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12 Oct 2020

Online Ordering, Payment and Delivery Facility for Sale of Commemorative Currency Issued by Bank Negara Malaysia

https://www.bnm.gov.my/-/online-ordering-payment-and-delivery-facility-for-sale-of-commemorative-currency-issued-by-bank-negara-malaysia

Reading: Online Ordering, Payment and Delivery Facility for Sale of Commemorative Currency Issued by Bank Negara Malaysia Share: 2 Online Ordering, Payment and Delivery Facility for Sale of Commemorative Currency Issued by Bank Negara Malaysia Release Date: 12 Oct 2020 Bank Negara Malaysia wishes to announce the availability of the online ordering, payment and delivery facility for the sale of commemorative coins issued in conjunction with the 50th Anniversary of Universiti Kebangsaan Malaysia (UKM50) and the 25th Anniversary of the Establishment of Putrajaya (Putrajaya25). Members of the public can place their orders at https://duit.bnm.gov.my from Monday, 12 October 2020 (9.00 a.m.) to Friday, 30 October 2020 (11.00 p.m.). In the event of oversubscription, balloting will be conducted. Members of the public are advised to place their orders through the Bank Negara Malaysia online system and not with any other party or unauthorised ordering facility. All orders will be considered and there will be no preference given to orders based on order date and time. Information on the website address for the online ordering system, payment, order result announcement and delivery facility will be published on Monday, 12 October 2020. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

09 Sep 2020

BNM invites applicants’ feedback on targeted repayment assistance

https://www.bnm.gov.my/-/bnm-invites-applicants-feedback-on-targeted-repayment-assistance

Reading: BNM invites applicants’ feedback on targeted repayment assistance Share: BNM invites applicants’ feedback on targeted repayment assistance Release Date: 09 Sep 2020 Bank Negara Malaysia is conducting an online survey of applicants of targeted repayment assistance. This survey will be used to inform our understanding of banking consumer experiences in discussing assistance needs during this challenging period. The survey should not take more than 10 minutes of your time. The responses will be kept confidential by Bank Negara Malaysia, and will not be shared with other parties including banking institutions, without your consent, as provided by the Personal Data Protection Act 2010. The survey may be taken by individuals or SMEs, with the relevant links provided below. Individual: https://forms.gle/DBjms9g9wyYK5QYT9 SMEs: https://forms.gle/WkpHjCqKAnyfa9L69 © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

01 Sep 2020

Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions (AML/CFT and TFS) for Financial Institutions - Frequently Asked Questions (FAQs) and Guidances

https://www.bnm.gov.my/-/amlcft-tfs-faqs-guidedances

https://www.bnm.gov.my/documents/20124/914558/FAQs_FIs_01092020.pdf, https://www.bnm.gov.my/documents/20124/914558/Guidance+on+Verification_01092020.pdf, https://www.bnm.gov.my/documents/20124/914558/Guidance+on+BO_01092020.pdf

Reading: Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions (AML/CFT and TFS) for Financial Institutions - Frequently Asked Questions (FAQs) and Guidances Share: Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions (AML/CFT and TFS) for Financial Institutions - Frequently Asked Questions (FAQs) and Guidances Release Date: 01 Sep 2020 Bank Negara Malaysia today issued the following FAQs and Guidances to provide further clarification on the requirements in the revised Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions (AML/CFT and TFS) Policy Document that was issued on 31 December 2019 and came into force on 1 January 2020. FAQs on AML/CFT and TFS for Financial Institutions Guidance on Verification of Individual Customers for Customer Due Diligence Guidance on Beneficial Ownership © 2024 Bank Negara Malaysia. All rights reserved.

Issue Date: 1 September 2020 Frequently Asked Questions on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (FAQs on AML/CFT and TFS for FIs) FAQs on AML/CFT and TFS for FIs Page 1 of 44 Introduction The Frequently Asked Questions (FAQs) are intended to provide clarification to reporting institutions on common queries in relation to the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions policy document (Policy Document). These FAQs are not intended to replace any requirements in the Policy Document. Any refinements to the FAQs will be updated by Bank Negara Malaysia from time to time. Should you have any additional queries related to Policy Document, please submit the queries via any of the following means: a. Mail : Director Financial Intelligence and Enforcement Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur b. Email : [email protected] Bank Negara Malaysia 1 September 2020 FAQs on AML/CFT and TFS for FIs Page 2 of 44 TABLE OF CONTENTS Introduction ................................................................................................................... 1 Glossary ......................................................................................................................... 3 Definition and Interpretation ........................................................................................ 4 Application of Risk-Based Approach .......................................................................... 7 AML/CFT Compliance Programme .............................................................................. 9 Customer Due Diligence (CDD) .................................................................................. 12 Politically Exposed Persons (PEPs) .......................................................................... 24 Reliance on Third Parties ........................................................................................... 25 Higher Risk Countries ................................................................................................. 25 Money or Value Transfer Services (MVTS) .............................................................. 26 Wire Transfers ............................................................................................................. 27 Cash Threshold Report (CTR) .................................................................................... 27 Suspicious Transaction Report (STR) ....................................................................... 28 Disclosure of Suspicious Transaction Report, Cash Threshold Report and Related Information ..................................................................................................... 29 Record Keeping ........................................................................................................... 30 Enforcement Orders .................................................................................................... 31 Targeted Financial Sanctions .................................................................................... 31 Other Reporting Obligations ...................................................................................... 39 APPENDIX A: Infographic on Higher Risk Countries ............................................... 40 APPENDIX B: Infographic on Wire Transfers ........................................................... 42 FAQs on AML/CFT and TFS for FIs Page 3 of 44 GLOSSARY No Abbreviation Description 1 AKPK Agensi Kaunseling & Pengurusan Kredit 2 AMLA Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 3 AML/CFT Anti-Money Laundering and Countering Financing of Terrorism 4 ASNB Amanah Saham Nasional Berhad 5 BO Beneficial Owner 6 CDD Customer Due Diligence 7 CDM Cash Deposit Machine 8 CTR Cash Threshold Report 9 DTI Deposit-Taking Institutions 10 e-KYC Electronic Know Your Customer 11 EPF Employees Provident Fund 12 FATF Financial Action Task Force 13 FINS Financial Intelligence System 14 GLCs Government Linked Companies 15 IRA Institutional Risk Assessment 16 IO Investigating Officer 17 ITOs Insurance and Takaful Operators 18 LHDN Lembaga Hasil Dalam Negeri 19 MSB Money Services Business 20 ML/TF Money Laundering and Terrorism Financing 21 MVTS Money or Value Transfer Services 22 NBIs Non-Bank Issuers of Designated Payment Instruments and Designated Islamic Payment Instruments 23 NRIC National Registration Identity Card 24 PCT Person Conducting Transaction 25 PEPs Politically Exposed Persons 26 SOCSO Social Security Organisation 27 STR Suspicious Transaction Report 28 TFS Targeted Financial Sanctions 29 UNSC United Nations Security Council 29 UNSCR United Nations Security Council Resolutions FAQs on AML/CFT and TFS for FIs Page 4 of 44 NO. QUESTION ANSWER Definition and Interpretation Beneficial Owner 1 Does the definition of “beneficial owner” refer to the chains of shareholders and directors, and exclude the individuals who hold senior management positions in a company, for example, Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO), or similar kind of positions in the company? Generally, the first step of identifying the beneficial owner (BO) as referred to in "…situations in which ownership or control is exercised through a chain of ownership.." is by identifying the shareholders and directors, not the individuals appointed as executives e.g. CEO, CFO, COO, unless these executives are also the shareholders or directors. The "chain" here is in relation to parent- subsidiary situations which extend across several levels, where the reporting institutions will need to review the entire chain of companies and subsidiaries to determine who is the ultimate beneficial owner of a particular customer that the reporting institution is dealing with. However, reporting institutions should be aware that for BO of a legal person, if the natural person cannot be identified through the controlling ownership interest, then the senior management of that legal person e.g. CEO, CFO, COO or similar position is to be identified as the BO. Details on the above sequential process to identify the BO can be found in the following paragraphs of the Policy Document: a. Banking and DTIs - paragraph 14A.9.6 b. Insurance and Takaful - paragraph 14B.11.12 c. MSB - paragraph14C.10.7 d. NBIs - paragraph 14D.9.6 For further details on beneficial owner, please refer to the “Guidance on Beneficial Ownership” issued by Bank Negara Malaysia. FAQs on AML/CFT and TFS for FIs Page 5 of 44 NO. QUESTION ANSWER Legal Person 2 What are the different types of government linked companies (GLCs)? GLCs refer to entities where the government is: a. the majority shareholder; or b. the single largest shareholder; and / or c. has the ability to exercise and / or influence major decisions such as appointment of board members and senior management. The definition would also be applicable in instances where the government is not a single largest shareholder but is able to exercise control e.g. through golden shares (where the government is entitled to certain special rights). This may also include state-owned corporation (SOC) which is a body formed by the government through legal means to be able to take part in activities of a commercial nature. As activities of a state-invested entity (SIE) also involve investment on behalf of the government, they may be treated the same as SOCs and GLCs. Person Conducting the Transaction 3 Who is to be classified as person conducting the transaction (PCT)? PCT is defined in paragraph 6.2 of the Policy Document and refers to any natural person conducting or purporting to act on behalf of the customer, such as person depositing into another customer’s account or person undertaking a transaction on behalf of another person. FAQs on AML/CFT and TFS for FIs Page 6 of 44 NO. QUESTION ANSWER Examples of PCT may include the following: a. a third party conducting money services transactions on behalf of the customer e.g. an employer remitting on behalf of foreign employees / workers or a travel agent exchanging monies on behalf of tour groups; b. a company representative making payments on behalf of the company; or c. a third party paying on behalf of an account holder or policy holder e.g. a parent or guardian performing a transaction on behalf of the child who is the account holder or policy holder or a third party making repayment to loan accounts. Nominee (Insurance and Takaful) 4 Who is defined as nominee? A nominee is a person that the insured person under an insurance policy or takaful certificate chooses or nominates to receive the policy moneys / takaful benefits from the insurance policy or takaful certificate, upon the death of the policy owner / takaful participant. Nominee is included under the definition of “beneficiary” in paragraph 6.2 of the Policy Document. FAQs on AML/CFT and TFS for FIs Page 7 of 44 NO. QUESTION ANSWER Application of Risk-Based Approach Risk Assessment 5 What is the expectation for reporting institutions in conducting their institutional risk assessment (IRA)? Can the IRA be thematic and how frequent must it be conducted? Paragraph 10.2.1 of the Policy Document, requires reporting institutions to identify, assess and understand their ML/TF risk in relation to the following parameters: a. customers; b. countries or geographical areas; c. products, services, transactions or delivery channels; and d. other relevant risk factors. Reporting institutions’ first IRA must be comprehensive, covering all the above mentioned parameters i.e. customers, countries/geographical areas and products/ services/ transactions and delivery channel, at minimum. Reporting institutions may choose to update the IRA on a thematic basis. Reporting institutions may consider to set the frequency of the IRA on a specific period e.g. every 1 to 2 years or where circumstances have changed that may warrant a refresh of the IRA, e.g. material changes in risk profile, significant internal audit finding, changes in business direction, new typologies suggested by authorities or the Financial Action Task Force (FATF), or when embarking in new technologies, etc. Reporting institutions may also refer to the guidance documents on risk-based approach available in Appendix 1 of the Policy Document and guidance issued by the FATF which are available on its website at: http://www.fatf-gafi.org/ FAQs on AML/CFT and TFS for FIs Page 8 of 44 NO. QUESTION ANSWER Risk Profiling 6 What is deemed as a valid justification when re-rating a customer’s risk from higher to lower? Should the reporting institution document the procedures for reference purposes? Reporting institutions are to assess the customers’ risk based on the type of customer, geographical location, products, services, transactions or delivery channels and other relevant factors (such as emerging threats, trends, change in behaviours, past suspicious transaction report experience, etc.). Reporting institutions are expected to consider the applicable factors at the stage of on-boarding and during re-rating to determine the risk of a customer. Reporting institutions are also expected to document internal customer risk profiling assessments, for record keeping and audit purposes. Reporting institutions may refer to the guidance provided in Appendix 1 of the Policy Document for suggested approach to conduct customer risk profiling. 7 For classification of higher risk customers, is there a limit on the indicators to be relied on when assessing a customer’s risk profile? Can reporting institutions rely on two or more indicators for deciding to rate the customer as having higher risk? Reporting institutions can rely on various indicators in deciding to rate a customer as having higher risk. Reporting institutions are expected to consider all risk factors applicable based on type of customer, geographical location, products, services, transactions or delivery channels and may include other relevant factors such as patterns of transactions or activity throughout the business relationship. However, there are instances where a customer is classified as having higher risk based on only one higher risk indicator regardless of the level of risk posed by the other factors. For example, a customer must be classified as having higher risk if the customer is a foreign politically exposed person (PEP); or is from higher risk countries FAQs on AML/CFT and TFS for FIs Page 9 of 44 NO. QUESTION ANSWER that are called for by the FATF. In both examples above, enhanced CDD shall apply. AML/CFT Compliance Programme Employee Screening Programme 8 Can screening be differentiated for different employees? Yes, the screening of employees can be differentiated on a risk-based basis, depending on the position, job scope or other relevant factors related to the employee. Reporting institutions are expected to assess their employees’ vulnerability to money laundering, terrorism financing, fraud and bribery risks, and use various sources of information to assist in the screening process to ensure that employees do not abuse their position or be vulnerable or used as a conduit to facilitate ML/TF activities. 9 What are the methods to conduct employee screening? Reporting institutions may choose any suitable method to conduct employee screening and be guided by the requirements in paragraph 11.5 of the Policy Document. Examples of methods for the conduct of employee screening may include face-to-face meeting, phone or video interviews, online checks, skills test, submission of documents or statutory declarations, criminal checks with relevant authorities, consumer credit reports, transaction monitoring, obtaining employment reference, etc. FAQs on AML/CFT and TFS for FIs Page 10 of 44 NO. QUESTION ANSWER 10 Would trigger events such as transaction monitoring, periodic negative news screening suffice as the parameter for rescreening? The parameters and triggers for re-screening are to be determined by each reporting institution. Examples of best practices would include consideration of global watch list (including negative news screening), criminal checks with relevant authorities, transaction monitoring as well as credit reports and also changes in circumstances, either professionally or personally e.g. promotion, secondment to another division function, financial hardships, or staying in the same position for a long period of time, etc. Employee Training and Awareness Programmes 11 What forms of employee training are acceptable? Training should be continuous. Any form of training, e.g. classroom, online or webinar, are acceptable depending on the needs of the employee, the job function and responsibilities undertaken by the employee. Reporting institutions should have clear and comprehensive training contents. The training materials should be frequently reviewed to include any latest changes to the AML/CFT or other regulatory requirements. In addition, tests or examinations are highly encouraged to demonstrate higher levels of effectiveness. Reporting institutions are to ensure that the training provided to their employees is properly documented. 12 [Insurance and Takaful] Must insurance principals provide any form of training to their insurance agents in relation to AML/CFT compliance? Life insurance principals are required, under paragraph 11.6 of the Policy Document, to ensure their agents receive initial and on- going training on relevant AML/CFT obligations. This also applies in cases where the insurance agent provides both life and general insurance services. FAQs on AML/CFT and TFS for FIs Page 11 of 44 NO. QUESTION ANSWER Independent Audit Function 13 Can the Board level function be delegated to other Board level committees (i.e. audit or risk)? Yes, the function may be delegated to other Board level committees (i.e. audit or risk) so long as the committee is independent and the AML/CFT findings or issues relating to the adequacy and implementation of the AML/CFT policies and procedures are ultimately tabled to the Board. For example, the decision on frequency and scope of the audit can be delegated to the Board Audit Committee. 14 Are reporting institutions required to conduct an annual audit? The frequency of the audit depends on the reporting institutions’ assessment of its ML/TF risk exposure and is determined by the Board. On the scope of the independent audit, reporting institutions are to refer to the requirements under paragraph 11.7.6 of the Policy Document. Further, reporting institutions must also consider whether there were previous non-compliances under the AMLA which resulted in enforcement actions taken against the reporting institution. 15 Are reporting institutions no longer required to submit an audit report to the Financial Intelligence & Enforcement Department, Bank Negara Malaysia (FIED, BNM) on an annual basis? Yes, reporting institutions are no longer required to submit an annual audit report to FIED, BNM. However, reporting institutions must ensure that the audit report and necessary corrective measures undertaken are made available to FIED, BNM and the relevant supervisory authorities upon request. In addition, MSB licensees are expected to be guided by other relevant requirements relating to internal audit report issued by the Money Service Business Regulation Department, BNM. FAQs on AML/CFT and TFS for FIs Page 12 of 44 NO. QUESTION ANSWER Customer Due Diligence (CDD) General 16 [Banking and Deposit-Taking Institutions] How would CDD be conducted on cash deposit machines (CDM) transactions? For CDM transactions, CDD and on-going monitoring are to be conducted on the account holder and not the PCT. For example, if A deposits cash via CDM into B’s account, reporting institutions are expected to monitor B’s account and report CTR should the amount exceed RM25,000. 17 [Money Services Business] What are the expectations of conducting CDD on beneficial owners, when most of the customers are walk-in customers? MSB licensees are required to take reasonable measures to identify and verify beneficial owners especially when they have knowledge based on previous transactions or publicly available information that the customer (i.e. person conducting the transaction) is acting on behalf of the beneficial owner, for example: a. Exchange transactions with the representative of the beneficial owner (e.g. a domestic PEP) are allowed if MSB licensees are able to comply with the CDD requirements on beneficial owners and his/her representative. b. Where there is a partial disclosure of the identity i.e. name of the beneficial owner by the representative, MSB licensees are allowed to perform the exchange transactions with the representative; and must consider lodging a STR on the representative including information on the BO to FIED. c. Where there is no disclosure of the identity i.e. name of the beneficial owner by the representative, MSB licensees are allowed to perform the exchange transactions with the representative; and must lodge a STR on the representative to FIED. FAQs on AML/CFT and TFS for FIs Page 13 of 44 NO. QUESTION ANSWER If the customer is unable to provide or refuse to provide the information and/or documents, MSB licensees must not perform the transaction for the customer. 18 [Money-Changing Business, Wholesale Currency Business and E-Money] What are the scenarios in which reporting institutions may offer their products or services without conducting CDD? Money-changing and Wholesale Currency Business The Policy Document stipulates threshold based CDD for money-changing transactions. Reporting institutions may offer money changing and wholesale currency business without conducting CDD when the transaction amount is less than RM3,000. E-money The Policy Document stipulates strict CDD tiers for e-money accounts, which is in accordance to the thresholds and features. Reporting institutions may use Appendix 3 of the Policy Document as reference. Reporting institutions are required to conduct CDD when any of the following conditions are met: a. the account limit is equivalent to RM3,000 or above; b. the monthly transaction limit is equivalent to RM5,000 or above; c. the annual transaction limit is equivalent to RM60,000 or above; d. the account is used for payments of goods and/or services outside of Malaysia; e. the account is used for cash withdrawals; and f. the account is used for wire transfers. If any of the above conditions are met, reporting institutions are expected to conduct CDD in accordance with the relevant tiers. FAQs on AML/CFT and TFS for FIs Page 14 of 44 NO. QUESTION ANSWER For example, if an e-money account has an account limit of RM1,500, with monthly and annual transaction limits of RM2,000 and RM24,000 respectively. However, it can be used for domestic wire transfers, then the said account shall not be offered without CDD. Instead, the reporting institution may opt to offer the product with Simplified CDD. 19 [NBIs] Does the requirements in the AML/CFT and TFS Policy Document supersede the Interoperable Credit Transfer Framework (ICTF)? As per paragraph 8.2 of the Policy Document, only selected requirements pertaining to CDD in paragraphs 10.3, 10.4, 10.5 and Appendix 2 of the ICTF are superseded. Reporting institutions shall adhere to CDD requirements stipulated in the Policy Document, with effect from 1 January 2020. 20 Are reload transactions included within the computation of monthly/annual transaction limits? No. The monthly or annual transaction thresholds stipulated in the Policy Document are solely on the usage of funds in the e- money. For example, a customer reloads RM100 into their e-money account and proceeds to buy RM30 worth of goods / services on the e- money platform. In this case, the utilised funds of RM30 from the account is computated for the monthly / annual transaction limit. Verification 21 How do reporting institutions to conduct verification of the identity of a customer or beneficial owner through “reliable and independent documentation, electronic data or any other measures deemed necessary”? Verification can be a combination of various data points that the financial institution deems to be “reliable and independent” which could cumulatively ensure the veracity of customer and beneficial owner’s identification data. Any measures adopted should be subjected to the reporting institution’s internal governance process. Generally, reporting institutions would verify the identity through acceptable government issued documents with or without photograph (e.g. MyKad, MyKid, MyPR, OKU card, driving licence, birth certificate, marriage certificate), FAQs on AML/CFT and TFS for FIs Page 15 of 44 NO. QUESTION ANSWER foreign passport, employee identification documents, etc. Alternatively, subject to the reporting institution’s assessment whether it is appropriate to mitigate the risks, reporting institutions may accept scanned or copy documentation and apply additional measures which include: a. third party verification of identity from the client’s primary bank account provider, lawyer or accountant in accordance with paragraph 16 of the Policy Document; b. corroborative evidence from Jabatan Pendaftaran Negara, Suruhanjaya Syarikat Malaysia and Central Credit Reference Information System (CCRIS) databases; c. use of commercial providers who triangulate data sources to verify documentation provided; d. use of new and robust technology solutions including but not limited to, biometric technologies which should be linked incontrovertibly to the customer; e. through non face-to-face mechanisms e.g. video conference with customers and submission of selfies to compare the physical identity of a customer with scanned or photographed copies of identification documents; and/or f. other reliable and independent source. Reporting institutions are expected to undertake adequate and reasonable measures to mitigate risks arising from the adoption of any non face-to-face mechanisms. For further details, please refer to the “Guidance on Verification of Individual Customers for CDD” issued by Bank Negara Malaysia. FAQs on AML/CFT and TFS for FIs Page 16 of 44 NO. QUESTION ANSWER 22 For verification purpose, are reporting institutions required to make a copy of the customer’s NRIC, or is it sufficient to document or make a record of the customer’s NRIC number? Yes, any documents requested or obtained during the CDD process should be kept and recorded to meet the record keeping requirement as set out under paragraph 24.1 of the Policy Document. The record keeping of these documents may be in the form of a photocopy, soft copy (scanned copy or snapped picture) or biometric record (such as Government Multi- Purpose Card Consortium (GMPC) verification, etc.). 23 The paragraphs below provide for the exemption of verification of the identity of directors and shareholders of legal persons which are public listed companies or corporations listed in Bursa Malaysia. a. Banking and DTIs - paragraph 14A.9.8(a) b. Insurance and Takaful - paragraph 14B.11.14(a) c. MSB - paragraph, 14C.10.9(a) d. NBIs - paragraph 14D.9.8(a) What is the expectation if the public listed company is identified to be wholly owned by a government linked company or a state owned company? Under such circumstance, the exemption on verification of the identity of directors and shareholders of that legal person applies. Reporting institutions are required to identify and maintain information relating to the identity of the directors and shareholders of the public listed company using reliable sources (see the following paragraphs) a. Banking and DTIs - paragraph 14A.9.9 b. Insurance and Takaful - paragraph 14B.11.15 c. MSB - paragraph, 14C.10.10 d. NBIs - paragraph 14D.9.9 FAQs on AML/CFT and TFS for FIs Page 17 of 44 NO. QUESTION ANSWER Standard CDD 24 What is the expectation for reporting institutions in dealing with authorized persons? A person authorized must be represented with a letter of authority or director’s resolution from the legal person. Where it involves an authorized signatory, i.e. when a legal person opens an account, establishes business relations and authorizes another person to conduct transactions on its behalf, the reporting institution shall obtain documentary evidence pertaining to the appointment of such person and the specimen signatories and/or recognized digital signature of the person appointed. 1.1 For treasury related transactions, the reporting institution shall obtain name of the authorized dealer, documentary evidence authorizing the person to act on behalf of the legal person and authorized telephone number to carry out the transaction. 1.2 Reporting institutions must be guided by their risk assessment on what documentary evidence would suffice for the purposes of identifying and verifying the person authorized. For example, reporting institutions may consider whether a letter from human resource would be deemed sufficient for such purposes. In such cases, the letter should at the very least contain the name and NRIC number of the authorized person to facilitate identification purposes. Reporting institutions may also consider requesting the name and contact number of a personnel in the human resource department or other relevant department that may be contacted for verification purposes. FAQs on AML/CFT and TFS for FIs Page 18 of 44 NO. QUESTION ANSWER 25 [Insurance & Takaful] Should insurance and takaful operators (ITOs) to conduct CDD on each payor making payment for the policyholder? ITOs should focus on the relationship between policyholders and payors and apply a risk- based approach when dealing with different payors. For example, if an ITO identifies that the payor is actually a family member of a policyholder, then the ITO may adopt simplified CDD if the risk posed by the payor is assessed as low. 26 [NBIs] Should reporting institutions that carry out merchant acquiring activities conduct CDD on their merchants? The Policy Document is currently not applicable to merchant acquiring activities. As such, reporting institutions are not obliged to conduct CDD on merchants. Nevertheless, should the merchant that is on-boarded also utilises e-money product/ services offered by the reporting institution, it is then regarded as a customer (legal person) of the reporting institution. As such, they may need to fulfil CDD requirements, in accordance with the relevant tiers. The classification of legal person or natural person is as per the definition in paragraph 6 of the Policy Document. However, Bank Negara Malaysia will conduct assessments from time to time on specific entities to identify associated ML/TF risks. Specific CDD: CDD on E-Money / CDD for Non-Bank Issuers of E-Money 27 In the case of refunds; a. Are refunds from the customer’s e-money account into the customer’s own bank account considered as a cash withdrawal transaction? b. Are reporting institutions expected to perform CDD on its customer in this scenario? Cash withdrawals are transactions that provide customers access to cash, and hence do not include refunds to bank accounts. Notwithstanding the above, reporting institutions may conduct CDD and collect any information that they deem necessary, in accordance with their internal policies and procedures/ risk based approach. FAQs on AML/CFT and TFS for FIs Page 19 of 44 NO. QUESTION ANSWER Simplified CDD 28 Can the reporting institution’s Board approval be obtained one-off for Simplified CDD? Yes, Board approval may be obtained one-off. For example, in the event where a reporting institution adopts the same Simplified CDD framework to a new product, a new approval is not required, subject to any changes to the ML/TF risk level of the parameters assessed by the reporting institution. Additionally, for MSB licensees, prior approval from BNM is required to implement simplified CDD. 29 [E-money] Can simplified CDD still apply if an e-money product is not able to limit or identify merchants which are local i.e. there are possibilities that the payments may be made to a foreign merchant? No. For account limits between RM3,000 and RM4,999, simplified CDD can be applied only when ALL conditions in (a) to (e) are met i.e. (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 If any of the above conditions cannot be met, then standard CDD measures should apply. 30 Can the linking of accounts be done with current / savings / payment card accounts not belonging to the customer? The linking of accounts is intended for the traceability of funds by way of identifying the source of funds channelled into the e-money account. However, reporting institutions may allow linking of accounts belonging to close associates/family members, e.g. spouse/parents, provided that reporting institutions conduct their own risk assessments and are satisfied that the risk is low. FAQs on AML/CFT and TFS for FIs Page 20 of 44 NO. QUESTION ANSWER For example, the customer’s e-money account (in this case is a child), is reloaded with savings / current / payment card account belonging to his / her mother for the child’s school / monthly allowance purposes. 31 [NBIs] Does leveraging on CDD conducted by other reporting institutions by way of linking of accounts (e-money account with either current /savings/payment card account), be considered as a verification method under Simplified CDD regime? The Policy Document does not prescribe any specific verification methods, and instead stipulates principle-based requirement for the verification of customer identity, which applies for both Standard and Simplified CDD tiers. A reporting institution is required to verify customer’s identity using reliable, independent documents, data or information, or a combination of several data points. The extent and mode of verification employed shall be determined by the reporting institution, provided it is commensurate with the ML/TF risks and the reporting institution is satisfied with the identity of the customer. Further, the reporting institution must be able to substantiate the same to supervisors. Examples of documents that may be used include any government issued identification card (e.g. MyKad, MyKid, MyPR, birth certificate), employee identification issued by ministries and statutory bodies, foreign passport or identification issued by the United Nations, utility bills, documents used by municipal council, etc. As such, leveraging on the CDD previously conducted by other reporting institutions, among others, may be the method determined by the reporting institution, provided that it is satisfied that the customer is indeed who he says he is and is able to justify the same to supervisors. FAQs on AML/CFT and TFS for FIs Page 21 of 44 NO. QUESTION ANSWER However, when a reporting institution relies on a third party (i.e. another reporting institution) for CDD, requirements in paragraph 16 Policy Document shall be adhered to. Enhanced CDD 32 Do reporting institutions need to establish source of fund or source of wealth for every customer? No. The requirement to obtain information on source of funds and/or source of wealth applies when overall ML/TF risks are assessed as higher risk. Reporting institutions are not expected to establish source of wealth for each and every customer or transaction. Generally, reporting institutions are required to enquire on source of funds and/or source of wealth, as part of the enhanced CDD under the following scenarios: a. subsequent to the conduct of customer risk profiling, when a customer is assessed as having higher ML/T risks, regardless of any amount of transaction; b. for all foreign politically exposed persons (PEPs) or when a domestic PEP is assessed as having higher ML/TF risks, in which case, both source of fund and wealth must be obtained; or c. when providing nominee services to the clients, i.e. nominee shareholding, directorship or partnership services, i.e. by reporting institutions who are lawyers, accountants, company secretaries or trust companies. 33 What is the difference between “source of wealth” and “source of funds”? Information on the source of wealth and source of funds are good sources of monitoring for the reporting institutions. “Source of wealth” refers to the source of a person’s total assets. Documents and information that may reflect the source of wealth of a person include inheritance document, property title, copies of trust deeds, audited accounts, salary details, tax returns FAQs on AML/CFT and TFS for FIs Page 22 of 44 NO. QUESTION ANSWER and bank statements. It may be possible to gather general information from commercial databases or other open sources. “Source of funds”, on the other hand, refers to the origin of a specific asset used in connection to the business relations with the reporting institution, including amount invested, deposited or wired. Source of funds may be determined through enquiry on the customer, complemented by documents such as record of salary payments or receipt of sale proceeds, etc. In the case of PEPs, both information on the source of wealth and source of funds are to be obtained. Understanding both the source of wealth and source of funds of a PEP is also necessary for on-going due diligence purposes where the aim is to ensure that the reason for the business relationship between reporting institutions, and the PEP and the transactions undertaken on the PEP’s behalf, are commensurate with what one could reasonably expect from that PEP, given his/her particular circumstances. Non Face-to-Face Business Relationship 34 Is Board approval required for each new product and services on- boarded via non face-to-face channel / e-KYC? The requirement for Board approval is connected to the risk levels of the product and services. If the process and procedures in place for the said products and services are the same, Board approval is only required once, for all product and services on-boarded via non face-to-face channel / e-KYC. A new approval would need to be obtained when there are changes to the ML/TF risk FAQs on AML/CFT and TFS for FIs Page 23 of 44 NO. QUESTION ANSWER level of the parameters assessed by the reporting institution. 35 Is it a requirement for non face-to- face business arrangements implemented prior to the effective date of the Policy Document to be approved by the Board of the reporting institutions? The requirements for non face-to-face (non- FTF) do not have a retrospective effect. For non-FTF business relationships, reporting institutions shall ensure their non-FTF arrangements for customer identification and verification of identity is are as effective as a face-to-face relationship. Should there be any changes to the ML/TF risk levels, reporting institutions need to re-assess the parameter and may require a new Board approval, and where applicable, prior written approval from the Director of the Money Services Business Regulation Department or Director of the Payments Oversight Department, Bank Negara Malaysia. 36 [Money Services Business] Besides using a bank account to make payments of remittance and money changing transactions performed using e-KYC, can such payments also be made through an e-wallet by a customer? Yes, customers on-boarded through e-KYC are also allowed to make payments for remittance and money changing transactions using an e-wallet besides bank account. However, the reporting institution concerned is required to ensure that its customers fulfil the requirement of having a bank account in order to undertake such transactions. 37 [For Remittance Only] How does a reporting institution differentiate between customers on-boarded through e-KYC and over-the-counter to ensure remittance transactions conducted by them are in accordance with the specified transaction limits for outward remittances? The reporting institution concerned must ensure that the system deployed is able to tag its customers based on the on-boarding methods and assign the transaction limits according to the respective customer groups i.e. a. Customers on-boarded through e-KYC: i. Not exceeding an aggregate amount of RM30,000 per day for an individual, including expatriate; and ii. Not exceeding an aggregate amount of RM5,000 per month for an individual who is a foreign worker FAQs on AML/CFT and TFS for FIs Page 24 of 44 NO. QUESTION ANSWER b. Customers on-boarded over the counter: Not exceeding an aggregate amount of RM50,000 per day Notwithstanding this, a customer on-boarded through e-KYC is allowed to transact at a higher limit of RM50,000 per day, provided that proper face-to-face KYC has been conducted on the customer concerned. 38 [For Money-Changing Only] Must CDD be performed by a reporting institution when on- boarding new customers using e- KYC for conducting money changing transactions below RM3,000 and between RM3,000 to RM10,000? Yes, reporting institutions need to conduct specific CDD on all new customers who are on-boarded through e-KYC for money changing transactions below RM10,000. For money changing transactions above RM10,000, standard CDD measures shall apply. Politically Exposed Persons (PEPs) 39 What is the extent of checking required to ascertain information on close associates or family members of PEPs, as a basic internet search may not reveal the required information? Does Bank Negara Malaysia maintain a central database of PEPs? Reporting institutions are encouraged to develop internal references or database in identifying family members or close associates of PEPs. Reporting institutions may also refer to public or commercial databases and supplement this with a customer’s self- declaration. Bank Negara Malaysia does not maintain a central database on PEPs, family members and close associates of PEPs. 40 To what extent is the reporting institution to identify the connectivity to a PEP especially where the connection with close associate can be through multiple layers e.g. close associates of PEP opening joint accounts with another person(s), work colleagues, etc.? The identification of the close associates should be on a best effort basis, based on information obtained and available to the reporting institutions and subject to the risk assessment of the reporting institution. In the case of personal relationships, this can be deduced based on the social, economic and cultural context which can determine the closeness of the relationship. FAQs on AML/CFT and TFS for FIs Page 25 of 44 NO. QUESTION ANSWER Reliance on Third Parties 41 Can reporting institutions rely on third parties to conduct CDD? Reporting institutions may rely on third parties for the conduct of CDD or to introduce business provided that the relationship between the reporting institution and the third party must be governed by an arrangement that clearly specifies the rights, responsibilities and expectations of all parties, as required under paragraph 16.5 of the Policy Document. Nevertheless, the conduct of CDD is the ultimate responsibility of the reporting institution, and must ensure that it is able to obtain the CDD information from the third party, immediately, upon request. Sharing of data is allowed strictly for CDD purposes and subject to prerequisites stated in the above paragraphs. Reporting institutions are to take note that ‘third parties’ in the context of paragraph 16 refers to another reporting institution supervised by a relevant authority e.g. Bank Negara Malaysia, Securities Commission, etc. It also does not include outsourcing or agency relationships because the outsourced service provider or agent would be regarded as synonymous with the reporting institution. 42 What form of “attestation” is required from the third party under paragraph 16.6 of the Policy Document? The “attestation” can be in any form that is mutually agreed by both parties. The “attestation” should clearly specify the rights, responsibilities and expectations of all parties and satisfies the requirements stated under paragraph 16 of the Policy Document. Higher Risk Countries 43 How should reporting institutions deal with higher risk countries? Paragraph 17 of the Policy Document deals with higher risk countries that is called for by the FATF or by the Government of Malaysia FAQs on AML/CFT and TFS for FIs Page 26 of 44 NO. QUESTION ANSWER as well as other jurisdictions that have strategic AML/CFT deficiencies for which they have developed an action plan with the FATF. This includes conducting enhanced CDD and applying effective countermeasures, when required. For further details on dealing with higher risk countries, please see Appendix A. Reporting institutions should refer to the FATF website for the latest list of higher risk countries or the latest circular issued by Bank Negara Malaysia and any change in that requirements at: https://amlcft.bnm.gov.my 44 Where can reporting institutions source for a list of higher risk countries issued by the Government of Malaysia? Bank Negara Malaysia will publish any higher risk countries that have been officially specified by the Government of Malaysia, by way of circular. Such specification has yet to be made at the date of the publication of this FAQ. Money or Value Transfer Services (MVTS) 45 Does international airtime transfer fall under the requirements of MVTS? No. The definition provided under paragraph 6 of the Policy Document, provides that 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. https://amlcft.bnm.gov.my/ FAQs on AML/CFT and TFS for FIs Page 27 of 44 NO. QUESTION ANSWER Wire Transfers 46 What is the required information for cross-border wire transfers for each institution (ordering institutions, intermediary institutions and beneficiary institutions)? For cross-border wire transfers amounting to RM3,000 and above, the ordering institutions are required to obtain the originators’ name, account number (or a unique reference number), address or date and place of birth as well as beneficiary’s name and account number (or a unique reference number). Whereas, for cross-border wire transfers below RM3,000, the ordering institutions are required to obtain the originators’ name and account number (or a unique reference number) as well as beneficiary’s name and account number (or a unique reference number). Meanwhile, intermediary institutions are expected to retain all the required originator and beneficiary information that accompanies a wire transfer. The beneficiary institutions are then required to identify cross-border wire transfers that lack the required originator information or required beneficiary information. 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. For further details on the above, please see Appendix B. Cash Threshold Report (CTR) 47 Are all reporting institutions under the AMLA required to submit CTRs? Currently, CTR obligation of RM25,000 and above in a day, pursuant to section 14(1)(a) of the AMLA, is applicable only to banking institutions, selected prescribed development financial institutions, Lembaga Tabung Haji and licensed casino. FAQs on AML/CFT and TFS for FIs Page 28 of 44 NO. QUESTION ANSWER Bank Negara Malaysia will continue to conduct assessments on reporting institutions from time to time. Reporting institutions will be notified if the CTR obligation becomes applicable to them. 48 [Banking and DTIs] Must reporting institutions submit a CTR for products offered as agent for other organisation/agencies, such as Tabung Haji or ASNB transactions? No. As transactions involving agent product/services are captured directly into the respective organisation or agencies’ systems (this will include CTR obligations if they are a reporting institution with CTR obligations invoked), there is no requirement to capture these transactions for CTR reporting. Notwithstanding the above, it is pertinent to capture cash transactions and report CTR in instances whereby customer withdraws or deposits funds into their current and/or savings account should the amount be RM25,000 and above. Suspicious Transaction Report (STR) Reporting Mechanisms 49 Should reporting institutions continue to submit STRs for the same customer or should reporting institutions update the details in the previous STR case filed? As per paragraph 22.2.10 of the Policy Document, where an STR has been lodged, reporting institutions may opt to update or make a fresh STR as and when a new suspicion arises. Reporting institutions are encouraged to submit a new STR if there is new critical information. Where a new STR is submitted, reporting institutions should include the previous reference number as part of the reporting description. Internally Generated Suspicious Transaction Reports 50 What is the duration that reporting institutions are to maintain the internally generated reports and supporting documents? These reports and supporting documents are to be kept for at least 6 years, as specified under Record Keeping in paragraph 24.3 of the Policy Document. FAQs on AML/CFT and TFS for FIs Page 29 of 44 NO. QUESTION ANSWER Disclosure of STR, CTR and Related Information 51 Who can be allowed access to contents of STRs? Can a regulatory body such as Securities Commission or an internal auditor of a reporting institution review the quality of STRs submitted through FINS? While section 14A of the AMLA provides a general prohibition on the disclosure of STRs and related information, sections 14A(3)(a) to (d) allows for disclosure in certain circumstances. Section 14A(3)(a) of the AMLA allows for disclosure of the STRs/CTRs if it is made in the course of acting in connection with the performance of his/her duties or the exercise of his/her function under the AMLA (e.g. disclosures to the internal audit). It would be up to the assessment of the respective reporting institution whether such disclosure to the internal audit is warranted based on the above exemption provided under the AMLA. Internal auditors are allowed to conduct testing on the parameters of reporting under section 14(1) of the AMLA and whether such parameters are able to ensure that the reports which should be submitted to Bank Negara Malaysia (the competent authority) are indeed submitted. However, reporting institutions are to note that if the appointed auditor is from an entity outside of Malaysia, written authorization for disclosure of CTR/STR and related information is to be obtained from FIED, BNM. Whereas section 14A(3)(c) of the AMLA allows such disclosure if it is made as part of performing his/her duty as a director, officer or employee of a reporting institution to the supervisory authority of the reporting institution. As such, Securities Commission is allowed to have access to the STR information FAQs on AML/CFT and TFS for FIs Page 30 of 44 NO. QUESTION ANSWER so long as the requirements of section 14A(3)(c) is met. Reporting institutions should have in place appropriate controls in order to safeguard the confidentiality of the STRs in any of the permitted circumstances for disclosure. 52 Can reporting institutions report CTR to a parent company located overseas? Reporting institutions are prohibited from disclosing any suspicious transaction report and cash threshold report, as well as any information related to these reports, in accordance with section 14A of the AMLA. However, the prohibition under the above does not apply where the exceptions under section 14A(3)(d) of the AMLA apply. Reporting institutions may apply for a written authorisation from Bank Negara Malaysia to share CTR or information related to CTR with their parent company located overseas. Record Keeping 53 Is record keeping requirement applicable to attempted customer? The record keeping requirement is only for existing customers who have entered into a business relationship with reporting institutions, and not applicable on attempted customers. However, if an STR has been submitted on an attempted transaction/ customer, the relevant records must be kept and be made available if required by law enforcement agencies or the supervisory or competent authorities. 54 Where documents are kept in multiple different forms (e.g. physical copies or in electronic format), what is the expectation on the requirements? Reporting institutions must ensure that all the retained forms of record keeping remain relevant and are kept up-to-date. FAQs on AML/CFT and TFS for FIs Page 31 of 44 NO. QUESTION ANSWER Enforcement Orders 55 What is deemed to be a “reasonable time frame” as specified in paragraph 26.1 of the Policy Document? The reasonable time frame is to be mutually agreed between the Investigating Officer (IO) and the reporting institution. Constant engagement between both parties is highly recommended. 56 Can a reporting institution return frozen funds under a freezing order pursuant to section 44 of the AMLA? Funds are to remain frozen so long as the enforcement order under the AMLA is still valid (i.e. 90 days from the date of the freezing order). No dealings with the funds are allowed, unless authorized by the IO of the relevant law enforcement agency. Reporting institutions are advised to constantly communicate with IO on this matter. 57 For seizure of movable property in financial institutions under Section 50 of Part VI of the AMLA, are reporting institutions allowed to inform the customer that his/her account has been seized due to the direction from the law enforcement agency? In practice, the Seizure Order under section 50(1) of the AMLA is also copied to the customer by the IO from the relevant law enforcement agency. Targeted Financial Sanctions Definition 58 What is the definition of “without delay”? “Without delay”, in respect of maintenance of sanctions list and freezing, blocking and rejecting is ideally within a matter of hours of designation by the United Nations Security Council (UNSC) or its relevant Sanctions Committee. The aim is to prevent the flight or dissipation of funds or other assets which are linked to terrorists, terrorist activities, financing of terrorism or financing of proliferation of weapons of mass destruction. Reporting institutions are expected to be updated on any changes in the UNSC or its relevant Sanctions Committee sanctions list FAQs on AML/CFT and TFS for FIs Page 32 of 44 NO. QUESTION ANSWER and are accountable to ensure their sanction database is up-to-date and comprehensive. Bank Negara Malaysia will assist in ensuring information is communicated as soon as practicable. Maintenance of Sanctions List 59 Where can reporting institutions obtain the Domestic List i.e. the list of specified individuals and entities under the relevant subsidiary legislation made under section 66B(1) of the AMLA? The list of all specified individuals and entities specified under the relevant subsidiary legislations made under section 66B(1) of the AMLA are published in the Gazette. Reporting institutions may refer to the following website for the list: http://www.federalgazette.agc.gov.my Reporting institutions may also refer to the Ministry of Home Affairs' website for the Domestic List. Reporting institutions are to be aware that the subsidiary legislation issued under section 66B(1) of the AMLA usually amends the previous subsidiary legislation. 60 How often does the UNSCR Lists and Domestic List get updated and how would the reporting institutions know when there is an update? Reporting institutions are required to keep updated with the UNSCR Lists and Domestic List, which is updated without any specific intervals. In this regard, reporting institutions shall refer the UNSCR and Ministry of Home Affairs' website regularly to ensure the lists maintained remain updated and relevant. Bank Negara Malaysia will assist in ensuring information is communicated as soon as practicable. 61 Does the delisting of individuals and entities from UNSCR list automatically remove them from the Domestic List? No. Removal from UNSCR list does not automatically mean that the entities are removed from the Domestic List. The delisting will only take effect upon publication of the Gazette to declare the removal of such FAQs on AML/CFT and TFS for FIs Page 33 of 44 NO. QUESTION ANSWER specified entities through the relevant subsidiary legislation issued by the Minister of Home Affairs. Sanctions Screening - Customers 62 [Banking and DTIs] Is sanctions screening required for over-the-counter transactions, where the reporting institution is acting as an agent of a statutory body or Ministry? Where the reporting institution acts as an agent for a statutory body or Ministry, the respective reporting institution and the statutory body or Ministry should have a clear understanding as to the role of each institution during on-boarding and ongoing business relationships. Reporting institutions in their agent capacity should conduct CDD and sanctions screening, for example, at the point of establishing business relationship (e.g. opening of account), as the requirement to conduct sanction screening under Section 66B(3) of the AMLA applies to all entities, whether dealing directly or indirectly with a sanctioned entity/person. 63 [Banking and DTIs] Is sanctions screening a requirement for customers who undertake “statutory obligation” payments such as contributions to EPF, SOCSO, AKPK, LHDN, etc. over the banking counter? Sanctions screening is applicable to every citizen of Malaysia and every body corporate in Malaysia. As such, sanctions screening shall also be done on any individuals who undertake “statutory obligation” transactions i.e. contributions to statutory bodies such as EPF, SOCSO, AKPK or LHDN. 64 For customers that are legal persons, are reporting institutions required to screen every director, every shareholder, nominee and also every company name against the UNSCR Lists and Domestic List? Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the UNSCR Lists and Domestic List which state names and particulars of specified / designated entities as declared by the UNSC or Minister of Home Affairs, as part of the customer due diligence process and on-going due diligence. For customers which are legal persons, reporting institutions are required to screen the name of the customer, i.e. among others but not limited to, companies, bodies FAQs on AML/CFT and TFS for FIs Page 34 of 44 NO. QUESTION ANSWER corporate, foundations, partnerships, or associations and other similar entities, as well as the beneficial owners, i.e. directors, shareholders including nominees, against the sanctions lists. 65 In conducting sanctions screening, reporting institutions may perform name searches based on a set of possible permutations. What does this refer to? This refers to various ways of conducting search against the UNSCR Lists and Domestic List, for example, varying sequence and order of keywords of a name or the use of different spelling of a name, to prevent unintended omissions. Further, to eliminate false positives, reporting institutions may make enquiries for additional information and identification documents from the customer or credible sources to assist in determining whether the potential match is a true match or may direct any query to FIED, BNM, in the case of similar or common names. Dealing with False Positives 66 Must reporting institutions match all identifiers for parameters of a true match or could matching at least 2 of the identifiers be sufficient? Reporting institutions are required to ascertain that potential matches are true matches and not false positives. It is the reporting institution’s responsibility to take further measures or steps (e.g. make further inquiries for additional information, etc.) to determine whether the potential match is a true match. Reporting institutions are to ensure that the identifiers are strong and corroborative for the reporting institution to make their own assessment on the parameters used to ensure true matches. Related Parties 67 Who would fall under the definition of “related parties”? 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 FAQs on AML/CFT and TFS for FIs Page 35 of 44 NO. QUESTION ANSWER b. a person acting on behalf or at the direction of a designated person. Based on the above, it may extend to shareholders, directors, authorized person, senior management and also the beneficial owner. 68 If the customer listed in the targeted financial sanction lists is a signatory to a company who maintains account with the financial institution, does the financial institution need to also declare details of other signatories and directors of the said company? Yes, they should be declared as related parties. The reporting institution is to further assess the accounts and transactions and may also consider submitting an STR if such is warranted. Freezing, Blocking and Rejecting – Customers and Related Parties 69 Do reporting institutions have to freeze the account if the specified entity is the director/signatory of the company? Yes. The company account needs to be frozen, if, from the reporting institution’s assessment, the specified entity is considered to own or control, directly or indirectly, the company and/or the funds in question. In making this assessment, reporting institutions should analyse the specified entity’s role and conduct as the signatory and other involvement in the company to ascertain that there is no indirect control or ownership. 70 In relation to targeted financial sanctions, are reporting institutions allowed to inform the customer why their accounts or transactions have been frozen, blocked or rejected? Reporting institutions are only allowed to inform the customer on the reason why the account or transaction has been frozen, blocked or rejected for publicly listed names e.g. under the Gazette Orders, UNSCR Lists, etc. 71 How long must reporting institutions continue freezing funds (and reporting) of specified entities? Freezing of funds and periodic reporting must continue until the specified entities are delisted. 72 What type of transactions or accounts are to be frozen, blocked or rejected? Freezing, blocking or rejecting funds must be applied to all transactions including RENTAS and GIRO transactions and to all accounts including joint accounts. FAQs on AML/CFT and TFS for FIs Page 36 of 44 NO. QUESTION ANSWER However, loan accounts should not be frozen, as it must continue to be serviced. 73 In the event of a name match after funds have been deposited into the reporting institution’s account, how are such funds to be treated? Reporting institutions are required to hold / freeze funds deposited by a listed individual/ entity into its account until its delisting or the sanction is uplifted. 74 Is there any need for the reporting institution to freeze a loan account, for example, a hire purchase account if the guarantor is a match against the sanction lists? A loan account and in this example, as a hire purchase account is a loan account, it should not be frozen. However, when the repayment is completed, the property or vehicle must not be redeemed, transferred or sold. The reporting institution is required to establish the relationship of the specified entity as the guarantor of the vehicle loan, i.e. whether the specified entity is in possession or control of the property when repayment is completed and subsequent redemption of the vehicle. 75 Can reporting institutions transfer any funds from a frozen account to the Registrar of Unclaimed Moneys under the Unclaimed Moneys Act 1965? Funds are to remain frozen as long as the specified entities remained listed. No dealing with the funds is allowed, which includes the transfer of funds to the Registrar of Unclaimed Moneys. 76 Can reporting institutions decide to freeze, block or reject any positive matches with individuals or entities listed in other unilateral sanctions lists? In relation to unilateral sanctions list such as those by the US Department of Treasury, the decision whether to freeze, block, reject or conduct transaction with persons listed under the unilateral list should be based on the reporting institution’s own assessment and its risk appetite. Reporting institutions may consider submitting STR on any positive name match with individuals or entities listed in other unilateral sanctions list. FAQs on AML/CFT and TFS for FIs Page 37 of 44 NO. QUESTION ANSWER Allowable Transactions 77 Can reporting institutions deduct any funds e.g. administrative charges, maintenance fees from the frozen funds? What other payments are permissible? All allowable transactions require reporting institution to make an application to the Ministry of Home Affairs for any property belonging to specified entities under section 66B of the AMLA or the Strategic Trade Controller for specified entities under the Strategic Trade Act 2010. Funds or payments that may be considered includes the following: a. fees or service charges for routine holding or maintenance of frozen funds; b. payments for medical purposes under an insurance policy / takaful certificate; c. payment of insurance premiums; d. payment of taxes; e. public utility charges (e.g. Tenaga Nasional); f. payment of reasonable professional fees; and g. payment for rent or mortgage. 78 Are reporting institutions permitted to receive payments for any outstanding loans or other credit facilities into the loan/ credit accounts of the specified entities? Yes. Reporting institutions are permitted to receive payments into the specified entities credit or loan accounts. However, should the payment be for the purchase of assets, the assets should remain frozen even after the full settlement of the financing facilities i.e. no transfer of ownership to the specified entity or a third party. In the event of any non-payment of loans, the reporting institution shall not proceed with property foreclosure or any subsequent court process without prior application to, and approval by: a. the Minister of Home Affairs for Domestic List and UNSCR Lists for terrorism financing; or FAQs on AML/CFT and TFS for FIs Page 38 of 44 NO. QUESTION ANSWER b. the Strategic Trade Controller for UNSCR Lists for proliferation financing and others sanctions regime. 79 Can reporting institutions close any account where loans are not serviced or non-payment of premium for the case of insurance? Reporting institutions may close any account where loans are not serviced or terminate any policy for non-payment of premium, only upon approval from: (a) the Minister of Home Affairs for Domestic List and UNSCR Lists for terrorism financing; or (b) the Strategic Trade Controller for UNSCR Lists for proliferation financing and others sanctions regime. Reporting on Positive Name Match 80 In the event of a positive match, are reporting institutions required to submit STR to FIED, BNM in addition to the submission of a TFS determination report? Yes. Submission of STR is still required in addition to submission of the TFS determination report. The STR should contain further information beyond the information reported in the TFS determination report, for example, details of related transactions or parties. 81 If there are no name matches with the specified entity or designated person, is a reporting institution still required to submit the determination and periodic reporting forms? No, reporting institutions are required to only submit determination or periodic reporting for positive name matches (i.e. when there is a hit). For periodic reporting, the report is to be submitted at every six months interval period as per the forms in Appendix 8b of the Policy Document. The completed form may be submitted via email to: [email protected] 82 Must the second joint account holder, whose name is not listed in the sanction lists, be reported? If the answer is yes, must the reporting institution declare any relationship that the second joint account holder may have with the reporting institution? Yes. Reporting institutions are required to fill in the form in the “related parties” column in the case of supervisory reporting. In addition, reporting institutions should assess and analyse the related parties’ transactions vis-à-vis specified entities. Should the reporting institution assess the relationship between the second joint account FAQs on AML/CFT and TFS for FIs Page 39 of 44 NO. QUESTION ANSWER holder with the specified entities as suspicious, the reporting institution must consider submitting a STR to FIED, BNM. Reporting of Suspicious Transaction 83 [Banking and DTIs, Insurance and Takaful] Does the requirement to submit STRs extend to foreign branches and subsidiaries in relation to domestic list? Reporting institutions and financial groups are required to ensure that their foreign branches and subsidiaries apply AML/CFT and TFS requirements in a manner that is consistent with the AML/CFT and TFS requirements in Malaysia, to the extent that such is permitted by the laws and regulations of the host country. As such, reporting institutions need to assess the requirements applicable to the foreign branches and subsidiaries on the need for reporting STRs in the host country. Reporting institutions need to assess whether the home country domestic listing is a factor for STR submission. Reporting institutions’ foreign branches should also consider submitting a STR to FIED, BNM, to the extent that such is permitted by the laws and regulations of the host country. Other Reporting Obligations 84 What is the submission date of the following to Bank Negara Malaysia? a. Annual Summary Report on Exposure to Customers and Beneficial Owners from High Risk Countries” b. Quarterly Statistics on Orders Issued by Law Enforcement Agencies Bank Negara Malaysia will issue an annual notification via FINS, indicating the submission date of the reports by relevant reporting institutions. FAQs on AML/CFT and TFS for FIs Page 40 of 44 APPENDIX A FAQs on AML/CFT and TFS for FIs Page 41 of 44 FAQs on AML/CFT and TFS for FIs Page 42 of 44 APPENDIX B FAQs on AML/CFT and TFS for FIs Page 43 of 44 End of document. FAQs on AML/CFT and TFS for FIs Page 44 of 44 This page has been intentionally left blank. R A K A N K E W A N G A N A N D A E D I S I DIS 2 0 1 8 Mengenal Pasti Penipuan Kewangan Berkaitan Pinjaman Peribadi Memilih Kad Perubatan Yang Sesuai PERCUMA | PP 16897/05/2013 (032581) Apa Yang Anda Boleh Lakukan Dengan Bonus Tahunan Mewariskan Harta Kepada Orang Tersayang Penulisan wasiat merupakan perkara yang sering dianggap sebagai sesuatu yang remeh. Hanya kira- kira 2% daripada penduduk Malaysia yang telah menulis wasiat. Majoriti penduduk ‘terlepas pandang’ tentang kepentingan menulis wasiat. Berdasarkan rekod Bahagian Pembahagian Pusaka, Jabatan Ketua Pengarah Tanah dan Galian Persekutuan, kira-kira RM60 bilion jumlah harta tidak dituntut oleh waris si mati sehingga tahun 2016. Adakah penulisan wasiat benar-benar diperlukan? Mari kita lihat beberapa persoalan umum dan akibat tidak menulis wasiat. Kebaikan Mempunyai Wasiat A. Secara Konvensional Jadual di bawah menunjukkan kelebihan menulis wasiat dan akibat meninggalkan keluarga anda tanpa menyediakannya. Jika seseorang meninggal dunia dengan wasiat Harta pusaka akan diberi kepada waris pilihan anda. Anda berhak memilih pentadbir aset yang bakal melaksanakan wasiat. Anda juga boleh melantik penjaga yang boleh menjaga kebajikan anak-anak anda sehingga mereka matang. Kos untuk memproses pembahagian harta adalah rendah dan hanya mengambil masa beberapa bulan. Wasiat akan memastikan orang tersayang mendapat jaminan daripada sudut kewangan, selain mengelakkan konflik antara ahli keluarga. Jika seseorang meninggal dunia tanpa wasiat Tanpa mempertimbangkan keperluan waris, harta pusaka akan dibahagikan mengikut Akta Pembahagian 1958 dan bukannya mengikut kehendak anda. Mahkamah akan membuat keputusan untuk anda. Proses pembahagian mungkin melibatkan kos yang tinggi, dan dalam kes yang melibatkan konflik kekeluargaan, yuran guaman boleh melonjak berlipat kali ganda kerana kes-kes sebegini boleh mengambil masa sehingga beberapa tahun untuk diselesaikan. Keadaan ini menyebabkan keluarga anda menghadapi masalah kewangan dan persengketaan sebelum dapat mewarisi pusaka anda. Sering kali, pertikaian tentang pembahagian harta si mati menyebabkan perselisihan sesama ahli keluarga. Persediaan wasiat boleh menggelakkan konflik yang mungkin berlaku pada masa depan apabila berlaku kematian. Mewariskan Harta Kepada Orang Tersayang “Sering kali, pertikaian tentang pembahagian harta si mati menyebabkan perselisihan sesama ahli keluarga.” 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : [email protected] Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : [email protected] Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. “Sering kali, pertikaian tentang pembahagian harta si mati menyebabkan perselisihan sesama ahli keluarga.” B. Secara Islam Bagi orang Islam, wasiat hendaklah ditulis mengikut undang-undang Islam. Wasiat perlu bagi orang Islam. Tanpa penyediaan wasiat, harta pusaka akan dibahagikan mengikut kaedah Faraid, yang menyebabkan anak angkat atau anak tiri tidak layak mewarisi apa-apa harta. Jika seorang Muslim meninggal dunia dengan wasiat Selepas menolak hutang dan liabiliti, seorang Muslim boleh memilih untuk menyumbang 1/3 daripada harta pusakanya kepada bukan waris, dan bakinya akan diberi kepada waris Faraid (mengikut undang-undang). Sesiapa boleh menjadi waris anda, (pengagihan lebih daripada ½ harta pusaka kepada bukan waris memerlukan persetujuan daripada waris, tetapi walaupun tanpa persetujuan mereka, pengagihan boleh dilakukan sebagai Hibah semasa anda masih hidup). Kebaikan lain adalah sama dengan wasiat secara konvensional. Dis 2018 | 3 • Pertukaran agama; contohnya kepada agama Islam, iaitu wasiat terikat kepada Undang-undang Syariah Kesimpulan Lebih penting lagi, anda tidak mahu harta anda diambil alih oleh kerajaan akibat tidak dituntut oleh sesiapa. Beri perhatian untuk menulis fasal-fasal dalam wasiat tersebut dengan jelas dan sempurna kerana wasiat yang tidak sah atau boleh dicabar adalah sama seperti anda tidak membuat wasiat. Sumber: Loanstreet.com.my Jika seorang Muslim meninggal dunia tanpa wasiat Harta akan diagihkan mengikut undang-undang Faraid. Andaikan kedua-dua ibu bapanya telah meninggal dunia, 1/8 daripada harta pusaka si mati akan diberi kepada isteri, dan selebihnya akan diberi kepada anak lelaki dan anak perempuan (dengan pertalian darah tetapi tidak termasuk anak luar nikah) dengan nisbah 2:1. Ahli keluarga bukan Islam tidak berhak mewarisi harta pusaka ahli keluarga Muslim. Anak angkat atau anak tiri tidak berhak mewarisi harta pusaka. Kesan-kesan lain adalah sama dengan tidak mempunyai wasiat konvensional. Penyediaan wasiat bertujuan untuk memastikan harta pusaka tersebut akan diagihkan mengikut keutamaan dan kehendak si mati. Siapakah Yang Perlu Menulis / Memperbaharui Wasiat? Wasiat perlu dikemas kini dari semasa ke semasa untuk merangkumi semua aset yang baru diambil alih atau perubahan dalam waris. Berikut beberapa keadaan yang memerlukan anda menulis atau mengemas kini wasiat anda: • Perkahwinan, perkahwinan semula atau perceraian • Memulakan atau menamatkan perniagaan • Kematian ahli keluarga atau benefisiari • Pembelian atau pelupusan aset 4 | RINGGIT Apabila tiba musim hujung tahun, ramai yang akan menerima bonus tahunan daripada syarikat atau majikan masing-masing. Namun, terdapat individu yang gagal mengurus bonus tersebut dengan baik. Berikut adalah beberapa cadangan dan perkara yang anda boleh lakukan dengan bonus tahunan anda. Selesaikan hutang Perkara pertama anda perlu lakukan apabila mempunyai lebihan wang adalah menyelesaikan hutang anda; sama ada hutang dengan pihak bank, hutang PTPTN, hutang kedai atau individu. Hidup anda lebih tenang apabila tidak terbeban dengan hutang. Bagi hutang yang melibatkan pelaburan, anda tidak perlu usik atau kurangkan hutang tersebut j ika pinjaman atau pembiayaan tersebut masih menguntungkan. Tambah pelaburan jangka masa panjang Selepas berjaya menyelesaikan beberapa hutang, anda boleh mula merancang untuk memulakan pelaburan atau menambah pelaburan anda. Untuk pelaburan jangka masa panjang, fokus pada dana persaraan dan dana pendidikan anak- anak. Semakin banyak anda laburkan untuk dana persaraan, semakin cepat anda boleh bersara. Dengan menggunakan bonus tahunan anda setiap tahun, dana persaraan anda lebih terjamin. Tambah simpanan kecemasan Jika sebelum ini, anda hanya menyimpan tiga bulan gaji sebagai simpanan kecemasan, k in i anda boleh meningkatkan simpanan tersebut sehingga enam bulan. Semakin berusia, semakin banyak masalah yang bakal / mungkin anda hadapi. Oleh itu, simpanan kecemasan ini boleh dijadikan sebagai satu dana yang akan membantu anda ketika anda memerlukan. Dalam keadaan ekonomi yang tidak menentu, anda juga perlu bersedia dengan segala kemungkinan yang boleh berlaku seperti kehilangan pekerjaan. Apa Yang Anda Boleh Lakukan Dengan Bonus Tahunan $ $$ $ $ Dis 2018 | 5 Tambah tabung untuk pembelian mahal Tabung untuk pembelian mahal bermaksud satu tabung yang baka l d i g u n a k a n u n t u k perbelanjaan yang besar, terutama ketika m u s i m p e r a y a a n d a n m u s i m a w a l persekolahan. Ketika itu, banyak perbelanjaan yang akan digunakan. Tabung in i pent ing bagi mengelakkan masalah wang gaji dihabiskan untuk perbelanjaan besar tersebut. Tambah ilmu Selain menambah pelaburan dan simpanan, anda juga perlu meningkatkan lagi ilmu pengurusan kewangan dan pelaburan. Anda boleh menyertai pelbagai seminar atau beli buku rujukan di kedai buku. Buku rujukan tersebut juga boleh digunakan sebagai panduan untuk mengurangkan cukai pendapatan anda. Lebih banyak ilmu yang anda belajar, semakin banyak idea pengurusan kewangan dan pelaburan yang anda boleh lakukan. Tingkatkan pelan perlindungan insurans / takaful anda Ini juga merupakan masa terbaik untuk anda mengambil pelan perlindungan insurans / takaful atau menyemak semula pelan yang anda sedia ada. Jika sebelum ini jumlah pampasan yang anda ambil hanya RM100,000, anda boleh menambah jumlah tersebut ke satu jumlah yang lebih besar sesuai dengan diri anda. Selain pampasan, semak juga manfaat kad perubatan anda sama ada masih sesuai atau tidak dengan keadaan semasa. Anda juga boleh menggunakan bonus tersebut untuk menyambung bayaran caruman bagi memudahkan anda membuat caruman setiap bulan. Sumber: www.duitkertas.com “Selain menambah pelaburan dan simpanan, anda juga perlu meningkatkan lagi ilmu pengurusan kewangan dan pelaburan.” 6 | RINGGIT Memilih Kad Perubatan Yang Sesuai Kad perubatan telah menjadi satu keperluan dalam kalangan rakyat Malaysia pada hari ini. Seorang pengguna yang memiliki kad perubatan akan mendapat akses kepada hospital dan klinik swasta yang menawarkan perkhidmatan dengan lebih cepat dan mudah. Walaupun kepentingannya tidak disangkal, namun pengguna perlu bijak memilih kad perubatan yang bersesuaian dengan keperluan mereka. Pengguna perlu mengimbangi antara kos, aspek liputan rawatan, akses kepada perkhidmatan dan perkhidmatan lain yang disediakan bagi memastikan pengguna mendapat perlindungan yang menyeluruh. Bagi membantu anda dan keluarga anda memilih kad perubatan yang sesuai, berikut adalah beberapa panduan mudah: 1. Pastikan had tahunan Walaupun perlindungan bagi rawatan di hospital agak besar kosnya, tetapi pengguna perlu mempertimbangkan had tahunan sebelum membuat keputusan. Pemegang polisi perlu memahami berapakah jumlah bil yang dibenarkan bagi setiap tahun dan jangka masa perlindungan tersebut. 2. Kad perubatan asas atau produk pelaburan Pengguna perlu memastikan jenis insurans / takaful yang dilanggan – sekiranya ia polisi asas atau yang dipakej sekali bersama- sama dengan produk pelaburan (investment linked). Pengguna dengan polisi asas dan produk pelaburan perlu membayar kadar bulanan yang lebih mahal. Namun begitu, polisi seperti ini mempunyai kelebihan simpanan tunai, yang juga boleh digunakan untuk membayar kadar bulanan bagi satu jangka masa tertentu. 3. Bandingkan pakej polisi lain dan pilih yang sesuai dengan anda Akhir sekali, pengguna perlu memahami jenis dan kos rawatan yang ditanggung oleh polisi. Pengguna juga boleh membandingkan dengan pakej polisi lain atau menambah baik pakej yang sedia ada. Sebagai contoh, terdapat polisi yang memberikan elaun bagi pemegang polisi yang dimasukkan ke dalam wad. Memiliki kad perubatan adalah satu keperluan, namun pemahaman tentang polisi akan membantu anda apabila ingin mendapatkan rawatan kelak. Pengguna disaran supaya membaca terma dan syarat polisi serta memahami kepentingan untuk mengisytihar penyakit sedia ada bagi mengelakkan kesulitan pada kemudian hari. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Dis 2018 | 7 Senarai Insentif Yang Diterima Golongan B40 dalam Belanjawan 2019 Golongan isi rumah berpendapatan rendah (B40) merupakan penerima manfaat terbesar daripada Belanjawan 2019. Beberapa inisiatif telah diperkenalkan oleh kerajaan bagi menyalurkan bantuan kepada golongan B40 untuk membantu mengurangkan bebanan kos sara hidup yang dihadapi oleh golongan tersebut. Sumber: kapital.my BANTUAN SARA HIDUP (BSH) BSH adalah sebuah program bantuan yang sebelum ini dikenali sebagai Bantuan Rakyat 1Malaysia (BR1M). Beberapa penambahbaikan dilakukan dengan matlamat supaya pemberian ini dapat dilaksanakan dengan lebih bersasar. Terdapat tiga kategori penerima BSH: • Isi rumah berpendapatan bulanan RM2,000 dan ke bawah akan menerima bantuan berjumlah RM1,000. • Isi rumah berpendapatan bulanan daripada RM2,001 hingga RM3,000 akan menerima bantuan berjumlah RM750. • Isi rumah berpendapatan bulanan daripada RM3,001 hingga RM4,000 akan menerima bantuan berjumlah RM500. Selain itu, bantuan tambahan sebanyak RM120 untuk setiap anak berumur 18 tahun ke bawah dan terhad kepada 4 orang, kecuali anak kurang upaya yang tidak dihadkan umur. BANTUAN PEMILIKAN RUMAH Dana berjumlah RM1 bi l ion yang ditubuhkan oleh Bank Negara Malaysia bagi membantu golongan yang memiliki pendapatan RM2,300 sebulan dan ke bawah untuk memiliki rumah pertama melalui pembelian rumah mampu milik berharga RM150,000 dan ke bawah. SUBSIDI ELEKTRIK Golongan B40 akan menerima subsidi bil elektrik isi rumah sebanyak RM40. Subsidi ini akan disalurkan khusus kepada golongan miskin dan miskin tegar yang berdaftar di bawah program e-Kasih. DANA PERLINDUNGAN KESIHATAN Sebuah skim jaringan p e r l i n d u n g a n k e s i h a t a n b a k a l d i p e r k e n a l k a n bermula Januari 2019 hasi l usaha sama kerajaan dan syarikat swasta. Mela lu i sk im in i , golongan B40 akan mendapat perlindungan kesihatan percuma untuk empat sakit kritikal utama dengan jumlah sebanyak RM8,000. Golongan ini juga layak menerima pendapatan gantian maksimum 14 hari semasa tempoh rawatan pada kadar RM50 sehari. SUBSIDI MINYAK BERSASAR Kera jaan bercadang untuk memperkenalkan satu mekanisme pemberian subsidi minyak yang lebih bersasar supaya hasrat utama kerajaan untuk membantu golongan yang layak untuk menerima bantuan, berjaya dicapai. Hanya golongan sasaran yang layak akan menerima subsidi tersebut. Apabila subsidi ini dilaksanakan, harga minyak petrol RON95 akan diapungkan. Melalui mekanisme subsidi bersasar ini, kerajaan akan memberi subsidi minyak sebanyak 30 sen seliter kepada pemilik kereta persendirian dengan enjin berkapasiti 1,500cc ke bawah dan motosikal berkapasiti enjin 125cc ke bawah (tidak termasuk kenderaan di bawah kategori kenderaan mewah). Pemberian subsidi minyak ini hanya terhad kepada 100 liter minyak sebulan bagi kereta dan 40 liter bagi motosikal. Sebanyak RM2 bilion peruntukan akan disalurkan bagi pelaksanaan subsidi minyak ini dan dijangkakan akan memberi manfaat kepada lebih 4 juta pemilik kereta dan 2.6 juta pemilik motosikal. 8 | RINGGIT Tidak dinafikan pinjaman peribadi adalah satu kemudahan kewangan yang popular dalam kalangan rakyat Malaysia. Sehingga hari ini, ramai rakyat Malaysia mempunyai pinjaman peribadi dan mendapat manfaat daripadanya. Jika digunakan untuk kebaikan, pinjaman peribadi banyak memberi manfaat kepada setiap individu. Contohnya, untuk membaiki rumah, membantu ibu bapa, menguruskan hutang, dan juga sebagai modal untuk perniagaan. Namun, anda perlu berhati-hati terhadap pinjaman peribadi yang ditawarkan; terutamanya jika pinjaman tersebut tidak ditawarkan oleh bank. Bank Negara Malaysia (BNM) juga sering memberi nasihat dan peringatan kepada orang ramai supaya lebih berhati-hati dengan tawaran pinjaman peribadi daripada pihak yang tidak dikenali. Kami ingin kongsikan dengan anda beberapa cara untuk mengenal pasti penipuan kewangan berkaitan pinjaman peribadi. 1. Tawaran melalui media sosial Pernahkah anda melihat iklan di media sosial, seperti Facebook, Instagram, WeChat atau Twitter, berkenaan tawaran pinjaman peribadi yang boleh diluluskan walaupun nama anda sudah disenarai hitam? Jangan terkejut kerana perkara tersebut sudah menjadi kebiasaan untuk pemberi pinjaman peribadi melakukan penipuan. Ini adalah perkara yang paling mudah untuk anda mengenal pasti pemberi pinjaman peribadi tersebut adalah betul atau sekadar satu penipuan. Sebenarnya, tawaran seperti ini adalah satu berita gembira kepada individu yang tidak layak mendapatkan pinjaman peribadi daripada pihak institusi kewangan. 2. Pinjam RM5,000, bayar RM5,000 Cara lain yang membolehkan anda mengetahui pemberi pinjaman tersebut menipu adalah melalui tawaran pinjaman tanpa faedah atau keuntungan di pihak pemberi pinjaman. Contohnya adalah seperti tawaran, ‘Pinjam RM5,000, Bayar RM5,000’. Ini bermakna, pihak pemberi pinjaman menawarkan pinjaman tanpa kadar faedah atau keuntungan. Seperti kita tahu, setiap syarikat pemberi pinjaman adalah satu perniagaan dan sudah pasti mahukan keuntungan daripada setiap pinjaman yang ditawarkan. Jadi, sangat mustahil untuk sesuatu syarikat memberi perkhidmatan mereka tanpa menjana keuntungan. Selain itu, anda juga perlu berhati-hati jika ada syarikat pemberi pinjaman yang memberikan kadar faedah yang terlalu rendah sehingga kurang daripada kadar faedah semasa sebagaimana yang ditawarkan oleh pihak institusi kewangan. 3. Bayaran awal dan pendahuluan Modus operandi yang biasa dilakukan oleh syarikat jenis ini adalah dengan memberitahu bahawa permohonan pinjaman tersebut sukar untuk diluluskan. Oleh itu, untuk meluluskan permohonan pinjaman tersebut, peminjam perlu memberi bayaran pendahuluan. Mengenal Pasti Penipuan Kewangan Berkaitan Pinjaman Peribadi Dis 2018 | 9 Selepas bayaran awal diterima, syarikat tersebut biasanya akan terus hilang dan tidak dapat dihubungi. Kes seperti ini biasanya berlaku apabila pemohon pinjaman peribadi terlalu mengharap dan terdesak untuk mendapatkan pinjaman peribadi tersebut. Akhirnya, pinjaman peribadi tidak dapat, kerugian pula yang perlu ditanggung. Selain bayaran awal, syarikat pemberi pinjaman yang ingin menipu anda biasanya akan meminta anda membayar kos pengurusan yang terlalu tinggi. 4. Akaun media sosial palsu Bagi individu yang aktif dalam dunia media sosial, anda mungkin pernah dihubungi oleh individu yang menawarkan pinjaman peribadi. Kebiasaannya, mereka akan menggunakan gambar wanita cantik untuk mengumpan anda. Perkara pertama anda boleh lihat ialah gambar pada akaun media sosial tersebut. J ika gambar yang digunakan adalah gambar seperti haiwan atau gambar orang lain, kemungkinan untuk berlaku penipuan adalah tinggi. Mereka juga gemar untuk menghantar pesanan ringkas (SMS) atau melalui aplikasi WhatsApp dengan tawaran yang sangat menar ik dan sukar untuk ditolak. Selain itu, mereka juga lebih gemar untuk memproses segala urusan secara dalam talian sahaja dan tidak perlu berjumpa. Cara ini menjadikan mereka lebih mudah untuk melakukan penipuan kerana tidak perlu berjumpa dengan orang ramai. 5. Memaksa tandatangan Bagi individu yang sudah diluluskan pinjaman peribadi, mereka perlu menandatangani surat perjanjian sebagai tanda persetujuan. Jika anda sebagai peminjam tidak diberi peluang untuk membaca isi kandungan perjanjian dan dipaksa menandatangan perjanjian tersebut, itu menandakan anda mungkin akan ditipu melalui perjanjian yang berat sebelah. Perkara yang sering berlaku adalah apabila peminjam tidak sedar tentang kadar faedah yang mereka ambil adalah terlalu tinggi. Akhirnya, pelanggan terpaksa membayar jumlah pinjaman tersebut sehingga melebihi 10 kali ganda daripada jumlah pinjaman. Bagaimana Jika Anda Sudah Tertipu dan Apa Yang Perlu Dilakukan? Jika anda merupakan mangsa skim penipuan pinjaman peribadi, anda boleh lakukan perkara-perkara berikut: 1. Buat laporan polis Pertama sekali, sila buat laporan di balai polis. Tujuan laporan polis dilakukan adalah supaya pihak polis boleh membantu jika terdapat penipuan dan juga melindungi diri anda daripada sebarang ancaman. Berdasarkan Seksyen 420 Kanun Keseksaan, penipuan tersebut akan disiasat dan si penipu boleh dipenjara maksimum 10 tahun serta boleh dikenakan denda jika bersalah. 2. Dapatkan nasihat daripada penasihat kewangan A n d a m u n g k i n menghadapi masalah yang lebih teruk untuk mengurus kewangan anda selepas terjebak dalam penipuan pinjaman peribadi tersebut. Oleh itu, cara terbaik adalah untuk mendapatkan nasihat kewangan supaya pengurusan kewangan anda menjadi lebih baik. 3. Sebarkan nama penipu tersebut Jangan berasa malu untuk kongsikan pengalaman anda ditipu oleh syarikat pinjaman peribadi. Perkongsian tersebut mungkin berjaya menyelamatkan ramai lagi individu daripada terjebak dalam penipuan yang sama dan mungkin mengalami kerugian yang lebih besar. Akhir kata, jika anda ingin mendapatkan pinjaman peribadi, pastikan anda memohon daripada syarikat atau melalui saluran yang betul supaya tidak tertipu. Sumber: iMoney.my 10 | RINGGIT Jangan SERAHKAN KAD ATM anda kepada orang lain. Akaun Bank anda mungkin disalah guna untuk tujuan PENIPUAN. Anda BOLEH DIDAKWA secara Fraud membantu menyembunyikan harta orang lain yang membawa hukuman PENJARA, boleh sampai 5 tahun atau DENDA atau kedua-duanya. Siasatan Jenayah Siber & Multimedia JSJK Bukit Aman # BAHAYA BM_bnk_scamvictim_poster_A4 edit.pdf 1 9/12/2018 6:12:08 PM Date: 1 September 2020 Guidance on Beneficial Ownership Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions, Designated Non-Financial Businesses and Professions and Non-Bank Financial Institutions (AML/CFT and TFS for FIs, DNFBPs and NBFIs) Guidance on Beneficial Ownership Page 1 of 19 TABLE OF CONTENTS Part A: Overview 1.0 Foreword ....................................................................................................... 2 2.0 Glossary and terms ......................................................................................... 2 Part B: Guidance 3.0 Introduction .................................................................................................... 3 4.0 Identification of Beneficial Owner ................................................................... 4 5.0 Methods to Identify Beneficial Owner ........................................................... 10 6.0 Verification of Beneficial Owner .................................................................... 13 7.0 Record Keeping on Beneficial Ownership .................................................... 15 8.0 Examples of Identification of Beneficial Owners .......................................... 16 Guidance on Beneficial Ownership Page 2 of 19 Part A: Overview 1.0 Foreword 1.1 This Guidance is intended to provide clarification and recommended best practices in relation to beneficial ownership obligation under the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions, Designated Non-Financial Businesses and Professions and Non-Bank Financial Institutions (AML/CFT and TFS for FIs, DNFBPs and NBFIs) Policy Documents. 1.2 The Guidance is not intended to replace any requirements in the abovementioned Policy Documents. Reporting institutions should not regard the information in the Guidance as exhaustive nor should it be used as evidence of compliance. 1.3 Any updates to the Guidance will be notified to reporting institutions from time to time. Should there be any need to obtain further clarification or explanation on the Guidance, enquiries may be emailed to the following addresses: (i) For FIs : [email protected] (ii) For DNFBPs & NBFIs : [email protected] 2.0 Glossary and Terms 2.1 Below are clarifications to the terms used in this Guidance:- “Policy Document” refers to the Policy Document on AML/CFT and TFS for FIs. Any corresponding provisions in other parts of the same Policy Document or in the Policy Document on AML/CFT and TFS for DNFBPs and NBFIs, shall be reflected in the footnotes. “Corporate Vehicles” refers to legal persons and legal arrangements. Guidance on Beneficial Ownership Page 3 of 19 Part B: Guidance 3.0 Introduction 3.1 Since the early 2000s, there has been growing concern on the misuse of corporate vehicles for criminal purposes. Criminals have been relying on different corporate vehicles to conceal their illegal assets by maintaining a legitimate front. This includes, among others, the usage of shell companies and the creation of companies, partnerships, foundations, trusts and other types of corporate vehicles with complex ownership and control structure, to avoid detection by authorities. The lack of transparency on the ultimate beneficial owners of these corporate vehicles became a hindrance to governments around the world in their effort to effectively combat criminal activities. 3.2 In response, the Financial Action Task Force (FATF), an intergovernmental body responsible for combatting money laundering, terrorism financing and other related threats, has issued the FATF Recommendations requiring countries to ensure that adequate, accurate and timely information on the beneficial ownership of corporate vehicles is available and can be accessed by competent authorities in a timely fashion. This includes the requirements to identify and verify beneficial ownership information. Apart from the FATF Recommendations, the FATF has issued various guidance on this topic including the “Guidance on Transparency and Beneficial Ownership” and “Best Practices on Beneficial Ownership for Legal Persons”, in October 2014 and October 2019 respectively. 3.3 As such, the reporting institutions under the Anti-Money Laundering, Anti- Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) play an important role by obtaining beneficial ownership information which helps prevent the misuse of corporate vehicles in the financial system. Identifying beneficial owners benefit stakeholders, including: Reporting Institution Reporting institutions are able to make appropriate assessments on the level of money laundering and terrorism financing risks associated with their customers, consequently leading to necessary decision making on control measures required to contain these risks. Financial landscape Ensuring and upholding the integrity of all sectors within the financial landscape. Country Early detection of criminals hiding behind natural persons, legal persons and legal arrangements, facilitate law enforcements’ efforts and prevents money laundering and terrorism financing activities from prospering. Guidance on Beneficial Ownership Page 4 of 19 3.4 Primarily, the obligations of a reporting institution on beneficial ownership requirements are: (a) Identifying a natural person who is the beneficial owner of the customer and obtaining information that describes the ownership, control and structure of the legal persons/ legal arrangements relating to the beneficial owner; (b) Taking reasonable measures to verify the accuracy of the information obtained and keeping records of all relevant documents; (c) Conducting customer risk profiling to identify the risk category of the beneficial owner; and (d) Performing further regulatory obligations based on the risk category of the beneficial owner such as CDD, sanction screening and high risk jurisdiction. 4.0 Identification of Beneficial Owner 4.1 Issues concerning beneficial owners having ultimate ownership and exercising and/or having ultimate control are relevant to the following types of customers: Legal persons (a) Private and public companies; (b) Bodies corporates; (c) Government-linked companies; (d) Partnerships; (e) Foundations; (f) Cooperatives; (g) Associations such as clubs and societies; and (h) Non-governmental organisations such as charities. Legal arrangements (a) Trust bodies/arrangement or other similar arrangements Understanding beneficial ownership in different types of entities A. Legal persons  In the context of legal persons, the concept of beneficial ownership must be distinguished from the concepts of legal ownership and control. o Legal ownership refers to the natural or legal persons who, according to the respective laws governing legal persons in Malaysia (such as the Companies Act 2016 or the Labuan Companies Act 1990), own the legal person. o Control refers to the person with decision making ability within the legal person who has the power to impose those decisions. Guidance on Beneficial Ownership Page 5 of 19 o Beneficial owner refers to the natural person who either ultimately owns, through capital, assets or other means, or has control over a legal person, be it directly or indirectly. A person who controls a legal person may or may not have legal ownership per se. Example of arrangements within a legal person that may obscure beneficial ownership information: (a) Bearer shares and bearer share warrants; (b) Unrestricted use of legal persons as directors; (c) Nominee shareholders and directors; (d) Informal nominee shareholders and directors, such as close associates and family; and (e) Use of intermediaries in forming legal persons, including professional intermediaries. B. Legal Arrangements  In the context of legal arrangements such as trust, beneficial owner refers to natural person(s), at the end of the chain, who ultimately owns or controls the legal arrangement, including those persons who exercise ultimate effective control over the legal arrangement.  In a trust, the legal title and control of an asset are separated from the equitable interests in the asset. Hence, different persons might own, benefit from, and control the trust, depending on the law and the provisions of the document establishing the trust such as the trust deed. How a trust can conceal control of assets a) created in one jurisdiction and used in another to hold assets across jurisdictions to disguise the origins of criminal proceeds. b) used to enhance anonymity by completely disconnecting the beneficial owner from the names of the other parties including the trustee, settlor, protector or beneficiary. 4.2 To determine the identity of beneficial owners of a customer, reporting institutions should seek to understand the complexities of the customer’s ownership structure, governance and/or arrangement at each layer. An entity may have several beneficial owners, depending on its size and the complexity of its structure and governance. Guidance on Beneficial Ownership Page 6 of 19 4.3 There may be more than one beneficial owner associated with a customer. Reporting institutions’ regulatory obligations relating to beneficial ownership are applicable on all the beneficial owners. 4.4 As outlined under Paragraph 6.2 of the Policy Document1, beneficial owner is defined as a natural person: (a) who ultimately owns a customer; (b) who ultimately controls a customer; (c) on whose behalf a transaction is being conducted2; and/or (d) who exercises ultimate effective control over a legal person or arrangement. Legal persons 4.5 As provided in Paragraph 14A.9.6 of the Policy Document3, reporting institutions should identify the beneficial owners of legal persons through the cascading steps reflected below: Step 1 Identify the natural person(s), if any, who ultimately have controlling ownership interest in the legal person (a) Having ultimate controlling ownership interest over an entity includes having more than 25% ownership or equity interest in an entity4 which may be observed, among others, through share capital or voting rights. The ownership may either be direct ownership (through ownership of shares within the entity itself) or indirect ownership (through chain of corporate vehicles). Having a golden share within an entity is similar to having ultimate ownership of the entity, as it refers to 51% ownership. 1 Corresponding provision in Paragraph 6.2 in the Policy Document on AML/CFT and TFS for DNFBPs and NBFIs. 2 Such a situation may exist where a transaction conducted by another person is structured in such a manner to deliberately avoid control or ownership transparency by the beneficial owner. 3 Corresponding provision in Paragraph 14B.11.12, 14C.10.7 and 14D.9.6 of the Policy Document as well as, Paragraph 14.10.6 of the Policy Document on AML/CFT and TFS for DNFBPs and NBFIs 4 The requirement on more than 25% ownership threshold for beneficial ownership identification is issued under the AML/CFT Policy Document and should be differentiated with the beneficial ownership threshold set by other regulatory authorities which were set for other purposes. Guidance on Beneficial Ownership Page 7 of 19 Illustration 4.1 (left diagram) Direct ownership (right diagram) Indirect ownership As provided in Illustration 4.1, if Company A is legally owned by Company B (according to its corporate registration information), the beneficial owners are the natural persons behind the Company B (or behind the ultimate holding company in the chain of ownership). (b) There may also be circumstances where a natural person owns less than 25% direct shareholding in an entity but is identified as the beneficial owner through his indirect and aggregated ownership of the entity, as reflected in Illustration 4.2 below. Illustration 4.2 Although all direct shareholders of company A equally owns 20% of its shares, Mr. Z is considered the beneficial owner of Company A due to his aggregated ownership of Company R and Company S, making Mr. Z the indirect owner of 40% of Company A. (c) Shareholder may exercise control together with other shareholders, including through any contract, understanding, relationship, intermediary or tiered entity to increase control as illustrated in Illustration 4.3 Although all direct shareholders of company A equally owns 20% of its shares, Mr. D and Mr. E are considered the beneficial owners through their exerts of control over the company collectively via shareholders’ contract. Illustration 4.3 Guidance on Beneficial Ownership Page 8 of 19 In most circumstances, ownership over an entity implies control over the entity, as ownership may come with the power and authority to take actions and make decisions for the entity. Such a situation can be observed, among others, where: i. The natural person has majority voting power within the entity to make decisions; or ii. The natural person exercises his right to appoint or remove directors or senior management, as a major shareholder. (d) In implementing Step 1, a natural person identified as fulfilling the criteria in (a) shall be identified as the beneficial owner. However, where there is doubt that the person identified under Step 1 is not the beneficial owner; or where no natural person has ultimate controlling ownership interest over the legal person, the reporting institution shall carry out Step 2. Step 2 Identify the natural person, if any, exercising control of the legal person, through other means (e) A natural person may also exercise effective control over an entity if he has the powers and authority to take actions and make decisions for the entity, including on matters relating to its financial affairs, financial relationships, operations or other matters that may fundamentally affect the business or direction of the entity, without having ownership interest over the entity. Such powers may be attained through other means, such as: i. Reflecting dominant influence to appoint or remove directors/ senior management; ii. Having the power of attorney over the entity; iii. Owning stocks or rights over outstanding debts that are convertible into voting equity; iv. Participating in the financing of the enterprise; or v. Having control through trusts, agreements, arrangements, understandings, policies or practices, close and intimate family relationships or if a company defaults on certain payments. A natural person demonstrating control may be, among others, the entity’s senior management, directors, authorised signatory, controller and etc. Guidance on Beneficial Ownership Page 9 of 19 Illustration 4.4 Ms. K has complete managerial powers over Company F. Under Step 2, Ms. K is the beneficial owner of Company F. How-to Where, in the course of identifying beneficial owners, reporting institutions identified natural persons who exert control over an entity but have no direct ownership or apparent control over the entity, this assessment along with the person suspected of being a beneficial owner, should be recorded. Such a situation may be observed through: a. personal connections to persons in positions of power within the entity or persons who possess ownership over an entity (close or intimate family relationships and historical or contractual associations) b. participated in financing of enterprises which may allow enjoyment or benefits from assets of the legal person c. In the case of MSB, executive staff who are empowered to make important decisions on behalf of the senior management (f) In implementing Step 2, a natural person identified as fulfilling the criteria under (e), shall be identified as the beneficial owner. However, where, through Step 1, no natural person is identified to have ultimate ownership interest over the legal person and through Step 2, no natural person is identified to have and exercise, either directly or indirectly, control over the entity, the reporting institution shall carry out Step 3. Step 3 Identify the identity of natural persons holding the position of senior management within the legal person (g) “Senior management” are identified as persons who exercise executive control over the daily or regular affairs of the legal person, which may include, but are not limited to, directors, deputy directors, Board members, chief executive officer, chief financial officer, chief operating officer, or any other individual performing similar management functions. Guidance on Beneficial Ownership Page 10 of 19 4.6 In moving down the cascading steps in paragraph 4.5 above, reporting institutions should ensure that they have identified either: (a) the lack of a natural person under (a) as the ultimate owner of the entity; and/or (b) the lack of a natural person under (e) who exercises ultimate control over the entity. Good practice Reporting institutions should endeavour to record and keep documentations reflecting all the findings in moving down the cascading steps, as well as all shareholders identified throughout the chain of ownership, leading to the ultimate beneficial owner. Legal arrangements 4.7 For legal arrangements, persons with “ultimate control” over the legal arrangement shall be identified as the beneficial owners. For example, in a trust, such persons may include, among others, the trustee (person who manages the trust), the settlor (the person who creates the trust), the protector (person appointed by settlor to oversee the trustee) and the beneficiary (person who benefits from the trust). The following are examples of positions denoting control over a trust: (a) A settlor with power to revoke the trust and return property of trust back to the settlor; (b) A protector with power to remove or appoint a trustee; (c) An investment manager with power to direct the trustee’s action; and (d) A person who benefits from the legal arrangement. 5.0 Methods to Identify Beneficial Owner 5.1 Reporting institutions may seek to review the beneficial ownership information relating to an entity, based on the following recommended source documents to determine the ownership structure and governance of an entity. The following list is non-exhaustive and reporting institutions are encouraged to explore other possible sources of documents to review such information. Type of legal person/ legal arrangement Information relating to beneficial ownership Source documents Private and public companies/ Bodies corporate/ Partnership/ i. Legal vehicle (e.g. corporate, partnership etc)  Certificate of incorporation  Certificate of registration  Company constitution  Minutes of Board meeting Guidance on Beneficial Ownership Page 11 of 19 Type of legal person/ legal arrangement Information relating to beneficial ownership Source documents Government- linked companies ii. Shareholding including information on parent company and subsidiaries information iii. Direct or indirect ownership iv. Relationship to conglomerates/ corporate groups v. Company tree  Director’s and shareholder’s resolution  Partnership agreement  Appointment/ Authorisation letter  Senior management list  Company’s annual report and annual return  Joint venture agreement, shareholder’s agreements and other related agreements  Director nomination agreement  Register of member including BO  Any other source documents that sufficiently identifies the beneficial owner Trust arrangement i. Parties to the trust ii. Persons involved in the trust establishment iii. Administrator of the trust iv. Type of trust  Trust deed  Trust registration document Cooperatives i. Management of the cooperatives ii. Rules governing the cooperatives  Registration form of the Cooperatives  By-laws of the cooperative  Minutes of General Meeting Clubs/ Societies/ Foundations/ Charities/ NGOs i. Rules governing the clubs/ societies/ foundations/ charities/ NGOs  Constitution/ charter/ rules  Registration form  Minutes of meeting  List of members of committee 5.2 Depending on the type of legal person or legal arrangement, identity of beneficial owners may be determined based on the following relationships: Guidance on Beneficial Ownership Page 12 of 19 Type of legal person/ legal arrangement Relationships to be determined, if any Companies (Private & Public)  Shareholders  Senior management  Joint venture agreement  Persons with voting rights  Nominee directors/ shadow directors  Persons with power to appoint or remove directors  Other persons with interest within the company Partnership  Partners within the partnership  Other natural persons with effective control over the partnership Government linked companies o Government investment linked companies, state based company etc.  Person authorised in the government to exercise or influence decision making on the GLC  Other persons who exercise or influence decisions over the GLC Clubs/ Societies/ Foundations/ Charities/ NGOs/ Cooperatives  Office bearer (e.g. president, secretary, treasurer or other committee)  Senior management/ management team  Other member with effective control over the club/ societies/ charities/ foundations/ cooperatives Trust arrangement  Settlor  Trustee  Protector  Beneficiaries or class of beneficiaries  Other natural persons with effective control over the trust 5.3 Reporting institutions shall take all reasonable measures to identify their customers’ beneficial owner and shall be satisfied, based on the measures taken, that they know the ultimate beneficial owner. 5.4 Reporting institutions are recommended to examine as many levels of information from the company structure as they deem necessary to accomplish this. “Reasonable measures5”, in this situation, refer to practical, necessary and appropriate steps taken in line with the reporting institutions’ risk assessment, at best efforts basis. 5 Reporting institutions are recommended to translate the extent of reasonable measures they take into a clear set of internal policies and procedures for consistency of conduct and to guide their employees actions. Guidance on Beneficial Ownership Page 13 of 19 Illustration of reasonable measures on best efforts basis In determining the beneficial owner of a company, the reporting institution has taken a best efforts basis by thoroughly enquiring the customer on information of beneficial owner, obtaining all relevant documents relating to the customer, reviewing all the relevant company documents and obtaining information through online and offline publically available sources including information maintained by public registrars. 5.5 Where the reporting institutions are unable to identify, or further verify, the information of beneficial owners, including those who are foreign natural persons, reporting institutions shall record that they have exhausted all reasonable measures that may be taken to obtain such information. This may include obtaining a statutory declaration from the customer on the identification of the foreign beneficial owner. Good practice Reporting institutions may choose to implement and adopt stricter internal policies and procedures with regard to identification and verification of beneficial ownership information. For example, reporting institutions may choose to collect information of shareholders with less than 25% ownership if they so wish. 5.6 Reporting institutions should identify and take reasonable measures to verify all the information of the beneficial owner as required in the Policy Document. 6.0 Verification of Beneficial Owner 6.1 Reporting institutions shall use reliable and independent source documents6 to verify the identity of beneficial owners. 6.2 Reporting institutions are expected to perform identification and verification of beneficial owners at the on-boarding stage, as well as when there are any changes to the beneficial ownership information. Depending on the risk assessment of the customer and their beneficial owner, reporting institutions may conduct a delayed verification of the beneficial owner, by adhering to the requirements of the Policy Documents. Beneficial ownership obligation should still be satisfied regardless of the level of risk associated with the customer and beneficial owner. 6 Example of reliable and independent source documents are provided in the “Guidance on Verification of Individual Customers for CDD”. The list is not exhaustive and any other verification sources may be relied on, with due regard to be given to the requirements under the Policy Documents. Guidance on Beneficial Ownership Page 14 of 19 6.3 Similar to the identification process, reporting institutions should ensure that they have taken all reasonable measures to verify the identity of the beneficial owner(s) of their customer. This may include, but is not limited to, conducting verification through independent documents provided by the customer, reliance on public registries or government bodies, researching publicly available information or arranging a face-to-face meeting with the beneficial owner to corroborate the undertaking or declaration provided by the customer Good practice Where reporting institutions are unable to verify the beneficial owner’s identity, reporting institutions may manage the risks of customer’s activities, by either limiting the activities of the customer, treating the customer’s activities as high risk or apply enhanced on-going due diligence on the customer, as per the best practices of other countries 6.4 Where a customer falls under the list of exempted legal persons listed under Paragraph 14A.9.8 of the Policy Document7, reporting institutions are not required to verify their directors or shareholders. Notwithstanding this, reporting institutions are still required to identify and maintain the information relating to the identity of the directors and shareholders, based on public register, reliable sources or other information provided by the customer. 6.5 For foreign beneficial owners, where there is no existing independent and reliable document submitted on the beneficial owner, reporting institutions may verify the identity of the beneficial owners through open available sources. Reporting institutions should reflect that they have exhausted all reasonable measures that may be taken to verify the foreign beneficial owners’ identity. Good practice Reporting institutions may conduct a self-assessment to determine whether they have taken adequate steps to verify the beneficial owner’s identity and whether they understands the rationale for the beneficial owner’s use of complex corporate structures. 7 Corresponding provision in Paragraph 14B.11.14, 14C.10.9 and 14D.9.8 of the Policy Document as well as, Paragraph 14.10.9 of the Policy Document on AML/CFT and TFS for DNFBPs and NBFIs Guidance on Beneficial Ownership Page 15 of 19 7.0 Record Keeping of Beneficial Ownership 7.1 Reporting institutions shall obtain and retain records of beneficial owner information in accordance with the requirements under the Policy Document. The following are best practices on record keeping: DO’s All records may be: DON’T’s All records may NOT be: retained and recorded in a readily auditable manner. retained in a convoluted manner or parts of documents missing and untraceable. retained as per requirement of maintaining court evidence. retained without records on CTC/ veracity or acknowledgement of documents and/or recorded without reference to sources. regularly updated through on-going due diligence. updated only during on- boarding, without any further review or on-going due diligence throughout the course of business relationship. retained consistently according to CDD & record keeping procedures for every process stage. i.e. identification, verification, risk profiling of beneficial owners and updating & maintaining records of beneficial owners. maintained without a standard operating procedure on CDD & record keeping. i.e. no clear procedure on verification process, frequency of updating beneficial owner’s records and etc. retained for at least 6 years from the date customer cease business relationship with reporting institution. removed immediately following cessation of customer’s business relationship. Guidance on Beneficial Ownership Page 16 of 19 8.0 Examples of identification of beneficial owners Illustration 8.1 From the offset, there is no direct ownership by a natural person of more than 25% of Company A’s shareholding. The beneficial ownership breakdown once the complex structure is reviewed is as follows: A Mr. W has 40% ownership of Company A and is a beneficial owner (10% direct ownership + 30% indirect ownership through Company R and Company S) B Mr Z has only 20% ownership of Company A and is not a beneficial owner (direct ownership) C Ms. Y has 25.6% ownership of Company A and is a beneficial owner (9.6% indirect ownership through Company T and Company Q and 16% indirect ownership through Company T and Company M) Guidance on Beneficial Ownership Page 17 of 19 Illustration 8.2 Based on the shareholding, there is neither a beneficial owner with 25% or more shareholding nor is there any person with effective control over the company apart from the senior management. In this case, the senior management with control of decisions over Company A is Mr. X. Mr. X is considered the beneficial owner for AML/CFT requirements purposes. Where there is any doubt on other persons having effective control, reporting institutions may take the effort to explore nature of relationship between shareholders (i.e. spousal, familial relationship, power of attorney relationship). For example, based on the above shareholding, if Ms. M is the daughter of Mr. Z, Mr. Z may have effective control over Company A even though there is no control through shareholding and may be deemed the beneficial owner. Similarly, if Mr. Y allows Mr. Z the power of attorney over his shareholding, Mr. Z may also have effective control over Company A and may be deemed the beneficial owner. The relationships between the relevant stakeholders can be determined and established if the reporting institution truly knows its customer, as required through customer due diligence requirement. Reporting institutions may practise best efforts basis in ensuring these information are discovered. Guidance on Beneficial Ownership Page 18 of 19 Illustration 8.3 Based on the shareholding, Ms. P is the beneficial owner of Company A, through her ownership of Company XX. The reporting institution having a banking relationship with Company A has endeavoured to obtain all necessary identification documents from Company A relating to Company XX and Ms. P. In verifying those information, the reporting institution has explored all online and offline platforms with publicly available information on Ms. P such as news outlet and websites with company profiles such as Reuters, Asian Nikkei Review etc., reflecting that verification has been conducted on a best efforts basis. As Ms. P is a foreign beneficial owner, the reporting institution should also determine whether she is a citizen from high risk jurisdiction or whether she falls within the sanctions list. If Ms. P falls under the category of high risk customers requiring enhanced CDD, the reporting institution should also determine, among others, the sources of funds and wealth of Ms. P. The reporting institution has the option to choose not to establish or continue business relationship with the customer if it is deemed that Ms. P is not within the reporting institution’s risk appetite or if the reporting institution believe it does not have the capacity to appropriately manage the increased risk in relation to the customer/ Ms. P, in accordance with the institution’s business decision. Guidance on Beneficial Ownership Page 19 of 19 Illustration 8.4 Trust XYZ has 100% ownership of Company A, with the trustee Ms. D holding the shares as the titled legal owner. In such scenario, the BO of Company A is not Trust XYZ, but rather the individuals that are parties to the trust (e.g. the settlor, protector, trustee and beneficiary) and any other person exercising effective control of the trust. As one of the beneficiaries of Trust XYZ is not a natural person, i.e. Company F, the BOs of Company F shall also be identified. As such, the BOs in this case for Company A are Ms B, Mr. C, Ms. D, Mr. E and Mr. G.

Public Notice

01 Sep 2020

RINGGIT Newsletter (Bil 3/2020 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-bil-3-2020

https://www.bnm.gov.my/documents/20124/947994/Ringgit+Ed113+2020-03+Final.pdf

Reading: RINGGIT Newsletter (Bil 3/2020 issue) is now available for download Share: RINGGIT Newsletter (Bil 3/2020 issue) is now available for download Release Date: 01 Sep 2020 The highlight for this issuance is Lanjutan Moratorium dan Bantuan Bank Bersasar Other topics of interest include : Urus hutang secara aktif, berbincanglah dengan institusi perbankan anda Intipati PENJANA Pelan Jana Semula Ekonomi Negara Perkara Yang Perlu Diketahui Mengenai Kedai Pajak Gadai Pelancongan dan Percutian 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil 3/2020 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A B I L . 3/2020 Perkara yang perlu diketahui mengenai kedai pajak gadai Intipati Pelan Jana Semula Ekonomi Negara (PENJANA) PERCUMA | PP 16897/05/2013 (032581) Urus hutang secara aktif, berbincanglah dengan institusi perbankan anda Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Lanjutan Moratorium dan Bantuan Bank Bersasar Institusi perbankan telah memberikan penangguhan kepada pembayaran balik pinjaman / pembiayaan (moratorium) selama 6 bulan iaitu bermula 1 April 2020 sehingga 30 September 2020. Menurut laporan Unit Pelaksanaan dan Koordinasi Stimulus Ekonomi Antara Agensi Nasional (LAKSANA) di Kementerian Kewangan Malaysia yang memantau pelaksanaan Pakej Rangsangan Ekonomi Prihatin Rakyat (PRIHATIN), sehingga 14 Ogos 2020, jumlah moratorium bayaran balik pinjaman institusi kewangan yang dimanfaatkan oleh rakyat adalah RM48.3 bilion, manakala RM26.0 bilion lagi dimanfaatkan oleh sektor perniagaan. Ini menjadikan jumlah keseluruhan moratorium berada pada paras RM74.3 bilion. Sememangnya, skim moratorium ini memberi ruang kelegaan sementara terutamanya kepada golongan yang teruk terjejas dan kehilangan punca pendapatan akibat wabak COVID-19. Dengan pembukaan semula aktiviti ekonomi yang semakin meluas kini, situasi ekonomi rakyat juga dijangka akan pulih secara berperingkat dan peminjam bolehlah mula menunaikan komitmen pembayaran semula hutang. Bagi mereka yang masih terkesan, kerajaan telah mengumumkan lanjutan moratorium dan bantuan bank bersasar. Pelanjutan ini terpakai kepada individu yang hilang pekerjaan pada tahun 2020 dan masih belum mendapat pekerjaan yang baru, serta individu yang masih bekerja, tetapi gaji mereka terjejas atau berkurangan akibat COVID-19. Di samping itu, institusi kewangan juga telah memberikan komitmen untuk membantu Perusahaan Kecil dan Sederhana (PKS), baik peniaga, penjaja atau mereka yang bekerja sendiri yang turut terkesan akibat COVID-19. Bagi mereka yang berada dalam kategori di atas, dan menjangkakan cabaran untuk memenuhi komitmen hutang menjelang tamatnya moratorium pada September 2020, dapatkan bantuan awal dengan menghubungi bank anda. Panduan persediaan menyambung semula komitmen pembayaran balik pinjaman: 1) Jangan tunggu saat akhir Buat perancangan awal kewangan anda sebelum penangguhan Lanjutan Moratorium dan Bantuan Bank Bersasar pembayaran balik pinjaman berakhir, sebaiknya mula dari sekarang. Hubungi institusi perbankan pinjaman anda untuk berbincang mengenai pinjaman anda. 2) Kaji semula bajet bulanan • Menurut laporan yang dikeluarkan oleh Jaringan Pendidikan Kewangan, h a n y a 1 d a r i p a d a 1 0 ra k yat M a l ays i a mempercayai bahawa mereka tidak berdisiplin d a l a m m e n g u r u s kewangan mereka. • Pengurusan kewangan perlu dilakukan dengan l eb ih cermat , te l i t i dan mengambil kira kemungkinan yang berlaku seperti pemotongan elaun, gaji dan mungkin juga pemberhentian kerja. • Dahulukan perbelanjaan penting seperti pembayaran hutang, bil, sewa rumah dan lain-lain. • Tangguhkan perbelanjaan yang tidak penting seperti makan di luar dan hiburan. “Pengurusan kewangan perlu dilakukan dengan lebih cermat, teliti dan mengambil kira segala kemungkinan yang berlaku ... 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Maizatul Aqira Ishak Baskaran Sithamparam Nur Asyikin Aminuddin Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : [email protected] Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : [email protected] Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. 3) Jangan terjebak dengan skim penipuan kewangan Elakkan daripada menambah hutang sedia ada walaupun diberikan diskaun untuk pembelian dalam talian dan sebagainya. Kebiasaannya apabila pendapatan tidak mencukupi, terdapat sesetengah pengguna yang mengambil keputusan untuk membuat pinjaman daripada Ah Long dan ada juga terjerat dalam penipuan seperti mangsa keldai akaun. Berfikirlah secara rasional sebelum mengambil tindakan yang boleh menjerumuskan kita kepada masalah kewangan yang lebih kompleks. Sekiranya anda berasa tidak puas hati dengan keputusan selepas perbincangan dengan institusi kewangan, anda boleh merujuk perkara berkenaan di talian 1-300-88-5465 dan emel aduan anda kepada [email protected] atau melalui borang maklumat di pautan https://telelink.bnm.gov.my/ Selain itu, anda juga boleh rujuk AKPK di talian khidmat pelanggan 03-2616 7766 atau melalui laman web www.akpk.org.my serta pautan http://bit.ly/AKPKdmp2020 untuk mendapatkan khidmat kaunseling kewangan. Mereka akan memberi nasihat bagaimana anda boleh merancang pembayaran balik pinjaman dan juga cara untuk mengurus dan menyelesaikan semula hutang anda. Sumber: www.fomca.org.my / www.bnm.gov.my / www.akpk.org.my bil. 3/2020 | 3 Urus hutang secara aktif, berbincanglah dengan institusi perbankan anda “Bagi mendapatkan penyelesaian yang komprehensif untuk jangka masa panjang, penstrukturan semula mungkin merupakan jalan terbaik dan lebih efisien.” Pengurusan hutang secara aktif kerap dilakukan, sama ada secara sedar atau tidak. Anda mungkin pernah dengar seseorang itu mengambil satu hutang yang baru untuk membayar beberapa hutang lain yang lebih kecil. Langkah ini mungkin dapat mengurangkan bayaran bulanan, tetapi tempohnya mungkin akan menjadi lebih panjang. Ada juga yang beralih kepada hutang yang kadar faedahnya adalah lebih tinggi, seperti kad kredit, atau mungkin juga hutang ceti kepada hutang peribadi. Langkah sebegini, sekiranya diuruskan dengan betul dapat membantu pengguna untuk menguruskan aliran tunai secara efisien dan mampu memberikan lebihan wang kepada pengguna. Namun, kajian rambang oleh Jaringan Pendidikan Kewangan (dengan kerjasama Bernama) pada bulan Julai 2020 mendapati 76% rakyat Malaysia tidak menyedari yang peminjam individu mahupun perniagaan boleh mendapatkan khidmat nasihat profesional daripada institusi perbankan untuk mengatur semula hutang. Institusi perbankan merupakan pakar dalam menasihati pelanggan mereka untuk menguruskan hutang secara aktif bagi individu mahupun perniagaan. Secara umumnya, terdapat tiga cara untuk mengatur semula hutang anda iaitu: Kelonggaran (Flexibility) Kebenaran daripada pihak institusi perbankan untuk memberi keringanan dalam pembayaran balik pinjaman. Moratorium adalah contoh keringanan yang terpakai kepada semua peminjam. Penjadualan semula (Reschedule) Memanjangkan tempoh bayaran tanpa mengubah struktur pinjaman. Terdapat persetujuan antara anda dan institusi perbankan untuk menjadual semula pinjaman anda, hasil daripada perundingan antara kedua belah pihak. Kebiasaannya, masih dalam kerangka perjanjian pinjaman sedia ada. 4 | RINGGIT Penstrukturan semula (Restructure) Perubahan pada struktur pinjaman secara menyeluruh berdasarkan situasi kewangan spesifik peminjam. Melibatkan perubahan terhadap perjanjian pinjaman asal kepada perjanjian baru yang lebih selesa, mengikut keperluan peminjam secara lebih komprehensif. Contohnya, kemudahan overderaf ditukar kepada pinjaman bertempoh, jumlah dan tempoh pinjaman serta jumlah bayaran bulanan mungkin juga boleh dikurangkan berdasarkan kadar yang lebih rendah, produk yang kadar faedahnya rendah, mahupun tempoh yang lebih tinggi. Penstrukturan semula banyak membantu dalam pelan jangka panjang peminjam individu mahupun sesebuah perniagaan. Ianya membantu aliran tunai ketika masa sukar dan menyumbang kepada pengurusan kewangan harian secara lebih efisien. Bagi syarikat-syarikat besar pula, mereka mampu untuk mengambil penasihat kewangan bagi tujuan ini. Selagi hutang peminjam tidak bermasalah, proses pengurusan hutang sebegini tidak akan menjejaskan rekod kredit peminjam, malahan akan menjadikan rekod peminjam lebih kukuh untuk jangka panjang. Institusi perbankan juga menyedari ramai rakyat Malaysia yang terkesan akibat Perintah Kawalan Pergerakan (PKP), ada yang hilang pekerjaan, perniagaan terjejas mahupun punca pendapatan menjadi berkurangan. Hal ini sedikit sebanyak akan menjejaskan kemampuan untuk membayar balik pinjaman apabila tempoh pengecualian pembayaran pinjaman berakhir September ini. Bagi mendapatkan penyelesaian yang komprehensif untuk jangka masa panjang, penstrukturan semula mungkin merupakan jalan terbaik dan lebih efisien. Walau bagaimanapun, proses penstrukturan semula memakan masa yang lebih panjang kerana pihak bank perlu menilai kemampuan peminjam berdasarkan terma yang baru. Antara dokumen yang diperlukan untuk memohon termasuklah: • Penyata bank • Slip gaji • Akaun perniagaan • ‘Aging list’ iaitu unjuran mudah tunai lampau dan lain- lain. Penstrukturan semula juga mungkin melibatkan perjanjian pinjaman baru. Oleh itu, pengguna dinasihatkan agar menghubungi terus institusi perbankan dengan segera dan berbincang mengenai keperluan menstruktur semula pinjaman mereka. Elakkan daripada menggunakan perkhidmatan pihak ketiga dalam proses ini untuk mengelakkan anda daripada ditipu. Sebarang kelewatan mungkin menyebabkan peminjam berasa tertekan, memandangkan mereka perlu menyambung komitmen kewangan lama dalam senario punca pendapatan yang terjejas. Ini boleh mengganggu emosi, kerjaya, perkembangan perniagaan dan juga aliran tunai. Pengguna perlu mula merancang dari sekarang berkenaan pinjaman yang perlu dibayar sebelum pengecualian pembayaran balik pinjaman berakhir. Jangan hanya tunggu dan lihat. Sehubungan itu juga, FOMCA menyarankan agar pengguna menilai semula kedudukan kewangan anda. Sekiranya pengguna menjangkakan akan menghadapi masalah pembayaran balik pinjaman, pengguna perlu menghubungi institusi kewangan masing-masing secepat mungkin untuk berunding. Pengguna yang mempunyai pinjaman lebih dari satu bank, boleh juga menghubungi Agensi Kaunseling dan Pengurusan Kredit (AKPK) untuk mendapatkan nasihat secara percuma kerana agensi berkenaan akan memberikan kaunseling atau membantu menstruktur semula pinjaman, jika diperlukan. Sumber: www.bnm.gov.my “Sebarang kelewatan mungkin menyebabkan peminjam berasa tertekan, memandangkan mereka perlu menyambung komitmen kewangan lama dalam senario punca pendapatan yang terjejas.” bil. 3/2020 | 5 Intipati Pelan Jana Semula Ekonomi Negara Pada 5 Jun 2020, YAB Tan Sri Muhyiddin Yassin, Perdana Menteri Malaysia, telah memperkenalkan Pelan Jana Semula Ekonomi Negara yang dikenali sebagai PENJANA dan bertemakan ‘Bersama Menjana Ekonomi’ untuk meneruskan kesinambungan daripada pakej PRIHATIN sebelum ini. Pelan ini bertujuan adalah untuk memperkukuhkan ekonomi negara yang terjejas akibat wabak COVID-19 yang melanda sejak awal tahun 2020. Fasa pemulihan yang dilalui negara ketika ini adalah tempoh paling sesuai untuk rakyat bangun semula selepas melalui pelbagai kesan krisis wabak COVID-19. PENJANA memberi fokus terhadap tiga teras utama iaitu Memperkasa Rakyat, Melonjakkan Perniagaan dan Merangsang Ekonomi. Terdapat beberapa manfaat yang boleh dinikmati oleh rakyat Malaysia melalui inisiatif ini. i. Teras Pertama: Memperkasa Rakyat Kerajaan berusaha untuk mengambil langkah-langkah bagi melindungi pekerjaan dan meningkatkan kemahiran pekerja dalam mengatasi masalah pengangguran di Malaysia. Di samping itu, terdapat beberapa inisiatif diperkenalkan untuk membantu rakyat mengekal atau meningkatkan kemahiran mereka dalam memanfaatkan peluang semasa ekonomi sedang beransur pulih. a. Program Subsidi Upah Menggalakkan pengekalan pekerja dan mengurangkan kehilangan pekerjaan melalui penambahbaikan program subsidi upah sedia ada. Dilanjutkan selama 3 bulan bagi majikan yang layak dengan kadar RM600 sebulan untuk setiap pekerja sehingga maksima 200 pekerja bagi setiap syarikat. Kelonggaran kepada majikan yang membenarkan pekerja mengambil cuti tanpa gaji, dengan syarat pekerja tersebut menerima subsidi upah secara langsung (khas untuk sektor pelancongan dan sektor yang tersenarai dalam aktiviti yang dilarang sepanjang tempoh Perintah Kawalan Pergerakan Bersyarat (PKPB) seperti pekerja di pusat refleksologi, pusat hiburan dan taman tema yang melibatkan perhimpunan awam). b. Program Insentif Pengambilan Pekerja selama 6 bulan sehingga Disember 2020 Membantu syarikat dengan memberikan insentif kewangan untuk memberi pekerjaan kepada penganggur dan belia melalui insentif yang diperkenalkan: » Golongan belia: Program perantis bagi graduan dan lepasan sekolah dengan pemberian elaun latihan sebanyak RM600 sebulan selama 6 bulan. » Golongan penganggur: Menggaji golongan penganggur dengan elaun sebanyak RM800 sebulan selama 6 bulan (bawah umur 40 tahun), manakala RM1000 sebulan selama 6 bulan bagi penganggur berumur 40 tahun dan ke atas dan golongan Orang Kurang Upaya (OKU). c. Program Peningkatan Kemahiran (Upskilling) Meningkatkan kebolehpasaran golongan penganggur melalui program latihan untuk mendapatkan kemahiran dan meningkatkan kemahiran yang sedia ada. Bagi meningkatkan kemahiran untuk golongan pengganggur, kerajaan melaksanakan program seperti menggalakkan penganggur melanjutkan pelajaran terutamanya dalam kursus jangka pendek di universiti tempatan, memperkasakan latihan keusahawanan dan juga mewujudkan skim latihan wakil pemasaran sehingga RM800 seorang dengan mendaftar di Perbadanan Pembangunan Industri Sekuriti (SIDC). d. Program subsidi pengangkutan awam MY30 Meringankan beban kos pengangkutan awam yang perlu ditanggung oleh pengguna. Pengguna hanya perlu membayar RM30 sahaja sebulan selama 6 bulan untuk menikmati pas perjalanan tanpa had bagi penggunaan perkhidmatan awam seperti perkhidmatan rel (MRT, LRT, Monorel), BRT, bas RapidKL dan juga bas pengantara MRT di lembah Klang. Program ini terbuka kepada semua warganegara dan berkuatkuasa pertengahan bulan Jun sehingga Disember 2020. ii. Teras Kedua: Melonjakkan Perniagaan Kebanyakan sektor ekonomi ditutup selama hampir dua bulan berikutan dengan Perintah Kawalan Pergerakan (PKP) yang diarahkan oleh kerajaan. Perniagaan tidak dapat beroperasi sepenuhnya secara tidak langsung memberi impak kepada pendapatan dan sumber kewangan kebanyakan perniagaan, terutamanya Perusahaan Kecil dan Sederhana (PKS) dan juga perusahaan mikro. Oleh itu, beberapa inisiatif telah diperkenalkan 6 | RINGGIT di bawah inisiatif PENJANA bagi sektor perniagaan yang telah dibuka semula pada bulan Mei termasuklah: a. Kempen “Shop Malaysia Online” bagi Penggunaan Dalam Talian Menggalakkan rakyat berbelanja secara dalam talian, di mana kod promosi dan pelbagai baucar diskaun akan diberikan melalui platform e-dagang. b. Pusat Sehenti MyAssist SME Memberi bimbingan dan membantu proses pemulihan perniagaan bagi PKS dalam meningkatkan akses kepada SMEHub yang sedia ada. Perkhidmatan yang ditawarkan termasuklah bimbingan untuk: Kemudahan pembiayaan Kemudahan perdagangan Penjenamaan dan promosi Sokongan teknologi Perundangan c. Menawarkan Pembiayaan Mudah Bumiputera Memastikan kelangsungan usahawan Bumiputera melalui sokongan kewangan RM200 juta khas untuk perniagaan milik Bumiputera. d. Sokongan untuk Meringankan Beban Kewangan Perniagaan Meringankan tekanan kewangan terhadap perniagaan melalui penghapusan penalti yang berkaitan dengan pembayaran cukai lewat. Remisi penalti sebanyak 50% akan diberikan kepada syarikat atau pengilang berdaftar yang lewat membuat pembayaran cukai jualan atau cukai perkhidmatan bermula 1 Julai 2020 hingga 30 September 2020. Pelanjutan potongan cukai khas bersamaan 30% bagi pengurangan sewa premis perniagaan sehingga 30 September 2020. iii. Teras Ketiga: Merangsang Ekonomi Usaha kerajaan perlu ditingkatkan untuk menambahbaik dan merangsang ekonomi, serta membolehkannya pulih menjelang tahun 2021 dan seterusnya. PENJANA ini juga akan membolehkan ekonomi Malaysia melalui kalibrasi semula, dan melonjak ke arah pemulihan negara. Antara inisiatif untuk merangsang semula ekonomi negara adalah: a. Mengadakan Kempen Beli Barangan Buatan Malaysia Menggalakkan penggunaan barangan dan perkhidmatan tempatan melalui: Kempen “Beli Malaysia” oleh kerajaan dan agensi berkaitan. Mewajibkan penandaan barang buatan tempatan bagi rangkaian pasaraya. Mewujudkan saluran khusus untuk produk Malaysia di platform e-dagang utama. b. Memperkenalkan ePENJANA Menggalakkan penggunaan e-dompet dalam kalangan pengguna yang memudahcara penjarakan sosial untuk menjaga keselamatan pengguna di samping menggalakkan perbelanjaan pengguna melalui: Kredit e-dompet bernilai RM50. Tawaran tambahan oleh pembekal perkhidmatan e-dompet sebanyak RM50 melalui baucar diskaun dan kredit tambahan melalui cashback. Kredit hanya boleh digunakan untuk pembelian secara fizikal di kedai dan bukan perkhidmatan dalam talian. Manfaat ini boleh dinikmati oleh semua rakyat Malaysia berumur 18 tahun ke atas yang berpendapatan kurang daripada RM100,000 setahun. c. Kempen Pemilikan Rumah atau Home Ownership Campaign (HOC) Merancakkan semula pasaran hartanah melalui: Pengecualian duti setem akan diberikan ke atas surat cara pindah milik dan perjanjian pinjaman bagi pembelian rumah kediaman yang bernilai antara RM300,000 hingga RM2.5 juta. Pengecualian Cukai Keuntungan Harta Tanah (CKHT) diberikan kepada individu warganegara Malaysia ke atas pelupusan rumah kediaman yang dibuat mulai 1 Jun 2020 sehingga 31 Disember 2021. Pengecualian ini dihadkan bagi pelupusan tiga unit rumah kediaman sahaja untuk setiap individu. d. Insentif Cukai untuk Pembelian Kereta Dengan adanya insentif seperti ini, beban kewangan pengguna dapat dikurangkan malahan mampu merancakkan semula industri automotif negara. Pengecualian cukai jualan sebanyak 100% ke atas penjualan kereta penumpang pemasangan tempatan dan 50% bagi kereta penumpang import. e. Sokongan Sektor Pelancongan Membantu sektor pelancongan yang terjejas akibat COVID-19 melalui insentif cukai seperti: Pengecualian cukai pelancongan mulai 1 Julai 2020 hingga 30 Jun 2021. Lanjutan pengecualian cukai perkhidmatan untuk hotel sehingga 30 Jun 2021. Lanjutan pelepasan cukai pendapatan individu sehingga RM1,000 ke atas perbelanjaan melancong dalam negara sehingga 31 Disember 2021. Lanjutan penangguhan bayaran ansuran ke atas anggaran cukai sehingga 31 Disember 2020. Secara kesimpulannya, melihat kepada senario ekonomi semasa dan trend pengangguran dan pembuangan pekerja yang terus meningkat, inisiatif PENJANA sedikit sebanyak dapat membantu golongan yang terjejas akibat penularan wabak COVID-19. Begitu juga, ianya dapat membantu untuk merancakkan semula ekonomi negara untuk berkembang lebih maju selepas Perintah Kawalan Pergerakan (PKP) ditamatkan. Justeru itu, FOMCA berharap rakyat Malaysia dapat menggunakan manfaat yang sedia ada dan juga yang telah ditambah baik mengikut situasi semasa negara dengan sebaik mungkin. Sumber: www.penjana.treasury.gov.my bil. 3/2020 | 7 Perkara Yang Perlu Diketahui Mengenai Kedai Pemegang Pajak Gadai Berlesen di Malaysia atau lebih dikenali sebagai Kedai Pajak telah berada di Malaysia sejak tahun 1871. Kini, terdapat lebih kurang 571 Kedai Pemegang Pajak Gadai Berlesen di Malaysia. – Bahagian Kawalan Kredit Komuniti, Kementerian Perumahan dan Kerajaan Tempatan 1 Kedai Pajak Gadai Pajak gadai menyediakan akses kepada pengguna untuk mendapatkan pinjaman dengan mudah, sekiranya mempunyai barangan berharga untuk dipajakkan. Memandangkan ramai yang menggunakan perkhidmatan Kedai Pajak, maklumat berikut perlu diambil tahu: Pada tahun 2018, terdapat 4 juta pelanggan pajak gadai dengan jumlah pajak RM8.532 juta. – Berita Harian, 20 Jun 2019 Faedah maksima yang dibenarkan ialah 2% sebulan atau 24% setahun. Jika kedai pajak gadai mengenakan kadar faedah yang terlalu tinggi (lebih 2% sebulan) ke atas sesuatu pinjaman, anda boleh membawa perkara ini kepada pejabat Ketua Setiausaha Kementerian Perumahan dan Kerajaan Tempatan. 2 Tempoh gadaian ialah selama enam bulan, tetapi gadaian juga boleh ditebus pada bila-bila masa. Sekiranya tidak dapat menebus gadaian sebelum tamat tempoh, pemajak gadai boleh memberitahu kepada pemegang pajak gadai untuk melanjutkan tempoh masa tidak kurang daripada tiga bulan. Semak tarikh luput. Anda tidak boleh menuntut barang selepas tarikh luput, kecuali kedai pajak g a d a i b e r s e t u j u m e m a n j a n g k a n tempoh berkenaan. Selepas tarikh luput, semua barangan yang digadai yang nilainya kurang daripada RM200 akan menjadi kepunyaan ke d a i p a j a k g a d a i berkenaan dan bukan kepunyaan anda lagi. J i k a a n d a m e r a s a bahawa gadaian anda berkurang nilai atau jika kedai pajak gadai enggan menyerahkan gadaian a n d a , k e m u k a k a n aduan kepada majistret. Majistret mempunyai kuasa untuk memerintah kedai pajak gadai untuk membayar gantirugi yang munasabah. S e t i a p b u t i r l a n j u ta n hendaklah dibuat dalam buku pemegang pajak gadai juga dalam surat pajak gadai. Pemegang pajak gadai perlu menghantar notis berdaftar kepada pemajak gadai mengenai tindakan untuk melelong barangan. Notis ini perlu diterima oleh pemajak gadai tujuh hari sebelum urusan pelelongan. Kedai pajak gadai bertanggungjawab atas kehilangan atau kemusnahan akibat kecurian atau kebakaran. Sentiasa mendapatkan res i t set iap ka l i anda membuat pembayaran. Jika anda kehilangan resit / tiket gadaian anda berhak mendapatkan salinannya secara percuma. Pastikan kedai pajak gadai yang anda berurusan mempunyai lesen yang sah. Sila hubungi Bahagian Kawalan Kredit Komuniti, Kementerian Perumahan dan Kerajaan Tempatan untuk membuat semakan. Semak buku catatan kedai pajak gadai untuk memastikan bahawa kandungannya adalah sama dengan surat pajak gadai yang anda terima. 3 4 5 6 7 8 9 10 8 | RINGGIT Sumber: www.fomca.org.my Sebarang pertanyaan, sila berhubung dengan Bahagian Kawalan Kredit Komuniti, Kementerian Perumahan dan Kerajaan Tempatan melalui nombor 03-8000 8000 atau e-mel di alamat [email protected] Kelemahan Pajak Gadai • Kadar faedah tinggi i a i tu 2% sebu lan atau 24% setahun, jauh melebihi kadar pasaran. • Barang kemas yang digadai, samada cincin, gelang atau rantai biasanya tidak ditimbang atau diukur. Banyak aduan diterima di Pusat Khidmat Aduan Pengguna Nasional (NCCC) di mana barang kemas yang digadai itu lebih ringgan atau pendek apabila ditebus. Terdapat aduan yang peniaga pajak gadai sudah kikis sedikit emas daripada barang itu. FOMCA mencadangkan agar pemajak meminta pemegang pajak untuk merekodkan barangan yang digadai contohnya sebentuk cincin, seutas rantai dan yang paling penting menimbang berat dan mengukur panjang rantai emas tersebut dan meminta butir-butir tersebut dituliskan di atas resit sebelum memberikan barangan tersebut. • Andai peminjam gagal menebus dalam tempoh y a n g d i t e t a p k a n , pemegang pajak gadai boleh memil ik i ni lai gadaian yang kurang daripada RM200, tanpa m e l a n t i k p e l e l o n g berlesen. Akta Pajak Gadai 1972 juga tidak memperuntukkan barang gadaian dipamerkan sewaktu lelongan awam dilakukan. Perbezaan Pajak Emas di Kedai Pajak Gadai dan Institusi Perbankan Terdapat juga inst itusi p e r b a n k a n y a n g menyediakan perkhidmatan pa jak gada i . Memajak d i inst i tus i perbankan m e m p u nya i ke l e b i h a n berbanding di kedai pajak, memandangkan institusi perbankan disyaratkan untuk mengguna pakai prosedur yang ketat dalam penawaran produk dan perkhidmatan bagi melindungi pengguna. Di samping itu, keselamatan barangan yang dipajak juga lebih terjamin kerana premis institusi perbankan, lazimnya lebih selamat. Sekiranya sesuatu perkara yang tidak diingini berlaku seperti rompakan ataupun kebakaran, nilai barangan kemas tersebut akan dipulangkan semula oleh pihak bank berbanding dengan kedai pajak gadai yang hanya bertanggungjawab untuk memulangkan lebihan pinjaman sebanyak 25% sahaja. Pajak Gadai Islam (Ar-Rahnu) Terdapat juga perkhidmatan pajak gadai yang dijalankan menggunakan konsep patuh syariah, juga dikenali sebagai Ar-Rahnu. Melalui sistem ini, perjanjian dikaitkan dengan sesuatu ganjaran dan tidak dikenakan faedah terhadap pinjaman. Menurut konsep ini juga, penerima gadaian akan memberi nilai gadaian yang sepatutnya dengan barang gadaian yang digadai oleh penggadai. bil. 3/2020 | 9 Pada tahun 2019, industri pelancongan merupakan penyumbang ketiga terbesar kepada ekonomi Malaysia dan guna tenaga industri pelancongan dianggarkan seramai 3.2 juta pekerja. Tidak hairanlah, kerajaan menawarkan Skim Pembiayaan Sektor Pelancongan PENJANA bernilai RM1 bilion pada awal bulan Jun 2020 bagi membantu Perusahaan Kecil dan Sederhana (PKS) dan perusahaan mikro tempatan memulihkan sektor pelancongan yang terjejas teruk berikutan penularan COVID-19, terutama dalam sektor yang dikategorikan sebagai teras, seperti berikut: 1. Premis penginapan pelancongan (hotel bajet, inap desa berdaftar, chalet dan rumah peranginan) 2. Agensi pelancongan dan pengusaha pelancongan 3. Pengangkutan untuk pelancong (pengusaha bas, bot dan kereta sewa) Skim pembiayaan ini harus dimanfaatkan sebaiknya oleh pengusaha sektor pelancongan bagi meningkatkan kualiti perkhidmatan pelancongan, mengukuhkan keupayaan mereka membuat penyesuaian serta meningkatkan daya saing selepas negara pulih daripada COVID-19 nanti. Aduan yang diterima oleh Pusat Khidmat Aduan Pengguna Nasional (NCCC) pada 2018 (4,411 aduan), b o l e h l a h d i g u n a k a n sebagai panduan dalam memperbaiki kualiti perkhidmatan sektor pelancongan. Sebanyak 2 7 . 9 3 % d a r i p a d a jumlah aduan adalah mengenai penipuan oleh agensi pelancongan yang tidak berdaftar dengan Kementer ian Pelancongan, Seni dan Budaya Malaysia (MOTAC). Ramai pengguna yang terpedaya dengan tipu helah ‘ejen’ yang menjanjikan percutian atau pelancongan yang jauh lebih murah daripada harga pasaran. Kebiasaannya agensi pelancongan ini akan mendesak pengguna membayar secara ansuran 6 hingga 8 bulan sebelum tarikh percutian sebenar. Namun apabila para pengguna cuba menghubungi agensi t e r s e b u t s e b e l u m tarikh percutian, baru mereka sedar bahawa agensi tersebut telah melarikan diri dengan wang pengguna. Aduan kedua yang tertinggi yang diterima adalah tuntutan balik atau refund yang merangkumi 13.97% daripada jumlah keseluruhan aduan. Punca para pengguna membuat tuntutan ini adalah kerana pembatalan percutian, pembayaran sebanyak dua kali kerana transaksi kali pertama tidak berjaya atau perkhidmatan yang ditawarkan adalah tidak memuaskan. Namun apabila para pengguna membuat tuntutan balik daripada agensi pelancongan, ianya mengambil masa yang sangat lama. Jawapan yang diberikan pula tidak memuaskan. Malah, ada agensi yang mengherdik para pengguna dengan kata-kata yang kesat serta memberi janji kosong dengan tidak membayar balik tuntutan. Aduan mengenai kualiti perkhidmatan yang disediakan oleh pihak agensi pelancongan ini berada pada kedudukan ketiga dengan 7.98% daripada jumlah keseluruhan. Antara aduan yang diterima adalah tentang kebersihan bilik penginapan percutian yang diberikan oleh agensi pelancongan mahu pun hotel-hotel yang dipilih sendiri oleh para pengguna. Malah ada pengguna yang mengadu mereka dijangkiti penyakit kulit gara-gara katil yang tidak bersih serta digigit oleh pepijat dan terpaksa mendapat rawatan pakar perubatan. Pihak hotel pula tidak mahu melayan permintaan pengguna apabila pengguna meminta pampasan daripada pihak hotel. Terdapat juga kes-kes layanan yang tidak mesra diberikan oleh para pekerja di tempat penginapan. Ada kalanya, para pekerja bersikap kasar dan memberi maklumat yang salah Pelancongan dan Percutian 10 | RINGGIT kepada tetamu di tempat penginapan. Selain daripada itu, layanan yang diberikan oleh pekerja sektor pengangkutan awam seperti bas, teksi dan pemandu e-hailing juga ada yang kurang sempurna. Pekerja di lapangan ini merupakan tunjang kepada peningkatan sektor pelancongan dan adalah penting untuk mereka mendokong hasrat kerajaan untuk memajukan industri pelancongan di negara kita. Selain daripada itu, industri penerbangan juga turut menerima aduan sebanyak 19.74%. Aduan yang diterima merangkumi masalah tempahan (6.73%), perubahan jadual penerbangan (4.24%), masalah bagasi (3.99%), pertikaian tambang penerbangan (2.99%) dan pembatalan penerbangan (1.79%). Industri penerbangan sepatutnya memberi perkhidmatan yang cemerlang untuk menggalakkan lebih ramai pelancong tempatan dan asing untuk berkunjung ke negara kita. Namun perkhidmatan yang disediakan oleh industri penerbangan ini perlu diperbaiki. Misalnya, bila pelanggan membuat tempahan tiket penerbangan atas talian, ada kalanya sistem tersebut tidak memberi maklum balas menyebabkan pengguna terpaksa membuat tempahan semua. Akhirnya pengguna terpaksa membayar dua kali dan urusan menuntut kembali wang tersebut amat sukar sekali. Ada kalanya industri tersebut tidak mengembalikan wang dan kalau adapun, akan mengambil masa yang sangat lama. Di samping itu, 6.23% aduan diterima mengenai representasi palsu dalam sektor perhotelan mahupun pelancongan. Contohnya, pelancong dijanjikan bilik yang menghadap laut dengan pandangan panoramik, tetapi ianya tidak ditunaikan. Begitu juga dengan agensi pelancongan yang menjanjikan makanan di hotel yang ternama, tetapi pada hakikat, ianya tidak dikotakan. Hotel-hotel juga turut menerima 407 aduan daripada pengguna sepanjang 2018. Aduan ini merangkumi pelbagai isu seperti tempahan hotel (3.31%), kebersihan hotel dan pembatalan bilik hotel atas talian masing-masing pada 2.49% dan kaunter daftar masuk (2.38%). Walaupun isu-isu ini mungkin menunjukkan peratusan yang sedikit, tetapi kesannya adalah besar kepada industri pelancongan di negara kita. Bila pengguna diberi layanan yang buruk semasa mendaftar, ianya akan memberikan pandangan yang negatif terhadap hotel tersebut. FOMCA ingin menyeru agar Skim Pembiayaan Sektor Pelancongan yang baru dilancarkan ini dapat digunakan bukan sahaja untuk memberikan nafas baru kepada sektor pelancongan yang terjejas teruk akibat COVID-19, tetapi juga dijadikan pemangkin kepada tahap kualiti perkhidmatan yang lebih baik dalam kalangan pengusaha sektor pelancongan. Pengguna boleh memainkan peranan dalam meningkatkan kualiti perkhidmatan dengan melaporkan ketidakpuasan hati terhadap perkhidmatan pelancongan kepada MOTAC atau NCCC. Selain itu, pengguna juga dinasihatkan untuk mendapatkan insurans perjalanan untuk melindungi diri dan/ atau keluarga terhadap kemalangan, kerugian dan gangguan semasa melancong. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) bil. 3/2020 | 11 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS

Public Notice

10 Aug 2020

The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 30th Special meeting

https://www.bnm.gov.my/-/the-shariah-advisory-council-of-bank-negara-malaysia-the-sac-30th-special-meeting

https://www.bnm.gov.my/documents/20124/914558/SAC+Statement+30th+SAC+Special+meeting_ENG.pdf

Reading: The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 30th Special meeting Share: 14 The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 30th Special meeting Release Date: 10 Aug 2020 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 30th special meeting on 14 July 2020 has made a ruling on practices of restructuring of Islamic financing facility during the COVID-19 crisis. Restructuring of an Islamic financing facility based on original Shariah contracts Restructuring of an Islamic financing facility based on the original Shariah contract(s) may be undertaken using a supplementary agreement that is cross referred to the terms and conditions of the original agreement. No new agreement is required. This is intended to reduce the cost and challenges to customers, and operational burden on Islamic financial institutions (IFIs). A new agreement is required if the restructuring involves - the application of a different Shariah contract – for example a house financing that is originally based on musharakah mutanaqisah (diminishing partnership) is being restructured using ijarah; or a combination of multiple financing based on various Shariah contracts into a new single Shariah contract as part of a debt rationalisation exercise.   Restructuring of an Islamic financing facility into a conventional loan (or vice versa) IFIs are allowed to restructure a conventional loan into an Islamic financing facility. However, restructuring of an Islamic financing into conventional loan is not allowed. In cases where the customer chooses to restructure his existing Islamic financing facility to a conventional loan, it is the customer’s prerogative and choice to do so. In this situation, the customer’s choice is beyond the responsibility and control of the IFI. Compounding profit on restructuring IFIs are not allowed to include and account for any accrued profit on an original financing as the new principal amount for the restructured facility. Such practice aims to avoid multiplying of profits charges on debts (compounded profits). Therefore, in implementing a restructuring: the new principal amount for the restructured facility is equivalent to the outstanding principal amount of the original facility, provided there is no additional financing; IFIs are allowed to charge a new profit rate on the new principal amount; and amount of accrued profit and late payment charges (where applicable) on the existing financing can be carried forward and added to the total debt obligation, but this amount cannot be capitalised in the calculation of new profit. Please refer attachment for more information. © 2024 Bank Negara Malaysia. All rights reserved.

