistemnya tanpa perlu memindahkan sekuriti tersebut kepada pembiaya. 59 Al-Samarqandi, Tuhfat al-Fuqaha’, Dar al-Kutub al-`Ilmiyah, 1983, j. 3, h. 40. 59 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Konsep rahnmerupakan salah satu kaedah sekuriti terhadap hutang yang diterima dalam Islam dan diamalkan sejak sekian lama. Aset yang boleh dijadikan aset cagaran dalam rahn ialah sebarang aset berharga yang boleh dijual beli serta dipersetujui bersama oleh penerima biaya dan pembiaya. Dalam hal ini, sekuriti hutang secara Islam memenuhi ciri-ciri aset cagaran kerana ia berharga dan boleh dijual beli dalam pasaran. Ulama Syafii membenarkan cagaran diambil dan digunakan oleh pihak yang mencagar selagi mendapat keizinan penerima cagaran.60 Ulama Maliki pula membenarkan “rahn rasmi/hiyazi“ iaitu penyerahan cagaran melalui catatan secara rasmi dalam daftar pihak berkuasa, dan ia boleh menjadi ganti kepada penyerahan sebenar.61 Pandangan ini jelas selaras dengan pandangan ulama semasa yang membenarkan penggunaan sekuriti hutang dan sukuk sebagai aset cagaran dalam rahn. Sehubungan dengan itu, walaupun sekuriti hutang Islam yang digunakan sebagai aset cagaran dalam kontrak ini berbentuk tanpa skrip, namun sekuriti tersebut wujud secara maknawi atau konstruktif. Ini kerana ia memenuhi ciri barang yang boleh dicagarkan iaitu mempunyai nilai, boleh diniagakan dan boleh dipindah milik. Tambahan pula, ia diseliakan oleh sistem yang berwibawa dan terjamin dari segi integriti, kebolehpercayaan serta disiplin pasaran yang tinggi dan telus. 39. Penjualan Aset Cagaran Sekiranya Penerima Biaya Gagal Membayar Semula Amaun Pembiayaan kepada Pembiaya Lanjutan kepada cadangan pengenalan konsep cagaran dalam pasaran wang secara Islam dengan menggunakan sekuriti hutang Islam sebagai aset cagaran, MPS dirujuk berhubung dengan isu sekiranya berlaku kegagalan penerima biaya untuk membayar semula amaun pembiayaan kepada pembiaya dalam tempoh yang dipersetujui. 60 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 6, h. 243. 61 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 6, h. 4240. 60 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 60 Keputusan MPS pada mesyuarat ke-30 bertarikh 28 Oktober 2002 telah memutuskan bahawa sekiranya penerima biaya gagal membayar semula amaun pembiayaan kepada pembiaya dalam tempoh yang dipersetujui, pembiaya boleh menjual sekuriti yang dicagarkan bagi menebus amaun pembiayaan yang perlu dibayar oleh penerima biaya. Walau bagaimanapun, pembiaya dikehendaki memulangkan lebihan nilai sekuriti yang dicagarkan kepada penerima biaya sekiranya nilai sekuriti tersebut melebihi jumlah amaun pembiayaan. Asas Pertimbangan Kebenaran untuk menjual atau mencairkan aset cagaran sekiranya penerima biaya gagal membayar semula amaun pembiayaan kepada pembiaya dalam tempoh yang dipersetujui adalah selaras dengan objektif dan ciri-ciri asas cagaran dalam Islam. Pembiaya (selaku murtahin) boleh mengenakan syarat terhadap penerima biaya (selaku rahin) supaya mewakilkan pembiaya atau individu tertentu untuk menjual aset cagaran bagi melangsaikan amaun pembiayaan yang gagal dibayar tanpa merujuk kepada mahkamah. Di samping itu, pembiaya berhak untuk meminta supaya aset cagaran dijual bagi melunaskan amaun pembiayaan yang tidak dibayar mengikut tempoh yang dipersetujui. Sekiranya terdapat lebihan daripada harga jualan, ia hendaklah dikembalikan kepada penerima biaya kerana ia merupakan sebahagian daripada cagaran. Ini adalah bersandarkan kepada hadis Rasulullah SAW seperti yang berikut: “Daripada Abu Hurairah bahawa Rasulullah SAW telah bersabda: Aset cagaran tidak akan hilang daripada hak pemilik (apabila dia tidak melunaskan hutangnya). Sebarang keuntungan bagi aset cagaran adalah hak pemilik, dan sebarang tanggungan mestilah ditanggung olehnya.”62 62 Ibnu Hajar al-`Asqalani, Bulugh al-Maram min Adillah al-Ahkam, Matba`ah al-Salafiyyah, 1928, h. 176. 61 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 61 40. Keuntungan yang Terhasil daripada Aset Cagaran Sepanjang Tempoh Cagaran MPS dirujuk berhubung dengan isu sama ada sebarang keuntungan seperti dividen, terbitan hak dan bonus yang terhasil daripada aset cagaran sepanjang tempoh cagaran adalah hak pemilik aset cagaran iaitu penerima biaya. Keputusan MPS pada mesyuarat ke-30 bertarikh 28 Oktober 2002 telah memutuskan bahawa sebarang keuntungan seperti dividen, terbitan hak dan bonus yang terhasil daripada aset cagaran (marhun) sepanjang tempoh cagaran adalah hak pemilik aset cagaran iaitu penerima biaya. Asas Pertimbangan Pemilik aset cagaran selaku penerima biaya dalam kontrak rahn berhak terhadap sebarang keuntungan yang terhasil daripada aset cagaran sepanjang tempoh cagaran kerana kontrak rahn bukan kontrak yang melibatkan pemindahan hak milik aset cagaran daripada pencagar kepada penerima cagaran. Ulama bersependapat dalam menentukan penerima biaya atau pencagar sebagai pemilik keuntungan yang terhasil daripada aset cagaran kerana ia merupakan pemilik aset tersebut.63 Di samping itu, Imam Syafii turut menyatakan bahawa keuntungan aset cagaran adalah penambahannya manakala kerugian aset cagaran adalah kemusnahan dan pengurangannya.64 Pandangan-pandangan di atas adalah berdasarkan kepada hadis Rasulullah SAW seperti yang berikut: “Daripada Abu Hurairah bahawa Rasulullah SAW telah bersabda: Aset cagaran tidak akan hilang daripada hak pemilik (apabila dia tidak melunaskan hutangnya). Sebarang keuntungan ke atas aset cagaran adalah hak pemilik, dan sebarang tanggungan mestilah ditanggung olehnya.”65 63 Al-Juzairi, Al-Fiqh `ala al-Mazahib al-Arba`ah, Al-Maktab al-Thaqafi, 2000, j. 3, h. 332 – 337. 64 Al-Syafii, Musnad al-Syafii, Dar al-Basyair al-Islamiyyah, 2005, j. 1, h. 886; Al-Baihaqi, Al-Sunan al-Kubra, Maktabah Dar al-Baz, 1994, j. 6, h. 65. 65 Ibnu Hajar al-`Asqalani, Bulugh al-Maram min Adillah al-Ahkam, Matba`ah al-Salafiyyah, 1928, h. 176. Takaful merupakan permuafakatan sekumpulan individu untuk saling menjamin dan membantu antara satu sama lain bagi memenuhi keperluan tertentu yang dipersetujui dalam kalangan mereka seperti memberi pampasan bagi sesuatu musibah yang menimpa serta keperluan kewangan yang lain. Permuafakatan ini melibatkan sumbangan wang caruman berasaskan konsep tabarru` (pemberian secara sukarela) oleh kesemua peserta takaful. Sebuah dana khusus akan ditubuhkan sebagai sumber bantuan kewangan kepada mana-mana peserta berdasarkan terma dan syarat yang dipersetujui antara mereka. Selaras dengan konsep tolong- menolong (ta`awun) dan keperluan umat Islam untuk mempunyai satu skim yang berlandaskan Syariah sebagai alternatif kepada insurans konvensional, industri takaful telah berkembang pesat menjadi industri berdaya maju yang telah disepadukan dalam arus perdana sistem kewangan negara. 41. Model Takaful Berasaskan Tabarru` dan Wakalah Terdapat cadangan daripada sebuah syarikat takaful yang berhasrat untuk menerima pakai model takaful yang berasaskan tabarru` dan wakalah. Melalui konsep tabarru`, para peserta takaful bersetuju untuk memberikan semua atau sebahagian daripada caruman mereka sebagai derma bagi membantu para peserta takaful lain yang menghadapi musibah atau kesulitan tertentu. Melalui kontrak wakalah pula, para peserta takaful akan melantik syarikat takaful sebagai wakil untuk mengendalikan dana takaful, merangkumi pengurusan pelaburan dan pembayaran tuntutan, takaful semula, rizab teknikal dan kos pengurusan. Sebagai balasan, syarikat takaful akan menerima upah atau fi bagi perkhidmatan yang disediakan. Fi boleh dikenakan sebagai amaun tetap atau berdasarkan nisbah yang dipersetujui berdasarkan keuntungan pelaburan atau lebihan dana takaful. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada model perniagaan takaful yang berasaskan konsep tabarru` dan wakalah seperti yang dicadangkan adalah dibenarkan. TAKAFUL RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 62 63 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-24 bertarikh 24 April 2002 telah memutuskan bahawa model perniagaan takaful yang berasaskan tabarru` dan wakalah adalah dibenarkan. Kontrak wakalah berlaku antara peserta dengan syarikat takaful, manakala kontrak tabarru` berlaku sesama peserta sahaja. Pada mesyuarat khas ke-2 bertarikh 18 Jun 2007, MPS turut memutuskan bahawa model perniagaan takaful semula yang berasaskan tabarru` dan wakalah dibenarkan Syarak. Asas Pertimbangan Konsep tabarru` merupakan konsep yang diiktiraf di sisi Syarak. Ini berdasarkan firman Allah SWT seperti yang berikut: “...dan hendaklah kamu bertolong-tolongan untuk membuat kebajikan dan bertakwa, dan janganlah kamu bertolong-tolongan pada melakukan dosa (maksiat) dan permusuhan...”66 66 Surah al-Ma’idah, ayat 2. 67 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1985, Persidangan kali ke-2, resolusi no. 9 (2/9). Keharusan penggunaan tabarru` dalam operasi perniagaan takaful juga selari dengan resolusi Akademi Fiqah OIC yang menyarankan supaya konsep tabarru` digunakan dalam membangunkan institusi takaful.67 Di samping itu, tiada halangan Syarak bagi penggunaan wakalah dalam operasi perniagaan takaful memandangkan para ulama telah sependapat berhubung dengan keharusan wakalah. Wakalah merupakan kontrak yang melibatkan satu pihak (prinsipal) mewakilkan satu pihak yang lain (ejen) untuk melaksanakan tanggungjawab bagi pihak prinsipal dalam hal-hal yang boleh diwakilkan atau ditugaskan daripada perspektif Syariah, sama ada secara sukarela atau dengan fi. Dalam konteks takaful dan takaful semula, fi wakalah dibayar oleh para peserta kepada syarikat takaful selaku ejen sebagai ganjaran untuk melaksanakan sesuatu tugasan. Kadar fi dan kaedah bayarannya adalah tertakluk kepada persetujuan pihak yang berkontrak. 42. Pelaksanaan Konsep Musahamah dalam Pelan Takaful Am Komersial Sebuah syarikat takaful berhasrat untuk memperkenalkan konsep musahamah dalam pelan takaful am komersial. Menerusi konsep ini, para peserta takaful akan membayar sumbangan kepada syarikat takaful atas dasar musahamah dan sebagai manfaat, para peserta takaful boleh membuat tuntutan dan menerima bayaran ganti rugi bagi sebarang kemalangan atau musibah yang berlaku. Sekiranya peserta takaful tidak membuat sebarang tuntutan dalam tempoh takaful berkuat kuasa, mereka berhak mendapat pulangan sumbangan dalam bentuk bonus (good experience refund), tertakluk kepada syarat-syarat berikut: i. Terdapat lebihan (surplus) dalam dana risiko takaful; ii. Peserta tidak pernah membuat sebarang tuntutan dan tidak menerima sebarang ganti rugi dalam tempoh tertentu; dan iii. Peserta bersetuju untuk memperbaharui kontrak takaful bagi tempoh tertentu. Sekiranya peserta tidak menyambung kontrak, dia dianggap bersetuju melepaskan bahagian bonusnya atas dasar isqat al-haq. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penggunaan konsep musahamah dalam pelan takaful am seperti yang dicadangkan dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-66 bertarikh 22 Februari 2007 telah memutuskan bahawa penggunaan konsep musahamah dalam pelan takaful am seperti yang dicadangkan adalah tidak dibenarkan. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 64 65 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 68 Berdasarkan kepada definisi yang diberikan oleh syarikat takaful tersebut terhadap istilah “musahamah”, ia dapat difahami bahawa maksudnya menyerupai konsep “musyarakah”. Ini kerana perkataan “musahamah“ ( ) dari segi bahasa Arab bermaksud penyertaan (participation), mengambil bahagian (taking part) atau berkongsi (sharing). Istilah “musahamah“ merupakan istilah bahasa Arab yang lazimnya digunakan untuk menerangkan tentang penglibatan atau penyertaan seseorang dalam sesuatu perkara atau projek tertentu, sama ada dalam bentuk sumbangan tenaga (diri) atau wang dan sebagainya. 69 Daripada perspektif Syariah, istilah musahamah merupakan istilah baru dan tidak dikenali sebagai istilah fiqah dalam sesuatu kontrak mua`malah. Jika dirujuk kepada buku istilah fiqah sebagaimana yang dihimpunkan oleh Dr Nazih Hamad dalam kitabnya “Mu`jam al-Mustalahat al-Iqtisadiyah fi Lughat al-Fuqaha’’, istilah ini tidak termasuk sebagai salah satu istilah fiqah. 70 Al-Qarafi, Al-Furuq, Dar al-Kutub al-`Ilmiyyah, 1998, j. 1, h. 276 - 277. Asas Pertimbangan Cadangan penggunaan konsep musahamah dalam pelan takaful am adalah tidak dibenarkan kerana musahamah merupakan suatu konsep yang tidak jelas maksudnya.68 Ia juga bukan merupakan akad yang dikenali dalam fiqh muamalat.69 Definisi musahamah seperti yang dinyatakan tidak selari dengan keseluruhan ciri dan operasi takaful, khususnya dalam kes-kes tuntutan peserta takaful. Sebaliknya, musahamah dalam definisi yang diberikan menyentuh soal persetujuan antara peserta takaful untuk memberi sumbangan tertentu. Perniagaan takaful perlu berasaskan kepada konsep tabarru` kerana menerusi konsep ini, peserta takaful dibenarkan menerima sumbangan daripada dana takaful sekiranya terdapat tuntutan akibat daripada kecelakaan atau sebagainya. Ketidakpastian (gharar) dalam sumbangan adalah dibenarkan dalam kontrak tabarru`at, selaras dengan pendapat ulama di kalangan mazhab Maliki.70 Konsep musahamah didapati tidak sesuai untuk membenarkan tuntutan dilakukan dan dibayar kepada peserta yang berhak kerana musahamah berdasarkan definisi amnya adalah perkongsian untuk mendapatkan keuntungan dan bukannya bertujuan menderma untuk membayar tuntutan dalam skim takaful. 43. Model Perniagaan Takaful Semula Berasaskan Wakalah – Wakaf Terdapat cadangan daripada sebuah syarikat takaful semula untuk menjalankan perniagaan takaful semula berasaskan model wakalah dengan elemen wakaf. Antara ciri khas model wakalah dengan elemen wakaf yang dicadangkan adalah seperti yang berikut: i. Syarikat takaful semula merupakan wakil bagi menguruskan sumbangan takaful berdasarkan terma perjanjian yang menggariskan hak dan tanggungjawab syarikat takaful semula dan syarikat takaful (selaku peserta takaful); ii. Syarikat takaful semula menubuhkan dana takaful dengan memberi sejumlah modal secara wakaf. Selepas penubuhan dana tersebut, syarikat takaful semula tidak mempunyai hak atas dana yang ditubuhkan. Namun, ia berhak untuk mengendalikan dana tersebut; iii. Modal awal ini adalah bersifat berterusan, tidak boleh dibatalkan dan tidak boleh dipindahkan. Sumbangan para peserta takaful akan disalurkan kepada dana takaful. Tujuan dana takaful ini ditubuhkan adalah untuk membayar sebarang tuntutan atau kerugian yang dialami oleh peserta, memberikan manfaat kepada peserta bersesuaian dengan syarat-syarat wakaf, dan memberikan sumbangan kepada badan-badan amal yang dipersetujui oleh Jawatankuasa Syariah; dan iv. Sebarang lebihan dana takaful akan diagihkan kepada peserta takaful. Dalam hubungan ini, MPS dirujuk berhubung dengan isu sama ada model perniagaan takaful semula yang berasaskan wakalah dengan elemen wakaf seperti di atas dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-87 bertarikh 23 Jun 2009 telah memutuskan bahawa perniagaan takaful semula yang berasaskan model wakalah dengan elemen wakaf berdasarkan ciri-ciri seperti yang dinyatakan di atas adalah dibenarkan. Walau bagaimanapun, struktur model operasi takaful semula yang berasaskan konsep wakalah dan wakaf tidak mengubah unsur pensyaratan dalam sumbangan derma tabarru` oleh para peserta takaful. Oleh itu, kesan model ini dilihat sama dengan struktur model takaful yang sedia ada iaitu tabarru`. Di samping itu, MPS turut memutuskan bahawa sumbangan derma tabarru` oleh peserta takaful dalam perjanjian takaful atau takaful semula yang berasaskan kontrak wakalah dengan elemen wakaf adalah dimiliki dan diuruskan oleh dana wakaf tetapi bukan merupakan sebahagian daripada aset wakaf. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 66 67 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 71 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 44, h. 184 – 186. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan berikut: i. Antara elemen asas dalam model yang dicadangkan ialah penerapan elemen wakaf. Namun akhirnya, dana ini akan menerima dan memiliki sumbangan derma tabarru` daripada peserta takaful. Sumbangan derma tabarru` tersebut tidak menjadi sebahagian daripada modal wakaf tetapi diuruskan oleh entiti wakaf untuk membayar tuntutan takaful; ii. Pandangan para ulama dalam kalangan mazhab Hanafi, Maliki dan Hanbali membenarkan sumbangan atau pemberian kepada entiti wakaf dalam bentuk binaan atau tanaman kekal tanpa menjadikan status pemberian tersebut sebagai wakaf;71 dan iii. Niat dan tujuan yang dizahirkan oleh penyumbang dan persetujuan antara penyumbang dengan entiti wakaf merupakan faktor penting dalam menentukan status sesuatu sumbangan atau pemberian kepada entiti wakaf, iaitu sama ada sumbangan tersebut menjadi sebahagian daripada aset wakaf atau tidak. Dalam kes ini, pemberian atau sumbangan daripada peserta takaful adalah bersifat tabarru` dan bukannya wakaf. 44. Perlindungan Takaful bagi Pembiayaan secara Islam MPS dirujuk berhubung dengan isu sama ada institusi kewangan Islam wajib menawarkan perlindungan takaful sebagai pilihan pertama bagi melindungi pembiayaan yang diterima oleh pelanggan daripada institusi kewangan Islam. Keputusan MPS pada mesyuarat ke-41 bertarikh 8 Mac 2004 dan mesyuarat ke-43 bertarikh 29 April 2004 telah memutuskan perkara berikut: i. Bagi pakej pembiayaan secara Islam yang tidak merangkumi amaun caruman perlindungan, institusi kewangan Islam hendaklah menawarkan pelan takaful sebagai pilihan pertama kepada pelanggan yang memohon untuk mendapatkan pembiayaan secara Islam yang memerlukan perlindungan.72 Sekiranya pelanggan menolak pelan takaful atas sebab- sebab tertentu, pelanggan boleh memilih mana-mana insurans konvensional yang dikehendakinya. Pengecualian ini hanya diberikan kerana mengambil kira faktor berikut: a. Sekiranya premium insurans tersebut ditanggung sepenuhnya oleh pelanggan; b. Terdapat sektor atau kelas tertentu dalam insurans yang takaful tidak mempunyai kepakaran sepenuhnya; atau c. Permohonan pelanggan tidak diterima oleh syarikat takaful atas sebab-sebab tertentu. ii. Bagi pakej pembiayaan secara Islam yang merangkumi amaun caruman perlindungan, institusi kewangan Islam hendaklah memastikan bahawa hanya pelan takaful digunakan bagi melindungi pembiayaan secara Islam tersebut. Premium insurans konvensional tidak boleh dimasukkan sebagai sebahagian daripada pakej pembiayaan secara Islam; dan iii. Sekiranya pelanggan yang mengambil perlindungan insurans konvensional bagi melindungi pembiayaan secara Islam meninggal dunia atau mengalami musibah yang mengakibatkannya tidak dapat membuat pembayaran pembiayaan, institusi kewangan Islam berhak menerima pampasan insurans konvensional berkenaan. 72 Istilah “pilihan pertama“ bermaksud institusi kewangan Islam hanya mengemukakan perlindungan takaful kepada pelanggan dan bukannya mengemukakan kedua-dua perlindungan takaful dan insurans konvensional secara serentak untuk dipilih oleh pelanggan. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 68 69 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 73Muslim, Sahih Muslim, Dar al-Mughni, 1998, h. 698, hadis no. 412. Asas Pertimbangan Secara idealnya, semua pembiayaan secara Islam yang memerlukan perlindungan perlulah dilaksanakan di bawah skim perlindungan takaful. Walau bagaimanapun, bagi pakej pembiayaan secara Islam yang tidak merangkumi amaun caruman perlindungan, kewajipan institusi kewangan Islam untuk mengemukakan takaful sebagai pilihan pertama kepada pelanggan adalah wajar dan munasabah. Pendekatan membenarkan pelanggan memilih mana-mana insurans konvensional yang dikehendakinya (dalam kes pakej pembiayaan secara Islam yang tidak merangkumi amaun caruman perlindungan) mengambil kira beberapa faktor seperti pelanggan bukan Islam, tahap kesediaan syarikat takaful menawarkan produk takaful tertentu, kepakaran syarikat takaful dalam kelas tertentu dan sebagainya. Ini sesuai dengan inti pati hadis Rasulullah SAW seperti yang berikut: “Apabila aku perintahkan kamu dengan sesuatu maka turutinya semampu kamu dan apabila aku melarang kamu akan sesuatu maka hindarilah ia.”73 Di samping itu, institusi kewangan Islam berhak untuk menerima pampasan daripada syarikat insurans konvensional yang dipilih oleh pelanggan bagi melunaskan bayaran pembiayaan secara Islam sekiranya berlaku kematian atau musibah ke atas pelanggan. Ini kerana kontrak perlindungan insurans dan kontrak pembiayaan adalah dua kontrak yang berbeza. Kontrak pembiayaan melibatkan institusi kewangan Islam dan pelanggan selaku penerima biaya. Manakala kontrak perlindungan insurans pula melibatkan pelanggan dan syarikat insurans, dengan institusi kewangan Islam sebagai benefisiari. 45. Perlindungan Takaful bagi Pinjaman secara Konvensional Dalam senario dwi-sistem kewangan negara, terdapat situasi melibatkan pelanggan yang telah membuat pinjaman dengan institusi kewangan konvensional (untuk membeli sesuatu aset) berhasrat untuk mendapatkan skim perlindungan takaful bagi melindungi aset tersebut. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada syarikat takaful boleh menawarkan perlindungan takaful bagi aset pelanggan yang diperoleh melalui pinjaman secara konvensional. Keputusan MPS pada mesyuarat ke-54 bertarikh 27 Oktober 2005 telah memutuskan bahawa syarikat takaful boleh menawarkan perlindungan takaful ke atas aset pelanggan walaupun aset tersebut dibiayai secara konvensional dengan syarat ia dilakukan secara berasingan dan bukan bersifat pakej. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan bahawa kontrak perlindungan takaful dan kontrak pinjaman konvensional adalah dua kontrak yang berbeza dan berasingan. Sehubungan dengan itu, tiada halangan bagi syarikat takaful untuk memberi perlindungan takaful bagi aset pelanggan yang dibiaya oleh pinjaman konvensional kerana syarikat takaful tidak terlibat secara langsung dalam urus niaga pinjaman konvensional yang dimeterai oleh pelanggan dengan institusi kewangan konvensional. 46. Perlindungan Takaful ke atas Produk Kad Kredit Konvensional MPS dirujuk berhubung dengan cadangan sebuah syarikat takaful untuk menawarkan perlindungan takaful berkelompok bagi melindungi pelanggan kad kredit konvensional. Menerusi produk kad kredit konvensional ini, institusi perbankan yang berkenaan akan memberikan syarat kepada pelanggan supaya mendapatkan perlindungan takaful sewaktu membuat permohonan mendapatkan kad kredit konvensional. Syarat ini bertujuan untuk melindungi pelanggan daripada situasi yang tidak diingini seperti pelanggan meninggal dunia atau mengalami kecacatan kekal yang menyebabkannya tidak berkemampuan untuk menjelaskan hutang kad kredit konvensional tersebut. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 70 71 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-70 bertarikh 12 September 2007 telah memutuskan bahawa perlindungan takaful khusus bagi kad kredit konvensional seperti yang dicadangkan adalah tidak dibenarkan. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan bahawa kontrak perlindungan takaful dan kontrak kad kredit konvensional adalah saling berkait kerana kedua-duanya dipakejkan dalam satu produk. Sekiranya perlindungan takaful dipakejkan bersama produk kad kredit konvensional, ini secara tidak langsung mengakibatkan perniagaan takaful terlibat dalam bantu-membantu dalam amalan riba dan perkara-perkara yang ditegah Syarak (sekiranya ada). Perkara ini jelas bertentangan dengan prinsip asas dan tujuan aktiviti takaful selaras dengan firman Allah SWT: “...dan hendaklah kamu bertolong-tolongan untuk membuat kebajikan dan bertakwa, dan janganlah kamu bertolong-tolongan pada melakukan dosa (maksiat) dan permusuhan...” 74 47. Takaful Semula dengan Syarikat Insurans dan Insurans Semula Konvensional Pengaturan takaful semula merupakan salah satu cara bagi syarikat takaful untuk mengurangkan beban risiko yang ditanggung dalam menyediakan perlindungan kepada peserta takaful. Ia merujuk kepada perkongsian risiko antara syarikat takaful dengan syarikat takaful (dan takaful semula) atau syarikat insurans (dan insurans semula) konvensional yang lain. Dengan adanya pengaturan takaful semula yang berkesan, syarikat takaful dapat meningkatkan kapasiti dan menstabilkan prestasi pengunderaitannya, serta berupaya melindungi dana takaful daripada bebanan kewangan yang ketara sekiranya berlaku tuntutan di luar jangkaan. Pengaturan takaful semula kebiasaannya dilaksanakan menerusi dua cara utama seperti yang berikut: 74 Surah al-Ma’idah, ayat 2. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 72 i. Takaful semula alir masuk (inward retakaful) iaitu syarikat takaful menerima risiko daripada syarikat takaful (dan takaful semula) atau syarikat insurans (dan insurans semula) konvensional yang lain; dan ii. Takaful semula alir keluar (outward retakaful) iaitu syarikat takaful mengagih atau memberi risiko yang diunderaitnya kepada syarikat takaful (dan takaful semula) atau syarikat insurans (dan insurans semula) konvensional yang lain. Dalam hal ini, MPS dirujuk berhubung dengan isu berikut: i. Sama ada penerimaan takaful semula alir masuk oleh syarikat takaful secara triti atau fakultatif daripada syarikat insurans (dan insurans semula) konvensional dibenarkan; dan ii. Sama ada pengagihan risiko secara takaful semula alir keluar kepada syarikat insurans (dan insurans semula) konvensional dibenarkan. Keputusan MPS pada mesyuarat ke-47 bertarikh 14 Februari 2005 telah memutuskan perkara berikut: i. Syarikat takaful tidak dibenarkan menerima takaful semula alir masuk sama ada secara triti atau fakultatif daripada syarikat insurans dan syarikat insurans semula konvensional; dan ii. Syarikat takaful diberikan kelonggaran untuk mengagihkan risiko secara takaful semula alir keluar kepada syarikat insurans dan syarikat insurans semula konvensional, tertakluk kepada syarat-syarat berikut: a. Keutamaan mestilah diberikan kepada syarikat takaful dan syarikat takaful semula; b. Ketiadaan syarikat takaful dan syarikat takaful semula sama ada dalam atau luar negara yang diyakini dapat menyerap risiko yang diagihkan; dan c. Kekukuhan syarikat takaful dan syarikat takaful semula sama ada dalam atau luar negara tidak diyakini. 73 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Larangan bagi syarikat takaful untuk menerima takaful semula alir masuk daripada syarikat insurans dan syarikat insurans semula konvensional adalah berdasarkan pertimbangan berikut: i. Kontrak asal yang dimeterai oleh syarikat insurans dan syarikat insurans semula konvensional adalah bercanggah dengan Syarak.75 Sekiranya syarikat takaful menerima takaful semula alir masuk daripada syarikat insurans dan syarikat insurans semula konvensional, syarikat takaful dilihat sebagai mengiktiraf kontrak insurans konvensional yang tidak menepati Syarak; ii. Islam tidak membenarkan tolong-menolong dan bantu-membantu dalam perkara yang dilarang Syarak seperti firman Allah SWT yang berikut: iii. Syarikat takaful perlu mengelak daripada terlibat dengan perkara-perkara syubhah yang terdapat dalam aktiviti insurans konvensional. Walau bagaimanapun, syarikat takaful dibenarkan mengagihkan risiko secara takaful semula alir keluar kepada syarikat insurans dan syarikat insurans semula konvensional atas dasar keperluan (hajah), iaitu sekiranya tiada syarikat takaful atau syarikat takaful semula yang diyakini mampu untuk menyerap sesuatu risiko takaful. Ini adalah selaras dengan kaedah fiqah yang berikut: “...dan hendaklah kamu bertolong-tolongan untuk membuat kebajikan dan bertakwa, dan janganlah kamu bertolong-tolongan pada melakukan dosa (maksiat) dan permusuhan...”76 “Keperluan mengambil hukum darurat.”77 75 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1985, b. 2, j. 2, h. 735. 76 Surah al-Ma’idah, ayat 2. 77 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 209. Ibnu `Asyur menghuraikan bahawa dharuriyyat merujuk kepada perkara asasi yang perlu dipenuhi bagi sesuatu komuniti secara kolektif dan individu. Sekiranya perkara dharuriyyat ini tidak dipenuhi, sistem sosial dalam sesebuah komuniti tidak dapat berfungsi. Manakala hajah atau hajiyyat pula merujuk kepada perkara-perkara yang diperlukan oleh sesebuah komuniti bagi mencapai kemaslahatan dan perjalanan fungsi hal ehwal komuniti secara lebih baik. Sekiranya perkara hajiyyat ini tidak dipenuhi, fungsi komuniti tidak akan gagal, namun, ia tidak berupaya berjalan dengan baik. (Ibnu `Asyur, Maqasid al-Syari`ah al-Islamiyyah, Dar al-Nafa’is, 2001, h. 300 – 306). 48. Yuran Perkhidmatan Takaful Semula sebagai Pendapatan Dana Pemegang Saham Kebiasaannya dalam amalan takaful, komisen takaful semula yang diterima daripada syarikat takaful semula akan dimasukkan ke dalam dana takaful dan sekiranya terdapat lebihan selepas ditolak tuntutan takaful dan kos-kos lain, lebihan tersebut akan diagihkan antara para peserta takaful dengan dana pemegang saham berdasarkan nisbah yang dipersetujui. Walau bagaimanapun, terdapat cadangan daripada sebuah syarikat takaful yang berhasrat untuk menjadikan komisen takaful semula sebagai pendapatan kepada dana pemegang saham. Ini bagi menampung perbelanjaan yang ditanggung oleh pemegang saham dalam menguruskan perniagaan takaful semula dan sebagai ganjaran atas usaha mendapatkan dan menyerahkan perniagaan untuk syarikat takaful semula. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada komisen takaful semula boleh dijadikan pendapatan kepada dana pemegang saham. Keputusan MPS pada mesyuarat khas ke-4 bertarikh 29 November 2007 telah memutuskan bahawa cadangan untuk menjadikan komisen takaful semula (yang diterima daripada syarikat takaful semula) sebagai pendapatan kepada dana pemegang saham adalah tidak dibenarkan. Asas Pertimbangan Antara tugas syarikat takaful sebagai mudarib atau wakil dalam perniagaan takaful ialah memastikan risiko dana takaful diuruskan dengan sebaiknya. Salah satu cara untuk memastikan risiko-risiko ini diuruskan dengan sebaiknya adalah menerusi pengaturan takaful semula. Memandangkan semua kos takaful semula serta carumannya diambil daripada dana risiko peserta dan bukannya daripada dana pemegang saham, maka adalah tidak adil sekiranya syarikat takaful mengambil komisen bagi pengaturan takaful semula tersebut. Ini adalah selari dengan kaedah fiqah berikut: “Liabiliti adalah (berkadaran) dengan ganjaran.”78 78 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 437. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 74 49. Perjanjian Takaful secara Bersama (Co-Takaful) Perjanjian takaful secara bersama merupakan perjanjian perkongsian risiko yang dimeterai antara syarikat takaful dengan syarikat takaful yang lain, atau antara syarikat takaful dengan syarikat insurans konvensional. Dalam perjanjian perkongsian risiko ini, dua atau lebih syarikat takaful atau syarikat insurans konvensional bersetuju untuk sama-sama berkongsi risiko yang diunderaitkan. Walau bagaimanapun, sijil takaful yang berasingan akan dikeluarkan oleh syarikat takaful kepada peserta takaful sekiranya perkongsian risiko dibuat dengan syarikat insurans konvensional, berbanding dengan hanya satu sijil takaful sahaja yang akan dikeluarkan sekiranya perkongsian risiko dibuat sesama syarikat takaful sahaja. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada perkongsian takaful secara bersama antara syarikat takaful dengan syarikat insurans konvensional dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-47 bertarikh 14 Februari 2005 telah memutuskan bahawa perkongsian risiko secara bersama antara syarikat takaful dengan syarikat insurans konvensional adalah dibenarkan dengan syarat pemeteraian perjanjian antara pelanggan dengan syarikat takaful dan syarikat insurans konvensional dibuat secara berasingan. Asas Pertimbangan Secara lazimnya, perlu ada elemen pembezaan (distinguishing element) apabila sesuatu urus niaga melibatkan perkara yang haram dan halal agar tidak berlaku percampuran. Peletakkan syarat “pemeteraian perjanjian antara pelanggan dengan syarikat takaful dan syarikat insurans konvensional dibuat secara berasingan“ memenuhi keperluan ini yang secara langsung dapat mengelakkan syubhah dalam perkara-perkara yang ditegah oleh Syarak. Keputusan ini juga selari dengan pandangan ulama semasa yang menyatakan bahawa tiada larangan daripada sudut Syarak terhadap kerjasama antara syarikat takaful dengan syarikat insurans konvensional dalam memberi perlindungan dengan syarat bahagian yang dilindungi (iaitu polisi takaful) diuruskan berpandukan hukum Syarak.79 79 Ali Muhyiddin al-Qurrahdaghi, Al-Ta’min al-Islami: Dirasah Fiqhiyyah Ta’siliyah, Dar al-Basya’ir al-Islamiyyah, 2004, h. 443 - 444. 75 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 50. Pengasingan Dana Takaful MPS dirujuk berhubung dengan cadangan supaya syarikat takaful mengasingkan dana takaful mengikut jenis perniagaan takaful iaitu takaful keluarga dan takaful am. Selain itu, dana takaful bagi tujuan pelaburan dan risiko juga perlu ditubuhkan secara berasingan dan dikelaskan seperti yang berikut: i. Dana Pelaburan Peserta yang merupakan milik peserta secara individu. Caruman daripada peserta yang bertujuan untuk pelaburan akan disumbangkan ke dalam dana ini; dan ii. Dana Risiko Peserta yang merupakan milik kumpulan peserta takaful. Caruman daripada peserta yang berasaskan konsep tabarru` akan disumbangkan ke dalam dana ini. Keputusan MPS pada mesyuarat ke-62 bertarikh 4 Oktober 2006 telah memutuskan bahawa cadangan pengasingan dana takaful seperti di atas adalah dibenarkan. Asas Pertimbangan Pengasingan dana takaful mengikut jenis perniagaan adalah perlu kerana objektif dan profil risiko yang ditanggung oleh setiap dana takaful adalah berbeza. Pengasingan ini membolehkan syarikat takaful mengenal pasti dan menetapkan strategi pengurusan dan pelaburan bagi setiap dana takaful supaya berpadanan dengan profil risiko yang ditanggung oleh dana takaful yang berkenaan. Pengasingan dana takaful turut membolehkan pengagihan aset, liabiliti, pendapatan dan perbelanjaan operasi takaful kepada dana takaful berkenaan. Selain mempertingkatkan kecekapan urus tadbir (good governance) bagi setiap dana tersebut, ia turut menjaga hak-hak pihak yang terlibat. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 76 51. Pengenaan Fi Pengurusan ke atas Caruman Peserta Takaful MPS dirujuk berhubung dengan isu sama ada syarikat takaful boleh mengenakan fi pengurusan ke atas caruman peserta takaful untuk membiayai perbelanjaan operasi perniagaan takaful yang sebahagian besarnya terdiri daripada perbelanjaan pengurusan dan komisen. Keputusan MPS pada mesyuarat ke-62 bertarikh 4 Oktober 2006 telah memutuskan perkara berikut: i. Untuk model takaful yang berasaskan kontrak wakalah, syarikat takaful dibenarkan untuk mengenakan fi pengurusan ke atas caruman peserta takaful. Jumlah fi pengurusan yang dicaj mestilah dipersetujui oleh pihak-pihak yang berkontrak serta mengambil kira tanggungjawab syarikat takaful terhadap peserta takaful. Pengenaan fi pengurusan ini perlu dinyatakan secara jelas dalam kontrak perjanjian takaful; dan ii. Untuk model takaful yang berasaskan kontrak mudarabah, syarikat takaful tidak dibenarkan untuk mengenakan sebarang fi pengurusan ke atas caruman peserta takaful. Sebaliknya, segala perbelanjaan operasi perlu ditanggung oleh dana pemegang saham yang sumber pendapatannya adalah daripada perkongsian keuntungan pelaburan atau lebihan dana takaful. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan berikut: i. Kontrak wakalah diharuskan oleh Syariah sama ada dengan mengenakan fi atau secara sukarela (tanpa fi). Upah atau fi dalam kontrak wakalah mestilah ditentukan dengan jelas sama ada dalam bentuk amaun atau nisbah tertentu dan dipersetujui bersama oleh pihak yang berkontrak. Ia boleh dijelaskan atau dibayar semasa akad atau dalam tempoh masa yang dipersetujui; dan 77 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ii. Dalam kontrak mudarabah, upah mudarib adalah bahagian perkongsian keuntungannya yang dipersetujui dalam nisbah perkongsian keuntungan dengan rabbul mal. Oleh itu, mudarib tidak berhak untuk mengenakan sebarang fi pengurusan ke atas caruman peserta takaful. 52. Pengagihan Lebihan Dana Risiko Peserta Lebihan dana risiko peserta (yang berasaskan tabarru`) merujuk kepada lebihan setelah mengambil kira peruntukan amaun tertentu bagi tuntutan, takaful semula, rizab dan keuntungan pelaburan. Lebihan dana risiko peserta ini merupakan milik peserta takaful secara bersama. Namun, berdasarkan peranan syarikat takaful sebagai pengurus dana takaful, terdapat cadangan untuk membenarkan lebihan dana risiko peserta dikongsi antara peserta dengan syarikat takaful, bergantung kepada kontrak antara peserta dengan syarikat takaful. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada lebihan dana risiko peserta boleh diagihkan antara peserta dengan syarikat takaful. Keputusan MPS pada mesyuarat ke-42 bertarikh 25 Mac 2004 dan mesyuarat ke-59 bertarikh 25 Mei 2006 telah memutuskan bahawa lebihan dana risiko peserta (bagi pelan takaful keluarga dan pelan takaful am) boleh diagihkan antara peserta dengan syarikat takaful. Walau bagaimanapun, kaedah pengagihan lebihan dana risiko peserta perlu dinyatakan dengan jelas dan dipersetujui oleh peserta takaful semasa kontrak perjanjian takaful dimeterai. MPS, pada mesyuarat ke-62 bertarikh 4 Oktober 2006, seterusnya memutuskan bahawa: i. Untuk model takaful yang berasaskan konsep wakalah, lebihan dana risiko boleh diambil oleh pengurus dana takaful sebagai yuran prestasi berdasarkan peratusan yang telah dipersetujui; dan ii. Untuk model takaful yang berasaskan konsep mudarabah, lebihan dana risiko peserta boleh dikongsi antara peserta dan syarikat takaful berdasarkan peratusan atau nisbah perkongsian keuntungan yang telah dipersetujui antara pihak-pihak yang berkontrak. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 78 Asas Pertimbangan Keputusan MPS membenarkan lebihan dana risiko peserta untuk diagihkan antara peserta dan syarikat takaful adalah berdasarkan hakikat bahawa kontrak takaful secara umumnya terbina atas dasar tabarru` dan ta`awun, di samping persetujuan bersama antara pihak yang berkontrak. Prinsip tabarru` merupakan prinsip utama yang mendasari produk takaful manakala kontrak-kontrak seperti wakalah dan mudarabah digunakan dalam pengurusan operasi takaful. Keputusan MPS yang membenarkan lebihan dana risiko peserta diagihkan antara peserta dengan syarikat takaful bagi model takaful yang berasaskan wakalah adalah berasaskan pertimbangan bahawa pengagihan tersebut dibuat atas dasar yuran prestasi (performance fee) yang wajar diterima oleh syarikat takaful. Ini adalah selari dengan kaedah fiqah yang berikut: “Hukum asal dalam akad adalah redha atau persetujuan kedua-dua pihak yang berkontrak dan kesan kontrak adalah berdasarkan kepada hak dan tanggungjawab yang telah mereka persetujui dalam akad.”80 Di samping itu, syarikat takaful adalah berbeza dengan syarikat insurans kerana syarikat takaful bukanlah penanggung insurans (insurers) tetapi merupakan pengurus dana takaful. Oleh itu, persetujuan peserta takaful untuk berkongsi lebihan dana risiko dengan syarikat takaful sebagai pengurus dana adalah tidak menyalahi prinsip-prinsip Syariah. 53. Pengagihan Keuntungan Pelaburan daripada Dana Pelaburan Peserta dan Dana Risiko Peserta MPS dirujuk berhubung dengan isu sama ada syarikat takaful dibenarkan berkongsi atau mengenakan fi atau yuran prestasi terhadap keuntungan daripada pelaburan dana pelaburan peserta dan dana risiko peserta. 80 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 482. 79 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-62 bertarikh 4 Oktober 2006 telah memutuskan bahawa syarikat takaful dibenarkan berkongsi atau mengenakan fi atau yuran prestasi terhadap keuntungan daripada pelaburan dana pelaburan peserta dan dana risiko peserta, tertakluk kepada perkara berikut: i. Bagi perkongsian keuntungan daripada pelaburan dana pelaburan peserta: a. Keuntungan pelaburan boleh diagihkan kepada syarikat takaful sebagai perkongsian keuntungan atau fi menguruskan dana pelaburan peserta. Bagi memastikan amaun dalam dana pelaburan peserta cukup untuk mengekalkan pembayaran tabarru`, keuntungan atau fi yang diagihkan kepada syarikat takaful mestilah diselaraskan dengan sewajarnya. ii. Bagi perkongsian keuntungan daripada pelaburan dana risiko peserta: a. Bagi model takaful yang berasaskan mudarabah, syarikat takaful dibenarkan berkongsi keuntungan manakala bagi model takaful yang berasaskan wakalah, syarikat takaful dibenarkan mengenakan fi atau yuran prestasi terhadap keuntungan pelaburan dana risiko peserta. Walau bagaimanapun, pengagihan keuntungan pelaburan sama ada menerusi perkongsian keuntungan atau pengenaan fi atau yuran prestasi oleh syarikat takaful hanya dibenarkan sekiranya terdapat lebihan dalam dana risiko peserta setelah mengambil kira peruntukan untuk tuntutan, takaful semula dan rizab yang ditetapkan; dan b. Nisbah perkongsian keuntungan atau pengambilan yuran prestasi yang diagihkan kepada syarikat takaful mestilah berpatutan dan pengagihan keuntungan pelaburan hendaklah dinyatakan secara jelas dalam kontrak perjanjian takaful. Asas pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan yang dinyatakan dalam perkara 52.81 81 Pengagihan Lebihan Dana Risiko Peserta. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 80 54. Peruntukan Rizab dalam Perniagaan Takaful Sebagai langkah berhemat bagi menjaga kepentingan peserta dan keutuhan sistem takaful, MPS dirujuk berhubung dengan cadangan supaya syarikat takaful membuat peruntukan untuk rizab. Keperluan peruntukan rizab ini adalah sejajar dengan matlamat untuk memastikan dana takaful cukup bagi memenuhi sebarang tanggungan dana tersebut. Jumlah dan kaedah peruntukan rizab yang berpatutan adalah berdasarkan ketetapan yang ditentukan oleh pihak pengawal selia dan pihak berkelayakan yang ditetapkan. Keputusan MPS pada mesyuarat ke-62 bertarikh 4 Oktober 2006 telah memutuskan bahawa peruntukan rizab dalam dana takaful adalah dibenarkan. Asas Pertimbangan Peruntukan rizab dalam sesuatu urusan mua`malah adalah tidak bercanggah dengan kehendak Syariah kerana Islam menitikberatkan pengurusan kehidupan termasuk memastikan aspek ekonomi dan mua`malah Islam dilaksanakan dengan baik dan berhemat. Peruntukan rizab merupakan antara langkah berhemat yang bertujuan memastikan dana takaful mencukupi bagi memenuhi sebarang tanggungan dana tersebut. Peruntukan ini adalah selaras dengan galakan Syariah agar mengambil langkah-langkah persediaan bagi menghadapi sebarang kemungkinan pada masa hadapan seperti firman Allah SWT yang berikut: 81 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Ayat-ayat di atas menunjukkan bahawa Syariah mengiktiraf dan menggalakkan amalan mewujudkan rizab bagi persediaan untuk menghadapi sebarang kemungkinan pada masa akan datang. 55. Mekanisme Menangani Defisit dalam Dana Risiko Peserta MPS dirujuk berhubung dengan mekanisme yang boleh dilaksanakan sekiranya berlaku kekurangan aset dalam dana risiko peserta untuk memenuhi keperluan liabiliti dana tersebut, termasuk peruntukan rizab yang ditetapkan. Keputusan MPS pada mesyuarat ke-38 bertarikh 28 Ogos 2003, mesyuarat ke-46 bertarikh 28 Oktober 2004 dan mesyuarat ke-62 bertarikh 4 Oktober 2006 telah memutuskan perkara berikut: i. Syarikat takaful perlu bertanggungjawab terhadap ketidakcukupan dana risiko peserta dengan menyalurkan dana daripada dana pemegang saham secara qard; dan ii. Sekiranya masalah defisit tersebut masih berterusan atau berpunca daripada kesalahan dalam pengurusan dana risiko peserta, syarikat takaful perlu membuat suntikan aset (outright transfer) daripada dana pemegang saham kepada dana risiko peserta. “Yusuf menjawab: Hendaklah kamu bertanam tujuh tahun seperti biasa, kemudian apa yang kamu tuai biarkanlah dia pada tangkai-tangkai; kecuali sedikit dari bahagian yang kamu jadikan untuk makan. Kemudian akan datang selepas itu, tujuh tahun yang bersangatan kemaraunya, yang akan menghabiskan makanan yang kamu sediakan bagi mereka; kecuali sedikit dari apa yang kamu simpan untuk dijadikan benih. Kemudian akan datang pula sesudah itu tahun yang padanya orang ramai beroleh rahmat hujan, dan padanya mereka dapat memerah hasil.”82 82 Surah Yusuf, ayat 47- 49. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 82 Di samping itu, MPS pada mesyuarat ke-38 bertarikh 28 Ogos 2003 dan mesyuarat ke-100 bertarikh 30 April – 1 Mei 2010 telah memutuskan bahawa: i. Penggunaan dana takaful am untuk menampung defisit dalam dana takaful keluarga atau sebaliknya adalah tidak dibenarkan; ii. Penggunaan dana risiko peserta sesuatu pelan takaful keluarga untuk menampung defisit dalam dana risiko peserta sesuatu pelan takaful keluarga yang lain adalah dibenarkan dengan syarat kaedah pengurusan dan pengelasan risiko bagi pelan-pelan takaful tersebut adalah sama; dan iii. Penggunaan dana pelaburan peserta secara qard untuk menampung defisit dalam dana risiko peserta adalah tidak dibenarkan. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan berikut: i. Penggunaan dana takaful am untuk menampung defisit dana takaful keluarga atau sebaliknya, dan penggunaan dana risiko sesuatu pelan takaful keluarga untuk menampung defisit dalam dana risiko sesuatu pelan takaful keluarga lain yang berbeza kaedah pengurusan dan pengelasan risikonya adalah tidak dibenarkan kerana terdapat perbezaan dari segi fungsi, liabiliti serta profil tanggungan risiko antara dana-dana tersebut; dan ii. Penggunaan dana pelaburan peserta secara qard untuk menampung defisit dalam dana risiko peserta adalah tidak dibenarkan kerana ia akan menjejaskan pulangan dalam akaun peserta serta bertentangan dengan tujuan dana tersebut. Berhubung dengan isu pemberian qard dan suntikan aset daripada dana pemegang saham, keputusan MPS tersebut adalah berdasarkan pertimbangan berikut: 83 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM i. Pemberian qard daripada dana pemegang saham adalah berbentuk pinjaman tanpa faedah yang selari dengan prinsip Syariah. Tanggungjawab untuk memberikan qard kepada dana risiko peserta yang mengalami defisit adalah sebahagian daripada peranan syarikat takaful sebagai entiti yang dipertanggungjawabkan untuk menguruskan operasi takaful. Penggunaan qard dalam konteks takaful tidak bercanggah dengan prinsip Syariah kerana ia masih tertakluk kepada pembayaran semula yang dibuat daripada dana risiko peserta yang diperoleh pada masa hadapan; dan ii. Suntikan aset merupakan langkah terakhir setelah semua langkah awal seperti pemberian qard tidak dapat menampung defisit dalam dana risiko peserta. Dari segi siyasah syar`iyyah, ia merupakan langkah pengawalan berhemat untuk menjaga kemaslahatan umum demi kepentingan orang ramai dan industri takaful secara keseluruhan. Ini adalah selari dengan kaedah-kaedah fiqah yang berikut: “Maslahah umum diutamakan ke atas maslahah khusus.”83 ”Kemudaratan hendaklah dihilangkan.”84 83 Al-Syatibi, Al-Muwafaqat fi Usul al-Syari`ah, Dar al-Ma`rifah, 1999, j. 2, h. 645. 84 Ibnu Nujaim, Al-Ashbah wa al-Naza’ir, Dar al-Kutub al-`Ilmiyyah, 1980, j. 1, h. 85. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 84 56. Hibah dalam Takaful Hibah merupakan salah satu konsep Syariah yang digunakan dalam produk- produk takaful dan diamalkan oleh syarikat takaful dalam kebanyakan pelan takaful keluarga seperti produk pelan takaful pendidikan. Dalam pelan takaful pendidikan misalnya, peserta takaful akan menghibahkan manfaat takaful kepada anak mereka bagi membiayai kos pendidikannya pada masa hadapan. Sekiranya peserta takaful meninggal dunia, seluruh manfaat takaful tersebut akan menjadi hak milik anak yang dinamakan dan harta ini tidak akan diagihkan kepada waris lain berdasarkan faraid. Walau bagaimanapun, sekiranya peserta takaful masih hidup apabila sijil takaful matang, manfaat tersebut akan diserahkan kepada peserta takaful. Dalam hal ini, MPS dirujuk berhubung dengan penggunaan hibah dalam pemberian manfaat takaful seperti di atas. Keputusan MPS pada mesyuarat ke-34 bertarikh 21 April 2003 telah memutuskan perkara berikut: i. Manfaat takaful boleh dihibahkan kerana tujuan takaful adalah untuk memberi perlindungan kepada peserta takaful. Memandangkan manfaat takaful adalah hak peserta takaful, maka peserta mempunyai kebebasan untuk menggunakan hak tersebut mengikut pilihannya selagi ia tidak bercanggah dengan Syarak; ii. Status hibah yang digunakan dalam pelan takaful tidak akan berubah menjadi wasiat kerana hibah yang dibuat adalah hibah bersyarat; iii. Manfaat takaful lazimnya dikaitkan dengan kematian peserta dan tempoh matang sijil. Sekiranya peserta masih hidup apabila sijil takaful matang, manfaat takaful akan dimiliki oleh peserta. Walau bagaimanapun, jika peserta meninggal dunia sebelum tamat tempoh matang, maka hibah akan berkuat kuasa; 85 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM iv. Peserta mempunyai hak untuk membatalkan hibah yang dibuat sebelum tamat tempoh matang sijil takaful, kerana hibah bersyarat hanya sempurna selepas berlakunya penyerahan (qabd); v. Peserta mempunyai hak untuk membatalkan hibah yang dibuat kepada seseorang individu dan menyerahkan manfaat yang ingin dihibahkannya itu kepada orang lain, atau membatalkan penyertaan dalam takaful jika penerimanya meninggal dunia sebelum tamat tempoh matang; dan vi. Borang penamaan takaful perlu menyatakan dengan jelas status penama adalah sebagai benefisiari jika niat peserta adalah hibah. Asas Pertimbangan Manfaat takaful boleh dihibahkan atas asas hibah ruqba yang merujuk kepada pemberian dengan syarat kematian salah satu pihak (sama ada pemberi hibah atau penerima hibah) sebagai syarat pemilikan kepada salah satu pihak yang hidup. Dalam hal ini, harta hibah akan menjadi milik penerima hibah sekiranya pemberi hibah meninggal dunia. Tetapi, jika penerima hibah meninggal dunia sebelum pemberi hibah, maka harta hibah akan dikembalikan kepada pemberi hibah. Sebahagian daripada fuqaha mazhab Hanbali, Imam Malik, Imam Al-Zuhri, Abu Thur dan lain-lain serta pendapat lama (qawl qadim) Imam Syafii berpendapat bahawa hibah umra adalah harus dan syaratnya sah jika tidak dinyatakan oleh pemberi hibah bahawa harta yang dihibahkan akan menjadi milik waris penerima hibah selepas kematian penerima hibah.85 Ini bermakna harta hibah akan kembali kepada pemberi hibah selepas kematian penerima hibah. Di samping itu, perlaksanaan hibah ruqba dan umra dalam industri takaful turut diterima oleh sebahagian ulama semasa.86 Di samping itu, penarikan balik hibah adalah diharuskan dalam konteks hibah yang berikut: i. hibah dengan syarat boleh ditarik balik; ii. hibah yang belum diserahkan (qabd); 85 Ibnu Qudamah, Al-Mughni, Dar `Alam al-Kutub, 1997, j. 6, h. 338-339. 86 Ali Muhyiddin al-Qurrahdaghi, Al-Ta’min al-Islami: Dirasah Fiqhhiyyah Ta’siliyyah, Dar al-Basya’ir al-Islamiyyah, 2004, h. 244. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 86 iii. hibah yang dipulangkan oleh waris; dan iv. hibah bapa kepada anak. Dalam konteks takaful, qabd hanya berlaku sekiranya peserta meninggal dunia atau pada tarikh matang sijil takaful. Oleh itu, peserta boleh menarik balik hibah sebelum dua keadaan ini berlaku. Sekiranya penerima hibah meninggal dunia, kontrak hibah dianggap belum sempurna kerana qabd belum berlaku, maka peserta boleh menarik balik hibah dan menghibahkannya kepada orang lain atau menamatkan sijil takaful dan mendapatkan nilai serahan sijil.87 57. Penamaan di bawah Skim Takaful yang Berasaskan Konsep Hibah MPS dirujuk sama ada konsep perlindungan berkanun (statutory protection) yang diamalkan oleh insurans konvensional boleh diterima pakai dalam konteks takaful. Dalam kontrak insurans konvensional, penamaan manfaat insurans oleh seseorang pemegang polisi kepada suami/isteri, anak, atau ibu bapanya (sekiranya pemegang polisi tidak mempunyai suami/isteri atau anak yang hidup ketika membuat penamaan) akan mewujudkan satu amanah bagi faedah penama wang polisi dan mendapat perlindungan berkanun di bawah Akta Insurans 1996. Peruntukan berhubung dengan perlindungan berkanun ini menetapkan bahawa pembayaran manfaat insurans tersebut tidak akan menjadi sebahagian daripada harta pusaka dan tidak tertakluk kepada hutang pemegang polisi yang meninggal dunia. Pemegang polisi tersebut boleh melantik pemegang amanah untuk wang polisi (policy moneys) dan penerimaan wang polisi oleh seseorang pemegang amanah akan melepaskan syarikat insurans daripada liabiliti berkenaan dengan wang polisi yang telah dibayar kepada pemegang amanah tersebut. Tanpa keizinan bertulis pemegang amanah, seseorang pemegang polisi tidak boleh membatalkan sesuatu penamaan di bawah polisi itu, mengubah atau menyerahkan polisi itu, atau menjadikan polisi itu sebagai cagaran sekiranya penama bagi sesuatu polisi itu adalah suami/isterinya, anaknya atau ibu bapanya. 87Majallah al-Ahkam al-`Adliyyah, Matba`ah al-Adabiyyah, 1302H, h. 125, no. 849. 87 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-52 bertarikh 2 Ogos 2005 telah memutuskan bahawa konsep perlindungan berkanun seperti yang diamalkan oleh insurans konvensional boleh diterima pakai dalam industri takaful seperti yang berikut: i. Pembayaran manfaat takaful tidak akan menjadi sebahagian daripada harta pusaka dan tidak tertakluk kepada hutang peserta takaful yang meninggal dunia; ii. Peserta takaful boleh melantik pemegang amanah yang bertanggungjawab untuk manfaat takaful. Walau bagaimanapun, pemegang amanah milik Kerajaan akan menjadi pemegang amanah manfaat takaful tersebut dalam situasi berikut: a. Tiada pemegang amanah dilantik; b. Penama tidak kompeten untuk berkontrak; dan c. Tiada ibu bapa penama yang masih hidup sekiranya penama tidak kompeten untuk berkontrak. iii. Penerimaan manfaat takaful oleh pemegang amanah adalah dikira sebagai pelepasan syarikat takaful daripada semua liabiliti berkenaan dengan manfaat takaful tersebut. Asas Pertimbangan Memandangkan status manfaat takaful yang dihibah tidak akan bertukar menjadi wasiat, harta pusaka dan sebagainya bagi memenuhi matlamat skim takaful iaitu memberikan perlindungan kepada peserta atau penama (penerima hibah), manfaat takaful yang dihibah dilihat mempunyai persamaan dengan perlindungan berkanun yang diterima pakai dalam insurans konvensional. Ini bermakna, sebarang manfaat takaful yang dinamakan kepada suami/isteri, anak atau ibu bapa (sekiranya tiada suami/isteri atau anak yang hidup semasa penamaan dibuat) tidak boleh dibatalkan, diubah, diserah (surrender) dan dicagarkan tanpa mendapat keizinan penama tersebut. Di samping itu, konsep perlindungan berkanun juga boleh digunakan dalam industri takaful kerana ia memelihara kepentingan penama dalam takaful di samping tidak bercanggah dengan konsep hibah ruqba. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 88 58. Penggunaan Prinsip Penuh Percaya (Principle of Utmost Good Faith) dalam Takaful Prinsip penuh percaya merujuk kepada kewajipan semua pihak yang berkontrak untuk membuat penyataan (duty of disclosure) yang lengkap dan benar. Di bawah prinsip ini, semua pihak yang berkontrak bertanggungjawab untuk memaklumkan segala maklumat yang relevan dan boleh mempengaruhi syarat-syarat sesuatu kontrak. Dalam konteks insurans konvensional, pendedahan maklumat yang relevan boleh mempengaruhi kadar premium, terma dan manfaat insurans yang perlu dibayar. Sehubungan dengan itu, kewajipan ini dikenakan terhadap kedua-dua pihak berkontrak iaitu pelanggan dan juga syarikat insurans. Secara amnya, kontrak insurans akan terbatal sekiranya mana-mana pihak melanggar kewajipan masing- masing secara sengaja dengan niat untuk menipu atau memperdaya. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada prinsip penuh percaya seperti yang diamalkan dalam insurans konvensional boleh diterima pakai dalam takaful. Keputusan MPS pada mesyuarat ke-52 bertarikh 2 Ogos 2005 telah memutuskan bahawa prinsip penuh percaya boleh diterima pakai dalam industri takaful. Sekiranya terbukti berlaku penipuan pihak peserta takaful, syarikat takaful tidak perlu mengembalikan caruman dalam dana risiko peserta (dana tabarru`) kepada peserta takaful. Walau bagaimanapun, amaun dalam dana pelaburan peserta perlu dikembalikan kepada peserta takaful kerana ia merupakan hak peserta. 89 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan bahawa Islam amat menitikberatkan prinsip kejujuran dalam semua urusan, selaras dengan firman Allah SWT yang berikut: “Wahai orang-orang yang beriman! Bertakwalah kamu kepada Allah SWT dan hendaklah kamu berada bersama-sama orang-orang yang benar.”88 “Daripada Abi Sa`id Al-Khudri daripada Nabi SAW berkata: Ahli perniagaan yang jujur bersama para Nabi, orang-orang yang benar dan orang-orang yang Syahid.”90 Menurut Majallah al-Ahkam al-`Adliyyah, jika salah satu pihak melakukan penipuan dalam jual beli dan penipuan tersebut dapat dibuktikan, maka pihak yang ditipu boleh membatalkan akad jual beli tersebut.89 Terdapat juga hadis Rasulullah SAW yang menyatakan seperti berikut: Daripada athar sahabat: “Daripada Qatadah sesungguhnya Salman berkata: Peniaga yang jujur akan bersama dengan tujuh golongan yang dinaungi arash Allah SWT pada hari kiamat.” 88 Surah al-Taubah, ayat 119. 89Majallah al-Ahkam al-`Adliyyah, Matba`ah al-Adabiyyah, 1302H, h. 64, no. 357. 90 Al-Naisaburi, Al-Mustadrak `ala al-Sahihain, Dar al-Haramain li al-Tiba`ah wa al-Nashr wa al-Tawzi`, 1997, j. 2, h. 8. Berdasarkan dalil-dalil di atas, dapat difahami bahawa semua bentuk perjanjian atau kontrak adalah mengikat pihak-pihak yang berkontrak. Namun, sekiranya wujud sebarang elemen yang menafikan kesahihan kontrak dari segi Syarak (seperti penipuan dan sebagainya), maka kontrak atau perjanjian tersebut adalah dilarang dan tidak sah. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 90 59. Kepentingan Boleh Lindung (Insurable Interest) dalam Takaful Kepentingan boleh lindung merupakan satu keperluan utama dalam insurans sama ada insurans konvensional atau takaful. Ia secara umumnya bermaksud pihak yang diinsuranskan iaitu pemegang polisi atau peserta takaful perlu mempunyai hubungan dan kepentingan dengan perkara yang ingin dilindunginya sama ada melibatkan nyawa, diri, barang atau liabiliti tertentu. Jika kepentingan boleh lindung ini tidak wujud, maka kontrak insurans atau takaful menjadi tidak sah atau tidak dapat dikuatkuasakan. Kepentingan boleh lindung dilihat sebagai penting dalam menentukan motif atau tujuan seseorang itu menyertai sesuatu polisi insurans atau pelan takaful. Sebagai contoh, jika seseorang itu membeli sebuah polisi insurans nyawa atau pelan takaful keluarga bagi nyawanya sendiri dan menamakan isteri dan anak- anaknya sebagai pihak benefisiari, maka syarikat insurans atau takaful akan meluluskan permohonannya kerana pihak pemohon mempunyai kepentingan boleh lindung iaitu kemaslahatan keluarganya sekiranya berlaku kematian atau keilatan kekal terhadap pemegang polisi atau peserta takaful. Sebaliknya, jika seseorang itu membeli polisi insurans hayat atau pelan takaful keluarga untuk nyawa seseorang dan menamakan dirinya sendiri sebagai benefisiari, permohonannya tidak akan diluluskan kerana ketiadaan kepentingan boleh lindung. Dalam hal ini, MPS dirujuk berhubung dengan penggunaan prinsip kepentingan boleh lindung dalam takaful. Keputusan MPS pada mesyuarat ke-52 bertarikh 2 Ogos 2005 dan mesyuarat ke-76 bertarikh 9 Jun 2008 telah memutuskan perkara berikut: i. Konsep kepentingan boleh lindung dilihat tidak bercanggah dengan Syariah dan boleh diterima pakai dalam takaful; ii. Dalam takaful am, seseorang itu dianggap mempunyai kepentingan boleh lindung apabila dia mempunyai kepentingan undang-undang dan kewangan bagi sesuatu subjek; 91 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM iii. Bagi takaful keluarga, kepentingan boleh lindung wujud apabila terdapat hubungan yang jelas antara dua pihak yang melibatkan elemen kasih sayang, pergantungan secara emosi, dan jangkaan munasabah terhadap kerugian dari segi material dan psikologi. Dalam hal ini, seseorang individu dianggap mempunyai kepentingan boleh lindung terhadap pasangannya, anaknya, pekerjanya (bagi majikan) dan seseorang individu yang dia bergantung kepadanya dengan cara yang diharuskan Syarak; iv. Peserta atau pemegang sijil hendaklah mendapatkan keizinan pihak ketiga yang mempunyai kepentingan boleh lindung semasa memeterai kontrak takaful yang melibatkan pihak ketiga tersebut, kecuali jika ianya melibatkan anak di bawah umur; v. Sebagai prinsip umum, kepentingan boleh lindung hendaklah wujud semasa kontrak dimeterai dan semasa kejadian atau tuntutan manfaat takaful dibuat. Kepentingan boleh lindung dikira tidak lagi wujud sekiranya sesuatu hubungan dengan pihak ketiga terputus dalam tempoh sijil takaful berkuat kuasa. Sehubungan dengan itu, sekiranya pihak ketiga meninggal dunia, peserta atau pemegang sijil tidak berhak menerima manfaat takaful sebagai benefisiari. Walau bagaimanapun, sebagai satu pengecualian, sekiranya hubungan suami-isteri terputus akibat perceraian dalam tempoh sijil berkuat kuasa, kepentingan boleh lindung disifatkan sebagai masih berterusan dan peserta atau pemegang sijil dibenarkan untuk menerima manfaat takaful (sama ada sebagai benefisiari atau wasi) apabila berlaku kematian pihak yang dilindungi, kecuali jika pihak yang dilindungi itu menyatakan dengan jelas ketidakizinannya. Di samping itu, sekiranya pihak yang dilindungi ditimpa keilatan kekal, manfaat keilatan (termasuklah perlindungan penyakit kritikal) akan diperoleh oleh pihak yang dilindungi. Sekiranya sijil takaful melibatkan pelan pelaburan atau simpanan, peserta atau pemegang sijil turut berhak ke atas nilai simpanan atau pelaburan pada tarikh matang sijil takaful tersebut; dan RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 92 vi. Syarikat takaful sebagai pihak yang menjaga kemaslahatan para peserta takaful, berhak untuk tidak menerima cadangan untuk menyertai skim takaful bagi melindungi pihak ketiga jika didapati tiada kepentingan boleh lindung dalam cadangan tersebut atau menolak tuntutan manfaat yang dibuat sekiranya ia dapat membuktikan niat buruk (bad intention) peserta atau pemegang sijil. Asas Pertimbangan Konsep kepentingan boleh lindung diperkenalkan dalam insurans konvensional untuk mengelakkan aspek pertaruhan dan perjudian. Namun konsep ini dilihat tidak bercanggah dengan ciri-ciri teras dalam takaful kerana kontrak takaful dibina atas dasar saling menjamin dengan komitmen untuk memberi tabarru` (sumbangan) sesama peserta takaful. Melalui konsep tabarru`, ia membolehkan para peserta bersetuju sesama mereka untuk menjamin apa jua bentuk risiko yang dipersetujui bersama selagi tidak bercanggah dengan Syarak. Kelonggaran ini bagaimanapun boleh memberi ruang kepada manipulasi dan risiko moral (moral hazard). Oleh itu, konsep kepentingan boleh lindung boleh diterima pakai dalam takaful selaras dengan prinsip Syariah yang dikenali sebagai sadd zarai` iaitu menutup ruang yang boleh membawa kepada kemudaratan. Prinsip ini dilihat sebagai satu mekanisme yang boleh menghalang kontrak takaful daripada dimanipulasi untuk tujuan yang tidak berlandaskan Syariah di samping mengelakkan risiko moral. 