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Discussion on other relevant Acts.

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 Central Bank Ordinance 1958 (replaced by
Central Bank Act 2009), structured the
banking system in Malaysia & effectively
created Bank Negara Malaysia ( BNM).
CBM Act 1958 gave power to BNM to regulate
banks, setting banking requirements, such as
capital requirements, & reporting
requirements.
It defined relationship between banks & BNM &
specifically restrict on certain types of
transaction banks can do.
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 The Islamic Banking Act (IBA Act) 1983 was passed by Malaysian
Parliament before the establishment of Bank Islam Malaysia
Berhad.
Prior to the IBA act, the Banking Act 1973 required banks to
operate based on interest but not trade.
However, since Quran prohibit interest & permit trade, the IBA
act, 1983 allows Islamic banks to operate without element of
interest & use trade as important mechanism for its operations.
The power to issue license, supervise & regulate Islamic banks
were vested in BNM.
The Act make it mandatory for Islamic banks to set up a Shariah
Advisory Council( section 3).
The Act provides license and regulate Islamic banking business
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 Islamic Bank Act 1983, consists of 60 sections, divided
to eight parts as follows:
1. Preliminary. This part discusses about title,
commencement, application, and interpretation
2. Licensing of Islamic Banks.
3. Financial requirements and duties of Islamic banks
4. Ownership, control and management of Islamic
banks
5. Restriction on business.
6. Powers of supervision and control over Islamic banks.
7. Miscellaneous
8. Consequential Amendment
 Islamic banking business to be transacted only by licensed Islamic
bank. (Sect. 3)
Minister of Finance may approve, disapprove or revoke license.
(Sect. 4)
License can only be granted to company conducting Islamic bank
business, thus cooperative society such as Bank Rakyat could not
be granted Islamic bank license because of their status.
Islam banks can open new branches (Sect. 7)
Islamic bank may establish correspondent banking relation with
bank outside Malaysia. (Sect. 8)
Islamic banks must pay license fee (Sect.9)
Restriction of use of certain words in an Islamic banks name.
(Sect.10)
 It define Islamic bank as any company which carries out Islamic
banking business and holds a valid license; and all the offices and
branches in Malaysia of such bank shall be deemed to be one
bank.
It define Islamic banking business as banking business whose
aims and operations do not involve any element which is not
approved by Shariah
It define International Islamic business as any company or office
of any foreign institutions which carried out international Islamic
banking business & hold a valid license.
Islamic banks should not involved in any transactions that involved
elements of interest.
Islamic banks should earned profits from trade & commerce.
 Islamic banks must maintain certain amount of Capital, i.e.
capital required ratio.
They are required to keep certain percent of their capital as
reserve with central bank, i.e. required reserve ratio.
They are required to keep certain amount of money in the
form of cash for customers to easily withdraw their money,
i.e. liquidity ratio.
Islamic banks must be audited by recognized Auditor and
publish annual auditors report.
Statistical annual reports about the Banks performance must
be published.
 Section 31, give Bank Negara Malaysia powers to:
Investigate under condition of secrecy, the books, the account &
the transactions of each Islamic bank and of any branch, agency
or office outside Malaysia opened by an Islamic bank from time
to time without any prior notice.
Section 55 specifies that Islamic bank is incorporated under
company Act 1965, meaning Islamic bank must be managed by
the board of directors & practices good corporate governance.
However, if there is conflicts between company Act 1965 & IBA
1983, IBA 1983 prevail over the company Act 1965.
BNM can take action against Islamic banks if they are unable to
meet their obligations or conducting business to the detriment
of depositors.
BNM can effectively dismiss directors of Islamic banks or appoint
new directors.
 The IBA Act 1983 merely permits the establishment &
operation of an Islamic banks but does not set out the
concepts & principles behind the operations of Islamic
banking businesses.
It does not put in place mechanism to address
conflicts between Islamic laws & conventional laws.
Therefore the court will have to determine these
conflicts without any Islamic legislative guidelines
when such cases arises.
In general, IBA act 1983 is brief compared with Iran or
Pakistan. For instance, Pakistan Banking Law 1980
provides comprehensive definitions of banking
businesses , it allows central banks to fix maximum &
minimum rates of returns that Islamic banks might
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 The regulatory framework in which banks and financial institutions operate in
Malaysia is primarily government by Banking and Financial Institutions Act
1989 ( BAFIA).
The aims of BAFIA 1989, was to provide new laws for licensing and
regulations of financial institutions.
BAFIA 1989, replaced the Finance Companies Act 1969 and the Banking Act
1973 .
The Act regulates and supervises all licensed financial institutions such as
commercial banks, finance companies, merchant banks, discount houses and
money brokers.
Under section 32 of BAFIA , it also allowed dual banking, whereby,
conventional banks were allowed to operate Islamic banking windows (under
an Islamic banking scheme)
Those conventional banks with Islamic banking window should operates
based on profits margin and not on the interest basis
Conventional banks that wanted to carry out Islamic banking business would
have to obtain approval from the central bank