Mesyuarat MPS ke-179 SAC 30th Special Meeting 2020 1 The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on Restructuring of Islamic Financing Facility during COVID-19 Crisis 30th SAC Special Meeting dated 14 July 2020 Part I: SAC Ruling, Its Effective Date and Applicability Pursuant to section 52 of the Central Bank of Malaysia Act 2009, the SAC has made a ruling on practices of restructuring of Islamic financing facility during the COVID-19 crisis. 1. Restructuring of an Islamic financing facility based on original Shariah contracts Restructuring of an Islamic financing facility based on the original Shariah contract(s) may be undertaken using a supplementary agreement that is cross referred to the terms and conditions of the original agreement. No new agreement is required. This is intended to reduce the cost and challenges to customers, and operational burden on Islamic financial institutions (IFIs). A new agreement is required if the restructuring involves - i. the application of a different Shariah contract – for example a house financing that is originally based on musharakah mutanaqisah (diminishing partnership) is being restructured using ijarah; or ii. a combination of multiple financing based on various Shariah contracts into a new single Shariah contract as part of a debt rationalisation exercise. 2. Restructuring of an Islamic financing facility into a conventional loan (or vice versa) IFIs are allowed to restructure a conventional loan into an Islamic financing facility. However, restructuring of an Islamic financing into conventional loan is not allowed. In cases where the customer chooses to restructure his existing Islamic financing facility to a conventional loan, it is the customer’s prerogative and choice to do so. In this situation, the customer’s choice is beyond the responsibility and control of the IFI. 3. Compounding profit on restructuring IFIs are not allowed to include and account for any accrued profit on an original financing as the new principal amount for the restructured facility. Such practice aims to avoid multiplying of profits charges on debts (compounded profits). Therefore, in implementing a restructuring: i. the new principal amount for the restructured facility is equivalent to the outstanding principal amount of the original facility, provided there is no additional financing; ii. IFIs are allowed to charge a new profit rate on the new principal amount; and iii. amount of accrued profit and late payment charges (where applicable) on the existing financing can be carried forward and added to the total debt obligation, but this amount cannot be capitalised in the calculation of new profit. SAC 30th Special Meeting 2020 2 This ruling comes into effect immediately upon publication of this ruling on Bank Negara Malaysia website dated 10 August 2020 and is applicable to the following IFIs: (a) licensed persons under the Islamic Financial Services Act 2013 (IFSA); (b) licensed banks and licensed investment banks approved under section 15(1) of the Financial Services Act 2013 (FSA) to carry on Islamic banking business; and (c) prescribed institutions approved under section 33B(1) of the Development Financial Institutions Act 2002 (DFIA) to carry on Islamic financial business. In line with sections 28(1) and (2) IFSA or sections 33D(1) and (2) DFIA, as the case may be, IFIs are required to comply with this ruling as compliance with any ruling of the SAC in respect of any particular aim and operation, business, affair or activity of IFIs shall be deemed to be in compliance with Shariah. Part II: Background  The COVID-19 pandemic and Movement Control Order (MCO) aimed at curbing the spread of the pandemic have had a devastating effect on the Malaysian economy. The spread of COVID- 19 has also affected global supply and demand, which exacerbated the effects of the health crisis on the country's economy. For the first quarter of 2020, gross domestic product (GDP) grew at 0.7% and is expected to contract in the second quarter before gradually recovering.  As a result, majority of the business sector is affected especially in terms of finance and cash flow, to the extent that businesses cannot be sustained and are forced to take measures to reduce costs. These include, among others, by reducing the size of the workforce, shortening working hours and even closing down the operations. As a result, many have lost their jobs (the unemployment rate soared to 5.3% in May 2020 compared to 3.3% in May 2019) or faced declining monthly incomes. To ease the financial burden of individuals and small and medium enterprises (SME), various forms of assistance have been granted including providing a temporary deferment on the monthly payment of financing (moratorium).  The challenges and problems confronting a majority of the population and businesses are expected to be temporary in nature due to the current situation. Financial performance and cash flows of individuals and businesses are expected to gradually recover in line with improvements in the economy. However, this issue needs to be addressed immediately to avoid a sudden and significant increase in impairment that can lead to bankruptcy and insolvency with longer term adverse implications on the people and economy. This can also have adverse effects on the strength of banking institutions.  In the current environment, rescheduling and restructuring of original financing allow businesses and individuals to better manage their financial obligations to suit their prevailing financial situation. Therefore, the process involved in rescheduling and restructuring any facility has to be efficient, seamless and flexible in the current environment to enable those adversely affected to be able to accord attention towards finding new employment or additional income, or reinvigorate their businesses.  Restructuring of an Islamic financing facility may be carried out in various ways such as using the same or different Shariah contract(s) or consolidating several financing based on a number of Shariah contracts into a single new financing contract. For example: SAC 30th Special Meeting 2020 3 Customer Restructuring mode Original Shariah contract New Shariah contract A Restructuring the existing financing using different Shariah contracts Musharakah Mutanaqisah Ijarah B Consolidating several financing based on various Shariah contracts Personal financing (tawarruq), vehicle financing (ijarah) and credit card (qard and ujrah) Tawarruq  There is a possibility where a customer specifically chooses to restructure a conventional loan into an Islamic financing facility (or vice versa) or consolidate both Islamic financing facility and conventional loan into either a single Islamic financing facility or conventional loan.  There are different practices currently adopted by IFIs in repricing of contracts in restructuring – some charge a new profit rate on the total outstanding financing debt being restructured (outstanding principal amount plus accrued profit); whilst there are others that charge a new profit rate on the outstanding principal amount only and segregating the accrued profit without any compounding element. Shariah Issues Does Shariah allow - i. restructuring of an Islamic financing facility using the original agreement? ii. restructuring of an Islamic financing facility into a conventional loan (or vice versa)? iii. compounding profit for restructuring? Part III: Key Discussion Variation of price requires a new `aqad  In restructuring an Islamic financing facility that involves variation to the original price as well as the relevant terms and conditions, a new `aqad between the contracting parties is required. This is to ensure that the contract is valid based on mutual consent of the contracting parties.  Based on the current situation and the expected large number of individuals and businesses in need of restructuring, the signing of a new contract will be burdensome to both the customer and IFI in terms of the costs to be incurred, the process and time involved. To ease the burden, the contracting parties can enter into a supplementary agreement to restructure the financing. Terms and conditions of an original agreement may be varied in a supplementary agreement without entering into a new legal agreement and may be cross-referred to the original agreement in restructuring of an Islamic financing facility.  A new `aqad that meets the requirement of a valid contract from Shariah point of view is required for restructuring of an Islamic financing facility, and it can be documented in the supplementary agreement. Mutual consent from the contracting parties on the modified terms and conditions in the supplementary agreement must be obtained to avoid misunderstanding and potential dispute. SAC 30th Special Meeting 2020 4 The principles of ta`awun (mutual assistance) is key towards ensuring Shariah compliance  As an Islamic financial intermediary, IFIs must take necessary measures to ensure Shariah compliance is observed at all times. This includes assisting customers to transition from non- Shariah compliant financial transactions into Shariah compliant transactions. In this case, IFIs should facilitate requests from customers to restructure their conventional loan facilities into Islamic financing facilities.  Meanwhile, restructuring of an Islamic financing into a conventional loan is in principle not allowed in Shariah. However, the customer has the right and freedom to choose. If the customer decides to restructure their Islamic financing into conventional financing, it is considered beyond the responsibility and control of the IFI. Compounding profit in Islamic financing facility  In the case of compounding profits on a restructured Islamic financing facility, such practices may be perceived as IFIs taking advantage of their customers in desperate times without assuming any liability or risk. The prohibition of compounding profit is to preserve the maqasid of fairness in transactions and to avoid oppression which resembles riba jahiliyyah in some of the practices of qalb al-dayn which are prohibited.  However, the IFIs and their customers may agree to new terms and conditions including the method of calculating new profit rate that is more reflective of the risk borne by the IFIs.  An illustration of the calculation without compounding profit is as follows: Existing financing amount (before restructuring) Financing amount (after restructuring) Principal outstanding (a) (outstanding selling price - unaccrued profit) RM50,000 Previous principal outstanding (a) RM50,000 Accrued profit RM475 New profit (outstanding principal (a) x profit rate 3% p.a x remaining tenure) RM6,000 Accrued profit RM475 Outstanding debt RM50,475 New outstanding debt (outstanding principal (a) + new profit + accrued profit) RM56,475 SAC 30th Special Meeting 2020 5 Part IV: Basis of Ruling Restructuring based on original Shariah contracts  Variation to the terms and conditions of the original agreement via a supplementary agreement is allowed provided it has been agreed and clearly communicated to the contracting parties. This is in line with the following fiqh maxim: األصل يف العقود رضا املتعاقَدين وموجبها هو ما أوجباه على نفسيهما ابلتعاقد1 “The original ruling for a contract is the consent of the contracting parties and its effect is based on what has become the rights and duties as agreed in the contract.”  Cross-referencing of the modified terms and conditions in a supplementary agreement to the original agreement is allowed based on maslahah to ensure an efficient and cost effective restructuring process is in place especially in the current challenging circumstances caused by COVID-19. This is in line with the following hadith and fiqh maxim: املشقة جتلب التيسري2 “Hardship begets facility.”  Shariah has no objection for the restructuring of a financing using a Shariah contract that is different from the original contract, and consolidation of financing based on various Shariah contract into a single Shariah contract. This is in line with the following hadith: املسلمون على شروطهم إال شرطا أحل حراما أو حرم حالال3 “(Dealing of) Muslims is based on conditions (as agreed) amongst them, except conditions that permit a forbidden matter or forbid a permissible matter.”  Nevertheless, a new legal agreement is required for restructuring of an Islamic financing facility involving the application of a different Shariah contract from the original contract and involving consolidation of several Shariah contracts into a single new Shariah contract. This is to ensure proper application of different Shariah contracts in line with the requirements and objectives as each Shariah contract has different and specific salient features and requirements. Restructuring of Islamic financing facility into conventional loan (or vice versa)  Shariah allows the restructuring of a conventional loan facility into an Islamic financing facility on the basis of helping the community/customer to get out of matters that are forbidden by Shariah. This is in line with the concept of ta`awun (mutual assistance) for goodness. However, an IFI shall not encourage/facilitate the restructuring of an Islamic financing into a conventional loan. Customer’s preference to restructure an Islamic financing into a conventional loan is beyond the responsibility and authority of the IFI. This is in line with the following Quranic verse: 1 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. 818. 2 Al-Suyuti, (1403), Al-Asybah wa al-Naza’ir, Beirut: Dar al-Kutub al-`Ilmiyyah, p. 76-77. 3 Abu Daud (1999), Sunan Abi Daud, Bait al-Afkar al-Dawliyyah, p. 398, hadith no. 3594. SAC 30th Special Meeting 2020 6 “...help one another in furthering virtue and God consciousness, and not in what is wicked and sinful...” 4 Compounding profit shall be avoided  IFIs are prohibited to account any accrued profit on an original financing as the new principal amount to avoid compounded profits in a restructured financing as compounding profit is burdensome to the customer and effectively resembles riba in general and riba jahiliyyah in some of the practices of qalb al-dayn. In a crisis situation, imposition of compounding profit gives the impression that an IFI is taking advantage of the difficulties being experienced by customers where the profit is not to cover the costs incurred by the IFI.  There is a need for the regulator to set a ruling prohibiting compounding profit on accrued profit and late payment charges (where applicable) for a restructured facility as there is an element of oppression towards customers who have to bear higher costs. In addition, the compounding profit does not justify or commensurate with any additional risk and liability in accordance to Shariah requirement. Part V: Implication of the SAC Ruling  The SAC rulings aim to ensure an efficient, seamless and flexible restructuring process to cater for the different needs and circumstances of vulnerable groups such as lower-income individuals and small businesses in the current situation.  The ruling regarding compounding of profit is not applied retrospectively considering that previous restructuring practices may have imputed such application of compounding profit. This is based on the consideration of maslahah and worsening of difficulties (raf` al-haraj), particularly in the current outbreak of COVID-19 and the impact of MCO. 4 Surah al-Ma’idah, verse 2.

Public Notice

05 Aug 2020

Call for Papers : 7th Malaysia Statistics Conference (MyStats 2020) "Census Shapes Nation's Future"

https://www.bnm.gov.my/-/call-for-paper-7th-mystats2020

Reading: Call for Papers : 7th Malaysia Statistics Conference (MyStats 2020) "Census Shapes Nation's Future" Share: Call for Papers : 7th Malaysia Statistics Conference (MyStats 2020) "Census Shapes Nation's Future" Release Date: 05 Aug 2020 Call for Papers Updated Venue: Putra World Trade Center, Kuala Lumpur, MALAYSIA Date: 21 October 2020 (Wednesday) Department of Statistics, Malaysia (DOSM), Malaysia Institute of Statistics (ISM), and Bank Negara Malaysia (BNM), will jointly organise the 7th Malaysia Statistics Conference (MyStats 2020) on 21 October 2020 at Putra World Trade Center Kuala Lumpur with the theme “Census Shapes Nation’s Future”. The Programme Committee is now inviting you to contribute papers for the conference. We encourage compilers, statisticians, data scientists, researchers, regulators, academia, and practitioners to share their thoughts and experiences in analysing census data on demographic and population profiling, economy, security, education and health, and to present the findings from their researches/studies at the conference. The sub-themes which must be aligned with the main theme are as follows: Modernisation in statistics Integrated statistics for strengthening statistical system Financial and economic statistics  For the first time, MyStats introduces "The Best Young Statistician Presenter" to encourage young statistician to contribute papers for the conference. The "Young Statistician" must fulfil the following criteria: Malaysian; Below 35 years old on 1 January 2020; and First author. To contribute a paper for the conference, please submit an abstract of the paper to [email protected] by 11 August 2020 for consideration. For further information on the submission requirements (guidelines and templates), please visit DOSM's MyStats 2020 page. Authors of accepted abstracts will be notified by the Programme Committee on 18 August 2020. Participation in the conference is FREE. If you require any further information/assistance, please feel free to contact via email to [email protected], or by phone 03-8885 7331 (Mr. Mohd Saiful Husain) or 03 8885 7167 (Ms. Diyana Amalina Fadzil). We would also appreciate it if you could share this information with your colleagues and other potential contributors. We look forward to meeting you at the conference. On behalf of the Organisers:    © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

05 Aug 2020

Genneva Malaysia Sdn Bhd including Eight Individuals and Two Other Companies Found Guilty to Illegal Deposit Taking and Money Laundering Charges

https://www.bnm.gov.my/-/genneva-malaysia-sdn-bhd-including-eight-individuals-and-two-other-companies-found-guilty-to-illegal-deposit-taking-and-money-laundering-charges-1

Reading: Genneva Malaysia Sdn Bhd including Eight Individuals and Two Other Companies Found Guilty to Illegal Deposit Taking and Money Laundering Charges Share: 59 Genneva Malaysia Sdn Bhd including Eight Individuals and Two Other Companies Found Guilty to Illegal Deposit Taking and Money Laundering Charges Release Date: 05 Aug 2020 On 4 August 2020, Genneva Malaysia Sdn Bhd (GMSB) with its ex-directors, general manager, other related individuals including the company business advisor and two other related companies that were charged under section 25(1) of the Banking and Financial Institution Act 1989 (BAFIA) and/or section 4(1) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA), were found guilty to the charges for accepting money from depositors without a valid license under section 25(1) of the BAFIA and for involvement in money laundering activities at the Kuala Lumpur High Court. The High Court’s Judge meted the following sentences: A) Charges under section 25(1) BAFIA and section 4(1) AMLA: GMSB – RM 450 million fine Tan Liang Keat – Nine (9) years of jail and fine of RM 230 million Lim Kah Heng – Nine (9) years of jail and fine of RM 48 million Philip Lim Jit Meng – Nine (9) years of jail and fine of RM 272 million Ng Poh Weng – Four (4) years of jail and fine of RM 159 million  B) Charges under section 25(1) BAFIA Only: Ahmad Khairuddin IIias – Six (6) years of jail and fine of RM 4 million  C) Charges under section 4(1) AMLA Only: Marcus Yee Yuen Seng – Three (3) years of jail and fine of RM 17 million Chiew Soo Ling – Three (3) years of jail and fine of RM 48 million Yao Kee Boon – Three (3) years of jail and fine of RM 2 million Success Attitude Sdn Bhd – Fine of RM 8 million Ng Advantage Sdn Bhd – Fine of RM 101 million The High Court ordered that default in paying each BAFIA and AMLA fine will result in two (2) years imprisonment. As for imprisonments, BAFIA and AMLA imprisonment will run consecutively. Members of the public are reminded not to place any monies or deposits with unlicensed institutions or be involved in any form of get-rich-quick schemes to avoid losing their hard-earned money. A list of institutions licensed under the laws administered by Bank Negara Malaysia to accept deposits is available on its website at www.bnm.gov.my. Members of the public can also access information relating to illegal financial schemes and enforcement actions taken by Bank Negara Malaysia at the Financial Fraud Alert Site (http://fraudalert.bnm.gov.my). For further enquiries, members of the public may contact Bank Negara Malaysia at the following: Telephone: 1-300-88-5465 (BNMTELELINK) E-mail: [email protected] © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

16 Jun 2020

BNMLINK Services Remain Available

https://www.bnm.gov.my/-/bnmlink-services-remain-available

https://www.bnm.gov.my/documents/20124/51340/CCRIS+Request+Application+and+eCCRIS+Registration+Form.pdf

Reading: BNMLINK Services Remain Available Share: 59 BNMLINK Services Remain Available Release Date: 16 Jun 2020 Starting from July 2023, BNMTELELINK is now known as BNMLINK. The public may continue to contact BNMLINK via web form at bnmlink.bnm.gov.my or call 1-300-88-5465 for general enquiries or complaints. BNM wishes to inform that BNMLINK, our platform for engaging with the general public and small businesses continues to be available. General enquiries Members of the public are encouraged to reach us by submitting queries or complaints via eLINK (Web Form) at https://telelink.bnm.gov.my/ The public may also contact BNMLINK at 1-300-88-5465 from Monday to Friday (9.00 a.m. to 5.00 p.m.). Walk-in customer service centres will receive visitors by appointment only. The public may request for an appointment through eLINK or BNMTELELINK. CCRIS Reports The public can obtain a credit report through the Central Credit Reference Information System (CCRIS) or from any Credit Reporting Agencies. For CCRIS For registered eCCRIS users, you can check your CCRIS report online here For first-time users, please follow these steps to register. You should: Download the CCRIS/eCCRIS application form here Complete the application form with the required details Prepare supporting documents required as per the checklist on page 1 and page 2 of the application form Submit the application form with supporting documents at eLINK If you do not wish to register as an eCCRIS user but still want to obtain your CCRIS report, you should: Download the CCRIS/eCCRIS application form here Complete the application form with the required details Prepare supporting documents required as per the checklist on page 1 and page 2 of the application form Submit the application form with supporting documents at eLINK For credit reports from other Credit Reporting Agencies, you can find out more information on how to obtain from the links below: Credit Bureau Malaysia Sdn Bhd at https://creditbureau.com.my CTOS Data Systems Sdn Bhd at https://ctoscredit.com.my Experian Information Services (Malaysia) Sdn Bhd at https://www.mycreditinfo.com.my Exchange of mutilated currency Members of the public can exchange their damaged currency notes at any bank. Members of the public who require further assistance can contact BNM Offices as follows: BNM Office Pulau Pinang +604-258 7588 BNM Office Johor Bahru +607-225 7888 BNM Office Kuching +6082-224-200 BNM Office Kota Kinabalu  +6088-522-310 Operating hours: Monday – Friday, 9.00 a.m. - 5.00 p.m. BNM Office Kuala Terengganu +609-638-2001 Operating hours: Sunday – Thursday, 9.00 a.m. - 5.00 p.m. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

09 Jun 2020

RINGGIT Newsletter (Bil 2/2020 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil-2/2020-issue-is-now-available-for-download-1

https://www.bnm.gov.my/documents/20124/947994/Ringgit+Ed112+2020-02+F.pdf

Reading: RINGGIT Newsletter (Bil 2/2020 issue) is now available for download Share: RINGGIT Newsletter (Bil 2/2020 issue) is now available for download Release Date: 09 Jun 2020 The highlight for this issuance is Prihatin - Pakej Rangsangan Ekonomi Prihatin Rakyat Other topics of interest include : Penangguhan Pembayaran Balik Pinjaman Penangguhan Bayaran Premium/Sumbangan untuk Insurans Hayat/Takaful Keluarga Akaun Keldai Taktik Terkini Akaun Keldai : Jangan Tertipu Perkhidmatan Kesihatan dan Perubatan Hospital Swasta RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil 2/2020 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

. R A K A N K E W A N G A N A N D A B I L . 2/2020 Akaun KeldaiPenangguhan Bayaran Premium/Sumbangan untuk Insurans Hayat/ Takaful Keluarga PERCUMA | PP 16897/05/2013 (032581) Penangguhan Pembayaran Balik Pinjaman Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Pakej Rangsangan Ekonomi Prihatin Rakyat Pada 27 Mac 2020, YAB Tan Sri Muhyiddin Yassin, Perdana Menteri Malaysia, telah mengumumkan Pakej Rangsangan Ekonomi Prihatin Rakyat bernilai RM250 bilion yang akan memberi manfaat kepada keseluruhan rakyat Malaysia. Pakej ini disusuli pula dengan Langkah Tambahan Bagi Pakej Rangsangan Ekonomi Prihatin Rakyat atau “Prihatin Tambahan” sebanyak RM10 bilion untuk membantu meringankan beban kewangan Perusahaan Kecil dan Sederhana (PKS). Pakej rangsangan oleh pihak kerajaan ini amat dialu-alukan untuk membantu rakyat menangani kekangan kewangan akibat wabak COVID-19. Walaupun ramai pengguna terjejas dan tidak dapat menjalankan urusan kerja untuk menjana pendapatan, namun langkah yang diambil oleh pihak kerajaan dapat membantu mereka meneruskan kehidupan seharian. Di samping itu, pakej rangsangan ini juga dapat menggerakkan ekonomi rakyat yang terjejas berikutan penguncupan aktiviti ekonomi berikutan wabak COVID-19 ini. Pakej Rangsangan Ekonomi Prihatin Rakyat “Walaupun pengguna tidak dapat menjalankan urusan kerja untuk menjana pendapatan, namun langkah yang diambil oleh pihak kerajaan dapat membantu mereka menjalani kehidupan seharian. “ Antara manfaat yang diterima oleh rakyat adalah seperti berikut: Bantuan PRIHATIN NASIONAL RM1,600 kepada isi rumah yang berpendapatan bulanan kurang daripada RM4,000. RM1,000 kepada isi rumah yang berpendapatan bulanan RM4,001 hingga RM8,000. RM800 kepada individu bujang berusia 21 tahun ke atas dan berpendapatan bulanan RM2,000 dan ke bawah. RM500 kepada individu bujang berusia 21 tahun ke atas dan berpendapatan bulanan lebih RM2,000 hingga RM4,000. Baki pemberian tunai di bawah program Bantuan Sara Hidup (BSH) dibayar pada bulan Julai 2020 RM200 bayaran one-off kepada pelajar institusi pengajian tinggi. Bantuan RM500 secara one-off kepada penjawat awam termasuk yang berstatus kontrak, pesara kerajaan dan pemandu e-hailing. 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Maizatul Aqira Ishak Baskaran Sithamparam Nur Asyikin Aminuddin Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : [email protected] Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : [email protected] Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. “Walaupun pengguna tidak dapat menjalankan urusan kerja untuk menjana pendapatan, namun langkah yang diambil oleh pihak kerajaan dapat membantu mereka menjalani kehidupan seharian. “ RM25 juta bantuan makanan, penjagaan kesihatan dan tempat perlindungan untuk rumah perlindungan, pusat bantuan dan gelandangan melalui kerjasama NGO dan usahawan sosial. Pengeluaran pra-persaraan daripada akaun B Skim Persaraan Swasta sehingga jumlah RM1,500 bagi setiap ahli tanpa sebarang penalti cukai dalam tempoh April hingga Disember 2020. Pengecualian pembayaran sewa selama 6 bulan bagi Projek Perumahan Rakyat dan Perumahan Awam, unit-unit sewa untuk milik (RTO) dan premis milik Kerajaan Persekutuan seperti kantin sekolah, taska, kafeteria, kedai serbaneka dan lain-lain. Diskaun bil elektrik berperingkat antara 15% hingga 50% selama 6 bulan mulai 1 April 2020. bil. 2/2020 | 3 Pengguna haruslah menggunakan wang yang diterima dengan bijak. Mereka perlu berhemat dalam berbelanja dan dapat membezakan antara keperluan dengan kehendak. Pengguna juga dinasihatkan berbelanja dengan bijak. Perubahan corak perbelanjaan dapat membantu mengharungi kehidupan anda sekeluarga dalam menghadapi cabaran kewangan. Jangan risau dan rancanglah kewangan anda sekeluarga. Sumber: www.pmo.gov.my “Dalam tempoh Perintah Kawalan Pergerakkan (PKP), punca pendapatan orang ramai kebanyakannya terjejas. Bantuan Prihatin yang diberikan oleh kerajaan haruslah dihargai. Anda perlu menggunakan bantuan ini dalam menjalani kehidupan sepanjang tempoh PKP ini. Pengguna haruslah bijak dalam merancang perbelanjaan mereka. Keutamaan diberikan kepada perbelanjaan untuk barangan keperluan seharian. Di samping itu, mereka harus menyimpan wang mereka untuk hal-hal kecemasan. Keinginan dan kehendak harus diketepikan buat sementara waktu. Dalam erti kata lain, pengguna harus menguruskan kewangan mereka dengan bijak untuk mengharungi kehidupan dalam keadaan yang selamat.” – Dato’ Dr. Paul Selva Raj, KETUA PEGAWAI EKSEKUTIF FOMCA Pastikan kesinambungan hidup – gunakan simpanan kecemasan, manfaatkan kemudahan penangguhan pembayaran balik pinjaman/ pembiayaan. Hubungi Agensi Kaunseling dan Pengurusan Kredit (AKPK), bank atau syarikat insurans/ pengendali takaful anda untuk dapatkan nasihat dan bantuan segera, sebelum masalah kewangan menjadi tidak terbendung. kepada semua pelanggan telekomunikasi bermula 1 April 2020 sehingga tempoh pelaksanaan Perintah Kawalan Pergerakan (PKP) tamat. Dana khas RM100,000 - RM200,000 untuk setiap Pertubuhan Peladang Kawasan (PPK) dan Pertubuhan Nelayan Kawasan (PNK). Subsidi upah sebanyak RM600 sebulan selama 3 bulan untuk pekerja berpendapatan RM4,000 ke bawah (tiada pemberhentian tenaga kerja). Penangguhan pembayaran balik pinjaman selama 6 bulan, penukaran baki kad kredit kepada pinjaman berjangka dan penstrukturan semula pinjaman korporat. Penangguhan mulai 1 April 2020 ini termasuklah pinjaman yang diberikan melalui TEKUN, MARA dan koperasi serta agensi kerajaan yang memberikan pinjaman kepada PKS. Penangguhan pembayaran premium atau sumbangan ditawarkan oleh syarikat insurans dan pengendali takaful keluarga untuk tiga bulan bagi pencarum yang sumber pendapatan mereka terjejas akibat wabak COVID-19. Internet percuma Utamakan perbelanjaan untuk memenuhi keperluan terlebih dahulu. Ubah gaya hidup, jika perlu. Kaji semula matlamat kewangan anda, termasuklah strategi pelaburan, rancangan percutian mahupun hasrat untuk membeli kereta baru. Sebolehnya, elakkan kompromi perlindungan insurans/takaful anda sekeluarga. Manfaatkan penangguhan pembayaran premium insurans. 4 | RINGGIT Penangguhan Pembayaran Balik Pinjaman “Penangguhan pembayaran balik pinjaman ini memberi kesan yang positif kepada para pengguna. Ianya membolehkan mereka merancang dengan wang yang mereka ada ....” Apakah maksud penangguhan pembayaran balik pinjaman? Merupakan penangguhan atau penggantungan sementara obligasi pembayaran balik pinjaman, termasuklah pembiayaan oleh bank- bank Islam selama enam bulan (pokok dan faedah/keuntungan) untuk membantu aliran tunai individu dan Perusahaan Kecil dan Sederhana (PKS) yang berkemungkinan terjejas akibat COVID-19. Kriteria kelayakan penangguhan pembayaran balik pinjaman Jenis pinjaman yang ditawarkan penangguhan pembayaran balik pinjaman Pinjaman perumahan Pinjaman kenderaan Pinjaman peribadi Pinjaman perniagaan Penangguhan ini tidak diberikan kepada kemudahan kad kredit. Pinjaman TIDAK TERTUNGGAK melebihi 90 hari pada 1 April 2020 Pinjaman dalam denominasi Ringgit Malaysia bil. 2/2020 | 5 Apakah yang perlu peminjam lakukan selepas tempoh 6 bulan tersebut? Perkara Yang Perlu Diketahui Jika TIdAK MAHU PENANGGUHAN, peminjam perlu maklumkan kepada bank dan bayar balik pinjaman seperti biasa. Pinjaman yang tertunggak lebih daripada 90 HARI TIDAK LAYAK mendapat penangguhan ini. Tempoh penangguhan: 1 APRIl 2020 SEHINGGA 30 SEPTEMBER 2020. TIAdA fAEdAH ATAU CAJ lEwAT BAyAR ke atas pembayaran lewat. TIAdA CAJ fAEdAH TAMBAHAN jika mengambil penangguhan pembayaran balik pinjaman sewa beli (konvensional dan Syariah), jumlah ansuran bulanan yang dibayar oleh peminjam akan kekal sama sepanjang tempoh keseluruhan pinjaman. Peminjam TIDAK AKAN dimasukkan di bawah CCRIS bagi penangguhan pembayaran balik pinjaman. SElEPAS TEMPoH 6 BUlAN INI, pinjaman perlu dibayar semula. membolehkan mereka merancang wang yang mereka ada untuk membeli barangan keperluan dan menyimpan untuk tujuan kecemasan. Namun demikian, para pengguna juga dinasihatkan supaya jangan berbelanja dengan sewenang-wenangnya kerana pada hakikatnya mereka perlu membayar balik pinjaman tersebut selepas enam bulan. Sebagai pengguna, anda perlu ingat penangguhan yang diberikan adalah untuk meringankan beban pengguna yang mungkin terjejas sumber pendapatan akibat wabak yang melanda sekarang ini. Oleh itu, bantuan yang diberikan tidak harus dipandang enteng dan dijadikan alasan untuk tidak berhati-hati dalam perbelanjaan. Dalam situasi sebegini, pengguna perlu berhemat dalam perbelanjaan dan meningkatkan simpanan atau tabungan untuk mengharungi cabaran kewangan mendatang. Jadilah pengguna yang bijak. Sumber: www.bnm.gov.my Teruskan pembayaran balik pinjaman mengikut jumlah dan tempoh yang baharu. Bank akan memberitahu peminjam berkaitan maklumat pembayaran balik pinjaman. Jika perlu, peminjam boleh memohon untuk membayar balik pada jumlah yang lebih rendah dan tempoh yang lebih panjang. *Pemegang kad kredit yang menghadapi kekangan kewangan boleh memilih untuk menukar baki kad kredit kepada pinjaman ber jangka. F leks ib i l i t i penangguhan pembayaran balik kad kredit ini boleh dimanfaatkan oleh pemegang kad dari 1 April 2020 sehingga 31 Disember 2020. *Baki kad kredit boleh ditukar kepada pinjaman bertempoh tidak melebihi 3 tahun pada kadar faedah tidak melebihi 13% setahun. Penangguhan pembayaran balik pinjaman ini memberi kesan yang positif kepada para pengguna. Ianya 6 | RINGGIT Penangguhan Bayaran Premium/ Sumbangan untuk Insurans Hayat/Takaful Keluarga wabak COVID-19 yang melanda dunia awal tahun ini memberikan kesan besar kepada kesihatan rakyat dan ekonomi negara. Isi rumah di Malaysia juga tidak terkecuali daripada terkesan dengan wabak ini. Institut Penyelidikan Ekonomi Malaysia menganggarkan Perintah Kawalan Pergerakan (PKP) akan menjejaskan 2.4 juta pekerjaan atau 15.7 peratus jumlah pekerjaan di Malaysia. Manakala, dapatan kajian khas kesan COVID-19 terhadap individu dan ekonomi oleh Jabatan Perangkaan Malaysia pula mendapati hampir separuh atau sebanyak 46.6 peratus responden yang bekerja sendiri mengakui kehilangan sumber pendapatan kesan daripada wabak ini. Kaji selidik itu disertai seramai 168,182 responden yang berumur 15 tahun ke atas secara dalam talian bermula 23 hingga 31 Mac 2020. Pengendali insurans hayat dan takaful menawarkan kelonggaran Perubahan corak perbelanjaan dapat membantu mengharungi cabaran kewangan di saat-saat sebegini. Bagi meringankan beban kewangan isi rumah di Malaysia, 25 syarikat insurans hayat dan pengendali takaful keluarga telah memberikan kelonggaran kepada pemegang polisi/sijil yang terjejas akibat penularan COVID-19 untuk menangguhkan bayaran premium/sumbangan serta fleksibiliti yang berkaitan. Langkah bantuan ini telah diumumkan oleh Persatuan Insurans Hayat Malaysia (LIAM) dan Persatuan Takaful Malaysia (MTA) pada 27 Mac 2020. Walau bagaimanapun, elakkan daripada membatalkan perlindungan insurans/takaful anda sekeluarga yang sudah sedia ada. Kelayakan untuk penangguhan bayaran premium/sumbangan • Pemegang polisi/pemegang sijil yang terjejas* secara langsung akibat COVID-19 akan diberikan penangguhan bayaran premium/sumbangan selama tiga bulan (90 hari); dan • Hanya untuk premium/sumbangan yang perlu dibayar antara 18 Mac 2020 sehingga 31 disember 2020. *Merujuk kepada individu yang telah dijangkiti, dikenakan kuarantin mandatori di rumah atau mengalami kehilangan pendapatan; dan pemilik Perusahaan Kecil dan Sederhana (PKS) yang mengalami kehilangan pendapatan perniagaan, akibat daripada kesan ekonomi yang terhasil akibat wabak COVID-19. Permohonan penangguhan pembayaran Pemegang polisi/sijil yang terjejas boleh membuat permohonan penangguhan daripada syarikat insurans hayat atau pengendali takaful keluarga bermula 1 April 2020 hingga 31 Disember 2020. Tempoh penangguhan bayaran Penangguhan bayaran premium/sumbangan 90 hari akan diberikan dari tarikh akhir premium/sumbangan perlu dibayar setelah mendapat kelulusan dan ianya tertakluk kepada terma dan syarat-syarat syarikat insurans atau pengendali takaful. Pemegang polisi perlu membayar balik semua premium/sumbangan yang ditangguhkan selepas tamat tempoh penangguhan bayaran 3 bulan premium/sumbangan. Fleksibiliti lain untuk mengekalkan atau menghidupkan semula perlindungan Selain itu, syarikat insurans hayat dan pengendali takaful keluarga juga menyediakan bantuan berikut kepada pemegang polisi/sijil yang terjejas sehingga 31 Disember 2020: • Melanjutkan tempoh yang membolehkan pemegang polisi/ sijil menghidupkan semula polisi/sijil yang telah luput; • Memberikan pilihan supaya pemegang polisi/sijil boleh terus membuat bayaran premium/sumbangan dan mengekalkan polisi/sijil mereka. Pilihan ini boleh merangkumi perubahan pada jumlah perlindungan, perubahan pada struktur premium/sumbangan dan pertukaran kepada polisi berbayar (paid up policy); • Memberikan pengecualian fi dan caj yang dikenakan untuk mengubah polisi/sijil; dan • Memberikan pengecualian apa-apa penalti/akibat daripada kelewatan pembayaran premium/sumbangan, terutamanya jika pemegang polisi/sijil tidak dapat mengakses saluran pembayaran elektronik semasa PKP. Hubungi syarikat insurans dan pengendali takaful anda Anda dinasihatkan untuk menghubungi syarikat insurans hayat dan pengendali takaful keluarga untuk memahami maklumat yang lebih lanjut berkaitan: • Manfaat dan terma serta syarat polisi insurans hayat dan sijil takaful keluarga anda; • Nasihat berhubung dengan pilihan bayaran balik premium/ sumbangan yang ditangguhkan; dan • Kelonggaran/bantuan lain yang ditawarkan oleh syarikat insurans hayat dan pengendali takaful keluarga dan impak ke atas perlindungan insurans dan takaful anda. Sumber: www.liam.org.my dan www.bnm.gov.my bil. 2/2020 | 7 Akaun Keldai Seorang gadis mendakwa menjadi mangsa ‘akaun keldai’ yang membabitkan transaksi wang lebih RM100,000. “Aqila (bukan nama sebenar), 21, mencari iklan kerja melalui Facebook dan tertarik dengan satu iklan jawatan kosong. Beliau menghubungi nombor telefon yang tertera dalam iklan itu dan diterima bekerja. Beliau diminta untuk memberikan semua butiran peribadi termasuk nombor akaun bank dan dimaklumkan bahawa gajinya dikira sebanyak RM50 setiap kali membuat pemindahan wang secara online. Ratusan transaksi masuk ke akaunnya dalam pelbagai jumlah (RM10,000, RM7,000, RM16,000 dan RM22,879), sehinggalah namanya tular di media sosial kerana menipu sebagai penjual topeng muka. Beliau akhirnya tersedar segala butiran peribadinya digunakan untuk tujuan penipuan oleh pihak yang tidak bertanggungjawab.” Kisah Aqila ini boleh dijadikan sebagai pengajaran kepada pengguna supaya sentiasa berhati-hati dan tidak mudah tertipu. Apa itu Akaun Keldai Akaun bank yang digunakan oleh orang lain tanpa disedari ataupun secara sukarela oleh pemilik akaun tersebut bagi mendapatkan habuan mahupun dengan cara penipuan untuk transaksi kewangan yang tidak sah atau menyalahi undang-undang. Kumpulan sasaran Sindiket biasanya mendapatkan akaun keldai (juga dikenali sebagai akaun tumpang) ini dengan memperdaya golongan yang memerlukan pendapatan lebihan serta mempunyai tahap celik kewangan yang rendah. Antara golongan yang sering menjadi mangsa termasuklah: • Suri rumah • Penganggur • Pelajar • Warga emas Bagaimanakah orang terpedaya? • Tawaran upah lumayan mencecah ribuan ringgit untuk membuka atau menyerahkan akaun bank bagi kegunaan pihak ketiga. • Modus operandi yang menggunakan tawaran peluang pekerjaan sebagai cara bagi mendapatkan akses kepada akaun bank mangsa. Mangsa dikehendaki menyerahkan butiran akaun bank termasuklah nombor PIN kad ATM sebagai syarat diterima bekerja dengan pihak sindiket akaun keldai. “ ....amatlah penting untuk orang ramai mengelakkan diri daripada membiarkan pihak sindiket menggunakan akaun bank mereka sebagai akaun keldai.” 8 | RINGGIT • Terdapat juga syarikat peminjam wang tidak berlesen yang memperdaya peminjam untuk menyerahkan akaun bank mereka sebagai cagaran pinjaman tersebut. Namun pada hakikatnya, pihak sindiket menggunakan akaun bank sebagai akaun keldai. Tanggungjawab sebagai pemegang akaun bank Setiap pemegang akaun bank bertanggungjawab sepenuhnya ke atas apa jua transaksi dan maklumat perbankan peribadi mereka. Pemegang akaun tidak sepatutnya mendedahkan atau berkongsi apa jua maklumat perbankan peribadi dengan orang lain. Juga, pemegang akaun tidak seharusnya memberi maklumat perbankan peribadi mereka sewenang-wenangnya untuk apa-apa tujuan sekalipun, walaupun untuk tujuan permohonan pekerjaan mahupun pinjaman dengan mana-mana pihak. Selidik terlebih dahulu latar belakang dengan siapa kita berinteraksi. Cara-cara mengelakkan salah guna akaun bank • Jangan serah kad debit/ATM kepada pihak ketiga. • Jangan dedah maklumat perbankan peribadi, nombor akaun, nombor PIN atau kata laluan kepada pihak ketiga. • Laporkan kehilangan kad ATM kepada pihak bank dan polis dengan segera. • Sentiasa berwaspada terhadap mana-mana individu yang tidak dikenali dalam membuat pemindahan wang, kerana ianya boleh didakwa bersubahat melakukan jenayah kewangan bersama suspek. • Laporkan segera kepada pihak polis atau bank sekiranya mendapati wang di dalam akaun bukan milik anda. 1 2 3 3 Tips elak jadi mangsa akaun keldai Lindung: Lindungi kad ATM dan maklumat perbankan peribadi anda dengan tidak berkongsi maklumat tersebut dengan mana-mana pihak. Lapor: Laporkan kepada pihak bank atau polis sekiranya mendapati kehilangan kad ATM atau penyalahgunaan akaun bank anda. Lepas: Lepaskan diri anda dari bersekongkol dengan pihak yang mengkehendaki anda melakukan aktiviti yang mencurigakan seperti membuat pindahan wang kepada orang yang tidak dikenali. Implikasi terhadap pemegang akaun keldai Sekiranya seseorang terjebak menjadi pemegang akaun keldai, individu tersebut boleh disekat daripada menggunakan akaun bank tersebut dan akaun berkenaan boleh ditutup oleh pihak bank. Individu tersebut akan mengalamai kesukaran berurusan dengan bank di masa hadapan. Malah, pemegang akaun keldai boleh disabitkan dengan kesalahan jenayah sekira terbukti dengan sengaja menjadikan diri alat untuk melakukan transaksi menyokong aktiviti yang menyalahi undang-undang. Antara implikasi lain termasuklah: • Kesukaran untuk menerima pendapatan seperti gaji bulanan melalui akaun bank. • Kemungkinan kehilangan pekerjaan yang sedia ada atau sukar mendapat peluang pekerjaan lain. • Kesukaran untuk menjalankan perniagaan memandangkan reputasi telah tercemar. Justeru itu, amatlah penting untuk orang ramai mengelakkan diri daripada membiarkan pihak sindiket menggunakan akaun bank mereka sebagai akaun keldai. Pesanlah kepada rakan taulan dan sanak saudara supaya kita tidak terjebak dengan akaun keldai ini sama sekali. Sekiranya ada sebarang pertanyaan, sila hubungi Bank Negara Malaysia melalui: Telefon: 1-300-88-5465 (BNMTElElINK) Webform: https://telelink.bnm.gov.my/ Sumber: www.bnm.gov.my bil. 2/2020 | 9 RM RM XXXXXX AQILA Pusat Khidmat Aduan Pengguna Nasional (NCCC) telah menerima sebanyak 594 aduan berhubung perkhidmatan kesihatan dan perubatan swasta sepanjang tahun 2018. Daripada jumlah ini, 198 aduan atau 3 3 % a d a l a h m e n g e n a i k u a l i t i p e r k h i d m a t a n yang t idak memuaskan. K e b a n y a k a n p e n g g u n a mengadu perkhidmatan yang diberikan tidak beretika dan tidak profesional khususnya dalam mendapatkan penjelasan pertanyaan atau tentang sesuatu perkara serta mengambil masa yang lama untuk mendapatkan maklum balas. Selain itu, terdapat juga banyak rungutan yang mendakwa rawatan yang diterima tidak sempurna, tersalah diagnosis dan juga pemberian ubat yang tidak sesuai. Ketiga-tiga jenis aduan ini merangkumi hampir 265 daripada jumlah aduan. Kebelakangan ini, banyak isu yang diketengahkan oleh para pengguna, yang tidak berpuas hati mengenai para pengamal perubatan dan ejen insurans seperti yang dilaporkan dalam akhbar- akhbar tempatan. Masing-masing ingin menegakkan pandangan mereka. Para pengguna menuding jari kepada pihak insurans yang meminta pemegang kad kesihatan membuat pembayaran dahulu dan Perkhidmatan Kesihatan dan Perubatan Hospital Swasta menuntutnya kemudian. Pemegang kad merungut mereka membayar premium setiap tahun, namun terpaksa membayar dahulu selepas mendapat rawatan. Persoalan yang dikemukakan oleh para pemegang kad adalah, bagaimana mereka hendak menyediakan sejumlah wang yang besar bagi kos perubatan yang tinggi sedangkan mereka sudah membayar premium setiap tahun? Pihak insurans pula mempersoalkan bayaran yang dikenakan oleh pihak hospital terlalu tinggi dan berbeza antara satu hospital swasta dengan yang lain. Ini menyebabkan syarikat insurans meminta para pemegang kad membayar dahulu dengan harapan kos yang akan dikenakan pihak hospital adalah lebih rendah berbanding dengan bayaran yang dikenakan kepada pihak insurans. Persatuan Insurans Am Malays ia (PIAM), Persatuan Insurans Hayat Malaysia (LIAM), semua hospital swasta di Malaysia, Kementerian Kesihatan Malaysia, Kementerian Kewangan serta Bank Negara Malaysia perlu meningkatkan kerjasama untuk mencari jalan penyelesaian dalam mengatasi masalah ini. Situasi sekarang ini bak kata pepatah, “Gajah sama gajah berjuang, pelanduk mati di tengah-tengah”. Itulah situasi sebenar pemegang kad kesihatan dan jangan jadikan pemegang kad kesihatan mangsa dalam hal ini. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) bil. 2/2020 | 11 Adv-(new) Iklan macau scam belakang OL (bleed).pdf 1 26/2/2020 5:46:50 PM

Public Notice

19 May 2020

Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 201 Meeting and 26th Special Meeting Statement

https://www.bnm.gov.my/-/ruling-of-the-shariah-advisory-council-sac-of-the-bank-negara-malaysia-at-its-201-meeting-and-26th-special-meeting-statement

https://www.bnm.gov.my/documents/20124/914558/03_SAC201_Statement_eMoney_en.pdf

Reading: Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 201 Meeting and 26th Special Meeting Statement Share: 15 Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 201 Meeting and 26th Special Meeting Statement Release Date: 19 May 2020 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 201st meeting and 26th special meeting on 29 January and 30 January 2020 has made a ruling that electronic money (e-money) is a permissible payment instrument under Shariah, provided that the e-money has to be structured based on appropriate Shariah contract(s) to preserve the rights and obligations of the contracting parties. One of the applicable Shariah contracts for e-money is the agency contract (wakalah), whereby the approved issuer acts as an agent to make payment on behalf of the user (wakil bi ad-daf`i) to the merchant. Therefore, the funds received from the user shall be placed in a Shariah compliant trust account or a dedicated deposit account as required pursuant to section 137 of the Islamic Financial Services Act 2013 (IFSA).  An approved issuer is required to comply with the Guideline on Electronic Money (the Guideline) issued by Bank Negara Malaysia (the Bank) dated 31 July 2008 (including revisions from time to time). This includes, amongst others, the requirement on utilisation of the funds for investment purpose and any return generated belongs to the approved issuer, subject to the condition set forth in the Guideline. In this regard, the funds may be construed as a form of loan (qard) from the user to the approved issuer. Since the approved issuer acts merely as an agent to facilitate payment on behalf of the user to the merchant, it is the user’s responsibility to ensure that the e-money is used for Shariah compliant transactions.  Please refer attachment for more information. © 2024 Bank Negara Malaysia. All rights reserved.

SAC 201st Meeting and 26th Special Meeting 2020     1   The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on E-Money as a Shariah Compliant Payment Instrument SAC’s 201st Meeting and 26th Special Meeting on 29 and 30 January 2020   Part I: SAC Ruling, Its Effective Date and Applicability Pursuant to section 52 of the Central Bank of Malaysia Act 2009, the SAC has made the following rulings: Electronic money (e-money) is a permissible payment instrument under Shariah, provided that the e-money has to be structured based on appropriate Shariah contract(s) to preserve the rights and obligations of the contracting parties. One of the applicable Shariah contracts for e-money is the agency contract (wakalah), whereby the approved issuer acts as an agent to make payment on behalf of the user (wakil bi ad-daf`i) to the merchant. Therefore, the funds received from the user shall be placed in a Shariah compliant trust account or a dedicated deposit account as required pursuant to section 137 of the Islamic Financial Services Act 2013 (IFSA). An approved issuer is required to comply with the Guideline on Electronic Money (the Guideline) issued by Bank Negara Malaysia (the Bank) dated 31 July 2008 (including revisions from time to time). This includes, amongst others, the requirement on utilisation of the funds for investment purpose and any return generated belongs to the approved issuer,1 subject to the condition set forth in the Guideline. In this regard, the funds may be construed as a form of loan (qard) from the user to the approved issuer. Since the approved issuer acts merely as an agent to facilitate payment on behalf of the user to the merchant, it is the user’s responsibility to ensure that the e-money is used for Shariah compliant transactions. This ruling comes into effect upon publication of this SAC ruling on the Bank’s website on 19 May 2020 and is applicable to the following: (a) approved issuers of Shariah compliant e-money under the IFSA; and (b) approved issuers of e-money under the Financial Services Act 2013 (FSA) approved under section 15(1)(e) of the FSA to issue Shariah compliant e-money (collectively known as “approved issuers”).   In line with sections 28(1) and (2) IFSA, for the purpose of issuing Shariah compliant e-money, the approved issuers are required to comply with this ruling as a compliance with any ruling of the SAC in respect of any particular aim and operation, business, affair or activity of such approved issuers shall be deemed to be a compliance with Shariah in so far as it relates to such business.                                                                1 Paragraph 10.2 of Guideline on Electronic Money. SAC 201st Meeting and 26th Special Meeting 2020     2   Part II: Background E-money is one of the payment instruments under FSA and IFSA. As a payment instrument, e-money allows a seamless and cashless transaction through prepaid card or electronic wallet (e-wallet) application. The prevalent use of this instrument and the broad acceptance by the retail community raises the question on the extent to which the operationalisation of e-money fulfils Shariah principles. Briefly, the existing e-money offerings operate as per the following structure: Illustration: Summary of Operationalisation Structure of E-Money 1. A registered user places funds into the e-money account. 2. The user conducts a transaction with the merchant. 3. The approved issuer makes settlement to the merchant on behalf of the user. 4. The approved issuer imposes fees to the merchant based on the contractual agreement between the approved issuer and the merchant. Shariah issue Based on the above structure, several issues were discussed by the SAC: 1. What are the appropriate Shariah contracts to govern the contractual relationship between the contracting parties? 2. How should the approved issuer manage the funds placed by the user? Are approved issuers allowed to utilise the funds? 3. Can the approved issuer reward the user? 4. What is the status of payment for transactions involving Shariah non-compliant products? The SAC’s discussion is premised on the distinctive mandate and objective of e-money as a payment instrument, as compared to the mandate of financial institutions as financial intermediaries offering a wide range of financial services. SAC 201st Meeting and 26th Special Meeting 2020     3   Part III: Key Discussion Issue 1: Underlying Shariah contracts between the contracting parties 1(a). Shariah contract between the user and the approved issuer  In ascertaining the applicable Shariah contracts for issue 1(a), the SAC has considered the following: o the role of approved issuer to intermediate payment between the user and the merchant; o the funds placed by the user is intended for payment purposes. The funds are kept in a trust account/dedicated deposit account and are managed by the approved issuer; and o under the Guideline, the approved issuer is only allowed to:  issue e-money as a payment instrument; and  invest the funds placed in the trust account/dedicated deposit account and thereby use the revenue generated from the investment.  Based on the above consideration, the SAC is of the view that wakalah appears to be one of the suitable Shariah contract that appropriately governs the rights and obligations of the contracting parties in an e-money transaction. The SAC ruled that the application of wakalah in the e-money transaction may be structured as follows: o the approved issuer offers agency services to make settlement on behalf of the user to the merchant; o the user places the fund in a registered e-money account with the approved issuer; and o the approved issuer establishes trust account/dedicated deposit account to store funds placed by the user, and shall be used for settlement to merchant or refund to the user. 1(b). Shariah contract between the approved issuer and the merchant  For the transaction between the approved issuer and the merchant in the current operating structure, the SAC ruled that the contract of services with fee (ijarah al-khadamat) or the contract of incentives (ju`alah) may be the appropriate fiqh adaptation (takyif fiqhi). Issue 2: Fund management by the approved issuer  For Shariah compliant e-money, the SAC ruled that the approved issuer must place the funds received from the user in a Shariah compliant trust account/dedicated deposit account.  Under the Guideline, the approved issuer is responsible to manage prudently the funds received from the user. The approved issuer is also allowed to invest the funds and subsequently utilises the return. This can be construed as a loan (qard) from the user to the approved issuer. Issue 3: Imminent presumption of qard jarra naf`an in the practice of reward offerings  The approved issuer may offer rewards for various reasons such as upon subscription to their service, topping up the balance or utilisation of e-money to make payments to merchants. Since the funds received from the user may be construed as qard from the user to the approved issuer, it raises the question on whether the practice of offering rewards contravenes Shariah principle that prohibits any benefits to accrue to the lender (qard jarra naf`an). SAC 201st Meeting and 26th Special Meeting 2020     4    The SAC ruled that there is no issue of qard jarra naf`an in the practice of rewards offered by the approved issuer based on the following considerations: o the qard contract is only a supplementary contract, which is different from the loan contract for deposit account offered by banking institutions; o no inter-conditionality between the funds placed by the user and rewards given by the approved issuer; o the rewards neither intended nor targeted to reward the amount placed by the user, but rather intended as a temporary marketing strategy to expand customer participation; o the Guideline expressly prohibits approved issuers from issuing e-money at a monetary value that is greater than the amount received;2 and   o the practice (`urf) in respect of utilisation of the funds by the approved issuers creates a differentiation from normal banking business, which renders the qard contract as a supplementary contract. Issue 4: Utilisation of e-money to transact with Shariah non-compliant merchants  The SAC deliberated this issue in the following context:   o e-money as a Shariah compliant payment instrument; or o approved issuer that wishes to be a Shariah compliant approved issuer.    For any transaction involving Shariah non-compliant merchants, the status of e-money as a Shariah compliant payment instrument is not affected, based on the following considerations: o similar to cash, e-money is neutral, except for a fact that the monetary value is stored electronically; and   o it is the user’s responsibility to ensure e-money is being utilised for Shariah compliant transactions.      Notwithstanding the above, any approved issuer that is approved under IFSA shall observe the following:   o no transaction with Shariah non-compliant merchants. However, the SAC ruled that in exceptional cases as determined by the qualified Shariah advisor of an approved issuer, such approved issuer shall observe the conditions specified by the qualified Shariah advisor; and o no product bundling or cross-selling involving Shariah non-compliant products.                                                              2 Paragraph 13.1 of Guideline on Electronic Money. SAC 201st Meeting and 26th Special Meeting 2020     5   Part IV: Basis of Ruling Permissibility to embrace technological advances as means  Technological advancement has paved the way for digital development to enable seamless and efficient way to do commercial transactions. In this regard, Majma` Fiqh al-Islami allows commercial transactions to be concluded through modern communication tools or devices3 given that technology, as a means of transaction, is neutral and is permissible to use. This is in line with the following fiqh legal maxim: “The original state (of thing) is permissible.”4 Permissibility for the combination of Shariah contracts  Collective use of several Shariah contracts in one single product5 is allowed provided that each contract is permissible by Shariah and there is no clear Shariah injunction on its prohibition.6 However, the collective use of contracts shall observe the following: i. No expressed prohibition on the collective use of the Shariah contracts such as restriction for the combination of sales and loan contracts (bai` wa salaf) and does not lead to riba (zari`ah ila riba) such as the combination of two exchange contracts (bai` `inah); and ii. No contradiction in the Shariah principle governing each contract, such as hibah to a recipient and subsequent sale to the same recipient.  The collective use of Shariah contracts is intended to fulfil the intention and the needs of the contracting parties as well as to properly reflect the actual operating mechanism of a particular product. The collective use of the Shariah contracts is deemed as an innominated contract in the classical text (`uqud ghair musamma)7 that promotes innovation in Islamic finance, consistent with the following fiqh legal maxim: “The original rule in muamalat is permissibility, unless there is an indication that prohibits it.”8                                                              3 Qarar Majma` Fiqh al-Islami, 6th Mu`tamar, 14 – 20 March 1990, Jeddah. 4 Al-Ansari, Asna al-Matalib fi Syarh Rawd al-Talib, Dar al-Kutub al-`Ilmiyyah, 2000, j. 2, pg. 2154. 5 This view is consistent with the decision of the SAC at its 140th Meeting on 28 October 2013 and 166th Meeting on 23 February 2016 that resolves on permissibility to combine several Shariah contracts in one master agreement. 6 Hasan Ali al-Syazili, Ijtima` al-`Uqud al-Mukhtalifah fi `Aqd Wahid, in A`maal al-Nadwah al-Fiqhiyyah al-Khamisah li Bait Tamwil al-Kuwaiti, Bait al-Tamwil al-Kuwaiti, 1998, pg. 506.  7 Mustafa al-Zarqa’, al-Madkhal al-Fiqhi al-`Am, Dar al-Qalam, Damascus, 2004, pg. 569-570 8 Ibnu Uthaimin, Al-Syarh al-Mumti` `ala Zad al-Mustaqni`, Dar Ibni al-Jauzi, j. 8, pg. 241. SAC 201st Meeting and 26th Special Meeting 2020     6    The intended outcome of a particular contract is subject to the fulfillment of the pre-agreed terms and conditions that are in accordance with Shariah principles as per the following legal maxim:   “The original rule of contract is mutual consent or agreement by both contracting parties and the consequence of a contract is based on (rights and responsibilities) agreed in the contract.”9 Part V: Implication of the SAC Ruling  The ruling serves as guidance for any approved issuer that intends to offer Shariah compliant e-money. Approved issuers are encouraged to educate their users on the essence of the Shariah compliant e-money product to avoid misunderstanding of the Shariah ruling.                                                              9 Ahmad al-Zarqa, Syarh al-Qawa`id al-Fiqhiyyah, Dar al-Qalam, 1989, pg. 482.

Public Notice

19 May 2020

Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 199th Meeting

https://www.bnm.gov.my/-/ruling-of-the-shariah-advisory-council-sac-of-the-bank-negara-malaysia-at-its-199th-meeting

https://www.bnm.gov.my/documents/20124/914558/02_SAC199_Draft+SAC+Statement_STP_en.pdf

Reading: Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 199th Meeting Share: Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 199th Meeting Release Date: 19 May 2020 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 199th meeting on 26 November 2019 has made a ruling that the proposal to execute tawarruq via Straight-Through Processing (STP) is permissible subject to the following conditions: The sale and purchase contracts in tawarruq must be executed in the correct sequence and the transaction must be supported by clear evidence; The transacted asset must be identifiable and specifically determined (mu`ayyan bi al-zat) in terms of location, quantity and quality to fulfil the characteristics of a genuine transaction; The execution of dual-agency shall observe the requirements as stipulated in the policy document on Tawarruq which include but are not limited to the following: the roles and responsibilities of the contracting parties, price determination, maturity date and asset specification shall be agreed upon by the contracting parties; and there must be clear segregation of roles and duties to be executed by the agent; Ownership of the transacted asset from Shariah and legal perspectives as well as risks associated with the ownership shall be established and evidenced by appropriate documentation or record; and The purchaser shall have the right to take delivery of the transacted asset during each sale and purchase contract in tawarruq. In respect of the execution of tawarruq via STP, the option to take delivery shall be clearly disclosed to the customer prior to the tawarruq execution or following the sale transaction of the asset to the customer. Please refer attachment for more information © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A B I L . 3/2020 Perkara yang perlu diketahui mengenai kedai pajak gadai Intipati Pelan Jana Semula Ekonomi Negara (PENJANA) PERCUMA | PP 16897/05/2013 (032581) Urus hutang secara aktif, berbincanglah dengan institusi perbankan anda Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Lanjutan Moratorium dan Bantuan Bank Bersasar Institusi perbankan telah memberikan penangguhan kepada pembayaran balik pinjaman / pembiayaan (moratorium) selama 6 bulan iaitu bermula 1 April 2020 sehingga 30 September 2020. Menurut laporan Unit Pelaksanaan dan Koordinasi Stimulus Ekonomi Antara Agensi Nasional (LAKSANA) di Kementerian Kewangan Malaysia yang memantau pelaksanaan Pakej Rangsangan Ekonomi Prihatin Rakyat (PRIHATIN), sehingga 14 Ogos 2020, jumlah moratorium bayaran balik pinjaman institusi kewangan yang dimanfaatkan oleh rakyat adalah RM48.3 bilion, manakala RM26.0 bilion lagi dimanfaatkan oleh sektor perniagaan. Ini menjadikan jumlah keseluruhan moratorium berada pada paras RM74.3 bilion. Sememangnya, skim moratorium ini memberi ruang kelegaan sementara terutamanya kepada golongan yang teruk terjejas dan kehilangan punca pendapatan akibat wabak COVID-19. Dengan pembukaan semula aktiviti ekonomi yang semakin meluas kini, situasi ekonomi rakyat juga dijangka akan pulih secara berperingkat dan peminjam bolehlah mula menunaikan komitmen pembayaran semula hutang. Bagi mereka yang masih terkesan, kerajaan telah mengumumkan lanjutan moratorium dan bantuan bank bersasar. Pelanjutan ini terpakai kepada individu yang hilang pekerjaan pada tahun 2020 dan masih belum mendapat pekerjaan yang baru, serta individu yang masih bekerja, tetapi gaji mereka terjejas atau berkurangan akibat COVID-19. Di samping itu, institusi kewangan juga telah memberikan komitmen untuk membantu Perusahaan Kecil dan Sederhana (PKS), baik peniaga, penjaja atau mereka yang bekerja sendiri yang turut terkesan akibat COVID-19. Bagi mereka yang berada dalam kategori di atas, dan menjangkakan cabaran untuk memenuhi komitmen hutang menjelang tamatnya moratorium pada September 2020, dapatkan bantuan awal dengan menghubungi bank anda. Panduan persediaan menyambung semula komitmen pembayaran balik pinjaman: 1) Jangan tunggu saat akhir Buat perancangan awal kewangan anda sebelum penangguhan Lanjutan Moratorium dan Bantuan Bank Bersasar pembayaran balik pinjaman berakhir, sebaiknya mula dari sekarang. Hubungi institusi perbankan pinjaman anda untuk berbincang mengenai pinjaman anda. 2) Kaji semula bajet bulanan • Menurut laporan yang dikeluarkan oleh Jaringan Pendidikan Kewangan, h a n y a 1 d a r i p a d a 1 0 ra k yat M a l ays i a mempercayai bahawa mereka tidak berdisiplin d a l a m m e n g u r u s kewangan mereka. • Pengurusan kewangan perlu dilakukan dengan l eb ih cermat , te l i t i dan mengambil kira kemungkinan yang berlaku seperti pemotongan elaun, gaji dan mungkin juga pemberhentian kerja. • Dahulukan perbelanjaan penting seperti pembayaran hutang, bil, sewa rumah dan lain-lain. • Tangguhkan perbelanjaan yang tidak penting seperti makan di luar dan hiburan. “Pengurusan kewangan perlu dilakukan dengan lebih cermat, teliti dan mengambil kira segala kemungkinan yang berlaku ... 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Maizatul Aqira Ishak Baskaran Sithamparam Nur Asyikin Aminuddin Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : [email protected] Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : [email protected] Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. 3) Jangan terjebak dengan skim penipuan kewangan Elakkan daripada menambah hutang sedia ada walaupun diberikan diskaun untuk pembelian dalam talian dan sebagainya. Kebiasaannya apabila pendapatan tidak mencukupi, terdapat sesetengah pengguna yang mengambil keputusan untuk membuat pinjaman daripada Ah Long dan ada juga terjerat dalam penipuan seperti mangsa keldai akaun. Berfikirlah secara rasional sebelum mengambil tindakan yang boleh menjerumuskan kita kepada masalah kewangan yang lebih kompleks. Sekiranya anda berasa tidak puas hati dengan keputusan selepas perbincangan dengan institusi kewangan, anda boleh merujuk perkara berkenaan di talian 1-300-88-5465 dan emel aduan anda kepada [email protected] atau melalui borang maklumat di pautan https://telelink.bnm.gov.my/ Selain itu, anda juga boleh rujuk AKPK di talian khidmat pelanggan 03-2616 7766 atau melalui laman web www.akpk.org.my serta pautan http://bit.ly/AKPKdmp2020 untuk mendapatkan khidmat kaunseling kewangan. Mereka akan memberi nasihat bagaimana anda boleh merancang pembayaran balik pinjaman dan juga cara untuk mengurus dan menyelesaikan semula hutang anda. Sumber: www.fomca.org.my / www.bnm.gov.my / www.akpk.org.my bil. 3/2020 | 3 Urus hutang secara aktif, berbincanglah dengan institusi perbankan anda “Bagi mendapatkan penyelesaian yang komprehensif untuk jangka masa panjang, penstrukturan semula mungkin merupakan jalan terbaik dan lebih efisien.” Pengurusan hutang secara aktif kerap dilakukan, sama ada secara sedar atau tidak. Anda mungkin pernah dengar seseorang itu mengambil satu hutang yang baru untuk membayar beberapa hutang lain yang lebih kecil. Langkah ini mungkin dapat mengurangkan bayaran bulanan, tetapi tempohnya mungkin akan menjadi lebih panjang. Ada juga yang beralih kepada hutang yang kadar faedahnya adalah lebih tinggi, seperti kad kredit, atau mungkin juga hutang ceti kepada hutang peribadi. Langkah sebegini, sekiranya diuruskan dengan betul dapat membantu pengguna untuk menguruskan aliran tunai secara efisien dan mampu memberikan lebihan wang kepada pengguna. Namun, kajian rambang oleh Jaringan Pendidikan Kewangan (dengan kerjasama Bernama) pada bulan Julai 2020 mendapati 76% rakyat Malaysia tidak menyedari yang peminjam individu mahupun perniagaan boleh mendapatkan khidmat nasihat profesional daripada institusi perbankan untuk mengatur semula hutang. Institusi perbankan merupakan pakar dalam menasihati pelanggan mereka untuk menguruskan hutang secara aktif bagi individu mahupun perniagaan. Secara umumnya, terdapat tiga cara untuk mengatur semula hutang anda iaitu: Kelonggaran (Flexibility) Kebenaran daripada pihak institusi perbankan untuk memberi keringanan dalam pembayaran balik pinjaman. Moratorium adalah contoh keringanan yang terpakai kepada semua peminjam. Penjadualan semula (Reschedule) Memanjangkan tempoh bayaran tanpa mengubah struktur pinjaman. Terdapat persetujuan antara anda dan institusi perbankan untuk menjadual semula pinjaman anda, hasil daripada perundingan antara kedua belah pihak. Kebiasaannya, masih dalam kerangka perjanjian pinjaman sedia ada. 4 | RINGGIT Penstrukturan semula (Restructure) Perubahan pada struktur pinjaman secara menyeluruh berdasarkan situasi kewangan spesifik peminjam. Melibatkan perubahan terhadap perjanjian pinjaman asal kepada perjanjian baru yang lebih selesa, mengikut keperluan peminjam secara lebih komprehensif. Contohnya, kemudahan overderaf ditukar kepada pinjaman bertempoh, jumlah dan tempoh pinjaman serta jumlah bayaran bulanan mungkin juga boleh dikurangkan berdasarkan kadar yang lebih rendah, produk yang kadar faedahnya rendah, mahupun tempoh yang lebih tinggi. Penstrukturan semula banyak membantu dalam pelan jangka panjang peminjam individu mahupun sesebuah perniagaan. Ianya membantu aliran tunai ketika masa sukar dan menyumbang kepada pengurusan kewangan harian secara lebih efisien. Bagi syarikat-syarikat besar pula, mereka mampu untuk mengambil penasihat kewangan bagi tujuan ini. Selagi hutang peminjam tidak bermasalah, proses pengurusan hutang sebegini tidak akan menjejaskan rekod kredit peminjam, malahan akan menjadikan rekod peminjam lebih kukuh untuk jangka panjang. Institusi perbankan juga menyedari ramai rakyat Malaysia yang terkesan akibat Perintah Kawalan Pergerakan (PKP), ada yang hilang pekerjaan, perniagaan terjejas mahupun punca pendapatan menjadi berkurangan. Hal ini sedikit sebanyak akan menjejaskan kemampuan untuk membayar balik pinjaman apabila tempoh pengecualian pembayaran pinjaman berakhir September ini. Bagi mendapatkan penyelesaian yang komprehensif untuk jangka masa panjang, penstrukturan semula mungkin merupakan jalan terbaik dan lebih efisien. Walau bagaimanapun, proses penstrukturan semula memakan masa yang lebih panjang kerana pihak bank perlu menilai kemampuan peminjam berdasarkan terma yang baru. Antara dokumen yang diperlukan untuk memohon termasuklah: • Penyata bank • Slip gaji • Akaun perniagaan • ‘Aging list’ iaitu unjuran mudah tunai lampau dan lain- lain. Penstrukturan semula juga mungkin melibatkan perjanjian pinjaman baru. Oleh itu, pengguna dinasihatkan agar menghubungi terus institusi perbankan dengan segera dan berbincang mengenai keperluan menstruktur semula pinjaman mereka. Elakkan daripada menggunakan perkhidmatan pihak ketiga dalam proses ini untuk mengelakkan anda daripada ditipu. Sebarang kelewatan mungkin menyebabkan peminjam berasa tertekan, memandangkan mereka perlu menyambung komitmen kewangan lama dalam senario punca pendapatan yang terjejas. Ini boleh mengganggu emosi, kerjaya, perkembangan perniagaan dan juga aliran tunai. Pengguna perlu mula merancang dari sekarang berkenaan pinjaman yang perlu dibayar sebelum pengecualian pembayaran balik pinjaman berakhir. Jangan hanya tunggu dan lihat. Sehubungan itu juga, FOMCA menyarankan agar pengguna menilai semula kedudukan kewangan anda. Sekiranya pengguna menjangkakan akan menghadapi masalah pembayaran balik pinjaman, pengguna perlu menghubungi institusi kewangan masing-masing secepat mungkin untuk berunding. Pengguna yang mempunyai pinjaman lebih dari satu bank, boleh juga menghubungi Agensi Kaunseling dan Pengurusan Kredit (AKPK) untuk mendapatkan nasihat secara percuma kerana agensi berkenaan akan memberikan kaunseling atau membantu menstruktur semula pinjaman, jika diperlukan. Sumber: www.bnm.gov.my “Sebarang kelewatan mungkin menyebabkan peminjam berasa tertekan, memandangkan mereka perlu menyambung komitmen kewangan lama dalam senario punca pendapatan yang terjejas.” bil. 3/2020 | 5 Intipati Pelan Jana Semula Ekonomi Negara Pada 5 Jun 2020, YAB Tan Sri Muhyiddin Yassin, Perdana Menteri Malaysia, telah memperkenalkan Pelan Jana Semula Ekonomi Negara yang dikenali sebagai PENJANA dan bertemakan ‘Bersama Menjana Ekonomi’ untuk meneruskan kesinambungan daripada pakej PRIHATIN sebelum ini. Pelan ini bertujuan adalah untuk memperkukuhkan ekonomi negara yang terjejas akibat wabak COVID-19 yang melanda sejak awal tahun 2020. Fasa pemulihan yang dilalui negara ketika ini adalah tempoh paling sesuai untuk rakyat bangun semula selepas melalui pelbagai kesan krisis wabak COVID-19. PENJANA memberi fokus terhadap tiga teras utama iaitu Memperkasa Rakyat, Melonjakkan Perniagaan dan Merangsang Ekonomi. Terdapat beberapa manfaat yang boleh dinikmati oleh rakyat Malaysia melalui inisiatif ini. i. Teras Pertama: Memperkasa Rakyat Kerajaan berusaha untuk mengambil langkah-langkah bagi melindungi pekerjaan dan meningkatkan kemahiran pekerja dalam mengatasi masalah pengangguran di Malaysia. Di samping itu, terdapat beberapa inisiatif diperkenalkan untuk membantu rakyat mengekal atau meningkatkan kemahiran mereka dalam memanfaatkan peluang semasa ekonomi sedang beransur pulih. a. Program Subsidi Upah Menggalakkan pengekalan pekerja dan mengurangkan kehilangan pekerjaan melalui penambahbaikan program subsidi upah sedia ada. Dilanjutkan selama 3 bulan bagi majikan yang layak dengan kadar RM600 sebulan untuk setiap pekerja sehingga maksima 200 pekerja bagi setiap syarikat. Kelonggaran kepada majikan yang membenarkan pekerja mengambil cuti tanpa gaji, dengan syarat pekerja tersebut menerima subsidi upah secara langsung (khas untuk sektor pelancongan dan sektor yang tersenarai dalam aktiviti yang dilarang sepanjang tempoh Perintah Kawalan Pergerakan Bersyarat (PKPB) seperti pekerja di pusat refleksologi, pusat hiburan dan taman tema yang melibatkan perhimpunan awam). b. Program Insentif Pengambilan Pekerja selama 6 bulan sehingga Disember 2020 Membantu syarikat dengan memberikan insentif kewangan untuk memberi pekerjaan kepada penganggur dan belia melalui insentif yang diperkenalkan: » Golongan belia: Program perantis bagi graduan dan lepasan sekolah dengan pemberian elaun latihan sebanyak RM600 sebulan selama 6 bulan. » Golongan penganggur: Menggaji golongan penganggur dengan elaun sebanyak RM800 sebulan selama 6 bulan (bawah umur 40 tahun), manakala RM1000 sebulan selama 6 bulan bagi penganggur berumur 40 tahun dan ke atas dan golongan Orang Kurang Upaya (OKU). c. Program Peningkatan Kemahiran (Upskilling) Meningkatkan kebolehpasaran golongan penganggur melalui program latihan untuk mendapatkan kemahiran dan meningkatkan kemahiran yang sedia ada. Bagi meningkatkan kemahiran untuk golongan pengganggur, kerajaan melaksanakan program seperti menggalakkan penganggur melanjutkan pelajaran terutamanya dalam kursus jangka pendek di universiti tempatan, memperkasakan latihan keusahawanan dan juga mewujudkan skim latihan wakil pemasaran sehingga RM800 seorang dengan mendaftar di Perbadanan Pembangunan Industri Sekuriti (SIDC). d. Program subsidi pengangkutan awam MY30 Meringankan beban kos pengangkutan awam yang perlu ditanggung oleh pengguna. Pengguna hanya perlu membayar RM30 sahaja sebulan selama 6 bulan untuk menikmati pas perjalanan tanpa had bagi penggunaan perkhidmatan awam seperti perkhidmatan rel (MRT, LRT, Monorel), BRT, bas RapidKL dan juga bas pengantara MRT di lembah Klang. Program ini terbuka kepada semua warganegara dan berkuatkuasa pertengahan bulan Jun sehingga Disember 2020. ii. Teras Kedua: Melonjakkan Perniagaan Kebanyakan sektor ekonomi ditutup selama hampir dua bulan berikutan dengan Perintah Kawalan Pergerakan (PKP) yang diarahkan oleh kerajaan. Perniagaan tidak dapat beroperasi sepenuhnya secara tidak langsung memberi impak kepada pendapatan dan sumber kewangan kebanyakan perniagaan, terutamanya Perusahaan Kecil dan Sederhana (PKS) dan juga perusahaan mikro. Oleh itu, beberapa inisiatif telah diperkenalkan 6 | RINGGIT di bawah inisiatif PENJANA bagi sektor perniagaan yang telah dibuka semula pada bulan Mei termasuklah: a. Kempen “Shop Malaysia Online” bagi Penggunaan Dalam Talian Menggalakkan rakyat berbelanja secara dalam talian, di mana kod promosi dan pelbagai baucar diskaun akan diberikan melalui platform e-dagang. b. Pusat Sehenti MyAssist SME Memberi bimbingan dan membantu proses pemulihan perniagaan bagi PKS dalam meningkatkan akses kepada SMEHub yang sedia ada. Perkhidmatan yang ditawarkan termasuklah bimbingan untuk: Kemudahan pembiayaan Kemudahan perdagangan Penjenamaan dan promosi Sokongan teknologi Perundangan c. Menawarkan Pembiayaan Mudah Bumiputera Memastikan kelangsungan usahawan Bumiputera melalui sokongan kewangan RM200 juta khas untuk perniagaan milik Bumiputera. d. Sokongan untuk Meringankan Beban Kewangan Perniagaan Meringankan tekanan kewangan terhadap perniagaan melalui penghapusan penalti yang berkaitan dengan pembayaran cukai lewat. Remisi penalti sebanyak 50% akan diberikan kepada syarikat atau pengilang berdaftar yang lewat membuat pembayaran cukai jualan atau cukai perkhidmatan bermula 1 Julai 2020 hingga 30 September 2020. Pelanjutan potongan cukai khas bersamaan 30% bagi pengurangan sewa premis perniagaan sehingga 30 September 2020. iii. Teras Ketiga: Merangsang Ekonomi Usaha kerajaan perlu ditingkatkan untuk menambahbaik dan merangsang ekonomi, serta membolehkannya pulih menjelang tahun 2021 dan seterusnya. PENJANA ini juga akan membolehkan ekonomi Malaysia melalui kalibrasi semula, dan melonjak ke arah pemulihan negara. Antara inisiatif untuk merangsang semula ekonomi negara adalah: a. Mengadakan Kempen Beli Barangan Buatan Malaysia Menggalakkan penggunaan barangan dan perkhidmatan tempatan melalui: Kempen “Beli Malaysia” oleh kerajaan dan agensi berkaitan. Mewajibkan penandaan barang buatan tempatan bagi rangkaian pasaraya. Mewujudkan saluran khusus untuk produk Malaysia di platform e-dagang utama. b. Memperkenalkan ePENJANA Menggalakkan penggunaan e-dompet dalam kalangan pengguna yang memudahcara penjarakan sosial untuk menjaga keselamatan pengguna di samping menggalakkan perbelanjaan pengguna melalui: Kredit e-dompet bernilai RM50. Tawaran tambahan oleh pembekal perkhidmatan e-dompet sebanyak RM50 melalui baucar diskaun dan kredit tambahan melalui cashback. Kredit hanya boleh digunakan untuk pembelian secara fizikal di kedai dan bukan perkhidmatan dalam talian. Manfaat ini boleh dinikmati oleh semua rakyat Malaysia berumur 18 tahun ke atas yang berpendapatan kurang daripada RM100,000 setahun. c. Kempen Pemilikan Rumah atau Home Ownership Campaign (HOC) Merancakkan semula pasaran hartanah melalui: Pengecualian duti setem akan diberikan ke atas surat cara pindah milik dan perjanjian pinjaman bagi pembelian rumah kediaman yang bernilai antara RM300,000 hingga RM2.5 juta. Pengecualian Cukai Keuntungan Harta Tanah (CKHT) diberikan kepada individu warganegara Malaysia ke atas pelupusan rumah kediaman yang dibuat mulai 1 Jun 2020 sehingga 31 Disember 2021. Pengecualian ini dihadkan bagi pelupusan tiga unit rumah kediaman sahaja untuk setiap individu. d. Insentif Cukai untuk Pembelian Kereta Dengan adanya insentif seperti ini, beban kewangan pengguna dapat dikurangkan malahan mampu merancakkan semula industri automotif negara. Pengecualian cukai jualan sebanyak 100% ke atas penjualan kereta penumpang pemasangan tempatan dan 50% bagi kereta penumpang import. e. Sokongan Sektor Pelancongan Membantu sektor pelancongan yang terjejas akibat COVID-19 melalui insentif cukai seperti: Pengecualian cukai pelancongan mulai 1 Julai 2020 hingga 30 Jun 2021. Lanjutan pengecualian cukai perkhidmatan untuk hotel sehingga 30 Jun 2021. Lanjutan pelepasan cukai pendapatan individu sehingga RM1,000 ke atas perbelanjaan melancong dalam negara sehingga 31 Disember 2021. Lanjutan penangguhan bayaran ansuran ke atas anggaran cukai sehingga 31 Disember 2020. Secara kesimpulannya, melihat kepada senario ekonomi semasa dan trend pengangguran dan pembuangan pekerja yang terus meningkat, inisiatif PENJANA sedikit sebanyak dapat membantu golongan yang terjejas akibat penularan wabak COVID-19. Begitu juga, ianya dapat membantu untuk merancakkan semula ekonomi negara untuk berkembang lebih maju selepas Perintah Kawalan Pergerakan (PKP) ditamatkan. Justeru itu, FOMCA berharap rakyat Malaysia dapat menggunakan manfaat yang sedia ada dan juga yang telah ditambah baik mengikut situasi semasa negara dengan sebaik mungkin. Sumber: www.penjana.treasury.gov.my bil. 3/2020 | 7 Perkara Yang Perlu Diketahui Mengenai Kedai Pemegang Pajak Gadai Berlesen di Malaysia atau lebih dikenali sebagai Kedai Pajak telah berada di Malaysia sejak tahun 1871. Kini, terdapat lebih kurang 571 Kedai Pemegang Pajak Gadai Berlesen di Malaysia. – Bahagian Kawalan Kredit Komuniti, Kementerian Perumahan dan Kerajaan Tempatan 1 Kedai Pajak Gadai Pajak gadai menyediakan akses kepada pengguna untuk mendapatkan pinjaman dengan mudah, sekiranya mempunyai barangan berharga untuk dipajakkan. Memandangkan ramai yang menggunakan perkhidmatan Kedai Pajak, maklumat berikut perlu diambil tahu: Pada tahun 2018, terdapat 4 juta pelanggan pajak gadai dengan jumlah pajak RM8.532 juta. – Berita Harian, 20 Jun 2019 Faedah maksima yang dibenarkan ialah 2% sebulan atau 24% setahun. Jika kedai pajak gadai mengenakan kadar faedah yang terlalu tinggi (lebih 2% sebulan) ke atas sesuatu pinjaman, anda boleh membawa perkara ini kepada pejabat Ketua Setiausaha Kementerian Perumahan dan Kerajaan Tempatan. 2 Tempoh gadaian ialah selama enam bulan, tetapi gadaian juga boleh ditebus pada bila-bila masa. Sekiranya tidak dapat menebus gadaian sebelum tamat tempoh, pemajak gadai boleh memberitahu kepada pemegang pajak gadai untuk melanjutkan tempoh masa tidak kurang daripada tiga bulan. Semak tarikh luput. Anda tidak boleh menuntut barang selepas tarikh luput, kecuali kedai pajak g a d a i b e r s e t u j u m e m a n j a n g k a n tempoh berkenaan. Selepas tarikh luput, semua barangan yang digadai yang nilainya kurang daripada RM200 akan menjadi kepunyaan ke d a i p a j a k g a d a i berkenaan dan bukan kepunyaan anda lagi. J i k a a n d a m e r a s a bahawa gadaian anda berkurang nilai atau jika kedai pajak gadai enggan menyerahkan gadaian a n d a , k e m u k a k a n aduan kepada majistret. Majistret mempunyai kuasa untuk memerintah kedai pajak gadai untuk membayar gantirugi yang munasabah. S e t i a p b u t i r l a n j u ta n hendaklah dibuat dalam buku pemegang pajak gadai juga dalam surat pajak gadai. Pemegang pajak gadai perlu menghantar notis berdaftar kepada pemajak gadai mengenai tindakan untuk melelong barangan. Notis ini perlu diterima oleh pemajak gadai tujuh hari sebelum urusan pelelongan. Kedai pajak gadai bertanggungjawab atas kehilangan atau kemusnahan akibat kecurian atau kebakaran. Sentiasa mendapatkan res i t set iap ka l i anda membuat pembayaran. Jika anda kehilangan resit / tiket gadaian anda berhak mendapatkan salinannya secara percuma. Pastikan kedai pajak gadai yang anda berurusan mempunyai lesen yang sah. Sila hubungi Bahagian Kawalan Kredit Komuniti, Kementerian Perumahan dan Kerajaan Tempatan untuk membuat semakan. Semak buku catatan kedai pajak gadai untuk memastikan bahawa kandungannya adalah sama dengan surat pajak gadai yang anda terima. 3 4 5 6 7 8 9 10 8 | RINGGIT Sumber: www.fomca.org.my Sebarang pertanyaan, sila berhubung dengan Bahagian Kawalan Kredit Komuniti, Kementerian Perumahan dan Kerajaan Tempatan melalui nombor 03-8000 8000 atau e-mel di alamat [email protected] Kelemahan Pajak Gadai • Kadar faedah tinggi i a i tu 2% sebu lan atau 24% setahun, jauh melebihi kadar pasaran. • Barang kemas yang digadai, samada cincin, gelang atau rantai biasanya tidak ditimbang atau diukur. Banyak aduan diterima di Pusat Khidmat Aduan Pengguna Nasional (NCCC) di mana barang kemas yang digadai itu lebih ringgan atau pendek apabila ditebus. Terdapat aduan yang peniaga pajak gadai sudah kikis sedikit emas daripada barang itu. FOMCA mencadangkan agar pemajak meminta pemegang pajak untuk merekodkan barangan yang digadai contohnya sebentuk cincin, seutas rantai dan yang paling penting menimbang berat dan mengukur panjang rantai emas tersebut dan meminta butir-butir tersebut dituliskan di atas resit sebelum memberikan barangan tersebut. • Andai peminjam gagal menebus dalam tempoh y a n g d i t e t a p k a n , pemegang pajak gadai boleh memil ik i ni lai gadaian yang kurang daripada RM200, tanpa m e l a n t i k p e l e l o n g berlesen. Akta Pajak Gadai 1972 juga tidak memperuntukkan barang gadaian dipamerkan sewaktu lelongan awam dilakukan. Perbezaan Pajak Emas di Kedai Pajak Gadai dan Institusi Perbankan Terdapat juga inst itusi p e r b a n k a n y a n g menyediakan perkhidmatan pa jak gada i . Memajak d i inst i tus i perbankan m e m p u nya i ke l e b i h a n berbanding di kedai pajak, memandangkan institusi perbankan disyaratkan untuk mengguna pakai prosedur yang ketat dalam penawaran produk dan perkhidmatan bagi melindungi pengguna. Di samping itu, keselamatan barangan yang dipajak juga lebih terjamin kerana premis institusi perbankan, lazimnya lebih selamat. Sekiranya sesuatu perkara yang tidak diingini berlaku seperti rompakan ataupun kebakaran, nilai barangan kemas tersebut akan dipulangkan semula oleh pihak bank berbanding dengan kedai pajak gadai yang hanya bertanggungjawab untuk memulangkan lebihan pinjaman sebanyak 25% sahaja. Pajak Gadai Islam (Ar-Rahnu) Terdapat juga perkhidmatan pajak gadai yang dijalankan menggunakan konsep patuh syariah, juga dikenali sebagai Ar-Rahnu. Melalui sistem ini, perjanjian dikaitkan dengan sesuatu ganjaran dan tidak dikenakan faedah terhadap pinjaman. Menurut konsep ini juga, penerima gadaian akan memberi nilai gadaian yang sepatutnya dengan barang gadaian yang digadai oleh penggadai. bil. 3/2020 | 9 Pada tahun 2019, industri pelancongan merupakan penyumbang ketiga terbesar kepada ekonomi Malaysia dan guna tenaga industri pelancongan dianggarkan seramai 3.2 juta pekerja. Tidak hairanlah, kerajaan menawarkan Skim Pembiayaan Sektor Pelancongan PENJANA bernilai RM1 bilion pada awal bulan Jun 2020 bagi membantu Perusahaan Kecil dan Sederhana (PKS) dan perusahaan mikro tempatan memulihkan sektor pelancongan yang terjejas teruk berikutan penularan COVID-19, terutama dalam sektor yang dikategorikan sebagai teras, seperti berikut: 1. Premis penginapan pelancongan (hotel bajet, inap desa berdaftar, chalet dan rumah peranginan) 2. Agensi pelancongan dan pengusaha pelancongan 3. Pengangkutan untuk pelancong (pengusaha bas, bot dan kereta sewa) Skim pembiayaan ini harus dimanfaatkan sebaiknya oleh pengusaha sektor pelancongan bagi meningkatkan kualiti perkhidmatan pelancongan, mengukuhkan keupayaan mereka membuat penyesuaian serta meningkatkan daya saing selepas negara pulih daripada COVID-19 nanti. Aduan yang diterima oleh Pusat Khidmat Aduan Pengguna Nasional (NCCC) pada 2018 (4,411 aduan), b o l e h l a h d i g u n a k a n sebagai panduan dalam memperbaiki kualiti perkhidmatan sektor pelancongan. Sebanyak 2 7 . 9 3 % d a r i p a d a jumlah aduan adalah mengenai penipuan oleh agensi pelancongan yang tidak berdaftar dengan Kementer ian Pelancongan, Seni dan Budaya Malaysia (MOTAC). Ramai pengguna yang terpedaya dengan tipu helah ‘ejen’ yang menjanjikan percutian atau pelancongan yang jauh lebih murah daripada harga pasaran. Kebiasaannya agensi pelancongan ini akan mendesak pengguna membayar secara ansuran 6 hingga 8 bulan sebelum tarikh percutian sebenar. Namun apabila para pengguna cuba menghubungi agensi t e r s e b u t s e b e l u m tarikh percutian, baru mereka sedar bahawa agensi tersebut telah melarikan diri dengan wang pengguna. Aduan kedua yang tertinggi yang diterima adalah tuntutan balik atau refund yang merangkumi 13.97% daripada jumlah keseluruhan aduan. Punca para pengguna membuat tuntutan ini adalah kerana pembatalan percutian, pembayaran sebanyak dua kali kerana transaksi kali pertama tidak berjaya atau perkhidmatan yang ditawarkan adalah tidak memuaskan. Namun apabila para pengguna membuat tuntutan balik daripada agensi pelancongan, ianya mengambil masa yang sangat lama. Jawapan yang diberikan pula tidak memuaskan. Malah, ada agensi yang mengherdik para pengguna dengan kata-kata yang kesat serta memberi janji kosong dengan tidak membayar balik tuntutan. Aduan mengenai kualiti perkhidmatan yang disediakan oleh pihak agensi pelancongan ini berada pada kedudukan ketiga dengan 7.98% daripada jumlah keseluruhan. Antara aduan yang diterima adalah tentang kebersihan bilik penginapan percutian yang diberikan oleh agensi pelancongan mahu pun hotel-hotel yang dipilih sendiri oleh para pengguna. Malah ada pengguna yang mengadu mereka dijangkiti penyakit kulit gara-gara katil yang tidak bersih serta digigit oleh pepijat dan terpaksa mendapat rawatan pakar perubatan. Pihak hotel pula tidak mahu melayan permintaan pengguna apabila pengguna meminta pampasan daripada pihak hotel. Terdapat juga kes-kes layanan yang tidak mesra diberikan oleh para pekerja di tempat penginapan. Ada kalanya, para pekerja bersikap kasar dan memberi maklumat yang salah Pelancongan dan Percutian 10 | RINGGIT kepada tetamu di tempat penginapan. Selain daripada itu, layanan yang diberikan oleh pekerja sektor pengangkutan awam seperti bas, teksi dan pemandu e-hailing juga ada yang kurang sempurna. Pekerja di lapangan ini merupakan tunjang kepada peningkatan sektor pelancongan dan adalah penting untuk mereka mendokong hasrat kerajaan untuk memajukan industri pelancongan di negara kita. Selain daripada itu, industri penerbangan juga turut menerima aduan sebanyak 19.74%. Aduan yang diterima merangkumi masalah tempahan (6.73%), perubahan jadual penerbangan (4.24%), masalah bagasi (3.99%), pertikaian tambang penerbangan (2.99%) dan pembatalan penerbangan (1.79%). Industri penerbangan sepatutnya memberi perkhidmatan yang cemerlang untuk menggalakkan lebih ramai pelancong tempatan dan asing untuk berkunjung ke negara kita. Namun perkhidmatan yang disediakan oleh industri penerbangan ini perlu diperbaiki. Misalnya, bila pelanggan membuat tempahan tiket penerbangan atas talian, ada kalanya sistem tersebut tidak memberi maklum balas menyebabkan pengguna terpaksa membuat tempahan semua. Akhirnya pengguna terpaksa membayar dua kali dan urusan menuntut kembali wang tersebut amat sukar sekali. Ada kalanya industri tersebut tidak mengembalikan wang dan kalau adapun, akan mengambil masa yang sangat lama. Di samping itu, 6.23% aduan diterima mengenai representasi palsu dalam sektor perhotelan mahupun pelancongan. Contohnya, pelancong dijanjikan bilik yang menghadap laut dengan pandangan panoramik, tetapi ianya tidak ditunaikan. Begitu juga dengan agensi pelancongan yang menjanjikan makanan di hotel yang ternama, tetapi pada hakikat, ianya tidak dikotakan. Hotel-hotel juga turut menerima 407 aduan daripada pengguna sepanjang 2018. Aduan ini merangkumi pelbagai isu seperti tempahan hotel (3.31%), kebersihan hotel dan pembatalan bilik hotel atas talian masing-masing pada 2.49% dan kaunter daftar masuk (2.38%). Walaupun isu-isu ini mungkin menunjukkan peratusan yang sedikit, tetapi kesannya adalah besar kepada industri pelancongan di negara kita. Bila pengguna diberi layanan yang buruk semasa mendaftar, ianya akan memberikan pandangan yang negatif terhadap hotel tersebut. FOMCA ingin menyeru agar Skim Pembiayaan Sektor Pelancongan yang baru dilancarkan ini dapat digunakan bukan sahaja untuk memberikan nafas baru kepada sektor pelancongan yang terjejas teruk akibat COVID-19, tetapi juga dijadikan pemangkin kepada tahap kualiti perkhidmatan yang lebih baik dalam kalangan pengusaha sektor pelancongan. Pengguna boleh memainkan peranan dalam meningkatkan kualiti perkhidmatan dengan melaporkan ketidakpuasan hati terhadap perkhidmatan pelancongan kepada MOTAC atau NCCC. Selain itu, pengguna juga dinasihatkan untuk mendapatkan insurans perjalanan untuk melindungi diri dan/ atau keluarga terhadap kemalangan, kerugian dan gangguan semasa melancong. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) bil. 3/2020 | 11 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS 3 panduan berguna dalam mengurus pelan bayaran balik pinjaman BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA HUBUNGI TERUS BANK ANDA Hubungi terus bank untuk mendapatkan maklumat yang lebih jelas dan khidmat nasihat berkenaan pelan bayaran balik pinjaman JANGAN BERURUSAN DENGAN PIHAK KETIGA Berurusan secara langsung dengan bank tanpa pihak ketiga atau ejen untuk mengelak daripada ditipu 1-300-88-5465 https://telelink.bnm.gov.my/ DAPATKAN BANTUAN LANJUT Hubungi pihak Bank Negara Malaysia (BNM) untuk mendapatkan bantuan lanjut. Sila hubungi BNMLINK: PERINGATAN ! Bank tidak pernah melantik mana-mana pihak ketiga atau ejen untuk tujuan memproses permohonan pinjaman Cari #pinjamanmudah #cepat #PKS #ajenbank Like Comment Senah pm Mr.X ajen bank 2j 15 Komen300 Wahab pm Jamal Pm AJEN LOAN CEPAT DAPAT CTOS , CCRIS layak memohonAWAS

Public Notice

19 May 2020

Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 198th and 199th Meeting

https://www.bnm.gov.my/-/ruling-of-the-shariah-advisory-council-sac-of-the-bank-negara-malaysia-at-its-198th-and-199th-meeting-1

https://www.bnm.gov.my/documents/20124/914558/01_SAC198_Draft+SAC+Statement_Rahnu_en.pdf

Reading: Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 198th and 199th Meeting Share: Ruling of the Shariah Advisory Council (SAC) of the Bank Negara Malaysia at its 198th and 199th Meeting Release Date: 19 May 2020 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 198th and 199th meetings on 29 October 2019 and 26 November 2019 has made a ruling that the structuring of ar-rahnu product based on tawarruq and rahn is permissible subject to the following conditions: For ar-rahnu product involving the purchase of commodity in bulk at the beginning of the business day, the fiqh adaptation (takyif fiqhi) must be clear in relation to the cancellation of the commodity purchased from the commodity trading platform provider at the end of the business day; In the event of default, the customer’s consent shall be obtained prior to the liquidation of the collateral; The terms and conditions of the ar-rahnu product shall clearly specify the following treatment in cases where a default by the customer leads to the liquidation of the underlying collateral: where the proceeds from the liquidation of the underlying collateral exceed the liability of the customer, the excess amount shall be returned to the customer; and where the proceeds from the liquidation of the collateral are insufficient to meet the liability of the customer, the Islamic financial institution (IFI) has the right to claim the balance from the customer; The customer shall be informed on the specification and features of the transacted commodity including its location, type, quality and quantity as well as the calculation mechanism to avoid the element of uncertainty (gharar) and any dispute by the contracting parties; and All requirements set out in Bank Negara Malaysia’s (the Bank) policy documents on Tawarruq and Rahn shall be complied with. This ruling shall be read together with the SAC ruling on the execution of tawarruq arrangement via straight-through processing (STP) dated 26 November 2019. Please refer attachment for more information © 2024 Bank Negara Malaysia. All rights reserved.

SAC 198th and 199th Meeting 2019 1   The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on Ar-Rahnu Product Proposal based on Tawarruq SAC’s 198th and 199th Meetings on 29 October 2019 and 26 November 2019 Part I: SAC Ruling, Its Effective Date and Applicability Pursuant to section 52 of the Central Bank of Malaysia Act 2009, the SAC has made a ruling that the structuring of ar-rahnu product based on tawarruq and rahn is permissible subject to the following conditions: i. For ar-rahnu product involving the purchase of commodity in bulk at the beginning of the business day, the fiqh adaptation (takyif fiqhi)1 must be clear in relation to the cancellation of the commodity purchased from the commodity trading platform provider at the end of the business day; ii. In the event of default, the customer’s consent shall be obtained prior to the liquidation of the collateral; iii. The terms and conditions of the ar-rahnu product shall clearly specify the following treatment in cases where a default by the customer leads to the liquidation of the underlying collateral: (a) where the proceeds from the liquidation of the underlying collateral exceed the liability of the customer, the excess amount shall be returned to the customer; and (b) where the proceeds from the liquidation of the collateral are insufficient to meet the liability of the customer, the Islamic financial institution (IFI) has the right to claim the balance from the customer; iv. The customer shall be informed2 on the specification and features of the transacted commodity including its location, type, quality and quantity as well as the calculation mechanism to avoid the element of uncertainty (gharar) and any dispute by the contracting parties; and v. All requirements set out in Bank Negara Malaysia’s (the Bank) policy documents on Tawarruq and Rahn shall be complied with. This ruling shall be read together with the SAC ruling on the execution of tawarruq arrangement via straight-through processing (STP) dated 26 November 2019. This ruling comes into effect on 1 February 20203 and is applicable to the following IFIs: (a) licensed persons under the Islamic Financial Services Act 2013 (IFSA); (b) licensed banks and licensed investment banks approved under section 15(1) of the Financial Services Act 2013 (FSA) to carry on Islamic banking business; and (c) prescribed institutions approved under section 33B(1) of the Development Financial Institutions Act 2002 (DFIA) to carry on Islamic financial business.                                                              1 Fiqh adaptation or takyif fiqhi refers to the process of deriving a Shariah basis, principle or concept to a new or an emerging matter or situation for which there was no precedent. 2 In a manner recognised by business practise (`urf tijari) and in accordance with Shariah. 3 The Bank has communicated this ruling to the respective IFIs on 7 and 28 November 2019 following the SAC’s 198th and 199th meetings. SAC 198th and 199th Meeting 2019 2   In line with sections 28(1) and (2) IFSA or sections 33D(1) and (2) DFIA, as the case may be, IFIs are required to comply with this ruling as a compliance with any ruling of the SAC in respect of any particular aim and operation, business, affair or activity of such IFIs shall be deemed to be a compliance with Shariah. Part II: Background  The Bank has received proposals from several IFIs to offer ar-rahnu product based on tawarruq and rahn following the non-permissibility of the existing ar-rahnu product structure based on qard and rahn.  The proposed structure applies tawarruq as the underlying contract to create indebtedness between the customer and IFI. Similar to the existing ar-rahnu structure, the customer then pledges gold to the IFI. However, no safekeeping fee will be charged to the customer. IFIs will generate income from the murabahah transaction in the tawarruq arrangement. Shariah Issue Does the proposed ar-rahnu structure based on tawarruq and rahn fulfil the requirements of Shariah? General illustration of the ar-rahnu product structured based on tawarrruq 1. Customer approaches the IFI to apply for ar-rahnu financing with gold as collateral. 2. The IFI will appraise the value of the gold that will be pledged to determine the financing amount that the customer can apply. 3. Execution of tawarruq*: a) IFI purchases commodity from the commodity supplier through the commodity trading platform provider; b) IFI then sells the commodity to the customer based on the approved financing amount plus the profit amount as determined by the IFI on a deferred payment term. IFI as an agent will accept the sale of the commodity on behalf of the customer; and c) The customer then sells the commodity to the commodity trading platform provider on cash basis (IFI as an agent will sell the commodity on behalf of the customer). 4. The proceeds from the sales are disbursed to the customer after the tawarruq arrangement is completed. 5. Customer will pay the profit to the IFI every 6 months and the principal amount will be paid at maturity of the financing. In the event of default, the IFI has the right to auction the collateral to settle the financing amount. Customer IFI Commodity Platform SAC 198th and 199th Meeting 2019 3   * Note: there are various methods proposed in executing the tawarruq arrangement which include: (i) Purchase of commodity in bulk by the IFI at the beginning of the business day based on the total estimated financing amount to be applied by the customer. The sale of the commodity to the customer will be conducted based on the financing amount applied by an individual customer. The commodity will be sold back to the commodity trading platform provider either in batches at a designated time throughout the business day or will be sold back in bulk at the end of the business day. (ii) Execution of tawarruq via straight-through processing (STP) based on the financing amount applied by customer (Please refer to the SAC ruling at its 199th meeting on the permissibility of tawarruq execution via STP). Part III: Key Discussion Whether the proposed ar-rahnu structure based on tawarruq and rahn fulfils the requirements of Shariah  The SAC discussed whether the profit generated in the ar-rahnu structure based on tawarruq and rahn is in line with Shariah principles.  The SAC ruled that the combination of both contracts does not lead to matters prohibited in Shariah such as riba, the combination of loan and sale contracts (bai` wa salaf) and loan that gives benefit to the lender (qard jarra naf`an).  As such, the SAC ruled that the application of tawarruq and rahn contracts for ar-rahnu is in line with the requirements of Shariah and the application of collateral in a financing contract is permissible to safeguard the interest of the financier in the event of default. Part IV: Basis of Ruling Permissibility of tawarruq  The application of tawarruq is permissible based on the following verse of the Quran which implies the general permissibility of sales contract including tawarruq: “...whereas Allah SWT has permitted trading and forbidden usury (riba)”.4 Permissibility of rahn  The contract of rahn is permissible based on the following verse of Quran:                                                              4 Surah al-Baqarah, verse 275 (Tafseer Ar-Rahman interpretation of the meaning of the Qur'an). SAC 198th and 199th Meeting 2019 4   “If you are on a journey (and then you wish to have a contract of debt with one another), but you cannot find a scribe (to write down the document), then let a pledge be taken in hand (by the one who provides the debt). But if any of you entrusts one another with a pledge (without a document of contract, witnesses or the pledged goods as security), let the one who is trusted fulfils his trust; and let him be mindful of Allah, his Lord. And let him (who stand as witnesses) to not conceal testimony, for whoever hides it is sinful at heart. And (remember) that Allah has full knowledge of all that you do”.5  The following hadith implies the general permissibility of rahn: Aishah RA narrated that the Prophet (peace be upon him) bought some food from a Jew on deferred payment, and he (peace be upon him) pledged his steel armour as security for it.6 The permissibility of combining several contracts in one product structure  In general, the combination of several contracts in a master agreement is allowed based on the following fiqh maxim: According to the original method of ruling, mu`amalah is permissible, except when there is a provision prohibiting it.7  The combination of contracts that are contingent upon each other is allowed provided that the objective of each contract is met and the combination of the contracts supports each other in achieving the main objective of combining each contract.8     Part V: Implication of SAC Ruling  The proposed product structure is Shariah-compliant and is intended to replace the existing ar- rahnu product which is based on qard and rahn as its underlying contracts.                                                                5 Surah al-Baqarah, verse 283 (Tafseer Ar-Rahman interpretation of the meaning of the Qur'an). 6 Al-Bukhari, Sahih al-Bukhari, Dar Tawwaq al-Najah, Lebanon, j.3, h. 56, hadith no. 2068. 7 Ibn Uthaimin, Al-Syarh al-Mumti` `ala Zad al-Mustaqni`, Dar Ibni al-Jauzi, j. 8, h. 241. 8 SAC at its 140th meeting on 28 October 2013 and its 166th meeting on 23 February 2016 ruled that the combination between several contracts that are contingent upon each other is permissible. This is subject to the condition that the combination does not: i. lead to the element of interest, uncertainty (gharar) and gambling (maysir); ii. result in any contradiction between the objectives of each contract (muqtada `aqd); and iii. lead to any element prohibited by Shariah.

Public Notice

12 May 2020

BNMLINK HQ and BNM Offices continue to be closed during CMCO.

https://www.bnm.gov.my/-/bnmlink-hq-and-bnm-offices-continue-to-be-closed-during-cmco

01 May 2020

FAQs on Operationalisation of Moratorium for Hire-Purchase Loans and Fixed Rate Islamic Financing

https://www.bnm.gov.my/-/faqs-on-operationalisation-of-moratorium-for-hire-purchase-loans-and-fixed-rate-islamic-financing

https://www.bnm.gov.my/documents/20124/914558/FAQ+on+HP+%26+Islamic+FR_070520.pdf

Reading: FAQs on Operationalisation of Moratorium for Hire-Purchase Loans and Fixed Rate Islamic Financing Share: FAQs on Operationalisation of Moratorium for Hire-Purchase Loans and Fixed Rate Islamic Financing Release Date: 01 May 2020 The Bank has released a set of Frequently Asked Questions on Operationalisation of Moratorium for Hire-Purchase Loans and Fixed Rate Islamic Financing Click here to find out more. © 2024 Bank Negara Malaysia. All rights reserved.

Issued on 7 May 2020 Issued on 7 May 2020 1 FAQs on Hire-Purchase and Fixed Rate Islamic Financing Products ** See latest update to response in Question 6 (in red) No. Question Answer 1. It was previously announced that the 6-month payment deferment for Hire- Purchase (HP) and fixed rate Islamic financing is automatic. Has there been a reversal in this decision? The payment deferment is still automatic for HP and fixed rate Islamic financing. What is required now is an additional step to comply with procedural requirements under the Hire-Purchase Act 1967 (HP Act) and Shariah. This additional step is required to incorporate the changes to the payment schedule and/or amounts as a result of the six-month payment deferment in the loan/financing agreements. 2. Why are other loans/financing (e.g. mortgages, personal loans, business loans etc) not similarly affected? Other loans/financing are not subject to HP Act or similar Shariah requirements. However, interest/profit will also accrue over the deferment period for these loans and will also need to be repaid once payments resume post-deferment. 3. Is there a change for borrowers/customers to qualify for the HP and fixed rate Islamic financing payment deferment? There is no change in the eligibility criteria. 4. As it is already the beginning of May, is there a change to the payment deferment period for these financing facilities? There is no change in the payment deferment period, that is, it is effective for 6 months starting from 1 April 2020 until 30 September 2020. 5. For fixed rate Islamic financing, are there any additional legal fees if a new agreement is required? The FIs are not allowed to impose any additional charges, including legal fees, on the borrowers/customers. Issued on 7 May 2020 2 No. Question Answer 6. How would my HP or fixed rate Islamic financing monthly instalments change after the deferment period? ** Please refer to details from your bank following the announcement by YBM Minister of Finance on 6 May 2020. FIs will inform each borrower/customer of the changes to his/her HP loan or fixed rate Islamic financing payment schedule and instalment amounts. Borrowers/customers should weigh for themselves the pros and cons of defering the payment, and pay particular attention to their ability to meet these payments after the moratorium. You should call or e-mail your FI if you need more information, or if you need to discuss alternative payment arrangements. Here is an example to help you better understand the financial impact post deferment. In this example, the change to the monthly instalment is not as large as expected. This illustration relates to a RM50,000 HP loan with a remaining tenure of 5 years and a flat rate of 2.71% per annum (or an effective interest rate of 5.36% per annum). In this example the monthly instalment amount increases by about 2%, or RM19 a month. Before deferment After deferment Monthly instalment RM712 RM731 Increase in monthly instalment RM19 Increase in total Interest charges RM1,130 Issued on 7 May 2020 3 No. Question Answer ** Please refer to details from your bank following the announcement by YBM Minister of Finance on 6 May 2020. The above example assumes the borrower has chosen to stagger the repayment of the total deferred instalments over the remaining tenure of the loan when monthly repayments resume in October 2020. However, some banks may also offer borrowers/customers the option of repaying the total deferred instalments, comprising pricipal and interest, as a lump-sum settlement during the final monthly instalment at the end of the loan/financing tenure. In this case, there will be no change in the monthly instalment amounts paid by borrowers/customers when the monthly repayment resumes in October 2020. Please look out for notices from your bank from 1 May 2020 onwards for more details on the repayment options available to you. 7. Do I still have a chance to opt out of the payment deferment now if I had not done so previously? Yes. You can still choose to do so at this time by informing your FI and resuming the monthly payments that you were making before the deferment. See also response to Question 8 below. 8. I have not made any payment in April since I did not opt out of the deferment earlier. If I decide to opt out now, will I be charged any late payment penalty? What will happen to my CCRIS record? No, FIs will not impose any late payment charges on borrowers/customers who decide to opt out of the deferment now. Your bank will inform you of the timeframe provided to pay off the deferred instalments since 1 April 2020. Your CCRIS record will also not be affected, as long as you settle this amount within the repayment timeframe as notified by your FI. If you need more time, you should contact your bank to discuss a revised repayment timeframe. Issued on 7 May 2020 4 No. Question Answer 9. Do borrowers/customers have a choice on whether to extend the financing tenure or increase the monthly instalments after the deferment period? FIs will provide borrowers/customers with further details on resuming payments after the deferment period, and among the options provided would include the option of extending tenures or increasing monthly instalments. Borrowers/customers are advised to discuss with their FIs if they require a different repayment arrangement due to their financial circumstances. 10. Following this announcement by BNM, I feel short-changed. I thought the repayment terms on HP and fixed-rate Islamic financing after the payment deferment period ends are not supposed to change. Will I now lose out from benefitting from the six-month payment holiday? We sincerely regret any confusion and anxiety that this announcement may have caused. The deferment package is meant to ease cash flows for borrowers/customers who are affected by the COVID-19 pandemic. This intent remains the same. The confusion arises because of the perception that under the HP loan, the amount repaid cannot be changed. This misperception also arose to some extent from our earlier illustration where we made certain assumptions and caveats. We removed this example from BNM’s FAQs when banks provided their own illustrations in their FAQs. BNM’s illustration was not intended to preclude interest/profit rates to accrue over the deferment period. Borrowers/customers whose HP loans and fixed-rate Islamic financing accounts that have been automatically deferred since 1 April 2020 will continue to benefit from the payment deferment until 30 September 2020. Borrowers/customers can still change their earlier decision to take up the deferment if they do not wish to pay any additional interest/profit. See also responses to Questions 7 and 8 above. Bank Negara Malaysia 7 May 2020

Public Notice

30 Apr 2020

Reiteration of Our Statements on Moratorium

https://www.bnm.gov.my/-/reiteration-of-our-statements-on-moratorium

https://www.bnm.gov.my/documents/20124/914558/FAQ+on+HP+%26+Islamic+FR_070520.pdf

Reading: Reiteration of Our Statements on Moratorium Share: Reiteration of Our Statements on Moratorium Release Date: 30 Apr 2020 We refer to our statements on the moratorium measure issued on 25 March 2020 and on additional steps to operationalise the moratorium for hire-purchase loans and fixed rate Islamic financing released today. The statement today is to address procedural issues which will give legal effect to the moratorium in accordance with the Hire-Purchase Act 1967 and Shariah requirements. BNM wishes to reiterate that borrowers do not need to apply for the moratorium. They only need to complete the documentation required to give legal effect on the moratorium. Borrowers will be advised by their banks on the next few simple steps to do this. The moratorium is meant to ease cash flows for borrowers who are affected by the COVID-19 pandemic. As highlighted in BNM’s announcement on 25 March, borrowers were advised that interest/profit will continue to accrue on deferred payments and they should consider this in deciding whether they wish to take up the moratorium. The 25 March 2020 statement reads: “It is important to note that the interest/profit will continue to accrue on loan/financing repayments that are deferred and borrowers will need to honour the deferred repayments in the future. Borrowers should therefore ensure that they understand and discuss with their banking institutions on the options available to resume their scheduled repayments after the deferment period. Individuals and SMEs that do not wish or need to avail of these flexibilities can continue with their current repayment structures.” Customers who do not wish to take up the moratorium can still do so by informing their banks. See also: Frequently Asked Questions © 2024 Bank Negara Malaysia. All rights reserved.

Issued on 7 May 2020 Issued on 7 May 2020 1 FAQs on Hire-Purchase and Fixed Rate Islamic Financing Products ** See latest update to response in Question 6 (in red) No. Question Answer 1. It was previously announced that the 6-month payment deferment for Hire- Purchase (HP) and fixed rate Islamic financing is automatic. Has there been a reversal in this decision? The payment deferment is still automatic for HP and fixed rate Islamic financing. What is required now is an additional step to comply with procedural requirements under the Hire-Purchase Act 1967 (HP Act) and Shariah. This additional step is required to incorporate the changes to the payment schedule and/or amounts as a result of the six-month payment deferment in the loan/financing agreements. 2. Why are other loans/financing (e.g. mortgages, personal loans, business loans etc) not similarly affected? Other loans/financing are not subject to HP Act or similar Shariah requirements. However, interest/profit will also accrue over the deferment period for these loans and will also need to be repaid once payments resume post-deferment. 3. Is there a change for borrowers/customers to qualify for the HP and fixed rate Islamic financing payment deferment? There is no change in the eligibility criteria. 4. As it is already the beginning of May, is there a change to the payment deferment period for these financing facilities? There is no change in the payment deferment period, that is, it is effective for 6 months starting from 1 April 2020 until 30 September 2020. 5. For fixed rate Islamic financing, are there any additional legal fees if a new agreement is required? The FIs are not allowed to impose any additional charges, including legal fees, on the borrowers/customers. Issued on 7 May 2020 2 No. Question Answer 6. How would my HP or fixed rate Islamic financing monthly instalments change after the deferment period? ** Please refer to details from your bank following the announcement by YBM Minister of Finance on 6 May 2020. FIs will inform each borrower/customer of the changes to his/her HP loan or fixed rate Islamic financing payment schedule and instalment amounts. Borrowers/customers should weigh for themselves the pros and cons of defering the payment, and pay particular attention to their ability to meet these payments after the moratorium. You should call or e-mail your FI if you need more information, or if you need to discuss alternative payment arrangements. Here is an example to help you better understand the financial impact post deferment. In this example, the change to the monthly instalment is not as large as expected. This illustration relates to a RM50,000 HP loan with a remaining tenure of 5 years and a flat rate of 2.71% per annum (or an effective interest rate of 5.36% per annum). In this example the monthly instalment amount increases by about 2%, or RM19 a month. Before deferment After deferment Monthly instalment RM712 RM731 Increase in monthly instalment RM19 Increase in total Interest charges RM1,130 Issued on 7 May 2020 3 No. Question Answer ** Please refer to details from your bank following the announcement by YBM Minister of Finance on 6 May 2020. The above example assumes the borrower has chosen to stagger the repayment of the total deferred instalments over the remaining tenure of the loan when monthly repayments resume in October 2020. However, some banks may also offer borrowers/customers the option of repaying the total deferred instalments, comprising pricipal and interest, as a lump-sum settlement during the final monthly instalment at the end of the loan/financing tenure. In this case, there will be no change in the monthly instalment amounts paid by borrowers/customers when the monthly repayment resumes in October 2020. Please look out for notices from your bank from 1 May 2020 onwards for more details on the repayment options available to you. 7. Do I still have a chance to opt out of the payment deferment now if I had not done so previously? Yes. You can still choose to do so at this time by informing your FI and resuming the monthly payments that you were making before the deferment. See also response to Question 8 below. 8. I have not made any payment in April since I did not opt out of the deferment earlier. If I decide to opt out now, will I be charged any late payment penalty? What will happen to my CCRIS record? No, FIs will not impose any late payment charges on borrowers/customers who decide to opt out of the deferment now. Your bank will inform you of the timeframe provided to pay off the deferred instalments since 1 April 2020. Your CCRIS record will also not be affected, as long as you settle this amount within the repayment timeframe as notified by your FI. If you need more time, you should contact your bank to discuss a revised repayment timeframe. Issued on 7 May 2020 4 No. Question Answer 9. Do borrowers/customers have a choice on whether to extend the financing tenure or increase the monthly instalments after the deferment period? FIs will provide borrowers/customers with further details on resuming payments after the deferment period, and among the options provided would include the option of extending tenures or increasing monthly instalments. Borrowers/customers are advised to discuss with their FIs if they require a different repayment arrangement due to their financial circumstances. 10. Following this announcement by BNM, I feel short-changed. I thought the repayment terms on HP and fixed-rate Islamic financing after the payment deferment period ends are not supposed to change. Will I now lose out from benefitting from the six-month payment holiday? We sincerely regret any confusion and anxiety that this announcement may have caused. The deferment package is meant to ease cash flows for borrowers/customers who are affected by the COVID-19 pandemic. This intent remains the same. The confusion arises because of the perception that under the HP loan, the amount repaid cannot be changed. This misperception also arose to some extent from our earlier illustration where we made certain assumptions and caveats. We removed this example from BNM’s FAQs when banks provided their own illustrations in their FAQs. BNM’s illustration was not intended to preclude interest/profit rates to accrue over the deferment period. Borrowers/customers whose HP loans and fixed-rate Islamic financing accounts that have been automatically deferred since 1 April 2020 will continue to benefit from the payment deferment until 30 September 2020. Borrowers/customers can still change their earlier decision to take up the deferment if they do not wish to pay any additional interest/profit. See also responses to Questions 7 and 8 above. Bank Negara Malaysia 7 May 2020

Public Notice

24 Apr 2020

New Release Date for March 2020 Statistical Highlights

https://www.bnm.gov.my/-/new-release-date-for-march-2020-statistical-highlights-1

Reading: New Release Date for March 2020 Statistical Highlights Share: New Release Date for March 2020 Statistical Highlights Release Date: 24 Apr 2020 The Monthly Highlights & Statistics for March 2020 shall be made available in the Bank's website by 6 May 2020. This is due to the extended deadlines for statistical submissions given to financial institutions by the Bank in view of the Movement Control Order and social distancing in response to the COVID-19 pandemic. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

21 Mar 2020

FAQs on Access to Essential Financial Services during Movement Control Order (MCO)

https://www.bnm.gov.my/-/faqs-on-access-to-essential-financial-services-during-movement-control-order-mco-

https://www.bnm.gov.my/documents/20124/914558/FAQ_Essential+Financial+Services+MCO.pdf

Reading: FAQs on Access to Essential Financial Services during Movement Control Order (MCO) Share: 3 FAQs on Access to Essential Financial Services during Movement Control Order (MCO) Release Date: 21 Mar 2020 The Bank has released a set of Frequently Asked Questions to address public queries regarding essential services during the Movement Control Order. Click here to view the Frequently Asked Questions. © 2024 Bank Negara Malaysia. All rights reserved.