93 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Tawarruq merujuk kepada urus niaga mua`malah yang melibatkan dua peringkat urus niaga. Pada peringkat pertama, urus niaga tersebut melibatkan pembelian secara kredit antara pembeli dengan penjual asal sesuatu aset, dan pada peringkat kedua, pembeli kemudiannya akan menjual aset tersebut secara tunai kepada pihak ketiga.91 Ia dinamakan tawarruq kerana ketika membeli aset tersebut secara kredit, pembeli tidak berniat untuk menggunakan atau memanfaatkannya, tetapi hanya ingin menjualnya semula bagi memperoleh wang tunai. Ia juga dikenali sebagai murabahah komoditi dan digunakan secara meluas dalam produk deposit, pembiayaan, pengurusan aset dan tanggungan serta pengurusan risiko. 60. Produk Deposit Berasaskan Tawarruq Terdapat cadangan daripada institusi kewangan Islam untuk menawarkan produk deposit berasaskan konsep tawarruq atau murabahah komoditi. Mekanisme deposit murabahah komoditi yang dicadangkan adalah seperti yang berikut: i. Pelanggan (pendeposit) melantik institusi kewangan Islam sebagai wakil untuk membeli komoditi logam daripada peniaga logam A pada harga tunai dalam pasaran komoditi logam yang diiktiraf; ii. Institusi kewangan Islam kemudiannya membeli daripada pelanggan komoditi logam tersebut secara belian tangguh pada harga kos ditambah margin keuntungan; dan iii. Selepas itu, institusi kewangan Islam menjual semula komoditi logam tersebut kepada peniaga logam B pada harga tunai dalam pasaran komoditi logam. Hasil daripada urus niaga (ii) di atas, institusi kewangan Islam akan menanggung liabiliti (amaun kos komoditi ditambah margin keuntungan) untuk dibayar kepada pelanggan pada tempoh matang. Harga komoditi yang dibeli daripada peniaga logam A dan harga yang dijual kepada peniaga logam B adalah sama. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada produk deposit berasaskan konsep tawarruq dibenarkan. TAWARRUQ 91 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 14, h. 147. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 94 95 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM “...padahal Allah SWT telah menghalalkan jual beli dan mengharamkan riba...”92 Berdasarkan pengertian umum ayat ini, para ulama berpendapat bahawa tawarruq dibolehkan kerana ia merupakan sebahagian daripada kegiatan jual beli. Ia mungkin berlaku dengan tujuan memperolehi wang tunai sama ada dengan pengetahuan atau tanpa pengetahuan semua pihak yang terlibat. Ia juga mungkin dilakukan kerana desakan keadaan atau sebagai kebiasaan dalam amalan sesetengah pihak atau institusi. ii. Kaedah fiqah: “Menurut kaedah asal hukum, mua`malah adalah harus, kecuali ada dalil yang mengharamkannya.”93 iii. Pandangan ulama semasa telah mengharuskan penggunaan tawarruq berdasarkan pandangan dalam kalangan mazhab Hanafi, Hanbali dan Syafii yang mengharuskan penggunaan tawarruq.94 Keputusan MPS pada mesyuarat ke-51 bertarikh 28 Julai 2005 telah memutuskan bahawa produk deposit yang berasaskan konsep tawarruq adalah dibenarkan. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap dalil-dalil dan pandangan berkaitan keharusan tawarruq seperti yang berikut: i. Firman Allah SWT: 92 Surah al-Baqarah, ayat 275. 93 Al-Syafii, Al-Umm, Bait al-Afkar al-Dawliyyah, (t.t.), h. 438. 94 Ibnu al-Humam, Syarh Fath al-Qadir, Dar al-Kutub al-`Ilmiyah, 2003, j. 7, h. 199; Ibnu Muflih, Al-Furu`, Bait al-Afkar al-Dawliyyah, 2004, h. 931; manakala pandangan ulama Syafii dilihat dari keharusan bai` `inah. 61. Produk Pembiayaan Berasaskan Tawarruq Terdapat cadangan daripada institusi kewangan Islam untuk menawarkan produk pembiayaan berasaskan konsep tawarruq atau murabahah komoditi. Mekanisme pembiayaan murabahah komoditi yang dicadangkan adalah seperti yang berikut: i. Institusi kewangan Islam membeli komoditi logam daripada peniaga logam A secara tunai dalam pasaran komoditi logam yang diiktiraf; ii. Institusi kewangan Islam menjual komoditi logam tersebut kepada pelanggan secara kredit pada harga kos ditambah margin keuntungan; dan iii. Pelanggan melantik institusi kewangan Islam sebagai wakil untuk menjual komoditi logam tersebut kepada peniaga logam B secara tunai dalam pasaran komoditi logam. Jualan secara tunai daripada pelanggan kepada peniaga logam B akan membolehkan pelanggan mendapatkan amaun tunai pembiayaan, manakala jualan secara tangguh daripada institusi kewangan Islam kepada pelanggan akan mewujudkan obligasi kewangan yang perlu dibayar oleh pelanggan dalam tempoh yang telah dipersetujui. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada produk pembiayaan berasaskan konsep tawarruq dibenarkan. Keputusan MPS pada mesyuarat ke-51 bertarikh 28 Julai 2005 telah memutuskan bahawa produk pembiayaan yang berasaskan konsep tawarruq adalah dibenarkan. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap dalil-dalil dan pandangan berkaitan keharusan tawarruq seperti yang dinyatakan dalam perkara 60.95 95 Produk Deposit Berasaskan Tawarruq. R ESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 96 97 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 62. Sukuk Ijarah dan Saham Berlandaskan Syariah sebagai Aset Sandaran dalam Urus Niaga Tawarruq Terdapat cadangan daripada institusi kewangan Islam untuk menggunakan sukuk ijarah dan saham berlandaskan Syariah sebagai aset sandaran dalam urus niaga tawarruq atau murabahah komoditi bagi pengurusan mudah tunai dalam sistem kewangan Islam. Ciri-ciri sukuk ijarah yang dicadangkan ialah sukuk ijarah yang disokong oleh aset ketara, aset kewangan dan gabungan antara kedua-dua aset ketara dan aset kewangan. Ciri-ciri saham berlandaskan Syariah pula ialah saham yang menepati prinsip dan hukum Syarak. Dalam hal ini, MPS dirujuk sama ada penggunaan sukuk ijarah dan saham berlandaskan Syariah sebagai aset sandaran dalam urus niaga tawarruq dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-58 bertarikh 27 April 2006 telah memutuskan bahawa penggunaan sukuk ijarah dan saham berlandaskan Syariah sebagai aset sandaran dalam urus niaga tawarruq bagi pengurusan mudah tunai kewangan Islam adalah dibenarkan. Sukuk ijarah tersebut mestilah disokong oleh aset ketara atau gabungan aset ketara dan aset kewangan. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap pandangan berikut: i. Aset sandaran yang dicadangkan terdiri daripada jenis aset yang sah dijual beli dari sudut pandangan Syarak; dan ii. Urus niaga jual beli secara tawarruq lazimnya melibatkan jual beli secara tangguh oleh salah satu pihak yang berkontrak. Sekiranya ini berlaku, urus niaga tawarruq mesti melibatkan jual beli aset ketara atau sekuriti yang disandarkan kepada aset ketara atau gabungan aset ketara dan aset kewangan bagi mengelakkan berlakunya jual beli hutang dengan hutang yang ditegah oleh Syarak. 63. Penggunaan Tawarruq dalam Sukuk Murabahah Komoditi Terdapat cadangan terbitan sukuk murabahah komoditi yang berasaskan tawarruq sebagai satu instrumen alternatif kepada produk-produk pasaran wang sedia ada yang menerima pakai konsep bai` `inah. Secara umumnya, kaedah terbitan sukuk ini melibatkan urus niaga murabahah komoditi melalui kontrak tawarruq bagi mewujudkan keberhutangan antara penerbit sukuk dan pelabur. Hutang tersebut akan dilangsaikan oleh penerbit sukuk pada tarikh matang. Sukuk ini juga akan diurus niaga di pasaran sekunder bagi institusi-institusi kewangan yang menerima pakai konsep bai` dayn. Sehubungan dengan itu, MPS dirujuk berhubung dengan isu sama ada cadangan terbitan sukuk yang berasaskan tawarruq ini selaras dengan Syarak. Keputusan MPS pada mesyuarat ke-67 bertarikh 3 Mei 2007 telah memutuskan bahawa tiada halangan Syarak bagi terbitan sukuk murabahah komoditi yang berasaskan tawarruq selagi jual beli berlaku antara tiga atau lebih pihak yang berkontrak. Asas Pertimbangan Keputusan di atas adalah berdasarkan pertimbangan terhadap dalil dan pandangan berkaitan keharusan tawarruq seperti yang dinyatakan dalam perkara 60.96 96 Produk Deposit Berasaskan Tawarruq. R ESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 98 99 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 64. Cadangan Model Operasi Commodity Murabahah House (Kini Dikenali sebagai Suq al-Sila`) Bank Negara Malaysia, Suruhanjaya Sekuriti, Bursa Malaysia dan peserta industri kewangan Islam telah bekerjasama memperkenalkan platform dagangan komoditi Syariah berasaskan web sesawang elektronik sepenuhnya yang dikenali sebagai Commodity Murabahah House (CMH). Ia merupakan platform komoditi antarabangsa yang memudahkan urus niaga pelaburan dan pembiayaan Islam berasaskan komoditi di bawah prinsip tawarruq, murabahah dan/atau musawamah. Sebagai permulaan, minyak sawit mentah (crude palm oil (CPO)) yang mempunyai spesifikasi yang jelas didagangkan di CMH dalam nilai ringgit. CMH juga menawarkan dagangan dalam pelbagai mata wang asing lain bagi menyediakan lebih banyak pilihan, akses dan keanjalan untuk institusi kewangan antarabangsa menyertai pasaran dagangan komoditi Syariah. Dalam struktur CMH yang dicadangkan, pihak penjual disyaratkan untuk memiliki CPO terlebih dahulu sebelum sebarang urus niaga jualan dilakukan. CMH membenarkan pembeli menerima penyerahan komoditi sekiranya posisi belian mengatasi jualan komoditi dan akaun dagangan tidak ditutup (square off) pada hari yang sama. Untuk mengambil penyerahan, pembeli CPO mestilah mendapat lesen daripada Lembaga Minyak Sawit Malaysia dan akan dikenakan yuran penyerahan yang ditentukan oleh CMH serta kos-kos berkaitan penyerahan dan penyimpanan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada pelaksanaan CMH seperti yang dicadangkan selari dengan Syarak. 100 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 97 Menurut Kamus Dewan Edisi Keempat (2007), “rawak“ membawa maksud rambang atau tidak ditentukan atau diatur terlebih dahulu. Oleh itu, “secara rawak“ dalam konteks operasi CMH bertujuan untuk memastikan aset yang dijual beli tidak disyaratkan untuk dijual kembali kepada pembekal yang asal. Keputusan MPS pada mesyuarat ke-78 bertarikh 30 Julai 2008 telah memutuskan bahawa cadangan struktur operasi CMH adalah dibenarkan dengan syarat CPO yang diurusniagakan mestilah dapat dikenal pasti dan ditentukan secara jelas dan tepat (mu`ayyan bi al-zat) dari sudut lokasi, kuantiti dan kualiti bagi memenuhi ciri-ciri urus niaga sebenar. Di samping itu, adalah disarankan supaya urus niaga dilakukan secara rawak (random)97 supaya operasi CMH lebih menepati ciri-ciri tawarruq yang asal. Asas Pertimbangan Penggunaan CPO sebagai aset sandaran dilihat sebagai memenuhi syarat-syarat barangan untuk urus niaga jual beli kerana ia wujud dan boleh dikenal pasti (secara zat), boleh dimiliki sebelum dijual, serta kualitinya boleh ditentukan berdasarkan spesifikasi yang ditetapkan dari segi intipati, piawaian dan nilai. Di samping itu, CPO yang dijual beli adalah bebas daripada sebarang terma ikatan dan CPO tersebut boleh dihantar untuk serahan kepada pembeli. Kontrak wadi`ah merupakan mekanisme yang membenarkan seseorang untuk mengamanahkan aset miliknya kepada seseorang yang lain bagi tujuan simpanan. Dalam amalan perbankan Islam semasa, wadi`ah yad dhamanah (simpanan dengan jaminan) merupakan antara bentuk wadi`ah yang diterima pakai secara meluas. Menerusi kontrak wadi`ah yad dhamanah ini, institusi perbankan Islam bertindak sebagai penyimpan atau pemegang amanah bagi dana yang didepositkan oleh pelanggan dalam institusi perbankan Islam. Namun, memandangkan pelanggan lazimnya membenarkan institusi perbankan Islam menggunakan deposit yang disimpannya, maka institusi perbankan Islam bertanggungjawab untuk menjamin deposit tersebut. Sebagai balasan dan tanda penghargaan atas penggunaan deposit tersebut, institusi perbankan Islam, atas budi bicaranya, boleh memberikan hibah kepada pelanggan. 65. Takyif Wadi`ah Yad Dhamanah sebagai Qard MPS dirujuk berhubung dengan isu sama ada wadi`ah yad dhamanah boleh mengambil hukum atau diberikan penyesuaian (takyif ) sebagai qard. Keputusan MPS pada mesyuarat khas ke-6 bertarikh 8 Mei 2008 telah memutuskan bahawa hukum wadi`ah yad dhamanah yang melibatkan wang mengambil hukum qard dari segi garis panduan (dhawabit) dan kesan-kesan lanjutan daripadanya. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan terhadap perkara berikut: i. Dalam konteks kewangan semasa, wadi`ah merupakan kontrak yang melibatkan pemilik aset mendepositkan asetnya kepada pihak lain atas dasar amanah untuk tujuan simpanan; 98 WADI`AH 98 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 5, h. 4022. 101 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ii. Jumhur fuqaha mengklasifikasikan wadi`ah sebagai akad amanah (yad amanah) iaitu aset yang diserahkan untuk simpanan penerima wadi`ah merupakan satu amanah. Penerima wadi`ah dipertanggungjawabkan untuk mengganti aset wadi`ah yang mengalami kerosakan atau hilang semasa dalam simpanannya ekoran kecuaiannya.99 Walau bagaimanapun, majoriti ulama berpandangan bahawa sekiranya institusi kewangan menggunakan wang yang diamanahkan untuk disimpan, maka kontrak tersebut telah bertukar menjadi kontrak qard; 100 iii. Akademi Fiqah OIC telah menetapkan bahawa “deposit dalam akaun semasa, sama ada yang disimpan di institusi kewangan Islam atau konvensional, merupakan pinjaman dari sudut fiqah kerana institusi kewangan yang menerima deposit menjamin deposit tersebut dan ia mesti memulangkan deposit tersebut jika diminta”;101 dan iv. Pandangan ulama semasa berhubung dengan hukum wadi`ah yang disimpan di institusi perbankan Islam adalah selari dengan pandangan yang dikemukakan oleh ulama silam iaitu sekiranya penerima wadi`ah menggunakan aset wadi`ah dengan izin pendeposit wadi`ah, ia dianggap qard. 99 Al-Baihaqi, Al-Sunan al-Kubra, Dar al-Kutub al-`Ilmiyah, 2003, j. 6, h. 473. 100 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami,1996, b. 9, j. 1, h. 667, j. 7, h. 198. 101 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami,1995, Persidangan kali ke-9, resolusi no. 86 (9/3). R ESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 102 Wakalah merupakan kontrak agensi yang melibatkan satu pihak memberikan mandat kepada pihak lain sebagai wakil untuk melaksanakan tugasan tertentu. Dalam konteks kewangan Islam kini, kebiasaannya pelanggan akan melantik institusi kewangan sebagai wakil untuk melaksanakan sesuatu urus niaga mua`malah dan sebagai balasan, institusi kewangan akan menerima upah bagi perkhidmatan tersebut. 66. Penggunaan Wakalah bi al-Istithmar dalam Produk Deposit Sebuah institusi kewangan Islam berhasrat untuk memperkenalkan produk deposit berasaskan wakalah bi al-istithmar (perwakilan bagi tujuan pelaburan). Melalui produk ini, pelanggan akan mendepositkan sejumlah amaun di institusi kewangan Islam dengan syarat deposit ini hanya boleh dilaburkan dalam instrumen yang boleh memberikan pulangan pada kadar minimum yang tertentu (misalnya 5% setahun). Institusi kewangan Islam akan bertindak sebagai wakil untuk melaburkan deposit pelanggan dan berhak menerima upah seperti yang dipersetujui oleh kedua-dua pihak. Namun, institusi kewangan Islam tidak memberi jaminan bahawa pelanggan akan menerima sekurang-kurangnya kadar keuntungan pelaburan minimum seperti yang dijangka. Kerugian pelaburan adalah ditanggung sepenuhnya oleh pelanggan melainkan dibuktikan bahawa institusi kewangan Islam telah berlaku cuai atau melanggar syarat perjanjian dengan melabur dalam instrumen yang tiada potensi untuk menjana keuntungan minimum sebanyak 5% setahun. Selain itu, sekiranya pelanggan membuat keputusan untuk menamatkan kontrak pelaburan ini lebih awal dan mengeluarkan kesemua deposit, pelanggan hanya layak untuk memperolehi nilai semasa pelaburan tersebut. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada produk deposit berasaskan wakalah bi al-istithmar seperti yang dicadangkan dibenarkan. WAKALAH 103 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat khas ke-2 bertarikh 18 Jun 2007 telah memutuskan bahawa akaun deposit berasaskan kontrak wakalah bi al-istithmar seperti yang dicadangkan adalah dibenarkan, tertakluk kepada syarat-syarat berikut: i. Sekiranya institusi kewangan Islam melanggar syarat perjanjian atau melakukan kecuaian dengan membuat pelaburan dalam instrumen yang sememangnya tidak berpotensi untuk menjana keuntungan pada kadar minimum (contohnya 5% setahun), institusi kewangan Islam akan membayar ganti rugi sebanyak nilai pokok pelaburan berserta keuntungan sebenar (jika ada); dan ii. Sekiranya institusi kewangan Islam melabur dalam instrumen yang dijangka menjana keuntungan sekurang-kurangnya 5% setahun tetapi gagal mencapai sasaran tersebut berikutan masalah yang bukan berpunca daripada kecuaian institusi kewangan Islam, kerugian adalah ditanggung sepenuhnya oleh pelanggan. Asas Pertimbangan Prinsip wakalah bi al-istithmar adalah mirip kepada prinsip mudarabah kerana wakil bertindak menerima wang deposit daripada pelanggan untuk tujuan pelaburan. Bezanya, perkara yang mendasari kontrak wakalah ialah ujrah atau upah. Pelaksanaan prinsip wakalah dalam bentuk ini tidak bercanggah dengan kehendak Syariah selagi ciri-ciri asal wakalah masih dipelihara. Ini selaras dengan keharusan wakalah yang dinyatakan dalam al-Quran: “...sekarang utuslah salah seorang darimu, membawa wang perak ini ke bandar kemudian biarlah dia memilih jenis makanan yang baik, kemudian hendaklah ia membawa untuk kamu sedikit habuan daripadanya...”102 102 Surah al-Kahfi, ayat 19. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 104 Keharusan wakalah turut dinyatakan oleh Rasulullah SAW seperti yang diriwayatkan dalam hadis berikut: “Daripada `Uqbah ibn `Amir menceritakan bahawa Rasulullah SAW memberinya beberapa ekor kambing biri-biri untuk diagihkan kepada para sahabat baginda dan seekor anak kambing biri-biri jantan tertinggal selepas pengagihan tersebut. Beliau memaklumkan Rasulullah SAW mengenainya, dan baginda berkata: Korbankannya bagi pihakku.”103 “(Urusan) orang Islam adalah berasaskan kepada syarat-syarat yang (dipersetujui) oleh mereka, kecuali syarat-syarat menghalalkan apa yang haram atau mengharamkan apa yang halal.”104 Berdasarkan hadis ini, pelanggan berhak menetapkan institusi kewangan Islam sebagai wakil yang dibenarkan untuk melabur dalam instrumen yang berpotensi menjana sekurang-kurangnya keuntungan minimum. Sehubungan dengan itu, sekiranya pelanggan membuat keputusan untuk menamatkan kontrak pelaburan dan mengeluarkan keseluruhan amaun deposit, pelanggan dianggap menarik balik mandat pengurusan modal daripada institusi kewangan Islam. Dalam hal ini, pelanggan hanya berhak memperolehi nilai pelaburan semasa sahaja. Ini dilihat selaras dengan kesepakatan keempat-empat mazhab dalam kontrak pelaburan seperti mudarabah, iaitu kesemua mazhab bersetuju bahawa kontrak mudarabah adalah terbatal atau tamat menerusi penyataan pembatalan secara jelas, atau menerusi tindakan penyumbang modal menarik balik mandat pengurusan modal.105 103 Al-Bukhari, Sahih al-Bukhari, Al-Matba`ah al-Salafiyyah, 1982, j. 2, h. 207, hadis no. 2500. 104 Abu Daud, Sunan Abi Daud, Bait al-Afkar al-Dawliyyah, 1999, h. 398, hadis no. 3594. 105 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 5, h. 3965. 105 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Bai` daynmerupakan akad jual beli hak hutang yang terbentuk hasil daripada aktiviti perniagaan yang berlandaskan Syarak. Dalam konteks kewangan Islam, bai` dayn merupakan kaedah penjualan hak hutang yang terhasil daripada akad pertukaran seperti murabahah, bai` bithaman ajil, ijarah, istisna` dan lain-lain. 67. Pembelian Semula Sijil Hutang Boleh Niaga secara Islam Sijil Hutang Boleh Niaga secara Islam (SHBN) merupakan sijil hutang yang distrukturkan berasaskan konsep bai` `inah. Di bawah mekanisme SHBN, institusi kewangan Islam akan menjual asetnya kepada pelanggan secara tunai. Kemudian, institusi kewangan Islam akan membeli semula aset tersebut secara kredit dengan harga belian yang lebih tinggi. Perbezaan harga antara harga jualan dengan harga belian merupakan jumlah keuntungan yang akan diperoleh oleh pelanggan. Sebagai bukti keberhutangan institusi kewangan Islam kepada pelanggan, institusi kewangan Islam akan menerbitkan SHBN yang boleh diniagakan dalam pasaran sekunder. Apabila tiba tempoh matang, pemegang SHBN akan menyerahkan SHBN kepada institusi kewangan Islam dan menerima harga nominalnya (iaitu harga belian institusi kewangan Islam). Dalam hal ini, MPS dirujuk berhubung dengan isu-isu berikut: i. Sama ada institusi kewangan Islam boleh membeli semula SHBN yang diterbitkannya sendiri sebelum tempoh matang; dan ii. Kaedah penentuan harga yang sesuai sekiranya institusi kewangan Islam ingin membeli semula SHBN tersebut. Keputusan MPS pada mesyuarat ke-14 bertarikh 8 Jun 2000 telah memutuskan perkara berikut: i. Institusi kewangan Islam yang menerbitkan SHBN boleh membeli semula SHBN yang diterbitkannya sebelum tempoh matang dengan syarat SHBN tersebut ditamatkan; dan ii. Harga (termasuk keuntungan) SHBN yang diurusniagakan sebelum tarikh matang hendaklah ditentukan berdasarkan persetujuan antara kedua- dua pihak penjual dan pembeli. BAI` DAYN RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 106 107 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Secara amnya, SHBN merupakan sijil hutang (syahadah al-dayn) iaitu harta yang mempunyai nilai yang boleh dijual beli dalam pasaran mengikut keperluan dan persetujuan pemegang sijil dan pembeli. Jual beli hutang adalah dibenarkan dengan syarat hutang tersebut mestilah wujud secara jelas. Dalam konteks SHBN, penjualan hutang diharuskan kerana ia berlaku antara pihak institusi kewangan Islam dengan pemegang sijil. Dalam hal ini, kebanyakan mazhab memberikan kelonggaran dalam urusan jualan hutang antara pihak pemberi pinjaman dengan penghutang. Majoriti ulama di kalangan mazhab Hanafi, Maliki, Syafii dan Hanbali membenarkan penjualan hutang kepada orang yang berhutang kerana isu ketiadaan penyerahan tidak berlaku memandangkan hutang yang hendak dijual telah berada di tangan pemberi pinjaman.106 Selain itu, hukum asal penentuan harga dalam jual beli adalah berdasarkan persetujuan dan keredhaan kedua-dua pihak penjual dan pembeli. Memandangkan SHBN ialah sijil hutang yang boleh diniagakan menurut pandangan Syarak, maka harga sijil tersebut bergantung pada ketetapan yang dipersetujui oleh kedua-dua pihak yang berkontrak. 68. Jual Beli Hutang yang Bakal Terhasil daripada Perkhidmatan Menerusi suatu perjanjian perkhidmatan (contohnya perkhidmatan membersihkan bangunan) yang dimeterai antara sebuah syarikat perkhidmatan (pelanggan) dengan syarikat yang lain (pihak ketiga), pihak ketiga bertanggungjawab untuk melunaskan pembayaran bagi perkhidmatan yang bakal disediakan oleh pelanggan. Pelanggan seterusnya akan menjual obligasi hutang pihak ketiga berkenaan kepada institusi kewangan Islam menerusi surat aku janji hutang. Penjualan hutang yang bakal terhasil daripada perkhidmatan yang disediakan oleh pelanggan ini adalah bertujuan untuk mendapatkan wang daripada institusi kewangan Islam bagi membiayai kos-kos perkhidmatan yang disediakan oleh pelanggan tersebut. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada jual beli hutang yang bakal terhasil daripada perkhidmatan antara pelanggan dengan institusi kewangan Islam seperti yang dicadangkan dibenarkan. 106 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 5, h. 3405. Keputusan MPS pada mesyuarat ke-17 bertarikh 12 Februari 2001 telah memutuskan bahawa jual beli hutang yang bakal terhasil daripada perkhidmatan seperti yang dicadangkan adalah tidak dibenarkan. Asas Pertimbangan Dalam konsep bai` dayn, hutang mestilah wujud atau dimaklumi terlebih dahulu sebelum ia dapat diurusniagakan. Jumhur ulama berpendapat bahawa hutang yang boleh dijual beli ialah hutang yang telah sabit secara pasti dan tetap (dayn mustaqir).107 Jika tidak, jual beli tersebut adalah tidak sah. Al-Syirazi berpandangan: “Hutang-hutang hendaklah diteliti, sekiranya pemilikan ke atasnya adalah tetap seperti ganti rugi ke atas kerosakan dan pembayaran balik pinjaman, maka diharuskan penjualan hutang tersebut kepada orang yang berhak (penghutang) sebelum pembayaran diterima, kerana pemilikannya ke atas hutang tersebut adalah tetap. Oleh itu, hutang tersebut harus dijual seperti mana diharuskan penjualan barang belian yang telah berada dalam pegangan pembeli. Adakah harus (penjualan hutang) kepada orang lain selain daripadanya (penghutang)? Terdapat dua pendapat: Pertama, harus kerana apa yang diharuskan penjualannya kepada orang yang berhak ke atasnya (penghutang), maka haruslah juga penjualannya daripada orang lain, sama seperti wadi`ah (deposit untuk simpanan). Kedua, tidak harus kerana dia (penjual) tidak berupaya untuk menyerahkannya kepada (pembeli) disebabkan dia (penghutang) mungkin menghalangnya atau menafikan (hutang tersebut). Itu dikira gharar yang tidak diperlukan (oleh pembeli), maka ia tidak harus. Walau bagaimanapun, pendapat pertama adalah lebih jelas, kerana dia (penjual) pada asasnya berupaya menyerahkan hutang tersebut tanpa sebarang halangan dan penafian (terhadap hutang tersebut).”108 Berdasarkan hujah di atas, penjualan dan pembelian hutang yang terhasil daripada perkhidmatan seperti yang dibentangkan tidak dibenarkan kerana ia tidak menepati kontrak bai` dayn yang memerlukan kewujudan hutang secara pasti dan tetap. Hutang yang dijangka terhasil daripada perkhidmatan yang bakal disediakan oleh pelanggan hanyalah merupakan unjuran pendapatan masa hadapan dan boleh menimbulkan ketidakpastian (gharar) dalam urus niaga yang dilaksanakan. 107 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 5, h. 3406 - 3407. 108 Al-Syirazi, Al-Muhazzab fi Fiqh al-Imam al-Syafii, Dar al-Qalam, 1996, j. 3, h. 31: RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 108 Bai` `inah merujuk kepada kontrak yang membabitkan urus niaga jualan dan pembelian semula aset oleh penjual. Dalam urus niaga ini, penjual menjual aset kepada pembeli secara tunai dan kemudian membelinya semula secara pembayaran tertangguh dengan harga yang lebih tinggi daripada harga jualan secara tunai. Ia juga boleh berlaku apabila penjual menjual aset kepada pembeli secara pembayaran tertangguh dan kemudian membelinya semula secara tunai pada harga yang lebih rendah daripada harga jualan secara tertangguh. Konsep bai` `inah ini digunakan dalam sistem perbankan dan pasaran modal Islam di Malaysia untuk memenuhi pelbagai keperluan peserta pasaran khususnya pada peringkat awal perkembangan sistem kewangan Islam. 69. Penggunaan Bai` `Inah dalam Terbitan Sijil Hutang Boleh Niaga secara Islam MPS dirujuk berhubung dengan cadangan terbitan Sijil Hutang Boleh Niaga secara Islam (SHBN) berdasarkan konsep bai` `inah. Di bawah mekanisme SHBN ini, institusi kewangan Islam akan menjual asetnya kepada pelanggan secara tunai. Kemudian, institusi kewangan Islam akan membeli semula aset tersebut secara kredit dengan harga belian yang lebih tinggi. Perbezaan antara harga jualan dengan harga belian merupakan jumlah keuntungan yang akan diperoleh oleh pelanggan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada terbitan SHBN seperti yang dicadangkan dibenarkan. Keputusan MPS pada mesyuarat pertama bertarikh 8 Julai 1997 telah memutuskan bahawa terbitan SHBN berasaskan konsep bai` `inah adalah dibenarkan. Asas Pertimbangan Keputusan MPS ini adalah berdasarkan dalil-dalil keharusan bai` ̀ inah seperti yang berikut: BAI` `INAH 109 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM i. Firman Allah SWT: “...padahal Allah SWT telah menghalalkan jual beli dan mengharamkan riba...”109 Dua perjanjian jual beli yang dimeterai secara berasingan dan bebas, tidak berkaitan antara satu sama lain serta menggunakan lafaz jual beli yang berlandaskan Syarak merupakan elemen-elemen penting dalam jual beli bai` `inah yang selari dengan tuntutan ayat di atas. Sehubungan dengan itu, dua perjanjian jual beli bai` `inah antara penjual dan pembeli berdasarkan elemen-elemen tersebut adalah sah di sisi Syarak. ii. Sebahagian fuqaha mazhab Syafii serta sebahagian daripada mazhab Hanafi seperti Imam Abu Yusuf berpandangan bahawa bai` `inah adalah harus.110 iii. Imam Syafii telah menghuraikan tentang keharusan bai` `inah dalam kitabnya, al-Umm, seperti yang berikut: “Apabila seseorang telah menjual sesuatu barang dalam sesuatu tempoh dan pembeli telah menerimanya, maka tidaklah menjadi kesalahan jika dia membelinya semula daripada orang yang telah membeli barang tersebut daripadanya dengan harga yang kurang.”111 iv. Imam Subki memetik kata-kata Imam Syafii seperti yang berikut: “Apabila seseorang telah menjual sesuatu barang dalam sesuatu tempoh dan pembeli telah menerimanya, maka tidaklah menjadi kesalahan jika dia membelinya semula daripada orang yang telah membeli barang tersebut daripadanya dengan harga kurang atau lebih, secara hutang atau tunai kerana ia merupakan jual beli yang berlainan daripada jual beli yang pertama.”112 109 Surah al-Baqarah, ayat 275. 110 Al-Fatawa al-Hindiyyah, Matba`ah Amiriyah, 1310H, j. 3, h. 208. 111 Al-Syafii, Al-Umm, Bait al-Afkar al-Dawliyyah, (t.t.), h. 461. 112 Al-Subki, Takmilah al-Majmu` Syarh al-Muhazzab, Maktabah al-Irshad, 1995, j. 10, h. 141: RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 110 70. Penggunaan Bai` `Inah dalam Pasaran Wang antara Bank secara Islam Terdapat cadangan untuk memperkenalkan urus niaga yang berasaskan bai` ̀ inah dalam pasaran wang antara bank secara Islam. Dalam urus niaga ini, sejumlah aset berlandaskan Syariah akan dijual oleh pembiaya (contohnya bank pusat) kepada institusi kewangan penerima biaya pada harga X secara hutang. Seterusnya, institusi kewangan penerima biaya akan menjual kembali aset tersebut kepada pembiaya secara tunai pada harga Y. Harga X adalah lebih tinggi daripada harga Y, dan perbezaan antara keduanya merupakan keuntungan kepada pembiaya. Dua kontrak jual dan beli tersebut dilaksanakan secara berasingan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada urus niaga yang berasaskan bai` `inah dalam pasaran wang antara bank secara Islam dibenarkan. Keputusan MPS pada mesyuarat ke-8 bertarikh 12 Disember 1998 telah memutuskan bahawa urus niaga yang berasaskan bai` ̀ inah dalam pasaran wang antara bank secara Islam adalah dibenarkan, tertakluk kepada syarat-syarat berikut: i. Urus niaga bai` `inah mestilah mengikut kaedah yang diterima oleh mazhab Syafii; dan ii. Barangan yang diurusniagakan mestilah bukan barangan ribawi. Asas Pertimbangan Keputusan MPS ini adalah berdasarkan dalil-dalil keharusan bai` ̀ inah seperti yang dinyatakan dalam perkara 69.113 113 Penggunaan Bai` `Inah dalam Terbitan Sijil Hutang Boleh Niaga secara Islam. 111 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 71. Penggunaan Kontrak “Jual dan Beli Balik“ Kontrak “jual dan beli balik“ melibatkan akad jual beli antara dua pihak diikuti janji (wa`d ) oleh penjual asal untuk membeli semula aset pada satu tarikh berbeza sekiranya pembeli membuat keputusan untuk menjual aset tersebut kepada penjual asal. Harga dalam akad kedua berbeza dengan harga dalam akad yang pertama. Penekanan yang diberikan dalam akad kedua ialah janji oleh penjual asal untuk membeli semula aset tersebut daripada pembeli berdasarkan terma dan syarat yang dipersetujui. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada kontrak “jual dan beli balik“ seperti yang dinyatakan di atas dibenarkan dan sama ada ia menyerupai bai` `inah. Keputusan MPS pada mesyuarat ke-13 bertarikh 10 April 2000 dan mesyuarat ke-21 bertarikh 30 Januari 2002 telah memutuskan bahawa kontrak “jual dan beli balik“ pada tarikh berbeza ini dibenarkan dan ia bukan merupakan akad bai` `inah. Asas Pertimbangan Kontrak “jual dan beli balik“ merupakan kontrak jual beli bersyarat yang dibenarkan Syarak dan bukan merupakan bai` ̀ inah kerana akad kedua hanya akan dimeterai sekiranya pembeli mengambil keputusan untuk menjual aset kepada pemilik asal. Kontrak jual beli bersyarat ini diakui sah kerana syarat yang dipersetujui tidak menjejaskan tujuan akad yang pertama serta berlaku pemindahan hak milik aset secara sah. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 112 72. Syarat-syarat Sah Akad Bai` `Inah Bagi menyelaraskan penggunaan bai` `inah dalam industri kewangan Islam, MPS dirujuk berhubung dengan syarat-syarat sah akad bai` `inah. Keputusan MPS pada mesyuarat ke-16 bertarikh 11 November 2000 dan mesyuarat ke-82 bertarikh 17 Februari 2009 telah memutuskan bahawa akad bai` `inah hendaklah menepati syarat-syarat sah seperti yang berikut: i. Mempunyai dua akad jual beli yang jelas dan berasingan iaitu akad pembelian dan akad penjualan; ii. Tidak terdapat syarat pembelian semula aset dalam akad; iii. Masa bagi pemeteraian setiap akad adalah berbeza; iv. Turutan pemeteraian setiap akad adalah betul iaitu akad jual beli pertama hendaklah disempurnakan terlebih dahulu sebelum akad jual beli yang kedua dimeterai; dan v. Berlaku pemindahan hak milik aset serta wujud penguasaan ke atas aset (qabd ) yang sah berdasarkan Syarak dan amalan perniagaan semasa (`urf tijari). Asas Pertimbangan Perincian syarat-syarat sah akad bai` `inah adalah berdasarkan hujah-hujah yang dinyatakan dalam perkara 69.114 Selain itu, pemindahan hak milik aset mesti berlaku kerana antara syarat sah jual beli ialah adanya qabd terhadap barang yang dibeli sebelum ia dijual semula kepada orang lain atau penjual asal. Ini adalah bagi mengelakkan berlakunya isu penjualan harta yang belum dimiliki. 114 Penggunaan Bai` `Inah dalam Terbitan Sijil Hutang Boleh Niaga secara Islam. 113 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 73. Pemasukan Syarat Pembelian Semula Aset ke dalam Akad Bai` `Inah MPS dirujuk berhubung dengan isu sama ada syarat pembelian semula aset (interconditionality) boleh dimasukkan ke dalam kedua-dua perjanjian bai` bithaman ajil (BBA) yang berasaskan bai` `inah iaitu Perjanjian Pembelian Harta Tanah dan Perjanjian Penjualan Harta Tanah bagi pembiayaan pembelian perumahan yang dimeterai antara institusi kewangan Islam dengan pelanggan. Syarat pembelian semula ini lazimnya terkandung dalam dokumen yang menyatakan janji penjual untuk membeli semula aset tersebut daripada pembeli khususnya dalam bahagian “sebutan permulaan“ (recital) perjanjian, brosur pemasaran, dokumen tambahan, lampiran dan sebagainya. Keputusan MPS pada mesyuarat ke-82 bertarikh 17 Februari 2009 telah memutuskan bahawa pemasukan syarat pembelian semula aset ke dalam akad bai` `inah akan menyebabkan akad tersebut menjadi batal. Asas Pertimbangan Keputusan ini adalah berdasarkan pandangan majoriti ulama yang menyatakan bahawa pemasukan syarat pembelian semula aset ke dalam akad bai` `inah akan menjadikan akad tersebut tidak sah: i. Al-Nawawi menyatakan bahawa ulama sependapat menyatakan bahawa apabila syarat membeli semula dikaitkan dengan akad, ia adalah terbatal;115 ii. Dalam Hashiyah al-Sawi `ala Syarh al-Saghir, terdapat pandangan yang menyatakan bahawa lafaz penawaran dan penerimaan (sighah) dalam akad bai` `inah yang menggambarkan perkaitan atau hubungan antara dua jual beli yang terlibat akan menjejaskan akad jual beli tersebut;116 dan iii. Dr. Yusof Al-Qaradawi dalam maklum balas beliau berhubung dengan jual beli hamba oleh Ummu Walad Zaid bin Arqam117 menyatakan bahawa bai` `inah tersebut dibenarkan sekiranya tidak berlaku pengaturan awal (tawatu`) untuk membeli semula hamba dan tidak membawa maksud riba.118 115 Al-Nawawi, Al-Majmu` Syarh al-Muhazzab, Dar al-Fikr, 1996, j. 10, h. 128. 116 Al-Sawi, Hasyiyah al-Sawi `ala Syarh al-Saghir, Dar al-Ma`arif, 1982, j. 6, h. 395 – 396. 117 Al-Daraqutni, Sunan al-Daraqutni, Dar al-Ma`rifah, 1966, j. 3, h. 52, hadis no. 212. 118 Al-Qaradawi, Bai` al-Murabahah li al- Amir bi al-Syira’, Maktabah Wahbah, 1995, h. 43. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 114 115 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM BAHAGIAN II: KONSEP SYARIAH SOKONGAN RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 116 Hibah bermaksud pemberian pemilikan sesuatu barang kepada seseorang tanpa sebarang balasan.119 Ia merupakan kontrak satu pihak (unilateral) dan merupakan satu amal kebajikan. Pada asasnya, hukum hibah adalah sunat. Dalam sistem kewangan Islam, institusi perbankan Islam lazimnya mengamalkan konsep hibah untuk memberikan ganjaran kepada pendeposit wadi`ah dan qard. Terdapat juga amalan pemberian hibah kepada pelanggan dalam kes-kes tertentu seperti hibah kepada pelanggan yang membuat pembayaran mengikut jadual. Dalam industri takaful pula, penggunaan konsep hibah terdapat dalam beberapa produk takaful keluarga, iaitu peserta boleh menghibahkan manfaat takaful kepada penama atau penerima hibah. 74. Hibah dalam Kontrak Pelaburan Mudarabah antara Bank Pelaburan Mudarabah antara Bank merupakan urus niaga pelaburan antara peserta pasaran wang antara bank (money market) secara Islam yang dilaksanakan berdasarkan prinsip mudarabah. Kadar pulangan bagi institusi kewangan pelabur ditentukan berdasarkan kadar pulangan institusi kewangan penerima biaya (atau dikenali dengan kadar ‘r’). Kadar ‘r’ melambangkan kecekapan sesebuah institusi kewangan menguruskan dana atau aset perbankan Islamnya. Ini bermakna, institusi kewangan yang cekap biasanya mempunyai kadar ‘r’ lebih tinggi berbanding dengan yang kurang cekap. Sekiranya kadar ‘r’ institusi kewangan penerima biaya adalah rendah, ia akan memberikan pulangan yang rendah kepada institusi kewangan pelabur. Masalah timbul apabila kadar ‘r’ bagi sebilangan institusi kewangan Islam terlalu rendah daripada kadar ‘r’ pasaran yang menyebabkan institusi kewangan berkenaan sukar mendapatkan dana daripada pasaran. Bagi menangani masalah ini, terdapat cadangan untuk memperkenalkan konsep hibah sebagai satu amalan pasaran dalam kontrak Pelaburan Mudarabah antara Bank. Menerusi konsep ini, institusi kewangan penerima biaya yang mempunyai kadar ‘r’ yang lebih rendah daripada kadar ‘r’ pasaran akan menawarkan hibah sebagai saguhati kepada institusi kewangan pelabur yang bersedia melabur dengannya. Hibah boleh dibayar berdasarkan peratusan tertentu daripada kadar ‘r’ institusi kewangan penerima biaya, tertakluk kepada kesediaan institusi kewangan penerima biaya itu sendiri. 119 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 42, h. 120. HIBAH 117 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada institusi kewangan penerima biaya boleh memberi hibah kepada institusi kewangan pelabur dalam kontrak mudarabah seperti Pelaburan Mudarabah antara Bank bagi memberi pulangan yang kompetitif dengan kadar pasaran. Keputusan MPS pada mesyuarat ke-8 bertarikh 12 Disember 1998 telah memutuskan bahawa pemberian hibah oleh institusi kewangan penerima biaya kepada institusi kewangan pelabur yang membawa kepada jaminan keuntungan (kadar ‘r’) dalam kontrak Pelaburan Mudarabah antara Bank adalah tidak dibenarkan. Asas Pertimbangan Pemberian hibah ke atas kontrak perniagaan yang berasaskan mudarabah adalah tidak dibenarkan kerana mudarabah ialah satu bentuk kontrak yang berdasarkan perkongsian keuntungan. Sekiranya penawaran hibah dibenarkan, ia akan menjejaskan akad mudarabah tersebut kerana mudarib seolah-olah memberi jaminan terhadap keuntungan mudarabah. Selain itu, pemberian hibah juga bertentangan dengan objektif kontrak mudarabah kerana ia menafikan elemen perkongsian untung dan penyerapan kerugian oleh rabbul mal (jika berlaku kerugian). 75. Penggunaan Konsep Hibah dalam Kontrak al-Ijarah thumma al-Bai` Sebuah institusi kewangan Islam berhasrat untuk menawarkan pemberian hibah dalam kontrak al-Ijarah thumma al-Bai` (AITAB) bagi memberikan insentif dan galakan kepada pelanggan membayar sewa bulanan mengikut jadual yang ditetapkan. Dalam aturan yang dicadangkan, hibah akan diberikan kepada pelanggan yang melunaskan bayaran sewa bulanan pada tahun pertama tanpa sebarang kelewatan. Kadar hibah yang dicadangkan ialah sebanyak 1% daripada jumlah pembiayaan dan akan dikreditkan terus ke dalam akaun pelanggan yang layak pada bulan ke-13. Namun, pelanggan yang melunaskan semua hutangnya dan menamatkan kontrak AITAB dalam masa 12 bulan yang pertama tidak layak untuk memperoleh hibah ini. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 118 “...kemudian jika mereka memberikan kepada kamu dengan suka hatinya sebahagian daripada mas kahwinnya maka makanlah (gunakanlah) pemberian (yang halal) itu sebagai nikmat yang lazat, lagi baik kesudahannya.”120 “Abu Abdullah al-Hafiz telah mengkhabarkan kepada kami, beliau berkata, aku telah mendengar Abu Zakaria Yahya bin Muhammad al-`Anbari berkata, aku telah mendengar Abu Abdullah al-Busyanji berkata, tentang kata-kata Nabi Muhammad SAW: Saling memberilah hadiah dan kamu akan saling kasih-mengasihi.”121 Di samping itu, tiada sebarang halangan Syariah bagi penggunaan konsep hibah dalam kontrak AITAB kerana hibah merupakan sesuatu yang dilakukan secara sukarela dan berdasarkan budi bicara pemberi hibah. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penggunaan konsep hibah dalam AITAB seperti di atas dibenarkan. Keputusan MPS pada mesyuarat ke-13 bertarikh 10 April 2000 telah memutuskan bahawa cadangan pemberian hibah dalam kontrak AITAB sebagai insentif kepada pelanggan yang membuat bayaran mengikut jadual adalah dibenarkan. Asas Pertimbangan Pemberian hibah dan hadiah sememangnya digalakkan seperti saranan ayat al-Quran dan hadis Rasulullah SAW berikut: 120 Surah al-Nisa’, ayat 4. 121 Al-Baihaqi, Al-Sunan al-Kubra, Maktabah Dar al-Baz, 1994, j. 6, h. 169, hadis no. 11726. 119 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 76. Hibah dalam Kontrak Wadi`ah Salah satu kaedah penerimaan deposit oleh institusi perbankan Islam di Malaysia ialah berdasarkan konsep wadi`ah yad dhamanah. Sesetengah institusi perbankan Islam memberikan hibah kepada para pendeposit wadi`ah sebagai tanda penghargaan atas keyakinan pendeposit wadi`ah terhadap institusi mereka. Walau bagaimanapun, amalan pemberian hibah kepada pendeposit wadi`ah dikhuatiri akan menjadi `urf atau kelaziman yang ditegah oleh Syarak. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada pemberian hibah oleh institusi perbankan Islam kepada pendeposit wadi`ah dibenarkan. Keputusan MPS pada mesyuarat ke-35 bertarikh 22 Mei 2003 telah memutuskan bahawa amalan pemberian hibah oleh institusi perbankan Islam kepada pendeposit wadi`ah adalah dibenarkan. Walau bagaimanapun, pemberian hibah tersebut tidak boleh dijadikan sebagai amalan tetap bagi mengelakkan amalan tersebut dikira sebagai `urf yang menyerupai syarat dalam kontrak deposit berasaskan wadi`ah. Asas Pertimbangan Dalam konteks amalan perbankan semasa, wang yang didepositkan oleh pelanggan akan digunakan oleh pihak bank untuk tujuan tertentu seperti memberikan pembiayaan dan membuat pelaburan. Dari perspektif Syariah, wang yang dimasukkan ke dalam akaun deposit berasaskan konsep wadi`ah yad dhamanah menyamai kontrak pinjaman qard dan pihak bank mesti memulangkan semula deposit kepada pelanggan apabila diminta berdasarkan terma dan syarat yang dipersetujui. Oleh itu, syarat-syarat dalam qard dan kesan lanjutan daripadanya adalah terpakai bagi produk akaun deposit yang berasaskan konsep wadi`ah yad dhamanah. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 120 “Daripada Ali r.a. berkata, bahawa Rasulullah SAW bersabda: Setiap pinjaman yang memberi manfaat (kepada pemberi pinjaman) maka ia adalah riba.”125 122 Al-Bukhari, Sahih al-Bukhari, Al-Matba`ah al-Salafiyyah, 1982, j. 2, h. 146, hadis no. 2305. 123 Al-Juzairi, Al-Fiqh `ala al-Mazahib al-Arba`ah, Al-Maktab al-Thaqafi, 2000, j. 2, h. 227. 124 Ibnu `Abidin, Hasyiyah Radd Al-Muhtar `ala al-Durr al-Mukhtar Syarh Tanwir al-Absar, Dar `Alam al-Kutub, 2003, j. 7, h. 395. 125 Ibnu Hajar al-`Asqalani, Bulugh al-Maram min Adillah al-Ahkam, Matba`ah al-Salafiyyah, 1928, h. 176. Hadis Rasulullah SAW ada menyatakan: “Rasulullah SAW bersabda: Sebaik-baik dalam kalangan kamu ialah orang yang paling baik dalam menunaikan hutang.”122 Dalam akad qard, syarat memberikan manfaat kepada pemberi pinjaman tidak dibenarkan. Contohnya, mensyaratkan peminjam supaya memberi tempat tinggal secara percuma atau dengan harga murah kepada pemberi pinjaman, memberikan balasan terhadap kebaikan atau memberikan hadiah.123 Pemberian hibah oleh peminjam kepada pemberi pinjaman digalakkan dalam Islam. Namun demikian, pemberian hibah tidak boleh disyaratkan dalam akad kerana ia boleh membawa kepada riba seperti yang dinyatakan dalam hadis berikut:124 121 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 77. Hibah dalam Kontrak Qard Kontrak qardmerupakan salah satu bentuk kontrak yang diterima pakai bagi tujuan pengurusan mudah tunai dalam kewangan Islam. Kontrak ini memerlukan pihak peminjam memulangkan jumlah wang yang dipinjam kepada pemberi pinjaman tanpa menjanjikan sebarang penambahan. Walau bagaimanapun, dalam amalan semasa, pihak peminjam kadang kala atas kerelaannya memberikan hibah kepada pihak pemberi pinjaman sewaktu melunaskan bayaran pinjaman. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada pemberian hibah ke atas qard seperti ini selaras dengan Syarak. Keputusan MPS pada mesyuarat ke-55 bertarikh 29 Disember 2005 telah memutuskan bahawa pemberian hibah yang tidak disyaratkan dalam kontrak qard adalah diharuskan. Walau bagaimanapun, pemberian hibah tidak boleh dijadikan sebagai amalan tetap bagi mengelakkan amalan tersebut dikira sebagai `urf yang menyerupai syarat dalam kontrak qard. Asas Pertimbangan Walaupun pemberian hibah oleh peminjam kepada pemberi pinjaman digalakkan dalam Islam, pemberian hibah tidak boleh disyaratkan dalam kontrak kerana ia boleh membawa kepada riba. Sebarang penambahan kepada qard ketika pembayaran semula sama ada dari segi kadar, sifat, pemberian aset atau manfaat adalah harus sekiranya dilakukan tanpa syarat. Hukum memberi hibah kepada pemberi pinjaman adalah sama seperti hukum pinjaman yang melibatkan manfaat, iaitu diharamkan sekiranya hibah tersebut disyaratkan dalam akad, tetapi dibenarkan sekiranya hibah diberikan tanpa syarat.126 Sila rujuk juga asas pertimbangan seperti yang dinyatakan dalam perkara 76.127 126 Ibnu `Abidin, Hasyiyah Radd al-Muhtar `ala al-Durr al-Mukhtar Syarh Tanwir al-Absar, Dar al-Fikr, 2000, j. 7, h. 395. 127 Hibah dalam Kontrak Wadi`ah. R ESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 122 IBRA’ Ibra’ secara konsepnya bermaksud seseorang menggugurkan hak tuntutannya ke atas tanggungan (zimmah) pihak lain yang perlu dilaksanakan terhadapnya.128 Dalam konteks kewangan Islam, ibra’ merujuk kepada rebat yang diberikan oleh satu pihak kepada satu pihak lain dalam urusan mua`malah seperti jual beli dan sewaan. Misalnya, pihak institusi kewangan Islam akan memberikan ibra’ kepada pelanggan yang melunaskan hutang lebih awal daripada tempoh yang dipersetujui semasa akad dimeterai. 78. Ibra’ dalam Pembiayaan secara Islam Kebanyakan institusi kewangan Islam tidak memasukkan klausa ibra’ dalam perjanjian yang ditandatangani dengan pelanggan kerana dikhuatiri timbul isu ketidakpastian (gharar) dalam harga jualan. Walau bagaimanapun, amalan tidak memasukkan klausa ibra’ dalam perjanjian pula boleh menimbulkan pertelingkahan antara pelanggan dan institusi kewangan Islam berhubung dengan hak pelanggan untuk mendapatkan ibra’ sekiranya mereka melunaskan pembiayaan lebih awal. Selaras dengan keperluan untuk menjaga kepentingan umum (maslahah) serta memastikan keadilan terhadap pembiaya dan penerima biaya, MPS dirujuk berhubung dengan cadangan untuk mewajibkan institusi kewangan Islam memberikan ibra’ kepada penerima biaya yang melunaskan hutang lebih awal bagi pembiayaan berdasarkan kontrak jual beli (seperti bai` bithaman ajil atau murabahah). Keputusan MPS pada mesyuarat ke-101 bertarikh 20 Mei 2010 telah memutuskan bahawa Bank Negara Malaysia selaku pihak berkuasa boleh mewajibkan institusi perbankan Islam memberikan ibra’ kepada penerima biaya yang melunaskan hutang lebih awal bagi pembiayaan berdasarkan kontrak jual beli (seperti bai` bithaman ajil atau murabahah). Bagi mengelakkan ketidakpastian berhubung dengan hak penerima biaya untuk menerima ibra’ daripada institusi perbankan Islam, Bank Negara Malaysia juga boleh mewajibkan agar pemberian ibra’ tersebut dimasukkan sebagai salah satu klausa dalam dokumen pembiayaan. Penentuan formula ibra’ akan diselaraskan oleh Bank Negara Malaysia.129 128 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 1, h. 142. 129 Keputusan ini membatalkan keputusan MPS yang dibuat pada mesyuarat yang ke-13 bertarikh 10 April 2000, mesyuarat ke-24 bertarikh 24 April 2002 dan mesyuarat ke-32 bertarikh 27 Februari 2003 yang memutuskan bahawa pemberian ibra’ adalah tertakluk kepada budi bicara institusi kewangan Islam dan sekiranya institusi kewangan Islam berjanji untuk memberikan ibra’ kepada pelanggan, institusi kewangan Islam adalah terikat dan mestilah melaksanakan janji tersebut. 123 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM “Rasulullah SAW memerintahkan suku kaum bani Nadhir supaya keluar dari Madinah, kemudian Baginda didatangi beberapa orang dari kalangan mereka lalu berkata: Wahai Rasullullah! Engkau memerintah kami supaya keluar dari Madinah sedangkan kami mempunyai hutang yang belum matang yang perlu dilunaskan oleh penduduk tempatan. Maka Rasulullah SAW bersabda: Kurangkan dan segerakan bayaran.”130 Terdapat pandangan daripada beberapa ulama yang menyatakan bahawa dho` wa ta`ajjal tidak dibenarkan kerana ia menyerupai amalan riba. Mereka membahaskan bahawa sekiranya menambahkan nilai hutang kerana penangguhan tempoh pembayaran dianggap sebagai riba, maka mengurangkan nilai hutang kerana menyegerakan penyelesaian hutang mengambil hukum yang sama.131 130 Al-Daraqutni, Sunan al-Daraqutni, Mu’assasah al-Risalah, 2004, j. 3, h. 466. 131 Al-Baihaqi, Al-Sunan al-Kubra, Maktabah Dar al-Baz, 1994, j. 6, h. 28, hadis no. 10924; terdapat beberapa riwayat lain dalam Sunan al-Baihaqi meriwayatkan tentang larangan dho` wa ta`ajjal oleh Umar Al-Khattab r.a.; Ibnu Rusyd, Bidayah al-Mujtahid wa Nihayah al-Muqtasid, j. 2, h. 144; Ibnu Qayyim, Ighathah al-Lahfan min Masayid al-Syaitan, Dar Al-Ma`rifah, 1975, j. 2, h. 12. Asas Pertimbangan Penguguran hak adalah berkait rapat dengan ibra’ dan dho` wa ta`ajjal. Ibra’ dalam konteks pelepasan hak untuk menuntut hutang (sama ada sebahagian atau keseluruhan hutang) oleh pemberi pinjaman merupakan suatu perkara yang digalakkan oleh Islam. Hak tersebut merupakan tanggungan (zimmah) pihak lain yang perlu dilaksanakan terhadapnya. Dho` wa ta`ajjal pula merupakan istilah yang digunakan bagi merujuk perbuatan mengurangkan sebahagian hutang apabila penghutang menyelesaikan hutang lebih awal. Situasi pelepasan hak untuk menuntut sebahagian hutang atau keseluruhan hutang ini pernah berlaku pada zaman Rasulullah SAW seperti yang dinyatakan dalam hadis berikut: RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 124 Selain itu, terdapat juga perbahasan yang menyatakan bahawa perbuatan dho` wa ta`ajjal yang disyaratkan semasa pemeteraian kontrak bersifat hutang tidak diharuskan kerana akan menyebabkan gharar pada harga jualan. Terdapat juga ulama yang membahaskan bahawa dho` wa ta`ajjal yang disyaratkan semasa pemeteraian kontrak bersifat hutang tidak diharuskan kerana perbuatan tersebut dianggap termasuk dalam bentuk-bentuk urus niaga bai`atain fi al-bai`ah yang dilarang berdasarkan Sunnah.132 Namun demikian, sebahagian ulama yang mengharuskan dho` wa ta`ajjal berpandangan bahawa adalah tidak bertepatan untuk menyamakan dho` wa ta`ajjal dengan riba kerana pada hakikatnya kedua-dua perkara tersebut adalah berbeza.133 Mengambil kira pandangan ulama yang mengharuskan dho` wa ta`ajjal secara mutlak dan pandangan ulama yang mengharuskannya apabila ia disyaratkan terlebih dahulu, maka dapat dirumuskan bahawa tiada halangan bagi pihak berkuasa mengambil pendekatan untuk mewajibkan pelaksanaannya. Ini kerana tindakan yang diambil oleh pihak berkuasa untuk mewajibkan sesuatu yang pada asalnya harus adalah bertujuan memastikan kemaslahatan pihak-pihak berkepentingan terpelihara. Tindakan sedemikian dilihat selari dengan keputusan ulama terdahulu yang memutuskan bahawa apabila hutang jual beli dilunaskan sebelum tempoh matangnya, maka nilai yang perlu dibayar hendaklah berkadaran dengan tempoh masa yang telah berlalu. Ini telah dinukilkan oleh Ibnu `Abidin seperti yang berikut: “Jika penghutang melangsaikan hutangnya sebelum tiba tempoh matangnya atau dia mati maka diambil (bayaran hutang) dari harta tinggalannya, maka jawab mereka yang mutakhir: Sesungguhnya tidak diambil daripada murabahah yang berlangsung antara mereka melainkan dengan kadar apa yang telah berlalu.”134 132 Abdul Rahman Soleh Al-Atram, Al-Ibra’ fi al-Tamwil al-Islami: Takyifan wa Tatbiqan, Al-Qadaya al-Mu`asarah fi al-Tamwil al-Islami: Munaqasyah fi Al-Nadwah al-`Alamiyah li `Ulama’ al-Syari`ah 2006, Bank Negara Malaysia, 2008, h. 355. 133 Ibnu Rusyd, Bidayah al-Mujtahid wa Nihayah al-Muqtasid, 1975, j. 2, h. 144; Ibnu Qayyim, Ighathah al-Lahfan min Masayid al-Syaitan, Dar Al-Ma`rifah, 1975, j. 2, h. 13. 134 Ibnu `Abidin, Hasyiyah Radd Al-Muhtar `ala Durr al-Mukhtar Syarh Tanwir al-Absar, Dar al-Fikr, 2000, j. 5, h. 160: 125 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 79. Dua Bentuk Ibra’ dalam Satu Perjanjian Pembiayaan Memandangkan ibra’ merupakan pelepasan hak oleh sebelah pihak, institusi kewangan Islam boleh berjanji untuk memberikan ibra’ berdasarkan kaedah- kaedah yang difikirkan sesuai. Dalam hal ini, MPS dirujuk berhubung dengan cadangan sebuah institusi kewangan Islam untuk memberikan dua bentuk ibra’ yang berbeza dalam perjanjian pembiayaan berasaskan bai` bithaman ajil boleh ubah iaitu ibra’ bagi penyelesaian awal (early settlement) dan ibra’ bulanan bagi menyamakan kadar keuntungan efektif dengan kadar keuntungan pasaran. Keputusan MPS pada mesyuarat ke-32 bertarikh 27 Februari 2003 telah memutuskan bahawa kedua-dua bentuk ibra’ (iaitu ibra’ bagi penyelesaian awal dan ibra’ bulanan bagi menyamakan kadar keuntungan efektif dengan kadar keuntungan pasaran) dalam satu perjanjian pembiayaan adalah dibenarkan. Asas Pertimbangan Dalam konteks pemberian ibra’ bagi penyelesaian awal, MPS mengambil kira pandangan ulama mutakhir seperti yang berikut: “Apabila penghutang menyelesaikan hutang tangguhnya sebelum tempoh matang, atau mati, maka hutang tersebut menjadi matang disebabkan kematiannya. Dalam hal ini, hutang tersebut dilunaskan dengan mengambil harta peninggalannya. Namun, tidak diambil dari murabahah kecuali sekadar mana tempoh yang telah berlalu. Ini adalah jawapan yang diberikan oleh golongan terkini (mazhab Hanafi), Qunyah, dan fatwa Mufti Rom, iaitu al-marhum Abu Sa`ud Afandi. Sebab (`illah) yang diberikan adalah al-rifq (belas ihsan) bagi kedua-dua pihak. (Katanya: tidak diambil dari murabahah), bentuknya ialah: Seseorang membeli sesuatu dengan harga 10 secara tunai, dan menjualnya kepada orang lain dengan harga 20 secara tangguh selama 10 bulan. Sekiranya pembeli menyelesaikan bayaran selepas lima bulan atau mati selepas tempoh tersebut, penjual hanya mengambil lima dan meninggalkan baki lima tersebut.”135 135 Ibnu `Abidin, Hasyiyah Radd al-Muhtar `ala Durr Al-Mukhtar Syarh Tanwir al-Absar, Dar al-Fikr, 2000, j. 29, h. 348 - 349: RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 126 Bagi ibra’ secara bulanan, MPS merujuk kepada perbincangan ulama berhubung dengan jenis-jenis ibra’. Antara jenis-jenis ibra’ yang lebih hampir kepada amalan ini ialah ibra’ muqayyad dan ibra’ mu`allaq. Contoh bagi ibra’ muqayyad adalah seperti yang berikut: “Aku akan berikan ibra’ pada engkau sekiranya engkau melakukan sekian perkara…” Manakala contoh bagi ibra’ mu`allaq pula adalah seperti yang berikut: “Jika engkau melakukan sekian perkara aku akan berikan engkau ibra’.”136 Sebahagian mazhab Hanafi berpandangan ibra’ seperti di atas hukumnya tidak harus jika sekiranya syarat dalam ibra’ tersebut menjadi amalan kebiasaan (muta`arafan). Manakala mazhab Maliki dan mazhab Imam Ahmad mengharuskannya secara mutlak.137 Ibra’ mu`allaq sebagaimana contoh yang diberikan oleh sebahagian ulama fiqah dilihat hampir menyamai kaedah ibra’ yang diberikan dalam bentuk bulanan. Ini kerana ibra’ yang diberikan dalam bentuk bulanan juga adalah bergantung kepada perubahan sesuatu kadar tertentu. Ini menunjukkan satu isyarat jelas bahawa penggunaan ibra’ boleh diperluaskan sejajar dengan kehendak semasa selagi ia tidak bercanggah dengan prinsip umum Syariah. Selain itu, pemberian ibra’ merupakan hak pembiaya. Justeru, pembiaya boleh melaksanakan ibra’ dalam apa jua bentuk kerana ia berdasarkan kerelaan pihak yang berhak iaitu pihak pemberi ibra’ atau pembiaya. 136 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 1, h. 165. 137 Kementerian Wakaf dan Hal Ehwal Islam Kuwait, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 1, h. 165 - 166: 127 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 80. Ibra’ ke atas Produk Pembiayaan Perumahan yang Dihubungkan dengan Akaun Deposit Wadi`ah atau Akaun Deposit Mudarabah Sebuah institusi kewangan Islam berhasrat untuk menawarkan produk pembiayaan perumahan. Salah satu ciri keistimewaan produk ini ialah penerima biaya akan menerima ibra’ ke atas amaun ansuran bulanan sekiranya penerima biaya menghubungkan pembiayaan perumahan tersebut dengan akaun deposit wadi`ah atau akaun deposit mudarabah. Menerusi mekanisme ini, amaun tertentu daripada ansuran bulanan akan diberikan ibra’ berdasarkan baki deposit semasa dalam akaun deposit wadi`ah atau mudarabah. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada struktur produk ini selaras dengan Syariah. Keputusan MPS pada mesyuarat ke-63 bertarikh 27 Disember 2006 telah meluluskan cadangan produk pembiayaan perumahan yang dihubungkan dengan akaun deposit mudarabah dengan syarat kos bagi manfaat ibra’ yang diberikan mestilah ditanggung sepenuhnya oleh institusi kewangan Islam. Walau bagaimanapun, MPS pada mesyuarat ke-64 bertarikh 18 Januari 2007 memutuskan bahawa cadangan produk pembiayaan perumahan yang dihubungkan dengan akaun deposit wadi`ah tidak dibenarkan kerana dikhuatiri ia merupakan syubhah kepada riba. Asas Pertimbangan Kewujudan hubungan atau ikatan antara pembiayaan perumahan dan akaun deposit wadi`ah atau mudarabah akan membawa kepada manfaat yang jelas kepada pendeposit. Bagi deposit mudarabah, elemen manfaat tidak menjadi isu Syariah. Namun demikian, bagi deposit wadi`ah (yang ditakyifkan sebagai qard), elemen manfaat yang disyaratkan adalah dilarang. Sila rujuk juga asas pertimbangan seperti yang dinyatakan dalam perkara 76.138 138 Hibah dalam Kontrak Wadi`ah. R ESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 128 Operasi perbankan Islam terhasil melalui hubungan antara pembiaya dengan penerima biaya. Melalui hubungan ini terbentuk obligasi bagi kedua-dua pihak dengan pembiaya mempunyai obligasi untuk menyalurkan dana kepada penerima biaya menerusi kontrak yang dilaksanakan. Obligasi penerima biaya pula ialah melunaskan jumlah pembiayaan yang perlu dilangsaikan dalam tempoh tertentu. Sekiranya bayaran tidak dijelaskan dalam tempoh yang ditetapkan, ia boleh menjejaskan aktiviti kewangan pihak pembiaya. Perbahasan tentang penggunaan kaedah pengenaan ganti rugi dalam aktiviti kewangan Islam di Malaysia meliputi aspek kemungkiran pelunasan pembiayaan, hutang penghakiman dan penyelesaian hutang awal. Dalam konteks pembiayaan, ta`widh ialah ganti rugi yang dikenakan ke atas kerugian sebenar yang dialami oleh pembiaya kesan kelewatan pembayaran pembiayaan oleh penerima biaya. Gharamah pula ialah penalti atau denda yang dikenakan kerana kelewatan melunaskan hutang, tanpa perlu pembuktian kewujudan kerugian sebenar.139 81. Pengenaan Ta`widh dan Gharamah dalam Pembiayaan Kewangan Islam Dalam sistem kewangan konvensional, masalah kemungkiran pelunasan bayaran pinjaman ditangani menerusi pengenaan faedah atau riba terhadap pelanggan. Memandangkan pengenaan faedah atau riba adalah bertentangan dengan prinsip Syariah, institusi kewangan Islam tidak mengadaptasi cara tersebut untuk menangani kes-kes kemungkiran pelanggan dalam melunaskan obligasi kewangan yang terhasil daripada kontrak yang dimeterai secara Islam. Justeru, MPS telah dirujuk berhubung dengan mekanisme yang sejajar dengan hukum Syarak bagi mengatasi masalah kemungkiran ini. Keputusan MPS pada mesyuarat ke-4 bertarikh 14 Februari 1998, mesyuarat ke-95 bertarikh 28 Januari 2010 dan mesyuarat ke-101 bertarikh 20 Mei 2010 telah memutuskan bahawa pengenaan caj pembayaran lewat oleh institusi kewangan Islam yang merangkumi kedua-dua konsep gharamah (denda atau penalti) dan ta`widh (ganti rugi) adalah dibenarkan, tertakluk kepada perkara berikut: 139 Mohammad Abdul Razaq al-Tabtabae, Al-Ta`widh ̀ an al-Dharar wa al-Gharamah ̀ ala al-Ta’khir fi al-Duyun: Dirasah Tatbiqiyyah `ala al-Mu’assasat al-Maliyyah al-Islamiyyah fi Daulati al-Kuwait, Al-Qadaya al-Mu`asarah fi al-Tamwil al-Islami: Munaqasyah fi al-Nadwah al-`Alamiyah li `Ulama’ al-Syari`ah 2006, Bank Negara Malaysia, 2008, h. 91. TA`WIDH DAN GHARAMAH 129 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM i. Ta`widh boleh dikenakan ke atas kelewatan pembayaran obligasi kewangan yang terhasil daripada akad-akad pertukaran (seperti jual beli dan sewaan) dan qard; ii. Ta`widh hanya boleh dikenakan selepas tamat tempoh pelunasan hutang yang dipersetujui oleh kedua-dua pihak yang berkontrak; iii. Institusi perbankan Islam boleh mengiktiraf ta`widh sebagai pendapatan atas dasar ia dikenakan sebagai ganti rugi atas kerugian sebenar yang dialami oleh institusi perbankan Islam; dan iv. Gharamah tidak boleh diambil kira sebagai pendapatan, sebaliknya perlu disalurkan kepada badan-badan kebajikan tertentu. Asas Pertimbangan Keharusan mengenakan ta`widh ke atas penerima biaya yang mungkir adalah berasaskan pertimbangan ke atas dalil-dalil dan pandangan berikut: i. Hadis Rasulullah SAW yang menyifatkan kelewatan pembayaran hutang oleh orang yang berkemampuan sebagai satu kezaliman, sebagaimana sabda baginda: “Daripada Abi Hurairah bahawa Rasulullah SAW telah bersabda: Kemungkiran orang yang kaya (dalam membayar hutang) adalah satu kezaliman.”140 140 Al-Bukhari, Sahih al-Bukhari, Al-Matba`ah al-Salafiyyah, 1982, j. 2, h. 175. 141 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 165. ii. Terdapat juga kaedah fiqah yang dipetik daripada hadis yang menyentuh hal ini, iaitu: RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 130 “Tiada kemudaratan dan tidak boleh memudaratkan (dalam Islam).”141 “Sebarang kemudaratan hendaklah dihilangkan.”144 Berdasarkan kaedah fiqah di atas, pengenaan ta`widh dan gharamah terhadap kelewatan membayar amaun pembiayaan merupakan pendekatan yang sesuai bagi meringankan kemudaratan yang dialami oleh pembiaya, dan pada masa yang sama mendisiplinkan penerima biaya untuk menjelaskan bayaran mengikut jadual yang telah ditetapkan. 142 Al-Syirazi, Al-Muhazzab fi Fiqh al-Imam al-Syafii, Dar al-Qalam, 1996, j. 3, h. 412; Al-Zuhaili, Fiqh al-Hanbali al-Muyassar, Dar al-Qalam, 1997, j. 3, h. 7. 143 Majmu`ah Dallah Barakah, Qararat wa Tawsiyyat Nadawat al-Barakah, 1985, Persidangan kali ke-3, resolusi no. 3/2. 