In its first official comment on the wide-reaching Financial Services Act 2013 (FSA), Bank Negara has said that the new legislation is aimed at furthering financial stability, supporting inclusive growth in the financial system and the economy, and providing adequate protection for consumers.
Bank Negara also confirmed StarBiz’s report yesterday that the FSA and the new Islamic Financial Services Act 2013 had come into force yesterday.
There was also a broad hint from Bank Negara that the FSA empowered it to look into periphery sectors of the financial markets, sometimes referred to as the “shadow banking” system.
“The laws also provide Bank Negara with the necessary regulatory and supervisory oversight powers to fulfil its broad mandate within a more complex and interconnected environment, given the regional and international nature of financial developments,” the central bank said.
It also said that the FSA included an increased focus on pre-emptive measures to address issues of concern within financial institutions that might affect the interests of depositors and policyholders, and the effective and efficient functioning of financial intermediation.
“The key features of the acts include providing uniformed acts for the governance and supervision of the related financial institutions. Bank Negara is authorised to supervise financial holding companies (FHCs) that hold more than 50% of a financial institution and financial entity previously not under the supervision of Bank Negara, but are now deemed to pose a systemic risk to the overall financial stability by the Ministry of Finance,” Alliance Research analyst Cheah King Yoong said.
He added that the laws would amalgamate several separate laws to govern the financial sector under a single legislative framework for the conventional and Islamic financial sectors, respectively, namely, the Banking and Financial Institutions Act 1989 (Bafia), Islamic Banking Act 1983, Insurance Act 1996, Takaful Act 1984, Payment Systems Act 2003 and Exchange Control Act 1953.
Cheah said the objectives of the FSA were to foster the safety and soundness of financial institutions, promote the integrity and orderly functioning of the money market and foreign exchange market, nurture safe, efficient and reliable payment systems and payment instruments, cultivate fair, responsible and professional business conduct of financial institutions, protect the rights and interests of consumers of financial services and products, and develop clear focus on syariah compliance and governance in the Islamic financial sector.”
A local bank-backed analyst said the FSA was to bring about more transparency, accountability and governance and to make sure institutions had sufficient assets to meet their obligations.
He said although the full implication of the FSA was still unclear, it would give the central bank broader oversight over FHCs.
Meanwhile, Maybank Investment Bank Research analyst Desmond Ch’ng said the bill was empowered to exercise oversight over financial groups, and companies that held more than 50% of a financial institution had to be registered as an FHC, bringing all FHCs under the purview of Bank Negara.
“DRB-Hicom Bhd could be captured under this ruling, but it is already in the process of paring its stake in Bank Muamalat Malaysia Bhd down to 40% from 70%. We would expect the Employees Provident Fund to be exempt from this requirement, as otherwise, it would have to pare down its 65.5% stake in Malaysian Building Society Bhd.
“Malaysian Industrial Development Finance Bhd, which is 100% held by Permodalan Nasional Bhd and which is presently classified as a development financial institution, may have to register as an FHC,” Ch’ng said.
In addition, Ch’ng said the 10% cap on individual shareholdings in financial institutions had been retained, and there was no timeline for individuals to pare down their existing stakes. The FSA, however, was silent on the 20% cap on non-individual shareholdings in s46 of Bafia, which could imply that there was no longer such a limit.