1 FAQs on Access to Essential Financial Services during Movement Control Order (MCO) No. Question Answer 1. What are essential financial services? The types of financial services considered as essential during this containment period are as follows: • Self-service terminals e.g. ATMs, Cash, Cheque and Coin Deposit Machines will be fully operational in accessible locations i.e. for premises and locations not affected by MCO. However, daily operating hours for all Self-Service Terminals including ATMs will be restricted from 7.00 a.m. to 10.00 p.m. during this containment period. • Online banking i.e. electronic banking, mobile banking; payment card services; and cheque processing services are fully operational • Money changing and remittance services are still available at bank branches • Processing and handling of insurance and takaful claims, issuance of guarantee letters and annual renewal of insurance and takaful policies. E-payment providers are considered an essential service as they fall under the category of E-commerce, which has been approved by the National Security Council as an essential service under the MCO. While all providers of these essential services are allowed to provide limited counter services throughout this period, we strongly encourage you to use electronic channels and avoid unnecessary trips to the branches and premises of these providers for your own safety and health. 2. Will all financial service providers be closed? Or is it business as usual? No, it is not business as usual in view of the need to ensure social distancing measures are observed during this MCO period for the safety and health of the customers and employees of financial service providers alike. The providers of essential financial services that have been approved to operate during this period are banks, development financial institutions, insurance and takaful companies. But, you should expect some disruption or delays in normal branch operations in line with the need to ensure effective crowd containment. Some branches may be closed and branches that are open will have limited counter services or reduced operating hours. However, all your usual banking transactions can still be conducted through online or mobile banking. If you do not have an online account, you can still withdraw and deposit cash, and make fund transfers and bill payments Papa Rozaidi 8:00 am — 8:00 pm� Papa Rozaidi Papa Rozaidi update 19/4 2 No. Question Answer at self-service terminals i.e. ATMs and cash deposit machines. If you do need to make a trip to the bank or insurance company, please do check their websites first to confirm which branches are open, or call their customer service hotlines. 3. Will I be able to access my bank account? Yes, you can continue to access your bank account as usual through mobile or online banking and self-service terminals. Counter services are available but on a very limited basis. For those who require counter services, please check the websites or call the customer service hotline of your bank to find out which branches are open and what services are available. 4. Will the ATMs run out of cash? Any changes to ATM operations? Bank Negara Malaysia and all banks have established the necessary infrastructure to ensure that ATMs nationwide will continue to be stocked with sufficient cash to meet the needs of all households and businesses during this MCO period. Please note, daily operating hours for ATMs will be restricted from 7.00 a.m. to 10.00 p.m. for the duration of the MCO. 5. Will I still be able to use my e- wallets and e-accounts? Yes, all e-payment providers are still operating during this containment period and there will be no disruption to e-payment transactions or acceptance services during this period of containment. Also, refer to response to Question 1 above. 6. I am a merchant. Will e-payment acceptance services e.g. POS terminals, QR code payments, e- commerce payments) continue to be operational? 7. I need to remit some money to my child who is studying abroad, but all money changers and remittance service providers are closed. What do I do? Please check on the websites or call the customer hotlines of banks to check which branches are offering money changing and remittance services during the MCO period. While non-bank money changers and remittance service providers are not allowed to operate or offer counter services at this time, some are offering online services which are fully operational during this period. Please refer to the Bank’s website http://www.bnm.gov.my/msb, MSB Advisor app or websites of these providers for more information. 8. My bank branch is closed, what do I do? Please check on your bank’s website or call its customer hotline to find out which branches are open during this period. Also, refer to responses to questions 2 and 3 above. 9. I am facing serious financial difficulties and worry that I may All banks and development financial institutions stand ready to provide restructuring and rescheduling http://www.bnm.gov.my/msb 3 No. Question Answer not be able to meet my monthly credit card and loan instalments. What do I do? facilities to borrowers who are facing financial distress arising from COVID-19. Contact your bank officer via the phone or email to discuss how they can help you restructure or reschedule your loan to get you through this difficult period. 10. I have medical insurance and need urgent medical treatment. How do I get a guarantee letter issued? Are insurance and takaful operators (ITOs) open during the MCO period? See the responses to Questions 1 and 2 above. 11. I was involved in a car accident. Are workshops still open? Whom do I notify to make a claim on my motor policy? See the responses to Questions 1 and 2 above. In addition, the National Security Council has approved towing services and repair workshops to operate as allowable non-essential services during this MCO period. 12. I work with a bank / insurance company. Do I still need to come to work during this MCO period? In line with the regulations and advisories issued by the Federal Government, only staff involved in providing essential financial services or critical operations necessary to support the provision of essential financial services are required to come to work, especially if your employer does not have remote access work capabilities. All staff involved in non-critical functions should work from home. Staff involved in critical functions, but whose providers do have remote access work capabilities are also encouraged to work from home. 13. Is Bank Negara Malaysia operating during the MCO period? How do I get in touch with their officers? Yes we are, but in line with the requirements of the MCO, all front-line services including BNMLINK for walk- in visitors have been suspended from 18 March until 31 March. In line with BNM’s Business Continuity Plan, all critical departments have implemented split operations, while non-critical departments are working from home to ensure no disruptions to BNM’s core functions throughout this period of containment. Members of the public can contact BNM through these following channels or refer to BNM’s website at www.bnm.gov.my for further updates: • eLINK (https://telelink.bnm.gov.my); or • BNMTELELINK (Tel: 1-300-88-5465) from Monday to Friday (9.00 a.m. to 5.00 p.m.) Bank Negara Malaysia 21 March 2020 http://www.bnm.gov.my/ https://telelink.bnm.gov.my/

Public Notice

20 Mar 2020

Policy Document on Statutory Reserve Requirement

https://www.bnm.gov.my/-/policy-document-on-statutory-reserve-requirement-1

Reading: Policy Document on Statutory Reserve Requirement Share: Policy Document on Statutory Reserve Requirement Release Date: 20 Mar 2020 Effective Date January 1959.  This document was last updated on 20 March 2020.   Applicability FSA IFSA   Summary The policy document sets out the requirements for the maintenance of balances by banking institutions in their statutory reserve accounts (SRAs) with Bank Negara Malaysia (the Bank). Banking institutions are required to maintain balances in their SRAs equivalent to a proportion of their eligible liabilities as prescribed in the policy document.   Highlights The SRR is reduced from 3.0% to 2.0% effective 20 March 2020. The daily variation from the SRR shall remain within the band of ±20% of the statutory reserve requirement rate i.e. 1.6%-2.4%. The calculation of the SRR for the compliance period of 16 March 2020 to 31 March 2020 is stipulated in the policy document.   Issuing Department Prudential Financial Policy Department   . © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

19 Mar 2020

Temporary Closure of BNMLINK HQ and BNM Offices

https://www.bnm.gov.my/-/temporary-closure-of-bnmlink-hq-and-bnm-offices

Reading: Temporary Closure of BNMLINK HQ and BNM Offices Share: Temporary Closure of BNMLINK HQ and BNM Offices Release Date: 19 Mar 2020 BNMLINK services (face-to-face advisory, walk-in visitors and exchange of mutilated currency notes and coins) are not available to the public until the Movement Control Order ends.     © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

19 Mar 2020

Temporary Suspension of Services at Pejabat BNM Johor Bahru

https://www.bnm.gov.my/-/temporary-suspension-of-services-at-pejabat-bnm-johor-bahru

Reading: Temporary Suspension of Services at Pejabat BNM Johor Bahru Share: 11 Temporary Suspension of Services at Pejabat BNM Johor Bahru Release Date: 19 Mar 2020 Bank Negara Malaysia (BNM) would like to inform that one of our employees at the Pejabat BNM Johor Bahru has tested positive for COVID-19. The employee is now seeking treatment at a government hospital and has been away from office since 12 March 2020. The office has been disinfected in accordance with Ministry of Health (MoH) guidelines. BNM together with the MoH are currently conducting detailed contact tracing to identify all parties whom the infected employee may have come into close contact with. Pejabat BNM Johor Bahru is closed from 18 to 31 March 2020 in line with Government’s Restriction of Movement Order (RMO). All BNM offices dealing with the general public have observed social distancing of one meter apart and face-to-face interaction of not more than 10 minutes during consultation with walk-in customers. BNM will continue to closely monitor the situation to ensure that the well-being of employees and members of the public are safeguarded. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

28 Feb 2020

RINGGIT Newsletter (Bil 1/2020 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil-1/2020-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/914558/Ringgit+Ed111+2020-01+v5.pdf

Reading: RINGGIT Newsletter (Bil 1/2020 issue) is now available for download Share: RINGGIT Newsletter (Bil 1/2020 issue) is now available for download Release Date: 28 Feb 2020 The highlight for this issuance is Langkah-Langkah Pengendalian Mata Wang Malaysia Other topics of interest include : Membantu Menangani Isu Dan Aduan Berkaitan Institusi Kewangan, Insurans Dan Takaful 7 Prinsip Perlindungan Data Peribadi Yang Perlu Anda Ketahui Ringkasan Intipati Belanjawan 2020 Institusi Kewangan Bukan Bank RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil 1/2020 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

. R A K A N K E W A N G A N A N D A B I L . 1/2020 Intipati Belanjawan 20207 Prinsip Perlindungan Data Peribadi Yang Perlu Anda Ketahui PERCUMA | PP 16897/05/2013 (032581) BNMLINK Membantu Menangani Isu Dan Aduan Berkaitan Institusi Kewangan, Insurans Dan Takaful Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Langkah-Langkah Pengendalian Mata Wang Malaysia C O N T O H C O N T O H Pengenalan Bank Negara Malaysia (BNM) komited dalam usaha memelihara alam sekitar dan melestarikan sumber asli untuk kepentingan dan manfaat generasi akan datang. Menyedari akan keperluan ini, BNM sentiasa memastikan wang kertas dan duit syiling Malaysia yang digunakan oleh orang ramai mempunyai tahap integriti yang tinggi, iaitu mempunyai ciri-ciri keselamatan yang moden dan terkini; menepati standard kualiti yang ditetapkan dengan menggabungkan pelbagai inovasi dan ciri keselamatan yang lebih canggih dari segi teknologi berbanding dengan siri wang kertas dan duit syiling keluaran terdahulu; serta dijaga dengan betul dan baik bagi memastikan jangka hayatnya dalam edaran lebih lama. Kita mempunyai tanggungjawab bersama untuk memastikan tempoh penggunaan mata wang negara adalah lebih lama supaya sumber alam sekitar dapat dipelihara dan dimanfaatkan dengan sebaik-baiknya. Bagi mencapai matlamat ini, penting bagi kita sebagai pengguna untuk memastikan wang kertas dan duit syiling Malaysia dalam edaran berada dalam keadaan yang baik serta mudah dipastikan ketulenannya. Dua denominasi wang kertas yang sering digunakan ialah RM1 dan RM5 yang diperbuat daripada substrat polimer. Antara manfaat wang polimer adalah seperti yang berikut: a) Tahan lebih lama, b) Boleh dikitar semula, c) Tidak menyerap cecair, d) Lebih bersih, dan e) Sukar dikoyakkan. Bagi memastikan wang kertas RM1 dan RM5 dapat digunakan untuk jangka masa yang lebih panjang, langkah-langkah pengendalian berikut perlu dilakukan: a) Jangan ikat wang polimer dengan getah. Sebaliknya, gunakan pembalut kertas. b) Jangan lipat wang polimer. Sebaliknya, simpan wang ini secara menegak. c) Bersihkan wang polimer dengan air jika terdapat kekotoran. A. Standard Kualiti Mata Wang Dalam Edaran Wang kertas Malaysia diterima untuk pembayaran dan sesuai diedarkan semula apabila memenuhi semua kriteria yang berikut: a) Tulen dan bukan palsu; b) Tidak berlubang, koyak, bertampal atau hilang beberapa bahagian daripadanya; c) Bersih secara keseluruhan dan tidak terlalu kotor; d) Tidak luntur, terutamanya pada potret SPB Yang di- Pertuan Agong; dan e) Tidak berconteng. Wang kertas dan duit syiling yang tidak lagi sesuai digunakan untuk pembayaran mahupun edaran semula boleh ditukar di mana-mana bank perdagangan, Ibu Pejabat BNM di Kuala Lumpur atau Pejabat BNM di Pulau Pinang, Johor Bahru, Kuala Terengganu, Kota Kinabalu dan Kuching. Wang kertas tidak lagi sesuai untuk edaran semula sekiranya: a) Terbakar, b) Renyuk, c) Berlubang, d) Luntur warna, e) Mengecut, atau f) Diubah suai (termasuk contengan) Langkah-langkah Pengendalian Mata Wang Malaysia C O N T O H 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Maizatul Aqira Ishak Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : [email protected] Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : [email protected] Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Gantian nilai bagi wang kertas yang tidak sesuai untuk edaran semula tertakluk kepada garis panduan seperti yang berikut: a) Saiz wang kertas • Nilai penuh - Lebih 2/3 daripada saiz asal wang kertas • Nilai separuh - Lebih 1/2 tetapi kurang 2/3 daripada saiz asal wang kertas • Tiada nilai - Kurang 1/2 daripada saiz asal wang kertas b) Wang kertas yang berconteng • Nilai penuh - Contengan yang sedikit • Tiada nilai - Contengan yang ketara, contengan tanda pada potret SPB Yang di-Pertuan Agong atau contengan berunsurkan politik, agama atau perkauman. Gantian nilai bagi duit syiling yang tidak sesuai untuk edaran pula adalah seperti yang berikut: • Nilai penuh - Kemik, terhakis tetapi paparan denominasi masih kelihatan, terbakar, kotor, kecacatan pengilangan • Tiada nilai - Berlubang, dipotong, terbelah Sila imbas kod QR di bawah atau rujuk laman sesawang BNM melalui http://www.bnm.gov.my/handlingbanknotes/ untuk maklumat lanjut mengenai cara penjagaan mata wang polimer serta gantian nilai bagi mata wang yang tidak sesuai untuk edaran kerana rosak, terkoyak atau sebagainya. C O N T O H bil. 1/2020 | 3 Rasa kualiti substrat wang kertas: Kertas yang kesat dengan cetakan timbul pada bahagian potret SPB Yang di-Pertuan Agong yang pertama dan teks. Wang polimer diperbuat daripada plastik khas dengan cetakan timbul pada potret SPB Yang Di-Pertuan Agong yang pertama dan teks. 1) Ciri Braille Ciri braille dalam bentuk berlian (diamond) dengan cetakan timbul 2) Potret Tanda Bayang Potret 3-Dimensi SPB Yang di- Pertuan Agong yang pertama dengan angka ‘50’ 3) Tanda Pandang Telus Bentuk lengkap motif Songket akan kelihatan 4) Imej Pendam Pelbagai Warna Angka ‘50’ akan dapat dilihat berubah warna apabila wang kertas dipusingkan B. Ciri-ciri Keselamatan Mata Wang Dalam Edaran Dalam laman sesawang BNM, anda boleh melihat panduan mudah untuk mengenal pasti ciri-ciri keselamatan pada wang kertas melalui kaedah rasa, lihat dan sendeng. Maklumat lanjut adalah seperti yang berikut: Lihat wang kertas berlatarbelakangkan cahaya: Potret tanda bayang 3 - D i m e n s i , ta n d a pandang telus dan tingkap pandang telus akan kelihatan. Garisan lurus benang kese lamatan akan kelihatan. Sebagai contoh, berikut adalah ciri keselamatan wang kertas denominasi RM50: 5) Cetakan Timbul Rasa kesan cetakan timbul pada bahagian potret SPB Yang di- Pertuan Agong yang pertama dan teks 6) Jalur Holografik Angka ‘50’ dan motif Bunga Raya dengan ciri belau (pumping and matt-structure effect) 7) Benang Keselamatan Dengan Ciri Warna Berubah Benang keselamatan yang d i te n u n b e r u b a h wa r n a daripada merah kepada hijau Garisan lurus gelap dengan teks mikro ‘BNM50’ 4 | RINGGIT Sila imbas kod QR di bawah atau rujuk laman sesawang BNM melalui http:// www.bnm.gov.my/securityfeatures untuk panduan bergambar yang menerangkan cir i -c ir i keselamatan bagi set iap denominasi wang kertas. Selain itu, BNM turut mengeluarkan aplikasi mudah alih MyRinggit bagi memudahkan orang ramai mempelajari serta memeriksa ciri-ciri keselamatan mata wang Malaysia bagi set iap denominasi. Aplikasi MyRinggit kini boleh didapati di Apple Store dan juga Google Play. Muat turun sekarang. C. Perkara Yang Perlu Dilakukan Sekiranya Mendapat / Menerima Wang Palsu Wang kertas palsu tidak mempunyai nilai. Jika anda ragu-ragu mengenai ketulenan wang kertas ketika melakukan transaksi, ikuti langkah-langkah mudah yang berikut: a) Minimumkan sentuhan terhadap wang kertas yang disyaki palsu, b) Jangan tulis, conteng, potong atau ubah paparan wang kertas yang disyaki palsu, c) Jangan edar semula wang kertas yang disyaki palsu, d) Simpan wang kertas yang disyaki palsu dalam sampul surat atau sampul plastik, e) Catat maklumat tentang cara anda menerima wang kertas yang disyaki palsu dalam kertas yang berasingan, dan f) Laporkan segera kepada pihak polis sekiranya mendapat atau menemui wang kertas yang disyaki palsu. Sumber: www.bnm.gov.my 8-10) Unsur Cahaya Pendarfluor Dua Warna Motif kijang dan segi empat tepat dengan teks ‘BNM50’ Serat berwarna merah, kuning dan biru kelihatan bertaburan Imej kombinasi biomolekul dan angka ‘50’ dalam warna merah dan kuning 11-13) Teks Mikro Tu l i s a n t e k s bersaiz mikro akan kelihatan jelas Berikut ialah ciri-ciri keselamatan duit syiling: 1) Imej Pendam Angka “50” dan huruf “SEN” kelihatan apabila duit syiling disendengkan (untuk duit syiling 50 sen sahaja) 2) Garisan Mikro Kesan timbul garisan halus (untuk duit syiling 50 sen sahaja) 3) Reka Bentuk Sisi Jarak lekuk dan gerigi pada sisi adalah sekata Pegang wang kertas menegak dan sendengkan: Lihat pada pergerakan imej dan perubahan warna pada benang keselamatan dan petak kilat berwarna. Lihat wang kertas berlatarbelakangkan cahaya: Potret tanda bayang 3 - D i m e n s i , ta n d a pandang telus dan tingkap pandang telus akan kelihatan. Garisan lurus benang kese lamatan akan kelihatan. bil. 1/2020 | 5 Laman Informasi Nasihat dan Khidmat Bank Negara Malaysia (BNMLINK) bertujuan untuk membantu serta memudahkan orang ramai dalam menangani isu dan aduan mengenai hal di bawah bidang kuasa Bank Negara Malaysia (BNM). Orang ramai yang ingin mendapatkan maklumat atau bantuan penyelesaian tentang perbankan Islam dan konvensional, insurans dan takaful, khidmat nasihat bagi perusahaan kecil dan sederhana, pentadbiran pertukaran asing dan perkara lain di bawah bidang kuasa Bank Negara Malaysia, boleh menghubungi BNMLINK dan BNMTELELINK. Menurut Datin Arlina Ariff, Pengarah Jabatan LINK dan Pejabat BNM, pada masa ini BNMLINK menerima 2,500 pertanyaan setiap hari berkaitan perkhidmatan institusi kewangan, insurans serta takaful. Isu yang sering dihadapi oleh orang ramai ialah masalah kegagalan mereka melunaskan bayaran ansuran bulanan mengikut tarikh yang ditetapkan. Dalam hal ini, Datin Arlina menambah, peminjam yang membiarkan masalah pembayaran balik pinjaman atau pembiayaan mereka berlarutan bakal berhadapan dengan beberapa implikasi, seperti faedah pinjaman atau pembiayaan mereka akan dinaikkan; menanggung segala kos dan caj bagi tindakan undang-undang yang diambil oleh pihak bank dan risiko aset boleh dilelong. Selain itu, bayaran tertunggak akan tertera dalam laporan Sistem Maklumat Rujukan Kredit Pusat (CCRIS), yang sering menjadi rujukan institusi kewangan. Hal ini boleh menyebabkan peminjam menghadapi kesukaran untuk memohon pinjaman / pembiayaan kewangan pada masa hadapan. Bank Negara Malaysia (BNM) menasihatkan bahawa peminjam yang menghadapi kesukaran membayar balik pinjaman atau pembiayaan supaya segera merujuk kepada pihak bank mereka bagi mengelak berdepan keadaan yang lebih sukar pada masa depan. Tindakan segera merujuk kepada bank membolehkan peminjam berunding dengan pihak bank bagi membincangkan pilihan dan pembayaran balik seperti penstrukturan atau penyusunan semula pembiayaan mereka. Beliau juga menasihatkan peminjam yang menghadapi masalah itu supaya jangan menunggu sehingga pihak bank mengambil tindakan undang-undang kerana ia akan merumitkan lagi keadaan. Hal ini disebabkan oleh peminjam boleh diisytihar bankrap jika jumlah baki pembiayaan melebihi RM50,000. “Jangan berlengah dan mengelak daripada pihak bank. Bertindak segera merujuk kepada pihak bank anda. Bincangkan jalan terbaik bagi membantu anda untuk terus membayar hutang sama ada melalui penjadualan atau penyusunan semula pinjaman atau pembiayaan,” demikian nasihat Datin Arlina. “Sekiranya tiada jalan penyelesaian yang boleh diambil, pelanggan boleh merujuk perkara ini kepada Agensi Kaunseling & Pengurusan Kredit (AKPK) bagi mendapatkan kaunseling serta menyertai program pengurusan hutang oleh AKPK,” katanya pada taklimat media mengenai khidmat nasihat yang disediakan Pusat Perhubungan Pelanggan Bank Negara Malaysia. Beliau berkata, pelanggan bank yang tidak berpuas hati dengan keputusan institusi kewangan boleh merujuk perkara berkenaan di talian 1-300-88-5465, e-mel [email protected] atau melalui borang maklumat di pautan https://telelink.bnm.gov.my/. Sumber: www.fomca.org.my Membantu Menangani Isu Dan Aduan Berkaitan Institusi Kewangan, Insurans Dan Takaful 6 | RINGGIT Data peribadi bermaksud sebarang maklumat yang digunakan di dalam transaksi komersial yang berhubungan secara langsung atau tidak langsung dengan seseorang yang dikenal pasti daripada maklumat tersebut. Data tersebut boleh direkodkan sama ada secara manual atau elektronik meliputi perkara-perkara objektif dan juga subjektif tanpa mengira sumber maklumat itu diperolehi meliputi maklumat asas. Antara contoh ‘data peribadi’ adalah seperti: • Nama dan alamat • Nombor kad pengenalan • Nombor pasport • Maklumat kesihatan • E-mel • Gambar • Imej dalam rakaman litar tertutup (CCTV) • Maklumat dalam fail peribadi • Butiran akaun bank • Butiran kad kredit • Maklumat kesihatan (sensitif) contohnya, penjenisan darah, rekod atau huraian kesihatan sehinggalah ke maklumat-maklumat sensitif seperti kepercayaan politik, kepercayaan agama, keadaaan fizikal atau mental atau apa-apa informasi lain yang ditetapkan oleh Menteri di bawah Akta Perlindungan Data Peribadi (APDP) dari semasa ke semasa. Berikut adalah Prinsip Perlindungan Data Peribadi yang wajib dipatuhi di bawah seksyen 5 (1) demi menjaga keutuhan data peribadi: 1) Prinsip Am Anda harus memberi persetujuan untuk menggunakan data peribadi anda. Seseorang pengguna atau organisasi tidak dibenarkan memproses data peribadi seseorang yang lain tanpa kebenarannya. Pengertian proses di sini bermaksud mengendalikan data melalui cara atau kaedah automatis atau pengkomputeran atau apa-apa proses lain. Prinsip Perlindungan Data Peribadi Yang Perlu Anda Ketahui 2) Prinsip Notis Dan Pilihan Anda harus dimaklumkan akan tujuan beserta had penggunaan data peribadi yang telah diberikan. 3) Prinsip Penzahiran Ketahui bahawa syarikat tidak boleh menggunakan data anda bagi tujuan lain selain daripada yang dibenarkan sahaja. 4) Prinsip Keselamatan Organisasi harus memastikan data peribadi disimpan dalam keadaan selamat dan terjamin. 5) Prinsip Penyimpanan Sesuatu data peribadi itu tidak dibenarkan disimpan di dalam sesuatu pemprosesan lebih daripada had masa yang diperlukan. 6) Prinsip Integriti Data Organisasi bertanggungjawab dalam memastikan data peribadi tersebut betul dan tepat. bil. 1/2020 | 7 Butir-butir yang diperlukan semasa membuat aduan: Anda hanya perlu menulis surat atau e-melkan kepada Jabatan Perlindungan Data Peribadi untuk menjelaskan kes anda. Dalam surat atau e-mel, anda perlu menyatakan perkara- perkara yang berikut: i) Nama organisasi atau individu yang anda ingin adukan; ii) Menerangkan sebab kebimbangan anda; iii) Memberikan butir-butir tindak balas yang anda telah terima daripada organisasi yang disyaki punca kebocoran maklumat; iv) Menyediakan salinan apa-apa surat atau e-mel mengenai perbincangan anda dengan organisasi atau individu berkenaan. Aduan Awam [email protected] Sistem iSPAAA KPKK http://kkmm.bpa.jpm.my/eApps/system/index.do Sumber: www.kkmm.gov.my “Seseorang pengguna atau organisasi tidak dibenarkan memproses data peribadi seseorang yang lain tanpa kebenarannya.” “Sekiranya pengadu masih tidak berpuas hati dengan jawapan dan tindakan yang diambil oleh organisasi berkenaan, maka pengadu bolehlah terus membuat aduan ....” 7) Prinsip Akses Individu hendaklah diberikan hak untuk mengakses data peribadinya dan dibenarkan untuk mengemas kini datanya. Orang ramai boleh mengemukakan sebarang aduan yang berkaitan Akta Perlindungan Data Peribadi 2010 (Seksyen 709) sekiranya mengesyaki sebuah organisasi atau seseorang telah melanggar salah satu daripada 7 Prinsip Perlindungan Data Peribadi. Berikut adalah amalan yang disarankan kepada pengadu, iaitu apabila Akta ini telah berkuat kuasa: i) Pengadu perlu membuat aduan dan memohon penjelasan daripada organisasi yang terlibat terlebih dahulu; ii) Sekiranya pengadu masih tidak berpuas hati dengan jawapan dan tindakan yang diambil oleh organisasi berkenaan, maka pengadu bolehlah terus membuat aduan kepada pihak Jabatan Perlindungan Data Peribadi (JPDP) melalui alamat aduan yang disertakan bagi membolehkan penyiasatan dijalankan; iii) Sekiranya pengadu masih terkilan dengan keputusan Pesuruhjaya berhubung perkara tersebut, maka pengadu bolehlah merayu kepada Tribunal Rayuan dengan memfailkan suatu notis rayuan dengan Tribunal Rayuan. 8 | RINGGIT Ringkasan Intipati Belanjawan 2020 Tema Belanjawan 2020 – Memacu Pertumbuhan Dan Keberhasilan Saksama Ke Arah Kemakmuran Bersama. Empat teras yang menunjangi Belanjawan 2020 adalah: 1 2 3 4Memacu Pertumbuhan Ekonomi dalam Ekonomi Baharu dan Era Digital Pelaburan Ke Atas Rakyat: Meningkatkan Keupayaan Modal Insan Mewujudkan Masyarakat yang Bersatu, Inklusif dan Saksama Memulihkan Institusi dan Kewangan Awam Diskaun 18% di semua lebuh raya milik PLUS. Caj kesesakan pada waktu sekitar puncak dan waktu biasa diturunkan sehingga 30% berbanding dengan kadar tol semasa serta percuma semasa waktu bukan puncak. Tol / Lebuh Raya BSH akan diteruskan dengan p e r u n t u ka n s e b a nya k RM5 bilion individu bujang berusia lebih 40 tahun yang berpendapatan kurang daripada RM2,000 sebulan. Individu bujang berusia lebih 40 tahun dan golongan OKU layak menerima RM300 dan secara automatik menjadi penerima Skim Takaful mySalam secara percuma. Bantuan Sara Hidup (BSH) 2020 Soroton Belanjawan 2020 MySalam: 1) Penerima Bantuan Sara Hidup (BSH):- • Individu berumur antara 18 hingga 65 tahun dan pasangan; • Individu bujang berumur antara 40 hingga 65 tahun dan berpendapatan kurang daripada RM24,000 setahun; • Individu OKU berumur antara 18 hingga 65 tahun dan berpendapatan kurang daripada RM24,000 setahun. 2. Bukan Penerima Bantuan Sara Hidup (BSH) / Golongan M40:- • Individu berumur antara 18 hingga 65 tahun dan berpendapatan sehingga RM100,000 setahun. Perlu mendaftar di web www.mysalam.com.my Manfaat yang diterima: 1) Penerima Bantuan Sara Hidup (BSH): Penyakit kritikal RM8,000 + hospitalisasi RM50 untuk maksimum 14 hari. 2) Manfaat Bukan Penerima Bantuan Sara Hidup (BSH): Penyakit kritikal RM4,000 + hospitalisasi RM50 untuk maksimum 14 hari. Skim Peduli Kesihatan (PeKa B40) telah dilancarkan untuk menyediakan pemeriksaan dan intervensi awal bagi mengesan penyakit tidak berjangkit seperti kesihatan mental dan kanser untuk mereka yang berusia antara 50 tahun hingga 60 tahun. Perluasan mySalam & PeKa B40: bil. 1/2020 | 9 MalaysiaKerja (Malaysians@ Work) telah diperkenalkan b e r t u j u a n m e w u j u d k a n peluang pekerjaan yang lebih baik untuk belia dan wanita sekali gus mengurangkan kebergantungan terhadap pekerja asing berkemahiran rendah. Insentif tersebut adalah seperti yang berikut: ________________________________________ #GraduanKerja (pengambilan graduan menganggur lebih 12 bulan): Graduan yang menerima tawaran kerja akan menerima insentif gaji selama dua tahun sebanyak RM500 sebulan sebagai tambahan kepada gaji yang diterima. Manakala majikan pula akan menerima insentif pengambilan pekerja sebanyak RM300 sebulan juga bagi tempoh yang sama. ________________________________________ #WanitaKerja: Mewujudkan 33 ribu peluang pekerjaan setahun untuk wanita berusia di antara 30 hingga 50 tahun yang telah berhenti bekerja selama setahun atau lebih. Insentif gaji selama dua tahun sebanyak RM500 sebulan, manakala majikan pula akan diberi insentif pengambilan pekerja sebanyak RM300 sebulan bagi tempoh yang sama. ________________________________________ # Wa t a n K e r j a : P r o g r a m k e s a m a r a t a a n k o s pengambilan pekerja yang b e r t u j u a n m e n g a l i h k a n kebergantungan terhadap pekerja asing berkemahiran rendah. Warganegara yang menggantikan pekerja asing akan diberikan insentif gaji selama dua tahun sebanyak RM350 atau RM500 sebulan mengikut sektor. Manakala, majikan pula akan menerima insentif pengambilan sebanyak RM250 sebulan dalam tempoh yang sama. ________________________________________ Nota: Inisiatif #MalaysiaKerja akan disediakan oleh Kerajaan dan diuruskan oleh Kumpulan Wang Simpanan Pekerja (KWSP), iaitu insentif gaji tersebut akan dikreditkan ke dalam akaun KWSP Peluang Pekerjaan Gaji minimum ditingkatkan pada kadar RM1,200 sebulan hanya di wilayah bandar- bandar utama. Bajet Pekerjaan Kadar bantuan sara hidup (COLA) ditingkatkan sebanyak RM50 sebulan bagi kumpulan pelaksana penjawat awam. Saraan Penjawat Awam #Dana Rumah Mampu Milik oleh Bank Negara Malaysia (BNM) bagi membantu pembeli rumah golongan berpendapatan rendah untuk membeli rumah pertama. #Kempen Pemilikan Rumah iaitu pemaju menawarkan sekurang-kurangnya diskaun 10 peratus untuk hartanah yang layak dan akan dipadankan dengan pengecualian duti setem. #Skim Rent To Own: Jaminan 30% atau RM3 Bilion untuk pembelian rumah pertama bernilai sehingga RM500 ribu. #Skim Perumahan Belia BSN dilanjutkan mulai 1 Januari 2020 sehingga 31 Disember 2021 Skim Rumah Mampu Milik Sumber: www1.treasury.gov.my Rakyat berumur 18 tahun ke atas yang berpendapatan RM100,000 ke bawah setahun akan menerima RM30 dalam e-dompet bermula 1 Januari 2020 untuk kali pertama bagi merangsang penggunaan dompet tanpa tunai. Bajet Ekonomi Digital 10 | RINGGIT Pada tahun 2018, Pusat Khidmat Aduan Pengguna Nasional (NCCC) telah menerima sebanyak 935 aduan mengenai institusi kewangan bukan bank. Lebih daripada 41% aduan adalah mengenai pinjaman wang berlesen, skim pelaburan dan pajak kedai. Isu berkaitan pinjaman wang berlesen merupakan antara yang amat membimbangkan. Sekiranya pengguna ingin melangsaikan wang yang dipinjam dalam masa yang lebih singkat dari tempoh yang sebenar, pengguna tidak diberi rebat yang sewajarnya seperti yang diberikan oleh bank perdagangan yang berada di bawah pengawasan Bank Negara Malaysia (BNM). Kadar faedah pinjaman mereka juga adalah sangat tinggi dan tidak diawasi oleh BNM kerana syarikat sedemikian bukan di bawah pengawasan BNM. Syarikat pinjaman wang berlesen ini berada di bawah bidang kuasa Kementerian Perumahan dan Kerajaan Tempatan (KPKT) dikawal selia oleh Bahagian Kawalan Kredit. Ramai pengguna yang meluahkan perasaan marah dan sedih kerana mendapati kadar faedah terlalu tinggi. Mereka meminta pihak NCCC untuk menjadi pengantara dengan pihak pinjaman wang berlesen ini untuk mengurangkan kadar faedah serta menyelesaikan masalah mereka. Terdapat juga segelintir syarikat pinjaman wang berlesen ini meminta sejumlah wang sebagai pendahuluan sebelum pinjaman mereka diluluskan. Setelah pinjaman Institusi Kewangan Bukan Bank diluluskan, pengguna diminta membuat pembayaran lagi. Apabila pengguna membuat keputusan untuk menamatkan kontrak pinjaman dan meminta semula wang pendahuluan, permintaan pengguna tidak dilayan malah syarikat pinjaman menghilangkan diri. Skim pelaburan yang dibawa oleh insititusi kewangan bukan bank juga telah memerangkap ramai pengguna yang leka. Kebanyakan aduan adalah mengenai wang pelaburan mereka yang tidak membuahkan sebarang hasil seperti yang dijanjikan. Ramai penggguna yang sedar akan tipu helah ini dan cuba membatalkan perjanjian dan meminta bayaran balik wang pelaburan mereka. Malangnya pengguna tidak boleh membatalkan perjanjian ini melainkan pengguna perlu membayar sejumlah wang kepada syarikat tersebut. Malah ada juga yang melabur dalam syarikat kewangan yang tidak mempunyai sebarang lesen dan melarikan diri sebaik sahaja menerima wang pelaburan daripada pengguna yang naif. Aduan juga diterima daripada para penguna mengenai pemilik pajak gadai yang menjual atau melelong barangan gadaian mereka tanpa memaklumkan kepada para penguna. Sepatutnya pemilik pajak gadai wajib memaklumkan kepada para pengguna apabila mereka hendak menjual atau melelong barangan gadaian pengguna tersebut. Malahan, ada segelintir pemilik pajak gadai yang mengambil kesempatan masalah kewangan yang dihadapi oleh pengguna dengan menjual barangan gadaian dengan harga yang lebih tinggi untuk mengaut keuntungan yang besar. Para pemilik pajak gadai yang tidak beretika ini memaksa pengguna membayar lebih untuk mendapatkan kembali barangan gadaian mereka. Pihak berkuasa perlu memainkan peranan yang penting dalam mengawal selia syarikat kewangan yang berlesen ini dan memastikan syarikat-syarikat ini menjalankan urusan perniagaan mereka dengan lebih beretika. Walaupun syarikat kewangan berlesen tidak sama dengan bank perdagangan, namun pihak kerajaan melalui agensinya seperti Kementerian Perumahan dan Kerajaan Tempatan (KPKT), Suruhanjaya Koperasi Malaysia (SKM) dan Kementerian Perdagangan Dalam Negeri dan Hal Ehwal Pengguna (KPDNHEP) perlu mengawasi kegiatan syarikat wang berlesen ini. Aduan Awam: 04-15, 4TH Floor, WISMA PJ5 SOHO, No 4.B, Jalan SS5D/6, Kelana Jaya 47301 Petaling Jaya Selangor Sistem E-Aduan: http://www.nccc.org.my/v2/index.php/ ingin-membuat-aduan-e-aduan Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) C O N T O H C O N T O H bil. 1/2020 | 11 TERIMA PANGGILAN PENYAMAR RM Jangan panik menerima panggilan telefon macau scam 1 Kad kredit anda telah digunakan oleh pihak ketiga MANGSA CEMAS2 Tak, saya tak pernah ada kad kredit! Bukan saya! PENYAMARAN SEBAGAI PEGAWAI3 Pemanggil menyamar sebagai pegawai Bank Negara Malaysia/ PDRM/agensi penguatkuasa yang lain dan meminta maklumat DUIT LEBUR6 Mangsa hanya sedar telah ditipu setelah transaksi selesai MENURUT ARAHAN5 Mangsa melakukan pemindahan wang atas arahan pegawai tersebut MANGSA PERCAYA4 Bagi menyekat penyalahgunaan kad kredit/identiti, mangsa diarahkan memindahkan wang ke akaun kononnya pemegang amanah yang dilantik JANGAN PANIK DEDAHKAN MAKLUMAT PERBANKAN ANDA PINDAHKAN WANG ATAS ARAHAN SESIAPA ! Langkah-langkah keselamatan bnm.official1-300-88-5465 https://telelink.bnm.gov.my Inisiatif literasi kewangan oleh: BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA

Public Notice

18 Feb 2020

Important Public Advisory for Visitors to BNMLINK

https://www.bnm.gov.my/-/important-public-advisory-for-visitors-to-bnm-link-2

Reading: Important Public Advisory for Visitors to BNMLINK Share: Important Public Advisory for Visitors to BNMLINK Release Date: 18 Feb 2020 As of July 2023, BNMTELELINK has been rebranded and merged into BNMLINK. The public may continue to contact BNMLINK via telephone 1-300-88-5465 or online via bnmlink.bnm.gov.my Given the evolving situation of the current public health concern, members of the public are encouraged to channel enquiries and complaints through the web form. eLINK (Web Form) Complete the web form at https://telelink.bnm.gov.my/ The public may also contact: BNMTELELINK (Contact Centre) Tel: 1-300-88-5465 (1-300-88-LINK) Overseas: +603-21741717 Operating hours: 9.00 a.m. - 5.00 p.m. (Monday – Friday) For Frequently Asked Questions (FAQs) on CCRIS-related matters, please visit http://creditbureau.bnm.gov.my/faqs.html We hope that the public take precautionary measures in light of the current situation and minimize face-to-face interactions. Thank you © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

11 Feb 2020

Financial Consumer Alert: List of unauthorised companies and websites has been updated

https://www.bnm.gov.my/-/unauthorised-company-website-11022020

https://www.bnm.gov.my/documents/20124/40673/Updated+22062020+Financial+Consumer+Alert%27s+List+%28Eng%29.pdf

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated Share: 3 Financial Consumer Alert: List of unauthorised companies and websites has been updated Release Date: 11 Feb 2020 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 441 companies/entities. The following company was added to the list: Emam Copytrade; Mtrade Investment Scheme; and Mtrade Royal Investment Scheme The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Updated 22 June 2020 Financial Consumer Alert's List (BM_BI)_new_latest.xlsx No Name of unauthorised entities/individual Website Date Added to Alert List 1 1globalcash 13/07/2012 2 1Gold.com.my www.1gold.com.my   13/07/2012 3 3Sixty Venture Capital PLC www.empire3sixty.com http://forum.putera.com/tanya/index.php?/topic/92929-3sixty- ventureanda-mahu-income-pasif-rm1500-setiap-hari/ 30/12/2014 4 A.A.M Global Corporation Sdn Bhd 17/05/2017 5 Ace Global Sales & Services 02/05/2013 6 Ace Dimension Network Sdn Bhd 10/04/2015 7 AE Group Holding Pte. Ltd. (201322498-D) http://www.aevfc.com 14/05/2015 8 Agarwood Venture   (002273031-A) 19/02/2014 9 Agar Wood Chamber of Commerce Malaysia  21/05/2015 10 Ahmad Zulkhairi Associates PLT (LLP0009065) http://www.fx10capital.com  22/06/2017 11 Ajuwah Realty Sdn Bhd  (966604-D) 25/07/2014 12 Ajuwah Agencies Sdn Bhd  (966604-D) 25/07/2014 13 Ajuwah Consultancy 21/05/2015 14 Alpari (Asian) Ltd 21/05/2014 15 Al-Saliha Worlwide Sdn. Bhd. (628267-M) 13/07/2012 16 ArkianFX 18/03/2019 17 Amal Trust (002848059 - U) https://amal-trust.com/   (related to CFAF Wakala - Wakala.biz) 22/06/2020 18 Amazing Yields Sdn Bhd  (891529-V) 23/01/2013 19 Amethyst Gold Creation Sdn Bhd  (951063-K) www.powergoldclub.com      www.powergold999.com                                     www.powergold.biz  12/11/2013 20 Applikasi Duit http://www.aplikasiduit.com   https://www.facebook.com/aplikasiduitandroid/ 19/09/2017 21 APS Asia Plantation Sdn Bhd (984575-T) 28/03/2013 22 Arba Emas Perak   (SA0280035-A) http://www.arbaemasperak.com 14/05/2015 23 ARS Ultimate Sdn Bhd (1268778 - A) 06/08/2018 24 Aruna Travel 25/09/2013 25 Arribhu Suci Enterpise http://www.premierfxmarket.com 28/08/2017 26 Asas Seroja Sdn Bhd (357014A) 23/12/2015 27 Ascada Kiraana Sdn Bhd (1225011A) 06/12/2017 28 Asia Equity Ventures (002576131V) www.asian-equity.com 10/10/2018 29 Ashnik Holdings (M) Sdn Bhd (1124601D) 23/12/2015 30 Ashnik Trading (002369914-W) 23/12/2015 31 AsiaLink Globe Capital www.com-agc.com 25/07/2014 32 Astral Progress Sdn Bhd  (989294-K) 13/10/2015 33 Asset Growth Solution Enterprise (002552148 - K) http://www.aplikasiduit.com   https://www.facebook.com/aplikasiduitandroid/ 19/09/2017 34 Atlantic Global Asset Management (AGAM) https://atlanticgam.es https://private.atlanticgam.es/#/signup/partner=P09201446202971 28/08/2017 35 AU Niaga Sdn Bhd (907806-W) 13/07/2012 36 AU79 International  13/07/2012 37 Auto Trading Management https://www.facebook.com/simplyfxmalaysia/ 28/08/2017 38 Aurawave Marketing Sdn. Bhd http://www.aurawave2u.com 14/05/2015 39 Axis Capital Corporation Ltd www.axiscapitalcorp.com 19/02/2014 40 Aziera Gold Enterprise (NS0133976-K) 25/02/2016 41 BC Academy Sdn Bhd www.bookcoinsmalaysia.com 17/05/2017 42 BC Bullion Sdn Bhd 17/05/2017 43 BDIG Investment Scheme https://www.facebook.com/BDIGroupMalaysia/  https://www.facebook.com/TeamDoubleProfit/                              https://www.facebook.com/smartBDIG/                                         https://www.facebook.com/BdiGroups-Malaysia-1937078139955774/ 11/07/2018 44 Berkat FD Sdn Bhd 17/05/2017 45 BFS Markets Ltd www.bfsforex.com 25/07/2014 46 Binary Indulgence Sdn Bhd   (963258-W) 25/07/2014 47 Bitclub Network https://bitclubnetwork.com/opportunity.html https://www.facebook.com/bitclubnetwork.BCN/ 28/08/2017 48 BitKingdom www.bitkingdom.org 24/02/2017 49 BSG- Buat.Simpan.Ganda www.bsg.my                                                                                                                            www.bsg.my/arib                                                                                             www.bsg.my/atsproject                                                                   https://www.facebook.com/atsproject       06/12/2017 50 Build Rich Mining Group Bhd (1006586-T) www.buildrich.us 28/03/2013 51 Build Rich Investment Group Ltd 19/02/2014 52 Build Rich Group Holding 19/02/2014 53 Build Rich Agrotech Berhad 19/02/2014 54 Build Rich Enterprise 19/02/2014 55 Bumi Klasik Warisan Enterprise 13/07/2012 56 Capital Asia Group (M) Sdn Bhd www.capitalasiagroup.com 14/05/2015 57 Carbon Cash Bhd  (1218702-K) http://carbontoken.com    http://goalgreen2u.com  31/07/2017 58 Carousell Capital (0000140783T) 14/01/2019 59 Cash Deal Sdn Bhd (Boss Venture) www.bossventure.com 19/02/2014 60 Century Dynasty Asia Pacific Sdn Bhd 28/08/2017 61 Century Dynasty Group Berhad 28/08/2017 62 Century Dynasty Group LTD 28/08/2017 63 Century Dynasty Resources Sdn Bhd (980031-K) 28/08/2017 64 Celik Emas Enterprise (0021517795-K) 14/05/2015 65 CFAF Islamic  www.cfaf-islamic.com 14/01/2019 66 CFWA Capital Business (002665083V) www.cfaf-islamic.com 14/01/2019 67 CFAF Wakala Wakala.biz 27/05/2019 68 Changkat  Agro Resources (IP 0353991V) 14/05/2015 69 CG International  31/07/2017 70 CGF Fine Metal Sdn Bhd 27/09/2012 71 Classic Worldwide Corporation (M) Sdn Bhd (773082M) www.cwc.com.my                                  programarba.blogspot.my 27/05/2016 72 Climate Protectors Sdn. Bhd 23/06/2017 73 Coin Enterprise Ltd  Livecoin.net  23/06/2017 74 CryptoDaily Investment Packages https://cryptodaily.io https://www.facebook.com/pg/Cryptodailyio-323902771374164/reviews/ 19/09/2017 Based on information received by BNM, below is the list of known companies and websites which are not authorised nor approved under the relevant laws and regulations administered by BNM: 75 CTK Network http://CTK2U.com 16/10/2012 76 Classic FX Venture https://www.facebook.com/Classic-FX-Venture-92977800446648/ 31/07/2017 77 CybertrustFX 22/07/2013 78 CYL Asia Enterprise 29/06/2017 79 CYL4U Resources www.cyl4u.com 29/06/2017 80 CYL Peoria Enterprise 29/06/2017 81 CYL Prospect Trading 29/06/2017 82 Dana BPIP 27/05/2019 83 Danatama Millennium Sdn Bhd (819082-U) 02/05/2013 84 Dana Haji Jasman 13/07/2012 85 Dana Heritage 27/05/2019 86 Darul Emas Perak Bhd 19/02/2014 87 DBB Star Sdn Bhd (1110055-M) 25/02/2016 88 Degold Empire Sdn Bhd (882335-M) 13/07/2012 89 Delta Wealth Services  (002194713-K) 25/07/2014 90 Destiny Resources Services 25/07/2014 91 Dgreat Network http://info.simplebisnes.com  02/05/2013 92 Dinar Dirham Global  www.dinardirham.com www.dinardirham.online 09/01/2017 93 DM Rise Enterprise (PG 0262929-H) 20/10/2014 94 DNA Profile Sdn Bhd (245435-W) 13/07/2012 95 Dream Success International Sdn Bhd (1002002-P) www.Surewin4u.com 25/09/2013 96 Dynamic Wira Marketing Sdn Bhd - Skim Beras 1 Malaysia 23/01/2013 97 Dynasty Worldwide Sdn Bhd (800311-D) www.dynasty-worldwide-net www.dynastymf.com 25/09/2013 98 Eagle Aeronautics (M) Sdn Bhd (796603-A) 27/09/2012 99 East Cape Mining Corp 13/07/2012 100 Ecobit 23/06/2017 101 Ecofuturefund www.ecofuturefund.biz 25/09/2013 102 Efzinitus Capital Pte Ltd www.efzinitus.com 09/05/2017 103 Emam Copytrade  www.emam-copytrade.com 07/02/2020 104 Emgoldex (Emirates Gold Exchange) 10/04/2015 105 Empire Five Trading www.mikadofx.com 04/04/2014 106 Empires Making Money For You (EMM4U) https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 107 Energetic Gateway Sdn Bhd (511826-X) 23/01/2013 108 Epic Palms Bhd http://epicpalmsberhad.com/  28/03/2013 109 Ethtrade Limited https://ethtrade.org  22/06/2017 110 Ethtrade Malaysia 22/06/2017 111 Everise Fumigation Sdn Bhd  (861654-K) 25/07/2014 112 Exorbitance Influence Sdn Bhd (1191499-U) www.krubal.com 09/01/2017 113 Exquisite Bottle Index Sdn Bhd (1060843T) www.xbi.com.my 23/12/2015 114 Exness Executive Management https://exnesmalaya.com 28/08/2017 115 Exness Malaysia 28/08/2017 116 Extra Capital Programme http://extracapitalprogram.com 13/07/2012 117 Ezey Marketing 13/07/2012 118 Ezy Save Trading (PG0216560 - V) 19/09/2017 119 EZYFX Berhad (1213734P) www.ezyfx4u.com https://ezfx4u.wordpress.com 14/01/2019 120 E-Qirad Sdn Bhd (595699-D) 28/03/2013 121 FA Markets 02/05/2013 122 Family Wealth Resources (SA0310508-M) 13/10/2015 123 Fari Group Global Resources (SA0319984-M) 23/12/2015 124 FBS Malaysia http://fbsmy.com 31/07/2017 125 FE Brands (M) Sdn Bhd (1000656-H) 13/07/2012 126 Financial.org Malaysia  https://www.facebook.com/financial.org.malaysia/  09/04/2018 127 Flexsy Enterprise & Barrilorne Corp 13/07/2012 128 FNZ Capital Limited www.intelfx.com 13/07/2012 129 Fruits LT Ventures https://www.facebook.com/Fruits-LT-Ventures-161191244419863  28/08/2017 130 Fruits LT Ventures Investment Scheme 28/08/2017 131 Fortrend International Sdn Bhd (876619-X) 01/09/2015 132 Forex4you http://www.forex4you.com/en/about https://www.facebook.com/forex4you.malaysia/  28/08/2017 133 Forexnova http://www.facebook.com/forexnovamalaysia/  https://www.forexbrokerz.com/brokers/ForexNova-review    31/07/2017 134 Futurebarrel.com http://futurebarrel.com 12/11/2013 135 Future Trade Indojaya Sdn Bhd (1003327-P) http://ftindojaya.blogspot.com www.ft-indojaya.com 27/09/2012 136 FXBITLab Holdings Sdn Bhd (1212832-T) https://www.fxbitlab.com  31/07/2017 137 FxUnited Malaysia (myfxunited) 10/04/2015 138 FXUnited Power Sdn Bhd (1146795-M) http://www.fxunitedpowerinternational.com/ 27/05/2016 139 FXZN Zenith Limited http://www.fxzn.com 30/12/2014 140 FXZN Investment Limited 30/12/2014 141 FXZN Zenith Management Limited 30/12/2014 142 FX Primus Ltd https://trivfx.com 23/12/2015 143 Gain FX Capital Sdn Bhd www.gainfxcapital.org 13/07/2012 144 Gan Patt Services 13/07/2012 145 Ganding Wawasan Trading  (TR0133766-A) 25/07/2014 146 GCMAsia https://www.gcmasia.com/my/                                                  https://www.facebook.com/GCMAsia-902721186484854/            https://www.instagram.com/gcmasia/                         https://twitter.com/GcmAsia 17/01/2018 147 Gemilang Jalur Pintar Enterprise http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 148 GGC Aquaculture Sdn Bhd (1044976P) 23/12/2015 149 GGF Golden House Sdn Bhd (803753-W) 13/07/2012 150 GGT Golds Sdn Bhd (547290-D) 25/02/2016 151 Global Creation Trading 13/07/2012 152 Global Golds Trading (JM0518201-W) 25/02/2016 153 Global Peace Loving Family www.globalpeacelf.com 27/09/2012 154 Global Tijari Holdings Berhad 31/07/2017 155 Global Tijari Industries Sdn Bhd 31/07/2017 156 Global Venture Financing http://globalventurefinancing.com 13/07/2012 157 Global Wave Gold Corporation https://globalwavegold.com http://gwgfx.com 12/11/2013 158 Globamas Trading  https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 159 GM Trader http://www.gmtraderteam.com https://www.facebook.com/GmTrader-859208567506294/  28/08/2017 160 Gold Bullion World Sdn Bhd (1018604-A) http://goldenworld.com.my 22/07/2013 161 Gorgeous Chain Sdn Bhd (841928-P) 13/07/2012 162 Grand View Golden Success Sdn Bhd (638186-X) - Golden  Maximum 22/07/2013 163 Golden Speed Trading (002252254-K) 28/08/2017 164 Great Access Sdn Bhd (517965-X) 13/07/2012 165 Green Buck Resources Sdn Bhd (851115-A) 02/05/2013 166 Greenmillion Agrosolution Enterprise http://greenmillionagrisolution.blogspot.com 27/09/2012 167 Green Forest Global Sdn Bhd (987049-P) 22/07/2013 168 Grow Asia Capital Holdings (0000151641T) 14/01/2019 169 Grow Asia Capital Ventures (0000151635T) 14/01/2019 170 GTGVIP www.gtgvip.biz  www.gtgvip.net   31/07/2017 171 HAFX Global Venture Sdn Bhd  13/10/2015 172 Harvest Reliance Consultancy Sdn Bhd (965589-W) 02/05/2013 173 HEA Teguh 25/09/2013 174 Hexa Commerce Sdn Bhd (645798-X) 13/07/2012 175 HG Resources Sdn Bhd http://www.highwayrich.com                                              http://www.highwayrichclub.com                                 http://www.highwaygroup2u.com 25/02/2016 176 HiFX Asia (HiFX) www.hifx2rich.com 25/02/2016 177 Highway Group Resources http://www.highwayrich.com                                              http://www.highwayrichclub.com                                 http://www.highwaygroup2u.com 25/02/2016 178 Hin Huat Auto Sparts (TR0005484-X) 25/07/2014 179 HotForex Malaysia https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.facebook.com/hfmarketsmalaysia http://hotforexpro.blogspot.my/ 28/08/2017 180 Holiday Express Asia 25/09/2013 181 Honest Group Ltd 13/07/2012 182 Hupro International Inc  13/10/2015 183 I & A Global Community Network 15/09/2016 184 Iconhill Holding Sdn Bhd (810775-P) 13/07/2012 185 IGC Diamond 13/07/2012 186 IGOFX  https://www.facebook.com/IGOFXinvestment/?hc_ref=PAGES_TIMELINE&fref=nf  31/07/2017 187 Infinity Star International Sdn Bhd (851864-T) 25/09/2013 188 Instaforex 13/07/2012 189 Instagroup Resources (JM0531870-X) 27/05/2016 190 INint Global Solution - (IGS) http://www.igsvc.biz/igs1  https://www.facebook.com/igs.biz/?hc_ref=SEARCH&fref=nf  28/08/2017 191 Inter Pasicfic Soyy Enterprise 10/04/2015 192 IPG Capital 24/04/2018 193 i-Rakyat Trade 22/06/2020 194 i-RakyaTrader 22/06/2020 195 i-Rakya Trader 22/06/2020 196 Iridian Ventures PLT (LLP0002569-LGN): 13/10/2015 197 IronFX Solid Trading  13/10/2015 198 Isothree Gold Sdn Bhd (906561-K) 13/07/2012 199 Itradex www.itradexsystem.com 17/05/2017 200 Jalatama Management Sdn Bhd (929594-W) www.jalatama.com 13/07/2012 201 Jalur Gemilang Maju Enterprise (SA 0412058 - U) http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 202 Jazlaan Enterprise 13/07/2012 203 Jihadfarisha Ventures www.dpkingfx.weebly.com 17/05/2017 204 JJ Commerce Trading (SA0399365P) 29/06/2017 205 JJ Global Network www.jjptr.com 24/02/2017 206 JJ Online Enterprise (SA0399360K) 29/06/2017 207 JJ Poor To Rich www.jjptr.com 24/02/2017 208 JJPTR www.jjptr.com 24/02/2017 209 JM Communications & Technology Sdn Bhd (702054-V) 13/07/2012 210 JMI Global  13/07/2012 211 JTGold 13/07/2012 212 Jutawan Apps http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 213 Kazuki Coin www.kazukicoin.net https://www.facebook.com/kzkcSamuraiNetwork/ https://www.facebook.com/kazukicoinHQ/ https://www.facebook.com/billionaireislandclub/ https://www.facebook.com/kazukimalaysia/ http://kongsikazukicoin.blogspot.my/2017/09/kongsikazukicoin.html 30/05/2018 214 Kelab Kebajikan dan Sosial Tun Teja Malaysia http://yds2u.com 02/05/2013 215 Kelab Kebajikan Sosial Malaysia (VVIP88) 04/04/2014 216 Keenan Capital Group   www.kcgtraders.com www.keenonlinefx.com 25/07/2014 217 Keenan Prestige Services  (002095851-P) 25/07/2014 218 Keenan Brilliant Services  (002021597-V) 25/07/2014 219 Kembara Jutawan Crypto https://www.facebook.com/svdmalaysia  https://www.cryptobeggar.net 31/07/2017 220 Khaira Sakinah Resources (CT0018249-R) 20/10/2014 221 Kilauan Padu Services Sdn Bhd (KPSSB) (657711-X) 22/06/2017 222 KL FxUnited Club 10/04/2015 223 Kris Plus Enterprise (IP0238424-A) 13/07/2012 224 Kudaemas  www.kudaemas.com 20/10/2014 225 L & L Property Ventures SB (1186992T) 29/06/2017 226 Lestari2U www.lestari2u.com 13/07/2012 https://i-rakyattrade.com/  227 LetDuit Scheme www.letduit.com Let Duit Boss (Facebook page) LetDuit Plan 30 Hari (Facebook page) 28/08/2017 228 Liberty Reserve www.libertyreserve.com 13/07/2012 229 Lindale Ventures (003041846 – U) http://www.lindale-ventures.com/ 22/06/2020 230 Life Time Holidays Sdn Bhd (727129-U) 13/07/2012 231 Live Coin Express  23/06/2017 232 LocalAdClick http://localadclick.net 13/07/2012 233 LocusNetwork4u.com http://locusnetwork4u.com http://carigold.com/portal/forums/showthread.php?t=548206 14/05/2015 234 LS Gold Bullion Sdn Bhd (235435-H) 28/03/2013 235 M&FI Enterprise 27/05/2019 236 Mtrade Investment Scheme 07/02/2020 237 Mtrade Royal Investment Scheme 07/02/2020 238 Making Money For You (MM4U) https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 239 Mama Captain International http://www.mamacaptain.com       http://www.barrel2u.com     https://www.mamaharbour.com 29/06/2017 240 Marco Robinson Sdn Bhd www.marcorobinson.com       17/05/2017 241 Mari Wholesale (M) Sdn Bhd (556117-T) 13/07/2012 242 Mateen Acquisition Global (002693981K) www.asia-equity.com 10/10/2018 243 Maxim Capital Ltd www.maximtrader.com 25/09/2013 244 Mayuni Enterprise  https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 245 Maza Network Sdn Bhd (1006389-H) 12/11/2013 246 MBI International Sdn Bhd (873323-V) http://www.mbiv2u.com/ 22/05/2017 247 McRen Oceanus Sdn Bhd (908484-X) 22/07/2013 248 MD Venture Group Sdn Bhd (1058936U) 23/12/2015 249 Meccafund Family Malaysia www.meccafundfamilymalaysia.blogspot.com 04/04/2014 250 Mecca Fund Global (MFG) http://meccafundglobal.com  https://makkahislamichotel.com  mekahalsafwah.blogspot.my 25/02/2016 251 Mega Dynasty Sdn Bhd (931589-V) 13/07/2012 252 Megaherbs Bioextreme (001946380-K) 13/07/2012 253 Megah Mewah Trading (SA0295909-A) 20/10/2014 254 Mface International Sdn Bhd (978203-V) http://www.mbiv2u.com/ 22/05/2017 255 MGCfx www.mgcforex.com 06/06/2016 256 MGC Capital Sdn Bhd www.morgagecapitals.com 06/06/2016 257 MGSB Holding Sdn Bhd www.mgsb.org.my 16/11/2015 258 MH Secret Wealth Enterprise (NS0122059A) 14/05/2015 259 Mi1 Global Sdn Bhd (1145697-X) http://mymi1millionaire.org 09/01/2017 260 Million Jade Sdn Bhd http://www.millionjade.com 14/05/2015 261 Miracle Day Trading (JR0047390-V) 01/09/2015 262 Mohamad World Enterprise 10/04/2015 263 MonSpace (M) Sdn Bhd http://www.monspacea.com 09/05/2017 264 MMM Malaysia  https://malaysia-mmm.net https://www.facebook.com/MMM.Malaysia.Official 28/08/2017 265 MOP Consultant Sdn. Bhd (101867-W) 13/10/2015 266 Mughniwave International Sdn. Bhd. (1163697-W) http://mughniglobal.com 15/09/2016 267 MX3 World Wide http://mx3worldwide.com 27/05/2016 268 My Cameron Hills Sdn Bhd 21/05/2015 269 Myrezki http://myrezki.com https://www.facebook.com/bizmeletop2017 28/08/2017 270 MyHowk Ling https://www.facebook.com/profile.php?id=100013203109581  31/07/2017 271 Nahana Global Resources (00211411-M) 29/06/2017 272 New Gen Food Sdn Bhd (1186962X) 29/06/2017 273 Nexgain Malaysia Sdn Bhd (773854-D) 28/03/2013 274 Next Generation mall 15/09/2016 275 NGR Asia Group Sdn Bhd (1138129-M) http://www.ngrasia.com 29/06/2017 276 NGR Global Sdn Bhd (UT0004411-H) 29/06/2017 277 NIKPROFIT TRADING http://www.premierfxmarket.com 28/08/2017 278 Nory Motor  (TR0023237-H) 25/07/2014 279 Norry Setia Ent  (TR0103958-M) 25/07/2014 280 NTB Agencies Sdn Bhd (1039052-M) 25/07/2014 281 O2 Only One 22/06/2017 282 Ocean Century International Limited  23/12/2015 283 OCI Management Sdn Bhd (1042036X) 23/12/2015 284 OCI Venture Sdn Bhd (1039926H) 23/12/2015 285 ODFX http://www.ODFX.com 14/05/2015 286 OG1 Asean 22/06/2017 287 Overseas Commercial Futures (OCFX) 28/08/2017 288 OLTA Capital Management Inc. 02/05/2013 289 Omega Pinnacle Ltd (Labuan) 28/08/2017 290 One AutoCash www.clubautocash.com  www.1autocash.com 13/07/2012 291 Only One International Sdn Bhd (1195288W) 22/06/2017 292 Orion Healthcare Management Services Sdn Bhd 10/04/2015 293 Orion Prokasih (M) Sdn Bhd 10/04/2015 294 Ostim Academy (002443002-A) www.ostimint.com 25/02/2016 295 Overseas Delight Sdn Bhd  (614245-W) www.arawana2u.com  25/07/2014 296 Pancar Mayang Sdn Bhd (527196-H) 13/07/2012 297 Pars Pay Sdn Bhd (813378-V) 13/07/2012 298 Pegasus Bullion www.pegasusbullion.com 04/04/2014 299 Perfway Traders Sdn Bhd (918583-V) http://www.perfway.com 30/12/2014 300 Perniagaan Jatidana Wawasan (M) Sdn Bhd 30/12/2014 301 Perubatan Islam Seiring Syariat Al-Ikhlas 22/07/2013 302 Pioneer Forest Sdn Bhd (1069104M) www.abunur.com                                     rezekipasif.blogspot.my 27/05/2016 303 Pertubuhan Kebajikan Komuniti Malaysia (PKKM) https://www.pkkm.my 24/02/2017 304 Pok Din Consultant & Services  www.pokdinempire.com 27/05/2016 305 Pok Din Empire Sdn Bhd (1130978-D) www.pokdinempire.com 27/05/2016 306 Pollywood Scheme http://www.pollywood.asia/index.html http://www.polly.academy/ http://www.facebook.com/pollywoodhq/  https://www.facebook.com/Pollywood-Pte-Ltd-2747462042880450/  28/08/2017 307 Power Trade Asia Sdn Bhd (933528-T) www.kuasaforex.com.my 12/11/2013 308 PPC Storm http://ppcstorm.com 04/04/2014 309 Preferred Credentials Sdn Bhd  23/01/2013 310 Premier FX Malaysia http://www.premierfxmarket.com 28/08/2017 311 Premier Point Market Sdn Bhd (1166245-K) 28/08/2017 312 Premier Point Market LLC 28/08/2017 313 Premier Ventures Gold 28/03/2013 314 Prestige Dairy Farm (M) Berhad (832757-A) 13/07/2012 315 Proficiency Management and Services (002532706X) 22/06/2017 316 Profit Web Sdn Bhd 19/02/2014 317 Program 10 Bulan Forex Trading 13/07/2012 318 Program I-Rich 13/07/2012 319 Pro Infinity Ltd http://proinfinity.com 25/07/2014 320 Projek Duit 2012 13/07/2012 321 Project Tebus Nilai IQD Investment Scheme 06/08/2018 322 Provisio Multimedia 13/07/2012 323 Pruton Mega Holding Limited  24/02/2017 324 PTFX https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH  https://www.facebook.com/PTFX-Malaysia765053533643113/?hc_ref=SEARCH  https://www.facebook.com/PTFX-Malaysia-765053533643113/ https://www.facebook.com/PTFXCopyTrade/  28/08/2017 325 PTM4U http://passport2u.com 31/07/2017 326 Public Golden House Sdn Bhd (806825-M) 19/02/2014 327 Puncak Hartawan Resources  (0000097980-T) 25/07/2014 328 Quantum Capital Program www.quantumcapitalprogram.com www.berjayaforex.com  30/12/2014 329 Questra World (QW) https://questraworld.es https://www.facebook.com/QuestraWorld.Malaysia.1/ 28/08/2017 330 Qinur Enterprise http://www.premierfxmarket.com  28/08/2017 331 Ram Kris Venture (0024165647-K) 23/12/2015 332 RCFX 07/03/2016 333 RC Group  07/03/2016 334 RC Group Sdn Bhd 07/03/2016 335 Real Biz Pasif 12/11/2013 336 Real Ingenious Sdn Bhd (926598-U) www.worldfocus.co 13/07/2012 337 Relax Green Enterprise (PG0415537X) 29/06/2017 338 Rejab Trading  (TR0115248-A) 25/07/2014 339 Rejabwealth Sdn Bhd (1005424-X) 25/07/2014 340 Reza Anuar Seven 20/10/2014 341 Retro Titan Sdn Bhd 19/02/2014 342 Rex Russel Capital Investment Group 28/08/2017 343 RGCX Trading Corp http://www.goldrgcx.com/richman8 www.rapidgcx.com 13/07/2012 344 Richway Global Venture  www.richwayventure.com www.richwayventure.info 17/05/2017 345 Richway Green Venture (PG0406414M) 29/06/2017 346 Rich World Revolution (RWR) http://richworldrevolution.com/rwr/  https://www.facebook.com/richworldrevolution/ 28/08/2017 347 Rimbun Tekad Realty Sdn Bhd  (966604-D) 25/07/2014 348 Rimbun Tekad Consultancy Sdn Bhd  (966620-V) 25/07/2014 349 Rising Premium Sdn Bhd (285572-P) 14/05/2015 350 RMMUDAH.COM 13/07/2012 351 RM20segera.com www.rm20segera.com 25/07/2014 352 RN Corporate Services Sdn Bhd 19/02/2014 353 Rowther Technologies MSC Sdn Bhd (727979-T) 13/07/2012 354 Royal Gold Sdn Bhd (1005830-X) http://royalgolds.com 27/09/2012 355 Royale Team Groups www.royaleteaminfo.blogspot.com 02/05/2013 356 RS Capital Holdings Bhd (819833-P) 13/07/2012 357 Safeena Gold Gallery (IP0386035-U) 25/02/2016 358 Sanabil Investment www.sanabil.com  31/07/2017 359 Sejati Agarwood Enterprise 21/05/2014 360 Sera Land Mangement & Enterprise (JM0503206-P) 23/01/2013 361 SFX Management (KT0339697-V) http://www.topprofx.com/about.php  https://www.facebook.com/tpfxmalaysia/?hc_ref=SEARCH&fref=nf  28/08/2017 362 SGFM Trading Sdn Bhd (936419-V) 27/09/2012 363 SGV Premier Plan Scheme 28/08/2017 364 SimplyFX Malaysia https://www.facebook.com/simplyfxmalaysia/ 28/08/2017 365 Slimberry Extreme Team http://zatslimberry.blogspot.com  slimberryxtreme.com 13/07/2012 366 Skim Pelaburan ROP 27/05/2019 367 Skim Pelaburan SMMG 27/05/2019 368 Smarthink Trading (001973331 - M) 19/09/2017 369 Smart Trade Entrepreneur (002459702D ) 22/06/2017 370 Smart Trade Resources Sdn Bhd (1180992A) 22/06/2017 371 SMCI Corporation  www.smci.co 31/07/2017 372 Solar Bond Capital Sdn Bhd (1157972-A) www.mysolarbond.com                                        http://solarbond-malaysia.blogspot.my 15/09/2016 373 Speedline www.speedline-inc.com 13/07/2012 374 Spot Gold Scheme 24/04/2018 375 Srgold Exchange Bhd (1033164-V) www.srgold.com.my 12/11/2013 376 Sri Perkasa Emas Trading 13/07/2012 377 Sri Chempaka Emas Enterprise    (SA0293336-P) 25/07/2014 378 Steady Dynasty Sdn Bhd (782270-H) 22/07/2013 379 Steady Global Network Sdn Bhd  22/07/2013 380 Strategic Solution (Goldex Group International Limited) 19/09/2017 381 Superbinvest Group https://www.facebook.com/pu3superbinvest/?hc_ref=SEARCH https://www.facebook.com/pu3superbinvest/   28/08/2017 382 Suliz Pearl Mines 13/07/2012 383 Suisse Coins Sdn Bhd www.suissecoins.com  10/04/2015 384 Sweblink Global Network Sdn Bhd (209952-H) 22/07/2013 385 Swiss Capital Venture 13/07/2012 386 SVD Malaysia  https://www.facebook.com/svdmalaysia  https://www.cryptobeggar.net 31/07/2017 387 SV International Scheme SV International Investment Malaysia (Facebook page) SV International (Facebook page) 28/08/2017 388 SV International Sdn Bhd (1169355-K) 28/08/2017 389 Syarikat Azza Motor Network Sdn Bhd (104795-P) www.rajakeretaweebly.com  www.rajakereta.com 30/12/2014 390 Syarikat GECS Ltd 13/07/2012 391 Syarikat Sri Alam 13/07/2012 392 Tabung Dana Ehsan 13/07/2012 393 Tanjung Trading   ((TR0123942-W) 25/07/2014 394 Tenaga Setia Services (107239-P) 25/07/2014 395 TF International Group 22/06/2017 396 TF International Group (MY) 22/06/2017 397 TF International W1212 KL Team 22/06/2017 398 TG Reliance Sdn Bhd (1086255-A) 01/09/2015 399 The Gold Guarantee 29/11/2012 400 Times Travel & Explorer Sdn Bhd (1041742-H) 09/04/2018 401 Titan Group Sdn. Bhd (823732-U) 13/07/2012 402 TP Eagle Venture Sdn Bhd (1114378-M) www.tpeagles.com 12/07/2016 403 Trillion Venture https://trivfx.com 23/12/2015 404 Triple One Management Pte Ltd ( T1FX) http://www.t1fx.com 25/02/2016 405 Tü-E Capital Berhad (806096-H) https://tu-e.capital/ http://www.tu-e.com.my/ 13/03/2018 406 TukarGold.net www.tukargold.net 13/07/2012 407 Toga Capital Sdn Bhd (1132072-MD) 28/08/2017 408 Toga Company Limited 28/08/2017 409 TopproFX http://www.topprofx.com/about.php  https://www.facebook.com/tpfxmalaysia/?hc_ref=SEARCH&fref=nf  28/08/2017 410 UER Gold https://uergold.com/profitsharing.php-inaccessible 25/07/2014 411 UFUNCLUB www.jutawanufunclub.com ufunclub2me.bolgspot.com 25/07/2014 412 Ultimate Power Profits www.ultimatepowerprofits.yolasite.com 16/10/2012 413 United American Traders Council www.uatconline.com 12/11/2013 414 Uni Argrow (Cambodia) Co. Ltd www.argrow.biz www.unicapasia.net 30/12/2014 415 Uncang Teguh Resources  (0000102116-T) 25/07/2014 416 Urustabil Sdn Bhd (545426-X) 27/09/2012 417 VC Gold Sdn Bhd (722295-T)  13/07/2012 418 Virgin Gold Mining Corporation 13/07/2012 419 VenusFX www.venusfx.com 06/06/2016 420 V Save FX Trading (002482098 - K) 19/09/2017 421 V Sim Marketing (002283635 - U) 19/09/2017 422 Verger Management Services 25/07/2014 423 VI Profit Galaxy (DSV Cryptoclub & LUX Galaxies) https://luxgalaxies.com/ https://www.lavidacoin.com/   29/08/2018 424 Wadiah Trading www.wadiahtrading.com 23/12/2015 425 Water Beaute World Berhad https://wbwglobal.wordpress.com/                       http://wbwig.blogspot.my/ 09/05/2017 426 Water World Marketing  (CA0177161-P) 25/07/2014 427 Webster Trade Consulting Sdn Bhd (1171420D) www.wtcpro.com http://wtcprolimited.blogspot.my 24/02/2017 428 Westrank Equity Sdn Bhd (1046449-A) 25/09/2013 429 Windsor Fragrance Sdn Bhd (599208-H) 20/10/2014 430 WMS Capital Ltd (Labuan) 28/08/2017 431 WMS Global Services (PG0402301-M) 28/08/2017 432 World Dirham Berhad (970807-X) 22/07/2013 433 Worldwide Community Programme https://wcp2u.com/ 15/09/2016 434 WSL Merchants Pte Ltd www.worldshopperslink.com    www.click4dollar.com 16/10/2012 435 Xcelent Job Trading (001971755P) 09/01/2017 436 XIG Limited  www.xiglimitedmalaysia.com  https://my.xiglimited.com  https://www.facebook.com/xiglimitedofficial https://www.facebook.com/myduitcom 28/08/2017 437 XM Forex Malaysia https://www.xm.com/my 06/12/2017 438 XOC7 13/07/2012 439 YDS Corporate Line Sdn Bhd (877697-P) http://yds2u.com 02/05/2013 440 YDS Holding Groups Bhd (987797-T) http://yds2u.com 02/05/2013 441 ZEMC Sdn Bhd (1216874-A) 22/06/2017 442 Zenith Gold International Limited (ZGI) http://www.zenithgolds.com    http://zenithgoldrocks.wordpress.com        http://zenithgoldpowerteam.blogspot.my 25/02/2016 443 Zeta Capital Management 13/07/2012 444 Zill Akasha Gemilang Enterprise 10/04/2015 445 Zness.com http://zness.com 25/09/2013 http://togacapital.com.my/  https://www.facebook.com/TogaCapitalLimited/  https://www.facebook.com/info.saham.togachat.academy 

Public Notice

17 Jan 2020

Exposure Draft on Recovery Planning

https://www.bnm.gov.my/-/exposure-draft-on-recovery-planning-1

Reading: Exposure Draft on Recovery Planning Share: Exposure Draft on Recovery Planning Release Date: 17 Jan 2020 Bank Negara Malaysia (the Bank) today issued the exposure draft on Recovery Planning. The exposure draft sets out the Bank’s expectations and policy requirements on the development and maintenance of recovery plans for financial institutions. Under the proposed framework, each financial institution will be required to identify and plan for the execution of a suite of recovery options to restore its long-term viability under a range of idiosyncratic and system-wide stress events. The Bank invites written feedback on the proposed requirements, including suggestions on areas to be clarified and alternative proposals that the Bank should consider. Responses must be submitted to the Bank by 31 March 2020. Find out more: Exposure Draft on Recovery Planning © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

31 Dec 2021

Policy Document on Code of Conduct for Malaysia Wholesale Financial Markets

https://www.bnm.gov.my/-/pd-codeconduct-wholesalefinmkt

https://www.bnm.gov.my/documents/20124/938039/PD_COC_WholesaleFinMkt.pdf

Reading: Policy Document on Code of Conduct for Malaysia Wholesale Financial Markets Share: Policy Document on Code of Conduct for Malaysia Wholesale Financial Markets Embargo : For immediate release Not for publication or broadcast before 0900 on Friday, 31 December 2021 31 Dec 2021 This policy document sets out principles to be observed by market participants in upholding integrity and principles of fair market practices, which is essential to support confidence, ensure an orderly functioning of the wholesale financial markets and preserve financial stability. Following the initial issuance of the Code of Conduct for Malaysia Wholesale Financial Markets four years ago, this policy document is the outcome of continuous review following feedback from the industry and market participant on market conduct matters. In addition to the requirements in this policy document, market participants are expected to comply with applicable laws, rules and regulations in the jurisdiction in which financial market transactions are undertaken. Read: Policy Document on Code of Conduct for Malaysia Wholesale Financial Markets Bank Negara Malaysia 31 December 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Code of Conduct for Malaysia Wholesale Financial Markets (Dec 2021 Policy Document) Issued on: 31 December 2021 BNM/RH/PD 028-43 Code of Conduct For Malaysia Wholesale Financial Markets Applicable to market participants in the wholesale financial markets, including: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Prescribed development financial institutions 5. Licensed insurers 6. Licensed takaful operators 7. Approved money-brokers 8. Approved operators of electronic trading or broking platforms 9. Corporations 10. Investment institutions Code of Conduct For Malaysia Wholesale Financial Markets Issued on: 31 December 2021 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 .................................... 5 7 Policy Document and Circular Superseded ............................................... 6 PART B DEALERS AND BROKERS ...................................................................... 7 8 Eligibility Requirements for Dealers and Brokers ...................................... 7 9 Execution of Deals .................................................................................... 8 10 Relationship between Dealers and Brokers .............................................. 8 11 Mandatory Leave ...................................................................................... 9 PART C PROHIBITED CONDUCT ........................................................................ 10 12 Prohibited Conduct under the FSA and IFSA .......................................... 10 13 Market Manipulation ................................................................................ 10 14 Misinformation and Rumour .................................................................... 10 15 Insider Dealing ........................................................................................ 11 16 Additional Requirements for Market Participants .................................... 11 17 Whistleblowing ........................................................................................ 12 PART D RESPONSIBILITY TO PRESERVE A REPUTABLE, ETHICAL AND HONEST MARKET PLACE ..................................................................................... 13 18 Treatment of Reference or Fixing Rate ................................................... 13 19 Offshore Dealings of Ringgit Currency Products ..................................... 13 20 Dealing at Non-Current Rates ................................................................. 13 21 Dealing for Personal Account .................................................................. 14 22 Dealing Quotation ................................................................................... 14 23 Entertainment and Gifts ........................................................................... 14 24 Anti-Money Laundering and Counter Financing of Terrorism .................. 15 25 Misconduct………………………………………………………….. .............. 15 PART E SHARING OF INFORMATION AND TRANSPARENT COMMUNICATIONS ................................................................................................ 16 26 Handling of Confidential Information ....................................................... 16 27 Conflict of Interest ................................................................................... 17 Code of Conduct For Malaysia Wholesale Financial Markets Issued on: 31 December 2021 PART F TRACEABILITY, AUDITING AND RECORD-KEEPING ......................... 18 28 Voice and Electronic Communication ...................................................... 18 29 Transaction Records ............................................................................... 18 PART G ROBUST AND CLEAR POLICIES, PROCEDURES AND ORGANISATIONAL STRUCTURE .......................................................................... 19 30 Segregation of Duties and Authorisation ................................................. 19 31 Confirmation of Dealings ......................................................................... 19 32 Security in Dealing Area .......................................................................... 19 33 After-Hours and Off-Premises Dealing .................................................... 19 PART H INTERNAL GOVERNANCE AND CONTROLS ...................................... 21 34 Role of Board and Management ............................................................. 21 35 Risk Management ................................................................................... 21 36 Compliance……………………………………………………………….. ...... 22 37 Internal Audit…………………………………………………………………...22 38 Reporting of Non-compliance and Audit Findings ................................... 22 39 Non-compliance by Dealers and Brokers ................................................ 23 40 Trade Surveillance .................................................................................. 23 41 Technical and Operational Capability ...................................................... 24 42 Training…………………………………………………………………… ...... 24 PART I USE OF TECHNOLOGY ......................................................................... 25 43 Use of Electronic Trading and Broking Platforms .................................... 25 44 Responsibilities of Approved Operators of Electronic Trading or Broking Platforms ................................................................................................. 25 Code of Conduct For Malaysia Wholesale Financial Markets 1 of 25 Issued on: 31 December 2021 PART A OVERVIEW 1 Introduction 1.1 An orderly functioning of the wholesale financial markets is essential to support confidence, ensure the integrity of financial markets and preserving financial stability. 1.2 As the wholesale financial markets continue to evolve, market conduct and practices should be reviewed and updated to maintain the highest standards of integrity. The objective of this policy document is to update and set out principles and standards to be observed by market participants in the wholesale financial markets i.e. money market and foreign exchange market, including over-the-counter derivatives market for interest rates or exchange rates. 1.3 This policy document is intended to apply to all market participants who act in the wholesale financial markets based on different capacity (whether as sell- side or buy-side entities) and across various money market and foreign exchange products. Transactions in the wholesale financial markets generally refer to transactions between institutions and do not involve retail transactions (e.g. transactions with an individual customer). 1.4 Market participants are required to uphold integrity and professionalism in the conduct of their business, affairs and activities, including all aspects of treasury operations and activities. In particular, market participants are required to observe the principles and standards in this policy document in their dealings in other markets, whether within or outside Malaysia. Furthermore, market participants involved in Islamic dealings are also required to ensure that these dealings are concluded based on Shariah compliant contracts that have been approved by the Shariah Advisory Council. 1.5 This policy document sets out the following: (a) eligibility requirements for dealers and brokers; (b) market conduct and internal control requirements to safeguard professionalism and integrity of the wholesale financial markets; and (c) role of industry associations in preserving market integrity. 1.6 FMAM shall adopt the standards in this policy document and observe industry developments in the wholesale financial markets on an ongoing basis, including the conduct and professionalism among market participants. FMAM is expected to self-police and investigate cases of financial market misconduct including breaches of this policy document involving its members. 1.7 The Bank expects FMAM to investigate and take action against its members for financial market misconduct, breaches of this policy document and contravention of section 141 of the FSA and section 153 of the IFSA and Code of Conduct For Malaysia Wholesale Financial Markets 2 of 25 Issued on: 31 December 2021 inform the Bank of any action taken. The Bank may share any relevant information with FMAM to assist FMAM in its investigation. FMAM may share information with financial institutions that employ or seek to employ an individual or with another professional body to give effect to the investigation and disciplinary process of its members who may also be members of such professional body. 1.8 In addition to the requirements in this policy document, market participants are expected to comply with applicable laws, rules and regulations in the jurisdiction in which financial market transactions are undertaken. 2 Applicability 2.1 This policy document is applicable to all market participants as defined in the FSA and IFSA, and may include: (a) licensed banks; (b) licensed investment banks; (c) licensed Islamic banks; (d) prescribed development financial institutions; (e) licensed insurers; (f) licensed takaful operators; (g) approved money-brokers; (h) approved operators of electronic trading or broking platforms; (i) corporations; and (j) investment institutions who deal in the wholesale financial markets, either acting in the capacity as a sell-side or buy-side entity. 2.2 For ease of reference, this policy document is applicable to the market participants referred in paragraph 2.1 in the following manner: Institutions Applicability Licensed banks The whole policy document Licensed investment banks Licensed Islamic banks Prescribed development financial institutions Licensed insurers Licensed takaful operators Approved money-brokers Approved operators of electronic trading or broking platforms Parts C, E, F and I Other market participants who deal in the wholesale financial markets, in particular corporations and investment institutions Parts C, D and E Code of Conduct For Malaysia Wholesale Financial Markets 3 of 25 Issued on: 31 December 2021 3 Legal Provisions 3.1 The requirements under Part B, D, E, F, G, I and paragraph 16.2 and 16.3 of this policy document are specified pursuant to section 140 of the FSA and section 152 of the IFSA. 3.2 The requirements under paragraph 16.1 and Part H of this policy document are specified pursuant to section 47 of the FSA, section 57 of the IFSA and section 41 of the DFIA. 3.3 The requirements to submit information to the Bank under paragraphs 38, 39 and 44 of this policy document are specified pursuant to section 143 of the FSA, section 155 of the IFSA and section 116 of the DFIA. 3.4 Except as otherwise provided under paragraph 3.5, 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. 3.5 The guidance under paragraphs 13.2, 14.2 and 15.2 in this policy document is issued pursuant to section 141 of the FSA and section 153 of the IFSA for the purpose of providing guidance on the descriptions of conduct which amount to conduct set out in section 141(1) of the FSA and section 153(1) of the IFSA. 4 Effective Date 4.1 This policy document comes into effect on 31 January 2022, except for paragraphs 8.1 to 8.3 and 28.2 to 28.4 which come into effect on 31 July 2022. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meaning 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” except for paragraphs 13.2, 14.2 and 15.2, denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted. For paragraphs 13.2, 14.2 and 15.2, “G” denotes a guidance issued by the Bank to describe conduct which Code of Conduct For Malaysia Wholesale Financial Markets 4 of 25 Issued on: 31 December 2021 amounts to prohibited conduct in section 141 of the FSA and section 153 of the IFSA or clarify factors to be taken into account in determining whether a person has engaged in such prohibited conduct; “agent” refers to a market participant, generally an interbank institution or an approved money-broker, who executes deals on behalf of its clients pursuant to the clients’ mandate and without taking on market risk in connection with the deals; “AMLA” refers to the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001; “approved operators of electronic trading or broking platforms” refer to operators of electronic trading or broking platforms as approved by the Bank under the Policy Document on the Framework for Electronic Trading Platforms; “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; “brokers” refer to employees of approved money-brokers who arrange deals between market participants in the wholesale financial markets; “clients” refer to market participants entering into transactions and activities with or through an interbank institution or an approved money-broker; “corporations” refer to body corporates formed in Malaysia (resident) or outside Malaysia (non-resident), which deal in the wholesale financial markets including non-resident banks and other development financial institutions that are not prescribed under the DFIA; “dealers” refer to employees of financial institutions dealing in the wholesale financial markets and may include traders and sales persons of the treasury division of the institution; “DFIA” refers to the Development Financial Institutions Act 2002; “financial institutions” refer to licensed banks, licensed investment banks, licensed Islamic banks, prescribed development financial institutions, licensed insurers, licensed takaful operators and approved money-brokers; Code of Conduct For Malaysia Wholesale Financial Markets 5 of 25 Issued on: 31 December 2021 “FMAM” refers to ACI – Financial Markets Association of Malaysia, an association of wholesale financial market professionals in Malaysia; “FSA” refers to the Financial Services Act 2013; “IFSA” refers to the Islamic Financial Services Act 2013; “interbank institutions” “investment institutions” refer to institutions which are approved by the Bank to deal in the interbank market, whether acting as principals or agents in the wholesale financial markets; refer to resident or non-resident institutions who deal in the wholesale financial markets such as fund management companies, sovereign wealth funds and pension funds; “licensed onshore bank (LOB)” refers to a licensed bank or a licensed investment bank under the FSA and a licensed Islamic bank under the IFSA; “management” refers to the Chief Executive Officer and senior officers of market participants; and “principal” refers to a market participant who transacts for its own account and not acting as an agent. 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 the Framework for Electronic Trading Platforms; (b) Policy Document on Outsourcing; (c) Policy Document on Employee Screening; (d) Principles for a Fair and Effective Financial Market for the Malaysian Financial Market; (e) Policy Document on Corporate Governance; and (f) Guidance Document on Wholesale Market Conduct Practices. Code of Conduct For Malaysia Wholesale Financial Markets 6 of 25 Issued on: 31 December 2021 7 Policy Document and Circular Superseded 7.1 This policy document supersedes the following documents on the corresponding dates shown below: Documents Date superseded Code of Conduct for Malaysia Wholesale Financial Markets issued on 22 April 2020 (except paragraphs 8.1 to 8.4 and 28.2) 31 January 2022 Paragraphs 8.1 to 8.4 and 28.2 of the Code of Conduct for Malaysia Wholesale Financial Markets issued on 22 April 2020 31 July 2022 Circular on Financial Market Integrity and Reporting Requirements issued on 25 January 2017. 31 January 2022 Code of Conduct For Malaysia Wholesale Financial Markets 7 of 25 Issued on: 31 December 2021 PART B DEALERS AND BROKERS 8 Eligibility Requirements for Dealers and Brokers S 8.1 Prior to undertaking dealing or broking activities (including negotiation and concluding of the deal) in the wholesale financial markets, dealers and brokers must be licensed members of FMAM and abide by membership rules of FMAM. S 8.2 Financial institutions must ensure the requirements in paragraph 8.1 as well as other professional requirements imposed by FMAM are met prior to appointing any person as a dealer or broker respectively. S 8.3 Financial institutions must have in place internal policies and controls on permissible activities for licensed and non-licensed personnel in the dealing area. S 8.4 Financial institutions must ensure any person who is, or is to be, employed as a dealer or broker: (a) must not have: (i) a judgment debt returned unsatisfied in whole or in part; (ii) committed an offence involving fraud or other dishonest act or violence, whether in or outside Malaysia; (iii) committed an offence, or subject to a pending proceeding which may lead to a conviction, whether in or outside Malaysia for breach of banking, securities or insurance laws; or (iv) committed a material breach of this policy document. (b) must not have been: (i) an undischarged bankrupt whether in or outside Malaysia; (ii) issued a prohibition order from dealing or broking in or outside Malaysia; (iii) engaged in a business practice appearing to the Bank and other supervisory authorities to be deceitful, oppressive or which otherwise reflect discredit on the person’s method of conducting business; or (iv) engaged in, or associated with, a business practice or otherwise conducted himself in such a way as to cast doubt on the person’s competence and soundness of judgement. S 8.5 Any person who is, or is to be employed, as a dealer or broker, must provide accurate and complete information, including any changes to the information subsequently, to allow a financial institution to make an assessment under paragraph 8.4. S 8.6 Dealers or brokers must declare compliance with this policy document to the financial institutions annually in the format specified by FMAM. Code of Conduct For Malaysia Wholesale Financial Markets 8 of 25 Issued on: 31 December 2021 S 8.7 Financial institutions must put in place procedures to ensure dealers or brokers provide the declaration as specified in paragraph 8.6. 9 Execution of Deals S 9.1 The management of an interbank institution or an approved money-broker must ensure that its dealer or broker executes client orders based on the ‘best execution’ principles. G 9.2 ‘Best execution’ principles may include: (a) prompt and fair execution of a client’s orders; (b) execute an order based on the specific instruction of a client; (c) requirements to be truthful and transparent when communicating with a client; and (d) the usage of clear language in communicating with a client. G 9.3 Depending on whether a dealer is acting in the capacity as a principal or an agent, a dealer is encouraged to disclose the following information in order to allow a client to make an informed decision on the transaction: (a) the prevailing liquidity and market conditions; (b) the associated risks of the transaction; (c) trading strategy of the dealer and how it would impact the execution of the transaction; and (d) fees and commissions applicable to the transaction. S 9.4 A dealer must neither accept a client’s order that may indicate an attempt of market manipulation nor enter into a dealing with an intention to disrupt the market. S 9.5 A broker (whether by way of voice-broking, broking through an electronic broking platform, an aggregation provider or otherwise) is only permitted to act as an intermediary or an arranger of deals. A broker must not act in the capacity of discretionary fund management. G 9.6 A broker should facilitate the conclusion of transactions between principals on terms that are agreed by the principals. G 9.7 A dealer is encouraged to reconfirm material details when concluding a deal through voice-broking to minimise the likelihood of a dispute. 10 Relationship between Dealers and Brokers S 10.1 The management of financial institutions and approved money-brokers must put in place internal policies to govern the dealer-broker relationship, the use of electronic trading or broking platforms and execution of deals. S 10.2 The management of financial institutions must ensure that they use services of an approved money-broker and that any operator of electronic trading or Code of Conduct For Malaysia Wholesale Financial Markets 9 of 25 Issued on: 31 December 2021 broking platforms used in the Malaysian wholesale financial markets are duly approved by the Bank under the Policy Document on the Framework for Electronic Trading Platforms as may be amended from time to time. 11 Mandatory Leave S 11.1 Financial institutions must strictly enforce an uninterrupted leave policy (mandatory leave) on its dealers and brokers annually. S S 11.2 Dealers and brokers must not, deal, physically access the dealing area, or, remotely access trading systems, while on mandatory leave. 11.3 The management of financial institutions must establish appropriate policy, procedure and controls to ensure dealers and brokers comply with paragraph 11.2 and to thoroughly examine their trades for unauthorised trading or suspicious transactions while they are on mandatory leave. Code of Conduct For Malaysia Wholesale Financial Markets 10 of 25 Issued on: 31 December 2021 PART C PROHIBITED CONDUCT 12 Prohibited Conduct under the FSA and IFSA G 12.1 The following conducts are prohibited under the FSA and IFSA: (a) market manipulation; (b) misinformation and rumour; and (c) insider dealing a contravention of which is an offence for which criminal, civil or administrative actions can be taken against the offender. 13 Market Manipulation G 13.1 Section 141 of the FSA and section 153 of the IFSA prohibit a person from: (a) taking part in or carrying out a transaction that has or is likely to have the effect of creating a rate which is an off-market rate which results in an artificial rate for dealing in financial instruments in the money market or foreign exchange market; and (b) creating or causing anything that creates a false or misleading appearance of active dealing in financial instruments in the money market or foreign exchange market. G 13.2 Without limiting the generality of the scope of the FSA and IFSA, the following is a market manipulation which constitutes offences under sections 141(1)(a) and 141(1)(b) of the FSA and sections 153(1)(b) and 153(1)(c) of the IFSA: (a) trading with an intent to benefit from influencing the closing price of a financial instrument; (b) interfering with the normal supply and demand factors in the market for a financial instrument, such as wash trades, squeezing, cornering or stop loss hunting; (c) dealing without a legitimate or genuine trading and commercial intention; (d) colluding or manipulating in the calculation of a benchmark fixing rate; (e) bidding or offering with an intent to cancel the bid or offer before execution, such as spoofing to mislead the market; and (f) manipulating the price on an electronic trading or broking platform by entering prices without intent to deal, such as price flashing, in order to create false impression of the market price or liquidity. 14 Misinformation and Rumour G 14.1 Section 141(1)(c) of the FSA and section 153(1)(d) of the IFSA prohibit a person from making a statement or disseminating information that is false Code of Conduct For Malaysia Wholesale Financial Markets 11 of 25 Issued on: 31 December 2021 or misleading in a material particular and is likely to induce another person to deal in financial instruments or is likely to have the effect of raising, lowering, maintaining or stabilising the market rate of such financial instruments in the money market or foreign exchange market and when the person makes the statement, or disseminates the information: (a) the person does not exercise due care whether the statement or information is true or false; or (b) the person knows, or ought reasonably to have known, the statement or information is false or is materially misleading. G 14.2 Without limiting the generality of the scope of the FSA and IFSA, the following amounts to making of statement or dissemination of information which is false or misleading in a material way and constitutes offences under section 141(1)(c) of the FSA and section 153(1)(d) of the IFSA: (a) start and spread rumours to move markets or to deceive other market participants; and (b) discuss with any other person without care, unsubstantiated information which is suspected to be false or materially misleading and damaging to third parties. 15 Insider Dealing G 15.1 Section 141(1)(d) of the FSA and section 153(1)(e) of the IFSA prohibits a person from taking part in or carrying out a transaction based on information that is not generally available to persons who regularly deal in the money market or foreign exchange market that would, or would tend to, have a material effect on the price or value of financial instruments. G 15.2 Without limiting the generality of the scope of the FSA and IFSA, the following amounts to insider dealing and constitutes offences under section 141(1)(d) of the FSA and section 153(1)(e) of the IFSA: (a) profit or seek to profit from insider’s information with intent or through negligence; and (b) provide any other person with such information to make a profit for their institutions, clients or third parties with intent or through negligence. S 15.3 Market participants, who possess insider’s information, must not disclose such information, except where the disclosure is required as a part of the course of employment, required by laws or relevant supervisory authorities. 16 Additional Requirements for Market Participants S 16.1 Financial institutions must comply with the requirements in this policy document in respect of all treasury operations and activities, such as Code of Conduct For Malaysia Wholesale Financial Markets 12 of 25 Issued on: 31 December 2021 dealings in the bond and sukuk market, and must at all times ensure they do not engage in any prohibited conduct as set out in securities laws. S 16.2 Market participants other than an LOB and prescribed development financial institution approved by the Bank must only transact with an LOB or approved prescribed development financial institution for money market or foreign exchange transactions. S 16.3 In line with the Bank’s Foreign Exchange rules, only LOBs can engage in market-making activities for foreign exchange transactions while other market participants can only leave orders or be price takers. G 16.4 The Bank will take into account the conducts set out in paragraphs 13.2, 14.2 and 15.2 in determining whether financial institutions have committed the prohibited conduct referred to in paragraph 16.1. 17 Whistleblowing G 17.1 Market participants may, pursuant to section 256 of the FSA and section 267 of the IFSA, whistleblow to the Bank in good faith if they have knowledge or information that a contravention of this policy document has been committed or is about to be committed. G 17.2 Market participants may refer to the Bank’s whistleblowing policy on its website for detailed guidance on the available channels and required details to be included when whistleblowing. Code of Conduct For Malaysia Wholesale Financial Markets 13 of 25 Issued on: 31 December 2021 PART D RESPONSIBILITY TO PRESERVE A REPUTABLE, ETHICAL AND HONEST MARKET PLACE 18 Treatment of Reference or Fixing Rate S 18.1 Market participants must not intentionally influence or attempt to influence a reference or fixing rate, either by way of collusion or inappropriate sharing of confidential information. S 18.2 Market participants engaged in a transaction executed against a reference or fixing rate must not undertake dealings in the market that are intended to move the reference or fixing rate in their favour and to the detriment of their clients. S 18.3 Interbank institutions engaging in transactions executed against a reference or fixing rate must: (a) ensure that prices are transparent to their clients in a manner which reflect the risk to be borne in accepting such transactions; and (b) establish and enforce internal policies and procedures for collecting and executing fixing orders. 19 Offshore Dealings of Ringgit Currency Products S 19.1 Market participants must not participate in offshore ringgit non-deliverable forwards (NDFs) or engage in any foreign exchange dealings that could be deemed as facilitating non-deliverable ringgit currency related dealings in the offshore market. G 19.2 Contravention of the Bank’s Foreign Exchange rules is an offence under the FSA and IFSA and market participants dealing in ringgit currency products are expected to abide by the Bank’s Foreign Exchange rules. 20 Dealing at Non-Current Rates G 20.1 Market participants should avoid dealing at non-current rates. Dealing at non-current rates occurs when the transacted rate deviates from an actual market rate at the time of execution and may result in: (a) concealment of a profit or loss; (b) perpetration of a fraud or tax evasion; (c) unauthorised extension of credit; or (d) disorderly market pricing. S 20.2 In cases where the use of non-current rates are necessary, the management must: (a) put in place proper controls with clear audit trails for monitoring and reporting of such dealings; and Code of Conduct For Malaysia Wholesale Financial Markets 14 of 25 Issued on: 31 December 2021 (b) establish internal thresholds for determination of non-current rates. 21 Dealing for Personal Account G 21.1 Personal account dealing refers to any activity in which dealers deal under their own name or by proxy, where dealers receive indirect benefits, has influence and/or control over such accounts (e.g. for their close relatives, and/or other connected parties). Dealing for personal accounts may give rise to conflict of interest, insider dealing and front-running. S 21.2 In cases where the management permits dealing for personal account, the management must ensure safeguards are in place to manage any potential conflict of interest and to prevent insider dealing and front- running. S 21.3 The safeguards referred in paragraph 21.2 must include the following: (a) maintain confidentiality with respect to non-public price sensitive information; (b) specify the instruments that dealers can deal for personal accounts; and (c) ensure dealers do not act in a way which might adversely affect the interests of employer, clients or counterparties. S 21.4 Dealers must not deal with dealers from other institutions who are dealing for their personal accounts instead of dealing for their employing institutions. 22 Dealing Quotation S 22.1 Dealers and brokers must make clear whether their price or rate is firm or merely indicative. S G 22.2 Dealers quoting a firm price or rate must deal at the price or rate in a marketable amount with an acceptable name. 22.3 The acceptable name referred in paragraph 22.2 may include a list of counterparties approved by the risk management unit of the institution. S 22.4 Dealers must not revise the firm price or rate when the name of the counterparty is disclosed. S 22.5 Dealers and brokers must not make frivolous quotes which they have no intention of honouring. 23 Entertainment and Gifts S 23.1 Market participants must not offer entertainment and gifts which can be perceived as inappropriate inducements to conduct business, nor solicit them from other market participants. Code of Conduct For Malaysia Wholesale Financial Markets 15 of 25 Issued on: 31 December 2021 S 23.2 The management must formulate and enforce a policy for offering and accepting entertainment and gifts, and ensure compliance of its employees to the policy. 24 Anti-Money Laundering and Counter Financing of Terrorism S 24.1 Whenever applicable, market participants listed in the First Schedule of the AMLA must comply with the provisions of the AMLA, subsidiary legislation and any other related policy documents issued by the Bank and other relevant supervisory authorities. 25 Misconduct S S 25.1 Market participants must not engage in or facilitate any misconduct involving behaviour or practices which undermine the reputation of their profession, institution or the integrity of the wholesale financial markets. 25.2 Without limiting the generality of paragraph 25.1, market participants must not engage in or facilitate the following misconduct: (a) circular trading activities such as position parking, money passes and/or compensation trades; (b) improper client order handling to derive profit, conceal losses or to circumvent controls such as front running, cherry picking, inappropriate partial filling of client orders, and/or intentionally triggering limit orders; and (c) trading without necessary authorisations such as rogue trading. Code of Conduct For Malaysia Wholesale Financial Markets 16 of 25 Issued on: 31 December 2021 PART E SHARING OF INFORMATION AND TRANSPARENT COMMUNICATIONS 26 Handling of Confidential Information S 26.1 Market participants must treat information relating to the deals transacted or being transacted as confidential and limit access to such information except for circumstances set out in paragraph 26.2. G 26.2 Subject to applicable laws and regulations, confidential information may be disclosed where the disclosure is: (a) with the explicit permission from the parties involved; or (b) required by laws, a court of law or relevant supervisory authorities. G 26.3 Particular care should be taken to ensure non-disclosure of confidential information, specifically when using telephone loudspeakers, other telecommunication systems and discussions in public domain including private chat channels. G 26.4 The management is encouraged to ensure that its employees are trained to identify and treat confidential information appropriately as well as deal with situations that require anonymity and discretion. S 26.5 In order to safeguard the confidential information: (a) a dealer or broker must not visit each other's dealing areas except with the explicit permission of the management of both parties; and (b) a dealer must not deal from a broker’s office. S 26.6 Market participants must not solicit confidential information from other market participants. G 26.7 In relation to paragraph 26.6, examples of solicitation of confidential information include the following circumstances: (a) a market participant pressures another market participant to divulge confidential information whether by way of inducement, threat or otherwise; (b) a dealer places an order with a broker to find out the name of the counterparty and other information in order to conclude the deal with such counterparty or any other person; or (c) a dealer coerces a broker to divulge confidential information on a dealing which is concluded by other counterparties. S 26.8 Brokers must not divulge the names of dealing counterparties prematurely until both sides confirm an intention to transact. Code of Conduct For Malaysia Wholesale Financial Markets 17 of 25 Issued on: 31 December 2021 S 26.9 Employees of institutions must not reveal confidential information even following termination of employment. 27 Conflict of Interest S 27.1 Market participants must identify and manage actual and potential conflict of interest that may compromise or be perceived to compromise ethical or professional judgement. S 27.2 To enable the client to make an informed decision regarding a transaction, the disclosure of conflict of interest by market participants must state the following in sufficient detail: (a) the general nature of the conflict; (b) the potential risks to the client due to the conflict; and (c) the mitigation actions that have been taken to manage the conflict. S 27.3 The management must put in place internal policies, controls and processes to identify, mitigate, escalate internally and document actual and potential conflict of interest in its business processes. Code of Conduct For Malaysia Wholesale Financial Markets 18 of 25 Issued on: 31 December 2021 PART F TRACEABILITY, AUDITING AND RECORD-KEEPING 28 Voice and Electronic Communication S 28.1 Market participants must communicate with other market participants through approved methods of communication, including tele-conversation devices and messaging applications, which allow for traceability, auditing, record- keeping and access control in accordance with the market participants’ internal standards of information security. S 28.2 The management must put in place internal policies to retain records of the communication: (a) for a minimum period of seven years; (b) for a period which reflects the terms and conditions of dealings that have been agreed; or (c) in a manner as to enable the records to be properly audited, whichever is longer. S 28.3 The management must subject all approved methods of communication to surveillance by an independent party in line with the size and complexity of wholesale financial market activities. G 28.4 The independent party referred in paragraph 28.3 may refer to a separate department, unit, individual or external party, separate from dealers or brokers and does not report to the head of treasury of the institution. S 28.5 The management must put in place controls on access to the records of the communication to prevent their contents from being tampered with. S 28.6 The management must put in place clear policies to ensure any communication device without a recording function, such as mobile phones, can only be used for dealing purpose during emergency, disaster recovery situation or other circumstances as approved by the management. S 28.7 For communication referred in paragraph 28.6, the management must put in place procedures to allow an end-to-end transaction audit trail. 29 Transaction Records S 29.1 Market participants must maintain complete and accurate records of all dealings, including the policies and procedures in relation to the dealings, for a minimum period of seven years post maturity date of the deals. G 29.2 For avoidance of any doubt, the transaction records under paragraph 29.1 exclude the records of communication referred in paragraph 28. Code of Conduct For Malaysia Wholesale Financial Markets 19 of 25 Issued on: 31 December 2021 PART G ROBUST AND CLEAR POLICIES, PROCEDURES AND ORGANISATIONAL STRUCTURE 30 Segregation of Duties and Authorisation S 30.1 The management must establish clear segregation of duties among front, middle and back offices whereby authorisations and responsibilities are reflected by separate reporting lines. S 30.2 Dealers must not take part in the settlement of dealings or have an influence over the back office operation. S 30.3 The process of confirming dealings shall only be carried out by the back office staff who must be independent and separated from the officers who executed the dealings. 31 Confirmation of Dealings S 31.1 The management must put in place adequate processes and appropriate resources in the back office for dealings confirmation. S 31.2 The management must put in place clear procedures to allow the back office to confirm dealings during normal and unexpected situations within the stipulated timeline. S 31.3 The back office staff must only send confirmations to the authorised persons of the counterparty. S 31.4 All dealings must be confirmed in writing. Confirmation can only be done verbally in circumstances where other methods to obtain written confirmation have been exhausted. In the event of a verbal confirmation, such confirmation must be recorded and accompanied with a written confirmation. 32 Security in Dealing Area S 32.1 The management must put in place security measures to safeguard the dealing area which cover the following: (a) controls over access to dealing equipment (including electronic trading or broking platforms); and (b) physical access to the dealing area, where applicable. S 32.2 The management must review the security measures referred in paragraph 32.1 as and when reasonably required. 33 After-Hours and Off-Premises Dealing S 33.1 The management must identify the staff who are authorised to deal after- hours or engage in off-premises dealings. Code of Conduct For Malaysia Wholesale Financial Markets 20 of 25 Issued on: 31 December 2021 S 33.2 The management must put in place internal policies for authorised persons referred in paragraph 33.1, which cover the following: (a) eligible counterparties; (b) types of dealings; (c) dealing limits; and (d) prompt recording and reporting of dealings. Code of Conduct For Malaysia Wholesale Financial Markets 21 of 25 Issued on: 31 December 2021 PART H INTERNAL GOVERNANCE AND CONTROLS 34 Role of Board and Management G 34.1 The Board and management play a critical role in ensuring good conduct culture is embedded at the core of the institution. This includes setting good governance structures that inculcate fair and ethical decision making at all levels of the institution in carrying out its dealings. S 34.2 The Board is responsible to provide oversight on the management of the institution’s wholesale market conduct risk. In doing so, the Board’s responsibilities shall include the following: (a) approve and oversee the implementation of conduct risk governance frameworks that are commensurate with the size, complexity, and nature of its treasury activities; (b) promote sound conduct cultures that reinforce ethical, prudent, and professional behaviour to uphold the integrity of wholesale financial markets; (c) put in place sufficient resources that possess the necessary knowledge and skills in managing wholesale market conduct risks; (d) ensure performance management, remuneration and consequence management structures in the institution appropriately align risk and rewards assumed by its dealers and brokers; and (e) at least annually, evaluate the effectiveness of the institution’s overall management of wholesale market conduct risks. S 34.3 The management is responsible for the implementation of wholesale market conduct frameworks that adequately identify and mitigate risks from its operations and outsourced functions1. In doing so, the management’s responsibilities shall include the following: (a) establish policy, procedures, and controls to manage conduct risks in relation to its wholesale market activities. (b) develop a market abuse and misconduct risk assessment framework that identifies financial products traded by the institution and its susceptibility to different types of market abuse and misconducts. This risk assessment must be conducted at minimum on an annual basis to ensure it remains relevant; and (c) implement sufficient reporting and escalation to the Board on wholesale market conduct matters to ensure effective oversight and decision making within the institution. 35 Risk Management S 35.1 The management must put in place internal risk management controls that: (a) are supported by robust management information systems that facilitate the timely and reliable reporting of risks and the integration of information across the institution; and 1 Refers to dealing, risk management, or control functions that are performed by regional or global units in relation to wholesale market activities e.g. surveillance. Code of Conduct For Malaysia Wholesale Financial Markets 22 of 25 Issued on: 31 December 2021 (b) keep pace with any changes in the institution’s risk profile (including its business growth and complexity) and the external risk environment. 36 Compliance S 36.1 The management must put in place internal systems and controls to ensure adherence of institution and its employees to this policy document. S 36.2 Financial institutions must conduct on-going internal assessments on compliance with the requirements of this policy document. Any findings or incidences of non-compliance with the policy document must be reported to the management immediately. S 36.3 Financial institutions must undertake any corrective measures to address incidences of non-compliance. S 36.4 Financial institutions must maintain a record of the internal assessments, non- compliance findings and corrective measures of all current and former employees throughout the period of employment, in line with the Policy Document on Employee Screening issued by the Bank as may be amended from time to time. 37 Internal Audit S 37.1 Financial institutions must integrate market conduct risk into their risk-based assessment when formulating the audit plan. S 37.2 Financial institutions must conduct periodic internal audit based on the audit risk methodology to validate the quality and relevance of risk management and compliance controls in paragraphs 35 and 36 respectively. S 37.3 Significant audit findings uncovered in the course of audit that would materially affect the institution’s treasury activities and financial condition must be promptly reported to the management with proposal on corrective measures. S 37.4 Financial institutions must maintain a record of the audit report for up to seven years. 38 Reporting of Non-compliance and Audit Findings S 38.1 Financial institutions must report to the Bank immediately: (a) non-compliance with this policy document; and (b) audit findings, which would materially affect the financial institutions’ treasury activities and financial condition. Code of Conduct For Malaysia Wholesale Financial Markets 23 of 25 Issued on: 31 December 2021 G 38.2 Financial institutions are advised to develop clear parameters governing the materiality of non-compliance and audit findings referred to in paragraph 38.1, taking into account factors such as the prevailing market conditions and regulatory priorities. 39 Non-compliance by Dealers and Brokers S 39.1 Financial institutions must initiate inquiry into a dealer or broker who is suspected of non-compliance with this policy document. S 39.2 Financial institutions must take appropriate actions on the dealers and brokers for non-compliance with this policy document. G 39.3 The actions that may be taken by the financial institutions under paragraph 39.2 should be proportionate to the severity of the non-compliance of the dealers or brokers and may include suspension, non-access by the dealers or brokers into the dealing area and restriction on dealing or broking activities. S 39.4 To assist FMAM in assessing the member eligibility of a dealer or broker, financial institutions must inform the Bank and FMAM in writing within a week of the following decisions: (a) initiation of an inquiry into a dealer or broker for suspected non- compliance with this policy document; and (b) conclusion of such inquiry, including any action taken against such dealer or broker regardless of whether the dealer or broker remains an employee of the financial institutions. G 39.5 In addition to paragraph 39.4, the financial institutions may lodge complaints with FMAM in accordance with the by-laws of FMAM if the financial institutions have reasons to believe that their existing or former dealers or brokers have contravened this policy document. S 39.6 Upon the receipt of request in writing by another market participant who considers employing a dealer or broker currently or formerly employed with a financial institution, the financial institution must disclose whether it had made a decision under paragraphs 39.4(a) and 39.4(b). S 39.7 Financial institutions must ensure terms of employment of dealers or brokers contain a notice to such dealers or brokers of the financial institutions’ obligations set out in paragraph 39. 40 Trade Surveillance S 40.1 The management must establish policies and mechanisms to detect trends indicative of prohibited conduct and other misconducts, or the attempt of such behaviour that are commensurate with the size and complexity of wholesale market operations. Code of Conduct For Malaysia Wholesale Financial Markets 24 of 25 Issued on: 31 December 2021 S 40.2 Financial institutions must maintain accurate dealing information by reconciling their own electronic trading logs with records provided by their brokers or other counterparties, as soon as practicable. S 40.3 The management must ensure the staff working within trade surveillance is trained adequately to detect patterns of dealing that suggest any market misconduct. 41 Technical and Operational Capability S 41.1 The management must establish sufficient technical capacity and operational resources to ensure end-to-end dealings can take place in both normal and peak market conditions without undue impact on the settlement timeline. 42 Training S 42.1 Market participants must acquire relevant professional knowledge, both technical and conduct-related trainings, on an on-going basis. G 42.2 The management should provide adequate and continuous technical and conduct related training to all staff that are involved in maintaining the orderly and ethical functioning of wholesale financial market activities in the institution. Code of Conduct For Malaysia Wholesale Financial Markets 25 of 25 Issued on: 31 December 2021 PART I USE OF TECHNOLOGY 43 Use of Electronic Trading and Broking Platforms S 43.1 The management must put in place internal policies for the usage of electronic trading or broking platforms and business continuity plan for contingencies involving these platforms. G 43.2 Market participants are encouraged to synchronise and preserve time stamps on electronic trading and broking platforms internally and globally to ensure appropriate tracking of dealings. S 43.3 Market participants must ensure information technology infrastructure used for treasury operations is robust and has adequate controls and security features to deal with normal and stressed operating conditions. 44 Responsibilities of Approved Operators of Electronic Trading or Broking Platforms S 44.1 Approved operators of electronic trading or broking platforms must ensure electronic trading or broking platforms are robust and have adequate controls and security features. S 44.2 Approved operators of electronic trading or broking platforms must inform the Bank of the following: (a) any suspicious dealings in the wholesale financial markets; and (b) any material breach of security to the platforms, such as through hacking or other intrusions. S 44.3 Approved operators of electronic trading or broking platforms must submit any information requested by the Bank in an accurate and timely manner.

Public Notice

27 Dec 2021

Ruling of the BNM Shariah Advisory Council at its 217th Meeting

https://www.bnm.gov.my/-/bnm-sac-217th-mtg-ruling

https://www.bnm.gov.my/documents/20124/2629002/SAC_217th_Meeting_Ruling_en.pdf

Reading: Ruling of the BNM Shariah Advisory Council at its 217th Meeting Share: Ruling of the BNM Shariah Advisory Council at its 217th Meeting Embargo : For immediate release Not for publication or broadcast before 1540 on Monday, 27 December 2021 27 Dec 2021 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 217th meeting on 30 September 2021 made a ruling in respect of Early Disbursement Feature prior to Tawarruq Execution for Islamic Trade Finance Products based on Tawarruq. The SAC ruling aims to clarify on the Shariah status of the early disbursement feature prior to tawarruq execution and the operational requirements for its implementation to mitigate the Shariah non-compliance risk. This ruling comes into effect immediately upon its initial publication on Bank Negara Malaysia’s website on 27 December 2021. Please refer to the attachment for more information   Bank Negara Malaysia 27 December 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Shariah Advisory Council of BNM Ruling on Early Disbursement Feature Mesyuarat MPS 217 2021 1 The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on Early Disbursement Feature prior to Tawarruq Execution for Islamic Trade Finance Products based on Tawarruq 217th SAC Meeting dated 30 September 2021 Part I: SAC Ruling, Its Effective Date and Applicability Pursuant to section 52 of the Central Bank of Malaysia Act 2009, the SAC ruled that, when there is operational constraint for timely execution of tawarruq transaction, then, early disbursement feature prior to tawarruq execution which is paid directly to third-party for Islamic trade finance product is permissible subject to compliance with relevant Shariah and operational requirements as follows: a) An Islamic banking institution (IBI) is not allowed to either profiting or imposing any charges on the early disbursed fund in any way including but not limited to: i. Inclusion of early disbursement period1 in the calculation of the profit amount for subsequent tawarruq transaction; ii. Extension of the financing tenure beyond the original tenure that has been agreed with the customer in order to compensate for the foregone profit on the early disbursement period pursuant to point (i) above;2 and/or iii. Any method of profit calculation that affects the prohibition mentioned in this SAC ruling. b) IBI shall ensure strict and robust internal controls are in place to prevent IBI from profiting or imposing any charges on the amount of early disbursement, and these controls include but not limited to strong system capabilities and sound operating procedures; c) The takyif fiqhi or Shariah contract applicable to early disbursement prior to tawarruq execution which is performed without the knowledge of the customer is incidental qard; d) However, IBIs may use other Shariah contracts or takyif fiqhi that are appropriate for early disbursement, subject to complying with all relevant Shariah requirements for the contracts. 1.1. This ruling comes into effect immediately upon publication of this ruling on Bank Negara Malaysia’s website on 27 December 2021 and applies to the following IBIs: (a) licensed Islamic banks under the Islamic Financial Services Act 2013 (IFSA); (b) licensed banks and licensed investment banks approved under section 15(1) of the Financial Services Act 2013 (FSA) to carry on Islamic banking business; and (c) prescribed institutions approved under section 33B(1) of the Development Financial Institutions Act 2002 (DFIA) to carry on Islamic financial business. 1.2. In line with sections 28(1) and (2) IFSA or sections 33D(1) and (2) DFIA, as the case may be, IBI are required to comply with this ruling as compliance with any ruling of the SAC in respect of any particular aim and operation, business, affair or activity of IBI shall be deemed to be in compliance with Shariah. 1 Early disbursement period refers to the period when the early financing disbursement been made until the tawarruq is executed. 2 For example, if the original financing tenure agreed with customer (without early financing disbursement situation) is 30 days starting from 1 December 2021 until 30 December 2021, the early disbursement situation that occurs on 1 December 2021 shall not result in the extension of the tenure beyond 30 December 2021 in order to compensate for the foregone profit on 1 December 2021 due to the early financing disbursement that took place before tawarruq execution. Mesyuarat MPS 217 2021 2 Part II: Background 2.1. Bank Negara Malaysia (the Bank) received a proposal from an IBI in relation to Islamic trade finance products namely Trust Receipt-i and Invoice Financing-i which are based on tawarruq with the feature of early disbursement to third-party (customer’s supplier/exporter) before the tawarruq contract is executed. 2.2. The situation of early disbursement arises when the customer requests for the IBI to make a settlement to the supplier/exporter on the same day of the submission of relevant documents to the IBI. Such immediate payment is required by the customer for various reasons, among others, to obtain certain discounts or benefits from the supplier/exporter or to ensure that payment to supplier/exporter are made within the agreed timeframe. 2.3. Due to the IBI’s operational constraints that can only perform tawarruq by a certain cut-off time, the IBI is unable to perform tawarruq transaction on behalf of the customer as requested, thus, causing the financing disbursement through normal operating procedures cannot be implemented. For example, the IBI has to perform tawarruq before 3.00 PM cut-off time every day, however, the customer submits the documentation at 3.00 PM and requests for the payment to be made immediately before end of business hour on the same day. Due to these operational constraints, the IBI is unable to meet the customer’s needs. 2.4. Therefore, the IBI proposes for early disbursement feature by using hawalah mutlaqah contract to cater for this specific situation. 2.5. An illustration of the proposed hawalah mutlaqah structure is as follows: Shariah Issues Based on the proposal submitted, the potential Shariah issues identified are as follows: 2.6. Is the hawalah mutlaqah contract suitable to be applied for early disbursement feature as proposed or are there any other Shariah contracts that are more suitable? 2.7. Are there elements of prohibited bai` wa salaf (combination of exchange-based contracts and loan) that are prohibited in the proposed structure? Mesyuarat MPS 217 2021 3 Part III: Key Discussion The usage of hawalah mutlaqah contract in the early financing disbursement feature requires the consent of contracting parties 3.1. The hawalah mutlaqah contract involves the transfer of the muhal’s right to claim the amount of debt owed by the muheel to the muhal ‘alaihi. Therefore, the consent of the muhal is required to conduct the hawalah mutlaqah. Without such consent, hawalah mutlaqah does not meet the conditions of its implementation. 3.2. In the proposed product structure, the hawalah mutlaqah contract is not the original and intended arrangement for the products as it occurs incidentally (dhimni) i.e. when the customer needs immediate financing disbursement on the day the application is made. 3.3. Therefore, the implementation of this hawalah mutlaqah contract is not stated in the facility agreement between the IBI and the customer to avoid the permanent presumption by customer that the early disbursement feature is available absolutely. 3.4. As IBI cannot explicitly disclose its commitment to allow early disbursement on behalf of the customer in certain situations, hence, this feature cannot be construed as hawalah mutlaqah as it does not meet the basic conditions of contract, that requires a clear offer and acceptance between contracting parties to represent their consent. The early disbursed fund prior to tawarruq execution is construed as incidental qard and is subject to all incidental qard’s requirements 3.5. Based on the above discussion, the SAC decided that the early financing disbursement to third-party (supplier/exporter) before the tawarruq execution is incidental qard as IBI's commitment to make early disbursement is not clearly stated upfront in the facility agreement and it is done based on the IBI's internal assessment on case to case basis. Therefore, the IBI must comply with all Shariah requirements relating to incidental qard including but not limited to neither profiting nor imposing any charges on the early disbursed fund in any way such as: i. Inclusion of early disbursement period in the calculation of the profit amount for subsequent tawarruq transaction; ii. Extension of the financing tenure beyond the original tenure that has been agreed with the customer in order to compensate for the foregone profit on the early disbursement period pursuant to point (i) above; and/or iii. Any method of profit calculation that affects this prohibition. The early disbursement has no relation to the tawarruq contract and does not provide additional profit to the IBI 3.6. Based on the proposed structure, the early disbursement has no relation to the subsequent tawarruq transaction because the tawarruq arrangement was determined from the outset when the customer received the facility’s letter of offer from the IBI. Meanwhile, the early disbursement only occurs when the customer needs immediate financing but the tawarruq transaction cannot be executed on the same day due to the operational constraint. Mesyuarat MPS 217 2021 4 3.7. In addition, the existence of the early disbursement will not contribute to the IBI’s additional profit as the early disbursement period will not be included in the calculation of profit amount for the subsequent tawarruq transaction. Part IV: Basis of Ruling Hawalah mutlaqah requires a clear offer and acceptance 4.1. There is a consensus among Shariah scholars on the legislation of hawalah contract based on the hadith of the Prophet SAW as follows: ه َعْبد َحدَّثَنَا ، أَبهي َعنْ َمالهٌك، أَْخبََرنَا ي وس َف، ْبن ّللاَّ نَاده ـ عنه هللا رضى ـ ه َرْيَرةَ أَبهي َعنْ األَْعَرجه، َعنه الز ه ه َرس ولَ أَنَّ ه َمْطل : قَالَ وسلم عليه هللا صلى ّللاَّ فَْليَتْبَعْ َملهي َعلَى أََحد ك مْ أ تْبهعَ فَإهذَا ظ ْلٌم، اْلغَنهي Meaning: “Procrastination (delay) in paying debts by a wealthy man is injustice. So, if your debt is transferred from your debtor to a rich debtor, you should agree." (Sahih Bukhari, Kitab Hawalah, Hadith no. 2287) 4.2. Hawalah mutlaqah is defined as an act of transferring a debt from muheel (debtor) to muhal ‘alaihi (the party to whom the debt is transferred) and muhal‘ alaihi commits to pay with his own funds the debt incurred by muheel to muhal (creditor to muheel). Further, the muhal ‘alaihi is entitled to reclaim from the muheel the amount of debt that has been paid to the muhal at the will of the muheel.3 4.3. The contract of hawalah mutlaqah is recognized by the Hanafi school. However, the majority of Shariah scholars consider hawalah mutlaqah as equivalent to kafalah (guarantee) and is subject to all Shariah requirements of kafalah. 4.4. Majority of fuqaha' are of the view that the hawalah contract must be entered into via a clear offer and acceptance between muheel, muhal and muhal ‘alaihi as it involves the formation of a new debt settlement contract between muhal and muhal 'alaihi through the transfer of muhal's right to claim debts from muheel to muhal ‘alaihi. In addition, the fuqaha’ also asserted that the hawalah contract is categorized as a contract of exchange (mu'awadhah), therefore, it is not permissible to tie the contract to a specific time (ta'qiit) or to condition its effectiveness upon a future event (idhafah ila al-mustaqbal).4 The early financing disbursement is construed as incidental qard 4.5. The early financing disbursement is construed as incidental qard because the loan contract that occurs between the contracting parties is unintended and it occurs due to certain constraints that prevent the execution of the originally intended contract for the product (in the context of this product, it is tawarruq contract). In addition, in terms of documentation, the SAC has ruled that the incidental qard can be concluded without qard documentation.5 3 Al-Kasani, Badai’ Al-Sanai’; Al-Sarakhsi, Al-Mabsut; AAOIFI, Mi’yar Shariah Hawalah. 4 Al-Mawsu’ah Al-Fiqhiyyah Al-Kuwaitiyyah, V. 18, P. 191-192 5 The SAC has made a decision relating to the conclusion of incidental qard in its 178th meeting as follows: Mesyuarat MPS 217 2021 5 The early disbursement through incidental qard does not raise the issue of prohibited bai ’wa salaf 4.6. Based on the parameters of prohibited bai’ wa salaf which have been resolved by the SAC in its 176th meeting, the issue of prohibited bai ’wa salaf can occur in the early disbursement if it contributes to additional profit and an exclusive benefit to IBI.6 4.7. However, the proposed early disbursement does not contain the prohibited elements of bai’ wa salaf based on the following considerations: i. The situation of early disbursement does not cause IBI to earn additional profit due to exclusion of the early disbursement period from the calculation of profit amount for the subsequent tawarruq transaction. ii. The subsequent tawarruq transaction is executed separately and not related to the early disbursement feature, as the early disbursement is only allowed for contingency situations i.e. when there are operational constraints to perform tawarruq on the same day the financing disbursement is requested by the customer. Meanwhile, the implementation of the tawarruq transaction was agreed at the beginning of the facility agreement between IBI and the customer. iii. The customer has the freedom to use fund from any source to repay the early disbursed fund by IBI and is not bound to repay the IBI from fund derived from the tawarruq transaction. Part V: Implication of the SAC Ruling 5.1. Notwithstanding the SAC ruling, the early disbursement feature prior to tawarruq execution is not preferred or recommended as it may give rise to Shariah non-compliance risks in absence of robust internal control and mitigating measures. However, if there is an urgent need due to certain constraints faced by the IBI to cater for unique requirements of Islamic trade finance products, this method can be used subject to strict conditions which include ensuring strong system capabilities and sound operating procedures to ensure all Shariah requirements outlined in this SAC ruling are complied with. “The SAC ruled that incidental qard may be concluded by conduct (mu`atah) and flexibility may be accorded by the regulator to allow Islamic financial institutions (IFIs) to conclude such qard without qard documentation.” 6 The SAC outlined the parameters concerning the prohibited bai’ wa salaf in its 176th meeting as follows: 1. In situation where the transaction involves combination of exchange and loan contracts that contains explicit provision on: (a) inter-conditionality and contingency between both contracts; and (b) exclusive benefit to the lender. 2. Notwithstanding paragraph (1), in the case where loan is an intended (not incidental) contract, combines with an exchange contract that gives exclusive benefit to the lender, it is also regarded as prohibited bai’ wa salaf though there is no explicit provision on inter-conditionality and contingency between the two contracts.