144 Al-Suyuti, Al-Asybah wa al-Naza’ir, Dar al-Kutub al-`Ilmiyyah, 1403H, h. 83 - 84. Berdasarkan kaedah ini, tindakan penerima biaya melewatkan bayaran ialah sesuatu yang memudaratkan institusi kewangan Islam selaku pembiaya. Ini kerana institusi kewangan Islam akan mengalami kerugian sebenar seperti bayaran perbelanjaan untuk mengeluarkan notis dan surat, yuran guaman dan sebarang kos-kos berkaitan. Hal ini perlu dielak supaya urus niaga yang berjalan memenuhi prinsip kelancaran perjalanan pasaran (istiqrar ta`amul). iii. Kelewatan membayar hutang boleh diqiyaskan dengan rampasan harta secara tidak sah (ghasb). Kedua-duanya berkongsi ̀ illah yang sama iaitu menghalang penggunaan harta dan memanipulasinya secara zalim. Menurut pandangan Imam Syafii dan Hanbali dalam kes ghasb, manfaat harta yang dirampas adalah dalam jaminan dan perlu dibayar ganti rugi.142 Bagi kes kelewatan membayar semula amaun pembiayaan, pembiaya juga menanggung kerugian kehilangan peluang menggunakan dana bagi tujuan perniagaan lain, yang sepatutnya dijelaskan mengikut tempoh masa yang ditetapkan. Oleh yang demikian, penerima biaya perlu membayar ganti rugi kepada pembiaya atas kerugian yang dialami oleh pembiaya.143 iv. Kaedah fiqah: 131 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 82. Pengenaan Ganti Rugi ke atas Pelanggan yang Membuat Penyelesaian Awal MPS dirujuk berhubung dengan isu sama ada institusi kewangan Islam boleh mengenakan bayaran ganti rugi ke atas pelanggan yang membuat penyelesaian awal terhadap pembiayaan secara Islam. Keputusan MPS pada mesyuarat ke-24 bertarikh 24 April 2002 telah memutuskan bahawa institusi kewangan Islam tidak dibenarkan untuk mengenakan ganti rugi terhadap pelanggan yang membuat penyelesaian awal terhadap pembiayaan secara Islam. Asas Pertimbangan Ganti rugi yang dikenakan oleh institusi kewangan Islam ke atas pelanggan yang membuat penyelesaian awal terhadap pembiayaan secara Islam tidak selari dengan kehendak Syarak kerana Islam menggalakkan penyelesaian awal sebarang hutang. Malah terdapat hadis Rasulullah SAW yang menyifatkan kelewatan pembayaran hutang oleh orang yang berkemampuan sebagai satu kezaliman. Pengenaan ganti rugi ke atas penyelesaian awal terhadap pembiayaan secara Islam juga dilihat sebagai tidak wajar kerana apabila pelanggan membayar lebih awal, institusi kewangan Islam boleh menggunakan dana tersebut untuk melabur atau memberikan pembiayaan kepada pelanggan lain. Bagi pelanggan yang telah menikmati keistimewaan tertentu di awal tempoh pembiayaan, institusi kewangan Islam boleh menggunakan kaedah pengurangan ibra’ untuk menangani isu ini. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 132 83. Kaedah Caj Lewat Bayar ke atas Hutang Penghakiman Undang-undang prosedur sedia ada memperuntukkan mahkamah kuasa untuk mengenakan faedah terhadap hutang penghakiman yang diputuskan oleh mahkamah. Faedah ini dikenakan terhadap penghutang penghakiman pada kadar 8% setahun daripada jumlah penghakiman yang dikira bermula dari tarikh keputusan dibuat sehingga hutang penghakiman dijelaskan oleh penghutang kehakiman kepada pihak pemiutang kehakiman. Berhubung dengan kes-kes kewangan Islam, isu tuntutan seumpama ini sememangnya berlaku tetapi mahkamah menggunakan budi bicaranya untuk tidak mengenakan faedah berkenaan kerana ia berlandaskan kaedah riba. Jika tuntutan ini dibuat di mahkamah bagi kes pembiayaan berkadar tetap seperti murabahah atau bai` bithaman ajil, pemiutang kehakiman akan membuat tuntutan keseluruhan baki harga jualan yang belum dibayar, tertakluk kepada jumlah rebat (ibra’), sekiranya ada. Dalam hal ini, MPS dirujuk berhubung dengan mekanisme bagi menghalang kelewatan pelunasan hutang penghakiman dalam kes-kes kewangan Islam. Keputusan MPS pada mesyuarat ke-50 bertarikh 26 Mei 2005, mesyuarat ke-61 bertarikh 24 Ogos 2006 dan ke-100 bertarikh 30 April – 1 Mei 2010 telah memutuskan bahawa hakim boleh mengenakan caj lewat bayar ke atas hutang penghakiman yang diputuskan oleh mahkamah bagi kes-kes perbankan Islam dan takaful berdasarkan kaedah gharamah dan ta`widh ke atas kerugian sebenar berdasarkan mekanisme seperti yang berikut: i. Mahkamah boleh mengenakan caj lewat bayar pada kadar yang diperuntukkan oleh kaedah-kaedah mahkamah.145 Walau bagaimanapun, daripada kadar tersebut, pemiutang kehakiman (institusi kewangan) hanya dibenarkan untuk mengambil kadar ganti rugi sebenar (ta`widh); 145 MPS telah memutuskan pada mesyuarat ke-50 bertarikh 26 Mei 2005 dan mesyuarat ke-61 bertarikh 24 Ogos 2006 bahawa kadarnya ialah 8%. 133 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ii. Bagi menentukan kadar ganti rugi sebenar (ta`widh) yang boleh diambil oleh pihak pemiutang kehakiman, MPS bersetuju menerima pakai “purata bagi kadar purata wajaran semalaman“ pasaran wang secara Islam sebagai rujukan; dan iii. Jumlah ganti rugi sebenar yang berhak diambil tidak boleh melebihi hutang pokok. Jika ganti rugi sebenar tersebut kurang daripada kadar amalan semasa sistem kehakiman, amaun selebihnya hendaklah disalurkan oleh pemiutang kehakiman kepada badan kebajikan yang akan ditentukan oleh Bank Negara Malaysia. Jika pemiutang penghakiman merupakan individu (contohnya pembayaran manfaat takaful oleh pengendali kepada peserta), penghutang penghakiman hanya perlu membayar jumlah ta`widh sahaja kepada pemiutang penghakiman, sebagai tambahan kepada amaun hutang penghakiman. Penghutang penghakiman perlu menyalurkan lebihan bayaran caj penalti (jika ada) terus kepada badan kebajikan yang ditentukan oleh Bank Negara Malaysia. Bagi hutang penghakiman dalam kes yang melibatkan pembayaran manfaat takaful oleh syarikat takaful kepada peserta, ganti rugi bagi tempoh selepas tarikh penghakiman mestilah dibayar daripada kumpulan wang pemegang saham. Asas Pertimbangan Al-Zaila`i berpendapat bahawa penghutang yang sengaja melewatkan pembayaran hutang sedangkan dia berkemampuan juga boleh dibawa ke mahkamah sekiranya dikehendaki oleh pemiutang, dan jika sabit kesalahan, hakim boleh menjatuhkan hukuman setimpal ke atasnya.146 146 Al-Zaila`i, Tabyin al-Haqa’iq, Dar al-Kutub al-Islami, (t.t.), j. 124, h. 74. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 134 135 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM BAHAGIAN III: PRODUK KEWANGAN ISLAM RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 136 Instrumen kewangan derivatif secara Islam seperti swap, pasaran hadapan dan opsyen telah diperkenalkan dalam kewangan Islam sebagai salah satu mekanisme pelindung nilai, sejajar dengan keperluan untuk meningkatkan pengurusan risiko oleh peserta-peserta pasaran. Selain digunakan sebagai instrumen pelindung nilai, derivatif turut digunakan oleh institusi kewangan Islam untuk meluaskan lagi kepelbagaian produk pelaburan yang ditawarkan kepada pelanggan yang sofistikated. 84. Urus Niaga Pertukaran Mata Wang Asing secara Lani (Spot) dan secara Hadapan (Forward) Urus niaga mata wang asing, sama ada urus niaga secara lani atau urus niaga secara hadapan, merupakan antara urus niaga yang dijalankan oleh sebilangan institusi kewangan Islam di Malaysia. Dalam amalan semasa, penyerahan dan penyelesaian bagi urus niaga mata wang asing tidak dibuat secara tunai pada masa dan tarikh yang sama semasa akad dimeterai. Bagi urus niaga secara lani, penyerahan dan penyelesaian akan hanya dibuat pada T+2 (dua hari selepas tarikh urus niaga), manakala bagi urus niaga secara hadapan, penyelesaian akan dibuat pada tarikh hadapan misalnya satu bulan, tiga bulan atau sebagainya berdasarkan kontrak. Institusi kewangan lslam yang menjalankan urus niaga secara hadapan memperkenalkan konsep wa`d, iaitu salah satu pihak berjanji untuk menjual atau membeli mata wang berdasarkan kadar pertukaran yang dipersetujui. Bagi urus niaga mata wang asing secara hadapan, institusi kewangan Islam mencadangkan supaya urus niaga ini boleh dilaksanakan berdasarkan janji lazim (wa`d mulzim) oleh sebelah pihak. Dalam konteks ini, pelanggan akan membuat wa`d mulzim untuk membeli mata wang asing daripada pihak institusi kewangan Islam. Sekiranya pelanggan memungkiri janji, ia perlu membayar kos ganti rugi ke atas kerugian sebenar (sekiranya ada) yang dialami oleh institusi kewangan Islam. Dalam hal ini, MPS dirujuk berhubung dengan isu berikut: i. Sama ada penyerahan dan penyelesaian urus niaga mata wang asing secara lani yang dibuat pada T+2 dibenarkan Syarak; dan ii. Sama ada wa`d mulzim sebelah pihak boleh dilaksanakan dalam urus niaga mata wang asing secara hadapan. INSTRUMEN KEWANGAN DERIVATIF 137 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-38 bertarikh 28 Ogos 2003 telah memutuskan bahawa penyerahan dan penyelesaian urus niaga mata wang asing secara lani yang dibuat pada T+2 adalah dibenarkan. Majlis juga pada mesyuarat ke-49 bertarikh 28 April 2005 telah memutuskan bahawa institusi kewangan Islam dibenarkan untuk melaksanakan urus niaga mata wang asing secara hadapan berdasarkan wa`d mulzim sebelah pihak yang hanya mengikat pihak yang berjanji. Selain itu, pihak yang mengalami kerugian boleh menuntut ganti rugi ekoran kemungkiran janji. Urus niaga ini boleh dijalankan oleh institusi kewangan Islam dengan pelanggan, atau sesama institusi kewangan Islam, atau antara institusi kewangan Islam dengan institusi kewangan konvensional.147 Asas Pertimbangan Penyelesaian dan penyerahan secara T+2 diterima dalam urus niaga secara lani kerana tempoh masa sebegini adalah perlu bagi pihak-pihak yang berurus niaga membuat pengesahan. Sistem penyelesaian dan pembayaran sedemikian telah diterima sebagai `urf perniagaan. Di samping itu, keharusan urus niaga mata wang asing secara hadapan berdasarkan wa`d mulzim sebelah pihak adalah bersandarkan kepada asas-asas pertimbangan berikut: i. Fatwa semasa berpandangan bahawa janji sebelah pihak untuk membeli mata wang asing yang akan diterima atau diserahkan pada masa hadapan adalah harus.148 Janji sebelah pihak merupakan wa`d semata-mata dan bukannya kontrak; 147 MPS pada mesyuarat ke-79 bertarikh 29 Oktober 2008 ketika membincangkan tentang produk-produk opsyen termasuk opsyen tukaran asing, telah memutuskan bahawa penggunaan produk opsyen hendaklah bagi tujuan melindung nilai sahaja. Oleh kerana urus niaga hadapan tukaran asing merupakan instrumen yang dikelaskan sebagai derivatif sebagaimana produk-produk opsyen, keputusan MPS pada mesyuarat ke-79 bagi perkara 88 adalah terpakai dalam konteks urus niaga hadapan mata wang asing. 148 Kuwait Finance House, Al-Fatawa al-Syar`iyyah fi al-Masa’il al-Iqtisadiyyah (edisi terkini), j. 1, h. 137, fatwa no. 171. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 138 ii. Pertukaran mata wang asing secara janji kedua-dua belah pihak yang mengikat (muwa`adah mulzimah) tidak dibenarkan sebagaimana pandangan jumhur fuqaha. Ini kerana muwa`adah mulzimah dalam konteks ini adalah menyerupai akad jual beli;149 dan iii. Muwa`adah mulzimah dalam urus niaga pertukaran mata wang asing adalah dilarang kerana melibatkan akad jual beli hutang dengan hutang (bai` al-kali’ bi al-kali’).150 85. Swap Kadar Keuntungan (Profit Rate Swap) secara Islam Berasaskan Bai` `Inah Swap kadar keuntungan secara Islam merupakan satu mekanisme pertukaran aliran keuntungan secara dua hala (antara kadar keuntungan tetap dan kadar keuntungan boleh ubah) menerusi pelaksanaan beberapa kontrak jual beli aset tertentu berlandaskan Syariah. Urus niaga ini dilaksanakan bagi tujuan menguruskan ketidaksepadanan (mismatch) antara aliran pendapatan dari aset dengan perbelanjaan atau kos pendanaan dalam bahagian liabiliti. Sehubungan itu, sebuah institusi kewangan Islam berhasrat memperkenalkan swap kadar keuntungan berdasarkan kontrak bai` `inah sesama institusi-institusi kewangan atau antara institusi kewangan Islam dengan rakan niaga swap yang lain. Mekanisme swap ini adalah seperti yang berikut: Peringkat pertama i. Institusi kewangan Islam melabur dalam Pelaburan Mudarabah antara Bank dengan institusi kewangan lain. Pelaburan Mudarabah antara Bank tersebut akan digunakan sebagai aset sandaran dalam urus niaga swap ini; dan ii. Institusi kewangan Islam akan melaksanakan perjanjian swap kadar keuntungan dengan pihak ketiga, contohnya Bank XYZ selama dua tahun dengan tarikh penetapan urus niaga jual beli semula (reset) pada setiap enam bulan. 149 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1988, Persidangan kali ke-5, resolusi no. 40 & 41. 150 Majmu`ah Dallah Barakah, Qararat wa Tawsiyyat Nadawat al-Barakah, 1990, Persidangan kali ke-6, resolusi no. 6/23. 139 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Peringkat kedua iii. Institusi kewangan Islam menjual Pelaburan Mudarabah antara Bank kepada Bank XYZ dengan harga jualan tangguh yang akan dibayar pada setiap enam bulan; iv. Bank XYZ menjual Pelaburan Mudarabah antara Bank kepada institusi kewangan Islam dengan harga jualan berdasarkan kadar keuntungan tetap; v. Pembayaran untuk harga belian oleh institusi kewangan Islam daripada langkah (iv) akan dilunaskan (set-off) dengan pembayaran untuk harga belian oleh Bank XYZ daripada langkah (iii); dan vi. Sehubungan dengan itu, institusi kewangan Islam perlu membayar kadar keuntungan tetap pada setiap enam bulan bagi tempoh selama dua tahun. Peringkat ketiga vii. Institusi kewangan Islam menjual Pelaburan Mudarabah antara Bank kepada Bank XYZ dengan harga jualan berdasarkan kadar keuntungan boleh ubah semasa; viii.Bank XYZ menjual Pelaburan Mudarabah antara Bank kepada institusi kewangan Islam dengan harga jualan; ix. Pembayaran untuk harga belian oleh institusi kewangan Islam daripada langkah (viii) akan dilunaskan dengan pembayaran untuk harga belian oleh Bank XYZ daripada langkah (vii); x. Sehubungan dengan itu, Bank XYZ akan membayar kadar keuntungan berubah pada setiap enam bulan bagi tempoh selama dua tahun; dan xi. Perbezaan nilai obligasi yang wujud antara pihak yang melakukan urus niaga ekoran langkah (vi) di peringkat kedua dan langkah (x) di peringkat ketiga akan dijelaskan kepada pihak penerima. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 140 Peringkat keempat xii. Peringkat ketiga akan diulang pada setiap tarikh penetapan semula iaitu pada setiap enam bulan sehingga tamat tarikh perjanjian. Apabila kontrak ditamatkan, salah satu pihak perlu membayar obligasi atau hutang kepada pihak satu lagi dan ini dinamakan close out. Dalam swap kadar faedah secara konvensional, apabila berlaku close out, salah satu pihak perlu membuat bayaran kepada pihak yang satu lagi berdasarkan kaedah ketentuan pasaran (market quote) iaitu kerugian yang perlu dibayar berdasarkan formula yang ditetapkan oleh pasaran. Sehubungan dengan itu, MPS dirujuk berhubung dengan isu berikut: i. Sama ada kaedah pembayaran secara tolak selesai antara urus niaga pertama (langkah iii) dengan urus niaga kedua (langkah iv) boleh dilaksanakan memandangkan kedua-dua urus niaga tidak dijalankan secara tunai dan dikhuatiri wujudnya jualan hutang dengan hutang (bai` al-dayn bi al-dayn) yang ditegah Syarak; ii. Sama ada dokumentasi urus niaga swap kadar keuntungan adalah memadai untuk membuktikan berlakunya pemindahan hak milik dan pegangan (qabd) terhadap aset sandaran yang diurusniagakan iaitu Pelaburan Mudarabah antara Bank; dan iii. Sama ada kaedah penentuan amaun close out dalam swap kadar faedah secara konvensional boleh digunakan untuk menentukan amaun close out dalam swap kadar keuntungan. Keputusan MPS pada mesyuarat ke-44 bertarikh 24 Jun 2004 telah memutuskan bahawa amalan tolak selesai yang dicadangkan dalam struktur swap kadar keuntungan adalah dibenarkan kerana ia tidak melibatkan jual beli hutang dengan hutang yang ditegah Syarak. 141 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM MPS juga memutuskan bahawa pemindahan hak milik bermanfaat yang digambarkan dalam dokumentasi kontrak adalah memadai, iaitu diterima dan diakui oleh Syarak. Pada mesyuarat ke-54 bertarikh 27 Oktober 2005, MPS turut memutuskan bahawa kaedah penentuan amaun close out dalam swap kadar faedah secara konvensional boleh digunakan untuk menentukan amaun close out dalam swap kadar keuntungan. Asas Pertimbangan MPS berpandangan bahawa tidak timbul isu jualan hutang dengan hutang yang ditegah Syarak dalam struktur swap kadar keuntungan seperti yang dicadangkan berdasarkan perkara berikut: i. Urus niaga kedua (langkah iv) merupakan jualan terhadap aset yang dibeli dan dimiliki oleh seseorang hasil daripada urus niaga pertama (langkah iii) walaupun ia belum membayar harga belian tersebut. Pihak kedua tidak mungkin menjual hutang kerana hutang yang terhasil daripada urus niaga pertama adalah milik pihak pertama. Oleh itu, aset yang dijual beli dalam urus niaga kedua adalah aset yang telah dimiliki oleh penjual dan tidak timbul soal penjualan hutang; dan ii. Kaedah muqasah pula adalah kaedah yang lazim dan diterima dalam keadaan kedua-dua pihak mempunyai hutang sesama mereka dan diselesaikan melalui pembayaran perbezaan nilai antara kedua-dua hutang tersebut. Berhubung dengan isu pemindahan hak milik bermanfaat yang digambarkan dalam dokumentasi kontrak, MPS mengambil hujah-hujah berikut sebagai asas pertimbangan: i. Kedua-dua jenis konsep hak milik iaitu hak milik dari segi undang-undang (legal title) dan hak milik bermanfaat adalah diterima dan diakui Syarak; dan ii. Memandangkan aset yang digunakan dalam urus niaga ini adalah Pelaburan Mudarabah antara Bank, pindahan hak milik berlaku secara automatik. Bukti utama rujukan pindahan hak milik adalah dokumentasi perjanjian jual beli berkenaan. Pelabur boleh menjual aset tersebut kepada pihak ketiga tanpa perlu merujuk atau membuat pindahan hak milik di bank penerima pelaburan. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 142 Bagi kaedah penentuan amaun close out dalam swap kadar keuntungan, memandangkan kaedah penentuan ta`widh oleh pihak ketiga dalam konteks swap kadar keuntungan tidak praktikal, MPS berpandangan bahawa kaedah penentuan pasaran (market quote) boleh digunakan dalam swap kadar keuntungan sekiranya pihak berkontrak meyakini bahawa kaedah ini menggambarkan kerugian sebenar yang dialami oleh pihak yang berkontrak akibat kemungkiran salah seorang daripada mereka. 86. Urus Niaga Hadapan (Forward) Mata Wang secara Bai` Mu’ajjal Terdapat cadangan daripada sebuah institusi kewangan Islam untuk memperkenalkan urus niaga hadapan mata wang asing berdasarkan kontrak bai` mu’ajjal (jual beli tertangguh) dan bai` sarf (jual beli mata wang) sebagai alternatif kepada urus niaga hadapan berdasarkan wa`d. Mekanisme produk tersebut adalah seperti yang berikut: i. Pelanggan melantik institusi kewangan Islam sebagai ejen untuk membeli komoditi X daripada Broker B bernilai USD1 juta dengan harga tangguh yang akan dibayar pada tarikh hadapan (tarikh Y). Penyerahan komoditi dibuat secara serta merta (spot); ii. Pelanggan kemudiannya menjual komoditi X kepada institusi kewangan Islam dengan harga RM3.5 juta dengan harga tangguh yang akan dibayar oleh institusi kewangan Islam pada tarikh Y. Penyerahan komoditi juga dibuat secara serta merta; iii. Institusi kewangan Islam kemudiannya akan menjual komoditi X tersebut kepada Broker A dengan harga USD1 juta secara tangguh yang akan dibayar pada tarikh Y. Komoditi X diserahkan kepada Broker A secara serta merta; dan iv. Hasil daripada urus niaga ini, pada tarikh matang iaitu tarikh Y, pelanggan akan membayar USD1 juta kepada Broker B dan menerima RM3.5 juta daripada institusi kewangan Islam. Manakala institusi kewangan Islam akan membayar RM3.5 juta kepada pelanggan dan menerima USD1 juta daripada Broker A. Ini bermakna pelanggan dapat melindung nilai USD1 juta dengan nilai RM3.5 juta pada tarikh hadapan iaitu pada tarikh Y. 143 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada urus niaga hadapan mata wang asing berdasarkan kontrak bai` mu’ajjal dan bai` sarf dibenarkan. Keputusan MPS pada mesyuarat khas pertama bertarikh 13 April 2007 telah memutuskan bahawa urus niaga hadapan mata wang asing berdasarkan struktur di atas adalah dibenarkan. Namun, istilah bai` sarf dalam urus niaga ini perlu dimansuhkan kerana pada hakikatnya tidak wujud urus niaga bai` sarf yang sebenar walaupun ia menghasilkan kesan yang sama. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan ke atas perkara berikut: i. Jual beli secara tangguh diharuskan secara ijmak oleh para ulama seperti yang dinyatakan oleh Ibnu Hajar dalam kitabnya: “Pembelian dengan tangguh adalah harus secara ijmak.”151 ii. Dalam cadangan produk ini, didapati semua urus niaga jual beli tangguh yang dijalankan adalah dibuat secara berasingan dan tidak mempunyai kaitan antara satu dengan yang lain. Ini menepati syarat yang dikehendaki dalam urus niaga seumpama ini. 151 Ibnu Hajar al-`Asqalani, Fath al-Bari Syarh Sahih al-Bukhari, Dar al-Ma`rifah, 1959, j. 4, h. 302. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 144 87. Opsyen Mata Wang Asing Berasaskan Konsep Hamish Jiddiyyah, Wa`d dan Tawarruq Sebuah institusi kewangan Islam telah mencadangkan produk opsyen mata wang asing berasaskan konsep hamish jiddiyyah (deposit sekuriti), wa`d (janji) dan tawarruq. Melalui produk ini, pelanggan yang ingin mendapatkan instrumen lindung nilai bagi urus niaga pertukaran mata wang asing secara hadapan akan memberikan wa`d kepada institusi kewangan Islam untuk membeli sejumlah komoditi daripada institusi kewangan Islam dan melantik institusi kewangan Islam untuk menjual komoditi tersebut kepada pihak ketiga. Institusi kewangan Islam selanjutnya akan mengenakan hamish jiddiyyah ke atas pelanggan sebagai sekuriti untuk menjamin pelaksanaan wa`d tersebut oleh pelanggan. Pada tarikh yang dipersetujui, urus niaga tawarruq akan dilaksanakan menerusi penjualan dan pembelian komoditi dengan bayaran dan penyerahan terus. Setiap jual beli dalam tawarruq tersebut melibatkan mata wang yang berbeza dan sekiranya kedua-dua pihak iaitu institusi kewangan Islam dan pelanggan melaksanakan janji tersebut, maka hamish jiddiyyah akan dipulangkan semula kepada pelanggan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada produk opsyen mata wang asing seperti yang dicadangkan dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-73 bertarikh 20 Februari 2008 telah memutuskan bahawa cadangan produk opsyen mata wang asing yang berasaskan konsep hamish jiddiyyah, wa`d dan tawarruq seperti yang dicadangkan adalah dibenarkan. Walau bagaimanapun, urus niaga jual beli yang berlaku hendaklah dirujuk sebagai janji untuk membeli (wa`d bi al-syira’). Sekiranya berlaku kemungkiran, pihak yang dimungkiri boleh menuntut nilai kerugian sebenar akibat kemungkiran tersebut daripada nilai hamish jiddiyyah. Penentuan dan pelayanan (treatment) kerugian sebenar hendaklah dilakukan seperti yang berikut: 145 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM i. Nilai kerugian sebenar mestilah ditentukan berdasarkan perbezaan harga jualan komoditi setelah pelanggan mungkir dengan harga belian yang dijanjikan pelanggan. Kerugian sebenar adalah bersamaan dengan harga jualan di pasaran selepas pelanggan mungkir dan ditolak harga belian yang dijanjikan pelanggan (perolehan dari hasil jualan yang lebih rendah daripada harga belian); ii. Institusi kewangan Islam boleh mengambil keseluruhan nilai hamish jiddiyyah sekiranya nilai kerugian sebenar berdasarkan kaedah di atas melebihi atau bersamaan dengan nilai hamish jiddiyyah. Jika kerugian sebenar lebih rendah daripada nilai hamish jiddiyyah, pelanggan boleh bersetuju agar nilai perbezaan tersebut disalurkan kepada badan kebajikan dengan dipantau oleh jawatankuasa Syariah institusi kewangan Islam berkenaan; dan iii. Perkara (i) dan (ii) mestilah dinyatakan dengan jelas kepada pelanggan dan mendapat persetujuan pelanggan. Asas Pertimbangan Hamish jiddiyyah, wa`d dan tawarruq boleh dilaksanakan, sejajar dengan pandangan ulama semasa yang membenarkan konsep-konsep tersebut digunakan dalam urus niaga kewangan. Amaun hamish jidiyyah boleh diambil oleh pihak yang dimungkiri sekiranya berlaku kerugian akibat kemungkiran oleh pemberi wa`d kerana ia bersifat wang cagaran (security deposit). 88. Opsyen Mata Wang Asing Berasaskan Konsep Wa`d dan Dua Urus Niaga Tawarruq yang Dibuat secara Berasingan Sebuah institusi kewangan Islam telah mencadangkan produk opsyen mata wang asing yang menggunakan konsep wa`d dan dua urus niaga tawarruq yang dibuat secara berasingan. Melalui produk ini, pelanggan yang ingin mendapatkan instrumen lindung nilai bagi urus niaga pertukaran mata wang asing secara hadapan akan memberikan wa`d kepada institusi kewangan Islam untuk membeli sejumlah komoditi daripada institusi kewangan Islam. Kemudian, pelanggan akan melantik institusi kewangan Islam sebagai wakil untuk menjual komoditi tersebut kepada pihak ketiga. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 146 Pada tarikh pemeteraian kontrak opsyen, pelanggan dan institusi kewangan Islam akan melaksanakan urus niaga tawarruq yang pertama untuk mendapatkan keuntungan hasil jualan yang menyamai nilai premium seperti dalam urus niaga opsyen konvensional. Seterusnya, pada tarikh yang ditetapkan, urus niaga tawarruq kedua akan dilaksanakan dengan penjualan dan pembelian komoditi menerusi bayaran dan penyerahan terus. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada struktur produk opsyen mata wang asing yang berasaskan konsep wa`d dan dua urus niaga tawarruq yang dibuat secara berasingan dibenarkan. Keputusan MPS pada mesyuarat ke-79 bertarikh 29 Oktober 2008 telah memutuskan bahawa struktur produk opsyen mata wang asing yang berasaskan konsep wa`d dan dua urus niaga tawarruq yang dibuat secara berasingan adalah dibenarkan, tertakluk kepada syarat berikut: i. Penggunaan produk opsyen hendaklah dihadkan bagi tujuan lindung nilai; ii. Wa`d yang diberikan mestilah berasingan daripada urus niaga tawarruq dan tidak dijadikan syarat kepada urus niaga tersebut; iii. Institusi kewangan hendaklah memastikan setiap urus niaga dimeterai secara berasingan antara satu sama lain dari segi dokumentasi dan turutan perlaksanaan; dan iv. Aset sandaran yang digunakan hendaklah berlandaskan Syariah. Asas Pertimbangan Keputusan MPS yang mensyaratkan wa`d yang diberikan hendaklah berasingan daripada urus niaga tawarruq dan tidak dijadikan syarat kepada urus niaga tersebut adalah bertujuan untuk mengelak wa`d diberikan sebagai tukaran kepada sesuatu nilai. Ini selaras dengan pandangan ulama semasa yang menyatakan bahawa sesuatu wa`d tidak boleh diletak harga dan diperdagangkan.152 152 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 20, perenggan 3/3/2/5. 147 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Kad kredit merujuk kepada kad yang membolehkan pemegangnya menggunakan kad tersebut untuk membeli barangan, perkhidmatan dan memperoleh wang tunai melalui kontrak dan perjanjian yang dipersetujui antara pemegang kad dan syarikat pengeluar kad berdasarkan syarat-syarat tertentu. Ia membenarkan pemegangnya melakukan urus niaga di atas secara kredit yang merupakan salah satu kaedah pembayaran alternatif selain pembayaran secara tunai atau cek. Bagi memastikan kad kredit secara Islam digunakan selaras dengan tuntutan Syarak, pelbagai garis panduan berhubung dengan penggunaan kad kredit secara Islam perlulah dibuat. 89. Kad Kredit secara Islam Berasaskan Konsep Bai` `Inah dan Wadi`ah Terdapat cadangan daripada sebuah institusi kewangan Islam untuk menawarkan produk kad kredit berasaskan dua konsep Syariah, iaitu bai` `inah (untuk menghasilkan dana bagi menyediakan kemudahan kredit kepada pelanggan) dan wadi`ah (untuk menyediakan khidmat simpanan ke atas dana yang dihasilkan melalui kontrak bai` `inah). Di bawah mekanisme produk kad kredit ini, institusi kewangan Islam akan menjual aset pada nilai nominal campur keuntungan kepada pelanggan secara kredit selama tiga tahun. Kemudian, pelanggan akan menjual semula aset tersebut kepada institusi kewangan Islam secara tunai pada nilai nominal. Amaun tunai ini kemudiannya akan dikreditkan ke dalam akaun wadi`ah di institusi kewangan Islam untuk membolehkan pelanggan melakukan urus niaga pembelian barangan atau perkhidmatan. Kedua-dua urus niaga jual beli akan dilakukan secara berturutan tetapi dalam dua kontrak yang berasingan. Dalam hal ini, MPS dirujuk berhubung dengan isu berikut: i. Sama ada produk kad kredit berasaskan konsep bai` `inah dan wadi`ah seperti yang dicadangkan dibenarkan; dan ii. Sekiranya dibenarkan, sama ada produk kad kredit ini boleh membiayai pembelian barangan ribawi seperti emas, perak dan barang-barang makanan. KAD KREDIT SECARA ISLAM RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 148 149 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-18 bertarikh 12 April 2001 telah memutuskan bahawa produk kad kredit berasaskan konsep bai` ̀ inah dan wadi`ah, serta pembelian emas, perak dan barangan lain yang halal menggunakan produk kad kredit secara Islam seperti yang dibentangkan adalah dibenarkan. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan ke atas perkara berikut: i. Penggunaan konsep bai` `inah dalam produk kad kredit ini dibenarkan selaras dengan dalil-dalil keharusan bai` `inah seperti yang dijelaskan dalam perkara 69; 153 ii. Kontrak wadi`ah pula dibenarkan dalam mekanisme kad kredit ini sebagai kontrak pelengkap kepada bai` `inah yang hasil jualan tunai bagi kegunaan pelanggan disimpan oleh institusi kewangan Islam berdasarkan wadi`ah; dan iii. Isu berhubung dengan pembelian barangan ribawi tidak timbul kerana pembelian tersebut melibatkan wang dan barangan, bukannya pertukaran antara barangan ribawi. Tambahan pula, pembayaran adalah ditolak daripada akaun pelanggan sendiri yang telah pun wujud. 90. Kad Kredit secara Islam Berasaskan Konsep Ujrah Beberapa buah institusi kewangan Islam telah mencadangkan produk kad kredit yang berdasarkan konsep ujrah (upah). Melalui kad kredit ini, ujrah dikenakan ke atas pemegang kad kredit sebagai balasan kepada penawaran perkhidmatan, manfaat dan keistimewaan yang diberikan oleh institusi kewangan Islam kepada pemegang kad kredit. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada struktur kad kredit yang menggunakan konsep ujrah dibenarkan Syarak. 153 Penggunaan Konsep Bai` `Inah dalam Terbitan Sijil Hutang Boleh Niaga secara Islam. Keputusan MPS pada mesyuarat ke-77 bertarikh 3 Julai 2008 dan mesyuarat ke-78 bertarikh 30 Julai 2008 telah memutuskan bahawa kad kredit yang berdasarkan konsep ujrah seperti yang dicadangkan adalah dibenarkan, tertakluk kepada perkara berikut: i. Institusi kewangan Islam hendaklah memastikan ujrah yang dikenakan merupakan tukaran kepada perkhidmatan, manfaat dan keistimewaan sebenar (non-fictitious) yang berlandaskan Syariah; ii. Pengenaan ujrah yang berbeza bagi jenis kad kredit yang menawarkan perkhidmatan, keistimewaan dan manfaat yang berbeza adalah harus; iii. Pengenaan ujrah bagi perkhidmatan, manfaat dan keistimewaan yang tidak berkaitan dengan pemberian qard, penangguhan hutang dan pertukaran tunai dengan tunai pada nilai berbeza adalah dibenarkan; dan iv. Pengenaan ujrah bagi perkhidmatan, manfaat dan keistimewaan yang berkaitan dengan pemberian qard, penangguhan hutang dan pertukaran tunai dengan tunai pada nilai berbeza adalah tidak dibenarkan. Namun demikian, caj bagi menampung kos sebenar (nafaqah/taklufah) pengendaliannya boleh dikenakan. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 150 151 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 91. Manfaat Perlindungan Takaful bagi Pemegang Kad Kredit secara Islam Terdapat cadangan daripada institusi kewangan Islam untuk menawarkan perlindungan takaful kemalangan peribadi kepada pemegang kad kredit secara Islam sebagai salah satu bentuk keistimewaan kepada pemegang kad kredit yang dikenakan ujrah. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada pemberian perlindungan takaful kemalangan peribadi sebagai salah satu bentuk manfaat yang dikenakan ujrah kepada pemegang kad kredit secara Islam dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-77 bertarikh 3 Julai 2008 telah memutuskan bahawa pemberian perlindungan takaful kemalangan peribadi sebagai salah satu bentuk keistimewaan kepada pemegang kad kredit secara Islam dengan dikenakan ujrah seperti yang dicadangkan adalah tidak menepati Syarak. Namun sekiranya perlindungan takaful kemalangan peribadi ini diberikan secara hibah tanpa sebarang ujrah, maka ia adalah dibenarkan. “Sesungguhnya sebaik-baik orang yang diupah adalah orang yang kuat dan amanah.”154 Hadis Rasulullah SAW: “Berikan pekerja itu upahnya sebelum kering keringatnya.”155 Asas Pertimbangan Ujrah ialah upah yang diharuskan dalam Islam berdasarkan dalil-dalil al-Quran dan hadis seperti yang berikut: Firman Allah SWT: 154 Surah al-Qasas, ayat 26. 155 Al-Baihaqi, Al-Sunan al-Kubra, Maktabah Dar al-Baz, 1994, j. 6, h. 120, hadis no. 11434. 156 Wizarah al-Awqaf wa al-Syu’un al-Islamiyyah, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah,1993, j. 22, h. 57. Asas Pertimbangan Pengenaan ujrah bagi perlindungan takaful kemalangan peribadi tidak dibenarkan kerana: i. Pemegang kad kredit secara Islam tidak menjadi peserta takaful secara langsung, sebaliknya membayar ujrah kepada institusi kewangan Islam dengan balasan institusi kewangan Islam tersebut memberikan perlindungan takaful yang diatur dengan pihak ketiga; dan ii. Apabila pelanggan hanya membayar ujrah kepada institusi kewangan Islam bagi manfaat perlindungan daripada risiko, pengaturan ini dilihat sebagai pertukaran tunai dengan tunai pada nilai berbeza yang ditegah Syarak.156 Sehubungan dengan itu, bagi mengelakkan berlakunya syubhah pertukaran tunai dengan tunai pada nilai berbeza yang ditegah Syarak, maka sebagai alternatif, konsep hibah dikira sesuai kerana tiada halangan Syarak ke atasnya. 92. Rebat dalam Bentuk Pemberian Tunai (Cashback) ke atas Fi Tahunan Kad Kredit MPS dirujuk berhubung dengan cadangan daripada sebuah institusi kewangan Islam yang menawarkan produk kad kredit berdasarkan konsep ujrah untuk berjanji memberikan rebat dalam bentuk pemberian tunai (cashback) ke atas fi tahunan sekiranya pemegang kad kredit menggunakan kad sekurang-kurangnya dua kali sebulan. Keputusan MPS pada mesyuarat ke-77 bertarikh 3 Julai 2008 telah memutuskan bahawa institusi kewangan Islam tidak boleh memberikan cashback kepada pemegang kad kredit secara Islam sekiranya dikenakan ujrah. Sebaliknya, keistimewaan tersebut hendaklah diberikan sebagai hibah kepada pemegang kad tanpa dikenakan ujrah. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 152 153 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan bahawa pemberian cashback dengan pengenaan ujrahmewujudkan elemen pertukaran tunai dengan tunai pada nilai berbeza yang ditegah oleh Syarak.157 93. Kad Kredit secara Islam Berasaskan Konsep Wakalah dan Kafalah Terdapat cadangan daripada institusi kewangan Islam untuk menawarkan produk kad kredit berdasarkan konsep wakalah dan kafalah. Menerusi produk ini, institusi kewangan Islam bercadang mengeluarkan kad kredit kepada pelanggan dengan had kredit yang ditetapkan. Pelanggan seterusnya akan menggunakan kad kredit secara Islam tersebut untuk membeli barang atau perkhidmatan daripada peniaga dan peniaga akan meminta pihak banknya untuk membayar amaun yang digunakan oleh pelanggan. Bank peniaga seterusnya akan menghantar semua dokumen berkaitan dengan urus niaga tersebut kepada Visa/Mastercard yang menjadi pengantara antara bank peniaga dan institusi kewangan Islam. Visa/ Mastercard akan meminta institusi kewangan Islam untuk menjelaskan amaun yang diminta oleh bank peniaga. Di bawah konsep wakalah, ujrah akan dikenakan ke atas pemegang kad kredit berdasarkan peratusan tertentu daripada had kredit sebagai balasan kepada institusi kewangan Islam yang bertindak sebagai wakil bagi pihak pemegang kad kredit untuk menjelaskan pembayaran kepada bank peniaga. Di samping itu, menerusi konsep kafalah, institusi kewangan Islam turut menjamin pembayaran kepada Visa/Mastercard (untuk pembayaran yang dibuat kepada bank peniaga) dan menjamin pembayaran terhadap pembelian yang dibuat oleh pemegang kad kredit daripada peniaga. Dalam hal ini, MPS dirujuk berhubung dengan isu berikut: i. Sama ada penggunaan konsep wakalah dan kafalah dalam struktur kad kredit secara Islam ini selaras dengan Syarak; dan ii. Sama ada kaedah penentuan ujrah oleh pihak institusi kewangan Islam yang berdasarkan peratusan tertentu daripada had kredit dibenarkan Syarak. 157 Wizarah al-Awqaf wa al-Syu’un al-Islamiyyah, Al-Mawsu`ah al-Fiqhiyyah al-Kuwaitiyyah, 1993, j. 22, h. 57. Keputusan MPS pada mesyuarat ke-78 bertarikh 30 Julai 2008 telah memutuskan perkara berikut: i. Penyesuaian fiqah (takyif fiqhi) ujrah ke atas wakalah dalam struktur kad kredit seperti yang dicadangkan adalah tidak tepat; ii. Kaedah penentuan ujrah berdasarkan peratusan tertentu daripada had kredit tidak menepati hukum Syarak dan ia bercanggah dengan keputusan majoriti penasihat Syariah di peringkat antarabangsa; dan iii. Ujrah ke atas wakalah atau selainnya mestilah berbentuk amaun yang tetap tanpa dikaitkan dengan had kredit untuk mengelakkan wujudnya unsur riba. Asas Pertimbangan Takyif fiqhi ujrah ke atas wakalah dalam struktur kad kredit secara Islam seperti yang dicadangkan adalah tidak tepat kerana fungsi wakalah yang dilaksanakan oleh institusi kewangan Islam tersebut hanya terhad kepada mewakili pemegang kad kredit dalam menjelaskan pembayaran kepada peniaga sahaja, sedangkan institusi kewangan Islam tersebut juga pada hakikatnya menawarkan beberapa perkhidmatan dan manfaat yang lain. Di samping itu, kaedah penentuan ujrah ke atas wakalah berdasarkan peratusan tertentu daripada had kredit membawa kepada pengenaan manfaat yang disyaratkan ke atas pemberian pinjaman wang (qard) yang ditegah oleh Syarak. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 154 Bagi meningkatkan kepelbagaian rangkaian produk kewangan Islam yang dapat memenuhi keperluan pelanggan, institusi kewangan Islam telah meningkatkan usaha penyelidikan dan pembangunan produk kewangan Islam. Beberapa inovasi baharu telah diterokai, antaranya dengan menghimpunkan beberapa kontrak Syariah dalam satu pakej produk bagi mencapai tujuan-tujuan tertentu. Memandangkan kombinasi kontrak-kontrak ini merupakan inovasi baharu, penelitian dan pengesahan daripada MPS diperlukan bagi memastikan produk- produk ini adalah selaras dengan Syarak. 94. Produk Akaun Semasa Berasaskan Himpunan Kontrak Wadi`ah Yad Dhamanah dan Mudarabah Terdapat cadangan daripada sebuah institusi kewangan Islam untuk menawarkan produk akaun semasa berasaskan himpunan kontrak wadi`ah yad dhamanah dan mudarabah. Menerusi produk ini, institusi kewangan Islam akan memegang dua peranan iaitu sebagai pemegang amanah dan pengusaha manakala pelanggan bertindak sebagai penyimpan dan pelabur. Walau bagaimanapun, kedua-dua kontrak ini tidak akan dilaksanakan secara serentak pada satu masa yang sama. Ia hanya akan dilaksanakan menerusi penentuan had purata baki simpanan harian minimum dalam sebulan bagi menentukan sama ada kontrak yang terlaksana ialah kontrak wadi`ah yad dhamanah atau mudarabah. Sebagai contoh, institusi kewangan Islam menetapkan jumlah RM3,000 sebagai had purata baki harian minimum sebagai syarat kelayakan kepada seseorang pemegang akaun untuk memasuki kontrak mudarabah. Ini bermakna, pada akhir setiap bulan, institusi kewangan Islam akan menyemak maklumat mengenai baki akaun pelanggan untuk menentukan sama ada pelanggan layak mendapat keuntungan mudarabah atau tidak. Sekiranya baki purata harian dalam bulan tersebut adalah sebanyak RM3,000 atau lebih, pelanggan dikategorikan sebagai pelabur mudarabah dan layak mendapat keuntungan (sekiranya ada). Sebaliknya, jika baki purata harian dalam bulan tersebut adalah kurang daripada RM3,000, ia dianggap sebagai simpanan wadi`ah yad dhamanah. Segala syarat dan peraturan mengenai konsep wadi`ah yad dhamanah dan mudarabah adalah terpakai mengikut keadaan dan mestilah dipersetujui semasa akad dimeterai. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada himpunan kontrak wadi`ah yad dhamanah dan mudarabah dalam satu produk akaun semasa seperti yang dicadangkan dibenarkan Syarak. PRODUK HIBRID 155 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-5 bertarikh 30 April 1998 telah memutuskan bahawa himpunan kontrak wadi`ah yad dhamanah dan mudarabah dalam satu produk akaun semasa adalah dibenarkan. Asas Pertimbangan Keharusan menghimpunkan beberapa kontrak Syariah dalam satu produk atau perkhidmatan kewangan adalah berasaskan pandangan yang menyatakan bahawa himpunan beberapa kontrak dalam satu sistem adalah harus dengan syarat setiap kontrak adalah dibenarkan dan tiada dalil Syarak yang menegahnya.158 Walau bagaimanapun, keharusan himpunan ini mesti menepati garis panduan Syariah yang berikut: i. Ia tidak dilarang oleh Syarak, seperti larangan himpunan kontrak jual beli dan kontrak pinjaman (al-bai` wa al-salaf) atau ia bukan jalan ke arah riba (zari`ah ila riba) seperti himpunan antara kontrak pinjaman dan kontrak pertukaran (al-jam`u baina `aqd al-qardh wa `aqd al-mu`awadhah); dan ii. Tidak terdapat percanggahan antara akad-akad tersebut daripada segi hukum, seperti himpunan antara hibah sesuatu barang dan penjualannya kepada penerima, atau pemberian hibah dan penyewaannya kepada penerima. 95. Produk Deposit Berasaskan Himpunan Kontrak Mudarabah dan Qard Sebuah institusi kewangan Islam mencadangkan produk deposit yang berasaskan himpunan kontrak mudarabah (misalnya 60%) dan qard (misalnya 40%). Nisbah antara kedua-dua kontrak akan berterusan bermula daripada pembukaan akaun sehingga penutupan akaun. Setiap pengeluaran wang daripada akaun berkenaan akan mewakili sebanyak 60% daripada bahagian dana mudarabahmanakala 40% adalah daripada bahagian dana qard. 158 Hasan Ali al-Syazili, Ijtima` al-`Uqud al-Mukhtalifah al-Ahkam fi `Aqd Wahid, dalam A`maal al-Nadwah al-Fiqhiyyah al-Khamisah li Bait Tamwil al-Kuwaiti, Bait al-Tamwil al-Kuwaiti, 1998, h. 506. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 156 Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada himpunan kontrak mudarabah dan qard dalam satu produk deposit seperti yang dicadangkan dibenarkan. Keputusan MPS pada mesyuarat ke-51 bertarikh 28 Julai 2005 telah memutuskan bahawa himpunan kontrak mudarabah dan qard dalam satu produk deposit seperti yang dicadangkan adalah dibenarkan. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan ke atas keharusan himpunan beberapa kontrak Syariah dalam satu produk kewangan seperti yang dinyatakan dalam perkara 94.159 96. Produk Deposit Berasaskan Himpunan Kontrak Wadi`ah dan Mudarabah Sebuah institusi kewangan Islam berhasrat menawarkan produk deposit berasaskan kontrak wadi`ah dan mudarabah yang boleh memberi pulangan dividen kepada pelanggan. Di bawah struktur produk deposit ini, sebahagian besar deposit pelanggan (sebagai contoh, 70%) akan diterima oleh institusi kewangan Islam di bawah kontrak wadi`ah, manakala selebihnya (sebagai contoh, 30%) diterima berasaskan kontrak mudarabah. Keuntungan yang diterima daripada pelaburan akan dikongsi mengikut nisbah pembahagian keuntungan yang dipersetujui, manakala kerugian daripada pelaburan, jika ada, akan ditanggung oleh pelanggan. Dalam hal ini, MPS dirujuk sama ada cadangan produk deposit yang berasaskan kontrak wadi`ah dan mudarabah seperti yang dicadangkan dibenarkan. 159 Produk Akaun Semasa Berasaskan Himpunan Kontrak Wadi`ah Yad Dhamanah dan Mudarabah. 157 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-68 bertarikh 24 Mei 2007 telah memutuskan bahawa produk deposit berasaskan kontrak wadi`ah dan mudarabah adalah dibenarkan. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan ke atas keharusan himpunan beberapa kontrak Syariah dalam satu produk kewangan seperti yang dinyatakan dalam perkara 94.160 97. Pembiayaan Perumahan dalam Pembinaan Berasaskan Himpunan Kontrak Istisna` Muwazi, Ijarah Mawsufah fi al-Zimmah dan Ijarah Muntahia bi al-Tamlik Sebuah institusi kewangan Islam mencadangkan produk pembiayaan perumahan yang masih dalam pembinaan dengan penggunaan konsep istisna` dan ijarah mawsufah fi al-zimmah. Modus operandi pembiayaan ini dimulakan dengan pelanggan menandatangani perjanjian jual beli dengan pemaju dan membayar deposit sebanyak 10%. Kemudian, pelanggan akan memohon pembiayaan daripada institusi kewangan Islam menerusi kontrak istisna` yang dengannya pelanggan akan menjual rumah tersebut secara istisna` kepada institusi kewangan Islam (istisna` muwazi atau istisna` selari). Pelanggan juga akan menandatangani kontrak ijarah mawsufah fi al-zimmah untuk menyewa rumah yang masih dalam pembinaan tersebut. Sehubungan itu, pelanggan akan mula membayar sewa bulanan walaupun rumah masih dalam pembinaan. 160 Produk Akaun Semasa Berasaskan Himpunan Kontrak Wadi`ah Yad Dhamanah dan Mudarabah. R ESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 158 Institusi kewangan Islam akan membayar harga pembelian rumah secara istisna` kepada pelanggan dengan mengkreditkan jumlah bayaran tersebut ke dalam akaun khas pelanggan seperti yang dipersetujui dalam kontrak istisna`. Seterusnya, institusi kewangan Islam selaku wakil kepada pelanggan akan membuat pembayaran daripada akaun khas pelanggan tersebut kepada pemaju secara berperingkat. Setelah rumah siap dibina sepenuhnya, pihak institusi kewangan Islam akan meneruskan sewaan rumah tersebut kepada pelanggan melalui kontrak ijarah muntahia bi al-tamlik. Apabila pelanggan menyelesaikan sewaan terakhir, institusi kewangan Islam boleh menghibahkan rumah tersebut kepada pelanggan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada cadangan produk pembiayaan perumahan dalam pembinaan seperti yang dibentangkan dibenarkan. Keputusan MPS pada mesyuarat ke-68 bertarikh 24 Mei 2007 telah memutuskan bahawa produk pembiayaan perumahan berasaskan istisna` muwazi, ijarah mawsufah fi al-zimmah dan ijarah muntahia bi al-tamlik seperti yang dicadangkan adalah dibenarkan. Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan ke atas keharusan himpunan beberapa kontrak Syariah dalam satu produk kewangan seperti yang dinyatakan dalam perkara 94.161 161 Produk Akaun Semasa Berasaskan Himpunan Kontrak Wadi`ah Yad Dhamanah dan Mudarabah. 159 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Entiti A bercadang menerbitkan sukuk berasaskan BBA yang mempunyai ciri pulangan kadar tetap bagi membiayai pembelian hutang pembiayaan rumah secara Islam dan sewa beli secara Islam daripada institusi kewangan Islam. Modus operandi Sukuk BBA yang dicadangkan adalah seperti yang berikut: i. Entiti A akan membuat Pelaburan Mudarabah antara Bank yang akan digunakan sebagai aset sandaran bagi melaksanakan kontrak jual dan beli balik antara entiti A dan pelabur; ii. Entiti A akan menjual aset sandaran (Pelaburan Mudarabah antara Bank) kepada pelabur secara tunai dan membeli semula aset berkenaan secara tangguh dengan harga yang lebih tinggi; iii. Hasil jualan tunai aset sandaran tersebut akan digunakan oleh entiti A untuk membeli hutang pembiayaan rumah secara Islam dan sewa beli secara Islam; dan iv. Urus niaga kedua yang melibatkan pembelian balik aset sandaran secara tangguh oleh entiti A mewujudkan hutang dan bagi membuktikan keberhutangan ini, entiti A akan menerbitkan Sukuk BBA kepada pelabur. 98. Pelaburan Mudarabah antara Bank sebagai Aset Sandaran dalam Jual Beli secara Tangguh MPS dirujuk berhubung dengan isu sama ada Pelaburan Mudarabah antara Bank boleh digunakan sebagai aset sandaran dalam urus niaga secara tangguh. Keputusan MPS pada mesyuarat ke-41 bertarikh 8 Mac 2004 telah memutuskan bahawa Pelaburan Mudarabah antara Bank boleh digunakan sebagai aset sandaran dalam urus niaga secara tangguh. SUKUK BERASASKAN BAI` BITHAMAN AJIL (BBA) RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 160 161 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Walaupun Pelaburan Mudarabah antara Bank yang digunakan sebagai aset sandaran dalam Sukuk BBA ini tidak wujud secara fizikal, ianya memenuhi kriteria aset yang “wujud“ (secara maknawi) dan diiktiraf sebagai boleh diurusniagakan. Ini berdasarkan cirinya yang mempunyai nilai, boleh diniagakan dan boleh dipindah milik. 99. Kewujudan Aset Sandaran Sepanjang Tempoh Matang Sukuk MPS dirujuk berhubung dengan isu sama ada aset sandaran iaitu Pelaburan Mudarabah antara Bank perlu wujud sepanjang tempoh matang Sukuk BBA. Keputusan MPS pada mesyuarat ke-41 bertarikh 8 Mac 2004 telah memutuskan bahawa aset sandaran iaitu Pelaburan Mudarabah antara Bank tidak perlu wujud sepanjang tempoh matang Sukuk BBA. Asas Pertimbangan Aset sandaran hanya digunakan bagi melaksanakan akad jual beli (bai` `inah). Selepas itu, hak milik aset sandaran tersebut boleh kembali kepada pemilik asal. Dalam hal ini, Syariah tidak menetapkan syarat bahawa aset sandaran perlu wujud sepanjang tempoh matang sukuk asalkan aset sandaran tersebut adalah milik penjual asal dan boleh berpindah milik pada masa akad dilaksanakan. Tambahan pula, mekanisme sukuk BBA ini ialah sukuk berdasarkan aset (asset- based sukuk) dan bukannya sukuk bersandarkan aset (asset-backed sukuk). 100. Kaedah Pembidaan bagi Sukuk BBA Entiti A telah mencadangkan tiga kaedah pembidaan bagi Sukuk BBA iaitu: i. Kaedah pembidaan berdasarkan harga - Semua bidaan akan disusun dan dibahagikan secara menurun daripada harga tertinggi kepada harga terendah sehingga keseluruhan jumlah Sukuk BBA yang ditawarkan dilanggan sepenuhnya; ii. Kaedah pembidaan berdasarkan kadar pulangan - Semua bidaan akan disusun dan dibahagikan secara menaik bermula daripada kadar pulangan terendah kepada kadar pulangan tertinggi sehingga keseluruhan jumlah Sukuk BBA yang ditawarkan dilanggan sepenuhnya. Kadar pulangan yang akan ditetapkan untuk terbitan Sukuk BBA adalah kadar keuntungan tertinggi bagi pelabur yang berjaya; atau iii. Kaedah pembidaan berdasarkan kadar pulangan purata berwajaran - Semua bidaan akan disusun dan dibahagikan secara menaik bermula daripada kadar pulangan terendah kepada kadar pulangan tertinggi sehingga keseluruhan jumlah Sukuk BBA dilanggan sepenuhnya. Kadar pulangan atau kupon bagi terbitan Sukuk BBA akan ditetapkan berdasarkan kadar pulangan purata berwajaran bagi bidaan yang berjaya. Keputusan MPS pada mesyuarat ke-42 bertarikh 25 Mac 2004 telah memutuskan bahawa ketiga-tiga kaedah pembidaan bagi Sukuk BBA seperti yang dicadangkan adalah dibenarkan. Asas Pertimbangan Amalan pembidaan adalah menyerupai ciri-ciri jual beli secara bidaan atau lelongan (bai` muzayadah). Ulama semasa berpandangan bahawa bai` muzayadah adalah harus.162 Ketiga-tiga kaedah pembidaan seperti yang dibentangkan tidak mengandungi unsur-unsur yang bercanggah dengan Syarak (mani` syar`ie). Oleh itu, kaedah-kaedah tersebut boleh diamalkan. 162 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1993, b. 8, j. 2, h. 25. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 162 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 163 BAHAGIAN IV: ISU-ISU SYARIAH BERKAITAN OPERASI INSTITUSI-INSTITUSI SOKONGAN DALAM KEWANGAN ISLAM RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 164 Credit Guarantee Corporation (Malaysia) Berhad (CGC) telah ditubuhkan pada 1972, bertujuan membantu perusahaan kecil dan sederhana yang tidak mempunyai cagaran atau kekurangan cagaran untuk mendapatkan pinjaman daripada institusi kewangan dengan menjamin pinjaman berkenaan. CGC merangka dan menguruskan skim-skim jaminan khusus untuk membantu golongan usahawan kecil dan sederhana serta memastikan penglibatan aktif institusi- institusi kewangan dalam perlaksanaan skim-skim jaminannya. 101. Konsep Syariah bagi Operasi Kemudahan Jaminan secara Islam Credit Guarantee Corporation Berikutan peningkatan peranan yang dimainkan oleh institusi-institusi kewangan Islam dalam menyediakan pembiayaan kepada perusahaan kecil dan sederhana, CGC telah mencadangkan penawaran jaminan kredit secara Islam terhadap pembiayaan yang diberikan oleh institusi kewangan Islam kepada pelanggan. Jaminan kredit yang ditawarkan ialah jaminan dengan upah iaitu penerima jaminan (pelanggan) dikehendaki membayar sejumlah upah (yuran atau fi) kepada penjamin (CGC). Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada kemudahan jaminan kredit dengan upah yang ditawarkan oleh CGC ini dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-54 bertarikh 27 Oktober 2005 telah memutuskan bahawa kemudahan jaminan kredit dengan upah yang ditawarkan oleh CGC terhadap pembiayaan yang diberikan oleh institusi kewangan Islam adalah dibenarkan. CREDIT GUARANTEE CORPORATION (M) BERHAD 165 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 163 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1986, no. 2, j. 2, h. 1146 – 1147; Nazih Kamal Hammad, Mada Jawaz Akhzu al-Ajr ̀ ala al-Kafalah fi al-Fiqh al-Islami, Journal of King Abdul Aziz University (Islamic Economics), 1997, j. 9, h. 95 -121. 164 Majlis Penasihat Syariah Suruhanjaya Sekuriti Malaysia, Resolutions of the Securities Commission Shariah Advisory Council (Second Edition), Suruhanjaya Sekuriti Malaysia, 2006, h. 44 – 45. 165 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 6, h. 4178. 166 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1986, b. 2, j. 2, h. 1146 – 1147. 167 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1986, b. 2, j. 2, h. 1134 – 1135. Asas Pertimbangan Keharusan kemudahan jaminan dengan upah (kafalah bi al-ujr) yang diberikan oleh CGC adalah berasaskan pertimbangan terhadap perkara berikut: i. Beberapa ulama kontemporari163 dan Badan Penasihat Syariah164 telah memutuskan bahawa pengenaan ujrah ke atas kafalah adalah dibenarkan. Sebahagian ulama semasa juga berpendapat bahawa ujrah ke atas kafalah seharusnya dibenarkan atas dasar maslahah dan keperluan masyarakat kerana pada waktu kini, memperoleh jaminan secara percuma bukanlah suatu perkara yang mudah dan praktikal.165 Selain itu, salah seorang ulama semasa telah mengemukakan pandangannya dalam pembentangan kepada Akademi Fiqah OIC bahawa pengenaan ujrah ke atas dhaman (jaminan) adalah diharuskan. Beliau berpandangan walaupun hukum asal dhaman ialah tabarru`, syarat untuk mengenakan upah ke atas dhaman tersebut dianggap sah. Beliau juga menegaskan bahawa akad dhaman bukan merupakan qard kerana akad dhaman merupakan kontrak istithaq. Oleh itu, menerima ujrah atas khidmat jaminan tidak termasuk dalam amalan terlarang kerana akad dhaman berbeza dengan akad qard;166 dan ii. Qiyas terhadap akhz al-ajr `ala al-jah (mengambil upah atas reputasi seseorang) dan akhz al-ju`l `ala ruqyah min al-Quran (mengambil upah ke atas rawatan/ perubatan dengan ayat al-Quran). Sebahagian ulama silam mengharuskan kedua-dua keadaan tersebut dan keharusan ini boleh digunakan terhadap pengambilan upah ke atas jaminan kerana kedua-duanya mempunyai persamaan dari segi bentuk pekerjaan yang dilakukan.167 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 166 102. Jaminan Terhadap Harga Jualan MPS dirujuk berhubung dengan isu sama ada CGC boleh menjamin harga jualan termasuk jumlah keuntungan dalam sesuatu pembiayaan secara Islam. Keputusan MPS pada mesyuarat ke-55 bertarikh 29 Disember 2005 telah memutuskan bahawa CGC boleh menjamin harga jualan termasuk jumlah keuntungan sesuatu pembiayaan secara Islam yang melibatkan kontrak jual beli. Asas Pertimbangan Memandangkan jaminan kredit yang diberikan oleh CGC adalah ke atas hutang atau obligasi kewangan pelanggan sesuatu pembiayaan Islam, mekanisme jaminan berdasarkan baki harga jualan adalah munasabah kerana amalan perbankan semasa mengiktiraf bahawa jumlah hutang belum berbayar adalah menyamai baki hutang atau harga jualan setelah ditolak nilai rebat (ibra’) yang sepatutnya diterima oleh pelanggan pada suatu masa tertentu. 167 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Bagi mengekalkan keyakinan terhadap pasaran bon (termasuk sukuk) dan memastikan syarikat yang berdaya maju mempunyai akses kepada pembiayaan menerusi pasaran bon, Danajamin Nasional Berhad (Danajamin) telah ditubuhkan pada tahun 2009 sebagai sebuah institusi jaminan kewangan nasional. Selain daripada menyediakan penambahbaikan kredit kepada syarikat yang mempunyai perniagaan berdaya maju, Danajamin juga berperanan mewujudkan penarafan gred pelaburan untuk memperoleh dana daripada pasaran bon pada kos yang munasabah. 103. Konsep Syariah bagi Operasi Kemudahan Jaminan Danajamin Nasional Berhad Di bawah mekanisme kemudahan jaminan yang disediakan, Danajamin akan membuat pembayaran kepada pelabur sekiranya penerbit sukuk gagal berbuat demikian. Kemudian, Danajamin akan menuntut semula amaun yang dibayar kepada pelabur daripada penerbit sukuk. Dalam hal ini, MPS dirujuk berhubung dengan konsep Syariah yang sesuai untuk operasi kemudahan jaminan Danajamin. Keputusan MPS pada mesyuarat khas ke-10 bertarikh 9 April 2009 dan mesyuarat ke-95 bertarikh 28 Januari 2010 telah memutuskan perkara berikut: i. Penggunaan konsep kafalah bi al-ujr (jaminan dengan upah) sebagai konsep Syariah yang sesuai untuk kemudahan jaminan ke atas terbitan sukuk oleh Danajamin adalah dibenarkan. Melalui konsep ini, Danajamin akan bertindak sebagai penjamin (kafil), penerbit sukuk selaku pihak yang dijamin (makful `anhu), dan pelabur selaku penerima jaminan atau benefesiari (makful lahu); dan DANAJAMIN NASIONAL BERHAD RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 168 169 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 168 Konsep Syariah bagi Operasi Kemudahan Jaminan secara Islam Credit Guarantee Corporation. ii. Menerusi kemudahan jaminan ini, Danajamin dibenarkan untuk menuntut semula daripada penerbit sukuk amaun jaminan yang telah dibayar kepada pelabur. Tempoh masa pembayaran amaun jaminan yang dituntut oleh Danajamin daripada penerbit sukuk hendaklah berdasarkan amalan semasa pasaran dengan persetujuan pihak-pihak berkontrak iaitu Danajamin dan penerbit sukuk, serta mengambil kira saiz sukuk. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan ke atas keharusan kemudahan jaminan dengan upah (kafalah bi al-ujr) seperti yang dinyatakan dalam perkara 101.168 104. Pengasingan Modal dalam Operasi Danajamin Memandangkan Danajamin menyediakan kemudahan jaminan bagi kedua-dua sukuk dan bon konvensional, MPS dirujuk berhubung dengan isu sama ada modal Danajamin bagi perniagaan jaminan sukuk dan bon konvensional perlu diasingkan. Ini kerana pengasingan modal dikhuatiri akan membataskan keupayaan Danajamin untuk menyediakan kemudahan jaminan ke atas sukuk dan bon konvensional dengan lebih cekap dan efektif. Keputusan MPS pada mesyuarat khas ke-10 bertarikh 9 April 2009 telah memutuskan bahawa modal Danajamin bagi perniagaan jaminan sukuk dan bon konvensional tidak perlu diasingkan. Walau bagaimanapun, dana yang diperoleh daripada perniagaan jaminan sukuk dan bon konvensional (dengan fi) hendaklah diasingkan. Asas Pertimbangan Pengurusan modal Danajamin bagi perniagaan jaminan sukuk dan bon konvensional tidak perlu diasingkan atas asas maslahah iaitu memastikan Danajamin dapat melaksanakan fungsinya sebagai penjamin dengan lebih berkesan bagi menggalakkan pertumbuhan dan kestabilan pasaran modal, termasuklah pasaran modal Islam. Tambahan pula, pengasingan modal hanya akan membataskan keupayaan institusi jaminan tersebut untuk menyediakan kemudahan jaminan ke atas sukuk dan bon konvensional dengan lebih cekap dan efektif. 105. Skop Jaminan Danajamin ke atas Sukuk MPS dirujuk berhubung dengan skop jaminan yang boleh disediakan oleh Danajamin ke atas penerbit sukuk iaitu sama ada Danajamin boleh menjamin nilai modal dan keuntungan. Keputusan MPS pada mesyuarat khas ke-10 bertarikh 9 April 2009 telah memutuskan perkara berikut: i. Bagi sukuk yang berasaskan akad jual beli seperti murabahah, Danajamin boleh menjamin nilai modal dan keuntungan; dan ii. Bagi sukuk yang berasaskan akad isytirak (perkongsian) seperti musyarakah, mudarabah dan wakalah bi al-istithmar, Danajamin hanya boleh menjamin nilai modal sahaja. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 170 171 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Bagi sukuk yang berasaskan akad isytirak seperti musyarakah, mudarabah dan wakalah bi al-istithmar, Danajamin selaku pihak ketiga adalah wajar untuk menjamin jumlah modal sahaja. Ini selari dengan pandangan ulama yang sependapat menyatakan bahawa jaminan pihak ketiga boleh dibuat dalam kontrak musyarakah, mudarabah dan wakalah bi al-istithmar tetapi terhad kepada nilai modal sahaja. 106. Jaminan ke atas Obligasi yang Terhasil daripada Aku Janji Pembelian MPS dirujuk berhubung dengan isu sama ada Danajamin boleh menjamin obligasi sukuk yang terhasil daripada aku janji pembelian (purchase undertaking) dalam sukuk seperti yang dipersetujui antara penerbit sukuk dengan pelabur. Keputusan MPS pada mesyuarat ke-94 bertarikh 23 Disember 2009 telah memutuskan bahawa Danajamin boleh menjamin obligasi penerbit sukuk yang terhasil daripada aku janji pembelian dalam sukuk seperti yang dipersetujui antara penerbit sukuk dengan pelabur. Walau bagaimanapun, formula amaun aku janji pembelian hendaklah tidak merangkumi keuntungan pada masa hadapan yang belum diperoleh atau belum matang (unearned profit). Asas Pertimbangan Pada dasarnya, obligasi aku janji pembelian dalam sukuk adalah sesuatu yang sah dan diperakui Syarak. Ini kerana obligasi sedemikian adalah terhasil daripada janji lazim (wa`d mulzim) oleh penerbit sukuk untuk membeli aset sandaran dalam sukuk berdasarkan terma dan syarat yang dipersetujui. Sehubungan dengan itu, jaminan terhadap obligasi dan tanggungjawab sedemikian adalah sesuatu yang boleh dilaksanakan sama ada dengan bayaran upah atau tidak. 107. Caj Lewat Bayar dan Caj Tambahan Rekursa Lazimnya, setelah Danajamin membuat pembayaran kepada pelabur dalam kes kegagalan penerbit sukuk untuk membuat pembayaran kepada pihak pelabur, Danajamin akan menuntut semula amaun pembayaran tersebut daripada penerbit sukuk. Bagi mengelakkan penerbit sukuk melewatkan pembayaran semula, terdapat saranan supaya penerbit sukuk yang lewat melakukan pembayaran semula dikenakan caj lewat bayar. Dalam hal ini, MPS dirujuk berhubung dengan perkara berikut: i. Sama ada penerbit sukuk yang lewat melakukan pembayaran semula boleh dikenakan caj lewat bayar; dan ii. Sama ada Danajamin boleh mengenakan sebarang caj tambahan ke atas penerbit sukuk ketika penerbit sukuk membuat pembayaran semula kepada Danajamin. Keputusan MPS pada mesyuarat khas ke-10 bertarikh 9 April 2009 dan mesyuarat ke-95 bertarikh 28 Januari 2010 telah memutuskan perkara berikut: i. Pengenaan caj lewat bayar ke atas penerbit sukuk yang gagal melunaskan pembayaran dalam tempoh masa yang ditetapkan adalah dibenarkan. Namun demikian, caj lewat bayar tersebut tidak boleh dikompaun (non-compounding); ii. Sebahagian amaun caj lewat bayar tersebut boleh diambil kira sebagai pendapatan Danajamin atas dasar ta`widh. Walau bagaimanapun, kaedah penentuan caj ta`widh hendaklah ditentukan oleh pihak ketiga iaitu Bank Negara Malaysia; dan iii. Pengenaan sebarang caj tambahan lain oleh Danajamin ke atas penerbit sukuk apabila menuntut jumlah jaminan yang telah dibayar kepada pelabur adalah tidak dibenarkan. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 172 173 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 169 Pengenaan Ta`widh dan Gharamah dalam Pembiayaan Kewangan Islam. 