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 Section 4 of BAFIA 1989, states that no person
shall carry on banking, finance company,
merchant banking; or discount house business;
unless it is a public company or money-broking
business, unless it is a corporation & hold a valid
license to carry on such business.
Application for license must be in writing
together with Memorandum and Article of
Association of the company & send to the
minister of finance through central bank. The
minister has power to approve, disapprove or
revoke a license ( Sec. 5).
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 The law defined conventional banking business as a business of
receiving deposits on current account, savings account or other
similar accounts, paying & collecting cheques, drawn by or paid
in by customers & provide financing, leasing & hire-purchase as
prescribed by central bank.
The conventional banks & licensed financial companies are
specifically required to operate within this definition.
Apart from purchasing & selling of gold & foreign currency,
section 32 states that no license institutions whether on its
account on commission basis in wholesale or retail trade,
including import & export trade, without permission of the
finance minister.
This is to avoid banks to divert from their original function of
financial intermediation.

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 BAFIA 1989, empower finance minister & BNM to set financial
requirements to financial institutions from time to time including required
reserve ratio, networking funds & liquidity ratio.
Section 69 give power to BNM to examine without prior notice, the books,
documents, accounts & transactions of each licensed financial institutions
& its offices within & outside Malaysia from time to time.
Section 28 makes it an offense to publish any statement which is
misleading, false or deceptive or to conceal any material fact in relation to
deposit taking.
Under the Act financial institutions are required to:
Keep certain percent of their capital as reserve with central bank.
Keep certain amount of money in the form of cash for customers (
liquidity ratio) to easily withdraw their money.
Financial institutions must be audited by recognised Auditor and publish
annually auditors report ( section 40).
 Part VIII of BAFIA limits the amount of shares that a
person may hold in a licensed institution.
It requires transaction in shares over a prescribed
limit to be approved by the Minister of Finance
No person may be appointed as a director of a local
licensed institution without the prior written consent
of the Central bank.
Section 56 gives power to central bank to dismiss
directors & appoint new directors.
 Takaful Act, 1984 were enacted to issue license & regulates
the operations of Takaful businesses in Malaysia.
The first takaful operator which was established under this
Act is Syarikat Takaful Malaysia Berhad
Takaful Act 1984 consists four parts & contains 69 sections.
Part 1: Preliminary
Part 2: Conduct of Takaful Business
Part 3: Returns, Investigations, Winding up and Transfer of
Business.
Part 4: Miscellaneous
 The Act defines:
Takaful as a scheme based on brotherhood, solidarity and mutual assistance
which provides mutual financial aid and assistance to the participants in case
of need whereby the participants mutually agree to contribute for that
purpose.
Takaful business as business whose aims and operations do not involve any
element which is not approved by Syariah, i.e. no gharar, no riba & no maysir
Takaful operator, international takaful operator, takaful agent and
takaful broker as a person who carries on takaful business as takaful
operator, international takaful operator, takaful agent and takaful broker
respectively.
The act classified takaful businesses into two:
family solidarity businesses such as offering life insurance, education, health &
disabilities, etc.
General businesses such as motor takaful, fire takaful, etc.
 The Act specified that Takaful business will only be carried out by:
Registered company under company Act 1965
Registered society under Co-operative Societies Act
A person who contravenes this section shall be guilty of an offence and shall,
be liable to a fine not exceeding eighty thousand ringgit or jail for less than
one year or both.
No person other than an operator registered under this Act shall, can use the
word takaful.
The Director General ( central bank) shall be responsible for the registration
of takaful operators & application must be in writing & fulfilled all the
conditions.
Every operator shall pay such annual registration fees as the Minister may
prescribe.
Takaful operator shall have arrangements consistent with sound takaful
principles for re-takaful of liabilities in respect of risks undertaken or to be
undertaken by the operator in the course of his carrying on takaful business.
Central bank may from time to time inspect under conditions of secrecy the
books, accounts and transactions of any operator and of any of its branch
officers
 An operator must be governed by board of directors, audited by recognised
auditor & must publish annual report about the performance & activities of
takaful operator.
Director General or its representative can carry out investigation into the
whole or any part of the business carried on by an operator registered under
this Act, if it is unable to meet its obligation, failed to comply with provisions
of this Act, provide misleading information or involved into malpractices.
In case, operators activities are detrimental to the public interest, central
bank can revoke the license, dismiss directors & appoint new directors &
even dispose operator asset, & refers the management of takaful company
to court.
In case takaful operator is closing business, whole or part of the its takaful
business can be transferred to another operator of the same class.