Public Notice

18 Nov 2021

Online Auction of Ringgit Banknotes with Special Serial Numbers

https://www.bnm.gov.my/-/auction-ringgit-banknotes

Reading: Online Auction of Ringgit Banknotes with Special Serial Numbers Share: 2 Online Auction of Ringgit Banknotes with Special Serial Numbers Embargo : For immediate release Not for publication or broadcast before 1855 on Thursday, 18 November 2021 18 Nov 2021 Bank Negara Malaysia (BNM) is currently holding an online auction of Ringgit banknotes with special serial numbers which opens until 20 November 2021. The auction is being conducted by BNM’s appointed auctioneer, MNP Auctioneers (Central) Sdn. Bhd. (MNP) whereby bids can be placed via this link. MNP will begin the ‘Live Auction’ on 20 November 2021 (Saturday) at 11.00 a.m. Ringgit banknotes with special serial numbers, such as sets of the first 10 banknotes (e.g. LL0000001-0000010) and super solid numbers with repetitive prefix (e.g. LL8888888) will be auctioned. Online registration and bids can be completed via www.best2bid.com. Further information on the auction can be obtained through the MNP’s website at www.mnp.com.my or its customer service hotline via 017-400 6661. Bank Negara Malaysia 18 November 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Public Notice

17 Nov 2021

Online Ordering, Payment and Delivery Facility for Sale of Pertubuhan Keselamatan Sosial (PERKESO) and Jabatan Pengangkutan Jalan (JPJ) Commemorative Coins

https://www.bnm.gov.my/-/ordering-coins-jpj75-perkeso50

Reading: Online Ordering, Payment and Delivery Facility for Sale of Pertubuhan Keselamatan Sosial (PERKESO) and Jabatan Pengangkutan Jalan (JPJ) Commemorative Coins Share: Online Ordering, Payment and Delivery Facility for Sale of Pertubuhan Keselamatan Sosial (PERKESO) and Jabatan Pengangkutan Jalan (JPJ) Commemorative Coins Embargo : For immediate release Not for publication or broadcast before 0900 on Wednesday, 17 November 2021 17 Nov 2021 Bank Negara Malaysia wishes to announce the availability of the online ordering, payment and delivery facility for the sale of commemorative coins issued in conjunction with the 50th Anniversary of PERKESO (PERKESO50) and the 75th Anniversary of JPJ (JPJ75). Members of the public can place their orders at https://duit.bnm.gov.my from Monday, 22 November 2021 (10.00 a.m.) to Friday, 3 December 2021 (11.00 p.m.). In the event of oversubscription, balloting will be conducted. Members of the public are advised to place their orders through the Bank Negara Malaysia online system and not with any other party or unauthorised ordering facility. All orders will be considered and there will be no preference given to orders based on order date and time. Information on the payment, order result announcement and delivery facility are available on the ordering website. Bank Negara Malaysia 17 November 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Public Notice

15 Nov 2021

Joint Enforcement Action against Companies Suspected to be Involved in Financial Crime Activities

https://www.bnm.gov.my/-/joint-enforcement-action-20211111

Reading: Joint Enforcement Action against Companies Suspected to be Involved in Financial Crime Activities Share: 8 Joint Enforcement Action against Companies Suspected to be Involved in Financial Crime Activities Embargo : For immediate release Not for publication or broadcast before 2226 on Monday, 15 November 2021 15 Nov 2021 On 11 November 2021, a joint enforcement action was taken against i-Serve Online Mall Sdn. Bhd. and its related affiliates for suspicion of committing various offences, including under the Financial Services Act 2013 (FSA) and the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). 22 premises linked to i-Serve Online Mall Sdn. Bhd. and its related affiliates located in Kuala Lumpur and Selangor were raided, and relevant documents were seized to assist in the joint investigation. The raids also resulted in the freezing of 45 bank accounts in 7 banks and seizing of cash, totalling RM118.7 million. This joint enforcement action is part of an inter-agency collaboration to eradicate financial crimes in Malaysia. It was coordinated by the National Anti-Financial Crime Centre (NFCC) with Bank Negara Malaysia (BNM) as the lead agency, along with Securities Commission Malaysia (SC), Companies Commission Malaysia, Malaysian Anti-Corruption Commission, the Royal Malaysia Police and CyberSecurity Malaysia. Members of the public are advised that under section 137(1) of the FSA, it is an offence for any person to accept deposits without a licence. Investigations for money laundering offences will also be undertaken under the AMLA. If convicted, the person may be imposed a fine of not less than five times the sum or value of the proceeds of unlawful activities at the time the offence was committed or RM5 million, whichever is higher, and imprisonment not exceeding 15 years. As a safeguard, members of the public are reminded to only place deposits and/or invest with parties licensed or registered by the relevant authorities. BNM and SC strongly urge the public to be vigilant when investing with local or foreign companies offering various investment opportunities which promise high returns. If members of the public are aware or have been approached with such investment opportunities promoted on social media, via e-mails or telephone, they are encouraged to report the matter by contacting either BNM or SC at: Bank Negara Malaysia Tel: 03-2691 0824 / 2692 6482 / 2698 2810 / 2694 2143 Fax: 03-2698 7467 E-mail: [email protected] Securities Commission Malaysia Tel: 03-6204 8999 / 03-6204 8777 Fax: 03-6204 8991 E-mail: [email protected]   Bank Negara Malaysia 15 November 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Public Notice

27 Oct 2021

Ruling of the BNM Shariah Advisory Council at its 214th Meeting

https://www.bnm.gov.my/-/bnm-sac-214-ruling

https://www.bnm.gov.my/documents/20124/2629002/SAC+Statement+214th+SAC+meeting_Eng.pdf

Reading: Ruling of the BNM Shariah Advisory Council at its 214th Meeting Share: Ruling of the BNM Shariah Advisory Council at its 214th Meeting Embargo : For immediate release Not for publication or broadcast before 1210 on Wednesday, 27 October 2021 27 Oct 2021 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 214th meeting on 30 June 2021 has ruled that Islamic financial institutions (IFIs) are not allowed to include and account for any accrued profit from the original financing in the new principal amount of R&R financing. This is because such practice will amplify the amount of profit on debts (compounding profit). Therefore, IFIs shall ensure that in executing R&R financing: the new principal amount of the R&R financing shall be equivalent to the outstanding principal amount of the original facility, if there is no additional financing involved; the amount of accrued profit and late payment charges (where applicable) from the original financing can be added to the total new debt obligation, but this amount cannot be capitalised in the calculation of the new profit; and the prohibition is applicable to R&R financing with all customers (both musir and mu’sir).   Please refer to the attachment for more information   Bank Negara Malaysia 27 October 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Issued on 7 May 2020 Issued on 7 May 2020 1 FAQs on Hire-Purchase and Fixed Rate Islamic Financing Products ** See latest update to response in Question 6 (in red) No. Question Answer 1. It was previously announced that the 6-month payment deferment for Hire- Purchase (HP) and fixed rate Islamic financing is automatic. Has there been a reversal in this decision? The payment deferment is still automatic for HP and fixed rate Islamic financing. What is required now is an additional step to comply with procedural requirements under the Hire-Purchase Act 1967 (HP Act) and Shariah. This additional step is required to incorporate the changes to the payment schedule and/or amounts as a result of the six-month payment deferment in the loan/financing agreements. 2. Why are other loans/financing (e.g. mortgages, personal loans, business loans etc) not similarly affected? Other loans/financing are not subject to HP Act or similar Shariah requirements. However, interest/profit will also accrue over the deferment period for these loans and will also need to be repaid once payments resume post-deferment. 3. Is there a change for borrowers/customers to qualify for the HP and fixed rate Islamic financing payment deferment? There is no change in the eligibility criteria. 4. As it is already the beginning of May, is there a change to the payment deferment period for these financing facilities? There is no change in the payment deferment period, that is, it is effective for 6 months starting from 1 April 2020 until 30 September 2020. 5. For fixed rate Islamic financing, are there any additional legal fees if a new agreement is required? The FIs are not allowed to impose any additional charges, including legal fees, on the borrowers/customers. Issued on 7 May 2020 2 No. Question Answer 6. How would my HP or fixed rate Islamic financing monthly instalments change after the deferment period? ** Please refer to details from your bank following the announcement by YBM Minister of Finance on 6 May 2020. FIs will inform each borrower/customer of the changes to his/her HP loan or fixed rate Islamic financing payment schedule and instalment amounts. Borrowers/customers should weigh for themselves the pros and cons of defering the payment, and pay particular attention to their ability to meet these payments after the moratorium. You should call or e-mail your FI if you need more information, or if you need to discuss alternative payment arrangements. Here is an example to help you better understand the financial impact post deferment. In this example, the change to the monthly instalment is not as large as expected. This illustration relates to a RM50,000 HP loan with a remaining tenure of 5 years and a flat rate of 2.71% per annum (or an effective interest rate of 5.36% per annum). In this example the monthly instalment amount increases by about 2%, or RM19 a month. Before deferment After deferment Monthly instalment RM712 RM731 Increase in monthly instalment RM19 Increase in total Interest charges RM1,130 Issued on 7 May 2020 3 No. Question Answer ** Please refer to details from your bank following the announcement by YBM Minister of Finance on 6 May 2020. The above example assumes the borrower has chosen to stagger the repayment of the total deferred instalments over the remaining tenure of the loan when monthly repayments resume in October 2020. However, some banks may also offer borrowers/customers the option of repaying the total deferred instalments, comprising pricipal and interest, as a lump-sum settlement during the final monthly instalment at the end of the loan/financing tenure. In this case, there will be no change in the monthly instalment amounts paid by borrowers/customers when the monthly repayment resumes in October 2020. Please look out for notices from your bank from 1 May 2020 onwards for more details on the repayment options available to you. 7. Do I still have a chance to opt out of the payment deferment now if I had not done so previously? Yes. You can still choose to do so at this time by informing your FI and resuming the monthly payments that you were making before the deferment. See also response to Question 8 below. 8. I have not made any payment in April since I did not opt out of the deferment earlier. If I decide to opt out now, will I be charged any late payment penalty? What will happen to my CCRIS record? No, FIs will not impose any late payment charges on borrowers/customers who decide to opt out of the deferment now. Your bank will inform you of the timeframe provided to pay off the deferred instalments since 1 April 2020. Your CCRIS record will also not be affected, as long as you settle this amount within the repayment timeframe as notified by your FI. If you need more time, you should contact your bank to discuss a revised repayment timeframe. Issued on 7 May 2020 4 No. Question Answer 9. Do borrowers/customers have a choice on whether to extend the financing tenure or increase the monthly instalments after the deferment period? FIs will provide borrowers/customers with further details on resuming payments after the deferment period, and among the options provided would include the option of extending tenures or increasing monthly instalments. Borrowers/customers are advised to discuss with their FIs if they require a different repayment arrangement due to their financial circumstances. 10. Following this announcement by BNM, I feel short-changed. I thought the repayment terms on HP and fixed-rate Islamic financing after the payment deferment period ends are not supposed to change. Will I now lose out from benefitting from the six-month payment holiday? We sincerely regret any confusion and anxiety that this announcement may have caused. The deferment package is meant to ease cash flows for borrowers/customers who are affected by the COVID-19 pandemic. This intent remains the same. The confusion arises because of the perception that under the HP loan, the amount repaid cannot be changed. This misperception also arose to some extent from our earlier illustration where we made certain assumptions and caveats. We removed this example from BNM’s FAQs when banks provided their own illustrations in their FAQs. BNM’s illustration was not intended to preclude interest/profit rates to accrue over the deferment period. Borrowers/customers whose HP loans and fixed-rate Islamic financing accounts that have been automatically deferred since 1 April 2020 will continue to benefit from the payment deferment until 30 September 2020. Borrowers/customers can still change their earlier decision to take up the deferment if they do not wish to pay any additional interest/profit. See also responses to Questions 7 and 8 above. Bank Negara Malaysia 7 May 2020

Public Notice

22 Oct 2021

Cessation of LIBOR-Referencing Contract Issuance

https://www.bnm.gov.my/-/cessation-of-libor-referencing-contract-issuance

Reading: Cessation of LIBOR-Referencing Contract Issuance Share: 2 Cessation of LIBOR-Referencing Contract Issuance Embargo : For immediate release Not for publication or broadcast before 2227 on Friday, 22 October 2021 22 Oct 2021 Globally, risk-free rates (RFRs) will replace LIBOR for major currencies from January 2022 onwards. In line with this global development, Bank Negara Malaysia requires banks to cease new issuance of LIBOR-referencing contracts by 31 December 2021. The e-brochure emphasises the urgency for bank customers to be prepared for the transition from LIBOR to RFRs. Bank Negara Malaysia 22 October 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Public Notice

15 Oct 2021

Financial Consumer Alert update

https://www.bnm.gov.my/-/financial-consumer-alert-update-15-oct-2021

Reading: Financial Consumer Alert update Share: Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1155 on Friday, 15 October 2021 15 Oct 2021 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list: Noor Investment Scheme Malaysia Tadawul Investment Scheme Arris Merchant Bank The list will be updated regularly for public's reference. To view the updated list, click on this link.     Bank Negara Malaysia 15 October 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Public Notice

15 Oct 2021

Extension of Grace Period for Application for Registration of Currency Processors Under Section 70(1) of Currency Act 2020

https://www.bnm.gov.my/-/extension-currency-processors-mar2022

https://www.bnm.gov.my/documents/20124/2629002/Appendix_II_Registration_Form_For_Currency_Processor.pdf, https://www.bnm.gov.my/documents/20124/2629002/Appendix_I_Gazette_Order.pdf

Reading: Extension of Grace Period for Application for Registration of Currency Processors Under Section 70(1) of Currency Act 2020 Share: Extension of Grace Period for Application for Registration of Currency Processors Under Section 70(1) of Currency Act 2020 Embargo : For immediate release Not for publication or broadcast before 1017 on Friday, 15 October 2021 15 Oct 2021 Pursuant to section 70(1), read together with section 63(3) of the Currency Act 2020, Bank Negara Malaysia (BNM) hereby extends the grace period for submission of application for registration of currency processors until 31 March 2022. Further information regarding the registration will be announced at a later date. For clarification, please email [email protected] and/or [email protected]. See also: Gazette Order Application Form to be a Registered Currency ProcessorBank Negara Malaysia 15 October 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Page 1 of 11 Jabatan Pengurusan dan Operasi Matawang APPLICATION FORM TO BE A REGISTERED CURRENCY PROCESSOR 1. This Form is specified by Bank Negara Malaysia (BNM) under paragraph 25(1)(b) of the Currency Act 2020 (CA2020) for the purpose of an application to be registered as a currency processor under subsection 26(1) of the CA2020. Applicant shall submit a cover letter bearing the company’s letterhead, a duly completed application form and appendices (with clear labelling) to- Pengarah Jabatan Pengurusan dan Operasi Matawang Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur 2. This Form consists of six (6) parts, as follows: Part 1: Applicant’s particulars Part 2: Information of Director, CEO, Senior Management and Shareholder with controlling interest on the Applicant Part 3: Financial Resources Part 4: Premises and Security Part 5: Currency Operations Part 6: Others REMINDER  An applicant must properly assess whether its business falls within the definition of currency processing business under subsection 2(1) of the CA2020 and fulfills the registration requirements under the Currency (Registration Requirements) Order 2021 [P.U. (A) 127/2021] before submitting an application to BNM and paying the non-refundable processing fee of RM500 as required under the Currency (Processing Fees for Application of Registration of Currency Processing Business) Regulations 2020 [P.U. (A) 281/2020].  An applicant shall ensure all information provided is true, accurate, complete and not misleading. Please label supporting documents or appendices clearly.  Only complete application will be processed. Incomplete application will be REJECTED or RETURNED to the applicant.  Do NOT alter/amend any word or sentence in this Form. Page 2 of 11 Jabatan Pengurusan dan Operasi Matawang Part 1: Applicant’s particulars (a) Background Name of company Office Telephone no. Business Registration (BRIC) / Certificate of Incorporation No. Office Fax no. Office Email Address Date of incorporation Month/Year of commencement of business operations Business address Type of Organisation Private Limited Limited Others (please specify) _____________________________________________ Nature of Business Collect currency Sort currency by authenticity and quality Pack currency by quality, quantity and denomination Others (please specify) _____________________________________________ Documents to be enclosed: Please tick (X) and provide a certified true copy of the following documents with the Appendix label: Appendix Companies Act 1965 Companies Act 2016 A Form 9 – Certificate of Incorporation Section 17 – Notice of Registration B Memorandum & Articles of Association Constitution C Form 49 – Return Giving Particulars in Register of Directors, Managers and Secretaries and Changes of Particulars Section 58 & 236(2) - Notice of Particulars and Changes of Director, Manager and Secretary D Form 24 - Return of Allotment of Shares Section 75 to 78 – Allotment of Shares E Form 23 - Certificate Under Section 52(3) of the Companies Act 1965 that a Company is Entitled to Commence Business [Applicable for Public Limited Company only] Note: An applicant who commenced business prior to coming into force of the Companies Act 2016 shall submit the above documents pursuant to the Companies Act 1965. Other Documents F Applicant’s licence issued by Minister of Home Affairs (Menteri Dalam Negeri) under the Private Agencies Act (PAA) 1971 or licence of the applicant’s outsourcing party (for currency collection) under PAA 1971. (b) Corporate structure (applicable if applicant is part of a group of companies) Document to be enclosed: Please tick (X) and provide the following document with the Appendix label: Appendix G: Corporate group structure (in a diagram), with adequate details of the parent company, branches, subsidiaries and related companies, including ownership structure and percentage of shareholding (in separate sheet of paper with brief explanation) Page 3 of 11 Jabatan Pengurusan dan Operasi Matawang (c) List of Board of Directors (Board) and Chief Executive Officer (CEO) of an applicant If space provided is insufficient, please provide in separate sheet No. Name NRIC / Passport Number Designation or Type of directorship (e.g. non-executive/executive, independent/non-independent) 1. 2. 3. 4. 5. (d) Organisational structure of the Applicant Document to be enclosed: Please tick (X) and provide the following document with the Appendix label: Appendix H: Current organisational chart, showing Board of Directors, CEO, departments and control functions (i.e. internal audit, compliance and risk management) and with reporting lines (in separate sheet of paper with brief explanation) Note: An applicant is required to pay a processing fee of RM500 via RENTAS with TRN code ANT01, account number 1554095430 (Akauntan Negara Malaysia I/Pejabat-Kecil Terimaan) and furnish the receipt or proof of payment together with this Form. Applicant will be informed in writing of BNM’s decision on the application. FOR BANK NEGARA MALAYSIA USE ONLY Attended by: _____________________________ _______________ Officer’s Signature & Official Seal Date Approved / Reject by: ______________________________ ________________ Signature Date The registration requirements and operations are subject to the provisions of the Currency Act 2020. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 4 of 11 Jabatan Pengurusan dan Operasi Matawang Part 2: Detailed Information of Director, CEO, Senior Management1 and Shareholder with controlling interest2 on the Applicant (Please make copies of Part 2 and fill up specifically for each individual) (a) Designation of officers Please tick (X) where applicable. Tick more than one box if you hold more than one position. Please attach latest passport sized photograph here 1. Director 2. Chief Executive Officer* (*or any person with similar rank or position, please specify: ______________________________________________________) 3. Senior Management (please state designation): _________________________________ 4. Shareholder with controlling interest (b) Particulars* *For Directors, please complete Part 2(b), (e), (f) and (g) *For others, please complete Part 2(b), (c), (d), (e), (f) and (g) Name Certified true copy documents to be enclosed: Appendix I: Security Vetting Results from Polis DiRaja Malaysia (PDRM) or Kementerian Dalam Negeri (KDN) Appendix J: Copy of NRIC/Passport of the individual Appendix K: Insolvency report from Malaysia Department of Insolvency NRIC/Passport number /BRIC Nationality (not applicable for company) Current address Mobile number Email address Office number (c) Working experience (for the last 5 years) (If space provided is insufficient, please provide in separate sheet) No. Position/ Designation Organisation/Company Business activity Duration of service (Year to year) 1. 2. 3. 4. 5. (d) Do you have working experience in cash operations? Yes. (Please state such experience in part c above) No 1 Any person concerned with the operation or management of currency processing company, e.g. Head of Department, Chief Operation Officer, Chief Finance Officer and etc. 2 An individual or a corporate shareholder who has significant influence over the applicant’s action. Page 5 of 11 Jabatan Pengurusan dan Operasi Matawang (e) Are you involved or have been involved (e.g. holds a controlling interest, director, CEO or senior management) in any other business regulated by BNM? If yes, please complete the following: No. Name of business Business activity Type of interest (e.g. shareholder, director, CEO, senior management) Year 1. 2. 3. 4. 5. (f) Statutory Declaration I, _____________________ (name), of NRIC / Passport No. ____________________ do solemnly and sincerely declare that: A: (i) I have not been convicted of an offence relating to dishonesty, fraud, accepting gratification or corruption under any written law within or outside Malaysia; (ii) I have not held the position of a director or CEO or been directly concerned in the operation or management of any company which has been convicted of an offence relating to dishonesty, fraud, accepting gratification or corruption under any written law within or outside Malaysia; (iii) I have passed security vetting conducted by KDN or PDRM. (iv) I am not an undischarged bankrupt; (v) I am a person of probity, personal integrity and good reputation; and (vi) I have managed my financial affairs properly and prudently. B: I am*: (i) representing the interest of __________________; or (ii) not representing the interests of any person; C: All the information submitted above is true. This declaration was made before me: (Signature of Sessions Court Judge, Magistrate or Commissioner For Oaths) Date:  Delete whichever not applicable/relevant [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 6 of 11 Jabatan Pengurusan dan Operasi Matawang (g) Consent for Disclosure of Information Please complete where applicable: 1. For individual who has completed Part 2 of this form. As provided under item (1) of Schedule 11 read together with section 134 of the Financial Services Act 2013 (FSA), item (1) of Schedule 11 read together with section 146 of the Islamic Financial Services Act 2013 (IFSA) and section 120(1)(c) of the Development Financial Institutions Act 2002 (DFIA), I authorize any licensed business under FSA, IFSA, and prescribed institutions under DFIA where I maintain my accounts, or has financial liabilities, to disclose to Bank Negara Malaysia, any information relating to my accounts and affairs including financial liabilities for the purpose of processing this application. ______________ _________________ __________________ __________________ (Date) (Signature) (Name in capital letter) (Designation) 2. For company (corporate shareholder) which has completed Part 2 of this form. As provided under item (1) of Schedule 11 read together with section 134 of the Financial Services Act 2013 (FSA), item (1) of Schedule 11 read together with section 146 of the Islamic Financial Services Act 2013 (IFSA) and section 120(1)(c) of the Development Financial Institutions Act 2002 (DFIA), I authorize any licensed business under FSA, IFSA, and prescribed institutions under DFIA where the company maintains its accounts, or has financial liabilities, to disclose to Bank Negara Malaysia, any information relating to the company’s accounts and affairs including financial liabilities for the purpose of processing this application. [Consent should be given by person authorised by the Board of Directors]. ______________ _________________ __________________ __________________ (Date) (Signature) (Name in capital letter) (Designation) [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 7 of 11 Jabatan Pengurusan dan Operasi Matawang Part 3: Financial Resources Reminder: An applicant shall meet the minimum requirements of net worth and working capital of RM100,000 respectively. Current and projected capital position This is intended to assess the applicant’s ability to maintain the shareholders’ funds requirement taking into consideration projected profit/loss. What is the current amount of the company’s shareholders’ funds? RM Share capital (ordinary shares only) (+) Reserves - including share premium and general reserve fund (+) Retained Profit or (-) Accumulated Losses (+) Audited Profit for the period or (-) Unaudited Loss for the period (-) Intangible assets (including goodwill, capitalised development costs, licenses and intellectual properties) (=) Shareholders’ Funds Documents to be enclosed as evidence: Please tick (X) and provide the following documents with the Appendix label: Appendix L : Latest audited financial statements or latest unaudited management account showing adequate cash balances or cash balances equivalents, as well as, positive shareholders’ funds [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 8 of 11 Jabatan Pengurusan dan Operasi Matawang Part 4: Premises and Security (a) Is the company’s premises exclusively used by the applicant? Yes No (b) Is the company’s premises complied with the Street, Drainage and Building Act 1974 and Town and Country Planning Act 1976? (E.g. no alteration or renovation has been made to the original structure of the building or premises unless with the approval) Yes No (c) Is the company’s premises in compliance with safety requirements imposed by Jabatan Bomba dan Penyelamat Malaysia? Yes No (d) Compliance to system and security No. Description Yes / No Remarks (if yes) 1. Security control room with central monitoring system Yes No 2. Closed-circuit television surveillance system (CCTV) with coverage inside the premise and surrounding premise. Yes No 3. Trespass, theft and robbery prevention system Yes No coverage surrounding the premises: internal and external internal only external only 4. Patrol activity and security control at all times (24 hours/7 days) by armed security guards who have passed security vetting by relevant agency under the Ministry of Home Affairs (KDN) Yes No in-house guard engaged security company licensed by KDN 5. Visitor control or management system Yes No 6. A vault or safe room Yes No 7. An adequate fire-fighting equipment or fire safety installation in relation to the use of the premises as certified by the Director General of Fire and Rescue under the Fire Services Act 1988 Yes No heat or smoke detector fire alarm fire extinguisher others, please specify _______ _________________________ 8. Safety equipment to handle emergency including first aid kit and safety signage Yes No 9. Safety gear including safety boot, glove, face mask and goggle. Yes No safety boot face mask glove goggle others, please specify _______ _________________________ (e) Does the company possess guideline to mitigate occupational safety and health risk at workplace (e.g. work-related incidents that is accident, injury, diseases and damage of property)? Yes No Documents to be enclosed: Please tick (X) and provide the certified true copy of the following documents with the Appendix label: Appendix M: Document/Agreement indicating applicant’s compliance on item 4(a) Appendix N: Document/Agreement indicating applicant’s compliance on item 4(b) Appendix O: Document/Agreement indicating applicant’s compliance on item 4(c) Appendix P: Document/Guideline on occupational safety and health at workplace Page 9 of 11 Jabatan Pengurusan dan Operasi Matawang Part 5: Currency Operations (a) Currency Collection 1. How does the company perform currency collection? By itself Outsource (please provide supporting document as evidence e.g. certify true copy of contract / agreement between the company and the outsource company) 2. If outsource, is the outsourced company licensed by Menteri Dalam Negeri? Yes (If yes, please provide certified true copy of the licence) No (b) Currency Processing Equipment and Machine (i) Are the currency processing equipment and machine capable to: (Please tick (X) where applicable. The below questions are applicable to Malaysian Currency only) Currency Note Coin 1. Detect counterfeit currency? Yes No Yes No 2. Separate (reject) counterfeit currency? Yes No Yes No 3. Sort currency by quality? Yes No Yes No 4. Sort currency by quantity? Yes No Yes No 5. Sort currency by denomination? Yes No Yes No 6. Pack currency by quality? Yes No Yes No 7. Pack currency by quantity? Yes No Yes No 8. Pack currency by denomination? Yes No Yes No Note: For item 6, 7, and 8, If the equipment and machine are unable to perform such function, please specify the method used by the company to perform the activities, _______________________ ____________________________________________________________________________ (ii) List of currency processing equipment and machine (If space provided is insufficient, please provide in separate sheet) No. Type2 Manufacturer Name / Model Purchase Date Number of Units 1. 2. 3. 4. 5. 2 E.g. Banknote Processing Systems or Compact Systems for banknote and/or coin processing machine. Page 10 of 11 Jabatan Pengurusan dan Operasi Matawang (iii) Does the company has standard operating procedures on currency processing? Yes No Documents to be enclosed: Please tick (X) and provide the certified true copy of the following documents with the Appendix label: Appendix Q: All relevant Standard Operating Procedures related to currency processing Part 6: Others (a) Does the company has a business continuity plan? Yes No (b) Does the company has insurance or takaful coverage to cover at all times including during transit on the total value of currencies of its clients which will be processed by the company or in the company’s possession? Yes No Documents to be enclosed: Please tick (X) and provide the certified true copy of the following documents with the Appendix label: Appendix R: Document / guideline of the business continuity plan on cash operation Appendix S: Latest Insurance / Takaful policy agreement issued by the Insurance / Takaful Operators [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 11 of 11 Jabatan Pengurusan dan Operasi Matawang Declaration on the information provided and consent for disclosure of information 1. The company confirms that all information given in this Form and the documents submitted are true, accurate, complete and not misleading, and understands that if the company furnishes any information required which is false, inaccurate, misleading or incomplete, the application will be rejected by Bank Negara Malaysia (BNM). In the event the company has registered, it may be deregistered; 2. The company applies for registration under section 25 of the Currency Act 2020 to carry on Currency Processing Business based on information provided in this application and any additional information provided to BNM in the course of the application; and 3. The company will promptly notify BNM in writing of any changes in the information which the company has provided and supply any other relevant information which may come to light in the period during which its application is being considered by BNM. The company acknowledges that BNM may disclose any information provided in the performance of its statutory functions or otherwise as may be specifically authorised by law. I, the authorised signatory of ____________________________ (name of company) and responsible for the management of the company: (a) Make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act 1960; and (b) As provided under item (1) of Schedule 11 read together with section 134 of the Financial Services Act 2013 (FSA), item (1) of Schedule 11 read together with section 146 of the Islamic Financial Services Act 2013 (IFSA) and section 120(1)(c) of the Development Financial Institutions Act 2002 (DFIA), I hereby authorize any licensed business under FSA, IFSA, and prescribed institutions under DFIA where the applicant maintains its accounts, or has financial liabilities, to disclose to BNM, any information relating to the applicant’s accounts and affairs including financial liabilities for the purpose of processing this application. ___________ __________________ __________________ (Date) (Signature) (Name in capital letter) _____________________ _______________________ (Designation) (Official Company Stamp) This declaration was made before me: (Signature of Session Court Judge, Magistrate or Commissioner For Oaths) Date: 23 Mac 2021 23 March 2021 P.U. (A) 127 WARTA KERAJAAN PERSEKUTUAN FEDERAL GOVERNMENT GAZETTE PERINTAH MATA WANG (KEHENDAK PENDAFTARAN) 2021 CURRENCY (REGISTRATION REQUIREMENTS) ORDER 2021 DISIARKAN OLEH/ PUBLISHED BY JABATAN PEGUAM NEGARA/ ATTORNEY GENERAL’S CHAMBERS P.U. (A) 127 2 AKTA MATA WANG 2020 PERINTAH MATA WANG (KEHENDAK PENDAFTARAN) 2021 PADA menjalankan kuasa yang diberikan oleh perenggan 25(1)(a) Akta Mata Wang 2020 [Akta 827], Bank membuat perintah yang berikut: Nama 1. Perintah ini bolehlah dinamakan Perintah Mata Wang (Kehendak Pendaftaran) 2021. Kehendak pendaftaran 2. Seorang pemohon bagi pendaftaran untuk menjalankan suatu perniagaan pemprosesan mata wang hendaklah memenuhi semua kehendak pendaftaran sebagaimana yang dinyatakan dalam Jadual. JADUAL [Perenggan 2] KEHENDAK PENDAFTARAN 1. Pemohon ialah suatu syarikat yang diperbadankan dan berdaftar atau disifatkan telah didaftarkan di bawah Akta Syarikat 2016 [Akta 777] dengan nilai bersih minimum dan modal kerja masing-masing sebanyak satu ratus ribu ringgit. 2. Pemohon, dalam menjalankan perniagaan mengumpul mata wang kertas atau mata wang syiling bagi atau bagi pihak orang lain, dilesenkan atau mengguna khidmat mana-mana orang yang dilesenkan di bawah seksyen 3 Akta Agensi Persendirian 1971 [Akta 27] untuk menjalankan suatu perniagaan agensi persendirian bagi maksud mengadakan pengawalan dan perlindungan bagi keselamatan harta atau perniagaan orang lain. P.U. (A) 127 3 3. Pemohon hendaklah menggunakan suatu premis yang ditetapkan bagi penggunaan eksklusif pemohon untuk menjalankan perniagaan pemprosesan mata wang. 4. Premis yang digunakan oleh pemohon untuk menjalankan perniagaan pemprosesan mata wang hendaklah— (a) dibina mengikut pelan dan spesifikasi yang diluluskan di bawah Akta Jalan, Parit dan Bangunan 1974 [Akta 133] dan Akta Perancangan Bandar dan Desa 1976 [Akta 172]; dan (b) dilengkapi dengan ciri-ciri keselamatan yang termasuklah— (i) suatu sistem kawalan keselamatan yang merangkumi— (A) suatu bilik kawalan keselamatan yang dipasang dengan suatu sistem pemantauan berpusat; (B) suatu sistem pengawasan televisyen litar tertutup yang dipasang di sekeliling kawasan dalaman dan luaran premis itu; (C) suatu sistem pencegah pencerobohan, kecurian dan rompakan; dan (D) suatu sistem kawalan atau pengurusan pelawat; (ii) pengawal keselamatan yang telah lulus saringan tapisan keselamatan yang dijalankan oleh pihak berkuasa yang berkaitan; (iii) suatu aktiviti rondaan keselamatan di sekeliling premis itu oleh pengawal keselamatan bersenjata pada setiap masa; P.U. (A) 127 4 (iv) suatu bilik kebal atau bilik simpanan selamat; (v) suatu kelengkapan menentang kebakaran atau pepasangan keselamatan kebakaran yang mencukupi berhubung dengan penggunaan premis itu sebagaimana yang diperakukan oleh Ketua Pengarah Bomba dan Penyelamat di bawah Akta Perkhidmatan Bomba 1988 [Akta 341]; (vi) suatu kelengkapan keselamatan bagi mengendalikan apa-apa kecemasan termasuk peti pertolongan cemas dan papan tanda keselamatan; dan (vii) suatu alat perlindungan diri termasuk kasut keselamatan, sarung tangan, topeng muka dan gogal. 5. Pemohon hendaklah menggunakan peralatan dan mesin pemprosesan mata wang yang— (a) berupaya untuk mengesan dan menyisih mata wang kertas atau mata wang syiling yang palsu; (b) berupaya untuk mengisih dan membungkus mata wang kertas atau mata wang syiling mengikut kualiti sebagaimana yang ditentukan oleh Bank; dan (c) berupaya untuk mengisih dan membungkus mata wang kertas atau mata wang syiling mengikut kuantiti dan denominasi. 6. Pengarah, ketua pegawai eksekutif dan mana-mana orang yang terlibat dalam pengendalian atau pengurusan pemohon itu— P.U. (A) 127 5 (a) tidak pernah disabitkan atas suatu kesalahan yang berhubungan dengan ketidakjujuran, fraud, penerimaan suapan atau rasuah di bawah mana-mana undang-undang bertulis di dalam atau di luar Malaysia; (b) tidak pernah memegang jawatan pengarah atau ketua pegawai eksekutif, atau terlibat secara langsung dalam pengendalian atau pengurusan, mana-mana syarikat yang pernah disabitkan atas suatu kesalahan yang berhubungan dengan ketidakjujuran, fraud, penerimaan suapan atau rasuah di bawah mana-mana undang-undang bertulis di dalam atau di luar Malaysia melainkan jika dia membuktikan bahawa kesalahan itu telah dilakukan tanpa pengetahuannya, persetujuannya atau pembiarannya; (c) telah lulus saringan tapisan keselamatan yang dijalankan oleh pihak berkuasa yang berkaitan; (d) bukan seorang bankrap yang belum dilepaskan; (e) ialah seorang yang jujur, berintegriti dan bereputasi baik; dan (f) telah menguruskan hal ehwal kewangannya dengan baik dan berhemat. 7. Pemohon mempunyai suatu tatacara kendalian bagi pemprosesan mata wang dan pelan kesinambungan perniagaan. 8. Pemohon telah mendapatkan suatu perlindungan insurans atau takaful untuk melindungi pada setiap masa nilai keseluruhan mata wang pelanggannya yang akan diproses oleh pemohon atau yang berada dalam milikan pemohon itu. P.U. (A) 127 6 Dibuat 22 Mac 2021 [BNM/JUN/1120/05/09; PN(PU2)295] DATUK NOR SHAMSIAH BINTI MOHD YUNUS Gabenor Bank Negara Malaysia P.U. (A) 127 7 CURRENCY ACT 2020 CURRENCY (REGISTRATION REQUIREMENTS) ORDER 2021 IN exercise of the powers conferred by paragraph 25(1)(a) of the Currency Act 2020 [Act 827], the Bank makes the following order: Citation 1. This order may be cited as the Currency (Registration Requirements) Order 2021. Registration requirements 2. An applicant for registration to carry on a currency processing business shall fulfil all registration requirements as specified in the Schedule. SCHEDULE [Paragraph 2] REGISTRATION REQUIREMENTS 1. The applicant is a company incorporated and registered or deemed to have been registered under the Companies Act 2016 [Act 777] with a minimum net worth and working capital of one hundred thousand ringgit respectively. 2. The applicant, in carrying on a business of collecting currency note or currency coin for or on behalf of another person, is licensed or engages any person licensed under section 3 of the Private Agencies Act 1971 [Act 27] to carry on a business of private agency for the purpose of providing guards and protection for the security of the property or business of other person. 3. The applicant shall use a premises which is designated for the exclusive use of the applicant to carry on a currency processing business. P.U. (A) 127 8 4. The premises used by the applicant to carry on a currency processing business shall be— (a) constructed in accordance with the plans and specifications approved under the Street, Drainage and Building Act 1974 [Act 133] and the Town and Country Planning Act 1976 [Act 172]; and (b) equipped with security features which includes— (i) a security control system encompassing— (A) a security control room which is installed with a central monitoring system; (B) a closed-circuit television surveillance system installed at the surrounding of the internal and external areas of the premises; (C) a trespass, theft and robbery prevention system; and (D) a visitor control or management system; (ii) security guards who have passed security vetting conducted by the relevant authorities; (iii) a security patrol activity at the surrounding of the premises by armed security guards at all times; (iv) a vault or safe room; P.U. (A) 127 9 (v) an adequate fire-fighting equipment or fire safety installation in relation to the use of the premises as certified by the Director General of Fire and Rescue under the Fire Services Act 1988 [Act 341]; (vi) a safety equipment to handle any emergency including first aid kit and safety signage; and (vii) a safety gear including safety boots, glove, face mask and goggle. 5. The applicant shall use currency processing equipment and machine which are— (a) capable to detect and separate counterfeit currency note or currency coin; (b) capable to sort and pack currency note or currency coin by quality as determined by the Bank; and (c) capable to sort and pack currency note or currency coin by quantity and denomination. 6. The director, chief executive officer and any person concerned with the operation or management of the applicant— (a) has not been convicted of an offence relating to dishonesty, fraud, accepting gratification or corruption under any written law within or outside Malaysia; (b) has not held the position of a director or chief executive officer, or been directly concerned in the operation or management, of any company which has been convicted of an offence relating to dishonesty, fraud, accepting gratification or corruption under any written law within or outside Malaysia unless he proves that such offence was committed without his knowledge, consent or connivance; P.U. (A) 127 10 (c) has passed security vetting conducted by the relevant authorities; (d) is not an undischarged bankrupt; (e) is a person of probity, personal integrity and good reputation; and (f) has managed his financial affairs properly and prudently. 7. The applicant has an operating procedure on currency processing and a business continuity plan. 8. The applicant has obtained an insurance or a takaful coverage to cover at all times the total value of currencies of its clients which will be processed by the applicant or in the applicant’s possession. Made 22 March 2021 [BNM/JUN/1120/05/09; PN(PU2)295] DATUK NOR SHAMSIAH BINTI MOHD YUNUS Governor Central Bank of Malaysia

Public Notice

24 Sep 2021

Anti-Money Laundering, Counter-Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions & Non-Bank Financial Institutions [Bahasa Melayu Version]

https://www.bnm.gov.my/-/anti-money-laundering-countering-financing-of-terrorism-and-targeted-financial-sanctions-for-designated-non-financial-businesses-and-professions-dnfbps-amp-non-bank-financial-institutions-nbfis-aml/cft-and-tfs-for-dnfbps-and-nbfis-bahasa-malaysia-version-

https://www.bnm.gov.my/documents/20124/761679/AMLCFT+and+TFS+for+DNFBPs+and+NBFIs_BM.pdf

Reading: Anti-Money Laundering, Counter-Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions & Non-Bank Financial Institutions [Bahasa Melayu Version] Share: 2 Anti-Money Laundering, Counter-Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions & Non-Bank Financial Institutions [Bahasa Melayu Version] Embargo : For immediate release Not for publication or broadcast before 2145 on Friday, 24 September 2021 24 Sep 2021 Bank Negara Malaysia has published the Bahasa Melayu version of the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions (AML/CFT and TFS) Policy Document for Designated Non-Financial Businesses and Professions (DNFBPs) and Non-Bank Financial Institutions (NBFIs) that was issued on 31 December 2019 and came into force on 1 January 2020. See also: 31 December 2019: Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) & Non-Bank Financial Institutions (NBFIs) (AML/CFT and TFS for DNFBPs and NBFIs) Pencegahan Pengubahan Wang Haram, Pencegahan Pembiayaan Keganasan dan Sekatan Kewangan Bersasar (AML/CFT dan TFS) untuk Perniagaan dan Profesion Bukan Kewangan yang Ditentukan (DNFBP) dan Institusi Kewangan Bukan Bank (NBFI)Bank Negara Malaysia 24 September 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Page 1 of 11 Jabatan Pengurusan dan Operasi Matawang APPLICATION FORM TO BE A REGISTERED CURRENCY PROCESSOR 1. This Form is specified by Bank Negara Malaysia (BNM) under paragraph 25(1)(b) of the Currency Act 2020 (CA2020) for the purpose of an application to be registered as a currency processor under subsection 26(1) of the CA2020. Applicant shall submit a cover letter bearing the company’s letterhead, a duly completed application form and appendices (with clear labelling) to- Pengarah Jabatan Pengurusan dan Operasi Matawang Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur 2. This Form consists of six (6) parts, as follows: Part 1: Applicant’s particulars Part 2: Information of Director, CEO, Senior Management and Shareholder with controlling interest on the Applicant Part 3: Financial Resources Part 4: Premises and Security Part 5: Currency Operations Part 6: Others REMINDER  An applicant must properly assess whether its business falls within the definition of currency processing business under subsection 2(1) of the CA2020 and fulfills the registration requirements under the Currency (Registration Requirements) Order 2021 [P.U. (A) 127/2021] before submitting an application to BNM and paying the non-refundable processing fee of RM500 as required under the Currency (Processing Fees for Application of Registration of Currency Processing Business) Regulations 2020 [P.U. (A) 281/2020].  An applicant shall ensure all information provided is true, accurate, complete and not misleading. Please label supporting documents or appendices clearly.  Only complete application will be processed. Incomplete application will be REJECTED or RETURNED to the applicant.  Do NOT alter/amend any word or sentence in this Form. Page 2 of 11 Jabatan Pengurusan dan Operasi Matawang Part 1: Applicant’s particulars (a) Background Name of company Office Telephone no. Business Registration (BRIC) / Certificate of Incorporation No. Office Fax no. Office Email Address Date of incorporation Month/Year of commencement of business operations Business address Type of Organisation Private Limited Limited Others (please specify) _____________________________________________ Nature of Business Collect currency Sort currency by authenticity and quality Pack currency by quality, quantity and denomination Others (please specify) _____________________________________________ Documents to be enclosed: Please tick (X) and provide a certified true copy of the following documents with the Appendix label: Appendix Companies Act 1965 Companies Act 2016 A Form 9 – Certificate of Incorporation Section 17 – Notice of Registration B Memorandum & Articles of Association Constitution C Form 49 – Return Giving Particulars in Register of Directors, Managers and Secretaries and Changes of Particulars Section 58 & 236(2) - Notice of Particulars and Changes of Director, Manager and Secretary D Form 24 - Return of Allotment of Shares Section 75 to 78 – Allotment of Shares E Form 23 - Certificate Under Section 52(3) of the Companies Act 1965 that a Company is Entitled to Commence Business [Applicable for Public Limited Company only] Note: An applicant who commenced business prior to coming into force of the Companies Act 2016 shall submit the above documents pursuant to the Companies Act 1965. Other Documents F Applicant’s licence issued by Minister of Home Affairs (Menteri Dalam Negeri) under the Private Agencies Act (PAA) 1971 or licence of the applicant’s outsourcing party (for currency collection) under PAA 1971. (b) Corporate structure (applicable if applicant is part of a group of companies) Document to be enclosed: Please tick (X) and provide the following document with the Appendix label: Appendix G: Corporate group structure (in a diagram), with adequate details of the parent company, branches, subsidiaries and related companies, including ownership structure and percentage of shareholding (in separate sheet of paper with brief explanation) Page 3 of 11 Jabatan Pengurusan dan Operasi Matawang (c) List of Board of Directors (Board) and Chief Executive Officer (CEO) of an applicant If space provided is insufficient, please provide in separate sheet No. Name NRIC / Passport Number Designation or Type of directorship (e.g. non-executive/executive, independent/non-independent) 1. 2. 3. 4. 5. (d) Organisational structure of the Applicant Document to be enclosed: Please tick (X) and provide the following document with the Appendix label: Appendix H: Current organisational chart, showing Board of Directors, CEO, departments and control functions (i.e. internal audit, compliance and risk management) and with reporting lines (in separate sheet of paper with brief explanation) Note: An applicant is required to pay a processing fee of RM500 via RENTAS with TRN code ANT01, account number 1554095430 (Akauntan Negara Malaysia I/Pejabat-Kecil Terimaan) and furnish the receipt or proof of payment together with this Form. Applicant will be informed in writing of BNM’s decision on the application. FOR BANK NEGARA MALAYSIA USE ONLY Attended by: _____________________________ _______________ Officer’s Signature & Official Seal Date Approved / Reject by: ______________________________ ________________ Signature Date The registration requirements and operations are subject to the provisions of the Currency Act 2020. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 4 of 11 Jabatan Pengurusan dan Operasi Matawang Part 2: Detailed Information of Director, CEO, Senior Management1 and Shareholder with controlling interest2 on the Applicant (Please make copies of Part 2 and fill up specifically for each individual) (a) Designation of officers Please tick (X) where applicable. Tick more than one box if you hold more than one position. Please attach latest passport sized photograph here 1. Director 2. Chief Executive Officer* (*or any person with similar rank or position, please specify: ______________________________________________________) 3. Senior Management (please state designation): _________________________________ 4. Shareholder with controlling interest (b) Particulars* *For Directors, please complete Part 2(b), (e), (f) and (g) *For others, please complete Part 2(b), (c), (d), (e), (f) and (g) Name Certified true copy documents to be enclosed: Appendix I: Security Vetting Results from Polis DiRaja Malaysia (PDRM) or Kementerian Dalam Negeri (KDN) Appendix J: Copy of NRIC/Passport of the individual Appendix K: Insolvency report from Malaysia Department of Insolvency NRIC/Passport number /BRIC Nationality (not applicable for company) Current address Mobile number Email address Office number (c) Working experience (for the last 5 years) (If space provided is insufficient, please provide in separate sheet) No. Position/ Designation Organisation/Company Business activity Duration of service (Year to year) 1. 2. 3. 4. 5. (d) Do you have working experience in cash operations? Yes. (Please state such experience in part c above) No 1 Any person concerned with the operation or management of currency processing company, e.g. Head of Department, Chief Operation Officer, Chief Finance Officer and etc. 2 An individual or a corporate shareholder who has significant influence over the applicant’s action. Page 5 of 11 Jabatan Pengurusan dan Operasi Matawang (e) Are you involved or have been involved (e.g. holds a controlling interest, director, CEO or senior management) in any other business regulated by BNM? If yes, please complete the following: No. Name of business Business activity Type of interest (e.g. shareholder, director, CEO, senior management) Year 1. 2. 3. 4. 5. (f) Statutory Declaration I, _____________________ (name), of NRIC / Passport No. ____________________ do solemnly and sincerely declare that: A: (i) I have not been convicted of an offence relating to dishonesty, fraud, accepting gratification or corruption under any written law within or outside Malaysia; (ii) I have not held the position of a director or CEO or been directly concerned in the operation or management of any company which has been convicted of an offence relating to dishonesty, fraud, accepting gratification or corruption under any written law within or outside Malaysia; (iii) I have passed security vetting conducted by KDN or PDRM. (iv) I am not an undischarged bankrupt; (v) I am a person of probity, personal integrity and good reputation; and (vi) I have managed my financial affairs properly and prudently. B: I am*: (i) representing the interest of __________________; or (ii) not representing the interests of any person; C: All the information submitted above is true. This declaration was made before me: (Signature of Sessions Court Judge, Magistrate or Commissioner For Oaths) Date:  Delete whichever not applicable/relevant [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 6 of 11 Jabatan Pengurusan dan Operasi Matawang (g) Consent for Disclosure of Information Please complete where applicable: 1. For individual who has completed Part 2 of this form. As provided under item (1) of Schedule 11 read together with section 134 of the Financial Services Act 2013 (FSA), item (1) of Schedule 11 read together with section 146 of the Islamic Financial Services Act 2013 (IFSA) and section 120(1)(c) of the Development Financial Institutions Act 2002 (DFIA), I authorize any licensed business under FSA, IFSA, and prescribed institutions under DFIA where I maintain my accounts, or has financial liabilities, to disclose to Bank Negara Malaysia, any information relating to my accounts and affairs including financial liabilities for the purpose of processing this application. ______________ _________________ __________________ __________________ (Date) (Signature) (Name in capital letter) (Designation) 2. For company (corporate shareholder) which has completed Part 2 of this form. As provided under item (1) of Schedule 11 read together with section 134 of the Financial Services Act 2013 (FSA), item (1) of Schedule 11 read together with section 146 of the Islamic Financial Services Act 2013 (IFSA) and section 120(1)(c) of the Development Financial Institutions Act 2002 (DFIA), I authorize any licensed business under FSA, IFSA, and prescribed institutions under DFIA where the company maintains its accounts, or has financial liabilities, to disclose to Bank Negara Malaysia, any information relating to the company’s accounts and affairs including financial liabilities for the purpose of processing this application. [Consent should be given by person authorised by the Board of Directors]. ______________ _________________ __________________ __________________ (Date) (Signature) (Name in capital letter) (Designation) [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 7 of 11 Jabatan Pengurusan dan Operasi Matawang Part 3: Financial Resources Reminder: An applicant shall meet the minimum requirements of net worth and working capital of RM100,000 respectively. Current and projected capital position This is intended to assess the applicant’s ability to maintain the shareholders’ funds requirement taking into consideration projected profit/loss. What is the current amount of the company’s shareholders’ funds? RM Share capital (ordinary shares only) (+) Reserves - including share premium and general reserve fund (+) Retained Profit or (-) Accumulated Losses (+) Audited Profit for the period or (-) Unaudited Loss for the period (-) Intangible assets (including goodwill, capitalised development costs, licenses and intellectual properties) (=) Shareholders’ Funds Documents to be enclosed as evidence: Please tick (X) and provide the following documents with the Appendix label: Appendix L : Latest audited financial statements or latest unaudited management account showing adequate cash balances or cash balances equivalents, as well as, positive shareholders’ funds [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 8 of 11 Jabatan Pengurusan dan Operasi Matawang Part 4: Premises and Security (a) Is the company’s premises exclusively used by the applicant? Yes No (b) Is the company’s premises complied with the Street, Drainage and Building Act 1974 and Town and Country Planning Act 1976? (E.g. no alteration or renovation has been made to the original structure of the building or premises unless with the approval) Yes No (c) Is the company’s premises in compliance with safety requirements imposed by Jabatan Bomba dan Penyelamat Malaysia? Yes No (d) Compliance to system and security No. Description Yes / No Remarks (if yes) 1. Security control room with central monitoring system Yes No 2. Closed-circuit television surveillance system (CCTV) with coverage inside the premise and surrounding premise. Yes No 3. Trespass, theft and robbery prevention system Yes No coverage surrounding the premises: internal and external internal only external only 4. Patrol activity and security control at all times (24 hours/7 days) by armed security guards who have passed security vetting by relevant agency under the Ministry of Home Affairs (KDN) Yes No in-house guard engaged security company licensed by KDN 5. Visitor control or management system Yes No 6. A vault or safe room Yes No 7. An adequate fire-fighting equipment or fire safety installation in relation to the use of the premises as certified by the Director General of Fire and Rescue under the Fire Services Act 1988 Yes No heat or smoke detector fire alarm fire extinguisher others, please specify _______ _________________________ 8. Safety equipment to handle emergency including first aid kit and safety signage Yes No 9. Safety gear including safety boot, glove, face mask and goggle. Yes No safety boot face mask glove goggle others, please specify _______ _________________________ (e) Does the company possess guideline to mitigate occupational safety and health risk at workplace (e.g. work-related incidents that is accident, injury, diseases and damage of property)? Yes No Documents to be enclosed: Please tick (X) and provide the certified true copy of the following documents with the Appendix label: Appendix M: Document/Agreement indicating applicant’s compliance on item 4(a) Appendix N: Document/Agreement indicating applicant’s compliance on item 4(b) Appendix O: Document/Agreement indicating applicant’s compliance on item 4(c) Appendix P: Document/Guideline on occupational safety and health at workplace Page 9 of 11 Jabatan Pengurusan dan Operasi Matawang Part 5: Currency Operations (a) Currency Collection 1. How does the company perform currency collection? By itself Outsource (please provide supporting document as evidence e.g. certify true copy of contract / agreement between the company and the outsource company) 2. If outsource, is the outsourced company licensed by Menteri Dalam Negeri? Yes (If yes, please provide certified true copy of the licence) No (b) Currency Processing Equipment and Machine (i) Are the currency processing equipment and machine capable to: (Please tick (X) where applicable. The below questions are applicable to Malaysian Currency only) Currency Note Coin 1. Detect counterfeit currency? Yes No Yes No 2. Separate (reject) counterfeit currency? Yes No Yes No 3. Sort currency by quality? Yes No Yes No 4. Sort currency by quantity? Yes No Yes No 5. Sort currency by denomination? Yes No Yes No 6. Pack currency by quality? Yes No Yes No 7. Pack currency by quantity? Yes No Yes No 8. Pack currency by denomination? Yes No Yes No Note: For item 6, 7, and 8, If the equipment and machine are unable to perform such function, please specify the method used by the company to perform the activities, _______________________ ____________________________________________________________________________ (ii) List of currency processing equipment and machine (If space provided is insufficient, please provide in separate sheet) No. Type2 Manufacturer Name / Model Purchase Date Number of Units 1. 2. 3. 4. 5. 2 E.g. Banknote Processing Systems or Compact Systems for banknote and/or coin processing machine. Page 10 of 11 Jabatan Pengurusan dan Operasi Matawang (iii) Does the company has standard operating procedures on currency processing? Yes No Documents to be enclosed: Please tick (X) and provide the certified true copy of the following documents with the Appendix label: Appendix Q: All relevant Standard Operating Procedures related to currency processing Part 6: Others (a) Does the company has a business continuity plan? Yes No (b) Does the company has insurance or takaful coverage to cover at all times including during transit on the total value of currencies of its clients which will be processed by the company or in the company’s possession? Yes No Documents to be enclosed: Please tick (X) and provide the certified true copy of the following documents with the Appendix label: Appendix R: Document / guideline of the business continuity plan on cash operation Appendix S: Latest Insurance / Takaful policy agreement issued by the Insurance / Takaful Operators [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Page 11 of 11 Jabatan Pengurusan dan Operasi Matawang Declaration on the information provided and consent for disclosure of information 1. The company confirms that all information given in this Form and the documents submitted are true, accurate, complete and not misleading, and understands that if the company furnishes any information required which is false, inaccurate, misleading or incomplete, the application will be rejected by Bank Negara Malaysia (BNM). In the event the company has registered, it may be deregistered; 2. The company applies for registration under section 25 of the Currency Act 2020 to carry on Currency Processing Business based on information provided in this application and any additional information provided to BNM in the course of the application; and 3. The company will promptly notify BNM in writing of any changes in the information which the company has provided and supply any other relevant information which may come to light in the period during which its application is being considered by BNM. The company acknowledges that BNM may disclose any information provided in the performance of its statutory functions or otherwise as may be specifically authorised by law. I, the authorised signatory of ____________________________ (name of company) and responsible for the management of the company: (a) Make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act 1960; and (b) As provided under item (1) of Schedule 11 read together with section 134 of the Financial Services Act 2013 (FSA), item (1) of Schedule 11 read together with section 146 of the Islamic Financial Services Act 2013 (IFSA) and section 120(1)(c) of the Development Financial Institutions Act 2002 (DFIA), I hereby authorize any licensed business under FSA, IFSA, and prescribed institutions under DFIA where the applicant maintains its accounts, or has financial liabilities, to disclose to BNM, any information relating to the applicant’s accounts and affairs including financial liabilities for the purpose of processing this application. ___________ __________________ __________________ (Date) (Signature) (Name in capital letter) _____________________ _______________________ (Designation) (Official Company Stamp) This declaration was made before me: (Signature of Session Court Judge, Magistrate or Commissioner For Oaths) Date:

Public Notice

15 Sep 2021

Policy Document on Merchant Acquiring Services

https://www.bnm.gov.my/-/pd-merchant-acquiring-services

https://www.bnm.gov.my/documents/20124/943361/PD_Merchant_Acquiring_Services.pdf

Reading: Policy Document on Merchant Acquiring Services Share: 2 Policy Document on Merchant Acquiring Services Embargo : For immediate release Not for publication or broadcast before 0930 on Wednesday, 15 September 2021 15 Sep 2021 Issuance Date 15 September 2021 Summary  This policy document sets out Bank Negara Malaysia’s requirements and expectations on merchant acquirers registered pursuant to sections 17(1) and 18 of the Financial Services Act 2013. The requirements and expectations include those pertaining to governance, operational risk management, information technology (IT) and others. Find out more: Policy Document on Merchant Acquiring Services Bank Negara Malaysia 15 September 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Merchant Acquiring Services Issued on: 15 September 2021 BNM/RH/PD 028-119 Merchant Acquiring Services Applicable to: Registered merchant acquirers 2 Merchant Acquiring Services Issued on: 15 September 2021 TABLE OF CONTENTS PART A OVERVIEW ................................................................................................................................ 1 1. Introduction ............................................................................................................................................ 1 2. Applicability ........................................................................................................................................... 2 3. Legal Provisions .................................................................................................................................... 2 4. Effective Date ......................................................................................................................................... 2 5. Interpretation .......................................................................................................................................... 3 6. Related Legal Instruments and Policy Documents ............................................................................ 7 7. Policy Documents Superseded ............................................................................................................ 8 PART B GOVERNANCE .......................................................................................................................... 9 8. Effective Governance and Oversight ................................................................................................... 9 PART C OPERATIONAL REQUIREMENTS ......................................................................................... 13 9. Minimum Capital Funds Requirements for Non-Bank Acquirers ................................................... 13 10. Settlement Risk Management ............................................................................................................. 13 11. Merchant Management ........................................................................................................................ 15 12. Fraud Risk Management ..................................................................................................................... 17 13. Business Continuity Management ..................................................................................................... 18 14. Outsourcing ......................................................................................................................................... 19 15. Arrangement with Parties Involved in Payment and Settlement Process ..................................... 24 16. Appropriate Treatment for Merchants ............................................................................................... 25 PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS ......................................................... 26 17. Technology Risk Management ........................................................................................................... 26 18. Technology Operations Management ............................................................................................... 28 19. Cybersecurity Management ................................................................................................................ 45 20. Technology Audit ................................................................................................................................ 52 21. Internal Awareness and Training ....................................................................................................... 53 PART E OTHER REQUIREMENTS ........................................................................................................ 54 22. Other Compliance Requirements ....................................................................................................... 54 Appendix 1 COMPUTATION OF MINIMUM CAPITAL FUNDS ............................................................... 56 Appendix 2 MINIMUM REQUIREMENTS ON THE OUTSOURCING AGREEMENT .............................. 57 Appendix 3 STORAGE AND TRANSPORTATION OF SENSITIVE DATA IN REMOVABLE MEDIA ... 59 Appendix 4 CONTROL MEASURES ON PAYMENT ACCEPTANCE DEVICE ...................................... 60 Appendix 5 CONTROL MEASURES ON INTERNET APPLICATION ..................................................... 61 Appendix 6 CONTROL MEASURES ON MOBILE APPLICATION AND DEVICES ............................... 62 Appendix 7 CONTROL MEASURES ON QUICK RESPONSE CODE .................................................... 63 1 Merchant Acquiring Services Issued on: 15 September 2021 Appendix 8 CONTROL MEASURES ON CYBERSECURITY ................................................................... 64 Appendix 9 EXAMPLES OF ARRANGEMENTS EXCLUDED FROM OUTSOURCING SCOPE ............. 66 Merchant Acquiring Services Page 1 of 66 Issued on: 15 September 2021 PART A OVERVIEW 1. Introduction 1.1 Merchant acquiring services enable merchants to accept payment instruments for the sale of goods or services to their customers. Acquirers provide the link between the users of payment instruments to the merchants to enable the purchase of goods or services. When users pay for the goods or services using payment instruments, acquirers ensure that funds for such payment are settled in a timely manner to the merchants. 1.2 In tandem with the rapid changes in the electronic payment (e-payment) landscape, merchant acquiring services have experienced significant growth and considerable change in their business arrangements and set-up. Merchants have extended their acceptance of payment instruments from only payment cards to other types of instruments such as electronic money (e-money). Merchant acquiring services are no longer confined to the use of traditional Point-of-Sale (POS) terminals but now extend to the use of new payment methods such as Quick Response (QR) code and online banking. The acquiring arrangements have also expanded to accept more electronic commerce (e-commerce) merchants and involvement of third parties such as payment facilitators to facilitate expansion. Merchant acquiring services have also adapted to constant evolution of technological advancements to cater for needs of users and enhance efficiency. All of the above changes have increased the complexity and the number of players along the payment chain before payment reaches the merchants. 1.3 Due to the increasingly important role played by acquirers in the payment landscape, it is important to specify the minimum expectations and regulatory requirements for merchant acquiring services to promote confidence in the use of e-payment by both merchants and users of payment instruments. The regulatory requirements serve to ensure proper risk management in merchant acquiring services, which includes the management of settlement risk, financial risk, fraud risk and technology and cyber risk. Merchant Acquiring Services Page 2 of 66 Issued on: 15 September 2021 1.4 The objectives of this policy document are as follows – (a) to ensure the safety and reliability of merchant acquiring services provided by acquirers; and (b) to preserve public confidence in using or accepting payment instruments for the payment of goods and services. 2. Applicability 2.1 This policy document is applicable to acquirers registered pursuant to sections 17(1) and 18 of the Financial Services Act 2013 (FSA) that fulfils the following criteria – (a) enters into a contract with merchant(s), which results in a transfer of funds to the merchant(s) by – (i) conducting or being responsible for fund settlement; or (ii) issuing fund settlement instructions; (b) facilitates the merchant’s acceptance of payment instruments; and (c) is a direct participant of payment instrument network(s) to provide merchant acquiring services. 2.2 The requirements under paragraph 9 of this policy document are only applicable to non-bank acquirers. 3. Legal Provisions 3.1 The requirements in this policy document are specified pursuant to sections 18(2), 33(1), 49, 123(1) and 143 of the FSA. 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA. 4. Effective Date 4.1 This policy document comes into effect on 15 March 2022. 4.2 However, for non-bank acquirers, the following will apply – Merchant Acquiring Services Page 3 of 66 Issued on: 15 September 2021 (a) paragraphs 17.1 to 21.3 come into effect on 15 September 2022; and (b) paragraphs 9.1 to 9.3 come into effect on 15 September 2023. 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA 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; “acquirer” refers to any person who is registered1 pursuant to sections 17(1) and 18 of the FSA to provide merchant acquiring services and fulfils the criteria under paragraph 2.1; “critical system” refers to any application system that supports the provision of critical services, where failure of the system has the potential to significantly impair the acquirer’s provision of services to customers or counterparties, business operations, financial position, reputation or compliance with applicable laws and regulatory requirements; “customer and counterparty information” as used in Part D of this policy document, refers to any information relating to the affairs or, in particular, the account, of any customer or counterparty of an acquirer in whatever form; 1 For avoidance of doubt, an e-money issuer that also conducts its own merchant acquiring services (i.e. acquires merchants directly) for its own e-money scheme is also considered as an acquirer. Merchant Acquiring Services Page 4 of 66 Issued on: 15 September 2021 “cyber risk” refers to threats or vulnerabilities emanating from the connectivity of internal technology infrastructure to external networks or the Internet; “digital service” refers to the provision of payment services delivered to customers via electronic channels and devices including Internet and mobile devices, self-service and point-of-sale terminals; “direct participant” refers to a principal member of a payment instrument network(s) for purposes of providing merchant acquiring services; “direct settlement method” refers to a method whereby settlement is done directly from a payment instrument network or an identified settlement bank2 to the merchant, based on the payment instruction by the acquirer. Such settlement funds cannot be claimed by the acquirer or creditors of the acquirer, including upon the acquirer’s liquidation; “e-commerce merchant” refers to merchant that sells or offers goods and/or services electronically over the Internet or any other channels not involving face-to- face interaction (e.g. mail or telephone order); “foreign-issued payment instrument” refers to a payment instrument issued by an issuer not locally incorporated in Malaysia but may be accepted at local merchants; “issuer of e-money” refers to a person approved under section 11 of the FSA or Islamic Financial Services Act 2013 (IFSA) to issue e-money; “key responsible persons” or “KRP” refer to persons that are accountable or responsible for the management and oversight of merchant acquiring services. These comprise the directors and Chief Executive Officer (CEO); 2 A licensed bank, licensed Islamic bank or prescribed institution appointed or identified to conduct direct settlement to merchants. Merchant Acquiring Services Page 5 of 66 Issued on: 15 September 2021 “large acquirers” refer to acquirers with an actual or projected amount of average monthly transaction value (MTV) of more than RM10,000,000 (where for the purpose of calculation of average MTV, the actual amount is calculated based on a 12-month moving average, while the projected amount is calculated based on an estimation of the average monthly amount for the next 12-month period); “licensed Islamic bank” means an Islamic bank licensed under the IFSA; “merchant” refers to a person or an entity that has a contractual agreement with an acquirer to accept payment instruments for the sale or offer of goods or services. This includes the merchants acquired by a payment facilitator on behalf of an acquirer; “non-bank acquirer” refers to any person who is not a licensed bank, licensed Islamic bank or prescribed institution that is registered pursuant to sections 17(1) and 18 of the FSA to provide merchant acquiring services and fulfils the criteria under paragraph 2.1; “outsourcing arrangement” refers to an arrangement in which a service provider performs an activity on behalf of the acquirer on a continuing basis3, where the activity would otherwise be undertaken by the acquirer and does not include activities set out in Appendix 9; “payment facilitator” refers to an entity that is appointed by an acquirer to perform merchant acquiring services on behalf of the acquirer. For avoidance of doubt, a payment facilitator can be either: (1) an existing acquirer for any payment instrument network or (2) a third party acquirer; “payment gateway service provider” refers to an entity that provides the information technology (IT) system and infrastructure for purposes of processing or supporting payment or settlement transactions; 3 For avoidance of doubt, an arrangement which is time-bound does not preclude that activity from being considered as being performed on a continuing basis. Merchant Acquiring Services Page 6 of 66 Issued on: 15 September 2021 “payment instrument network” refers to a payment system that enables payment to be made using a payment instrument under its brand and provides clearing and/or settlement services for its members namely issuers and/or acquirers; “physical merchant” refers to merchant that sells or offers goods or services physically over the counter (i.e. brick-and-mortar/face-to-face business); “point-of-sale (POS) terminal” refers to an electronic device located in or at a merchant’s premise that enables a customer to effect a transaction for the purchase of goods or services using a payment instrument; “prescribed institution” means a development financial institution prescribed under the Development Financial Institutions Act 2002; “production data centre” refers to any facility which hosts active critical production application systems irrespective of location; “senior management” refers to the CEO and senior officers; “service provider” refers to an entity, including an affiliate, providing services to an acquirer under an outsourcing arrangement. This may include third party service provider as used in Part D of this policy document; “small acquirers” refer to acquirers with an actual or projected amount of average MTV of less than RM10,000,000 (where for the purpose of calculation of average MTV, the actual amount is calculated based on a 12-month moving average, while the projected amount is calculated based on an estimation of the average monthly amount for the next 12-month period); Merchant Acquiring Services Page 7 of 66 Issued on: 15 September 2021 “SME” refers to small and medium enterprises as defined in the Notification on Definition of Small and Medium Enterprises (SMEs)4 issued by Bank Negara Malaysia (the Bank) and as may be updated from time to time; “sub-contractor” refers to an entity, including an affiliate, which performs the whole or a part of the outsourced activity for the primary service provider; “third party acquirer” refers to an entity that is appointed by an acquirer to perform merchant acquiring services on behalf of the acquirer, but does not fulfil the criteria in paragraph 2.1; and “third party service provider” as used in Part D of this policy document 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 acquirer or its customers. This includes cloud computing software, platform and infrastructure service providers. 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) the policy document on the Risk-Based Authentication for Online Payment Card Transaction; (b) the policy document on the Payment Card Reform Framework; (c) the policy document on the Management of Customer Information and Permitted Disclosures; and (d) the policy document on Interoperable Credit Transfer Framework. 4 Issued on 27 December 2017. Merchant Acquiring Services Page 8 of 66 Issued on: 15 September 2021 7. Policy Documents Superseded 7.1 This policy document supersedes the requirements listed below – (a) Paragraph 33 – Specific requirements for acquirers in policy document on Credit Card issued on 2 July 2019; (b) Paragraph 34 – Specific requirements for acquirers in policy document on Credit Card-i issued on 2 July 2019; (c) Paragraph 23 – Specific requirements for acquirers in policy document on Debit Card issued on 2 December 2016; (d) Paragraph 25 – Specific requirements for acquirers in policy document on Debit Card-i issued on 2 December 2016; (e) Paragraph 30 – Specific requirements for acquirers in policy document on Charge Card issued on 2 December 2016; and (f) Paragraph 32 – Specific requirements for acquirers in policy document on Charge Card-i issued on 2 December 2016. Merchant Acquiring Services Page 9 of 66 Issued on: 15 September 2021 PART B GOVERNANCE 8. Effective Governance and Oversight 8.1 Acquirers shall establish adequate governance arrangements which are effective and transparent to ensure the continued integrity of its merchant acquiring services which include, among others, the following – (a) a board of directors (board) and senior management that consists 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 internal control arrangements to reduce the chances of mismanagement and fraud. Board roles and responsibilities 8.2 The board shall have a board charter that sets out the mandate, responsibilities and procedures of the board and its committees (if any), including the matters reserved for the board’s decision. 8.3 The board shall have the overall responsibility in ensuring the sustainable growth, financial soundness and reliability of the acquirer’s merchant acquiring services which include – (a) determining, reviewing and approving strategies, business plans and significant policies, including its risk appetite and monitoring management’s performance in implementing them; (b) setting corporate values and clear lines of responsibility and accountability that are communicated throughout the organisation; (c) ensuring adequate assessment is conducted on key responsible persons (KRP); (d) ensuring selection of competent senior management; (e) ensuring that the operations of the business are conducted prudently, and within the framework of relevant laws and policies; S S S Merchant Acquiring Services Page 10 of 66 Issued on: 15 September 2021 (f) ensuring that comprehensive risk management policies, processes and infrastructure, and effective operationalisation of the risk controls to manage the various types of risks, are in place and effective; and (g) establishing an effective compliance and internal audit functions. 8.4 The board shall ensure that an effective oversight and risk management mechanism is in place, which includes the following – (a) an effective oversight and governance structure to manage the day-to-day operations of the acquirer; (b) risk management and control framework on the following areas – (i) technology risk management and cyber resilience; (ii) mitigation of fund settlement risk to merchants; (iii) mitigation of fraud or illegal activities; (iv) merchant recruitment and monitoring; (v) outsourcing arrangement with service providers; and (c) appropriate and timely reporting or escalation of issues that may impact the safety, security or operational reliability of the merchant acquiring operations. 8.5 The board shall ensure that the risk management and control framework is periodically reviewed for continued effectiveness. This includes ensuring an audit by an independent party is conducted with reasonable frequency to detect weaknesses and enable corrective measures to be taken in a timely manner. 8.6 The board and its committees (if any) shall be of a size that promotes effective deliberation and encourages the active participation of all directors. The board shall meet sufficiently whereby the number and frequency of board meetings shall commensurate with the size and complexity of the acquirer’s operations, to review the acquirer’s performance, including the status of its compliance with regulatory requirements and to deal with any issues pertaining to the operations of merchant acquiring services. S S S Merchant Acquiring Services Page 11 of 66 Issued on: 15 September 2021 8.7 The board shall ensure that clear and accurate minutes of board meetings are maintained to record the decisions of the board, including the key deliberations, rationale for each decision made, and any significant concerns or dissenting views. 8.8 With regard to the management of technology and cybersecurity risks, the board shall – (a) establish and approve the technology risk appetite which is aligned with the acquirer’s risk appetite statement. In doing so, the board shall approve the corresponding risk tolerances for technology-related events and ensure key performance indicators are in place to monitor the acquirer’s technology risk against its approved risk tolerance. The board shall ensure the senior management of the acquirer provides regular updates on the status of these indicators, key technology risks and critical technology operations to facilitate strategic decision-making; and (b) ensure and oversee the adequacy of the acquirer’s IT and cybersecurity strategic plans covering a period of no less than three (3) years. These plans shall address the acquirer’s requirements on infrastructure, control measures to mitigate IT and cyber risk as well as financial and non-financial resources, which are commensurate with the complexity of the acquirer’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 (3) years. 8.9 Given the rapidly evolving cyber threat landscape, the board should allocate sufficient time to discuss cyber risks and related issues, including the strategic and reputational risks associated with a cyber-incident. This should be supported by input from external experts as appropriate. The board should also ensure its continuous engagement in cybersecurity preparedness, education and training. 8.10 The board shall be responsible for ensuring the effectiveness of the audit function including technology audit. The board shall review and ensure the appropriate audit scope, procedures and frequency of audits. The board shall also ensure effective S G S S Merchant Acquiring Services Page 12 of 66 Issued on: 15 September 2021 oversight over the prompt closure of corrective actions to address any issues or control gaps. Senior Management 8.11 The senior management of acquirers shall be 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, including those under paragraph 8.4(b); (ii) due diligence and oversight to manage outsourced arrangements supporting the merchant acquiring operations; (iii) sufficient and timely reporting or escalation of issues to the board; (b) overseeing the formulation and effective implementation of any business or strategic plan, including the strategic technology plan and associated technology policies and procedures; and (c) a robust assessment is conducted to approve any deviation from policies and procedures, including technology-related policies. Material deviations shall be reported to the board. 8.12 The senior management shall consist of individuals with the appropriate skill set and experience to adequately support the merchant acquiring services. This includes individuals from technology functions to provide guidance on the acquirers’ technology plans and operations. 8.13 The senior management shall ensure adequate allocation of resources as well as appropriately skilled and competent staff to support all critical functions of the merchant acquiring services, including to ensure maintenance of robust technology systems and management of technology risk. 8.14 For large acquirers, the senior management should embed appropriate oversight arrangements within the technology function to support the enterprise-wide S S S G Merchant Acquiring Services Page 13 of 66 Issued on: 15 September 2021 oversight of technology risk. These arrangements should provide for designated staff responsible for the identification, assessment and mitigation of technology risks who do not engage in day-to-day technology operations. PART C OPERATIONAL REQUIREMENTS 9. Minimum Capital Funds Requirements for Non-Bank Acquirers 9.1 Small non-bank acquirers are required to maintain, at all times, minimum capital funds of RM300,000. 9.2 Large non-bank acquirers are required to maintain, at all times, minimum capital funds of RM1,000,000. 9.3 Non-bank acquirers shall maintain the required minimum capital funds in accordance with the computation specified in Appendix 1. 10. Settlement Risk Management 10.1 Acquirers shall be responsible to process the payment of funds to its merchants in a proper and timely manner to manage settlement risk. For the purpose of this paragraph, settlement risk is described as the risk of acquirers’ inability to honour the obligation to transfer funds arising from a transaction as a result of clearing, at an agreed-upon time to the merchants. 10.2 Acquirers shall ensure timely and complete funds settlement to merchants as per the terms agreed in the contractual agreement with merchants. 10.3 Acquirers shall ensure that the settlement period commensurate with the merchants’ business models and needs. 10.4 Acquirers should ensure that the settlement period is no longer than two (2) and five (5) working days from the date of funds received from the payment instrument S G S S S S S Merchant Acquiring Services Page 14 of 66 Issued on: 15 September 2021 network, for physical merchants and e-commerce merchants, respectively. Notwithstanding this, acquirers should strive for a shorter settlement period and if a merchant requests for a shorter settlement period, the acquirer should assess the feasibility of accommodating such requests accordingly. 10.5 Acquirers shall deposit the funds received for settlement to merchants in a dedicated deposit account (i.e. designated account) with licensed banks, licensed Islamic banks or prescribed institutions, separately from their own funds. The funds in the dedicated deposit account shall only be used for settlement purposes to the merchants and/or chargebacks to issuers of payment instruments less the Merchant Discount Rate (MDR) charged or any other applicable charges to the merchant. 10.6 In the event settlement by acquirers to SME merchants takes more than two (2) working days from the date of funds received from the payment instrument network, the acquirer shall ensure the funds are safeguarded as follows – (a) place the settlement funds in a trust account with a licensed bank, licensed Islamic bank or prescribed institution in accordance with the Trustee Act 1949; or (b) adopt direct settlement method to merchants; or (c) secure a bank guarantee from a licensed bank, licensed Islamic bank or prescribed institution on such settlement funds or outstanding amount for settlement. 10.7 Acquirers shall be liable to provide the funds settlement to merchants in the event the issuer, including foreign issuers of payment instruments, or any other parties involved in the handling of such funds, fail to fulfil its settlement obligations. S S S Merchant Acquiring Services Page 15 of 66 Issued on: 15 September 2021 11. Merchant Management Merchant recruitment 11.1 Acquirers shall establish prudent underwriting criteria and procedures to ensure proper due-diligence for on-boarding of a merchant. The assessment criteria shall include the following – (a) relevant background information on the merchant (e.g. financial history such as bankruptcy/insolvency check, nature of business, etc.); (b) legitimacy of the merchant’s business, with no involvement in or association with any fraudulent or illegal activities including business activities intended to deceive consumers such as “scratch and win” and “get-rich-quick” schemes; and (c) the merchant has not been blacklisted by any authorities or other acquirers for any suspected fraudulent or illegal activities. 11.2 Acquirers shall verify the merchants’ identity using reliable documents, information or any other measures that acquirers deem appropriate, taking into consideration the nature and size of the business of the respective merchants, before establishing any acquiring relationship with the merchants. 11.3 For purposes of paragraph 11.2 – (a) the verification method may include site visits, website/channel checking or company screening; and (b) documents and information to be used for verification may include the business name, address, website/channel, contact, proof of existence (e.g. business registration number, identification number, etc.), owner details, business nature and products/services offered. 11.4 Merchants shall not be on-boarded via a merchant recruitment agent5 unless approved by the acquirer. Acquirers shall retain the responsibility to ensure proper 5 The merchant recruitment agent’s roles are limited to the referral of merchants, collection of merchants’ information and documents for application purposes and submission to acquirers for approval. The activities do not involve processing of funds or facilitating the transactions. S G S S Merchant Acquiring Services Page 16 of 66 Issued on: 15 September 2021 due-diligence on merchants is conducted by the merchant recruitment agent and ensure that the merchants on-boarded do not conduct fraudulent or illegal activities. Acquirers shall also ensure that controls as per paragraphs 11.1 and 11.2 are put in place by the merchant recruitment agent. Merchant monitoring 11.5 Acquirers shall conduct effective monitoring on their merchants’ activities to ensure that the merchants are not involved in any fraudulent or illegal activities. 11.6 Acquirers shall maintain a “watch list” of merchants that are suspected to be collusive or involved in fraudulent or illegal activities, and the activities of these merchants shall be closely monitored and investigated. 11.7 Acquirers shall monitor chargebacks and its trend, including the merchants’ capacity to repay these chargebacks and act accordingly (e.g. close monitoring, termination of merchant, if necessary) to mitigate any risks associated with engaging such merchants. 11.8 Acquirers shall terminate immediately any acquiring relationship with a merchant that has been charged or convicted of a criminal offence relating to fraudulent or illegal activity. 11.9 Acquirers shall conduct periodic assessment, which may include mystery shopping or audit on their merchants, to ensure that the merchants adhere to payment instruments’ acceptance and authorisation procedures. Information security requirements for merchants 11.10 Acquirers shall ensure that merchants maintain and demonstrate compliance with the applicable regulations on data security and data protection as well as establish controls6 that are effective in protecting customer data and information. This 6 Controls include process and procedures as well as IT security controls that are commonly accepted as effective by industry practice. G S S S S S Merchant Acquiring Services Page 17 of 66 Issued on: 15 September 2021 includes any third party service providers engaged by the merchants for accessing, storing, transmitting and processing customer data. 11.11 The acquirers’ agreements with merchants shall include provisions to ensure the merchants and merchants’ third party service providers maintain compliance with applicable security requirements and established security standards. 11.12 Acquirers shall educate7 and raise awareness among their merchants on the importance of protection of customer data and the legal consequences8 of failing to adequately protect such data. 12. Fraud Risk Management 12.1 Acquirers shall put in place an effective mechanism, which includes the process and procedures to mitigate fraud risk, which includes fraud prevention, detection and monitoring. 12.2 Acquirers shall ensure the following – (a) real time fraud detection and monitoring, effective early detection of unusual transactions and mechanism to halt or delay fraudulent or suspicious transactions; (b) necessary processes and procedures are in place to enable authentication by customers based on the risk profile of customers and transactions, to effectively mitigate and manage the potential risk identified; (c) the fraud risk management measures shall be reviewed periodically to ensure proactive actions are taken to address any inadequacies in such measures; (d) fraud incidents and their assessment shall be reported to the board and senior management in a timely manner if the impact is significant; and 7 By providing appropriate level of awareness through various measures such as training, constant reminders or engagement sessions. 8 Such as non-compliance with the Personal Data Protection Act 2010. S S S S Merchant Acquiring Services Page 18 of 66 Issued on: 15 September 2021 (e) 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. 13. Business Continuity Management 13.1 Acquirers shall ensure that they have adequate resources and capacity in terms of hardware, software and other operating capabilities9 to deliver consistently reliable and secure services. 13.2 Acquirers shall ensure that measures are in place to support operational reliability, which include – (a) strong internal controls to minimise operational risk such as system security risk; (b) comprehensive and well-documented operational and technical procedures; and (c) systems with a robust disaster recovery plan, including a highly reliable backup system. 13.3 Acquirers shall undertake a structured risk assessment process to – (a) identify potential threats that could cause material business disruptions, resulting in the inability to fulfil business obligations; and (b) assess the likelihood of the identified threats occurring and determine the impact on the acquirer (e.g. business impact analysis). 13.4 Acquirers shall develop an effective business continuity plan (BCP) and disaster recovery plan (DRP) for at least all critical business functions and other functions, where applicable. 13.5 For purposes of paragraph 13.3, acquirers are expected to carry out a business impact analysis (BIA) on an annual basis, which forms the foundation of 9 This may refer to any other skills or processes involved in the operations (e.g. adequate manpower and skill set to operate the systems). G S S S S Merchant Acquiring Services Page 19 of 66 Issued on: 15 September 2021 developing the BCP and as and when there are material changes to the acquirers’ business activities. 13.6 Acquirers should determine the maximum tolerable downtime (MTD) and recovery time objectives (RTO) for each critical business function. The goal is to develop a BCP that details out 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. 13.7 To ensure comprehensiveness of its business continuity management, acquirers shall ensure its outsourced service provider also has an effective BCP and DRP and implements other relevant safeguards to ensure the continuity of the material outsourced activities, with the objective to minimise the acquirers’ business disruptions. 13.8 Acquirers shall test the BCP and DRP regularly to ensure the functionality and effectiveness of the recovery strategies and procedures, preparedness of staff and other recovery resources. 14. Outsourcing 14.1 Acquirers shall remain responsible and accountable for the services outsourced to any service provider10 (e.g. payment facilitators, merchant recruitment agents, payment gateway service providers, IT service providers) under an outsourcing arrangement11. 14.2 Prior to entering into any outsourcing arrangement, acquirers shall, at minimum, ensure the following – (a) availability of sufficient expertise within the acquirer to oversee and manage the outsourcing relationship; 10 Including affiliates of the acquirer, regardless of jurisdiction. 11 For avoidance of doubt, an arrangement will be deemed as an outsourcing arrangement as long as the activities fulfil the “outsourcing arrangement” definition specified under paragraph 5.2 of this policy document. S S S S G Merchant Acquiring Services Page 20 of 66 Issued on: 15 September 2021 (b) the scope and nature of services and operations to be outsourced would not compromise the controls and risk management of the merchant acquiring services. Acquirers shall ensure the following – (i) the outsourcing of such processes does not take away the critical decision making function of the acquirers; (ii) the outsourcing of such processes does not threaten strategic arrangements, flexibility needed by acquirers on important areas and control of the acquirers; (iii) the outsourcing of such processes would not impair the reputation, integrity and credibility of the acquirers; and (iv) processes are in place for the acquirers to retain the ability to comply with the regulatory and supervisory requirements on the outsourced functions. 14.3 Acquirers shall perform appropriate due diligence of the service provider before the outsourcing arrangements are formalised, which includes the following areas – (a) capacity, capability, financial strength and business reputation12; (b) risk management and internal control capabilities, including physical and IT security controls as well as business continuity management13; (c) measures and procedures to ensure data protection and confidentiality; (d) reliance of service providers on sub-contractors; and (e) ability of the service provider to comply with relevant laws, regulations and requirements in this policy document. 14.4 Acquirers should also assess the extent of concentration risk to which the acquirer is exposed with respect to a single service provider and the mitigation measures to address this concentration, except when the service provider is an affiliate and is supervised by a financial regulatory authority. 12 This includes an assessment that the service provider is a going concern and has strong governance structures to manage the outsourced activity throughout the duration of the arrangement. 13 Including the ability of the service provider to respond to service disruptions or problems resulting from natural disasters, or physical or cyber-attacks, within an appropriate timeframe. S G Merchant Acquiring Services Page 21 of 66 Issued on: 15 September 2021 14.5 Approval from the board to outsource identified functions shall be obtained and documented, substantiated by outcomes of the due diligence process conducted on the service provider. 14.6 Acquirers shall ensure that the outsourcing arrangement is governed by a written agreement, which shall be comprehensive, legally enforceable and shall include the minimum requirements specified in Appendix 2. 14.7 In addition to the requirements in Appendix 2, for an outsourcing arrangement with a payment facilitator, acquirers shall ensure that the agreement between the payment facilitator and merchant – (a) clearly reflects that the payment facilitator is entering into the agreement with the merchant on behalf of and/or as agent of the acquirer; (b) contains relevant information of the transactions relevant to the acquirer, including information on the merchants and any other information that may have significant implications to the acquirer; and (c) contains the acquirer’s contact details which the merchant may use to directly submit queries and concerns, if any, related to the transactions. 14.8 Acquirers shall ensure that appropriate controls are in place and are effective in safeguarding the security, confidentiality and integrity of any information shared with the service provider. In meeting this requirement, acquirers shall ensure the following – (a) information disclosed to the service provider is limited to the extent necessary to provide the contracted service, and only on a need-to-know basis; (b) all locations (e.g. city and country) where information is processed or stored, including back-up locations, are made known to the acquirer; (c) where the service provider is located, or performs the outsourced activity, outside Malaysia, the service provider is subject to data protection standards that are comparable to Malaysia; S S S S S S Merchant Acquiring Services Page 22 of 66 Issued on: 15 September 2021 (d) the service provider maintains compliance with applicable security requirements and established security standards14 at all times; and (e) the service provider undertakes to safeguard customer information of the acquirer at all times and reports any customer information breach to the acquirer within an agreed timeframe. 14.9 In addition to the requirements in paragraph (b) of Appendix 2, where applicable, the acquirer shall ensure that the service provider provides a written undertaking to the acquirer to comply with all relevant laws and regulatory requirements on secrecy and data protection. 14.10 Acquirers shall ensure their service provider complies with the relevant regulatory requirements specified in this policy document15 and as may be specified by the Bank from time to time. 14.11 The requirement in paragraph 14.10 is also applicable when a service provider engages a sub-contractor to undertake the activities that were outsourced by the acquirer, whereby the acquirer shall implement proper controls to ensure that the sub-contractor complies with the relevant requirements based on standards issued by the Bank to acquirers from time to time. 14.12 Acquirers shall have a contingency plan or arrangements to secure business continuity with the service provider in the event the arrangement with the service provider is abruptly terminated. This is to mitigate any significant discontinuity in the work that is supposed to be conducted by the service provider. The contingency plan shall be reviewed from time to time to ensure that the plan is current and ready for implementation in the event of abrupt termination of the service provider. 14 Any relevant local or international standards commonly applied by the relevant industry. 15 This includes specific requirements for system development and acquisition, data centre operations, network resilience, technology security and cybersecurity, wherever applicable. S S S S Merchant Acquiring Services Page 23 of 66 Issued on: 15 September 2021 14.13 Notwithstanding that the operational activities are outsourced, reporting by the service provider to the acquirer and monitoring mechanisms on the service provider shall be put in place by the acquirer to ensure that the integrity and quality of work conducted by the service provider is maintained. Regular reviews shall also be conducted by the acquirer to monitor the performance of the service provider. 14.14 Periodic independent reviews either via internal and/or external audits, shall be conducted on the outsourced operations, with the same scope of review if the said operations are conducted in-house. 14.15 Acquirers shall ensure that any weaknesses highlighted during the audit pursuant to paragraph 14.14 are well-documented and promptly rectified by the service provider especially where such weaknesses may affect the integrity of the internal controls of the acquirers. 14.16 For outsourcing arrangements where the service provider is located or the services are performed outside Malaysia, the acquirer should have appropriate controls and safeguards in place to manage any additional risk, with regard to various conditions, including legal and regulatory requirements as well as social and political conditions. 14.17 Acquirers shall ensure that the outsourcing arrangements undertaken outside Malaysia are conducted in a manner which does not affect – (a) the acquirer’s ability to effectively monitor the service provider and execute its BCP; (b) the acquirer’s prompt recovery of data in the event of the service provider’s failure, having regard to the laws of the particular jurisdiction; and (c) the Bank’s ability to exercise its regulatory or supervisory powers, in particular the Bank’s timely and unrestricted access to systems, information or documents relating to the outsourced activity. G S S S S Merchant Acquiring Services Page 24 of 66 Issued on: 15 September 2021 14.18 For outsourcing involving cloud services, acquirers may rely on third party certification and reports made available by the cloud service provider for purposes of conducting audits and inspections on the cloud service provider and sub- contractors. However, such reliance by the acquirer shall be supported by an adequate understanding and review of the scope of the audit and methods employed by the third party, and access to the third party and service provider to clarify matters relating to the audit. 15. Arrangement with Parties Involved in Payment and Settlement Process 15.1 Acquirers are responsible for ensuring that the parties that they enter into a contract with, who may also expose merchants to payment and/or settlement risk, are able to manage such risks appropriately. Such parties include payment facilitators. 15.2 In addition to the requirements in paragraph 14, acquirers are required to ensure such parties in paragraph 15.1 have adequate operational and risk management policies and procedures in place, which include the following – (a) the parties conduct sound assessment and due-diligence on their merchants to ensure that the merchants are conducting a legitimate business and not involved in fraudulent or illegal activities; (b) the parties have safeguard measures to ensure timely and complete funds settlement to the merchants (e.g. placing funds in a designated account with licensed banks, licensed Islamic banks or prescribed institutions only for settlement purposes and are transparent in their settlement terms and period to their merchants); (c) the parties as well as their merchants are able to ensure confidentiality, security and integrity of customer data at all times; (d) the parties are able to ensure the safety, reliability and availability of their system and network infrastructure; and (e) the parties have appropriate dispute resolution mechanisms for the merchants. S S S Merchant Acquiring Services Page 25 of 66 Issued on: 15 September 2021 15.3 Acquirers shall be held responsible for fulfilling the settlement obligation to the merchants of a payment facilitator, in the event that the payment facilitator fails to fulfil its settlement obligations to the merchants. 15.4 Notwithstanding paragraph 14.11, acquirers shall ensure that a payment facilitator does not appoint another payment facilitator for purposes of acquiring a merchant. 15.5 Acquirers shall periodically monitor the transactions or activities of the parties mentioned in paragraph 15.1 (e.g. through transaction monitoring, site visits at the business premises or audit assessment) to ensure that appropriate controls and risk mitigation measures are put in place by such parties in managing the payment and/or settlement risk and any issues or weaknesses detected are promptly rectified. 16. Appropriate Treatment for Merchants 16.1 Acquirers shall establish appropriate rules and procedures on liability management and chargeback, which shall be clearly specified in the merchant agreements. Acquirers shall ensure that merchants are not held liable for any fraud losses or chargeback if the transactions acceptance procedures as stipulated in the merchant agreement have been adhered to by the merchants. 16.2 In the event funds are withheld from the merchants, the acquirers are responsible for ensuring that the withholding of such funds due to their merchants (e.g. for suspected fraudulent transactions or to facilitate chargeback requests from the issuer) is done in a fair manner and not detrimental to the merchants. This shall include but is not limited to the following – (a) provide clarity in the circumstances for withholding of funds due to the merchants (e.g. fraudulent transactions); (b) provide clarity and identify the definite period for withholding of funds due to the merchants (e.g. within chargeback period of one hundred and twenty (120) days); S S S S S Merchant Acquiring Services Page 26 of 66 Issued on: 15 September 2021 (c) processes involved in releasing of withheld funds are done in an expedient manner and within the identified timeframe; (d) maintenance of withheld funds is made in a separate account, which shall not be used for acquirers’ own operations; and (e) provide clear communication and regular updates on the status of the withheld funds to the merchants. 16.3 Acquirers shall establish clear and robust dispute resolution procedures to ensure effective and timely resolution of dispute cases between acquirers and their merchants. 16.4 Acquirers shall acknowledge receipt of the dispute within two (2) working days from the date such dispute is lodged and provide a written decision to merchants within thirty (30) working days. Acquirers shall inform the merchants if a longer time is required to address the dispute and provide appropriate rationale. PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS 17. Technology Risk Management S G 17.1 Acquirers shall establish the Technology Risk Management Framework (TRMF), which is a framework to safeguard the acquirers’ information infrastructure, systems and data as an integral part of the acquirers’ risk management framework. 17.2 The TRMF should 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 acquirers 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; S S Merchant Acquiring Services Page 27 of 66 Issued on: 15 September 2021 (f) risk controls and mitigations; and (g) continuous monitoring to timely detect and address any material risks. G 17.3 Acquirers should establish an independent enterprise-wide technology risk management function which should be responsible for — (a) implementing the TRMF and Cyber Resilience Framework (CRF) as provided under paragraph 19; (b) advising on critical technology projects and ensuring critical issues that may have an impact on the acquirers’ 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 assessment16, where necessary. G 17.4 Acquirers should designate a Chief Information Security Officer (CISO), by whatever name called, to be responsible for the technology risk management function of the acquirers. The acquirers should ensure that the CISO has sufficient authority, independence and resources17. The CISO should — (a) be independent from day-to-day technology operations; (b) keep apprised of current and emerging technology risks which could potentially affect the acquirers’ risk profile; and (c) be appropriately certified. G 17.5 The CISO should be responsible for ensuring the acquirers’ information assets and technologies are adequately protected, which include — (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 16 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. 17 Acquirers’ 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 should be accountable for and serve as the point of contact with the Bank on the acquirers’ technology-related matters, including managing entity-specific risks, supporting prompt incident response and reporting to the acquirers’ board. Merchant Acquiring Services Page 28 of 66 Issued on: 15 September 2021 (c) advising senior management on technology risk and security matters, including developments in the acquirers’ technology security risk profile in relation to its businesses and operations. 18. Technology Operations Management Technology Project Management S 18.1 Acquirers shall establish appropriate governance requirements commensurate with the risk and complexity18 of technology projects undertaken. This shall include establishing project oversight roles and responsibilities, authority and reporting structures, and risk assessment throughout the project life cycle. G 18.2 The risk assessment should identify and address the key risks arising from the implementation of technology projects. These include the risks that could threaten successful project implementation and the risks that a project failure will lead to a broader impact on the acquirers’ operational capabilities. At a minimum, due regard should be given to the following areas – (a) the adequacy and competency of resources including those of the vendor to effectively implement the project. This should also take into consideration the number, size and duration of significant technology projects undertaken concurrently by the acquirers; (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 18 For example, large-scale integration projects or those involving IT 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. Merchant Acquiring Services Page 29 of 66 Issued on: 15 September 2021 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. G 18.3 The board and senior management should 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 18.4 Acquirers should establish an Enterprise Architecture Framework (EAF) that provides a holistic view of technology throughout the acquirers. The EAF is an overall technical design and high-level plan that describes the acquirers’ 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 acquirers plan and structure system development and acquisition strategies to meet business goals. S 18.5 Acquirers shall 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 shall also embed security and relevant enterprise architecture considerations into the SDLC to ensure confidentiality, integrity and availability of data19. The policies and practices shall be reviewed at least once every three (3) years to ensure that they remain relevant to the acquirers’ environment. 19 The security considerations shall include ensuring appropriate segregation of duties throughout the SDLC. Merchant Acquiring Services Page 30 of 66 Issued on: 15 September 2021 G 18.6 Acquirers are 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. G 18.7 Acquirers should consider the need for diversity20 in technology to enhance resilience by ensuring critical systems infrastructure are not excessively exposed to similar technology risks. S 18.8 Acquirers shall 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, acquirers shall ensure proper authorisation procedures and adequate measures to prevent their unauthorised disclosure are in place. G 18.9 The scope of system testing referred to in paragraph 18.8 should include unit testing, integration testing, user acceptance testing, application security testing, stress and regression testing, and exception and negative testing, where applicable. S 18.10 Acquirers shall ensure any changes to the source code of critical systems are subject to adequate source code reviews to ensure the code is secure and was developed in line with recognised coding practices prior to introducing any system changes. S 18.11 In relation to IT systems that are developed and maintained by vendors, acquirers shall ensure the source code continues to be readily accessible and secured from unauthorised access. S 18.12 Acquirers shall physically segregate the production environment from the development and testing environment for critical systems. Where acquirers are 20 Diversity in technology may include the use of different technology architecture designs and applications, technology platforms and network infrastructure. Merchant Acquiring Services Page 31 of 66 Issued on: 15 September 2021 relying on a cloud environment, the acquirers shall ensure that these environments are not running on the same virtual host. S 18.13 Acquirers shall establish appropriate procedures to independently review and approve system changes. The acquirers shall also establish and test contingency plans in the event of unsuccessful implementation of material changes to minimise any business disruption. S 18.14 Where acquirers’ IT systems are managed by third party service providers, the acquirers shall ensure, including through contractual obligations, that the third party service providers provide sufficient notice to the acquirers before any changes are undertaken that may impact the IT systems. G 18.15 When decommissioning systems, acquirers should ensure minimal adverse impact on merchants and business operations. This includes establishing and testing contingency plans in the event of unsuccessful system decommissioning. Cryptography 18.16 Acquirers should promote the adoption of strong cryptographic controls for protection of important data and information which include – (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 (3) years, of existing cryptographic standards and algorithms in IT systems, external linked or 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 should set out the escalation process, G Merchant Acquiring Services Page 32 of 66 Issued on: 15 September 2021 procedures for keys regeneration, interim measures, changes to business-as- usual protocols and containment strategies or options to minimise the impact of a compromise. G 18.17 Acquirers should 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 acquirers do not generate their own encryption keys, the acquirers should undertake appropriate measures to ensure robust controls and processes are in place to manage encryption keys. Where this involves a reliance on third party assessment21, the acquirers should consider whether such reliance is consistent with the acquirers’ risk appetite and tolerance. Acquirers should 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. G 18.18 Acquirers should ensure cryptographic controls are based on the effective implementation of suitable cryptographic protocols. The protocols should include secret and public cryptographic key protocols, both of which should reflect a high degree of protection to the applicable secret or private cryptographic keys. The selection of such protocols should 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 should be undertaken in a protected environment, supported by a hardware security module (HSM) or trusted execution environment (TEE). G 18.19 Acquirers should store public cryptographic keys in a certificate issued by a certificate authority as appropriate to the level of risk. Such certificates associated with customers should be issued by recognised certificate authorities. The acquirers should ensure that the implementation of authentication and signature protocols using such certificates are subject to strong protection to ensure that the 21 For example, where the acquirers are not able to perform its own validation on embedded cryptographic controls due to the proprietary nature of the software or confidentiality constraints. Merchant Acquiring Services Page 33 of 66 Issued on: 15 September 2021 use of private cryptographic keys corresponding to the user certificates is legally binding and irrefutable. The initial issuance and subsequent renewal of such certificates should be consistent with industry best practices and applicable legal/regulatory specifications. Data Centre Infrastructure 18.20 Acquirers shall ensure proper management of data centres and specify the resilience and availability objectives22 of their data centres which are aligned with their business needs. 18.21 The network infrastructure should be designed to be resilient, secure and scalable. Potential data centre failures or disruptions should not significantly degrade the delivery of its financial services or impede its internal operations. G 18.22 Acquirers should 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. G 18.23 In addition to paragraph 18.22, large acquirers are also encouraged to ensure recovery data centres are concurrently maintainable. G S 18.24 Acquirers should host IT systems in a dedicated space intended for production data centre usage. The dedicated space is to be physically secured from unauthorised access and is not located in a disaster-prone area. Acquirers should 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. 18.25 Acquirers shall establish proportionate controls, ensure adequate maintenance, and holistic and continuous monitoring of the critical components of the production 22 Availability objectives refer to the level of availability of the data centre which is expected to be specified as an internal policy. S S G Merchant Acquiring Services Page 34 of 66 Issued on: 15 September 2021 data centres aligned with the acquirer’s risk appetite. G 18.26 Acquirers are encouraged to appoint a technically competent external third party service provider to carry out a production data centre risk assessment and set proportionate controls aligned with the acquirers’ risk appetite. The assessment should consider all major risks associated with the production data centre and to be conducted periodically or whenever there is a material change in the data centre infrastructure. The assessment should at a minimum, include a consideration of whether paragraphs 18.22 to 18.25 have been adopted. For data centres managed by third party service providers, acquirers may rely on independent third party assurance reports provided such reliance is consistent with the acquirers’ risk appetite and tolerance, and the independent assurance has considered similar risks and meets the expectations in this paragraph for conducting the assessment. The designated board-level committee should deliberate the outcome of the assessment. Data Centre Operations 18.27 Acquirers shall ensure their 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. 18.28 Acquirers should involve both the technology stakeholders and the relevant business stakeholders within the acquirers in their development and implementation of capacity management plans. 18.29 Acquirers shall establish appropriate monitoring mechanisms to track capacity utilisation and performance of key processes and services23. These monitoring mechanisms shall be capable of providing timely and actionable alerts to administrators. 23 For example, batch runs and backup processes for the acquirers’ application systems and infrastructure. S G S Merchant Acquiring Services Page 35 of 66 Issued on: 15 September 2021 S 18.30 Acquirers shall segregate incompatible activities in the data centre operations environment to prevent any unauthorised activity24. In the case where vendors’ or programmers’ access to the production environment is necessary, these activities shall be properly authorised and monitored. S 18.31 Acquirers shall establish adequate control procedures for their data centre operations. These control procedures shall include procedures for batch processing management to ensure timely and accurate batch processes, implementing changes in the production system, error handling, as well as, management of other exceptional conditions. G 18.32 Acquirers are encouraged to undertake an independent risk assessment of their end-to-end backup storage and delivery management to ensure that existing controls are adequate in protecting sensitive data at all times. 18.33 Acquirers shall maintain a sufficient number of backup copies of critical data, the updated version of the operating system software, production programmes, system utilities, all master and transaction files and event logs for recovery purposes. Backup media shall be stored in an environmentally secure and access-controlled backup site. G 18.34 In regard to paragraph 18.32 and 18.33, acquirers should also adopt the controls as specified in Appendix 3 or their equivalent to secure the storage and transportation of sensitive data in removable media. G 18.35 Where there is a reasonable expectation for immediate delivery of service, acquirers should ensure that the relevant critical systems are designed for high availability. 24 For example, system development activities shall be segregated from data centre operations. S Merchant Acquiring Services Page 36 of 66 Issued on: 15 September 2021 Network Resilience 18.36 Acquirers are encouraged to design a reliable, scalable and secure enterprise network that is able to support their business activities, including future growth plans. 18.37 Acquirers should ensure the network services for their critical systems are reliable and have no SPOF in order to protect the critical systems against potential network faults and cyber threats. 18.38 Acquirers should 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. 18.39 Acquirers shall ensure network services supporting IT systems are designed and implemented to ensure the confidentiality, integrity and availability of data. 18.40 Acquirers should establish and maintain a network design blueprint identifying all of their internal and external network interfaces and connectivity. The blueprint should highlight both physical and logical connectivity between network components and network segmentations. 18.41 Acquirers shall ensure sufficient and relevant network device logs are retained for investigations and forensic purposes for at least three (3) years. 18.42 Acquirers shall 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 acquirers from other entities within the group. 18.43 Acquirers are encouraged to appoint a technically competent external third party service provider to carry out regular network risk assessment and set G G S G S G S G Merchant Acquiring Services Page 37 of 66 Issued on: 15 September 2021 proportionate controls aligned with its risk appetite. The assessment should be conducted periodically or whenever there is a material change in the network design. The assessment should consider all major risks and determine the current level of resilience. Third Party Service Provider Management 18.44 In addition to the requirements in paragraph 14 on outsourcing arrangements, the acquirer shall fulfil the requirements under paragraphs 18.45 to 18.51 specifically for IT related third party service providers. 18.45 The board and senior management of the acquirers shall exercise effective oversight and address associated risks when engaging third party service providers for critical technology functions and systems. Engagement of third party service providers, including engagements for independent assessment, does not in any way reduce or eliminate the principal accountabilities and responsibilities of acquirers for the security and reliability of technology functions and systems. 18.46 Acquirers shall 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 providers’ 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 acquirers or its customers in the course of transmission, processing or storage of such information; and (h) concentration risk. S S S Merchant Acquiring Services Page 38 of 66 Issued on: 15 September 2021 18.47 At a minimum, the outsourcing agreements with the acquirers’ third party service providers shall contain arrangements for disaster recovery and backup capability, where applicable, and IT system availability. 18.48 Acquirers shall ensure their ability to regularly review the outsourcing agreements with their third party service providers to take into account the latest security and technological developments in relation to the services provided. 18.49 Acquirers shall ensure data residing in third party service providers are recoverable in a timely manner. The acquirers shall ensure clearly defined arrangements with the third party service providers are in place to facilitate the acquirers’ immediate notification and timely updates to the Bank and other relevant regulatory bodies in the event of a cyber-incident. 18.50 Acquirers shall ensure the storage of their data is at least logically segregated from the other clients of the third party service providers. There shall be proper controls over and periodic review of the access provided to authorised users. 18.51 Acquirers shall ensure IT system hosted by third party service providers have adequate recovery and resumption capability and provisions to facilitate an orderly exit in the event of failure or unsatisfactory performance by the third party service providers. Cloud Services 18.52 Acquirers shall fully understand the inherent risk of adopting cloud services. In this regard, acquirers are required to conduct a comprehensive risk assessment prior to cloud adoption which considers the inherent architecture of cloud services that leverage on the sharing of resources and services across multiple tenants over the Internet. The assessment shall specifically address risks associated with the following – (a) sophistication of the deployment model; S S S S S S Merchant Acquiring Services Page 39 of 66 Issued on: 15 September 2021 (b) migration of existing systems to cloud infrastructure; (c) location of cloud infrastructure; (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 acquirers’ data following the termination; (i) demarcation of responsibilities, limitations and liability of the cloud service providers; and (j) ability to meet regulatory requirements and international standards on cloud computing on a continuing basis. 18.53 The risk assessment as outlined in paragraph 18.52 shall be documented and made available for the Bank’s review as and when requested by the Bank. 18.54 Acquirers shall demonstrate that specific risks associated with the use of cloud services for IT systems have been adequately considered and addressed. The risk assessment shall address the risks outlined in paragraph 18.52, as well as, the following areas – (a) the adequacy of the over-arching cloud adoption strategy of the acquirers including – (i) board oversight over cloud strategy and cloud operational management; (ii) senior management roles and responsibilities on cloud management; (iii) conduct of day-to-day operational management functions; (iv) management and oversight by the acquirers of cloud service providers; (v) quality of risk management and internal control functions; and (vi) strength of in-house competency and experience. S S Merchant Acquiring Services Page 40 of 66 Issued on: 15 September 2021 (b) the availability of independent, internationally recognised certifications of the cloud service providers, at a minimum, in the following areas – (i) information security management framework, including cryptographic modules such as used for encryption and decryption of user data; and (ii) cloud-specific security controls for protection of customer and counterparty or proprietary information including payment transaction data in use, in storage and in transit; (c) the degree to which the selected cloud configuration adequately addresses the following attributes – (i) geographical redundancy; (ii) high availability; (iii) scalability; (iv) portability; (v) interoperability; and (vi) strong recovery and resumption capability including appropriate alternate Internet path to protect against potential Internet faults. 18.55 Acquirers should consider the need for a third party pre-implementation review on cloud implementation that also covers the areas set out in paragraph 18.54. 18.56 Acquirers shall 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. G S Merchant Acquiring Services Page 41 of 66 Issued on: 15 September 2021 Access Control 18.57 Acquirers shall implement an appropriate access control policy for the identification, authentication and authorisation of users (internal and external users such as third party service providers). This shall address both logical and physical technology access controls, which are commensurate with the level of risk of unauthorised access to its technology systems. 18.58 In observing paragraph 18.57, acquirers should consider the following in accessing the 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 third party service providers; (d) employ segregation of incompatible functions to ensure that 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 G Merchant Acquiring Services Page 42 of 66 Issued on: 15 September 2021 18.59 Acquirers shall employ robust authentication processes to ensure the authenticity of identities in use. Authentication mechanisms shall commensurate with the criticality of the functions and adopt at least one or more of these three (3) 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). 18.60 Authentication methods that depend on more than one factor typically are more difficult to compromise than a single factor system. In view of this, acquirers are encouraged to properly design and implement (especially in high-risk or ‘single sign-on’ systems) multi-factor authentication (MFA) that is more reliable and provide stronger fraud deterrents. 18.61 Acquirers shall periodically review and adapt their password practices to enhance resilience against evolving attacks. This includes the effective and secure generation of passwords. There shall be appropriate controls in place to check the strength of the passwords created. 18.62 Acquirers are encouraged to adopt dedicated user domains for selected critical functions, separate from the broader enterprise-wide user authentication system. 18.63 Acquirers shall establish a user access matrix to outline access rights, user roles or profiles, and the authorising and approving authorities. The access matrix shall be periodically reviewed and updated. 18.64 Acquirers shall ensure the following — (a) access controls to enterprise-wide systems are effectively managed and monitored; and (b) user activities in IT systems are logged for audit and investigations. Activity logs shall be maintained for at least three (3) years and regularly reviewed in a timely manner. S G S S G S Merchant Acquiring Services Page 43 of 66 Issued on: 15 September 2021 18.65 In fulfilling the requirement under paragraph 18.64, large acquirers are encouraged 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 18.66 Acquirers shall ensure that the IT systems are not running on outdated systems with known security vulnerabilities or end-of-life (EOL) technology systems. In this regard, the acquirers shall 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. 18.67 Acquirers should 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 18.68 Acquirers shall 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; S G S G Merchant Acquiring Services Page 44 of 66 Issued on: 15 September 2021 (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. 18.69 Acquirers should implement controls to authenticate and monitor all financial transactions. These controls, at a minimum, should be effective in mitigating man-in- the-middle attacks, transaction fraud, phishing and compromise of application systems and information. Acquirers should deploy MFA technology and channels that are more secure than unencrypted short messaging service (SMS). 18.70 Acquirers shall ensure sufficient and relevant digital service logs are retained for investigations and forensic purposes for at least three (3) years. 18.71 Acquirers should ensure that the use of more advanced technology to authenticate and deliver digital services such as biometrics, tokenisation and contactless communication25 comply with internationally recognised standards where available. The technology should be resilient against cyber threats26 including malware, phishing or data leakage. 18.72 Acquirers should undertake a comprehensive risk assessment of the advanced technologies and the algorithms deployed in its digital services. Algorithms should be regularly reviewed and validated to ensure they remain appropriate and accurate. Where third party software is used, acquirers may rely on relevant independent reports provided that such reliance is consistent with the acquirers’ risk appetite and tolerance, and the nature of digital services provided by the acquirers which leverage on the technologies and algorithms. 25 Such as QR code, Bar Code, Near Field Communication (NFC), Radio Frequency Identification (RFID). 26 For example, in respect of QR payments, acquirers 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. S G G G Merchant Acquiring Services Page 45 of 66 Issued on: 15 September 2021 18.73 Acquirers should 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. 18.74 Acquirers should 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, acquirers should implement sufficient logical and physical safeguards for the following channels/devices – (a) payment acceptance device; (b) QR code; (c) Internet application; and (d) mobile application and devices. In view of the evolving threat landscape, these safeguards should be continuously reviewed and updated to protect against fraud and to secure the confidentiality and integrity of customer and counterparty information and transactions. 18.75 With respect to paragraph 18.74, acquirers should adopt the controls specified in the following Appendices for the respective digital delivery channel – (a) Appendix 4: Control Measures on Payment Acceptance Device; (b) Appendix 5: Control Measures on Internet Application; (c) Appendix 6: Control Measures on Mobile Application and Devices; and (d) Appendix 7: Control Measures on Quick Response Code. 19. Cybersecurity Management Cyber Risk Management 19.1 Acquirers should 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. 19.2 Acquirers shall develop a Cyber Resilience Framework (CRF), which articulates the acquirers’ governance for managing cyber risks, its cyber resilience objectives and G G S G G Merchant Acquiring Services Page 46 of 66 Issued on: 15 September 2021 its risk tolerance, with due regard to the evolving cyber threat environment. Objectives of the CRF includes ensuring operational resilience against extreme but plausible cyber-attacks. 19.3 The CRF should 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. The CRF should consist of, at a minimum, the following elements – (a) development of an institutional understanding of the overall cyber risk context in relation to the acquirers’ businesses and operations, their 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 acquirers’ 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 acquirers; (d) layered (defense-in-depth) security controls to protect 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 acquirers and participants in financial market infrastructure to strengthen cyber resilience. 19.4 In addition to the elements provided in paragraph 19.3 above, large acquirers are encouraged to — G G Merchant Acquiring Services Page 47 of 66 Issued on: 15 September 2021 (a) implement a centralised automated tracking system to manage their 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 should be responsible for the following – (i) perform detailed analysis on cyber threats, provide risk assessment on potential cyber-attacks and ensure timely review and escalation of all high-risk cyber threats to the board and senior management; and (ii) proactively identify potential vulnerabilities including those arising from infrastructure hosted with third party service providers through the simulation of sophisticated “Red Team” attacks on their current security controls. Cybersecurity Operations 19.5 Acquirers should establish clear responsibilities for cybersecurity operations which should include implementing appropriate mitigating measures in the acquirers’ 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. 19.6 Where relevant, acquirers should adopt the control measures on cybersecurity as specified in Appendix 8 to enhance its resilience to cyber-attacks. 19.7 Acquirers are encouraged to deploy effective tools to support the continuous and proactive monitoring and timely detection of anomalous activities in its technology G G G Merchant Acquiring Services Page 48 of 66 Issued on: 15 September 2021 infrastructure. The scope of monitoring should cover all critical systems including the supporting infrastructure. 19.8 Acquirers shall ensure that their cybersecurity operations continuously prevent and detect any potential compromise of their security controls or weakening of their security posture. For large acquirers, this shall include performing a quarterly vulnerability assessment of external and internal network components that support all critical systems. 19.9 Acquirers shall conduct annual penetration tests on their internal and external network infrastructure as well as IT 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. Acquirers shall engage suitably accredited penetration testers and third party service providers to perform this function. 19.10 In addition to the requirement in paragraph 19.9 above, large acquirers are encouraged to undertake independent compromise assessment on the technology infrastructure of their critical systems at least annually and ensure the results of such assessment are escalated to the board and senior management in a timely manner. 19.11 Acquirers shall establish standard operating procedures (SOP) for vulnerability assessment and penetration testing (VAPT) activities. The SOP shall outline the relevant control measures including ensuring the external penetration testers are accompanied on-premises at all times, validating the event logs and ensuring data purging. 19.12 Acquirers shall 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. G S S S S Merchant Acquiring Services Page 49 of 66 Issued on: 15 September 2021 Distributed Denial of Service (DDoS) 19.13 Acquirers should ensure their technology systems and infrastructure, including IT 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 service third party service provider to expand network bandwidth on-demand including upstream third party service provider capability, adequacy of the third party service 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) 19.14 Acquirers should 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, acquirers should – (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 should be implemented to safeguard and control third party access. This includes having in place adequate contractual agreements to protect the interests of the acquirers and their customers. 19.15 Acquirers should 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 should cover the following – (a) data in-use – data being processed by IT resources; G G G Merchant Acquiring Services Page 50 of 66 Issued on: 15 September 2021 (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. 19.16 Acquirers should 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) 19.17 Acquirers shall ensure their 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 acquirers 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 acquirers’ reviews of its cybersecurity posture and strategy. 19.18 The SOC should 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 G G Merchant Acquiring Services Page 51 of 66 Issued on: 15 September 2021 19.19 Acquirers should ensure that the SOC provides a regular threat assessment report, which should 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 acquirers, such reports should be provided on a monthly basis. 19.20 Acquirers are encouraged to subscribe to reputable threat intelligence services to identify emerging cyber threats, uncover new cyber-attack techniques and support the implementation of countermeasures. 19.21 Acquirers shall ensure the following – (a) the SOC is located in a physically secure environment with proper access controls; and (b) the SOC operates on a 24x7 basis with disaster recovery capability to ensure continuous availability. Cyber Response and Recovery 19.22 Acquirers shall 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. 19.23 Acquirers should establish and implement a comprehensive Cyber Incident Response Plan (CIRP). The CIRP shall 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; S S G G G Merchant Acquiring Services Page 52 of 66 Issued on: 15 September 2021 (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 acquirers, 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. 19.24 Acquirers should conduct an annual cyber drill exercise to test the effectiveness of their 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 should 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. 19.25 Acquirers shall immediately notify the Bank of any cyber-incidents affecting the institution. Upon completion of the investigation, the acquirers are also required to submit a report on the incident to the Bank. 19.26 Acquirers 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. 20. Technology Audit 20.1 Acquirers shall ensure that the scope, frequency and intensity of technology audits are commensurate with the complexity, sophistication and criticality of technology systems and applications. S S G G Merchant Acquiring Services Page 53 of 66 Issued on: 15 September 2021 20.2 The audit function shall be adequately resourced with relevant technology audit competencies and sound knowledge of the acquirers’ technology processes and operations. 20.3 Acquirers should ensure their technology audit staff are adequately conversant with the developing sophistication of the acquirers’ technology systems and delivery channels. 20.4 In addition to paragraph 20.2, large acquirers are expected to establish a dedicated technology audit function that has specialised technology audit competencies to undertake technology audits. 20.5 Acquirers shall 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 reviews of new or material enhancements of technology services. 20.6 The audit function (in the case of paragraph 20.2) and the dedicated technology audit function (in the case of paragraph 20.4) 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. 21. Internal Awareness and Training 21.1 Acquirers shall 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 shall be conducted at least annually by the acquirers and shall reflect the current cyber threat landscape. G S G S G S Merchant Acquiring Services Page 54 of 66 Issued on: 15 September 2021 21.2 Acquirers should 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. 21.3 Acquirers should provide their board members with regular training and information on technology developments to enable the board to effectively discharge its oversight role. PART E OTHER REQUIREMENTS 22. Other Compliance Requirements 22.1 Newly registered acquirers shall conduct a post-implementation review no later than six (6) months after the implementation of the acceptance of payment instruments. The review shall include the identification of issues, gaps, fraud incidents and implementation of action plans to resolve any shortcomings identified. 22.2 Acquirers shall notify the Bank in writing, to the Director of the department in charge of oversight/supervision of payment services on the following – (a) any proposed changes to their merchant acquiring services model which are significant or changes the risk profile of the business model, which includes but is not limited to any changes in target market, mode of payment acceptance, as well as, payment and settlement flow, by providing the details within thirty (30) days prior to the effective date of the proposed changes; and (b) any change in average MTV that would cause changes from recognition as a small to large acquirer or vice-versa, not more than sixty (60) days from such occurrence. 22.3 Acquirers shall submit the following to the Bank – (a) its annual audited financial statements not later than three (3) months after its financial year end in writing to the Director of the department in charge of oversight/supervision of payment services; S S S G G Merchant Acquiring Services Page 55 of 66 Issued on: 15 September 2021 (b) segmented financial reporting for merchant acquiring services only27 on a quarterly basis; (c) statistical report on the operation of its merchant acquiring services on a quarterly basis; and (d) any other information as required by the Bank. 22.4 The information required in paragraphs 22.3(b) and (c) shall be submitted to STATsmart Integrated Submission Portal on the 20th day of the following month. 27 Based on at least the acquirer’s management account and covering the acquirer’s merchant acquiring services only, if the acquirer also conducts other business activities. S Merchant Acquiring Services Page 56 of 66 Issued on: 15 September 2021 Appendix 1 COMPUTATION OF MINIMUM CAPITAL FUNDS Share capital which includes:  Paid-up ordinary shares/common stock  Paid-up irredeemable non-cumulative preference shares plus Reserves which includes:  Share premium  General reserve fund less Intangible Assets28 plus Retained Profit (or less Accumulated Losses) plus Audited Profit for the period (or less Unaudited Loss for the period) 28 Including goodwill, capitalised development costs, licenses and intellectual properties. Merchant Acquiring Services Page 57 of 66 Issued on: 15 September 2021 Appendix 2 MINIMUM REQUIREMENTS ON THE OUTSOURCING AGREEMENT The outsourcing agreement shall, at a minimum, provide for the following – (a) clearly defined roles and responsibilities as well as obligations of the service provider; (b) provisions to ensure that the service provider ensures security and confidentiality of information shared with the service provider at all times, including – (i) responsibilities of the service provider with respect to information security and confidentiality as well as scope of such information; (ii) for the service provider to be bound by confidentiality provisions stipulated under the contract even after the engagement has ended; (iii) for the service provider to maintain compliance with applicable security requirements and established security standards (e.g. Payment Card Industry Data Security Standard (PCI DSS)) at all times; (iv) provisions on corresponding liability obligations arising from a security breach attributable to the service provider; and (v) notification requirements in the event of a security breach; (c) clear provisions on access rights for the Bank or any party appointed by the Bank to examine or conduct audit on the activity conducted by the service provider or its sub-contractor for the acquirer. This shall include access to any system, record, information or data related to the acquirer, as well as rights to enter the premises of the service provider or its sub-contractor to conduct such examination or investigation; (d) continuous and complete access by the acquirer to its data held by the service provider in the event of a dispute with the service provider, or termination of the arrangement; (e) ability of the acquirer and its external auditor to conduct audits and on-site inspections on the service provider and its sub-contractors, and to obtain any report or finding made in relation to the outsourced activity; (f) dispute resolution process in the event of default or non-performance of obligations, including remedies and indemnities where relevant; (g) measures that the service provider would take to ensure continuity of the outsourced activity in the event of an operational disruption or failure on the part of the service provider; (h) conditions under which the outsourcing arrangement may be terminated, with sufficient time for an orderly transfer of the outsourced activity to the acquirer or another party; (i) allow the acquirer the right to modify or terminate the arrangement when the Bank issues a direction to the acquirer to that effect under the FSA; and (j) where relevant, terms governing the ability of the service provider to sub-contract to other parties, which will not dilute the accountability of the service provider. Merchant Acquiring Services Page 58 of 66 Issued on: 15 September 2021 The terms must include requirement for the sub-contractor to be bound by information confidentiality provisions even after the arrangement has ceased. Merchant Acquiring Services Page 59 of 66 Issued on: 15 September 2021 Appendix 3 STORAGE AND TRANSPORTATION OF SENSITIVE DATA IN REMOVABLE MEDIA Acquirers should ensure adequate controls and measures are implemented for the storage and transportation of sensitive data in removable media, including – 1) Deploying the 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) Shall there be a need to transport the removable media to a different physical location, acquirers 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; and (c) use strong and tamper-proof containers for storing the media with high- security lock (e.g. dual key and combination lock); 5) Ensuring third party service providers comply with the requirements in paragraphs 1 to 4 of this Appendix 3, in the event third party services are required in undertaking the storage management or transportation process of sensitive data in removable media. Merchant Acquiring Services Page 60 of 66 Issued on: 15 September 2021 Appendix 4 CONTROL MEASURES ON PAYMENT ACCEPTANCE DEVICE 1) Acquirers should ensure all relevant risks associated to the use of merchant’s payment acceptance device are mitigated, including but not limited to the following - (a) ensuring the payment acceptance devices are – (i) adequately hardened and securely configured using methods that ensure its integrity and authenticity; (ii) protected from tampering and cyber threats such as malware attacks, key logger, and etc; (iii) designed for the protection of PIN data; (iv) certified to be fully compliant with applicable security standards, e.g. PCI PIN Transaction Security (PCI PTS), Software-based PIN Entry on COTS (PCI SPoC), etc.; and (v) used solely as the payment acceptance device. (b) ensuring PIN entry process and cardholder verification method (CVM) applications are secured and protected against manipulation or sabotage; (c) providing guidance for merchants to ensure the PIN is entered in a way that it cannot be observed by an unauthorised party; (d) PIN data must be encrypted upon entry and remain encrypted when transmitted to protect against malicious activity and attacks; (e) ensuring data is protected at all times to prevent data leakage and no data is stored on the payment acceptance devices; (f) ensuring only dedicated merchant staff are allowed to perform system administration functions (e.g. performing correction) of the payment acceptance device; and (g) for PIN Entry on COTS – (i) ensuring PIN CVM applications run only on secured and supported versions of operating systems which have not been compromised, jailbroken or rooted i.e. the security patches are up-to-date; and (ii) use of automated monitoring and attestation system to detect potential compromise of payment acceptance devices and ensuring that all components in the payment acceptance devices are always in a secure state. Merchant Acquiring Services Page 61 of 66 Issued on: 15 September 2021 Appendix 5 CONTROL MEASURES ON INTERNET APPLICATION 1) Acquirers should ensure the adequacy of security controls implemented for Internet application, which include – (a) ensuring Internet application only runs on secured versions of web browsers that have continued developer support for security patches to fix any vulnerabilities; and (b) putting in place additional authentication protocols to enable customers to identify the acquirers’ genuine websites. Merchant Acquiring Services Page 62 of 66 Issued on: 15 September 2021 Appendix 6 CONTROL MEASURES ON MOBILE APPLICATION AND DEVICES 1) Acquirers should ensure digital payment services involving sensitive customer and counterparty information offered via mobile devices are adequately secured. This includes the following – (a) ensuring 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) designing the mobile application to operate in a secure and tamper-proof environment within the mobile devices. The mobile application shall 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 shall be centralised at the host; (c) undertaking proper due diligence processes to ensure the application distribution platforms used to distribute the mobile application are reputable; (d) ensuring proper controls are in place to access, maintain and upload the mobile application on application distribution platforms; (e) activation of the mobile application must be subject to authentication by the acquirers; (f) ensuring secure provisioning process of mobile application in the user’s device is in place by binding the mobile application to the user’s profile such as device ID and account number; and (g) monitoring the application distribution platforms to identify and address the distribution of fake applications in a timely manner. 2) In addition to the guidance above, acquirers should also ensure the following measures are applied specifically for applications running on mobile devices used by the acquirers, appointed parties 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; and (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 fraud29. 29 This includes risks associated with malwares that enable keystroke logging, PIN harvesting and other malicious forms of customer and counterparty information downloading. Merchant Acquiring Services Page 63 of 66 Issued on: 15 September 2021 Appendix 7 CONTROL MEASURES ON QUICK RESPONSE CODE 1) Ensure QR code authenticity which among others include – (a) QR codes are securely generated by host server, unique for each merchant/user/transaction, where dynamic QR codes should have reasonable expiry time; (b) block QR code application from operating on unsecured (e.g. rooted or jail- broken) devices; (c) any fake QR code shall be rejected upfront and the merchant/user shall be automatically notified of the authenticity of the scanned QR code; and (d) bind the QR code to the respective user or merchant ID and transaction amount. 2) Ensure QR codes do not contain any confidential data and are not stored in endpoint devices. 3) Ensure all relevant risks associated with the use of static QR codes at participating merchants are mitigated, including but not limited to the following – (a) all information from the scanned QR codes shall be transmitted to payment instrument’s host server for authentication; (b) educate merchants on fraud risk related to static QR codes and the preventive measures to effectively mitigate such risk (e.g. merchants shall regularly inspect the displayed static QR code to ensure it has not been tampered with); and (c) enforce masking of sensitive customer and counterparty information when displayed on mobile devices. Merchant Acquiring Services Page 64 of 66 Issued on: 15 September 2021 Appendix 8 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 including mobile and wireless 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). 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 Merchant Acquiring Services Page 65 of 66 Issued on: 15 September 2021 (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. Merchant Acquiring Services Page 66 of 66 Issued on: 15 September 2021 Appendix 9 EXAMPLES OF ARRANGEMENTS EXCLUDED FROM OUTSOURCING SCOPE For the purpose of paragraph 14, arrangements which entail procurement of services30, leveraging common industry-wide infrastructure driven by regulatory requirements, and involvement of third parties due to legal requirements, are generally not considered as outsourcing arrangements. These include – (a) services for the transfer, clearing and settlement of funds or securities provided by an operator of a designated payment system or an operator of an approved payment system under the FSA or IFSA; (b) global financial messaging network services provided by an operator that is owned by its member financial institutions and is subject to the oversight of relevant regulators; (c) independent consultancy service (e.g. legal opinions, tax planning and valuation); (d) independent audit assessment; (e) clearing and settlement arrangement between clearing houses and settlement institutions and their members; (f) agent banking; (g) trustee arrangement; (h) credit or market information services; (i) repair, support and maintenance of tangible asset; (j) purchase or subscription of commercially available software; (k) maintenance and support of licensed software; (l) marketing and advertising; (m) telecommunication, postal and courier service; (n) physical security, premise access and guarding services; and (o) catering, cleaning and event services. 30 Where an acquirer acquires services, goods or utilities, which are not expected to be performed by the acquirer. 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 GOVERNANCE 8. Effective Governance and Oversight PART C OPERATIONAL REQUIREMENTS 9. Minimum Capital Funds Requirements for Non-Bank Acquirers 10. Settlement Risk Management 11. Merchant Management 12. Fraud Risk Management 13. Business Continuity Management 14. Outsourcing 15. Arrangement with Parties Involved in Payment and Settlement Process 16. Appropriate Treatment for Merchants PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS 17. Technology Risk Management 18. Technology Operations Management 19. Cybersecurity Management 20. Technology Audit 21. Internal Awareness and Training PART E OTHER REQUIREMENTS 22. Other Compliance Requirements Appendix 1 COMPUTATION OF MINIMUM CAPITAL FUNDS Appendix 2 MINIMUM REQUIREMENTS ON THE OUTSOURCING AGREEMENT Appendix 3 STORAGE AND TRANSPORTATION OF SENSITIVE DATA IN REMOVABLE MEDIA Appendix 4 CONTROL MEASURES ON PAYMENT ACCEPTANCE DEVICE Appendix 5 CONTROL MEASURES ON INTERNET APPLICATION Appendix 6 Control Measures on Mobile Application and Devices Appendix 7 Control Measures on QUICK RESPONSE Code Appendix 8 Control Measures on Cybersecurity Appendix 9 EXAMPLES OF ARRANGEMENTS EXCLUDED FROM OUTSOURCING SCOPE

Public Notice

09 Aug 2021

Financial Consumer Alert update

https://www.bnm.gov.my/-/financial-consumer-alert-update-20210809

Reading: Financial Consumer Alert update Share: Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1200 on Monday, 9 August 2021 9 Aug 2021 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following company was added to the list: Munics Bank Monies Bank Cahaya Maju Investment VanguardFX Asian 2021 Vanguard Financial Services Muhibah Yatu Investment Mining Guru.net The list will be updated regularly for public's reference. To view the updated list, click on this link. Bank Negara Malaysia 9 August 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Public Notice

09 Jul 2021

Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 213th Meeting

https://www.bnm.gov.my/-/ruling-of-the-bank-s-shariah-advisory-council-1

https://www.bnm.gov.my/documents/20124/1085561/%5BFor+issuance%5D+SAC+213+Meeting+Statement+-+Application+of+TVM+for+Qard.pdf

Reading: Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 213th Meeting Share: Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 213th Meeting Embargo : For immediate release Not for publication or broadcast before 1100 on Friday, 9 July 2021 9 Jul 2021 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 213th meeting on 27 April 2021 has ruled that the method to measure qard (interest-free loan) transaction between shareholders’ fund and takaful fund under MFRS 17 Insurance Contracts and MFRS 9 Financial Instruments requirements is allowed. This is because the total repayment of the qard amount will not increase even if the time value of money (TVM) principle is applied in the measurement method. This ruling is subject to comprehensive disclosure in the notes to the financial statements as follows: The requirement for takaful operator to provide qard from shareholders’ fund in the event a deficit occurs in the takaful fund; The nature of qard contract, the qard original amount that has been provided to the takaful fund and the expected repayment period for the qard upon availability of surplus in the takaful fund; and Explanation on the accounting measurement in respect of TVM application to determine the present value and future value of qard and the impact to the original amount of qard and fair value adjustment required to achieve the original amount. The explanation should also cover the “rights of shareholders’ fund to receive the original qard amount” and the “obligation of takaful fund to repay the original qard amount”, of which the amount remains unchanged throughout the qard repayment period.   Please refer to the attachment for more information   Bank Negara Malaysia 9 July 2021 © Bank Negara Malaysia, 2021. All rights reserved.

SAC 213 Meeting Statement - Application of TVM for Qard [Final] SAC 213th Meeting 2021 1 The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on the Application of Time Value of Money Principle for Accounting Measurement of Qard Transaction between Shareholders’ Fund and Takaful Fund 213th SAC Meeting dated 27 April 2021 1 Malaysian Financial Reporting Standards (MFRS) 17 Insurance Contracts 2 Malaysian Financial Reporting Standards (MFRS) 9 Financial Instruments Part I: SAC Ruling, Its Effective Date and Applicability Pursuant to section 52 of the Central Bank of Malaysia Act 2009 pertaining to the functions of the SAC, the SAC ruled that the method to measure qard (interest-free loan) transaction between shareholders’ fund and takaful fund under MFRS 17 Insurance Contracts0F 1 and MFRS 9 Financial Instruments1F 2 requirements is allowed. This is because the total repayment of the qard amount will not increase even if the time value of money (TVM) principle is applied in the measurement method. This ruling is subject to comprehensive disclosure in the notes to the financial statements as follows: i. The requirement for takaful operator to provide qard from shareholders’ fund in the event a deficit occurs in the takaful fund; ii. The nature of qard contract, the qard original amount that has been provided to the takaful fund and the expected repayment period for the qard upon availability of surplus in the takaful fund; and iii. Explanation on the accounting measurement in respect of TVM application to determine the present value and future value of qard and the impact to the original amount of qard and fair value adjustment required to achieve the original amount. The explanation should also cover the “rights of shareholders’ fund to receive the original qard amount” and the “obligation of takaful fund to repay the original qard amount”, of which the amount remains unchanged throughout the qard repayment period. This ruling comes into effect immediately upon publication of this ruling on Bank Negara Malaysia website dated 8 July 2021 and applies to the licensed takaful operators including professional retakaful operators approved under the Islamic Financial Services Act 2013 (IFSA) to carry on takaful business. In line with sections 28(1) and (2) IFSA, as the case may be, licensed takaful operators are required to comply with this ruling as compliance with any ruling of the SAC in respect of any particular aim and operation, business, affair or activity of licensed takaful operators shall be deemed to be in compliance with Shariah. SAC 213th Meeting 2021 2 3 Malaysian Financial Reporting Standards (MFRS) 4 Insurance Contracts 4 As required under section 95 of IFSA 5 MASB has issued a bulletin (Reporting Qard in the Takaful Fund column within Takaful Entity financial statements) on 3 June 2021 regarding the appropriate accounting treatment for qard in the context of takaful under relevant MFRS requirements 6 MASB provides guidance on the accounting treatment from the perspective of a takaful operator, only in the event where the takaful operator elects to present the operations of the standalone takaful operator in its columnar financial statements 7 Based on risk-free rate of Malaysian Government Securities (MGS) and/or Government Investment Issues (GII) Part II: Background Accounting treatment under MFRS  Currently, MFRS 4 Insurance Contracts3 allows licensed takaful operators to measure qard which is provided to rectify deficiency in the takaful fund4 at cost, in the financial statements of both the takaful operator and the takaful fund. In view that MFRS 4 will be superseded by MFRS 17 effective 1 January 2023, there is a need to review the existing accounting treatment in complying with new measurement requirements under MFRS 17. Consequently, the review will also consider accounting requirements relevant to qard transaction under other applicable accounting standards primarily MFRS 9.  The Malaysian Accounting Standards Board (MASB)5, has recommended the following accounting treatment from both perspectives of takaful funds and takaful operators. Specifically, the TVM principle will be applied in the valuation method consistent with the MFRS requirements: o From a takaful fund’s perspective, qard is treated as part of fulfilment cash flows under MFRS 17 and measured based on the present value method where timing of the cash flows is considered. o From a takaful operator’s perspective6, qard is treated as a financial asset under MFRS 9 and initially measured at fair value, where a discount factor based on the estimated commercial return on nominal value7 will be used to estimate the initial fair value of qard. Impact of accounting treatment to financial statements  During the initial measurement of qard, the application of TVM will result in a lower expected value of qard to be repaid at a future date given that qard is interest-free in nature and does not compensate for TVM. In this regard, the difference between the initial and nominal value (original value) of qard will represent the TVM effect and recorded in the respective financial statements as a gain to the takaful fund and a loss to the takaful operator.  Throughout the qard repayment period, the value of qard will be adjusted to unwind the TVM effect with corresponding gain and loss recorded in the financial statements of the takaful fund and the takaful operator, respectively. This will ultimately zerorise the TVM effect recorded at initial measurement resulting in no gain or loss in respect of qard transaction throughout the period where qard is being repaid. Such adjustment is intended to ensure that the value of qard reaches the original value of qard when it SAC 213th Meeting 2021 3 8 Qard refers to a contract of lending money by a lender to a borrower where the latter is bound to repay an equivalent replacement amount to the lender (Paragraph 8.1 of Qard Policy Document) is fully repaid and ultimately affirming the takaful fund’s obligation to repay the original amount of qard and takaful operator’s right to receive the original amount of qard. Shariah issues  Does the application of TVM for qard in the accounting measurement tantamount to loan with interest (riba)?  Does the application of TVM leads to the issue of ambiguity (gharar) towards the users of financial statement? Part III: Key Discussion Implication of applying TVM in measuring qard value for accounting treatment purposes Absence of riba element in the qard contract  Measuring qard based on the concept of TVM may give the impression of an interest (riba)-based loan which is prohibited by Shariah as the original qard value to be repaid is higher than the qard value recorded at inception.  However, the difference in the value of qard at inception and full repayment recorded in the financial statements does not give the same financial effect of an interest-based loan as the qard value (either measured at fair or present value) will be adjusted throughout the qard repayment period.  The adjustment towards the qard value throughout the qard repayment period effectively reflects the original qard value which is equivalent to the qard value paid upon full settlement.  Therefore, the issue of riba element in TVM application when measuring qard does not arise as the value of qard provided by the takaful operator at the inception is equivalent to the value of qard repaid by the takaful fund upon full repayment. This is in line with the definition of qard as specified in the Policy Document of Qard8. Ambiguity in the financial statements can be mitigated through comprehensive disclosure  The presence of ambiguity may render a contract void due to the absence of sufficient knowledge and information of the contracting parties regarding the subject matter of the contract.  Shariah prohibits significant ambiguity (gharar fahisy) in respect of the essential elements of an exchange contract (i.e. availability and existence of the asset in a sale contract, determination of price etc.) as it may lead to dispute between the contracting parties. Nonetheless, Shariah does tolerate minor or slight ambiguity (gharar yaseer) so long as it does not affect the essential elements and validity of an exchange contract.  In the context of accounting treatment, the application of TVM in measuring qard does not reflect the actual nature of qard as the value of qard recorded at inception is SAC 213th Meeting 2021 4 9 Nazih Hammad, Mu`jam al-Mustolahat al-Maliyyah wal-Iqtisodiyyah fi Lughah al-Fuqaha, Dar al-Qalam, 2008, pg. 143 different from the actual amount given by the takaful operator and repaid by takaful fund.  The difference between the qard value measured based on TVM principles and the actual (original) qard amount given as well as the amount to be repaid may seem to not describe the true nature of the qard contract9 and may lead to the issue of ambiguity in the financial statement as users of the financial statement of takaful operators might be unaware that the accounting treatment applies TVM principle in measuring the qard value.  Although the application of TVM in measuring qard affects the level of transparency of the financial statement of a takaful operator, its application is viewed as one that does not lead to significant ambiguity (gharar fahisy) which is prohibited given that the element of ambiguity is only concerning the information in the financial statements of the takaful operator and does not affect the essential elements of the qard contract.  The financial obligations between contracting parties remain unchanged and both the lender (takaful operator) and borrower (takaful fund) are aware of the actual value of their financial liability and obligations arising from the qard contract.  Moreover, the element of ambiguity in the method of qard measurement can be addressed through comprehensive information disclosure in notes to the financial statements to inform the users of financial statements on the application of TVM in measuring the qard value. The need for comprehensive disclosure in the financial statements  In order to mitigate any potential negative implication arising from the application of TVM such as the perception that a takaful operator provides an interest-based loan and the presence of ambiguity element, takaful operators must include a comprehensive disclosure in the notes to the financial statements.  The disclosure shall include at least the following information: i. The statutory requirement for a takaful operator to provide qard from shareholders fund in the event of a deficit in the takaful fund; ii. The nature of qard contract, the qard original amount that has been extended to the takaful fund and the repayment period for which qard is expected to be repaid upon availability of surplus arising in the takaful fund; and iii. Explanation on the accounting measurement in respect of TVM application to determine the present value and future value of qard and the impact to the original amount of qard and fair value adjustment required to achieve the original amount. The explanation should also cover the “rights of shareholders’ fund to receive the original qard amount” and the “obligation of takaful fund to repay the original qard amount”, of which the amount remains unchanged throughout the qard repayment period. SAC 213th Meeting 2021 5 10 Ibnu Hajar al-`Asqalani, Bulugh al-Maram min Adillah al-Ahkam, Matba`ah al-Salafiyyah, 1928, p. 176 11 The SAC, in its 71st meeting dated 26 - 27 October 2007, has resolved that the application of time value of money principle in Islamic financial reporting is permissible only for exchange contracts that involve deferred payment. However, it is strictly prohibited in debt-based transactions (qard). 12 The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Shari`a Standards for Islamic Financial Institutions, Standard no. 31 (Controls in Gharar in Financial Transactions), 2015, paragraph 4/3, pg. 774. Part IV: Basis of Ruling The application of accounting principles does not lead to riba  The application of TVM for qard measurement in the financial statement does not lead to interest-based loan as the lender (takaful operator) does not gain any financial benefit from the qard contract. The actual qard value is equivalent to the amount to be repaid. This shows that the measurement of qard based on TVM principle is free from the element of riba given that there is no `illah (reason) of riba that gives benefit to the lender as mentioned in the hadith concerning prohibition of riba: .كل قرض جر منفعة، فھو ربا :أن رسول هللا صلى هللا علیھ وسلم قال علي بن أبي طالب عن “From Ali r.a. who said, that Rasulullah SAW had said: Every loan that gives benefit (to the lender) is riba.”10  The application of TVM for qard measurement should be limited to accounting treatment for qard transaction between shareholders’ fund and takaful fund only. Any application of TVM beyond the scope and context discussed in this ruling would contravene the existing SAC ruling regarding TVM application for debt-based transactions11. The application of accounting principles in preparing the financial statements does not lead to the element of prohibited ambiguity  The application of TVM principles in preparing the financial statement does not lead to significant ambiguity12 as the preparation of financial statements is an additional matter beyond the contract agreement. The method of accounting measurement does not in any way affect the essential elements of a qard contract as the actual financial obligation between the contracting parties remains the same.  Nevertheless, Shariah emphasizes the importance of transparency of information in the financial statements as it aims to provide a true presentation of the financial performance of a business entity. This information serves as a reference for users such as stakeholders, investors and customers in making accurate business decisions or evaluations of a financial entity.  As such, the element of ambiguity present in the financial statements must be eliminated through comprehensive disclosure of the qard measurement in the financial statement (as outlined in Part I: SAC Ruling).  Apart from eliminating the element of slight ambiguity, comprehensive disclosure is necessary to achieve a true and fair presentation of the financial statements. SAC 213th Meeting 2021 6 Part V: Implication of the SAC Ruling  The ruling provides clarity on the application of TVM to qard in the context of takaful whereby the contractual rights and obligation of both parties remain unchanged. This will ensure full compliance with MFRS requirements by takaful companies and enable auditors to attest to a true and fair view to the financial statement. Further, this enables consolidation of financial statements at the Group entity level without any qualified audit opinion.