170 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 19 (Al-Qard), perenggan 4 dan 5. Asas Pertimbangan Keputusan MPS berhubung dengan caj lewat bayar di atas adalah berasaskan pertimbangan ke atas keharusan ta`widh dan gharamah seperti yang dinyatakan dalam perkara 81.169 Di samping itu, larangan terhadap pengenaan caj tambahan rekursa adalah berdasarkan pandangan bahawa pembayaran jaminan (kafalah) oleh Danajamin kepada pelabur dan hak tuntutan semula pembayaran tersebut daripada penerbit sukukmenjadikan jaminan tersebut sebagai hutang (qard) yang diberikan oleh Danajamin kepada penerbit sukuk. Syariah menetapkan bahawa sebarang caj tambahan ke atas pembayaran semula hutang adalah riba melainkan jika dikenakan kos sebenar sahaja.170 108. Pemilikan Aset Sandaran dalam Sukuk yang Berasaskan Kontrak Ijarah Dalam sukuk yang berasaskan ijarah, hak milik aset sandaran adalah di bawah pegangan pelabur, manakala penerbit sukuk selaku penyewa aset tersebut bertanggungjawab untuk membayar kupon yang merujuk kepada amaun sewaan berkala. Dalam situasi apabila Danajamin melaksanakan jaminannya dengan menjelaskan amaun sewaan dan penebusan sukuk (principal) kepada pelabur, MPS dirujuk sama ada aset sandaran dalam sukuk ijarah akan berpindah milik kepada penerbit sukuk atau Danajamin. Keputusan MPS pada mesyuarat khas ke-10 bertarikh 9 April 2009 telah memutuskan perkara berikut: i. Status hak milik aset sandaran dalam sukuk ijarah tertakluk kepada terma dan syarat dalam kontrak. Sekiranya Danajamin hanya membayar amaun sewaan berkala atau kupon dalam tempoh sukuk dilaksanakan, aset sandaran adalah masih dimiliki oleh pelabur. Walau bagaimanapun, sekiranya Danajamin membayar harga aku janji pembelian (purchase undertaking), hak milik aset sandaran akan berpindah kepada penerbit sukuk. Namun, aset tersebut akan dijadikan sekuriti atau cagaran kepada hutang yang telah dibayar oleh Danajamin kepada pelabur sehinggalah penerbit sukuk melunaskan jumlah bayaran tersebut; dan ii. Jaminan ke atas sukuk yang diterbitkan berasaskan kontrak ijarah boleh meliputi jaminan ke atas sewa dan wa`d untuk membeli aset. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa kesan terhadap sesuatu kontrak adalah bergantung kepada terma dan syarat yang dipersetujui dalam kontrak selagi ia tidak bercanggah dengan kaedah umum Syarak. Ini adalah selaras dengan kaedah fiqah yang berikut: “Hukum asal dalam akad adalah redha atau persetujuan kedua-dua pihak yang berkontrak dan kesan kontrak adalah berdasarkan (hak dan tanggungjawab) yang telah mereka persetujui dalam akad.”171 171 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 482. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 174 PERBADANAN INSURANS DEPOSIT MALAYSIA Perbadanan Insurans Deposit Malaysia (PIDM) telah ditubuhkan pada tahun 2005 untuk melaksanakan insurans deposit secara Islam dan konvensional. Langkah mewujudkan insurans deposit bertujuan memperkukuh infrastruktur perlindungan pengguna dan ia merupakan salah satu agenda penting dalam pembangunan berterusan sistem kewangan di Malaysia. Insurans deposit juga memperkukuh insentif bagi institusi kewangan untuk melaksanakan amalan kewangan dan perniagaan yang baik serta mempertingkat keyakinan orang ramai terhadap sistem kewangan dengan menyediakan perlindungan deposit secara khusus. 109. Konsep Syariah bagi Operasi Insurans Deposit Islam Insurans deposit merupakan satu mekanisme yang membolehkan PIDM melindungi pendeposit daripada kehilangan wang yang didepositkan di institusi perbankan sekiranya institusi perbankan tersebut mengalami kegagalan. Bagi membolehkan pendeposit-pendeposit perbankan Islam turut menikmati perlindungan yang sama, MPS dirujuk berhubung dengan konsep Syariah yang bersesuaian untuk mendasari operasi insurans deposit Islam. Keputusan MPS pada mesyuarat ke-80 bertarikh 7 Januari 2009 telah memutuskan bahawa operasi PIDM dalam mengendalikan dana insurans deposit Islam boleh dilaksanakan berdasarkan konsep kafalah bi al-ujr.172 Berdasarkan konsep kafalah bi al-ujr, pembayaran premium oleh institusi anggota PIDM yang menawarkan perkhidmatan perbankan Islam merupakan ujrah atau upah kepada PIDM dan menjadi hak milik PIDM. Oleh kerana premium merupakan sejenis upah, PIDM boleh menstrukturkannya dalam bentuk suatu nilai mutlak atau secara berkadar. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan ke atas keharusan kemudahan kafalah bi al-ujr seperti yang dinyatakan dalam perkara 101.173 172 Keputusan ini telah membatalkan keputusan MPS pada mesyuarat ke-26 bertarikh 26 Jun 2002 yang memutuskan bahawa konsep yang bersesuaian dengan operasi insurans deposit secara Islam ialah tabarru`. 173 Konsep Syariah bagi Operasi Kemudahan Jaminan secara Islam Credit Guarantee Corporation. 175 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 110. Percampuran Dana yang Disumbangkan oleh Institusi Perbankan Islam dan Konvensional dalam Insurans Deposit Di bawah pengaturan insurans deposit, institusi-institusi perbankan Islam dan perbankan konvensional diwajibkan menjadi anggota PIDM dan membayar premium tahunan yang menjadi sumber dana insurans deposit. Selain daripada digunakan untuk membuat pembayaran kepada pendeposit yang dilindungi dalam kes pembubaran sesebuah institusi perbankan, dana ini juga digunakan untuk melabur dalam instrumen yang berlandaskan Syariah dan membiayai perbelanjaan PIDM. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada Syariah membenarkan dana premium yang disumbangkan oleh institusi-institusi perbankan Islam dan perbankan konvensional dikumpulkan dalam satu dana. MPS juga dirujuk berhubung dengan isu sama ada Kerajaan boleh mewajibkan keanggotaan institusi-institusi perbankan Islam dalam PIDM. Keputusan MPS pada mesyuarat ke-26 bertarikh 26 Jun 2002 telah memutuskan bahawa premium atau fi yang disumbangkan oleh institusi-institusi perbankan Islam dan perbankan konvensional perlu diasingkan dan tidak boleh dikumpulkan dalam satu dana. Sekiranya berlaku pembubaran PIDM, MPS pada mesyuarat ke-29 bertarikh 25 September 2002 telah memutuskan bahawa kaedah pembubaran yang berasingan bagi kedua-dua dana perlu dilaksanakan. Di samping itu, MPS pada mesyuarat ke-80 bertarikh 7 Januari 2009 turut memutuskan bahawa Kerajaan boleh mewajibkan keanggotaan institusi- institusi perbankan Islam dalam PIDM kerana tiada halangan dari segi hukum Syarak yang menegah tindakan sedemikian. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 176 Asas Pertimbangan Premium atau fi yang disumbangkan oleh institusi-institusi perbankan Islam dan perbankan konvensional perlu diasingkan bagi mengelakkan percampuran dana premium skim insurans deposit antara perbankan Islam dengan konvensional. Ia juga bagi memastikan pelaburan dana insurans deposit secara Islam dilaksanakan dalam instrumen yang dibenarkan Syariah. Ini kerana percampuran dana premium perbankan Islam dengan konvensional akan menimbulkan keraguan pada status patuh Syariah dana premium perbankan Islam tersebut. Pembubaran secara berasingan juga perlu dilaksanakan bagi memberikan hak dan keutamaan pembayaran perlindungan kepada pihak yang berhak menerimanya. 111. Had Jaminan Deposit Perbankan Islam oleh PIDM Dalam melaksanakan jaminan ke atas deposit perbankan Islam, MPS dirujuk berhubung dengan isu sama ada PIDM boleh menjamin nilai prinsipal dan juga keuntungan yang telah diperoleh oleh sesebuah perbankan Islam tetapi belum diagihkan. Keputusan MPS pada mesyuarat ke-29 bertarikh 25 September 2002 telah memutuskan bahawa tiada halangan dalam melaksanakan jaminan ke atas deposit wadi`ah. Deposit mudarabah pula boleh dijamin sekiranya jaminan tersebut dibuat oleh pihak ketiga (dalam situasi ini, ia boleh merujuk kepada PIDM). Walau bagaimanapun, insurans deposit tidak boleh memberi keutamaan dalam melindungi keuntungan mudarabah yang belum diisytiharkan. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan ke atas perkara berikut: i. PIDM boleh menetapkan had bagi jaminan yang diberi kerana ia selaras dengan hukum kafalah yang membenarkan kafil menentukan had jaminan yang diberi;174 174 Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, j. 6, h. 32. 177 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ii. Tidak timbul sebarang isu Syariah dalam melaksanakan jaminan terhadap deposit berasaskan wadi`ah; dan iii. Insurans deposit tidak boleh memberi keutamaan untuk melindungi keuntungan mudarabah yang belum diisytiharkan kerana ia sepatutnya digunakan untuk tuntutan-tuntutan dan tanggungan yang lebih utama dan yang perlu diselesaikan terlebih dahulu. 112. Definisi Terma “Deposit“ dalam Insurans Deposit Islam Memandangkan tarikh pembubaran sesebuah institusi perbankan Islam mungkin berlaku sebelum pembayaran keuntungan/hibah dibuat walaupun ia telah diisytiharkan secara bulanan, MPS dirujuk berhubung dengan definisi deposit yang perlu dibayar semula kepada pendeposit-pendeposit dalam kes pembubaran sesebuah institusi perbankan Islam. Keputusan MPS pada mesyuarat ke-30 bertarikh 28 Oktober 2002 telah memutuskan bahawa definisi deposit yang perlu dibayar semula dalam kes pembubaran sesebuah institusi perbankan Islam merujuk kepada jumlah prinsipal dan keuntungan/hibah yang telah dikreditkan ke dalam akaun termasuk jumlah keuntungan/hibah yang telah diisytiharkan tetapi belum dikreditkan sehingga tarikh penutupan institusi perbankan Islam. Namun demikian, nilai tambahan (sama ada disebut sebagai keuntungan/hibah) bagi tempoh bermula daripada tarikh penutupan atau pembubaran institusi perbankan Islam sehingga tarikh pembayaran adalah berdasarkan budi bicara PIDM. Di samping itu, MPS turut memutuskan bahawa nilai yang dilindungi oleh PIDM mestilah dinyatakan secara jelas dalam akad atau kontrak. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 178 175 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 237. 176 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 239. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa kriteria dan maksud terma “deposit“ boleh ditentukan berdasarkan penelitian terhadap amalan yang dilaksanakan dalam industri kewangan, selari dengan kaedah- kaedah fiqah yang berikut: “Sesuatu yang dikenalpasti sebagai adat adalah seumpama sesuatu yang dijadikan sebagai syarat.”175 “Sesuatu yang secara adat diiktiraf dalam kalangan ahli perniagaan adalah dianggap sebagai syarat yang dipersetujui antara mereka.”176 113. Kedudukan Tuntutan PIDM Berbanding dengan Tuntutan Pendeposit dalam Kes Pembubaran Sesebuah Institusi Perbankan Islam Apabila sesebuah institusi perbankan Islam mengalami kegagalan dan tidak mampu untuk menunaikan tanggungjawab dalam mengembalikan deposit kepada pendeposit, PIDM akan membayar dahulu sebahagian atau keseluruhan deposit tersebut daripada dana insurans deposit Islam. Kemudian, PIDM akan menuntut kembali amaun yang dibayar tersebut daripada institusi perbankan Islam. Dalam hal ini, MPS dirujuk berhubung dengan kedudukan tuntutan PIDM berbanding dengan tuntutan pendeposit institusi perbankan Islam bagi mendapatkan semula amaun yang telah dibayarnya. 179 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-26 bertarikh 26 Jun 2002 telah memutuskan bahawa kedudukan tuntutan PIDM berbanding pendeposit bagi mendapatkan semula deposit dalam kes pembubaran sesebuah institusi perbankan Islam adalah bergantung kepada jenis deposit yang telah dibayar oleh PIDM. Sebagai contoh, sekiranya PIDM membayar deposit wadi`ah, maka kedudukan PIDM dalam hal ini adalah sama dengan pendeposit wadi`ah dan begitulah seterusnya. Asas Pertimbangan Produk deposit di institusi perbankan Islam distrukturkan berasaskan jenis-jenis akad yang berbeza. Oleh yang demikian, kesan hukumnya juga adalah berbeza. Justeru, keutamaan pembayaran balik deposit adalah bergantung kepada akad atau hubungan kontrak yang dimeterai antara pendeposit dengan institusi perbankan Islam. Oleh kerana wadi`ah di institusi perbankan Islam adalah bersifat qard dari sudut fiqah, institusi perbankan Islam adalah wajib menjamin dan mengembalikan seluruh wang yang telah dimasukkan dalam akaun deposit wadi`ah tersebut.177 Bagi deposit yang berasaskan kontrak mudarabah, institusi perbankan Islam tidak berkewajipan menjamin atau mengembalikan seluruh wang mudarabah atau keuntungannya,178 kecuali jika kerugian wang tersebut adalah disebabkan oleh kecuaian dan kesalahan institusi kewangan selaku mudarib. Walau bagaimanapun, berdasarkan akad kafalah bi al-ujr yang dimeterai antara PIDM dengan institusi perbankan Islam, PIDM adalah berkewajipan untuk menjamin kerugian mudarabah atas dasar jaminan pihak ketiga. Sehubungan dengan itu, pihak institusi perbankan Islam bertanggungjawab untuk menunaikan hak pendeposit akaun simpanan wadi`ah terlebih dahulu berbanding pendeposit akaun pelaburan mudarabah. Ini kerana institusi perbankan Islam mempunyai tanggungjawab secara langsung terhadap pendeposit wadi`ah manakala pendeposit mudarabah adalah dijamin oleh PIDM. 177 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1995, Persidangan kali ke-9, resolusi no. 86 (9/3). 178 Akademi Fiqah OIC, Majallah Majma` al-Fiqh al-Islami, 1995, Persidangan kali ke-9, resolusi no. 86 (9/3). RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 180 114. Penggunaan Muqasah dalam Insurans Deposit Islam Secara lazimnya, setelah sesebuah institusi perbankan Islam diisytiharkan tidak mampu bayar (insolvent), proses tolak selesai (muqasah) akan dilaksanakan untuk menentukan amaun deposit yang perlu dibayar oleh PIDM kepada pendeposit. Menerusi proses ini, jumlah pembayaran akan ditentukan berdasarkan perbezaan antara jumlah deposit dengan jumlah hutang pembiayaan belum bayar oleh pelanggan berkenaan terhadap institusi perbankan Islam. Contohnya, sekiranya seseorang pelanggan mempunyai deposit sebanyak RM100,000 dan pada masa yang sama mempunyai obligasi pembiayaan tertunggak sebanyak RM50,000, maka pelanggan tersebut hanya layak menerima pembayaran sebanyak RM50,000 sahaja. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada proses tolak selesai antara pendeposit dengan institusi perbankan Islam di atas boleh dilaksanakan dalam proses pembayaran semula deposit oleh PIDM dan pegawai penyelesai. Keputusan MPS pada mesyuarat ke-32 bertarikh 27 Februari 2003 telah memutuskan bahawa proses tolak selesai antara pendeposit dengan institusi perbankan Islam dibenarkan untuk dilaksanakan dalam proses pembayaran deposit oleh PIDM dan pegawai penyelesai. Asas Pertimbangan Pada asasnya, muqasah adalah dibenarkan dalam mua`malah Islam. Muqasah boleh dibuat dalam dua bentuk iaitu al-muqasah al-ittifaqiyyah (secara persetujuan dua belah pihak) atau al-muqasah al-jabariyyah (secara penetapan oleh pihak berkuasa bagi menjamin keadilan). Dalam hal ini, kebanyakan institusi kewangan Islam telah memasukkan klausa tolak selesai ini ke dalam dokumentasi perjanjian pembiayaan secara Islam dan ia boleh dilaksanakan berdasarkan persetujuan pelanggan yang menandatangani perjanjian tersebut. Hal ini adalah selaras dengan kaedah fiqah yang berikut: “Hukum asal dalam akad adalah redha atau persetujuan kedua-dua pihak yang berkontrak dan kesan kontrak adalah berdasarkan (hak dan tanggungjawab) yang telah mereka persetujui dalam akad.”179 179 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 482. 181 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 115. Kemudahan Jaminan Gadai Janji (Mortgage Guarantee Facility) Bagi meningkatkan pasaran pensekuritian, terdapat cadangan daripada perbadanan gadai janji nasional iaitu Cagamas untuk menyediakan kemudahan jaminan gadai janji secara Islam. Kemudahan jaminan gadai janji secara Islam ini bertujuan untuk menyediakan suatu kemudahan jaminan gadai janji yang menawarkan kaedah pengurusan portfolio dan risiko untuk mengurus pendedahan risiko kredit portfolio gadai janji dengan lebih baik kepada institusi-institusi kewangan Islam, terutamanya penyedia pembiayaan gadai janji. Ini seterusnya meningkatkan keupayaan institusi kewangan Islam untuk menyediakan lebih banyak pembiayaan gadai janji mampu milik kepada pembeli-pembeli rumah. Kemudahan jaminan gadai janji ini akan disediakan menerusi penubuhan sebuah syarikat usaha sama yang akan bertindak sebagai sebuah Syarikat Tujuan Khas (Special Purpose Vehicle (SPV)). Kemudahan jaminan gadai janji ini dilaksanakan berasaskan kontrak wakalah dan kafalah yang dimeterai secara berasingan. Cadangan struktur kemudahan jaminan gadai janji ini memperlihatkan SPV memainkan dwi-peranan berikut untuk institusi kewangan Islam: i. Berasaskan kontrak wakalah, SPV akan bertindak sebagai ejen/wakil institusi kewangan Islam untuk menjalankan tugasan seperti menganalisa risiko portfolio pembiayaan gadai janji dengan bayaran ujrah atau fi yang dipersetujui; dan ii. Berasaskan kontrak kafalah, SPV turut berperanan sebagai penjamin untuk menanggung kerugian institusi kewangan Islam sekiranya terdapat keingkaran dalam pelunasan pembayaran berkala oleh pemilik rumah. Kafalah yang diberikan mempunyai elemen rekursa iaitu SPV akan menuntut amaun jaminan yang telah dibayar kepada institusi kewangan Islam daripada pelanggan. Walau bagaimanapun, tiada sebarang fi dikenakan ke atas perkhidmatan jaminan yang diberikan oleh SPV. Dalam hal ini, MPS dirujuk sama ada cadangan kemudahan jaminan gadai janji seperti yang dicadangkan dibenarkan oleh Syarak. PERBADANAN GADAI JANJI NASIONAL (CAGAMAS) RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 182 183 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Keputusan MPS pada mesyuarat ke-74 bertarikh 3 April 2008 telah memutuskan bahawa cadangan kemudahan jaminan gadai janji di atas dibenarkan dengan syarat kemudahan yang diberikan hendaklah mendapat persetujuan daripada pelanggan institusi kewangan Islam yang berkenaan. Asas Pertimbangan Keharusan wakalah telah dinyatakan dalam al-Quran seperti yang berikut: “...sekarang utuslah salah seorang daripada kalangan kamu, membawa wang perak ini ke bandar kemudian biarlah dia memilih jenis makanan yang baik, kemudian hendaklah ia membawa untuk kamu sedikit habuan daripadanya...”180 Keharusan wakalah turut dinyatakan oleh Rasulullah SAW seperti yang diriwayatkan dalam hadis berikut: “Daripada `Uqbah ibn `Amir menceritakan bahawa Rasulullah SAW memberinya beberapa ekor kambing biri-biri untuk diagihkan antara para sahabat baginda dengan seekor anak kambing biri-biri jantan tertinggal selepas pengagihan tersebut. Beliau memaklumkan Rasulullah SAW mengenainya dan baginda berkata: Korbankannya bagi pihakku.”181 180 Surah al-Kahfi, ayat 19. 181 Al-Bukhari, Sahih al-Bukhari, Al-Matba`ah al-Salafiyyah, 1982, j. 2, h. 207, hadis no. 2500. 182 Surah Yusuf, ayat 72. 183 Al-Baihaqi, Al-Sunan al-Kubra, Dar al-Kutub al-`Ilmiyyah, 2003, j. 6, h. 119. 184 Kuwait Finance House, Al-Fatawa al-Syar`iyyah fi al-Masa’il al-Iqtisadiyyah (edisi terkini), j. 2, h. 29 – 30, fatwa no. 384. “…dan sesiapa yang memulangkannya akan diberi sebanyak muatan seekor unta, dan akulah yang menjamin pemberian itu.”182 Keharusan kafalah turut dinyatakan oleh Rasulullah SAW seperti yang diriwayatkan dalam hadis berikut: Himpunan beberapa kontrak Syariah dalam sesuatu produk atau perkhidmatan adalah diharuskan kerana fatwa semasa membenarkan himpunan pelbagai kontrak Syariah dalam sesuatu urusan mua`malah yang tidak bercanggah dari sudut hukum Syarak. Lebih-lebih lagi, amalan ini telah berjalan sejak sekian lama.184 Apa yang penting ialah kontrak-kontrak yang terlibat hendaklah dilaksanakan secara jelas dan berasingan, serta tidak tergolong dalam kontrak yang dilarang oleh Syarak. Di samping itu, keperluan untuk mendapatkan persetujuan daripada pelanggan bagi sebarang jaminan gadai janji yang mempunyai elemen rekursa adalah bertujuan untuk memastikan pelanggan mengetahui tanggungjawabnya untuk membayar amaun jaminan kepada SPV sekiranya dituntut. “Penjamin adalah orang yang menanggung liabiliti.”183 Keharusan kontrak kafalah pula telah dinyatakan dalam al-Quran seperti yang berikut: RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 184 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 185 BAHAGIAN V: ISU-ISU SYARIAH BERKAITAN KEWANGAN ISLAM RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 186 116. Keutamaan Pendeposit Mendapatkan Semula Deposit dalam Kes Pembubaran Sesebuah Institusi Perbankan Islam Deposit perbankan Islam menggunakan pelbagai konsep Syariah (contohnya wadi`ah dan mudarabah) yang memberikan implikasi berbeza antara satu sama lain. Secara umumnya, deposit perbankan Islam boleh diklasifikasikan kepada tiga kategori utama iaitu deposit wadi`ah, deposit mudarabah dan deposit yang berasaskan konsep lain seperti BBA dan bai` `inah. Dalam kes pembubaran sesebuah institusi perbankan Islam, MPS dirujuk berhubung dengan keutamaan pendeposit perbankan Islam untuk mendapatkan semula deposit masing-masing yang didasarkan kepada konsep Syariah tertentu, berbanding pendeposit yang lain. Keputusan MPS pada mesyuarat ke-26 bertarikh 26 Jun 2002 dan mesyuarat ke-30 bertarikh 28 Oktober 2002 telah memutuskan bahawa keutamaan pendeposit perbankan Islam untuk mendapatkan semula deposit masing- masing dalam kes pembubaran sesebuah institusi perbankan Islam adalah berdasarkan akad atau konsep yang dimeterai dengan institusi perbankan Islam berkenaan. Dalam hal ini, keutamaan perlu diberikan kepada deposit wadi`ah dan deposit yang diterima berasaskan hutang berbanding dengan deposit mudarabah. Walau bagaimanapun, bagi memenuhi tuntutan perundangan semasa seperti yang termaktub dalam Seksyen 81, Akta Bank dan Institusi- institusi Kewangan 1989, deposit mudarabah perlu diutamakan berbanding dengan tuntutan pemberi pinjaman (creditor) dan tanggungan- tanggungan lain kerana deposit mudarabah dikategorikan sebagai deposit dan mendapat keutamaan dari segi tuntutan. Bagi deposit selain deposit wadi`ah dan mudarabah (contohnya yang berdasarkan konsep murabahah dan bai` `inah), deposit-deposit ini dianggap mempunyai status yang sama seperti deposit wadi`ah dan mudarabah dari segi definisi. Sehubungan dengan itu, keutamaan pembayarannya adalah berdasarkan konsep yang mendasarinya. Di samping itu, deposit-deposit ini perlu dinilaikan berdasarkan nilai muka (face value) deposit berkenaan pada tarikh pembubaran institusi perbankan Islam. PEMBUBARAN INSTITUSI PERBANKAN ISLAM 187 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Rujuk asas pertimbangan bagi perkara 113.185 117. Perkongsian Lebihan Selepas Proses Pencairan dan Pembayaran Tuntutan antara Dana Perbankan Islam dengan Konvensional Dalam kes pembubaran sesebuah institusi perbankan konvensional yang turut menawarkan Skim Perbankan Islam (SPI), MPS dirujuk berhubung dengan isu sama ada lebihan selepas proses pencairan dan pembayaran tuntutan dalam perbankan Islam boleh digunakan untuk menampung defisit dalam perbankan konvensional atau sebaliknya.186 Keputusan MPS pada mesyuarat ke-26 bertarikh 26 Jun 2002 dan mesyuarat ke-29 bertarikh 25 September 2002 telah memutuskan bahawa dalam kes pembubaran sesebuah institusi perbankan yang menawarkan SPI, pembubaran hendaklah dilakukan secara berasingan antara perbankan konvensional dengan perbankan Islam. Walau bagaimanapun, sebarang lebihan (setelah ditolak semua tanggungan yang terlibat) dalam salah satu bahagian (sama ada konvensional atau Islam) boleh digunakan untuk menampung defisit dalam bahagian yang satu lagi. Asas Pertimbangan Lebihan selepas proses pencairan dan pembayaran tuntutan dalam bahagian perbankan Islam boleh digunakan untuk menampung defisit dalam bahagian konvensional, dan begitu juga sebaliknya, kerana pemilik syarikat (pemegang saham) terdiri daripada pihak yang sama dan bertanggungjawab memulangkan prinsipal atau modal kepada pendeposit tanpa mengira sama ada deposit yang diterima adalah secara Islam atau konvensional. 185 Kedudukan Tuntutan PIDM Berbanding dengan Tuntutan Pendeposit dalam Kes Pembubaran Sesebuah Institusi Perbankan Islam. 186 Isu ini merujuk kepada konteks SPI secara jendela sahaja. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 188 118. Status Dana Konvensional yang Diletakkan dalam Akaun Pelaburan Khas Mudarabah dalam Kes Pembubaran Institusi Perbankan Pada tahun 1995, Bank Negara Malaysia telah membenarkan institusi perbankan SPI untuk memperoleh dana daripada operasi perbankan konvensional dan meletakkannya dalam Akaun Pelaburan Khas Mudarabah bagi tempoh minimum selama setahun. Ini bagi membolehkan institusi perbankan SPI menyalurkan pembiayaan secara Islam sekiranya institusi tersebut tidak berupaya memperoleh dana daripada pasaran. Dalam hal ini, MPS dirujuk berhubung dengan status dana konvensional seumpama ini iaitu sama ada ianya diklasifikasikan sebagai deposit mudarabah atau sebagai sebahagian dana pemegang saham dalam kes pembubaran institusi perbankan SPI tersebut. Keputusan MPS pada mesyuarat ke-37 bertarikh 7 Ogos 2003 telah memutuskan bahawa dana konvensional yang diletakkan dalam Akaun Pelaburan Khas Mudarabah diklasifikasikan sebagai deposit mudarabah dan bukannya sebahagian daripada dana pemegang saham. Sehubungan dengan itu, status Akaun Pelaburan Khas Mudarabah ini adalah sama seperti status deposit mudarabah yang lain dalam kes pembubaran institusi perbankan SPI. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa perjanjian yang dimeterai antara kedua-dua pihak adalah berdasarkan mudarabah dan tujuan dana tersebut dimasukkan adalah bagi tujuan mudarabah. Oleh itu, ia membawa status mudarabah dalam kes pembubaran institusi perbankan SPI. 189 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 119. Kaedah Pembahagian Untung Dalam amalan kewangan semasa, kaedah pembahagian untung antara institusi kewangan Islam dengan pelanggan dilaksanakan pada peringkat untung kasar, iaitu keuntungan bagi keseluruhan operasi setelah ditolak segala perbelanjaan langsung bagi semua dana pelaburan atau deposit yang diterima. Setelah mendapat bahagian keuntungannya, baharulah institusi kewangan Islam akan menolak segala perbelanjaan operasinya bagi menentukan jumlah keuntungan bersih institusi kewangan Islam tersebut. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada kaedah pembahagian keuntungan yang dikira berdasarkan untung kasar dibenarkan. Keputusan MPS pada mesyuarat ke-16 bertarikh 11 November 2000 telah memutuskan bahawa kaedah pembahagian keuntungan yang dilaksanakan berdasarkan untung kasar adalah dibenarkan. Asas Pertimbangan Kaedah pembahagian keuntungan berdasarkan untung kasar adalah bertujuan memelihara kepentingan pelanggan selaku pelabur atau pendeposit kerana institusi kewangan menanggung sendiri perbelanjaan operasinya. Dalam kontrak musyarakah, pihak-pihak yang terlibat dalam kontrak tersebut boleh bersetuju untuk memilih pembahagian keuntungan sama ada berdasarkan untung kasar atau untung bersih.187 Dalam kontrak mudarabah, majoriti ulama berpendapat bahawa mudarib perlu menanggung segala kos perbelanjaan tidak langsung. Oleh itu, kaedah pembahagian keuntungan di peringkat untung kasar adalah selaras dan memenuhi keperluan ini. PIAWAIAN PERAKAUNAN DAN PELAPORAN KEWANGAN ISLAM 187 Muhammad Taqi Usmani, An Introduction to Islamic Finance, Idara Isha`at-e-Diniyat, 1999, h. 66. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 190 191 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 188 Majmu`ah Dallah Barakah, Fatawa Nadawat al-Barakah, 1981 – 1997, h. 134, fatwa no. 8/2. 189 Surah al-Baqarah, ayat 282. ”Wahai orang yang beriman! Apabila kamu menjalankan sesuatu urusan secara hutang piutang yang diberi tempoh hingga ke suatu masa yang tertentu, maka hendaklah kamu menulis (hutang dan masa bayarannya) itu dan hendaklah seorang penulis antara kamu menulisnya dengan adil (benar)...” 189 120. Kaedah Pengiktirafan Pendapatan MPS dirujuk berhubung dengan isu sama ada institusi kewangan Islam boleh menerima pakai kaedah terakru bagi mengiktiraf pendapatan. Keputusan MPS pada mesyuarat ke-16 bertarikh 11 November 2000 telah memutuskan bahawa kaedah terakru dibenarkan sebagai kaedah pengiktirafan pendapatan. Asas Pertimbangan Menurut Syarak, kaedah tunai dan kaedah terakru boleh diterima pakai dalam mengiktiraf pendapatan. Dalam konteks amalan semasa, kaedah terakru lebih banyak digunakan berikutan perubahan amalan perniagaan yang lebih meluas dan pelbagai. Kaedah terakru dibolehkan atas asas bahawa sesuatu pihak itu berhak ke atas sesuatu pendapatan yang direalisasi meskipun masih belum diterima secara tunai.188 Memandangkan kaedah terakru dapat mencatatkan urus niaga yang dilakukan secara kredit dengan lebih efektif, ia dilihat memenuhi tuntutan Islam yang menyarankan agar urus niaga yang dijalankan secara kredit (contohnya, jual beli dengan harga tertangguh) dicatatkan dengan cara yang adil dan baik. Ini sejajar dengan firman Allah SWT seperti yang berikut: “(Hukum-hukum) mua`malah berjalan di atas adat sesuatu negara dan `urfnya.”190 190 Ali Ahmad al-Nadwi, Jamharah al-Qawa`id al-Fiqhiyyah fi al-Mu`amalat al-Maliyyah, Syarikah al-Rajhi al-Masrafiyyah li al-Istithmar, 2000, j. 2, h. 951. 121. Penggunaan Prinsip “Substance Over Form“ dalam Kewangan Islam “Substance over form“merupakan prinsip perakaunan yang mengutamakan prinsip hakiki berbanding zahir dalam sesuatu urus niaga. Ia juga merujuk kepada pelaporan kewangan yang mencatatkan kesan ekonomi keseluruhan daripada sesuatu urusan atau serangkaian urusan yang berkait rapat, dan bukannya melapor dari sudut sesuatu kontrak secara terpisah atau dari sudut perundangan semata-mata. Sebagai contoh, bagi kontrak jual dan beli semula, pelaporan kewangan akan mencatatkan kesan keseluruhan daripada semua kontrak yang terlibat, dengan keuntungan daripada kontrak ini akan dicatatkan sebagai kos pembiayaan yang perlu dibayar oleh penerima biaya. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penerapan prinsip “substance over form“ dalam pelaporan kewangan Islam dibenarkan. Keputusan MPS pada mesyuarat ke-57 bertarikh 30 Mac 2006 dan mesyuarat ke-71 bertarikh 26-27 Oktober 2007 telah memutuskan bahawa secara prinsipnya, “substance“ dan “form“ adalah sama penting dan amat diambil kira oleh Syarak. Dalam hal ini, Syarak menekankan bahawa “substance“ dan “form“ mestilah selari dan sepatutnya tidak bercanggah antara satu sama lain. Sekiranya terdapat percanggahan antara “substance“ dan “form“ yang disebabkan oleh faktor-faktor tertentu, maka Syarak mengutamakan ”substance“ daripada “form”. Selain itu, tiada halangan Syarak ke atas penggunaan kaedah terakru dan ini adalah sejajar dengan keperluan (hajah) yang terhasil daripada amalan semasa. Ia juga selari dengan kaedah fiqah berikut: RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 192 193 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 191 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 47. 192 Ali Ahmad al-Nadwi, Jamharah al-Qawa`id al-Fiqhiyyah fi al-Mu`amalat al-Maliyyah, Syarikah al-Rajhi al- Masrafiyyah li al-Istithmar, 2000, j. 1, h. 550. Asas Pertimbangan Dalam konteks kewangan Islam semasa, kebanyakan akad yang mendasari produk kewangan terutamanya produk pembiayaan adalah akad daripada kategori ̀ uqud mustajiddah (akad-akad baharu). Dalam kontrak-kontrak baharu tersebut, terhimpun elemen-elemen daripada akad-akad tradisional (`uqud musamma) yang berlainan dan elemen-elemen tersebut saling mengikat dalam bentuk tertentu. Jika salah satu elemen tersebut tidak wujud, ia menyebabkan tujuan perjanjian tersebut tidak dapat disempurnakan. Dengan mencatatkan siri urus niaga berasaskan kontrak baharu secara berasingan, ia akan menyebabkan gambaran keseluruhan urus niaga menjadi kurang jelas. Oleh itu, terdapat keperluan untuk mencatatkan urus niaga bersiri seperti kontrak-kontrak baharu sebagai satu urus niaga sahaja. Ini dilakukan berasaskan prinsip “substance over form”. Pertimbangan ini turut selari dengan kaedah fiqah dan pendekatan hukum Syarak yang berikut: “Setiap perkara dinilai berdasarkan niat.”191 “Pertimbangan dalam akad ialah pada tujuan dan makna bukan pada lafaz dan bentuk.”192 122. Penggunaan Prinsip Kebarangkalian (Probability) dalam Kewangan Islam Prinsip kebarangkalian merujuk kepada amalan mencatatkan sesuatu urusan walaupun akad belum sempurna dimeterai. Dalam hal ini, aset akan dicatatkan apabila terdapat kebarangkalian pengaliran masuk sumber ekonomi, manakala liabiliti pula dicatat apabila terdapat kebarangkalian sumber ekonomi akan dikeluarkan bagi memenuhi tanggungjawab semasa dan amaunnya dapat dianggarkan dengan pasti. Antara contoh item yang dicatatkan berasaskan prinsip kebarangkalian ini ialah wa`d (sama ada janji yang lazim atau tidak lazim) dan peruntukan hutang tak berbayar. Walau bagaimanapun, amalan ini tidak bermaksud menyamatarafkan janji dengan akad. Sebaliknya ia bertujuan untuk memaklumkan mengenai kesan ekonomi apabila pengaturan tersebut dilaksanakan. 193 Al-Amidi, Al-Ihkam fi Usul al-Ahkam, Dar al-Kitab al-`Arabi, 1983, j. 3, h. 317. 194 Al-Ghazali, Al-Mustasfa fi `Ilm al-Usul, Dar al-Kutub al-`Ilmiyyah, 1992, h. 286. 195 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 151. 196 Al-Ansari, Asna al-Matalib fi Syarh Rawd al-Talib, Dar al-Kutub al-`Ilmiyyah, 2000, j. 2, h. 2154. 197 Ahmad al-Zarqa’, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, h. 235. 198 Ali Ahmad al-Nadwi, Jamharah al-Qawa`id al-Fiqhiyyah fi al-Mu`amalat al-Maliyyah, 2000, j. 1, h. 468. 199 Al-Amidi, Al-Ihkam fi Usul al-Ahkam, Dar al-Kitab al-`Arabi, 1983, j. 3, h. 317. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penerapan prinsip kebarangkalian dalam pelaporan kewangan Islam dibenarkan. Keputusan MPS pada mesyuarat ke-71 bertarikh 26-27 Oktober 2007 telah memutuskan bahawa penerapan prinsip kebarangkalian dalam pelaporan kewangan Islam adalah dibenarkan kerana ia tidak bercanggah dengan kaedah umum fiqah. Asas Pertimbangan Sebahagian ulama berpandangan bahawa kemungkinan yang kuat (zan al-ghalib) boleh diambil kira dalam menentukan sesuatu hukum. Ini telah dibincangkan oleh beberapa ulama seperti Al-Amidi193, Al-Ghazali194 dan Mustafa Al-Zarqa’195. Di samping itu, keharusan penggunaan prinsip kebarangkalian dalam pelaporan kewangan Islam turut berdasarkan kaedah-kaedah fiqah berikut: “Asal (sesuatu itu) adalah sah.”196 “Pertimbangan adalah kepada kebiasaan yang meluas dan bukan pada yang terpencil.”197 “Apa-apa yang hampir kepada sesuatu itu, maka ia mengambil hukum yang sama.”198 “Zan (kebarangkalian) hendaklah diikuti.”199 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 194 195 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 123. Penggunaan Prinsip Nilai Masa dalam Kewangan (Time Value of Money) Konsep nilai masa dalam kewangan merujuk kepada perbezaan nilai wang yang diterima secara tunai dengan nilai wang yang diterima secara tangguh pada masa hadapan. Perbezaan antara harga tunai dan harga tangguh biasanya disebut sebagai pendapatan atau perbelanjaan pembiayaan. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penerapan prinsip nilai masa dalam kewangan dalam pelaporan kewangan Islam dibenarkan. Keputusan MPS pada mesyuarat ke-71 bertarikh 26-27 Oktober 2007 telah memutuskan bahawa penerapan prinsip nilai masa dalam kewangan dalam pelaporan kewangan Islam dibenarkan khusus untuk kontrak pertukaran yang melibatkan pembayaran secara bertangguh. Namun demikian, ia dilarang sama sekali dalam urus niaga pinjaman (qard). Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan terhadap perkara berikut: i. Terdapat perbincangan oleh para ulama yang membenarkan harga jualan secara bertangguh yang lebih tinggi berbanding dengan harga jualan secara tunai.200 Ini bermakna faktor masa boleh diambil kira dalam penentuan harga dalam jual beli. Selain itu, Al-Kasani ada menerangkan bahawa jika sesuatu barang dibeli secara bayaran bertangguh (al-ajl), maka ia tidak boleh dijual secara murabahah melainkan jika dimaklumkan kepada pembeli (kedua) bahawa barang tersebut telah dibeli secara bertangguh.201 200 Al-Syawkani, Nail al-Awtar, Dar al-Ma`rifah, 2002, j. 2, h. 1072; Al-Kasani, Bada`i al-Sana`i fi Tartib al-Syara`i, Dar Ihya’ al-Turath al-`Arabi, 2000, j. 4, h. 466. 201 Al-Kasani, Bada`i al-Sana`i fi Tartib al-Syara`i, Dar Ihya’ al-Turath al-`Arabi, 2000, j. 4, h. 466: 202 Al-Sarakhsi, Al-Mabsut, Dar al-Fikr li al-Tiba`ah wa al-Nashr, j. 13, h. 64: 196 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ii. Di samping itu, Al-Sarakhsi juga menyatakan perkara yang sama seperti berikut: “Sesungguhnya (sesuatu yang bertangguh) adalah lebih rendah daripada (sesuatu) yang segera dari segi nilai hartanya.” 202 Penjelasan Al-Sarakhsi di atas menunjukkan bahawa masa sekarang adalah lebih berharga daripada masa hadapan. Justeru itu, harga dalam jual beli secara bertangguh perlu dinaikkan bagi mewujudkan keadilan kepada pihak yang berkontrak terutamanya pihak penjual yang mengorbankan penggunaan wang pada kadar segera (present consumption) kerana pembayaran harga barang tidak dibuat secara tunai. Oleh itu, penyataan Al-Kasani menjelaskan bahawa tangguhan layak diberikan imbalan (`iwad) dalam bentuk wang iaitu melalui kenaikan harga jika dijual secara bertangguh. Namun begitu, keadaan ini hanya diiktiraf dalam urus niaga jual beli sahaja manakala dalam urus niaga pinjaman wang (qard), tangguhan tidak boleh sama sekali menerima imbalan dalam bentuk wang kerana ini merupakan riba al-nasia’h yang membawa kepada wang menghasilkan wang (al-naqd yalid al-naqd) atau “money begets money”. Ini tidak bermakna Islam tidak mengiktiraf nilai masa wang dalam kontrak qard kerana tangguhan dalam kontrak ini diberikan imbalan dalam bentuk pahala yang berganda bersesuaian dengan kontrak ini yang berasaskan prinsip ihsan. Sebaliknya, kontrak jual beli yang berasaskan prinsip keadilan boleh menerima tambahan harga disebabkan tangguhan seperti yang dijelaskan di atas. Jika dibandingkan prinsip ihsan dengan prinsip keadilan, maka adalah jelas bahawa ihsan adalah lebih tinggi martabatnya daripada keadilan bersesuaian dengan balasan ihsan iaitu pahala yang lebih baik daripada balasan atau imbalan wang.203 203 Al-Ghazali menjelaskan hal ini seperti berikut: 204 Al-Bahuti, Kasshaf al-Qina` `an Matn al-Iqna`, Dar al-Fikr, 1982, j. 3, h. 496. 124. Deposit atau Dana Pelaburan Pelanggan daripada Sumber yang Diragui MPS dirujuk berhubung dengan isu sama ada institusi kewangan Islam boleh menerima permohonan untuk membuka akaun deposit atau akaun pelaburan daripada pelanggan (individu atau syarikat korporat) tanpa perlu menyelidiki sama ada sumber dana pelanggan adalah halal, haram atau bercampur antara halal dengan yang haram. Keputusan MPS pada mesyuarat ke-58 bertarikh 27 April 2006 telah memutuskan bahawa institusi kewangan Islam dibenarkan menerima permohonan untuk membuka akaun deposit atau akaun pelaburan daripada pelanggan tanpa perlu menyelidiki sama ada sumber dana pelanggan adalah halal, haram atau bercampur antara halal dengan yang haram. Walau bagaimanapun, tiada halangan bagi institusi kewangan Islam untuk mewujudkan saringan dalaman bagi memastikan sumber dana yang diterimanya adalah berlandaskan Syariah. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan terhadap dalil-dalil dan kaedah-kaedah fiqah berikut: i. Hadis Rasulullah SAW: “Al-Khalal telah meriwayatkan dengan bersandarkan kepada riwayat daripada `Ata`, beliau berkata: Rasulullah SAW telah melarang (umat Islam) berkongsi perniagaan dengan orang Yahudi dan Nasrani melainkan sekiranya urusan jual beli tersebut berada di bawah kawal selia orang Islam.”204 LAIN-LAIN 197 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 205 Al-Bukhari, Sahih al-Bukhari, Dar Ibn Kathir, 1987, j. 3, h. 1068, hadis no. 2756. 206 Al-Syafii, Al-Umm, Bait al-Afkar al-Dawliyyah, (t.t.), h. 720. Hadis di atas memperlihatkan bahawa Rasulullah SAW membenarkan umat Islam berurusan secara musyarakah dengan orang bukan Islam walaupun sumber dana mereka diragui, dengan syarat segala urus niaga atau urusan jual beli hendaklah di bawah penyeliaan orang Islam. Di samping itu, terdapat ulama yang menyatakan bahawa Rasulullah SAW tidak berhutang kepada Yahudi yang mewajibkannya membayar lebihan (faedah). Sebaliknya, Rasulullah SAW menjalankan urusan jual beli yang dibayar secara tangguh dan menjadikan perisai baginda sebagai sekuriti bagi urus niaga tersebut. Perkara ini dinyatakan dalam riwayat berikut: “Daripada Aisyah bahawa (ketika) Rasulullah SAW wafat, perisai baginda Rasulullah SAW masih menjadi gadaian pada seorang Yahudi kerana (hutang Rasulullah SAW sebanyak) 30 so` (sejenis timbangan) gandum daripadanya.”205 ii. Memandangkan sumber dana dalam pasaran kewangan pada masa kini adalah kompleks dan pelbagai, institusi kewangan Islam adalah terdedah kepada penglibatan orang-orang yang memiliki harta yang diperoleh daripada sumber yang haram dan sukar dikenal pasti. Sehubungan dengan itu, walaupun tujuan untuk menyekat dana yang tidak halal daripada memasuki sistem kewangan Islam adalah murni, institusi kewangan Islam tidak perlu menyelidiki status sumber dana yang diterima kerana dari segi perlaksanaannya adalah sukar untuk dikawal. Pendekatan ini juga selari dengan kaedah-kaedah fiqah berikut yang merumuskan bahawa sesuatu hukum terhadap perkara yang sukar ditentukan hakikatnya boleh dinilai daripada sudut zahirnya sahaja: “Sesuatu hukum diasaskan atas apa-apa yang zahir, adapun, hal-hal yang tersembunyi itu Allah SWT sahaja yang mengetahuinya.”206 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 198 “Sesuatu hukum diasaskan atas apa-apa yang zahir dalam perkara-perkara yang sukar ditetapkan hakikat sebenarnya.” 207 “Maka antara keindahan Syarak adalah menentukan hukum dengan sebab- sebab yang zahir dan menjadikannya (sebab-sebab yang zahir tersebut) sebagai `illah; wujudnya sesuatu hukum adalah berdasarkan wujudnya `illah atau sebaliknya.”208 “Mua`malah diasaskan atas perkara yang zahir, dan adalah dimaklumi bahawa perkara batin adalah tersembunyi, tidak disandarkan ke atasnya sesuatu hukum.”209 125. Pembiayaan kepada Pihak yang secara Jelas Menjalankan Aktiviti Bertentangan dengan Syariah MPS dirujuk berhubung dengan isu sama ada institusi kewangan Islam boleh memberikan pembiayaan kepada pihak yang menjalankan aktiviti bertentangan dengan Syariah seperti perusahaan minuman keras, aktiviti perjudian, premis pelacuran dan sebagainya. Keputusan MPS pada mesyuarat ke-58 bertarikh 27 April 2006 telah memutuskan bahawa institusi kewangan Islam tidak dibenarkan untuk memberikan pembiayaan kepada syarikat-syarikat, badan-badan atau individu yang diketahui secara jelas terlibat dalam aktiviti yang bercanggah dengan Syariah seperti perjudian, perusahaan minuman keras dan premis pelacuran. 207 Ali Ahmad al-Nadwi, Jamharah al-Qawa`id al-Fiqhiyyah fi al-Mu`amalat al-Maliyyah, Syarikah al-Rajhi al-Masrafiyyah li al-Istithmar, 2000, j. 1, h. 4334. 208 Al-Subki, Al-Ashbah wa al-Nazha’ir, Dar al-Kutub al-`Ilmiyyah, 1991, j. 2, h. 190. 209 Ibnu Hajar al-`Asqalani, Fath al-Bari Syarh Sahih al-Bukhari, Dar al-Ma`rifah, 1959, j. 4, h. 302. 199 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 200 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 126. Penggunaan Overdraf secara Konvensional untuk Menampung Kekurangan Akaun Semasa Wadi`ah MPS dirujuk berhubung dengan isu sama ada pelanggan boleh menggunakan overdraf secara konvensional untuk menampung kekurangan dalam akaun semasa wadi`ah. Keputusan MPS pada mesyuarat ke-8 bertarikh 12 Disember 1998 telah memutuskan bahawa, secara prinsipnya, penggunaan overdraf secara konvensional untuk menampung kekurangan dalam akaun semasa wadi`ah adalah bertentangan dengan Syariah. Namun, memandangkan akaun konvensional dan wadi`ah merupakan hak dan tanggungan pelanggan, institusi kewangan Islam tidak berhak menghalang pelanggan daripada berbuat demikian. Walau bagaimanapun, institusi kewangan Islam bertanggungjawab memaklumkan kepada pelanggan bahawa amalan tersebut bertentangan dengan Syariah. Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa penggunaan overdraf secara konvensional untuk menampung kekurangan akaun semasa wadi`ah oleh pelanggan adalah di luar kawalan institusi kewangan Islam. 210 Surah al-Mai’dah, ayat 2. “...dan hendaklah kamu bertolong-tolongan untuk membuat kebajikan dan bertakwa dan janganlah kamu bertolong-tolongan pada melakukan dosa (maksiat) dan permusuhan...”210 Asas Pertimbangan Keputusan MPS di atas adalah berasaskan pertimbangan bahawa pemberian pembiayaan sedemikian akan menyebabkan pendapatan institusi kewangan Islam dijanakan daripada aktiviti yang tidak dibenarkan Syarak. Larangan ini juga selaras dengan firman Allah SWT yang berikut: 201 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 127. Yuran Komitmen ke atas Baki Kemudahan Overdraf atau Kredit Pusingan secara Islam yang Tidak Digunakan Lazimnya, pelanggan yang menerima kemudahan overdraf dan kredit pusingan secara Islam tidak menggunakan kemudahan tersebut sepenuhnya dalam sesuatu masa dan akan meninggalkan sejumlah baki tertentu untuk kegunaan pada masa hadapan apabila diperlukan. Sehubungan dengan itu, pihak institusi kewangan Islam terpaksa memperuntukkan sejumlah wang kepada pelanggan tersebut dan tidak dapat menggunakannya bagi memberi pembiayaan kepada pelanggan yang lain. Ini akan sedikit sebanyak menjejaskan peluang institusi kewangan Islam untuk menggunakan dana tersebut dalam aktiviti lain yang boleh menjanakan keuntungan yang lebih tinggi. Dalam perbankan konvensional, institusi kewangan akan mengenakan yuran komitmen pada kadar tertentu ke atas baki atau bahagian kemudahan overdraf dan kredit pusingan yang belum digunakan. Institusi kewangan juga akan memantau pelanggan yang tidak menggunakan kemudahan kredit ini selepas tiga bulan daripada tarikh penyempurnaan dokumentasi kemudahan tersebut dengan mendapatkan pengesahan bertulis daripada pelanggan bahawa kemudahan tersebut masih diperlukan. Sekiranya pelanggan gagal memberikan pengesahan, institusi kewangan berhak menarik balik kemudahan tersebut. Amalan ini bertujuan memastikan pelanggan tidak memohon pembiayaan berlebihan daripada keperluan sebenar dan menutup peluang peminjam sebenar yang lain untuk mendapatkan kemudahan kredit. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada institusi kewangan Islam boleh mengenakan yuran komitmen ke atas baki yang belum digunakan dalam kemudahan overdraf atau kredit pusingan secara Islam. Keputusan MPS pada mesyuarat ke-12 bertarikh 24 Februari 2000 telah memutuskan bahawa cadangan untuk mengenakan yuran komitmen ke atas baki belum digunakan dalam kemudahan overdraf atau kredit pusingan secara Islam adalah tidak dibenarkan. Asas Pertimbangan Memandangkan kemudahan overdraf dan kredit pusingan secara Islam adalah berasaskan kontrak bai` `inah atau tawarruq, pengenaan yuran komitmen ke atas baki overdraf atau kredit pusingan secara Islam adalah bercanggah dengan akad jual beli yang dilaksanakan. Di bawah kontrak bai` `inah atau tawarruq, setelah berlakunya akad jual beli, jumlah kemudahan yang diterima oleh pelanggan merupakan hak milik pelanggan sepenuhnya. 128. Instrumen Kewangan Islam sebagai Aset Sandaran dalam Urus Niaga secara Konvensional Beberapa instrumen pasaran wang secara Islam telah diperkenalkan bagi memudahkan peserta pasaran untuk menjalankan urus niaga bagi memenuhi keperluan mudah tunai. Kebiasaannya, instrumen-instrumen ini diterbitkan melalui tender secara terus kepada institusi kewangan Islam sahaja. Walau bagaimanapun, memandangkan instrumen-instrumen ini turut diniagakan di pasaran sekunder, sebilangan institusi kewangan konvensional yang memiliki instrumen kewangan Islam ini (contohnya sukuk) didapati melakukan urus niaga secara konvensional (contohnya repo) dengan menggunakan instrumen tersebut sebagai aset sandaran bagi memenuhi keperluan mudah tunai mereka. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada institusi kewangan konvensional dibenarkan untuk menggunakan instrumen kewangan Islam sebagai aset sandaran dalam urus niaga secara konvensional. Keputusan MPS pada mesyuarat ke-19 bertarikh 20 Ogos 2001 telah memutuskan bahawa memandangkan instrumen kewangan Islam yang dimiliki oleh institusi kewangan konvensional merupakan aset milik mereka, maka sebarang urus niaga secara konvensional yang dijalankan dengan menggunakan instrumen kewangan Islam sebagai aset sandaran merupakan hak dan pilihan pemiliknya. Namun, pihak yang berurus niaga secara konvensional adalah bertanggungjawab terhadap urus niaga yang tidak berlandaskan Syariah tersebut. Kepatuhan terhadap Syariah bagi instrumen kewangan Islam yang digunakan dalam urus niaga secara konvensional tetap terpelihara selagi urus niaga yang dijalankan tidak menjejaskan akad dan ciri-ciri asas instrumen berkenaan. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 202 Asas Pertimbangan Urus niaga kewangan konvensional yang dijalankan menggunakan instrumen kewangan Islam sebagai aset sandaran tidak menjejaskan keabsahan instrumen tersebut kerana kontrak dan struktur asas instrumen kewangan Islam tersebut kekal utuh dan tidak terjejas sama sekali. Walau bagaimanapun, sebarang implikasi hukum dari segi penglibatan dalam urus niaga konvensional adalah ditanggung oleh pihak-pihak yang berurus niaga. 129. Instrumen Pasaran Kewangan sebagai Aset Sandaran dalam Urus Niaga Bertangguh Pelbagai aset berbentuk nota telah dihasilkan sebagai instrumen dalam pasaran kewangan, antaranya aset yang berasaskan konsep mudarabah seperti Sijil Pelaburan Mudarabah dan aset yang berasaskan hutang seperti bil penerimaan secara Islam dan sijil hutang boleh niaga secara Islam. Aset-aset ini juga digunakan untuk pelbagai tujuan termasuk cagaran. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada instrumen pasaran kewangan seperti yang dinyatakan di atas boleh digunakan sebagai aset sandaran dalam urus niaga bertangguh. Keputusan MPS pada mesyuarat ke-19 bertarikh 20 Ogos 2001 telah memutuskan perkara berikut: i. Sijil Pelaburan Mudarabah boleh dijadikan aset sandaran dalam urus niaga bertangguh seperti bai` `inah kerana ia merupakan aset yang dipegang oleh pemiliknya dan ia tidak tergolong dalam kategori barangan ribawi; ii. Sebarang aset yang berasaskan hutang tidak boleh diniagakan secara bertangguh kerana setiap jual beli hutang (bai` dayn) perlulah dilakukan secara tunai; dan iii. Aset yang masih dalam cagaran boleh dijadikan aset dalam urus niaga bai` `inah dengan persetujuan pemegang cagaran. 203 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Keputusan MPS di atas adalah berdasarkan pertimbangan ke atas perkara berikut: i. Amalan jual beli Sijil Pelaburan Mudarabah oleh pemegang sijil adalah sama seperti amalan urus niaga sijil saham yang telah diiktiraf keharusannya; ii. Aset yang masih dalam cagaran merupakan hak milik pemberi cagaran. Memandangkan pemilikan aset sandaran dalam urus niaga bai` `inah akan kembali kepada pemilik asal, ia tidak menjejaskan kepentingan cagaran yang dibuat; dan iii. Ulama bersependapat bahawa hutang tidak boleh dijual beli secara tangguh. 130. Mekanisme Penentuan Jumlah Harga Penyelesaian dalam Pasaran Kewangan Dalam amalan sekuriti hutang Islam, harga jualan dan penebusan awal ditentukan semasa kontrak dimeterai. Walau bagaimanapun, mekanisme yang diterima pakai dalam pasaran kewangan terutamanya sekuriti hutang swasta Islam ada kalanya menghasilkan perbezaan antara jumlah penyelesaian berbanding dengan harga jualan asal yang dipersetujui. Mekanisme ini yang berasaskan peraturan yang ditetapkan oleh Sistem Pemindahan Eletronik Data dan Sekuriti (RENTAS) mengenakan pampasan atau bayaran tambahan dalam pengiraan pembayaran dividen dalam tahun lompat211 dan juga dalam kes tarikh pembayaran dividen dan penebusan sekuriti jatuh pada hari cuti luar jangkaan, terutamanya bagi sekuriti hutang swasta tanpa nota sekunder. Sehubungan dengan itu, MPS dirujuk berhubung dengan isu sama ada mekanisme sedemikian dibenarkan Syarak. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 204 211 Tahun yang terdiri daripada 366 hari (terdapat sekali pada setiap 4 tahun). Keputusan MPS pada mesyuarat ke-21 bertarikh 30 Januari 2002 telah memutuskan bahawa mekanisme penentuan jumlah harga penyelesaian yang diterima pakai dalam sistem kewangan seperti yang dinyatakan di atas adalah bercanggah dengan prinsip Syariah. Ini kerana jumlah harga penyelesaian (dividen dan modal pokok) dalam sekuriti hutang swasta Islam perlulah menyamai jumlah harga jualan yang telah dipersetujui semasa kontrak dimeterai. MPS juga memutuskan bahawa kelewatan bayaran yang disebabkan cuti luar jangkaan tidak boleh dijadikan sebab untuk mengenakan pampasan atau ganti rugi ke atas pihak yang terlibat. Asas Pertimbangan Memandangkan sekuriti hutang swasta Islam yang diterbitkan berdasarkan kontrak jual beli telah menetapkan harga sekuriti Islam ketika kontrak dimeterai, sebarang perbezaan dalam jumlah pembayaran adalah tidak dibenarkan. Sekiranya berlaku kes terlebih bayar, pihak yang menerima bayaran perlu memulangkan semula amaun tersebut kepada pihak pembayar. Di samping itu, pampasan atau ganti rugi hanya boleh dikenakan dalam kes kelewatan pembayaran yang disengajakan atau akibat kecuaian dan kelalaian. Kelewatan bayaran yang disebabkan oleh tarikh matang sekuriti tersebut jatuh pada hari cuti yang tidak dijangkakan bukanlah suatu kelewatan yang disengajakan dan tidak boleh dikenakan sebarang pampasan atau ganti rugi. 205 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 131. Penstrukturan Semula (Restructuring) dan Penjadualan Semula (Rescheduling) dalam Perjanjian Pembiayaan secara Islam Salah satu ciri yang membezakan dokumentasi kewangan Islam dengan kewangan konvensional ialah keperluan bagi perjanjian atau akad baharu dimeterai setiap kali berlaku perubahan terhadap terma dan syarat perjanjian kerana kewangan Islam menitikberatkan persetujuan dan keredhaan pihak-pihak yang berkontrak. Keperluan ini menjadi lebih ketara apabila ia melibatkan penjadualan semula dan penstrukturan semula sesuatu pembiayaan terutamanya pembiayaan yang melibatkan perjanjian jual beli. Bagi kes penstrukturan semula pembiayaan yang berasaskan jual beli, perjanjian jual beli yang asal perlulah dibubarkan (fasakh) terlebih dahulu sebelum memeterai perjanjian jual beli yang baharu. Dalam amalan pinjaman konvensional, pihak-pihak yang berkontrak hanya perlu memeterai perjanjian tambahan (supplementary agreement) sekiranya sesuatu pinjaman perlu dijadual atau distruktur semula. Perbezaan ini menyebabkan pelanggan kewangan Islam terpaksa menanggung kos tambahan kerana terpaksa membayar kos guaman dan duti setem yang baharu. Dalam hal ini, MPS dirujuk berhubung dengan cadangan agar perjanjian pembiayaan secara Islam yang terlibat dalam kes penjadualan semula dan penstrukturan semula memasukkan satu perenggan baharu yang menyatakan bahawa ia adalah satu perjanjian penjadualan semula atau penstrukturan semula dan perlu dirujuk silang dengan perjanjian yang asal. Walau bagaimanapun, dalam kes penstrukturan semula, timbul isu berkenaan perjanjian asal yang dirujuk silang telah dibubarkan. Keputusan MPS pada mesyuarat ke-26 bertarikh 26 Jun 2002 telah memutuskan bahawa cadangan untuk melaksanakan perjanjian penjadualan semula dan penstrukturan semula pembiayaan secara Islam untuk dirujuk silang dengan perjanjian asal bagi tujuan pengecualian duti setem dibenarkan dengan syarat ia dilakukan setelah perjanjian asal dibubarkan terlebih dahulu. Dalam kes penstrukturan semula, MPS menerima kaedah rujuk silang kepada perjanjian asal yang telah ditamatkan atas dasar maslahah iaitu bagi mengelakkan pembayaran duti setem sebanyak dua kali. RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 206 Pada mesyuarat ke-32 bertarikh 27 Februari 2003, MPS turut memutuskan bahawa berdasarkan persetujuan bersama dalam perjanjian, tempoh pembiayaan kepada pelanggan boleh dilanjutkan tanpa berakad semula dengan syarat kedua-dua pihak melaksanakan semua janji yang dimeterai dan juga harga yang dikenakan ke atas pelanggan tidak melebihi harga jualan asal yang dimeterai. Asas Pertimbangan Pembiayaan secara Islam boleh diatur sama ada berasaskan kontrak jual beli, ijarah, musyarakah, mudarabah dan sebagainya. Dalam hal ini, sebarang perubahan terhadap tanggungjawab penerima biaya dan pembiaya hendaklah merujuk kepada kontrak asal yang telah dimeterai. Dalam konteks jual beli, lazimnya harga telah diputuskan pada awal kontrak. Oleh itu, sebarang perubahan terhadap harga memerlukan satu perjanjian baharu bagi mengelakkan berlakunya riba atau gharar (bergantung kepada keadaan kes). 132. Konsep Pembidaan oleh Peniaga Utama (Principal Dealer) dalam Pasaran Wang Islam Peniaga utama dalam pasaran wang Islam bertanggungjawab untuk membida sejumlah amaun minimum tertentu bagi setiap terbitan sukuk. Walau bagaimanapun, tanggungjawab peniaga utama tersebut dilihat seolah-olah tidak berdasarkan konsep pembidaan secara sukarela. Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada pembidaan sejumlah amaun tertentu bagi setiap terbitan sukuk yang diamalkan peniaga utama ini selari dengan prinsip Syariah. Keputusan MPS pada mesyuarat ke-26 bertarikh 26 Jun 2002 telah memutuskan bahawa konsep pembidaan oleh peniaga utama yang diamalkan dalam pasaran wang Islam adalah tidak bertentangan dengan Syarak. 207 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 208 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Asas Pertimbangan Konsep ini merupakan amalan perniagaan yang telah ditentukan oleh pihak berkuasa atau pengawal selia dan dilihat tidak bercanggah dengan prinsip Syariah kerana tidak wujud unsur riba, gharar dan maysir. 133. Penyelesaian Pembiayaan Menerusi Pembiayaan Baharu Dalam skim pembiayaan secara Islam, terdapat kemungkinan pelanggan menghadapi masalah aliran tunai dan tidak mampu meneruskan pembayaran kepada institusi kewangan Islam sewaktu tempoh pembiayaan masih berjalan. Bagi menangani masalah ini, terdapat cadangan untuk membenarkan pelanggan menstruktur semula pembiayaannya dan menerbitkan sekuriti hutang atau sukuk kepada institusi kewangan Islam berkenaan sebagai satu kaedah pembayaran semula kemudahan pembiayaan tersebut. Dalam hal ini, MPS dirujuk sama ada penyelesaian pembiayaan menerusi terbitan sekuriti hutang atau sukuk kepada pembiaya asal (yang secara tidak langsung akan mewujudkan obligasi kewangan baharu) dibenarkan Syarak. Keputusan MPS pada mesyuarat ke-38 bertarikh 28 Ogos 2003 telah memutuskan bahawa penyelesaian pembiayaan menerusi terbitan sekuriti hutang Islam kepada pembiaya asal adalah dibenarkan. Walau bagaimanapun, kaedah penjadualan dan penstrukturan semula hendaklah dilaksanakan dengan mengambil kira keperluan Syariah seperti wujudnya akad yang jelas, aset jual beli yang berlandaskan Syariah, serta syarat-syarat jual beli yang tidak bertentangan dengan Syarak. Asas Pertimbangan Penstrukturan semula hutang secara Islam menerusi terbitan sekuriti hutang atau sukuk yang berasingan kepada pembiaya asal melibatkan senario pihak-pihak yang telah berkontrak memasuki suatu kontrak lain yang berasingan dan tersendiri. 209 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM “Mengesahkan sesuatu akad selagi mungkin adalah wajib.”212 “Pada dasarnya sesuatu akad (hendaklah) dianggap sah.”213 Secara umumnya, tiada halangan Syarak (mani` syar`ie) bagi pihak-pihak yang telah berkontrak untuk memeterai suatu kontrak lain yang berasingan dan tersendiri sesama mereka. Terbitan sekuriti hutang atau sukuk kepada pembiaya asal dilihat sebagai suatu urus niaga yang tidak menjejaskan keabsahan kontrak pembiayaan sedia ada. Keharusan ini dilihat selari dengan kaedah-kaedah fiqah seperti yang berikut: 212 Ali Ahmad al-Nadwi, Jamharah al-Qawa`id al-Fiqhiyyah fi al-Mu`amalat al-Maliyyah, Syarikah al-Rajhi al-Masrafiyyah li al-Istithmar, 2000, j. 1, h. 297. 213 Ali Ahmad al-Nadwi, Jamharah al-Qawa`id al-Fiqhiyyah fi al-Mu`amalat al-Maliyyah, Syarikah al-Rajhi al-Masrafiyyah li al-Istithmar, 2000, j. 1, h. 297. 134. Harga Jualan yang Tidak Ditentukan dalam Perjanjian Jual Beli MPS dirujuk berhubung dengan isu sama ada harga jualan yang tidak ditentukan dan tidak pasti dalam perjanjian jual beli boleh diterima. Sebagai contoh, klausa berhubung dengan definisi harga jualan dinyatakan seperti yang berikut: “Institusi kewangan Islam akan membeli aset daripada pelanggan pada harga belian yang akan ditentukan kemudian berdasarkan terma dan syarat yang terkandung dalam perjanjian.” Keputusan MPS pada mesyuarat ke-40 bertarikh 23 Disember 2003 telah memutuskan bahawa harga jualan yang tidak ditentukan dan tidak pasti dalam kontrak perjanjian jual beli adalah tidak dibenarkan. “Daripada Abu Hurairah berkata Rasulullah SAW melarang jual beli yang berdasarkan lontaran batu (hasat) dan jual beli yang tiada kepastian (gharar).“214 Antara elemen gharar yang merosakkan urus niaga kewangan ialah gharar di dalam penetapan harga iaitu sekiranya jual beli dibuat tanpa penetapan harga, atau penetapan harga ditentukan oleh sebelah pihak sahaja atau oleh pihak ketiga.215 135. Konsep Sandaran bagi Urus Niaga Pendiskaunan Blok secara Islam (Islamic Block Discounting) Sebagai satu alternatif kepada syarikat kredit bagi mendapatkan dana tambahan untuk dijadikan modal pusingan perniagaan, sebuah institusi kewangan Islam berhasrat untuk melaksanakan konsep pendiskaunan blok secara Islam berasaskan bai` wadhi`ah iaitu akad jual beli dengan harga lebih rendah daripada kos pemerolehan. Secara ringkasnya, pendiskaunan blok secara Islam melibatkan penjualan pemilikan ke atas hak kontrak (contracted right) dalam perjanjian sewa beli Islam (ijarah) oleh syarikat kredit secara diskaun kepada institusi kewangan Islam (pembiaya). Syarikat kredit kemudiannya akan dilantik sebagai ejen mengutip sewaan bagi pihak institusi kewangan Islam. Sekiranya syarikat kredit gagal menyerahkan kutipan sewa kepada institusi kewangan Islam dalam tempoh yang dipersetujui, institusi kewangan Islam akan menamatkan kemudahan dan mengambil alih tugas kutipan sewa secara langsung. 214 Muslim, Sahih Muslim, Dar al-Mughni, 1998, h. 814, hadis no. 1513. 215 AAOIFI, Al-Ma`ayir al-Syar`iyyah, Piawaian no. 31 (Dabit al-Gharar al-Mufsid li al-Mu`amalat al-Maliyyah), 2003, perenggan 4. Asas Pertimbangan Harga jualan yang tidak ditentukan dan tidak pasti membawa kepada unsur gharar yang ditegah oleh Syarak dalam akad jual beli kerana ia boleh menyebabkan ketidakadilan dan pertelingkahan. Harga jualan mestilah ditentukan sama ada dengan jumlah atau kaedah-kaedah yang dipersetujui secara tepat dan pasti semasa perjanjian dimeterai. Rasulullah SAW melarang pemeteraian akad atau pengenaan syarat yang mengandungi unsur gharar seperti yang dinyatakan dalam hadisnya yang berikut: RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 210 Dalam hal ini, MPS dirujuk berhubung dengan isu sama ada penggunaan konsep bai` wadhi`ah sebagai kontrak sandaran dalam urus niaga pendiskaunan blok secara Islam seperti yang dicadangkan di atas selaras dengan Syarak. Keputusan MPS pada mesyuarat ke-66 bertarikh 22 Februari 2007 telah memutuskan bahawa penggunaan konsep bai` wadhi`ah untuk urus niaga pendiskaunan blok secara Islam adalah tidak tepat. MPS turut memutuskan bahawa bai` al-usul bi al-khasm (akad jual beli aset secara diskaun) ialah konsep sandaran yang lebih sesuai digunakan sebagai takyif fiqhi dalam urus niaga pendiskaunan blok secara Islam. Asas Pertimbangan Penggunaan konsep bai` wadhi`ah dilihat tidak memenuhi ciri-ciri urus niaga pendiskaunan blok secara Islam. Ini kerana bai` wadhi`ah merupakan jualan dengan diskaun daripada harga kos sedangkan pendiskaunan blok secara Islam merupakan jualan dengan diskaun daripada harga kos yang ditambah keuntungan (principal + profit). Dalam hal ini, bai` al-usul bi al-khasm dilihat sebagai konsep sandaran yang lebih sesuai digunakan sebagai takyif fiqhi dalam urus niaga pendiskaunan blok secara Islam. Walaupun bai` al-usul bi al-khasm tidak terdapat dalam perbincangan dan penulisan fiqah klasik, ia merupakan konsep yang telah diterima pakai dalam konteks amalan semasa. Istilah usul di sini merujuk kepada aset sandaran dalam perjanjian sewa beli tersebut yang turut merangkumi nilai ekonomi yang terhasil daripada aset berkenaan. 