BANK NEGARA MALAYSIA

INTRODUCTION TO FINANCIAL SYSTEM

1. Money
- Payment for goods and services.
- Surplus Units & Deficit Units.

2. Financial Instruments
- Transfer of resources from savers to borrowers.
- Eg: Stocks, Mortgages (Housing Loan), Insurance
policies.
INTRODUCTION TO FINANCIAL SYSTEM

3. Financial Markets

- To allow purchase and sale of financial instruments.

- Generate prices whenever securities are bought or sold.
- New York Stock Exchange ( NYSE), Kuala Lumpur Stock
Exchange ( Bursa Saham Malaysia).

4. Financial Institutions

- Value financial assets whenever making loans to businesses

or consumers.
- Pricing and valuation of financial assets are at the heart of
the financial marketplace.
- Banks, Securities Firm and Insurance Companies.
INTRODUCTION TO FINANCIAL SYSTEM

5.Central Bank

- Banker’s Bank
- Provide loans during times of financial stress.
- Manage Payment Systems.
- Oversee Commercial Banks and the financial system.
- To monitor and stabilize the economy.
eg: Federal Reserve System in USA.
Bank Negara Malaysia (BNM)
Cheque Encoding Machine
CHEQUE TRUNCATION AND CONVERSION
SYSTEM (CTCS)
 OBJECTIVES AND FUNCTIONS:-

1.To maintain adequate external reserves to

safeguard the value and stability of the
currency.

2.To be sole issuing and distributing authority of

the currency in Malaysia, which is ringgit and
sen (RM) .
3. To be banker and financial adviser to the government of Malaysia .
As banker to the government , it advises the government on the
issues of new types of securities, loan programmes and provides
temporary advances to the government to cover any deficit in the
budget revenue .

4. It provides facilities such as cheques, acceptance of deposits, and

effects payment on behalf of the government, which includes federal
and state governments.
5. To influence the credit situation to Malaysia’s advantage.

6. To lay down policies intended to promote sound monetary stability

and a strong financial structure to enhance growth in Malaysia.
These policies are intended to maintain a high standard of banking
and governance necessary to instill confidence in the banking
system.
7. To act as banker to commercial banks and other financial
institutions in the country. It has always been recognised as the
lender of last resort for these financial institutions.

8. To recommend to the Minister, for issuance of licences to

commercial banks, merchant banks, finance companies and
discount houses in Malaysia. Powers are also vested to the
Minister to revoke such licenses, if it deems necessary.
9. Bank Negara Malaysia has been given powers, under BAFIA 1989
( Banking and Financial Institutions Act) to issue guidelines,
regulations and directives which are directly related to credit and
lending.

10. Bank Negara Malaysia may specify limitations, terms and conditions in
respect of the giving of any class, category or description of credit facilities
to be given by any licensed institution.This is particularly with respect to
financing the purchase of securities or shares, immovable properties
and/or any derivative instruments.

11. Issue guidelines, circulars or notes as the Bank or the Finance Minister
may consider desirable.
12.Government’s Bank:

a. Manage the finances of the Government.

b. Control the availability of money and credit
via interest rates.

13.Banker’s Bank:

a. Guarantees that banks can do business by lending to them , even

during crises.
b. Operates payment system for interbank payments. ( Giro, SWIFT)
c. Oversee financial institutions to ensure confidence.
Reporting Requirements

Two types of reports required by AMLATFA which directly affects

financial institutions in Malaysia are :-

a) Cash Transaction Report (CTR)

b) Suspicious Transaction Report (STR)
a) CASH TRANSACTION REPORT (CTR)

• It is designed to expose money laundering at its most vulnerable

point, that is, when the cash enters the financial system and is then
transferred between banks.
• It is designed to provide information for on-going investigations and
act as a deterrent for both money launderer and any financial
intermediaries who would make themselves vulnerable to money
laundering activities.
• Financial institutions are required to report cash transactions above
the threshold amount of RM50,000-00 and above in a business day.
Also apply to multiple transactions on the same business day.
b) SUSPICIOUS TRANSACTION REPORT (STR)

• Information which would alert law enforcement agencies that a

certain activity is in some way suspicious and might indicate money
laundering or terrorism financing.

• Financial Institutions are required to make a STR where the identity

of the persons involved in the transaction, or transaction itself, or any
other circumstances concerning that transaction gives reason to
suspect that the transaction involves proceeds of unlawful activity.
Financial Institutions are also required to report transactions
suspected of being linked to terrorism financing.
SUSPICIOUS TRANSACTION REPORT (CONT’D)

- Suspicion is usually detected by the sheer size of the transaction in

relation to the known financial circumstances of the customer. A
suspicious transaction refers to the conduct , which due to its
circumstances, have reached a level of suspicion sufficient to identify
a criminal offence. In this respect, financial institutions would decide
based on its normal commercial criteria and its internal policy.