Public Notice

30 Apr 2021

Climate Change and Principle-based Taxonomy

https://www.bnm.gov.my/-/climate-change-principle-based-taxonomy

https://www.bnm.gov.my/documents/20124/938039/Climate+Change+and+Principle-based+Taxonomy.pdf

Reading: Climate Change and Principle-based Taxonomy Share: 109 Climate Change and Principle-based Taxonomy Release Date: 30 Apr 2021 Climate Change and Principle-based Taxonomy The Discussion Paper on Climate Change and Principle-based Taxonomy was issued on 27 December 2019 to facilitate financial institutions in assessing and classifying economic activities that contribute to climate change mitigation and adaptation. The Bank received written feedback from respondents, including financial institutions, asset management companies, rating agencies and non-governmental organisations, during the consultation period. The Bank has since been working collaboratively with the Joint Committee on Climate Change (JC3) Risk Management Sub-Committee to incorporate the feedback received and enhance the discussion paper. The final issuance of the Climate Change and Principle-based Taxonomy guidance document features major enhancements in the following areas: Strengthened the guidance document with the introduction of a progressive system of transition categories (Climate Supporting, Transitioning and Watchlist) to acknowledge concrete transition efforts and commitments by businesses to adopt sustainable practices; and Provided greater clarity and guidance for the assessment of guiding principles including the incorporation of broader environmental outcomes through the principle of no significant harm, with specific focus on how business operations affect pollution, biodiversity and resource efficiency. Financial institutions can refer to the first cohort of the Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guides on Palm Oil, Renewable Energy and Energy Efficiency for guidance on sectoral/ activity-based metrics, and climate-related and environmental risks mitigation measures. The second cohort of the VBIAF Sectoral Guides on Oil and Gas, Construction and Infrastructure, as well as Manufacturing sector will be published by the end of 2021. The VBIAF Sectoral Guides on Palm Oil, Renewable Energy and Energy Efficiency can be accessed through this link: https://aibim.com/value-based-intermediation © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 30 April 2021 Climate Change and Principle-based Taxonomy Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed international Islamic banks 4. Licensed Islamic banks 5. Licensed insurers 6. Licensed reinsurers 7. Licensed takaful operators 8. Licensed retakaful operators 9. Prescribed development financial institutions Climate Change and Principle-based Taxonomy 1 of 47 Issued on: 30 April 2021 TABLE OF CONTENTS Preface & Acknowledgement 2 Abbreviations 3 Part A: Overview Introduction 4 – 5 Applicability 6 Effective date 6 Related documents 6 Part B: Climate change impact and opportunities Dimensions and transmission channels of climate-related risks 7 – 9 Advancing climate ambitions and opportunities 9 – 11 Part C: Assessment of Economic Activities Guiding principles for the assessment of economic activities 12 Guiding Principle 1: Climate change mitigation 12 – 14 Guiding Principle 2: Climate change adaptation 14 – 16 Guiding Principle 3: No significant harm to the environment 16 – 17 Guiding Principle 4: Remedial measures to transition 18 – 20 Guiding Principle 5: Prohibited activities 20 – 21 External certification and verification 21 – 22 Part D: Classification of Economic Activities Classification system 23 – 24 Part E: Use Cases Use case 1: Financing for an expansion of oil palm plantation 25 – 26 Use case 2: Financing for a broiler chicken house 27 Use case 3: Refinancing a green building 28 – 29 Use case 4: Financing in fossil fuel-related activities 30 – 32 Use case 5: Investment in green assets 32 Appendices Appendix 1: Characteristics and effects of climate change 33 – 36 Appendix 2: Relevant national policies and plans to address climate change, biodiversity and environmental issues 37 – 38 Appendix 3: Examples of activities that generally meet GP1 39 – 41 Appendix 4: Examples of activities that generally meet GP2 42 – 45 Appendix 5: Examples of certification and independent verification 46 – 47 Climate Change and Principle-based Taxonomy 2 of 47 Issued on: 30 April 2021 PREFACE & ACKNOWLEDGEMENT The Climate Change and Principle-based Taxonomy (CCPT) is prepared by Bank Negara Malaysia in collaboration with the Risk Management sub-committee of the Joint Committee on Climate Change (JC3). The World Wide Fund for Nature (Malaysia and Singapore offices) also provided substantial inputs, particularly on aspects of environmental sustainability to the drafting of this document. Feedback and suggestions received during the public consultation have been incorporated in this document, where relevant. Queries and clarification may be directed to [email protected]. Members of Risk Management sub-committee of JC3 are listed below: 1. Bank Islam Malaysia Berhad 2. Bank Pertanian Malaysia Berhad (Agrobank) 3. CIMB Bank Berhad 4. Etiqa Insurance and Takaful 5. Hong Leong Bank Berhad 6. Institutional Investors Council Malaysia 7. Malayan Banking Berhad 8. Nomura Asset Management Malaysia Sdn Bhd 9. Securities Commission Malaysia 10. Standard Chartered Bank Malaysia Berhad 11. Zurich Insurance and Takaful DISCLAIMER: The views, findings, interpretations and conclusions expressed in this document do not necessarily represent the decision or the stated policy of the Bank, nor does citing of trade names or commercial processes constitute endorsement. Climate Change and Principle-based Taxonomy 3 of 47 Issued on: 30 April 2021 ABBREVIATIONS AMC Asset management company CCPT Climate Change and Principle-based Taxonomy CDP Carbon Disclosure Project CO2 Carbon dioxide EIA Environmental Impact Assessment EPU Economic Planning Unit, Prime Minister’s Department EQA 1974 Environmental Quality Act 1974 ESG Environmental, social and governance FIs Financial institutions GDP Gross domestic product GHG Greenhouse gas IFI International Financial Institution IPBES Intergovernmental Panel Science-Policy Platform on Biodiversity and Ecosystem Services IPCC Intergovernmental Panel on Climate Change ITOs Insurers and takaful operators JC3 Joint Committee on Climate Change LULUCF Land Use, Land-Use Change and Forestry MGP Malaysian Sustainable Palm Oil General Principle MSPO Malaysian Sustainable Palm Oil NDC Nationally determined contributions RE Renewable energy TCFD Task Force on Climate-Related Financial Disclosures UNDP United Nations Development Programme UNFCCC United Nations Framework Convention on Climate Change UN PRI United Nation Principles for Responsible Investment VBI Value-based Intermediation VBIAF Value-based Intermediation Financing and Investment Impact Assessment Framework WWF World Wide Fund for Nature Climate Change and Principle-based Taxonomy 4 of 47 Issued on: 30 April 2021 PART A OVERVIEW 1 Introduction 1.1 Climate change has significant impacts on the society, economy and financial system. Such changes can be observed through many ways such as a rise in surface temperature and sea level, volatility in local climate including drought and rainfall patterns, and higher frequency and severity of disaster occurrences. These changes are occurring at an unprecedented level, with human activity largely responsible1 (refer to Appendix 1 for the characteristics and effects of climate change). 1.2 Malaysia has experienced an increase in surface mean temperature of 0.13°C to 0.24°C per decade since 1969 to 2016.2 The impact of physical risk resulting from climate-related events and disasters has been significant with occurrences of more than 50 natural disasters in the past 20 years. These disasters have resulted in over RM8 billion monetary losses and affected the lives and livelihoods of more than 3 million people in Malaysia through displacements, injuries and death.3 1.3 Climate change also affects biodiversity, ecosystems, and natural resources such as fresh water, air and soil nutrients. In food production for example, increases in temperature can reduce the quality and quantity of cultivated crops, and lower the resilience of agroecosystems against pests and pathogens. Environmental degradation may also reduce the capacity of the ecosystems to absorb carbon.4 This demonstrates the close interlinkages and interactions between climate-related and environmental risks, with negative feedback loops that reinforces the damage from the materialisation of these risks. 1.4 Failure to recognise and manage climate and environmental-related risks may therefore lead to substantial financial consequences for businesses and households, as well as FIs that provide financing or investment to those exposed to such risks. 1.5 As corporate citizens and given the impact of climate change on enterprise value, viability and profitability, it is imperative that FIs integrate climate change considerations in all aspects of their business strategies and 1 IPCC. (2014). Fifth Assessment Report and IPCC (2018) Special Report: Global Warming of 1.5 ºC. 2 Ministry of Environment and Water. (December 2020). Malaysia’s Third Biennial Update Report submitted to the UNFCCC. 3 Zurairi AR. (October 2018). “Climate-related natural disasters cost Malaysia RM8b in last 20 years”. 4 Ecosystems such as forests, soils and oceans provide essential carbon storage as they absorb 60% of all anthropogenic carbon emissions. IPBES. (2019). The Global Assessment Report on Biodiversity and Ecosystem Services, Summary for Policymakers. Climate Change and Principle-based Taxonomy 5 of 47 Issued on: 30 April 2021 operations including human capital and compensation, risk management processes and public disclosures. 1.6 FIs should play a pivotal role in accelerating their customers’ transition towards more sustainable practices in their business operations. 1.7 This document aims to: (a) provide an overview of climate change and its impact on businesses and households as well as the broader economy; (b) introduce a principle-based taxonomy for FIs to assess and categorise economic activities according to the extent to which the activities meet climate objectives and promote the transition to a low-carbon economy. The taxonomy also incorporates the consideration of broader environmental outcomes through the principle of no significant harm, with specific regard to how business operations affect pollution, biodiversity and resource efficiency. In supporting an orderly transition, the taxonomy recognises remediation measures and introduces a progressive system of transition categories to acknowledge concrete efforts and commitments by businesses to adopt sustainable practices; and (c) facilitate standardised classification and reporting of climate-related exposures to support risk assessments at the institution and systemic levels, strengthen accountability and market transparency, and encourage financial flows towards supporting climate objectives. FIs can also leverage on the taxonomy in the design and structuring of green finance solutions and services to accelerate development of green sectors and activities, and decarbonisation efforts. 1.8 The principle-based approach considers the state of economic development of the country and the nascent stage of climate risk management at which businesses and other economic agents are currently in. By taking a more nurturing approach, this could avoid disruptive exclusions and dislocations thus ensuring an orderly transition of the economy. 1.9 The principle-based approach also supports applications in a wider context and alignment with other classification systems, particularly for FIs that operate across geographies. This takes into account different surrounding conditions across economies, progress in bridging data gaps, the quality of reporting or verification systems, and the ongoing update on national commitments, sectoral targets, thresholds and metrics. Climate Change and Principle-based Taxonomy 6 of 47 Issued on: 30 April 2021 2 Applicability 2.1 This document is developed to serve as a guide for FIs supervised by Bank Negara Malaysia:  Licensed banks  Licensed investment banks  Licensed international Islamic banks  Licensed Islamic banks  Licensed insurers  Licensed reinsurers  Licensed takaful operators  Licensed retakaful operators  Prescribed development financial institutions 2.2 The document is developed such that it may also be used by other financial sector stakeholders such as capital market players and intermediaries and analysts to guide in investment and asset selection decisions, as well as rating agencies in rating decisions. For the public sector, the document may serve as a guide for policy formulation and prioritisation as well as funds allocation. 3 Effective date 3.1 This document comes into effect on 30 April 2021. 4 Related documents 4.1 This document complements the VBIAF Guidance Document issued by Bank Negara Malaysia in November 2019. The VBIAF lays the foundation for ESG considerations in the provision of financial services, to generate a positive and sustainable impact on the economy, community and environment. While the VBIAF is premised on Shariah tenets, the framework has universal application for FIs seeking to reflect ESG considerations in their governance, business strategy and operations, reporting and risk management systems. 4.2 In efforts to align and converge the VBI and climate risk initiatives, the CCPT will leverage the VBIAF sectoral guides developed (thus far on renewable energy, palm oil and energy-efficiency) by the VBIAF Sectoral Guide Working Group spearheaded by the VBI Community of Practitioners (VBI CoP), to support the implementation of the VBIAF and CCPT.5 Guides for other sectors and activities are being developed6 to expand the practical resources available to FIs in implementing the VBIAF and CCPT progressively. FIs are encouraged to make reference to the VBIAF sectoral guides for more detailed guidance to conduct ESG impact assessments in specific sectors. Climate Change and Principle-based Taxonomy 7 of 47 Issued on: 30 April 2021 PART B CLIMATE CHANGE IMPACT AND OPPORTUNITIES 5 Dimensions and transmission channels of climate-related risks 5.1 Climate change impacts can manifest in three dimensions of risk namely physical, transition and liability risks. (a) Physical risk arises from acute (event-driven) and chronic (long term shift) climate-related events that damage property, reduce productivity and disrupt trade. This in turn, increases financial risk to FIs as revenue- generating capacity and credit worthiness of borrowers are materially impacted. In addition, this would lead to higher cost of financial protection or the potential reduction in insurance/takaful capacity. Physical risk also impacts collateral values, where assets pledged as collateral to financial institutions can be destroyed or significantly damaged by climate events, impacting the recovery value. (b) Transition risk occurs as a result of adjustment to a low-carbon economy. The adjustment may translate into financial and/or reputational risk to FIs. Sources of transition risk include changes in public policy and strategy, legislative and regulatory framework (e.g. mandatory disclosure requirements and carbon pricing policies), technological advancements (e.g. lowering the cost of RE) and/or shift in consumer and investor behaviour (e.g. certification mandates and fossil fuel divestment strategies). (c) Liability risk stems from legal risk and claims on damages and losses incurred from inaction or lack of action that results in the effects of physical and transition risks. This risk is potentially higher for ITOs as climate- related liabilities are transferable via liability protection underwritten by ITOs. For banking institutions and asset managers, this could result from financing and investment activities, whilst for the public policy makers and regulatory authorities, this could stem from public and regulatory policies. 5.2 Climate-related risks in the form of physical risk and transition risk are transmitted to FIs through various economic transmission channels that impact businesses and households as well as the broader economy. Bank Negara Malaysia views climate-related risks as a risk driver that has an impact on most of the commonly known risks managed by FIs, namely credit, market, liquidity, insurance/takaful, operational and strategic risks. 5 See the VBIAF Sectoral Guide Working Group and related documents at https://aibim.com/value-based- intermediation. 6 For 2021, the focus is on manufacturing, oil and gas, construction and infrastructure sectors. https://aibim.com/value-based-intermediation https://aibim.com/value-based-intermediation Climate Change and Principle-based Taxonomy 8 of 47 Issued on: 30 April 2021 5.3 The diagrams below illustrate the transmission of climate-related risks to the financial system. Source: Network of Central Banks and Supervisors for Greening the Financial System. (May 2020). "Guide for Supervisors Integrating Climate-related and Environmental Risks into Prudential Supervision." 5.4 It is important to recognise that climate-related risks are dynamic, evolving over time and interacting with each other. A significant increase in physical risk or delays in responding to physical risk would warrant a swift response to build resilience as well as to withstand and absorb climate shocks. This in turn will translate into higher transition risk. Where resources are limited, transition can be costly and involves significant inter-temporal trade-offs between competing socio-economic priorities. Poorly designed and sequenced changes in climate policy and technology, and shifts in market sentiment during the adjustment to a lower carbon economy could result in economic and social dislocations. 5.5 If the required adaptation and transition measures are not implemented carefully and in a timely manner, physical risks will escalate and manifest in further financial losses. This will adversely impact the balance sheets of FIs with broader consequences for financial stability. In a worst-case scenario of inaction, the increased probability of disruptive events will inevitably force a Climate Change and Principle-based Taxonomy 9 of 47 Issued on: 30 April 2021 sudden and radical change to the economy, with adverse consequences to a large part of the population. 6 Advancing climate ambitions and opportunities 6.1 The Paris Agreement sets out the long-term goal of keeping the increase in global average temperature to well below 2°C above pre-industrial levels and pursue efforts to limit temperature increase to 1.5°C above pre-industrial levels.7 Central to the Paris Agreement is the NDC that embodies efforts by each country to reduce national emissions and adapt to the impacts of climate change. The NDC process is dynamic with countries expected to periodically increase their ambitions until the Paris Agreement goal is achieved. 6.2 Malaysia, in its NDC, pledged to reduce GHG emissions intensity of GDP by 45% by 2030, relative to the GHG emissions intensity of GDP in 2005. The commitment represents a 35% reduction on an unconditional basis and an additional 10% with the support of climate finance, technology transfer and capacity building from developed countries.8 6.3 To support the NDC, the Government has introduced relevant policies and targets (refer to Appendix 2 for relevant national policies and plans to address climate change, biodiversity, and environmental issues). These efforts would require the mobilisation of funds to support climate change mitigation and adaptation activities. 6.4 The table below provides the relevant policies and targets9: Sectors Policies Targets Renewable Energy Power Sector Development Plan 2021- 2039 31% renewable energy installed capacity mix by 2025, 45% reduction of emissions from the power sector by 2030 compared to 2005 level Energy Efficiency National Energy Efficiency Action Plan 2016 A savings of 52,233 GWh of electricity from 2016 to 2025, corresponding to an 8% reduction of electricity demand by 2025 across residential, commercial and industrial sectors 7 UNFCCC. (2015). Paris Agreement, Article 2 Paragraph 1(a). 8 In 2016, the energy sector was the largest contributor of emissions which accounted for 79.4% of emissions, followed by industrial processes and product use (IPPU), and waste sectors, which contributed to about 8.6% of total emissions. The agriculture, forestry and other land use (LULUCF) sectors contributed to about 3.4% of emissions. Compared with 2005, Malaysia’s GHG emissions intensity of GDP decreased by 23.3% in 2016 (without LULUCF) and 29.4% (with LULUCF). Malaysia 3rd Biennial Update Report to UNFCCC (December 2020). 9 The policies and targets listed are non-exhaustive. Climate Change and Principle-based Taxonomy 10 of 47 Issued on: 30 April 2021 Sectors Policies Targets Green Technology Master Plan Malaysia 2017-2030 15% reduction in electricity consumption by 2030 Transport National Automotive Policy 2020 Reduce carbon emissions in line with the ASEAN Fuel Economy Roadmap of 5.3 Lge/100km by 2025 National Land Public Transport Masterplan 40% modal share of public transport in urban areas by 2030 National Electric Mobility Blueprint 2015-203010 100,000 electric cars, 100,000 electric motorcycles, 125,000 charging stations, 2000 electric buses by 2030 Building Green Technology Master Plan Malaysia 2017-2030 1,750 green buildings certified by 2030 Manufacturing Green Technology Master Plan Malaysia 2017-2030 Increase in the number of green manufacturers to 17,000 by 2030 Waste Green Technology Master Plan Malaysia 2017-2030 28% recycling rate by 2030 Forestry Malaysian Forestry Policy11 50% of the land mass to be maintained under forest cover 6.5 Climate change mitigation and adaptation also bring significant new opportunities. The Global Commission on the Economy and Climate estimated that the transformative investments in energy, cities, food and land use, water, and industry could amount to USD26 trillion by 2030.12 Globally, there has been a significant increase in the number of companies committed to net zero emission, from 500 recorded in 2019 to 1,541 in 2020, driving demand for nature-based and technological solutions that actively remove carbon from the atmosphere.13 According to a study commissioned by the UN PRI, corporate demand for forest-related carbon removal could generate an annual revenue of 10 In April 2021, the Malaysian Climate Action Council announced that the Low Carbon Mobility Development Plan 2021-2030 would be implemented, which may entail updated targets for e-mobility. The Edge. (April 13, 2021). “Government’s approach to climate change issues outlined in MyCAC, says KASA”, https://www.theedgemarkets.com/article/govts-approach-climate-change-issues-outlined-mycac-says-kasa. 11 As reported in The Edge (March 21, 2021) “Malaysian Forestry Policy to serve as reference for policies adopted by states” and Forest Research Institute Malaysia (March 21, 2021) “PM launches Malaysian Forestry Policy at KBG FRIM”, https://www.frim.gov.my/pm-launches-malaysian-forestry-policy-at-kbg-frim/. 12 The Global Commission on the Economy and Climate. (August 2018). Unlocking the Inclusive Growth Story of the 21st Century: Accelerating Climate Action in Urgent Times. 13 UNPRI. (October 2020). “An Investor Guide to Negative Emissions Technologies and Land Use”. https://www.theedgemarkets.com/article/govts-approach-climate-change-issues-outlined-mycac-says-kasa https://www.frim.gov.my/pm-launches-malaysian-forestry-policy-at-kbg-frim/ Climate Change and Principle-based Taxonomy 11 of 47 Issued on: 30 April 2021 USD800 billion by 2050 with assets valued over USD1.2 trillion, surpassing the current market capitalisation of major oil and gas companies. 6.6 Locally, Malaysia’s targets as outlined in the policies above and the recent establishment of the Malaysian Climate Action Council which would steer national direction and coordination towards a green recovery, the development of low carbon cities14 and mobility, alongside the development of carbon markets,15 unlock new investment and funding opportunities for FIs. There are also emerging opportunities for FIs to support the development of nature-based solutions which have wider benefits for enhancing carbon sink, such as advanced soil and farming management techniques which sequester and keep carbon in soil, afforestation and reforestation of terrestrial forests, sustainable forest management and restoration of wetland areas. Aside from agriculture and plantation activities, opportunities are also aplenty in other sectors and industries such as manufacturing in terms of reengineering of production, processes and operations to be environmentally friendly and sustainable, application of new energy and water efficiency technology as well as sustainable materials in construction activities to produce energy efficient buildings and properties, etc. 6.7 The continuous pursuit of the Paris Agreement ambitions creates significant opportunities for the financial sector to catalyse further growth in sustainable businesses and practices. As the economy and financial system are dependent on and simultaneously impact the environment and society, it is important that FIs embrace the opportunities to support pathways towards low carbon and climate-resilient development for the benefit of people, planet and prosperity. 14 Based on EPU and UNDP study, investments in low-carbon cities in the country could create work opportunities in emerging green sectors and save RM46.9 billion in energy spending between 2016 and 2030, https://www.my.undp.org/content/malaysia/en/home/news-centre/articles/2019/lowcarboncity.html. 15 The Edge. (April 13, 2021). “Government’s approach to climate change issues outlined in MyCAC, says KASA”, https://www.theedgemarkets.com/article/govts-approach-climate-change-issues-outlined-mycac-says-kasa. https://www.my.undp.org/content/malaysia/en/home/news-centre/articles/2019/lowcarboncity.html https://www.theedgemarkets.com/article/govts-approach-climate-change-issues-outlined-mycac-says-kasa Climate Change and Principle-based Taxonomy 12 of 47 Issued on: 30 April 2021 PART C ASSESSMENT OF ECONOMIC ACTIVITIES 7 Guiding principles for the assessment of economic activities 7.1 Recognising the impact of climate change on communities, businesses and the wider economy, there is an urgency to alleviate the impact of climate change and accelerate transition towards a low carbon and climate resilient economy. FIs play a critical role in this transition by channeling capital and funds through their green financing and investment as well as advisory activities. The taxonomy supports these efforts by facilitating robust and consistent assessments of economic activities and their impact on climate and the environment. 7.2 In applying the taxonomy, the key elements of its guiding principles should be embedded in the due diligence assessment of existing and prospective customers. GP1 and GP2 are assessed at transaction level (e.g. upon origination and extension of credit, investment in financial assets, and structuring of capital market transactions). A more holistic assessment of the customer’s overall business is required to evaluate compliance with GP3, GP4 and GP5. Effective and transparent engagements between FIs and their customers, as well as access by FIs to relevant and verifiable information will be required to support assessments against the principles. Guiding Principle 1 (GP1): Climate change mitigation 7.3 The objective of climate change mitigation is to reduce or prevent emission of GHG into the atmosphere. An economic activity can be considered to meet climate change mitigation if such activity makes a substantial16 contribution in the following objectives: (a) Avoid GHG emissions; (b) Reduce GHG emissions; or (c) Enable others to avoid or reduce GHG emissions. 7.4 Common climate change mitigation activities include, but are not limited to, generation of renewable energy, rehabilitation, retrofitting and/or replacement of energy-inefficient technology and/or production of energy-efficient technologies as well as maintenance and strengthening of land-based carbon stock and sinks17, above and below ground. The activity should demonstrate 16 Positive impact from the activities should not be negligible and must be material enough to avoid potential greenwashing. 17 Activities involving maintenance and strengthening of land-based carbon stock and sinks, above and below ground can only be recognised as meeting GP1 if undertaken at the source of emissions. Climate Change and Principle-based Taxonomy 13 of 47 Issued on: 30 April 2021 the capability to avoid or reduce GHG emissions compared to the baseline scenario without the mitigating action. 7.5 Examples of the application of GP1 are provided in Table A. Table A: Examples on the application of GP1: Economic Activity Examples Measurement Renewable energy  Onshore and/or offshore wind power generation  Onshore and floating solar photovoltaic (PV) power generation  The IFI approach18 to GHG accounting for renewable energy projects can be used to measure GHG emissions associated with production of electricity at a wind farm, solar farm or hydro power plant.  These activities are assumed to reduce CO2 emission by comparing against emissions under an alternative scenario without the project. Rehabilitation , retrofitting and/or replacement with energy- efficient technology  Replacement of existing heating/cooling systems in buildings with non- fossil fuel powered systems  Energy-efficient vehicles and transport (e.g. hybrid cars)  The IFI approach to GHG accounting for energy-efficient economic activities can also be used to measure GHG emissions associated with investments in improvement of energy efficiency.  These activities are assumed to reduce CO2 emissions by comparing against existing emissions. Restoring, maintaining, conserving and strengthening of natural land-based carbon stock and sinks (for LULUCF only)  Avoidance/ suspension of deforestation  Afforestation and reforestation  Restoration or rehabilitation of forests, croplands, peatlands, grasslands and wetlands  Sustainable forest and agricultural management  Forest and peatland conservation  Guidance on forest, soil and biomass GHG accounting are provided by: o LULUCF GHG Protocol; o Guidelines for National GHG Inventories by the IPCC; and o CDP disclosure framework and system.  These activities are assumed to avoid or reduce CO2 emissions by comparing against existing emissions. 18 UNFCCC. (2021). “IFIs - Harmonization of Standards for GHG accounting”, https://unfccc.int/climate- action/sectoral-engagement/ifis-harmonization-of-standards-for-ghg-accounting. https://unfccc.int/climate-action/sectoral-engagement/ifis-harmonization-of-standards-for-ghg-accounting https://unfccc.int/climate-action/sectoral-engagement/ifis-harmonization-of-standards-for-ghg-accounting Climate Change and Principle-based Taxonomy 14 of 47 Issued on: 30 April 2021 7.6 An economic activity, while contributing to climate change mitigation, should not cause significant negative impact on the broader environment. Further examples of economic activities that generally meet GP1 are provided in Appendix 3. Guiding Principle 2 (GP2): Climate change adaptation 7.7 Adaptation is the process or actions taken to lower the negative effects and/or moderate harm caused by climate change19. The objective of climate change adaptation is to increase resilience to withstand the adverse physical impact of current and future climate change. The adaptation activity can benefit an entity, organisation, community, market, sector or region. An economic activity can be considered as meeting climate change adaptation objective through the following: (a) Implement measures to increase own resilience to climate change; or (b) Enable others to increase resilience to climate change. 7.8 In order to demonstrate that an activity contributes to increasing resilience to the negative physical effects of climate change, it is necessary to: (a) Identify expected negative physical effects of climate change by leveraging evidence and appropriate climate information; and (b) Demonstrate how the activity or measures taken can build resilience, prevent an increase or shift the identified negative impact of climate change. 7.9 In order to identify an economic activity that contributes to the climate change adaptation objective, the following considerations are necessary: (a) The economic activity shall positively contribute to a reduction in material physical climate risk (i) For adaptation activity to increase its own resilience, the adaptation activity shall reasonably reduce material physical risk from current and future climate change. Impact assessments under a broad range of climate scenarios shall be conducted to provide better understanding and insights on the effectiveness and benefits of the adaptation activity. (ii) For an activity that is enabling adaptation of other economic activities, the activity shall reduce the impact of material physical risk from other economic activities and/or reduce barriers to adaptation through the use of technology, service or product. 19 IPCC. (2012). Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation. Climate Change and Principle-based Taxonomy 15 of 47 Issued on: 30 April 2021 (b) The economic activity, while contributing to climate change adaptation, should be sustainable, does not negatively impact other adaptation efforts or cause harm to the broader environment and community. (c) The economic activity should have climate change adaptation outcomes that can be clearly defined. The outcomes of the action taken shall be sustainable and fit-for-purpose. These outcomes should also be observable, measurable and monitored over time against a set of pre- determined indicators. 7.10 Examples of assessment criteria are provided in Table B. Table B: Examples of assessment criteria Economic Activity Component Key Consideration Assessment Criteria Purpose of the economic activity Positively contribute to a reduction in material physical climate risk  Is the purpose of economic activity to reduce physical risk to an organisation, community or society?  Can the objectives and benefits of the activity be clearly articulated?  How far reaching are the expected benefits to the organisation, community or society? Impact of the economic activity Should be sustainable and does not negatively impact other adaptation efforts or cause harm to the broader environment and community  Is the activity performed in a sustainable manner?  Has the organisation or the FI obtained an independent and reliable expert opinion for due diligence purposes? (e.g. feasibility studies, vulnerability assessments, impact analysis)  Any unintended impacts on other adaptation efforts or the broader environment and community? (e.g. displacement of flood water at the expense of another community area, poorly managed construction of adaptation infrastructure resulting in waste production, water contamination, destruction of natural animal habitats or local communities) Defining the outcome of the economic activity Outcome to be clearly defined, sustainable and fit-for-purpose  What is the desired outcome of the activity i.e. project/R&D/business process improvement/product innovation? (e.g. construction of slope protection to prevent landslides)  Can the desired outcome increase resilience against the effects of climate change in the long run? (e.g. sustained crop production in Climate Change and Principle-based Taxonomy 16 of 47 Issued on: 30 April 2021 drought-prone areas with the installation of water harvesting systems)  Is the objective clearly articulated and transparent to relevant stakeholders? (e.g. shareholders, financiers, sponsors, insurers/takaful operators, fund managers, vendors, customers, local community) Measuring outcome of the economic activity Outcome shall be observable, measureable and monitored over time against a set of pre-determined indicators  What is the expected performance of activity and how is success defined? (e.g. reduced landslide incidences and loss of assets during rainfall)  Is the outcome of economic activity measurable? (e.g. frequency of landslide incidences)  Can the outcome be measured on an on- going basis to monitor effectiveness of economic activity? (e.g. annual occurrences of landslide incidences) 7.11 Non-exhaustive examples of climate change adaptation activities are provided in Appendix 4. Guiding Principle 3 (GP3): No significant harm to the environment 7.12 An economic activity is generally location and context specific and interacts directly or indirectly with the surrounding environment. While the economic activity may contribute towards climate risk mitigation and/or adaptation, the economic activity and the overall business may cause unintended harm to the broader environment. This could adversely impact the surrounding community and environment and may even precipitate disruptions to overall climate resilience. 7.13 FIs should therefore take into account the impact of the economic activity and the overall business on the wider ecosystem. Specifically, the following environmental objectives20 must be met: (a) Prevent, reduce and control pollution (air, water and land); (b) Protect healthy ecosystems and biodiversity; and (c) Use energy, water and other natural resources in a sustainable and efficient manner. 7.14 FIs should establish a clear risk acceptance criteria for informed decision making, particularly in assessing whether the economic activity and overall business is at risk of causing significant harm to the environment. FIs are 20 Environmental Quality Act 1974 and National Policy on the Environment 2002. Climate Change and Principle-based Taxonomy 17 of 47 Issued on: 30 April 2021 expected to exercise appropriate due diligence in determining if the customers meet the principle of no significant harm to the environment.21 More often than not, a certification serves as a starting point for FIs to understand the assessment criteria used as well as the strength of emphasis placed on specific climate and/or environmental objectives. FIs should obtain assurance that the certification can strongly demonstrate substantial contribution to climate and/or environmental objectives. 7.15 The following non-exhaustive criteria can be considered in facilitating the assessment: Environmental objectives Examples of assessment criteria Prevent, reduce and control pollution (air, water and land)  Prevent pollution of air, water and land where the economic activity takes place, including appropriate use of products, equipment and techniques. For example, proper use of fertilisers, pesticides and herbicides taking into account the appropriate dosage, avoidance of harmful materials/substances such as asbestos in buildings/constructions.  Undertake cleaning measures immediately when there is a pollution.  Proper waste management practices.  Ensure no potential contaminants on land prior to or during use. Protect healthy ecosystems and biodiversity  Implement necessary measures to protect ecosystems and biodiversity.  Prevent soil erosion and run-off into watercourses.  Avoid land/site use on protected natural areas.  Adopt sustainable logging practices and ensure timber products are sourced from sustainably managed forests. Sustainable and efficient use of energy, water, and other natural resources  Identify and manage risks related to water quality/energy/natural resources and/or water/energy/natural resources loss through leakage and/or improper management of infrastructure.  Implement water use/conservation management plans.  Ensure water/energy/natural resources appliances fulfil the requirements of relevant national legislations. 21 For avoidance of doubt, certification in itself is insufficient to fulfil GP3. Climate Change and Principle-based Taxonomy 18 of 47 Issued on: 30 April 2021 Guiding Principle 4 (GP4): Remedial measures to transition 7.16 The applicability of remedial measures is predicated on FIs’ assessment of GP1, GP2 and GP3 insofar as the remedial measures address the significant harm identified at either the economic activity level or the overall business level or both. 7.17 The recognition of remedial measures aims to support an orderly transition by avoiding any outright exclusion of economic activities that are currently not contributing to climate change objectives and/or not sustainable. Accordingly, FIs are expected to encourage, facilitate and take into account the remedial efforts and improvement programmes undertaken by businesses to align their operations with a low-carbon and climate resilient economy. Where relevant, FIs should also encourage businesses to adopt practices that are both resource-efficient and minimise waste production as propounded by the concept of circularity or a circular economy22. 7.18 FIs may consider establishing baseline expectation(s) on the broader environmental strategy of businesses which can be done by ensuring that businesses set mid-term target(s), identify pathways to meet climate objective(s) and establish implementation plans to meet the target(s) over a defined period of time. For carbon intensive sectors, FIs must exercise due care to avoid supporting activities that promote long-term carbon lock-in and/or activities that maintain economic barriers to low carbon solutions. 7.19 In this regard, FIs should conduct adequate assessments to ascertain the effects and significance of remedial efforts undertaken by businesses, taking into account the business objectives, the size and systemic importance to the economy, and impact of the efforts to compensate short-term loss/harm to the environment. The strength and suitability of remedial efforts may be evaluated based on the following considerations as illustrated in Table C. 22 A circular economy is a systemic approach to economic development designed to benefit businesses, society, and the environment. In contrast to the ‘take-make-waste’ linear model, a circular economy is regenerative by design and aims to gradually decouple growth from the consumption of finite resources. The Ellen MacArthur Foundation, https://www.ellenmacarthurfoundation.org/explore/the-circular-economy-in-detail. https://www.ellenmacarthurfoundation.org/explore/the-circular-economy-in-detail Climate Change and Principle-based Taxonomy 19 of 47 Issued on: 30 April 2021 Table C: An illustration of criteria to assess the strengths and suitability of remedial efforts Background/Context Setting Business is assessed as causing significant harm to the climate and/or the environment. Assessment Objectives  The remedial efforts should directly contribute towards the outcomes in which unacceptable risks to the climate and/or environment can be eliminated or significantly reduced.  The commitment/willingness of the business is demonstrated through the development/practice/commitment of sustainable practices to ensure that the business is conducted in a sustainable manner where all parties involved understand the potential risks and take appropriate mitigating actions to reduce any adverse climate and/or environmental impacts. Assessment Criteria Sector/industry  What is the intensity of the business’ GHG emissions in comparison with the industry average or other acceptable benchmark?  Is there a decarbonisation pathway established within the industry that the business operates in?  What are the environmental-related risks commonly associated with the sector/industry? Have these risks been taken into consideration in business strategy and policies?  Is there any pollution management or mitigation plan? How effective is the policy implementation?  Is there a requirement for mandatory industry-specific certification? Purpose and possible impact of loan/financing/investment  What are the proceeds used for?  Will the use of proceeds help reduce GHG emissions?  Will the use of proceeds help increase climate resilience?  Will the use of proceeds help fund sustainable practices?  Will the use of proceeds help remediate, or at least not increase, the harm caused by the business to the environment? Business profile  Is the business strategy (proactiveness and willingness) aligned with climate change and environmental objectives?  Is the business operation(s) and asset(s) located in areas vulnerable to physical risk?  How extensive is the business supply chain and to what extent are the business’ vendor(s) adopting sustainable practices?  Does the business have adequate financial capacity to fund the remedial efforts, including supporting remediation efforts by its vendor(s)?  What is the business competitive position and its leadership role in the industry? Climate Change and Principle-based Taxonomy 20 of 47 Issued on: 30 April 2021 Determining remediation efforts for credit decision and monitoring Remedial efforts and transition period  What is the business’ current GHG emissions profile and does it have a plan to close gaps against acceptable benchmarks?  Has a plan with specific milestones been drawn up to outline appropriate measures to achieve GHG emissions reduction and reduce environment- related risks?  Is the remediation plan appropriate and does the plan commensurate with the size, complexity and financial capacity of the business?  Is there a plan and time-bound commitment to pursue external certification and/or validation (voluntary certifications)? Tracking and monitoring of remedial outcomes  Progress of remedial efforts should be tracked by FIs against the agreed milestone and timelines i.e. short, medium and long term. 7.20 The above illustration serves as a guide and FIs are encouraged to expand the scope of assessment to include broader ESG considerations for more holistic due diligence on the business’ transition commitment. Guiding Principle 5 (GP5): Prohibited activities 7.21 At the outset, FIs should verify and ensure that the economic activities being considered and/or financed are not illegal and do not contravene environmental laws. These include, but are not limited to: (a) The National Forestry Act 1984; (b) Wildlife Conservation Act 2010; (c) National Parks Act 1980; (d) The Fisheries Act 1985; and (e) The Environmental Quality Act 1974. 7.22 Examples of environment-related prohibited activities are as follows: (a) Operations involving illegal deforestation or the act of illegal deforestation, which results in soil degradation that ultimately releases CO2 into the atmosphere; (b) Industrial process operations, generation, storage, treatment and disposal, which include illegal waste management as well as the release of untreated toxic and hazardous industrial waste and substances; and (c) Operations that use fire for land clearance or leave fires burning for the purpose of agriculture and urbanisation, and other forestry related activities within, adjacent to, or upstream of designated protected areas (reserved forests and habitats of rare/endangered species). 7.23 FIs are also strongly encouraged, as part of their lending and/or investment decisions, to ascertain if businesses are engaged in activities that are in Climate Change and Principle-based Taxonomy 21 of 47 Issued on: 30 April 2021 contravention with national human rights and labour laws in line VBIAF23.These include but are not limited to the following laws: (a) Employment Act 1955; (b) Children and Young Persons (Employment Act 1966); and (c) Minimum Wages Order 2018. 7.24 FIs may obtain written statements or enforce compliance clauses signed by customers in the Letter of Undertaking or any other form of facility agreements to give effect to GP5. This provides an avenue for FIs to take necessary actions in the event that customers are subsequently found to be involved in illegal activities post on-boarding. This includes actions to terminate relationship with the customer. 8 External certification and verification 8.1 FIs can leverage on third party verifications or recognised certifications by local agencies, national authorities or international accreditation bodies to inform their internal due diligence process. 8.2 FIs need to be aware of the differences in scope and assessment rigour under various certification standards and apply informed judgment on whether certification standards used in assessment against the guiding principles meets the climate and environmental objectives. FIs should review and be satisfied that the certifications provided are relevant, credible, and supported by acceptable standards and criteria with robust and transparent assessment processes. 8.3 Where relevant, FIs should consider mandatory certification requirements in the respective jurisdiction that the business operates in, to determine the relevance and adequacy of the certification standard. 8.4 In instances where an economic activity does not meet the substance of the guiding principles or internationally accepted practices, FIs should evaluate the nature of the gaps and assess the effectiveness of remedial actions taken/or to be taken, if any, to raise the standards of performance and/or compliance. 8.5 FIs should establish an internal list of approved certifications, which is subject to appropriate oversight and regular review to ensure the certifications are relevant, current and valid. Examples of third party certifications and verifications are provided in Appendix 5. 23 FIs may also refer to OECD Guidelines for Multilateral Enterprise and UN Guiding Principles on Business and Human Rights. Climate Change and Principle-based Taxonomy 22 of 47 Issued on: 30 April 2021 8.6 FIs can also leverage sustainability reporting standards or external rating agencies to assess evidence of customers’ practices. -The rest of this page has been intentionally left blank- Climate Change and Principle-based Taxonomy 23 of 47 Issued on: 30 April 2021 PART D CLASSIFICATION OF ECONOMIC ACTIVITIES 9 Classification system 9.1 A consistent and systematic classification of economic activities can facilitate and promote the channeling of financial flows to activities that support climate change and environmental objectives, including the transition towards more sustainable practices. For the purpose of this document, economic activities are classified into three broad categories (Climate Supporting, Transitioning and Watchlist), based on GP1 to GP4. 9.2 The classification system in Table D is constructed based on the following considerations: (a) Positive impact on climate change objectives i.e. mitigation (GP1) and adaptation (GP2); (b) Potential negative effects to the broader environment (GP3); and (c) Measures taken (or not taken) to reduce harmful practices (GP4). FIs should ascertain that the positive impact and remediation measures are not negligible and must be material enough to avoid potential greenwashing. Table D: Classification of economic activities Classification Economic Activity (Transaction Level) Overall Business GP1 GP2 GP3 GP4 Climate Change Mitigation Climate Change Adaptation No Significant Harm to the Environment Remedial Efforts to Promote Transition Climate Supporting C1 GP1 or GP2 or both ✓ Transitioning C2 GP1 or GP2 or both ✘ ✓ C3 ✘ ✘ ✓ Watchlist C4 GP1 or GP2 or both ✘ ✘ C5 ✘ ✘ ✘ 9.3 An economic activity should not be considered sustainable independently of the impact of such economic activity and overall business of the party undertaking the economic activity on the wider eco-system. Due diligence assessments by FIs for this purpose should include ensuring that there is no track record of environmentally damaging practices. Climate Change and Principle-based Taxonomy 24 of 47 Issued on: 30 April 2021 9.4 ‘C1’ to ‘C5’ represent the different levels of contribution of economic activities towards climate and environmental objectives. Only economic activities that meaningfully contribute to climate objectives without causing significant harm to the environmental objectives identified in GP3, in the immediate and intermediate future, can be categorised as ‘C1’. 9.5 When businesses undertake efforts to transition to low carbon and sustainable practices, the initiatives and/or overall business may still, in the immediate and intermediate future, cause some harm to the broader environment. In such cases, FIs must assess the level of commitment and actions taken to implement remedial measures necessary to reduce or eliminate the identified harm. Categories ‘C2’ and ‘C3’ in the classification system serve to represent these businesses that are in the progressive stages of transitioning. 9.6 For businesses that do not display any commitment or are not serious in their commitment to remediate the harm identified and/or do not undertake any initiative to transition to more sustainable practices, the economic activities are categorised as ‘C4’ or ‘C5’. These categories reflect the heightened transition cost and reputational risk associated with the economic activity or business. FIs should constructively engage customers in these categories to develop concrete, actionable plans to address the identified harm to the environment and promote business viability associated with more sustainable practices. 9.7 FIs have an important role in supporting and/or accelerating business transition through providing incentives, which include, among others, via pricing mechanisms, rehabilitation programmes, financing and underwriting conditions and strategy, and advisory and corporate finance activities. Notwithstanding, should the customer fail to demonstrate serious commitment in implementing remediation measures or failed to effectively limit or reduce harm caused by the activities, FIs can consider applying more stringent lending terms such as a shorter tenor, a lower loan limit, increasing the loan pricing, or reassessing its relationship with the customer with a view to exit the relationship. Climate Change and Principle-based Taxonomy 25 of 47 Issued on: 30 April 2021 PART E USE CASES Use case 1: Financing for an expansion of oil palm plantation Background  An existing mid-sized customer (with more than 500 hectares, including peatland) is requesting a new project financing to expand its oil palm plantation on an existing agriculture land. The project financing is primarily to fund new cultivation and implement measures to support the adoption of sustainable practices.  All oil palm plantations are required to obtain MSPO certification by January 202224, failing which, the licence will be suspended or revoked and the economic activity will fall within the prohibited category (GP5). The customer has obtained MSPO certification covering 7 MGPs for its existing oil palm plantation and 6 MGPs for its palm oil mills as follows: (a) MGP1: Management commitment and responsibility (b) MGP2: Transparency (c) MGP3: Compliance to legal requirements (d) MGP4: Social responsibility, health, safety, and employment conditions (e) MGP5: Environment, natural resources, biodiversity and ecosystem services (f) MGP6: Best practices (g) MGP7: Development of new planting Note: EIA and biodiversity assessment form part of the MSPO certification for oil palm players with more than 500 hectares of plantation. The MSPO certification is reviewed on an annual basis and renewal is required every 5 years. Scenario A: Assessment and classification  Feedback from relevant Government agencies such as the Malaysian Palm Oil Board (MPOB), Malaysian Palm Oil Certification Council (MPOCC) and Department of Environment (DOE) on the customer’s operations and its impact to the environment was satisfactory. The FI had also ascertained through enhanced due diligence that the customer has satisfactorily implemented the following measures: (a) Measures to reduce GHG emissions (GP1) (i) Systematically collect, accumulate and transfer oil palm biomass for processing by biofuel producer; and 24 Malaysian Palm Oil Board Climate Change and Principle-based Taxonomy 26 of 47 Issued on: 30 April 2021 (ii) Use of hybrid vehicles for maintenance work and transportation of palm fruits. (b) Measures to increase climate resilience (GP2) (i) Install water harvesting system (e.g. redirecting water from drainage and storage of rainwater as contingency for dry spell periods). (c) Remedial measures to reduce harm to the environment (GP4) (i) No use of open burning in preparation for cultivation and waste disposal; (ii) Management of water table in existing peat areas to reduce peat subsidence rate i.e. release of GHG emissions from peat soil; and (iii) Use palm oil mill effluent (POME) as a substitute for inorganic fertilisers.  The customer is subjected to periodic due diligence to assess the progress and performance of the above measures.  The customer is MSPO certified and has implemented measures to actively reduce its GHG emissions and increase resilience of crop production during dry spell periods. In addition, the customer is making efforts to limit harm to the broader environment. Hence, the project financing shall be classified as ‘C2’. Scenario B: Assessment and classification  The FI has ascertained that the customer is also implementing international best practices to limit harm to the environment (GP3): (a) No new deforestation; (b) No new cultivation on peatland; (c) Maintain a ground cover of natural vegetation in existing peatland to keep surface moist, minimize irreversible drying and reduce GHG emissions; (d) Construct water management and drainage systems to maintain acceptable level of water table for existing peatland; (e) No new cultivation on steep terrains with slope of 25 degrees or more; and (f) Conduct periodic soil testing to determine its organic matter and pH structure, and maintain soil fertility.  The customer is MSPO certified and has implemented international best practices to ensure significant contribution to climate objectives and substantially limit harm to the broader environment. Hence, the project financing shall be classified as ‘C1’. Climate Change and Principle-based Taxonomy 27 of 47 Issued on: 30 April 2021 Use case 2: Financing for a broiler chicken house Background  An existing customer is requesting a new project financing from a FI to construct a broiler chicken house (located near residential areas and natural waterways) to supply fresh chickens to surrounding local markets.  The customer has obtained clearance and approval from the Department of Veterinary Services Malaysia (DVS) for its new project (this approval is compulsory for commercial livestock). The customer has also proactively obtained the Malaysian Good Agriculture Practices (myGAP) certification25 in line with its sustainable strategy, even though this is not a mandatory requirement for supply to the domestic market. The scope of myGAP certification is broad and covers a wide range of good practices such as appropriate farm management including comprehensive biosecurity programme, drugs and medication monitoring, water management, workers’ welfare standards and record keeping. Scenario A: Assessment and classification  Feedback from the relevant Government agencies such as Department of Environment (DOE) and Department of Fisheries (DOF) is satisfactory. The customer has also consulted other stakeholders, including environmental groups and community leaders, and has obtained support for the project without adverse comments.  Given the nature of poultry farming and its potential harm to the broader environment (GP3), the customer has installed a manure management system to reduce pollution (GP4).  While the customer has implemented measures to limit harm to the broader environment, the measures do not further contribute to climate mitigation and adaptation. 26 Hence, the project financing shall be classified as ‘C3’. Scenario B: Assessment and classification  In addition to pollution management, the customer has installed a biogas catchment/collection system which enables the conversion of poultry wastes/manure into biogas to generate electricity for own usage. The farm also uses energy-efficient LED light bulbs.  Besides implementing measures to mitigate harm to the broader environment (GP4), the customer is also actively reducing its GHG emissions (GP1). Hence the project financing shall be classified as ‘C2’. 25 myGAP certification is compulsory for export markets. 26 Refer to EU Taxonomy Technical Annex to the TEG Final Report on Livestock Production, page 140 – 154, for additional information on practices that can reduce GHG emissions in livestock farming. Climate Change and Principle-based Taxonomy 28 of 47 Issued on: 30 April 2021 Use case 3: Refinancing a green building Background  A leading property developer in Malaysia has established a special purpose vehicle to construct a green-certified office building for its own use. The borrower is in discussion with a FI to refinance its existing facility totalling RM300 million, which was used to part finance the construction.  The building was constructed over a 2-acre land and was issued with a provisional Green Building Index (GBI) Design Assessment certification. The developer is in the midst of applying for the final GBI award, with a target to achieve Platinum rating (i.e. within the FI’s risk appetite of silver rating at minimum) covering the following six areas: (a) Energy Efficiency (b) Indoor Environmental Quality (c) Sustainable Site Planning and Management (d) Material and Resources (e) Water Efficiency (f) Innovation  The borrower complies with applicable requirements such as EIA, Environmental Management Plan and Occupational Safety & Health Management Plan.  The borrower also adopts a strict policy to ensure compliance with environmental, social and governance standards which includes ensuring no deforestation, forced labour or development-induced displacement of local communities. Based on due diligence, leveraging on external ESG data and analytics platforms, the borrower is free of controversies, fines, penalties and regulatory sanctions in relation to the above. The FI has also verified and obtained assurance on the borrower’s good track record in general with no on- going/past history of high-profile allegations, such as illegal dumping of construction waste by its contractors. Scenario A: Assessment and classification (clean track record)  At a transactional level, the borrower meets GP1 subject to a GBI silver rating at minimum. However, the borrower does not meet GP2 as GBI mainly focuses on evaluating the environmental performance of buildings, not the building’s adaptive capacity to climate-related hazards.  In assessing GP3, the FI conducted rigorous assessment at both the borrower/overall business and transaction/economic activity (project) level to establish the following: Climate Change and Principle-based Taxonomy 29 of 47 Issued on: 30 April 2021 (a) Borrower had meticulously assessed the building’s environmental performance and improved the design to reduce adverse impact on climate change (e.g. increase building energy intensity, encourage use of renewable energy, use recycled content materials); (b) Sustainability due diligence was conducted as part of the FIs approval process; (c) Compliance with the FIs internal real estate and construction sector guides’ requirements, sustainable financing policy and controversy check; and (d) Satisfactory report from EIA (if relevant), Environmental Management Plan and Occupational Safety & Health Management Plan.  Based on the GBI rating with no adverse finding arising from the due diligence, the borrower meets GP3, and thus the transaction shall be classified as ‘C1’. Scenario B: Assessment and classification (allegations of improper waste management)  At a transactional level, the borrower meets GP1 subject to a GBI silver rating at minimum. However, the borrower does not meet GP2 as GBI mainly focuses on evaluating the environmental performance of buildings, not the building’s adaptive capacity to climate-related hazards.  In assessing GP3, the FI conducted rigorous assessments at both the borrower/overall business and transaction/economic activity (project) level and discovered that the borrower is facing allegations of improper waste management. The FI engaged the customer on the allegations and found that the customer has put in place remediation measures. The customer has demonstrated a serious commitment to improve its waste management practices with actionable, time-bound and transparent remediation plans. This includes the development and implementation of a company policy to require recycling and proper disposal of construction waste. In this regard, the transaction will be classified as ‘C2’.  The FI will continue to engage the borrower to evaluate the effectiveness of the remediation plans. In the event of unsatisfactory progress or failure to implement the committed remediation plans, the classification shall be downgraded to ‘C4’. The FI should also consider applying more stringent lending terms such as a shorter tenor, a lower loan limit, increasing the loan pricing, or reassessing its relationship with the customer with a view to exit the relationship. Climate Change and Principle-based Taxonomy 30 of 47 Issued on: 30 April 2021 Use case 4: Financing in fossil-fuel related activities Background  An offshore customer who is involved in both upstream (i.e. exploration and production of crude oil and natural gas) and downstream (i.e. refining, manufacturing, trading and distribution of oil and gas and petroleum-related products) activities within the oil and gas sector is seeking facilities as stated below.  The customer’s overall strategy in addressing climate change and the associated environmental impacts include having a commitment to reduce GHG emissions by 20 million tonnes by 2025, focusing on liquefied natural gas while transitioning towards renewable energy solutions, employing carbon capture utilisation, and sequestration technologies and approaches in upstream activities. Over and above this, the customer has also demonstrated a clear sustainability strategy including plans to achieve net zero carbon emissions by 2050, alongside other key sustainability targets.  In addition, the customer complies not only with the EQA 1974 but has ISO 14001:2003 Environmental Management Systems certification for 80% of its exploration, production and manufacturing facilities with a commitment to obtain 100% certification by end 2022. It has policies, guidelines and response teams in place to manage oil spills, and conducts annual EIAs on key upstream and downstream activities.  The FI has conducted an assessment to ensure that all financial transactions involving the customer and the customer’s overall business activities are not illegal, do not contravene environmental laws and the company does not have any track record in environmentally damaging practices. In addition, the customer has met the FI’s internal oil and gas sector guide requirements, sustainable financing policy and controversy check with adequate supporting documentation. Scenario A: Assessment and classification (back-to-back letter of credit facility)  The main purpose of the credit facility is to facilitate trading of petrochemical products at the international market.  At a transactional level assessment, the customer meets neither GP1 nor GP2, as the nature of transaction and purpose of facility do not contribute to climate change mitigation or adaptation objectives.  In relation to GP3, the customer’s activities indirectly contribute potential negative effects to the environment, e.g. the burning of petrochemicals releases GHG emissions. While petrochemical products can be used to produce Climate Change and Principle-based Taxonomy 31 of 47 Issued on: 30 April 2021 pharmaceutical products for social health and wellbeing, petrochemical products are also widely used to produce a range of other products such as plastics, synthetic rubber, urea fertilisers, etc. Such products may cause harm to the environment as many of these products do not biodegrade, resulting in the accumulation and pollution of water supplies, and impacting ecosystems and soil quality.  Nevertheless, the customer is adopting sustainable practices and has developed concrete long term action plans to transition its business in supporting the shift towards a low carbon and climate resilient economy. In addition, it has also established specific measures to ensure that it only trades petrochemicals products derived through sustainable practices and sourced from facilities with ISO 14001:2003 Environmental Management Systems certification. With the remediation measures in place (at both transactional and business level) and clear commitments towards transitioning, the economic activity meets GP4. Hence, the transaction shall be classified as ‘C3’. Scenario B: Assessment and classification (bond issuance)  The main purpose of the bond issuance is to facilitate diversification initiatives specifically related to renewable energy.  At transactional level assessment, the customer meets GP1 as the purpose of the facility directly supports climate change mitigation through the customer’s involvement in renewable energy.  Although the customer is involved in renewable energy, from an overall business perspective, it engages in other upstream and downstream oil and gas activities that do have potential negative effects on the environment in relation to GP3. However, since the customer has clear plans and practices in place to support transition efforts towards a low carbon and climate resilient economy, these plans meet GP4. Hence, the transaction shall be classified as ‘C2’. Scenario C: Assessment and classification (revolving credit facility)  The main purpose of financing is to facilitate corporate strategies associated with the expansion of upstream business within the region.  At a transactional level assessment, the customer meets neither GP1 nor GP2.  At the overall business level, while the customer’s activities do have potential negative effects on the environment in relation to GP3, the customer has clear plans and is adopting sustainable practices to support the transition efforts towards a low carbon and climate resilient economy such as commitment to reduce GHG emissions and its focus on supplying low carbon fuels. These Climate Change and Principle-based Taxonomy 32 of 47 Issued on: 30 April 2021 remedial efforts to promote transition meet GP4 and hence, the economic activity shall be classified as ‘C3’. Use case 5: Investment in green assets Background  A public listed renewable electricity power generation company has over 26GW of renewable generation capacity in operation and generates almost 50TWh of clean energy annually. Over the past decade, the company has invested over USD90 billion into clean energy infrastructure, resulting in the production of huge volumes of carbon free energy across its operations, and lowering the cost of renewable technology for other market participants. The company has also begun reporting its climate change mitigation impact i.e. carbon emissions avoided due to the generation of renewable energy. The metric shows that its operating portfolio resulted in over 28 million tonnes of avoided CO2 emissions in 2019.  As a responsible investor, the AMC has conducted an assessment on the sustainability metrics and financials of the investee company. Based on its research and analysis, the AMC is satisfied with the environmental attractiveness and future value of renewable energy investments made by the company. Despite the strong performance of the company’s shares, there is prospect for the share price to rise and result in higher returns.  The investee company has also made transparent its strategic roadmap on sustainability in its public disclosures. This allows the AMC to better understand the intrinsic value of the business and its total impact. Assessment and classification  The investee company’s renewable energy business contributes substantially to GHG emissions reduction, thus supporting climate risk mitigation objective (GP1). Upon rigorous due diligence by the AMC, the investee company is found to have a credible track record with no evidence of harm to the broader environment, in line with GP3.  Given the above, the equity investment shall be classified as ‘C1’. Climate Change and Principle-based Taxonomy 33 of 47 Issued on: 30 April 2021 APPENDIX 1 CHARACTERISTICS AND EFFECTS OF CLIMATE CHANGE Characteristics of Climate Change  Far-reaching in breadth and magnitude Climate change will affect all agents in the economy (households, businesses, governments), across all sectors and geographies. The risks will likely be correlated with and, potentially aggravated by tipping points, in a non-linear fashion. This means the impacts could be much larger, and more widespread and diverse than those of other structural changes (NGFS, 2019).  Foreseeable nature While the exact outcomes and time horizon are uncertain, there is a high degree of certainty that some combination of physical and transition risks will materialize in the future (NGFS, 2019).  Irreversibility The impact of climate change is determined by the concentration of GHG emissions in the atmosphere and there is currently no mature technology to reverse the process. Above a certain threshold, scientists have shown with a high degree of confidence that climate change will have irreversible consequences on our planet, though uncertainty remains about the exact severity and time horizon (IPCC, 2019).  Dependency on short-term actions The magnitude and nature of the future impacts will be determined by actions taken today, which thus need to follow a credible and forward-looking policy path. This includes coordinated actions by governments, central banks and supervisors, financial market participants, firms and households. (NGFS, 2019). Causes and Effects of Climate Change The world is getting warmer…  The concentration of carbon dioxide in the earth’s atmosphere has risen 47% since the Industrial Age (NASA, 2019).  In 2005, burning of fossil fuels produced the largest carbon footprint with the power and industry sector combined dominating 60% of global CO2 emissions (IPCC, 2005).  In 2010, 52% of global direct GHG were emitted by industry and waste from Asia region (IPCC, 2014).  In 2020, the global average surface temperature was 1.2°C higher than the pre- industrial baseline (1850-1900) (WMO, 2020). …and so is Malaysia  In the past 46 years, the surface mean temperature average for Malaysia increased by 0.13°C to 0.24°C per decade (Ministry of Environment and Water, 2018).  Peninsular Malaysia is expected to experience a temperature rise of 0.6°C-0.9°C by 2030 and 1.2°C-1.6°C by 2050.  Sabah’s temperature is expected to rise 0.8°C-1°C by 2030 and 1.3°C-1.4°C by 2050.  Sarawak’s temperature is expected to rise 0.6°C-0.8°C by 2030 and 1.3°C-1.6°C by 2050. Climate Change and Principle-based Taxonomy 34 of 47 Issued on: 30 April 2021  Deforestation is linked to a rise in temperatures. The land surface temperature in Kedah (35% forest cover) was 2.4°C higher than Perak (49% forest cover) in 2017 (Jafar et al., 2020). Ice is melting fast and sea levels rising  Every ton of CO2 emissions melts 32 square feet of Arctic ice (National Geographic, 2017b).  In September 2015, the Arctic Sea ice extent was about 825,000 square miles smaller (a loss of about the size of Alaska and California combined) (National Geographic, 2017).  As a result, sea levels could rise three feet (or more) by 2100 with adverse impacts on water resource and coastal habitats; destructive coastal erosion; flooding; and soil contamination (National Geographic, 2017). …and sea level rise is reaching our shores  Productive activities of about 436 million people who live within 100 kilometers of ASEAN’s coasts will be adversely impacted (ASEAN, 2020).  Sea level is expected to rise between 110mm to 210mm in Peninsular Malaysia, 210mm to 620mm in Sabah and 150mm to 220mm in Sarawak by 2050 (Ministry of Environment and Water, 2018). Weather is wreaking havoc  The occurrences of natural hazard disasters (excluding biological and technological hazards) have almost doubled since 1980 worldwide (UNODRR, 2019).  Extraordinary heat wave killed at least 30,000 people in Europe in 2003 (UNISDR).  U.S. Forest Service estimated wildfires will be twice as destructive in US by 2050 with approximately 20 million acres burnt a year (MarketWatch, 2018).  In 2010, the Amazon rainforest experienced the second 100-year drought in 5 years. Combined with deforestation activities and fires, 55% of the Amazon could be destroyed by 2030 (WWF).  A 1-in-20 year annual maximum 24 hour precipitation rate is likely to become a 1-in-5 to 1-in-15 year event by the end of the 21st century [global] (WMO, 2018). …with more rain expected in Malaysia  Average annual rainfall for Peninsular Malaysia is expected to go up between 7%-11% by 2050 (Ministry of Environment and Water, 2018).  9% of the land in Malaysia is at risk from flooding, affecting 4.8 million residents (National Disaster Management Agency, 2017). Biodiversity is being disrupted  Animals and plants are vanishing from their natural habitats that are now too hot  In a 2016 survey, 47% of 976 species had vanished from areas they had previously occupied (Wiens, 2016).  The loss of coral reefs will result in a disruption to fisheries and tourism. Climate Change and Principle-based Taxonomy 35 of 47 Issued on: 30 April 2021 Examples of Financial Impacts  Estimated USD8 trillion in financial losses in 15 US cities due to sea level rise and more frequent extreme weather events (BlackRock, 2019).  Loss in global private sector financial asset value due to direct and indirect impacts of more destructive floods, droughts and severe storms on portfolio growth and returns (NGFS, 2020): o USD4.2 trillion loss with 4°C warming o USD7 trillion loss with 5°C warming o USD13.8 trillion loss with 6°C warming  In January 2019, Pacific Gas and Electricity declared bankruptcy after being hit by the most destructive and deadliest wildfires in California as the company was unable to pay the legal costs associated with the myriad of legal claims (NYT, 2019).  A heatwave in Europe has resulted in low water levels on the River Rhine, the major shipping route for many European countries. The low water level had led to restrictions in industrial production due to higher transportation cost for the raw materials. (CNBC, 2019)  Number of claims on property insurance in the Netherlands is estimated to increase by 131% in 2085 compared to the number in 2016 with 1.5°C - 3.5°C warming (NGFS, 2020).  Insured losses in 2016 amounted to less than one-third of the approximately USD175 billion in total disaster-related losses, leaving a protection gap of USD121 billion. The global protection gap has widened by about 20% over the past 25 years (EESI, 2021; Swiss Re, 2016).  Decline in demand for fossil fuel due to innovation-led cost reduction in renewable energy costs. Wind and solar photovoltaic is projected to meet 56% of world electricity demand in 2050 (70-80% in leading countries), with renewables and batteries estimated to capture 80% of the total USD15.1 trillion invested in new power capacity (BloombergNEF, New Energy Outlook 2020).  The non-performing loan ratio of representative coal-fired power companies could exceed 20% by 2030 due to drop in clean energy costs resulting in downward pressure on the pricing of power assets; rise in carbon prices; decline in demand, and increase in funding costs for pollution and carbon intensive companies (Ma and Sun, 2020).  Estimated 40% to 60% decrease in enterprise valuations EBITDA for major resource global companies (i.e. Shell, BP, Total and Statoil/Equinor) due to un- burnable fossil fuels (NGFS, 2020).  ASEAN is expected to experience a loss of 6.7% of combined GDP losses arising from a 4.8°C scenario by 2100 (ASEAN).  An estimated RM915 million is lost every year due to flooding in Malaysia (Raman et al., 2015). Sources: 1. Agensi Pengurusan Bencana Negara. (2019). “Laporan Tahunan 2019”. 2. ASEAN. “ASEAN Cooperation on Climate Change”. 3. BloombergNEF. (2020). “New Energy Outlook 2020”. 4. CNBC. (2019). “Low water levels in the river Rhine could create havoc for Germany’s economy”. 5. EESI. (2021). “Fact sheet: strengthening financial resilience to climate change”. Climate Change and Principle-based Taxonomy 36 of 47 Issued on: 30 April 2021 6. IPCC. (2005). “Special Report on Carbon Dioxide Capture and Storage”. 7. IPCC. (2014). “Mitigation of Climate Change, Chapter 10: Industry”. Retrieved from: https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_chapter10.pdf. 8. Jafar, et al. (2020). “The Influence of Deforestation on Land Surface Temperature - A Case Study of Perak and Kedah, Malaysia”, Forests, 11(1). 9. Ma, J., & Sun, T. Y. (2020). “Quantitative modelling approaches for climate transition and physical risks and their applications in thermal power sector and mortgage loans”. Tsinghua Financial Review. 10. Market Watch. (2018). “California wildfires could increase by 50% by 2050”. 11. McKinsey and Company. (2021). “Global Energy Perspective 2021”. 12. Ministry of Environment and Water. (2018). “Malaysia Third National Communication and Second Biennial Update Report to the United Nations Framework Convention on Climate Change (UNFCCC)”. 13. Ministry of Environment and Water. (2020). “Third Biennial Update Report to the UNFCC”. 14. NASA. (2019). “The atmosphere: Getting a handle on carbon dioxide”. Retrieved from: https://climate.nasa.gov/news/2915/the-atmosphere-getting-a-handle-on-carbon- dioxide/#:~:text=The%20concentration%20of%20carbon%20dioxide,it%20was%20near %20370%20ppm. 15. National Geographic. (2017). “Seven Things to know about Climate Change”. 16. National Geographic. (2017b). “Artic Ice isn’t doomed yet – here’s how to save it”. 17. National Disaster Management Agency. 2017. “Disaster management in Malaysia”. 18. New York Times (NYT). (2019). “California’s largest utility says its bankrupt. Here’s what you need to know”. 19. NGFS. (2019). “A call for action: Climate change as a source of financial risk”. 20. NGFS. (2019). “First Comprehensive Report: A call for action: Climate change as a Source of Financial Risk”. 21. NGFS. (2020). “Case Studies of Environmental Risk Analysis Methodologies”. 22. NGFS. (2020). “Overview of Environmental Risk Analysis by Financial Institutions”. 23. Raman, M., Ojo, A.O., and Dorasmay, M. (2015). “A stakeholder perspective in managing floods in Malaysia”, Sustainable Development, 2(1). 24. Swiss Re. (2017). “Natural catastrophes and man-made disasters in 2016”. 25. UN Office for Disaster Risk Reduction (UNODRR). (2019). “The Human Cost of Disasters”. 26. UNISDR. “Impacts of summer 2003 heat wave in Europe”. Retrieved from: https://www.unisdr.org/files/1145_ewheatwave.en.pdf. 27. Wiens, J.J. (2016). “Climate-Related Local Extinctions Are Already Widespread among Plant and Animal Species”, Plos Biology, 14(12). 28. WMO. (2018). “July sees extreme weather with high impacts”. Retrieved from: https://public.wmo.int/en/media/news/july-sees-extreme-weather-high-impacts. 29. World Meteorological Organization (WMO). (2020). “The State of the Global Climate 2020” 30. WWF. “Climate Change in the Amazon”. Retrieved from: https://wwf.panda.org/discover/knowledge_hub/where_we_work/amazon/amazon_threat s/climate_change_amazon/?. https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_chapter10.pdf https://climate.nasa.gov/news/2915/the-atmosphere-getting-a-handle-on-carbon-dioxide/#:~:text=The%20concentration%20of%20carbon%20dioxide,it%20was%20near%20370%20ppm https://climate.nasa.gov/news/2915/the-atmosphere-getting-a-handle-on-carbon-dioxide/#:~:text=The%20concentration%20of%20carbon%20dioxide,it%20was%20near%20370%20ppm https://climate.nasa.gov/news/2915/the-atmosphere-getting-a-handle-on-carbon-dioxide/#:~:text=The%20concentration%20of%20carbon%20dioxide,it%20was%20near%20370%20ppm https://www.unisdr.org/files/1145_ewheatwave.en.pdf https://public.wmo.int/en/media/news/july-sees-extreme-weather-high-impacts https://wwf.panda.org/discover/knowledge_hub/where_we_work/amazon/amazon_threats/climate_change_amazon/ https://wwf.panda.org/discover/knowledge_hub/where_we_work/amazon/amazon_threats/climate_change_amazon/ Climate Change and Principle-based Taxonomy 37 of 47 Issued on: 30 April 2021 APPENDIX 2 RELEVANT NATIONAL POLICIES AND PLANS TO ADDRESS CLIMATE CHANGE, BIODIVERSITY, AND ENVIRONMENTAL ISSUES The following is a list of policies and plans relevant to Malaysia’s efforts in tackling climate change and environmental issues: 1. National Policy on Climate Change 2009 identifies 5 policy principles to ensure climate resilient development:  Development on a sustainable path;  Conservation of environment and natural resources;  Coordinated implementation;  Effective participation; and  Common but differentiated responsibilities. The policy also identifies areas important for the mobilization of financing and technical assistance, such as agriculture and food security, natural resources and environment (water, biodiversity, forestry, minerals, soil, coastal and marine and air), public health, transportation, infrastructure, waste management and disaster risk reduction. 2. The 11th Malaysia Plan pursued green growth for sustainability and resilience, focusing on:  Strengthening the enabling environment for green growth;  Adopting sustainable production and consumption;  Conserving natural resources; and  Strengthening resilience against climate change and natural disasters. 3. The 12th Malaysia Plan currently in development aims to accelerate the transition to a green and low carbon economy to support sustainable development. 4. Green Tech Masterplan 2030 focusing on 6 key sectors with high potential to facilitate green growth in the country namely energy, building, manufacturing, transport, water and waste, with the following targets:  Energy – reduction in electricity consumption (residential and commercial) of 10% and 15% by 2025 and 2030, respectively;  Transport – target of 85% of total industry volume for private vehicles to be EEV by 2020 (with a target reduction in CO2 emissions of 199.7 ktCO2e) and 100% by 2030;  Building – 550 green buildings (inclusive of green buildings certified by various agencies and organisations such as MyCREST, Green Building Index, GreenRE, etc.) by 2020 and 1,750 by 2030; and  Manufacturing – increase the percentage and number of green (including improved EE) manufacturing SMEs by 30% (10,200) and 50% (17,000) by 2025 and 2030 respectively. 5. National Land Public Transport Masterplan aims to drive regulatory and industry reform for the sector with a target to increase the public transport modal share for urban areas from 16% in 2011 to 40% in 2030. Climate Change and Principle-based Taxonomy 38 of 47 Issued on: 30 April 2021 6. National Energy Efficiency Action Plan (NEEAP) outlines the strategy to promote energy efficiency by ensuring productive use of energy and minimising waste in order to contribute to sustainable development and increased welfare and competitiveness. 7. Key reports with data on Malaysia’s progress and projections:  Malaysia Third Biennial Update Report to the United Nations Framework Convention on Climate Change (UNFCCC) (2020)  Malaysia Third National Communication and Second Biennial Update Report to the United Nations Framework Convention on Climate Change (UNFCCC) (2018) 8. Other policies:  National Policy on Biological Diversity (2016 –2025)  Malaysia’s Roadmap Towards Zero Single Use Plastics (2018–2030)  National Transport Policy (2019–2030)  National Environmental Policy (2002)  National Strategic Plan for Solid Waste Management (2005)  National Biofuel Policy (2006)  National Green Technology Policy (2009)  Renewable Energy Policy and Action Plan (2010)  Low Carbon Cities Framework (2011)  National Agro-food Policy (2011)  National Water Resources Policy (2012) Climate Change and Principle-based Taxonomy 39 of 47 Issued on: 30 April 2021 APPENDIX 3 EXAMPLES OF ACTIVITIES THAT GENERALLY MEET GP1 Energy Efficiency Real Estate (Commercial and Residential)  Construction of new buildings and/or retrofit of existing buildings: o Buildings certified to an acceptable level under an internationally or domestically recognised green building certification scheme. o Buildings that achieve improvement in energy use and/or carbon emissions compared to baseline emissions. Public Services and Utilities  Improvement of heat efficiency of utilities such as waste heat recovery improvements for district power generation, cooling systems, boilers with energy efficient alternatives, retrofit with renewable energy power.  Retrofit of distribution systems, transmission lines or substations to reduce energy use and/or losses. Energy Efficiency Technology  Energy saving technology such as smart meters and lighting for public, commercial and domestic services (not including real estate).  Manufacture of components to enable energy efficiency. Transportation Infrastructure (for public use) Development and operation of urban mass transit systems:  Electric mass passenger vehicles (trains and buses).  Infrastructure upgrades for electrified rails, trains and buses  Infrastructure for low-carbon and efficient transport (e.g. charging stations for electric vehicles).  Non-motorised transport (enabling bicycle and pedestrian mobility).  Urban planning and development that leads to a reduction in the use of passenger cars e.g. developing car-free city areas, high-occupancy vehicle lanes, road pricing, parking management. Freight transportation  Vehicle, rail or boat fleet retrofit or replacement with technologies including electric or hydrogen technologies.  Development or improvement of railway transport to ensure a modal shift from road to rail.  Development or improvement of water transport to ensure a modal shift from road to waterways. Climate Change and Principle-based Taxonomy 40 of 47 Issued on: 30 April 2021  Fleet optimization and route management (e.g. eliminating backhauls and consolidating loads). Technology  Vehicle fleet energy efficiency technology and logistical software. Green Technology / Manufacturing Development, manufacturing and/or distribution of products or components designed to have a positive environmental impact in terms of reducing either carbon emissions, waste, energy use or water use and material use for circularity and/or adaptive re-use e.g. life cycle analysis.  Smart grid and energy internet.  Energy efficient retail/industrial appliances (e.g. energy efficient fridges, cookers).  Low carbon transport vehicles, equipment and infrastructure, electric rail supply chain (related to electric, hydrogen, hybrid or alternative fuel vehicles).  Energy storage equipment or solutions.  Deployment of Carbon Capture and Utilization (CCU) or Carbon Capture and Storage (CCS) technologies. Note: CCS/CCU can be eligible in any sector/activity if it enables that primary activity to operate in compliance with the threshold - for example, steel, cement or electricity production. Renewable Energy Production, manufacturing, operation and maintenance of renewable energy sources/infrastructure:  Solar generating facilities.  Hydropower electricity generating facilities.  Tidal or wave energy generating facilities.  Geothermal electricity generating facilities.  Production of zero carbon fuels e.g. hydrogen, ammonia, etc.  Bioenergy producing biofuel, biomass, biogas including fuel preparation process facilities, pre-treatment facilities and bio refinery facilities for various purposes (e.g. heating, electricity production and transport). Waste Management  Waste minimisation, collection, management, recycling, re-use, processing, disposal (such as methane capture) infrastructure, technologies and solutions, such as: o Solid waste management (municipal waste management projects that capture or combust methane emissions). o Liquid waste management (waste management projects that capture or combust methane emissions). o Sewage water treatment plant (treatment of wastewater that reduces GHG emissions). Climate Change and Principle-based Taxonomy 41 of 47 Issued on: 30 April 2021 o Biological treatment facilities (anaerobic digestion facilities, composting facilities).  Recycling and utilisation of industrial solid wastes, exhaust gas and effluent. Agriculture, Forests and Land Conservation  Avoidance of GHG emissions (e.g. livestock management, storage and processing of manure and management of permanent forests).  Lowering emissions for each calorie or kilo of food produced.  Maintaining or strengthening land carbon sinks, including: o Afforestation (non-forest to forest). o Reforestation (re-establishment of forest on land classified as forest). o Restoration or rehabilitation of forests, croplands, grasslands and wetlands. o Sustainable forest management. o Forest and peatland conservation.  Regenerative agriculture (e.g. no till or conservation tillage). Note: Based on LULUCF regulation, carbon stocks shall increase above the carbon baseline over a period of 20 years for afforestation and reforestation projects and shall increase over the rotation period for restoration projects, and be maintained or increased in the case of existing forest management and conservation forests. Climate Change and Principle-based Taxonomy 42 of 47 Issued on: 30 April 2021 APPENDIX 4 EXAMPLES OF ACTIVITIES THAT GENERALLY MEET GP2 Activities to increase own resilience and enable others to adapt are generally interrelated and could overlap, depending on the purpose and context within which the activity takes place. Measures to increase own resilience Measures to enable others to adapt to climate change Forestry  Use of early warning systems or wildfire control measures (to reduce damages due to wildfires induced by heatwaves).  Use of regeneration material (species and ecotypes) less sensitive to strong wind or timely management of seedling stand and timely thinning (to reduce damage to forest stands from increased wind).  Adoption of sound forestry practices and use of endemic tree species that are less vulnerable to storms and fires.  Afforestation or restoration of former forest areas utilizing natural seed banks and existing plants.  Adopt sustainable forest management and sound harvesting techniques to reduce soil erosion and vulnerabilities to wildfires.  Conservation of forestry (e.g. to prevent soil erosion which will damage agricultural production, and disrupt local settlements or water supplies) with the primary objective of supporting the adaptation of others. Fisheries  Adoption of sustainable aquaculture, such as fish farming in ponds (worsening availability of fish stocks in natural habitats due to temperature increase).  Mapping changes in the range of fish species and monitoring of fish stocks to understand the impacts of climate change. Climate Change and Principle-based Taxonomy 43 of 47 Issued on: 30 April 2021 Agriculture  Adoption of diversified agricultural production (e.g. growing a mix of different crops or different varieties of each crop).  Soil and water management to increase water availability in areas experiencing increased water stress.  Research, development and commercialisation of drought-resistant crop varieties to increase crop yields. Water Resources  Increase of water storage capacity by building a dam27, practicing aquifer storage and recovery28, removing accumulated sediment in reservoirs or lowering water intake elevation.  Integrated planning and sound management of water resources (water supply, demand and quality).  Water conservation and rainwater harvesting in areas prone to water stress.  Improvement in drainage to cope with increased frequency/severity of floods arising from intense rainfall.  Deployment of early warning system as preemptive measure to reduce damage from flood (especially during monsoon season).  Building of flood barriers such as flood walls and  Development and deployment of technology to treat and recycle wastewater, thus greatly reduce the use of new freshwater resources.  Design and development of flood early warning systems and flood defense systems. 27 EIA must be conducted to ascertain the negative impact to the environment and community before the commissioning of a dam, with solutions in place to address these negative effects. The long term benefits must outweigh the costs to the environment and impacted communities. 28 Aquifer Storage and Recovery (“ASR”) is a method to increase water supply using subsurface reservoirs. It offers an important tool to increase freshwater storage at a nominal cost. Climate Change and Principle-based Taxonomy 44 of 47 Issued on: 30 April 2021 seawalls to protect from future flooding. Construction  Adapting buildings with capability to cope with future climate conditions and extreme weather events.  Special-purpose building e.g. shelters, relief centers or safe buildings for evacuation from flooding. Coastal Areas  Consideration of sea-level rise in the design of a bridge.  Building of sea walls in low- lying islands to stop coastal erosion.  Research on population exposure to sea level rise and related impacts.  Conservation of mangroves and coral reefs to protect coastal zones from weather- related catastrophes (storms and typhoons) and to preserve fish spawning grounds. Health  Development and deployment of heat waves early warning system to reduce associated illnesses and deaths.  Development or enhancement systems for monitoring drinking water, food and air quality (haze related risk), in areas affected by higher temperatures/forest burning, floods and rising sea-level.  Research on food waste data to facilitate the establishment of food waste strategies and baselines, and identify scalable solutions to transition to more sustainable food systems. Climate Change and Principle-based Taxonomy 45 of 47 Issued on: 30 April 2021 Information and Communication  Development of technology for climate- vulnerable farmers to make informed decisions on production and sale of their crops.  Development of technology and information systems to enable national meteorological services to gather, analyze, and disseminate accurate weather information. Transportation  Design and construction of climate resilient/climate- proofed transport network.  Research on technology to improve safety standards and design of rail asset to withstand adverse weather conditions.  Deployment of rail line detector to detect cracks along railway networks. Climate Change and Principle-based Taxonomy 46 of 47 Issued on: 30 April 2021 APPENDIX 5 EXAMPLES OF CERTIFICATION AND INDEPENDENT VERIFICATION Sector Certification and/or Independent Verification General  MS ISO 14001: 2015 – Environmental Management Systems*  MS 1722: 2011 and OHSAS 18001 – Occupational Safety and Health Management Systems*  ISO 50001 Energy Management Certification  EU Ecolabel  Cradle to Cradle Climate  ISO 14064: 2006 – Greenhouse gases  Science Based Targets Initiative  The Carbon Trust Standard  ISO 14067:2019 Greenhouse Gasses – Carbon Footprint of Products  PAS 2050:2011 – Specification for the assessment of the life cycle greenhouse gas emissions of good and services  PAS 2060 Standard for Carbon Neutrality  PAS 2080 Carbon Management in Infrastructure  GHG Protocol Corporate Accounting and Reporting Standard  Verified Carbon Standard  International Sustainability and Carbon Certification Water  AWS International Water Stewardship Standard Corporate context-based water targets Agriculture  Malaysian Standards Palm Oil*  Roundtable on Sustainable Palm Oil  BONSUCRO  Better Cotton Initiative  Global Organic Textile Standard  Common Code for the Coffee Community  Tropical Commodities Coalition for Sustainable Tea Coffee and Cocoa  Ethical Tea Partnership  World Cocoa Foundation  Rainforest Alliance  Roundtable on Sustainable Biomaterials  Sustainable Rice Platform  UTZ Certified  Internal Sustainability & Carbon Certification  Fairtrade Certified  Roundtable for Responsible Soy Fisheries  Marine Stewardship Council  Aquaculture Stewardship Council  Natural Capital Protocol (2016)  ISO 14008: Monetary valuation of environmental impacts and related environmental aspects (2019)  Value Balancing Alliance Climate Change and Principle-based Taxonomy 47 of 47 Issued on: 30 April 2021 Sector Certification and/or Independent Verification  Fairtrade Fisheries Standard Forestry  Malaysian Timber Certification Scheme - Programme for The Endorsement of Forest Certification*  Forest Stewardship Council  Programme for the Endorsement of Forest Certification Mining and Metals  World Gold Council Conflict-free Gold Standard  Kimberley Process Certification Scheme  Aluminium Stewardship Initiative  Initiative for Responsible Mining Assurance  RJC Chain of Custody Certification Infrastructure  Sustainable INFRASTAR*  The Standard for Sustainable and Resilient Infrastructure  GRESB  BREEAM  USGBC LEED  CEEQUAL  Greenroads Certification  Hydropower Sustainability Assessment Protocol  Excellence in Design for Greater Efficiencies  Green Building Index* Tourism  Green Key  Green Globe  Travelife Energy  International Hydropower Association (IHA) Hydropower Sustainability Assessment Protocol (HSAP)  International Atomic Energy Agency (IAEA) Safety Standards and Nuclear Security Series Industrial  Fairtrade Certified  Responsible Care * denotes national certification Examples of certification/standards for investment instruments Instrument Certification/Standard Sukuk  Sustainable and Responsible Investment Sukuk Framework Bond  ASEAN Green Bond Standards  ASEAN Sustainability Bond Standards  Green Bond Principles (International Capital Markets Association)  Sustainability Bond Guidelines (International Capital Markets Association)  Climate Bonds Standards Equities  FTSE4Good Bursa Malaysia Index  MSCI Emerging Markets ESG Leaders Index

Public Notice

23 Mar 2021

Ruling of the Bank's Shariah Advisory Council on the Adoption of Risk-Free Rate

https://www.bnm.gov.my/-/sac-bnm-210th-meeting

https://www.bnm.gov.my/documents/20124/2629002/SAC+Statement+-+210+meeting_en.pdf

Reading: Ruling of the Bank's Shariah Advisory Council on the Adoption of Risk-Free Rate Share: 29 Ruling of the Bank's Shariah Advisory Council on the Adoption of Risk-Free Rate Release Date: 23 Mar 2021 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 210th meeting on 23 December 2020 has ruled that the adoption of risk-free rate (RFR) as an alternative benchmark rate to LIBOR, or as a fallback benchmark replacement rate after the permanent cessation of LIBOR, is permissible based on the following justification: The compounding methodology is merely an arithmetic method in determining the term rate which does not affect compliance of the transactions with Shariah requirements;and Uncertainty (gharar) from the adoption of average RFR or backward-looking term rate at the point of payment is mitigated via proper determination and disclosure of the ceiling price and formula to derive the periodic payment amount to the customer at the inception of the contract. In transitioning to the alternative RFR, Shariah Committee of each IFI needs to determine the appropriateness of invoking the deemed consent mechanism to signify customers’ consent on the incorporation of the fallback provision in the contract’s terms and conditions. Please refer to the attachment for more information © 2024 Bank Negara Malaysia. All rights reserved.

Mesyuarat MPS ke-179 SAC 210th Meeting 2020 1 The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on the Adoption of Risk Free Rate (RFR) as an Alternative Benchmark Rate to London Interbank Offered Rate (LIBOR) or as a Fallback Benchmark Replacement Rate following the Permanent Cessation of LIBOR 210th SAC Meeting dated 23 December 2020 Part I: SAC Ruling, Its Effective Date and Applicability Pursuant to section 52 of the Central Bank of Malaysia Act 2009, the SAC ruled that the adoption of risk-free rate (RFR) as an alternative benchmark rate to LIBOR or as a fallback benchmark replacement rate after the permanent cessation of LIBOR is permissible based on the following justification: i. The compounding methodology is merely an arithmetic method in determining the term rate which does not affect compliance of the transactions with Shariah requirements; and ii. Uncertainty (gharar) from the adoption of average RFR or backward-looking term rate at the point of payment is mitigated via proper determination and disclosure of the ceiling price and formula to derive the periodic payment amount to the customer at the inception of the contract. In transitioning to the alternative RFR, Shariah Committee of each IFI needs to determine the appropriateness of invoking the deemed consent mechanism to signify customers’ consent on the incorporation of the fallback provision in the contract’s terms and conditions. This ruling comes into effect immediately upon publication of this ruling on Bank Negara Malaysia website dated 22 March 2021 and applies to the following Islamic Financial Institutions (IFIs): (a) licensed persons under the Islamic Financial Services Act 2013 (IFSA); (b) licensed banks and licensed investment banks approved under section 15(1) of the Financial Services Act 2013 (FSA) to carry on Islamic banking business; and (c) prescribed institutions approved under section 33B(1) of the Development Financial Institutions Act 2002 (DFIA) to carry on Islamic financial business. In line with sections 28(1) and (2) IFSA or sections 33D(1) and (2) DFIA, as the case may be, IFIs are required to comply with this ruling as compliance with any ruling of the SAC in respect of any particular aim and operation, business, affair or activity of IFIs shall be deemed to be in compliance with Shariah. Part II: Background  In 2017, the United Kingdom Financial Conduct Authority (FCA) announced that the London Interbank Offered Rate (LIBOR) will cease to exist by the end of 2021. The scarcity of underlying transactions based on LIBOR has made the benchmark rate potentially inaccurate to reflect market conditions and unsustainable. Therefore, all existing contracts benchmarked to LIBOR have to be transitioned to an alternative benchmark rate before the end of 2021.  Following this development, the global financial market has agreed for RFR to be the alternative benchmark rate for LIBOR as it is transaction-based and more reflective of market conditions.  Comparison between RFR and LIBOR from various aspects is as follows: SAC 210th Meeting 2020 2 Aspects Alternative Risk-Free Rate (RFR) London Interbank Offered Rate (LIBOR) Administrator Central banks of respective currencies, with the exception of Swiss Average Rate Overnight (SARON) which is administered by Swiss Exchange. Intercontinental Exchange (ICE). Methodology Based on actual transactions in the money market. Based on daily quote submission of the opinions of the panel banks. Term Rate Only overnight rate available. The term rate is derived based on methods such as compounded setting in-arrears where the exact term rate and payment amount are unknown at the onset of the payment period1. Overnight and term rates are available across various tenures based on forward-looking approach. This which allows the payment amount to be known upfront. Risk Premium Does not include credit risk premium of borrowing banks. This results in the rate to be typically lower than LIBOR. Includes credit risk premium of borrowing banks. Volatility Less volatile than LIBOR as it moves in parallel with the policy rate of central banks. Will be influenced by credit risk premium of borrowing banks. As such, the rate moves to reflect changes in the credit risk premium. Reference: 1. Financial Stability Board (FSB) (2019), Overnight Risk-Free Rates – A User’s Guide Shariah issues Based on the above, three potential Shariah issues have been identified as follows:  Is the usage of the compounded setting in-arrears (CSIA) method to derive the term rate for profit component in sale-based and rental-based transactions complies with Shariah requirements?  Does the usage of the backward-looking methodology in sale-based and rental-based contracts trigger uncertainty (gharar) issue given that the periodic payment amount can only be determined on or near the payment date?  Is it appropriate to invoke deemed consent mechanism to signify customers’ consent on the incorporation of fallback provision in the contract’s terms and conditions in facilitating the transition to an alternative benchmark rate? 1 In converting the overnight rate into term rate, compounded setting in-arrears (CSIA) method is one the method used which has been reflected in global benchmark rate reform e.g. ISDA IBOR Fallback Protocol. The CSIA is based on compounding the daily RFR throughout the observation period on backward-looking basis to derive a term rate to be applied to the underlying transactions. This backward-looking approach results in the exact term rate and payment amount being unknown at the beginning of the payment period which may trigger Shariah issue. SAC 210th Meeting 2020 3 Part III: Key Discussion Usage of the compounded setting in-arrears (CSIA) method to derive the term rate is permissible  Compounding in this context is merely a computational method to derive the term rate from overnight RFR which will be used in the profit component of Shariah-compliant transactions.  The compounding method for RFR does not cause additional charges being imposed on the accrued profit, as commonly practiced in the market for late payment incidences in conventional financial transactions.  This view also takes into consideration the absence of reliable and widely-used term RFR. Usage of backward-looking methodology in the RFR does not cause uncertainty (gharar) of the periodic payment  For sale-based financial instruments with variable rate, IFIs will conclude the selling price with customers based on the ceiling profit rate (CPR)2. Under this mechanism, the ceiling profit rate and the formula to calculate the effective profit rate (EPR) are made known to the contracting parties and agreed upfront.  Therefore, the issue of uncertainty does not arise as it is mitigated by the existence and disclosure of the CPR and formula to determine the EPR.  As for rental-based (ijarah) financial instruments with variable rate, the formula to calculate the periodic rental payment is made known to the contracting parties and agreed upfront. Therefore, the issue of uncertainty does not arise as it is mitigated by the existence and disclosure of the formula to calculate the periodic rental payment.3 The appropriateness of invoking deemed consent mechanism to signify customers’ consent on the fallback provision to transition to an alternative benchmark rate shall be determined by Shariah Committee (SC) of each IFI  IFIs are required to renegotiate contracts with their customers and to obtain their agreement to embed the fallback provision in existing LIBOR contracts. The inclusion of fallback provision is intended to facilitate a smoother transition to the RFR where customers provide upfront consent to IFIs to replace LIBOR with the RFR.  The absence or lack of coverage of the fallback provision in existing contracts between IFIs and customers may expose IFIs to legal and Shariah non-compliance risks due to the absence of mutual consent of the parties to the contract. Some IFIs plan to invoke the deemed consent mechanism to deal with operational challenges such as non-responsive customers.  Given the nature of the issue which is unique across IFIs in terms of profile of counterparties, size and complexity of exposures and the institution’s risk appetite, the SAC has agreed to empower the SC of each IFI to determine the appropriateness of the use of deemed consent mechanism to incorporate the fallback provision in the agreement. The SC must also ensure that customers are provided with ample time to express consent or provide feedback on the transition to the alternative benchmark rate.  2 The usage of this method has been endorsed by the SAC at its 32nd meeting dated 27 February 2003. 3 The SAC, at its 33rd meeting dated 27 March 2003, 35th meeting dated 22 May 2003 and 38th meeting dated 28 August 2003, has resolved that the rate of rental in ijarah contract may vary based on an upfront agreement to base it against a mutually agreed variable for a specified period. SAC 210th Meeting 2020 4 Part IV: Basis of Ruling Usage of compounded setting in-arrears (CSIA) method to derive the term rate is permissible  Shariah has not determined a specific pricing methodology for Shariah-compliant transactions. Therefore, any pricing methodology is deemed permissible unless there is a violation of Shariah requirements based on the following fiqh maxim: العقود والشروط الجواز والصحةاألصل في “The basic principle with regard to contracts and conditions is permissibility and validity.”4  The move towards the adoption of alternative RFR among market players is due to its features that are reflective of market conditions and not easily manipulated. This is in line with the Shariah principle of siyasah shar’iyyah5 in Islamic finance to ensure fairness in pricing as promoted by the following hadith: فسعر لنا. فقال رسول هللا صلى هللا عن أنس بن مالك رضي هللا عنھ: قال الناس: یا رسول هللا, غال السعر علیھ وسلم: إن هللا ھو المسعر القابض الباسط الرازق وإني ألرجو أن ألقى ربي ولیس أحد یطالبني بمظلمة في دم وال مال “It was narrated from Anas Bin Malik RA that: the people said to the Prophet PBUH: O Messenger of Allah, prices have risen, so fix the prices for us. The Prophet said: Indeed Allah is the One who fixes the prices, who withholds, who gives lavishly and who provides. And I hope that when I meet Allah none of you will have any claim on me for an injustice regarding blood or property.”6  The above hadith implicitly indicates that the price movement in the market at that time was driven by market forces. Therefore, any indicator that is reflective of the prevailing market conditions is appropriate to be the benchmark rate for transactions within the given market. Usage of backward-looking methodology in the RFR does not cause uncertainty (gharar) of the periodic payment  Avoidance of dispute and resentment among contracting parties are among the ‘illah (effective cause) for the prohibition of gharar. The fiqh maxim says: الجھالة التي ال تفضي إلى المنازعة ال تمنع صحة العقد “Ignorance that does not lead to dispute does not prevent the validity of the contract.”7 الجھالة في المعقود علیھ إذا كانت تفضي إلى المنازعة تمنع صحة العقد “Ignorance in contract that leads to dispute prevents the validity of the contract.”8 4 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 5 Basis and approach taken by the ruler for the interest of the nation and the people which is in line with Shariah principles 6 Abu Daud (2009), Sunan Abi Daud, Beirut: Dar Al-Risalah Al-‘Alamiyyah, v. 5, p. 322, hadith no. 3451 7 Al-Sarakhsi (1989), Al-Mabsut, Beirut: Dar Al-Ma’rifah, v. 13, p. 7 & v. 15, p. 166; Abu Al-Harith Al-Ghazzi (2000), Mausu’ah Al-Qawa’id Al-Fiqhiyyah, Beirut: Dar Ibn Hazm, v. 3, p. 39-40 8 Ibid SAC 210th Meeting 2020 5  RFR is a common indicator used by majority market players that serves as a reliable measure of market movement and is publicly available for reference. Therefore, disclosure of the formula to calculate the periodic payment is sufficient and will not lead to dispute as the RFR itself and the backward-looking approach are widely accepted as a common benchmark rate and method to calculate term rate for commercial contracts.  Furthermore, determination of the formula is done through a bilateral agreement with customers. Therefore, once the terms and conditions have been agreed between them, all contracting parties must abide by the agreement as per following hadith: المسلمون على شروطھم إال شرطا أحل حراما أو حرم حالال “Dealing of Muslims is based on conditions (as agreed) amongst them, except conditions that permit a forbidden matter or forbid a permissible matter.”9  In addition, the determination of the effective profit rate for each periodic payment in sale-based financial instruments with variable-rate is considered as an ancillary (tabi’) and does not form part of the essential element (asl) of a contract. Therefore, the uncertainty or ignorance in the ancillary can be forgiven based on the following fiqh maxim: التوابع ما ال یغتفر في غیرھایغتفر في “Certain things are forgiven in its ancillary and not forgiven in others.”10 Part V: Implication of the SAC Ruling  Enables the orderly transition to alternative RFR (including backward-looking term RFR) by IFIs before reliable and widely used forward-looking RFR term rates become available. 9 Abu Daud (2009), Sunan Abi Daud, Beirut: Dar Al-Risalah Al-‘Alamiyyah, v. 5, p. 445, hadith no. 3594 10 Al-Suyuti (1983), Al-Ashbah wa Al-Nazair, Beirut: Dal Al-Kutub Al-‘Ilmiyyah, p. 120; Ibn Nujaim (1999), Al- Ashbah wa Al-Nazair, Beirut: Dar Al-Kutub Al-‘Ilmiyyah, p. 103; Muhammad Mustafa Al-Zuhayli (2006), Al- Qawa`id al-Fiqhiyyah wa Tatbiqatuha fi al-Mazahib al-`Arba`ah. Damsyik: Dar al-Fikr, v. 1, p. 447

Public Notice

17 Mar 2021

Financial Consumer Alert update

https://www.bnm.gov.my/-/financial-consumer-alert-update

Reading: Financial Consumer Alert update Share: 5 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1230 on Wednesday, 17 March 2021 17 Mar 2021 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies have been added to the list: Azzad Islamic Investment Scheme Advantage Trader Doo Prime Malaysia Berhad Investment Scheme Euro Trade Co Euro Trade (M) Co The list will be updated regularly for public's reference. To view the updated list, click on this link. Bank Negara Malaysia 17 March 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Public Notice

10 Mar 2021

FAQs on Temporary Relief Measures for Insurance Policyholders and Takaful Participants

https://www.bnm.gov.my/-/faqs-on-temporary-relief-measures-for-insurance-policyholders-and-takaful-participants

https://www.bnm.gov.my/documents/20124/914558/FAQ+for+consumers+%28ITOs+relief+measures%29+EN.pdf

Reading: FAQs on Temporary Relief Measures for Insurance Policyholders and Takaful Participants Share: 2 FAQs on Temporary Relief Measures for Insurance Policyholders and Takaful Participants Release Date: 10 Mar 2021 The Bank has released a set of Frequently Asked Questions to address public queries regarding the temporary relief measures for insurance policyholders and takaful participants. Frequently Asked Questions © 2024 Bank Negara Malaysia. All rights reserved.

Merchant Acquiring Services Issued on: 15 September 2021 BNM/RH/PD 028-119 Merchant Acquiring Services Applicable to: Registered merchant acquirers 2 Merchant Acquiring Services Issued on: 15 September 2021 TABLE OF CONTENTS PART A OVERVIEW ................................................................................................................................ 1 1. Introduction ............................................................................................................................................ 1 2. Applicability ........................................................................................................................................... 2 3. Legal Provisions .................................................................................................................................... 2 4. Effective Date ......................................................................................................................................... 2 5. Interpretation .......................................................................................................................................... 3 6. Related Legal Instruments and Policy Documents ............................................................................ 7 7. Policy Documents Superseded ............................................................................................................ 8 PART B GOVERNANCE .......................................................................................................................... 9 8. Effective Governance and Oversight ................................................................................................... 9 PART C OPERATIONAL REQUIREMENTS ......................................................................................... 13 9. Minimum Capital Funds Requirements for Non-Bank Acquirers ................................................... 13 10. Settlement Risk Management ............................................................................................................. 13 11. Merchant Management ........................................................................................................................ 15 12. Fraud Risk Management ..................................................................................................................... 17 13. Business Continuity Management ..................................................................................................... 18 14. Outsourcing ......................................................................................................................................... 19 15. Arrangement with Parties Involved in Payment and Settlement Process ..................................... 24 16. Appropriate Treatment for Merchants ............................................................................................... 25 PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS ......................................................... 26 17. Technology Risk Management ........................................................................................................... 26 18. Technology Operations Management ............................................................................................... 28 19. Cybersecurity Management ................................................................................................................ 45 20. Technology Audit ................................................................................................................................ 52 21. Internal Awareness and Training ....................................................................................................... 53 PART E OTHER REQUIREMENTS ........................................................................................................ 54 22. Other Compliance Requirements ....................................................................................................... 54 Appendix 1 COMPUTATION OF MINIMUM CAPITAL FUNDS ............................................................... 56 Appendix 2 MINIMUM REQUIREMENTS ON THE OUTSOURCING AGREEMENT .............................. 57 Appendix 3 STORAGE AND TRANSPORTATION OF SENSITIVE DATA IN REMOVABLE MEDIA ... 59 Appendix 4 CONTROL MEASURES ON PAYMENT ACCEPTANCE DEVICE ...................................... 60 Appendix 5 CONTROL MEASURES ON INTERNET APPLICATION ..................................................... 61 Appendix 6 CONTROL MEASURES ON MOBILE APPLICATION AND DEVICES ............................... 62 Appendix 7 CONTROL MEASURES ON QUICK RESPONSE CODE .................................................... 63 1 Merchant Acquiring Services Issued on: 15 September 2021 Appendix 8 CONTROL MEASURES ON CYBERSECURITY ................................................................... 64 Appendix 9 EXAMPLES OF ARRANGEMENTS EXCLUDED FROM OUTSOURCING SCOPE ............. 66 Merchant Acquiring Services Page 1 of 66 Issued on: 15 September 2021 PART A OVERVIEW 1. Introduction 1.1 Merchant acquiring services enable merchants to accept payment instruments for the sale of goods or services to their customers. Acquirers provide the link between the users of payment instruments to the merchants to enable the purchase of goods or services. When users pay for the goods or services using payment instruments, acquirers ensure that funds for such payment are settled in a timely manner to the merchants. 1.2 In tandem with the rapid changes in the electronic payment (e-payment) landscape, merchant acquiring services have experienced significant growth and considerable change in their business arrangements and set-up. Merchants have extended their acceptance of payment instruments from only payment cards to other types of instruments such as electronic money (e-money). Merchant acquiring services are no longer confined to the use of traditional Point-of-Sale (POS) terminals but now extend to the use of new payment methods such as Quick Response (QR) code and online banking. The acquiring arrangements have also expanded to accept more electronic commerce (e-commerce) merchants and involvement of third parties such as payment facilitators to facilitate expansion. Merchant acquiring services have also adapted to constant evolution of technological advancements to cater for needs of users and enhance efficiency. All of the above changes have increased the complexity and the number of players along the payment chain before payment reaches the merchants. 1.3 Due to the increasingly important role played by acquirers in the payment landscape, it is important to specify the minimum expectations and regulatory requirements for merchant acquiring services to promote confidence in the use of e-payment by both merchants and users of payment instruments. The regulatory requirements serve to ensure proper risk management in merchant acquiring services, which includes the management of settlement risk, financial risk, fraud risk and technology and cyber risk. Merchant Acquiring Services Page 2 of 66 Issued on: 15 September 2021 1.4 The objectives of this policy document are as follows – (a) to ensure the safety and reliability of merchant acquiring services provided by acquirers; and (b) to preserve public confidence in using or accepting payment instruments for the payment of goods and services. 2. Applicability 2.1 This policy document is applicable to acquirers registered pursuant to sections 17(1) and 18 of the Financial Services Act 2013 (FSA) that fulfils the following criteria – (a) enters into a contract with merchant(s), which results in a transfer of funds to the merchant(s) by – (i) conducting or being responsible for fund settlement; or (ii) issuing fund settlement instructions; (b) facilitates the merchant’s acceptance of payment instruments; and (c) is a direct participant of payment instrument network(s) to provide merchant acquiring services. 2.2 The requirements under paragraph 9 of this policy document are only applicable to non-bank acquirers. 3. Legal Provisions 3.1 The requirements in this policy document are specified pursuant to sections 18(2), 33(1), 49, 123(1) and 143 of the FSA. 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA. 4. Effective Date 4.1 This policy document comes into effect on 15 March 2022. 4.2 However, for non-bank acquirers, the following will apply – Merchant Acquiring Services Page 3 of 66 Issued on: 15 September 2021 (a) paragraphs 17.1 to 21.3 come into effect on 15 September 2022; and (b) paragraphs 9.1 to 9.3 come into effect on 15 September 2023. 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA 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; “acquirer” refers to any person who is registered1 pursuant to sections 17(1) and 18 of the FSA to provide merchant acquiring services and fulfils the criteria under paragraph 2.1; “critical system” refers to any application system that supports the provision of critical services, where failure of the system has the potential to significantly impair the acquirer’s provision of services to customers or counterparties, business operations, financial position, reputation or compliance with applicable laws and regulatory requirements; “customer and counterparty information” as used in Part D of this policy document, refers to any information relating to the affairs or, in particular, the account, of any customer or counterparty of an acquirer in whatever form; 1 For avoidance of doubt, an e-money issuer that also conducts its own merchant acquiring services (i.e. acquires merchants directly) for its own e-money scheme is also considered as an acquirer. Merchant Acquiring Services Page 4 of 66 Issued on: 15 September 2021 “cyber risk” refers to threats or vulnerabilities emanating from the connectivity of internal technology infrastructure to external networks or the Internet; “digital service” refers to the provision of payment services delivered to customers via electronic channels and devices including Internet and mobile devices, self-service and point-of-sale terminals; “direct participant” refers to a principal member of a payment instrument network(s) for purposes of providing merchant acquiring services; “direct settlement method” refers to a method whereby settlement is done directly from a payment instrument network or an identified settlement bank2 to the merchant, based on the payment instruction by the acquirer. Such settlement funds cannot be claimed by the acquirer or creditors of the acquirer, including upon the acquirer’s liquidation; “e-commerce merchant” refers to merchant that sells or offers goods and/or services electronically over the Internet or any other channels not involving face-to- face interaction (e.g. mail or telephone order); “foreign-issued payment instrument” refers to a payment instrument issued by an issuer not locally incorporated in Malaysia but may be accepted at local merchants; “issuer of e-money” refers to a person approved under section 11 of the FSA or Islamic Financial Services Act 2013 (IFSA) to issue e-money; “key responsible persons” or “KRP” refer to persons that are accountable or responsible for the management and oversight of merchant acquiring services. These comprise the directors and Chief Executive Officer (CEO); 2 A licensed bank, licensed Islamic bank or prescribed institution appointed or identified to conduct direct settlement to merchants. Merchant Acquiring Services Page 5 of 66 Issued on: 15 September 2021 “large acquirers” refer to acquirers with an actual or projected amount of average monthly transaction value (MTV) of more than RM10,000,000 (where for the purpose of calculation of average MTV, the actual amount is calculated based on a 12-month moving average, while the projected amount is calculated based on an estimation of the average monthly amount for the next 12-month period); “licensed Islamic bank” means an Islamic bank licensed under the IFSA; “merchant” refers to a person or an entity that has a contractual agreement with an acquirer to accept payment instruments for the sale or offer of goods or services. This includes the merchants acquired by a payment facilitator on behalf of an acquirer; “non-bank acquirer” refers to any person who is not a licensed bank, licensed Islamic bank or prescribed institution that is registered pursuant to sections 17(1) and 18 of the FSA to provide merchant acquiring services and fulfils the criteria under paragraph 2.1; “outsourcing arrangement” refers to an arrangement in which a service provider performs an activity on behalf of the acquirer on a continuing basis3, where the activity would otherwise be undertaken by the acquirer and does not include activities set out in Appendix 9; “payment facilitator” refers to an entity that is appointed by an acquirer to perform merchant acquiring services on behalf of the acquirer. For avoidance of doubt, a payment facilitator can be either: (1) an existing acquirer for any payment instrument network or (2) a third party acquirer; “payment gateway service provider” refers to an entity that provides the information technology (IT) system and infrastructure for purposes of processing or supporting payment or settlement transactions; 3 For avoidance of doubt, an arrangement which is time-bound does not preclude that activity from being considered as being performed on a continuing basis. Merchant Acquiring Services Page 6 of 66 Issued on: 15 September 2021 “payment instrument network” refers to a payment system that enables payment to be made using a payment instrument under its brand and provides clearing and/or settlement services for its members namely issuers and/or acquirers; “physical merchant” refers to merchant that sells or offers goods or services physically over the counter (i.e. brick-and-mortar/face-to-face business); “point-of-sale (POS) terminal” refers to an electronic device located in or at a merchant’s premise that enables a customer to effect a transaction for the purchase of goods or services using a payment instrument; “prescribed institution” means a development financial institution prescribed under the Development Financial Institutions Act 2002; “production data centre” refers to any facility which hosts active critical production application systems irrespective of location; “senior management” refers to the CEO and senior officers; “service provider” refers to an entity, including an affiliate, providing services to an acquirer under an outsourcing arrangement. This may include third party service provider as used in Part D of this policy document; “small acquirers” refer to acquirers with an actual or projected amount of average MTV of less than RM10,000,000 (where for the purpose of calculation of average MTV, the actual amount is calculated based on a 12-month moving average, while the projected amount is calculated based on an estimation of the average monthly amount for the next 12-month period); Merchant Acquiring Services Page 7 of 66 Issued on: 15 September 2021 “SME” refers to small and medium enterprises as defined in the Notification on Definition of Small and Medium Enterprises (SMEs)4 issued by Bank Negara Malaysia (the Bank) and as may be updated from time to time; “sub-contractor” refers to an entity, including an affiliate, which performs the whole or a part of the outsourced activity for the primary service provider; “third party acquirer” refers to an entity that is appointed by an acquirer to perform merchant acquiring services on behalf of the acquirer, but does not fulfil the criteria in paragraph 2.1; and “third party service provider” as used in Part D of this policy document 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 acquirer or its customers. This includes cloud computing software, platform and infrastructure service providers. 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) the policy document on the Risk-Based Authentication for Online Payment Card Transaction; (b) the policy document on the Payment Card Reform Framework; (c) the policy document on the Management of Customer Information and Permitted Disclosures; and (d) the policy document on Interoperable Credit Transfer Framework. 4 Issued on 27 December 2017. Merchant Acquiring Services Page 8 of 66 Issued on: 15 September 2021 7. Policy Documents Superseded 7.1 This policy document supersedes the requirements listed below – (a) Paragraph 33 – Specific requirements for acquirers in policy document on Credit Card issued on 2 July 2019; (b) Paragraph 34 – Specific requirements for acquirers in policy document on Credit Card-i issued on 2 July 2019; (c) Paragraph 23 – Specific requirements for acquirers in policy document on Debit Card issued on 2 December 2016; (d) Paragraph 25 – Specific requirements for acquirers in policy document on Debit Card-i issued on 2 December 2016; (e) Paragraph 30 – Specific requirements for acquirers in policy document on Charge Card issued on 2 December 2016; and (f) Paragraph 32 – Specific requirements for acquirers in policy document on Charge Card-i issued on 2 December 2016. Merchant Acquiring Services Page 9 of 66 Issued on: 15 September 2021 PART B GOVERNANCE 8. Effective Governance and Oversight 8.1 Acquirers shall establish adequate governance arrangements which are effective and transparent to ensure the continued integrity of its merchant acquiring services which include, among others, the following – (a) a board of directors (board) and senior management that consists 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 internal control arrangements to reduce the chances of mismanagement and fraud. Board roles and responsibilities 8.2 The board shall have a board charter that sets out the mandate, responsibilities and procedures of the board and its committees (if any), including the matters reserved for the board’s decision. 8.3 The board shall have the overall responsibility in ensuring the sustainable growth, financial soundness and reliability of the acquirer’s merchant acquiring services which include – (a) determining, reviewing and approving strategies, business plans and significant policies, including its risk appetite and monitoring management’s performance in implementing them; (b) setting corporate values and clear lines of responsibility and accountability that are communicated throughout the organisation; (c) ensuring adequate assessment is conducted on key responsible persons (KRP); (d) ensuring selection of competent senior management; (e) ensuring that the operations of the business are conducted prudently, and within the framework of relevant laws and policies; S S S Merchant Acquiring Services Page 10 of 66 Issued on: 15 September 2021 (f) ensuring that comprehensive risk management policies, processes and infrastructure, and effective operationalisation of the risk controls to manage the various types of risks, are in place and effective; and (g) establishing an effective compliance and internal audit functions. 8.4 The board shall ensure that an effective oversight and risk management mechanism is in place, which includes the following – (a) an effective oversight and governance structure to manage the day-to-day operations of the acquirer; (b) risk management and control framework on the following areas – (i) technology risk management and cyber resilience; (ii) mitigation of fund settlement risk to merchants; (iii) mitigation of fraud or illegal activities; (iv) merchant recruitment and monitoring; (v) outsourcing arrangement with service providers; and (c) appropriate and timely reporting or escalation of issues that may impact the safety, security or operational reliability of the merchant acquiring operations. 8.5 The board shall ensure that the risk management and control framework is periodically reviewed for continued effectiveness. This includes ensuring an audit by an independent party is conducted with reasonable frequency to detect weaknesses and enable corrective measures to be taken in a timely manner. 8.6 The board and its committees (if any) shall be of a size that promotes effective deliberation and encourages the active participation of all directors. The board shall meet sufficiently whereby the number and frequency of board meetings shall commensurate with the size and complexity of the acquirer’s operations, to review the acquirer’s performance, including the status of its compliance with regulatory requirements and to deal with any issues pertaining to the operations of merchant acquiring services. S S S Merchant Acquiring Services Page 11 of 66 Issued on: 15 September 2021 8.7 The board shall ensure that clear and accurate minutes of board meetings are maintained to record the decisions of the board, including the key deliberations, rationale for each decision made, and any significant concerns or dissenting views. 8.8 With regard to the management of technology and cybersecurity risks, the board shall – (a) establish and approve the technology risk appetite which is aligned with the acquirer’s risk appetite statement. In doing so, the board shall approve the corresponding risk tolerances for technology-related events and ensure key performance indicators are in place to monitor the acquirer’s technology risk against its approved risk tolerance. The board shall ensure the senior management of the acquirer provides regular updates on the status of these indicators, key technology risks and critical technology operations to facilitate strategic decision-making; and (b) ensure and oversee the adequacy of the acquirer’s IT and cybersecurity strategic plans covering a period of no less than three (3) years. These plans shall address the acquirer’s requirements on infrastructure, control measures to mitigate IT and cyber risk as well as financial and non-financial resources, which are commensurate with the complexity of the acquirer’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 (3) years. 8.9 Given the rapidly evolving cyber threat landscape, the board should allocate sufficient time to discuss cyber risks and related issues, including the strategic and reputational risks associated with a cyber-incident. This should be supported by input from external experts as appropriate. The board should also ensure its continuous engagement in cybersecurity preparedness, education and training. 8.10 The board shall be responsible for ensuring the effectiveness of the audit function including technology audit. The board shall review and ensure the appropriate audit scope, procedures and frequency of audits. The board shall also ensure effective S G S S Merchant Acquiring Services Page 12 of 66 Issued on: 15 September 2021 oversight over the prompt closure of corrective actions to address any issues or control gaps. Senior Management 8.11 The senior management of acquirers shall be 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, including those under paragraph 8.4(b); (ii) due diligence and oversight to manage outsourced arrangements supporting the merchant acquiring operations; (iii) sufficient and timely reporting or escalation of issues to the board; (b) overseeing the formulation and effective implementation of any business or strategic plan, including the strategic technology plan and associated technology policies and procedures; and (c) a robust assessment is conducted to approve any deviation from policies and procedures, including technology-related policies. Material deviations shall be reported to the board. 8.12 The senior management shall consist of individuals with the appropriate skill set and experience to adequately support the merchant acquiring services. This includes individuals from technology functions to provide guidance on the acquirers’ technology plans and operations. 8.13 The senior management shall ensure adequate allocation of resources as well as appropriately skilled and competent staff to support all critical functions of the merchant acquiring services, including to ensure maintenance of robust technology systems and management of technology risk. 8.14 For large acquirers, the senior management should embed appropriate oversight arrangements within the technology function to support the enterprise-wide S S S G Merchant Acquiring Services Page 13 of 66 Issued on: 15 September 2021 oversight of technology risk. These arrangements should provide for designated staff responsible for the identification, assessment and mitigation of technology risks who do not engage in day-to-day technology operations. PART C OPERATIONAL REQUIREMENTS 9. Minimum Capital Funds Requirements for Non-Bank Acquirers 9.1 Small non-bank acquirers are required to maintain, at all times, minimum capital funds of RM300,000. 9.2 Large non-bank acquirers are required to maintain, at all times, minimum capital funds of RM1,000,000. 9.3 Non-bank acquirers shall maintain the required minimum capital funds in accordance with the computation specified in Appendix 1. 10. Settlement Risk Management 10.1 Acquirers shall be responsible to process the payment of funds to its merchants in a proper and timely manner to manage settlement risk. For the purpose of this paragraph, settlement risk is described as the risk of acquirers’ inability to honour the obligation to transfer funds arising from a transaction as a result of clearing, at an agreed-upon time to the merchants. 10.2 Acquirers shall ensure timely and complete funds settlement to merchants as per the terms agreed in the contractual agreement with merchants. 10.3 Acquirers shall ensure that the settlement period commensurate with the merchants’ business models and needs. 10.4 Acquirers should ensure that the settlement period is no longer than two (2) and five (5) working days from the date of funds received from the payment instrument S G S S S S S Merchant Acquiring Services Page 14 of 66 Issued on: 15 September 2021 network, for physical merchants and e-commerce merchants, respectively. Notwithstanding this, acquirers should strive for a shorter settlement period and if a merchant requests for a shorter settlement period, the acquirer should assess the feasibility of accommodating such requests accordingly. 10.5 Acquirers shall deposit the funds received for settlement to merchants in a dedicated deposit account (i.e. designated account) with licensed banks, licensed Islamic banks or prescribed institutions, separately from their own funds. The funds in the dedicated deposit account shall only be used for settlement purposes to the merchants and/or chargebacks to issuers of payment instruments less the Merchant Discount Rate (MDR) charged or any other applicable charges to the merchant. 10.6 In the event settlement by acquirers to SME merchants takes more than two (2) working days from the date of funds received from the payment instrument network, the acquirer shall ensure the funds are safeguarded as follows – (a) place the settlement funds in a trust account with a licensed bank, licensed Islamic bank or prescribed institution in accordance with the Trustee Act 1949; or (b) adopt direct settlement method to merchants; or (c) secure a bank guarantee from a licensed bank, licensed Islamic bank or prescribed institution on such settlement funds or outstanding amount for settlement. 10.7 Acquirers shall be liable to provide the funds settlement to merchants in the event the issuer, including foreign issuers of payment instruments, or any other parties involved in the handling of such funds, fail to fulfil its settlement obligations. S S S Merchant Acquiring Services Page 15 of 66 Issued on: 15 September 2021 11. Merchant Management Merchant recruitment 11.1 Acquirers shall establish prudent underwriting criteria and procedures to ensure proper due-diligence for on-boarding of a merchant. The assessment criteria shall include the following – (a) relevant background information on the merchant (e.g. financial history such as bankruptcy/insolvency check, nature of business, etc.); (b) legitimacy of the merchant’s business, with no involvement in or association with any fraudulent or illegal activities including business activities intended to deceive consumers such as “scratch and win” and “get-rich-quick” schemes; and (c) the merchant has not been blacklisted by any authorities or other acquirers for any suspected fraudulent or illegal activities. 11.2 Acquirers shall verify the merchants’ identity using reliable documents, information or any other measures that acquirers deem appropriate, taking into consideration the nature and size of the business of the respective merchants, before establishing any acquiring relationship with the merchants. 11.3 For purposes of paragraph 11.2 – (a) the verification method may include site visits, website/channel checking or company screening; and (b) documents and information to be used for verification may include the business name, address, website/channel, contact, proof of existence (e.g. business registration number, identification number, etc.), owner details, business nature and products/services offered. 11.4 Merchants shall not be on-boarded via a merchant recruitment agent5 unless approved by the acquirer. Acquirers shall retain the responsibility to ensure proper 5 The merchant recruitment agent’s roles are limited to the referral of merchants, collection of merchants’ information and documents for application purposes and submission to acquirers for approval. The activities do not involve processing of funds or facilitating the transactions. S G S S Merchant Acquiring Services Page 16 of 66 Issued on: 15 September 2021 due-diligence on merchants is conducted by the merchant recruitment agent and ensure that the merchants on-boarded do not conduct fraudulent or illegal activities. Acquirers shall also ensure that controls as per paragraphs 11.1 and 11.2 are put in place by the merchant recruitment agent. Merchant monitoring 11.5 Acquirers shall conduct effective monitoring on their merchants’ activities to ensure that the merchants are not involved in any fraudulent or illegal activities. 11.6 Acquirers shall maintain a “watch list” of merchants that are suspected to be collusive or involved in fraudulent or illegal activities, and the activities of these merchants shall be closely monitored and investigated. 11.7 Acquirers shall monitor chargebacks and its trend, including the merchants’ capacity to repay these chargebacks and act accordingly (e.g. close monitoring, termination of merchant, if necessary) to mitigate any risks associated with engaging such merchants. 11.8 Acquirers shall terminate immediately any acquiring relationship with a merchant that has been charged or convicted of a criminal offence relating to fraudulent or illegal activity. 11.9 Acquirers shall conduct periodic assessment, which may include mystery shopping or audit on their merchants, to ensure that the merchants adhere to payment instruments’ acceptance and authorisation procedures. Information security requirements for merchants 11.10 Acquirers shall ensure that merchants maintain and demonstrate compliance with the applicable regulations on data security and data protection as well as establish controls6 that are effective in protecting customer data and information. This 6 Controls include process and procedures as well as IT security controls that are commonly accepted as effective by industry practice. G S S S S S Merchant Acquiring Services Page 17 of 66 Issued on: 15 September 2021 includes any third party service providers engaged by the merchants for accessing, storing, transmitting and processing customer data. 11.11 The acquirers’ agreements with merchants shall include provisions to ensure the merchants and merchants’ third party service providers maintain compliance with applicable security requirements and established security standards. 11.12 Acquirers shall educate7 and raise awareness among their merchants on the importance of protection of customer data and the legal consequences8 of failing to adequately protect such data. 12. Fraud Risk Management 12.1 Acquirers shall put in place an effective mechanism, which includes the process and procedures to mitigate fraud risk, which includes fraud prevention, detection and monitoring. 12.2 Acquirers shall ensure the following – (a) real time fraud detection and monitoring, effective early detection of unusual transactions and mechanism to halt or delay fraudulent or suspicious transactions; (b) necessary processes and procedures are in place to enable authentication by customers based on the risk profile of customers and transactions, to effectively mitigate and manage the potential risk identified; (c) the fraud risk management measures shall be reviewed periodically to ensure proactive actions are taken to address any inadequacies in such measures; (d) fraud incidents and their assessment shall be reported to the board and senior management in a timely manner if the impact is significant; and 7 By providing appropriate level of awareness through various measures such as training, constant reminders or engagement sessions. 8 Such as non-compliance with the Personal Data Protection Act 2010. S S S S Merchant Acquiring Services Page 18 of 66 Issued on: 15 September 2021 (e) 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. 13. Business Continuity Management 13.1 Acquirers shall ensure that they have adequate resources and capacity in terms of hardware, software and other operating capabilities9 to deliver consistently reliable and secure services. 13.2 Acquirers shall ensure that measures are in place to support operational reliability, which include – (a) strong internal controls to minimise operational risk such as system security risk; (b) comprehensive and well-documented operational and technical procedures; and (c) systems with a robust disaster recovery plan, including a highly reliable backup system. 13.3 Acquirers shall undertake a structured risk assessment process to – (a) identify potential threats that could cause material business disruptions, resulting in the inability to fulfil business obligations; and (b) assess the likelihood of the identified threats occurring and determine the impact on the acquirer (e.g. business impact analysis). 13.4 Acquirers shall develop an effective business continuity plan (BCP) and disaster recovery plan (DRP) for at least all critical business functions and other functions, where applicable. 13.5 For purposes of paragraph 13.3, acquirers are expected to carry out a business impact analysis (BIA) on an annual basis, which forms the foundation of 9 This may refer to any other skills or processes involved in the operations (e.g. adequate manpower and skill set to operate the systems). G S S S S Merchant Acquiring Services Page 19 of 66 Issued on: 15 September 2021 developing the BCP and as and when there are material changes to the acquirers’ business activities. 13.6 Acquirers should determine the maximum tolerable downtime (MTD) and recovery time objectives (RTO) for each critical business function. The goal is to develop a BCP that details out 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. 13.7 To ensure comprehensiveness of its business continuity management, acquirers shall ensure its outsourced service provider also has an effective BCP and DRP and implements other relevant safeguards to ensure the continuity of the material outsourced activities, with the objective to minimise the acquirers’ business disruptions. 13.8 Acquirers shall test the BCP and DRP regularly to ensure the functionality and effectiveness of the recovery strategies and procedures, preparedness of staff and other recovery resources. 14. Outsourcing 14.1 Acquirers shall remain responsible and accountable for the services outsourced to any service provider10 (e.g. payment facilitators, merchant recruitment agents, payment gateway service providers, IT service providers) under an outsourcing arrangement11. 14.2 Prior to entering into any outsourcing arrangement, acquirers shall, at minimum, ensure the following – (a) availability of sufficient expertise within the acquirer to oversee and manage the outsourcing relationship; 10 Including affiliates of the acquirer, regardless of jurisdiction. 11 For avoidance of doubt, an arrangement will be deemed as an outsourcing arrangement as long as the activities fulfil the “outsourcing arrangement” definition specified under paragraph 5.2 of this policy document. S S S S G Merchant Acquiring Services Page 20 of 66 Issued on: 15 September 2021 (b) the scope and nature of services and operations to be outsourced would not compromise the controls and risk management of the merchant acquiring services. Acquirers shall ensure the following – (i) the outsourcing of such processes does not take away the critical decision making function of the acquirers; (ii) the outsourcing of such processes does not threaten strategic arrangements, flexibility needed by acquirers on important areas and control of the acquirers; (iii) the outsourcing of such processes would not impair the reputation, integrity and credibility of the acquirers; and (iv) processes are in place for the acquirers to retain the ability to comply with the regulatory and supervisory requirements on the outsourced functions. 14.3 Acquirers shall perform appropriate due diligence of the service provider before the outsourcing arrangements are formalised, which includes the following areas – (a) capacity, capability, financial strength and business reputation12; (b) risk management and internal control capabilities, including physical and IT security controls as well as business continuity management13; (c) measures and procedures to ensure data protection and confidentiality; (d) reliance of service providers on sub-contractors; and (e) ability of the service provider to comply with relevant laws, regulations and requirements in this policy document. 14.4 Acquirers should also assess the extent of concentration risk to which the acquirer is exposed with respect to a single service provider and the mitigation measures to address this concentration, except when the service provider is an affiliate and is supervised by a financial regulatory authority. 12 This includes an assessment that the service provider is a going concern and has strong governance structures to manage the outsourced activity throughout the duration of the arrangement. 13 Including the ability of the service provider to respond to service disruptions or problems resulting from natural disasters, or physical or cyber-attacks, within an appropriate timeframe. S G Merchant Acquiring Services Page 21 of 66 Issued on: 15 September 2021 14.5 Approval from the board to outsource identified functions shall be obtained and documented, substantiated by outcomes of the due diligence process conducted on the service provider. 14.6 Acquirers shall ensure that the outsourcing arrangement is governed by a written agreement, which shall be comprehensive, legally enforceable and shall include the minimum requirements specified in Appendix 2. 14.7 In addition to the requirements in Appendix 2, for an outsourcing arrangement with a payment facilitator, acquirers shall ensure that the agreement between the payment facilitator and merchant – (a) clearly reflects that the payment facilitator is entering into the agreement with the merchant on behalf of and/or as agent of the acquirer; (b) contains relevant information of the transactions relevant to the acquirer, including information on the merchants and any other information that may have significant implications to the acquirer; and (c) contains the acquirer’s contact details which the merchant may use to directly submit queries and concerns, if any, related to the transactions. 14.8 Acquirers shall ensure that appropriate controls are in place and are effective in safeguarding the security, confidentiality and integrity of any information shared with the service provider. In meeting this requirement, acquirers shall ensure the following – (a) information disclosed to the service provider is limited to the extent necessary to provide the contracted service, and only on a need-to-know basis; (b) all locations (e.g. city and country) where information is processed or stored, including back-up locations, are made known to the acquirer; (c) where the service provider is located, or performs the outsourced activity, outside Malaysia, the service provider is subject to data protection standards that are comparable to Malaysia; S S S S S S Merchant Acquiring Services Page 22 of 66 Issued on: 15 September 2021 (d) the service provider maintains compliance with applicable security requirements and established security standards14 at all times; and (e) the service provider undertakes to safeguard customer information of the acquirer at all times and reports any customer information breach to the acquirer within an agreed timeframe. 14.9 In addition to the requirements in paragraph (b) of Appendix 2, where applicable, the acquirer shall ensure that the service provider provides a written undertaking to the acquirer to comply with all relevant laws and regulatory requirements on secrecy and data protection. 14.10 Acquirers shall ensure their service provider complies with the relevant regulatory requirements specified in this policy document15 and as may be specified by the Bank from time to time. 14.11 The requirement in paragraph 14.10 is also applicable when a service provider engages a sub-contractor to undertake the activities that were outsourced by the acquirer, whereby the acquirer shall implement proper controls to ensure that the sub-contractor complies with the relevant requirements based on standards issued by the Bank to acquirers from time to time. 14.12 Acquirers shall have a contingency plan or arrangements to secure business continuity with the service provider in the event the arrangement with the service provider is abruptly terminated. This is to mitigate any significant discontinuity in the work that is supposed to be conducted by the service provider. The contingency plan shall be reviewed from time to time to ensure that the plan is current and ready for implementation in the event of abrupt termination of the service provider. 14 Any relevant local or international standards commonly applied by the relevant industry. 15 This includes specific requirements for system development and acquisition, data centre operations, network resilience, technology security and cybersecurity, wherever applicable. S S S S Merchant Acquiring Services Page 23 of 66 Issued on: 15 September 2021 14.13 Notwithstanding that the operational activities are outsourced, reporting by the service provider to the acquirer and monitoring mechanisms on the service provider shall be put in place by the acquirer to ensure that the integrity and quality of work conducted by the service provider is maintained. Regular reviews shall also be conducted by the acquirer to monitor the performance of the service provider. 14.14 Periodic independent reviews either via internal and/or external audits, shall be conducted on the outsourced operations, with the same scope of review if the said operations are conducted in-house. 14.15 Acquirers shall ensure that any weaknesses highlighted during the audit pursuant to paragraph 14.14 are well-documented and promptly rectified by the service provider especially where such weaknesses may affect the integrity of the internal controls of the acquirers. 14.16 For outsourcing arrangements where the service provider is located or the services are performed outside Malaysia, the acquirer should have appropriate controls and safeguards in place to manage any additional risk, with regard to various conditions, including legal and regulatory requirements as well as social and political conditions. 14.17 Acquirers shall ensure that the outsourcing arrangements undertaken outside Malaysia are conducted in a manner which does not affect – (a) the acquirer’s ability to effectively monitor the service provider and execute its BCP; (b) the acquirer’s prompt recovery of data in the event of the service provider’s failure, having regard to the laws of the particular jurisdiction; and (c) the Bank’s ability to exercise its regulatory or supervisory powers, in particular the Bank’s timely and unrestricted access to systems, information or documents relating to the outsourced activity. G S S S S Merchant Acquiring Services Page 24 of 66 Issued on: 15 September 2021 14.18 For outsourcing involving cloud services, acquirers may rely on third party certification and reports made available by the cloud service provider for purposes of conducting audits and inspections on the cloud service provider and sub- contractors. However, such reliance by the acquirer shall be supported by an adequate understanding and review of the scope of the audit and methods employed by the third party, and access to the third party and service provider to clarify matters relating to the audit. 15. Arrangement with Parties Involved in Payment and Settlement Process 15.1 Acquirers are responsible for ensuring that the parties that they enter into a contract with, who may also expose merchants to payment and/or settlement risk, are able to manage such risks appropriately. Such parties include payment facilitators. 15.2 In addition to the requirements in paragraph 14, acquirers are required to ensure such parties in paragraph 15.1 have adequate operational and risk management policies and procedures in place, which include the following – (a) the parties conduct sound assessment and due-diligence on their merchants to ensure that the merchants are conducting a legitimate business and not involved in fraudulent or illegal activities; (b) the parties have safeguard measures to ensure timely and complete funds settlement to the merchants (e.g. placing funds in a designated account with licensed banks, licensed Islamic banks or prescribed institutions only for settlement purposes and are transparent in their settlement terms and period to their merchants); (c) the parties as well as their merchants are able to ensure confidentiality, security and integrity of customer data at all times; (d) the parties are able to ensure the safety, reliability and availability of their system and network infrastructure; and (e) the parties have appropriate dispute resolution mechanisms for the merchants. S S S Merchant Acquiring Services Page 25 of 66 Issued on: 15 September 2021 15.3 Acquirers shall be held responsible for fulfilling the settlement obligation to the merchants of a payment facilitator, in the event that the payment facilitator fails to fulfil its settlement obligations to the merchants. 15.4 Notwithstanding paragraph 14.11, acquirers shall ensure that a payment facilitator does not appoint another payment facilitator for purposes of acquiring a merchant. 15.5 Acquirers shall periodically monitor the transactions or activities of the parties mentioned in paragraph 15.1 (e.g. through transaction monitoring, site visits at the business premises or audit assessment) to ensure that appropriate controls and risk mitigation measures are put in place by such parties in managing the payment and/or settlement risk and any issues or weaknesses detected are promptly rectified. 16. Appropriate Treatment for Merchants 16.1 Acquirers shall establish appropriate rules and procedures on liability management and chargeback, which shall be clearly specified in the merchant agreements. Acquirers shall ensure that merchants are not held liable for any fraud losses or chargeback if the transactions acceptance procedures as stipulated in the merchant agreement have been adhered to by the merchants. 16.2 In the event funds are withheld from the merchants, the acquirers are responsible for ensuring that the withholding of such funds due to their merchants (e.g. for suspected fraudulent transactions or to facilitate chargeback requests from the issuer) is done in a fair manner and not detrimental to the merchants. This shall include but is not limited to the following – (a) provide clarity in the circumstances for withholding of funds due to the merchants (e.g. fraudulent transactions); (b) provide clarity and identify the definite period for withholding of funds due to the merchants (e.g. within chargeback period of one hundred and twenty (120) days); S S S S S Merchant Acquiring Services Page 26 of 66 Issued on: 15 September 2021 (c) processes involved in releasing of withheld funds are done in an expedient manner and within the identified timeframe; (d) maintenance of withheld funds is made in a separate account, which shall not be used for acquirers’ own operations; and (e) provide clear communication and regular updates on the status of the withheld funds to the merchants. 16.3 Acquirers shall establish clear and robust dispute resolution procedures to ensure effective and timely resolution of dispute cases between acquirers and their merchants. 16.4 Acquirers shall acknowledge receipt of the dispute within two (2) working days from the date such dispute is lodged and provide a written decision to merchants within thirty (30) working days. Acquirers shall inform the merchants if a longer time is required to address the dispute and provide appropriate rationale. PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS 17. Technology Risk Management S G 17.1 Acquirers shall establish the Technology Risk Management Framework (TRMF), which is a framework to safeguard the acquirers’ information infrastructure, systems and data as an integral part of the acquirers’ risk management framework. 17.2 The TRMF should 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 acquirers 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; S S Merchant Acquiring Services Page 27 of 66 Issued on: 15 September 2021 (f) risk controls and mitigations; and (g) continuous monitoring to timely detect and address any material risks. G 17.3 Acquirers should establish an independent enterprise-wide technology risk management function which should be responsible for — (a) implementing the TRMF and Cyber Resilience Framework (CRF) as provided under paragraph 19; (b) advising on critical technology projects and ensuring critical issues that may have an impact on the acquirers’ 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 assessment16, where necessary. G 17.4 Acquirers should designate a Chief Information Security Officer (CISO), by whatever name called, to be responsible for the technology risk management function of the acquirers. The acquirers should ensure that the CISO has sufficient authority, independence and resources17. The CISO should — (a) be independent from day-to-day technology operations; (b) keep apprised of current and emerging technology risks which could potentially affect the acquirers’ risk profile; and (c) be appropriately certified. G 17.5 The CISO should be responsible for ensuring the acquirers’ information assets and technologies are adequately protected, which include — (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 16 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. 17 Acquirers’ 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 should be accountable for and serve as the point of contact with the Bank on the acquirers’ technology-related matters, including managing entity-specific risks, supporting prompt incident response and reporting to the acquirers’ board. Merchant Acquiring Services Page 28 of 66 Issued on: 15 September 2021 (c) advising senior management on technology risk and security matters, including developments in the acquirers’ technology security risk profile in relation to its businesses and operations. 18. Technology Operations Management Technology Project Management S 18.1 Acquirers shall establish appropriate governance requirements commensurate with the risk and complexity18 of technology projects undertaken. This shall include establishing project oversight roles and responsibilities, authority and reporting structures, and risk assessment throughout the project life cycle. G 18.2 The risk assessment should identify and address the key risks arising from the implementation of technology projects. These include the risks that could threaten successful project implementation and the risks that a project failure will lead to a broader impact on the acquirers’ operational capabilities. At a minimum, due regard should be given to the following areas – (a) the adequacy and competency of resources including those of the vendor to effectively implement the project. This should also take into consideration the number, size and duration of significant technology projects undertaken concurrently by the acquirers; (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 18 For example, large-scale integration projects or those involving IT 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. Merchant Acquiring Services Page 29 of 66 Issued on: 15 September 2021 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. G 18.3 The board and senior management should 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 18.4 Acquirers should establish an Enterprise Architecture Framework (EAF) that provides a holistic view of technology throughout the acquirers. The EAF is an overall technical design and high-level plan that describes the acquirers’ 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 acquirers plan and structure system development and acquisition strategies to meet business goals. S 18.5 Acquirers shall 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 shall also embed security and relevant enterprise architecture considerations into the SDLC to ensure confidentiality, integrity and availability of data19. The policies and practices shall be reviewed at least once every three (3) years to ensure that they remain relevant to the acquirers’ environment. 19 The security considerations shall include ensuring appropriate segregation of duties throughout the SDLC. Merchant Acquiring Services Page 30 of 66 Issued on: 15 September 2021 G 18.6 Acquirers are 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. G 18.7 Acquirers should consider the need for diversity20 in technology to enhance resilience by ensuring critical systems infrastructure are not excessively exposed to similar technology risks. S 18.8 Acquirers shall 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, acquirers shall ensure proper authorisation procedures and adequate measures to prevent their unauthorised disclosure are in place. G 18.9 The scope of system testing referred to in paragraph 18.8 should include unit testing, integration testing, user acceptance testing, application security testing, stress and regression testing, and exception and negative testing, where applicable. S 18.10 Acquirers shall ensure any changes to the source code of critical systems are subject to adequate source code reviews to ensure the code is secure and was developed in line with recognised coding practices prior to introducing any system changes. S 18.11 In relation to IT systems that are developed and maintained by vendors, acquirers shall ensure the source code continues to be readily accessible and secured from unauthorised access. S 18.12 Acquirers shall physically segregate the production environment from the development and testing environment for critical systems. Where acquirers are 20 Diversity in technology may include the use of different technology architecture designs and applications, technology platforms and network infrastructure. Merchant Acquiring Services Page 31 of 66 Issued on: 15 September 2021 relying on a cloud environment, the acquirers shall ensure that these environments are not running on the same virtual host. S 18.13 Acquirers shall establish appropriate procedures to independently review and approve system changes. The acquirers shall also establish and test contingency plans in the event of unsuccessful implementation of material changes to minimise any business disruption. S 18.14 Where acquirers’ IT systems are managed by third party service providers, the acquirers shall ensure, including through contractual obligations, that the third party service providers provide sufficient notice to the acquirers before any changes are undertaken that may impact the IT systems. G 18.15 When decommissioning systems, acquirers should ensure minimal adverse impact on merchants and business operations. This includes establishing and testing contingency plans in the event of unsuccessful system decommissioning. Cryptography 18.16 Acquirers should promote the adoption of strong cryptographic controls for protection of important data and information which include – (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 (3) years, of existing cryptographic standards and algorithms in IT systems, external linked or 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 should set out the escalation process, G Merchant Acquiring Services Page 32 of 66 Issued on: 15 September 2021 procedures for keys regeneration, interim measures, changes to business-as- usual protocols and containment strategies or options to minimise the impact of a compromise. G 18.17 Acquirers should 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 acquirers do not generate their own encryption keys, the acquirers should undertake appropriate measures to ensure robust controls and processes are in place to manage encryption keys. Where this involves a reliance on third party assessment21, the acquirers should consider whether such reliance is consistent with the acquirers’ risk appetite and tolerance. Acquirers should 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. G 18.18 Acquirers should ensure cryptographic controls are based on the effective implementation of suitable cryptographic protocols. The protocols should include secret and public cryptographic key protocols, both of which should reflect a high degree of protection to the applicable secret or private cryptographic keys. The selection of such protocols should 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 should be undertaken in a protected environment, supported by a hardware security module (HSM) or trusted execution environment (TEE). G 18.19 Acquirers should store public cryptographic keys in a certificate issued by a certificate authority as appropriate to the level of risk. Such certificates associated with customers should be issued by recognised certificate authorities. The acquirers should ensure that the implementation of authentication and signature protocols using such certificates are subject to strong protection to ensure that the 21 For example, where the acquirers are not able to perform its own validation on embedded cryptographic controls due to the proprietary nature of the software or confidentiality constraints. Merchant Acquiring Services Page 33 of 66 Issued on: 15 September 2021 use of private cryptographic keys corresponding to the user certificates is legally binding and irrefutable. The initial issuance and subsequent renewal of such certificates should be consistent with industry best practices and applicable legal/regulatory specifications. Data Centre Infrastructure 18.20 Acquirers shall ensure proper management of data centres and specify the resilience and availability objectives22 of their data centres which are aligned with their business needs. 18.21 The network infrastructure should be designed to be resilient, secure and scalable. Potential data centre failures or disruptions should not significantly degrade the delivery of its financial services or impede its internal operations. G 18.22 Acquirers should 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. G 18.23 In addition to paragraph 18.22, large acquirers are also encouraged to ensure recovery data centres are concurrently maintainable. G S 18.24 Acquirers should host IT systems in a dedicated space intended for production data centre usage. The dedicated space is to be physically secured from unauthorised access and is not located in a disaster-prone area. Acquirers should 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. 18.25 Acquirers shall establish proportionate controls, ensure adequate maintenance, and holistic and continuous monitoring of the critical components of the production 22 Availability objectives refer to the level of availability of the data centre which is expected to be specified as an internal policy. S S G Merchant Acquiring Services Page 34 of 66 Issued on: 15 September 2021 data centres aligned with the acquirer’s risk appetite. G 18.26 Acquirers are encouraged to appoint a technically competent external third party service provider to carry out a production data centre risk assessment and set proportionate controls aligned with the acquirers’ risk appetite. The assessment should consider all major risks associated with the production data centre and to be conducted periodically or whenever there is a material change in the data centre infrastructure. The assessment should at a minimum, include a consideration of whether paragraphs 18.22 to 18.25 have been adopted. For data centres managed by third party service providers, acquirers may rely on independent third party assurance reports provided such reliance is consistent with the acquirers’ risk appetite and tolerance, and the independent assurance has considered similar risks and meets the expectations in this paragraph for conducting the assessment. The designated board-level committee should deliberate the outcome of the assessment. Data Centre Operations 18.27 Acquirers shall ensure their 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. 18.28 Acquirers should involve both the technology stakeholders and the relevant business stakeholders within the acquirers in their development and implementation of capacity management plans. 18.29 Acquirers shall establish appropriate monitoring mechanisms to track capacity utilisation and performance of key processes and services23. These monitoring mechanisms shall be capable of providing timely and actionable alerts to administrators. 23 For example, batch runs and backup processes for the acquirers’ application systems and infrastructure. S G S Merchant Acquiring Services Page 35 of 66 Issued on: 15 September 2021 S 18.30 Acquirers shall segregate incompatible activities in the data centre operations environment to prevent any unauthorised activity24. In the case where vendors’ or programmers’ access to the production environment is necessary, these activities shall be properly authorised and monitored. S 18.31 Acquirers shall establish adequate control procedures for their data centre operations. These control procedures shall include procedures for batch processing management to ensure timely and accurate batch processes, implementing changes in the production system, error handling, as well as, management of other exceptional conditions. G 18.32 Acquirers are encouraged to undertake an independent risk assessment of their end-to-end backup storage and delivery management to ensure that existing controls are adequate in protecting sensitive data at all times. 18.33 Acquirers shall maintain a sufficient number of backup copies of critical data, the updated version of the operating system software, production programmes, system utilities, all master and transaction files and event logs for recovery purposes. Backup media shall be stored in an environmentally secure and access-controlled backup site. G 18.34 In regard to paragraph 18.32 and 18.33, acquirers should also adopt the controls as specified in Appendix 3 or their equivalent to secure the storage and transportation of sensitive data in removable media. G 18.35 Where there is a reasonable expectation for immediate delivery of service, acquirers should ensure that the relevant critical systems are designed for high availability. 24 For example, system development activities shall be segregated from data centre operations. S Merchant Acquiring Services Page 36 of 66 Issued on: 15 September 2021 Network Resilience 18.36 Acquirers are encouraged to design a reliable, scalable and secure enterprise network that is able to support their business activities, including future growth plans. 18.37 Acquirers should ensure the network services for their critical systems are reliable and have no SPOF in order to protect the critical systems against potential network faults and cyber threats. 18.38 Acquirers should 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. 18.39 Acquirers shall ensure network services supporting IT systems are designed and implemented to ensure the confidentiality, integrity and availability of data. 18.40 Acquirers should establish and maintain a network design blueprint identifying all of their internal and external network interfaces and connectivity. The blueprint should highlight both physical and logical connectivity between network components and network segmentations. 18.41 Acquirers shall ensure sufficient and relevant network device logs are retained for investigations and forensic purposes for at least three (3) years. 18.42 Acquirers shall 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 acquirers from other entities within the group. 18.43 Acquirers are encouraged to appoint a technically competent external third party service provider to carry out regular network risk assessment and set G G S G S G S G Merchant Acquiring Services Page 37 of 66 Issued on: 15 September 2021 proportionate controls aligned with its risk appetite. The assessment should be conducted periodically or whenever there is a material change in the network design. The assessment should consider all major risks and determine the current level of resilience. Third Party Service Provider Management 18.44 In addition to the requirements in paragraph 14 on outsourcing arrangements, the acquirer shall fulfil the requirements under paragraphs 18.45 to 18.51 specifically for IT related third party service providers. 18.45 The board and senior management of the acquirers shall exercise effective oversight and address associated risks when engaging third party service providers for critical technology functions and systems. Engagement of third party service providers, including engagements for independent assessment, does not in any way reduce or eliminate the principal accountabilities and responsibilities of acquirers for the security and reliability of technology functions and systems. 18.46 Acquirers shall 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 providers’ 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 acquirers or its customers in the course of transmission, processing or storage of such information; and (h) concentration risk. S S S Merchant Acquiring Services Page 38 of 66 Issued on: 15 September 2021 18.47 At a minimum, the outsourcing agreements with the acquirers’ third party service providers shall contain arrangements for disaster recovery and backup capability, where applicable, and IT system availability. 18.48 Acquirers shall ensure their ability to regularly review the outsourcing agreements with their third party service providers to take into account the latest security and technological developments in relation to the services provided. 18.49 Acquirers shall ensure data residing in third party service providers are recoverable in a timely manner. The acquirers shall ensure clearly defined arrangements with the third party service providers are in place to facilitate the acquirers’ immediate notification and timely updates to the Bank and other relevant regulatory bodies in the event of a cyber-incident. 18.50 Acquirers shall ensure the storage of their data is at least logically segregated from the other clients of the third party service providers. There shall be proper controls over and periodic review of the access provided to authorised users. 18.51 Acquirers shall ensure IT system hosted by third party service providers have adequate recovery and resumption capability and provisions to facilitate an orderly exit in the event of failure or unsatisfactory performance by the third party service providers. Cloud Services 18.52 Acquirers shall fully understand the inherent risk of adopting cloud services. In this regard, acquirers are required to conduct a comprehensive risk assessment prior to cloud adoption which considers the inherent architecture of cloud services that leverage on the sharing of resources and services across multiple tenants over the Internet. The assessment shall specifically address risks associated with the following – (a) sophistication of the deployment model; S S S S S S Merchant Acquiring Services Page 39 of 66 Issued on: 15 September 2021 (b) migration of existing systems to cloud infrastructure; (c) location of cloud infrastructure; (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 acquirers’ data following the termination; (i) demarcation of responsibilities, limitations and liability of the cloud service providers; and (j) ability to meet regulatory requirements and international standards on cloud computing on a continuing basis. 18.53 The risk assessment as outlined in paragraph 18.52 shall be documented and made available for the Bank’s review as and when requested by the Bank. 18.54 Acquirers shall demonstrate that specific risks associated with the use of cloud services for IT systems have been adequately considered and addressed. The risk assessment shall address the risks outlined in paragraph 18.52, as well as, the following areas – (a) the adequacy of the over-arching cloud adoption strategy of the acquirers including – (i) board oversight over cloud strategy and cloud operational management; (ii) senior management roles and responsibilities on cloud management; (iii) conduct of day-to-day operational management functions; (iv) management and oversight by the acquirers of cloud service providers; (v) quality of risk management and internal control functions; and (vi) strength of in-house competency and experience. S S Merchant Acquiring Services Page 40 of 66 Issued on: 15 September 2021 (b) the availability of independent, internationally recognised certifications of the cloud service providers, at a minimum, in the following areas – (i) information security management framework, including cryptographic modules such as used for encryption and decryption of user data; and (ii) cloud-specific security controls for protection of customer and counterparty or proprietary information including payment transaction data in use, in storage and in transit; (c) the degree to which the selected cloud configuration adequately addresses the following attributes – (i) geographical redundancy; (ii) high availability; (iii) scalability; (iv) portability; (v) interoperability; and (vi) strong recovery and resumption capability including appropriate alternate Internet path to protect against potential Internet faults. 18.55 Acquirers should consider the need for a third party pre-implementation review on cloud implementation that also covers the areas set out in paragraph 18.54. 18.56 Acquirers shall 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. G S Merchant Acquiring Services Page 41 of 66 Issued on: 15 September 2021 Access Control 18.57 Acquirers shall implement an appropriate access control policy for the identification, authentication and authorisation of users (internal and external users such as third party service providers). This shall address both logical and physical technology access controls, which are commensurate with the level of risk of unauthorised access to its technology systems. 18.58 In observing paragraph 18.57, acquirers should consider the following in accessing the 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 third party service providers; (d) employ segregation of incompatible functions to ensure that 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 G Merchant Acquiring Services Page 42 of 66 Issued on: 15 September 2021 18.59 Acquirers shall employ robust authentication processes to ensure the authenticity of identities in use. Authentication mechanisms shall commensurate with the criticality of the functions and adopt at least one or more of these three (3) 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). 18.60 Authentication methods that depend on more than one factor typically are more difficult to compromise than a single factor system. In view of this, acquirers are encouraged to properly design and implement (especially in high-risk or ‘single sign-on’ systems) multi-factor authentication (MFA) that is more reliable and provide stronger fraud deterrents. 18.61 Acquirers shall periodically review and adapt their password practices to enhance resilience against evolving attacks. This includes the effective and secure generation of passwords. There shall be appropriate controls in place to check the strength of the passwords created. 18.62 Acquirers are encouraged to adopt dedicated user domains for selected critical functions, separate from the broader enterprise-wide user authentication system. 18.63 Acquirers shall establish a user access matrix to outline access rights, user roles or profiles, and the authorising and approving authorities. The access matrix shall be periodically reviewed and updated. 18.64 Acquirers shall ensure the following — (a) access controls to enterprise-wide systems are effectively managed and monitored; and (b) user activities in IT systems are logged for audit and investigations. Activity logs shall be maintained for at least three (3) years and regularly reviewed in a timely manner. S G S S G S Merchant Acquiring Services Page 43 of 66 Issued on: 15 September 2021 18.65 In fulfilling the requirement under paragraph 18.64, large acquirers are encouraged 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 18.66 Acquirers shall ensure that the IT systems are not running on outdated systems with known security vulnerabilities or end-of-life (EOL) technology systems. In this regard, the acquirers shall 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. 18.67 Acquirers should 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 18.68 Acquirers shall 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; S G S G Merchant Acquiring Services Page 44 of 66 Issued on: 15 September 2021 (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. 18.69 Acquirers should implement controls to authenticate and monitor all financial transactions. These controls, at a minimum, should be effective in mitigating man-in- the-middle attacks, transaction fraud, phishing and compromise of application systems and information. Acquirers should deploy MFA technology and channels that are more secure than unencrypted short messaging service (SMS). 18.70 Acquirers shall ensure sufficient and relevant digital service logs are retained for investigations and forensic purposes for at least three (3) years. 18.71 Acquirers should ensure that the use of more advanced technology to authenticate and deliver digital services such as biometrics, tokenisation and contactless communication25 comply with internationally recognised standards where available. The technology should be resilient against cyber threats26 including malware, phishing or data leakage. 18.72 Acquirers should undertake a comprehensive risk assessment of the advanced technologies and the algorithms deployed in its digital services. Algorithms should be regularly reviewed and validated to ensure they remain appropriate and accurate. Where third party software is used, acquirers may rely on relevant independent reports provided that such reliance is consistent with the acquirers’ risk appetite and tolerance, and the nature of digital services provided by the acquirers which leverage on the technologies and algorithms. 25 Such as QR code, Bar Code, Near Field Communication (NFC), Radio Frequency Identification (RFID). 26 For example, in respect of QR payments, acquirers 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. S G G G Merchant Acquiring Services Page 45 of 66 Issued on: 15 September 2021 18.73 Acquirers should 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. 18.74 Acquirers should 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, acquirers should implement sufficient logical and physical safeguards for the following channels/devices – (a) payment acceptance device; (b) QR code; (c) Internet application; and (d) mobile application and devices. In view of the evolving threat landscape, these safeguards should be continuously reviewed and updated to protect against fraud and to secure the confidentiality and integrity of customer and counterparty information and transactions. 18.75 With respect to paragraph 18.74, acquirers should adopt the controls specified in the following Appendices for the respective digital delivery channel – (a) Appendix 4: Control Measures on Payment Acceptance Device; (b) Appendix 5: Control Measures on Internet Application; (c) Appendix 6: Control Measures on Mobile Application and Devices; and (d) Appendix 7: Control Measures on Quick Response Code. 19. Cybersecurity Management Cyber Risk Management 19.1 Acquirers should 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. 19.2 Acquirers shall develop a Cyber Resilience Framework (CRF), which articulates the acquirers’ governance for managing cyber risks, its cyber resilience objectives and G G S G G Merchant Acquiring Services Page 46 of 66 Issued on: 15 September 2021 its risk tolerance, with due regard to the evolving cyber threat environment. Objectives of the CRF includes ensuring operational resilience against extreme but plausible cyber-attacks. 19.3 The CRF should 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. The CRF should consist of, at a minimum, the following elements – (a) development of an institutional understanding of the overall cyber risk context in relation to the acquirers’ businesses and operations, their 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 acquirers’ 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 acquirers; (d) layered (defense-in-depth) security controls to protect 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 acquirers and participants in financial market infrastructure to strengthen cyber resilience. 19.4 In addition to the elements provided in paragraph 19.3 above, large acquirers are encouraged to — G G Merchant Acquiring Services Page 47 of 66 Issued on: 15 September 2021 (a) implement a centralised automated tracking system to manage their 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 should be responsible for the following – (i) perform detailed analysis on cyber threats, provide risk assessment on potential cyber-attacks and ensure timely review and escalation of all high-risk cyber threats to the board and senior management; and (ii) proactively identify potential vulnerabilities including those arising from infrastructure hosted with third party service providers through the simulation of sophisticated “Red Team” attacks on their current security controls. Cybersecurity Operations 19.5 Acquirers should establish clear responsibilities for cybersecurity operations which should include implementing appropriate mitigating measures in the acquirers’ 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. 19.6 Where relevant, acquirers should adopt the control measures on cybersecurity as specified in Appendix 8 to enhance its resilience to cyber-attacks. 19.7 Acquirers are encouraged to deploy effective tools to support the continuous and proactive monitoring and timely detection of anomalous activities in its technology G G G Merchant Acquiring Services Page 48 of 66 Issued on: 15 September 2021 infrastructure. The scope of monitoring should cover all critical systems including the supporting infrastructure. 19.8 Acquirers shall ensure that their cybersecurity operations continuously prevent and detect any potential compromise of their security controls or weakening of their security posture. For large acquirers, this shall include performing a quarterly vulnerability assessment of external and internal network components that support all critical systems. 19.9 Acquirers shall conduct annual penetration tests on their internal and external network infrastructure as well as IT 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. Acquirers shall engage suitably accredited penetration testers and third party service providers to perform this function. 19.10 In addition to the requirement in paragraph 19.9 above, large acquirers are encouraged to undertake independent compromise assessment on the technology infrastructure of their critical systems at least annually and ensure the results of such assessment are escalated to the board and senior management in a timely manner. 19.11 Acquirers shall establish standard operating procedures (SOP) for vulnerability assessment and penetration testing (VAPT) activities. The SOP shall outline the relevant control measures including ensuring the external penetration testers are accompanied on-premises at all times, validating the event logs and ensuring data purging. 19.12 Acquirers shall 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. G S S S S Merchant Acquiring Services Page 49 of 66 Issued on: 15 September 2021 Distributed Denial of Service (DDoS) 19.13 Acquirers should ensure their technology systems and infrastructure, including IT 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 service third party service provider to expand network bandwidth on-demand including upstream third party service provider capability, adequacy of the third party service 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) 19.14 Acquirers should 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, acquirers should – (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 should be implemented to safeguard and control third party access. This includes having in place adequate contractual agreements to protect the interests of the acquirers and their customers. 19.15 Acquirers should 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 should cover the following – (a) data in-use – data being processed by IT resources; G G G Merchant Acquiring Services Page 50 of 66 Issued on: 15 September 2021 (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. 19.16 Acquirers should 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) 19.17 Acquirers shall ensure their 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 acquirers 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 acquirers’ reviews of its cybersecurity posture and strategy. 19.18 The SOC should 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 G G Merchant Acquiring Services Page 51 of 66 Issued on: 15 September 2021 19.19 Acquirers should ensure that the SOC provides a regular threat assessment report, which should 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 acquirers, such reports should be provided on a monthly basis. 19.20 Acquirers are encouraged to subscribe to reputable threat intelligence services to identify emerging cyber threats, uncover new cyber-attack techniques and support the implementation of countermeasures. 19.21 Acquirers shall ensure the following – (a) the SOC is located in a physically secure environment with proper access controls; and (b) the SOC operates on a 24x7 basis with disaster recovery capability to ensure continuous availability. Cyber Response and Recovery 19.22 Acquirers shall 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. 19.23 Acquirers should establish and implement a comprehensive Cyber Incident Response Plan (CIRP). The CIRP shall 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; S S G G G Merchant Acquiring Services Page 52 of 66 Issued on: 15 September 2021 (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 acquirers, 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. 19.24 Acquirers should conduct an annual cyber drill exercise to test the effectiveness of their 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 should 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. 19.25 Acquirers shall immediately notify the Bank of any cyber-incidents affecting the institution. Upon completion of the investigation, the acquirers are also required to submit a report on the incident to the Bank. 19.26 Acquirers 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. 20. Technology Audit 20.1 Acquirers shall ensure that the scope, frequency and intensity of technology audits are commensurate with the complexity, sophistication and criticality of technology systems and applications. S S G G Merchant Acquiring Services Page 53 of 66 Issued on: 15 September 2021 20.2 The audit function shall be adequately resourced with relevant technology audit competencies and sound knowledge of the acquirers’ technology processes and operations. 20.3 Acquirers should ensure their technology audit staff are adequately conversant with the developing sophistication of the acquirers’ technology systems and delivery channels. 20.4 In addition to paragraph 20.2, large acquirers are expected to establish a dedicated technology audit function that has specialised technology audit competencies to undertake technology audits. 20.5 Acquirers shall 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 reviews of new or material enhancements of technology services. 20.6 The audit function (in the case of paragraph 20.2) and the dedicated technology audit function (in the case of paragraph 20.4) 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. 21. Internal Awareness and Training 21.1 Acquirers shall 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 shall be conducted at least annually by the acquirers and shall reflect the current cyber threat landscape. G S G S G S Merchant Acquiring Services Page 54 of 66 Issued on: 15 September 2021 21.2 Acquirers should 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. 21.3 Acquirers should provide their board members with regular training and information on technology developments to enable the board to effectively discharge its oversight role. PART E OTHER REQUIREMENTS 22. Other Compliance Requirements 22.1 Newly registered acquirers shall conduct a post-implementation review no later than six (6) months after the implementation of the acceptance of payment instruments. The review shall include the identification of issues, gaps, fraud incidents and implementation of action plans to resolve any shortcomings identified. 22.2 Acquirers shall notify the Bank in writing, to the Director of the department in charge of oversight/supervision of payment services on the following – (a) any proposed changes to their merchant acquiring services model which are significant or changes the risk profile of the business model, which includes but is not limited to any changes in target market, mode of payment acceptance, as well as, payment and settlement flow, by providing the details within thirty (30) days prior to the effective date of the proposed changes; and (b) any change in average MTV that would cause changes from recognition as a small to large acquirer or vice-versa, not more than sixty (60) days from such occurrence. 22.3 Acquirers shall submit the following to the Bank – (a) its annual audited financial statements not later than three (3) months after its financial year end in writing to the Director of the department in charge of oversight/supervision of payment services; S S S G G Merchant Acquiring Services Page 55 of 66 Issued on: 15 September 2021 (b) segmented financial reporting for merchant acquiring services only27 on a quarterly basis; (c) statistical report on the operation of its merchant acquiring services on a quarterly basis; and (d) any other information as required by the Bank. 22.4 The information required in paragraphs 22.3(b) and (c) shall be submitted to STATsmart Integrated Submission Portal on the 20th day of the following month. 27 Based on at least the acquirer’s management account and covering the acquirer’s merchant acquiring services only, if the acquirer also conducts other business activities. S Merchant Acquiring Services Page 56 of 66 Issued on: 15 September 2021 Appendix 1 COMPUTATION OF MINIMUM CAPITAL FUNDS Share capital which includes:  Paid-up ordinary shares/common stock  Paid-up irredeemable non-cumulative preference shares plus Reserves which includes:  Share premium  General reserve fund less Intangible Assets28 plus Retained Profit (or less Accumulated Losses) plus Audited Profit for the period (or less Unaudited Loss for the period) 28 Including goodwill, capitalised development costs, licenses and intellectual properties. Merchant Acquiring Services Page 57 of 66 Issued on: 15 September 2021 Appendix 2 MINIMUM REQUIREMENTS ON THE OUTSOURCING AGREEMENT The outsourcing agreement shall, at a minimum, provide for the following – (a) clearly defined roles and responsibilities as well as obligations of the service provider; (b) provisions to ensure that the service provider ensures security and confidentiality of information shared with the service provider at all times, including – (i) responsibilities of the service provider with respect to information security and confidentiality as well as scope of such information; (ii) for the service provider to be bound by confidentiality provisions stipulated under the contract even after the engagement has ended; (iii) for the service provider to maintain compliance with applicable security requirements and established security standards (e.g. Payment Card Industry Data Security Standard (PCI DSS)) at all times; (iv) provisions on corresponding liability obligations arising from a security breach attributable to the service provider; and (v) notification requirements in the event of a security breach; (c) clear provisions on access rights for the Bank or any party appointed by the Bank to examine or conduct audit on the activity conducted by the service provider or its sub-contractor for the acquirer. This shall include access to any system, record, information or data related to the acquirer, as well as rights to enter the premises of the service provider or its sub-contractor to conduct such examination or investigation; (d) continuous and complete access by the acquirer to its data held by the service provider in the event of a dispute with the service provider, or termination of the arrangement; (e) ability of the acquirer and its external auditor to conduct audits and on-site inspections on the service provider and its sub-contractors, and to obtain any report or finding made in relation to the outsourced activity; (f) dispute resolution process in the event of default or non-performance of obligations, including remedies and indemnities where relevant; (g) measures that the service provider would take to ensure continuity of the outsourced activity in the event of an operational disruption or failure on the part of the service provider; (h) conditions under which the outsourcing arrangement may be terminated, with sufficient time for an orderly transfer of the outsourced activity to the acquirer or another party; (i) allow the acquirer the right to modify or terminate the arrangement when the Bank issues a direction to the acquirer to that effect under the FSA; and (j) where relevant, terms governing the ability of the service provider to sub-contract to other parties, which will not dilute the accountability of the service provider. Merchant Acquiring Services Page 58 of 66 Issued on: 15 September 2021 The terms must include requirement for the sub-contractor to be bound by information confidentiality provisions even after the arrangement has ceased. Merchant Acquiring Services Page 59 of 66 Issued on: 15 September 2021 Appendix 3 STORAGE AND TRANSPORTATION OF SENSITIVE DATA IN REMOVABLE MEDIA Acquirers should ensure adequate controls and measures are implemented for the storage and transportation of sensitive data in removable media, including – 1) Deploying the 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) Shall there be a need to transport the removable media to a different physical location, acquirers 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; and (c) use strong and tamper-proof containers for storing the media with high- security lock (e.g. dual key and combination lock); 5) Ensuring third party service providers comply with the requirements in paragraphs 1 to 4 of this Appendix 3, in the event third party services are required in undertaking the storage management or transportation process of sensitive data in removable media. Merchant Acquiring Services Page 60 of 66 Issued on: 15 September 2021 Appendix 4 CONTROL MEASURES ON PAYMENT ACCEPTANCE DEVICE 1) Acquirers should ensure all relevant risks associated to the use of merchant’s payment acceptance device are mitigated, including but not limited to the following - (a) ensuring the payment acceptance devices are – (i) adequately hardened and securely configured using methods that ensure its integrity and authenticity; (ii) protected from tampering and cyber threats such as malware attacks, key logger, and etc; (iii) designed for the protection of PIN data; (iv) certified to be fully compliant with applicable security standards, e.g. PCI PIN Transaction Security (PCI PTS), Software-based PIN Entry on COTS (PCI SPoC), etc.; and (v) used solely as the payment acceptance device. (b) ensuring PIN entry process and cardholder verification method (CVM) applications are secured and protected against manipulation or sabotage; (c) providing guidance for merchants to ensure the PIN is entered in a way that it cannot be observed by an unauthorised party; (d) PIN data must be encrypted upon entry and remain encrypted when transmitted to protect against malicious activity and attacks; (e) ensuring data is protected at all times to prevent data leakage and no data is stored on the payment acceptance devices; (f) ensuring only dedicated merchant staff are allowed to perform system administration functions (e.g. performing correction) of the payment acceptance device; and (g) for PIN Entry on COTS – (i) ensuring PIN CVM applications run only on secured and supported versions of operating systems which have not been compromised, jailbroken or rooted i.e. the security patches are up-to-date; and (ii) use of automated monitoring and attestation system to detect potential compromise of payment acceptance devices and ensuring that all components in the payment acceptance devices are always in a secure state. Merchant Acquiring Services Page 61 of 66 Issued on: 15 September 2021 Appendix 5 CONTROL MEASURES ON INTERNET APPLICATION 1) Acquirers should ensure the adequacy of security controls implemented for Internet application, which include – (a) ensuring Internet application only runs on secured versions of web browsers that have continued developer support for security patches to fix any vulnerabilities; and (b) putting in place additional authentication protocols to enable customers to identify the acquirers’ genuine websites. Merchant Acquiring Services Page 62 of 66 Issued on: 15 September 2021 Appendix 6 CONTROL MEASURES ON MOBILE APPLICATION AND DEVICES 1) Acquirers should ensure digital payment services involving sensitive customer and counterparty information offered via mobile devices are adequately secured. This includes the following – (a) ensuring 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) designing the mobile application to operate in a secure and tamper-proof environment within the mobile devices. The mobile application shall 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 shall be centralised at the host; (c) undertaking proper due diligence processes to ensure the application distribution platforms used to distribute the mobile application are reputable; (d) ensuring proper controls are in place to access, maintain and upload the mobile application on application distribution platforms; (e) activation of the mobile application must be subject to authentication by the acquirers; (f) ensuring secure provisioning process of mobile application in the user’s device is in place by binding the mobile application to the user’s profile such as device ID and account number; and (g) monitoring the application distribution platforms to identify and address the distribution of fake applications in a timely manner. 2) In addition to the guidance above, acquirers should also ensure the following measures are applied specifically for applications running on mobile devices used by the acquirers, appointed parties 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; and (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 fraud29. 29 This includes risks associated with malwares that enable keystroke logging, PIN harvesting and other malicious forms of customer and counterparty information downloading. Merchant Acquiring Services Page 63 of 66 Issued on: 15 September 2021 Appendix 7 CONTROL MEASURES ON QUICK RESPONSE CODE 1) Ensure QR code authenticity which among others include – (a) QR codes are securely generated by host server, unique for each merchant/user/transaction, where dynamic QR codes should have reasonable expiry time; (b) block QR code application from operating on unsecured (e.g. rooted or jail- broken) devices; (c) any fake QR code shall be rejected upfront and the merchant/user shall be automatically notified of the authenticity of the scanned QR code; and (d) bind the QR code to the respective user or merchant ID and transaction amount. 2) Ensure QR codes do not contain any confidential data and are not stored in endpoint devices. 3) Ensure all relevant risks associated with the use of static QR codes at participating merchants are mitigated, including but not limited to the following – (a) all information from the scanned QR codes shall be transmitted to payment instrument’s host server for authentication; (b) educate merchants on fraud risk related to static QR codes and the preventive measures to effectively mitigate such risk (e.g. merchants shall regularly inspect the displayed static QR code to ensure it has not been tampered with); and (c) enforce masking of sensitive customer and counterparty information when displayed on mobile devices. Merchant Acquiring Services Page 64 of 66 Issued on: 15 September 2021 Appendix 8 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 including mobile and wireless 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). 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 Merchant Acquiring Services Page 65 of 66 Issued on: 15 September 2021 (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. Merchant Acquiring Services Page 66 of 66 Issued on: 15 September 2021 Appendix 9 EXAMPLES OF ARRANGEMENTS EXCLUDED FROM OUTSOURCING SCOPE For the purpose of paragraph 14, arrangements which entail procurement of services30, leveraging common industry-wide infrastructure driven by regulatory requirements, and involvement of third parties due to legal requirements, are generally not considered as outsourcing arrangements. These include – (a) services for the transfer, clearing and settlement of funds or securities provided by an operator of a designated payment system or an operator of an approved payment system under the FSA or IFSA; (b) global financial messaging network services provided by an operator that is owned by its member financial institutions and is subject to the oversight of relevant regulators; (c) independent consultancy service (e.g. legal opinions, tax planning and valuation); (d) independent audit assessment; (e) clearing and settlement arrangement between clearing houses and settlement institutions and their members; (f) agent banking; (g) trustee arrangement; (h) credit or market information services; (i) repair, support and maintenance of tangible asset; (j) purchase or subscription of commercially available software; (k) maintenance and support of licensed software; (l) marketing and advertising; (m) telecommunication, postal and courier service; (n) physical security, premise access and guarding services; and (o) catering, cleaning and event services. 30 Where an acquirer acquires services, goods or utilities, which are not expected to be performed by the acquirer. 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 GOVERNANCE 8. Effective Governance and Oversight PART C OPERATIONAL REQUIREMENTS 9. Minimum Capital Funds Requirements for Non-Bank Acquirers 10. Settlement Risk Management 11. Merchant Management 12. Fraud Risk Management 13. Business Continuity Management 14. Outsourcing 15. Arrangement with Parties Involved in Payment and Settlement Process 16. Appropriate Treatment for Merchants PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS 17. Technology Risk Management 18. Technology Operations Management 19. Cybersecurity Management 20. Technology Audit 21. Internal Awareness and Training PART E OTHER REQUIREMENTS 22. Other Compliance Requirements Appendix 1 COMPUTATION OF MINIMUM CAPITAL FUNDS Appendix 2 MINIMUM REQUIREMENTS ON THE OUTSOURCING AGREEMENT Appendix 3 STORAGE AND TRANSPORTATION OF SENSITIVE DATA IN REMOVABLE MEDIA Appendix 4 CONTROL MEASURES ON PAYMENT ACCEPTANCE DEVICE Appendix 5 CONTROL MEASURES ON INTERNET APPLICATION Appendix 6 Control Measures on Mobile Application and Devices Appendix 7 Control Measures on QUICK RESPONSE Code Appendix 8 Control Measures on Cybersecurity Appendix 9 EXAMPLES OF ARRANGEMENTS EXCLUDED FROM OUTSOURCING SCOPE