211 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 212 213 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM GLOSARI RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 214 GLOSARI 215 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ISTILAH HURAIAN Akad istithaq Akad jaminan Akad isytirak Akad perkongsian seperti mudarabah dan musyarakah Akhz al-ajr `ala al-jah Mengambil upah atas reputasi yang baik Akhz al-ju`l `ala ruqyah min al-Quran Mengambil upah hasil rawatan/ perubatan dengan ayat al-Quran Al-`adah muhakkamah Adat kelaziman sebagai asas hukum Al-ajl Tangguhan Al-bai` Akad jual beli Al-bai` wa al-salaf Akad jual beli dengan syarat pinjaman Al-ijarah thumma al-bai` Akad sewa yang disusuli dengan pemilikan barang oleh penyewa melalui akad jual beli Al-jam`u baina `aqd al-qardh wa `aqd al-mu`awadhah Himpunan antara kontrak pinjaman dengan kontrak pertukaran Al-muqasah al-ittifaqiyyah Tolak selesai secara persetujuan oleh kedua-dua pihak Al-muqasah al-jabariyyah Tolak selesai secara penetapan oleh pihak berkuasa Al-naqd yalid al-naqd Wang menghasilkan wang RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 216 ISTILAH HURAIAN Al-wa`d bi al-tamlik Janji untuk memiliki atau pemilikan Bai` `inah Akad jual beli yang disusuli dengan pembelian semula oleh penjual dengan harga yang berbeza Bai` dayn Akad jual beli hutang Bai` al-dayn bi al-dayn Akad jual beli hutang dengan hutang Bai` sarf Akad jual beli mata wang Bai` al-usul bi al-khasm Akad jual beli aset secara diskaun Bai` al-kali’ bi al-kali’ Rujuk bai’ al-dayn bi al-dayn Bai` bithaman ajil Akad jual beli berasaskan pembayaran tertangguh pada harga tertentu Bai` mu’ajjal Rujuk bai’ bithaman ajil Bai` muzayadah Akad jual beli secara bidaan atau lelongan Bai` salam Akad jual beli secara pesanan terhadap aset tertentu dengan spesifikasi tertentu. Pembayaran penuh dibuat secara tunai semasa akad dimeterai manakala penyerahan barang ditangguhkan ke suatu masa yang ditetapkan 217 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ISTILAH HURAIAN Bai` wadhi`ah Akad jual beli dengan harga yang lebih rendah daripada kos pemerolehan Bai`atain fi al-bai`ah Dua urus niaga jual beli dalam satu akad jual beli Dayn ghair thabit Hutang yang belum tetap Dayn mustaqir Hutang yang tetap tanggungan pembayarannya Dayn thabit Hutang yang telah tetap Dhaman Jaminan Dharar Kemudaratan Dhawabit Garis panduan Dho` wa ta`ajjal Mengurangkan sebahagian jumlah hutang apabila peminjam menyelesaikan hutang lebih awal Fakultatif Perjanjian takaful semula yang dimeterai antara pengendali takaful dengan pengendali takaful yang lain (termasuk penanggung insurans konvensional), dan pengendali takaful yang mengunderait risiko mempunyai pilihan untuk mengagih manakala pengendali takaful atau penanggung insurans konvensional mempunyai pilihan untuk menerima atau menolak risiko tersebut Faraid Ilmu pengetahuan atau hukum tentang pembahagian harta pusaka mengikut peraturan Islam RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 218 ISTILAH HURAIAN Fasakh Bubar Fasid Rosak, tidak sah Fiqh muamalat Disiplin ilmu yang membahaskan hukum berkenaan dengan urusan kehidupan manusia sesama manusia Fuqaha Ulama fiqah Gharamah Denda/Penalti Gharar Ketidakpastian Gharar yasir Ketidakpastian yang sedikit Ghasb Rampasan atau pengambilan harta secara tidak sah Hajah Keperluan Hamish jiddiyyah Deposit sekuriti Hibah ruqba Pemberian semasa tempoh hidup pemberi atau penerima hibah dengan syarat kematian salah satu pihak (sama ada pemberi hibah atau penerima hibah) sebagai syarat pemilikan harta oleh pihak yang hidup Hibah umra Pemberian semasa tempoh hidup penerima hibah atau pemberi hibah dengan syarat harta tersebut dikembalikan sekiranya berlaku kematian penerima hibah 219 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ISTILAH HURAIAN Ibra’ Rebat/Pengguguran sebahagian atau keseluruhan tuntutan terhadap sesuatu hak atau hutang Ibra’ mu`allaq Ibra’ yang tertakluk kepada syarat dan sekiranya syarat tersebut dipenuhi, maka ibra’ akan diberikan Ibra’ muqayyad Ibra’ yang terikat pada syarat Ijarah Akad sewa atau upah yang melibatkan faedah/manfaat daripada sesuatu aset atau tenaga kerja dengan bayaran atau upah tertentu dalam tempoh yang dipersetujui Ijarah muntahia bi al-tamlik Akad sewa yang diakhiri dengan pemilikan barang oleh penyewa Ijtihad Daya fikir dan usaha bersungguh- sungguh yang digembleng oleh ulama bertaraf mujtahid untuk menghasilkan penetapan sesuatu hukum Syarak secara tepat dalam perkara yang tidak dinyatakan dengan jelas sama ada dalam al-Quran atau Sunnah `Illah Sebab hukum Isqat al-haq Pengguguran hak Istiqrar ta`amul Kelancaran perjalanan pasaran Istisna` Akad jual beli secara tempahan bagi sesuatu produk dengan spesifikasi tertentu dan dengan kaedah penyerahan dan pembayaran tertentu (sama ada tunai atau bertangguh) RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 220 ISTILAH HURAIAN Istisna` muwazi Istisna` selari Ittifaqiyyah Persetujuan bersama `Iwad Imbalan Jumhur Majoriti Kafalah Jaminan Kafalah bi al-Ujr Jaminan dengan upah Kafil Penjamin Makful `anhu Pihak yang dijamin Makful lahu Penerima jaminan atau benefisiari Mani` Syar`ie Halangan Syarak Marhun Barang yang digadai/dicagar Maslahah Kepentingan umum Masnu` Barang yang ditempah Maysir Judi Mu`ayyan bi al-zat Dapat dikenal pasti dan ditentukan secara jelas dan tepat dari segi lokasi, kuantiti dan kualiti Mubara’ah Saling menggugurkan/melepaskan hak Mudarabah Akad perkongsian untung 221 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ISTILAH HURAIAN Mudarib Pengusaha usaha niaga mudarabah Mulzimah Secara lazim Muqaradah Rujuk mudarabah Muqasah Tolak selesai Muqtada al-`aqd Objektif kontrak Murabahah Akad jual beli dengan pendedahan harga kos aset dan margin keuntungan kepada pembeli Murtahin Pihak yang meminta cagaran Musahamah Saling memberikan sumbangan Musawamah Akad jual beli tanpa pendedahan harga kos aset dan margin keuntungan kepada pembeli Musya` Sifat aset yang dimiliki secara bersama yang tidak boleh dipisahkan atau dibahagikan Musyarakah Akad perkongsian untung rugi Musyarakah mutanaqisah Akad perkongsian yang membenarkan seorang (atau lebih) rakan kongsi memberikan hak kepada rakan kongsi yang lain untuk memiliki bahagian aset kepunyaannya secara beransur-ansur berdasarkan syarat-syarat yang dipersetujui Musyarik Rakan kongsi RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM 222 ISTILAH HURAIAN Muta`arafan Menjadi amalan kebiasaan Muwa`adah mulzimah Janji kedua-dua belah pihak yang mengikat Nafaqah Kos tanggungan Qabd Penguasaan terhadap sesuatu aset Qard Akad pinjaman Qard hasan Akad pinjaman berdasarkan ihsan Qawl al-jadid Pendapat baharu Qawl al-qadim Pendapat lama Qimah ismiyyah Harga nominal Qimah suqiyyah Harga pasaran Qiradh Rujuk mudarabah Qiyas Analogi Rabbul mal Pemilik modal/pelabur Rahin Penggadai Rahn Gadaian/Cagaran Rahn al-musya` Cagaran terhadap aset yang dimiliki secara bersama Rahn rasmi Penyerahan cagaran melalui catatan secara rasmi dalam daftar pihak berkuasa 223 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ISTILAH HURAIAN Sadd zarai` Pendekatan Syarak untuk menyekat perkara yang boleh menyebabkan seseorang terjebak dalam perkara yang diharamkan Sighah Lafaz ijab dan qabul Siyasah Syar`iyyah Dasar dan pendekatan yang diambil oleh pemerintah demi kepentingan negara dan rakyat yang selaras dengan prinsip Syariah Sukuk Sekuriti/Bon Islam Sukuk ijarah Sekuriti Islam berasaskan akad ijarah Sukuk murabahah komoditi Sekuriti Islam berasaskan akad tawarruq Syahadah al-dayn Sijil hutang Syubhah Keraguan Ta`awun Bantu-membantu Ta`widh Ganti rugi Tabarru` Pemberian/Sumbangan secara sukarela Takaful Suatu skim yang bercirikan semangat bantu- membantu dan tolong- menolong dengan menyediakan bantuan kewangan kepada peserta- peserta jika diperlukan dan semua peserta sama-sama bersetuju untuk memberikan sumbangan bagi tujuan tersebut 224 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ISTILAH HURAIAN Takaful semula alir keluar Pengagihan atau pemberian risiko yang diunderait oleh sesebuah syarikat takaful kepada syarikat takaful atau syarikat insurans konvensional yang lain Takaful semula alir masuk Penerimaan risiko oleh sesebuah syarikat takaful daripada syarikat takaful yang lain Taklufah Kos sebenar Takyif Penyesuaian Takyif fiqhi Penyesuaian fiqah Tanazul Pengguguran tuntutan hak Taqyid Mengehadkan Tasarruf Pengurusan Tawarruq/ murabahah komoditi Membeli sesuatu barang dengan harga tangguh sama ada secara musawamah atau murabahah, kemudian menjualnya kepada pihak ketiga bagi memperoleh wang tunai Tawatu` Pengaturan awal 225 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ISTILAH HURAIAN Triti Perjanjian takaful semula antara pengendali takaful dengan pengendali takaful lain (termasuk penanggung insurans konvensional) yang mewajibkan pengendali takaful mengagihkan risiko yang diunderait dan pengendali takaful atau penanggung insurans konvensional yang memeterai perjanjian ini juga wajib menerima risiko tersebut Ujr `ala wakalah Upah perwakilan Ujrah Upah `Uqud mu`awadhat Akad-akad pertukaran `Uqud musamma Akad-akad yang diketahui dalam kalangan ulama, disebut dalam kitab- kitab fiqah lama dan dinyatakan secara jelas dalam sumber hukum (seperti al-Quran dan Sunnah) `Uqud mustajiddah Akad-akad baharu `Urbun Wang pendahuluan/deposit `Urf Kelaziman atau kebiasaan yang diterima oleh masyarakat dan tidak bercanggah dengan hukum Syarak `Urf tijari Amalan lazim perniagaan yang diterima oleh masyarakat dan tidak bercanggah dengan hukum Syarak Wa`d Janji Wa`d bi al-syira’ Janji untuk membeli 226 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM ISTILAH HURAIAN Wa`d mulzim Janji yang mengikat Wadi`ah Akad simpanan harta yang diamanahkan oleh satu pihak kepada pihak lain untuk dijaga dan dipulangkan apabila diminta Wadi`ah yad amanah Akad simpanan secara amanah Wadi`ah yad dhamanah Akad simpanan dengan jaminan Wakaf Sesuatu pemberian atau sumbangan ikhlas harta yang dimiliki untuk kepentingan dan kesejahteraan umum yang dibenarkan oleh Syarak Wakalah Akad perwakilan Wakalah bi al-istithmar Akad perwakilan bagi tujuan pelaburan Wasi Orang yang dilantik untuk menunaikan wasiat Zari`ah ila riba Jalan ke arah riba Zan al-ghalib Tanggapan yang lebih hampir kepada kepastian Zimmah Tanggungan 227 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM Untuk mendapat maklumat lanjut berkenaan penerbitan ini, sila hubungi: Pengarah Jabatan Perbankan Islam dan Takaful Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur, Malaysia Telefon : +(603) 2698 8044 Faksimili : +(603) 2693 3826 Dalam menghasilkan semula atau memetik kandungan, pemakluman sumber diperlukan. Harga: RM35.00 senaskhah 228 RESOLUS I SYAR IAH DALAM KEWANGAN I S LAM www.bnm.gov.my ISBN 978—983—9586—45—9 9 789839 586459	Public Notice
26 Oct 2010	Newly updated: Guidelines on Shariah Governance Framework for Islamic Financial Institutions	https://www.bnm.gov.my/-/newly-updated-guidelines-on-shariah-governance-framework-for-islamic-financial-institutions	https://www.bnm.gov.my/documents/20124/761709/02_Shariah_Governance_Framework_20101026.pdf	null	Reading: Newly updated: Guidelines on Shariah Governance Framework for Islamic Financial Institutions Share: 5 Newly updated: Guidelines on Shariah Governance Framework for Islamic Financial Institutions Release Date: 26 Oct 2010 Guidelines on Shariah Governance Framework for Islamic Financial Institutions has been updated. The PDF format document is available for download via the URL provided below: Download Link © 2024 Bank Negara Malaysia. All rights reserved.	1 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro PEMBIAYAAN MIKRO 1. Apakah Pembiayaan Mikro? • Pembiayaan mikro ialah pembiayaan untuk perniagaan kecil-kecilan dan jumlah pembiayaan yang ditawarkan adalah antara RM500 hingga RM50,000 untuk membiayai sesebuah perniagaan perusahaan mikro. Pembiayaan mikro ini diberikan untuk tujuan perniagaan sahaja seperti membiayai modal pusingan dan pembelian aset tetap. Pembiayaan ini bukan untuk pembiayaan peribadi. 2. Apakah definisi perusahaan mikro? • Definisi perusahaan mikro yang diluluskan oleh Majlis Pembangunan Perusahaan Kecil dan Sederhana (PKS) Kebangsaan adalah seperti yang berikut: Sektor Perkilangan dan Sektor Perkhidmatan Berkaitan Perkilangan Sektor Pertanian Asas dan Sektor Perkhidmatan Perniagaan yang mempunyai: • Jualan tahunan yang kurang daripada RM250,000; atau • Pekerja sepenuh masa yang kurang daripada 5 orang. Perniagaan yang mempunyai: • Jualan tahunan yang kurang daripada RM200,000; atau • Pekerja sepenuh masa yang kurang daripada 5 orang. 3. Siapakah yang layak mendapat pembiayaan mikro? • Semua perusahaan mikro yang mempunyai perniagaan yang berdaya maju. • Pembiayaan mikro ditawarkan kepada perniagaan dalam semua sektor ekonomi. Namun, beberapa institusi kewangan mengehadkan pembiayaan kepada beberapa sektor tertentu sahaja. 4. Institusi kewangan manakah yang menawarkan pembiayaan mikro? • 3 institusi kewangan pembangunan iaitu Agrobank, Bank Rakyat dan Bank Simpanan Nasional. • 6 bank perdagangan iaitu Alliance Bank, AmBank, CIMB Bank, EONCAP Islamic, Public Bank dan United Overseas Bank. 1 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 5. Di manakah boleh saya dapatkan pembiayaan mikro? • Pembiayaan mikro boleh didapati di cawangan-cawangan serta wakil/ejen institusi kewangan yang menyertai skim ini yang mempamerkan Logo Pembiayaan Mikro Kebangsaan. Setiap permohonan pinjaman adalah tertakluk kepada proses penilaian setiap institusi kewangan yang menyertai skim ini. • Bagi mendapatkan maklumat lanjut berkaitan tempat untuk memohon skim ini, pelanggan dinasihatkan untuk menghubungi institusi kewangan yang menyertai skim pembiayaan mikro ini. Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui nombor talian penting setiap institusi kewangan tersebut. 6. Bagaimanakah rupa Logo Pembiayaan Mikro Kebangsaan? 7. Apakah ciri-ciri utama produk pembiayaan mikro? • Saiz pinjaman : Antara RM500 hingga RM50,000 • Tujuan pinjaman : Untuk membiayai perniagaan seperti modal pusingan atau pembelian aset tetap. • Tempoh pinjaman : Antara 1 bulan hingga 10 tahun • Keperluan cagaran : Tiada • Permohonan pinjaman : Borang permohonan yang mudah ( 2 muka surat sahaja) 2 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro • Keperluan dokumentasi : Dokumen yang minimum seperti kad pengenalan, bukti perniagaan (seperti pendaftaran perniagaan/lesen/permit), bukti pendapatan (seperti penyata bank), bil-bil utiliti (seperti elektrik, air, telefon) Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui dengan terperinci kriteria kelayakan setiap institusi kewangan yang menyertai skim ini. 8. Adakah saya perlukan seorang penjamin? • Kebanyakan institusi pembiayaan tidak memerlukan penjamin. • Hanya beberapa institusi kewangan yang menyertai skim ini memerlukan penjamin bagi pinjaman yang melebihi sesuatu had. Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk keterangan lanjut. 9. Apakah kadar faedah yang dikenakan bagi pinjaman skim pembiayaan mikro ini? • Kadar faedah komersial ditentukan oleh institusi kewangan yang menyertai skim ini sendiri dan bergantung pada penilaian profil risiko setiap peminjam. • Institusi kewangan yang menyertai skim ini boleh memberikan maklumat yang lebih terperinci mengenai kadar faedah dan ciri-ciri bagi produk pembiayaan mikro yang ditawarkan. 10. Berapa lamakah permohonan pinjaman saya akan diproses? • Tempoh yang diperlukan bagi meluluskan sesuatu pinjaman adalah antara 1 hingga 10 hari bekerja, setelah maklumat lengkap diperoleh daripada pemohon. • Setelah pinjaman diluluskan, tempoh pengeluaran dijamin antara 1 hingga 7 hari bekerja. • Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui tempoh memproses pinjaman setiap institusi kewangan yang menyertai skim ini. 3 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 11. Adakah terdapat kuota bagi pinjaman mikro yang perlu ditawarkan? • Tiada. Semua perusahaan mikro yang berdaya maju layak untuk mendapat pembiayaan mikro, dan kelulusan permohonan bergantung sepenuhnya pada penilaian kewangan (creditworthiness) setiap pemohon. 12. Jika saya menghadapi kesukaran untuk mendapat pembiayaan mikro dan sebarang isu yang berkaitan, siapakah yang perlu saya hubungi? • Jika anda menghadapi kesukaran mendapat pembiayaan mikro di cawangan- cawangan atau wakil/ejen institusi kewangan yang menyertai skim ini, anda boleh menghubungi talian penting pembiayaan mikro untuk mendapatkan bantuan. • Sila rujuk Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro untuk mengetahui talian penting pembiayaan mikro setiap institusi kewangan yang menyertai skim ini. TABUNG PERUSAHAAN MIKRO 13. Apakah tujuan penubuhan Tabung Perusahaan Mikro (TPM)? • Bagi meningkatkan akses kepada pembiayaan buat perusahaan mikro yang berdaya maju, dalam keadaan ekonomi yang semakin mencabar ini. • Tabung ini dikendalikan oleh Bank Negara Malaysia dan ditawarkan dari 5 November 2008 hingga 31 Disember 2009. Sebanyak RM200 juta telah diperuntukkan oleh Bank Negara Malaysia bagi tujuan ini. 14. Siapakah yang layak memohon TPM? • Setiap perusahaan mikro yang layak memohon Pembiayaan Mikro adalah layak untuk memohon TPM. Sila rujuk jawapan bagi Soalan 3 di atas. 15. Di manakah perusahaan mikro boleh memohon TPM? • Perusahaan mikro boleh memohon TPM di institusi kewangan yang menyertai skim pembiayaan mikro. Sila rujuk jawapan bagi Soalan 4 di atas untuk senarai institusi kewangan yang menyertai skim ini. 4 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro 16. Siapakah yang boleh mendapatkan pembiayaan daripada TPM? • Setiap perusahaan mikro yang dinilai sebagai berdaya maju oleh institusi kewangan yang menyertai skim ini boleh mendapat pembiayaan. 17. Di manakah boleh saya dapatkan maklumat lanjut mengenai ciri-ciri produk pembiayaan mikro yang ditawarkan oleh setiap institusi kewangan yang menyertai skim ini? • Ciri-ciri produk pembiayaan mikro yang ditawarkan oleh setiap institusi kewangan yang menyertai skim ini terkandung di dalam Jadual Perbandingan Ciri-Ciri Produk Pembiayaan Mikro. Jadual ini boleh didapati di laman web Bank Negara Malaysia (www.bnm.com.my), laman web BankingInfo (www.bankinginfo.com.my) dan laman web portal SMEinfo (www.smeinfo.com.my). Jadual ini akan dikemaskinikan sekiranya terdapat sebarang perubahan terhadap ciri-ciri produk institusi kewangan yang menyertai skim ini. 18. Apakah yang perlu saya lakukan jika permohonan saya ditolak? • Anda boleh membuat permohonan di institusi kewangan lain yang menyertai skim ini. Setiap institusi kewangan yang menyertai skim ini mempunyai kriteria kelayakan yang berbeza-beza. 19. Apakah yang perlu saya lakukan jika institusi kewangan menolak permohonan saya tanpa alasan yang munasabah? • Bank Negara Malaysia menghendaki semua institusi kewangan memberikan alasan sekiranya sesuatu permohonan ditolak. Sekiranya permohonan anda ditolak tanpa alasan, anda boleh menghubungi Bank Negara Malaysia untuk mengemukakan aduan anda di alamat berikut: BNMLINK (Laman Informasi Nasihat dan Khidmat) Tingkat Bawah, Blok D, Bank Negara Malaysia Jalan Dato’ Onn, 50480 Kuala Lumpur (Masa urusan : Isnin - Jumaat, 9.00 pagi – 5.00 petang) 5 Soalan dan Jawapan berkaitan Pembiayaan Mikro dan Tabung Perusahaan Mikro BNMTELELINK (Laman Informasi Nasihat dan Khidmat Melalui Telefon) nm.gov.my Tel: 1-300-88-5465 or 1-300-88-LINK Faks: 03-2174 1515 E-mel: bnmtelelink@b 0. Adakah pembiayaan semula dibenarkan di bawah TPM? semula pinjaman yang 1. Bolehkah saya dapatkan pinjaman daripada institusi kewangan lain bagi mpunyai baki pinjaman sebanyak RM50,000, anda Bank Negara Malaysia November 2008 c 2 • Tidak. Tabung ini tidak boleh digunakan untuk pembiayaan sedia ada. 2 pembiayaan melebihi RM50,000? • Boleh. Walaupun anda masih me masih boleh memohon pembiayaan mikro baharu daripada institusi kewangan lain yang menyertai skim pembiayaan mikro ini. Walau bagaimanapun, penilaian kredit adalah berdasarkan keupayaan anda membayar balik dan jumlah baki pinjaman anda dengan semua institusi kewangan. Tarikh dikemaskini: 21 C:\ADHOC-FAQ MICROFINANCE(FY)-ACCEPT.do 6	Public Notice
15 Oct 2010	The 2011 Budget Speech by Prime Minister of Malaysia	https://www.bnm.gov.my/-/the-2011-budget-speech-by-prime-minister-of-malaysia	https://www.bnm.gov.my/documents/20124/761709/budget2011_en_attach.pdf, https://www.bnm.gov.my/documents/20124/761709/budget2011_en.pdf	null	Reading: The 2011 Budget Speech by Prime Minister of Malaysia Share: The 2011 Budget Speech by Prime Minister of Malaysia Release Date: 15 Oct 2010 The 2011 Budget Speech by YAB Dato' Seri Mohd. Najib Tun Abdul Razak, Prime Minister and Minister of Finance. Click on hyperlinks below to download. The 2011 Budget Speech & Attachment. © 2024 Bank Negara Malaysia. All rights reserved.	Budget Appendix 2011 LIST OF APPENDICES APPENDIX 1 : Tax Incentive For The Issuance Of Islamic Securities APPENDIX 2 : Tax Incentive On Export Credit Insurance Premium Based On Takaful Concept APPENDIX 3 : Extension Of Application Period For Tax Incentives For The Generation Of Energy From Renewable Sources APPENDIX 4 : Extension Of Application Period For Tax Incentives For Energy Conservation APPENDIX 5 : Extension Of Tax Incentive Period For Reduction Of Greenhouse Gas Emission APPENDIX 6 : Extension And Enhancement Of Tax Incentives For Hybrid Cars APPENDIX 7 : Extension Of Tax Incentive Application Period For Food Production APPENDIX 8 : Abolishment Of Import Duty On Tourism Products And Daily Used Product APPENDIX 9 : Extension Of Application Period For Tax Incentive For Last Mile Network Facilities Provider For Broadband APPENDIX 10 : Exemption Of Sales Tax On Mobile Phones APPENDIX 11 : Excise Duty Exemption On National Vehicles For Disabled Persons APPENDIX 12 : Tax Relief On Medical Expenses And Care For Parents APPENDIX 13 : Stamp Duty Exemption On Instruments Of Transfer Of Residential Property APPENDIX 14 : Stamp Duty Exemption On Loan Agreements For Residential Property APPENDIX 15 : Review Of Service Tax Rate APPENDIX 16 : Service Tax On Paid Broadcasting Services 1 APPENDIX 1 TAX INCENTIVE FOR THE ISSUANCE OF ISLAMIC SECURITIES Present Position Expenses incurred in the issuance of Islamic securities issued under the principles of Mudharabah, Musyarakah, Ijarah and Istisna’ or other Syariah principles approved by the Minister of Finance are eligible for tax deduction if the issuance of such Islamic securities are approved by the Securities Commission or the Labuan Financial Services Authority. The incentive is given from year of assessment 2003 until year of assessment 2015. Proposal To strengthen Malaysia’s position as the leading sukuk market, the Government has launched the world’s first Syariah-compliant commodity trading platform known as Bursa Suq al-Sila. To further encourage innovation and to promote transactions in Bursa Suq al-Sila, it is proposed that the expenses incurred in the issuance of Islamic securities under the principles of Murabahah and Bai’ Bithaman Ajil based on tawarruq be given deduction for the purpose of income tax computation. The issuance of such sukuk must be approved by the Securities Commission or the Labuan Financial Services Authority. Effective Date Commencing from year of assessment 2011 until year of assessment 2015. 2 APPENDIX 2 TAX INCENTIVE ON EXPORT CREDIT INSURANCE PREMIUM BASED ON TAKAFUL CONCEPT Present Position To encourage export of Malaysian goods overseas, the Government has given double tax deduction on payment of conventional insurance premium for export credit to companies approved by the Minister of Finance. The deduction is given from year of assessment 1986. Proposal To grant equal tax treatment between conventional insurance and takaful, it is proposed that payments of insurance premium for export credit based on takaful concept be given double tax deduction. Insurance premium based on takaful concept must be purchased from takaful operators approved by the Minister of Finance. Effective Date Commencing from year of assessment 2011. 3 APPENDIX 3 EXTENSION OF APPLICATION PERIOD FOR TAX INCENTIVES FOR THE GENERATION OF ENERGY FROM RENEWABLE SOURCES Present Position Tax incentives for companies generating energy from renewable sources (RE) are: A. Companies generating energy from renewable sources: i. Pioneer Status with income tax exemption of 100% of statutory income for 10 years; or ii. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years. The allowance can be set-off against 100% of statutory income for each year of assessment; AND iii. Import duty and sales tax exemption on equipment used to generate energy that is not produced locally and sales tax exemption on equipment purchased from local manufacturers. Other companies in the same group undertaking the same activities are eligible for the above incentives even though any one of the company in the same group has been granted the incentive. B. Companies generating renewable energy for own consumption: i. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years. The allowance can be set-off against 100% of statutory income for each year of assessment; and ii. Import duty and sales tax exemption on equipment used to generate energy that is not produced locally and sales tax exemption on equipment purchased from local manufacturers. 4 C. Non-energy generating companies which import or purchase equipment to generate energy from renewable sources for consumption of third parties: i. Import duty and sales tax exemption on solar photovoltaic system equipment for the usage by third parties given to importers including photovoltaic service providers approved by the Energy Commission; and ii. Sales tax exemption is given on the purchase of solar heating system equipment from local manufacturers. The above incentives are given for applications received by the Malaysian Industrial Development Authority (MIDA) until 31 December 2010. Proposal In advancing green technology and ensuring sustainable environment, it is proposed that the current tax incentive application period for the generation of energy from renewable sources be extended. Effective Date i. Incentive A and B be extended for applications received until 31 December 2015; and ii. Incentive C be extended for applications received until 31 December 2012. 5 APPENDIX 4 EXTENSION OF APPLICATION PERIOD FOR TAX INCENTIVES FOR ENERGY CONSERVATION Present Position Tax incentives for energy conservation (Energy Efficiency – EE) activities are: A. Companies providing energy conservation services: i. Pioneer Status with income tax exemption of 100% of statutory income for 10 years; or ii. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years. The allowance to be set-off against 100% of the statutory income for each year of assessment; AND iii. Import duty and sales tax exemption on energy conservation equipment that are not produced locally and sales tax exemption on the purchase of locally produced equipment. B. Companies which incur capital expenditure for energy conservation for own consumption: i. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years. The allowance to be set-off against 100% of statutory income for each year of assessment; and ii. Import duty and sales tax exemption on energy conservation equipment that are not produced locally and sales tax exemption on equipment purchased from local manufacturers. 6 C. Companies importing or purchasing locally manufactured EE equipment for third party consumption: i. Import duty and sales tax exemption on EE equipment such as high efficiency motors and insulation materials given to importers including authorized agents approved by the Energy Commission; and ii. Sales tax exemption is given on the purchase of EE consumer goods such as refrigerator, air conditioner, lightings, fan and television which are produced by local manufacturers. The above incentives are given for applications received by the Malaysian Industrial Development Authority (MIDA) until 31 December 2010. Proposal To encourage the efficient utilization of energy, it is proposed that the current tax incentives application period for energy conservation be extended. Effective Date i. Incentive A and B be extended for applications received until 31 December 2015; and ii. Incentive C be extended for applications received until 31 December 2012. 7 APPENDIX 5 EXTENSION OF TAX INCENTIVE PERIOD FOR REDUCTION OF GREENHOUSE GAS EMISSION Present Position Malaysia is committed in reducing greenhouse gas (GHG) emission and had introduced an incentive to reduce GHG emission by granting tax exemption on income received from the sale of Certified Emission Reductions (CERs) from Clean Development Mechanism (CDM) projects approved by the Ministry of Natural Resources and Environment. The income exempted is equal to the gross income from sale of CDM less the cost of expenditure (not being capital expenditure) to obtain the CERs. The exemption period is for 3 years from the year of assessment 2008 until year of assessment 2010. Proposal In line with the effort to encourage companies to invest in CDM projects to overcome global warming, it is proposed that the tax exemption period on the income from the sales of CERs be extended for another 2 years. Effective Date Year of assessment 2011 until year of assessment 2012. 8 APPENDIX 6 EXTENSION AND ENHANCEMENT OF TAX INCENTIVES FOR HYBRID CARS Present Position Franchise holders of hybrid cars are given 100% exemption of import duty and 50% exemption of excise duty on new completely-built-up (CBU) hybrid cars. The above exemption is subject to the following criteria and conditions: i. Hybrid cars should comply with the United Nations’ definitions as follows: “A vehicle with at least 2 different energy converters and 2 different energy storage systems (gasoline and electric) on- board the vehicle for the purpose of vehicle propulsion”; ii. Limited to new CBU hybrid passenger cars with engine capacity below 2000 cc; iii. Engine specification of at least Euro 3 technology; iv. Hybrid cars certified by the Road Transport Department, obtaining Vehicle Type Approval and certified to have achieved not less than 50% increase in the city-fuel economy or not less than 25% increase in a combined city-highway fuel economy relative to a comparable vehicle that is an internal combustion gasoline fuel; and v. Emission of carbon monoxide of less than 2.3 gram per kilometer. The exemption is given for applications received by the Ministry of Finance from 30 August 2008 until 31 December 2010. Proposal To further promote Malaysia as a regional hub for hybrid cars and as an incentive for local car manufacturers and assemblers to prepare for the manufacture and assembly of such cars domestically, it is proposed that full exemption of import duty and full exemption of excise duty be given on new CBU hybrid cars. This incentive is also extended to electric cars as well as hybrid and electric motorcycles. Effective Date For applications received by the Ministry of Finance from 1 January 2011 until 31 December 2011. 9 APPENDIX 7 EXTENSION OF TAX INCENTIVE APPLICATION PERIOD FOR FOOD PRODUCTION Present Position Currently, tax incentives are given to the company that invests and its subsidiary company that is engaged in the food production activities, as follows: i. The company that invests in its subsidiary company engaged in food production activities is granted tax deduction equivalent to the amount of investment made in that subsidiary; and ii. The subsidiary company undertaking food production activities is granted income tax exemption of 100% on its statutory income for 10 years of assessment for new project or 5 years of assessment for expansion project. The exemption period commences from the first year of assessment the company derived statutory income, in which: a. Losses incurred before the exemption period is allowed to be brought forward after the exemption period; b. Losses incurred during the exemption period is also allowed to be brought forward after the exemption period, and The incentives are granted on the following conditions: i. The equity condition for a company which invests at least 70% in the subsidiary company that undertakes food production activities; ii. The approved food productions activities by the Minister of Finance are cultivation of kenaf, vegetables, fruits, herbs, spices; aquaculture; rearing of cattle, goats, sheep; and deep sea fishing; and iii. The food production project should commence within a period of one year from the date the incentive is approved. The above incentives are given for applications received by the Ministry of Agriculture and Agro-based Industry until 31 December 2010. 10 11 Proposal To ensure continuous development in agro-food and agro-based industry, the current incentives need to be continued. To further stimulate investments, there is a need to encourage investors in high scale agriculture projects. Therefore, it is proposed the tax incentive for food production activities be extended for another 5 years. Effective Date Application received from 1 January 2011 until 31 December 2015. APPENDIX 8 ABOLISHMENT OF IMPORT DUTY ON TOURISM PRODUCTS AND DAILY USED PRODUCTS Present Position In line with measures to promote the tourism industry, import duty on most tourism products such as camera, watches and perfumes has been abolished. Tourism dutiable products such as apparel, handbags, wallets and foot wear with FOB value exceeding RM200 are given exemption under Item 174, Customs Duties (Exemption) Order 1988. Proposal To further boost the tourism industry and to render Malaysia as the leading shopping destination, it is proposed that import duty be abolished on: i. Handbags, wallets, suitcases, briefcases, apparel, footwear and hats (with duty of between 5% and 20%); ii. Jewellery, costume jewellery and ornaments (with duty of between 5% and 20%); and iii. Toys such as dolls and small scale recreational models (with duty of between 5% and 20%). In addition, to reduce the burden of the rakyat on the cost of daily used products, it is proposed that import duty be abolished on: i. Talcum powder, face powder and shampoo (with duty of between 10% and 20%); and ii. Bedspreads, blankets, curtains and table cloth (with duty of between 10% and 20%). The detailed list of such products is as in Appendix A. Effective Date Effective from 4.00 p.m. on 15 October 2010. 12 APPENDIX A ELIMINATION OF IMPORT DUTY i Tariff Code Description Current Rate (%) 33.04 Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations; manicure or pedicure preparations. - Other: 3304 .91 - - Powders, whether or not compressed: 100 Talcum powder 20 200 Face powder 20 33.05 Preparations for use on the hair. 3305 .10 000 - Shampoos 20 3305 .20 000 - Preparations for permanent waving or straightening 10 3305 .30 000 - Hair lacquers 10 3305 .90 000 - Other 10 33.07 Pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations, depilatories and other perfumery, cosmetic or toilet preparations, not elsewhere specified or included; prepared room deodorisers, whether or not perfumed or having disinfectant properties. 3307 .49 - - Other: 900 Other 20 3307 .90 - Other: 100 Animal toilet preparations 20 APPENDIX A ELIMINATION OF IMPORT DUTY ii Tariff Code Description Current Rate (%) 200 Wadding impregnated, coated or covered with perfume or cosmetics 20 Felt and nonwovens, impregnated, coated or covered with perfume or cosmetics: 900 Other 20 42.02 Trunks, suit-cases, vanity-cases, executive- cases, brief-cases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; travelling- bags, insulated food or beverages bags, toilet bags, rucksacks, handbags, shopping- bags, wallets, purses, map-cases,cigarette- cases, tobacco-pouches, tool bags, sports bags, bottle-cases, jewellery boxes, powder- boxes, cutlery cases and similar containers, of leather or of composition leather, of sheeting of plastic, of textile materials, of vulcanised fibre or of paperboard, or wholly or mainly covered with such materials, or with paper. - Trunks, suit-cases, vanity-cases, executive-cases, brief-cases, school satchels and similar containers: 4202 .19 - - Other: 100 Of wood 20 200 Of iron or steel 20 400 Of nickel 15 500 Of aluminium 20 600 Of zinc 5 900 Other 20 APPENDIX A ELIMINATION OF IMPORT DUTY iii Tariff Code Description Current Rate (%) - Handbags, whether or not with shoulder strap, including those without handle: 4202 .29 000 - - Other 20 - Articles of a kind normally carried in the pocket or in the handbag: 4202 .32 000 - - With outer surface of plastic sheeting or of textile materials 20 4202 .39 - - Other 100 Of wood 5 200 Of iron or steel 20 400 Of nickel 15 500 Of aluminium 20 600 Of zinc 5 700 Of worked tortoise-shell, ivory bone, coral and other carving material of animal origin 5 800 Of worked carving material of vegetable or mineral origin 5 900 Other 20 - Other: 4202 .91 - - With outer surface of leather, of composition leather or of patent leather: 900 Other 15 4202 .92 - - With outer surface of plastic sheeting or of textile materials: 900 Other 20 4202 .99 - - Other: Of wood 20 100 200 Of iron or steel 20 400 Of nickel 15 500 Of aluminium 20 APPENDIX A ELIMINATION OF IMPORT DUTY iv Tariff Code Description Current Rate (%) 600 Of zinc 5 700 Of worked tortoise-shell, ivory bone, coral and other carving material of animal origin 5 800 Of worked carving material of vegetable or mineral origin 5 900 Other 20 42.03 Articles of apparel and clothing accessories, of leather or of composition leather. 4203 .10 000 - Articles of apparel 20 - Gloves, mittens and mitts: 4203 .29 000 - - Other 20 4203 .30 000 - Belts and bandoliers 15 4205 .00 Other articles of leather or of composition leather. 900 Other 20 4206 . 00 100 Articles of gut (other than silk-worm gut), of goldbeater's skin, of bladders or of tendons. Catgut 5 Other: 910 tobacco pouches 25 990 other 5 61.03 Men's and boys' suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted. 6103 .10 000 - Suits 20 APPENDIX A ELIMINATION OF IMPORT DUTY v Tariff Code Description Current Rate (%) - Ensembles: 6103 .22 000 - - Of cotton 20 6103 .23 000 - - Of synthetic fibres 20 6103 .29 000 - - Of other textile materials 20 - Jackets and blazers: 6103 .31 000 - - Of wool or fine animal hair 20 6103 .32 000 - - Of cotton 20 6103 .33 000 - - Of synthetic fibres 20 6103 .39 000 - - Of other textile materials 20 - Trousers, bib and brace overalls, breeches and shorts: 6103 .41 000 - - Of wool or fine animal hair 20 6103 .42 000 - - Of cotton 20 6103 .43 000 - - Of synthetic fibres 20 6103 .49 000 - - Of other textile materials 20 61.04 Women's or girls' suits, ensembles, jackets, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted. - Suits: 6104 .13 000 - - Of synthetic fibres 20 6104 .19 000 - - Of other textile materials - Ensembles: 20 6104 .22 000 - - Of cotton 20 6104 .23 000 - - Of synthetic fibres 20 6104 .29 000 - - Of other textile materials 20 - Jackets and blazers: 6104 .31 000 - - Of wool or fine animal hair 20 6104 .32 000 - - Of cotton 20 6104 .33 000 - - Of synthetic fibres 20 APPENDIX A ELIMINATION OF IMPORT DUTY vi Tariff Code Description Current Rate (%) 6104 .39 000 - - Of other textile materials 20 - Dresses: 6104 .41 000 - - Of wool or fine animal hair 20 6104 .42 000 - - Of cotton 20 6104 .43 000 - - Of synthetic fibres 20 6104 .44 000 - - Of artificial fibres 20 6104 .49 000 - - Of other textile materials 20 - Skirts and divided skirts: 6104 .51 000 - - Of wool or fine animal hair 20 6104 .52 000 - - Of cotton 20 6104 .53 000 - - Of synthetic fibres 20 6104 .59 000 - - Of other textile materials 20 - Trousers, bib and brace overalls, breeches and shorts: 6104 .61 000 - - Of wool or fine animal hair 20 6104 .62 000 - - Of cotton 20 6104 .63 000 - - Of synthetic fibres 20 6104 .69 000 - - Of other textile materials 20 61.05 Men's or boys' shirts, knitted or crocheted. 6105 .10 000 - Of cotton 20 6105 .20 000 - Of man-made fibres 20 6105 .90 000 - Of other textile materials 20 61.06 Women's or girls' blouses, shirts and shirt- blouses, knitted or crocheted. 6106 .10 000 - Of cotton 20 6106 .20 000 - Of man-made fibres 20 6106 .90 000 - Of other textile materials 20 APPENDIX A ELIMINATION OF IMPORT DUTY vii Tariff Code Description Current Rate (%) 61.07 Men's or boys' underpants, briefs, nightshirts, pyjamas, bathrobes, dressing gowns similar articles, knitted or crocheted. - Underpants and briefs: 6107 .11 000 - - Of cotton 20 6107 .12 000 - - Of man-made fibres 20 6107 .19 000 - - Of other textile materials 20 - Nightshirts and pyjamas: 6107 .21 000 - - Of cotton 20 6107 .22 000 - - Of man-made fibres 20 6107 .29 000 - - Of other textile materials 20 - Other: 6107 .91 000 - - Of cotton 20 6107 .99 000 - - Of other textile materials 20 61.08 Women's or girls' slips, petticoats, briefs, panties, nightdresses, pyjamas, négligés, bathrobes, dressing gowns and similar articles, knitted or crocheted. - Slips and petticoats: 6108 6108 .11 .19 000 - - Of man-made fibres 20 000 - - Of other textile materials 20 - Briefs and panties: 6108 .21 000 - - Of cotton 20 6108 .22 000 - - Of man-made fibres 20 6108 .29 000 - - Of other textile materials 20 - Nightdresses and pyjamas: 6108 .31 000 - - Of cotton 20 6108 .32 000 - - Of man-made fibres 20 6108 .39 000 - - Of other textile materials 20 APPENDIX A ELIMINATION OF IMPORT DUTY viii Tariff Code Description Current Rate (%) - Other: 6108 .91 000 - - Of cotton 20 6108 .92 000 - - Of man-made fibres 20 6108 .99 000 - - Of other textile materials 20 61.09 T-shirts, singlets and other vests, knitted or crocheted. 6109 .10 000 - Of cotton 20 6109 .90 000 - Of other textile materials 20 61.10 Jerseys, pullovers, cardigans, waistcoats and similar articles, knitted or crocheted. - Of wool or fine animal hair: 6110 .11 000 - - Of wool 20 6110 .12 000 - - Of Kashmir (cashmere) goats 20 6110 .19 000 - - Other 20 6110 .20 000 - Of cotton 20 6110 .30 000 - Of man-made fibres 20 6110 .90 000 - Of other textile materials 20 61.11 Babies' garments and clothing accessories, knitted or crocheted. 6111 .20 000 - Of cotton 20 6111 .30 000 - Of synthetic fibres 20 6111 .90 000 - Of other textile materials 20 61.12 Track suits, ski suits and swimwear, knitted or crocheted. - Track suits: 6112 .11 000 - - Of cotton 20 APPENDIX A ELIMINATION OF IMPORT DUTY ix Tariff Code Description Current Rate (%) 6112 .12 000 - - Of synthetic fibres 20 6112 .19 000 - - Of other textile materials 20 6112 .20 000 - Ski suits 20 - Men's or boys' swimwear: 6112 .31 000 - - Of synthetic fibres 20 6112 .39 000 - - Of other textile materials 20 - Women’s or girls’ swimwear: 6112 .41 000 - - Of synthetic fibres 20 6112 .49 000 - - Of other textile materials 20 6113 .00 000 Garments, made up of knitted or crocheted fabrics of heading 59.03, 59.06 or 59.07. 20 61.14 Other garments, knitted or crocheted. 6114 .20 000 - Of cotton 20 6114 .30 000 - Of man-made fibres 20 6114 .90 000 - Of other textile materials 20 61.15 Panty hose, tights, stockings, socks and other hosiery, including graduated compression hosiery (for example, stockings, for varicose veins) and footwear without applied soles, knitted or crocheted. 6115 .10 000 - Graduated compression hosiery (for example, stockings, for varicose veins) 15 - Other panty hose and tights: 6115 .21 000 - - Of synthetic fibres, measuring per single yarn less than 67 decitex 15 6115 .22 000 - - Of synthetic fibres, measuring per single yarn 67 decitex or more 15 6115 .29 000 - - Of other textile materials 15 APPENDIX A ELIMINATION OF IMPORT DUTY x Tariff Code Description Current Rate (%) 6115 .30 000 - Other women's full-length or knee-length hosiery, measuring per single yarn less 15 6115 .94 000 than 67 decitex - Other: - - Of wool or fine animal hair 15 6115 .95 000 - - Of cotton 15 6115 .96 000 - - Of synthetic fibres 15 6115 .99 000 - - Of other textile materials 15 61.16 Gloves, mittens and mitts, knitted or crocheted. 6116 .10 000 - Impregnated, coated or covered with plastics or rubber 20 - Other: 6116 6116 .92 .93 000 000 - - Of cotton 20 - - Of synthetic fibres 20 6116 .99 000 - - Of other textile materials 20 61.17 Other made up clothing accessories, knitted or crocheted; knitted or crocheted parts of garments or of clothing accessories. 6117 .80 - Other accessories: 900 Other 15 62.03 Men's or boys' suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breeches and shorts (other than swimwear). - Suits: 6203 .11 000 - - Of wool or fine animal hair 15 6203 .12 000 - - Of synthetic fibres 15 APPENDIX A ELIMINATION OF IMPORT DUTY xi Tariff Code Description Current Rate (%) 6203 .19 000 - - Of other textile materials 15 - Ensembles: 6203 .22 000 - - Of cotton 20 6203 .23 000 - - Of synthetic fibres 20 6203 .29 000 - - Of other textile materials 20 - Jackets and blazers: 6203 .31 000 - - Of wool or fine animal hair 15 6203 .32 000 - - Of cotton 15 6203 .33 000 - - Of synthetic fibres 15 6203 .39 000 - - Of other textile materials 15 - Trousers, bib and brace overalls, breeches and shorts: 6203 .41 000 - - Of wool or fine animal hair 20 6203 6203 .42 .43 000 000 - - Of cotton - - Of synthetic fibres 20 20 6203 .49 000 - - Of other textile materials 20 62.04 Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear). - Suits: 6204 .11 000 - - Of wool or fine animal hair 15 6204 .12 000 - - Of cotton 15 6204 .13 000 - - Of synthetic fibres 15 6204 .19 000 - - Of other textile materials 15 - Ensembles: 6204 .21 000 - - Of wool or fine animal hair 20 6204 6204 .22 .23 000 000 - - Of cotton - - Of synthetic fibres 20 20 APPENDIX A ELIMINATION OF IMPORT DUTY xii Tariff Code Description Current Rate (%) 6204 .29 000 - - Of other textile materials 20 - Jackets and blazers: 6204 .31 000 - - Of wool or fine animal hair 15 6204 .32 000 - - Of cotton 15 6204 .33 000 - - Of synthetic fibres 15 6204 .39 000 - - Of other textile materials 15 - Dresses: 6204 .41 000 - - Of wool or fine animal hair 20 6204 .42 000 - - Of cotton 20 6204 .43 000 - - Of synthetic fibres 20 6204 .44 000 - - Of artificial fibres 20 6204 .49 000 - - Of other textile materials 20 - Skirts and divided skirts: 6204 .51 000 - - Of wool or fine animal hair 20 6204 6204 .52 .53 000 000 - - Of cotton - - Of synthetic fibres 20 20 6204 .59 000 - - Of other textile materials 20 - Trousers, bib and brace overalls, breeches and shorts: 6204 .61 000 - - Of wool or fine animal hair 20 6204 .62 000 - - Of cotton 20 6204 .63 000 - - Of synthetic fibres 20 6204 .69 000 - - Of other textile materials 20 62.05 Men's or boys' shirts. 6205 .20 000 - Of cotton 20 6205 .30 000 - Of man-made fibres 20 6205 .90 000 - Of other textile materials 20 APPENDIX A ELIMINATION OF IMPORT DUTY xiii Tariff Code Description Current Rate (%) 62.06 Women's or girls' blouses, shirts and shirt- blouses. 6206 .10 000 - Of silk or silk waste 20 6206 .20 000 - Of wool or fine animal hair 20 6206 .30 000 - Of cotton 20 6206 .40 000 - Of man-made fibres 20 6206 .90 000 - Of other textile materials 20 62.07 Men’s or boys' singlets and other vests, underpants, briefs, nightshirts, pyjamas, bathrobes, dressing gowns and similar articles. - Underpants and briefs: 6207 .11 000 - - Of cotton 20 6207 .19 000 - - Of other textile materials 20 6207 .21 000 - Nightshirts and pyjamas: - - Of cotton 20 6207 .22 000 - - Of man-made fibres 20 6207 .29 000 - - Of other textile materials 20 - Other: 6207 .91 - - Of cotton: 900 Other 20 6207 .99 000 - - Of other textile materials 20 62.08 Women's or girls' singlets and other vests, slips, petticoats, briefs, panties, nightdresses, pyjamas, negliges, bathrobes, dressing gowns and similar articles. - Slips and petticoats: 6208 .11 000 - - Of man-made fibres 20 APPENDIX A ELIMINATION OF IMPORT DUTY xiv Tariff Code Description Current Rate (%) 6208 .19 000 - - Of other textile materials 20 - Nightdresses and pyjamas: 6208 .21 000 - - Of cotton 20 6208 .22 000 - - Of man-made fibres 20 6208 .29 000 - - Of other textile materials 20 - Other: 6208 .91 000 - - Of cotton 20 6208 .92 000 - - Of man-made fibres 20 6208 .99 000 - - Of other textile materials 20 62.09 Babies' garments and clothing accessories. 6209 .20 000 - - Of cotton 20 6209 .30 000 - - Of synthetic fibres 20 6209 .90 000 - - Of other textile materials 20 62.10 Garments, made up of fabrics of heading 56.02, 56.03, 59.03, 59.06 or 59.07. 6210 .10 000 - Of fabrics heading 56.02 or 56.03 20 6210 .20 000 - Other garments, of the type described in subheadings 6201.11 to 6201.19 20 6210 .30 000 - Other garments, of the type described in subheadings 6202.11 to 6202.19 20 6210 .40 000 - Other men's or boys' garments 20 6210 62.11 .50 000 - Other women's or girls' garments Track suits, ski suits and swimwear; other garments. 20 - Swimwear: 6211 .11 000 - - Men's or boys' 20 6211 .12 000 - - Women's or girls' 20 APPENDIX A ELIMINATION OF IMPORT DUTY xv Tariff Code Description Current Rate (%) 6211 .20 000 - Ski suits 20 - Other garments, men's or boys': 6211 .32 000 - - Of cotton 20 6211 .33 000 - - Of man-made fibres 20 6211 .39 000 - - Of other textile materials 20 - Other garments, women's or girls': 6211 .41 000 - - Of wool or fine animal hair 20 6211 .42 - - Of cotton: 900 Other 20 6211 .43 - - Of man-made fibres: 900 Other 20 6211 .49 - - Of other textile materials: 900 Other 20 62.12 Brassieres, girdles, corsets, brace, suspenders, garters and similar articles and part thereof, whether or not knitted or crocheted. 6212 .10 - Brassieres: 100 Of cotton 20 900 Of other textile materials 20 6212 .20 000 - Girdles and panty-girdles 20 6212 6212 .30 .90 000 100 - Corselettes - Other: Sanitary belts 20 20 900 Other 20 6216 .00 Gloves, mittens and mitts. 100 Of cotton 20 300 Of man-made fibres 20 900 Of other textile materials 20 APPENDIX A ELIMINATION OF IMPORT DUTY xvi Tariff Code Description Current Rate (%) 62.17 Other made up clothing accessories; parts of garments or of clothing accessories, other than those of heading 62.12. 6217 .10 000 - Accessories 20 I.- OTHER MADE UP TEXTILE ARTICLES 63.01 Blankets and traveling rugs. 6301 .10 000 - Electric blankets 25 6301 .20 - Blankets (other than electric blankets) and traveling rugs, of wool or fine animal hair: 100 Knitted or crocheted 20 900 Other 20 6301 .30 - Blankets (other than electric blankets) and traveling rugs, of cotton: 100 Knitted or crocheted 20 900 Other 20 6301 .40 000 - Blankets (other than electric blankets) and traveling rugs, of synthetic fibres 20 6301 .90 000 - Other blankets and traveling rugs 20 63.02 Bed linen, table linen, toilet linen and kitchen linen. 6302 .10 000 - Bed linen, knitted or crocheted 20 - Other bed linen, printed: 6302 .21 000 - - Of cotton 20 6302 .22 000 - - Of man-made fibres 20 6302 .29 000 - - Of other textile materials 20 APPENDIX A ELIMINATION OF IMPORT DUTY xvii Tariff Code Description Current Rate (%) - Other bed linen: 6302 .31 000 - - Of cotton 20 6302 .32 000 - - Of man-made fibres 20 6302 .39 000 - - Of other textile materials 20 6302 .40 000 - Table linen, knitted or crocheted - Other table linen: 20 6302 .51 000 - - Of cotton 20 6302 .53 000 - - Of man-made fibres 20 6302 .59 000 - - Of other textile materials 20 6302 .60 000 - Toilet linen and kitchen linen, of terry towelling or similar terry fabrics, of cotton 20 - Other: 6302 .91 - - Of cotton: 100 Knitted or crocheted 20 900 Other 20 6302 .93 - - Of man-made fibres: 100 Of terry towelling or similar terry fabrics 20 200 Knitted or crocheted 20 300 Of fabrics heading 56.03 20 900 Other 20 6302 .99 - - Of other textile materials: 100 Of terry towelling or similar terry fabrics 20 Knitted or crocheted: 210 of flax 25 290 other 20 900 Other 20 63.03 Curtains (including drapes) and interior blinds; curtain or bed valances. - Knitted or crocheted: 6303 .12 000 - - Of synthetic fibres 20 APPENDIX A ELIMINATION OF IMPORT DUTY xviii Tariff Code Description Current Rate (%) 6303 .19 000 - - Of other textile materials 20 6303 .91 000 - Other: - - Of cotton 20 6303 .92 000 - - Of synthetic fibres 20 6303 .99 000 - - Of other textile materials 20 63.04 Other furnishing articles, excluding those of heading 94.04. - Bedspreads: 6304 .11 000 - - Knitted or crocheted 20 6304 .19 - - Other: 100 Of terry towelling or similar terry fabrics 20 200 Of fabrics of heading 56.03 20 900 Other 20 - Other: 6304 .91 000 - - Knitted or crocheted 20 6304 .92 - - Not knitted or crocheted, of cotton: 100 Mosquito nets 20 900 Other 20 6304 .93 - - Not knitted or crocheted, of synthetic fibres: 100 Mosquito nets 20 900 Other 20 6304 .99 - - Not knitted or crocheted, of other textile materials: 100 Mosquito nets 20 900 Other 20 63.07 Other made up articles, including dress patterns. APPENDIX A ELIMINATION OF IMPORT DUTY xix Tariff Code Description Current Rate (%) 6307 .90 - Other: 200 Laces for shoes, boots, corsets and the like 20 400 Fans and hand screen 5 II.- SETS 6308 .00 000 Sets consisting of woven fabric and yarn, whether or not with accessories, for making up into rugs, tapestries, embroidered table cloths or serviettes, or similar textile articles, put up in packings for retail sale. 20 64.01 Waterproof footwear with outer soles and uppers of rubber or of plastics, the uppers of which are neither fixed to the sole nor assembled by stitching, riveting, nailing, screwing, plugging or similar processes. 6401 .10 000 - Footwear incorporating a protective metal toe- cap 30 - Other footwear: 6401 .92 000 - - Covering the ankle but not covering the knee 30 6401 .99 000 - - Other 30 64.02 Other footwear with outer soles and uppers of rubber or plastics. - Sports footwear: 6402 .19 000 - - Other 30 6402 .20 000 - Footwear with upper straps or thongs assembled to the sole by means of plugs 30 - Other footwear: 6402 .91 000 - - Covering the ankle 30 6402 .99 000 - - Other 30 APPENDIX A ELIMINATION OF IMPORT DUTY xx Tariff Code Description Current Rate (%) 64.03 Footwear with outer soles of rubber, plastics, leather of composition leather and uppers of leather. - Sports footwear: 6403 .19 - - Other: 900 Other 30 6403 .40 000 - Other footwear, incorporating a protective metal toe-cap 30 - Other footwear: 6403 .91 - - Covering the ankle: 100 Footwear made on a base or platform of wood, not having an inner sole or a 30 protective metal toe-cap 6403 .99 - - Other: 100 Footwear made on a base or platform of wood, not having an inner sole or a 30 protective metal toe-cap 64.04 Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials. - Footwear with outer soles of rubber or plastics: 6404 .11 000 - - Sports footwear, tennis shoes, basketball shoes, gym shoes, training shoes and 25 the like 6404 .19 000 - - Other 30 6404 .20 000 - Footwear with outer soles of leather or composition leather 15 APPENDIX A ELIMINATION OF IMPORT DUTY xxi Tariff Code Description Current Rate (%) 6501 .00 000 Hat-forms, hat bodies and hoods of felt, neither blocked to shape nor with made brims; plateaux and manchons (including slit manchons), of felt. 20 6502 .00 000 Hat-shapes, plaited or made by assembling strips of any material, neither blocked to shape, nor with made brims, nor lined, nor trimmed. 20 6504 .00 000 Hats and other headgear, plaited or made by assembling strips of any material, whether or not trimmed. 20 65.05 Hats and other headgear, knitted or crocheted, or made up from lace, felt or other textile fabric, in the piece (but not in strips), whether or not lined or trimmed; hair-nets of any material, whether or not lined or trimmed. 6505 .10 000 - Hair-nets 20 6505 .90 - Other: 200 Felt hats and other felt headgear, made from the hat bodies, hoods or plateaux of heading 65.01, whether or not lined or trimmed 20 900 Other 20 65.06 Other headgear, whether or not lined or trimmed. 6506 .10 000 - Safety headgear 20 - Other: 6506 .91 - - Of rubber or of plastics: 100 Swimming caps 20 900 Other 20 APPENDIX A ELIMINATION OF IMPORT DUTY xxii Tariff Code Description Current Rate (%) 6506 .99 000 - - Of other materials 20 6507 .00 000 Head-bands, linings, covers, hat foundations, hat frames, peaks and chinstraps, for headgear. 20 III.- JEWELLERY, GOLDSMITHS' AND SILVERSMITHS' WARES AND OTHER ARTICLES 71.13 Articles or jewellery and parts thereof, of precious metal or of metal clad with precious metal. - Of precious metal whether or not plated or clad with precious metal: 7113 .11 000 - - Of silver, whether or not plated or clad with other precious metal 10 7113 .19 000 - - Of other precious metal, whether or not plated or clad with precious metal 10 7113 .20 000 - Of base metal clad with precious metal 10 71.14 Articles of goldsmiths' or silversmiths' wares and parts thereof, of precious metal or of metal clad with precious metal. - Of precious metal whether or not plated or clad with precious metal: 7114 .11 000 - - Of silver, whether or not plated or clad with other precious metal 10 7114 .19 000 - - Of other precious metal, whether or not plated or clad with precious metal 10 7114 .20 000 - Of base metal clad with precious metal 10 71.16 Articles of natural or cultured pearls, precious or semi-precious stones (natural, synthetic or reconstructed). APPENDIX A ELIMINATION OF IMPORT DUTY xxiii Tariff Code Description Current Rate (%) 7116 .10 000 - Of natural or cultured pearls 10 7116 .20 000 - Of precious or semi-precious stones (natural, synthetic or reconstructed) 10 71.17 Imitation jewellery. - Of base metal, whether or not plated with precious metal: 7117 .11 000 - - Cuff-links and studs 5 7117 .19 000 - - Other 10 7117 .90 - Other: Cuff-links and studs: 190 of other materials 5 Other: of single material: 912 of woods 5 913 of porcelain or china 20 915 of worked tortoise shell, ivory, bone, horn, coral, mother of 5 pearl and other animal carving material 916 of worked vegetable or mineral carving material 5 990 other 10 9503 .00 Tricycles, scooters, pedal cars and similar wheeled toys; dolls’ carriages; dolls; other toys; reduced-size (“scale”) models and similar recreational models, working or not; puzzles of all kinds. 300 Dolls including parts and accessories 5 400 Reduced-size (“scale”) models and similar recreational models, working 5 or not; puzzles of all kinds APPENDIX A ELIMINATION OF IMPORT DUTY xxiv Tariff Code Description Current Rate (%) 500 Other toys 5 Parts: 910 for subheading 9503.00 100 20 for subheading 9503.00 200: 991 spokes and nipples 20 999 other 5 95.05 Festive, carnival or other entertainment articles, including conjuring tricks and novelty jokes. 9505 .10 000 - Articles for Christmas festivities 5 9505 .90 000 - Other 5 95.06 Articles and equipment for general physical exercise gymnastics, athletics, other sports (including table-tennis) or out-door games, not specified or included elsewhere in this Chapter; swimming pools and paddling pools. - Golf clubs and other golf equipment: 9506 .32 000 - - Balls 10 9506 .40 - Articles and equipment for table-tennis: 100 Tables 20 APPENDIX 9 EXTENSION OF APPLICATION PERIOD FOR TAX INCENTIVE FOR LAST MILE NETWORK FACILITIES PROVIDER FOR BROADBAND Present Position Companies investing in last mile broadband infrastructure are given the following tax incentives: i. Income tax exemption equivalent to 100% of the qualifying capital expenditure incurred for broadband infrastructure for the period of 5 years. The allowance to be set off against 70% of statutory income for each year of assessment. The implementation of this exemption is similar to the Investment Allowance under Schedule 7B Income Tax Act 1967; and ii. Import duty and sales tax exemption on broadband equipment and consumer access devices which are basic in providing the broadband services and not produced locally. The above incentives are given for applications received until 31 December 2010. For incentive (i), application to be submitted to Ministry of Finance. For incentive (ii), application to be submitted to the Malaysian Industrial Development Authority (MIDA). Proposal To further encourage investments in broadband services infrastructures for continuous growth, it is proposed the application period for tax incentives to companies that invest in last mile infrastructure be extended for another 2 years. Effective Date Application received from 1 January 2011 until 31 December 2012. 13 APPENDIX 10 EXEMPTION OF SALES TAX ON MOBILE PHONES Present Position Ordinary mobile phones are subject to sales tax of 10% whereas Personal Digital Assistant (PDA) with Global System Mobile (GSM) which may function as a mobile phone is given sales tax exemption under the Sales Tax (Exemption) Order 2008. Therefore, sales tax treatment on mobile phones and that of other equipment which may function as mobile phones such as PDA with GSM is not the same. Proposal To harmonize tax treatment on PDA with GSM and ordinary mobile phones, it is proposed that mobile phones be exempted from sales tax. Effective Date Effective from 4.00 pm, 15 October 2010. 