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 A takaful operator, a takaful agent, a takaful broker may seek the advice of the
Syariah Advisory Council on Syariah matters relating to its takaful business that have
association with conventional insurance company, agent & brokers.
A person who has at any time been authorized as agent by a takaful operator and
who solicits or negotiates a contract of takaful in such capacity should have full
knowledge of operators products, businesses & risks.
The Central Bank shall be responsible for administering, enforcing, carrying out and
giving effect to, the provisions of this Act.
Governor of the Central Bank shall be the Director General of Takaful and shall
exercise, discharge and perform duties & functions on behalf of the Central Bank.
Director General shall act in accordance with any general directions of the finance
Minister.
Director General may appoint any officer of the Central Bank to exercise or perform
all or any of the powers, duties or functions of the Director General under this Act.
The central bank or the Minister of finance may, from time to time, can issue
guidelines, circulars or notes which they perceived as necessary for achieving
objectives of this Act

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 Since Takaful Act 1984 focus on licensing & regulating takaful
operator, Malaysia government enacted Insurance Act 1996 to
regulates the whole insurance industry.
BNM retains a substantial degree of regulatory control over the
management of insurance & takaful companies
BNM issues licenses and control critical aspects of insurance &
takaful companies operations
Under the Insurance Act 1996, insurance & takaful companies
required approval from BNM to:
* Appoint directors and chief executive officers
* Establish offices and subsidiaries
* Appoint auditors and actuaries
* Outsource its core insurance activities
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 Anti-Money Laundering Act (AMLA) is a new laws for the
prevention, detection and prosecution of money laundering.
The Act requires financial institutions to keep financial records
of remittances and report any suspicious transaction to BNM.
AMLA gives power to BNM to:
Prosecute Money laundering offences
Set Financial Intelligence Unit to monitor money laundering
activities.
Make it obligatory for financial institutions to report any
suspicious financial transaction to central banks.
investigate, search and freeze assets of any financial
institutions & individuals involved in money laundering.
.
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 The CBA was passed by the Parliament in July 2009 which received royal
assent on 19 August and gazetted on 3rd September 2009.
CBA 2009, replaced Central Bank Act 1958 & extend more powers & duties to
BNM.
The CBA consists of 100 sections divided into 15 parts.
Unlike the Central Bank of Malaysia Act 1958, the CBA inserts new provision
in Part VII which covers provision pertaining to Islamic financial business.
Section 51-58 of Part VII of the CBA exclusively provide framework of Shariah
governance for IFIs in Malaysia
It grants authority to the BNM to establish the National Shariah Advisory
Council (SAC) and to specify its distinctive functions as well as secretariat to
assist the SAC in carrying out its definitive roles.
In parallel with the status of the SAC as the highest authority in matters
pertaining to Islamic banking, finance and takaful, the appointment of the
SAC members shall be made by the Yang di-Pertuan Agong. The SACs
remuneration and the terms of reference then shall be determined by the
BNM.
 It sets the minimum fit and proper criteria of the SAC members. The candidate
must be knowledgeable and expert in Shariah or has appropriate knowledge
and experience in banking, finance and law.
It allows expert in other related disciplines as well as judges of the civil court and
shariah court to be the SAC members. This provision is unique as combination
of mixed expertise amongst the SAC members would potentially contribute
towards more solid and sound Shariah rulings.
SAC is accorded the status as the sole authoritative body on Shariah matters
pertaining to Islamic banking, takaful and Islamic finance in Malaysia.
The act requires the courts and arbitrator to refer to the rulings of the SAC for
any proceedings relating to Islamic financial business, and such rulings shall be
binding.
Despite of the recent legal development, it is worth noting that the CBA has
jurisdiction only on matters that fall under the auspices of the BNM, which
exclude the Shariah board in the Securities Commission.
Thank You

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