Public Notice

30 Jan 2021

Financial Consumer Alert update

https://www.bnm.gov.my/-/financial-consumer-alert-list-has-been-updated-jan2021

Reading: Financial Consumer Alert update Share: 13 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 2315 on Saturday, 30 January 2021 30 Jan 2021 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list: UK Trade Online Net Trade Global Trading Sdn Bhd Waheed Ventures New Tycoon Plus The list will be updated regularly for public's reference.  To view the updated list, click on this link. Bank Negara Malaysia 30 January 2021 © Bank Negara Malaysia, 2021. All rights reserved.

Public Notice

19 Jan 2021

RINGGIT Newsletter (Bil 1/2021 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil-1/2021-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/2342260/Ringgit_01_2021.pdf

Reading: RINGGIT Newsletter (Bil 1/2021 issue) is now available for download Share: 4 RINGGIT Newsletter (Bil 1/2021 issue) is now available for download Release Date: 19 Jan 2021 The highlight for this issuance is Pendidikan Kewangan Dalam Sistem Persekolahan. Other topics of interest include: Pendidikan Kewangan Melalui Lensa Anak Muda Kesihatan Kewangan Pekerja Gig Perlindungan bagi Pemegang Sijil Takaful dan Polisi Insurans RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue: Issue - Bil 1/2021 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A B I L . 1/2021 Perlindungan bagi Pemegang Sijil Takaful dan Polisi Insurans Kesihatan Kewangan Pekerja Gig Pendidikan Kewangan Melalui Lensa Anak Muda Sila imbas kod QR untuk muat turun Buletin Ringgit PERCUMA | PP 16897/05/2013 (032581) Pendidikan Kewangan Dalam Sistem Persekolahan Menyemai Nilai Murni Sejak Usia Muda Layari /amaranpenipuan https://www.bnm.gov.my/ http://www.fomca.org.my/v1/ https://www.facebook.com/amaranpenipuan/ Sesi persekolahan 2021 yang akan bermula tidak lama lagi sememangnya amat dinanti oleh semua. Masyarakat amat mengharapkan agar sesi persekolahan dapat berjalan dengan lancar pada tahun ini demi kesinambungan pendidikan generasi muda kita dalam membangunkan sahsiah mahupun untuk menyemai nilai murni dalam diri murid- murid. Antara nilai yang diketengahkan oleh Kementerian Pendidikan Malaysia termasuklah sederhana dalam berbelanja, jimat cermat, bijak buat keputusan, amanah, jujur, bertanggungjawab, rasional dan bersyukur. Nilai murni yang dipupuk akan seterusnya menjelmakan sikap yang baik dalam generasi akan datang. Antara wadah yang diguna pakai untuk memupuk nilai-nilai murni ini termasuklah melalui penerapan elemen celik kewangan dalam kurikulum sekolah. Bagi tujuan ini, murid- murid sekolah mula didedahkan dengan kemahiran dan ilmu yang berkaitan pendidikan kewangan seawal peringkat pra-sekolah, sekolah rendah sehingga sekolah menengah, di antara usia 5 hingga 17 tahun. Pendedahan pada usia sebegini adalah amat bertepatan dan tidaklah terlalu awal. Berdasarkan kajian yang dijalankan oleh Universiti Putra Malaysia1, kanak-kanak di Malaysia didapati telahpun menjalankan transaksi kewangan secara aktif pada usia 10 tahun. Antaranya, mereka telah menguruskan wang saku yang diberikan oleh ibu bapa dan mula membentuk tabiat kewangan seperti menyimpan dan berbelanja. Kanak-kanak ini juga mempunyai kesedaran tentang tabiat pengurusan kewangan ibu bapa mereka dan menyatakan ibu bapa mereka sebagai pengaruh utama dalam tabiat perbelanjaan mereka. Oleh itu, usaha oleh Kementerian Pendidikan Malaysia ini sememangnya amat bertepatan dan diharapkan akan dapat melahirkan masyarakat yang celik wang dan bijak dalam mengurus kewangan dengan bertanggungjawab. Usaha ini telah dijalankan secara sistematik dengan mengintegrasikan elemen pendidikan kewangan dalam Pendidikan Kewangan Dalam Sistem Persekolahan Menyemai Nilai Murni Sejak Usia Muda kurikulum persekolahan secara berperingkat sejak 2014. Proses ini lengkap sepenuhnya dengan pengenalan elemen kewangan dalam mata pelajaran baru tingkatan lima yang diperkenalkan pada tahun ini. Melalui kurikulum yang dibangunkan, pendidikan kewangan dilaksanakan semasa proses pengajaran dan pembelajaran merentasi tema, mahupun bidang atau tajuk yang bersesuaian dalam sesuatu mata pelajaran. Murid-murid didedahkan kepada elemen ini melalui mata pelajaran teras seperti Bahasa Melayu, Bahasa Inggeris, Matematik, Pendidikan Islam, Pendidikan Moral dan juga mata pelajaran elektif seperti Sains Rumah Tangga, Ekonomi, Perniagaan dan Prinsip Perakaunan. Pendedahan ini dapat mendidik murid tentang pengurusan kewangan peribadi seharian secara berhemat seperti berbelanja, menyimpan, meminjam, melabur dan dalam menguruskan risiko kewangan. Seterusnya, pengetahuan dan kemahiran pendidikan kewangan yang dipelajari di dalam bilik darjah ini diperkasakan pula melalui aktiviti ko-kurikulum. Kementerian Pendidikan Malaysia juga telah menjalankan pelbagai aktiviti dan inisiatif pendidikan kewangan yang melibatkan warga Kementerian Pendidikan Malaysia di peringkat pusat, negeri, daerah dan juga sekolah. Ini termasuklah penganjuran ceramah simpanan dan pelaburan, pertandingan pidato pelaburan, kuiz celik kewangan, ceramah pengurusan kewangan, pertandingan menulis esei, membina infografik dan aplikasi bertemakan pendidikan kewangan serta penyiaran Wacana Ilmu: Pengintegrasian Elemen Pendidikan Kewangan dalam Kurikulum Persekolahan. Sektor swasta, terutamanya penyedia perkhidmatan kewangan, juga menjalin kerjasama dengan pihak sekolah bagi memperkukuhkan ilmu pengetahuan, kemahiran dan keyakinan yang mantap dalam pengurusan kewangan peribadi murid. Aktiviti bertemakan pengurusan kewangan seperti ceramah berkaitan simpanan dan asas pengurusan kewangan, kuiz pendidikan kewangan, pertandingan melukis 1 Literasi, sosialisasi, tingkah laku dan kompetensi kewangan dalam kalangan kanak-kanak, Jurnal Pengguna Malaysia, Disember 2013. 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Maizatul Aqira Ishak Baskaran Sithamparam Nur Asyikin Aminuddin Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : [email protected] Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : [email protected] Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. komik pendidikan kewangan, aktiviti membuat tabung serta permainan interaktif pendidikan kewangan telah dijalankan secara bersemuka, mahupun atas talian. Pendekatan sebegini dapat mengukuhkan lagi penguasaan pengetahuan dan kemahiran kewangan yang dipelajari oleh murid sehingga berjaya mengubah tingkah laku mereka semasa melaksanakan aktiviti secara hands-on. Pembelajaran ilmu pendidikan kewangan merupakan proses yang berterusan dan tidak terhenti di sekolah sahaja, malahan perlu diteruskan di luar sekolah. Ibu bapa dan masyarakat umumnya disarankan agar dapat memainkan peranan masing- masing dalam menyokong usaha meningkatkan pengetahuan, kemahiran dan nilai dalam kalangan generasi muda. Ibu bapa dan masyarakat merupakan model kepada generasi muda dalam membentuk tabiat kewangan mereka. Oleh itu, mereka haruslah peka dengan inisiatif yang telah dilaksanakan ini dan memainkan peranan bagi memastikan pendidikan kewangan dapat diterapkan dalam generasi muda secara efektif. Janganlah mengambil sikap lepas tangan kepada pihak sekolah serta memandang enteng bahawa anak anda masih kecil dan tidak akan terkesan dengan tindak tanduk kewangan anda. Malahan, kajian Universiti Putra Malaysia juga mendapati kanak-kanak seringkali memperoleh maklumat tentang kewangan menerusi pemerhatian dan penglibatan secara tidak langsung dalam aktiviti seharian bersama keluarga. Sehubungan itu, ibu bapa perlu menunjukkan contoh yang baik kepada anak-anak dalam tabiat pengurusan kewangan termasuklah semasa membuat keputusan dalam pembelian mahupun transaksi pembayaran. FOMCA berpendapat bahawa pengetahuan tentang kewangan adalah aspek yang amat penting bagi pendidikan untuk generasi muda, terutamanya dalam fasa pembentukan diri mereka. Pendekatan pendidikan kewangan secara terancang dalam sistem pendidikan di Malaysia adalah satu usaha jangka panjang yang dapat menyemai nilai murni berkaitan pengurusan kewangan dalam diri. Pembelajaran tentang cara menyimpan, berbelanja dan hal-hal lain yang berkaitan dengan pengurusan kewangan dapat membantu mereka sebagai persiapan untuk menguruskan kewangan dengan lebih baik apabila dewasa kelak. Malahan, pendekatan ini juga membantu mereka untuk mendapatkan pendidikan dan mengamalkan tabiat kewangan yang lebih baik untuk mencapai matlamat kehidupan mereka pada masa hadapan. Oleh itu, FOMCA menyeru agar masyarakat Malaysia, terutamanya ibu bapa, dapat memberi sokongan kepada usaha ini demi membina masyarakat Malaysia yang celik kewangan dan mengamalkan tingkah laku kewangan yang sihat pada masa hadapan. Sumber: Kementerian Pendidikan Malaysia Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Buletin Ringgit. bil. 1/2021 | 3 Pengalaman mengajar di sekolah berkeperluan tinggi di seluruh Malaysia yang kebanyakan murid-muridnya daripada golongan berpendapatan rendah telah membuka mata empat orang guru muda untuk memperbaiki taraf kehidupan anak murid mereka. Impian tersebut telah mendorong guru-guru ini untuk menjalankan inisiatif bagi membina generasi celik kewangan. Tahap literasi kewangan seseorang individu akan memberi impak ke atas taraf kehidupan bukan sahaja pada murid itu sendiri, tetapi juga ahli keluarganya dalam jangka panjang. Dengan kesedaran ini, pada tahun 2019, sebuah program literasi kewangan Fun(d) for Life, yang berdasarkan konsep permainan simulasi kehidupan sebenar mula diperkenalkan. Di dalam program simulasi ini, para peserta berpeluang untuk mencuba membuat keputusan kewangan dalam kehidupan sebenar seperti: memilih pekerjaan, kawasan tempat tinggal, jenis kenderaan dan gaya hidup. Tidak ketinggalan, para peserta juga perlu mengambil kira faktor lain seperti bilangan anak, kos sara hidup anak, perlindungan takaful dan pelaburan simpanan yang mereka inginkan serta cabaran hidup seperti kemalangan, jatuh sakit atau kematian. Lebih kurang 100 orang peserta di kalangan murid sekolah rendah dan sekolah menengah seluruh Malaysia telah melalui simulasi permainan ini di mana mereka dapat merasai sendiri kesan pilihan mereka di sepanjang permainan ini. Pilihan yang dibuat di awal usia memungkinkan peserta melalui kehidupan yang selesa dengan keadaan tahap kewangan yang mampu untuk menampung kehendak hidup mereka di kemudian hari ataupun mereka mungkin jatuh bankrap dan diselubungi hutang. Setelah tamatnya simulasi permainan Fun(d) for Life ini, sahutan gembira bersilang kesalan sedih dapat dilihat di kalangan para peserta. Peserta juga dapat memahami “Alangkah seronoknya kalau kita diajar kemahiran kewangan sejak dari kecil lagi dalam satu pendekatan yang menarik sehingga dapat mempengaruhi tabiat pengurusan kewangan apabila dewasa kelak” Pendidikan Kewangan Melalui Lensa Anak Muda 4 | RINGGIT Tips! 1 Dapat mengenali dan mengira mata wang Malaysia. 2 Dapat membezakan antara keperluan dan kehendak. 3 Menyedari manfaat mempunyai wang simpanan. Lakukan aktiviti bersama yang ringkas dan seronok. Fokuskan didikan kewangan melalui visual atau aktiviti. Kurangkan terlalu banyak mengajar melalui kata-kata. Kemahiran Utama Yang Perlu Dipupuk Di Usia Ini Aktiviti Mudah Gunakan aktiviti “Kenali Duit Malaysia” kami sebagai inspirasi. Ajar beza semua jenis wang kertas & syiling Malaysia1 Terangkan apa yang perlu anda lakukan apabila tiba di kaunter pembayaran. Sebaiknya, gunakan wang tunai dan bukannya kad kredit atau debit supaya mereka boleh mengenali nilai wang. Libatkan anak anda semasa membeli barang keperluan1 Beri peluang anak anda memilih sesuatu barangan yang tidak bernilai tinggi di kedai atau restoran. Minta mereka membuat bayaran untuk barangan tersebut menggunakan wang kecil (RM1-RM5). Latih anak anda membeli barangan di kedai atau restoran 2 Pilih mainan di sekitar rumah anda dan letak “tanda harga” di atasnya. Ambil giliran untuk menjadi “pemilik kedai” atau “pelanggan”. Beri peluang untuk mereka berlatih membuat pengiraan harga yang betul sama ada sebagai pemilik kedai atau pelanggan. Bermain “Pasaraya Mama & Anak”3 Kanak-kanak di usia ini lebih senang mengikut apa yang kita lakukan berbanding dengan apa yang kita katakan. Mulakan tabung simpanan lutsinar untuk diri anda sendiri 4 Tonton video ini bersama-sama di Portal Fun(d) for Life (Kategori Murid > 7-9 tahun). Kongsikan apakah antara keperluan dan kehendak bagi diri anda sendiri. Tonton video “Perbezaan Keperluan & Kehendak"5 Galakkan anak anda menyimpan baki daripada wang saku harian atau duit raya. Gunakan tabung lutsinar untuk membantu melihat pertambahannya supaya dapat membakar semangat menabung anak anda. Galakkan tabiat menabung2 Pilih 10 barang sedia ada yang ada di dalam rumah. Minta anak anda untuk bahagikan barang-barang tersebut kepada kategori keperluan dan kehendak dan bincangkan pilihannya. Ajar beza antara keperluan & kehendak3 Ada Masa Ekstra? 2 + 9 = 11 abah adik www.fundfor.life Untuk mendapatkan lebih banyak tips & aktiviti kewangan menarik sesuai untuk mereka yang berusia 7 -18 tahun, layari: IbuBapa untuk Jika Anak Anda Berusia kepentingan literasi kewangan dan perlindungan takaful dalam membuat keputusan hidup. Ini telah membuktikan betapa berkesannya sebuah program literasi kewangan yang dapat mendidik peserta melalui cara yang interaktif dan seronok dengan keperluan pembelajaran di usia ini. Ekoran itu, sejak awal tahun 2020, program Fun(d) for Life kini telah dikembangkan lagi melalui www.fundfor.life, selaras dengan objektif program untuk membina generasi celik kewangan. Melalui program ini, faktor pengaruh luaran seperti ibu bapa dan guru juga diambil kira, di samping menyediakan kandungan secara langsung untuk murid berusia 7 hingga 18 tahun. Kandungan portal dibahagikan berdasarkan umur bagi menyampaikan maklumat kewangan yang bersesuaian dalam kategori Tonton, Main, Belajar dan Buat. Kategori Tonton menyediakan video seperti ‘Bezakan Keperluan & Kehendak’, manakala kategori Main menyediakan permainan seperti ‘Pak Pandir di Bandar’ atau ‘Simbol Mata Wang’. Selain itu, murid juga boleh Belajar melalui maklumat berbentuk infografik seperti ‘Gol-Gol Kewangan’ dan membuat aktiviti secara langsung melalui kategori Buat menggunakan panduan seperti ‘Mempelajari Cara Menggunakan Perkhidmatan Dalam Talian dengan Selamat’. Portal ini juga menyediakan komik berunsur kewangan yang menyelitkan kisah yang mencuit hati sambil mencapai objektif dalam memberi pendidikan kewangan. Sebuah siri video “Kecil-Kecil, Celik Duit” turut membincangkan topik dan persoalan duit daripada perspektif anak-anak muda dalam cara yang santai. Selain kandungan secara langsung untuk anak muda, portal ini menyediakan panduan aktiviti, tips dan kemahiran yang wajar diambil kira oleh ibu bapa mengikut usia anak mereka. Antara tip penting yang dikongsikan termasuklah memberikan peluang pada anak muda untuk melakukan urusniaga mudah sendiri di kedai seawal 7 tahun dan memperkasakan kemahiran hidup seperti kemahiran memasak, menjual dan menguruskan sesuatu. Kemahiran sebegini penting untuk menjadi asas dalam membina literasi kewangan di masa hadapan, selain mampu membantu anak-anak membina hobi yang produktif dan mungkin dapat menjana pendapatan kelak. Selain ibu bapa, guru juga merupakan pengaruh kuat kepada murid di usia ini. Selaras dengan Panduan Pelaksanaan Pendidikan Kewangan yang disediakan oleh Kementerian Pendidikan Malaysia, portal Fun(d) for Life juga menyediakan pelan pengajaran dan aktiviti berdasarkan enam elemen celik kewangan yang merentas empat mata pelajaran bagi sekolah rendah dan sekolah menengah: Bahasa Melayu, Matematik, Pendidikan Islam dan Pendidikan Moral. Dengan pendekatan interaktif, mudah dibaca dan diakses, program ini diharap dapat membantu membina generasi celik kewangan. Usaha ini juga memerlukan sokongan daripada pelbagai pihak, untuk mendidik anak-anak muda secara berterusan dengan topik pengurusan kewangan. Sumber: www.fundfor.life “Lebih kurang 100 orang peserta di kalangan murid sekolah rendah dan sekolah menengah seluruh Malaysia telah melalui simulasi permainan ini ...” bil. 1/2021 | 5 Seiring dengan transformasi teknologi yang pantas, peluang pekerjaan dalam sektor ekonomi gig mengalami pertumbuhan pesat dewasa ini. Malaysia yang sedang giat membangunkan ekonomi digital tidak terkecuali daripada perubahan drastik landskap ekonomi tersebut. Menurut laporan Kumpulan Wang Simpanan Pekerja, ekonomi gig berkembang 31% pada tahun 2017, mengalahkan tenaga kerja konvensional. Data Pertubuhan Buruh Antarabangsa (International Labour Organization) juga menunjukkan bahawa penduduk yang bekerja sendiri merangkumi 25% daripada 15 juta tenaga kerja di Malaysia pada tahun 2020, bersamaan dengan hampir empat juta orang. Pekerja gig adalah sebahagian daripada mereka yang dikategorikan sebagai bekerja sendiri. Memandangkan pertumbuhan yang pesat ini, Rancangan Malaysia ke-12 (2021-2025) akan memberi tumpuan khas kepada ekonomi gig sebagai salah satu teras utama ekonomi negara. Ekonomi gig didefinisikan sebagai sebuah model ekonomi berasaskan permintaan dan penawaran perkhidmatan jangka masa pendek atau berdasarkan tugasan, dengan dipacu aplikasi teknologi. Berbeza dengan pekerjaan konvensional yang tertakluk kepada kontrak pekerjaan jangka sederhana/ panjang, penjanaan pendapatan dalam sektor ekonomi gig adalah melalui kerja yang dapat diselesaikan dalam jangka pendek dan dengan kontrak kerja yang bersifat sementara serta terhad. Di samping itu, pekerja gig menikmati kebebasan untuk mengatur jadual kerja dan memilih pelanggan atau kerja, berbeza dengan pekerja konvensional yang mempunyai skop kerja dan jadual kerja yang tetap. Contoh pekerja gig termasuklah pemandu Grab yang menghantar pelanggan ke destinasi pilihan, rakan kerja foodpanda yang menghantar makanan kepada pelanggan, pemberi khidmat pembersihan yang diupah melalui aplikasi mudah alih untuk membersihkan rumah dan pengasuh kanak-kanak yang dipilih melalui aplikasi yang memadankan pengasuh dengan ibu bapa. Perkembangan ekonomi gig telah membuka peluang kepada orang ramai untuk menjana pendapatan di samping menikmati keanjalan waktu pekerjaan. Sifat ekonomi gig yang inklusif juga membolehkan penyertaan kumpulan yang mungkin dipinggirkan daripada bekerja dalam sektor ekonomi konvensional seperti wanita, belia, dan warga emas. Selain penjanaan peluang pekerjaan, perkembangan ekonomi gig turut mendatangkan impak positif terhadap pelbagai aspek kehidupan seharian kita, daripada pengangkutan dan santapan sehinggalah kepada urusan membeli barangan keperluan. Kesihatan Kewangan Pekerja Gig 6 | RINGGIT Kesihatan Kewangan Pekerja Gig Memandangkan pentingnya sektor ekonomi gig dalam m e m a c u p e r t u m b u h a n ekonomi negara, Kumpulan Wang Pembangunan Modal Pertubuhan Bangsa-Bangsa Bersatu (United Nations Capital Development Fund, UNCDF) telah menjalankan Tinjauan Kesihatan Kewangan Pekerja Gig2 yang meliputi empat platform gig di Malaysia (GoGet, FastJobs, Grab, dan foodpanda) pada Mac hingga Ogos 2020 untuk meneliti aspirasi dan kesihatan kewangan pekerja gig. Secara spesifik, kajian tersebut bertujuan untuk menilai tahap keselamatan dan daya tahan kewangan serta kemampuan menikmati kebebasan kewangan di kalangan pekerja gig. D a p a t a n k a j i a n U N C D F menunjukkan bahawa waktu kerja yang fleksibel, autonomi dalam menentukan jadual kerja dan memilih pelanggan/kerja, serta penjanaan pendapatan tambahan menjadi daya tarikan utama ekonomi gig di kalangan tenaga kerja yang memilih untuk menyertai sektor ekonomi tersebut. Namun, keanjalan yang ditawarkan ekonomi gig juga mengakibatkan pekerja gig berdepan dengan ketidaktentuan pendapatan dan tiadanya faedah pekerjaan, seperti cuti berbayar dan perlindungan kesihatan, yang menjadi dua punca utama kerisauan mereka. Kajian tersebut juga mendedahkan pelbagai cabaran kesihatan kewangan yang dihadapi oleh pekerja gig. 80% pekerja gig tidak dapat atau merasa sukar untuk menyediakan RM1,000 sekiranya berlaku kecemasan. Dapatan tersebut lebih tinggi, berbanding Kaji Selidik Keupayaan dan Rangkuman Kewangan Bank Negara Malaysia pada tahun 2018 yang menunjukkan bahawa 52% rakyat Malaysia merasa sukar untuk menyediakan RM1,000 bagi menangani kecemasan. Di samping itu, tiga daripada empat pekerja gig tidak mempunyai amalan menyimpan atau menabung hanya sekali- sekala, dan satu daripada dua pekerja gig mempunyai baki simpanan bawah RM500. Tinjauan Tingkah Laku Kewangan 2018 oleh Agensi Kaunseling dan Pengurusan Kredit turut memperolehi hasil kajian yang serupa, di mana hanya 29% daripada dewasa bekerja dapat menyimpan lebih daripada 10% daripada pendapatan mereka. Menurut pekerja gig yang tidak mempunyai amalan menyimpan secara berkala, dua punca utama mereka gagal menyimpan adalah sumber pendapatan terhad (64%) dan terjadinya perbelanjaan tidak terjangka yang menghalang mereka daripada menabung (57%). Dapatan kajian UNCDF juga menunjukkan bahawa walaupun majoriti pekerja gig menggunakan perkhidmatan kewangan peringkat asas seperti akaun simpanan biasa (84%), penggunaan produk kewangan yang lebih kompleks adalah terhad - insurans (25%), kad kredit (15%) dan produk pelaburan (10%). Selain itu, hanya 17% daripada pekerja gig mempunyai pinjaman dengan pihak bank, yang menandakan kesukaran akses pembiayaan di kalangan pekerja gig akibat daripada ketidakpastian pekerjaan mereka. 2 The Gig Economy and Financial Health - A snapshot of Malaysia and China’, Center for Financial Health, UNCDF and i3 Programme, December 2020 bil. 1/2021 | 7 Perkhidmatan Kewangan Digital untuk Pekerja Gig Memandangkan perkembangan trend pekerjaan dalam sektor ekonomi gig masih agak baru di Malaysia, aspek perlindungan sosial serta keselamatan kewangan yang lain untuk pekerja gig masih belum matang dan memerlukan perhatian khusus daripada semua pihak. Melalui kerjasama dengan beberapa rakan kongsi tempatan, UNCDF sedang melaksanakan beberapa in i s iat i f untuk meningkatkan taraf kesihatan kewangan pekerja gig di Malaysia melalui penawaran produk simpanan, pinjaman, perlindungan insurans, pelaburan, dan lain-lain perkhidmatan kewangan yang disesuaikan dengan keperluan unik pekerja gig. Selain itu, panduan untuk meningkatkan kesejahteraan kewangan melalui perkhidmatan seperti skor kredit percuma juga akan disediakan. Inisiatif-inisiatif tersebut diharapkan dapat membantu pekerja gig untuk menyimpan dan mengembangkan wang serta mencapai matlamat kewangan mereka di samping dapat mengurus risiko kewangan secara efektif. Sumber: United Nations Capital Development Fund (UNCDF) Pekerjaan Gig Pekerjaan Konvensional Kontrak dengan pengelola platform atau pengupah yang bersifat sementara dan terhad kepada kerja/projek masing-masing Kontrak pekerjaan dengan majikan yang mengikat untuk jangka sederhana/ panjang, daripada beberapa bulan hingga puluhan tahun lamanya Penjanaan pendapatan melalui kerja yang dapat diselesaikan dalam jangka pendek dan dengan waktu kerja yang fleksibel Skop kerja dan waktu kerja yang tetap seperti yang telah dipersetujui dalam kontrak pekerjaan dengan majikan Pendapatan tidak menentu dan tergantung kepada jenis dan jumlah kerja yang diselesaikan Pendapatan yang tetap seperti yang telah dipersetujui dalam kontrak pekerjaan dengan majikan Tiada faedah pekerja seperti cuti tahunan/umum/ sakit/bersalin berbayar, perlindungan kesihatan dan caruman skim persaraan wajib Faedah pekerja seperti cuti tahunan/umum/sakit/bersalin berbayar, perlindungan kesihatan, dan caruman skim persaraan wajib terjamin di sisi undang-undang Kebebasan mengatur jadual kerja sendiri serta memilih pelanggan dan/atau kerja/ projek yang ingin dikerjakan Jadual kerja, pelanggan yang dilayani, serta kerja/projek yang dikerjakan ditetapkan oleh majikan Simpanan dan Belanjawan Pinjaman Perancangan Temuan kajian UNCDF • 3 daripada 4 pekerja gig tidak mempunyai amalan menyimpan atau menabung hanya sekali-sekala. • 1 daripada 2 pekerja gig mempunyai baki simpanan bawah RM500. • 3 daripada 4 pekerja gigi meminjam wang daripada keluarga/rakan mereka apabila timbul keperluan. • Hanya 1 daripada 6 pekerja gig mempunyai pinjaman dengan bank. • 4 daripada 5 pekerja gig berasa sukar untuk menyediakan RM1,000 sekiranya berlaku kecemasan. • 3 daripada 4 pekerja gig tidak dilindungi mana-mana produk insurans. Ciri-ciri produk perkhidmatan kewangan yang dapat membantu pekerja gig • Memberi peringatan secara berkala kepada pekerja gig agar menyisihkan sejumlah daripada pendapatan mereka untuk tujuan simpanan, terutama pada saat mereka menerima wang pendapatan mereka. • Membantu pekerja gig membuat pelaburan walaupun dalam jumlah kecil untuk pulangan yang lebih tinggi berbanding akaun simpanan biasa. • Membantu menyimpan rekod kerja dan pendapatan bagi memenuhi syarat kelayakan pinjaman institusi kewangan berlesen. • Perkhidmatan pinjaman dalam jumlah kecil dan tanpa faedah atau dengan kadar faedah yang rendah. • Tempoh bayaran balik yang fleksibel dan dapat disusun semula sesuai dengan kemampuan dan keadaan kewangan semasa pekerja gig. • Produk insurans mikro yang menyediakan perlindungan untuk jangka pendek, sama ada harian, mingguan atau bulanan sesuai dengan keperluan pekerja gig. • Kadar premium yang terjangkau, dengan pembayaran hanya apabila perlindungan diperlukan. • Prosedur pembelian/pendaftaran dan kaedah pembayaran serta proses tuntutan yang mudah. Contoh penyedia perkhidmatan kewangan Perkhidmatan kewangan digital untuk pekerja gig 8 | RINGGIT Telekomunikasi kini telah menjadi keperluan asas bagi setiap pengguna di Malaysia tanpa mengira umur dan jantina. Ianya menjadi nadi untuk perhubungan, platform untuk transaksi membeli atau menempah barangan atas talian dan juga sumber penyebaran maklumat. Pada tahun 2019, sebanyak 4,950 aduan diterima daripada para pengguna terhadap perkhidmatan telekomunikasi di Malaysia. Salah satu masalah yang mendapat aduan paling tinggi adalah rungutan terhadap bil telekomunikasi yang mencatatkan sebanyak 17.11% atau 847 daripada jumlah aduan. Antara isu yang diketengahkan oleh para pengguna adalah caj yang dikenakan untuk perkhidmatan yang tidak dilanggani. Malah ada juga yang mengadu mereka masih dikenakan caj walaupun mereka sudah menamatkan perkhidmatan tersebut. Segelintir pengguna mengadu bahawa mereka terpaksa membayar kepada pihak penyedia perkhidmatan walaupun mereka tidak memerlukan perkhidmatan tersebut. Malahan, perkhidmatan yang ditawarkan seringkali terputus, mengalami gangguan jaringan atau liputan. Para pengguna juga tidak berpuas hati kerana mereka terpaksa membayar untuk perkhidmatan SMS yang diterima daripada pihak ketiga yang tidak langgani oleh pengguna. Aduan yang kedua tertinggi melibatkan kualiti perkhidmatan jaringan internet jalur lebar yang mencatatkan sebanyak 16% daripada jumlah aduan. Pengguna seringkali mengalami gangguan internet dan bayaran yang dikenakan untuk kelajuan data yang dilanggani tidak setimpal dengan perkhidmatan yang ditawarkan. Malahan, pengguna tidak dapat menggunakan perkhidmatan e-dompet kerana gangguan perkhidmatan internet di lokasi tertentu. Para pengguna yang membayar bil yang tinggi berasa terpedaya kerana mendapat perkhidmatan yang tidak setimpal dengan bayaran yang dikenakan. Di samping itu, perkhidmatan pelanggan pula menerima aduan sejumlah 10.51% daripada keseluruhan aduan. Rata-rata pengadu bersungut tentang perkhidmatan pelanggan yang mengambil masa yang terlalu lama. Malahan, terdapat juga situasi di mana tiada tindakan yang diambil sehingga pengguna perlu menunggu berbulan-bulan lamanya. Ada juga pengadu yang dimaklumkan bahawa tiada rekod aduan, walaupun aduan telah dibuat sebelumnya. Bagi kes sebegini, FOMCA menasihatkan para pengguna supaya sentiasa mencatatkan maklumat yang lengkap dengan siapa dan tarikh perbualan dengan penyedia perkhidmatan itu berlangsung. Simpan sebarang resit atau salinan borang untuk rujukan dan bukti sekiranya diperlukan kelak. Apabila pengguna mendapati perkhidmatan yang diberikan oleh sesebuah penyedia perkhidmatan telekomunikasi tidak memuaskan, mereka akan segera menamatkan perkhidmatan tersebut dan bertukar kepada penyedia perkhidmatan telekomunikasi yang baru. Walau bagaimanapun, proses ini bukanlah mudah memandangkan 8% daripada aduan yang diterima adalah mengenai penamatan perkhidmatan. Ada pengadu yang ingin menamatkan perkhidmatan dipaksa untuk membayar penalti walaupun alasan yang munasabah diberikan. Antaranya, pihak penyedia perkhidmatan tidak menerima alasan seperti liputan tidak begitu baik di kawasan tempat tinggal atau kerja, walaupun isu sebegini boleh diperiksa kesahihannya dengan mudah. Terdapat juga kes pengguna dikenakan bayaran walaupun perkhidmatan mereka sudah ditamatkan dengan alasan mereka tidak mempunyai surat yang mengesahkan penamatan perkhidmatan. Pengguna terpaksa menjelaskan bayaran yang tertunggak dan sekiranya tidak dijelaskan, rekod kredit pengguna berkemungkinan akan terjejas. FOMCA ingin mengingatkan para pengguna supaya menyimpan segala dokumen atau surat penamatan kontrak dengan baik untuk melindungi para pengguna daripada dikenakan bayaran tunggakan. Pihak Suruhanjaya Komunikasi dan Multimedia Malaysia (SKMM) juga harus lebih tegas dalam melindungi pengguna dengan mewajibkan semua penyedia perkhidmatan telekomunikasi untuk mengeluarkan surat penamatan kontrak sebaik saja pengguna menamatkan perkhidmatan telekomunikasi tersebut. Aduan mengenai perkhidmatan yang tidak dilanggani pula mencatatkan 7.78% daripada jumlah aduan. Pengguna mengadu bahawa mereka dikenakan bayaran untuk penambahan automatik (auto reload) dan juga nada panggilan yang mereka tidak langgani. Para pengguna juga dikenakan bayaran oleh penyedia perkhidmatan untuk SMS, permainan atas talian serta lain-lain perkhidmatan oleh pihak ketiga tanpa kebenaran para pengguna. Yang menghairankan, pihak ketiga boleh berurusan dengan pihak penyedia perkhidmatan tanpa bertanya pada pelanggan untuk mendapatkan nombor telefon pengguna. Pihak SKMM perlu memainkan peranan yang lebih penting dalam menjamin kepentingan para pengguna. SKMM perlu mengambil tindakan yang sewajarnya terhadap pihak ketiga yang mendapatkan nombor telefon tanpa kebenaran pengguna. FOMCA menasihatkan para pengguna supaya melaporkan kepada SKMM sekiranya mereka masih dikenakan bayaran untuk perkhidmatan yang tidak dilanggani. Aduan mengenai maklumat yang mengelirukan turut mencatatkan sebanyak 6% daripada jumlah aduan. Rata-rata pengguna mengadu iklan penyedia perkhidmatan mengelirukan pengguna dengan beberapa pakej untuk meningkatkan langganan mereka. Setelah pengguna melanggani pakej tersebut, mereka sedar maklumat yang terdapat dalam iklan adalah berlainan dengan maklumat yang terdapat dalam laman sesawang penyedia perkhidmatan. Selain itu, aduan mengenai tuntutan pemulangan bayaran dan isu kawasan liputan, masing-masing mencatatkan 5.78% dan 5.56% daripada jumlah aduan. FOMCA sangat mengharapkan agar pihak SKMM dapat mengawasi semua penyedia perkhidmatan telekomunikasi di Malaysia agar perkhidmatan yang mereka berikan adalah berkualiti dan setaraf dengan yuran bulanan yang dikenakan. Pengguna pula hendaklah memainkan peranan sebagai pengguna bijak dengan meneliti syarat pakej telekomunikasi yang ditawarkan dan melayari laman sesawang mereka terlebih dahulu sebelum membuat perjanjian langganan. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Suara Pengguna: Penyedia Perkhidmatan Telekomunikasi bil. 1/2021 | 9 Pengendali Takaful dan syarikat insurans kini semakin inovatif dengan menawarkan pelbagai pakej untuk disesuaikan dengan segmen masyarakat yang berbeza berdasarkan kepada keperluan dan pendapatan. Tujuan mereka adalah sama iaitu menyediakan perlindungan sekiranya berlaku sesuatu yang tidak dijangka. Tetapi bagaimana jika sesuatu yang tidak dijangka menimpa penyedia takaful atau insurans anda? Jangan khuatir! Perbadanan Insurans Deposit Malaysia (PIDM) menyediakan perlindungan automatik kepada pemilik polisi insurans dan sijil takaful di bawah Sistem Perlindungan Manfaat Takaful dan Insurans untuk manfaat yang layak sehingga RM500,000 sekiranya ahli penginsurans PIDM muflis. Ahli penginsurans PIDM terdiri daripada syarikat insurans yang dilesenkan di bawah Akta Perkhidmatan Kewangan (FSA) 2013 dan pengendali takaful yang dilesenkan di bawah Akta Perkhidmatan Kewangan Islam (IFSA) 2013. Untuk layak mendapat perlindungan, sijil takaful atau polisi insurans mesti dikeluarkan di Malaysia oleh ahli penginsurans dan didenominasi dalam Ringgit Malaysia. Jadual di bawah menunjukkan contoh manfaat takaful atau insurans yang dilindungi PIDM: Tuntutan pihak ketiga yang layak, dividen tunai, anuiti/ pendapatan persaraan, pendapatan hilang upaya dan bayaran balik sumbangan/premium prabayar juga dilindungi. Manfaat yang dilindungi di bawah sijil atau polisi seseorang individu, dan sijil atau polisi kumpulan dikira secara berasingan dalam mencapai had maksimum, dengan itu menambah nilai manfaat bagi pemilik sijil dan polisi. Selain daripada itu, manfaat takaful dan insurans yang sama dengan ahli penginsurans berbeza juga dilindungi secara berasingan. Manfaat Yang Dilindungi Had Maksimum Kematian dan manfaat berkaitan RM500,000 Hilang upaya kekal RM500,000 Penyakit kritikal RM500,000 Perbelanjaan perubatan 100% daripada perbelanjaan yang ditanggung Nilai serahan RM500,000 Kehilangan atau kerosakan kepada harta benda RM500,000 bagi setiap harta Perlindungan bagi Pemegang Sijil Takaful dan Polisi Insurans 10 | RINGGIT Berdasarkan jadual, jumlah yang dilindungi adalah RM700,000 kerana amaun yang diinsuranskan oleh Polisi Kemalangan Peribadi dan Polisi Hayat Encik Lim dengan XYZ Insurance digabungkan berdasarkan kepada “penginsurans, pemilik polisi, peristiwa risiko dan orang diinsuranskan yang sama”. Sekiranya Encik Lim ingin mendapatkan perlindungan penuh bagi manfaat takaful atau insuransnya, beliau boleh membeli sijil takaful atau polisi insurans daripada ahli penginsurans yang berbeza. PIDM melindungi manfaat takaful dan insurans anda sekiranya sesebuah ahli penginsurans muflis dengan dua cara: • PIDM akan membuat pembayaran bagi manfaat yang dilindungi kepada pemilik sijil atau polisi apabila berlaku tuntutan, kematangan atau serahan sijil takaful atau polisi insurans. Sebarang tuntutan adalah tertakluk kepada syarat-syarat dan had yang dinyatakan dalam kontrak takaful atau polisi. • PIDM juga boleh menguruskan pemindahan sijil takaful atau polisi insurans daripada ahli penginsurans yang muflis kepada ahli penginsurans lain bagi memastikan kesinambungan perlindungan bagi pemilik sijil takaful atau polisi insurans. Walaupun anda tidak perlu memohon atau membayar untuk mendapatkan perlindungan PIDM, adalah penting untuk mengetahui batasan had dan manfaat, supaya anda boleh membuat pilihan yang tepat mengenai produk takaful dan insurans. Untuk mengetahui sama ada sesebuah syarikat insurans atau pengendali takaful adalah ahli PIDM, semak untuk tanda keahlian PIDM. Senarai ahli penginsurans PIDM juga boleh didapati di laman web PIDM. Hubungi PIDM untuk maklumat lanjut tentang PIDM dan sistem perlindungan yang ditadbir di talian 1800-88-1266 atau layari www.pidm.gov.my. Sumber: Perbadanan Insurans Deposit Malaysia (PIDM) Polisi Kemalangan Peribadi Kumpulan Polisi Hayat Polisi Kemalangan Peribadi Pemilik Polisi Syarikat A Encik Lim Encik Lim Syarikat insurans XYZ Insurance XYZ Insurance XYZ Insurance Peristiwa risiko Kematian Kematian Kematian Orang yang diinsuranskan Encik Lim Encik Lim Encik Lim Jumlah yang diinsuranskan RM200,000 RM300,000 RM300,000 Amaun yang dilindungi oleh PIDM RM200,000 Terhad pada RM500,000 Jumlah yang dilindungi oleh PIDM RM700,000 Jadual di bawah menerangkan perkara ini dengan lebih lanjut: “Manfaat yang dilindungi di bawah sijil atau polisi seseorang individu, dan sijil atau polisi kumpulan dikira secara berasingan dalam mencapai had maksimum, dengan itu menambah nilai manfaat bagi pemilik sijil dan polisi.” bil. 1/2021 | 11 . PERLINDUNGAN FINANCIAL NETWORK F E N EDUCATION . . MAMPU 8: MUDAH Bijak Wang Pilihan Saya PERLINDUNGAN YANG MAMPU DAN MUDAH UNTUK SEMUA Perlindungan Tenang menawarkan perlindungan kepada pemegang polisi serta keluarga dalam menghadapi peristiwa yang tidak dijangka JADIKAN PERLINDUNGAN TENANG SEBAHAGIAN DARIPADA PENGURUSAN KEWANGAN PERIBADI ANDA MUDAH MAMPU I Mudah difahami I Premium/caruman _ Bayaran tuntutan serendah RM1.00 sebulan terus kepada I Pelan boleh diperbaharui pemegémg ponsi setiap tahun atau penama PROSES TUNTUTAN F E R , "G YANG MUDAH & RINGKAS ' n Tuntutan yanfl Ilcienrjlglégg) akan dibayar dalam tempo hari bekerja SENANG UNTUK DIBELI/DISERTAI - -; _ I Beli terus daripada syarikat insurans / pengendali takaful, melalui internet atau wakil I Juga boleh didapati di cawangan bank terpilih, kaunter Pos Malaysia dan melalui syarikat pengendali telefon mudah alih PERLINDUNGAN TENANG MENYEDIAKAN JARINGAN KESELAMATAN KEWANGAN MAMPU MILIK UNTUK ANDA SEISI KELUARGA Untuk maklumat Ianjut, sila Iayari www.mycoverage.my Sumber: Jaringan Pendidikan Kewangan (FEN) Infografik Bernama

Public Notice

30 Dec 2022

Exposure Draft on Medical and Health Insurance/Takaful Business

https://www.bnm.gov.my/-/ed-mhit-dec2022

https://www.bnm.gov.my/documents/20124/948107/ED-MHIT-202212.pdf

Reading: Exposure Draft on Medical and Health Insurance/Takaful Business Share: 6 Exposure Draft on Medical and Health Insurance/Takaful Business Embargo : For immediate release Not for publication or broadcast before 1100 on Friday, 30 December 2022 30 Dec 2022 This exposure draft sets out the Bank’s proposed requirements and guidance in carrying on the medical and health insurance/takaful (MHIT) business. The proposals seek to address developments in the MHIT business as well as to promote more innovative, inclusive and sustainable MHIT business models to better respond to the needs of consumers and the prevailing operating environment. The Bank invites written feedback on this exposure draft, including clarifications and/or alternative proposals. Feedback should be supported by clear rationales and appropriate evidence where relevant. Licensed ITOs are also expected to respond to the specific questions in this exposure draft. All submissions should be submitted to [email protected] by 15 March 2023. Submissions received may be made public unless confidentiality is specifically requested for the whole or any part of the submission. In preparing your feedback, you may direct any queries to [email protected].   Issuance Date 30 December 2022 Issuing Department Financial Development and Innovation Applicability Licensed insurers Licensed takaful operators Document Exposure Draft on Medical and Health Insurance/Takaful Business   Bank Negara Malaysia 30 December 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

30 Dec 2022

Policy Document on Electronic Money (E-Money)

https://www.bnm.gov.my/-/pd-emoney

https://www.bnm.gov.my/documents/20124/943361/PD-eMoney-202302.pdf, https://www.bnm.gov.my/documents/20124/943361/FAQ-eMoney-202212.pdf, https://www.bnm.gov.my/documents/20124/943361/FS-eMoney-202212.pdf