14 15 APPENDIX 11 EXCISE DUTY EXEMPTION ON NATIONAL VEHICLES FOR DISABLED PERSONS Present Position A disabled person is given exemption of excise duty of 50% on the purchase of a national vehicle. The exemption is given for a disabled person with certain physical disabilities, namely handicapped limbs. The criteria to apply for the exemption are as follows: i. The applicant must be registered as a disabled person and possess a Registration Certificate from the Social Welfare Department; ii. The applicant must have a valid driving license; iii. The vehicle bought must be from the stock of unpaid duty and tax; iv. The vehicle should not be sold or its ownership transferred until the expiry of 5 years except with a written approval from the Treasury; and v. The exemption is given only for one vehicle within a period of 5 years. This exemption is given from 28 October 2000. Proposal To reduce the financial burden of the physically disabled persons who wish to own vehicles to facilitate their mobility, it is proposed that 100% exemption of excise duty be given on national vehicles purchased by physically disabled persons subject to the existing conditions stipulated above. The exemption is also extended to disabled persons who have hearing and speaking disabilities. Effective Date For applications received by the Ministry of Finance from 18 October 2010. APPENDIX 12 TAX RELIEF ON MEDICAL EXPENSES AND CARE FOR PARENTS Present Position Tax relief of up to RM5,000 is claimable by individual taxpayers on medical expenses for parents limited to the following: i. treatment in clinics and hospitals; ii. treatment in nursing homes; and iii. dental treatment excluding cosmetic dental treatment. Proposal To reduce the cost of financing expenses on medical treatment and care for parents, it is proposed that the existing tax relief be extended to include expenses to care for parents. Such expenses relating to the care are for parents who suffer from diseases or with physical or mental disabilities and who need regular treatment certified by a qualified medical practitioner. Such treatment and care provided include treatment and care at home, day care centres or home care centres. Qualifying expenses related to the treatment and cares are as follows: i. treatment and medical expenses supported with receipts issued by registered medical centres, pharmacies or licensed medical stores; or ii. expenses for the care of parents supported with receipts or written certification by carers (does not include the tax payer claiming the relief, the spouse and the children) certifying that the care was provided and the total payment involved. Foreign hired carers are required to posses valid visa/special work permit for the care of parents of taxpayers; or iii. expenses on special needs for parents certified by qualified medical practitioner and supported by receipts as proof purchase. Effective Date Commencing from year of assessment 2011. 16 APPENDIX 13 STAMP DUTY EXEMPTION ON INSTRUMENTS OF TRANSFER OF RESIDENTIAL PROPERTY Present Position Stamp duty rates on instruments of transfer of property including residential property are as follows: Value of Property Stamp Duty Rate For Every RM100 Or Part Thereof First RM100,000 RM1.00 > RM100,000 to ≤ RM500,000 RM2.00 >RM500,000 RM3.00 Instruments of transfer of a residential property priced not exceeding RM250,000 are given stamp duty exemption of 50%. The exemption is granted on one residential property for each individual Malaysian citizen. The exemption is effective for sales and purchase agreements executed from 8 September 2007 to 31 December 2010. Proposal The Government’s aspiration is to ensure every citizen owns a residential property. For this purpose, the cost of ownership especially for the first residential property ought to be reduced. To encourage ownership of the first residential property, it is proposed that stamp duty exemption of 50% be given on instruments of transfer of a residential property priced not exceeding RM350,000. The exemption is granted on the first residential property purchased by a Malaysian citizen and eligible to be claimed once only within the exemption period. The first residential property means a situation whereby an individual does not own any residential property (or does not own a part of a residential property in the case of joint ownership) in his name at the time he applies for the 50% stamp duty exemption for residential property priced not exceeding RM350,000. Residential property includes a terrace house, condominium, apartment or flat. Effective Date For sales and purchase agreements executed from 1 January 2011 to 31 December 2012. 17 APPENDIX 14 STAMP DUTY EXEMPTION ON LOAN AGREEMENTS FOR RESIDENTIAL PROPERTY Present Position Stamp duty rate on loan agreement instruments for residential property is at 0.5% of the loan value. Loan agreement instruments for residential properties priced not exceeding RM250,000 are given stamp duty exemption of 50%. The exemption is granted for the purchase of one residential property for each individual Malaysian citizen. The exemption is effective for sales and purchase agreements executed from 30 August 2008 to 31 December 2010. Proposal In line with the Government’s aspiration to ensure that every citizen affords to own a residential property and to reduce the cost of ownership of the first residential property, it is proposed that stamp duty exemption of 50% be given on loan agreement instruments for a residential property priced not exceeding RM350,000. Such loan agreements are made between purchaser with the bank, financial institutions, insurance companies, cooperatives or employer under the employee housing loan scheme. The exemption is granted on the first residential property purchased by a Malaysian citizen and eligible to be claimed once only within the exemption period. The first residential property means a situation whereby an individual does not own any residential property (or does not own a part of a residential property in the case of joint ownership) in his name at the time he applies for the 50% stamp duty exemption for residential property priced not exceeding RM350,000. Residential property includes a terrace house, condominium, apartment or flat. Effective Date For sales and purchase agreements executed from 1 January 2011 to 31 December 2012. 18 APPENDIX 15 REVIEW OF SERVICE TAX RATE Present Position Service tax is charged by service providers at the rate of 5% on all taxable services. This rate is not applicable to credit cards whereby service tax is charged at specific rates of RM50 per year on principal cards and RM25 per year on supplementary cards. Proposal To review the existing rate of service tax and generate additional tax revenue for national development, it is proposed that the rate of service tax on all taxable services be increased from 5% to 6%. Effective Date Commencing from 1 January 2011. 19 20 APPENDIX 16 SERVICE TAX ON PAID BROADCASTING SERVICES Present Position Service tax is charged on all telecommunication services such as telephone, facsimile, leased line, and bandwidth effective from 1 January 2001. Telecommunication services adopting satellite applications such as paid television broadcasting services are not subject to service tax. Proposal To widen the tax base, it is proposed that service tax of 6% be imposed on paid television broadcasting services. This service tax is charged on the monthly subscription fees on paid television broadcasting services. Effective Date Commencing from 1 January 2011. Present Position Present Position Present Position Proposal Present Position Proposal TABLE OF CONTENTS TABLE OF CONTENTS PART 1: OVERVIEW .................................................................................................................1 1. Introduction............................................................................................................................ 1 2. Objectives .............................................................................................................................. 2 3. Scope of Application ............................................................................................................ 2 4. Legal Provision...................................................................................................................... 3 5. Effective Date & Compliance Deadline ............................................................................. 3 6. Approach................................................................................................................................ 4 PART 2: SHARIAH GOVERNANCE ARRANGEMENTS ................................................... 5 SECTION I: General Requirements of the Shariah Governance Framework ..............5 - 9 SECTION II: Oversight, Accountability & Responsibility............................................. 10 - 14 SECTION III: Independence............................................................................................ 15 - 16 SECTION IV: Competency .............................................................................................. 17 - 18 SECTION V: Confidentiality & Consistency.................................................................. 19 - 21 SECTION VI: Shariah Compliance & Research Functions ................................................22 (i) Shariah Review............................................................................................................. 22 - 23 (ii) Shariah Audit ................................................................................................................ 23 - 25 (iii) Shariah Risk Management........................................................................................ 25 - 26 (iv) Shariah Research....................................................................................................... 26 - 27 APPENDICES ...........................................................................................................................28 Appendix 1: List of Related Guidelines..................................................................................28 Appendix 2: ‘Fit & Proper’ Criteria (person) of the Shariah Committee.................... 29 - 32 Appendix 3: Shariah Committee’s Report .............................................................................33 Appendix 4: Duties, Responsibilities & Accountability of the Shariah Committee.. 34 - 35 Appendix 5: Operation Procedures for the Shariah Committee ................................ 36 - 37 Appendix 6: Secretariat of the Shariah Advisory Council (SAC) ....................................... 38 Appendix 7: Product Development Process ................................................................. 39 - 40 Appendix 8: Application Form of the Shariah Committee........................................... 41 - 48 BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 1/48 PART 1: OVERVIEW 1. Introduction 1.1 Shariah principles are the foundation for the practice of Islamic finance through the observance of the tenets, conditions and principles espoused by Shariah. Comprehensive compliance with Shariah principles would bring confidence to the general public and the financial markets on the credibility of Islamic finance operations. 1.2 Bank Negara Malaysia (the Bank) places great importance in ensuring that the overall Islamic financial system operates in accordance with Shariah principles. This is to be achieved through the two-tier Shariah governance infrastructure comprising two (2) vital components, which are a centralised Shariah advisory body at the Bank and an internal Shariah Committee formed in each respective Islamic financial institution (IFI). 1.3 The Shariah Advisory Council of Bank Negara Malaysia (SAC) is a body established under section 51 of the Central Bank of Malaysia Act 2009 that has positioned the SAC as the apex authority for the determination of Islamic law for the purposes of Islamic financial business. The mandates of the SAC, among others, are to ascertain the relevant Islamic law on any financial matter and issue a ruling upon reference made to it, as well as to advise the Bank and the IFI concerned on any Shariah issues relating to Islamic financial business operations, activities or transactions. 1.4 At the industry level, the duties and responsibilities of the internal Shariah Committee in advising the respective IFIs on Shariah matters were further deliberated in the Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions issued in 2004. T h e g uidelines are now superseded in light of new developments in Islamic finance as well as higher expectation of the key stakeholders of the IFI pertaining to the Shariah compliance process. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 2/48 1.5 The Bank has developed the Shariah governance framework for IFIs with the primary objective of enhancing the role of the board, the Shariah Committee and the management in relation to Shariah matters, including enhancing the relevant key organs having the responsibility to execute t h e Shariah compliance and research functions aimed at the attainment of a Shariah- based operating environment. 2. Objectives 2.1 The Shariah Governance Framework for the Islamic Financial Institutions (the Framework) is designed to meet the following objectives: (i) sets out the expectations of the Bank on an IFI’s Shariah governance structures, processes and arrangements to ensure that all its operations and business activities are in accordance with Shariah; (ii) provides a comprehensive guidance to the board, Shariah Committee and management of the IFI in discharging its duties in matters relating to Shariah; and (iii) outlines the functions relating to Shariah review, Shariah audit, Shariah risk management and Shariah research. 3. Scope of Application 3.1 The Framework shall be applicable to all IFIs regulated and supervised by the Bank. Any reference to ‘IFI’ for the purpose of the Framework means: (i) an Islamic bank licensed under Islamic Banking Act 1983 (IBA); (ii) a takaful and retakaful operator registered under the Takaful Act 1984 (TA); (iii) a financial institution licensed under the Banking and Financial Institutions Act 1989 (BAFIA) that participates in the Islamic Banking Scheme; and BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 3/48 (iv) a development financial institution prescribed under the Development Financial Institutions Act 2002 (DFIA) that participates in the Islamic Banking Scheme. 4. Legal Provision 4.1 The Framework is issued pursuant to section 59 of the Central Bank of Malaysia Act 2009, section 53A of the IBA, section 69 of the TA, section 126 of the BAFIA and section 126 of the DFIA. 4.2 The Framework shall be read together with the related guidelines listed, but not limited to, as per Appendix 1. 5. Effective Date & Compliance Deadline 5.1 The Framework shall take effect starting 1 January 2011. 5.2 The IFI shall be given six (6) months from the effective date of the Framework to comply with all the requirements. Subsequently, each IFI is required to confirm the status of compliance with the Framework at the end of the six (6) month period. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 4/48 6. Approach 6.1 The Framework is divided into six (6) sections: Section I General requirements of the Shariah governance framework This section outlines the general requirements of the Shariah governance framework, which describes the essential key functions or key organs1. Section II Oversight, accountability & responsibility This section outlines the level of accountability and responsibility expected of the board of directors, Shariah Committee and management of an IFI. Section III Independence This section aims to safeguard the independence of the Shariah Committee in ensuring sound Shariah decision-making and emphasis on the role of the board of directors in recognising the independence of the Shariah Committee. Section IV Competency This section highlights requirements and expected competencies to ensure key functions are capable of implementing Shariah governance. Section V Confidentiality & consistency This section outlines the minimum set of rules that emphasises the importance of observing and preserving confidentiality, and improving the level of consistency in decision-making by the Shariah Committee. Section VI Shariah compliance & research functions This section prescribes the functions of the internal Shariah review, Shariah audit, Shariah risk management and Shariah research. 1 For the purposes of this Framework, key functions or key organs refer to the functions in implementing Shariah governance at the IFI, i.e. the board, Shariah Committee, management and Shariah compliance and research functions. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 5/48 PART 2: SHARIAH GOVERNANCE ARRANGEMENTS SECTION I: General Requirements of the Shariah Governance Framework Principle 1: It is the duty and responsibility of an IFI to establish a sound and robust Shariah governance framework with emphasis placed on the roles o f key functionalities in ensuring effective implementation of the Shariah governance framework. 1.1 An IFI carrying out Islamic financial business shall ensure that the aims and operations of its business are in compliance with Shariah principles at all times. An end-to-end Shariah compliant2 control mechanism shal l be established in all aspects of its business operations to ensure that all activities are Shariah compliant. 1.2 A sound and robust Shariah governance framework is reflected by effective and responsible board and management, an independent Shariah Committee that is both competent and accountable, supported by a strong internal Shariah research capacity, and monitored through active Shariah review, Shariah audit and Shariah risk management process. 1.3 The Shariah governance framework of an IFI shall, at the minimum, comprise the following: (i) the board oversight on Shariah compliance aspects of the IFI’s overall operations. The board is ultimately responsible for the establishment of an appropriate Shariah governance framework of an IFI. In setting up the Shariah governance framework, the board is expected to understand the Shariah non-compliance risks3 associated with Islamic 2 Shariah compliant refers to compliance to Shariah rulings and decisions issued by the SAC and Shariah Committee of the IFI respectively, and as determined by other relevant bodies. 3 Shariah non-compliance risks refer to possible failures to meet the obligation to Shariah principles or in other words, possible incidences of Shariah non-compliances. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 6/48 finance business and the issues relating to such risks, as well as the potential implications to the institution; (ii) a Shariah Committee w i th qualified members who are able to deliberate Islamic finance issues brought before them and provide sound Shariah decisions. In this regard, every IFI is required to establish a Shariah Committee of which the majority shall comprise persons with appropriate qualifications and experience in Shariah; (iii) effective management responsibilities in providing adequate resources and capable manpower support to every function involved in the implementation of Shariah governance, in order to ensure that the execution of business operations are in accordance with the Shariah; (iv) an internal Shariah review that is conducted on a continuous basis, which is a review of processes and deliverables, as well as determining that such processes and outcomes satisfy the needs of the Shariah; (v) a regular Shariah audit, at least on an annual basis, verifying that the IFI’s key functions and business operations comply with Shariah; (vi) a Shariah risk management process to identify all possible Shariah non-compliance risks and, where appropriate, remedial measures that need to be taken to reduce the risk; (vii) an internal Shariah research team to conduct research on Shariah; and (viii) issuance and dissemination of Shariah decisions to the relevant stakeholders4. 1.4 The IFI’s governance framework shall be translated through a set of policies and procedures that further explains the structure, roles, responsibilities, accountabilities, and the scope of duties of the various functions within the IFI. 4 Relevant stakeholders refer to internal and external stakeholders. Internal stakeholders may refer to the shareholders, the board members, the management of IFI and the staff. External stakeholders may refer to existing customers of the IFI. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 7/48 The IFI’s policies and procedures shall also describe the communication arrangements among the various functions. 1.5 The Shariah compliance policies and procedures shall also define the course or method of action(s) an IFI should take to meet the desired objectives and outcomes, including how Shariah Committee meetings shall be conducted, how decisions are made and recorded, and how reports shall be prepared and submitted. 1.6 The IFI shall establish formal reporting channel(s) among the key functions to ensure that the reporting on Shariah matters is carried out effectively and on timely manner. In this regard, the Shariah Committee shall functionally report to the board of directors. The Shariah review function shall report concurrently to the Shariah Committee and management, and the Shariah audit findings shall be reported to the Board Audit Committee and Shariah Committee. All Shariah non-compliance events are to be reported to the board of the IFI and the Bank. 1.7 Figure 1 illustrates a model structure of roles, functions and reporting relationships of key organs in the IFI’s Shariah governance framework. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 8/48 Figure 1: Shariah Governance Framework Model for Islamic Financial Institutions 1.8 The need to establish Shariah compliance and research functions within the organisation will depend on the size, complexity and nature of the business operations of the institution. Smaller, less complex institutions5 may resort to other alternatives or means, e.g. outsourcing, subject to the approval of the Bank. In this regard, the institution shall apply to the Bank and provide an alternative structure, and the manner in which these key functions will be carried out. Any approval given by the Bank shall be an interim approval for a term not exceeding three (3) years, and may be subject to review from time to time. However, the accountability to ensure Shariah compliance shall remain with the IFI’s board. The entity may apply for a fresh application two (2) months before the expiry of the interim approval. 5 Refers strictly to International Islamic Bank, International Takaful Operator, International Currency Business Unit and Islamic windows for banking institutions. Shariah as overarching principle in Islamic finance BOARD AUDIT COMMITTEE BOARD RISK MANAGEMENT COMMITTEE Shariah Risk Management Control Function Identify, measure, monitor, report & control Shariah non-compliance risk SHARIAH COMMITTEE Oversight accountability on Shariah related matters Shariah Research Function Conduct in-depth Shariah research prior to submission to the Shariah Committee BOARD Overall oversight on Shariah governance structure & Shariah compliance MANAGEMENT § Ensure executions of business & operations are in accordance with Shariah principles § Provide necessary support to the Shariah Committee Shariah Audit Function Provide independent assessment & objective assurance designed to value add & improve IFI’s compliance with Shariah Shariah Compliance and Research Functions Shariah Review Function Review business operations on regular basis to ensure Shariah compliance BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 9/48 Shariah Committee within a Financial Group 1.9 A financial group is allowed to establish a single Shariah Committee to serve the entire group. Given that the establishment of the Shariah Committee is a statutory requirement under IBA and TA, each licensed institutions within the financial group may apply for an exemption from the Bank if the financial group wishes t o establish a single Shariah Committee to serve the whole group. An exemption shall only be granted to the IFI if the Bank is satisfied that the group Shariah Committee is able to demonstrate that it is sufficiently capable of serving the needs of the whole financial group. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 10/48 SECTION II: Oversight, Accountability & Responsibility Principle 2: An IFI shall set out the accountability and responsibility of every key functionary involved in the implementation of Shariah governance framework. Board of Directors 2.1 The board is ultimately accountable and responsible on the overall Shariah governance framework and Shariah compliance of the IFI, by putting in place the appropriate mechanism to discharge the aforementioned responsibilities. The board is also expected to perform diligent oversight over the effective functioning of the IFI’s Shariah governance framework and ensure that the framework commensurates with the size, complexity and nature of its business. 2.2 The board, upon consultation with the Shariah Committee shall approve all policies relating to Shariah matters and is expected to ensure that such policies are implemented effectively. 2.3 The Shariah Committee members shall be appointed by the board upon the recommendation of its Nomination Committee. The number of Shariah Committee members to be appointed must not be less than five (5), the majority of whom must possess strong knowledge in Shariah and backed by the appropriate qualifications in that area.6 The board must ensure that the Shariah Committee members are aware of their fiduciary responsibilities in discharging their duties. 2.4 The board may consider appointing at least one (1) member of the Shariah Committee as a member of the board that could serve as a ‘bridge’ between the board and the Shariah Committee. The presence of a director with sound Shariah knowledge would foster greater understanding and appreciation 6 Refer to Appendix 2 on the appointment and qualifications of the Shariah Committee members. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 11/48 amongst the board members on the decisions made by the Shariah Committee. 2.5 The board must ensure that an effective communication policy among the key functions of the IFI is in place to facilitate smooth escalation of material matters relating to Shariah to the board. The communication policy should also ensure that staff in the IFI is fully aware on the need to observe the Shariah requirements at all times. 2.6 The board shall remunerate the Shariah Committee members appropriately as advised by its Remuneration Committee. Such remuneration shall reflect, and be commensurate with, the accountability, duties and responsibilities of the Shariah Committee. Shariah Committee 2.7 The Shariah Committee shall be responsible and accountable for all its decisions, views and opinions related to Shariah matters. While the board bears the ultimate responsibility and accountability on the overall governance of the IFI, the board is expected to rely on the Shariah Committee on all Shariah decisions, views and opinions relating to the business of the IFI. As the Shariah decisions, views and opinions bind the operations of the IFI, the Shariah Committee is expected to rigorously deliberate the issues at hand before arriving at any decisions. 2.8 The Shariah Committee is expected to perform an oversight role on Shariah matters related to the institution’s business operations and activities. This shall be achieved through the Shariah review and the Shariah audit functions. Regular Shariah review reports and the Shariah audit observations should enable the Shariah Committee to identify issues that require its attention and where appropriate, to propose corrective measures. 2.9 In discharging its duties, the Shariah Committee is expected to disclose sufficient information in the IFI’s annual financial report on the state of BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 12/48 compliance of the IFI7, as per the requirements under the Guidelines on Financial Reporting for Licensed Islamic Banks (GP8-i) and Guidelines on Financial Statements for Takaful Operators (GPT6). 2.10 Further requirements on the duties and responsibi l i t ies of the Shariah Committee and the operation procedures for the Shariah Committee are detailed out in Appendix 4 and Appendix 5 respectively. Management 2.11 The management shal l be responsible for observing and implementing Shariah rulings and decisions made by the SAC and the Shariah Committee respectively. The management is also responsible to identify and refer any Shariah issues to the Shariah Committee for decisions, views and opinions. 2.12 Given that the accountability of Shariah decisions rests with the Shariah Committee, the management is expected to provide information and disclosure which are complete and accurate to the Shariah Committee in a timely manner, and shall be transparent on any areas that need clarification by the Shariah Committee to enable the Shariah Committee to discharge its duties effectively. 2.13 It is the responsibility of management to allocate adequate resources and manpower to support the Shariah governance framework that commensurates with the size, complexity and nature of the IFI’s business. The infrastructure and resources to be provided shall include, among others, budget allocation, reference and research materials, trainings and development, etc. 2.14 The management is responsible to provide continuous learning and training programs to the key internal stakeholders including the board, the Shariah Committee, and the relevant staff in Shariah and finance matters. This is to ensure that every function in the Shariah governance framework is sufficiently exposed to current developments in Shariah related matters. 7 The example of minimum annual disclosure is given in Appendix 3. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 13/48 2.15 It is the responsibility of the management to develop and adopt a holistic culture of Shariah compliance within the organisation. A holistic culture of Shariah compliance refers to the way in which the IFI complies with Shariah principles in its overall Islamic financial business operations. For example, the management should regularly remind the frontline staff on the importance of Shariah and the impact to the IFI if Shariah principles and practices are not observed, and to always place the Shariah as the overarching requirement in the formulation of any procedures and activities relating to Islamic financial business carried out by the IFI. In addition, all relevant staff are expected to be conversant on Islamic products offered by the IFI, as well as the underlying Shariah concepts and the similarities and differences with conventional products and concepts. 2.16 The management must ensure that Shariah policies and procedures are accessible at all times to those involved in the implementation of Shariah governance and the Shariah policies and procedures shall provide clarification on matters related to the end-to-end process of Shariah governance in the IFI. The management shall also be responsible in ensuring that the operations are executed according to the policies and procedures, and to constantly review and update the policies and procedures to reflect current market practices and developments. 2.17 In the event the management becomes aware that certain operations are found to be carrying out business(es) which is(are) not in compliance with Shariah, or against the advice of its Shariah Committee or the rulings of the SAC, the management shall: (i) immediately notify the board and Shariah Committee as well as the Bank of the fact; (ii) immediately cease to take on any new business related to the Shariah non-compliant business; and BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 14/48 (iii) within thirty (30) days of becoming aware of such non-compliance or such further period as may be permitted by the Bank, furnish a plan to rectify the s tate of non-compliance with the Shariah, to be duly approved by the board and endorsed by the Shariah Committee. 2.18 In cases where the Bank has reason to believe that an IFI is carrying on operations that are non-compliant with Shariah, the Bank may direct and require rectification measures to be instituted by the IFI. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 15/48 SECTION III: Independence Principle 3: Independence of the Shariah Committee shall be observed at all times in exercising their duties to make objective and informed judgment. 3.1 The board shall recognise the independence of the Shariah Committee and ensure that the committee is free from any undue influence that would hamper the Shariah Committee from exercising objective judgment in deliberating issues brought before them. Correspondingly, the Shariah Committee is expected to make sound decisions on Shariah matters in an independent and objective manner. 3.2 The Shariah Committee shall report directly to the board and regularly inform the board on relevant Shariah matters. 3.3 The board shall ensure that decisions made by the Shariah Committee are duly observed and implemented by the IFI. Decisions made by the Shariah Committee should not be set aside or modified without its consent. 3.4 The Shariah Committee shall have access to accurate, timely and complete information from the management. If the information provided is insufficient, the Shariah Committee may request for additional information which shall be duly provided by the management. 3.5 In the event where the Shariah Committee is not provided with the required information, the board shall be informed of the fact and appropriate action shall be taken to rectify the situation. Where appropriate, the board shall consider taking the necessary punitive measures against parties who intentionally failed to extend the required information. 3.6 Where the Shariah Committee has reason to believe that the IFI has been carrying on Shariah non-compliant activities, the Shariah Committee shall inform the board and to recommend suitable measures to rectify the situation. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 16/48 3.7 In cases where Shariah non-compliant activities are not effectively or adequately addressed or no rectification measures are made by the IFI, the Shariah Committee shall inform the Bank of the fact. 3.8 All appointment including reappointment, resignation and removal of the Shariah Committee members shall be made by the board, subject to the approval by the Bank and the SAC. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 17/48 SECTION IV: Competency Principle 4: Any person bearing responsibilities outlined in the Shariah governance framework for a n I F I shall possess the necessary competency and continuously enhance their knowledge and understanding on the Shariah as well as keep abreast on the latest developments in Islamic finance. 4.1 The board and management are expected to have reasonable understanding on the principles of the Shariah and its broad application in Islamic finance. The Shariah Committee is expected to have sufficient knowledge on finance in general, and Islamic finance in particular, to enable the Shariah Committee to comprehend Shariah issues brought before them. The Shariah Committee members are expected to constantly equip themselves with relevant knowledge on Shariah and finance as well as attend relevant training programs. 4.2 The IFI shall develop a set of fit and proper criteria for the appointment of any Shariah Committee member, using the minimum criteria set by the Bank8 as a base to ensure that only competent persons are appointed as Shariah Committee members. The competency and credibility of the Shariah Committee members provide the assurance that the IFI’s operations are being monitored by a credible and competent committee. The Bank may prescribe other criteria or requirements in addition to those set by the IFI, as and when the Bank considers it necessary. 4.3 The IFI shall engage other professionals such as lawyers, accountants and economists to provide appropriate assistance and advice to the Shariah Committee, especially regarding issues on law and finance. 8 Refer to Appendix 2 on ‘Fit & Proper’ Criteria (person) of the Shariah Committee set by Bank Negara Malaysia. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 18/48 4.4 The IFI is required to adopt a formal process of assessing the performance of the Shariah Committee members. The assessment9 should be designed to evaluate individual performance based on the competence, knowledge, contribution and overall effectiveness of the Shariah Committee members on Shariah deliberations. The process should also identify relevant gaps to enable proper training and exposure for the Shariah Committee members. 4.5 The IFI should develop a succession planning program for the Shariah Committee members by identifying, hiring and nurturing new members with the view to entrusting them with greater responsibilities as and when appropriate. 9 The assessment shall be undertaken by the appropriate committee in the IFI that has been established for similar function by the board. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 19/48 SECTION V: Confidentiality & Consistency Principle 5: Internal and privileged information obtained by the Shariah Committee members in the course of their duties shall be kept confidential at all times and shall not be misused. 5.1 The Shariah Committee shall be given the necessary access to files, records, draft materials and conversations, including those categorised as confidential, so long as the information is related to the work undertaken by the committee. The relevant information must be that which is critical for the Shariah Committee to form its decisions, views and opinions on matters brought to its attention. In this regard, it is the responsibility of the individual Shariah Committee to observe the principle of confidentiality at all times. Confidential or sensitive information obtained by any member of the Shariah Committee while serving his or her duties shall not be used in any manner that could be detrimental to the IFI. 5.2 Confidential information is information received by members of the Shariah Committee that is not public in nature and has not been authorised to be made public. Confidential information includes, but is not limited to, the following: (i) information on the development of new products and services; (ii) decisions of the board or management; (iii) internal memorandums or reports prepared in connection with matters presented, or to be presented to the Shariah Committee; (iv) the content or occurrence of conversations among members of the Shariah Committee concerning matters deliberated in the meeting and representatives of the IFI; BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 20/48 (v) the progress status on a business transaction or action that has not been made public; (vi) views expressed by various parties in the course of discussions on a particular matter deliberated by the Shariah Committee; and (vii) any subject matter that the IFI has indicated should not be revealed, such as internal policies and procedures. 5.3 Notwithstanding the above, the Shariah Committee will not be regarded as breaching the confidentiality and secrecy code if the sensitive information were disclosed to the Bank in good faith when reporting serious breaches of Shariah by the IFI. 5.4 IFI shall not appoint any member of its Shariah Committee from a Shariah Committee of another IFI within the same industry10. This is to ensure that the committee member would be more focused, avoiding conflict of interest and maintaining the confidentiality of information. Principle 6: Professional ethics, judgment and consistency shall be maintained in ensuring Shariah compliance. 6.1 In ensuring the quality and consistency of the Shariah decisions, the Shariah Committee is expected to develop a structured process in arriving at Shariah decisions which must be documented, adopted and maintained at all times to ensure the credibility of decision-making and protect the committee from undue influences. 6.2 Members of the Shariah Committee must not act in a manner that would undermine the rulings and decisions made by the SAC or the committee they represent. They are required to respect and observe the published Shariah 10 IFIs regulated under the IBA and BAFIA are classified as ‘Islamic banking industry’, whilst IFIs regulated under the TA are classified as ‘takaful industry’. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 21/48 rulings issued by the SAC and shall not go against the decisions of the committee that they represent in public. 6.3 In cases where there are uncertainties and differences of opinions, the IFI may seek advice and refer for a ruling from the SAC11. 6.4 In cases of disputes and court proceedings relating to Islamic financial business or any Shariah issues arising from the IFI’s business operations, both the court and the arbitrator shall take into consideration the published rulings of the SAC or refer such issues to the SAC for its ruling. Any ruling made by the SAC arising from a reference made shall be binding on the IFIs and the court or the arbitrator. In the event where the decision given by the IFI’s Shariah Committee is different from the ruling given by the SAC, the rulings of the SAC shall prevail. However, the Shariah Committee is allowed to adopt a more stringent Shariah decision. 11 Request for advice shall be communicated through the Secretariat of the SAC as provided in Appendix 6. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 22/48 SECTION VI: Shariah Compliance & Research Functions Principle 7: There shall be a robust Shariah compliance function, comprising review and audit functions, supported by risk management control process and internal research capacity. 7.1 The IFI shall establish Shariah compliance functions to be carried out through the review and audit functions, and supported by the risk management control function and internal research capabilities. 7.2 In the event that any part of these functions is outsourced, the oversight, accountability and responsibility over these functions must remain with the IFI. The IFI must also ensure that the independence, competency, control, management reporting structures and activities of these functions meet the requirements of the Framework. (i) Shariah Review 7.3 The Shariah review function refers to regular assessment on Shariah compliance in the activities and operations of the IFI by qualified Shariah officer(s)12, with the objective o f ensuring that the activities and operations carried out by the IFI do not contravene with the Shariah. 7.4 The function involves the examination and evaluation of the IFI’s level of compliance to the Shariah, remedial rectification measures to resolve non- compliances and control mechanism to avoid recurrences. 7.5 The scope shall cover the IFI’s overall business operations, including the end- to-end product development process13, which start from product structuring to product offering. 12 A qualified Shariah officer is an officer who holds at least a bachelor’s degree in Shariah, which includes study in Usul Fiqh (the origin of Islamic law) and Fiqh Muamalat ( Is lamic transaction/commercial law). 13 Refer to the product development process in Appendix 7. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 23/48 7.6 The review process shall cover, but is not limited to, the following: (i) planning the review program which includes the objectives, scope, reporting, rectification and follow-up actions followed by the execution of the program; (ii) documentation of the processes involved in the review; (iii) communicating the outcome o f the review and highlighting any non- compliances to the Shariah Committee and the management; and (iv) rectifying any instances of non-compliance with the Shariah to prevent such events from recurring. (ii) Shariah Audit 7.7 Shariah audit refers to the periodical assessment conducted from time to time, to provide an independent assessment and objective assurance designed to add value and improve the degree of compliance in relation to the IFI’s business operations, with the main objective of ensuring a sound and effective internal control system for Shariah compliance. 7.8 The function shall be performed by internal auditors, who have acquired adequate Shariah-related knowledge and training. In addition, the internal auditors may engage the expertise of the IFI’s Shariah officers in performing the audit, as long as the objectivity of the audit is not compromised. 7.9 For group structure, the capabilities of the group’s internal Shariah audit function should be augmented in line with its responsibilities of serving several financial entities in the group. 7.10 Shariah audit may be conducted as part of the IFI’s thematic audit on specialised areas such as management audit and Anti-Money Laundering (AML) audit , according to the risk level and materiality of the impact of Shariah non-compliance in these areas. Shariah audit on critical areas shall be conducted at least once a year depending on the risk profile of the IFI. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 24/48 7.11 The Board Audit Committee, upon consultation with the Shariah Committee shall determine the deliverables of the Shariah audit function. The deliverables shall be consistent with accepted auditing standards. 7.12 The scope of Shariah audit shall cover all aspects of the IFI’s business operations and activities, including: (i) audit of financial statements of the IFI14; (ii) compliance audit on organisational structure, people, process and information technology application systems; and (iii) review of adequacy of the Shariah governance process. 7.13 The process of Shariah audit shall be designed to enable the IFI to assess whether a sound and effective internal control system for Shariah compliance have been implemented, which should cover, but is not limited to, the following: (i) understanding the business activities of the IFI to allow for better scoping of an audit exercise, i.e. auditability and relevance of activities; (ii) developing a comprehensive internal audit program or plan. The program shall include objectives, scope, personnel assignment, sampling, control and duration as well as establish proper audit processes, policies and procedures of IFI’s operations; (iii) obtaining and making reference to relevant sources, including the SAC’s published rulings, the Shariah Committee’s decisions, fatwas, guidelines, the Shariah audit results and the internal Shariah checklist; (iv) conducting Shariah audit on a periodical basis; 14 In the event where the audit is undertaken by external auditors, IFI has to be satisfied that the scope of audit by the external auditor with regard to Shariah audit is comprehensive. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 25/48 (v) communicating results of any assessment or findings arising from the Shariah audit t o t h e Board Audit Committee and the Shariah Committee; and (vi) providing recommendations on rectification measures taken as well as following-up on the implementation by the IFI. 7.14 The Bank may appoint or employ an external party or person to conduct a Shariah audit on the operations of the IFI, if the Bank considers it is desirable or in the interest of the IFI to do so, in which case the remuneration and expenses relating to the appointment shall be borne by the IFI. (iii) Shariah Risk Management 7.15 Shariah risk management is a function to systematically identify, measure, monitor and control of Shariah non-compliance risks to mitigate any possible of non-compliance events. The systematic approach of managing Shariah non-compliance risks will enable the IFI to continue its operations and activities effectively without exposing the IFI to unacceptable levels of risk. 7.16 The Shariah risk management control function shall form as part of the IFI’s integrated risk management framework. 7.17 Due to the technicality and complexity in managing the risk of non-compliance to the Shariah, the function shall be performed by risk officers that have suitable qualifications and/or experience in the subject matter. 7.18 Shariah risk management function involves: (i) facilitating the process of identifying, measuring, controlling and monitoring Shariah non-compliance risks inherent in the IFI’s operations and activities; BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 26/48 § Identifying and understanding the inherent Shariah non-compliance risks15 in the IFI, taking into account existing controls that have been put in place and their effectiveness in mitigating such risks; § Measuring the potential impact of such risks to the IFI, based on the historical and actual de-recognition of income derived from Shariah non-compliant activities; § Monitoring of Shariah non-compliance risks to facilitate efficient and effective management of such risks. A report on the Shariah non- compliance risks indicators shall be escalated to the board, Shariah Committee and management periodically; and § Controls to avoid recurrences. This involves keeping track of income not recognised arising from Shariah non-compliant activities and assessing the probability of similar cases arising in the future. Based on historical reviews and potential areas of Shariah non- compliance, the IFI may assess potential profits that cannot be recognised as eligible. (ii) formulating and recommending appropriate Shariah non-compliance risk management policies and guidelines; and (iii) developing and implementing processes for Shariah non-compliance risk awareness in the IFI. (iv) Shariah Research 7.19 Apart from institutionalising a robust Shariah compliance function, there shall be an internal unit comprising qualified Shariah officers to conduct pre-product approval process, research, vetting of issues for submission, and undertake administrative and secretarial matters relating to the Shariah Committee. 15 The IFI shall take into account reputational risk as one of the possible risk implication of non- compliance with the Shariah principles, which includes failure to provide transparency and full disclosure. Furthermore, non-compliance to sound corporate governance and prudent management of risk-based information will also trigger reputational risk to the IFI. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 27/48 7.20 Shariah research and secretariat functions shall ensure proper deliberation and dissemination of Shariah related matters. Shariah Research 7.21 This function refers to the conduct of performing in-depth research and studies on Shariah issues, including providing day-to-day Shariah advice and consultancy to relevant parties, including those involved in the product development process(es). 7.22 The function shall be performed by qualified Shariah officers and the scope of work shall predominantly cover aspects of the Shariah. However, the function also requires experts on legal, operational, and other related aspects or issues to form part of the presentation to the Shariah Committee. For example, a thorough research may be needed to review new products and business developments. 7.23 In undertaking such research, advice and input from experts on technical matters e.g. actuaries, accountants may be sought to ensure comprehensiveness and completeness in ensuring sound understanding of the relevant concepts and approaches. 7.24 In terms of advisory and consultancy roles, the function shall assist and provide advice to the relevant parties based on the decision of the Shariah Committee. For example, advice may be offered on the list of permissible investments, e.g. selection of permissible shares or stocks in the Bursa Malaysia stock market. Shariah Secretariat 7.25 An IFI is required to establish a secretariat to serve the Shariah Committee. 7.26 The role of the secretariat shall include coordinating meetings, compiling proposal papers, disseminating Shariah decisions to relevant stakeholders and engaging with relevant parties who wish to seek further deliberations of issues from the Shariah Committee. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 28/48 APPENDICES Appendix 1: List of Related Guidelines List of related guidelines: Guidelines on Corporate Governance for Licensed Islamic Banks (GP1-i) (BNM/RH/GL/002-1) 24 January 2007 Guidelines on Directorship for Takaful Operators (BNM/RH/GL/004-1) 8 November 2004 Guidelines on Financial Reporting for Licensed Islamic Banks (BNM/RH/GL/002-2) 1 July 2005 Guidelines on Internal Audit Function of Licensed Institutions (BNM/RH/GL 013-4) 1 July 2010 Guidelines on Introduction of New Products (BNM/RH GL 008-3) 18 May 2009 Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators (BNM/RH/GL 010-14) 1 July 2009 Guidelines on Outsourcing of Islamic Banking Operations (BNM/RH/GL/002-4) 23 June 2003 Guidelines on Outsourcing for Takaful Operators (BNM/RH/GL/004-8) 22 July 2008 List of superseded guidelines and circulars: Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions (BNM/RH/GL/012-1) 1 April 2005 BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 29/48 Appendix 2: ‘Fit & Proper’ Criteria (person) of the Shariah Committee Appointment of the Shariah Committee 1. The board shall, upon recommendation of its Nomination Committee, nominate the appointment of the members of the Shariah Committee. 2. The appointment and reappointment of a Shariah Committee member shall obtain prior written approval of the Bank and the SAC. 3. In approving the appointment and reappointment, the Bank may impose necessary conditions it deems fit in addition to the requirements in the Framework. Failure to comply with any conditions shall nullify the approval. Application Procedures of the Shariah Committee 1. In processing the application of a Shariah Committee member, a vetting shall be conducted to ensure that the proposed Shariah Committee member is a ‘fit and proper’ person. Similar vetting shall also be conducted for their reappointments. 2. Upon expiry of the term and until the Bank grants approval for renewal of term of the Shariah Committee member, the Shariah Committee member is not considered as a Shariah Committee member and is not allowed to perform his role as Shariah Committee member of the said IFI. 3. IFI must refrain from making any public announcements about any proposed changes of its Shariah Committee prior to obtaining the Bank’s written consent for the proposed changes. 4. The application for the appointment or reappointment of members of the Shariah Committee shall be submitted to the Bank at least sixty (60) days before the proposed date of appointment. The application shall be made in the form BNM/JKS 1 as enclosed in Appendix 8. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 30/48 Resignation and Dismissal of the Shariah Committee 1. An IFI shall notify the Bank of any resignation or dismissal of a member of the Shariah Committee within fourteen (14) days of the date of resignation or dismissal, stating the reasons of such resignation or dismissal. 2. The resignation or dismissal will only take effect upon approval from the Bank and the SAC. Qualification 1. A member of a Shariah Committee shall be a Muslim individual. A company, institution or body shall not constitute a Shariah Committee for the purpose of the Framework. 2. The majority of members in the Shariah Committee shall at least hold bachelor’s degree in Shariah, which includes study in Usul Fiqh (the origin of Islamic law) or Fiqh Muamalat ( Islamic transaction/commercial law) from recognised university. 3. It is reasonable to expect that the majority members of the Shariah Committee should be able to demonstrate strong proficiency and knowledge in written and verbal Arabic, and have good understanding in Bahasa Malaysia and the English language. 4. The Shariah Committee may comprise experts from relevant backgrounds such as finance and law, which could support the depth and breadth of the Shariah deliberations. However, these members must not form the majority of the Shariah Committee. 5. The Shariah Committee preferably shall comprise members of diverse backgrounds in terms of qualification, experience and knowledge. Disqualification 1. The members of the Shariah Committee shall be persons of acceptable reputation, character and integrity. The Bank together with the approval from BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 31/48 the SAC, reserves the right to disqualify any member who fails to meet the requirements. In particular, any member may be disqualified due to any of the following breaches: i) acted in a manner which may cast doubt on his fitness to hold the position as a Shariah Committee member; ii) failed to attend 75% of the Shariah Committee meetings in a year without reasonable excuse; iii) declared a bankrupt or a petition under bankruptcy laws is filed against him; iv) found guilty for any serious criminal offence or any other offence punishable with imprisonment of one (1) year or more; or v) subject to any order of detention, supervision, restricted residence or banishment. 2. In the event that a Shariah Committee member becomes subject to any ground of disqualification or otherwise becomes unfit to hold such appointment as provided in the Framework, and/or in the letter of approval from the Bank and SAC, the IFI shall terminate the appointment of the Shariah Committee member. Negative List 1. The Shariah Committee member shall not have any relationship, that could interfere or be reasonably perceived to interfere with the exercise of independent judgment, with the following persons: i) an immediate family member such as spouse, children or siblings who are, or who were during the last financial year, employed by the IFI or any of its related companies as a chief executive officer (CEO) or non-independent board members; and BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 32/48 ii) a substantial shareholder of, or a partner in (with a stake of 5% or more), or an executive officer of, or a director of any for-profit business organisation to which the IFI or any of its subsidiaries made, or from which the IFI or any of its subsidiaries received, significant payments in the current or immediate past financial year. 2. The Shariah Committee member shall not be: i) an employee of the IFI or any of its related companies for the current or the last financial year; and ii) a Shariah Committee member of another IFI within the same industry. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 33/48 Appendix 3: Shariah Committee’s Report Shariah Committee’s Report In the name of Allah, the Beneficent, the Merciful In compliance with the letter of appointment, we are required to submit the following report: We have reviewed the principles and the contracts relating to the transactions and applications introduced by the ABC Islamic Financial Institution during the period ended XX/XX/XXXX. We have also conducted our review to form an opinion as to whether the ABC Islamic Financial Institution has complied with the Shariah principles and with the Shariah rulings issued by the Shariah Advisory Council of Bank Negara Malaysia, as well as Shariah decisions made by us. The management of ABC Islamic Financial Institution is responsible for ensuring that the financial institution conducts its business in accordance with Shariah principles. It is our responsibility to form an independent opinion, based on our review of the operations of the ABC Islamic Financial Institution, and to report to you. We have assessed the work carried out by Shariah review and Shariah audit which included examining, on a test basis, each type of transaction, the relevant documentation and procedures adopted by the ABC Islamic Financial Institution. We planned and performed our review so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the ABC Islamic Financial Institution has not violated the Shariah principles. In our opinion: 1. the contracts, transactions and dealings entered into by the ABC Islamic Financial Institution during the year ended XX/XX/XXXX that we have reviewed are in compliance with the Shariah principles; 2. the allocation of profit and charging of losses relating to investment accounts conform to the basis that had been approved by us in accordance with Shariah principles; (where appropriate, the opinion paragraph shall also include the following matters:) 3. all earnings that have been realised f rom sources or by means prohibited by the Shariah principles have been considered for disposal to charitable causes; and 4. the calculation of zakat is in compliance with Shariah principles. We, the members of the Shariah Committee of ABC Islamic Financial Institution, do hereby confirm that the operations of the ABC Islamic Financial Institution for the year ended XX/XX/XXXX have been conducted in conformity with the Shariah principles. Chairman of the Shariah Committee: ……………………………… (Name: ) Shariah Committee: ……………………………… (Name: ) BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 34/48 Appendix 4: Duties, Responsibilities & Accountability of the Shariah Committee The main duties and responsibilities of the Shariah Committee are as follows: 1. Responsibility and accountability The Shariah Committee is expected to understand that in the course of discharging the duties and responsibilities as a Shariah Committee member, they are responsible and accountable for all Shariah decisions, opinions and views provided by them. 2. Advise to the board and IFI The Shariah Committee is expected to advise the board and provide input to the IFI on Shariah matters in order for the IFI to comply with Shariah principles at all times. 3. Endorse Shariah policies and procedures The Shariah Committee is expected to endorse Shariah policies and procedures prepared by the IFI and to ensure that the contents do not contain any elements which are not in line with Shariah. 4. Endorse and validate relevant documentations To ensure that the products of the IFI comply with Shariah principles, the Shariah Committee must approve: i) the terms and conditions contained in the forms, contracts, agreements or other legal documentations used in executing the transactions; and ii) the product manual, marketing advertisements, sales illustrations and brochures used to describe the product. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 35/48 5. Assess work carried out by Shariah review and Shariah audit To assess the work carried out by Shariah review and Shariah audit in order to ensure compliance with Shariah matters which forms part of their duties in providing their assessment of Shariah compliance and assurance information in the annual report. 6. Assist related parties on Shariah matters The related parties of the IFI such as its legal counsel, auditor or consultant may seek advice on Shariah matters from the Shariah Committee and the Shariah Committee is expected to provide the necessary assistance to the requesting party. 7. Advise on matters to be referred to the SAC The Shariah Committee may advise the IFI to consult the SAC on Shariah matters that could not be resolved. 8. Provide written Shariah opinions The Shariah Committee is required to provide written Shariah opinions in circumstances where the IFI make reference to the SAC for further deliberation, or where the IFI submits applications to the Bank for new product approval16. 16 In accordance with the Guidelines on Introduction of New Products for banking institutions and Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators, issued by Bank Negara Malaysia. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 36/48 Appendix 5: Operation Procedures for the Shariah Committee Frequency of Meetings and Attendance 1. Meetings shall be held regularly to ensure that: i) the Shariah Committee is kept sufficiently in touch with the business of the IFI; and ii) the operations of the IFI are not adversely affected because of the difficulty in securing the Shariah Committee’s approval for policy and decision. 