- STR’s are submitted to the Financial Intelligence Unit ( FIU) in Bank

Negara Malaysia.
-

SUSPICIOUS TRANSACTION REPORT (CONT’D)

- Section 24 (1) of AMLATFA protects employees of bank who report

suspicions of money laundering from being exposed to civil, criminal or
even disciplinary proceedings, unless the information was disclosed or
supplied in bad faith. In complying with the reporting obligations,
banks and their employees cannot be sued by their customers for
damages for breach of contract or defamation.
 SWIFT
(SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATIONS)

• Headquartered in Belgium.
• Provides international governance and oversight
• Global office network ensures an active presence in all major financial
centres.
• Does not hold funds or manage accounts on behalf of customers.
 MONETARY POLICY AND MANAGEMENT
OF FINANCIAL SYSTEMS
1. OVERNIGHT POLICY RATE (OPR)

Bank Negara Malaysia – Monetary Policy Committee issues

Monetary Policy Statement wef 25 January 2018.
- Overnight Policy Rate (OPR) – 3.25 %

OPR is overnight interest rate set by Bank Negara which is the rate a
borrowing bank has to pay a lending bank for the funds borrowed.
 MONETARY POLICY AND MANAGEMENT OF
FINANCIAL SYSTEMS

Increasing the OPR would immediately increase the cost of borrowing

for banks which would lead to increase in loan interest rate, meaning it
will cost more to borrow. It would curtail the accumulation of personal
and household debts. This is how Bank Negara regulates the financial
institutions in its lending activities.
 MONETARY POLICY AND MANAGEMENT OF
FINANCIAL SYSTEMS

2. STATUTORY RESERVE REQUIREMENT (SRR).

SRR is a monetary policy instrument available to BNM to manage

liquidity and hence credit creation in the banking system. It is used to
withdraw or inject liquidity when the excess or lack of liquidity in the
banking system is perceived by BNM to be large and long – term in
nature.
Last reported SRR is 3.5% wef 1/2/2016.
 MONETARY POLICY AND MANAGEMENT OF
FINANCIAL SYSTEMS

SRR is the amount of money set aside by banks to be placed in their

Statutory Reserve Accounts with BNM with zero interest. By lowering
SRR ,Banks will have reduced cost of funds, and can therefore preserve
their profit margins by lending out the liquidated money and earn
interest.
A higher SRR would mean that banks in Malaysia will have to keep
more money in reserve.
 MONETARY POLICY AND MANAGEMENT
OF FINANCIAL SYSTEMS
3. BASE RATE.

- Replace Base Lending Rate (BLR) wef 2/1/15.

- Determined by financial institutions’ benchmark cost of funds and
SRR.
- Other factors in loan pricing are borrower credit risk, liquidity risk
premium, operation costs and profit margin will be reflected in a
spread above Base Rate.
- Main reference rate for new retail floating rates.
- Base rates varies between banks in Malaysia. For example,
MBB 3.0% p.a. (wef July 2016), PBB 3.52% p.a.(wef July 2016), and
RHB Bank 3.65% p.a.(wef August 2016)
 MONETARY POLICY AND MANAGEMENT OF
FINANCIAL SYSTEMS

4. BASE LENDING RATE

- Rate that banks refer to internally before deciding how much to
charge for various products or loans.
- It takes into account banks cost of operations and is heavily
influenced by Overnight Policy Rate ( OPR).
- Not determined by Bank Negara Malaysia.
- Based on internal cost of funds, how much it costs to borrow the
money to be lent out.
- Changes to the rate is affected by changes to OPR.
- BLR’s for Maybank (6.65 % pa wef July 2016), PBB (6.72% pa wef July
2016) and RHB (6.6% pa wef August 2016)
 ANTI MONEY LAUNDERING AND ANTI-
TERRORISM FINANCING ACT 2001 (AMLATFA)

AMLATFA

• July 2001 –gazetted as law.

• Bank Negara appointed as competent authority under AMLA.
• Financial Intelligence Unit (FIU) established within BNM on 8 August
2001 to carry out the functions of the competent authority as
provided in AMLA.
• To collaborate with the relevant domestic regulatory, supervisory and
enforcement agencies in intelligence gathering , analysis and
dissemination.
 ANTI MONEY LAUNDERING AND ANTI-
TERRORISM FINANCING ACT 2001 (AMLATFA)

WHAT IS MONEY LAUNDERING?

- It is a process of converting cash or
property which is derived from criminal
activities to give it the appearance of
having been obtained from a legitimate
source.
 ANTI MONEY LAUNDERING AND ANTI-
TERRORISM FINANCING ACT 2001 (AMLATFA)

STAGES OF MONEY LAUNDERING

- PLACEMENT is defined as physical disposal of cash proceeds

derived from illegal activity.
- LAYERING is separating illicit proceeds from their source
through transactions that disguise audit trail and provide
anonymity.
- INTEGRATION is the process of turning criminally derived
wealth into legitimate funds.
 MONEY LAUNDERING
TRADITIONAL VS NEW METHODS.

LAUNDRY

REAL
RESTAURANT ESTATE

TRADITIONAL
METHODS
 ANTI MONEY LAUNDERING AND ANTI-
TERRORISM FINANCING ACT 2001 (AMLATFA)

KNOW YOUR CUSTOMER POLICY (KYC)

- BASEL sets up the following principles to prevent using

the financial system for money laundering purposes:-

a) Customer Identification/Customer Due Diligence.

– identify customer when opening account or in providing service.

b) Compliance with legislation and law enforcement agencies

– comply with laws, co-operate with enforcement authorities
without breaching customer confidentiality.
 ANTI MONEY LAUNDERING AND ANTI-
TERRORISM FINANCING ACT 2001 (AMLATFA)

• c ) Record Keeping and system

-maintain proper record keeping and test for compliance.

• d) Staff training
-Provide on-going education in the financial institutions’
procedures to recognise and report money laundering.

Moral duty to report to appropriate authorities and NOT to facilitate

money laundering.
Compliance