Reading: Policy Document on Electronic Money (E-Money) Share: 44 Policy Document on Electronic Money (E-Money) Embargo : For immediate release Not for publication or broadcast before 1000 on Friday, 30 December 2022 30 Dec 2022 This policy document sets out Bank Negara Malaysia (BNM)’s regulatory requirements and guidance for electronic money issuer (EMI) approved pursuant to section 11 of the Financial Services Act 2013 (FSA) or the Islamic Financial Services Act 2013 (IFSA). The policy document outlines requirements aimed to: ensure the safety and reliability of e-money issued by EMI; and preserve customers’ and merchants’ confidence in using or accepting e-money for the payment of goods and services. Supplementing this, BNM has issued a Feedback Statement to address the key feedback and proposals received during the consultation period and Frequently Asked Questions (FAQs) to enhance public understanding of the requirements and clarify interpretation issues in implementing the requirements of the E-Money policy document. See more: Policy Document Feedback Statement Frequently Asked Questions   Bank Negara Malaysia 30 December 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Electronic Money (e-Money) Policy Document Issued on: 30 December 2022 BNM/RH/PD 029-57 Electronic Money (E-Money) Applicable to: Approved issuers of e-money Electronic Money Issued on: 30 December 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 ......................................... 7 7 Policy documents superseded ..................................................................... 8 PART B GOVERNANCE ............................................................................................ 9 8 Governance arrangements .......................................................................... 9 9 Board of directors ......................................................................................... 9 10 Senior management ....................................................................................12 11 Control function ...........................................................................................14 12 Shariah governance ....................................................................................17 13 Fit and proper ..............................................................................................18 PART C OPERATIONAL AND RISK MANAGEMENT REQUIREMENTS .............. 19 14 Local incorporation ......................................................................................19 15 Minimum capital funds for non-bank EMI ....................................................19 16 Safeguarding of funds .................................................................................19 17 Business continuity management ...............................................................20 18 Outsourcing arrangement ...........................................................................21 19 Fraud risk management ..............................................................................26 20 Account management .................................................................................29 21 White labelling .............................................................................................31 22 Other business or activity ............................................................................32 23 Specific requirements for registered merchant acquirers ............................34 24 Exit plan ......................................................................................................34 25 Winding down or cessation of e-money business .......................................36 26 Prohibitions .................................................................................................37 PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS ............................ 38 27 Technology risk management .....................................................................38 28 Technology operations management ..........................................................39 29 Cybersecurity management ........................................................................55 30 Technology audit .........................................................................................60 31 Internal awareness and training ..................................................................61 Electronic Money Issued on: 30 December 2022 PART E REGULATORY PROCESS ........................................................................ 62 32 Approval and notification .............................................................................62 33 Submission requirements............................................................................62 34 Membership in the Financial Ombudsman Scheme ....................................63 APPENDICES ............................................................................................................. 64 Appendix 1 Criteria for eligible EMI ......................................................................64 Appendix 2 Limited purpose e-money ..................................................................65 Appendix 3 Responsibilities of board committees ................................................67 Appendix 4 Computation of capital funds .............................................................68 Appendix 5 Examples of arrangements excluded from the scope of outsourcing .69 Appendix 6 Minimum requirements on the outsourcing agreement ......................70 Appendix 7 Other exit triggers ..............................................................................72 Appendix 8 Storage and transportation of sensitive data in removable media .....73 Appendix 9 Control measures on mobile application and devices ........................74 Appendix 10 Control measures on QR code ..........................................................75 Appendix 11 Control measures on cybersecurity ...................................................76 Electronic Money 1 of 76 Issued on: 30 December 2022 PART A OVERVIEW 1 Introduction 1.1 E-money serves as a payment instrument that can be used to make payments for purchases of goods and services to merchants who accept e-money as a mode of payment. E-money users may also send or receive funds to or from another user’s e-money or bank account, respectively, through person-to-person (P2P) fund transfer service if the e-money issuer (EMI) is allowed to offer such service. 1.2 Over the past decade, e-money has evolved and grown significantly due to the proliferation of mobile technology such as Quick Response (QR) codes and mobile applications (apps), digitalization of financial services and shift in consumer behaviour. In addition, the form of e-money has evolved from the traditional stored value cards to network-based solutions such as online accounts or e-wallets. 1.3 Due to the growing prominence of e-money in the financial landscape, enhancements to the e-money regulatory framework are needed to ensure e- money continues to be a safe and reliable payment instrument amid the advancement in functionalities and evolution in the enabling technology. This is important to ensure the safety of the e-money funds1 and the soundness of EMI to manage potential risk of loss to customers, hence fostering continued public confidence in the use of e-money. 1.4 This policy document outlines requirements aimed to– (a) ensure the safety and reliability of e-money issued by EMI; and (b) preserve customers’ and merchants’ confidence in using or accepting e- money for the payment of goods and services. 2 Applicability 2.1 This policy document is applicable to EMI as defined in paragraph 5.2. 2.2 Notwithstanding paragraph 2.1, an EMI that only issues e-money described in Appendix 2 (known as limited purpose EMI) is not subject to this policy document except for paragraph 15, Policy Document on Anti-Money Laundering, Counter Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) as well as relevant requirements pursuant to FSA and IFSA. 1 As reflected in the outstanding e-money liabilities. Electronic Money 2 of 76 Issued on: 30 December 2022 3 Legal provisions 3.1 The requirements in this policy document are specified pursuant to– (a) sections 47(1), 123(1) and 143 of the FSA; and (b) sections 29(2), 57(1), 135(1) and 155 of the 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 30 December 2022, except for paragraphs 15, 16.2 to 16.4, 18, 19.6 to 19.15, 27, 28, 29, 30 and 31 which come into effect on 30 December 2023. 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 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; “active politician” refers to an individual 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, in or outside Malaysia; “affiliate”, in relation to an entity, refers to any corporation that controls, is controlled by, or is under common control with, the entity; “Bank” refers to Bank Negara Malaysia; Electronic Money 3 of 76 Issued on: 30 December 2022 “banking institution” refers to a licensed bank, a licensed Islamic bank, and a prescribed institution as defined under the Development Financial Institutions Act 2002 (DFIA); “business continuity management” or “BCM” refers to an enterprise-wide framework that encapsulates policies, processes and practices that ensure the continuous functioning of an EMI during an event of disruption. It also prepares the EMI to resume and restore its operations and services in a timely manner during an event of disruption, thus minimising any material impact to the EMI; “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 an EMI’s 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; “counterparty information” refers to any information relating to the affairs or the account of any counterparty of the EMI; “credit transfer” refers to a payment service which allows a payor to instruct the institution at which the payor’s bank account or e-money account is held to transfer funds to a beneficiary in another bank account or e-money account, irrespective of any underlying obligation between the payor and the beneficiary. For the avoidance of doubt, any reference to “credit transfer” in this policy document shall include a reference to both a fund transfer transaction and a purchase transaction regardless of the technology used to facilitate the transaction including QR code; “critical system” refers to any application system that supports the provision of EMI services, where failure of the system has the potential to significantly impair the EMI’s provision of financial services to customers or counterparties, business operations, financial position, reputation, or compliance with applicable laws and regulatory requirements; “cross-selling” refers to an act of an EMI offering to its customers either complementary or related financial products or services. This includes an EMI acting as an agent to provide the financial products or services; “customer” or “user” refers to any person to whom e-money has been issued or any person who uses e-money to make payment or any other transaction allowed by EMI; Electronic Money 4 of 76 Issued on: 30 December 2022 “customer information” refers to any information relating to the affairs or the account of any customer of the EMI in whatever form including in the form of a record, book, register, correspondence, other document or material; “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 services delivered to customers via electronic channels and devices including internet and mobile devices, self-service terminals and point-of-sale terminals; “electronic money” or “e-money” refers to any payment instrument or Islamic payment instrument, whether tangible or intangible, that– (a) stores funds electronically in exchange of funds paid to the issuer; and (b) is able to be used as a means of making payment to any person other than the issuer; “eligible EMI” refers to an EMI described in Appendix 1; “e-money issuer” or “EMI” refers to any person approved by the Bank under section 11 or section 15(1)(e) of the FSA or section 11 of the IFSA to issue e- money; “executive director” refers to a director of an EMI who has management responsibilities in the EMI or any of its affiliates; “Financial Ombudsman Scheme (FOS)” refers to a scheme that functions as an alternative dispute resolution channel to resolve disputes between financial institutions and consumers. The Ombudsman for Financial Services (OFS) is the operator of the FOS approved by the Bank pursuant to section 126(2) of the FSA and section 138(2) of the IFSA; “independent director” refers to a director who is described as being independent in accordance with paragraph 9.14; “internal control framework” refers to the set of rules and controls governing an EMI’s organisational and operational structure, including reporting processes and control functions; Electronic Money 5 of 76 Issued on: 30 December 2022 “licensed bank” refers to any person licensed under section 10 of the FSA to carry on banking business; “licensed Islamic bank” refers to any person licensed under section 10 of the IFSA to carry on Islamic banking business and includes a licensed international Islamic bank; “limited purpose EMI” refers to an EMI that issues e-money described in Appendix 2; “material outsourcing arrangement” refers to an outsourcing arrangement which– (a) in the event of a service failure or security breach, has the potential to significantly impact EMI’s provision of financial services to customers, business operations, financial position, reputation, or compliance with applicable laws and regulatory requirements; (b) involves customer information where in the event of unauthorised access, disclosure, modification, loss or theft of the information, has a material impact on the customer or EMI; or (c) where the arrangement involves control functions or customer funds management. “material technology project” refers to projects which involve critical systems, the delivery of essential services to customers or counterparties, or compliance with regulatory requirements; “merchant” refers to a person or an entity that accepts e-money for sale of goods or services; “non-bank EMI” refers to an EMI which is not a licensed bank, licensed Islamic bank, or a prescribed institution as defined under the DFIA; “OTP” or “one-time password” refers to an alphanumeric or numeric code represented by a minimum of six characters or digits which is valid only for single use to validate a specific transaction; “outsourcing arrangement” refers to an arrangement in which a service provider performs an activity on behalf of EMI on a continuing basis2, where the activity would otherwise be undertaken by the EMI but does not include activities set out in Appendix 5; 2 For the avoidance of doubt, an agreement which is time-bound does not preclude the activity from being considered as being performed on a continuing basis. Electronic Money 6 of 76 Issued on: 30 December 2022 “outstanding e-money liabilities” refers to– (a) the unutilised amount of e-money which has been issued; and (b) the utilised amount of e-money which is pending payment to merchants; “payment instrument” refers to any instrument, whether tangible or intangible, that enables a person to obtain money, goods or services or to make any payment; “production data centre” refers to any facility which hosts active critical production application systems irrespective of location; “purchase transaction” refers to any transaction between a customer and a merchant for the purchase of goods and services; “registered merchant acquirer” refers to any person who is registered by the Bank pursuant to sections 17(1) and 18 of the FSA to provide merchant acquiring services and fulfils the criteria under paragraph 2.1 of the policy document on Merchant Acquiring Services as amended from time to time; “risk-based authentication” refers to a dynamic and data-driven authentication method, where information about each transaction is evaluated to determine the transaction’s risk in order to prevent fraud and provide better customer experience; “senior management” refers to the Chief Executive Officer (CEO) and senior officers; “senior officer” refers to a person, other than the CEO or a director, having authority and responsibility for planning, directing or controlling the activities of an EMI, including the Chief Operating Officer, Chief Financial Officer, members of decision-making committees and other persons performing key functions such as risk management, compliance or internal audit; “service provider” refers to an entity, including an affiliate, providing services to an EMI under an outsourcing arrangement; “shareholder” refers to any person who holds an aggregate of 5% or more interest in shares3 of an EMI; 3 Interest in shares shall be construed as set out in section 2(1) and Schedule 3 of the FSA or IFSA. Electronic Money 7 of 76 Issued on: 30 December 2022 “Shariah compliant e-money” refers to any designated Islamic payment instrument that is structured based on appropriate Shariah contracts, whether tangible or intangible, that– (a) stores funds electronically in exchange of funds paid to the issuer; and (b) is able to be used as a means of making payment to any person other than the issuer; “standard EMI” refers to an EMI other than an eligible EMI; “sub-contractor” refers to any entity, including an affiliate, which performs the whole or a part of the outsourced activity for the primary service provider; “technology service provider” refers to a 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 EMI or its customers. This includes cloud computing software, platform and infrastructure service providers; “wallet limit” refers to the maximum monetary value that can be stored in an e- money; and “white labelling” refers to an arrangement between an EMI and a partner or other entity to allow such partner or entity to offer e-money to their customers under their own brand, while the ultimate responsibility remains with the EMI in managing the e-money funds and operations. 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 issued by the Bank, as amended from time to time, in particular– (a) Policy Document on Anti-Money Laundering, Counter Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs); (b) Guidelines on Complaints Handling; (c) Policy Document on Fair Treatment of Financial Consumers; (d) Policy Document on Fit and Proper Criteria for Approved Person; (e) Guidelines on Product Transparency and Disclosure; (f) Policy Document on Management of Customer Information and Permitted Disclosures; (g) Policy Document on Interoperable Credit Transfer Framework; (h) Policy Document on Merchant Acquiring Services; Electronic Money 8 of 76 Issued on: 30 December 2022 (i) Policy Document on Risk-Based Authentication for Online Payment Card Transaction; (j) Policy Document on Payment Cards Framework; (k) Policy Document on Risk Management in Technology (RMiT); (l) Policy Document on Electronic Know-Your-Customer (e-KYC); (m) Policy Document on Business Continuity Management; (n) Policy Document on STATsmart Reporting Requirements on Data Submission for Reporting Entities; (o) Policy Document on Wakalah; (p) Policy Document on Wadi’ah; (q) Policy Document on Qard; and (r) Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on E- Money as a Shariah Compliant Payment Instrument. 7 Policy documents superseded 7.1 This policy document supersedes the following documents on the corresponding dates shown below– Documents Date superseded Guideline on Electronic Money (E-money) issued on 31 July 2008 (except paragraphs 8.5 to 8.8 and 10.2 (a), (b), (c), (d), (e), 10.3 and 10.4). 30 December 2022 Paragraphs 8.5 to 8.8, 10.2 (a), (b), (c), (d), (e), 10.3 and 10.4 of the Guideline on Electronic Money (E-money) issued on 31 July 2008. 30 December 2023 Paragraph 11.2 and paragraph 12 of the policy document on Interoperable Credit Transfer Framework issued on 23 December 2019. 30 December 2022 (only as much as it is applicable to non- bank EMIs) Electronic Money 9 of 76 Issued on: 30 December 2022 PART B GOVERNANCE 8 Governance arrangements S 8.1 An EMI shall establish appropriate governance arrangements, which are effective and transparent, to ensure the continued integrity of its e-money scheme, which include, among others, the following– (a) a board of directors (the board) and senior management that consists 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 Board of directors S 9.1 The board responsibilities outlined in this policy document shall be read together with section 56 of the FSA and section 65 of the IFSA. S 9.2 The board must have a board charter that sets out the mandate, responsibilities and procedures of the board and its committees (if any), including the matters reserved for the board’s decision. S 9.3 The board has the overall responsibility for promoting the sustainable growth and financial soundness of an EMI, and for ensuring reasonable standards of fair dealing, without undue influence from any party. This includes consideration of the long-term implications of the board’s decisions on the EMI and its customers, employees, officers and the general public. In fulfilling this role, the board must– (a) approve the risk appetite, business plans and other initiatives which would, individually or collectively, have a material impact on the EMI’s risk profile4; (b) oversee the selection, performance, remuneration and succession plans of the CEO, control function heads and other members of senior management, such that the board is satisfied with the collective competence of senior management to effectively lead the operations of the EMI; (c) oversee the implementation of the EMI’s governance framework and internal control framework, and periodically review whether these remain appropriate in light of material changes to the size, nature and complexity of the EMI operations; 4 This would include initiatives, which affect the financial soundness, reputation or key operational controls of the EMI. Electronic Money 10 of 76 Issued on: 30 December 2022 (d) promote, together with senior management, a sound corporate culture within the EMI, which reinforces ethical, prudent and professional conduct and behaviour; (e) oversee and approve business continuity plans, as well as exit plan, and ensure such plans are updated, particularly as and when there are material changes to the size, nature and complexity of the EMI operations that can significantly affect the said plans; and (f) promote timely and effective communication between the EMI and the Bank on matters affecting or that may affect the safety and soundness of the EMI. S 9.4 The chairman, in leading the board, is responsible for the effective overall functioning of the board. In fulfilling this role, the chairman must– (a) ensure that appropriate procedures are in place to govern the board’s operations; (b) ensure that decisions are taken on a sound and well-informed basis, including by ensuring that all strategic and critical issues are considered by the board, and that directors receive the relevant information in a timely manner; (c) encourage healthy discussion and ensure that dissenting views can be freely expressed and discussed; and (d) lead efforts to address the board’s developmental needs. S 9.5 For the board of an EMI approved by the Bank under section 15(1)(e) of the FSA or section 11 of the IFSA, the overall responsibility outlined in paragraph 9.3 includes the responsibility to promote Shariah compliance in accordance with requirements set out under paragraph 12 and to ensure its integration with the EMI business and risk strategies. Board appointments S 9.6 A director must fulfil the minimum requirements set out in paragraphs 9.7 to 9.8 at the time of his appointment and on a continuing basis throughout the appointment period. S 9.7 An EMI shall only appoint as its director, a person who is not disqualified under section 59(1) of the FSA or section 68(1) of the IFSA, and has been assessed by the EMI to have complied with the fit and proper requirements specified by the Bank. S 9.8 A director of an EMI must not be an active politician. Electronic Money 11 of 76 Issued on: 30 December 2022 Composition of the board S 9.9 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. S 9.10 An EMI shall ensure board members collectively possess the necessary skill sets or business knowledge required to effectively support the board. These criteria and skill sets shall be reviewed regularly by the board to ensure alignment with the strategic direction of, and emerging challenges faced by the EMI. S 9.11 The chairman of the board must be a non-executive director. S 9.12 An EMI5 shall ensure no less than two-thirds of the board members are non- executive directors. S 9.13 For an eligible EMI, no less than one-third of the board members shall be independent directors. S 9.14 The board must determine whether an individual to be appointed as an independent director is independent in character and judgment, and free from associations or circumstances that may impair the exercise of his independent judgment. An individual must not be considered to be an independent director if he– (a) is or had been an executive director in the EMI or any of its affiliates in the last two (2) years; (b) is a substantial shareholder, or acting on behalf of the substantial shareholder, of the EMI or any of its affiliates; or (c) had a significant business or other contractual relationship with the EMI or any of its affiliates in the last two (2) years. S 9.15 For the purpose of paragraph 9.14, the board must clearly define what constitutes a “significant business or other contractual relationship”, taking into account the nature, size and complexity of the EMI’s operations. Board meetings S 9.16 The board must meet regularly, whereby the number and frequency of board meetings must commensurate with the size and complexity of the EMI’s operations, to review the EMI’s performance, including the status of its compliance with regulatory requirements and to deal with any issues pertaining to the operations of the EMI. 5 For the avoidance of doubt, this requirement applies to all eligible and standard EMI. Electronic Money 12 of 76 Issued on: 30 December 2022 S 9.17 A director must devote sufficient time to prepare for and attend board meetings and maintain a sound understanding of the business of the EMI, as well as, relevant market and regulatory developments. S 9.18 In respect of the quorum for board meetings, an EMI must require at least half of the board members to be present. S 9.19 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. The minutes must indicate whether any director abstained from voting or excused himself from deliberating on a particular matter. S 9.20 For eligible EMIs, a director must attend at least 75% of the board meetings held in each financial year. Board committees (applicable to eligible EMIs only) S 9.21 At a minimum, an eligible EMI shall establish the following board committees– (a) board audit committee; and (b) board risk management committee. G 9.22 An eligible EMI may combine its board audit committee and board risk management committee. S 9.23 Each board committee shall– (a) not be chaired by the chairman of the board; (b) have at least three (3) directors of the EMI as members of the board committee; (c) have at least one-third of independent directors of the EMI as members of the board committee; and (d) be chaired by an independent director. S 9.24 For purposes of paragraphs 9.23(b) and (c), the directors shall be among those who have the skills, knowledge and experience relevant to the responsibilities of the board committee. S 9.25 Each board committee shall have its Terms of Reference and shall assume the specific responsibilities enumerated for it in Appendix 3. 10 Senior management S 10.1 An EMI shall only appoint as its senior management, a person who is not disqualified under section 59(1) of the FSA or section 68(1) of the IFSA, and has Electronic Money 13 of 76 Issued on: 30 December 2022 been assessed by the EMI to have complied with the fit and proper requirements specified by the Bank. S 10.2 An eligible EMI shall not appoint its substantial shareholder as its senior management. This serves to preserve an appropriate separation between ownership and management of an EMI in line with the broader responsibilities of EMIs towards its customers and merchants. S 10.3 A CEO must devote the whole of his professional time to the service of the EMI and shall have his principal or only place of residence within Malaysia unless the Bank approves otherwise in writing under section 55(3) of the FSA and section 64(3) of the IFSA. S 10.4 An EMI that is involved in other business or activity, other than issuing e-money, shall appoint a dedicated senior officer with relevant expertise and experience to assume the role of the Head of e-money business. S 10.5 The senior management of an EMI 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; (ii) due diligence and oversight to manage arrangements with service providers supporting the e-money operations; (iii) sufficient and timely reporting or escalation of issues to the board; (b) overseeing the formulation and effective implementation of any business or strategic plan, including the strategic technology plan and associated technology policies and procedures; (c) robust decision making processes with adequate consideration on customers’ interests; and (d) a robust assessment is conducted to approve any deviation from policies and procedures, including technology-related policies. Material deviations must be reported to the board. S 10.6 The senior management shall consist of individuals with the appropriate skill set and experience to support and manage the e-money business. This includes individuals with technology background to provide guidance on the EMI’s technology plans and operations. S 10.7 For the purpose of paragraph 10.6, an eligible EMI shall ensure that a designated staff who does not engage in day-to-day technology operations shall be responsible for the identification, assessment and mitigation of technology risks. Electronic Money 14 of 76 Issued on: 30 December 2022 11 Control function G 11.1 The board and senior management are encouraged to create an environment, which- (a) ensures that the EMI and its officers comply with legal and regulatory requirements; (b) adopts relevant risk management practices; and (c) encourages ethical conduct that underlies the legal and regulatory requirements. S 11.2 The board is responsible for overseeing the management of an EMI’s control function. The board shall– (a) ensure an effective risk management framework that is appropriate to the nature, scale and complexity of its activities is in place; (b) ensure that the control functions are established and sufficiently resourced, with the officers6 accorded with appropriate stature, authority and independence; (c) ensure the appointment of officers who have adequate working knowledge in e-money business and the legal and regulatory framework, and can effectively support the EMI’s internal control framework; (d) provide the relevant officers with direct and unimpeded access to the board; and (e) where the risk management officer and compliance officer is the same person or performs the responsibilities of other control functions except for internal audit, be satisfied that a sound overall control environment will not be compromised by the combination of responsibilities performed by the officer. S 11.3 The senior management is collectively responsible for the effective management of an EMI’s internal control framework. In discharging this responsibility, senior management shall– (a) establish a written policy for the control function and ensure that it is kept up to date; (b) establish a control function commensurate with the size, nature of operations and complexity of the EMI, having regard to the requirements in paragraphs 11.4 to 11.17; (c) provide sufficient resources for the control function, including officers with the appropriate competencies and experience; (d) ensure that the person performing the control function is kept informed of any organisational developments to facilitate the timely identification of compliance risk; 6 Compliance, risk management and internal audit officer. Electronic Money 15 of 76 Issued on: 30 December 2022 (e) report to the board regularly on compliance or risk issues, and promptly on any material incidents of non-compliance; and (f) report to the board at least annually on the effectiveness of the EMI’s overall compliance and risk management. S 11.4 An EMI shall organise its control function in a manner that allows compliance and risk management to be managed effectively, taking into account the size, nature of operations and complexity of the EMI’s business. S 11.5 The control function must be independent of business lines in order to carry out its role effectively. As such, an EMI must ensure that the control function is not placed in a position where there are real or potential conflicts in respect of its scope of responsibilities, reporting lines or remuneration. S 11.6 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. S 11.7 Where two or more control function responsibilities (excluding internal audit) are performed by one officer, the said officer must ensure that his independence, ability to provide sufficient time, focus and commitment to his responsibilities in respect of the control function are not impaired. Compliance S 11.8 The compliance officer shall identify and assess the compliance risk associated with an EMI’s activities. This requires the compliance officer to have adequate knowledge and exposure to key business processes of the EMI and keep up to date with material changes in the EMI’s business. S 11.9 The compliance officer must report to senior management on a regular basis the findings and analyses of compliance risk. The report shall include at a minimum– (a) the results of the compliance risk assessment undertaken during the assessment period, highlighting key changes in the compliance risk profile of an EMI, as well as, areas where greater attention by senior management would be needed; (b) a summary of incidents of non-compliance and deficiencies in the management of compliance risk in various parts of the EMI; (c) an assessment of the impact (both financial and non-financial) of such incidents of non-compliance and deficiencies on the EMI (for example, fines, administrative enforcement or disciplinary actions taken by any regulatory authority against the EMI or its officers); Electronic Money 16 of 76 Issued on: 30 December 2022 (d) recommendations of corrective measures to address incidents of non- compliance and deficiencies in the management of compliance risk; and (e) a record of corrective measures already taken and an assessment of the adequacy and effectiveness of such measures. S 11.10 The compliance officer shall ensure that the reports referred to in paragraph 11.9 are readily available to the internal audit function of the EMI, the Bank and other relevant regulatory authorities upon request. Risk management S 11.11 An EMI shall establish a risk management framework that enables the identification, measurement, and continuous monitoring of all relevant and material risks. The framework shall be supported by a robust management information system (MIS) that facilitates timely and reliable reporting of risks. S 11.12 An EMI shall establish risk monitoring and reporting requirements, which include the development and use of key risk indicators to provide early warnings on adverse risk developments to ensure the EMI is able to manage and mitigate its risks in a timely manner. S 11.13 The risk management officer must report to the board and senior management on a regular basis on the assessment of material risks affecting the EMI and ensure the material risks are mitigated and periodically monitored. The report must be readily available to the internal audit function of the EMI, the Bank and other regulatory authorities upon request. Internal Audit S 11.14 An EMI shall ensure that there is clear separation of the internal audit function and other control functions, e.g. compliance and risk management function. S 11.15 Compliance and risk management functions and the framework for such functions shall be included in the risk assessment methodology of the internal audit function, and an audit programme that covers the adequacy and effectiveness of the compliance and risk management functions’ responsibilities shall be established, including testing of controls commensurate with the perceived level of risk. S 11.16 The internal audit function shall report regularly to the board and senior management on the effectiveness and adequacy of the risk management and compliance functions and assess whether the said functions are working effectively. Electronic Money 17 of 76 Issued on: 30 December 2022 S 11.17 The internal audit function shall inform senior management, including the compliance or risk management officer, of any incidents of non-compliance or material risks that it discovers. 12 Shariah governance S 12.1 Paragraphs 12.2 to 12.8 shall only apply to EMIs approved by the Bank under section 15(1)(e) of the FSA or section 11 of the IFSA. S 12.2 An EMI that issues Shariah compliant e-money shall comply with the rulings of the Shariah Advisory Council of Bank Negara Malaysia and relevant Shariah standards issued by the Bank. S 12.3 The board shall be responsible for ensuring the EMI’s Shariah compliant e- money complies with Shariah at all times. S 12.4 Senior management shall ensure the operationalisation of Shariah compliant e-money complies with Shariah at all times. S 12.5 An EMI that issues Shariah compliant e-money shall appoint a qualified individual, a company or an existing Shariah committee7 within its group affiliate as a Shariah advisor, who is responsible to provide objective and sound advice to ensure that the EMI complies with Shariah at all times. S 12.6 For purposes of paragraph 12.5, the individual Shariah advisor or the representative of a company appointed as the Shariah advisor of an EMI shall– (a) be a Muslim individual; (b) not be an active politician; (c) hold a bachelor’s degree in Shariah, which includes study in Usul Fiqh (principles of Islamic jurisprudence) or Fiqh Muamalat (Islamic transaction/commercial law); and (d) possess solid knowledge in Shariah with reasonable knowledge and experience in Islamic finance. S 12.7 An EMI shall notify the Bank in writing on– (a) new appointment of the Shariah advisor within fourteen (14) days from the date of such appointment; or (b) existing appointment of the Shariah advisor within fourteen (14) days from the effective date of this policy document. S 12.8 An EMI must ensure the robustness of its internal control functions for effective management of Shariah non-compliance risk. This shall include, but is not limited to, the EMI conducting an annual assessment on the compliance of its 7 Which has been approved by the Bank under section 31 of the IFSA. Electronic Money 18 of 76 Issued on: 30 December 2022 Shariah compliant e-money issued by it with the relevant Shariah requirements. 13 Fit and proper S 13.1 An EMI shall ensure its directors, CEO and individual Shariah advisor are people with calibre, credibility, integrity, and fulfil the fit and proper criteria as stipulated in the policy document on Fit and Proper Criteria for Approved Person as amended from time to time8. S 13.2 Where the Shariah advisor appointed is a company, an EMI shall ensure that the company’s executive director, senior management and representative of a company appointed as the Shariah advisor of an EMI fulfil the fit and proper criteria as stipulated in the policy document on Fit and Proper Criteria for Approved Person as amended from time to time. 8 For the avoidance of doubt, references to “key responsible persons” in the policy document on Fit and Proper Criteria for Approved Person as amended from time to time, shall be deemed to include references to a “Shariah Advisor” for purposes of this policy document. Electronic Money 19 of 76 Issued on: 30 December 2022 PART C OPERATIONAL AND RISK MANAGEMENT REQUIREMENTS 14 Local incorporation S 14.1 An EMI shall be a company incorporated under the Companies Act 2016. 15 Minimum capital funds for non-bank EMI S 15.1 A non-bank EMI shall maintain the required minimum amount of capital funds as prescribed by the Bank under section 12(1) of the FSA and IFSA. S 15.2 For purposes of paragraph 15.1, the required minimum capital funds shall be computed in accordance with Appendix 4. 16 Safeguarding of funds S 16.1 An EMI shall ensure any funds collected in exchange of e-money issued are maintained separately in a separate account from other funds be it the EMI’s working capital or any funds maintained for the EMI’s other business or activity. S 16.2 A non-bank EMI shall deposit the funds collected in exchange of e-money issued in a trust account with a banking institution after receiving it from a customer in accordance with the following requirements– (a) the trust account shall be established in accordance with the Trustee Act 1949; (b) the funds can only be used for the following– (i) refund to customers; (ii) payment to merchants for settlement of transaction conducted by the customer, including for repayment of any advance settlement by relevant intermediaries (e.g. payment system operator, acquirer) involved in making the payment to merchants; or (iii) payment to another e-money account or bank account arising from a credit transfer transaction conducted by the customer. (c) the funds can only be invested in high quality liquid ringgit assets, which are limited to– (i) deposits placed with banking institutions; (ii) debt securities issued or guaranteed by the Federal Government or the Bank; (iii) Cagamas debt securities; and (iv) other instruments as may be specified by the Bank; Electronic Money 20 of 76 Issued on: 30 December 2022 (d) any revenue earned from the investment of the funds in the trust account can only be used for activities specified under paragraph 16.2(b) unless the funds are in excess of the total outstanding e-money liabilities; and (e) payment for any costs, charges and expenses incurred in connection with the administration of the trust account can be made from the trust account only if the balance in the trust account after deduction of the cost, charges and expenses is sufficient to cover all outstanding e-money liabilities. S 16.3 A non-bank EMI shall ensure that funds in the trust account are at all times sufficient to cover the total outstanding e-money liabilities. G 16.4 Where a non-bank EMI’s total outstanding e-money liabilities are greater than the funds in the trust account, a non-bank EMI is encouraged to deposit funds into the trust account within one (1) working day to ensure paragraph 16.3 is complied with. G 16.5 Notwithstanding paragraph 16.2, a non-bank EMI with total outstanding e- money liabilities of less than RM1 million may safeguard the funds collected in exchange of e-money issued using– (a) a bank guarantee; or (b) other methods subject to the following conditions: (i) effectiveness of the method must be at par with a bank guarantee or trust account; and (ii) the non-bank EMI obtains the Bank’s prior written approval. G 16.6 An EMI is recommended to spread out the placement of the funds received in exchange of e-money issued, in bank accounts maintained at several banking institutions to mitigate risk exposure to any single banking institution. S 16.7 A non-bank EMI shall ensure that it has sufficient liquidity for its daily operations. At a minimum, an EMI shall maintain a liquidity ratio9 of one (1). 17 Business continuity management10 S 17.1 The board and senior management are responsible for ensuring identification and implementation of an effective BCM framework within the EMI. S 17.2 An EMI must 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 9 Liquidity ratio refers to current ratio of the EMI (i.e. current asset / current liabilities). 10 For the avoidance of doubt, eligible EMIs and EMIs that are banking institutions shall comply with the requirements under the policy document on Business Continuity Management as amended from time to time. Electronic Money 21 of 76 Issued on: 30 December 2022 (b) assess the likelihood of the identified threats occurring and determine the impact on the EMI. G 17.3 For purposes of paragraph 17.2, the EMI is encouraged to carry out a business impact analysis (BIA) on an annual basis and whenever there are material changes to the EMI’s business activity, as this forms the foundation of developing the business continuity plan (BCP). S 17.4 An EMI shall determine the maximum tolerable downtime (MTD) and recovery time objectives (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. S 17.5 An EMI shall develop an effective BCP and disaster recovery plan (DRP) for at least all critical business functions. S 17.6 To ensure the comprehensiveness of its BCM, an EMI shall ensure its service provider has an effective BCP and DRP, and implements relevant safeguards to ensure continuity of the material outsourcing arrangements, with the objective to minimise the EMI’s business disruptions. S 17.7 The BCP and DRP of an EMI and its service provider must be tested regularly to ensure the functionality and effectiveness of the recovery strategies and procedures, preparedness of staff and other recovery resources. 18 Outsourcing arrangement S 18.1 An EMI shall remain responsible and accountable for any services outsourced to a service provider under an outsourcing arrangement. S 18.2 An EMI shall obtain the Bank’s prior written approval before– (a) entering into a new material outsourcing arrangement; or (b) making material changes to an existing material outsourcing arrangement. S 18.3 For the purpose of paragraph 18.2, in assessing whether an outsourcing arrangement is material, an EMI shall take into consideration the following factors: (a) significance of the outsourcing activity in facilitating the EMI to achieve its strategic and business objectives; (b) impact on the EMI’s continuing ability to meet its obligations to its customers and counterparties in the event the service provider fails to provide the service or encounters a breach of data confidentiality or security; Electronic Money 22 of 76 Issued on: 30 December 2022 (c) aggregate exposure to a particular service provider in cases where the EMI, including any affiliates, outsources multiple activities to the same service provider; or (d) 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. S 18.4 The board shall review and approve any new material outsourcing arrangement considered by the EMI or any material changes to an existing material outsourcing arrangement, before the proposal is submitted to the Bank for approval. S 18.5 Prior to entering into any outsourcing arrangement, an EMI shall, at a minimum, ensure the following– (a) availability of sufficient expertise within the EMI to oversee and manage11 the outsourcing relationship; and (b) the scope and nature of services and operations to be outsourced would not compromise the controls and risk management of the EMI services. An EMI shall ensure the following– (i) the outsourcing of such processes does not take away the critical decision making function of the EMI; (ii) the outsourcing of such processes does not threaten strategic flexibility and internal control framework of the EMI; (iii) the outsourcing of such processes would not impair the reputation, integrity and credibility of the EMI; and (iv) processes are in place for the EMI to retain the continuous ability to comply with the regulatory and supervisory requirements on the outsourced functions. S 18.6 An EMI shall have a contingency plan or arrangements to secure business continuity in the event the outsourcing arrangement is suddenly terminated. This is to mitigate any major business disruption that may occur as a result of the termination of the outsourcing arrangement. The contingency plan shall be reviewed from time to time to ensure that the plan is current and ready for implementation in the event of sudden termination of the outsourcing arrangement. 11 For the avoidance of doubt, an EMI may leverage on group resources to meet this requirement provided there is a clear mandate that the function of the shared group service includes the oversight of affiliates’ outsourcing arrangements, and that access to these group resources is always available upon the EMI’s request for internal use or for supervisory purposes. Electronic Money 23 of 76 Issued on: 30 December 2022 S 18.7 An EMI shall require the service provider to report to the EMI and the EMI shall monitor the service provider to ensure that the integrity and quality of work conducted by the service provider is maintained. S 18.8 An EMI shall ensure periodic independent reviews are conducted on the outsourced arrangement to monitor the performance of service providers. The reviews shall be done either by the EMI’s internal and/or external auditors, or independent reports shall be made available by the service providers, with the same scope of review as if the said operations are conducted in-house. S 18.9 An EMI shall ensure that any weaknesses highlighted during the review under paragraph 18.8 are well documented and promptly rectified by the service provider, especially where such weaknesses may affect the integrity of the internal controls of the EMI. Assessment of service provider S 18.10 An EMI shall conduct appropriate due diligence of a service provider at the point of considering new outsourcing arrangements, and upon renewing or renegotiating existing arrangements. The due diligence must cover, at a minimum– (a) capacity, capability, financial strength and business reputation. This includes an assessment whether the service provider is a going concern and has strong governance structures to manage the outsourced activity throughout the duration of the arrangement; (b) risk management and internal control capabilities, including physical and IT security controls, and BCM. This includes the ability of the service provider to respond to service disruptions or problems resulting from natural disasters and physical or cyber-attacks, within an appropriate timeframe; (c) the location of the outsourced activity (e.g. city and country), including primary and back-up sites; (d) access rights of the EMI and the Bank to the service provider; (e) measures and procedures to ensure data protection and confidentiality; (f) reliance on sub-contractors, if any, in particular where the sub-contracting adds further complexity to the operational chain of the outsourcing arrangement; (g) undue risks12 resulting from similar business arrangements, if any, between the service provider and the EMI; (h) the extent of concentration risk to which the EMI is exposed with respect to a single service provider and mitigation measures to address this 12 For instance, concentration risk to a systemic service provider in the industry or where the service provider’s fee structure or relationship with the EMI may create potential conflict of interest issues. Electronic Money 24 of 76 Issued on: 30 December 2022 concentration. This does not apply to a service provider that is an affiliate and is supervised by a financial regulatory authority; and (i) ability of the service provider to comply with relevant laws, regulations and requirements in this policy document. S 18.11 In performing due diligence on an affiliate, an EMI shall make an objective assessment of the affiliate’s ability to perform the outsourced activity guided by the considerations listed in paragraph 18.10. S 18.12 An EMI shall ensure that the outcomes of the due diligence process are well- documented and included in the outsourcing arrangement proposal to the board, for approval. Outsourcing agreement S 18.13 An EMI shall ensure that the outsourcing arrangement is governed by a written agreement that is legally enforceable and shall include the minimum requirements specified in Appendix 6. S 18.14 The outsourcing agreement must also contain provisions which– (a) enable the Bank to have direct, timely and unrestricted access to the systems and any information or documents relating to the outsourced activity; (b) enable the Bank to conduct on-site supervision of the service provider where the Bank deems necessary; (c) enable the Bank to appoint an independent party to perform a review of the relevant systems, information or documents of the service provider relating to the outsourced activity, where the Bank deems necessary; and (d) allow the EMI the right to modify or terminate the arrangement when the Bank issues a direction to the EMI to that effect under the FSA or IFSA, as the case may be. Protection of data confidentiality S 18.15 An EMI shall ensure that appropriate controls are in place and are effective in safeguarding the security, confidentiality and integrity of any information shared with the service provider. In meeting this requirement, an EMI shall ensure that– (a) information disclosed to the service provider is limited to the extent necessary to provide the contracted service, and only on a need-to-know basis; (b) all locations (e.g. city and country) where information is processed or stored by the service provider, including back-up locations, are made known to the EMI; Electronic Money 25 of 76 Issued on: 30 December 2022 (c) where the service provider is located, or performs the outsourced activity outside Malaysia, the service provider is subject to data protection standards that are at a minimum comparable to Malaysia; (d) where the service provider provides services to multiple clients, the EMI’s information must be segregated13 from the information of other clients of the service provider; (e) the service provider maintains compliance with applicable security requirements and established security standards14 at all times; and (f) the service provider undertakes measures to safeguard customer information of the EMI at all times and reports any customer information breach to the EMI within an agreed timeframe. Outsourcing outside Malaysia S 18.16 In conducting the due diligence process in respect of outsourcing arrangements where the service provider is located or performs the outsourced activity outside Malaysia, an EMI shall ensure that such assessment addresses the added dimensions of risks associated with outsourcing outside Malaysia, and the ability of the EMI or service provider to implement appropriate responses to emerging risk events in a timely manner. S 18.17 An EMI shall ensure that the outsourcing arrangements undertaken outside Malaysia are conducted in a manner which does not affect– (a) the EMI’s ability to effectively monitor the service provider and execute its BCM; (b) the EMI’s ability to promptly recover data in the event of the service provider’s failure, having regard to the laws of the particular jurisdiction; and (c) the Bank’s ability to exercise its supervisory powers, in particular the Bank’s timely and unrestricted access to systems, information or documents relating to the outsourced activity. Outsourcing involving cloud services S 18.18 In relation to the EMI’s ability to conduct audits and inspections on the cloud service provider and sub-contractors, an EMI may rely on third party certification and reports made available by the cloud service provider for the audit, but such certifications or reports shall not substitute the EMI’s right to conduct on-site inspections where necessary. This is provided that such reliance must be supported by an adequate understanding and review of the scope of the audit and methods employed by the third party, and access by the 13 Either logically or physically. 14 Any relevant local or international standards commonly applied by the relevant industry. Electronic Money 26 of 76 Issued on: 30 December 2022 EMI to the said third party and cloud service provider to clarify matters relating to the audit. S 18.19 In relation to the testing of a cloud service provider’s BCP, an EMI must be able to access information on the state of robustness of the controls instituted by such cloud service providers arising from the BCP testing. 19 Fraud risk management S 19.1 An EMI shall ensure risk management processes, procedures, systems and controls are in place to enable effective fraud risk mitigation and management. S 19.2 An EMI shall establish effective procedures on fraud detection, analysis, investigation and reporting, which include– (a) fraud detection and transaction monitoring that can facilitate timely identification and mitigation of suspicious transactions; (b) regular analysis to understand fraud trends and modus operandi. This includes the ability to be vigilant of evolving trends and taking into account material changes in the business strategy, which may increase exposure to potential fraud risk; and (c) reporting of fraud incidents to senior management and the board on a regular basis. S 19.3 An EMI shall conduct periodic reviews on the adequacy of its fraud risk mitigation measures. S 19.4 In the event of fraud occurrences, the EMI shall take appropriate and immediate corrective measures to address gaps and vulnerabilities in order to strengthen the security features of its e-money scheme. S 19.5 An EMI shall implement relevant safeguards to prevent unauthorized reloading and usage of an e-money account, in particular if auto reloading and peer-to- peer transfer services are allowed. Risk-based authentication for online payment transactions S 19.6 An EMI shall authenticate its customer for online payment transactions using strong authentication methods, such as multi-factor authentication (MFA)15, to mitigate the risk of fraudulent online payment transactions. G 19.7 Notwithstanding paragraph 19.6, an EMI may adopt risk-based authentication for low risk online payment transactions. 15 Based on three (3) basic authentication factors, namely, something the user knows (e.g. PIN, personal information), something the user possesses (e.g. identity card, registered mobile number) and something the user is (e.g. biometric characteristics) which are mutually exclusive. Electronic Money 27 of 76 Issued on: 30 December 2022 S 19.8 For the purpose of paragraph 19.7, low risk online payment transactions shall consist of the following– (a) online payment transactions below RM250 per transaction; or (b) recurring or card-on-file16 transactions below RM10,00017 per transaction, where an EMI has authenticated its customer using strong authentication for first time use. S 19.9 In applying risk-based authentication for low risk online payment transactions under paragraph 19.7, an EMI shall– (a) ensure the use of effective risk analysis tools and establish a set of criteria or factors that appropriately reflect the nature, size and characteristics of the online payment transactions. Such criteria or factors must be consistent with the EMI’s risk appetite and tolerance level; and (b) periodically review the risk assessment criteria or factors to ensure its continued relevance, having regard to latest developments in cybersecurity risks and authentication technologies, as well as, fraud trends and incidents. G 19.10 An EMI is encouraged to identify a tolerable aggregate amount of low risk online payment transactions eligible for risk-based authentication to mitigate against high fraud losses. S 19.11 An EMI shall notify the Bank at least fourteen (14) days prior to first-time implementation of risk-based authentication for low risk online payment transactions under paragraph 19.7. S 19.12 Where an EMI adopts risk-based authentication that enables customers to make unauthenticated online payment transactions, the EMI shall– (a) provide customers with an option to opt-out or disable the function that allows unauthenticated online payment transactions, and the option shall be made available through convenient means; (b) set a maximum daily cumulative limit for both the amount and number of unauthenticated online payment transactions for a customer; (c) ensure that customer uses a strong authentication method once the online payment transactions exceed the maximum daily cumulative limit; and (d) not hold a customer liable for fraud losses arising from unauthenticated online payment transactions in situations where the EMI has decided not to apply authentication methods, unless the EMI can prove with sufficient evidence that the customer has acted fraudulently. 16 Refers to a transaction where the cardholder has authorised the merchant to store the cardholder’s card payment information securely for future purchases. 17 For open third party fund transfer and open payment transactions with a value of RM10,000 and above, an EMI shall deploy multi-factor authentication solutions with stronger security controls as per paragraph 28.71 to 28.73 of this policy document. Electronic Money 28 of 76 Issued on: 30 December 2022 S 19.13 An EMI shall provide convenient means to customers to reduce the limits applied under paragraphs 19.8 or the maximum daily cumulative limit as set under paragraph 19.12(b). S 19.14 An EMI shall undertake efforts to raise awareness among customers on an on- going basis to ensure customers understand the functionalities of risk-based authentication, potential risks of unauthenticated transactions, as well as, measures that may be taken by customers to limit such risks (e.g. opt-out). Such efforts shall be made using– (a) mediums or channels which enable communications to be displayed prominently and easily accessible to customers, such as in mobile phone applications, e-mails and application notifications; and (b) communication methods that can facilitate easy understanding by customers such as by being multi-lingual, publishing frequently-asked- questions and providing clarity in explanation by call-centres. S 19.15 An EMI shall immediately provide transaction alerts to customers, including customers with foreign-registered mobile numbers after every successful online payment transaction that is not authenticated as per paragraph 19.6. Contactless verification requirement S 19.16 Paragraphs 19.17 to 19.20 shall only apply to an EMI that issues international scheme prepaid cards. S 19.17 An EMI shall set a maximum amount for each contactless transaction, as well as, an appropriate cumulative limit for contactless transactions, which do not entail any customer verification. S 19.18 To promote confidence in the use of contactless prepaid cards, an EMI shall provide customers with the ability to manage the cumulative transaction limit by undertaking the following– (a) provide customers with convenient means to set a lower cumulative transaction limit for contactless transactions; (b) provide customers with convenient means to turn off the contactless functionality in contactless prepaid cards; and (c) raise awareness among customers about the facilities set out in paragraphs (a) and (b), at a minimum via the EMI’s websites and product disclosure sheet. Electronic Money 29 of 76 Issued on: 30 December 2022 Opt-in requirement for card-not-present and overseas transactions S 19.19 An EMI must by default disable customers from making– (a) any card-not-present transaction that is not authenticated via a strong authentication method such as a dynamic password; and (b) any overseas transaction using a prepaid card, and inform the customers on the risks of such transactions. S 19.20 An EMI shall only allow customers to make the transactions listed in paragraph 19.19 where the customers have expressly opted-in to conduct such transactions. Where customers have opted-in to conduct such transactions, the EMI shall provide the customers with the option to disable such transactions. G 19.21 Notwithstanding paragraph 19.16, an EMI that facilitates cross-border payment via its network-based e-money is also encouraged to observe the requirements in paragraphs 19.19 (b) and 19.20, where relevant. 20 Account management S 20.1 An EMI shall ensure all e-money transactions in Malaysia are in ringgit. S 20.2 An EMI shall ensure e-money transactions comply with the prevailing foreign exchange rules, including but not limited to those related to investments in foreign currency assets by residents and payment in foreign currency between residents, through the implementation of robust internal controls and procedures. S 20.3 An EMI shall ensure any physical cash withdrawal outside Malaysia using e- money, is undertaken in foreign currency only. S 20.4 An EMI that facilitates withdrawal of e-money balances into a bank account shall ensure any withdrawal of funds from the e-money account is paid into the customer’s own bank account with a banking institution only, unless the EMI participates in the Real-time Retail Payments Platform (RPP) and offers credit transactions where withdrawal of e-money balances18 may be made to other bank or e-money accounts. S 20.5 An EMI shall ensure proper recording, management and monitoring of the accounts of all its customers, at all times. 18 Subject to compliance with the relevant AML/CFT requirements. Electronic Money 30 of 76 Issued on: 30 December 2022 Wallet limit S 20.6 An EMI shall ensure the wallet limit adopted for its e-money is commensurate with the purpose and size of customer transactions. S 20.7 An EMI shall ensure adequate security and operational safeguards are in place to mitigate any risks associated with the use of e-money within the specified wallet limit. S 20.8 An EMI shall obtain the Bank’s prior written approval if the increase in wallet limit will result in the following– (a) the wallet limit to be RM5,000 or more; or (b) changes in the functionality and product features of the e-money. S 20.9 An EMI shall notify the Bank at least fourteen (14) days prior to any increase in wallet limit below the RM5,000 threshold and where the increase does not involve any changes in functionality and product features of the e-money. Refund of e-money balances S 20.10 An EMI shall provide refunds of e-money balances in its customers’ accounts in the event a customer decides to close their account, was wrongly charged or due to disputed transactions. S 20.11 The refund shall be made without any additional costs and shall be done within fourteen (14) days from the date the claim is made by the customer except for complex refund cases. G 20.12 Notwithstanding paragraph 20.11, in cases where a customer requests for the refund of e-money balances to be remitted overseas, an EMI may charge the customer the actual costs incurred by the EMI. The EMI is encouraged to also disclose clearly in the terms and conditions of the e-money product, the circumstances under which a fee will be imposed for the refund of e-money balances and the applicable fee. S 20.13 For complex refund cases that cannot be completed within fourteen (14) days, the EMI shall communicate the reason for such delays to customers in a timely manner and complete the cases within thirty (30) days. S 20.14 An EMI shall provide customers with options for the method of refund and shall not limit refunds only via the crediting of funds back into the customer’s e- money account. Electronic Money 31 of 76 Issued on: 30 December 2022 Unclaimed e-money balances S 20.15 An EMI shall manage any unclaimed e-money balances in accordance with the Unclaimed Moneys Act 1965. 21 White labelling S 21.1 An EMI shall obtain the Bank’s prior written approval before– (a) entering into a white labelling arrangement for the first time; or (b) making material changes to existing white labelling arrangements. S 21.2 After obtaining the Bank’s written approval under paragraph 21.1(a), an EMI shall notify the Bank on any subsequent white labelling arrangement, at least fourteen (14) days prior to entering into the said arrangement. S 21.3 Prior to obtaining the Bank’s approval, the board shall review and approve the EMI’s plan to offer the white labelling arrangement and ensure that the EMI has sufficient resources and capacity to offer such solution. This includes, but is not limited to, having in place a framework, policy and operational procedures, manpower and system infrastructure to support the white labelling solution offered to the partner or other entity. S 21.4 Senior management shall ensure adequate oversight on the implementation of the EMI’s white labelling arrangement. S 21.5 By providing white labelling solutions to the partner or another entity, it does not absolve the EMI’s responsibility to ensure that the said solution complies with the requirements under this policy document and other applicable standards including those specified in paragraph 6.1. S 21.6 An EMI must not engage in white labelling arrangements with a partner or entity with dubious or illegal activities. S 21.7 At a minimum, an EMI that provides white labelling of its e-money shall ensure– (a) proper due diligence is conducted on the partner or entity that it plans to offer the white labelling solution to, which includes assessments on their credibility and capability; (b) an agreement with the partner or entity involved in the white-labelling arrangement is in place and clearly indicates the following– (i) the rights and responsibilities of each party; (ii) responsibilities of the partner or entity on controls and measures to ensure information security; (iii) dispute resolution process in the event of default or non- performance of obligations, including remedies and indemnities where relevant; Electronic Money 32 of 76 Issued on: 30 December 2022 (iv) ability of the EMI and its external auditor19 to conduct audits and on- site inspections on the partner or entity in relation to the white labelling arrangement; (c) partner or other entity involved in the white-labelling arrangement provide adequate system safeguards for the installation and use of the white labelling solution; and (d) partner or other entity involved in the white-labelling arrangement have appropriate policies and procedures for customer and merchant on- boarding. S 21.8 The EMI shall provide clear and prominent disclosure to customers on the roles and responsibilities of the partner or entity, as well as, the EMI for the e-money issued, including in managing any disputes or issues faced by the customers. S 21.9 The EMI shall disclose the name and brand of the partner and other entity that is using its white labelling solution on the EMI’s website and any other relevant platform. S 21.10 The EMI shall maintain proper records with appropriate level of granularity of funds tagged to each partner or entity and their individual customers, including but not limited to, records of funds collected from customers, the e-money transactions, complaints and resolutions, as well as, refunds made to its customers or payment to its merchants. S 21.11 For purposes of paragraph 21.10, a non-bank EMI shall ensure that the trustee who manages the trust account as required under paragraph 16.2 also has clarity on the funds tagged to the customer and merchants of each partner or entity to ensure proper distribution of funds. 22 Other business or activity Promoting or cross-selling financial products or services S 22.1 A non-bank EMI shall not use its e-money platform or system to promote or cross-sell any financial products or services20 except with the Bank’s prior written approval. S 22.2 The board shall review and approve any arrangement to promote or cross-sell any financial products or services before the proposal is submitted to the Bank for approval. 19 Including an agent appointed by the EMI. 20 For the avoidance of doubt, this shall include any financial products or services regardless if it is offered by a regulatee of the Bank or otherwise. Electronic Money 33 of 76 Issued on: 30 December 2022 S 22.3 Prior to entering into any arrangement to promote or cross-sell any financial products or services on its e-money platform or system, a non-bank EMI shall, at a minimum, ensure the following– (a) the scope and nature of such arrangement would not significantly increase the risk exposure to the non-bank EMI and would not impair the reputation, integrity and credibility of the non-bank EMI; and (b) the necessary controls and risk management are in place to manage any risks from such arrangement. S 22.4 A non-bank EMI shall ensure the agreement to promote or cross-sell any financial products or services on its e-money platform or system clearly sets out the accountabilities of each party in the arrangement. S 22.5 A non-bank EMI shall provide clear communication to its customers on the demarcation of roles between the non-bank EMI for the e-money business and the provider of the products or services promoted or cross-sold on its e-money platform or system. S 22.6 A non-bank EMI shall inform customers on who is responsible to manage complaints or disputes pertaining to the products or services promoted or cross- sold on its e-money platform or system, including appropriate avenues for customers to seek redress. S 22.7 A non-bank EMI shall notify the Bank at least fourteen (14) days prior to entering into an arrangement to promote or cross-sell non-financial products or services. Other business of EMI S 22.8 A non-bank EMI that carries on any other business or activity within the same entity, which is not in connection with or for the purposes of its e-money business, shall– (a) establish clear segmentation between the e-money business and the other business or activity, which shall include but is not limited to, establishing and maintaining segmented financial reports21 on e-money business; (b) establish clear segregation of policies and procedures between the e- money business and the other business or activity; (c) establish clear roles, responsibilities and accountability of the board, senior management and staff for each business or activity; (d) ensure no comingling of e-money funds with its working capital or funds of the other business or activity; and 21 May be segmented in the management accounts. Electronic Money 34 of 76 Issued on: 30 December 2022 (e) demonstrate a strong financial position to mitigate the potential that the other business or activity may pose higher risk to the sustainability of the non-bank EMI. S 22.9 A non-bank EMI shall notify the Bank in a timely manner on the following– (a) prior to operationalising other business or activities that may potentially be of high risk, the potential impact of such business or activities on the financial viability or reputation of the non-bank EMI; and (b) if there is potential risk or issues arising from its existing non-e-money business or activities which may significantly impact the financial viability or reputation of the non-bank EMI. 23 Specific requirements for registered merchant acquirers S 23.1 An EMI that acquires merchants for the purpose of accepting payment instruments including its own e-money shall be registered pursuant to section 17(1) and 18 of the FSA. S 23.2 For the purpose of paragraph 23.1, the EMI which is a registered merchant acquirer shall also refer to the requirements specified in the policy document on Merchant Acquiring Services as amended from time to time. 24 Exit plan S 24.1 A non-bank EMI shall be prepared to exit the e-money business in the event its business proves to be unsustainable or can no longer support its operations in a reliable manner. S 24.2 A non-bank EMI shall maintain an exit plan, which will enable the non-bank EMI to unwind its business operations voluntarily without any regulatory intervention and in an orderly manner without causing disruption to its customers, merchants and the payment ecosystem where it operates. S 24.3 For the purpose of paragraph 24.2, a non-bank EMI shall establish an exit plan valid for a three (3)-year period, which can be operationalised, if needed. At a minimum, the exit plan must include the following– (a) plausible internal triggers22 for exiting the business, which demonstrate unsustainable business, inability to fulfil the value proposition for its e- money business or materialisation of risks beyond the non-bank EMI’s own risk appetite; 22Refer to paragraph 24.4 (b). Electronic Money 35 of 76 Issued on: 30 December 2022 (b) likely options and related measures to be taken for exit that minimises disruption to its customers, merchants and the payment ecosystem23 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; (e) the necessary capabilities required to extract and aggregate data on customers and/or merchants in a timely manner, upon request, including up-to-date contact information and refund/payment mechanism; and (f) 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. S 24.4 In relation to paragraph 24.3, a non-bank EMI shall provide to the Bank, a comprehensive description of its exit plan which includes the following– Table 1: Content of an exit plan Requirement Details (a) Governance to support informed decision making in the activation of exit plan • Well-defined roles and responsibilities of the board, senior management and business unit. • Policies, procedures and MIS to inform and support decision-making and smooth execution of exit plan. (b) Exit triggers • Identification of exit triggers, i.e. factors and indicators/thresholds that will prompt activation/execution of the exit plan. • The exit triggers at a minimum shall include compliance-related indicators, in particular on minimum capital funds, liquidity ratio and the safeguarding of customer funds. • Processes for continuous monitoring of factors and indicators/thresholds. (c) Measures to enable an orderly exit from the business while minimizing disruption to third parties, in • Identification of possible actions that can be undertaken under different scenarios. • Identification of possible funding sources to credibly implement the exit plan. 23For example, if the e-money is used for transportation purposes, whether its exit will cause the transportation community to be significantly disrupted. Electronic Money 36 of 76 Issued on: 30 December 2022 particular customers and counterparties • Description of operational dependencies on external parties and its associated costs throughout the exit phase to ensure smooth operational continuity throughout the exit phase. (d) Communication and engagement strategy (including to the Bank) to mitigate unintended consequences • Identification of key stakeholders, including customers, merchants, relevant regulators and authorities, counterparties, service providers, etc. • Information needs of respective stakeholders. • Medium, timing and frequency of communication. • Person responsible for ensuring the effective coordination and execution of the communication and engagement strategy. G 24.5 A non-bank EMI is encouraged to consider other exit triggers as listed in Appendix 7 to be included in the exit plan. S 24.6 A non-bank EMI shall submit an exit plan, together with an undertaking to the Bank within one (1) year from the effective date of this requirement, or upon submission of application to issue e-money. The subsequent exit plan and undertaking shall be endorsed by the board and submitted to the Bank within one (1) month after it being endorsed. The undertaking shall cover the non- bank EMI’s commitment to its exit plan if its internal triggers are met within the stipulated period. S 24.7 The exit plan and undertaking shall be reviewed every three (3) years or as and when there are material changes to the non-bank EMI’s structure or operations. S 24.8 The full implementation of the exit plan shall result in the cessation of the e- money business by the non-bank EMI. 25 Winding down or cessation of e-money business S 25.1 An EMI shall wind-down its existing e-money operations upon the date of revocation of its e-money approval or cessation of business or operations. The winding down procedures shall be commensurate with the nature, size and complexity of the EMI’s e-money business and be made in accordance with relevant regulatory requirements. Electronic Money 37 of 76 Issued on: 30 December 2022 S 25.2 In line with sections 23(2)(b) of the FSA and 20(2)(b) of the IFSA, where the approval to issue e-money is either revoked by the Bank or the EMI has ceased its business or operations, such EMI shall continue to discharge its obligations which includes but is not limited to the following– (a) refund the funds collected from customers and settle the outstanding amount with the merchants and relevant beneficiaries of its e-money scheme at a reasonably practicable time; (b) contact and periodically provide reminders to relevant stakeholders, which includes but is not limited to customers and merchants, for them to claim any unclaimed balances of e-money from the EMI; (c) provide adequate notice to the relevant stakeholders on its winding down or cessation of e-money business or operations and that it no longer has the approval under the FSA or IFSA to issue e-money; and (d) ensure customer information continues to be safeguarded and/or disposed appropriately in accordance with statutory records retention requirements. S 25.3 An EMI shall maintain relevant records and accounts to identify the beneficiaries of the e-money funds to enable the EMI to clearly identify and distinguish the funds maintained under paragraph 16,1, 16.2 or 16.5 from other working capital funds of the EMI. S 25.4 For purposes of paragraph 25.3, a non-bank EMI shall ensure these records and information are made available to the trustee who manages the trust account required under paragraph 16.2 to facilitate proper distribution of funds upon winding down or cessation of business or operations. 26 Prohibitions S 26.1 An EMI shall not– (a) issue e-money at a premium or discount, i.e. issue e-money that has a monetary value different than the funds received; (b) use the funds collected in exchange of e-money issued to extend loans or financing to any person; (c) extend credit to the customer or any other person, or pay interest, profit or any other form of returns on the e-money balances, that would add to the monetary value of the e-money; and (d) associate, link or use the e-money scheme or platform to conduct dubious or illegal activities. Electronic Money 38 of 76 Issued on: 30 December 2022 PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS24 27 Technology risk management S 27.1 An EMI shall establish the Technology Risk Management Framework (TRMF), which is a framework to safeguard the EMI’s information infrastructure, systems and data as an integral part of the EMI’s risk management framework. G 27.2 An EMI is encouraged to include the following in the TRMF– (a) clear definition of technology risk; (b) clear responsibilities assigned for the management of technology risk across different levels and functions, with appropriate governance and reporting arrangements; (c) identification of technology risks to which the EMI 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. G 27.3 An EMI is encouraged to establish an independent enterprise-wide technology risk management function which is responsible for– (a) implementing the TRMF and Cyber Resilience Framework (CRF) as provided under paragraph 29; (b) advising on material technology projects and ensuring critical issues that may have an impact on the EMI’s risk tolerance are adequately deliberated by or escalated to senior management in a timely manner; and (c) providing independent views to the board and senior management on third party assessments25, where necessary. G 27.4 An EMI is encouraged to designate a Chief Information Security Officer (CISO), or by whatever name called, to be responsible for the technology risk management function of the EMI. The EMI is encouraged to ensure that the 24 For the avoidance of doubt, eligible EMIs and EMIs that are banking institutions shall comply with the requirements under the policy document on Risk Management in Technology as amended from time to time. 25 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. Electronic Money 39 of 76 Issued on: 30 December 2022 CISO has sufficient authority, independence and resources26. It is recommended that the CISO– (a) be independent from day-to-day technology operations; (b) keep apprised of current and emerging technology risks which could potentially affect the EMI’s risk profile; and (c) be appropriately certified. G 27.5 An EMI is encouraged to make the CISO responsible for ensuring the EMI’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 policies in paragraph (a) above, frameworks and other technology-related regulatory requirements; and (c) advising senior management on technology risk and security matters, including developments in the EMI’s technology security risk profile in relation to its business and operations. 28 Technology operations management Technology Project Management S 28.1 An EMI shall establish appropriate governance requirements commensurate with the risk and complexity27 of technology projects undertaken. This shall include establishing project oversight roles and responsibilities, authority and reporting structures, and risk assessment throughout the project life cycle. G 28.2 It is recommended that the risk assessment identify and address the key risks arising from the implementation of technology projects. These include the risks that could threaten successful project implementation and the risks that a project failure will lead to a broader impact on the EMI’s operational capabilities. It is recommended that due regard be given to the following areas– (a) the adequacy and competency of resources including those of the service provider to effectively implement the project. This should also take into consideration the number, size and duration of material technology projects undertaken concurrently by the EMI; 26 An EMI’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 serves as the point of contact with the Bank on, the EMI’s technology-related matters, including managing entity-specific risks, supporting prompt incident response and reporting to the EMI’s board. 27 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. Electronic Money 40 of 76 Issued on: 30 December 2022 (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 service provider-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 potential leaks of confidential data; (d) the comprehensiveness of 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. G 28.3 The board and senior management are encouraged to receive and review timely reports on the management of key risks arising from the implementation of material technology projects on an ongoing basis throughout the implementation of material technology projects. System Development and Acquisition G 28.4 An EMI is encouraged to establish an Enterprise Architecture Framework (EAF) that provides a holistic view of technology throughout the EMI. The EAF is an overall technical design and high-level plan that describes the EMI’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 the EMI’s plan and structure system development and acquisition strategies to meet business goals. S 28.5 An EMI shall 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 shall also embed security and relevant enterprise architecture considerations into the SDLC to ensure confidentiality, integrity and availability of data28. The policies and practices shall be reviewed at least once every three (3) years to ensure that they remain relevant to the EMI’s environment. 28 The security considerations shall include ensuring appropriate segregation of duties throughout the SDLC. Electronic Money 41 of 76 Issued on: 30 December 2022 G 28.6 An EMI 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. G 28.7 An EMI is encouraged to consider the need for diversity29 in technology to enhance resilience by ensuring critical systems infrastructure are not excessively exposed to similar technology risks. S 28.8 An EMI shall 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 EMI shall ensure proper authorisation procedures and adequate measures to prevent their unauthorised disclosure are in place. G 28.9 It is encouraged that the scope of system testing referred to in paragraph 28.8 includes unit testing, integration testing, user acceptance testing, application security testing, stress and regression testing, and exception and negative testing, where applicable. S 28.10 An EMI shall ensure any changes to the source code of critical systems are subject to adequate source code reviews to ensure the code is secure and developed in line with recognised coding practices prior to introducing any system changes. S 28.11 Where critical systems are developed and maintained by a service provider, an EMI shall ensure the source code continues to be readily accessible and secured from unauthorised access. S 28.12 An EMI shall physically segregate the production environment from the development and testing environment for critical systems. Where an EMI is relying on a cloud environment, it shall ensure that these environments are not running on the same virtual host. S 28.13 An EMI shall establish appropriate procedures to independently review and approve system changes. An EMI shall also establish and test contingency plans in the event of the unsuccessful implementation of material system changes to minimise any business disruption. S 28.14 Where an EMI’s IT systems are managed by technology service providers, the EMI shall ensure, including through contractual obligations, that the technology 29 Diversity in technology may include the use of different technology architecture designs and applications, technology platforms and network infrastructure. Electronic Money 42 of 76 Issued on: 30 December 2022 service providers provide sufficient notice to the EMI before any changes are undertaken that may impact the IT systems. G 28.15 When decommissioning critical systems, an EMI is encouraged to ensure minimal adverse impact on customers and business operations. This includes establishing and testing contingency plans in the event of unsuccessful system decommissioning. Cryptography G 28.16 An EMI is encouraged to adopt strong cryptographic controls for protection of important data and information which include– (a) adoption of industry standards for encryption algorithms, message authentication, hash functions, digital signatures and random number generation; (b) adoption of robust and secure processes in managing cryptographic key lifecycles which include generation, distribution, renewal, usage, storage, recovery, revocation and destruction; (c) periodic review, at least every three (3) years, of existing cryptographic standards and algorithms in critical systems, external linked or customer- facing applications to prevent exploitation of weakened algorithms or protocols; and (d) development and testing of compromise-recovery plans in the event of a cryptographic key compromise. This should 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. G 28.17 An EMI is encouraged to 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 an EMI does not generate its own encryption keys, the EMI is encouraged to undertake appropriate measures to ensure robust controls and processes are in place to manage encryption keys. Where this involves reliance on third party assessment30, the EMI is encouraged to consider whether such reliance is consistent with the EMI’s risk appetite and tolerance. An EMI is encouraged to 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. 30 For example, where the EMI is not able to perform its own validation on embedded cryptographic controls due to the proprietary nature of the software or confidentiality constraints. Electronic Money 43 of 76 Issued on: 30 December 2022 G 28.18 An EMI is encouraged to ensure cryptographic controls are based on the effective implementation of suitable cryptographic protocols. It is recommended that the protocols include secret and public cryptographic key protocols, both of which should reflect a high degree of protection to the applicable secret or private cryptographic keys. It is recommended that the selection of such protocols be based on recognised international standards and tested accordingly. Commensurate with the level of risk, storage of secret cryptographic key and private-cryptographic key, and encryption/ decryption computation should be undertaken in a protected environment, supported by a hardware security module (HSM) or trusted execution environment (TEE). G 28.19 An EMI is encouraged to store public cryptographic keys in a certificate issued by a certificate authority as appropriate to the level of risk. Such certificates associated with customers should be issued by recognised certificate authorities. The EMI is encouraged to 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 should be consistent with industry best practices and applicable legal/ regulatory specifications. Data Centre Infrastructure S 28.20 An EMI shall ensure proper management of data centres and specify the resilience and availability objectives31 of its data centres which are aligned with its business needs. S 28.21 An EMI shall ensure its network infrastructure is designed to be resilient, secure and scalable proportionate to the EMI’s business risk and model. Potential data centre failures or disruptions shall not significantly degrade the delivery of its financial services or impede its internal operations. G 28.22 An EMI is encouraged to 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. G 28.23 An EMI is encouraged to host critical systems in a dedicated space intended for production data centre usage. The dedicated space should be physically secured from unauthorised access and is not located in a disaster-prone area. 31 Availability objectives refer to the level of availability of the data centre, which needs to be specified as an internal policy. Electronic Money 44 of 76 Issued on: 30 December 2022 An EMI is also encouraged to 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. S 28.24 An EMI shall establish proportionate controls, ensure adequate maintenance, and holistic and continuous monitoring of the critical components of the production data centres aligned with the EMI’s risk appetite. G 28.25 An EMI is encouraged to appoint a technically competent external technology service provider to carry out a production data centre risk assessment and set proportionate controls aligned with the EMI’s risk appetite. The assessment should consider all major risks associated with the production data centre and should be conducted periodically or whenever there is a material change in the data centre infrastructure. The assessment should, at a minimum, include a consideration of whether paragraphs 28.22 to 28.24 have been adhered to. In appointing a technology service provider to manage the data centre, an EMI may rely on independent third party assurance reports provided such reliance is consistent with the EMI’s risk appetite and tolerance, and the independent assurance has considered similar risks and meets the expectations in this paragraph for conducting the assessment. The designated board-level committee should deliberate the outcome of the assessment. Data Centre Operations S 28.26 An EMI shall 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. G 28.27 An EMI is encouraged to involve both the technology stakeholders and the relevant business stakeholders within the EMI in its development and implementation of capacity management plans. S 28.28 An EMI shall establish appropriate monitoring mechanisms to track capacity utilisation and performance of key processes and services32. These monitoring mechanisms shall be capable of providing timely and actionable alerts to administrators. 32 For example, batch runs and backup processes for the EMI’s application systems and infrastructure. Electronic Money 45 of 76 Issued on: 30 December 2022 S 28.29 An EMI shall segregate incompatible activities33 in the data centre operations environment to prevent any unauthorised activity34. Where service providers’ or programmers’ access to the production environment is necessary, these activities shall be properly authorised and monitored. S 28.30 An EMI shall establish adequate control procedures for its data centre operations. These control procedures shall include procedures for batch processing management to ensure timely and accurate batch processes, implementing changes in the production system, error handling, as well as, management of other exceptional conditions. G 28.31 An EMI is encouraged to undertake an independent risk assessment of its end- to-end backup storage and delivery management to ensure that existing controls are adequate in protecting sensitive data at all times. S 28.32 An EMI shall 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 shall be stored in an environmentally secure and access-controlled backup site. G 28.33 In complying with paragraph 28.32, an EMI is encouraged to adopt the controls as specified in Appendix 8 or their equivalent to secure the storage and transportation of sensitive data in removable media. G 28.34 Where there is a reasonable expectation for immediate delivery of service, an EMI is encouraged to ensure the relevant systems are designed for high availability. Network Resilience G 28.35 An EMI is encouraged to design a reliable, scalable and secure enterprise network that is able to support its business activities, including future growth plans. G 28.36 An EMI is encouraged to 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 threats. 33 This includes security administration covering management of user access rights, security operations and network security. 34 This includes segregating system development activities from data centre operations. Electronic Money 46 of 76 Issued on: 30 December 2022 G 28.37 An EMI is encouraged to 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 28.38 An EMI shall ensure network services supporting critical systems are designed and implemented to ensure the confidentiality, integrity and availability of data. G 28.39 An EMI is encouraged to establish and maintain a network design blueprint identifying all of its internal and external network interfaces and connectivity. The blueprint should highlight both physical and logical connectivity between network components and network segmentations. S 28.40 An EMI shall ensure sufficient and relevant network device logs are retained for investigations and forensic purposes for at least three (3) years. S 28.41 An EMI shall 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 EMI from other entities within the group. G 28.42 An EMI is encouraged to appoint a technically competent external technology service provider to carry out regular network risk assessments and set proportionate controls aligned with its risk appetite. The assessment should be conducted periodically or whenever there is a material change in the network design. The assessment should consider all major risks and determine the current level of resilience. Technology Service Provider Management S 28.43 In addition to the requirements in paragraph 18 on outsourcing arrangements, an EMI and its board and senior management shall comply with the requirements under paragraphs 28.44 to 28.50 for IT related technology service providers. S 28.44 The board and senior management of an EMI shall exercise effective oversight and address associated risks when engaging technology service providers for critical technology functions and systems. Engagement of technology service providers, including engagements for independent assessment, does not in any way reduce or eliminate the principal accountabilities and responsibilities of the EMI for the security and reliability of technology functions and systems. Electronic Money 47 of 76 Issued on: 30 December 2022 S 28.45 An EMI shall conduct proper due diligence on the technology service provider’s competency, system infrastructure and financial viability as relevant prior to engaging its services. In addition, an assessment shall be made on the technology service provider’s capabilities in managing the following specific risks– (a) data leakage such as unauthorised disclosure of customer information 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 EMI or its customers in the course of transmission, processing or storage of such information; and (h) concentration risk. S 28.46 At a minimum, the agreement between the EMI and its technology service providers shall contain arrangements for disaster recovery and backup capability, where applicable, and critical system availability. S 28.47 An EMI shall ensure its ability to regularly review any agreements with its technology service providers taking into account the latest security and technological developments in relation to the services provided. S 28.48 An EMI shall ensure data residing in technology service providers are recoverable in a timely manner. The EMI shall ensure clearly defined arrangements with the technology service provider are in place to facilitate the EMI’s immediate notification and timely update to the Bank and other relevant regulatory bodies in the event of a cyber-incident. S 28.49 An EMI shall ensure the storage of its data is at least logically segregated from the other clients of the technology service provider. There shall be proper controls implemented including periodic review of the access provided to authorised users. S 28.50 An EMI shall ensure critical systems hosted by technology service providers have adequate recovery and resumption capability and provisions to facilitate an orderly exit in the event of failure or unsatisfactory performance by the technology service provider. Electronic Money 48 of 76 Issued on: 30 December 2022 Cloud Services S 28.51 An EMI shall fully understand the inherent risk of adopting cloud services. In this regard, an EMI 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 shall specifically address risks associated with the following– (a) sophistication of the deployment model; (b) migration of existing systems to cloud infrastructure; (c) location of cloud infrastructure; (d) multi-tenancy or data co-mingling; (e) service provider 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 EMI’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. S 28.52 The risk assessment required under paragraph 28.51 shall be documented and made available for the Bank’s review as and when requested by the Bank. S 28.53 An EMI shall demonstrate that specific risks associated with the use of cloud services for critical systems have been adequately considered and addressed. The risk assessment shall address the risks outlined in paragraph 28.51, as well as, the following areas– (a) the adequacy of the over-arching cloud adoption strategy of the EMI including– (i) board oversight over cloud strategy and cloud operational management; (ii) senior management roles and responsibilities on cloud management; (iii) conduct of day-to-day operational management functions; (iv) management and oversight by the EMI of cloud service providers; (v) quality of risk management and internal control functions; and (vi) strength of in-house competency and experience; (b) the availability of independent, internationally recognised certifications of the cloud service providers, at a minimum, in the following areas– Electronic Money 49 of 76 Issued on: 30 December 2022 (i) information security management framework, including cryptographic modules such as those used for encryption and decryption of user data; and (ii) cloud-specific security controls for protection of customer information and counterparty information or proprietary information including payment transaction data in use, in storage and in transit; (c) the degree to which the selected cloud configuration adequately addresses the following attributes– (i) geographical redundancy; (ii) high availability; (iii) scalability; (iv) portability; (v) interoperability; and (vi) strong recovery and resumption capability including appropriate alternate internet paths to protect against potential internet faults. G 28.54 An EMI is encouraged to consider the need for a third party pre-implementation review on cloud implementation that also covers the areas set out in paragraph 28.53. S 28.55 An EMI must implement appropriate safeguards on customer information 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 information and counterparty information, proprietary data and services hosted on the cloud, including the relevant cryptographic keys management. Access Control S 28.56 An EMI must implement an appropriate access control policy for identification, authentication and authorisation of users (internal and external users such as technology 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 28.57 In observing paragraph 28.56, an EMI is encouraged to consider the following 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; Electronic Money 50 of 76 Issued on: 30 December 2022 (c) employ time-bound access rights which restrict access for a specific period including access rights granted to technology service providers; (d) employ segregation of incompatible functions to ensure that 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 28.58 An EMI must employ robust authentication processes to ensure the authenticity of identities in use. Authentication mechanisms shall commensurate with the criticality of the functions and adopt at least one (1) or more of these three (3) 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 28.59 An EMI shall periodically review and adapt its password practices to enhance resilience against evolving attacks. This includes effective and secure generation of passwords. There shall be appropriate controls in place to check the strength of the passwords created. G 28.60 Authentication methods that depend on more than one factor typically are more difficult to compromise than a single factor system. In view of this, an EMI is encouraged to properly design and implement (especially in high-risk or ‘single sign-on’ systems) MFA that are more reliable and provide stronger fraud deterrents. G 28.61 An EMI is encouraged to adopt dedicated user domains for selected critical functions, separate from the broader enterprise-wide user authentication system. Electronic Money 51 of 76 Issued on: 30 December 2022 S 28.62 An EMI shall 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 28.63 An EMI shall ensure the following– (a) access controls to enterprise-wide systems are effectively managed and monitored; and (b) user activities in critical systems are logged for audit and investigations. Activity logs shall be maintained for at least three (3) years and regularly reviewed in a timely manner. Patch and End-of-Life System Management S 28.64 An EMI 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, an EMI shall 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. G 28.65 An EMI 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. Security of Digital Services S 28.66 An EMI shall implement robust technology security controls in providing digital services which assure the following– (a) confidentiality and integrity of customer information 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; Electronic Money 52 of 76 Issued on: 30 December 2022 (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. G 28.67 An EMI is encouraged to implement controls to authenticate and monitor all financial transactions. These controls, at a minimum, should be effective in mitigating man-in-the-middle attacks, transaction fraud, phishing and compromise of application systems and information. S 28.68 An EMI 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 EMI’s 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 28.69 An EMI 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 EMI; and (c) timely notification to customers of any activation of and changes to the MFA solution via the customers’ verified communication channel. G 28.70 An EMI is encouraged to deploy MFA technology and channels that are more secured than unencrypted short messaging service (SMS). S 28.71 An EMI 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. Electronic Money 53 of 76 Issued on: 30 December 2022 S 28.72 Such stronger MFA solutions shall adhere to the following requirements– (a) payor/sender must be made aware and prompted to confirm details of the identified beneficiary and amount of the transaction; (b) authentication code must be initiated and generated locally by the payor/sender using MFA; (c) authentication code generated by payor/sender must be specific to the confirmed identified beneficiary and amount; (d) secure underlying technology must be established to ensure the authentication code accepted by the EMI corresponds to the confirmed transaction details; and (e) notification must be provided to the payor/sender of the transaction. S 28.73 Where an EMI deploys OTP as part of its stronger 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 EMI’s server; and (c) requiring the customer to physically enter the generated OTP into the application. S 28.74 For financial transactions below RM10,000, an EMI may decide on proportionate controls and authentication methods for transactions assessed by the EMI to be of low risk. In undertaking the assessment, the EMI 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 EMI’s risk appetite and tolerance. The EMI 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 28.75 Where an EMI decides not to adopt MFA for financial transactions that are assessed to be of low risk, the EMI 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 convenient means for customers to reduce the limits described in paragraph (a) or to opt for MFA; (c) provide 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 sub-paragraphs (a) to (c). Electronic Money 54 of 76 Issued on: 30 December 2022 S 28.76 An EMI shall ensure sufficient and relevant digital service logs are retained for investigations and forensic purposes for at least three (3) years. S 28.77 An EMI shall ensure that critical online payments35 services or transactions have high availability with reasonable response time to customer actions. G 28.78 An EMI is encouraged to ensure the use of more advanced technology to authenticate and deliver digital services such as biometrics, tokenisation and contactless communication36 comply with internationally recognised standards where available. The technology should be resilient against cyber threats37 including malware, phishing or data leakage. G 28.79 An EMI is encouraged to undertake a comprehensive risk assessment of the advanced technologies and the algorithms deployed in its digital services. Algorithms should be regularly reviewed and validated to ensure they remain appropriate and accurate. Where third party software is used, an EMI may rely on relevant independent reports provided that the reliance of reports is consistent with the EMI’s risk appetite and tolerance as well as the nature of digital services provided by the EMI which leverage on the technologies and algorithms. G G 28.80 An EMI is encouraged to 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. 28.81 An EMI is encouraged to 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. It is recommended that an EMI implements sufficient logical and physical safeguards for the following channels/ devices– (a) QR code; (b) internet application; and (c) mobile application and devices. In view of the evolving threat landscape, these safeguards should be continuously reviewed and updated to protect against fraud and to secure the confidentiality and integrity of customer information and counterparty information and transactions. 35 For example, Internet and mobile application. 36 Such as Quick Response (QR) code, Bar Code, Near Field Communication (NFC), Radio Frequency Identification (RFID). 37 For example, in respect of QR payments, an EMI 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. Electronic Money 55 of 76 Issued on: 30 December 2022 G 28.82 An EMI should ensure the adequacy of security controls implemented for internet applications, which include to– (a) ensure the internet application only runs on secured versions of web browsers that have continued developer support for security patches to fix any vulnerabilities; and (b) put in place additional authentication protocols to enable customers to identify the EMI’s genuine websites. G 28.83 An EMI is encouraged to adopt the controls specified in the following Appendices for the respective digital delivery channel– (a) Appendix 9: Control Measures on Mobile Application and Devices; and (b) Appendix 10: Control Measures on QR Code. 29 Cybersecurity management Cyber Risk Management G 29.1 An EMI is encouraged to 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 29.2 An EMI shall develop a CRF which articulates the EMI’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 includes ensuring operational resilience against extreme but plausible cyber- attacks. G 29.3 It is encouraged that the CRF be able to support effective identification, protection, detection, response, and recovery (IPDRR) of systems and data hosted on-premise or by technology service providers from internal and external cyber-attacks. It is recommended that the CRF consists of, at a minimum, the following elements– (a) development of an institutional understanding of the overall cyber risk context in relation to the EMI’s businesses 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 EMI’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 EMI; Electronic Money 56 of 76 Issued on: 30 December 2022 (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 EMIs and participants in financial market infrastructure to strengthen cyber resilience. Cybersecurity Operations G 29.4 An EMI is encouraged to establish clear responsibilities for cybersecurity operations which include implementing appropriate mitigating measures in the EMI’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 29.5 Where relevant, an EMI is encouraged to adopt the control measures on cybersecurity as specified in Appendix 11 to enhance its resilience to cyber- attacks. G 29.6 An EMI is encouraged to deploy effective tools to support continuous and proactive monitoring and timely detection of anomalous activities in its technology infrastructure. The scope of monitoring should cover all critical systems including the supporting infrastructure. S 29.7 An EMI shall ensure that its cybersecurity operations continuously prevent and detect any potential compromise of its security controls or weakening of its security posture. S 29.8 An EMI shall conduct annual 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 Electronic Money 57 of 76 Issued on: 30 December 2022 scenarios. An EMI shall engage suitably accredited penetration testers and technology service providers to perform this function. S 29.9 An EMI shall establish standard operating procedures (SOP) for vulnerability assessment and penetration testing (VAPT) activities. The SOP shall outline the relevant control measures including ensuring the external penetration testers are accompanied on-premises at all times, validating the event logs and ensuring data purging. S 29.10 An EMI shall 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) G 29.11 An EMI is encouraged to ensure its technology systems and infrastructure, including critical systems outsourced to or hosted by technology 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 service provider to expand network bandwidth on-demand including upstream service provider capability, adequacy of the service 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) G 29.12 An EMI is encouraged to establish a clear DLP strategy and processes in order to ensure that proprietary and customer information and counterparty information is identified, classified and secured. It is recommended for an EMI to– (a) ensure that data owners are accountable and held 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 should be implemented to safeguard and control third party Electronic Money 58 of 76 Issued on: 30 December 2022 access. This includes having in place adequate contractual agreements to protect the interests of the EMI and its customers. G 29.13 An EMI is encouraged to 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 should 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. G 29.14 An EMI is encouraged to 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 29.15 An EMI shall have in place an SOC – whose functions can either be performed in-house or by technology service providers – with adequate capabilities for proactive monitoring of its technology security posture. This shall enable the EMI 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 EMI’s review of its cybersecurity posture and strategy. G 29.16 The SOC is encouraged to 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. G 29.17 An EMI is encouraged to ensure that the SOC provides a regular threat assessment report, which should include, at a minimum, the following– Electronic Money 59 of 76 Issued on: 30 December 2022 (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). G 29.18 An EMI is encouraged to subscribe to reputable threat intelligence services to identify emerging cyber threats, uncover new cyber-attack techniques and support the implementation of countermeasures. S 29.19 An EMI shall ensure the following– (a) the SOC is located in a physically secure environment with proper access controls; and (b) the SOC operates on a 24x7 basis with disaster recovery capability to ensure continuous availability. Cyber Response and Recovery S 29.20 An EMI shall 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. G 29.21 An EMI is encouraged to establish and implement a comprehensive Cyber Incident Response Plan (CIRP). The CIRP should 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 EMI, 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. G 29.22 An EMI is encouraged to 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 technology Electronic Money 60 of 76 Issued on: 30 December 2022 service providers. The test scenarios should 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 technology service providers in supporting the recovery process. S 29.23 An EMI shall immediately notify the Bank of any cyber-incidents38 affecting the EMI. Upon completion of the investigation, the EMI is also required to submit a report on the incident to the Bank through the relevant Operational Risk Reporting (ORR) system or any other channel as specified by the Bank. S 29.24 An EMI shall collaborate and cooperate closely with relevant stakeholders and authorities in combating cyber threats and sharing threat intelligence and mitigation measures. 30 Technology audit S 30.1 An EMI shall ensure that the scope, frequency and intensity of technology audits are commensurate with the complexity, sophistication and criticality of technology systems and applications. S 30.2 The internal audit function shall be adequately resourced with relevant technology audit competencies and sound knowledge of the EMI’s technology processes and operations. G 30.3 An EMI is encouraged to ensure its technology audit staff are adequately conversant with the developing sophistication of the EMI’s technology systems and delivery channels. S 30.4 An EMI shall establish a technology audit plan that provides appropriate coverage of critical technology services, technology service providers, material external system interfaces, delayed or prematurely terminated material technology projects and post-implementation reviews of new or material enhancements of technology services. G 30.5 The internal audit function under paragraph 30.2 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 38 Examples include (but not limited to) phishing, ransomware, malware, DDoS and brute force attack, network intrusion, advance persistent threats, insider threats, data exfiltration and compromised credentials. Electronic Money 61 of 76 Issued on: 30 December 2022 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. 31 Internal awareness and training S 31.1 An EMI shall 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 shall be conducted at least annually by the EMI and shall reflect the current cyber threat landscape. G 31.2 An EMI is encouraged to 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. G 31.3 An EMI is encouraged to provide its board members with regular training and information on technology developments to enable the board to effectively discharge its oversight role. Electronic Money 62 of 76 Issued on: 30 December 2022 PART E REGULATORY PROCESS 32 Approval and notification S 32.1 An EMI shall seek the Bank’s prior written approval on any proposed changes to its e-money business model that are significant or that changes the risk profile of its business model. S 32.2 An EMI shall notify the Bank fourteen (14) days prior to establishing or relocating its offices in or outside Malaysia39. S 32.3 An EMI shall notify the Bank fourteen (14) days prior to the appointment of an auditor40. S 32.4 An EMI shall notify the Bank on the appointment of its chairman, director or CEO, within fourteen (14) days from the date of appointment. 33 Submission requirements S 33.1 An EMI shall submit monthly statistics on the operation of its e-money business to the Bank no later than the 15th day of the month following the reporting month using the format provided by the Bank via the STATsmart online submission system. S 33.2 An EMI shall submit independent audit reports of its e-money business, including IT audit, as and when required by the Bank. S 33.3 An EMI shall submit to the Bank its audited financial statement on an annual basis no later than three (3) months after the financial year-end. S 33.4 A bank EMI is deemed to fulfil the requirement under paragraph 33.3 upon submission to the Bank of its audited financial statements in accordance with the requirements in the policy document on Financial Reporting for Financial Institutions, the policy document on Financial Reporting for Development Financial Institutions or any other documents as may be specified by the Bank and as amended from time to time. S 33.5 A non-bank EMI shall submit written assurance from its external auditor on the adequacy of controls for its safeguarding methods in accordance with paragraph 16. At a minimum, the written assurance shall include a review of the following– 39 Pursuant to section 25(2) of the FSA or section 22(2) of the IFSA. 40 Pursuant to section 67(3) of the FSA or section 76(3) of the IFSA. Electronic Money 63 of 76 Issued on: 30 December 2022 (a) the separation of funds collected from customers, from other funds be it the working capital funds of the non-bank EMI or funds for its other business; (b) ensure the balance of funds maintained by the non-bank EMI under paragraph 16.2 or 16.5, is greater than or at least equal to the non-bank EMI’s outstanding e-money liabilities; (c) the effectiveness of the controls put in place by a non-bank EMI to ensure that the funds maintained by the non-bank EMI under paragraph 16.2 or 16.5 are topped up in a timely manner if the outstanding e-money liabilities of the non-bank EMI are greater than the said funds; and (d) ensure the funds maintained by the non-bank EMI under paragraph 16.2 or 16.5 are only used for purposes permitted under this policy document. S 33.6 The written assurance specified in paragraph 33.5 from the external auditor shall include the method of assessment and basis of opinion on the compliance level. A non-bank EMI shall ensure that the written assurance, together with details of the action plans and timelines to address any gaps identified, are deliberated at its board or board audit committee and submitted to the Bank on an annual basis no later than three (3) months after its financial year-end. 34 Membership in the Financial Ombudsman Scheme S 34.1 An EMI shall be a member of an approved FOS pursuant to regulation 3 of the Financial Services (Financial Ombudsman Scheme) Regulation 2015. S 34.2 The membership of an EMI in the FOS shall commence on the date it begins its operation. An EMI shall notify the OFS on the commencement of its operations within seven (7) days from the date it begins its operations. S 34.3 An EMI shall comply at all times with the terms of membership as set out in the terms of reference for the OFS. S 34.4 For disputes within the OFS’ jurisdiction, an EMI shall attach a copy of the OFS pamphlet41 and include the following statement in the letter conveying the EMI’s final decision on a dispute to the customer so that the customer may pursue the next course of action: “If you are not satisfied with our decision, please refer your dispute to the Ombudsman for Financial Services (OFS) within six months from the date of our decision. The procedure for lodging a dispute with OFS is provided in the attached pamphlet on “Resolution of Financial Disputes”. 41 Available in OFS official website. Electronic Money 64 of 76 Issued on: 30 December 2022 APPENDICES Appendix 1 Criteria for eligible EMI 1. An eligible EMI refers to an EMI which fulfils any of the following criteria– (a) the EMI has at least 500,000 active users42 for a consecutive period of six (6) months beginning 2017; (b) the EMI has a market share of at least 5% of the total e-money transaction volume in Malaysia for a given year beginning 2017; (c) the EMI has a market share of at least 5% of the total e-money transaction value in Malaysia for a given year beginning 2017; or (d) the EMI has a market share of at least 5% of the total outstanding e-money liabilities in Malaysia for a given year beginning 2017. 2. An eligible EMI which did not fulfil all criteria specified in paragraph 1 for any given year may make an application in writing to the Bank for the written approval of the Bank for the EMI to cease from being categorised as an eligible EMI. 3. The Bank may, upon receipt of an application under paragraph 2 and being satisfied that the eligible EMI did not fulfil all criteria specified in paragraph 1 for any given year, issue a written approval for the EMI to cease from being categorised as an eligible EMI effective on the date of the written approval or such other date determined by the Bank. 4. Any EMI who ceases to be categorised as an eligible EMI under paragraph 3 shall be recategorised as an eligible EMI if the EMI fulfils again any of the criteria specified in paragraph 1. 42 An active user refers to a user who conducts at least one financial transaction per month to make payment or funds transfer using e-money or to reload e-money into the e-money account. Electronic Money 65 of 76 Issued on: 30 December 2022 Appendix 2 Limited purpose e-money 1. A limited purpose EMI refers to an EMI that issues e-money as described below and complies with all conditions set out in paragraph 2. (a) E-money which– (i) can only be used within– A. a network of merchants in Malaysia which operate under a single business network and a single brand; or B. a single premises in Malaysia; (ii) for each EMI, both the average daily outstanding e-money liabilities and average monthly transaction value conducted by all its users do not exceed RM1,000,000 respectively; (iii) has a wallet limit not exceeding RM500 per user; (iv) can solely be used for purchase of goods or services; and (v) can solely be withdrawn into the user’s bank account with a banking institution. (b) E-money which– (i) is funded by a person (funder) who is under an arrangement with the issuer as rewards; (ii) can solely be used for purchase of goods or services to any person other than the funder; (iii) can solely be withdrawn into the user’s bank account with a banking institution; and (iv) is separated from the user’s e-money account. (c) E-money which– (i) is issued by the issuer only for the purpose of providing a refund to the user by the issuer or on behalf of any other person who is under an arrangement with the issuer; (ii) can solely be used for purchase of goods or services to any other person who is under an arrangement with the issuer; and (iii) can solely be withdrawn into the user’s bank account with a banking institution. (d) E-money which– (i) is issued by an issuer which is a telecommunication service provider; (ii) is only used for the purchase of digital goods or services from any other person who is under an arrangement with the issuer where the digital goods or services– A. have low value amounts such as applications for music, videos, software, games and ringtones; Electronic Money 66 of 76 Issued on: 30 December 2022 B. are paid for through any telecommunication, digital or information technology device; C. are delivered to, and used by, the user through any telecommunication, digital or information technology device; and (iii) can solely be withdrawn into the user’s bank account with a banking institution subject to the terms and conditions of the telecommunication service provider. 2. Conditions to be complied by limited purpose EMI– (a) The EMI shall comply with the requirements under the Personal Data Protection Act 2010 (PDPA) and subsidiary legislation made under the PDPA; (b) The EMI shall provide users or potential users with a mechanism for complaint and dispute resolution; and (c) The EMI that issues e-money described in paragraph 1(a) shall, on an annual basis– (i) submit a notification and undertaking to the Bank, that the e-money issued satisfies the description under paragraph 1; and (ii) submit statistical information which is attested by an external auditor to the Bank, on its business of issuing e-money including total outstanding e- money liabilities, number of registered and active users, total e-money transaction volume, total electronic money transaction value and any information as the Bank may specify. Notwithstanding the above, if the Bank is of the opinion that an EMI which issues e-money described in paragraph 1 poses high risk which may have an impact on the stability or affect public confidence on payment systems in Malaysia, the Bank may specify that the requirements of this policy document shall apply to the said EMI. Electronic Money 67 of 76 Issued on: 30 December 2022 Appendix 3 Responsibilities of board committees Board risk management committee 1. Support the board in overseeing the implementation of the EMI’s risk management framework. Board audit committee 1. Support the board in ensuring that there is a reliable and transparent financial reporting process within the EMI. 2. Oversee the effectiveness of the internal audit function of the EMI. At a minimum, this must include– (a) reviewing and approving the audit plan, scope, procedures and frequency; (b) reviewing audit reports and ensuring that senior management is taking necessary corrective actions in a timely manner to address control weaknesses, non-compliance with laws, regulatory requirements, policies and other problems identified by the internal audit and other control functions; and (c) establishing a mechanism to assess the performance and effectiveness of the internal audit function. 3. Foster quality audits of the EMI by exercising oversight over the external auditor. At a minimum, this must include– (a) making recommendations to the board on the appointment, removal and remuneration of the external auditor; (b) monitoring and assessing the independence of the external auditor including by approving the provision of non-audit services by the external auditor; (c) monitoring and assessing the effectiveness of the external audit, including by meeting with the external auditor without the presence of senior management at least annually; (d) maintaining regular, timely, open and honest communication with the external auditor, and requiring the external auditor to report to the board audit committee on significant matters; and (e) ensuring that senior management is taking necessary corrective actions in a timely manner to address external audit findings and recommendations. 4. Review and update the board on all related party transactions. 5. Review third-party opinions on the design and effectiveness of the EMI’s internal control framework. Electronic Money 68 of 76 Issued on: 30 December 2022 Appendix 4 Computation of capital funds Share capital which includes– Paid-up ordinary shares/common stock Paid-up irredeemable non-cumulative preference shares plus Reserves which includes– General reserve fund less Intangible Assets43 plus Retained Profit (or less Accumulated Losses) plus Audited Profit for the period (or less Unaudited Loss for the period) 43 Including goodwill, capitalised development costs, licenses and intellectual properties. Electronic Money 69 of 76 Issued on: 30 December 2022 Appendix 5 Examples of arrangements excluded from the scope of outsourcing 1. Arrangements which entail procurement of services which are not performed by an EMI by itself in the ordinary course of its e-money business, leveraging common industry-wide infrastructure driven by regulatory requirements, and involvement of third parties due to legal requirements, are generally not considered as outsourcing arrangements. These include– (a) services for the transfer, clearing and settlement of funds or securities provided by an operator of a designated payment system or an approved operator of payment system under the FSA or IFSA; (b) global financial messaging network services provided by an operator that is owned by its member financial institutions and is subject to the oversight of relevant regulators; (c) independent consultancy service (e.g. legal opinions, tax planning and valuation); (d) independent audit assessment; (e) clearing and settlement arrangement between clearing houses and settlement institutions and their members; (f) agent banking; (g) trustee arrangement; (h) credit or market information services; (i) repair, support and maintenance of tangible assets; (j) purchase or subscription of commercially available software; (k) maintenance and support of licensed software; (l) marketing and advertising; (m) telecommunication, postal and courier service; (n) physical security, premise access and guarding services; and (o) catering, cleaning and event services. Electronic Money 70 of 76 Issued on: 30 December 2022 Appendix 6 Minimum requirements on the outsourcing agreement 1. The outsourcing agreement shall, at a minimum, provide for the following– (a) duration of the arrangement with date of commencement and expiry or renewal date; (b) responsibilities of the service provider, with well-defined and measurable risk and performance standards in relation to the outsourced activity. Commercial terms tied to the performance of the service provider must not create incentives for the service provider to take on excessive risks that would affect the EMI; (c) controls to ensure the security of any information shared with the service provider at all times, covering at a minimum− (i) responsibilities of the service provider with respect to information security; (ii) scope of information subject to security requirements; (iii) provisions to compensate the EMI for any losses and corresponding liability obligations arising from a security breach attributable to the service provider; (iv) notification requirements in the event of a security breach; and (v) applicable jurisdictional laws; (d) continuous and complete access by the EMI to its data held by the service provider in the event of a dispute with the service provider, or termination of the arrangement; (e) ability of the EMI and its external auditor44 to conduct audits and on-site inspections on the service provider and its sub-contractors, and to obtain any report or finding made in relation to the outsourced activity; (f) notification to the EMI of adverse developments that could materially affect the service provider’s ability to meet its contractual obligations; (g) measures that the service provider would take to ensure continuity of the outsourced activity in the event of an operational disruption or failure on the part of the service provider; (h) regular testing of the service provider’s BCP, including specific testing that may be required to support the EMI’s own BCP testing, and a summary of the test results to be provided to the EMI with respect to the outsourced activity; (i) the dispute resolution process in the event of default or non-performance of obligations, including remedies and indemnities where relevant; (j) circumstances that may lead to termination of the arrangement, the contractual parties’ termination rights and a minimum period to execute the termination provisions, including providing sufficient time for an orderly transfer of the outsourced activity to the EMI or another party; 44 Including an agent appointed by the EMI. Electronic Money 71 of 76 Issued on: 30 December 2022 (k) where relevant, terms governing the ability of the primary service provider to sub-contract to other parties. Sub-contracting should not dilute the ultimate accountability of the primary service provider to the EMI over the outsourcing arrangement, and the EMI must have clear visibility over all sub-contractors45. Therefore, the outsourcing agreement between the EMI and primary service provider must stipulate the following– (i) the accountability of the primary service provider over the performance and conduct of the sub-contractor in relation to the outsourcing arrangement; (ii) the rights of the EMI to terminate the outsourcing agreement in the event of excessive reliance on sub-contracting (e.g. where the sub- contracting materially increases the risks to the EMI); (iii) the requirement for the sub-contractor and its staff to be bound by confidentiality provisions even after the arrangement has ceased; and (iv) use of information shared with the service provider is limited to the extent necessary to perform the obligations under the outsourcing agreement. 45 In this respect, the primary service provider must provide sufficient notice to the EMI before entering into an agreement with the sub-contractor. Electronic Money 72 of 76 Issued on: 30 December 2022 Appendix 7 Other exit triggers For the purpose of paragraph 24.5, an EMI may take into consideration the following factors in determining the exit triggers– (a) Financial-related indicators which include but not limited to– (i) Significantly low return on equity for a continuous time period; or (ii) Significantly high cost-to-income ratio for a continuous time period. (b) Operational-related indicators which include but not limited to– (i) Prolonged and/or frequent unscheduled downtime of e-money system. (ii) Multiple successful cyber-attack incidences; or (iii) Breaches of customer information with monetary impact to customer. Electronic Money 73 of 76 Issued on: 30 December 2022 Appendix 8 Storage and transportation of sensitive data in removable media An EMI should ensure adequate controls and measures are implemented for the storage and transportation of sensitive data in removable media, including– 1. Deploying the 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, EMIs should– (a) strengthen the chain of custody process for media management which includes– (i) the media should not be under single custody at any point of time; (ii) the media should always be within sight of the designated custodians; and (iii) the media should be delivered to its target destination without unscheduled stops or detours; (b) use secure and official vehicle for transportation; and (c) use strong and tamper-proof containers for storing the media with high- security lock (e.g. dual key and combination lock); 5. Ensuring technology service providers comply with the requirements in paragraphs 1 to 4 of this Appendix, in the event outsourced services are required in undertaking the storage management or transportation process of sensitive data in removable media. Electronic Money 74 of 76 Issued on: 30 December 2022 Appendix 9 Control measures on mobile application and devices 1. An EMI should ensure digital payment services involving sensitive customer information 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 shall be prohibited from storing customer information and counterparty information used for authentication with the application server such as PIN and passwords. Authentication and verification of unique key and PIN shall 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 must be subject to authentication by the EMIs; (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 paragraph 1 of this Appendix, an EMI should also ensure the following measures are applied specifically for applications running on mobile devices used by the EMIs, appointed parties or intermediaries for the purpose of processing customer information 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; and (c) establish safeguards that ensure the security of customer information 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 fraud46. 46 This includes risks associated with malwares that enable keystroke logging, PIN harvesting and other malicious forms of customer information and counterparty information downloading. Electronic Money 75 of 76 Issued on: 30 December 2022 Appendix 10 Control measures on QR code 1. Ensure QR code authenticity which among others include– (a) QR codes are securely generated by the host server, unique for each merchant/ customer/ transaction, where dynamic QR codes should have a reasonable expiry time; (b) block QR code applications from operating on unsecured (e.g. rooted or jail- broken) devices; (c) any fake QR code shall be rejected upfront and the merchant/ customer shall be automatically notified of the authenticity of the scanned QR code; and (d) bind the QR code to the respective customer or merchant ID and transaction amount. 2. Ensure QR codes do not contain any confidential data and are not stored in endpoint devices. 3. Ensure all relevant risks associated with the use of static QR codes at participating merchants are mitigated, including but not limited to the following– (a) all information from the scanned QR codes shall be transmitted to the payment instrument’s host server for authentication; (b) educate merchants on fraud risk related to static QR codes and the preventive measures to effectively mitigate such risk (e.g. merchants shall regularly inspect the displayed static QR code to ensure it has not been tampered with); and (c) enforce masking of sensitive customer information and counterparty information when displayed on mobile devices. Electronic Money 76 of 76 Issued on: 30 December 2022 Appendix 11 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 protocols in web-facing applications. 4. Ensure technology networks including mobile and wireless networks are segregated into multiple zones according to threat profile. Each zone shall be adequately protected by various security devices including firewalls and Intrusion Prevention Systems (IPS). 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. 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 GOVERNANCE 8 Governance arrangements 9 Board of directors 12 Shariah governance 13 Fit and proper PART C OPERATIONAL AND RISK MANAGEMENT REQUIREMENTS 14 Local incorporation 15 Minimum capital funds for non-bank EMI 16 Safeguarding of funds 17 Business continuity management9F 18 Outsourcing arrangement 19 Fraud risk management 20 Account management 21 White labelling 22 Other business or activity 23 Specific requirements for registered merchant acquirers 24 Exit plan 25 Winding down or cessation of e-money business 26 Prohibitions PART D INFORMATION TECHNOLOGY (IT) REQUIREMENTS23F 27 Technology risk management 28 Technology operations management 29 Cybersecurity management 30 Technology audit 31 Internal awareness and training PART E REGULATORY PROCESS 32 Approval and notification 33 Submission requirements 34 Membership in the Financial Ombudsman Scheme APPENDICES Appendix 1 Criteria for eligible EMI Appendix 2 Limited purpose e-money Appendix 3 Responsibilities of board committees Appendix 4 Computation of capital funds Appendix 5 Examples of arrangements excluded from the scope of outsourcing Appendix 6 Minimum requirements on the outsourcing agreement Appendix 7 Other exit triggers Appendix 8 Storage and transportation of sensitive data in removable media Appendix 9 Control measures on mobile application and devices Appendix 10 Control measures on QR code Appendix 11 Control measures on cybersecurity 1 Frequently Asked Questions (FAQs) Electronic Money (E-Money) Last updated: 30 December 2022 This document supplements the policy document on Electronic Money (E-Money PD) and is intended to enhance public understanding on the requirements and to clarify interpretation issues likely to be faced by e-money issuers (EMIs) in implementing the requirements of the E-Money PD. 1. What are the key objectives of this E-Money PD? Given the increasing prominence of e-money coupled with the proliferation of e- money players and business models in the Malaysian payment landscape, the revisions in the e-money regulatory framework aim to strengthen the safety and reliability of EMIs as well as to preserve public confidence in using e-money. This is achieved via enhanced requirements on several key areas under the E-Money PD, namely- (i) re-categorisation of EMIs based on the nature of their business model and risk profile; (ii) revised minimum capital fund requirements to strengthen business resilience of the EMIs; (iii) enhanced prudential requirements on safeguarding of customers’ funds, governance and other operational risk management proportionate to the category of EMIs and the potential risks they pose. 2. What are the categories of EMIs in Malaysia? Previously, EMIs were categorised into small or large schemes based on their wallet size and outstanding e-money liabilities (OEML). With the issuance of this E-Money PD, EMIs are now classified into the following categories- (i) Standard EMI: Default category of EMI upon approval under Section 11 or Section 15(1)(e) of the Financial Services Act 2013 (FSA) or Section 11 of 2 the Islamic Financial Services Act 2013 (IFSA), where it does not meet the criteria of an eligible EMI; (ii) Limited Purpose EMI: Standard EMI which business fulfils the criteria of limited purpose e-money in Appendix 2 of the E-Money PD. Generally, LP EMI will not be subject to this PD other than as stated in paragraph 2.2 of the E-Money PD, pending the issuance of Exemption Order. Further updates on the Exemption Order on LP EMI will be made in due course; and (iii) Eligible EMI: EMI that has substantial market presence and meets the criteria as stated in the E-Money PD. This category of EMI is subjected to higher regulatory expectations. 3. Is an EMI required to self-determine its status as an eligible EMI? Yes, in determining its status, an EMI may refer to aggregated data on e-money transaction volume, transaction value and OEML available on the Bank’s website1. If an EMI fulfils any of the criteria for an eligible EMI, such EMI shall notify the Bank within three (3) months of its status. A newly upgraded eligible EMI will be given a 12-month transitional period (from the date the EMI fulfils the criteria as an eligible EMI) to comply with the additional requirements applicable to eligible EMIs (e.g., compliance with the policy documents on Risk Management in Technology and Interoperable Credit Transfer Framework). The detailed criteria to determine an eligible EMI are also listed in the Financial Services (Minimum Amount of Capital Funds) Gazette Order 2022.2 4. Can an eligible EMI who no longer satisfies the eligibility criteria be re- categorised as standard EMI and what are the processes involved? An eligible EMI who no longer fulfils all the eligibility criteria for any given calendar year and no longer intends to be categorised as an eligible EMI may notify the Bank in writing of its intention. 1 Payment Statistics published on the Bank’s website: https://www.bnm.gov.my/payment-statistics 2 All Gazette Orders are published on the Bank’s website: https://www.bnm.gov.my/gazette-order 3 The Bank upon receipt of such written notice and is satisfied that the eligible EMI no longer fulfils all the eligibility criteria for any given calendar year, may consider to re-categorise the eligible EMI as a standard EMI. The Bank shall inform in writing its decision for the EMI to cease being categorised as an eligible EMI on the date of the written confirmation or such other date specified by the Bank. 5. How often should periodic independent reviews be conducted on outsourcing and fraud risk management? The frequency of periodic independent reviews as set out in paragraphs 18.8 (outsourcing risk management) and 19.3 (fraud risk management) shall be determined by the individual EMIs considering the nature, scale and complexity of their business and corresponding risk profile. 6. Is the Bank’s approval required if EMIs intend to increase their e-money wallet size up to RM5,000? No, EMIs shall only notify the Bank prior to increasing the wallet size to any amount below the RM5,000 provided there are no material changes in the functionality and product features of the e-money, as stated in paragraph 20.9. Examples of material changes to the e-money’s functionality and product features include the introduction of new services such as peer-to-peer (P2P) transfer, cross-border payments or any other changes that may heighten the risk profile of the EMI. The following illustrations provide further examples of potential scenarios: Scenario Action required An EMI increases its wallet size to RM4,000 and increases its maximum limit of P2P transfer service from RM100 to RM300. To notify the Bank as the wallet size remains below RM5,000 and there is no material change in the functionality of the e-money. An EMI currently does not offer P2P transfer services. The EMI plans to To seek the Bank’s prior written approval as there is a material 4 increase the wallet size to RM4,000 and introduce P2P transfer services. change in the functionality of the e- money although the new wallet limit is still below RM5,000. 7. What are examples of significant changes that would require the Bank’s approval? EMIs shall seek the Bank’s approval on any proposed changes to their e-money business model that results in a significant change in its risk profile from a financial soundness, reputational or operational perspective. This includes significant variations to the EMIs’ approved business plan, offering of new products or services and the imposition of new or higher fees and charges. 8. Do non-bank EMIs need to obtain the Bank’s approval to promote or cross- sell financial products and services on their platform or system? Yes, non-bank EMIs need to obtain the Bank’s approval prior to using its e-money platform or system to promote or cross-sell any financial products and services. Examples of financial products and services include, but are not limited to, insurance or takaful products, money market funds, capital market products and derivatives. In offering such products or services, the EMIs’ responsibilities shall include ensuring that the platform used to facilitate purchase and payment transactions is secure, performing e-KYC to on-board their customers, providing timely customer service and support as well as establishing clear roles and responsibilities between EMIs and their cross-selling partners in managing complaints. For avoidance of doubt, such approval is required even for cross-selling via a platform or system of a non-bank EMI’s white-label partner. In this case, the EMIs shall also be responsible for ensuring potential risks from the mis-selling of financial products and services on the white-label partner’s platform or system are mitigated. 5 9. Is e-money subjected to the Unclaimed Moneys Act 1965? Yes, balances in e-money accounts that have been inactive for a period of seven (7) consecutive years, or any other period as may be specified by the Accountant General's Department, shall be treated as unclaimed moneys and lodged with the Registrar of Unclaimed Moneys. 10. When would an e-money account be considered inactive? In line with best practice, an e-money account is typically deemed as inactive if the customer has not made any financial transaction, such as reloading, fund transfer or purchase transaction, within a period of one (1) year or more from the last date of transaction. 11. How can customers enquire or make a complaint on e-money? Members of the public are encouraged to refer to the Bank’s website for information pertaining to the regulatory framework for e-money. Further queries or complaints on e-money or EMIs can be channelled to the Bank at 1-300-88- 5465 or https://telelink.bnm.gov.my. Electronic Money (E-Money) Feedback Statement 1 Policy Document on Electronic Money (E-Money): Summary of Key Feedback Received and the Bank’s Responses Introduction In June 2021, Bank Negara Malaysia (the Bank) issued an exposure draft on E-Money for public consultation. The Bank received feedback from more than 70 entities and wishes to record its appreciation to all respondents for providing valuable insights and constructive feedback that have in turn assisted the Bank in finalising the requirements in the policy document. The E-Money policy document issued today has incorporated, where appropriate, feedback and proposals received during the consultation period. Additionally, certain issues raised by the respondents on the policy requirements and the overall key feedback received and the Bank’s responses are summarised in the FAQs and this document, respectively, for greater clarity. Bank Negara Malaysia 30 December 2022 2 1. Revision of minimum capital fund (MCF) Feedback received: Some respondents queried on the necessity to increase the MCF given that there are already sufficient safeguards to protect customers’ interest such as the requirement to place customers’ funds in a designated account, in particular a trust account, and maintenance of a liquidity ratio of one. Clarification is also sought on the Bank’s expectation with respect to compliance with the MCF requirement based on 8% of outstanding e-money liabilities (OEML). There was also a suggestion for the computation of the MCF to include intangible assets such as goodwill, licenses and intellectual properties, given that innovation is a key component of EMI’s assets. The Bank’s response: The revised MCF is an important requirement to ensure an EMI has the necessary capacity to operate and perform its function effectively at entry and on an on-going basis, thus an indicator of business sustainability. The revised MCF is reflective of the growing prominence of e-money in the financial landscape amid increased product offerings by EMIs. For the purpose of fulfilling the MCF requirement based on 8% of OEML, the EMI shall calculate the MCF based on the monthly average of OEML in the preceding six consecutive months. In the event the EMI is required to increase the existing MCF, the adjustment to the minimum capital amount shall be reflected on timely basis no later than the following month end. With regard to the computation of MCF, it already considers the initial investment incurred particularly the technology investments. Nonetheless, the Bank has decided to exclude intangible assets given the likely challenge to liquidate such assets as a means to generate funds. This treatment is generally also consistent with how the Bank approaches capital requirements for other regulatees. 2. Flexibility on safeguarding of funds Feedback received: Some respondents queried the possibility of using alternative methods beyond trust accounts to safeguard customers’ funds and the potential to invest such funds in assets beyond the list prescribed by the Bank. The Bank’s response: The use of trust accounts is the default method for safeguarding of funds by EMIs, given the protection it provides by ringfencing the funds from potential 3 misuse* and ensuring proper distribution of funds to the respective beneficiaries. For bank EMIs, they may also retain customers’ funds in a designated account in line with current practices. Cognisant of the cost involved in setting up and managing trust accounts, the Bank may consider allowing EMIs with outstanding e-money liabilities of less than RM1 mil to use alternative methods comparable to trust accounts to safeguard customers’ funds. While an EMI is allowed to invest customers’ funds to generate income, these funds must be invested in low risk assets to safeguard customers’ interests. Based on our assessment, only assets prescribed by the Bank in the policy document are considered acceptable and qualify for high quality assets to protect customers’ interest. *Funds maintained in trust accounts can only be used for specific purposes as outlined in the E-Money PD (e.g. payment to merchants, refund to customers). 3. Risk-based authentication method for online payment transactions Feedback received: Some respondents suggested for the Bank to either increase the threshold for use of the risk-based authentication method for online payment transactions or allow EMIs to set their own thresholds based on internal risk controls and criteria. The Bank’s response: A risk-based authentication method provides EMIs with an option not to authenticate online payment transactions that are deemed to be low risk. Such flexibility is given to enhance user experience when performing a low risk online payment transaction. Based our assessment, the threshold of RM250 remains appropriate, particularly in light of rising fraud attempts. An EMI may however also adopt risk-based authentication for online payment transactions below RM10,000, where the EMI has authenticated its customer using a strong authentication method for first time use. Notwithstanding, the Bank highly encourages EMIs to authenticate all online transactions as part of security measures to foster continued public confidence in the use of e-money. 4. Timeline for compliance with IT requirements Feedback received: Some respondents requested for a longer period of up to 3 years to comply with all relevant IT requirements in view of the investments and additional resources 4 required for purposes of system upgrades, hiring of requisite subject matter experts, among other things. The Bank’s response: Based on our assessment the 1-year transition period remains a reasonable timeline considering the criticality of the enhanced IT requirement for the EMI’s business activities. The timeline also considers that the majority of industry respondents agreed that the 1-year transition period was sufficient. 5. Requirement to obtain the Bank’s approval prior to conducting e-money business Feedback received: Some respondents sought clarification on the types of products that are not deemed as e-money. The Bank’s response: Any payment instrument that satisfies the e-money definition under FSA/IFSA is required to be approved by the Bank. The FSA/IFSA defines e-money as any payment instrument, whether tangible or intangible, that- (a) stores funds in exchange of funds paid to the issuer; and (b) can be used to make payment to other person than the issuer. In this regard, any products that do not fulfil the above criteria will not be deemed as e-money. Some of the examples of payment instruments that do not constitute e-money include a payment instrument that stores funds where the funds originate from the issuer of the payment instrument, or the funds can only be used to make payment to the issuer of the payment instrument itself (issuer and merchant are from the same entity) i.e “closed loop”.

Public Notice

28 Dec 2022

List of Principal Dealers and Islamic Principal Dealers

https://www.bnm.gov.my/-/list-of-principal-dealers-and-islamic-principal-dealers

Reading: List of Principal Dealers and Islamic Principal Dealers Share: 13 List of Principal Dealers and Islamic Principal Dealers Release Date: 28 Dec 2022 List of Principal Dealers and Islamic Principal Dealers for 1 January 2023 to 31 December 2024:   List of Principal Dealers AmBank (M) Berhad CIMB Bank Berhad Citibank Berhad Hong Leong Bank Berhad HSBC Bank Malaysia Berhad J.P. Morgan Chase Bank Berhad Malayan Banking Berhad OCBC Bank (Malaysia) Berhad Public Bank Berhad RHB Bank Berhad Standard Chartered Bank Malaysia Berhad United Overseas Bank (Malaysia) Berhad   List of Islamic Principal Dealers Affin Islamic Bank Berhad AmBank Islamic Berhad Bank Islam Malaysia Berhad CIMB Islamic Bank Berhad Hong Leong Islamic Bank Berhad Maybank Islamic Berhad RHB Islamic Bank Berhad   © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

22 Dec 2022

Policy Document on Payment System Operator

https://www.bnm.gov.my/-/pd-pso-2022

https://www.bnm.gov.my/documents/20124/943361/PD-PSO-22122022.pdf, https://www.bnm.gov.my/documents/20124/943361/FS-PSO-22122022.pdf

Reading: Policy Document on Payment System Operator Share: 5 Policy Document on Payment System Operator Embargo : For immediate release Not for publication or broadcast before 1037 on Thursday, 22 December 2022 22 Dec 2022 This policy document sets out Bank Negara Malaysia's (BNM) requirements and guidance for payment system operators (PSO). It applies to operators approved under section 11 of the Financial Services Act 2013 (FSA) or section 11 of the Islamic Financial Services Act 2013 (IFSA). It also applies to operators of payment systems designated under section 30 of the FSA or section 39 of the IFSA.  The policy document outlines the regulatory requirements that relevant approved payment system operators must fulfil in order to: ensure the safety, efficiency and reliability of payment systems; preserve public confidence in the payment systems and the use of payment instruments; and ensure payment systems are aligned with relevant international standards, such as the Principles for Financial Market Infrastructures jointly issued by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions. BNM has also issued a feedback statement to address the feedback received from the industry during the consultation period for the PSO policy document. See more: Policy Document Feedback StatementBank Negara Malaysia 22 December 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Payment System Operator Policy Document Issued on: 22 December 2022 BNM/RH/PD 029-54 Payment System Operator Applicable to− 1 Approved operators of payment systems 2 Operators of designated payment systems Payment System Operator Issued on: 22 December 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 .................................. 5 PART B GENERAL REQUIREMENTS ................................................................. 6 7 Demonstration of compliance ................................................................ 6 8 Submission requirements ...................................................................... 6 PART C GOVERNANCE ...................................................................................... 8 9 Governance arrangement ..................................................................... 8 10 Board of directors .................................................................................. 8 11 Senior management .............................................................................. 9 12 Control functions ................................................................................. 10 PART D RISK MANAGEMENT AND OPERATIONAL REQUIREMENTS ......... 13 13 Risk management framework .............................................................. 13 14 Business risk ....................................................................................... 13 15 Liquidity risk ........................................................................................ 14 16 Credit risk ............................................................................................ 14 17 Operational risk ................................................................................... 15 18 Technology risk and information security ............................................ 16 19 Cybersecurity ...................................................................................... 18 20 Business continuity management ........................................................ 19 21 Outsourcing arrangement ................................................................... 20 22 Interlinkages ........................................................................................ 21 23 Recovery and orderly exit ................................................................... 22 24 Access and participation ..................................................................... 23 25 Efficiency ............................................................................................. 23 26 Transparency ...................................................................................... 24 Payment System Operator 1 of 24 Issued on: 22 December 2022 PART A OVERVIEW 1 Introduction 1.1 An operator of a payment system (PSO) performs the role of processing, clearing and settlement of payment transactions. It facilitates public and private entities, as well as consumers to transfer funds either directly from one account to another, or through the use of a payment instrument. In Malaysia, PSOs consist of both domestic and foreign-owned entities. While each of these entities may have unique characteristics depending on their different market segments and operational setups, all PSOs are regulated by Bank Negara Malaysia. 1.2 A well-functioning payment system is crucial for the efficient operation of the financial system as well as to support the needs of the economy as any disruptions may have broader system-wide implications. Therefore, effective oversight of the PSOs to ensure the safety and efficiency of all payment systems in Malaysia is fundamental to promote financial stability. 1.3 This policy document outlines requirements aimed to– (a) ensure the safety, efficiency and reliability of payment systems; (b) preserve public confidence in the payment systems and the use of payment instruments; and (c) ensure payment systems are aligned with relevant international standards, such as the Principles for Financial Market Infrastructures issued by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO). 2 Applicability 2.1 This policy document is applicable to PSO as defined in paragraph 5.2. 3 Legal provisions 3.1 The requirements in this policy document are specified pursuant to− (a) sections 33(1), 47(1) and 143 of the Financial Services Act 2013 (FSA); and (b) sections 43(1), 57(1) and 155 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. Payment System Operator 2 of 24 Issued on: 22 December 2022 4 Effective date 4.1 This policy document comes into effect on 22 December 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; “approved operator of a payment system” refers to a person approved under section 11 of the FSA or section 11 of the IFSA to operate a payment system set out in paragraph 1 of Division 1 of Part 1 of Schedule 1 of the FSA or paragraph 1 of Part 1 of Schedule 1 of the IFSA respectively; “Bank” refers to Bank Negara Malaysia; “Board” refers to the board of directors of a PSO, 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 a PSO during an event of disruption. It also prepares the PSO to resume and restore its operations and services in a timely manner during an event of disruption, thus minimising any material impact to the PSO; “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 a PSO in the event of a disruption; Payment System Operator 3 of 24 Issued on: 22 December 2022 “business risk” refers to risks related to the administration and operation of the PSO as a business enterprise, which result in the potential impairment1 of the financial condition (as a business concern) of the PSO and require the losses to be charged against capital. This excludes risks relating to the default of participants or other relevant parties, such as settlement banks or other PSO; “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 PSO’s 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; “critical business functions” refer to business functions undertaken by a PSO, where the failure or discontinuance of such business functions is likely to– (a) critically impact the PSO financially or non-financially; and (b) disrupt the provision of essential services to its participants; “cyber resilience” refers to the ability of people, processes, IT systems, applications, platforms or infrastructures to withstand adverse cyber events; “cyber resilience framework” or “CRF” refers to a framework that ensures the PSO’s cyber resilience; “cyber risk” refers to threats or vulnerabilities emanating from the connectivity of internal technology infrastructure to external networks or the Internet; “direct participant” refers to a participant that has access to a PSO’s payment, clearing or settlement facilities. For avoidance of doubt, a direct participant is directly bound by all the rules and procedures established by the PSO that is made applicable to the participant; “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 of a PSO in the event of a disruption; 1 Potential impairment may result from poor execution of business strategy, ineffective response to competition, adverse reputational effects, or other business factors. Payment System Operator 4 of 24 Issued on: 22 December 2022 “essential services” refers to financial services that are essential to support the authorisation, clearing and/or settlement of payment transactions, which must continue to be provided by a PSO in the event of a disruption; “executive director” refers to a director of a PSO who has management responsibilities in the PSO; “independent director” refers to a director of a PSO who is independent in character and judgement, and free from associations or circumstances that may impair the exercise of his independent judgement; “indirect participant” refers to a participant that has a contractual relationship with another entity (at times referred to as a sponsor institution) that is a direct participant of the PSO, and therefore has access to a PSO’s payment, clearing or settlement facilities. An indirect participant may not be directly bound by certain rules and procedures established by the PSO; “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 a PSO; “operator of a designated payment system” refers to a person who operates a payment system prescribed as a designated payment system under subsection 30(1) of the FSA or subsection 39(1) of the IFSA; “operator of a payment system” or “PSO” refers to an approved operator of a payment system and operator of a designated payment system; “outsourced service provider” refers to an internal group affiliate or external entity providing services to the PSO under an outsourcing arrangement. This could include, but is not limited to, technology-related functions or services that involve the transmission, processing, storage or handling of confidential information pertaining to the PSO; “outsourcing arrangement” refers to an arrangement in which an outsourced service provider performs an activity on behalf of the PSO on a continuing basis2, where the activity would otherwise be undertaken by the PSO3; 2 For the avoidance of doubt, an agreement which is time-bound does not preclude the activity from being considered as being performed on a continuing basis. 3 For the avoidance of doubt, system or application leveraging, data center hosting, data center operations, data storage, cloud computing services and back-up location(s) are considered as outsourcing arrangements. Payment System Operator 5 of 24 Issued on: 22 December 2022 “outsourcing risk” refers to risk emanating from outsourcing arrangements that could result in a disruption to business operations, financial loss or reputational damage to the PSO4; “recovery time objective” or “RTO” refers to the timeframe required for systems and applications of a PSO 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; “senior management” refers to the Chief Executive Officer (CEO) and senior officers of the PSO; “Technology Risk Management Framework” or “TRMF” refers to a framework that safeguards the PSO’s information infrastructure, system and data; and “tiered-participation arrangement” refers to an arrangement where an indirect participant relies on the services provided by the direct participant of a PSO in order to access the PSO’s payment, clearing or settlement facilities. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant 5 legal instruments and policy document that have been issued by the Bank, and any subsequent review on such documents, in particular – (a) Business Continuity Management; (b) Fit and Proper Criteria for Approved Person; (c) Interoperable Credit Transfer Framework; (d) Management of Customer Information and Permitted Disclosures; (e) Operational Risk Reporting; (f) Payment Cards Framework; and (g) Risk Management in Technology (RMiT). 4 This includes strategic risk, reputational risk, compliance risk, operational risk, exit strategy risk, counterparty risk, country risk, contractual risk, information security risk and concentration risk. 5 For the avoidance of doubt, where relevant, a PSO shall also comply with specific requirements of the Bank’s policy document on areas such as Business Continuity Management, RMiT and any subsequent enhancements to these policy documents issued thereafter. Payment System Operator 6 of 24 Issued on: 22 December 2022 PART B GENERAL REQUIREMENTS 7 Demonstration of compliance S 7.1 The requirements set out in this policy document shall apply to PSOs on an ongoing basis. G 7.2 For PSOs that leverage on its parent and/or other foreign related entities to support the offering of its services in Malaysia, the PSO may demonstrate its compliance with the requirements in the policy document based on the existing arrangements/practices adopted by the PSO. S 7.3 For purposes of paragraph 7.2, a PSO shall demonstrate its compliance with the requirements in the policy document by submitting relevant documentary evidence and justification6 to the Bank which shall be signed off by a senior officer who is authorised by the PSO for the Bank’s assessment. For the avoidance of doubt, submission of documentary evidence and justification alone does not automatically result in full compliance by the PSO. S 7.4 A PSO shall notify the Bank and submit updated documentary evidence and justification, if relevant, as and when there are material changes that affect compliance with the requirements of this policy document. S 7.5 In relation to paragraphs 7.3 and 7.4– (a) a PSO shall submit additional information and/or documentary evidence to the Bank upon request to facilitate the Bank’s review of the PSO’s demonstration of its compliance; and (b) the Bank reserves the right to review and assess whether the documentary evidence submitted by the PSO adequately fulfils the expectations of the policy document. 8 Submission requirements S 8.1 The following information7 shall be made available to the Bank upon request to facilitate the Bank’s ongoing supervisory oversight– (a) incident reports; (b) system and service availability reports; (c) audit reports8; 6 Documentary evidence may include audit reports, assessments from home regulators, attestation of compliance and any other relevant documents. 7 Subject to the Bank’s approval, a PSO may submit relevant attestation in lieu of the information requested. 8 Refer to both internal and external audit reports. Payment System Operator 7 of 24 Issued on: 22 December 2022 (d) annual audited financial statements9; and (e) any other information as may be required by the Bank. [The remainder of this page is intentionally left blank] 9 Annual audited financial statements may be prepared in accordance with accounting standards applied in the respective home jurisdiction of a PSO. Payment System Operator 8 of 24 Issued on: 22 December 2022 PART C GOVERNANCE 9 Governance arrangement S 9.1 A PSO shall establish appropriate governance arrangements which are clear and transparent. To ensure resilient and efficient operations of the payment systems that support overall financial stability and other relevant public interest considerations, governance arrangements shall include, among others, the following– (a) board of directors (the board) and senior management that consist of persons with calibre, credibility and integrity; (b) clearly defined and documented organisational and operational arrangements, such as reporting lines between management and the board, ownership, management structure and control functions; and (c) segregation of duties and internal controls to promote good corporate culture that reinforces ethical, prudent and professional behaviour, as well as reduces the chances of mismanagement and fraud. 10 Board of directors S 10.1 The board must have a board charter that sets out the mandate, responsibilities and procedures of the board and its committees (if any), including matters reserved for the board’s decision. G 10.2 Board committees10 should be established to assist the board in executing its duties and responsibilities. A board is encouraged to have, among others, a risk committee, an audit committee and a remuneration committee, or equivalents. S 10.3 The board shall have the overall responsibility for promoting the safety, efficiency and reliability of the payment system which include– (a) approving the strategic objectives, business plans and significant policies, including its risk appetite; (b) overseeing the selection, performance, remuneration and succession plans of senior management, such that the board is satisfied with the collective competence of senior management to effectively lead the operations of the PSO; (c) ensuring clear lines of responsibility and accountability are established and communicated throughout the organisation; (d) establishing and providing oversight to the risk management function and material risk decisions, which include ensuring appropriate risk 10 Board committees should be composed mainly of, and led by, non-executive or independent directors. Payment System Operator 9 of 24 Issued on: 22 December 2022 management policies, processes and infrastructure to manage the various types of risks, are in place and effectively implemented; (e) ensuring the independence and effectiveness of internal control functions (refer to detailed requirements in paragraph 12); (f) oversee and approve business continuity plans and ensure such plans are updated, particularly as and when there are material changes to the size, nature and complexity of the PSO operations that can significantly affect the said plans; (g) promote timely and effective communication between the PSO and the Bank on matters affecting or that may affect the safety, efficiency and reliability of the PSO; and (h) ensuring compliance with legal and regulatory obligations, including institution-specific supervisory requirements and expectations. S 10.4 The board shall be composed of suitable members with appropriate mix of skills, experience and knowledge to effectively carry out their responsibilities. S 10.5 The board shall include non-executive directors, including independent directors. S 10.6 The board must be able to devote sufficient time to their roles and maintain a sound understanding of the business of the PSO as well as relevant market and regulatory developments. 11 Senior management S 11.1 The senior management shall be responsible for the following– (a) implement business and risk strategies and other strategic plans, such as technology plans and the associated technology policies and procedures, in accordance with the direction given by the board; (b) establish and implement effective policies and procedures, among others, in the following areas– (i) risk management and appropriate controls to manage and monitor risks (refer to detailed requirements in paragraph 12); (ii) due diligence and oversight to manage outsourced arrangements supporting the payment system operations; and (iii) sufficient and timely reporting or escalation of issues to the Board; and (c) ensure a robust assessment is conducted on any deviations11 from legal and regulatory requirements as well as internal policies and procedures. This includes addressing any supervisory concerns and the progress of 11 For avoidance of doubt, the requirement is applicable to both internal policies and procedures as well as policy documents issued by the Bank. Payment System Operator 10 of 24 Issued on: 22 December 2022 remedial actions taken to address them, with material information to be reported to the board in a timely manner. S 11.2 The senior management shall consist of individuals with the necessary skill set, competencies and experience to adequately support the operation and risk management of the PSO. This shall include individuals with appropriate technology background to provide guidance on the PSO’s technology plans and operations. S 11.3 For the purpose of paragraph 11.2, a PSO shall ensure that a designated staff who does not engage in the day-to-day technology operations shall be responsible for the identification, assessment and mitigation of technology risks. 12 Control functions G 12.1 The board and senior management should create an environment which: (a) ensure the PSO and its officers comply with legal and regulatory requirements that are applicable; (b) adopt appropriate risk management practices; and (c) encourage ethical conduct that underlies the above-mentioned requirements. S 12.2 The board is responsible for the effectiveness of a PSO’s control functions. The board shall– (a) ensure the PSO’s overall risk profile is consistent with the business strategy and risk appetite; (b) ensure a clear, well-documented and effective risk management framework that is appropriate to the nature, scale and complexity of its activities is in place; (c) ensure the internal control functions are established and allocated with sufficient resources, and ensure that the said functions and officers are provided with appropriate stature, authority and independence; (d) ensure the internal control functions are resourced by officers who have appropriate skills and knowledge to effectively support the PSO’s internal control framework; and (e) provide relevant officers with direct and unimpeded access to the board. S 12.3 In managing the technology and cybersecurity risks, the board shall– (a) establish and approve the technology risk appetite which is aligned to the PSO’s overall risk appetite statement. The board shall approve the corresponding risk tolerance for technology-related events and ensure key performance indicators are in place to monitor the PSO’s technology risk against its approved risk tolerance; Payment System Operator 11 of 24 Issued on: 22 December 2022 (b) ensure senior management provides regular updates on the status of these indicators, key technology risks and critical technology operations to facilitate strategic decision-making; and (c) ensure the adequacy of the PSO’s IT and cybersecurity strategic plans. These plans shall address the PSO’s requirements on infrastructure, control measures to mitigate IT and cyber risk as well as financial and non- financial resource needs. The plans shall be commensurate with the complexity of the PSO’s operations and may require refinements in response to changes in the risk profile and business environment. These plans shall be periodically reviewed. G 12.4 Given the rapidly evolving cyber threat landscape, the board should allocate sufficient time to discuss cyber risks and related issues, including the strategic and reputational risks associated with such cyber-incidents. The board should ensure it is kept abreast of developments on cyber threats and cybersecurity preparedness through on-going education and training. The PSO should ensure that these efforts are also supported by engagements with external experts where relevant. S 12.5 The senior management is responsible for the effective management of a PSO’s internal control framework. In discharging its responsibility, senior management shall– (a) establish a control function commensurate with the size, nature of operations and complexity of the PSO; (b) provide sufficient resources for the control function, including officer(s) with appropriate competencies and experience; (c) report periodically to the board on compliance or risk issues and promptly on any material incidents of non-compliance; and (d) report periodically to the board on the effectiveness of the PSO’s overall management of compliance and risk management. S 12.6 The board and senior management shall ensure that the risk management and control framework is periodically reviewed for continued effectiveness. This includes ensuring an audit by an independent party is conducted with reasonable frequency to detect weaknesses and enable corrective measures to be taken in a timely manner. S 12.7 The control function must be independent of the business lines in order to carry out its role effectively. As such, a PSO must ensure that the control function is not placed in a position where there are real or potential conflicts in respect of, amongst others, scope of responsibilities, reporting lines or compensation. Payment System Operator 12 of 24 Issued on: 22 December 2022 S 12.8 The compliance function shall identify and assess the compliance risk associated with the PSO’s activities. A designated compliance officer shall report to senior management on a regular basis the findings and analyses of compliance risk. The reports must be readily available to internal audit function of the PSO, the Bank and other relevant authorities upon request. S 12.9 The internal audit function shall inform senior management, including the risk or compliance officer (or equivalent), of any incidents of non-compliance or material risks that it discovers. [The remainder of this page is intentionally left blank] Payment System Operator 13 of 24 Issued on: 22 December 2022 PART D RISK MANAGEMENT AND OPERATIONAL REQUIREMENTS 13 Risk management framework S 13.1 A PSO shall establish a risk management framework, which includes policies, procedures and systems, that enables the identification, measurement, control and continuous monitoring of all relevant and material risks, including risks that a PSO bears from and poses to its participants and other relevant parties12 as a result of interdependencies. S 13.2 In establishing the risk management framework, the PSO shall– (a) align the framework with the PSO’s risk appetite; (b) clearly assign responsibilities and accountabilities for risk decisions; and (c) ensure the framework facilitates efficient decision making in crises. S 13.3 The framework shall be periodically reviewed for continued effectiveness and be supported by a robust management information system that facilitates the timely and reliable monitoring and reporting of risks. S 13.4 A PSO 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 PSO, to ensure risks are managed and mitigated in a timely manner. The reports must be readily available to the internal audit function of the PSO, the Bank and other relevant authorities upon request. 14 Business risk S 14.1 A PSO shall establish robust management and control systems to identify, monitor and manage its business risk and hold adequate liquid net assets funded by equity13 which are commensurate with its business risk profile and is sufficient to support its operations as a going concern under normal and stressed operating conditions. G 14.2 A PSO may consider using a combination of tools such as risk management and internal control assessments, scenario analysis, and sensitivity analysis to identify business risks that may affect the PSO. S 14.3 A PSO shall, at a minimum, maintain liquid net assets funded by equity equal to at least six months of current operating expenses. 12 This may include other PSOs, settlement banks, liquidity providers, and service providers. 13 This may include ordinary shares, disclosed reserves, and retained earnings. Payment System Operator 14 of 24 Issued on: 22 December 2022 G 14.4 In determining the appropriate level of liquid net assets funded by equity to be maintained internally, a PSO should consider its general business risk profile and the length of time required for a recovery or orderly exit that is appropriate to the critical business functions of the PSO in the event such action is taken. 15 Liquidity risk S 15.1 A PSO shall establish a liquidity risk management framework to effectively identify, measure, monitor and manage liquidity risks faced by the PSO, including risks from its participants and other relevant parties. S 15.2 A PSO shall measure and monitor its settlement and funding flows as well as maintain adequate liquid resources in all relevant currencies to ensure smooth settlement under normal or stressed operating conditions. G 15.3 In determining the sufficiency of liquid resources including in terms of type and amount, a PSO should regularly conduct stress testing14 which considers a range of relevant scenarios. Stress test results should be reported to the board and senior management to facilitate effective decision making on a timely basis and these results may also be used to validate the risk mitigation plans of a PSO, where relevant. S 15.4 A PSO shall establish clear rules and procedures to address any unforeseen and potentially uncovered liquidity shortfalls, including the process of replenishing liquidity resources it may employ during a stress event, in order to continue operating in a safe and sound manner. 16 Credit risk S 16.1 A PSO shall establish a credit risk management framework to effectively measure, monitor and manage its credit exposures to participants and other relevant parties15 from its payment, clearing and settlement processes as well as to maintain sufficient financial resources16 to cover its credit exposure to each participant. G 16.2 A PSO should establish adequate processes to effectively manage its credit concentration risks, including through the establishment of exposure limits which 14 A PSO may also conduct reverse stress testing or simulations to identify scenarios and/or extreme market conditions in which a PSO’s liquid resources would be insufficient. For the avoidance of doubt, reverse stress testing is derived from a known adverse outcome and deduces possible forward- looking scenarios that could lead to such an outcome materialising for a PSO. 15 Other relevant parties may include settlement banks and custodians. 16 Financial resources may include collateral and other equivalent financial resources. Payment System Operator 15 of 24 Issued on: 22 December 2022 are determined based on potential losses that can jeopardise the solvency of, or public confidence in, the PSO. G 16.3 In determining the amount and assessing the sufficiency of financial resources, a PSO should regularly conduct stress testing17 which considers a range of relevant scenarios. Stress test results should be reported to the board and senior management to facilitate effective decision making on a timely basis and the results may also be used to validate the risk mitigation plans of a PSO, where relevant. S 16.4 A PSO shall establish clear rules and procedures to address any credit losses as a result of default among its participants with respect to their obligations to the PSO. This includes the process a PSO must employ to replenish financial resources during a stress event, for it to continue operating in a safe and sound manner. S 16.5 A PSO shall establish appropriate collateral management practices which include processes and procedures to support robust and reliable valuation, adequate monitoring of the collateral’s condition and timely liquidation. G 16.6 For purposes of paragraph 16.5, a PSO may, as appropriate– (a) establish concentration limits for holdings of certain collateral, such as for collateral which are susceptible to high price volatility; and (b) regularly mark-to-market the collateral and develop appropriate haircuts that are regularly validated, taking into account stressed market conditions to ensure sufficiency of collateral in the event of liquidation. G 16.7 A PSO should be supported with a robust collateral management system to facilitate ongoing monitoring and management of collateral. 17 Operational risk S 17.1 A PSO shall establish a robust management and control systems to identify, measure, monitor and manage sources of operational risk. S 17.2 A PSO shall identify and assess the potential vulnerabilities from the operational risk it faces on an ongoing basis and ensure appropriate mitigation measures are implemented to address such risks on a timely basis. S 17.3 A PSO shall ensure sufficient resources with appropriate competencies and experience are employed to effectively manage the operational risk of a PSO, 17 A PSO may also conduct reverse stress testing or simulations to identify scenarios and/or extreme market conditions in which a PSO’s financial resources would be insufficient to cover tail risks. Payment System Operator 16 of 24 Issued on: 22 December 2022 which include operating its systems safely and efficiently during normal and stressed periods. System and service availability S 17.4 A PSO shall establish adequate controls and measures to ensure the reliability, efficiency and smooth operation of the payment system with minimal disruption and to achieve high availability of the payment system and service. S 17.5 For purposes of paragraph 17.4, the PSO shall define the service level objectives and set minimum service-level targets for the operation of the payment system. S 17.6 A PSO shall ensure that the payment system has adequate capability and capacity to effectively manage its operations at all times including under stressed scenarios18. S 17.7 A PSO shall regularly monitor and test the actual capacity and performance of the payment system19, as well as, plan for changes in volume or business patterns. The PSO shall also regularly conduct stress testing to verify whether the payment system can handle huge volumes of transactions under extreme circumstances. G 17.8 In conducting stress testing as specified under paragraph 17.7, a PSO should ensure at minimum, the following– (a) detailed approach and methodology of stress testing scenarios are adequately established and tested to ensure comprehensive coverage; (b) participants’ involvement in stress testing to identify weak system linkages and bottlenecks; and (c) stress testing results are reviewed and updated as and when is required to ensure continued relevance and effectiveness of approach and scenarios. 18 Technology risk and information security S 18.1 A PSO shall establish a technology risk management framework, to safeguard the PSO’s information infrastructure, systems and data, which shall be an integral part of the PSO’s risk management framework. 18 E.g. high volume or erratic transaction, and prolonged disruption. 19 For the avoidance of doubt, this should include monitoring and testing of the backup or recovery system, to ensure that the system is able to resume operations in the event of main system outage. Payment System Operator 17 of 24 Issued on: 22 December 2022 S 18.2 A PSO shall ensure confidentiality, integrity and availability of information held within the payment system by putting in place adequate controls to safeguard the information20 and retention of all information including sensitive data. S 18.3 In relation to paragraph 18.2, the PSO shall also ensure their relevant stakeholders, including outsourcing service providers, put in place appropriate controls to safeguard the confidentiality, integrity and availability of sensitive data. G 18.4 In ensuring the confidentiality, integrity and availability of information held within internal systems, the PSO should undertake the following– (a) develop a comprehensive data management framework that includes collection, identification, classification, handling, retention and disposal of data; (b) ensure there is sufficient back-up mechanism in place to facilitate access to all data and information, including critical data and information at all times; (c) ensure that information maintained in the system are not disclosed or accessible to any unauthorised users or third parties, and any changes or revision to the data and the system can only be made with proper authorisation; (d) ensure that there are sufficient controls put in place to minimise human error, mishandling or any other potential gaps; (e) conduct an IT risk assessment and identify appropriate mitigation measures to address risks identified through this assessment. The scope of the assessment should include but is not limited to the risk assessment on data security, business continuity management and fraud management; (f) conduct periodic review on the configuration and rules settings for all security devices. Automated tools shall be used to review and monitor changes to the configuration and rules settings; (g) perform regular vulnerability assessments and penetration tests on the infrastructure and technology ecosystem and ensure any material findings identified in such testing are rectified prior to operationalisation; (h) implement a fraud detection system to monitor suspicious or fraudulent transactions; and (i) implement an appropriate intruder detection and prevention system to monitor, detect and prevent any abnormal or suspicious network traffic within the PSO’s internal network. G 18.5 As part of effective management of sensitive data, the PSO may implement the following– 20 From data input into real-time backup. Payment System Operator 18 of 24 Issued on: 22 December 2022 (a) conduct periodic review of privileged users21 and the access rights given; (b) ensure technology networks are segregated into multiple zones according to their risk profile; (c) implement multi-layer network security and devices; (d) implement end-to-end encryption for external communication; (e) ensure protection of important data and information in use, in storage and in transit by adopting industry standards for encryption algorithms, message authentication, hash functions, digital signatures and random number generation; (f) establish proper controls to limit risk of potential data leakage; (g) establish audit trail capabilities; and (h) practise timely security patches for operating systems and application systems. 19 Cybersecurity S 19.1 A PSO shall develop a CRF which articulates the PSO’s governance for managing cyber risks, its cyber resilience objectives and risk tolerance, with due regard to the evolving cyber threat environment. Objectives of the CRF include ensuring operational resilience against extreme but plausible cyber-attacks. G 19.2 As part of the CRF specified under paragraph 19.1 and in ensuring proper cybersecurity controls are in place, a PSO should undertake the following: (a) actively manage software and hardware inventories and ensure updated records are adequately maintained; (b) adopt an appropriate access control policy including explicitly verifying user access by adopting the principles of least privilege22 and separation of duties for staff, outsourced service providers, as well as related parties in outsourcing arrangements and related counterparties; (c) ensure critical systems, applications and data are backed up and protected from deliberate erasure or encryption; (d) ensure micro segmentation of networks based on criticality and risk profile of assets; (e) perform continuous and integrated security monitoring of IT infrastructure (network, systems and endpoints) including effective collection, analysis and retention of audit logs; (f) adopt multi-factor authentication for all access; (g) perform regular vulnerability assessment and rapid patching of critical vulnerabilities; 21 Including outsourced service providers. 22 This refers to having access on a ‘need-to-have’ basis where only the bare minimum permissions are granted to legitimate users so that they can effectively perform their roles. Payment System Operator 19 of 24 Issued on: 22 December 2022 (h) establish and periodically test incident response programs to prepare, detect and rapidly respond to cyber-attacks; (i) periodically test the effectiveness and resiliency of IT systems and networks by adopting intelligence-led penetration testing; (j) strengthen security configurations by minimising security misconfigurations and avoiding use of default security settings of software and hardware – include periodic security reviews and whenever material changes are made to IT systems/networks; (k) implement the use of endpoint malware defence tools including rapid detection and response; and (l) provide adequate and regular technology and cybersecurity awareness training programmes that reflect current cyber threats for all staff, including the board. 20 Business continuity management S 20.1 A PSO shall ensure an effective and comprehensive BCP and DRP for all critical business functions to ensure continuity and timely recovery of operations in the event of contingencies. G 20.2 In relation to paragraph 20.1, the PSO should ensure the following: (a) detailed contingency plans are established for a variety of plausible scenarios 23 and fully operational back-up arrangements for critical communication and IT systems, crucial data and key personnel are in place; (b) ensure the PSO, its participants, outsourced service providers and other relevant counterparties24 have effective BCP and DRP which are regularly tested and cover appropriate test scenarios, to ensure their reliability and effectiveness of the recovery strategies and procedures; and (c) the BCP and DRP are reviewed and updated on a regular basis to ensure its continued relevancy and effectiveness. S 20.3 A PSO shall determine the MTD and RTO for all critical business functions. S 20.4 A PSO shall conduct an independent assessment on the adequacy and effectiveness of its BCM framework, policies and procedures including the testing of BCP and DRP. 23 For the avoidance of doubt, this should include extreme plausible scenarios such as all systems down. 24 E.g. onshore settlement institution or cross-border links. Payment System Operator 20 of 24 Issued on: 22 December 2022 S 20.5 A PSO shall ensure adequate organisational understanding and training on BCM such that all levels of staff are well equipped to effectively perform their roles. 21 Outsourcing arrangement S 21.1 A PSO shall remain responsible and accountable for any services performed by an outsourced service provider. G 21.2 A PSO should conduct appropriate due diligence of the outsourced service provider, at the point of considering new service-level arrangements (SLA), and when renewing or renegotiating existing SLAs. S 21.3 A PSO shall identify and have an in-depth understanding of potential risks25 arising from the SLA. The scope and nature of services and operations to be performed by the outsourced service provider should not compromise the risk management and internal controls of the PSO. S 21.4 In relation to the requirement specified in paragraph 21.3, the PSO shall ensure that the SLA are established in a manner which do not affect– (a) the PSO’s ability to effectively monitor the outsourced service provider and execute its BCP; (b) the PSO’s ability to promptly recover data in the event of the outsourced service provider’s failure that would critically impact or disrupt the PSO’s Malaysian operations, having due regard to the laws of the particular jurisdiction in the case where the outsourced service provider is located in a different jurisdiction from the PSO; and (c) the Bank’s ability to exercise its regulatory or supervisory powers, in particular the Bank’s timely and unrestricted access to systems, information or documents from the PSO relating to the outsourced service provider arrangement in the event that such service would critically impact or disrupt the PSO’s Malaysian operations. G 21.5 A PSO should exercise effective oversight on the outsourced service provider, as would have been the case if they were performed in-house which includes the following– (a) conduct regular review and monitoring of contracts and SLAs with the outsourced service provider to ensure the integrity and quality of work conducted by the outsourced service provider is maintained; (b) ensure effective controls are in place to safeguard the confidentiality, integrity and availability of any information shared with the outsourced 25 Including operational, financial and IT related risk. Payment System Operator 21 of 24 Issued on: 22 December 2022 service provider including proper escalation and resolution in handling disputes or complaints raised by the relevant stakeholders; (c) ensure the storage of its data is at least logically segregated from the other clients of the outsourced service provider with appropriate controls and periodic review of user access; (d) ensure data residing in the outsourced service provider are recoverable in a timely manner; (e) ensure clearly defined arrangements with the outsourced service provider are in place to facilitate the PSO’s immediate notification and timely update to the Bank and other relevant authorities in the event of a cyber-incident; and (f) ensure proper communication procedures and processes are in place where the participants or related stakeholders clearly understand the roles and responsibilities of the outsourced service provider to enable them to adequately manage their risks related to using their services. S 21.6 A PSO shall ensure any critical systems hosted by the outsourced service provider have strong recovery and resumption capabilities, and can facilitate an orderly exit in the event of failure or unsatisfactory performance by such provider. S 21.7 A PSO shall have a contingency plan or arrangements to secure business continuity in the event the arrangement with the outsourced service provider is suddenly terminated or fails to provide necessary support26. The contingency plan shall be periodically reviewed to ensure that the plan is current and remains appropriate for timely implementation. G 21.8 For outsourcing involving cloud services, the PSO may rely on third party certification and reports made available by the cloud service provider for the audit27, provided such reliance is supported by an adequate understanding and review of the scope of the audit and methods employed by the third party, and timely access to the third party and service provider to clarify matters relating to the audit. 22 Interlinkages S 22.1 For the purposes of paragraphs 22.2 and 22.3, the requirements shall be applicable to a PSO that establishes a link arrangement with other counterparties28. 26 Including insolvency or lack of resources issue. 27 For the avoidance of doubt, such certifications or reports should not substitute the PSO’s right to conduct on-site inspections where necessary. 28 E.g. Cross-border links with another payment system, either directly or through intermediaries. Payment System Operator 22 of 24 Issued on: 22 December 2022 S 22.2 A PSO shall conduct appropriate due diligence and assessment on the potential risks that could arise from the link arrangement prior to entering into an arrangement with other counterparties. This shall include the risks associated with the different legal requirements in the case where the counterparties are located in different jurisdictions from the PSO. S 22.3 A PSO shall ensure that its agreement with the counterparties clearly indicates the rights and responsibilities of each party, which at minimum, shall include the following– (a) safeguarding the confidentiality, integrity and availability of any information shared; (b) ensure appropriate controls for all established interlinkages to external systems; (c) ensure appropriate controls are in place to ensure the reliability, efficiency and smooth operation of the interlinkages system with minimal disruption and to achieve system and service high availability; (d) proper escalation and resolution in handling disputes or complaints raised by the relevant stakeholders; (e) ensure any enhancements or changes associated with the link arrangements do not pose significant operational risk to the other counterparties; and (f) ensure clearly defined arrangements with the counterparties are in place to facilitate the PSO’s ability to immediately notify and provide timely updates to the Bank and other relevant regulatory bodies in the event of a cyber-incident. 23 Recovery and orderly exit S 23.1 A PSO shall continuously identify plausible scenarios that may prevent its ability to provide its critical operations and services as a going concern or in the event a PSO exits29 the market and assess the effectiveness of options for recovery or orderly exit under these scenarios. S 23.2 A PSO shall establish appropriate plans for its recovery or orderly exit, including its communication strategy with the Bank and other relevant stakeholders to mitigate any unintended consequences. The plans shall be periodically reviewed and updated, where necessary, to ensure it remains relevant. 29 A PSO may exit the market either by (i) revocation of approval to operate in Malaysia by the Bank; or (ii) voluntary exit of a PSO from the market. Payment System Operator 23 of 24 Issued on: 22 December 2022 24 Access and participation S 24.1 A PSO shall establish fair and open access criteria for participants of its payment system that are objective, transparent and risk-based to commensurate with the risk profile of the participants. G 24.2 For purposes of paragraph 24.1, the PSO may set reasonable risk-related participation requirements to mitigate potential risks posed by the participants to the payment system. S 24.3 For tiered-participation arrangements, the PSO shall ensure the following: (a) establish rules, procedures and arrangements with the direct participants to enable the PSO to obtain information on indirect participants for the purpose of risk identification and monitoring; (b) identify the significant dependencies between direct and indirect participants that may adversely affect30 the PSO; and (c) regularly review the risks associated with the tiered-participation arrangements and institute appropriate mitigating measures. S 24.4 A PSO shall put in place measures to monitor the compliance of its participants with the participation requirements on an ongoing basis. S 24.5 A PSO shall clearly outline and disclose the procedures on the suspension or orderly exit of a participant in the event its participant has breached or is no longer able to meet the participation requirements. 25 Efficiency S 25.1 A PSO shall ensure the payment system offered meets the needs of its participants and the market it serves, with respect to, among others, clearing and settlement arrangements, operating structure31, and the use of technology and communication procedures. G 25.2 In meeting the requirement specified in paragraph 25.1, the PSO is advised to consider relevant factors such as the practicality and cost structure for its participants and other relevant stakeholders. G 25.3 In addition to paragraph 25.2, a PSO is encouraged to put in place a mechanism to facilitate continuous engagement with its participants and other relevant 30 For example, exposures that could arise from credit risk and liquidity risk. 31 For example, where the PSO is involved in cross-border links or outsourced arrangements with service providers. Payment System Operator 24 of 24 Issued on: 22 December 2022 stakeholders to receive feedback such that the PSO continues to meet the needs of its participants and the market. S 25.4 For the purposes of paragraph 25.1, a PSO shall establish a clearly defined, measurable and achievable efficiency objective32 to ensure it remains effective in the manner that the PSO operates. S 25.5 A PSO shall regularly review the progress against its targeted objectives to ensure the efficiency and effectiveness of its payment system. 26 Transparency S 26.1 A PSO shall ensure that the established rules and procedures for its participants are clear, comprehensive, up-to-date and fully disclosed to its participants. S 26.2 A PSO shall ensure the processes for proposing and implementing changes to its rules and procedures as well as the communication of these changes to its participants and relevant authorities are clear and fully disclosed. G 26.3 A PSO is encouraged to provide participants with all relevant documentation, training and information, including the risks that participants may face from participating in the payment system to facilitate their understanding on the rules and procedures. S 26.4 A PSO shall disclose its fees and relevant information to its participants, including prospective participants, to allow participants to assess the total cost of participating in the payment system and/or the services offered by the PSO. S 26.5 A PSO shall ensure that it provides sufficient advance notice to its participants of any changes to the fees made. 32 For example, in the areas of minimum service level targets, risk management expectations and business priorities. Feedback Statement - Payment System Operator Policy 1 Response to feedback received Payment System Operator Introduction The Bank has finalised and issued the policy document on Payment System Operator (PSO PD) with the main objective of ensuring the safety, efficiency and reliability of payment systems in Malaysia. To ensure the objectives set out in the PSO PD are met and to facilitate effective implementation, the Bank had continuously engaged the industry for feedback. Based on the feedback received, the Bank had undertaken further refinements to the regulatory requirements as reflected in the final PSO PD. Further clarification on these revisions as well as the Bank’s responses on other areas raised by the industry players are set out in this document. The Bank wishes to record its appreciation to all respondents for providing valuable insights and constructive inputs that have helped the Bank in finalising this PSO PD, which will take effect immediately. Bank Negara Malaysia 22 December 2022 2 1. Demonstration of compliance 1.1 Some respondents have proposed for the policy document to recognise the operating structures and business practices of PSOs which leverage on its parent and/or foreign related entities to offer its services in Malaysia, in order to minimise compliance burden. This includes areas relating to a PSO’s governance, risk management and operations. 1.2 In the finalised PD, the Bank has acknowledged the different structures and practices of PSOs operating in Malaysia which comprise of both domestic and foreign-owned PSOs. Therefore, in meeting the requirements of the PD, the PSOs may demonstrate their compliance based on their existing group structures and practices of individual PSOs, where relevant, supported by documentary evidence1. These documentary evidence may include audit reports, assessments from home regulators, attestation of compliance and other relevant documents as may be requested by the Bank. 1.3 A PSO must ensure that such documents are verified and signed off by an authorised senior officer for submission to the Bank. 2. Business risk and credit risk Adequacy of liquid net assets funded by equity and financial resources 2.1 A few respondents have sought clarity on whether PSOs are allowed to self- determine the adequacy of liquid net assets funded by equity as well as financial resources to cover its credit exposure to each participant. They also enquired on whether the minimum amount of liquid net assets funded by equity required should be determined based on a PSO’s Malaysian operations only. 2.2 At minimum, a PSO shall maintain liquid net assets funded by equity equal to at least six months of its current operating expenses. Notwithstanding, a PSO shall also ensure that its overall adequacy of liquid net assets funded by equity is reflective of its business risk profile and is sufficient to support its operations as a going concern under normal and stressed operating conditions. 2.3 In computing the current operating expenses, it should generally be made in reference to the Malaysian operations of a PSO. In cases where the 1 For the avoidance of doubt, documentary evidence and justification shall be submitted to Jabatan Pemantauan Perkhidmatan Pembayaran (JPP) 3 calculations of operating expenses are prepared on a consolidated basis covering operations of activities outside of Malaysia as well, a PSO may justify and demonstrate its compliance to the Bank based on its existing practices. 2.4 Unlike liquid net assets funded by equity, a PSO may self-determine the sufficiency of financial resources to cover its credit exposure to each participant, based on its risk assessment on the participant. 3. Outsourcing arrangement The Bank’s power on the PSO’s outsourcing arrangement 3.1 Respondents have expressed concern on the Bank’s right to access information or documents relating to a PSO’s outsourcing arrangements. This is in view that foreign-owned PSOs typically execute their outsourcing arrangements at group/regional level and therefore, information may cover activities beyond the PSO’s Malaysian operations. 3.2 The Bank wishes to clarify that the primary objective of requiring access to information on a PSO’s outsourcing arrangement is to ensure the soundness of the PSO’s Malaysian operations. While the focus is only on outsourcing arrangements related to the PSO’s Malaysian operations, it is essential for the Bank to have access to other outsourcing arrangements that could potentially disrupt the PSO’s Malaysian operations, for effective supervision or intervention. Cognizant of the concern raised, the Bank may accept such information in the form of the PSO’s independent assessment of the outsourcing arrangements and/or information from the outsourced service provider.

Public Notice

16 Dec 2022

Joint Committee on Climate Change (JC3) issues Climate Data Catalogue and accompanying Report 

https://www.bnm.gov.my/-/jc3-climate-data-catalog

https://www.bnm.gov.my/documents/20124/3770663/JC3-Report-on-Climate-Data-2022.pdf

Reading: Joint Committee on Climate Change (JC3) issues Climate Data Catalogue and accompanying Report  Share: 117 Joint Committee on Climate Change (JC3) issues Climate Data Catalogue and accompanying Report  Embargo : For immediate release Not for publication or broadcast before 1500 on Friday, 16 December 2022 16 Dec 2022 The Joint Committee on Climate Change (JC3) today issued the Climate Data Catalogue (“data catalogue”) and an accompanying report that summarises its key findings and outlines recommendations to bridge the data gaps. The data catalogue contains critical data needed by the financial sector to support pre-identified use cases, and includes data that are available, partially available, and unavailable, as well as observations on data gaps. The data catalogue is aimed at serving as a source of reference on climate and environmental data for the financial sector, and represents a call to action for stakeholders to collectively improve the availability and accessibility of climate data. The PDF version of the data catalogue is attached in the report, while the same content is available in Excel for ease of data filtration and search purposes. Report on Climate Data Catalogue: Key Findings & Recommendations to Bridge Data Gaps (PDF) Climate Data Catalogue (JC3 website, 2023)  Moving forward, JC3 will pursue efforts to collaborate with relevant stakeholders to bridge data gaps. An immediate area of focus for 2023 is to work with data providers to improve the availability and accessibility of a number of the top priority data items.   Bank Negara Malaysia Securities Commission Malaysia 16 December 2022 About the JC3 The JC3 is a platform established in September 2019 to pursue collaborative actions for building climate resilience within the Malaysia financial sector. The JC3 is co-chaired by Datuk Jessica Chew Cheng Lian, Deputy Governor Bank Negara Malaysia and Datuk Zainal Izlan Zainal Abidin, Deputy Chief Executive Securities Commission Malaysia with members comprising senior officials from Bursa Malaysia and 21 financial industry players. The JC3’s initiatives and priorities are undertaken by its five sub-committees, namely Risk Management; Governance and Disclosure; Product and Innovation; Engagement and Capacity Building; and Bridging Data Gaps. Members: Allianz General Insurance Company (Malaysia) Berhad, AmBank (M) Berhad, Bank Islam Malaysia Berhad, Bank Pembangunan Malaysia Berhad, Bank Pertanian Malaysia Berhad (Agrobank), BIMB Investment Management Berhad, BNP Paribas Asset Management Sdn. Bhd., Bursa Malaysia Berhad, CIMB Bank Berhad, Etiqa Family Takaful Berhad, HSBC Amanah Malaysia Berhad, Kenanga Investors Berhad, Maybank Berhad, MIDF Amanah Investment Bank Berhad, MSIG Insurance (Malaysia) Berhad, RHB Islamic Bank Berhad, RHB Islamic International Asset Management Bhd., Standard Chartered Bank Malaysia Berhad, Swiss Re Asia Pte. Ltd. (Swiss Retakaful), Syarikat Takaful Malaysia Am Berhad, UOB Asset Management (Malaysia) Berhad and Zurich General Insurance Malaysia Berhad. Bank Negara Malaysia 16 December 2022 © Bank Negara Malaysia, 2022. All rights reserved.