2. The Shariah Committee meetings shall be held at least once in every two (2) months. 3. The Shariah Committee member is expected to contribute and allocate adequate time and efforts to discharge his duties effectively. The Shariah Committee member must attend at least 75% of the Shariah Committee meetings held in each financial year. Where necessary, the participation of the Shariah Committee can be facilitated by means of video or telephone conferencing. 4. The number of Shariah Committee meetings held in the year, as well as the attendance of every Shariah Committee member shall be disclosed in the IFI’s annual report. Minimum Quorum 1. The minimum quorum of a Shariah Committee meeting shall be two-third with majority of attending members must be members with Shariah background. Decision-making 1. Decisions shall be made on the basis of two-third of the members present, with major i ty of the two-third votes shall be members with Shariah background. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 37/48 Chairman 1. Chairman of the Shariah Committee shall be a member with qualified Shariah background. 2. In the event that the Chairman of the Shariah Committee is unable to attend the meeting, the members shall elect one (1) member among themselves to become the a lternate Chairman to preside over the meeting. The alternate Chairman shall be a member with qualified Shariah background. Reporting 1. The Shariah Committee shall put on record in its report or statements directed to the board, its concerns over any Shariah non-compliance issues. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 38/48 Appendix 6: Secretariat of the Shariah Advisory Council (SAC) 1. Any reference or request for advice of the Shariah Advisory Council of Bank Negara Malaysia (SAC) shall be communicated through the Secretariat at Bank Negara Malaysia. All correspondence shall be directed to: Pengarah Jabatan Perbankan Islam dan Takaful Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur (Attn.: Secretariat Shariah Advisory Council) Tel: 03 - 2698 8044 / Fax: 03 - 2693 3826 BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 39/48 Appendix 7: Product Development Process 1. One of the major deliverables of every IFI is the offering of Shariah compliant financial products to the market to meet the demand of the customers. In this regard, the IFI must ensure that the product development process is comprehensive and robust to minimise possibilities of the product to be nullified on Shariah grounds. 2. Generally, Shariah non-compliance may occu r d u r i n g the product development process that could originate from improper structuring of products, lack of internal research in understanding the appropriate Shariah concepts, and misrepresentation of the product at issuance or marketing stage of the product. 3. The IFI must acknowledge that managing a Shariah-based institution has to be a continuous process, and it requires the IFI to have in place adequate and appropriate measures and controls, including risk-mitigating instruments that could address or mitigate Shariah non-compliance instances. 4. Therefore, the IFI is expected to refer all Shariah issues related to its end-to- end product development design and process to the Shariah Committee. The requirement for an advice or a decision must be made in a comprehensive manner for effective deliberation by the Shariah Committee. This will include explaining the process involved, documents used and other necessary information. 5. All new products shall be certified by the Shariah Committee and must be backed by the relevant fiqh literature, evidence and reasoning. There shall be rigorous deliberation process among the Shariah Committee as well as detailed scrutiny of the legal contracts and other documents relevant to the products or transactions. 6. Product development covers both pre-product approval (i.e. process of product structuring and developing prior to introduction to the market) and post-product approval process (i.e. process after the product has been offered to the customers and transactions have been carried out). BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 40/48 Pre-product Approval i) Pre-product approval process involves namely the issuance of Shariah decisions, product structuring or design processes backed by comprehensive Shariah research, vetting of contracts and agreements as well as compliance checks before the product is offered to the customers. ii) There shall be a formal and transparent procedure for issuance of Shariah decisions which are well documented and approved by the board and Shariah Committee. iii) An IFI shall ensure that the pre-product approval process includes, among others, a review of the concept, structure, term sheet, documentations, policies and procedures, pamphlets, brochures and advertising materials. The documents shall be approved by the Shariah Committee of the IFI. Post-product Approval i) Post-product approval process involves monitoring product implementation to ensure compliance with Shariah principles, identifying the area of potential Shariah non-compliance risks and proposing the relevant actions to the management. ii) An IFI must ensure that post-product approval in its Shariah governance framework also includes internal Shariah review and Shariah governance reporting. Without such follow-up, the IFI would not be able to monitor the consistency of its Shariah compliance and effectively manage any Shariah non-compliance risks that may arise over time. BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 41/48 Appendix 8: Application Form of the Shariah Committee PERMOHONAN PELANTIKAN ANGGOTA JAWATANKUASA SYARIAH Application to Appoint Member of Shariah Committee ARAHAN Borang BNM/JKS 1 ini hendaklah diisi oleh calon yang dicadangkan oleh institusi sebagai anggota Jawatankuasa Syariah. Sila gunakan kertas tambahan sekiranya ruang yang disediakan tidak mencukupi. Pastikan setiap muka surat termasuk kertas tambahan yang digunakan d itandatangani dan pastikan segala maklumat terdahulu dan semasa yang dikehendaki dalam borang ini diisi dengan lengkap. Nyatakan "Tiada" atau "Tidak Berkenaan" sekiranya maklumat tersebut tidak berkenaan bagi calon. Borang yang lengkap hendaklah dihantar ke alamat seperti di bawah: INSTRUCTION This form BNM/JKS 1 should be completed by the candidate proposed by the institution as Shariah Committee member. If the space allocated is not sufficient, additional paper may be attached. Please initial on each page, including on the additional papers used and provide all past and current information as required in this form. Indicate "Nil" or "Not Applicable" if the items are not relevant to the candidate. The completed form should be sent to the address below: Pengarah Jabatan Perbankan Islam dan Takaful Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 42/48 NAMA INSTITUSI YANG MEMOHON (Name of Applicant Institution) Sila tandakan ( ) pada petak yang berkenaan (Please tick ( ) in the relevant box) Pelantikan baru (New appointment) Pelantikan semula (Reappointment) Tarikh tamat pelantikan : _________________ (Expiry date of current appointment) A. BUTIR-BUTIR PERIBADI (Personal Particulars) 1. NAMA (Name) 2. NO. KAD PENGENALAN (NRIC No.) 3. NO. PASPORT (Passport No.) 4. TARIKH / TEMPAT LAHIR (Date / Place of Birth) 5. KEWARGANEGARAAN (Nationality) 6. STATUS PERKAHWINAN (Marital Status) 7. JAWATAN SEKARANG (Current Designation/Post) Sila lampirkan gambar berukuran pasport (Please attach passport-sized photo) BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 43/48 8. ALAMAT KEDIAMAN SEKARANG (Current Residential Address) 9. NAMA & ALAMAT MAJIKAN SEKARANG (Name & Address of Current Employer) 10. NO. TELEFON (Telephone No.) § Kediaman (Residential): _____________________________ § Pejabat (Office): _____________________________ § Telefon Bimbit (Mobile): _____________________________ 11. NO. FAKSIMILI (Fax No.) 12. E-MEL (E-mail) 13. LAMAN WEB PERIBADI (Personal Website or Blog) 14. BAHASA PERHUBUNGAN (Language of Communication) BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 44/48 B. KELAYAKAN DAN PENGALAMAN (Qualification and Experience) 15. KELAYAKAN AKADEMIK DAN IKHTISAS (Academic and Professional Qualification) KELULUSAN (Qualification) INSTITUSI PENGAJIAN/BADAN PROFESSIONAL (Institution of Learning/Professional Body) NEGARA (Country) TAHUN KELAYAKAN DIPEROLEHI (Year Qualification is Obtained) 16. PENGKHUSUSAN BIDANG (Field of Expertise) Syariah (Shariah)* Pengajian Islam selain Syariah (Islamic studies other than Shariah) Perundangan (Legal) Kewangan (Finance) Perakaunan (Accounting) Lain-lain (Other): _____________________________ * Individu yang berpengetahuan dan pakar, khususnya dalam bidang Syariah termasuk Usul Fiqh dan Fiqh Muamalat, dan mempunyai pengetahuan yang baik dalam penulisan dan pertuturan Bahasa Arab. (A person who is learned and expert, specialisation in Shariah including Usul Fiqh and Fiqh Muamalat, and also has good knowledge of written and verbal Arabic). BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 45/48 17. PENGALAMAN BEKERJA (Working Experience) TEMPOH (Period) JAWATAN (Position) TANGGUNGJAWAB UTAMA (Main Responsibility) NAMA ORGANISASI (Name of Organisation) Dari (From) Hingga (Until) 18. KEANGGOTAAN SEBAGAI PENASIHAT SYARIAH DI ORGANISASI LAIN (Membership as Shariah Advisor in Other Organisations) Tempoh (Period) ORGANISASI (Organisation) Dari (From) Hingga (Until) BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 46/48 19. PENULISAN, KAJIAN ATAU KERTAS KERJA (Writings, Research or Paperwork) TAJUK (Topic) TAHUN (Year) BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 47/48 PENGAKUAN DAN PENGESAHAN CALON (Declaration and Confirmation of Candidate) 20. PENGAKUAN (Declaration) Sila nyatakan sama ada anda pernah dicadangkan / dilantik / diluluskan pelantikan oleh Bank Negara Malaysia sebagai seorang anggota Jawatankuasa Syariah di mana-mana institusi yang dikawal selia oleh Bank Negara Malaysia di bawah undang-undang berikut dalam tempoh tiga (3) bulan lepas: i) Akta Bank Islam 1983; ii) Akta Bank dan Institusi Kewangan 1989; iii) Akta Institusi Kewangan Pembangunan 2002; dan iv) Akta Takaful 1984. Please indicate if you have been nominated / appointed / approved for the appointment by Bank Negara Malaysia as a member of Shariah Committee of any institution regulated and supervised by Bank Negara Malaysia under the following law in the past three (3) months: i) Islamic Banking Act 1983; ii) Banking and Financial Institutions Act 1989; iii) Development Financial Institutions Act 2002; and iv) Takaful Act 1984. Ya / (Yes) Tidak / (No) Jika jawapan anda adalah "Ya", sila nyatakan institusi tersebut. (If the answer is "Yes", please indicate the institution(s) concerned.) Institusi / (Institution): _________________________________________________ Saya mengaku bahawa saya: I declare that I: (a) bukan seorang muflis, tidak pernah diisytiharkan sebagai seorang muflis, dan tidak menghadapi sebarang tindakan di bawah sebarang undang-undang muflis; am not a bankrupt, have never been declared a bankrupt, and no petition under bankruptcy laws has been filed against me; Ya / (Yes) Tidak / (No) (b) tidak pernah dibuktikan atas kesalahan jenayah berat atau sebarang kesalahan yang boleh dihukum penjara selama satu (1) tahun atau lebih; have not been convicted for a serious criminal offence or any other offence punishable with imprisonment for one (1) year or more; Ya / (Yes) Tidak / (No) (c) tidak terikat kepada sebarang perintah tahanan, pengawasan, kediaman terhad atau buang negeri; am not subject to any order of detention, supervision, restricted residence or banishment; Ya / (Yes) Tidak / (No) BNM/RH/GL_012_3 Islamic Banking and Takaful Department Shariah Governance Framework for Islamic Financial Institutions Page 48/48 (d) tidak menghadapi sebarang siasatan oleh mana-mana badan kerajaan, pihak berkuasa berkanun, yang mana penemuan yang tidak memuaskan telah diperolehi; dan am not subject to any inquiry/investigation carried out by any governmental, statutory authority/body, in which an adverse finding was found; and Ya / (Yes) Tidak / (No) (e) tidak mempunyai sebarang halangan atau larangan oleh mana-mana badan kerajaan, pihak berkuasa berkanun, undang-undang atau perjanjian dengan mana-mana pihak untuk berkhidmat sebagai anggota Jawatankuasa Syariah di institusi ini. am not subject to any prohibition by any governmental, statutory authority/body, governing law or by any agreement with another party to perform my duty as a Shariah Committee member in this institution. Ya / (Yes) Tidak / (No) 21. PENGESAHAN (Confirmation) Saya dengan ini mengesahkan bahawa semua maklumat yang dikemukakan di atas adalah benar dan lengkap. I hereby confirm that all the information given above is true and complete. ……………………………… Tandatangan / (Signature) …………………………………. Nama Penuh / (Name in Full) ……………….. Tarikh / (Date) PART 1: OVERVIEW PART 2: SHARIAH GOVERNANCE ARRANGEMENTS APPENDICES	Public Notice
13 Oct 2010	Newly updated: Individuals Wanted by BNM -- Suspected for Committing Illegal Deposit Taking	https://www.bnm.gov.my/-/newly-updated-individuals-wanted-by-bnm-suspected-for-committing-illegal-deposit-taking	null	null	Reading: Newly updated: Individuals Wanted by BNM -- Suspected for Committing Illegal Deposit Taking Share: Newly updated: Individuals Wanted by BNM -- Suspected for Committing Illegal Deposit Taking Release Date: 13 Oct 2010 Bank Negara Malaysia is offering rewards to members of the public for information that leads to the successful arrest of these individuals who are suspected for committing illegal deposit taking under the Banking and Financial Institutions Act 1989 and/or money laundering under the Anti-Money Laundering and Anti-Terrorism Financing Act 2001. Click here for details: © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
21 Sep 2010	Newly published: Circular on Issuance of Special Employment Pass for Islamic Finance Expatriates under the Malaysia International Islamic Financial Centre (MIFC) Initiative	https://www.bnm.gov.my/-/newly-published-circular-on-issuance-of-special-employment-pass-for-islamic-finance-expatriates-under-the-malaysia-international-islamic-financial-centre-mifc-initiative	null	null	Reading: Newly published: Circular on Issuance of Special Employment Pass for Islamic Finance Expatriates under the Malaysia International Islamic Financial Centre (MIFC) Initiative Share: Newly published: Circular on Issuance of Special Employment Pass for Islamic Finance Expatriates under the Malaysia International Islamic Financial Centre (MIFC) Initiative Release Date: 21 Sep 2010 Circular on Issuance of Special Employment Pass for Islamic Finance Expatriates under the Malaysia International Islamic Financial Centre (MIFC) Initiative is now available. © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
26 Aug 2010	Newly published: Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators	https://www.bnm.gov.my/-/newly-published-guidelines-on-introduction-of-new-products-for-insurance-companies-and-takaful-operators	https://www.bnm.gov.my/documents/20124/761709/18_guidelines_newproducts.pdf	null	Reading: Newly published: Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Share: Newly published: Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Release Date: 26 Aug 2010 Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators is now available on BNM website. The PDF format document is available for download via the URL provided below: Download Link © 2024 Bank Negara Malaysia. All rights reserved.	PART A. INTRODUCTION...................................................................................1 1. Overview of the Guidelines ................................................................................. 1 2. Legal Provisions ................................................................................................... 2 3. Scope ..................................................................................................................... 2 PART B. FRAMEWORK FOR INTRODUCTION OF NEW PRODUCTS..... 5 4. General Conditions............................................................................................... 5 5. General Exception ................................................................................................ 6 PART C. SUPERVISORY EXPECTATIONS ON PRODUCT RISK MANAGEMENT AND FAIR TREATMENT OF CONSUMERS..... 8 6. Product Risk Management .................................................................................. 8 7. Fair Treatment of Consumers ........................................................................... 15 8. Supervisory Action............................................................................................. 18 APPENDIX 1: INFORMATION REQUIREMENTS FOR NEW PRODUCTS......20 APPENDIX 2: SHARIAH INFORMATION REQUIREMENTS ..............................22 BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 1/22 PART A. INTRODUCTION 1. Overview of the Guidelines 1.1 Developments in the financial market and increasing competition have spurred greater innovation within the insurance and takaful industry with a wider diversity of products and services being made available to consumers. At the same time, trends towards financial convergence have significantly broadened the market segments in which insurers and takaful operators compete. 1.2 Against these developments, the regulatory framework for insurance and takaful products has been reviewed to further enhance consumer protection while according greater flexibility for insurers and takaful operators to respond to changing market conditions, both in managing risks and enhancing their competitiveness. 1.3 The revised regulatory framework set out in these Guidelines for the introduction of new products aims to:- (i) improve the time-to-market for insurance companies and takaful operators to introduce new products, or to effect changes to existing products; (ii) promote sound risk management practices in managing and controlling product risk by ensuring the appropriate assessment and mitigation of risk during the product development and marketing stages; and (iii) further strengthen the duty of care owed to consumers in ensuring that products developed and marketed are appropriate to the needs, resources and financial capability of targeted consumer segments. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 2/22 1.4 With the increased flexibility provided to insurance companies and takaful operators under these Guidelines, greater responsibility is placed on the board and senior management to ensure that product risks are well managed, and the needs and rights of consumers are respected. These responsibilities will continue to be reinforced by the Bank through its supervisory reviews and enforcement actions taken to protect consumers and promote sound risk management practices. 2. Legal Provisions 2.1 The Guidelines are issued pursuant section 201 of the Insurance Act 1996 (Insurance Act) and section 69 of the Takaful Act 1984 (Takaful Act). 2.2 The Guidelines shall be read together with other guidelines and circulars issued by the Bank on product offerings and disclosure requirements where applicable. 3. Scope 3.1 These Guidelines set out the applicable regulatory procedures and the Bank’s expectations regarding the management and control of risk associated with the development, offering and marketing of new insurance/takaful products by insurance companies and takaful operators. It also addresses the responsibilities of the institutions towards consumers in ensuring that products sold or recommended are suitable, and that customers are clearly and fully informed of the nature and risks associated with these products. 3.2 The Guidelines shall be applicable to all insurance companies licensed under the Insurance Act and takaful operators registered under the Takaful Act. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 3/22 3.3 A reference to ‘product’ in these Guidelines shall encompass insurance and takaful products offered by an insurance company or a takaful operator respectively, and products of other financial institutions that may be offered by the insurance company or takaful operator under distributorship or outsourcing arrangements1. 3.4 A new product is defined as follows: (i) An insurance or takaful p roduct that is being offered by the insurance company or takaful operator in Malaysia for the first time. For greater clarity, the Guidelines shall apply if the product has never been offered by the institution before in Malaysia, notwithstanding the fact that the product may already be offered by the institution’s group outside Malaysia; or (ii) A combination of, o r variation to, existing insurance or takaful products that results in a material change t o t h e risk profile/nature of the existing products. 3.5 The appointed actuary shall decide on whether a variation to an existing insurance or takaful product constitutes a material change for the purpose of paragraph 3.4 (ii). The determination of material change shall consider the risk implications of the change both from the insurance company/takaful operator’s perspective (as provider) and the customers’ perspective (as purchaser). The basis for determination should be documented and readily available for review by the oversight and internal control functions o f t h e insurance company/takaful operator, and the Bank. In the case of general insurers and general takaful operators where there is no appointed actuary, the qualified actuary engaged by the company or a member of senior management 1 Not including outsourcing agreements under which the insurance company or takaful operator is procuring (rather than providing) a service. This is dealt separately through direct applications to the Bank. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 4/22 responsible for risk management within the organisation shall decide on whether a variation constitutes a material change. 3.6 For product combinations or variations that do not result in a material change to the risk profile or nature of the existing product as described in paragraph 3.4 (ii), insurance companies and takaful operators should consider the expectations set out within these Guidelines and apply them as appropriate in proportion to the nature and extent of the variation. 3.7 The Guidelines generally do not apply to:- (i) the introduction of new delivery channels such as the internet, telephone, or mobile delivery platforms; and (ii) new/improved systems or processes which generally enhance the operations of insurance companies/takaful operators, but which are not directly related to the introduction of products covered under paragraph 3.4 above. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 5/22 PART B. FRAMEWORK FOR INTRODUCTION OF NEW PRODUCTS 4. General Conditions 4.1 The following general conditions must be met prior to introducing a new product:- (i) the insurance company or takaful operator has the capacity to adequately manage and control the risks associated with the product, including the financial capacity to support existing and new product lines; (ii) adherence to principles relating to the fair treatment of consumers; (iii) the institution must not knowingly offer a product (including its variations) that has been prohibited in other countries and which could potentially give rise to public concerns; and (iv) the product must comply with all necessary approvals required for its offer and/or any other applicable regulatory requirements, including other related guidelines issued by the Bank and the Securities Commission (if any). 4.2 Subject to paragraph 5.1 or unless otherwise notified by the Bank, an insurance company or takaful operator that meets the conditions stipulated in paragraph 4.1 may proceed to offer a new product to customers upon complete submission of information as described in Appendix 1 and Appendix 22, to the Bank. This shall hereafter be referred to as the ‘launch-and-file’ system. It is the responsibility of insurance companies and takaful operators to ensure that the information submitted pursuant to this paragraph is complete and accurate. 2 Appendix 2 is applicable to takaful operators only. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 6/22 4.3 In the case of general insurers and general takaful operators, the submission requirements under paragraph 4.2 are only applicable to medical and health insurance/takaful products. 4.4 Sections 6 and 7 of the Guidelines set out the Bank’s supervisory expectations in relation to the management of product risk and the fair treatment of consumers. Insurance companies and takaful operators should consider these supervisory expectations as a basis to develop appropriate policies and procedures that support a sound product management programme, and to determine if the requirements in paragraph 4.1(i) and (ii) have been met. 5. General Exception 5.1 The ‘launch-and-f i le ’ system is not a p p l icable to the following products:- (i) insurance and takaful products that are being introduced in the Malaysian market for the first time. For greater clarity, this shall include new insurance or takaful products within an existing product line that contain innovative features being introduced in the market for the first time; (ii) annuity certain and life/family annuity products; (iii) general and family takaful products that involve any of the following: (a) new Shariah contract(s); (b) changes in the Shariah contract for existing products3; or (c) creation of new sub-funds for existing products. 3 For example, from mudharabah to wakalah contract. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 7/22 (iv) investment-linked products invested in financial derivatives for purposes other than hedging of existing exposures. 5.2 With respect to the products stated in paragraph 5.1, insurance companies and takaful operators shall submit the following information to the Bank prior to offering the product: (i) information requirements as per Appendix 1 and Appendix 24; and (ii) proposed capital and accounting treatment for the product. 5.3 An insurance company or takaful operator shall not offer products covered under paragraph 5.1 until the expiry of 30 days from the date of receipt by the Bank of the complete submission of information pursuant to paragraph 5.2. 4 Appendix 2 is applicable to takaful operators only. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 8/22 PART C. SUPERVISORY EXPECTATIONS ON PRODUCT RISK MANAGEMENT AND FAIR TREATMENT OF CONSUMERS 6. Product Risk Management 6.1 Insurance companies and takaful operators are expected to develop and implement appropriate policies and procedures to prudently manage risks associated with the products offered by the institution. The policies and procedures should be designed to identify and control product risk across the value chain, including the stages of product development, authorisation, pricing, marketing, sale, distribution, portfolio management, accounting and ongoing service and maintenance. 6.2 It is also important that the management of product risks is well integrated within the insurance company and takaful operator’s overall governance framework and risk management system. This is to ensure that product innovation is carried out in a manner that is aligned with the insurance company or takaful operator’s business objectives, and consistent with its capability and capacity to manage associated risks. 6.3 The policies and procedures for managing product risk should be formally endorsed by the board and properly documented. These should include policies and procedures on product authorisation and governance throughout the life cycle of the product. Importantly, the policies and procedures must be communicated in a timely manner to all relevant parts and levels of the organisation and periodically reviewed in the light of changing circumstances. 6.4 Insurance companies and takaful operators should also ensure the adequacy and security of the IT systems and infrastructure to support their product suites. Proper assessments should be performed on the BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 9/22 IT-related risks, which include strategic, compliance, system support, operational, security, business resumption and reputation risks. 6.5 The policies and procedures for managing risks and risk mitigation measures and strategies employed by the institution should be commensurate with the complexity of risks associated with the products offered by the institution. Product management programme 6.6 Articulating a product management programme provides a sound basis for developing appropriate policies and procedures for managing product risk. A good product management programme should:- (i) clearly set out policies regarding the institution’s product design and pricing philosophy. These should address the institution’s profit expectations for the products offered, and policies on insurance/takaful product lines which the institution will offer, or is restricted from offering. The policies should reflect the institution’s corporate strategy, competitive positioning, risk/reward philosophy and financial capacity to absorb losses; (ii) relate the product strategy (e.g. considerations that influence the nature and timing of new product innovations) to the institution’s customer relationship philosophy; (iii) define parameters for the authorisation of new products or material variations to existing products, including the circumstances under which authority may be delegated; (iv) establish restrictions and/or prudent concentration limits for exposures, for example, to geographic regions, product lines, distribution channels, economic sectors, customer groups or any other relevant risk dimension; BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 10/22 (v) establish procedures to identify, assess and mitigate risks associated with products offered by the institution (for example, through reinsurance, underwriting and diversification); (vi) establish lines of responsibility for managing related risks, including responsibilities in monitoring adherence to approved policies and procedures; and (vii) establish internal communication flows to ensure that new product offerings and the management of associated risks are fully integrated throughout the institution’s business line and control functions. Product authorisation 6.7 All new products and material variations to existing products must be authorised by senior management and/or the board as appropriate. 6.8 Approving authorities within the institution should be clearly defined and documented, setting out the scope of authority given, to whom the authority is given and whether the authority may be further delegated. The levels of authority established should appropriately reflect the nature and complexity of the institution’s range of product offerings, the market segments which the institution competes in and the capacity of the institution to manage related risks. 6.9 The authorisation should be supported by a process that is objective and consistently applied. This will entail provisions for documentation requirements and internal reviews that are necessary for approving authorities to ensure that:- (i) the product proposal is consistent with the insurance company or takaful operator’s product management programme; BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 11/22 (ii) systems and procedures are in place to manage related risks and customer expectations; (iii) frontline, back-end staff as well as the agents are adequately trained to support the product; and (iv) sales/product illustrations and marketing strategies are appropriate and not misleading. 6.10 Information that is relevant to support a request for authorisation of a new product includes, but is not limited to: (i) the objective of introducing the product, target customers and a description of strategic alliance arrangements (if any); (ii) the key features of the product, method of distribution and samples of the term sheet and promotional material; (iii) a quantification of the product’s financial impact, including financial projections based on the target take-up rate and expected market share, risk-adjusted returns, sensitivity of projections to changes in market conditions, and whether adequate capital has been provided for the product, for both internal and regulatory capital purposes; (iv) an assessment of the potential risks associated with the product, including exposures to money-laundering risk, and how these risks will be measured, monitored and controlled; (v) an assessment of the appropriateness of the product for the targeted customer groups; (vi) an assessment of the skills, expertise and resources required to sell and manage the product throughout the pre, during and post contractual stages. The assessment should address whether BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 12/22 these elements are already fully present within the institution, and if not, the actions that will be taken to ensure that the necessary elements are met prior to the launch of the product; (vii) a description of related accounting and tax implications attached to the product, highlighting in particular accounting or tax treatments on which the success of the product will hinge, or which will materially alter the product’s risk-return profile; and (viii) whether the product complies fully with applicable legal and regulatory requirements or restrictions, including a description of any unresolved legal or regulatory issues. Ongoing monitoring and control of product risk 6.11 Insurance companies and takaful operators should ensure that adequate procedures are in place and operating effectively to monitor and control product risks on an ongoing basis. The procedures should provide for the ongoing identification, measurement and mitigation of existing and potential risks inherent in the institution’s product offerings. This includes but is not limited to: (i) clearly defined responsibilities within business lines f o r managing product risks within approved parameters/limits. Business lines should also be respons ib le fo r ensuring continuous adherence to approved policies and procedures. The accountability of business lines should be clearly established notwithstanding the presence of other control functions dedicated to compliance and risk management; (ii) clearly delineated lines of responsibility for monitoring and controlling risk by control functions that are independent of business lines; BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 13/22 (iii) adequate systems for measuring risk on a continuing basis; (iv) regular reviews of identified risk exposures in the light of changing market conditions not previously factored in to ensure that all material risks are identified and monitored in a timely manner, including risks arising from the external environment, market fluctuations, anti-selection, misrepresentations, catastrophes, litigations and changes in the regulatory and legal environment; (v) adequate coverage of the internal audit function to ensure the timely identification of internal control weaknesses, adherence to regulatory requirements and internal policies and procedures, and proper accounting and capital treatment. The internal audit function should be independent of the product management and control functions that it reviews; and (vi) comprehensive and regular reports to the senior management and board on:- (a) the overall effectiveness of policies and procedures for managing product risks; (b) current assessment of product risks and any change in the direction of risk (please refer to paragraphs 6.10 (iii) and (iv)); (c) material changes in market conditions that may impact the product risk profile going forward; and (d) internal control breaches and weaknesses. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 14/22 Compliance with Shariah principles 6.12 For takaful products, takaful operators should ensure that effective Shariah compliance review processes are in place during the pre- and post-launch stages of a new product offering. In particular, takaful operators should ensure that:- (i) appropriate processes have been established to ensure proper Shariah governance and compliance with all Shariah requirements as described under the “Guidelines on the Governance of Shariah Committee for Islamic Financial Institutions” issued by the Bank. Specifically, all product proposals should be endorsed and validated by the Shariah Committee, including the terms and conditions contained in proposal forms, offer letters, agreements and other legal documents used in the transaction. Similarly, all product manuals, advertisements or marketing materials, product illustrations and brochures used to describe the product shall be endorsed by the Shariah Committee; (ii) all Shariah issues are thoroughly researched prior to the deliberation of the Shariah Committee; and (iii) there is an effective process in place to monitor Shariah compliance of products on an ongoing basis. This includes ensuring that all operational decisions concerning the product are conducted in a Shariah-compliant manner, for instance, ensuring that invested assets or risks to be covered under takaful products are Shariah-compliant. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 15/22 7. Fair Treatment of Consumers 7.1 Insurance companies and takaful operators are expected to give due regard to the interests of consumers in the development, marketing and sale of new products. The board should approve policies and procedures that describe the appropriate parameters and guidance for the fair treatment of consumers which should serve to avoid the potential for mis-selling, terms and conditions that are inherently unfair to consumers, and business practices that restrict the freedom of choice to consumers. 7.2 Policies and procedures regarding product offerings and sales activities should be aimed at mitigating reputational risk and safeguarding the insurance companies and takaful operators from liability under applicable anti-fraud and fair practice laws and regulations. More specifically, the policies and procedures should ensure that:- (i) an explicit consideration of consumer-related issues and implications is incorporated within the product development and authorisation stages; (ii) customers are fully informed through appropriate disclosures (such as in benefit illustrations and marketing materials provided to customers) of the key features, terms and conditions, relevant Shariah principles (where applicable) and risks associated with the product; (iii) products offered by the institution are appropriate for the target group of consumers taking into consideration their broad needs and risk appetite; (iv) fees and charges imposed on the consumer are equitable, and comply with Shariah rulings in the case of takaful products; BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 16/22 (v) staff and agents involved in sales are suitably trained in the products offered, in particular investment and savings products, to properly advise consumers; (vi) compensation arrangements for sales staff and agents do not induce an excessive bias towards high revenue-generating products that are likely to result in unsuitable product recommendations or sales to customers; (vii) customer information is adequately safeguarded; and (viii) an adequate and effective system for resolving and monitoring customer complaints is put in place, and customers are provided with information on where and how to lodge a complaint. Regular reports should be provided to senior management on trends in the volume and nature of complaints against the institution, and actions as well as the time taken to deal with complaints. The reports should provide a basis for senior management to assess the effectiveness of the complaints management process a n d to i d e n t i f y areas in which interventions are required (e.g. products which need to be enhanced in terms of their features or disclosures or inappropriate s elling practices). Such reports should be escalated to the board as appropriate, in the form and at frequencies determined by the board, to facilitate its effective oversight o f t h e institution’s product offering and customer relationships. 7.3 The policies and procedures should comply with relevant principles and guidance issued by the Bank as may be applicable. This includes, but is not limited to, principles concerning product transparency, proper advice, and fees and charges. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 17/22 Customer suitability assessments 7.4 Insurance companies and takaful operators should develop and implement internal customer suitability assessment procedures aimed at ensuring that products o f fe red, in particular products with investments and savings components, are only marketed to suitable customers. Customer suitability procedures should be designed to seek sufficient knowledge about the customer to establish that:- (i) the customer has a practical understanding of the features of the product and the risks assumed; (ii) the product would meet the customer’s investment objectives and horizon; and (iii) the product is consistent with the customer’s appetite for risk. 7.5 Components of effective customer suitability procedures include:- (i) processes that clearly describe the types of consumers that a product would generally be suitable for; (ii) clear lines of authority for approving transactions with customers that do not meet generic customer suitability categorisations; (iii) sales personnel and agents who are suitably trained to properly analyse customers’ needs and risk appetites; (iv) effective supervision of personnel and agents involved in sales; and (v) appropriate documentation and record keeping to facilitate reviews of compliance with approved procedures. 7.6 Insurance companies and takaful operators should not recommend products to customers unless the institution is reasonably satisfied that BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 18/22 the product is suitable for the particular customer on the basis of information sought and obtained from the customer. Greater due diligence is expected for new customers. 8. Supervisory Action 8.1 It is the responsibility of the senior management to ensure that the conditions and requirements set out in these Guidelines are adhered to at all times, with effective oversight by the board. For this purpose, the board is required to submit an annual attestation to the Bank at the end of each financial year that the conditions and requirements of the Guidelines have been met throughout the reporting period. In addition, upon request, insurance companies and takaful operators shall submit information on policies and procedures for managing product risk (including specific information on the institution’s IT system) and ensuring the fair treatment of consumers to the Bank. 8.2 Insurance companies and takaful operators that fail to meet the conditions and requirements under these Guidelines, or to satisfactorily manage its product risks and responsibilities to consumers, w i l l be subject to appropriate supervisory action by the Bank, which can include:- (i) subjecting any new products introduced by the institution to the prior review or specific approval of the Bank before the products may be offered; (ii) directing the institution to recall any product offered; (iii) directing the institution to compensate consumers that have suffered losses; (iv) directing the institution to modify the terms and conditions of any product offered, including any excessive or BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 19/22 unreasonable fees and charges imposed, based on a consideration of factors set out in part 7; (v) imposing additional capital charges to provide for additional risks that are not satisfactorily managed by the institution; and (vi) publishing details of corrective actions taken against the institution. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 20/22 Appendix 1: Information Requirements for New Products 1. Information requirements as provided under the following guidelines and circulars on insurance and takaful products (where applicable):- (i) JPI/GPI 23 (Revised) – Submission of Actuarial Certificate under Section 142 of the Insurance Act 1996 issued on 9 November 2006; (ii) JPI/GPI 34 - Code of Good Practice for Life Insurance Business issued on 9 November 2006; (iii) For medical and health insurance or takaful products:- § Minimum Standard on Product Disclosure and Transparency in the Sale of Medical and Health Insurance Policies issued on 5 May 2003; § Minimum Standard on Product Disclosure and Transparency in Marketing of Medical and Health Takaful Plans issued on 19 January 2004; § Guidelines on Medical and Health Insurance Business issued on 26 August 2005; § Guidelines on Medical and Health Takaful Business issued on 17 September 2007; (iv) For takaful products:- § Guidelines on Family Takaful Products issued on 11 August 2006; § Guidelines on International Currency Business Unit (Takaful Operator) issued on 25 September 2008; BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 21/22 (v) For investment-linked products:- § Guidelines on Investment-Linked Business issued on 29 September 2005. 2. Details of any arrangements (including distribution arrangements) with other parties/strategic alliances (if any) in offering the new product, including information about the third party strategic alliance, associated risks and actions taken to minimise or mitigate the identified risks. 3. Description of the product’s key inherent risks from both the insurance companies/takaful operators and consumers’ perspectives, and the systems and/or processes in place to manage the risks. 4. For new products distributed through internet, wireless or other electronic channels, insurance companies/takaful operators mus t submi t the following:- (i) an assessment of the IT-related risks5 and measures put in place to mitigate the risks; (ii) detailed description on application security and application architecture diagram; (iii) detailed IT and network security infrastructure arrangements; and (iv) detailed network diagram (where applicable) depicting external linkages and control checkpoint. 5 Examples of IT-related risks include strategic, compliance, system support, operational, security, business resumption and reputational risk. BNM/RH/GL 010-14 Prudential Financial Policy Department Guidelines on Introduction of New Products for Insurance Companies and Takaful Operators Page 22/22 Appendix 2: Shariah Information Requirements6 1. Product description, including name and features. 2. Product structure, including diagrams/transaction flows. 3. Type of Shariah contract used. 4. Shariah Committee’s deliberation, including :- (i) Shariah issues arising from the proposed structure; (ii) issues on takyif fiqhi (fiqh confirmation) 7; and (iii) the appropriate current Shariah ruling and/or recognised Shariah standard (if any). 5. Validation by all Shariah committee members. 6. Other relevant supporting documents. 6 The above format shall be used for the submission of information on new products and services, and presentation of takaful product proposals to the Bank and the Bank’s Shariah advisory council. 7 To state Shariah reference source.	Public Notice
25 Aug 2010	Newly updated: Microfinance Comparative Table	https://www.bnm.gov.my/-/newly-updated-microfinance-comparative-table	https://www.bnm.gov.my/documents/20124/761709/Comparative_table_Aug10_ENGLISH.pdf	null	Reading: Newly updated: Microfinance Comparative Table Share: Newly updated: Microfinance Comparative Table Release Date: 25 Aug 2010 The Comparative Table on Microfinance has just been updated. The PDF format document is available for download from BNM website. © 2024 Bank Negara Malaysia. All rights reserved.	Agrobank COMPARATIVE TABLE ON PEMBIAYAAN MIKRO PRODUCT FEATURES FEATURES AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE BANK AMBANK CIMB BANK EONCAP ISLAMIC BANK PUBLIC BANK UNITED OVERSEAS BERHAD Public Hotline Numbers • Headquarters 03-2731 1600 ext. 2040 / 2033 / 2034 / 2036 / 2037 • Kuala Lumpur 03 -2691 2754 • Johor Bahru 07-2247 788 • Kota Kinabalu 082-424 577 • Kuching 088 -288 237 • Kuala Lumpur 03-4027 2500 Direct line: 03-4027 2536 / 08 / 10 / 11 / 12 • Kota Kinabalu 088-256 657 / 8 • Kuching 082-237 159 / 177 • Kuala Lumpur 03-2142 5258 / 03-2162 3222 ext. 7303 / 7312 / 7322 / 7324 • Sabah: 088-215 600 • Sarawak: 082-417 971 • Kedah: 04-7335 554 • Johor: 07-2234 718 • Pahang: 09-5165 079 • Terengganu: 09-6227 622 • Melaka: 06-2836 001 • Penang: 06-2263 211 • Perak: 05-2414 400 • Kuala Lumpur 03-6250 2610 • Penang 04-540 1100 • Johor 07-353 7105 • Kuala Terengganu 09-630 1290 • Sabah 088-432 420 • 03-2167 3000 ext. 81421 / 81147 / 82640 / 73879 / 81228 • 088-280 105 • 082-207 200 • 1-300-880 900 • 03-2035 2200 • 03-2616 1222 / 03- 2616 1133 • 1-800-22-9999 • Kuala Lumpur 03- 26128121 • Penang 04- 2401121 • Johor Bahru 07- 2881121 • Kuching 082- 287121 • Kota Kinabalu 088- 477121 Product Name • Modal Usahawan 1 Malaysia (MUS1M) (Conventional and Islamic) • Skim Pembiayaan Mikro-i (MUsK) (MUsK - Modal untuk Usahawan Kecil) • BSN TemaNiaga • BSN TemanMesra • BSN TemaNiaga-i • Rakan Personal Financing (Conventional) • AmMikro • Xpress Cash Financing-i (Islamic) • Pembiayaan Peribadi-i Pesara Tentera (3P) • PBMicro Finance • EasiCash • Pembiayaan Peribadi-i Pesara Kerajaan (3PK) • Rakan Personal Financing-i (Islamic) • Pembiayaan Peribadi Gratuiti (JPA) • Pembiayaan Peribadi Gratuiti (Tentera) • RM1,000 – RM50,000 • RM1,000 - RM50,000 • RM5,000 – RM50,000 • RM2,000 – RM50,000 • RM3,000 – RM50,000 • RM3,000 – RM50,000 • RM5,000 – RM50,000 • RM3,000 – RM50,000 Loan Size • RM5,000 – RM50,000 Purpose of financing • Working capital • Capital expenditure • Working capital • Working capital • Capital expenditure • Working capital • Capital expenditure • Working capital • Working Capital • Capital Expenditure • Working capital • Working capital • Capital expenditure • Working capital • Capital expenditure • Capital expenditure • Capital expenditure • Capital expenditure • All sectors • All sectors Eligible Economic Sector • All sectors • Agriculture • Services • Retailing and trade • Manufacturing • Manufacturing • Retailing • All sectors • Retail • Agriculture • Services • Wholesale • Services and trade • Manufacturing • Services and t rade • Manufacturing • All sectors Eligible Customers • Micro enterprises (Including part-time micro enterprises) • Members of cooperatives and Hawkers & Petty Traders Association • Full-time micro enterprises • Micro enterprises • Self-employed individuals • Micro enterprises • Self-employed individuals • Individuals • Sole-proprietors • Partnerships • Private limited companies • Salaried workers • Self employed individuals (Micro enterprises) • Ex-army( 3P) • Government pensioner (3PK) • Retiring Government servant (Gratuity JPA) • Retiring Army (Gratuity Army) • Self-employed individuals • Micro enterprises • Self-employed individuals Tenure • 3 months - 5 years • 1 month - 5 years • 1 – 5 years • 6 months – 5 years • 1 – 5 years • 6 months – 5 years • 3 – 15 years • 1 – 5 years 2 – 5 years Committed approval time • 4 working days • 10 working days • 6 working days (Subject to complete documentation) • 2 working days • 2 working days (Subject to complete documentation) • 1 working day • 5 working days • 6 working days • 2 working days (Upon receipt of complete documentation) Updated on 29 July 2010 1 Disclaimer: Comparative table displayed here serve only as a guide, not recommendation. Please consult your financial institution before making any decisions COMPARATIVE TABLE ON PEMBIAYAAN MIKRO PRODUCT FEATURES FEATURES AGROBANK BANK RAKYAT BANK SIMPANAN NASIONAL ALLIANCE CIMB EONCAP ISLAMIC BANK PUBLIC BANK UNITED OVERSEAS BERHAD AMBANK • 3-5 working days • 1 working day • 4 working days (After acceptance of letter offer / loan agreement) • 1 working day • 3 - 5 working days • 1 day after approval • 3 - 5 working days • PBMicro Finance (With CGC): 4 working days from receipt of CGC guarantee cover Committed disbursement time • PBMicro Finance (Without CGC): 4 working days ( CGC – Credit Guarantee Corporation Scheme) • 7 working days Eligibility Criteria • Age between 21 - 60 years old • At least with 1 year business / project experience • Has valid business permission (License, tenant agreement etc) • Place of residence close to business / project site • Age between 18 - 65 years old • Cooperative / Hawkers and Petty Traders Associations member • Belongs to a self- help group • Full-time owner operating a business • At least with 2 years business experience • Place of residence is within the business vicinity • Have valid business license / permit / registration • Age between 21 - 60 years old • Have valid business license / permit/ registration Business Enterprises • Individuals aged between 18 – 60 years old (Age limit at maturity date) • Individuals / sole proprietors / partnerships / private limited companies • Age between 21 – 60 years old • Minimum of RM800 monthly gross income Individuals • Retiring / ex-Malaysia Armed Force (Under the pension scheme) • Operator age between 25 - 60 years old • Aged between 25 – 60 years old • Have valid business license / permit • Business must be owner operated and on a full-time basis • Minimum of RM48,000 per annum turnover • Retiring / former civil servant (Under the pension scheme) • Have been in business continuously for at least 6 months • Fulltime involvement in the business • Maximum RM1million per annum turnover • 6 months working / 6 months in business • Maximum age upon application: 67 years old • Minimum 3 years in business • At least with 1 year of business experience • Have permanent residential address • Mandatory to open savings account and sign up for credit protector insurance • Have valid business license / permit / registration • 1-3% rebate on interest for customers with prompt payment conduct • Has valid business registration Business Enterprises • Companies registered with Companies Commission of Malaysia (Subject to banks discretion) • Have valid business license / permit • Business must be owner operated and on a full-time basis • Have relevant business experience • Age between 21 – 55 years old Self-employed • Minimum of RM30,000 yearly income • Minimum 3 years consecutively in the same business Common Documents Required • Identity card (Borrower and spouse) • Identity card • Identity card • Identity card • Identity card • Identity card • Identity card • Identity card • Identity card • Proof of business operations (E.g. business registration / license / permit) • Proof of business operations (E.g. business valid registration / license / permit) • Proof of business operations (E.g. business registration / license/permit) • Proof of business operations (E.g. business registration / license / permit) • Proof of business operations (E.g. business registration / license / permit) • Pensioner’s card • Proof of business operations (E.g. business registration / license / permit) • Proof of business operations (E.g. business registration / license / permit) • Proof of business operations (E.g. business registration / license permit) • Business registration / permit / license • Proof of business operations (E.g. business registration / license / permit) • Proof of income (E.g. sales record, bank statements) • Proof of income by copy of latest 3 months bank statement / passbook / or copy of business site visit report or copy of latest certified financial statement • Proof of income (E.g. bank statement) • Proof of income (E.g. bank statement) • Proof of income (E.g. bank statement) • Proof of income (E.g. latest Form B/BE - with tax payment receipt, latest 3 months bank statements, or latest copy of credit/charge card(s) of at least 1 year) • Proof of income (E.g. bank statement) • Proof of income (E.g. bank statement) • Operating permits / licenses (Applicable only to specific industries such as transportation, rice trading etc) • Other relevant documents • Other relevant documents • Utility bills • Utility bills • Proof of income (E.g. bank statement) • Other relevant documents • Other relevant documents • Recommendation letters from panel cooperatives and self-help group members • Other relevant documents • Utility bills • Utility bills • Other relevant documents • Other relevant documents • All Agrobank branches that display the national Pembiayaan Mikro logo • All Bank Rakyat branches that display the national Pembiayaan Mikro logo • All Bank Simpanan Nasional branches that display the national Pembiayaan Mikro logo • All Alliance Rakan branches & Alliance Bank branches that display the national Pembiayaan Mikro logo • All AmBank branches that display the national Pembiayaan Mikro logo • All CIMB branches that display the national Pembiayaan Mikro logo • All EONCAP Islamic Bank branches that display the national Pembiayaan Mikro logo • All Public Bank branches that display the national Pembiayaan Mikro logo • All United Overseas Bank branches that display the national Pembiayaan Mikro logo Product Delivery Channel • All Felda offices that display the national Pembiayaan Mikro logo • Dedicated BSN Microfinance Centers that display the national Pembiayaan Mikro logo 2 Disclaimer: Comparative table displayed here serve only as a guide, not recommendation. Please consult your financial institution before making any decisions	Public Notice
22 Jul 2010	Newly published: Guidelines on Financial Reporting for Insurers	https://www.bnm.gov.my/-/newly-published-guidelines-on-financial-reporting-for-insurers	null	null	Reading: Newly published: Guidelines on Financial Reporting for Insurers Share: Newly published: Guidelines on Financial Reporting for Insurers Release Date: 22 Jul 2010 Guidelines on Financial Reporting for Insurers is now available on BNM website. © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
15 Jul 2010	Over 1 million people visited Bank Negara Malaysia's website	https://www.bnm.gov.my/-/over-1-million-people-visited-bank-negara-malaysia-s-website	null	null	Reading: Over 1 million people visited Bank Negara Malaysia's website Share: Over 1 million people visited Bank Negara Malaysia's website Release Date: 15 Jul 2010 Over 1 million people visited our website since 1st January this year. As of 15 July 2010, our monitoring system shows that 1,002,795 absolute unique visitors have visited our website. Compared to the same period last year, there is an increase of about 18% in the number of people coming to our website. The number of visits has also increased by 14% accordingly. The website Administrator Team would like to thank all our users for your support and loyalty to our site. We hope that this website has served you and has met your expectation. Do let us know if we can improve the site to serve you better. Once again, thank you! Our performance now (1st January 2010 - 15 July 2010)Our performance before (1st January 2009 - 15 July 2009) © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice
15 Jul 2010	Newly published: Guideline on Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3)	https://www.bnm.gov.my/-/newly-published-guideline-on-capital-adequacy-framework-for-islamic-banks-cafib-disclosure-requirements-pillar-3-	https://www.bnm.gov.my/documents/20124/761709/20100101_B_CA_0008.pdf	null	Reading: Newly published: Guideline on Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Share: Newly published: Guideline on Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Release Date: 15 Jul 2010 Guideline on Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) is now available on BNM website. © 2024 Bank Negara Malaysia. All rights reserved.	Concept Paper - Risk Management Guidelines on Risk Governance BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) PART A: OVERVIEW........................................................................................................ 1 1. Introduction ...................................................................................................... 1 2. Applicability...................................................................................................... 3 3. Legal Provisions.............................................................................................. 3 4. Effective Date of Implementation................................................................ 3 PART B: GENERAL REQUIREMENTS......................................................................... 5 5. Disclosure Policy ............................................................................................ 5 6. Medium and Location of Disclosure .......................................................... 6 7. Comparative Information .............................................................................. 6 8. Frequency of Disclosure............................................................................... 7 PART C: SPECIFIC DISCLOSURE REQUIREMENTS ..............................................8 9. Specific Disclosure Requirements............................................................. 8 10. Risk Management..........................................................................................11 11. Disclosures on profit sharing investment accounts (PSIA) & Shariah Governance.....................................................................................22 PART D: APPENDICES..................................................................................................26 Appendix I. Illustrative Disclosures on Capital Adequacy under the Standardised Approach ............................................................26 Appendix ll. Illustrative Disclosures on Credit Risk : Disclosures on Risk Weights under the Standardised Approach...............27 Appendix llla. Illustrative Disclosures on Rated Exposures according to Ratings by ECAIs ................................................................... 28 Appendix lllb. Illustrative Disclosures on Rated Exposures according to Ratings by ECAIs ................................................................... 29 Appendix IIIc. Illustrative Disclosures on Securitisation according to Ratings by ECAIs ........................................................................ 30 BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Appendix llld. Illustrative Examples on Exposures Subject to the Supervisory Risk Weights under the IRB Approach ......... 31 Appendix llle. Illustrative Examples on Exposures under the IRB Approach by Risk Grade or PD Band.................................... 32 Appendix lllf. Illustrative Example on Retail Exposures under the IRB Approach by Expected Loss Range ...................................... 33 Appendix IV. Illustrative Disclosures on Credit Risk Mitigation..............34 Appendix V. Illustrative Disclosures on Off Balance Sheet and Counterparty Credit Risk ..........................................................35 Appendix VI. Illustrative Disclosures on Securitisation (Trading and Banking Book) .............................................................................36 Appendix VII. Illustrative Disclosures: Summary of Current Year’s Securitisation Activities (Trading and Banking Book)...... 37 Appendix Vlll. Illustrative Disclosures on Securitisation under the Standardised Approach for Banking Book Exposures .... 38 Appendix lX. Illustrative Disclosures on Securitisation under the Standardised Approach for Trading Book Exposures...... 39 Appendix X. Illustrative Disclosures: Disclosures on Market Risk – Interest Rate Risk/ Benchmark Rate Risk in the Banking Book...............................................................................40 Appendix Xl. Illustrative Disclosures on indicators of Displaced Commercial Risk (DCR).............................................................41 BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 1 of 38 PART A: OVERVIEW 1. Introduction 1.1 The Guidelines forms part of the Capital Adequacy Framework for Islamic Banks (CAFIB) that specifies the disclosure requirements for: (i) credit risk under the standardised and internal rating based (IRB) approach; (ii) market risk under the standardised and internal models approach; and (iii) operational risk under the basic indicator or standardised approach. 1.2 Improved transparency in the financial markets, underpinned by high quality and timely market disclosures, will enhance market discipline as well as market efficiency and public confidence. The Pillar 3 disclosure requirements aim to enhance transparency by setting the minimum requirements for market disclosures of information on the risk management practices and capital adequacy of Islamic banks. This will enable market participants to obtain key information on risk exposures, risk assessment processes, the capital structure and capital adequacy of Islamic banks. 1.3 The enhanced disclosures will also contribute to Bank Negara Malaysia’s (the Bank) supervisory monitoring efforts while strengthening incentives for Islamic banks to implement robust risk management systems to identify, measure, monitor and control risks. This is achieved by requiring Islamic banks to provide detailed information on their risk exposures and how these risks are managed and how they relate to capital. 1.4 In general, disclosures should be consistent with the scale, complexity and sophistication of Islamic banks’ approaches to risk management and capital adequacy assessments. Accordingly, more disclosures would be expected of Islamic banks using the more sophisticated approaches under the CAFIB such as the IRB approach. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 2 of 38 1.5 The disclosures required will include qualitative and quantitative disclosures with respect to credit risk, market risk, operational risk, rate of return risk in the banking book, management of Profit Sharing Investment Account (PSIA) and key aspects of Shariah governance. 1.6 The disclosure requirements listed in the various tables u n d e r the Guidelines represent the minimum standards expected by the Bank. Islamic banks are encouraged to make more extensive disclosures. Some illustrative examples on quantitative disclosures have been provided in the Appendices as a guide and may serve as a base f o r Islamic banks’ disclosures. Islamic banks should disclose the information in the format that best represent their risk exposures and risk management practices. The Bank may require more extensive disclosures where warranted, to promote comparability among Islamic banks in the same peer group or to reflect changing accounting and disclosure practices. 1.7 The Bank is aware that the disclosure requirements under the Guidelines may have similarities with other disclosure requirements such as those required under Financial Reporting Standards 7 , ‘Financial Instruments: Disclosures’ (FRS 7), Guidelines on Financial Reporting for Islamic Banks (BNM/GP8-i) and listing requirements. To the extent that any of the disclosures required in the Guidelines are substantially similar to the abovementioned disclosure requirements, Islamic banks may rely on those disclosure requirements to meet the requirements of the Guidelines. 1.8 Where more extensive disclosures are required under other statutory reporting requirements, Islamic banks shall comply with such disclosure requirements. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 3 of 38 2. Applicability 2.1 The Guidelines is applicable to the following institutions: (i) All Islamic banks licensed under Section 3(4) of the Islamic Banking Act 1983 (IBA). These institutions will hereafter referred to as Islamic banks; and (ii) All banking institutions participating in the Islamic Banking Scheme licensed under the Banking and Financial Institutions Act 1989 (BAFIA). These institutions will hereafter referred to as Islamic windows. 3. Legal Provisions The Guidelines is issued pursuant to section 14 and section 53A of IBA; and section 126 of BAFIA. 4. Effective Date of Implementation 4.1 The full disclosure requirements under the Guidelines shall apply to and be published together with the annual financial reports for the annual reporting periods beginning on and after 1 January 2010 and is illustrated as follows: Financial year beginning First set of full CAFIB Disclosure 1 January 2010 31 December 2010 1 April 2010 31 March 2011 4.2 Thereafter Islamic banks shall make semi-annual disclosures based on the full disclosure requirements under the Guidelines in accordance with paragraph 8.1. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 4 of 38 4.3 Prior to the effective date for full disclosure requirements under the Guidelines, Islamic banks shall disclose the following in the financial reports: Annual and Half-Yearly Reports Quarterly Reports · Statement that the capital ratios have been computed in accordance with the CAFIB · Statement that the capital ratios have been computed in accordance with the CAFIB · Items 2 to 7 in table 2 · Item 2 in table 2 · Items 2 to 5 in table 3 · Items 2 to 5 in table 3 · Item 2 in table 5 · Item 5 in table 5.1 (additional disclosure requirements for Islamic banks under the IRB approach) · Item 2 in table 7 · Item 2 in table 9 BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 5 of 38 PART B: GENERAL REQUIREMENTS 5. Disclosure Policy 5.1 Islamic banks must have a clearly defined disclosure policy in writing, approved by the board of directors that addresses the approach to determining the content (including the appropriateness), materiality1, frequency of public disclosures and internal controls over the disclosure process. These internal controls must include a process for verifying and reviewing the accuracy of the disclosures. 5.2 The verification of disclosures must be performed b y a competent independent internal party and shall cover all disclosure items required under the Guidelines. Such verification should ensure that the Islamic banks disclosures are consistent with the manner in which the institution assesses and manages its risks. 5.3 The Bank does not require the disclosures on CAFIB to be audited by external auditors. Nevertheless, Islamic banks shall be responsible to ensure that the disclosures are accurate, complete and not misleading. An attestation to this effect shall be provided by t h e Islamic banks’ Chief Executive Officer as part of the CAFIB disclosure. The Bank reserves the right to require an independent audit by an external auditor at the Islamic banks’ expense if it has reason to believe that any disclosure is incorrect, incomplete or misleading. 1 Information is regarded material if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making investment or other economic decisions. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 6 of 38 6. Medium and Location of Disclosure 6.1 The disclosures on CAFIB shall be reflected in a separate report in the annual and the semi annual financial reports, after the notes to the financial statements. Where the disclosure requirements of the Guidelines a re reported in the financial reports or notes to the financial statements as required by other statutory reporting requirements, such disclosures are deemed to have met the requirements of the Guidelines. 6.2 In addition, the CAFIB disclosures must be made available on the Islamic banks’ external website. This shall also include disclosure requirements in paragraphs 8.1 and 8.2. 6.3 For Islamic windows, the disclosure requirements specified in paragraph 9.2 shall be disclosed separately in the Risk Weighted Capital Adequacy Framework (RWCAF) disclosure report of banking institutions. 7. Comparative Information 7.1 Comparative information regarding quantitative disclosures for the preceding financial year must be reported. 7.2 The following exceptions are permitted: (i) Adoption and disclosure of CAFIB for the first time where there are no corresponding disclosures in the previous reporting period; and (ii) For Islamic banks that adopt a different approach (subject to approval obtained from the Bank) to compute its regulatory capital for credit, market or operational risks from that used in the preceding reporting period. 7.3 Where there has been a material restatement of prior period figures, the nature of and the reason for the restatement must be also be highlighted and form part of the disclosure. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 7 of 38 8. Frequency of Disclosure 8.1 Full disclosure requirements under the Guidelines shall be made by Islamic banks on an annual and semi-annual basis except for disclosures under paragraph 10.1 and all qualitative disclosures which may be made on an annual basis if there are no material changes in the interim reporting period. 8.2 For quarterly reporting, Islamic banks need to disclose a statement that the capital ratios have been computed in accordance with the CAFIB as well as item (2) in Table 2 and items (2) to (5) in Table 3. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 8 of 38 PART C: SPECIFIC DISCLOSURE REQUIREMENTS 9. Specific Disclosure Requirements 9.1 The disclosure requirements under the Guidelines shall apply to all Islamic banks on a consolidated2 basis, unless indicated otherwise. 9.2 Islamic windows shall separately disclose the following information in the RWCAF disclosure report of the banking institution: (i) Table 2 (Capital Adequacy) (ii) Table 3 (Capital Structure), items 1 to 3 (iii) Table 14 (Disclosure on Profit Sharing Investment Accounts) (iv) Table 15 (Shariah Governance) 9.3 Islamic banks shall disclose all information set out hereunder. Table 1: Scope of Application Type of Disclosures Item Disclosure Requirements 1. The name of Islamic bank at the group level which is incorporated in Malaysia to which the CAFIB framework apply. 2. An outline of differences in the basis of consolidation for accounting and regulatory purposes, with a brief description of the entities within the group (i) that are fully consolidated, (ii) that are pro-rata consolidated, (iii) equity accounted and (iv) that are given a deduction treatment. Qualitative Disclosure 3. Any restrictions or other major impediments on transfer of funds or regulatory capital within the group. Quantitative Disclosure 4. The names and aggregate amount of capital deficiencies3 in any subsidiaries that are not included in the consolidation for regulatory purposes (i.e. that are deducted) should also be disclosed. 2 As defined under the RWCAF and CAFIB (General Requirements and Capital Components). 3 A capital deficiency is the amount by which actual capital is less than the regulatory capital requirement imposed by a regulatory authority. In the case of a locally incorporated Takaful subsidiary owned by Islamic banks (if any), the capital deficiency to disclosed shall be in reference to the Risk-Based Capital Framework for Takaful (requirement is pending to the issuance of the Framework). BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 9 of 38 Table 2: Capital Adequacy Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. A summary discussion on the approach for assessing the adequacy of internal capital levels to support current and future activities. 2. Total Risk Weighted Capital Ratio and Tier 1 capital ratio: · On a consolidated basis, before and after payment of dividends; · On a global4 basis, before and after payment of dividends; · In respect of each banking subsidiary5 before and after payment of dividends; and · Before and after the effect of PSIA.6 3. Risk weighted assets and capital requirements for credit risk under the standardised approach: · The gross credit exposure7 by class of exposure, credit exposure after credit risk mitigation and netting, and the corresponding risk weighted assets under the standardised approach. · The amount of risk weighted assets absorbed by the PSIA. · The amount of risk weighted assets after the effects of PSIA. Refer to (Appendix I) Quantitative Disclosure 4. Risk weighted assets and capital requirements for credit risk under the IRB approach: · To separately disclose each portfolio under the foundation IRB (FIRB) and advanced IRB (AIRB) approach: · Sovereigns and Central Banks; · Banks, DFIs and MDBs; · Corporate (including specialised lending (SL) and corporate purchased receivables); 4 Includes the Islamic banks’ exposures in local and overseas branch operations, and Labuan banking subsidiaries, for which explicit guarantee has been provided. 5 For a significant overseas subsidiary, the disclosures may be based on capital adequacy rules in the overseas jurisdiction, provided that this is disclosed in an explanatory note that includes a brief description of the basis of the calculation and the approach applied to each major risk type in the overseas jurisdiction. 6 As specified in the Bank’s ‘Guidelines on the Recognition and Measurement of Profit Sharing Investment Account as Risk Absorbent’. 7 Definition of exposures in this table shall have the same definition as the various categories of exposures under the CAFIB. Gross credit exposure class shall be net of specific impairment provisions and without taking into account the effects of netting and credit risk mitigation. Gross credit exposure shall include on-balance sheet exposures and credit equivalent of off -balance sheet items. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 10 of 38 Type of Disclosures Item Disclosure Requirements · Residential mortgages; · Retail purchased receivables; · Qualifying revolving retail exposures; · Other retail exposures; · Securitisation exposures; · Equity portfolios subject to the market based approaches; Equity portfolios subject to simple risk weight method; and Equity in the banking book under the internal models approach (for banks using IMA for banking book equity exposures); · Equity portfolios subject to PD/ LGD approach · Risk weighted assets absorbed by the PSIA; and · Risk weighted assets after the effects of PSIA Refer to (Appendix l) 5. Risk weighted assets and capital requirements for market risk: · The amount of exposures in the trading book and risk weighted assets for market risk under either the Standardised or the Internal Models approach, as applicable · The amount of risk weighted assets absorbed by PSIA. · The amount of risk weighted assets after the effects of PSIA. Refer to (Appendix I) 6. Risk weighted assets and capital requirements for operational risk based on either the: · Basic indicator approach; or · Standardised approach. Refer to (Appendix I) 7. Amount in excess of lowest threshold, risk weighted assets and capital requirements arising from Large Exposure Risk for equity holdings as specified in the Bank’s ‘Guidelines on Investment in Shares, Interest-in- Shares and Collective Investment Schemes for Islamic banks’. Refer to (Appendix I) Table 3: Capital Structure BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 11 of 38 Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. Summary information on the terms and conditions of the main features of all capital instruments, including innovative, non-innovative, complex or hybrid capital instruments. 2. The amount of Tier 1 capital on a global and consolidated basis, with separate disclosure of: · Paid up share capital/ Islamic banking fund; · Reserves, including retained earnings; · Minority interests in subsidiaries; · Innovative instruments; · Non-innovative instruments; · Other capital instruments; · Other amounts deducted from Tier 1 capital, including goodwill and investments. 3. The components and total amount of Tier 2 capital on a global and consolidated basis subject to the permitted limit. 4. Other deductions from capital on a global and consolidated basis. Quantitative Disclosure 5. Total eligible capital on a global and consolidated basis. 10. Risk Management 10.1 In general, for each type of risks, Islamic banks must describe their risk management objectives and policies including: (i) Strategies and processes for managing those risks; (ii) The structure and organisation of the relevant risk management function, including the title or position of board and senior management members that oversee risk management; (iii) The scope and nature of risk reporting and measurement systems; (iv) Policies for hedging and mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges and mitigants; and BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 12 of 38 (v) A general description of the internal capital adequacy assessment process8 including a description of the methodologies used. 10.2 In addition, Islamic banks shall disclose the following additional information for the different risks as described below. Table 4: Credit Risk (General Disclosures)9 Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. In addition to the general disclosures required under paragraph 10.1, the following shall be disclosed: · Definitions of past due and impaired financing; and · Description of approaches followed for the determination of individual and collective impairment provisions. 2. Geographic10 distribution of credit exposures, broken down in significant areas by major types of gross credit exposure. 3. Distribution of exposures by sector or economic purpose, broken down by major types of gross credit exposures. 4. Residual contractual maturity breakdown by major types of gross credit exposures. 5. For each sector or economic purpose: · Amount of impaired financing, advances and other loans and past due financing, provided separately; · Individual and collective impairment provisions; and · Charges for individual impairment provision and write offs during the period. 6. Amount of impaired financing, advances and financing and past due financing provided separately and broken down by significant geographic areas. The amounts of individual and collective impairment provision related to each geographical area11. Quantitative Disclosure 7. Reconciliation of changes financing impairment provisions12 . 8 As specified in the ‘CAFIB – Supervisory Review Process (Pillar 2)’. 9 Table 4 does not apply to equities and securitisation exposures. 10 This may comprise of individual countries, groups of countries or states within a country. BIs may choose to define the geographical areas based on the way the portfolio is geographically managed. The criteria to allocate financing to geographical areas should be specified. 11 The portion of collective impairment provision that is not allocated to a geographical area should be disclosed separately. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 13 of 38 Table 5: Credit Risk (Disclosures for portfolios under the Standardised Approach) Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. For portfolios under the standardised approach: · Names of External Credit Assessment Institution (ECAIs) used, plus reasons for any changes; · Types of exposure for which each ECAI is used; · A description of the process used to map ECAI issuer ratings or comparable ECAI issue ratings, as the case may be, to a Islamic banks’ exposures in the banking book; and · Where applicable, the alignment of the alphanumerical scale of each ECAI used with the relevant risk weights.13 2. Disclosure by risk weights (including deducted exposures) of: · All rated and unrated exposure amounts after risk mitigation; (Refer to Appendix II) · Credit exposures under Specialised Financing/Investment subject to supervisory slotting criteria. (Refer to Appendix II) Quantitative Disclosure 3. Disclosure of rated and unrated exposures according to ratings by ECAIs. (Refer to Appendix IIIa to lllc) Table 5.1: Credit Risk (Disclosures for portfolios under the IRB Approach) Type of Disclosures Item Disclosure Requirements 1. Statement that the Bank had approved the Islamic bank’s adoption of the IRB approach Qualitative Disclosure 2. Explanation and review of the following: · Structure of internal rating systems and its relation with external ratings; · Circumstances where internal estimates are used other than for IRB capital purposes; · Process for managing and recognising credit risk 12 The reconciliation should show separately, individual and collective impairment provisions and the information disclosed should comprise a description of the type of impairment provision, the opening balance of the impairment provision, charge offs taken against the impairment provision during the period, amounts set aside for estimated probable financing losses during the period, any other adjustments including transfers between impairment provisions and the closing balance of the impairment provision. Charge offs and recoveries that have been taken directly to the income statement should be disclosed separately. 13 This information should be disclosed if standard risk weights used are different from the CAFIB, in the case of overseas subsidiaries where the overseas regulator uses a different risk weight for rating by its local ECAIs. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 14 of 38 Type of Disclosures Item Disclosure Requirements mitigation; and · Controls in respect of the rating system including discussions on independence, accountability and rating systems review 3. Description of the internal ratings process, provided separately for the following portfolios: · Sovereigns and Central Banks; · Banks, DFIs and MDBs; · Corporates (including specialised lending (SL) not subject to supervisory slotting criteria and corporate purchased receivables); · Residential mortgages; · Retail purchased receivables; · Qualifying revolving retail exposures; · Other retail exposures; · Securitisation exposures; and · Equity portfolios subject to the PD/ LGD approach The description should include, for each portfolio: · The types of exposures included in the portfolio; · The definitions, methods and data for examination and validation of PD, and (for retail portfolios and portfolios under the AIRB approach) LGD and EAD Islamic banks must provide a description of permitted deviations from the reference definition of default where material, including the broad segments of the portfolios affected by such deviations14 4. For exposures subject to the supervisory risk weights in IRB (e.g. specialised lending exposures subject to the supervisory slotting criteria and equities under the simple risk weight method), the aggregate amount of exposures outstanding in each bucket Refer to (Appendix llld) Quantitative Disclosure 5. i. For each portfolio (as defined in item 3 above) except for retail, present the following information across a sufficient number of PD grades (including default) to allow for a meaningful differentiation of credit risk: · Total exposures; · For Islamic banks on AIRB, exposure weighted average LGD; and · Exposures-weighted average risk weights ii. For Islamic banks on AIRB, amount of undrawn commitments and exposure-weighted average EAD for 14 Islamic banks would have to demonstrate to the Bank that the deviations will not materially affect the accuracy of the estimates generated by the Islamic banks’ rating system BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 15 of 38 Type of Disclosures Item Disclosure Requirements each portfolio iii. For each retail portfolio, either: · Disclosures as outlined above on a pool basis; or · Analysis of exposures on a pool basis (outstanding loans and EAD on commitments) against a sufficient number expected loss (EL) range to allow for a meaningful differentiation of credit risk. Islamic banks may choose either approach for disclosure Refer to (Appendix llle and lllf) 6. Islamic banks must disclose actual losses (e.g. write offs and impairment provisions) in the preceding period for each portfolio and how this differs from past experience, including an explanation of factors that affected the loss experienced in the preceding period. For example, reasons for higher than average default rates or higher than average LGDs and EADs experienced during the year. 7.15 On an annual basis, analysis of actual outcome against internal estimates over a sufficient period to facilitate assessment of the reliability of the estimates used by the Islamic bank. At a minimum, this should include an analysis for each portfolio · Where appropriate, the Islamic bank should provide a detailed analysis of PD, and for Islamic banks on AIRB, LGD and EAD outcomes against estimates provided in the quantitative risk assessment disclosures above. In particular, an Islamic bank should provide this information where there are material differences between the PD, LGD or EAD estimates made by the Islamic banks as compared to actual outcomes over the long run. The Islamic banks should also provide explanations for material differences 15 This requirement is exempted only for the first time adoption and disclosure of CAFIB as there were no corresponding estimates made during the previous reporting year. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 16 of 38 Table 6: Credit Risk Mitigation (CRM) Disclosures Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. The general qualitative disclosure requirements with respect to CRM required under paragraph 10.1 shall include: · Policies and processes for, and indication of the extent to which the Islamic banks make use of, on and off balance sheet netting; · Policies and processes for collateral valuation and management; · A description of the main types of collateral taken by the Islamic banks; · The main types of guarantor and their creditworthiness; and · Information about (market or credit) risk concentrations within the mitigation taken. Quantitative Disclosure 2. For each separately disclosed category of exposures16 including off balance sheet items under the standardised and/or IRB approach, the total exposure (after, where applicable, eligible netting benefits) that is covered by: · Eligible guarantees; and · Eligible collateral after the application of haircuts allowed under the CAFIB. Refer to (Appendix IV) Table 7: General Disclosures for Off-balance Sheet exposures and Counterparty Credit Risk (CCR) Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. In relation to general disclosures required under paragraph 10.1, Islamic banks shall disclose: · Credit limits for counterparty credit exposures for over-the-counter (OTC) derivative transactions and sales and buy-back agreement related transactions (SBBA)17 booked in its trading and banking book; · The policies for securing collateral and establishing credit reserves; and · A discussion of the impact of the amount of 16 Definition of exposures in this table shall have the same definition as the various categories of exposures under the CAFIB. 17 Refers to Islamic repurchase agreement (Repo-i) transaction whereby a party (SBBA seller) sells Islamic securities at an agreed price to the other party (SBBA buyer) and subsequently the SBBA buyer and SBBA seller enter into another agreement whereby the former promises to sell and the latter to buy back the securities on a specified future date and at an agreed price. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 17 of 38 Type of Disclosures Item Disclosure Requirements collateral the Islamic banks would have to provide given a credit rating downgrade. Quantitative Disclosure 2. Islamic banks shall disclose: · The principal amount, the gross positive fair value of contracts, credit equivalent amount, and risk weighted asset of derivative contracts; and · The principal amount, credit equivalent amount and risk weighted asset of off-balance sheet items. Refer to (Appendix V) Table 8: Securitisation Disclosures under the Standardised Approach Type of Disclosures Item Disclosure Requirements 1. In addition to the general disclosures required under paragraph 10.1, Islamic banks should include a discussion of: · The Islamic banks’ objectives in relation to securitisation activity, including the extent to which these activities transfer credit risk of the underlying securitised exposures away from the Islamic banks to other entities; · The nature of other risks (e.g. liquidity risk) inherent in securitised assets; · The roles played by the Islamic banks in the securitisation process18 and an indication of the extent of the Islamic banks’ involvement in roles; · A description of the processes in place to monitor changes in the credit and market risk of securitisation exposures (e.g. how the behaviour of the underlying assets impacts securitisation exposures); and · A description of the Islamic banks’ policy governing the use of credit risk mitigation to mitigate the risks retained through securitisation exposures. Qualitative Disclosure (banking and trading book positions) 2. A list of: · The types of special purpose vehicles (SPVs) that the Islamic bank, as sponsor19, uses to securitise third party exposures. Indicate whether the Islamic 18 e.g. originator, investor, servicer, provider of credit enhancement, sponsor, liquidity provider, swap provider or protection provider. 19 Islamic banks would generally be considered a ‘sponsor’ if it, in fact or in substance, managed or advises the programme, places securitises into the market, or provides liquidity and/or credit enhancements. The programme may include, for example asset backed commercial paper (ABCP) conduit programmes and structured investment vehicles. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 18 of 38 Type of Disclosures Item Disclosure Requirements bank has exposure to these SPVs, either on or off balance sheet; and · Affiliated entities i) that the Islamic bank manages or advises and ii) that invest either in the securitisation exposures that the Islamic bank has securitised or in SPVs that the Islamic bank sponsors. 3. Summary of the Islamic banks’ accounting policies for securitisation activities, including: · whether the transactions are treated as sales or financing; · recognition of gain on sale; · methods and key assumptions for valuing retained or purchased positions, including any significant changes in methods and key assumptions since the last reporting period and the impact of such changes; · how exposures intended to be securitised (e.g. in the pipeline or warehouse) are valued and whether they are recorded in the banking book or in the trading book; and · policies for recognising liabilities on the balance sheet for arrangements that could require the Islamic banks to provide financial support for securitised assets. 4. Names of ECAIs used for securitisations and the types of securitisation exposure for which each agency is used. 5. An explanation of significant changes to any of the quantitative information (e.g. amounts of assets intended to be securitised, movement of assets between banking book and trading book) since the last reporting period. Quantitative Disclosure ( trading and banking book positions) 6. The total outstanding exposures securitised20 by the Islamic banks, broken down into traditional securitisation by exposure type,21 22 and shown separately for securitisations of third-party exposures for which the Islamic bank acts only as sponsor. 20 Exposure securitised in this context include underlying exposures originated by the Islamic banks, whether generated by the Islamic banks or purchased into the balance sheet from third parties and third party exposures included in sponsored schemes. Securitisation transactions (including exposures originally on the Islamic banks’ balance sheet and underlying exposures acquired by the Islamic banks from third party) in which the originating Islamic bank does not retain any securitisation exposure should be shown separately but need only be reported for the year of inception. 21 By type of underlying asset (e.g. credit cards, mortgage financing, auto, etc.) 22 Islamic banks are required to disclose and differentiate securitisation exposures where the Islamic bank is as an originating bank and exposures where the Islamic bank was not involved as an originating bank. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 19 of 38 Type of Disclosures Item Disclosure Requirements Refer to (Appendix VI) 7. For exposures securitised by the Islamic banks23: · The amount of impaired/past due assets securitised; and · Losses recognised by the Islamic banks during the current period24 broken down by exposure type. Refer to (Appendix VI) 8. Summary of current year’s securitisation activity25, including the amount of exposures securitised (by exposure type) and recognised gain or loss on sale by asset type. Refer to (Appendix VII) 9. Aggregate amount of on and off balance sheet securitisation exposures retained or purchased26, broken down by: · exposure type; · meaningful number of risk weight bands; and · exposures and credit enhancements that are deducted entirely from capital. Refer to (Appendix VIII) Quantitative Disclosure (banking book positions) 10. For securitisations subject to the early amortisation treatment, the following items by underlying asset type for securitised facilities: · the aggregate drawn exposures attributed to the seller’s and investors’ interest; · the aggregate capital charges incurred by the Islamic banks against its retained (i.e. the seller’s) shares of the drawn balances and undrawn lines; and · the aggregate capital charges incurred by the Islamic banks against the investor’s shares of drawn balances and undrawn lines Refer to (Appendix VIII) Quantitative Disclosure ( trading book positions) 11. Islamic banks should disclose separately the aggregate amount of securitisation exposures retained or purchased subject to market risk capital charge and the 23 Islamic banks are required to disclose exposures regardless of whether there is a capital charge under Pillar 1. 24 E.g. charge offs/allowances (if the assets remain on the bank’s balance sheet) 25 This shall also include securitisation transactions where the Islamic bank does not retain any securitisation exposures. Where relevant, Islamic banks should differentiate between exposures resulting from activities 26 Securitisation exposures include but are not restricted to, securities, liquidity facilities, other commitments and credit enhancement such as, cash collateral accounts and other subordinated assets. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 20 of 38 Type of Disclosures Item Disclosure Requirements corresponding risk weighted asset broken down by exposure type. Refer to (Appendix IX) Table 9: Market Risk (Disclosures for portfolios under the Standardised Approach) Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. The general qualitative disclosures required under paragraph 10.1, including the portfolios covered by the standardised approach. Quantitative Disclosure 2. The risk weighted assets and capital requirements disclosed separately for: · Benchmark rate risk; · Equity position risk; · Foreign exchange risk; · Commodity risk; · Options risk; and · Inventory risk (Refer to Appendix I) Table 10: Market Risk Disclosures under the Internal Models Approach (IMA) for Trading Book Portfolio Type of Disclosures Item Disclosure Requirements 1. The general qualitative disclosures required under paragraph 10.1, including: · the portfolios covered by the IMA; and · methodology employed to comply with the ‘Prudent Valuation Guidance’ for positions held in the trading book. 2. Portfolios covered by the IMA which have been approved by the Bank for the purpose of computing the market risk capital charge. Qualitative Disclosure 3. For each portfolio covered by the IMA: · The characteristics of the models used; · A description of stress testing applied to the portfolio; and · A description of the approach used for back- testing/validating the accuracy and consistency of the internal models and modelling processes. Quantitative 4. For trading portfolios under the IMA: BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 21 of 38 Type of Disclosures Item Disclosure Requirements Disclosure · The high, mean and low VaR values over the reporting period and at period end; and · A comparison of VaR estimates with actual gains/losses experienced by the Islamic banks, with analysis of important ‘outliers’ in back-testing results. Table 11: Operational Risk Disclosures Type of Disclosure Item Disclosure Requirements Qualitative Disclosure 1. In addition to the general qualitative Disclosure Requirements in paragraph 10.1, the approach adopted by Islamic banks for its operational risk capital assessment. Table 12: Equities (Disclosures for Banking Book Positions) Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. In addition to the general qualitative disclosures required under paragraph 10.1, the following shall be disclosed:- · Differentiation between holdings on which capital gains are expected and those held for other objectives including for relationship and strategic reasons; and · Policies on valuation and accounting of equity holdings in the banking book. This includes the accounting treatments and valuation methodologies used, including key assumptions and practices affecting valuation as well as significant changes in these practices. 2. The types and nature of investments, including the amount that can be classified as: · Publicly traded; and · Privately held. 3. The cumulative realised gains (losses) arising from sales and liquidations in the reporting period. 4. Gains or Losses · Total unrealised gains/(losses)27 Quantitative Disclosure 5. An analysis of equity investments by appropriate equity groupings and risk weighted assets, consistent with the Islamic banks’ risk management practices. 27 Unrealised gains (losses) recognised under ‘other comprehensive income’. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 22 of 38 Table 13: Disclosure for Rate of Return Risk in the Banking Book (RORBB) Type of Disclosures Item Disclosure Requirements Qualitative Disclosure 1. In addition to the general qualitative disclosures required under paragraph 10.1, the following shall be disclosed: · The nature of the RORBB and key assumptions, including assumptions regarding loan prepayments and behaviour of non-maturity deposits, and frequency of the RORBB measurement. Quantitative Disclosure 2. The increase or decline in earnings and economic value (and any other relevant measure used by management) for upward and downward rate shocks which are consistent with shocks applied in the Islamic banks’ stress test for measuring RORBB, broken down by various currencies where relevant. (Refer to Appendix X) 11. Disclosures on profit sharing investment accounts (PSIA) & Shariah Governance 11.1 The disclosures on PSIA and Shariah governance are intended to enable market participants to: (i) Assess the extent of risk sharing between Islamic banks/ windows as fund manager and investment account holders (IAH) as capital provider and management of displaced commercial risk28 (DCR) by Islamic banks/ windows; and (ii) Ensure transparency regarding Shariah compliance by Islamic banks/ windows. 11.2 The PSIA disclosure requirements shall apply to all Islamic banks/ windows that have PSIA which are eligible for the risk absorbent treatment. Nevertheless, PSIA arrangements between parent institutions and Islamic subsidiaries are excluded from the PSIA disclosure requirements. . 11.3 Islamic banks/ windows are required to disclose the information set out hereunder. 28 Displaced commercial risk is defined as risk arising from assets funded by PSIA that is effectively transferred to Islamic banks’ capital as a result of income smoothing practice. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 23 of 38 Table 14: Disclosures on Profit Sharing Investment Account (PSIA)29 Type of Disclosures Item Disclosure Requirement 1. The governance of the PSIA which includes: · Description of the roles and responsibilities of various parties in ensuring the proper management of the IAH’s funds; · Description of the risk management framework and its components which are in place to protect the interests of IAH; and · Description of the management of DCR, including among other things, the following: - Policies on forgoing shareholder’s profits; - Policies on the establishment of reserve funds for the purpose of smoothening the rate of return to IAH (e.g. Profit Equalisation Reserve (PER)). In relation to the PER, a description on the changes or movements of the PER (i.e. utilisation and provisioning) and basis for apportionment of PER between Islamic banks/ windows and IAH should also be provided; - Any other mechanisms adopted by Islamic banks in addressing DCR; - Discussion of factors affecting the rate of return and its effects on the pricing of contracts; and - Processes and systems to monitor and measure the factors that give rise to rate of return risk30. Qualitative Disclosure 2. Policies on asset allocations which includes a description of any significant changes that may influence the investment decision of IAH. Quantitative Disclosure 3. Performance of each type of PSIA, expressed in terms of: · Return on assets (ROA) - Total gross income31/Total amount of assets funded by PSIA. · Average net distributable income32 ratio - Total average net distributable income/Total average amount of PSIA. · Declared rate of return. · Any other indicators used by management to assess the performance of PSIA. 29 The disclosure requirement should be separately applicable to General Investment Account (GIA), Specific Investment Account (SIA) or other types of accounts that are eligible for risk absorbent. 30 Rate of return risk is the potential impacts of market factors affecting rates of return on assets in comparison with the expected rates of return for investment account holders 31 Definition of total gross income shall be based on the Rate of Return Framework. 32 Definition of total net distributable income shall be based on the Rate of Return Framework. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 24 of 38 Type of Disclosures Item Disclosure Requirement 4. Provisions and utilization of reserves and Islamic banks’/Islamic windows’ profits for the purpose of smoothening the rate of return to IAH as part of the management of DCR: · Outstanding amount of PER at beginning and end of the reporting period (for both Islamic banks/ windows and IAH’s portions33); · Amount of PER provided in the reporting period for the purpose of DCR breakdown by Islamic banks/ windows and IAH’s portions; · Amount of PER written-back in the reporting period for the purpose of DCR breakdown by Islamic banks/ windows and IAH’s portions; · Amount and percentage of profit of the reporting period appropriated/written-back to/from PER; · Ratio of PER-to-PSIA for each type of PSIA - Total amount of PER at the beginning/end of reporting period/ Outstanding amount of PSIA at the beginning/end of reporting period; and (Refer to Appendix Xl) · Any other indicators used by Islamic banks to measure the practise of DCR. These include but not restricted to: - Comparison of actual profit sharing ratio (PSR) against the contractual PSR, in case of any variation. 5. Risk measurement and quality of assets funded by PSIA · Total amount of impaired assets · Individual and collective impairment provisions for financing funded by PSIA; and · Any other indicators used by Islamic banks to assess the risk measurement and quality of assets funded by PSIA 33 Apportionment between Islamic banks/ Islamic windows and IAH should be based on: (a) Proportion of Islamic banks/ Islamic windows’ fund and IAH’s fund; or (b) Actual PER portion; or (c) Actual profit sharing ratio (PSR) between IAH and Islamic banks/ windows BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 25 of 38 Table 15: Shariah Governance Disclosures34 Type of Disclosures Item Disclosure Requirement 1. Description of the Shariah governance structure, systems, processes and controls employed for the purpose of ensuring Shariah compliance. Qualitative Disclosure 2. Description on rectification process of non-Shariah compliant income occurring during the year35 Quantitative Disclosure 3. The amount of non-Shariah compliant income and the number of non-Shariah compliant events occurring during the year 34 Shariah compliance should be based on an individual Islamic bank/ window’s Shariah committee interpretation, subject to rulings decided by Shariah Advisory Council (SAC) of the Bank and Securities Commission. 35 Islamic banks/ windows are not required to disclose the nature of non-Shariah compliant events. BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 26 of 38 PART D: APPENDICES Appendix I. Illustrative Disclosures on Capital Adequacy under the Standardised Approach 36 Applicable only to BIs under the IRB approach Item Exposure Class Gross Exposures / EAD before CRM Net Exposures / EAD after CRM Risk Weighted Assets Risk Weighted Assets Absorbed by PSIA Total Risk Weighted Assets after effects of PSIA Minimum Capital Requirement at 8% 1.0 Credit Risk 1.1 Exposures under the Standardised Approach On-Balance Sheet Exposures Corporate Regulatory Retail Other Assets… Defaulted Exposures Total for On- Balance Sheet Exposures Off-Balance Sheet Exposures OTC Derivatives Off balance sheet exposures other than OTC derivatives or credit derivatives Defaulted Exposures Total Off- Balance Sheet Exposures Total On and Off- Balance Sheet Exposures 1.2 Exposures under the IRB Approach36 On-Balance Sheet Exposures Sovereigns/Central Banks Banks, DFIs and MDBs Corporate Residential Mortgage Retail Purchased Receivables Qualifying Revolving Retail Exposures Other Retail Securitisation Equity (specify approach) Defaulted Exposures Total On- Balance Sheet Exposures Off-Balance Sheet Exposures Off balance sheet exposures other than OTC derivatives or credit derivatives Defaulted Exposures Total Off- Balance Sheet Exposures Total On and Off- Balance Sheet Exposures Total (Exempted Exposures and Exposures under the IRB Approach) 2.0 Large Exposures Risk Requirement Long Position Short Position 3.0 Market Risk Benchmark Rate Risk Foreign Currency Risk Equity Risk Commodity Risk Inventory Risk Options Risk 4.0 Operational Risk (specify approach) 5.0 Total RWA and Capital Requirements BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 27 of 41 Appendix ll. Illustrative Disclosures on Credit Risk : Disclosures on Risk Weights under the Standardised Approach Exposures after Netting and Credit Risk Mitigation Risk Weights Sovereigns & Central Banks PSEs Banks, MDBs and FDIs Insurance Cos, Securities Firms & Fund Managers Corporates Regulatory Retail Residential Mortgages Higher Risk Assets Other Assets Specialised Financing /Investment Securitisation Equity Total Exposures after Netting & Credit Risk Mitigation Total Risk Weighted Assets 0% 10% 20% 35% 50% 75% 90% 100% 110% 125% 135% 150% 270% 350% 400% 625% 937.5% 1250.0% Average Risk Weight Deduction from Capital Base BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 28 of 41 Appendix llla. Illustrative Disclosures on Rated Exposures37 according to Ratings by ECAIs38 37 Rated exposures shall also include exposures covered by guarantors which have been rated by ECAIs 38 Islamic banks should only disclose information on ECAIs which were used for assigning risk weights to the relevant exposures Ratings of Corporates by Approved ECAIs Moodys Aaa to Aa3 A1 to A3 Baa1 to Ba3 B+ to C Unrated S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated RAM AAA to AA3 A to A3 BBB to BB B to D Unrated Exposure Class MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated On and Off Balance-Sheet Exposures Credit Exposures (using Corporate Risk Weights) Public Sector Entities (applicable for entities risk weighted based on their external ratings as corporates) Insurance Cos, Securities Firms & Fund Managers Corporates Total Short term Ratings of Banking Institutions and Corporates by Approved ECAIs Moodys P-1 P-2 P-3 Others Unrated S&P A-1 A-2 A-3 Others Unrated Fitch F1+,F1 F2 F3 B to D Unrated RAM P-1 P-2 P-3 NP Unrated Exposure Class MARC MARC-1 MARC-2 MARC-3- MARC-4 Unrated On and Off Balance-Sheet Exposures Banks, MDBs and FDIs Rated Credit Exposures (using Corporate Risk Weights) Public Sector Entities (applicable for entities risk weighted based on their external ratings as corporates) Insurance Cos, Securities Firms & Fund Managers Corporates Total BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 29 of 41 Appendix lllb. Illustrative Disclosures on Rated Exposures according to Ratings by ECAIs Ratings of Banking Institutions by Approved ECAIs Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated RAM AAA to AA3 A1 to A3 BBB1 to BBB3 BB1 to B3 C1 to D Unrated Exposure Class MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Unrated On and Off Balance-Sheet Exposures Banks, MDBs and FDIs Total Ratings of Sovereigns and Central Banks by Approved ECAIs Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated On and Off Balance-Sheet Exposures Sovereigns and Central Banks Total BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 30 of 41 Appendix IIIc. Illustrative Disclosures on Securitisation according to Ratings by ECAIs Ratings of Securitisation by Approved ECAIs Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- CCC+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated RAM AAA to AA3 A1 to A3 BBB1 to BBB3 BB1 to B3 C1 to D Unrated Exposure Class MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Unrated On and Off Balance-Sheet Exposures Securitisation Total Ratings of Securitisation by Approved ECAIs Moodys P-1 P-2 P-3 Others or Unrated S&P A-1 A-2 A-3 Others or Unrated Fitch F1+, F1 F2 F3 Others or Unrated RAM P-1 P-2 P-3 NP Exposure Class MARC MARC-1 MARC-2 MARC-3 MARC-4 On and Off Balance-Sheet Exposures Securitisation Total BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 31 of 41 Appendix llld. Illustrative Examples on Exposures Subject to the Supervisory Risk Weights under the IRB Approach Specialised Lending Exposures under the Supervisory Slotting Criteria Equities under the Simple Risk Weights Approach Supervisory Categories / Risk Weights Strong or 70% Good or 90% Satisfactory or 115% Weak or 250% Default or 0% Specialised Lending Exposure Project Finance Object Finance Commodities Finance Income Producing Real Estate Risk Weighted Assets Supervisory Categories / Risk Weights Strong or 95% Good or 120% Satisfactory or 140% Weak or 250% Default or 0% Specialised Lending Exposure High Volatility Commercial Real Estate Risk Weighted Assets Supervisory Risk Weights For Equities under the Simple Risk Weight Approach 300% 400% Types of Equities Quoted Equities Unquoted Equities Risk Weighted Assets BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 32 of 41 Appendix llle. Illustrative Examples on Exposures under the IRB Approach by Risk Grade or PD Band39 39 The PD range and risk grades are for illustrative purposes only. Islamic banks should disclose the appropriate PD range and risk grades applicable to their own internal estimates PD Range or BI’s internal Risk Grading of Non Retail Exposures AAA <A+ or 0<0.03% A+ to <BBB or 0.03<0.16% BBB to <BB+ or 0.16% <0.51% BB+ < B+ or 0.51 <3.49% B+ < CCC or 3.49 <10.09% CCC or 10.09. <100% Default or 100% Total Non Retail Exposures (EAD) Sovereign Bank Corporate… Total Exposure Undrawn Commitments Sovereign Bank Corporate… Total Undrawn Commitments Exposure Weighted Average LGD (%) Sovereign Bank Corporate… Exposure Weighted Average Risk Weight (%) Sovereign Bank Corporate… PD Range of Retail Exposure 0<0.11% 0.11<0.30% 0.30% <0.5% 0.51 <3.49% 3.49 <10.09% 10.09. <100% Default or 100% Total Retail Exposure (EAD) Residential Mortgage Qualifying Revolving Retail Other Retail. … Total Exposure Undrawn Commitments Residential Mortgage Qualifying Revolving Retail Other Retail. … Total Undrawn Commitments Exposure Weighted Average LGD (%) Residential Mortgage Qualifying Revolving Retail Other Retail. … Exposure Weighted Average Risk Weight (%) Residential Mortgage Qualifying Revolving Retail Other Retail. … BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 33 of 41 Appendix lllf. Illustrative Example on Retail Exposures under the IRB Approach by Expected Loss Range40 40 The EL range is for illustrative purposes only. Islamic banks should disclose the appropriate EL range applicable to their own internal estimates. EL% Range of Retail Exposure Up to 0.10% >0.10 to 0.20% >0.20% to 0.5% >0.50 to 1.00.% >1.00% to 30.0% >30.0 to <100% 100% Total Retail Exposure (EAD) Residential Mortgage Qualifying Revolving Retail Other Retail. … Total Exposure Undrawn Commitments Residential Mortgage Qualifying Revolving Retail Other Retail. … Undrawn Commitments Exposure Weighted Average Risk Weight (%) Residential Mortgage Qualifying Revolving Retail Other Retail. … BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 34 of 41 Appendix IV. Illustrative Disclosures on Credit Risk Mitigation 41 Credit equivalent of off-balance sheet items. Exposure Class Exposures before CRM Exposures Covered by Guarantees /Credit Derivatives Exposures Covered by Eligible Financial Collateral Exposures Covered by Other Eligible Collateral Credit Risk On-Balance Sheet Exposures Sovereigns/Central Banks Public Sector Entities Banks, Development Financial Institutions & MDBs Insurance Cos, Securities Firms & Fund Managers Corporates Regulatory Retail Residential Mortgages Higher Risk Assets Other Assets Specialised Financing/Investment Equity Exposure Securitisation Exposures Defaulted Exposures Total for On- Balance Sheet Exposures Off-Balance Sheet Exposures 41 OTC Derivatives Off balance sheet exposures other than OTC derivatives or credit derivatives Defaulted Exposures Total for Off- Balance Sheet Exposures Total On and Off- Balance Sheet Exposures BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 35 of 41 Appendix V. Illustrative Disclosures on Off Balance Sheet and Counterparty Credit Risk Description Principal Amount Positive Fair Value of Derivative Contracts Credit Equivalent Amount Risk Weighted Assets Direct Credit Substitutes Transaction related contingent Items Short Term Self Liquidating trade related contingencies Assets sold with recourse Forward Asset Purchases Obligations under an on-going underwriting agreement Commitment to buy back Islamic securities under Sales and Buy Back agreement transactions Foreign exchange related contracts One year or less Over one year to five years Over five years Benchmark rate related contracts One year or less Over one year to five years Over five years Equity related contracts One year or less Over one year to five years Over five years Gold and Other Precious Metal Contracts One year or less Over one year to five years Over five years Other Commodity Contracts One year or less Over one year to five years Over five years OTC Derivative transactions subject to valid bilateral netting agreements Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year Any commitments that are unconditionally cancelled at any time by the bank without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness Unutilised credit card lines Off-balance sheet items for securitisation exposures Total BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 36 of 41 Appendix VI. Illustrative Disclosures on Securitisation (Trading and Banking Book) Underlying Asset Total Exposure Securitised Past due Impaired Gain and Losses Recognised during the period TRADITIONAL SECURITISATION (indicate trading or banking nook experience) Originated by the Banking Institution Exposure type (e.g. type of underlying assets) sub-total Securitisation of Third Party exposures where the Islamic bank acts only as a sponsor Exposure type (e.g. type of underlying assets) sub-total TOTAL (TRADITIONAL SECURITISATION) BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 37 of 41 Appendix VII. Illustrative Disclosures: Summary of Current Year’s Securitisation Activities (Trading and Banking Book) Underlying Asset Amount Recognised Gains or Loss on Sale Banking Book Residential mortgage Commercial loans Credit cards Trading Book Corporate bonds Total BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 38 of 41 Appendix Vlll. Illustrative Disclosures on Securitisation under the Standardised Approach for Banking Book Exposures Distribution of Exposures after CRM according to Applicable Risk Weights Rated Securitisation Exposures or Risk Weights of Guarantees/Credit Derivatives Unrated (Look-through) Securitisation Exposures (On and Off-balance sheet Exposures) Exposure Value of Positions Purchased or Retained Eligible CRM Exposure after CRM Exposures subject to deduction 0% 10% 20% 50% 100% 350% Average risk Weight Exposure Amount Risk Weighted Assets TRADITIONAL SECURITISATION Originated by Third Party On Balance Sheet Exposures Exposure type (e.g. type of underlying assets) Off Balance Sheet Exposures sub-total Originated by Banking Institution On Balance Sheet Exposures Exposure type (e.g. type of underlying assets) Off Balance Sheet Exposures sub-total Securitisation subject to Early Amortisation Seller’s Interest Investor’s Interes sub-total TOTAL (TRADITIONAL SECURITISATION) BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 39 of 41 Appendix lX. Illustrative Disclosures on Securitisation under the Standardised Approach for Trading Book Exposures Securitisation Exposures (On and Off-balance sheet Exposures) Total Exposure Value of Positions Purchased or Retained Exposures subject to deduction General Risk Charge Specific Risk Charge Risk Weighted Assets TRADITIONAL SECURITISATION Originated by Third Party Exposure type (e.g. type of underlying assets) sub-total Originated by Banking Institution Exposure type (e.g. type of underlying assets) sub-total Securitisation subject to Early Amortisation Seller’s Interest Investor’s Interest sub-total TOTAL (TRADITIONAL SECURITISATION) BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 40 of 41 Appendix X. Illustrative Disclosures: Disclosures on Market Risk –Interest Rate Risk/ Benchmark Rate Risk in the Banking Book Impact on Positions as at Reporting Period Type of Currency (xxx basis points) Parallel Shift Increase/(Decline) in Earnings Increase/(Decline) in Economic Value Currency A Currency B Currency… Total BNM/RH/GL 007-18 Islamic Banking & Takaful Department Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) Page 41 of 41 Appendix Xl. Illustrative Disclosures on indicators of Displaced Commercial Risk (DCR) Example: PER for SIA RM % At beginning of reporting period42 - - Islamic bank's portion - IAH's portion - Provision during the reporting period43 - - Islamic bank's portion - IAH's portion - Write-back during the reporting period - Islamic bank's portion - IAH's portion - At end of the reporting period42 - - Islamic bank's portion - IAH's portion - 42 Amount of PER and ratio of PER/ PSIA 43 Amount of profit of the reporting period appropriated to PER and its percentage of total profit of the reporting period PART A:OVERVIEW Introduction Applicability Legal Provisions Effective Date of Implementation PART B:GENERAL REQUIREMENTS Disclosure Policy Medium and Location of Disclosure Comparative Information Frequency of Disclosure PART C:SPECIFIC DISCLOSURE REQUIREMENTS Specific Disclosure Requirements Risk Management Disclosures on profit sharing investment accounts (PSIA) & Shariah Governance PART D:APPENDICES Appendix I.Illustrative Disclosures on Capital Adequacy under the Standardised Approach Appendix ll.Illustrative Disclosures on Credit Risk : Disclosures on Risk Weights under the Standardised Approach Appendix llla.Illustrative Disclosures on Rated Exposures according to Ratings by ECAIs Appendix lllb.Illustrative Disclosures on Rated Exposures according to Ratings by ECAIs Appendix IIIc.Illustrative Disclosures on Securitisation according to Ratings by ECAIs Appendix llld.Illustrative Examples on Exposures Subject to the Supervisory Risk Weights under the IRB Approach Appendix llle.Illustrative Examples on Exposures under the IRB Approach by Risk Grade or PD Band Appendix lllf.Illustrative Example on Retail Exposures under the IRB Approach by Expected Loss Range Appendix IV.Illustrative Disclosures on Credit Risk Mitigation Appendix V.Illustrative Disclosures on Off Balance Sheet and Counterparty Credit Risk Appendix VI.Illustrative Disclosures on Securitisation (Trading and Banking Book) Appendix VII.Illustrative Disclosures: Summary of Current Year’s Securitisation Activities (Trading and Banking Book) Appendix Vlll.Illustrative Disclosures on Securitisation under the Standardised Approach for Banking Book Exposures Appendix lX.Illustrative Disclosures on Securitisation under the Standardised Approach for Trading Book Exposures Appendix X.Illustrative Disclosures: Disclosures on Market Risk –Interest Rate Risk/ Benchmark Rate Risk in the Banking Book Appendix Xl.Illustrative Disclosures on indicators of Displaced Commercial Risk (DCR)	Public Notice
16 Jun 2010	Commemorative Coins Available for Sale	https://www.bnm.gov.my/-/commemorative-coins-available-for-sale	null	null	Reading: Commemorative Coins Available for Sale Share: 9 Commemorative Coins Available for Sale Release Date: 16 Jun 2010 Our history commemorated. Our achievements remembered. Commemorative Coins of Malaysia... Coins to remember. Available for sale on first come first serve basis. Quantities are limited. Link © 2024 Bank Negara Malaysia. All rights reserved.	null	Public Notice

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