JC3 Report on Climate Data Catalogue: Key Findings and Recommendations to Bridge Data Gaps 7 Report on Climate Data Catalogue Key Findings and Recommendations to Bridge Data Gaps December 2022 Preamble 3 Executive Summary 4 1. Introduction 6 1.1 Climate and environmental data landscape 6 1.2 Data Catalogue: A stocktake on the availability of data required by the financial sector 7 2. A Stocktake of Malaysian Financial Sector’s Climate and Environmental Data Needs 8 2.1 Methodology 8 2.2 Use cases and stocktaking exercise on data needs 9 2.3 Prioritisation of data needs 10 3. The Data Catalogue – Key Findings and Future Plan 12 3.1 Data Catalogue results 12 3.2 Data Catalogue findings on data needs, availability, and gaps 16 3.3 Data Catalogue maintenance and future plan 16 4. Data Challenges and Recommendations 18 4.1 Data challenges 18 4.2 Recommendations 22 5. Future Plans 28 Acknowledgements 29 List of Acronyms 30 List of Diagrams 32 Appendix: Climate Data Catalogue 33 Contents Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 3 Climate change poses unprecedented challenges and opportunities for the financial sector, particularly in integrating climate considerations in business strategies, operations, and risk management. The availability of good quality climate data is therefore absolutely critical for the financial sector to enable it to track its progress in supporting an orderly transition to a low-carbon and sustainable economy. This is in line with the nation’s commitment to achieve net zero as early as 2050. Currently, the lack of quality and easily accessible climate-related data is one of the key factors that has hampered efforts by the financial sector to manage climate-related risks and support decarbonisation. In response to this, the Joint Committee on Climate Change (JC3) – the focal point for collective climate actions in the financial sector – established the Sub-Committee on Bridging Data Gaps (the Sub-Committee) in July 2021. This Sub-Committee was tasked to identify crucial climate data needed by the financial sector, determine the availability of credible data sources and subsequently the prevailing data gaps. Upon identifying these gaps, the Sub-Committee was then tasked to explore potential solutions and recommendations to address them. In delivering its mandate, the Sub-Committee has compiled a Data Catalogue (DC). The DC identifies available climate data sources to support various use cases by the financial sector, similar to the approach by the Network for Greening the Financial System (NGFS) for its Directory.1 The DC focuses on Malaysian climate and environmental data, thus complementing the NGFS Directory which is more global in nature. The content can also benefit a wider audience, such as members of the public to obtain information on data availability and sources. In the first iteration, the DC is compiled from known data sources. The data and sources in the DC are not exhaustive as of this point. As such, users are advised to undertake their own assessments to establish the relevance of the data for their use cases. While the DC currently focuses on the needs of the financial sector, it is envisioned that the DC will pave the way for the setting up of potentially a national-level climate DC, as part of the broader data ecosystem in the future to support the nation’s climate aspiration. Preamble 1 NGFS, “The NGFS Directory”. The NGFS Directory (masdkp.io) http://ngfs.dev.masdkp.io/glossary Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps4 Executive Summary Malaysia’s financial sector in recent years has stepped up its response to address the urgent and existential threats posed by climate and environment-related risks. This involves alignment of efforts toward global climate accords and the Sustainable Development Goals (SDG). The strategies and action plans on climate adaptation and mitigation need to be supported by a good information architecture, which consists of three building blocks: development of well-defined metrics and standards; a harmonised and consistent set of climate disclosure standards; and an established taxonomy.2 Towards this end, the Sub-Committee has compiled a DC that contains relevant and critical data needed by the financial sector to support pre-identified use cases based on engagements with members of JC3. The approach is modelled after NGFS’ systematic process and protocols to identify data needs of various stakeholder groups for applicable use cases in the NGFS Directory.3 This is followed by identification of metric types and data items required to support the use cases and metric types. Specifically, the DC encompasses: • 5 main stakeholder groups within the financial sector i.e. regulators, banking institutions, insurers and takaful operators, asset managers, and pension funds. • 8 use cases, i.e. climate disclosure, exposure quantification, financial stability monitoring, investment and lending decisions, macro-economic modelling, scenario analysis, stress testing and product development. • 6 metrics types, i.e. footprint, transition sensitivity, physical vulnerability, alignment, mobilisation, and combined metrics. • 82 data items, with Top 8 data groups comprising greenhouse gas (GHG) emissions and forward-looking targets, green/sustainable lending/financing, non-renewable and renewable energy, exposure to physical risks, asset value-at-risk (VaR) arising from natural catastrophes, Environmental, Social and Governance (ESG) score/rating, water consumption and waste management, and biodiversity and forestry indicators. The DC will serve as a source of reference on climate and environmental data for the financial sector. It includes data that are readily available, partially available and unavailable as well as observations on data gaps. Our research and engagement with data providers revealed that 49% of data items are available. Of the 49% of data items, only 18% are currently readily available. The remaining available data items suffer from gaps such as lack of granularity or accessibility. The latter either requires manual effort for data extraction or the data is proprietary in nature, hence requiring subscription. The remaining data items are not published due to confidentiality restrictions (11%) or not available (40%). In the course of compiling the DC, the Sub-Committee has sought technical assistance from the World Bank to improve the comprehensiveness, relevance and organisation of its content. 2 NGFS, “Final report on bridging data gaps”, July 2022. https://www.ngfs.net/sites/default/files/medias/documents/final_report_on_bridging_data_gaps.pdf 3 NGFS, “The NGFS Directory”. The NGFS Directory (masdkp.io) https://www.ngfs.net/sites/default/files/medias/documents/final_report_on_bridging_data_gaps.pdf http://ngfs.dev.masdkp.io/glossary Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 5 The DC is currently owned and maintained by the JC3 in its role to address the data needs of the financial sector. JC3 will establish the appropriate framework and mechanisms to maintain and update the DC to reflect the latest data needs or disclosure requirements in line with global and domestic developments and standards. While the first publication of the DC is in Microsoft Excel and PDF formats, JC3 will explore ways to improve the DC to improve user experience for data search and navigation. Although the DC currently focuses on the needs of the financial sector, it is envisioned that it can pave the way for the setting up of a national-level climate DC. This may be driven by the relevant government agencies, given their authority and specialised competency to compile and publish climate-related datasets serving the needs of all sectors. Readily available and reliable climate-related data is important for the financial sector to manage climate and environmental-related risks and provide green finance solutions. In compiling the DC, it is observed that the key data providers comprise mainly the public sector (e.g. government ministries and agencies), followed by private sector (e.g. financial institutions, corporations, Small and Medium Enterprises (SMEs) and private data providers). Due to these public-private interlinkages, there is a need for greater coordinated efforts between both sectors to address the identified data gaps and create a more open and extensive climate data ecosystem. Such public-private cooperation could take the form of joint data collection or facilitation of data access and sharing across the public and private sectors. The identification of sources for critical climate data through the DC exercise has led to the discovery of several critical data gaps. Factors contributing to these gaps in public sector data include methodological differences, legal impediments and decentralised data compilation and publication. For the private sector, the main challenges are lack of capacity and motivation to collect and disclose climate data, particularly among the SMEs. Addressing these challenges will be important to collectively bridge identified data gaps. One recommendation is to implement common definitions and methodologies for key climate data, which will improve data consistency and comparability at the national level. Following this, alignment of new disclosure requirements to established frameworks and standards will also facilitate comparability at the national and international level. Disclosures can also be expedited to bridge data gaps through shifts to open data and the review of current data confidentiality restrictions. Enhancing capacity building to improve awareness, understanding and use of climate data disclosures are also needed. The barrier to disclosure can be further lowered by establishing an industry-led platform that facilitates efficient climate data disclosure by companies, particularly the SMEs. Technology, existing data sources, and methodologies can be better leveraged to enhance the availability and quality of climate data. This could be achieved by utilising global and open-source platforms, along with making better use of new technologies and Application Programming Interfaces (APIs). Stakeholders in the climate data ecosystem may also consider using cutting- edge technologies, including machine learning and artificial intelligence, satellite imagery as well as statistical gap-filling approaches to bridge climate data gaps. These findings underscore the importance of ongoing collaborations between the public and private sector actors in the climate data ecosystem to prioritise, plan for and ultimately close key data gaps, as part of a whole-of-nation strategy to support Malaysia’s orderly transition to a low carbon economy. Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps6 1.1 Climate and environmental data landscape Climate change and environmental degradation are expected to have significant impact on the economic and financial landscape.4 The risks present themselves in the form of: • Physical risks from extreme climate events; • Transition risks due to changes in climate policies, shifts in consumer and investor preferences, regulatory pressures as well as technological advancements; and • Liability risks such as legal action and liability cost for failures to address climate-related and environmental risks. Nonetheless, the transition to a low carbon economy also creates opportunities for efficiency, innovation, and growth. Over the past few years, Malaysia’s financial sector has stepped up its response to address the urgent and existential threat posed by climate and environment-related risks, while aligning their strategies to support the Nationally Determined Contributions (NDCs) and SDG commitments. Formulating strategies and action plans on climate adaptation and mitigation require high-quality, reliable and comparable climate-related data. This is supported by good information architecture consisting of three building blocks: development of well-defined metrics and standards; a harmonised and consistent set of climate disclosure standards; and a broadly agreed upon taxonomy.5 However, based on survey findings from the JC3 Report on the Sustainable Finance Landscape in Malaysia,6 96% of Malaysia’s financial sector have cited poor data quality or availability as one of the key challenges in driving their sustainability agendas. At present, there are wide-ranging climate and environmental data available from the public sector, including environment statistics and SDG indicators by Department of Statistics Malaysia (DOSM) and Malaysian Administrative Modernisation and Management Planning Unit (MAMPU)’s Open Data Platform. The National Data Sharing Policy (NDSP) that will be introduced by the Government will foster a more conducive data sharing ecosystem. At the financial sector level, the implementation of the Climate Change and Principle- based Taxonomy (CCPT), Task Force on Climate-related Financial Disclosures (TCFD) Application Guide for Malaysian Financial Institutions and Principles-Based Sustainable and Responsible Investment Taxonomy for the Malaysian Capital Market (SRI Taxonomy) by Bank Negara Malaysia (BNM) and Securities Commission (SC) are pivotal to better promote availability, quality, and comparability of climate data. 4 Bank Negara Malaysia, “Financial Sector Blueprint 2022-2026”, January 2022 on Strategic Thrust 4, page 90. 5 NGFS, “Final report on bridging data gaps”, July 2022. https://www.ngfs.net/sites/default/files/medias/documents/final_ report_on_bridging_data_gaps.pdf 6 Joint Committee on Climate Change (JC3), “Report on the Sustainable Finance Landscape in Malaysia”, April 2022 on ‘Challenges in sustainable finance’, page 10. 1. Introduction https://www.ngfs.net/sites/default/files/medias/documents/final_report_on_bridging_data_gaps.pdf https://www.ngfs.net/sites/default/files/medias/documents/final_report_on_bridging_data_gaps.pdf Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 7 Regulators are also driving the effort to improve climate data availability. For example, BNM pledged its commitment to improve availability, access, and use of data for tackling climate change and environmental degradation7 in its Financial Sector Blueprint 2022-2026. This could be achieved by the application of advanced digital tools and collaboration with government agencies, academic institutes, technology firms and other relevant players to identify critical data needs and facilitate open access to relevant data sources. Similarly, SC’s Capital Market Masterplan 3 (CMP3) and Sustainable and Responsible Investment Roadmap for the Malaysian Capital Market (SRI Roadmap) include strategies to promote greater alignment towards TCFD recommendations for climate disclosures by corporations and capital market intermediaries in Malaysia,8 as well as development of platforms to provide SRI data9 to investors in the years to come. These initiatives encourage disclosures of more granular, reliable and comparable data which are vital for sustainable investment opportunities moving forward. In addition to the conventional approach to make data more available, the financial sector can also leverage big data or data analytics approaches and technologies (e.g. open API) to better optimise the use of data for their climate transition needs. 1.2 Data Catalogue: A stocktake on the availability of data required by the financial sector The DC is aimed to be a source of reference for climate and environmental data relevant to use cases in the financial sector. It includes data that are readily available, partially available, and unavailable as well as observations on data gaps. These observations will promote broader awareness on the missing pieces and serve as a call to action for data providers to improve the availability and accessibility of data. The DC is compiled by the Sub-Committee on Bridging Data Gaps established under JC3, based on data needs of the financial sector and data sources at the time of publication. Given that the compilation is based on the collective contribution by the members of the JC3 and its sub-committees and compiled on a best effort basis, the information is neither exhaustive, nor do they reflect latest, new data sources that may emerge in between updates to the DC. Users would then need to make their own assessments of the information that best meet their needs. 7 Bank Negara Malaysia, “Financial Sector Blueprint 2022-2026”, January 2022 on ‘Improving accessibility to public data’, page 73. 8 Securities Commissions, “Capital Market Masterplan 2021”, September 2021 on Section 3.3.1.B, page 72. 9 Securities Commissions, “SRI Roadmap 2019”, November 2019 on ‘5i-Strategy’, page 13. Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps8 2.1 Methodology The Sub-Committee has adopted NGFS’ user-centric data need identification approach,10 whereby stakeholders will identify the applicable use cases, followed by metric types and eventually data items (Diagram 1). The mapping exercise is captured in a standardised template or DC. The DC contains data items, characteristics, information on availability and sources as well as observations on data gaps. This exercise also involves prioritisation of the data needs, based on the criticality of the data item (i.e. assessed as a “must-have”) and number of times that the data item is profiled. This will help focus greater efforts toward bridging data gaps for the top priority data items. 10 NGFS, “Progress report on bridging data gaps”, May 2021 on ‘A repository of data needs’, page 5. 2. A Stocktake of Malaysian Financial Sector’s Climate and Environmental Data Needs 1. Regulators (e.g. central bank) 2. Banking institutions 3. Insurers and takaful operators 4. Asset managers 5. Pension funds 1. Exposure quantification 2. Investment and lending decisions 3. Macroeconomic modelling 4. Financial stability monitoring 5. Climate-related disclosures 6. Scenario analysis 7. Stress testing 8. Product development 1. Footprint 2. Transition sensitivity 3. Physical vulnerability 4. Alignment 5. Mobilisation (i.e. scaling up green finance) 6. Combined metrics • 143 granular data items by various dimensions (equivalent to 82 unique data items) have been identified by members of JC3. Some data items may serve more than one stakeholder and use case. • 103 granular data items (55 unique data items) are prioritised* and categorised into the Top 8 data groups: a) GHG emissions and forward-looking targets b) Green/Sustainable lending/financing and bonds/Sukuk investments c) Non-renewable & renewable energy d) Exposure to physical risks e) Asset VaR f) ESG score/rating g) Water consumption and waste management h) Biodiversity and forestry indicators * Prioritisation of the data item is based on the following criteria: a) profiled as a ‘must have’ data item b) the number of times that the data item is being profiled (across stakeholders and use cases) Stakeholders Use Cases Metric Types Key Results Diagram 1: Identification Process of Climate-related Data Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 9 2.2 Use cases and stocktaking exercise on data needs Establishment of the Use Cases The Sub-Committee has identified eight use cases, as listed in Diagram 2. This is derived from the use cases established by NGFS11 as well as engagements with five main stakeholder groups within the financial sector i.e. regulators such as BNM, SC and Bursa Malaysia; banking institutions, insurers and takaful operators, asset managers, and pension and provident funds. When compared to the NGFS’ use cases, product development is an additional use case, considering the pivotal role of financial institutions in financing transitions through the expansion and upscaling of green financial solutions. 11 NGFS, “Progress report on bridging data gaps”, May 2021 on ‘Taking stock of stakeholders’ needs’, Section 2.1. 12 NGFS, “NGFS Scenarios Portal”. (https://www.ngfs.net/ngfs-scenarios-portal/) Diagram 2: Identified Use Cases Applicable for the Climate Data Catalogue Use Case Description 1. Climate-related disclosures Climate-related disclosures refer to reports provided by corporations in addressing climate- related factors. Such disclosures provide the raw data for analysis, modelling, and monitoring by the stakeholders. Globally, climate-related reporting frameworks such as TCFD were established to facilitate more consistent and comparable climate-related disclosure amongst corporations. In Malaysia, Bursa Malaysia enhanced its Sustainability Reporting Framework in September 2022 with the aim of elevating the sustainability practices and disclosures by listed issuers. Amongst others, Main Market listed issuers will be required to provide TCFD-aligned disclosures by 2025 while ACE Market listed corporations will be required to provide a basic plan to transition towards a low carbon economy by 2026. 2. Exposure quantification Exposure quantification refers to the measurement on potential loss on financial instruments. For example, financial institutions evaluate the probability of physical risk such as flood events and forecast future losses on their existing financial portfolio. While for transition risk, they assess the impact of portfolio adjustment towards a low-carbon economy, e.g. by reducing exposure in high emitting sectors like coal. 3. Financial stability monitoring Financial stability monitoring refers to the assessment of financial systems vulnerabilities, defined as the collection of factors that contribute to the potential for widespread externalities. It is essential to recognise the systemic risks and multiple transmission channels (direct and indirect) of climate change-related risks and its impact to the economy and financial system. BNM and SC as regulators of Malaysia’s financial sector, assess the potential impact of climate- related risks to financial system and capital market. 4. Investment and lending decisions The decision made by both demand-side (investing) and supply-side (lending) on the amount of funds to be deployed for investment opportunities or to provide a loan. Factors such as footprint (carbon emissions), physical and transition vulnerabilities (exposure of investments to natural catastrophes and transition risk), mobilisation (prioritising financing needs to transition to low carbon activities) and alignment (measure the portfolios that would contribute towards internal/national target and goals) are embedded in the decision-making process. 5. Macro-economic modelling Macroeconomic modelling is used to analyse the impacts of climate-related issues on macroeconomic indicators like Gross Domestic Product (GDP), employment, and inflation. In the case of Malaysia, the study is on macroeconomic and sectoral impact associated with transition risk (decarbonisation) and physical risk/vulnerability (extreme/volatile weather conditions). 6. Product development The development of new financial products or solutions to support green growth or industry’s alignment to the climate agenda, exploration of intermediation structures that embed consideration for climate risks, and increase in supply of financing and protection solutions that support climate risks mitigation and adaptation. 7. Scenario analysis The assessment on the impact of different possible climate change pathways/scenarios to risk profile. The NGFS has designed 6 scenarios (Net Zero 2050, Below 2 °C, Divergent Net Zero, Delayed Transition, Nationally Determined Contributions (NDCs) and Current Policies) to assess physical and transition risks.12 In Dec 2022, BNM has issued the Policy Document on Climate Risk Management and Scenario Analysis (CRMSA) that sets out principles and requirements on climate risk management and scenario analysis for financial institutions to enhance the financial sector’s resilience against climate-related risks and to facilitate a just and orderly transition to a low-carbon economy. 8. Stress testing The risk framework method that focus on the impact climate change (the likelihood and sensitivity of the materialisation of climate-related risks) has on exposures’ actual risk. In June 2022, BNM has issued a discussion paper on the proposed framework and elements of the industry-wide Climate Risk Stress Testing (CRST) exercise to be implemented in 2024. https://www.ngfs.net/ngfs-scenarios-portal/ Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps10 Deriving metric types and data items Drawing on the approach adopted by NGFS,13 six metric types consisting of footprint, transition sensitivity, physical vulnerability, alignment, mobilisation, and combined metrics are established (Diagram 3). Subsequently, the data items were identified and tagged to specific metric type.14 2.3 Prioritisation of data needs In prioritising efforts to bridge data gaps, the Sub-Committee identified the top priority data items by assessing those profiled as ‘must-have’ by the stakeholders or those that are applicable to the most number of stakeholders or use cases. Diagram 3: Metric Types Established Metric Description Footprint GHG emissions caused directly or enabled by an individual, event, organisation, service or product. Transition sensitivity The disruption caused by adjusting to a low-carbon economy, which may be the result of policy changes, technological innovation, or social adaptation. Physical vulnerability The direct damage to assets or property that may come about owing to a changing climate (for example rise in sea levels) or extreme weather events. Alignment Tracks progress towards a 2°C world. Mobilisation Capture growth in green financing (i.e. scaling up green finance). Combined metrics Metrics aggregating a combination of the above metrics to provide insight on the extent to which a firm manages environmental, social and governance issues Source: The NGFS Directory15 13 NGFS, “Progress report on bridging data gaps”, May 2021 on ‘Identifying common metrics’, Section 2.2. 14 Further explanation on the data needs identification approach can be found in Progress Report on Bridging Data Gaps issued by NGFS in May 2021. 15 NGFS, “The NGFS Directory”. The NGFS Directory (masdkp.io) Diagram 4: Top 8 Data Groups Data group Examples of data item Applicable use cases 1. GHG emissions and forward-looking targets • GHG emissions (Scope 1, 2 and 3) • GHG inventory • GHG emission targets • GHG emission intensity • Economic sectors’ contribution to GDP and GHG emissions • Vehicle GHG emissions • Climate-related disclosure • Exposure quantification • Financial stability monitoring • Investment and lending decision • Scenario analysis • Stress testing 2. Green/Sustainable lending/financing and bonds/Sukuk investments • Green/Sustainable loan/financing, refinancing, outstanding, applied, approved, disbursed, repaid • Green/Sustainable bond/sukuk issuance • Green/Sustainable stock/bonds market indices • Green public investment, fiscal expenditures (including Public Private Partnerships) by portfolio • Percentage of investment in share capital with a green company (holding of ordinary or preference shares) • Climate-related disclosure • Exposure quantification • Financial stability monitoring • Investment and lending decision • Product development • Scenario analysis • Stress testing http://ngfs.dev.masdkp.io/glossary Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 11 Data group Examples of data item Applicable use cases 3. Non-renewable and renewable energy • Electricity purchased/consumed • Fuel used • Renewable energy purchased/ produced • Final energy consumption • Oil energy consumption • Coal energy consumption • Energy prices • Climate-related disclosure • Exposure quantification • Investment and lending decision • Macro-economic modelling 4. Exposure to physical risks • Extreme weather and climate change data such as flood, temperature, sea level rise, rainfall, drought, storm, coastal vulnerability index, natural hazard data/statistics (occurrence/map), heatwave, humidity • Exposure-related data such as real estate exposure to potential extreme weather conditions, exposure to physical risks measured as a percentage of business value (e.g. assets, profit or revenue), flood emergency reliefs • Exposure quantification • Financial stability monitoring • Investment and lending decision • Macro-economic modelling • Product development • Scenario analysis • Stress testing 5. Asset VaR • Asset VaR arising from natural catastrophes • Financial stability monitoring • Product development 6. ESG score/rating • Global Compact (GC) Score on human rights, labour right, environment, anti-corruption • ESG Score on environmental, social, and governance • Temperature score on emissions intensity ratio (EIR) • Climate-related disclosure • Exposure quantification • Investment and lending decision 7. Water consumption and waste management • Waste management indicators such as solid waste disposed or recycled. • Water management indicators such as water allocation and management, water consumption, treated wastewater such as proportion of wastewater that is treated to reduce pollutants before being discharged to the environment, by level of treatment • Climate-related disclosure • Exposure quantification • Financial stability monitoring • Investment and lending decision 8. Biodiversity and forestry indicators • Biodiversity indicators such as map of biodiversity risk hotspots and Environmentally Sensitive Areas (ESAs). • Forestry indicators such as map of ESAs, forest change (forest loss, tree cover loss, location of tree cover loss), Food and Agriculture Organisation of the United Nations (FAO) deforestation. • Other relevant indicators such as estimation of environmental costs and benefits (esp. ESAs/ high priority biodiversity hotspots). • Exposure quantification • Financial stability monitoring Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps12 3.1 Data Catalogue results There are 82 data items in the DC, which can be further split into dimensions such as by sector, country, and entity, resulting in 143 granular data items. The prioritisation exercise has classified 55 data items or 103 granular data items as the Top 8 data groups. In terms of metric type, most granular data items can be classified under physical vulnerability (30%) followed by transition sensitivity (25%), as shown in Diagram 5. Use cases The top use cases are financial stability monitoring (58% of data items), followed by investment and lending decisions (53% of data items). For financial stability monitoring, most data items relate to physical vulnerability (39%) such as data on flood and asset VaR arising from natural catastrophes, followed by mobilisation (22%), as shown in Diagram 6. For investment and lending decisions, most data items are under the category of transition sensitivity (29%) such as final energy consumption and the Green Building Index, and combined metrics (29%) such as climate-adjusted Probability of Defaults (PDs) and Green Equities Index, as shown in Diagram 6. Data items such as green/sustainable financing and GHG emissions are among those that are applicable to almost all of the use cases. 3. The Data Catalogue – Key Findings and Future Plan Diagram 5: Data Items by Metric Type 43, 30% 36, 25% 23, 16% 20, 14% 18, 13% 3, 2% All data items by metric type 34, 33% 25, 24% 18, 7% 17, 17% 9, 9% Top 8 data groups by metric type Physical vulnerability Transition sensitivity Combined metrics Mobilisation Footprint Alignment Physical vulnerability Transition sensitivity Mobilisation Footprint Combined metrics Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 13 Data Availability Based on the data availability exercise via desktop research and engagements with data providers, all data items can be grouped into the “readily available”, “proprietary (sensitive data)”, to “not available” categories (Diagram 7). Of the 49% of data items in the DC that are available: • 18% are readily available (e.g. Green Building Index and litigation claims/cases); • 18% suffer lack of granularity such as limited location data for green/sustainable bond/ sukuk issuance, ESAs and forest change (e.g. deforestation/forest loss, tree cover loss, etc.), and energy data by sector that is not classified as per the Malaysia Standard Industrial Classification (MSIC) 2008; • 11% are proprietary in nature that requires subscription to access (e.g. ESG and United Nations Global Compact (UNGC) scores); • 1% has a limited time horizon since the information is published on a one-off basis (e.g. past flood events); and • 1% lacks accessibility such as GHG emission targets that often reside in the sustainability report of companies. These data requires additional effort to extract and consolidate the data. Meanwhile, 11% of the data items are available but not disclosed due to confidentiality restrictions (e.g. entity-level data of electricity consumption and insured and uninsured losses related to natural catastrophes). The remaining 40% are not compiled or reported by any party, such as circular economy indicators to measure resource efficiency by minimising resource consumption and waste generation. Our findings are quite consistent with the NGFS final report,16 which showed that less than a quarter of data items are readily available in the form of official statistics or verified data, while more than 29% of all data items in their directory are currently unavailable, unknown or under construction. 16 NGFS, “Final report on bridging data gaps”, July 2022 on ‘Data accessibility and quality’, page 30. Diagram 6: Share of Metric Types for Top 2 Use Cases – Financial Stability Monitoring and Investment Lending Decisions Share of metric type in financial stability monitoring Share of metric type in investment and lending decisions Physical vulnerability Mobilisation Transition sensitivity Footprint Combined metrics Alignment Transition sensitivity Combined metrics Mobilisation Physical vulnerability Footprint 39% 22% 20% 16% 2% 1% 29% 29% 26% 8% 8% Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps14 Diagram 8 shows that readily available data is highest (54%) in the “exposure to physical risk” data group, mostly comprising historical and current data on temperature, rainfall, flood and drought. Meanwhile, most forward-looking data by region/country (e.g. heatwave and Coastal Vulnerability Index) are not available. On the other hand, the “water consumption and waste management” data group is the least available. These limitations pose some challenges to the financial sector as it requires granular data by sector and entity-level – which are currently not available – to conduct assessment for investment or lending purposes. Of significance, there is minimal coverage of non-listed companies such as SMEs and emission intensity performance of buildings in Malaysia under the “GHG emissions” data group. Meanwhile, data on energy consumption by entity is not available in the “non- renewable and renewable energy” data group. Diagram 7: Data Availability Data availability for all data items Data availability for top 8 data groups Not Available, 40% Readily Available, 18% Lack of Granularity, 18% Proprietary (need subscription), 11% Limited time horizon & frequency, 1% Limited time horizon & frequency, 2% Readily Available, 19% Lack of Granularity, 23% Proprietary (need subscription), 10% Lack of accessibility due to format or decentralised sources, 1% Lack of accessibility due to format or decentralised sources, 2% Proprietary (sensitive data), 11% Available, 49% Not Available, 32% Proprietary (sensitive data), 12% Available, 56% Not Available, 32% Diagram 8: Percentage of Data Availability for Top 8 Data Groups 25% 54% 18% 6% 50% 11% 8% 35% 27% 41% 39% 100% 50% 8% 6% 6% 11% 4% 6% 6% 6% 22% 25% 56% 50% 27% 47% 14% 44% 0% 50% 100% 8. Biodiversity and forestry indicators 7. Water consumption and waste management 6. ESG score/rating 5. Asset VaR 4. Exposure to physical risks 3. Non-renewable and renewable energy 2. Green/Sustainable lending/financing and bond/Sukuk investments 1. GHG emissions and forward-looking targets Readily Available Lack of Granularity Proprietary (need subscription) Limited time horizon & frequency Lack of accessibility due to format or decentralised sources Proprietary (sensitive data) Not Available Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 15 Data accessibility The accessibility of data items varies across metric types (Diagram 9). Some are publicly available, while others are proprietary in nature that requires subscription, or are not accessible due to confidentiality reasons or non-availability. Broadly, about 30-40% of the data items are publicly available (mostly without APIs) across most metric types. They are mostly sourced from ministries/government agencies or company publications (e.g. annual reports). Data items with public API accessibility are only confined to the “physical vulnerability” metric. This is mostly provided by the World Bank. When comparing data availability across the metrics, the “alignment” metric suffers from the highest data unavailability (67% of total data items in the metric). For example, detailed plans submitted to authorities to achieve carbon neutral or net zero and circular economy indicators are unavailable. This is then followed by the “transition sensitivity” metric (50%), such as data on internal carbon price and waste recycled. It is observed that these findings are consistent with those by the Asia Securities Industry and Financial Markets Association (ASIFMA)17 and NGFS’ final report on bridging data gaps.18 One of the common observations in ASIFMA’s and NGFS’ reports is the lack of publicly available granular data. ASIFMA noted that “public and government data sources obtained through regulatory disclosure requirements are often incomplete and disorganised”. 17 ASIFMA, “Data Challenges on Opportunities for ESG and Sustainable Finance in Asia Pacific”, December 2020. https:// www.asifma.org/wp-content/uploads/2020/12/asifma-fosda-esg-and-sf-data-challenges-and-opportunities-in-asia- f20201221c.pdf 18 NGFS, “Final report on bridging data gaps”, July 2022. https://www.ngfs.net/sites/default/files/medias/documents/final_ report_on_bridging_data_gaps.pdf Diagram 9: Data Accessibility by Metric Type Public (With API) Public Proprietary Confidential Not available 67% 39% 15% 30% 50% 56% 4% 45% 5% 8% 43% 7% 14% 6% 33% 13% 40% 44% 28% 39% 14% 0% 20% 40% 60% 80% 100% Alignment Combined metrics Mobilisation Physical vulnerability Transition sensitivity Footprint https://www.asifma.org/wp-content/uploads/2020/12/asifma-fosda-esg-and-sf-data-challenges-and-opportunities-in-asia-f20201221c.pdf https://www.asifma.org/wp-content/uploads/2020/12/asifma-fosda-esg-and-sf-data-challenges-and-opportunities-in-asia-f20201221c.pdf https://www.ngfs.net/sites/default/files/medias/documents/final_report_on_bridging_data_gaps.pdf https://www.ngfs.net/sites/default/files/medias/documents/final_report_on_bridging_data_gaps.pdf Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps16 3.2 Data Catalogue findings on data needs, availability, and gaps The Sub-Committee has obtained technical assistance from the World Bank to critically examine the comprehensiveness of the data items, its mapping to the use cases and metrics, and availability of data sources provided in the DC. In addition to that, the Sub-Committee also sought the World Bank’s recommendations to improve the content and structure of the DC. The World Bank found that the DC is comprehensive with 82 indicators (data items) covering multiple levels of aggregation, use cases and data attributes. Moreover, the DC demarcates the existing data gaps and highlights the limitations and possible alternatives in addressing the data gaps. The DC is also found to be readily accessible to a wide audience with low barriers of entry. In the course of validation, the World Bank has provided valuable suggestions to refine the DC structure to improve user experience particularly in filtering and clustering data according to users’ needs. The Sub-Committee has taken up some of the suggestions (e.g. harmonise categories and dimensions, clearly distinguish data items, segregate information based on data accessibility such as public sources accessible via API and include additional indicators). Other suggestions pertaining to the structure will be considered in the future iteration of the DC. This includes the implementation of an alternative structure of the DC known as the relational spreadsheet structure (RSS) or relational database management system (RDBMS). This promises a superior balance on accessibility, maintainability, and consistency in labelling. Nonetheless, this will mostly cater to the more technical audience who are well-versed in database operations. 3.3 Data Catalogue maintenance and future plan Maintenance of Data Catalogue The DC is currently owned and maintained by JC3 to ensure it is relevant and useful in serving the financial sector’s needs. The DC will be published in two formats, namely in PDF and Microsoft Excel. The PDF version, as attached in this report, will provide an overview on the data items and observations to guide the general users. Meanwhile, the Microsoft Excel version is more useful for filtration and search purposes. The DC will be updated on an annual basis, such that it reflects current data needs and disclosure requirements in line with global and domestic developments and standards. Users and the general public are welcome to provide feedback on the existing content or suggest additional data items. The feedback on additional data items will be assessed based on the criteria19 for inclusion by a Review Committee, comprising members with relevant qualification and experience. The recommendation on data updates and inclusion will be tabled to the Sub-Committee for approval, and subsequently reflected in the DC published on the BNM’s Climate Change Microsite and SC’s SRI Microsite. 19 The criteria for inclusion of data items in the DC are that the data items should be: i. Related to climate and environmental data; and ii. Required in use cases which are applicable to financial sector stakeholders Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 17 Future Plans for the Data Catalogue This first version of the DC compiles the data needs across a relatively narrow set of stakeholders, namely the members of the JC3 and its sub-committees. The primary focus in this first version is content development, with the aim of providing an overview on data availability for users. Naturally, the usage of the DC and volume of data items is likely to grow over time. In order to cope with the potential growth in usage and data items, JC3 will explore on ways to improve user experience in navigation, data search and filtration, e.g. through digitalising the DC on a web interface. Importantly, the findings in the DC will serve as a basis to engage data providers to adopt common or interoperable data definitions and standards, and open data policy. It is hoped that over the longer term, this will improve the availability and comparability of climate data. It is also envisioned that this DC for financial sector will pave the way for the creation of climate data catalogue/databases at the national level by the relevant government agencies in the future. Government agencies will have greater authority and competencies to compile and publish climate-related datasets to meet the data needs of a much broader set of users and stakeholders. Diagram 10: Data Catalogue Maintenance – Process Flow Receive feedback from public / users Assess feedback based on pre-set criteria by Review Committee Approval by JC3 Sub-Committee on Bridging Data Gaps Update Data Catalogue Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps18 It is observed that the major providers of climate and environment-related data are mainly government ministries and agencies, followed by financial-related institutions, corporations and private data providers. The 2021 Irving Fisher Committee on Central Bank Statistics (IFC) Report no. 14 on sustainable finance data for central banks echoed similar observations, whereby sustainable finance data are usually sourced from government agencies, government linked corporations, National Statistical Offices (NSOs), supervised financial institutions, private rating agencies and commercial data providers.20 Considering this public-private interlinkage, there is a need for greater coordinated efforts between both sectors to create a more conducive climate data ecosystem. More seamless public-private data sharing will help inform better decisions to tackle climate-related issues. Such public-private cooperation could take the form of more systematic data collection or facilitation of data access and sharing across the public and private sectors. The next section will delve on the existing factors hindering data availability and recommendations to overcome some of these challenges. 4.1 Data challenges21 An immediate priority lies in identifying and understanding the main constraints in obtaining and providing climate data. The financial sector still grapples with the lack of data disclosure and sharing by companies and public sector agencies, inefficiencies in aggregating across multitude of data sources, lack of a standardised global reporting framework and poor data quality.22 i. Differences in methodology At present, the main motivation for GHG emissions data publications by public sector is to track the country’s progress in fulfilling international commitment as Malaysia is a Party to the UNFCCC.23 Such data publication tends to be highly aggregated in nature. In contrast, the financial sector often requires data that is more granular at the sector and entity level. Examples of the differences in methodology for GHG emissions data compilation: • Compilation of GHG National Inventory is based on the 2006 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National Greenhouse Gas Inventories for the purpose of fulfilling the NDCs and commitments under UNFCCC. In contrast, the financial sector requires GHG emission inventory data based on the GHG Protocol Corporate Accounting and Reporting Standard24 (i.e. Scope 1, Scope 2 and Scope 3). 4. Data Challenges and Recommendations 20 Schmieder et al., “IFC Report No.14: Sustainable finance data for central banks”, December 2021. 21 The challenges outlined in this report and gaps observed in the Data Catalogue are solely from the perspective of the financial sector, due to the mismatch between i) data needed for financial sector use cases and ii) the available data at the time of publication. 22 A-Team Group, “A-Team ESG Handbook 2021”, 2021. https://www.solidatus.com/app/uploads/2021/08/A-Team_Group_ ESG-Handbook-2021-July-2021.pdf?hsCtaTracking=9f70f103-6af2-42a3-a52c-b226c716fe60%7Ce46f8ec2-5721- 4876-b81f-f1508ecf1366 23 Malaysia is Non-Annex I Party to the UNFCCC Malaysia | UNFCCC 24 PCAF, “The Global GHG Accounting and Reporting Standard for the Financial Industry”, November 2020. https://www.solidatus.com/app/uploads/2021/08/A-Team_Group_ESG-Handbook-2021-July-2021.pdf?hsCtaTracking=9f70f103-6af2-42a3-a52c-b226c716fe60%7Ce46f8ec2-5721-4876-b81f-f1508ecf1366 https://www.solidatus.com/app/uploads/2021/08/A-Team_Group_ESG-Handbook-2021-July-2021.pdf?hsCtaTracking=9f70f103-6af2-42a3-a52c-b226c716fe60%7Ce46f8ec2-5721-4876-b81f-f1508ecf1366 https://www.solidatus.com/app/uploads/2021/08/A-Team_Group_ESG-Handbook-2021-July-2021.pdf?hsCtaTracking=9f70f103-6af2-42a3-a52c-b226c716fe60%7Ce46f8ec2-5721-4876-b81f-f1508ecf1366 https://unfccc.int/node/61107 Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 19 • National sectoral data for GHG inventory data is guided by the 2006 IPCC Guidelines (i.e. Energy, Industrial Processes and Product Use, Agriculture, Waste and Land Use, Land Use Change and Forestry sectors). They are not comparable against the Malaysian Standard Industrial Classification (MSIC) which is widely used by the financial sector. Establishing a more comparable methodology and definition will allow the financial sector to fill the missing entity or sector level data using public sector data. ii. Legal impediments and restrictions Some climate-related data owned by public and private sector agencies are subjected to sharing restrictions. Some examples: • Forward-looking national flood risk map is not readily available, due to sensitivity issues and potential legal implication. While historical and current national flood hazard maps are available, they are not downloadable in geographic information system (GIS) file format to facilitate spatial analysis. This information is important for the financial sector to conduct climate risk assessment and to deliver sustainable finance solutions in partnership with public agencies, especially given increasing incidences of flood events. • Energy consumption data at entity level that are required by the financial sector for investment and lending evaluations (particularly to finance energy-efficient organisations) are often deemed as confidential. Although the data is compiled by the energy provider, disclosures are subjected to the utility providers’ policies. Under Tenaga Nasional Berhad (TNB)’s Personal Data Protection Policy,25 personal data may be shared with third parties for payment of electricity bill purposes only and not for other purposes including for climate-related assessments. Moreover, for entity level data, the current PDPA does not explicitly cover data portability rights for individuals to transfer their data in a structured machine-readable format across providers. This is in contrast to the European Union’s General Data Protection Regulation (GDPR)26 which accords the rights to data subject to get access to his or her data in a structured, machine-readable format which can be transferred from one data controller to another data controller. iii. Decentralised data compilation and publication Climate-related data are currently compiled by various federal ministries and public sector agencies. At the same time, compilation of certain data relating to land use and forestry falls within the purview of state governments. Each data owner has established its own practices and governance in terms of data compilation, methodologies and publication. This contributed to lack of uniformity in publication practices, thus creating considerable frictions for data users to access quality climate data, in a timely manner. 25 BUKU TATAMALAN 2.0 EN.pdf (tnb.com.my) , TNB_PDP_Policy_ENG_(rev).pdf 26 REGULATION (EU) 2016/ 679 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL - of 27 April 2016 - on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/ 46/ EC (General Data Protection Regulation) (europa.eu) https://www.tnb.com.my/assets/files/PERSONAL_DATA_PROTECTION_CODE_OF_PRACTICE_V2.pdf https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679 Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps20 Furthermore, government agencies’ platforms adopt different data format and granularity, that add a layer of complexity for data users to find and download the required climate data for analysis. For instance: • GHG emissions data by year, published in the Malaysia’s Third Biennial Update Report to the UNFCCC are available in PDF format. As an alternative, MAMPU Open Data Portal or Compendium of Environment Statistics at DOSM’s eStatistik portal27 offer similar yearly GHG emissions data in csv or excel format. • Number of flood events by state in Malaysia is not readily available in the Department of Irrigation and Drainage’s (DID) ‘InfoBanjir’ website. However, DOSM’s eStatistik portal has flood data at high level from year 2016 to 2020 and MAMPU portal has granular information on flood e.g. name of rivers and date of flood from year 2001 to 2010. • Portals such as Malaysia Informative Data Centre (MysIDC), openDOSM and Statistics Data Warehouse (StatsDW) provide data on emissions and floods, in addition to the Ministry of Natural Resources, Environment and Climate Change (NRECC, formerly known as KASA) and DID. However, financial users may not be aware of the differences between these platforms and the most efficient way to extract the required information from these portals. The financial sector also requires more granular GHG emissions data by types of vehicles, to assess their estimated Scope 3 emissions data for disclosure purpose and lending decision. Given the absence of any national database on GHG emissions by types of vehicles, users may refer to the high-level gas emissions by motor vehicles data published by the Department of Environment (DOE) in the annual Environmental Quality Report28 as proxy data. iv. Various climate disclosure requirements/frameworks There are many reporting frameworks and standards identified in the United Nations (UN) Sustainable Stock Exchange initiative’s ESG Guidance Database such as TCFD, Global Reporting Initiative (GRI), Climate Disclosure Standards Board (CDSB), and Sustainability Accounting Standards Board (SASB). A study by PwC Malaysia on ESG in financial reporting showed that the GRI is the most adopted standard, while TCFD is becoming more popular among Bursa-listed companies.29 The different reporting frameworks could give rise to comparability issue for investors. In response to this, Bursa Malaysia through its enhanced Sustainability Reporting Framework issued in September 2022, requires disclosures of a common set of prescribed sustainability matters and indicators that are deemed material for all listed issuers. This includes Scope 1, Scope 2 and limited Scope 3 GHG emissions disclosures. In addition, Main Market listed issuers will be required to provide TCFD- aligned disclosures while ACE Market listed corporations are required to disclose their plans to transition towards a low carbon economy.30 27 Data published in DOSM’s eStatistik and MAMPU Portal is being supplied by the respective ministries, agencies and departments owning the data, based on agreed terms between the data supplier and these portals. 28 Department of Environment (DOE) Environmental Quality Report 2020 EQR-2020-1.pdf (doe.gov.my) which contains emission loads for ‘motor vehicles’ category. 29 PwC Malaysia, “ESG Matters – Driving Change through Financial Reporting”, December 2020. https://www.pwc.com/my/ en/assets/publications/2020/esg-matters-driving-change-through-financial-reporting.pdf 30 Bursa Malaysia, “Bursa Malaysia Enhances Sustainability Reporting Framework With New Climate Change Reporting”, September 2022. 26Sept_2022_Bursa_Malaysia_Enhances_Sustainability_Reporting_Framework_With_New_Climate_ Change_Reporting.pdf (bursamalaysia.com) https://www.pwc.com/my/en/assets/publications/2020/esg-matters-driving-change-through-financial-reporting.pdf https://www.pwc.com/my/en/assets/publications/2020/esg-matters-driving-change-through-financial-reporting.pdf https://www.bursamalaysia.com/sites/5bb54be15f36ca0af339077a/content_entry5c11a9db758f8d31544574c6/63312a2439fba20d86ba8e16/files/26Sept_2022_Bursa_Malaysia_Enhances_Sustainability_Reporting_Framework_With_New_Climate_Change_Reporting.pdf?1664169009 https://www.bursamalaysia.com/sites/5bb54be15f36ca0af339077a/content_entry5c11a9db758f8d31544574c6/63312a2439fba20d86ba8e16/files/26Sept_2022_Bursa_Malaysia_Enhances_Sustainability_Reporting_Framework_With_New_Climate_Change_Reporting.pdf?1664169009 Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 21 v. Lack of capacity and motivation for disclosure by companies Collecting data for the purpose of climate-related disclosures requires extensive resources and effort. Companies have limited data at the primary source and tend to spend many hours in data collection, due to limited know-how and tools to facilitate data collection. The Financial Stability Board (FSB) also noted that data gaps are particularly acute in some emerging markets and developing economies, where there are less resources to collect and process data.31 There is also lack of incentives to collect and disclose data as it is not deemed as a business priority or value-add to their businesses. Some businesses are also concerned about disclosing proprietary information. In particular, the reporting of company-wide GHG emissions can be a complex undertaking, more so in reporting GHG Scope 3 due to its unclear boundaries and definitions. While there are several platforms developed by private data providers such as ESG Book,32 ESGpedia registry,33 Refinitiv and Bloomberg that record and aggregate ESG data of public listed companies across various sectors, data from SMEs are generally not captured. SMEs’ contribution on the economy is significant, comprising 97.2% of business establishments and contributing 38.2% to GDP (2020).34 Lack of data from SMEs hinders analysis to identify material risks and growth opportunities to support investment and lending decision by financial institutions. 31 FSB, “The Availability of Data with Which to Monitor and Assess Climate-related Risks to Financial Stability”, July 2021. PLEN202136 Climate data availability (fsb.org) 32 ESG Book. ESG Book - We power financial markets for a sustainable future. 33 STACS. ESGpedia - the ESG Data Encyclopedia 34 OECD iLibrary, “Financing SMEs and Entrepreneurs 2022: An OECD Scoreboard”, 2022. https://www.oecd-ilibrary.org/ sites/3bc2915c-en/index.html?itemId=/content/component/3bc2915c-en Diagram 11: Data Challenges 1. Differences in methodology Data compilation is often at aggregate level whereas the financial sector requires more granular data at the sector and entity levels 2. Legal impediments and restrictions Climate-related data publication could be limited due to legal restrictions 3. Decentralised data compilation and publication Varying publication practices and governance hinders data accessibility, adding a layer of complexity for data users 4. Various climate disclosure requirements and frameworks Different frameworks adopted by companies in the same sector could give rise to comparability issues for investors 5. Lack of capacity and motivation for disclosure Due to limited know-how and lack of appropriate tools to collect and process data https://www.fsb.org/wp-content/uploads/P070721-3.pdf https://www.esgbook.com https://esgpedia.io https://www.oecd-ilibrary.org/sites/3bc2915c-en/index.html?itemId=/content/component/3bc2915c-en https://www.oecd-ilibrary.org/sites/3bc2915c-en/index.html?itemId=/content/component/3bc2915c-en Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps22 4.2 Recommendations To overcome some of the above constraints, JC3 is advocating a more coordinated strategy to encourage greater disclosures of climate and environmental data, with common data definition and standards, while leveraging on available technology and data. A. Implement Common Definitions and Methodologies i. Common/interoperable data definition and methodology at national level It is important to establish consistent definitions and methodologies at the national level for climate data. This will not only improve the availability of quality, reliability and comparability of data, but will also facilitate common understanding among data users. Greater reconciliation of national level and corporate level of GHG emissions should be explored. Common methodology to calculate emissions at the corporate level could be considered for adoption to improve the availability of entity-level GHG emissions data. Some considerations: • Partnership for Carbon Accounting Financials (PCAF)35 provides guidance to calculate emissions at the corporate level leveraging on physical activity data and emissions factor. It is based on verified calculation methodologies approved by a credible independent institution such as the IPCC. • 2019 Refinement to the 2006 IPCC Guidelines provides guidance on how best to use facility-level data in national greenhouse gas inventories 36 37 (i.e. information related to emissions from an individual plant, installation or factory). For vehicle GHG emissions data, relevant public agencies may consider collaborating to establish a national database for public consumption. The database could be based on the pollutant emissions standards for new models of petrol- powered vehicles issued by the DOE.38 There are several examples of databases in other jurisdictions available for reference: • Database on fuel consumption and Carbon Dioxide (CO2) emissions data 39 by the United Kingdom (UK) government. The emission information by vehicle make and model is easily accessible in csv table format; and • Fuel economy information40 by the United States (US) Environmental Protection Agency via their website. Users can select specific car types in the US to derive its GHG emissions. One other potential area for consideration is the common adoption of MSIC standard by all relevant ministries, agencies and private sector for data collection and sharing purposes. Since MSIC is aligned to the International Standard 35 Equations to calculate financed emissions The Global GHG Accounting and Reporting Standard for the Financial Industry (carbonaccountingfinancials.com), page 52. 36 Buendia et al., “2019 Refinement to the 2006 IPCC Guidelines for National Greenhouse Gas Inventories”, 2019. CHAPTER 1 (ipcc.ch) 37 Use of Facility-Specific Data in National Greenhouse Gas Inventories TFI_Technical_Bulletin_1.pdf (iges.or.jp) 38 Environmental Quality (Control of Emissions from Petrol Engines) Regulations 1996 – P.U. (A) 543/96 Environmental Quality (Control of Emissions from Petrol Engines) Regulations 1996 – P.U. (A) 543/96 – Department of Environment (doe. gov.my) 39 Car fuel and CO2 emissions data, Car fuel and CO2 emissions data - GOV.UK (www.gov.uk) 40 The official U.S. government source for fuel economy information, Find and Compare Cars (fueleconomy.gov) https://carbonaccountingfinancials.com/files/downloads/PCAF-Global-GHG-Standard.pdf https://carbonaccountingfinancials.com/files/downloads/PCAF-Global-GHG-Standard.pdf https://www.ipcc.ch/site/assets/uploads/2019/12/19R_V0_01_Overview.pdf https://www.ipcc.ch/site/assets/uploads/2019/12/19R_V0_01_Overview.pdf https://www.ipcc-nggip.iges.or.jp/public/tb/TFI_Technical_Bulletin_1.pdf https://www.doe.gov.my/en/environmental-quality-control-of-emissions-from-petrol-engines-regulations-1996-p-u-a-543-96/ https://www.doe.gov.my/en/environmental-quality-control-of-emissions-from-petrol-engines-regulations-1996-p-u-a-543-96/ https://www.doe.gov.my/en/environmental-quality-control-of-emissions-from-petrol-engines-regulations-1996-p-u-a-543-96/ https://www.gov.uk/co2-and-vehicle-tax-tools https://www.fueleconomy.gov/feg/findacar.shtml Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 23 41 Bursa Malaysia’s Media Release ‘Bursa Malaysia Enhances Sustainability Reporting Framework With New Climate Change Reporting’ 26Sept_2022_Bursa_Malaysia_Enhances_Sustainability_Reporting_Framework_With_New_Climate_Change_ Reporting.pdf (bursamalaysia.com) 42 IFRS Foundation completes consolidation with Value Reporting Foundation IFRS - IFRS Foundation completes consolidation with Value Reporting Foundation 43 Current stage of Climate-related Disclosures IFRS - Climate-related Disclosures Industrial Classification (ISIC), such adoption will lay a good foundation for enabling interoperability of climate data usage between public and private sectors at both the national and international level. This will be particularly useful when comparing climate data based on a national taxonomy against ASEAN Taxonomy or other taxonomies in the future, which is universally based on ISIC standards. A data ecosystem with standardised definitions and methodologies will foster data comparability across companies and sectors. Such standardisation will support the implementation of BNM’s CCPT and SC’s SRI Taxonomy. Both of these taxonomies are developed to enable financial and capital market participants to assess economic activities and their associated impacts on climate and the broader environment. As a result, the financial sector can effectively monitor progress and accelerate the financing of transition to a low- carbon economy. ii. Alignment of disclosure requirements to established standards/frameworks Increasingly, there has been more consolidation or convergence of climate disclosure standards and frameworks. It is also observed that regulators or standard setting organisations are striving to align disclosure requirements with established standards/frameworks. A case in point is Bursa Malaysia’s41 enhancement of its Sustainability Reporting Framework with climate change-related disclosures. These enhancements are aligned with the TCFD Recommendations in addition to prescribing a common set of sustainability matters and indicators that are deemed material for all listed issuers among others. This is aimed at putting listed issuers on a good footing to progress and adopt international reporting frameworks and standards such as the GRI, SASB and the International Sustainability Standards Board (ISSB) standards that are currently under development. The International Financial Reporting Standards (IFRS) Foundation has achieved significant progress in this area by consolidating the Value Reporting Foundation (VRF) into the IFRS Foundation, following commitment made at Conference of the Parties (COP) 26 to support the establishment of ISSB.42 The VRF’s SASB Standards, now governed by the ISSB, serve as a key starting point for the development of the IFRS Sustainability Disclosure Standards. In March 2022, the ISSB launched a consultation on two proposed standards on climate-related disclosures and general sustainability-related disclosures. When finalised, the standards would form a comprehensive global baseline of sustainability-related disclosures designed to meet the information needs of investors in assessing enterprise value.43 https://www.bursamalaysia.com/sites/5bb54be15f36ca0af339077a/content_entry5c11a9db758f8d31544574c6/63312a2439fba20d86ba8e16/files/26Sept_2022_Bursa_Malaysia_Enhances_Sustainability_Reporting_Framework_With_New_Climate_Change_Reporting.pdf?1664169009 https://www.bursamalaysia.com/sites/5bb54be15f36ca0af339077a/content_entry5c11a9db758f8d31544574c6/63312a2439fba20d86ba8e16/files/26Sept_2022_Bursa_Malaysia_Enhances_Sustainability_Reporting_Framework_With_New_Climate_Change_Reporting.pdf?1664169009 https://www.ifrs.org/news-and-events/news/2022/08/ifrs-foundation-completes-consolidation-with-value-reporting-foundation/ https://www.ifrs.org/news-and-events/news/2022/08/ifrs-foundation-completes-consolidation-with-value-reporting-foundation/ https://www.ifrs.org/projects/work-plan/climate-related-disclosures/ Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps24 iii. Open data standards and platforms to facilitate data sharing The public sector should consider using common interoperable data standards, APIs and open data platforms. This will enable climate data to be organised in a manner that is easily accessible by users. Some considerations based on open data elements44 : • Availability and accessibility: Data must be available in a convenient and modifiable format; • Re-use and redistribution: Data to be provided under terms that allow users to re-use and redistribute or intermix with other datasets; and • Universal participation: Everyone must be able to use, re-use and redistribute the data. While MAMPU has launched the Public Sector Open Data platform to share public sector datasets, the decision to publish or release data is currently left to the discretion of respective government agencies which are responsible in compiling these data. There should be greater effort to establish an overarching national framework that determines whether data can be published or otherwise. Ideally a central body should be formed to lead the initiative, and subsequently enforce the implementation of open data across government agencies. Further improvements to the implementation of open data can be guided by two main policies on open government data currently in progress, i.e. the Public Sector Data Sharing Policy (DPDSA) and the National Data Sharing Policy (NDSP). • DPDSA guides public sector agencies on data sharing with other public sector agencies (G2G), with the business community (G2B), and with the people (G2C). This policy also provides guidance on implementing authentic, secure, and effective data sharing initiatives in accordance with a set of prescribed data sharing principles. • NDSP is envisioned to set out Malaysia’s long-term strategy designed to create a holistic, conducive, and inclusive data ecosystem to support Malaysia’s socio- economic development agenda. As such, NDSP should provide guidance on measures that would address issues relating to legacy regulations that impede the implementation of open data or prohibit data sharing. It is observed that public sector data is also shared via other data sharing platforms such as eStatistik, MysDIC, openDOSM and StatsDW. It will be useful to provide guidance on how the climate datasets are organised across these platforms. Providing a centralised data inventory or catalogue of open data that are available, together with firm commitments for data publication will provide better visibility for data users. 44 The Open Data Handbook Guide ‘What is Open Data’, by Open Knowledge Foundation. What is Open Data? (opendatahandbook.org) http://opendatahandbook.org/guide/en/what-is-open-data/ http://opendatahandbook.org/guide/en/what-is-open-data/ Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 25 Over and above these policies, the public sector can also strengthen the implementation of common interoperable data standards in available forums, such as the National Statistics and Data Council’s (MSDN) i.e. the highest advisory body for guidance and direction in strengthening governance of the national statistical system. This makes it the ideal body and the natural starting point to spearhead the use of standards by public sector agencies and to ensure implementation by respective statistics and data council at the state and regional level (MSDNgW). B. Promote and enforce greater disclosures i. Shift to embrace open data concept and review current data confidentiality restrictions Another consideration for both the public and private sector is to address current legal impediments through necessary reforms (e.g. reviewing existing data confidentiality restrictions). As explained earlier, currently there are restrictions that hinder the availability of entity-level energy consumption data. The public and private sectors in Malaysia may consider emulating the Green Button45 initiative in the US, which allow sharing of customers’ utility information, upon customers’ authorisation. Such arrangement can be facilitated with more explicit data portability rights, which is being considered under the PDPA review. In the meantime, financial sector users may continue to leverage on the most granular information available, such as sector-level non-renewable energy data via MAMPU Open Data Portal for Consumption of Energy by Sector. ii. Enhance capacity building and improve awareness and understanding on importance of climate related data usage and disclosure Another focus area is to strengthen the awareness and understanding on the importance of climate-related data usage and disclosure. This could be done through intensifying multidisciplinary collaboration and technical upskilling efforts amongst relevant stakeholders in both public and private sectors. The financial sector can also benefit from more knowledge sharing and sharing of best practices, drawing on expertise of peers that have made greater progress towards integrating climate risks into their business strategies, operations and risk management. As for the SMEs, the Capital Markets Malaysia (CMM), in collaboration with NRECC (formerly known as KASA), is now developing an ESG Disclosure Guide tailored to Malaysian SMEs which will address one of the key impediments in enhancing capacity building and guidance. This will provide practical guidance and the baseline exposures expected of SMEs in relation to ESG, to encourage greater transparency and improve the quality of SMEs’ ESG disclosure. Such adoption will pave way for alignment with global disclosure frameworks, including the one being developed by the ISSB, to promote comparability and minimise compliance costs for businesses and financial institutions going forward. 45 The Green Button’s Connect My Data (CMD) allows both utility customers and providers to share information securely while protecting customers’ personal data. Utility providers will provide information on utility usage upon customers’ authorisation of the transfer of information to third party. Green Button Alliance, “Connect My data – CMD”. Green Button Alliance https://www.greenbuttonalliance.org https://www.greenbuttonalliance.org https://www.ifrs.org/projects/work-plan/climate-related-disclosures/ Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps26 iii. Industry-led platform to facilitate efficient climate data disclosure Regulators may support and catalyse the establishment of an industry-led platform to accelerate climate data disclosure by companies. The coverage should extend beyond publicly listed companies, to also cover smaller firms such as the SMEs. The platform should ideally address the current fragmentation and uneven progress in disclosures. One means is by setting a low barrier to disclosure among the companies, thus improving the coverage of climate data disclosure for the use of financial sector. In order to mitigate greenwashing risks, such platform may also embed additional feature to support verifiability and auditability of the disclosures by companies. C. Leverage on Technology and Available Data Sources Leveraging on available data, approaches and tools is one of the common recommendations to address data gaps,46 pending significant progress being made to improve the availability of more granular and forward-looking data. While these recommendations would require expert knowledge, the financial sector can bridge the knowledge gaps through partnerships with academia and field experts. i. Technology Users can refer to existing global and open-source platforms (for example Open Source - Climate,47 European Space Agency Climate Data Dashboard48 and the World Resources Institute Climate Watch49), along with using new technologies such as APIs, machine learning, artificial intelligence as well as satellite imagery to bridge data gaps and improve user interactions. For example, the financial sector users can utilise real-time weather forecast from satellite imagery as inputs in extreme weather risk modelling to better manage and assess physical risks, e.g. use of historical and forecast data by reinsurers in flood risk scenario model to estimate potential business loss.50 Other climate change observations such as land use and cover, crop, bodies of water are also readily available from satellite imagery.51 ii. Statistical gap-filling approach Apart from satellite data, statistical gap-filling approaches could also be considered which exploits spatial, temporal, and multivariate information to create estimates for missing values in earth observations.52 46 NGFS, “Final report on bridging data gaps”, July 2022. https://www.ngfs.net/sites/default/files/medias/documents/final_ report_on_bridging_data_gaps.pdf 47 OS-climate - https://os-climate.org/ 48 ESA Climate Data Dashboard - https://climate.esa.int/en/odp/#/dashboard 49 World Resources Institute - https://www.wri.org/ 50 Risk Management for Specific Risk Types – Liquidity Risk Climate Risk Management and Scenario Analysis - Policy Document (bnm.gov.my) 51 Climate change analysis using satellite data - https://www.researchgate.net/publication/325491309_Climate_Change_ Analysis_using_Satellite_Data 52 CLIMFILL v0.9: A framework for intelligently gap filling Earth observations - GMD - CLIMFILL v0.9: a framework for intelligently gap filling Earth observations (copernicus.org) https://www.ngfs.net/sites/default/files/medias/documents/final_report_on_bridging_data_gaps.pdf https://www.ngfs.net/sites/default/files/medias/documents/final_report_on_bridging_data_gaps.pdf https://os-climate.org https://www.ipcc.ch/site/assets/uploads/2019/12/19R_V0_01_Overview.pdf https://climate.esa.int/en/odp/#/dashboard https://www.wri.org https://www.bnm.gov.my/documents/20124/938039/PD_Climate-Risk-Mgmt-Scenario-Analysis-Nov2022.pdf https://www.bnm.gov.my/documents/20124/938039/PD_Climate-Risk-Mgmt-Scenario-Analysis-Nov2022.pdf https://www.researchgate.net/publication/325491309_Climate_Change_Analysis_using_Satellite_Data https://www.researchgate.net/publication/325491309_Climate_Change_Analysis_using_Satellite_Data https://gmd.copernicus.org/articles/15/4569/2022/gmd-15-4569-2022.html https://gmd.copernicus.org/articles/15/4569/2022/gmd-15-4569-2022.html https://www.researchgate.net/publication/325491309_Climate_Change_Analysis_using_Satellite_Data Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 27 An example is the collaboration between the UNFCCC secretariat with the Greenhouse Gas Management Institute to develop a data collection and management tool called Sectoral Activity Data for GHG Emissions (SAGE) for the Energy and Industrial Process and Product (IPPU) sectors based on IPCC sectors. The tool will convert proxy data into appropriate variables and units and filing in completeness and time series gaps, to support the estimation of GHG emissions and removals.53 iii. Use of available and proxy data Available and proxy data have also been used to construct climate change risk indicators and taxonomies.54 The financial sector can explore incorporating existing data in their ESG rating methodology to rate and assess borrowers during onboarding and annual reviews of exposures as part of their climate risk management and assessment.55 Such information will assist in evaluating potential and existing borrowers and mitigating actions that can be taken in supporting the borrowers to adopt more environment-friendly and sustainable practices. 53 Data collection and management tools, GHG Support | UNFCCC 54 How proxies and publicly available data can be used to construct indicators on transition risk, physical risks, and green taxonomies - https://www.bis.org/ifc/publ/ifcb56_27.pdf 55 Principle 8: Financial institutions shall consider climate-related risks as part of comprehensive risk assessments to identify and measure all material risks. Climate Risk Management and Scenario Analysis - Policy Document (bnm.gov.my) Diagram 12: Recommendations to Bridge Data Gaps Implement Common Definitions and Methodologies i. Adopt common definitions and methodologies for key climate data at the national level ii. Align new disclosure requirements to established/prominent frameworks/standards iii. Adopt common interoperable data standards/platforms to encourage data sharing and facilitate accessibility Promote and Enforce Greater Disclosures i. Shift to embrace open data concepts and review current data confidentiality restrictions ii. Accelerate climate data usage and disclosure via capacity building and guidance iii. Establish industry-led platform to facilitate efficient climate data disclosures, especially by smaller firms Leverage on Technology, Available Data Sources i. Application of technology such as APIs, machine learning, artificial intelligence and satellite imagery to bridge data gaps and improve user interaction ii. Statistical gap-filling approaches to create estimates iii. Use of available or proxy data in constructing climate change risk indicators A B C https://unfccc.int/process-and-meetings/transparency-and-reporting/support-for-developing-countries/ghg-support#TOOLS-and-SOFTWARE- https://www.bis.org/ifc/publ/ifcb56_27.pdf https://www.ipcc.ch/site/assets/uploads/2019/12/19R_V0_01_Overview.pdf https://www.bnm.gov.my/documents/20124/938039/PD_Climate-Risk-Mgmt-Scenario-Analysis-Nov2022.pdf https://www.researchgate.net/publication/325491309_Climate_Change_Analysis_using_Satellite_Data Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps28 5. Future Plans Moving forward, the Sub-Committee on Bridging Data Gaps will pursue efforts to collaborate with relevant stakeholders to bridge data gaps. An immediate area of focus for 2023 is to work with data providers to improve the availability of a number of data items in the Top 8 data groups. The Sub-Committee will update the Data Catalogue on an annual basis, to ensure its relevance based on the latest data requirements, standards and data sources. To this end, the Sub-Committee welcomes feedback through email ([email protected]), particularly on the usefulness and comprehensiveness of the Data Catalogue. Such feedback will be invaluable in further enriching the content, format and functionalities of Data Catalogue in the future. Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 29 Acknowledgements This report is a collaborative effort among the members of the JC3 Sub-Committee on Bridging Data Gaps. This document was prepared under the purview of JC3 and Sub-Committee Chair, BNM Assistant Governor Fraziali Ismail. Support was provided by the Sub-Committee Secretariat team from BNM, led by Ong Li Ming and consists of members i.e. Ili Sarah Aspar, Saiful Anuar Mohd Husin, Nur Izzati Mohd Jamal, Rifqah Abdul Muis, Nurhazwani Abdul Halim, Tang Jia Quan, and Ho Shu Lin. The Sub-Committee is truly grateful for the contributions of all members and observers in contributing towards the climate Data Catalogue, particularly: Soong Kim Loong (Maybank), Ashish Garg (Maybank), Oliver Kumaran (Bank Islam), Fadzillah Mokhtar (Bank Islam), Hussien Mullar (Bank Pembangunan), Saw Wei Ta (Hong Leong Bank), Leonard Yap (UOB), Arsalaan Ahmad (Al-Rajhi Bank), Mo Khurram Zia (Al-Rajhi Bank), Sharmini Ramanathan (MBSB Bank Berhad), Muhamad Izham Abd Shukor (previously from Ministry of Natural Resources, Environment and Climate Change (NRECC, formerly known as KeTSA)), Dayang Ratnasari Abu Bakar (Ministry of Natural Resources, Environment and Climate Change (NRECC, formerly known as KASA)), Dr Gary William Theseira (Malaysian Green Technology and Climate Change Center (MGTC)), Nicole Wong Siew Yong (AmGeneral Insurance), Mahidon Promwichit (AmGeneral Insurance), Jeannie Foo Xinwen (Allianz General Insurance), Mohammad Junaid Khalid Iqbal (AIA Berhad), Keith Kwan Chi Hin (Syarikat Takaful Malaysia Am Berhad), Wong Xing Onn (MSIG Insurance (Malaysia) Bhd), Elsa Athira Norshamziah (Kumpulan Wang Persaraaan (KWAP)), Mohd Redza Abdul Rahman (Permodalan Nasional Berhad (PNB)), Razeen Mohd Rom (BNM), Mohamad Shazwan Shuhaimeen (BNM), Dr Ho Sui-Jade (BNM), Thulaja Thessa (previously from BNM), Edward Goh Yoon Hin (SC), Munirah Abdul Rahman (SC), Alina Osman (previously from SC), Wong Kay Yong (Bursa Malaysia), Wong Chiun Chiek (Bursa Malaysia), Dr Yeoh Ken Kyid (Bursa Malaysia), San Mei Kim (Bursa Malaysia), Promod Dass (RAM Sustainability), Gladys Chua (RAM Sustainability), Chan Yin Huei (RAM Ratings), Khairul Aidah Samah (DOSM) and Syed Ibrahim Mohd Jamaluddin (DOSM). The Sub-Committee would also like to thank the World Bank for its contribution to this report, particularly: Dieter Wang, with support from Josha van Spronsen with the task team leads Mohamed Rozani Mohamed Osman and Martijn Gert Jan Regelink and the reviewers Rekha Reddy, Rodrigo Pereira Porto, Nepomunk Dunz, Taisei Matsuki and Dara Lengkong. The Sub-Committee also appreciates contribution from other individuals: Dr. Peter Ho Chiung Ching (BNM), Muhammad Afiq Danish Shamsul Annuar (BNM), Chuah Kue Peng (BNM), Eugene Tian Jien Ming (BNM), Joshua Chin Soon Kean (BNM), Suraya Sani (BNM), Dr. Murizah Osman Salleh (BNM), Ang Jian Wei (BNM), Julian Mahmud Hashim (Bursa Malaysia), Crystal Wong Jee Yong (SC) and Lea Grisey (NGFS Secretariat). The Sub-Committee would also like to express appreciation for feedback and comments from the members of JC3 and other Sub-Committees of JC3. Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps30 List of Acronyms ACE Access, Certainty, Efficiency API Application Programming Interface ASEAN Association of Southeast Asian Nations ASIFMA Asia Securities Industry & Financial Markets Association BNM Bank Negara Malaysia CCPT Climate Change and Principle-based Taxonomy CDSB Climate Disclosure Standards Board CMD Connect My Data CMM Capital Markets Malaysia CMP3 Capital Market Masterplan 3 CO2 Carbon Dioxide COP Conference of the Parties CRMSA Climate Risk Management and Scenario Analysis CRST Climate Risk Stress Testing DC Data Catalogue DID Department of Irrigation and Drainage DOE Department of Environment DOSM Department of Statistics Malaysia DPDSA Public Sector Data Sharing Policy EIR Emissions intensity ratio ESA Environmentally sensitive area ESG Environmental, Social and Governance FAO Food and Agriculture Organisation of the United Nations FSB Financial Stability Board GC Global Compact GDP Gross Domestic Product GDPR General Data Protection Regulation GHG Greenhouse gas GIS Geographic Information System GRI Global Reporting Initiative G2B Government-to-Business G2C Government-to-Citizen G2G Government-to-Government IFC Irving Fisher Committee on Central Bank Statistics IFRS International Financial Reporting Standards ISIC International Standard Industrial Classification ISSB International Sustainability Standards Board Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps 31 List of Acronyms IPCC Intergovernmental Panel on Climate Change IPPU Industrial Process and Product JC3 Joint Committee on Climate Change MAMPU Malaysian Administrative Modernisation and Management Planning Unit MSDN National Statistics and Data Council MSDNgW State/Regional Statistics and Data Council MSIC Malaysia Standard Industrial Classification MysIDC Malaysia Informative Data Centre NDSP National Data Sharing Policy NDC Nationally Determined Contributions NGFS Network for Greening the Financial System NRECC Ministry of Natural Resources, Environment and Climate Change (formerly known as Ministry of Environment and Water (KASA) and Ministry of Energy and Natural Resources (KeTSA)) NSO National Statistical Office PCAF Partnership for Carbon Accounting Financials PD Probability of Default PDPA Personal Data Protection Act 2010 RDBMS Relational Database Management System RSS Relational Spreadsheet Structure SAGE Sectoral Activity Data for GHG Emissions SASB Sustainability Accounting Standards Board SC Securities Commission SDG Sustainable Development Goals SMEs Small and Medium Enterprises SRI Sustainable and Responsible Investment StatsDW Statistics Data Warehouse TCFD Task Force on Climate-related Financial Disclosures TNB Tenaga Nasional Berhad UK United Kingdom UN United Nations UNFCCC United Nations Framework Convention on Climate Change UNGC United Nations Global Compact US United States of America VaR Value-at-risk VRF Value Reporting Foundation Report on Climate Data Catalogue | Key Findings and Recommendations to Bridge Data Gaps32 List of Diagrams Diagram 1 Identification Process of Climate-related Data Diagram 2 Identified Use Cases Applicable for the Climate Data Catalogue Diagram 3 Metric Types Established Diagram 4 Top 8 Data Groups Diagram 5 Data Items by Metric Type Diagram 6 Share of Metric Types for Top 2 Use Cases - Financial Stability Monitoring and Investment Lending Decisions Diagram 7 Data Availability Diagram 8 Percentage of Data Availability for Top 8 Data Groups Diagram 9 Data Accessibility by Metric Type Diagram 10 Data Catalogue Maintenance – Process Flow Diagram 11 Data Challenges Diagram 12 Recommendations to Bridge Data Gaps Appendix: Climate Data Catalogue December 2022 Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series 1. ESG Book 2. Entity 1. https://app.esgbook.com/dashboard 2. a) Petronas (https://www.petronas.com/sustainability/reporting) b) Tenaga Nasional Berhad (https://www.tnb.com.my/sustainability/performance- highlight/) c) Axiata (https://sustainability.axiata.com/wp-content/uploads/2021/05/Axiata- SNCR2020.pdf) d) Allianz (https://www.allianz.com.my/personal/allianz-at-a-glance/allianz-4- good/sustainability-reports.html) e) CIMB (https://www.cimb.com/en/sustainability/sustainability-cimb.html) f) DRB Hicom (https://www.drb-hicom.com/investors/annual-report_/) Public Annual Varies by companies ESGBook provides the disclosure of GHG emission scope 1 and 2 for public-listed companies that disclose this information in the annual report. Users can sign up with no cost to obtain this data as ESGBook is a freemium platform. Upon sign-in, go to company directory > search and click the desired company > disclosure > emissions framework. There are a total of 1,564 Malaysian corporations in ESGBook. However, not all companies disclose their GHG emissions. 1. Refinitive 2. Bloomberg 1. https://www.refinitiv.com/en/sustainable-finance/esg-scores 2. https://www.bloomberg.com/professional/dataset/global-environmental-social- governance-data/ Proprietary Annual Not available Refinitiv and Bloomberg provide the disclosure of GHG emission scope 1 and 2 for public-listed companies that disclose these information in the annual reports. However, subscription fee is required. Forward- looking (projection) Entity Not available Not available Not available Not available Data is not available. Backward- looking NRECC (formerly known as KASA) https://unfccc.int/documents/267685 Public Biennial 1990-2016 GHG emissions published by NRECC (formerly known as KASA) is based on sectors and sub sectors (IPCC Guidelines) instead of scopes 1 and 2. The sectors are Energy, Industrial Processes and Product Use, Land Use, Land- Use Change, and Forestry, Agriculture, and Waste instead of industrial sector classification as per MSIC 2008. Forward- looking (projection) NRECC (formerly known as KASA) https://unfccc.int/sites/default/files/resource/Malaysia%20NC3%20BUR2_final% 20high%20res.pdf Public Biennial 2005-2030 Projections under 3 scenarios: 1. Business-as-usual (BAU) 2. Planning scenario incorporates existing policies and planned initiatives that would be implemented until 2030 (PLAN) 3. Ambitious scenario looks at potential emissions reduction when additional mitigation measures are implemented (AMB) GHG emission published by NRECC (formerly known as KASA) is based on sector and sub sector (IPCC Guidelines) instead of scopes 1 and 2. The sectors are Energy, Industrial Processes and Product Use, Agriculture Forestry and Other Land Use, and Waste instead of industrial sector classification as per MSIC 2008. Backward- looking Entity Not available Not available Not available Not available Data is not available. Forward- looking (projection) Entity Not available Not available Not available Not available Data is not available. 1. ESG Book 2. Entity 1. https://app.esgbook.com/dashboard 2. a) Allianz (https://www.allianz.com.my/personal/allianz-at-a-glance/allianz-4- good/sustainability-reports.html) b) Shell (https://reports.shell.com/sustainability- report/2021/services/downloads.html) c) Nestle (https://www.nestle.com/sites/default/files/2022-03/creating-shared- value-sustainability-report-2021-en.pdf) Public Annual Varies by companies ESGBook provides the disclosure of GHG emission scope 3 for public-listed companies that disclose this information in the annual report. There are 25 Malaysian companies which disclose their Scope 3 emission. Users can sign up with no cost to obtain this data as ESGBook is a freemium platform. Upon sign in, go to company directory > search and click the desired company > disclosure > emissions framework. The freemium access has a delayed scoring of 3 months, while real-time data and scoring require paid subscription. The information can also be obtained from respective companies' annual reports/sustainability reports. 1. Refinitive 2. Bloomberg 1. https://www.refinitiv.com/en/sustainable-finance/esg-scores 2. https://www.bloomberg.com/professional/dataset/global-environmental-social- governance-data/ Proprietary Annual Not available Refinitiv and Bloomberg provide the disclosure of GHG emission scope 3 for public-listed companies that disclose this information in the annual reports upon subscription. Forward- looking (projection) Entity Not available Not available Not available Not available Data is not available. Backward- looking NRECC (formerly known as KASA) https://unfccc.int/documents/267685 Public Biennial 1990-2016 GHG emissions published by NRECC (formerly known as KASA) is based on sector and sub sector (IPCC Guidelines) instead of Scope 3. The sectors are Energy, Industrial Processes and Product Use, Land Use, Land-Use Change, and Forestry, Agriculture, and Waste instead of industrial sector classification as per MSIC 2008. Forward- looking (projection) NRECC (formerly known as KASA) https://unfccc.int/sites/default/files/resource/Malaysia%20NC3%20BUR2_final% 20high%20res.pdf Public Biennial 2005-2030 Projections under 3 scenarios: 1. Business-as-usual (BAU) 2. Planning scenario incorporates existing policies and planned initiatives that would be implemented until 2030 (PLAN) 3. Ambitious scenario looks at potential emissions reduction when additional mitigation measures are implemented (AMB) Report to UNFCCC contains GHG emissions improvement plan, but no specific quantitative projections. GHG emissions published by NRECC (formerly known as KASA) is based on sector and sub sector (IPCC Guidelines) instead of Scope 3. The sectors are Energy, Industrial Processes and Product Use, Agriculture Forestry and Other Land Use, and Waste instead of industrial sector classification as per MSIC 2008. Backward- looking Entity Not available Not available Not available Not available Forward- looking (projection) Entity Not available Not available Not available Not available 3 GHG inventory Footprint 2006 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National GHG Inventories / Malaysia Biennial Update Report to UNFCCC Gg CO2e By Sector Backward- looking ✓ NRECC (formerly known as KASA) https://unfccc.int/documents/267685 Public Biennial 1990-2016 The latest available report to UNFCCC is for 2020, which contains data from 1990 to 2016. The data published by NRECC (formerly known as KASA) is based on sectors (Energy, Industrial Processes and Product Use, Agriculture, Forestry and Other Land Use, and Water) instead of industrial sector classification as per MSIC 2008. 1. The Data Catalogue is compiled by the Sub-Committee on Bridging Data Gaps (the Sub-Committee) of the Joint Committee on Climate Change (JC3), based on data needs of Malaysia's financial sector and data sources at the time of publication. 2. The DC is aimed to be a source of reference for climate and environmental data relevant to use cases by Malaysia's financial sector. 3. The DC mainly covers Malaysian climate and environmental data that includes data that are readily available, partially available, and unavailable as well as observations on data gaps. For other global climate data, users may refer to the NGFS Directory (http://ngfs.dev.masdkp.io). Disclaimer: Inclusion of information in the Data Catalogue does not indicate use of or endorsement by the Sub-Committee on Bridging Data Gaps (the Sub-Committee), any member of the Joint Committee on Climate Change (JC3) or any affiliated organisation and neither the Data Catalogue's scope nor the data sources are meant to be comprehensive. The Sub-Committee and the members of JC3 do not make any warranty as to the results that may be obtained from use of the Data Catalogue, or as to the accuracy, adequacy, validity, availability, completeness, reliability or content of any information provided through the Data Catalogue, and users are responsible to make their own assessment of the information that is suitable for their purpose. 1 ✓✓ ✓✓ ✓ By Asset Class 2 GHG emissions Scope 3 Footprint 1. GHG Protocol Corporate Accounting and Reporting Standard 2. 2006 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National GHG Inventories / Malaysia Biennial Update Report to UNFCCC Tonnes CO2e Tonnes CO2e Tonnes CO2e Tonnes CO2e Green House Gases (GHG) emissions Scope 1, Scope 2 Tonnes CO2e By Entity By Asset Class Backward- looking ✓percentage (%) By Entity By Sector By Sector ✓ Data Availability ✓ Observations on data availability/gaps Data is not available. ✓ ✓ ✓✓ No. Data Needs Backward- looking Use Cases Footprint 1. GHG Protocol Corporate Accounting and Reporting Standard 2. 2006 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National GHG Inventories / Malaysia Biennial Update Report to UNFCCC 33 https://unfccc.int/sites/default/files/resource/Malaysia NC3 BUR2_final high res.pdf https://unfccc.int/sites/default/files/resource/Malaysia NC3 BUR2_final high res.pdf Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series Data Availability Observations on data availability/gapsNo. Data Needs Use Cases Tonnes CO2e By Sector Forward- looking (projection) 1. NRECC (formerly known as KASA) 2. UNFCCC 1. https://www.kasa.gov.my/resources/alam-sekitar/Low-Carbon-Mobility- Blueprint-2021-2030/4/ 2. https://unfccc.int/sites/default/files/NDC/2022- 06/Malaysia%20NDC%20Updated%20Submission%20to%20UNFCCC%20Jul y%202021%20final.pdf Public Annual 2021-2030 Tonnes CO2e By Entity Forward- looking (projection) 1. Entity 2. Science Based Targets initiative (SBTi) 1. Entity a) Sunway (https://www.sunway.com.my/sustainability-report/wp- content/uploads/2022/07/Sunway-SR2021-interactive.pdf#page=76) b) Top Glove (https://www.topglove.com/sustainability-disclosure) c) IOI Group (https://www.ioigroup.com/Content/IR/PDF/SR/2021_SR.pdf) 2. https://sciencebasedtargets.org/companies-taking-action Public Annual Varies by companies GHG Protocol Corporate Accounting and Reporting Standard CO2 equivalent per unit of physical or economic output e.g. 1. kg CO2e/RM million 2. g CO2e/kWh By Entity Backward- looking Entity Not available Not available Not available Not available Data is not available. 1. Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories 2. 2006 IPCC Guidelines for National Greenhouse Gas Inventories (BUR3) CO2 equivalent per unit of physical or economic output e.g. 1. kg CO2e/RM million 2. g CO2e/kWh By Sector Backward- looking 1. UNFCCC/NRECC (formerly known as KASA) 2. International Energy Agency 3. European Environment Agency 1. https://unfccc.int/documents/267685 and https://unfccc.int/sites/default/files/resource/MALBUR1.pdf 2. https://www.iea.org/data-and-statistics/charts/development-of-co2-emission- intensity-of-electricity-generation-in-selected-countries-2000-2020 3. https://www.eea.europa.eu/ims/greenhouse-gas-emission-intensity-of-1 Public 1. Biennial (NRECC) 2. Upon update (IEA & EEA) 1. Selected years (KASA) 2. 2000-2020 (IEA) 3. 1990-2030 (EEA) The data published by NRECC (formerly known as KASA) is based on sectors (Energy, Industrial Processes and Product Use, Agriculture, Forestry and Other Land Use, and Water) instead of industrial sector classification as per MSIC 2008. IEA website contains data on CO2 emission intensity of electricity generation for its members, with limited data on Malaysia. Data from EEA is at the macro level, which is based on European countries. 6 Economic sectors' contribution to Gross Domestic Product (GDP) and GHG emissions Combined metrics International Standard Industrial Classification and GHG Protocol MYR Million / CO2 By Sector Backward- looking ✓ 1. Economic Planning Unit (EPU) 2. UNFCCC/NRECC (formerly known as KASA) 1. https://www.epu.gov.my/sites/default/files/2021-12/MEIF%202021.pdf 2. https://unfccc.int/documents/267685 Public 1. Annual 2. Biennial 1. 2005-2021 2. 1990-2016 EPU provides data on economics sector's contribution to GDP, whilst NRECC (formerly known as KASA) provides data on sectoral GHG emissions. Both however use different set of sector classification. 7 Vehicle GHG emissions Footprint 1. GHG Protocol Corporate Accounting and Reporting Standard 2. 2006 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National GHG Inventories / Malaysia Biennial Update Report to UNFCCC Grams/km By Type Backward- looking ✓ ✓ ✓ 1. US Department of Energy 2. UK Vehicle Certification Agency 1. https://www.fueleconomy.gov/feg/findacar.shtml 2. https://www.gov.uk/co2-and-vehicle-tax-tools Public Upon update Upon update 1. Data for Malaysian car types is not available in the links. 2. The United Kingdom's government via its Vehicle Certification Agency has a vehicle GHG emission database on fuel consumption and CO2 emission data, whereby emission information by vehicle make and model is easily accessible in csv table format. 3. Department of Environment (DOE) via Environmental Quality Report 2020 (https://enviro2.doe.gov.my/ekmc/wp- content/uploads/2021/09/EQR-2020-1.pdf) publishes high-level air pollutant emission load data (Figure 5.10), and CO (Carbon Monoxide) load by sources (Figure 5.14) including by motor vehicles. 4. DOE had issued pollutant emission standards for new models of petrol-powered vehicles which aims to improve pollutant emissions in Malaysia using new engine designs and emission control technologies.(https://www.doe.gov.my/en/environmental-quality-control-of-emissions-from-petrol-engines-regulations- 1996-p-u-a-543-96/) By Sector Backward- looking 1. MSCI 2. CDP 1. https://www.msci.com/our-solutions/climate-investing/implied-temperature-rise 2. https://www.cdp.net/en/investor/temperature-ratings Proprietary Not available Not available Data is available upon subscription. The CDP-WWF temperature rating methodology is an open-source methodology which translates targets into an intuitive metric. It consists of three steps- a target protocol that converts emission targets to temperatures; a company protocol that aggregates the targets into an overall score; and a portfolio protocol that weights the scores across an investment portfolio. By Type of Entity / Issuer Backward- looking Not available Not available Not available Not available Not available Data is not available. 9 Internal Carbon price Transition sensitivity UN Framework Convention on Climate Change Kyoto Protocol USD/Tonnes CO2e By Entity Backward- looking ✓ ✓ Entity Not available Not available Not available Not available Data is generally not available. Reporting of internal carbon price is voluntary (e.g. Sunway, CIMB). Data users have to rely on news article or publications by entities to obtain relevant data. 1. Sunway (https://www.sunway.com.my/stories/sunway-sets-carbon-pricing-strategy-in-lofty-net-zero-targets/) 2. CIMB (https://www.cimb.com/en/newsroom/2022/cimb-establishes-scope-3-financed-emissions-baseline-towards- achieving-net-zero-ambition-sets-interim-sector-climate-targets-for-thermal-coal-and-cement.html) 10 Green or Net Zero Carbon Buildings Commitment Footprint 2°C aligned companies/ Net Zero Carbon by 2050 Not available By Sector Forward- looking (projection) ✓ World Green Building Council https://www.worldgbc.org/thecommitment#:~:text=Net%20zero%20carbon%20i s%20when,renewable%20energy%20sources%20and%20offsets. Public Upon update Not available Data is readily available. 11 Emission intensity performance of buildings in Malaysia Footprint Climate Bonds Standard - Low Carbon Building Criteria kgCO2e/m 2 By Type of building Backward- looking ✓ 1. EC 2. Entity Not available Not available Not available Not available Data is not available. Energy intensity performance can be found from this research journal: https://www.researchgate.net/publication/46496808_Energy_consumption_energy_savings_and_emission_analysis_in_ Malaysian_office_buildings By Entity Not available Periodic Periodic By Type Not available Periodic Periodic By Product Not available Periodic Periodic By Customer (SME and Non- SME) Not available Periodic Periodic By Sector Not available Periodic Periodic By CCPT Classification (C1 to C5) Not available Periodic Periodic By Classification of retail loans/ financing (green/ sustainable product) Not available Periodic Periodic By Location of utilisation Not available Periodic Periodic By Climate- supporting/ transitioning/ watchlist financing sector Not available Periodic Periodic Climate-supporting (C1)/ transitioning (C2 & C3)/ watchlist financing (C4 & C5) loan data by sector being compiled by financial institutions based on CCPT classification is submitted to BNM. ✓4 GHG emission targets 5 12 Backward- looking ✓ GHG emission intensity Combined metrics 8 Footprint 1. Climate Change and Principle based Taxonomy (CCPT) reporting • Climate supporting: C1 • Transitioning: C2 & C3 • Watchlist: C4 & C5 2. ASEAN Taxonomy: An activity can be classified in one of six ways: • Green FF: Green Foundation Framework • Amber FF: Amber Foundation Framework • Red FF: Red Foundation Framework • Green PS: Green Plus Standard • Amber PS Amber Plus Standard • Red PS: Red Plus Standard Green/Sustainable loan/financing, refinancing, outstanding, applied, approved, disbursed, repaid Mobilisation ✓✓ ✓ Portfolio temperature ✓Currency (e.g. MYR) ✓ 1. Morgan Stanley Capital International (MSCI) 2. Carbon Disclosure Project (CDP) - World Wide Fund for Nature (WWF) Degree Celsius ✓ Data is compiled by financial institutions. Certain data being compiled by financial institutions containing aggregated level exposure based on CCPT classification is submitted to BNM. 1. Financial institutions 2. BNM Confidential ✓ GHG emission target details are in aggregated format, with no target per sector. The data provided by SBTi can be filtered to show Malaysian companies that have publicly committed to science-based targets, and companies that have their targets approved by SBTi. ✓ ✓ ✓ ✓ ✓✓✓ ✓Footprint 1. GHG Protocol Corporate Accounting and Reporting Standard 2. 2006 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National GHG Inventories / Malaysia Biennial Update Report to UNFCCC ✓ ✓ 34 Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series Data Availability Observations on data availability/gapsNo. Data Needs Use Cases Backward- looking Forward- looking (projection) Backward- looking Forward- looking (projection) Backward- looking Forward- looking (projection) By Location of utilisation Backward- looking ACMF https://www.theacmf.org/initiatives/sustainable-finance/list-of-asean-green-social- sustainability-bondssukuk Public Periodic updates Periodic updates ACMF provides the list of issued bonds, with location data provided being 'Country of Issuance/Origination'. By Sector By Holder By Type 15 Green public investment, fiscal expenditures (including Public Private Partnerships) by Portfolio Mobilisation Not applicable Currency (e.g. MYR) By Type Backward- looking ✓ ✓ ✓ ✓ ✓ ✓ ✓ 1. Malaysian Green Technology And Climate Change Corporation (MGTC) 2. Green Technology Financing Scheme (GTFS) 3. DOSM 1. https://www.mgtc.gov.my/media/resources/ 2. https://www.gtfs.my/ 3. https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam Public Annual 1. 2018-2020 (MGTC) 2. 2013-2017 (GTFS) 3. 2014-2022 (DOSM) Data on budget allocation for green technology and projects approved can be found in MGTC's annual report. GTFS shows a list of GTFS-certified companies and their projects. DOSM provides data on the environmental protection expenditure on sectoral level. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 6 (6.1-6.3) 16 Percentage of investment in share capital with a green company (holding of ordinary or preference shares) Mobilisation Not applicable Currency (e.g. MYR) or % (percentage) By Sector Backward- looking ✓ ✓ ✓ ✓ ✓ ✓ ✓ Entity Not available Not available Not available Not available Data is not available. Currency (e.g. MYR) By Type Backward- looking DOSM https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam Public Annual 2016-2022 DOSM provides data on the environmental protection expenditure on sectoral level. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 6 (6.1 and 6.2) Currency (e.g. MYR) By Geographical area Backward- looking DOSM https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam Public Annual 2016-2022 DOSM provides data on the environmental protection expenditure on sectoral level. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 6 (6.4) 18 Green Equities Index Combined metrics Not applicable Not available By Sector Backward- looking ✓ Bursa Malaysia 1. https://www.bursamalaysia.com/trade/trading_resources/listing_directory/indices- profile?stock_code=0842I 2. https://www.bursamalaysia.com/trade/trading_resources/listing_directory/indices- profile?stock_code=0843I Proprietary Daily 2022-present Bursa Malaysia has time series data on two ESG Low Carbon indices, which is at the aggregate level and would require subscription to their Historical Data Package. 19 Capital expenditure for decarbonisation Footprint TCFD or other relevant reporting frameworks Currency (e.g. MYR) By Entity Backward- looking ✓ Entity Not available Not available Not available Not available Data is generally not available. Reporting of capital expenditure is voluntary. Data users have to rely on news article or publications by entities to obtain relevant data (e.g. TNB - https://www.theedgemarkets.com/article/tnb-commits-rm20-bil- capex-annually-hasten-transition-responsible-energy-until-2050). By Sector Backward- looking 1. EC 2. Grid System Operator (GSO) 1. https://meih.st.gov.my/statistics 2. https://www.gso.org.my/SystemData/SystemDemand.aspx Public 1. Annual 2. Monthly (GSO) 1. 1978-2019 (MEIH) 2. 2016-2022 (GSO) The data published by EC is based on sectors (Industrial, Transport, Agriculture, Non-Energy, Residential and Commercial Sector) instead of industrial sector classification as per MSIC 2008. By Entity Backward- looking 1. Tenaga Nasional Berhad (TNB) 2. Sabah Electricity Sdn. Bhd (SESB) 3. Sarawak Energy Berhad (SEB) Not available Confidential Not available Not available Energy Statistics Database can be purchased through United Nations Shop from USD$600 (https://unstats.un.org/unsd/energystats/data). All utility companies are subjected to Personal Data Protection Act (PDPA). 21 Fuel used (per kWh) Transition sensitivity International Energy Agency (IEA) 1. physical unit/kWh 2. (Ktoe/kWh or gallon/kWh) 3. Heat rate (in British Thermal Units (Btu) per kWh) divided by Fuel heat content (in Btu per physical unit) By Sector Backward- looking ✓ EC 1. https://www.st.gov.my/en/web/download/listing/151 (Malaysia Energy Statistics Handbook) 2. https://meih.st.gov.my/statistics Public Annual 1. 1980-2018 (Handbook) 2. 1990-2019 (MEIH) EC publishes the data via: 1. Malaysia Energy Statistics Handbook (Final Energy Consumption by Sector) 2. MEIH (Final Energy Demand by Sector) The data published by EC is based on sectors (Industrial, Transport, Agriculture, Non-Energy, Residential and Commercial Sector) instead of industrial sector classification as per MSIC 2008. By Sector Backward- looking 1. EC 2. Grid System Operator 3. World Data 1. https://meih.st.gov.my/statistics 2. https://www.gso.org.my/SystemData/CurrentGen.aspx 3. https://www.worlddata.info/asia/malaysia/energy-consumption.php Public 1. Annual (MEIH, World Data) 2. Monthly (GSO) 1. 2012-2019 (MEIH) 2. 2016-2022 (GSO) 3. 1990-2018 (World Data) EC publishes data on unit generated by types of prime movers (e.g., hydro, solar, biogas, biomass). Amount of renewable energy purchased/produced by sector is not available. GSO data is available by types of renewable energy. Data by sector is not available. World Data provides the percentage of renewable energy usage. Relevant calculations are needed to calculate the amount of renewable energy usage. Data by sector is not available. By Entity Backward- looking Sustainable Energy Development Authority (SEDA) https://pvms.seda.gov.my/pvportal/ Proprietary Monthly Not available PV Monitoring System (PVMS) provides real-time data on electricity produced using solar photovoltaic (PV). Renewable energy producers need to register with PVMS. Currency (e.g. MYR) By Country Forward- looking (projection) Not available Not available Not available Not available Not available Data is not available. MWh per mn USD By Entity Backward- looking Not available Not available Not available Not available Not available Data is not available. ktoe By Sector Backward- looking EC 1. https://www.st.gov.my/en/web/download/listing/151 2. https://meih.st.gov.my/statistics Public Annual 1. 1990-2018 (Handbook) 2. 1978-2019 (MEIH) The latest available Malaysia Energy Statistic Handbook is for 2020, which contains data up until 2018. The data published by EC is based on sectors (Industrial, Transport, Agriculture, Non-Energy, Residential and Commercial Sector) instead of industrial sector classification as per MSIC 2008. ktoe By Sub-Sector Backward- looking Not available Not available Not available Not available Not available Data is not available. Renewable energy purchased/produced (per kWh) ✓✓ ✓ Final energy consumption Transition sensitivity ✓ ✓ 1. Renewable Energy Act 2011 2. Sustainable Energy Development Authority Act 2011 International Energy Agency (IEA) ✓ kWh, ktoe 22 kWhTransition sensitivity ✓Index value/point ✓ 23 ✓ Backward- looking Financing nature-based solutions/conservation programs 1. Forestry Department of Peninsular Malaysia 2. National Forestry Act 1984 3. Malaysian Criteria and Indicators for Sustainable Forest Management (MC&I SFM) Physical vulnerability ✓ By Issuer / Entity Electricity purchased/consumed 1. TNB pricing and tariff (example electricity bill) 2. Sabah pricing and tariff (example electricity bill) 3. Sarawak pricing and tariff (example electricity bill) 17 13 Green/Sustainable bond/sukuk issuance Mobilisation 20 14 Green/Sustainable stock/bonds market indices Mobilisation 1. BPAM ESG Bond Index 2. FTSE4GOOD Bursa Malaysia Index Transition sensitivity 2014-2022 (Bursa) ✓ 1. Sustainable and Responsible Investment (SRI) Sukuk Framework by SC 2. Climate Change and Principle based Taxonomy (CCPT) reporting • Climate supporting: C1 • Transitioning: C2 & C3 • Watchlist: C4 & C5 3. ASEAN Green, Social, Sustainability Bond Standards 4. International Capital Market Association (ICMA) Green/Sustainability Bond Principles 5. ASEAN Taxonomy: An activity can be classified in one of six ways: • Green FF: Green Foundation Framework • Amber FF: Amber Foundation Framework • Red FF: Red Foundation Framework • Green PS: Green Plus Standard • Amber PS Amber Plus Standard • Red PS: Red Plus Standard ✓Currency (e.g. MYR) or % (percentage) ✓ 1. Daily (BPAM) 2. Daily (Bursa) ✓ ✓ Public ✓✓By Sector By Type 1. https://bpam.com.my/local-market 2. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index 2. https://www.investing.com/indices/ftse4good-bursa-malaysia-historical-data 1. ASEAN Capital Markets Forum (ACMF) 2. Bond+Sukuk Information Exchange (BIX) 3. Climate Bonds Initiative (CBI) 4. Bond Pricing Agency Malaysia (BPAM) 5. Fully Automated System for Issuing/Tendering (FAST) 1. https://www.theacmf.org/initiatives/sustainable-finance/list-of-asean-green- social-sustainability-bondssukuk 2. https://www.bixmalaysia.com/news-announcements/upcoming-issuances 3. https://www.climatebonds.net/market/data/ 4. https://www.bpam.com.my/esg 5. https://fast.bnm.gov.my/fastweb/public/MainPage.do ✓ ✓ ✓ ACMF provides the list of issued bonds in ASEAN countries, along with the name of issuer, type of project, currency, size, type of bond (green/social/sustainable). BIX webpage provides the upcoming issuances of bond/sukuk in Malaysia. Climate Bond provides data on green bond issuance geographies, issuer type, use of proceeds (sector), currency, and deal size. BPAM's webpage provides the latest and upcoming issuances of ESG bond/sukuk in Malaysia, with more ESG data in their proprietary platform BondStream. For CCPT reporting, BPAM provides the bond classifications by request and subscription basis. BPAM currently covers GP1 and GP2, with all classifications (GP1-GP5 and C1-C5) to be covered by Q2 2023. BPAM has an ESG Bond Index which includes a 3-month index value chart. More ESG index data can be found in their proprietary platform BondStream. The FTSE4Good Bursa Malaysia Index allows identification of index constituents and constituents' market value. Public Monthly ACMF – List from 29 Dec 2017 periodically updated. BIX – Have up- to-date list (Note: Entries for issuance prior to 22 Aug 2017 are all indicated as 1 Jan 0001) CBI - View of Labelled Green Bonds Data shows bonds that were issued during the last 3 months. A full database of over 5000 records is available to CBI Partners ✓ ✓ 1. Bond Pricing Agency Malaysia (BPAM) 2. Bursa Malaysia, investing.com 35 Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series Data Availability Observations on data availability/gapsNo. Data Needs Use Cases 24 Oil energy consumption Transition sensitivity Not applicable 1. Currency (e.g. MYR) 2. Volume By Entity Backward- looking ✓ EC Not available Not available Not available Not available Data is not available. Final consumption of crude oil and petroleum products at the aggregate level is published by MEIH: https://meih.st.gov.my/statistics (National Energy Balance) 25 Coal energy consumption Transition sensitivity Not applicable 1. Currency (e.g. MYR) 2. Volume By Entity Backward- looking ✓ EC Not available Not available Not available Not available Data is not available. Final consumption of coal at the aggregate level is published by MEIH: https://meih.st.gov.my/statistics (National Energy Balance) 26 Gas energy consumption Transition sensitivity Not applicable 1. Currency (e.g. MYR) 2. Volume By Entity Backward- looking ✓ EC Not available Not available Not available Not available Data is not available. Final consumption of natural gas at the aggregate level is published by MEIH: https://meih.st.gov.my/statistics (National Energy Balance) National Energy Balance 1. MYR/MMBtu 2. USD/MMBtu By Type Backward- looking 1. EC 2. World Bank 1. https://www.st.gov.my/en/web/download/listing/111 https://meih.st.gov.my/ 2. https://www.worldbank.org/en/research/commodity-markets Public 1. Annual (EC- MEIH) 2. Monthly (World Bank) 1. 1990 - 2019 (EC - MEIH) 2. 1970 - 2022 (World Bank) MEIH statistics webpage provides energy prices for retail petroleum (latest available data for retail petroleum is 2015), petroleum products, liquefied petroleum gas and natural gas. Meanwhile EC's National Energy Balance 2019 provides energy prices for crude oil, coal & coke. World Bank Commodities Price Forecast USD/MMBtu By Type Forward- looking (projection) World Bank https://www.worldbank.org/en/research/commodity-markets Public Annual 2021 - 2024 Energy prices forecasts are available for Australia, Europe, US, Japan (but no specific reference for Malaysia). By Sector Backward- looking Not available Not available Not available Not available Not available By Entity Backward- looking Not available Not available Not available Not available Not available 29 Energy-efficiency indicators Transition sensitivity International Energy Agency (IEA) Currency (e.g. MYR) or % (percentage) By Sector Backward- looking ✓ ✓ ✓ International Energy Agency (IEA) 1. https://www.iea.org/data-and-statistics/data-product/energy-efficiency- indicators 2. https://www.iea.org/countries/malaysia Proprietary Not available 2009 onwards Types of indicators were generally mentioned in page 47 of the National Energy Efficiency Action Plan, without any supporting data. (https://www.pmo.gov.my/wp-content/uploads/2019/07/National-Energy-Efficiency-Action-Plan.pdf) IEA website contains energy efficiency indicators for its members, with limited energy-related indicators on Malaysia country page (Malaysia is not a member country). 1. MetMalaysia 2. DOSM 1. https://www.met.gov.my/penerbitan/laporan-tahunan/ 2. https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam Public MetMalaysia provides Malaysian meteorological data such as highest and lowest recorded temperatures along with temperature variations. DOSM provides historical data on annual mean temperature, rainfall volume, and mean relative humidity in Malaysia, broken down to registered measures across selected meteorological stations in various states. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 1 World Bank https://climateknowledgeportal.worldbank.org/country/malaysia Public (With API) Historical data from World Bank is at the national level. MetMalaysia https://www.met.gov.my/projection/temperature/ Public MetMalaysia provides weather forecasts up to 7 days ahead under the 'Forecast' tab. World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/climate-data- projections Public (With API) Data is readily available. Multi-model projected mean or anomaly temperature: 1. Monthly data with a 10-year interval, up until the year 2100 2. Annual data up until the year 2100 1. National database 2. World Bank's Climate Change Knowledge Portal (CCKP) 3. Coupled Model Intercomparison Project Phase 5 (CMIP5) models, which are utilized within the Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC) By Country Forward- looking (projection) World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/climate-data- projections Public (With API) Annual 1995-2100 Data is readily available. Multi-model projected mean or anomaly temperature: 1. Monthly data with a 10-year interval, up until year 2100 2. Annual data up until the year 2100 Backward- looking World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/impacts-sea-level-risePublic (With API) Monthly 1993-2015 The World Bank provides monthly historical data on sea level anomaly and sea surface temperature. World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/impacts-sea- level-rise Public (With API) Annual 2020-2100 The World Bank provides projection of sea level rise up to 2100. NAHRIM https://mycoast.nahrim.gov.my/www/index.php?id=18&page_id=71&jenis=RCP Public Annual 2030, 2050 & 2100 For sea-level rise projections, NAHRIM issued a report in 2017 with projections up to 2100 for different RCP. Forward- looking (projection) 1. https://www.met.gov.my/penerbitan/laporan-tahunan/ 2. https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam Public Backward- looking 1. https://www.met.gov.my/ 2. https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam 3. https://publicinfobanjir.water.gov.my/hujan/data-hujan/?lang=en Public MetMalaysia By Region Backward- looking DOSM https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam Public Annual 2009-2022 DOSM provides data on mean temperature, rainfall volume and mean relative humidity (in %). Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 1 (1.1 Mean temperature, rainfall volume and mean relative humidity, Malaysia) 1. National database, 2. World Bank's CCKP, CMIP5 models, which are utilized within the AR5 of the IPCC By Country Forward- looking (projection) World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/climate-data- projections Public (With API) Annual 1995-2100 Data is readily available. Backward- looking Forward- looking (projection) 1. National database 2. World Bank's CCKP, CMIP5 models, which are utilised within the AR5 of the IPCC SPI Index By Country Forward- looking (projection) World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/climate-data- projections Public (With API) Annual 1995-2100 World Bank provides data on the temperature projection and projected number of consecutive dry days. ✓ ✓ ✓✓ ✓ Currency (e.g. MYR) or % (percentage) By District & StateDegree Celsius 1. Reg HCM 2. INFORM 2019 Risk Index 3. ND-GAIN Index 4. RCP Emission pathway 5. Coastal Vulnerability Index 6. National Disaster Management Agency (NADMA) By Geography / Location By Geography / Location (Region) Metre Millimetre Forward- looking (projection) Forward- looking (projection) Backward- looking ✓ ✓ Temperature Fossil fuel/oil/gas sales as a proportion of total revenue ✓ 1. Reg HCM 2. INFORM 2019 Risk Index 3. ND-GAIN Index 4. RCP Emission pathway 5. Coastal Vulnerability Index 6. National Hydraulic Research Institute of Malaysia (NAHRIM) 1. Regional Hydro-Climate Model (Reg HCM) 2. INFORM 2019 Risk Index 3. Notre Dame Global Adaptation Initiative (ND- GAIN) Index 4. Representative Concentration Pathway (RCP) Emission pathway 5. Coastal Vulnerability Index Not applicable Drought Physical vulnerability SPI Index Sea Level Rise 30 Rainfall Energy prices Transition sensitivity Footprint 33 31 Physical vulnerability 1. MetMalaysia 2. DOSM 3. DID ✓ Public1. DID 2. MetMalaysia 1. http://infokemarau.water.gov.my/drought_report_page.cfm 2. https://www.met.gov.my/iklim/pemantauan-kemarau/ ✓ ✓ ✓ ✓ By District & State1. Regional Hydro-Climate Model (Reg HCM) 2. INFORM 2019 Risk Index 3. ND-GAIN Index 4. RCP Emission pathway 5. Coastal Vulnerability Index 6. MetMalaysia 27 Physical vulnerability 32 ✓ 28 DID publishes a monthly drought report that includes stations that record rain deficits based on the long-term means from the past 3 months. MetMalaysia provides a 6-month forward-looking projection for Standardized Precipitation Index (SPI) by station (latest available report - Dec 2022, under "Drought Monitoring" tab) 1. 1981-2019 (MetMalaysia) 2. 2009-2022 (DOSM) 3. 1901-2020 (World Bank) 1. Annual 2. Weekly (DID) 1. 2004-2020 (MetMalaysia) 2. 2009-2022 (DOSM) ✓ Monthly ✓ 1. Annual 2. Weekly (MetMalaysia) Data is not available. 2022 DID publishes rainfall data for the past 7 days at the state, district and station levels. MetMalaysia discloses their historical data through their Annual Reports. They use the tendency of low/high rainfall (historical), and also provides a 6-mth forward looking weather forecast (Tinjauan Cuaca Jangka Panjang). DOSM provides data on mean temperature, rainfall volume and mean relative humidity (in %). Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 1 Springer publishes an article that shows the projected rainfall and temperature changes over Malaysia at the end of the 21st century based on Providing Regional Climates for Impacts Studies (PRECIS) modelling system: https://link.springer.com/article/10.1007/s13143-016-0019-7 ✓ Physical vulnerability 36 Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series Data Availability Observations on data availability/gapsNo. Data Needs Use Cases 1. https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam 2. https://www.water.gov.my/jps/resources/auto%20download%20images/5844e4 6d37d56.pdf Public https://go.climatecentral.org/coastaldem/ Proprietary 1. https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam 2. https://www.water.gov.my/jps/resources/auto%20download%20images/5844e4 6d37d56.pdf Public https://go.climatecentral.org/coastaldem/ Proprietary NADMA Number of days affected per year or Number of incidents per year By Region Backward- looking 1. DOSM 2. DID 1. https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam 2. https://www.water.gov.my/jps/resources/auto%20download%20images/5844e4 6d37d56.pdf Public Annual 1. 2009-2022 (DOSM) 2. 1980-2000 (DID) DOSM provides data on Extreme Events and Disasters. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 4 (4.1 Number of flood incident reported by state) 1. National database 2. World Bank's CCKP, CMIP5 models, which are utilized within the AR5 of the IPCC Number of days affected per year or Number of incidents per year By Country Backward- looking World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/climate-data- projections Public (With API) Monthly 1995-2099 World Bank provides data on the projection of precipitation on an annual basis. 35 Water level at various river gauges Physical vulnerability DID Metre By Location Backward- looking ✓ DID https://publicinfobanjir.water.gov.my/aras-air/data-paras- air/?state=SEL&lang=en Public Daily Daily Data on water levels are available and frequently updated, with accompanying analysis of the danger level. 36 Flood-related impacts: 1. Households impacted 2. Number of buildings damaged/impacted 3. Estimated economics loss and insured loss 4. Past flood Footprint Physical vulnerability DOSM 1. Number of households impacted 2. Number of buildings damaged/impacted 3. Economics loss and insured loss 4. Past flood Footprint By Location Backward- looking ✓ DOSM https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam Public One-off 2021 DOSM publishes a one-off report on flood impacts which does not contain historical events. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Special Report on Impact of Floods in Malaysia 2021' 37 Flood emergency relief Physical vulnerability Not applicable Currency (e.g. MYR) By Type Backward- looking ✓ Ministry of Finance (MOF) https://bantuanbanjir.com/ Public Upon update 2021 Reliefs provided include cash and rebates at the individual and communal level. 1. MetMalaysia 2. DOSM 3. World Meteorological Organisation By Country Backward- looking 1. MetMalaysia 2. World Meteorological Organisation 1. https://www.met.gov.my/en/iklim/maklumat-iklim/ 2. https://severeweather.wmo.int/thunder/b3/stations.html Public Daily Daily MetMalaysia publishes a general climate information on thunderstorm data in their summary report (Highest number of days with thunderstorm in a year). World Meteorological Organisation reports historical data for the past 24 hours. Not applicable By Region Backward- looking World Meteorological Organisation https://severeweather.wmo.int/thunder/b3/stations.html Public Daily Daily Data is readily available. 1. National database 2. World Bank's CCKP, CMIP5 models, which are utilized within the AR5 of the IPCC By Country Forward- looking (projection) 1. MetMalaysia 2. World Meteorological Organisation 1. https://www.met.gov.my/data/ICN20032.html 1. https://www.met.gov.my/data/AmaranRibutPetir.jpg 1. https://www.met.gov.my/data/IWR30002.html 2. https://worldweather.wmo.int/en/country.html?countryCode=20 Public Daily Daily Data is readily available. Backward- looking Forward- looking (projection) 1. National database 2. World Bank's CCKP, CMIP5 models, which are utilized within the AR5 of the IPCC No. of areas, size of area, category of severity (1-5) By Country Forward- looking (projection) Not available Not available Not available Not available Not available Data is not available. By Location Backward- looking Not available Not available Not available Not available Not available DOSM provides data on Extreme Events and Disasters. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 4 https://newss.statistics.gov.my/newss-portalx/ep/epProductFreeDownloadSearch.seam Number of disaster incidents reported by states: 1. Flood 2. Earthquake 3. Landslide 4. Coastal erosion areas Natural hazard location by longitude & latitude is currently not available. By Country Backward- looking World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/vulnerability Public (With API) Annual 1980-2020 Data is readily available. NADMA Number of days affected per year or Number of incidents per year By Region Forward- looking (projection) NADMA Not available Not available Not available Not available Forward-looking data is not available, however a snapshot of the current heatwave status is available in the following link: https://www.met.gov.my/en/iklim/status-cuaca-panas/ 1. National database, 2. World Bank's CCKP, Coupled Model Intercomparison Project Phase 6 (CMIP 6) models, which are utilized within the AR5 of the IPCC Number of days affected per year or Number of incidents per year By Country Forward- looking (projection) World Bank https://climateknowledgeportal.worldbank.org/country/malaysia/climate-data- projections Public (With API) 1. Annual 2. Quarterly 3. Monthly 2020-2099 World Bank provides data on temperature projections and projected number of consecutive dry days. 42 Humidity Physical vulnerability 1. DOSM 2. MetMalaysia Grams/m 3 , % By District & State Backward- looking ✓ 1. DOSM 2. MetMalaysia 1. https://newss.statistics.gov.my/newss- portalx/ep/epFreeDownloadContentSearch.seam?cid=96850 2. https://m.met.gov.my/projection/humidity/48623?lang=en Public 1. Annual 2. Daily 2016-2022 DOSM publishes data on environmental condition and quality. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 1 (1.1 Mean temperature, rainfall volume and mean relative humidity, Malaysia) (%) MetMalaysia: Snapshot data is available, but not historical. 43 Real estate exposures to potential extreme weather conditions Physical vulnerability 1. National database 2. World Bank Climate Change Knowledge portal Currency (e.g. MYR) or % (percentage) By Sector Backward- looking ✓ Not available Not available Not available Not available Not available Data is not available. 44 Exposure to physical risks measured as a percentage of business value (e.g. assets, profit or revenue) Physical vulnerability Not applicable Sensitivity measure expressed as a percentage of business value e.g. X% of Revenue By Entity Backward- looking ✓ ✓ Not available Not available Not available Not available Not available The disclosure among Malaysian companies is limited as most have yet to perform/disclose their scenario analysis/stress testing. The data available is mainly from Europe (https://www.spglobal.com/_division_assets/images/special- editorial/understanding-climate-risk-at-the-asset-level/sp-trucost-interplay-of-transition-and-physical-risk-report-05a.pdf). 1. NAHRIM 2. PLANMalaysia, KPKT ✓ By State Storm Physical vulnerability Number of days affected per year or Number of incidents per year No. of areas, size of area, category of severity (1-5) Physical vulnerability By Region Natural Hazard Data/Statistics (Occurrence/Map) Physical vulnerability World Bank's CCKP 1. Longitude & Latitude 2. Number of occurrence Physical vulnerability Heatwave Physical vulnerability 1. Number of flood incidents (also shows the 3 states with the highest flood incidents) - DOSM 2. Number of flood events and year of worst flood incident - DID 3. Number of days affected per year or Number of incidents per year 41 39 40 Coastal Vulnerability Index Flood34 38 ✓ ✓ PublicPLANMalaysia, KPKT https://myplan.planmalaysia.gov.my/www/ 1. DOSM 2. DID 3. Climate Central ✓ ✓✓ ✓ DOSM provides data on Extreme Events and Disasters. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 4 (4.1 Number of flood incident reported by state) DID has a publication which lists flood incidents from 1980 to 2000. CoastalDEM by Climate Central is a near-global DEM, of which their dataset is proprietary. PLANMalaysia publishes data on the Coastal Vulnerability Index under the Second National Coastal Zone Physical Plan. The link contains two volumes of publications, with sufficient granularity data based on coastal areas of each state in Malaysia. Upon update 2021 1.Monthly 2. Annual 1. 1995 2. 2009-2022 (DOSM) 3. 1980-2000 (DID) ✓ ✓ 1. DOSM 2. DID 3. CoastalDEM 4. National database, 5. World Bank's CCKP 6. CMIP5 models, which are utilized within the AR5 of the IPCC Backward- looking Forward- looking (projection) 37 https://climateknowledgeportal.worldbank.org/country/malaysia/climate-data-projections https://climateknowledgeportal.worldbank.org/country/malaysia/climate-data-projections Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series Data Availability Observations on data availability/gapsNo. Data Needs Use Cases Backward- looking https://easyxdi.com/ Proprietary Annual Not available Forward- looking (projection) https://easyxdi.com/ Proprietary Annual Until 2100 Backward- looking https://www.msci.com/www/research-report/value-at-risk-for-asset/019081046 Proprietary Not available Not available Forward- looking (projection) https://www.msci.com/www/research-report/value-at-risk-for-asset/019081046 Proprietary Not available Not available 1. arabesque s-ray 2. Sustainalytics 3. FTSE4Good 4. ESGBook 1. sray.arabesque.com 2 https://www.sustainalytics.com/esg-ratings 3. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index 4. https://app.esgbook.com/ Public 1. MSCI 2. Bloomberg 3. FTSE Russell 4, S&P Global 5. RAM Sustainability 1. https://www.msci.com/our-solutions/esg-investing/esg-ratings 2. https://www.bloomberg.com/professional/dataset/global-environmental-social- governance-data/ 3. https://www.ftserussell.com/data/sustainability-and-esg-data 4. https://www.spglobal.com/ratings/en/research-insights/special-reports/esg-in- credit-ratings#sector-report-cards 5. https://analytics.ram.com.my/ESGRatings Proprietary 1. arabesque s-ray 2. Sustainalytics 3. FTSE4Good 4. ESGBook 1. sray.arabesque.com 2 https://www.sustainalytics.com/esg-ratings 3. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index 4. https://app.esgbook.com/ Public 1. MSCI 2. Bloomberg 3. FTSE Russell 4, S&P Global 5. RAM Sustainability 1. https://www.msci.com/our-solutions/esg-investing/esg-ratings 2. https://www.bloomberg.com/professional/dataset/global-environmental-social- governance-data/ 3. https://www.ftserussell.com/data/sustainability-and-esg-data 4. https://www.spglobal.com/ratings/en/research-insights/special-reports/esg-in- credit-ratings#sector-report-cards 5. https://analytics.ram.com.my/ESGRatings Proprietary 1. arabesque s-ray 2. Sustainalytics 3. FTSE4Good 4. ESGBook 1. sray.arabesque.com 2 https://www.sustainalytics.com/esg-ratings 3. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index 4. https://app.esgbook.com/ Public 1. MSCI 2. Bloomberg 3. FTSE Russell 4. S&P Global 1. https://www.msci.com/our-solutions/esg-investing/esg-ratings 2. https://www.bloomberg.com/professional/dataset/global-environmental-social- governance-data/ 3. https://www.ftserussell.com/data/sustainability-and-esg-data 4. https://www.spglobal.com/ratings/en/research-insights/special-reports/esg-in- credit-ratings#sector-report-cards Proprietary 1. arabesque s-ray 2. Sustainalytics 3. FTSE4Good 4. ESGBook 1. sray.arabesque.com 2 https://www.sustainalytics.com/esg-ratings 3. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index 4. https://app.esgbook.com/ Public 1. MSCI 2. Bloomberg 3. FTSE Russell 4. S&P Global 1. https://www.msci.com/our-solutions/esg-investing/esg-ratings 2. https://www.bloomberg.com/professional/dataset/global-environmental-social- governance-data/ 3. https://www.ftserussell.com/data/sustainability-and-esg-data 4. https://www.spglobal.com/ratings/en/research-insights/special-reports/esg-in- credit-ratings#sector-report-cards Proprietary 1. arabesque s-ray 2. Sustainalytics 3. FTSE4Good 4. ESGBook 1. sray.arabesque.com 2 https://www.sustainalytics.com/esg-ratings 3. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index 4. https://app.esgbook.com/ Public 1. MSCI 2. Bloomberg 3. FTSE Russell 4. S&P Global 1. https://www.msci.com/our-solutions/esg-investing/esg-ratings 2. https://www.bloomberg.com/professional/dataset/global-environmental-social- governance-data/ 3. https://www.ftserussell.com/data/sustainability-and-esg-data 4. https://www.spglobal.com/ratings/en/research-insights/special-reports/esg-in- credit-ratings#sector-report-cards Proprietary By Entity Backward- looking Not available Not available Not available Not available Not available By Sector Backward- looking Not available Not available Not available Not available Not available By Entity Backward- looking Not available Not available Not available Not available Not available By Sector Backward- looking Not available Not available Not available Not available Not available 49 Water management indicators (e.g. water allocation and management) Transition sensitivity National Water Services Commission (SPAN) Million litres per day By Country Backward- looking ✓ ✓ ✓ ✓ National Water Services Commission (SPAN) https://www.span.gov.my/document/upload/ExULH8APaxLhLE4vailErDx5v4KJ XDCx.pdf Public Annual 2017-2021 SPAN publishes data on raw water extraction and production in the annual water and sewerage fact book. However, only Peninsular Malaysia states and W. P. Labuan are under the coverage of SPAN. By Sector Backward- looking DOSM https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam Public 1. Annual (Compendium) 2. One-off (MySEEA PSUT) 1. 2016-2022 (Compendium) 2. 2015 (MySEEA PSUT) DOSM publishes data on metered water consumption by sector (domestic and non-domestic) and state. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 2 (2.49 in the PDF version of the Compendium) DOSM also publishes data on uses of abstracted water by sector. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'MySEEA PSUT Water 2015' SPAN publishes total water consumption by states (Peninsular Malaysia states and W. P. Labuan): https://www.span.gov.my/document/upload/ExULH8APaxLhLE4vailErDx5v4KJXDCx.pdf By Entity Backward- looking Water utility companies by state Not available Confidential Not available Not available Data is not available. By Sector Backward- looking Not available Not available Not available Not available Not available By Entity Backward- looking SPAN Not available Confidential Not available Not available Physical vulnerability By Location By Area% of asset value Treated wastewater (Proportion of wastewater that is treated to reduce pollutants before being discharged to the environment, by level of treatment) Cubic metre By Sector By Entity Transition sensitivity Water consumption Climate VaR Transition sensitivity 50 51 45 Asset value at risk (VaR) arising from natural catastrophes Environmental, Social & Governance (ESG) score/rating Combined metrics Waste recycled Combined metrics Waste management indicators (e.g. Solid waste disposed) Transition sensitivity 46 47 48 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ National Water Services Commission (SPAN) 1. Number 2. tonnes Ministry of Local Government Development (KPKT) Backward- looking Backward- looking By Securities ✓Cubic metre National Water Services Commission (SPAN) tonnes 1. Climate Risk / ESG Score rating 2. GC Score: (0- 100) on human rights, labour right, environment, anti- corruption 3. ESG Score: (0- 100) on environmental, social, and governance 4. Temperature Score: • (tCO2/m$US) on emissions intensity ratio (EIR) • range from (1.5°C, 2°C, 2.7°C, >2.7°C, 3°C) on the temperature score and is reflected on scenario category 1. Rating provider's methodology 2. ESG Book: Arabesque S-Ray Methodology (Global Compact (GC) Score, ESG Score, Temperature Score) 3. R1ESGo By Entity By Fund Ministry of Local Government Development (KPKT) Backward- looking Backward- looking Backward- looking ✓ ✓ ✓ ✓ ✓ Different methodologies and scales would require internal evaluation, as it is not transparent on how the ESG scoring is derived. The coverage of companies also varies across these platforms. RAM Sustainability offers complimentary R1ESGo industry ratings covering 43 sectors (Level 2) upon registration. R1ESGo industry ratings of up to 94 sub-sectors (Level 3) are available upon subscription. ✓ Easy XDI MSCI DOSM publishes data on wastewater flows by sector. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'MySEEA PSUT Water 2015' SPAN publishes data on public sewage treatment plant by states (Peninsular Malaysia states and W. P. Labuan): https://www.span.gov.my/document/upload/ExULH8APaxLhLE4vailErDx5v4KJXDCx.pdf Data by operator is compiled by SPAN however, the data is not available publicly. DOSM publishes data on recycling rates (in percentage form). Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 3 KPKT published data on recycleable waste collection on its statistical report: https://www.kpkt.gov.my/index.php/pages/view/700?mid=586 Data is available upon subscription. DOSM publishes data on municipal waste treated by types of treatment and disposal by state, and quantity of scheduled wastes generated by industry. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 3 Data on solid waste disposed by facility and by category is published on a quarterly basis by KPKT. Latest update Latest update✓ Easy XDI helps to ascertain value at risk for building replacement cost. It covers different perils at individual asset level and location. 38 https://www.msci.com/www/research-report/value-at-risk-for-asset/019081046 Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series Data Availability Observations on data availability/gapsNo. Data Needs Use Cases 52 Map of Biodiversity Risk Hotspots (e.g. high conservation value forests, high biodiversity value ecosystems etc.) Physical vulnerability Convention on Biological Diversity (CBD) Not Applicable By Geographical area Backward- looking ✓ ✓ 1. DOSM 2. Malaysia Biodiversity Information System (MyBIS) of NRECC (formerly known as KeTSA) 3. Protected Planet 4. Global Biodiversity Information Facility 5. Natural Capital Finance Alliance 1. https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam 2. https://www.mybis.gov.my/one/pamaps.php 3. https://www.protectedplanet.net/country/MYS 4. https://www.gbif.org/country/MY/about 5. https://encore.naturalcapital.finance/en/map Public Annual 1. DOSM: 2016- 2022 2. MyBIS: Not available 3. Protected Planet: 2021 4. GBIF: 1700 - 2022 5. ENCORE: Not available 1. DOSM compiles various biodiversity data such as number of fauna species by category, endemic fauna species by class, number of flora and fauna species in gazetted and totally protected areas. Go to DOSM eStatistik > click on 'Free Download' on the left pane on the page > search 'Compendium of Environment Statistics' > Table of Component 1. 2. MyBIS provides a list of protected areas in Malaysia (Protection Forest Reserve, Virgin Jungle Reserve etc). 3. Protected Planet provides interactive maps of Terrestrial and Inland Waters Protected Areas, and Marine Protected Areas. Other effective area-based conservation measures in Malaysia are sourced by NRECC (formerly known as KeTSA) and other relevant agencies. Latest update was in 2021. Also provides information on the assessment of management effectiveness of selected areas and IUCN Green List of Protected and Conserved Areas. 4. GBIF provides data on biodiversity locations in Malaysia, through polygons which consists of data of 'occurrences' of species 5. ENCORE Tool: explores how economic activities impact ecosystem services and natural capital. Impact drivers from certain terrestrial ecosystem categories can be selected and the available data is heat map data of different types of land cover in 2021. Some categories also have external links that explain more heat map data (statistical data, line charts). The map is available as a snapshot. 53 Estimation of enviromental costs and benefits (esp. ESAs/high priority biodiversity hotspots) Physical vulnerability Convention on Biological Diversity (CBD) Currency (e.g. MYR) By Geographical area Backward- looking ✓ ✓ Not available Not available Not available Not available Not available Data is not available. 54 Map of environmentally sensitive areas (ESAs) Physical vulnerability 1. Forestry Department of Peninsular Malaysia 2. National Forestry Act 1984 3. Malaysian Criteria and Indicators for Sustainable Forest Management (MC&I SFM) Not Applicable By Geographical area Backward- looking ✓ ✓ PLANMalaysia https://myplan.planmalaysia.gov.my/www/# Public Every 5 years since 2016 1. 2014 (3rd NPP) 2. 2020 (4th NPP) 1. 3rd NPP (2016) page 26 -27 has maps on ESAs of Peninsular Malaysia (2014) and Sabah and Federal Territory of Labuan (2030-2033 plans) 2. 4th NPP (2021) is available only in Bahasa Melayu and short of information on Sabah & Sarawak, as map in 'Pelan 5- 10' on page 42 is on Peninsular Malaysia and Federal Territory of Labuan. 55 Forest Change (Forest Loss, Tree Cover Loss, Location of Tree Cover Loss, FAO Deforestation) Physical vulnerability 1. Forestry Department of Peninsular Malaysia 2. Forest Department Sarawak 3. Sabah Forestry Department 4. National Forestry Act 1984 5. Malaysian Criteria and Indicators for Sustainable Forest Management (MC&I SFM) Unit for land area By Geographical area Backward- looking ✓ ✓ 1. Forestry Department of Peninsular Malaysia 2. Forest Department Sarawak 3. Sabah Forestry Department 4. Global Forest Watch 5. World Bank 1. https://www.forestry.gov.my/en/2016-06-07-02-53-46/2016-06-07-03-12-29 2. https://forestry.sarawak.gov.my/page-0-461-1170-FACTS-FIGURES.html 3. https://forest.sabah.gov.my/, https://forest.sabah.gov.my/images/pdf/publication/annualreport/AR2021%28Fi nal%29.pdf 4. https://www.globalforestwatch.org/ 5. http://wdi.worldbank.org/table/3.4# Public Varies 1. 2011 - 2020 (Peninsular Malaysia) 2. 2020 (S'wak) 3. 2020 (Sabah) 4. 2001-2022 (Global Forest Watch) 5. 1990 and 2020 (World Bank) 1. Forestry Department of Peninsular Malaysia provides forestry statistics (e.g. forested and non forested area) from 2011 to 2020. 2. Forest Department Sarawak Facts and Figures page has data on forest covered area for 2020 only. 3. Sabah Forestry Department provides forest resource management information (e.g. forest cover) and 2021 Annual report mentioned on forest cover loss in 2020 compared to 2018. 4. Global Forest Watch provides analysis of primary forest loss, tree cover loss etc in Malaysia. This can be done by clicking the map of Malaysia and 'Analyse'. 5. World Bank provides data on forest area (sq. km) in 1990 and in 2020, data on forest loss can be derived form the data. 6. Article by Friends' of the Earth Malaysia (https://foe-malaysia.org/articles/statistical-data-on-forested-and-conservation- areas-in-malaysia-2/) has information on size of forested areas in Peninsular Malaysia, Sabah and Sarawak from 1990/2005 to 2018 and links to various sources. 56 Share of cost of raw materials with high environmental impact against revenue Combined metrics Not applicable % or ratio By Entity Backward- looking ✓ Not available Not available Not available Not available Not available Data is not available. 57 Climate Change Target Transition sensitivity Plans submitted to the UNFCCC should be taken as key reference Scenarios, Tonnes CO2e By Country Forward- looking (projection) ✓ ✓ ✓ ✓ ✓ ✓ 1. EPU 2. NRECC (formerly known as KASA) 3. UNFCCC 1. https://www.epu.gov.my/en/sustainable-development-goals 2. https://www.kasa.gov.my/resources/alam-sekitar/Low-Carbon-Mobility- Blueprint-2021-2030/4/ 3. https://unfccc.int/sites/default/files/NDC/2022- 06/Malaysia%20NDC%20Updated%20Submission%20to%20UNFCCC%20Jul y%202021%20final.pdf Public Varies among countries, at least annual 2018 & 2019 (EPU) 2021-2030 (NRECC & UNFCCC) EPU provides overall information on Malaysia SDGs, with links to SDGs for 2018 and 2019. NRECC (formerly known as KASA) & UNFCCC provides information on Nationally Determined Contribution targets. Backward- looking Customer survey / study Not available Not available Not available Not available Forward- looking (projection) Customer survey / study Not available Not available Not available Not available Backward- looking Customer survey / study Not available Not available Not available Not available Forward- looking (projection) Customer survey / study Not available Not available Not available Not available Backward- looking Not available Not available Not available Not available Not available Forward- looking (projection) Not available Not available Not available Not available Not available Backward- looking Not available Not available Not available Not available Not available Forward- looking (projection) Not available Not available Not available Not available Not available Backward- looking Not available Not available Not available Not available Not available Forward- looking (projection) Not available Not available Not available Not available Not available Not Applicable By Sector Backward- looking Not available Not available Not available Not available Not available Not Applicable By Entity Backward- looking Not available Not available Not available Not available Not available Not Applicable By Country Backward- looking Not available Not available Not available Not available Not available Backward- looking World Bank https://carbonpricingdashboard.worldbank.org/map_data Public Annual 2005-2022 Data is only available for the EU region, starting from 2005. Forward- looking (projection) Not available Not available Not available Not available Not available Data is not available. Another mechanism for carbon pricing is the Voluntary Carbon Market (VCM) which currently is an initiative under the purview of the Ministry of Finance (MoF) and Ministry of Natural Resources, Environment and Climate Change (NRECC, formerly known as KASA), and Bursa Malaysia Berhad (Bursa). Bursa has launched the Bursa Carbon Exchange (BCX) on 9 Dec 2022, which is a voluntary carbon market (VCM) and the world’s first shariah-compliant carbon exchange. The first trade via auction on the BCX is expected to commence in March 2023. https://www.bursamalaysia.com/sites/5bb54be15f36ca0af339077a/content_entry617bfd2839fba20f54a06574/632bbd5 55b711a1976102da6/files/Bursa_Malaysia_VCM_Exchange.pdf?1664349271 https://www.theedgemarkets.com/article/bursa-malaysia-launches-first-shariahcompliant-carbon-exchange 62 Government's sustainability-related financing needs Mobilisation Not applicable Currency (e.g. MYR) By Sector Forward- looking (projection) ✓ Government Agencies Not available Not available Not available Not available Climate finance provided by developed countries can be found at: https://www.oecd.org/env/climate-finance-provided- and-mobilised-by-developed-countries-aggregate-trends-updated-with-2019-data-03590fb7-en.htm 63 Private sector's financing needs Mobilisation Not applicable Currency (e.g. MYR) By Sector Forward- looking (projection) ✓ Not available Not available Not available Not available Not available List of certified companies and projects by Green Technology Financing Scheme (GTFS) can be found here: https://www.gtfs.my/certified Exposure to transition risks 58 61 ✓✓ ✓ Price of permit under the emission trading scheme Indicators capturing technological innovation Transition sensitivity Not applicable Percentage of customer preference on sustainability products/services Transition sensitivity Market study Scenario, % 1. OECD 2. IMF Sensitivity measure expressed as a percentage of business value e.g. percentage of Revenue 59 By Sector 60 Footprint Combined metrics By Entity By Location By RegionUSD/Tonnes CO2eWorld Bank Carbon Pricing Dashboard By Sector By Customer segment ✓ ✓ ✓ ✓ ✓ ✓ Data is not available. Data is not available. Country-level data is published by IMF: https://climatedata.imf.org/pages/fi-indicators/#fr1 39 Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series Data Availability Observations on data availability/gapsNo. Data Needs Use Cases 64 Insured and uninsured losses related to natural catastrophes Physical vulnerability Insurance and takaful claims due to natural catastrophes Currency (e.g. MYR) By Entity Backward- looking ✓ 1. Insurance Services Malaysia 2. Insurers and takaful operators Not available Confidential Not available Not available Data by entity can be requested on ad-hoc basis from Insurance Services Malaysia. ISM collects data on insured related natural catastrophes, but only applicable to flood under fire class. Munich RE, Swiss RE and BoE have reported this information but on a global basis and aggregated level. Global for Munich RE only: 1.https://www.munichre.com/content/dam/munichre/mrwebsiteslaunches/natcat- 2022/2021_Figures-of-the-year.pdf/_jcr_content/renditions/original./2021_Figures-of-the-year.pdf 2. https://www.swissre.com/institute/research/sigma-research/sigma-2021-01.html 3. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2017/the-banks-response-to-climate- change.pdf?la=en&hash=7DF676C781E5FAEE994C2A210A6B9EEE44879387 Data on "Number of Policies/Certificates", "Number of Claims", "Gross Claims Incurred" and "Net Claims Incurred" by climate change-related products, such as Flood under Motor class, Fire class and Other class are collected from insurers and takaful operators on a half-yearly basis by BNM via CCPT reporting. 65 Exclusion of controversial sectors in the investment/ lending policy Transition sensitivity 1. Sustainability rating providers (e.g., RobecoSAM, International Capital Market Association (ICMA), MSCI, CBI, S&P Global) 2. International organisations (i.e., UNEP FI, IFC) 3. Research bodies (i.e., Institute for Energy Economics and Financial Analysis (IEEFA), Bursa Malaysia, Shariah, SRI Responsible Financing guidelines) Qualitative By Sector Does not apply ✓ 1. Entities a) BNP Paribas b) CIMB c) RHB Group d) Amundi e) Robecco 2. Institutions/organisations a) IFC b) IEEFA c) UNEP FI 1. Entities a) https://group.bnpparibas/uploads/file/2021_eu_sustainable_finance_disclosure_ bnp_paribas_asset_management_english.pdf b) https://www.cimb.com/content/dam/cimb/group/documents/sustainbility/2019% 20CIMB%20Bank%20SDG%20Bond%20Framework_Final.pdf c) https://www.rhbgroup.com/files/others/sustainability/RHB_Our_Approach_to_S ustainability__Mar_2020__v3__1_.pdf d) https://about.amundi.com/files/nuxeo/dl/c44a7bb2-813b-4346-96e0- e3d695241d9b e) https://www.robeco.com/docm/docu-exclusion-list.pdf 2. Institutions/organisations a) https://www.ifc.org/wps/wcm/connect/28a1d656-dfec-4295-8bf9- a9be7e45549a/IFC%2BExclusion%2BList.pdf?MOD=AJPERES&CVID=kpIOlY T b) https://ieefa.org/coal-divestment c) https://www.unepfi.org/publications/turning-the-tide-recommended- exclusions/ Public Periodic Periodic Some financial institutions and asset managers publish list of sectors or categories deemed to be controversial. The IFC provides a list of projects that IFC does not finance. IEEFA has data on coal divestment by banking institutions, asset managers and insurers/reinsurers. UNEP FI data is accessible upon registration. The updated document provides an overview of the recommended activities to exclude from financing in the sustainable blue economy, based on market-first 'Turning the Tide' and 'Diving Deep' guidance for financial institutions. 66 Sustainability Index Membership Transition sensitivity Based on index providers Status By Entity Forward- looking (projection) ✓ 1. MSCI 2. FTSE Russell 1. https://www.msci.com/our-solutions/indexes/esg-focus-indexes 1. https://www.msci.com/our-solutions/indexes/index-profiles/low-carbon-sri- leaders-indexes 2. https://www.ftserussell.com/index/spotlight/sustainable-investment-data-and- indexes Proprietary 1. Quarterly (MSCI) 2. Not available (FTSE Russell) Not available Data is accessible upon subscription. MSCI ESG Focus Indices target companies with positive ESG characteristics. FTSE Russell integrates Environmental, Social and Governance (ESG) considerations into index benchmarks. 67 Revenue mix of environmental opportunities (renewable energy, clean tech, energy efficiency, pollution control, sustainable growth, and green technology) Combined metrics Not applicable % or ratio By Sector Backward- looking ✓ Not available Not available Not available Not available Not available Data is not available. 68 Insurance premium for coverage against natural disasters Physical vulnerability Not applicable Currency (e.g. MYR) By Sector Backward- looking ✓ Insurers, takaful operators Not available Confidential Not available Not available Data on "Gross Earned Premium/Contribution" and "Net Earned Premium/Contribution" by climate change-related products, such as Flood under Motor class, Fire class and Other class are collected from insurers and takaful operators on a half-yearly basis by BNM via CCPT reporting. Aggregated data on premiums/contributions and claims by general business classes such as Fire, Motor, Medical and Health from insurance and Takaful industry are published on the BNM website via https://www.bnm.gov.my/publications/mhs since 2009 on a half-yearly basis. However, there is no specific information/category for natural disasters. Insurance Services Malaysia (ISM) publishes the ISM Statistical Yearbook on an annual basis via https://www.ism.net.my/news-updates/ (requires free registration to access/download). The Yearbook provides key data on Malaysian insurance and takaful industry, such as premiums/contributions by line of business, net earned premiums/contributions, net claims incurred ratio etc. However, there is no specific information/category for natural disasters. 69 Government legislation, masterplan, blueprint, announcements, strategy and policy on sustainability and climate change Alignment Not applicable Not applicable By Country Backward- looking / Forward- looking (projection) ✓ 1. DOE 2. NRECC (formerly known as KASA) 3. SEDA - Renewable Energy Act 2011 4. NRECC (formerly known as KeTSA) 5. EPU 6. Climate Action Tracker 1. https://www.doe.gov.my/portalv1/en/tentang-jas/pengenalan/dasar-alam- sekitar 2. https://www.kasa.gov.my/resources/alam-sekitar/Low-Carbon-Mobility- Blueprint-2021-2030/12/ 3. https://www.seda.gov.my/ms/polisi/akta-tenaga-boleh-baharu-2011/ 4. https://www.pmo.gov.my/2019/07/national-policy-on-climate-change/ 5. https://www.epu.gov.my/sites/default/files/2022- 09/National_Energy_Policy_2022-2040.pdf 6. https://climateactiontracker.org/ Public Annual 1. 2021-2030 2. 2016-2030 (Climate Action Tracker) Information is readily available but not exhaustive. Climate Action Tracker provides information on the policies in multiple countries, however Malaysia is not included. By Sector Backward- looking Not available Not available Not available Not available Not available By Entity Backward- looking Not available Not available Not available Not available Not available Backward- looking 1. Transition Pathway Initiative 2. Bursa Malaysia 1. https://www.transitionpathwayinitiative.org/ 2. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index Public Varies by data providers Varies by data providers Backward- looking 1. Carbon Disclosure Project (CDP) 2. Fitch 3. MSCI 4. S&P 5. Sustainalytics 1. https://www.cdp.net/en/companies/companies- scores#446647786929955804cc9a3a08ef1eb4 2. https://www.fitchratings.com/products/subscribe 3. https://esgdirect.msci.com/ 4. https://www.spglobal.com/ratings/en/research-insights/special-reports/esg-in- credit-ratings#sector-report-cards 5. https://www.sustainalytics.com/esg-rating Proprietary Varies by data providers Varies by data providers Backward- looking 1. Transition Pathway Initiative 2. Bursa Malaysia 1. https://www.transitionpathwayinitiative.org/ 2. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index Public Varies by data providers Varies by data providers Backward- looking 1. Carbon Disclosure Project (CDP) 2. Fitch 3. MSCI 4. S&P 5. Moody's 6. Sustainalytics 1. https://www.cdp.net/en/companies/companies- scores#446647786929955804cc9a3a08ef1eb4 2. https://www.fitchratings.com/products/subscribe 3. https://esgdirect.msci.com/ 4. https://www.spglobal.com/ratings/en/research-insights/special-reports/esg-in- credit-ratings#sector-report-cards 5. https://esg.moodys.io/climate-solutions 6. https://www.sustainalytics.com/esg-rating Proprietary Varies by data providers Varies by data providers Backward- looking 1. Transition Pathway Initiative 2. Bursa Malaysia 1. https://www.transitionpathwayinitiative.org/ 2. https://www.bursamalaysia.com/trade/our_products_services/indices/ftse4good- bursa-malaysia-f4gbm-index Public Varies by data providers Varies by data providers Backward- looking 1. Carbon Disclosure Project (CDP) 2. Fitch 3. MSCI 4. S&P 5. Moody's 6. Sustainalytics 1. https://www.cdp.net/en/companies/companies- scores#446647786929955804cc9a3a08ef1eb4 2. https://www.fitchratings.com/products/subscribe 3. https://esgdirect.msci.com/ 4. https://www.spglobal.com/ratings/en/research-insights/special-reports/esg-in- credit-ratings#sector-report-cards 5. https://esg.moodys.io/climate-solutions 6. https://www.sustainalytics.com/esg-rating Proprietary Varies by data providers Varies by data providers 70 Capital requirements from insurance exposure to weather- related catastrophic events as a percentage of total capital available Physical vulnerability ✓ By Sector71 Climate Risk / ESG Score rating By Location Climate Risk Score of Listed Companies Combined metrics Rating provider's methodology By Entity Not applicable Currency (e.g. MYR) or % (percentage) ✓ Capital requirement on catastrophe risk (including natural catastrophe) is currently not explicitly accounted for in the Risk Based Capital (RBC) Framework. As part of the ongoing holistic review of RBC framework, BNM is exploring to include catastrophe risk as a new risk category in insurance/takaful risk capital requirement. Methodologies, assumptions and models vary across different providers and would require internal evaluation. 40 Data Items Category/ Metric Methodology/ Standard/ Classification/ Taxonomy/ Reference Unit (e.g. CO2) Dimension (e.g. Sector, Customer) Time horizon Climate- related disclosures Exposure quantification Financial stability monitoring Investment and lending decisions Macro- economic modelling Product development Scenario analysis Stress testing Data Source/Compiler/ Provider Link Accessibility (Public/Proprietary/ Confidential/Public (With API)/Not available) Frequency Time series Data Availability Observations on data availability/gapsNo. Data Needs Use Cases 72 Executive remuneration linked to climate considerations Transition sensitivity Not applicable Currency (e.g. MYR) or % (percentage) By Entity Backward- looking ✓ Entity Not available Not available Not available Not available Companies which are incorporating ESG/climate considerations into executive remuneration did not provide much details on how these are linked to remuneration. For ESG-linked remuneration practiaces in ASEAN, refer to https://www.sfinstitute.asia/wp-content/uploads/2022/05/integrating-esg-remuneration-final-version.pdf Data is generally not available. Data users have to rely on news article or publications by entities to obtain relevant data. 73 Detailed plans submitted to authority to achieve carbon neutral or net zero Alignment GHG Protocol Corporate Accounting and Reporting Standard for Accounting CO2 mil MT per year By Entity Forward- looking (projection) ✓ Entity Not available Not available Not available Not available Data is not available. By Sector Backward- looking Not available Not available Not available Not available Not available By Loan purpose Backward- looking Not available Not available Not available Not available Not available By Entity Backward- looking Entity Not available Confidential Not available Not available By Location of utilisation Backward- looking Not available Not available Not available Not available Not available 75 List of companies with ISO 14000 Combined metrics ISO 14000 Number of companies By Entity Backward- looking ✓ Certification Body Not available Not available Not available Not available There is currently no centralised database for Malaysia that stores the comprehensive list of companies with ISO 14000 certification. Each certification body keep their own copy of companies or products that are certified by themselves. They are not required to submit the list of the data/companies that they have certified to the standard setters e.g. Standard Malaysia (Dept of Standard Malaysia) or UKAS, however they are being audited (sampling basis) by the standard setters. By Sector and Case 1. DOE 2. Climate Case Chart 3. London School of Economics (LSE) 1. https://www.doe.gov.my/portalv1/en/awam/maklumat-umum/paparan-kes- mahkamah 2. http://climatecasechart.com/climate-change-litigation/non-us-climate-change- litigation/ 2. https://climate-laws.org/litigation_cases 3. https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2021/07/Global- trends-in-climate-change-litigation_2021-snapshot.pdf Public 1. Monthly (DOE) 2. Varies (Climate Case Chart, LSE) 1. 2014-2022 (DOE) 2. Varies (Climate Case Chart, LSE) Department of Environment (DOE) publishes court cases on their website with the name of offender, type of offence, and penalty on monthly basis. Only Global Climate Change Litigation data is available. Simplified trend of total cases data for certain countries (including Malaysia) is available at https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2021/07/Global-trends-in-climate-change-litigation_2021- snapshot.pdf eLaw.my is a database for Malaysian court judgements and legislations and can be accessed via paid subscription: https://www.elaw.my By Entity DOE https://www.doe.gov.my/en/court-case-list/ Public Monthly 2014-2022 Department of Environment (DOE) publishes/announces information on court cases related to environmental offences. The information published/announced include name of company/individual, date, Act, offences, court & date of decision and penalties. 77 Circular economy indicator: Percentage of Circular economy to the GDP Sector Alignment 1. European Commission (EC) 2. Organisation for Economic Co-operation and Development (OECD) Percentage (%) By Sector Backward- looking ✓ Not available Not available Not available Not available Not available Data is not readily available and will require further relevant indicators for the calculation of percentage of circular economy to the GDP. 78 Green Building Index Transition sensitivity 1. Green Building Index (GBI) rating system 2. GreenRE Tools and Design Reference Guide Number By Project/ Building Backward- looking ✓ 1. Green Building Index (GBI) 2. GreenRE 1. https://www.greenbuildingindex.org/how-gbi-works/gbi-executive-summary/ 2. https://www.greenre.org/rating_tools Public Latest Update 1. 2013-2022 (GBI) 2. Periodic update (GreenRE) Data is readily available. 79 Notre Dame - GAIN Country Index Transition sensitivity Notre Dame - Gain Country Index Score By Country Backward- looking ✓ University of Notre Dame https://gain.nd.edu/our-work/country-index/ Public Annual 1995-2020 The Notre Dame Index is derived from readiness & vulnerability index data. 1. arabesque s-ray 2. ESGBook 1. https://sray.arabesque.com/ 2. https://app.esgbook.com/dashboard Public Upon update Upon update The UNGC scores are accessible by the public with minimal registration through ESGBook. The coverage of companies, methodologies and scales vary across these platforms and would require internal evaluation, as it is not transparent on how the GC scoring is derived. 1. MSCI 2. Moody's 1. https://esgdirect.msci.com/ 2. https://esg.moodys.io/ Proprietary Upon update Upon update Data is available upon subscription. Moody's also collects data on detailed scores for each of the core UNGC themes. By Country Not available Not available Not available Not available Not available The general mortality rate is published by several organisations: 1. World Bank (https://data.worldbank.org/indicator/SP.DYN.IMRT.IN?locations=MY) 2. WHO (https://www.who.int/data/gho/data/countries/country-details/GHO/malaysia?countryProfileId=56662d20-4890- 4511-a55b-77132f6dd227) 3. UN DESA Population Division (https://population.un.org/wpp/Download/Standard/Mortality/) 4. DOSM (https://www.dosm.gov.my/v1/index.php?r=column/cone&menu_id=dC9JU2RhZk9HNmxQS3hTOStuMVVLdz09) By State/ Territories Not available Not available Not available Not available Not available DOSM publishes data on the general mortality rate by states: https://newss.statistics.gov.my/newss- portalx/ep/epProductFreeDownloadSearch.seam. Go to DOSM eStatistik > click 'Free Download' on the left pane on the page > search 'Abridged Life Tables' 82 Morbidity rate arising from climate change Physical vulnerability Ministry of Health (MOH) Number of people getting a disease over a population By State Backward- looking ✓ ✓ Not available Not available Not available Not available Not available Only general data on specific years are available based on the National Health & Morbidity Survey conducted by National Institute of Health, Ministry of Health Malaysia: https://iku.gov.my/nhms (On the NHMS Report, Infographics and Fact Sheet section) United Nations Global Compact (UNGC) Score 80 Backward- looking By Entity% / RangeUNGCCombined metrics ✓ Litigation claims and cases Physical vulnerability 1. Laws and policies (International and local) 2. DOE Climate Risk / ESG Score rating 74 81 Mortality rate arising from climate change Physical vulnerability World Bank Number of claims/cases Climate-adjusted Probability of Defaults (PDs) Combined metrics Backward- looking 76 Number of deaths per 1000 live births Backward- looking Not applicable ✓ ✓ ✓✓ Data is not readily available, requires methodology to model climate risk and embed this into the PDs of customers or counterparties. 41 https://iku.gov.my/nhms Climate Data Catalogue Metric Type Definition Footprint GHG emissions caused directly or enabled by an individual, event, organisation, service or product. Transition sensitivity The disruption caused by adjusting to a low-carbon economy, which may be the result of policy changes, technological innovation, or social adaptation. Physical vulnerability The direct damage to assets or property that may come about owing to a changing climate (for example rise in sea levels) or extreme weather events. Alignment Tracks progress towards a 2°C world. Mobilisation Capture growth in green financing (i.e. scaling up green finance). Combined metrics Metrics aggregating a combination of the above metrics to provide insight on the extent to which a firm manages environmental, social and governance issues. Source: NGFS Use Cases Definition Climate-related disclosures Reports provided by corporations about climate-related factors, including indicators such as carbon footprint Exposure quantification The measurement on the maximum potential loss on financial instruments Financial stability monitoring The assessment of financial systems vulnerabilities, defined as the collection of factors that contribute to the potential for widespread externalities Investment and lending decisions The decision made on the amount of funds to be deployed in investment opportunities Macroeconomic modelling The study on the impacts of climate-related issues on macroeconomic indicators *Product development The development of new financial products to support green growth or industry's alignment to the climate agenda Scenario analysis The assessment on the impact of different possible climate change pathways/scenarios to risk profile Stress testing The risk framework methods that focus on the sensitivity of portfolios and the impact climate change (the likelihood and severity of the materialisation of climate-related risks) has on exposures’ actual riskiness * Product development is an additional use case as compared to NGFS' use cases Source: NGFS Glossary 42 Climate Data Catalogue Acronyms Meaning ACMF ASEAN Capital Markets Forum API Application Programming Interface AR5 Fifth Assessment Report ASEAN Association of Southeast Asian Nations BNM Bank Negara Malaysia BPAM Bond Pricing Agency Malaysia BoE Bank of England Btu British Thermal Unit CBD Convention on Biological Diversity CBI Climate Bonds Initiative CCKP Climate Change Knowledge Portal CCPT Climate Change and Principal-based Taxonomy CDP Carbon Disclosure Project CMIP 5 Coupled Model Intercomparison Project Phase 5 CMIP 6 Coupled Model Intercomparison Project Phase 6 CO Carbon Monoxide CO2 Carbon Dioxide CoastalDEM Coastal Digital Elevation Model DID Department of Irrigation and Drainage DOE Department of Environment DOSM Department of Statistics Malaysia Easy XDI Easy eXtensible Data Interchange EC Energy Commission EEA European Environment Agency EIR Emissions Intensity Ratio ENCORE Exploring Natural Capital Opportunities, Risks and Exposure EPU Economic Planning Unit ESA Environmentally Sensitive Area ESG Environmental, Social & Governance EU European Union EUR Eurodollar FAO Food and Agriculture Organization FAST Fully Automated System for Issuance/Tendering FTSE Financial Times Stock Exchange GBI Green Building Index GBIF Global Biodiversity Information Facility GC Global Compact GDP Gross Domestic Product Gg (Giga) gram GHG Greenhouse Gases GreenRE Green Real Estate GSO Grid System Operator GTFS Green Technology Financing Scheme ICMA International Capital Market Association IEA International Energy Agency IEEFA Institute for Energy Economics and Financial Analysis IFC International Finance Corporation IMF International Monetary Fund INFORM Index for Risk Management IPCC Intergovernmental Panel on Climate Change ISO International Organization for Standardisation IUCN Red List International Union for Conservation of Nature's Red List List of Acronyms 43 Acronyms Meaning KPKT Ministry of Local Government Development ktoe (Kilo) Tonne of Oil Equivalent kWh (Kilo) Watt Hour LSE London School of Economics MC&I SFM Malaysian Criteria and Indicators for Sustainable Forest Management MEIH Malaysia Energy Information Hub METAR METeorological Aerodrome Report MetMalaysia Malaysian Meteorological Department MGTC Malaysian Green Technology and Climate Change Corporation MMBtu (Metric Million) British Thermal Unit MoF Ministry of Finance MOH Ministry of Health MSCI Morgan Stanley Capital International MSIC Malaysia Standard Industrial Classification MWh (Mega) Watt Hour MyBIS Malaysia Biodiversity Information System MYR Malaysian Ringgit MySEEA Malaysia System of Environmental-Economic Accounting NADMA National Disaster Management Agency NAHRIM National Hydraulic Research Institute of Malaysia NASDAQ National Association of Securities Dealers Automated Quotations ND-GAIN Index Notre Dame Global Adaptation Initiative Index NGFS Network for Greening the Financial System NPP National Physical Plan NRECC Ministry of Natural Resources, Environment and Climate Change (formerly known as Ministry of Environment and Water (KASA) and Ministry of Energy and Natural Resources (KeTSA)) OECD Organisation for Economic Co-operation and Development PD Probability of Default PDPA Personal Data Protection Act 2010 PLANMalaysia Department of Town and Country Planning PLC Public Listed Companies PRECIS Providing Regional Climates for Impacts Studies PSUT Physical Supply & Use Table PV Photovoltaic PVMS PV Monitoring System RBC Risk Based Capital RCP Representative Concentration Pathway Reg HCM Regional Hydro-Climate Model S&P Standard and Poor's SBTi Science Based Targets initiative SDG Sustainable Development Goals SEB Sarawak Energy Berhad SEDA Sustainable Energy Development Authority SESB Sabah Electricity Sdn. Bhd SME Small and Medium-sized Enterprise SPAN National Water Services Commission SPI Standardized Precipitation Index SRI Sustainable and Responsible Investment TAF Terminal Area Forecast TCFD Task Force on Climate-Related Financial Disclosures TNB Tenaga Nasional Berhad UKAS United Kingdom Accreditation Service UN United Nations 44 Acronyms Meaning UN DESA United Nations Department of Economic and Social Affairs UNEP United Nations Environment Programme UNEP FI United Nations Environment Programme Finance Initative UNFCCC United Nations Framework Convention on Climate Change UNGC United Nations Global Compact US United States of America USD United States Dollar VaR Value at Risk WHO World Health Organisation WWF World Wide Fund for Nature 45

Public Notice

16 Dec 2022

Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) – Exposures to Central Counterparties

https://www.bnm.gov.my/-/ed-caf-ecc

https://www.bnm.gov.my/documents/20124/938039/ED-CAF-ECCP.pdf

Reading: Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) – Exposures to Central Counterparties Share: 2 Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) – Exposures to Central Counterparties Embargo : For immediate release Not for publication or broadcast before 1000 on Friday, 16 December 2022 16 Dec 2022 This exposure draft sets out the proposed capital requirements on financial institutions’ exposures to central counterparties under the Basel III capital adequacy framework. The Bank would like to invite feedback on this exposure draft, including suggestions for specific issues or areas to be clarified and any alternative proposals that the Bank should consider. The feedback for the exposure draft is to be submitted electronically and emailed to [email protected] by 17 February 2023. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. Issuance Date: 16 December 2022 Issuing Department: Jabatan Dasar Kewangan Pruden Document: Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) – Exposures to Central Counterparties Bank Negara Malaysia 16 December 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 Dec 2022

Exposure Draft on Hajah and Darurah

https://www.bnm.gov.my/-/ed-hajah-darurah

https://www.bnm.gov.my/documents/20124/938039/ED-Hajah-Darurah.pdf

Reading: Exposure Draft on Hajah and Darurah Share: 16 Exposure Draft on Hajah and Darurah Embargo : For immediate release Not for publication or broadcast before 1240 on Thursday, 15 December 2022 15 Dec 2022 This exposure draft sets out the Bank’s proposed requirements and expectations for the application of hajah (need) and darurah (dire necessity) by Islamic financial institutions in carrying out Islamic banking and takaful business. Bank Negara Malaysia 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. Responses must 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. Issuance date 15 December 2022 Issuing department Jabatan Sistem Kewangan Islam Document Exposure Draft on Hajah and Darurah     Bank Negara Malaysia 15 December 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 Dec 2022

Policy Document on Financial Reporting for Development Financial Institutions

https://www.bnm.gov.my/-/pd-mfrs-dfi

https://www.bnm.gov.my/documents/20124/963937/PD-Financial-Reporting-DFI.pdf

Reading: Policy Document on Financial Reporting for Development Financial Institutions Share: 4 Policy Document on Financial Reporting for Development Financial Institutions Embargo : For immediate release Not for publication or broadcast before 1230 on Friday, 2 December 2022 2 Dec 2022 Bank Negara Malaysia has published the Financial Reporting for Development Financial Institutions Policy Document, which aims to clarify and set minimum expectations for the application of the Malaysian Financial Reporting Standards to a prescribed development financial institution (DFI). The Policy Document also aims to ensure adequate disclosures by DFIs in the financial statements to improve comparability for users of financial statements, apart from facilitating the assessment of a DFI’s financial position and developmental or mandate achievements. Find out more: Policy Document on Financial Reporting for Development Financial Institutions Issuance Date 2 December 2022   Bank Negara Malaysia 2 December 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

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-20220929-en

Reading: Financial Consumer Alert update Share: 45 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 0835 on Thursday, 29 September 2022 29 Sep 2022 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list: Deet Investment Scheme D'eet Investment Scheme Dinar Edaran Emas Trading Investment Scheme Please be informed that a new link ( https://instagram.com/octafx_official_Malaysia/ ) related to OctaFX has also been added to the FCA list. The list will be updated regularly for public's reference. To view the updated list, please visit this link. Bank Negara Malaysia 29 September 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

06 Sep 2022

Online Auction of Ringgit Banknotes with Special Serial Numbers

https://www.bnm.gov.my/-/banknotes-auction-20220906-en

Reading: Online Auction of Ringgit Banknotes with Special Serial Numbers Share: 33 Online Auction of Ringgit Banknotes with Special Serial Numbers Embargo : For immediate release Not for publication or broadcast before 1625 on Tuesday, 6 September 2022 6 Sep 2022 BNM will be holding an online auction of Ringgit banknotes with special serial numbers which opens from 5 September until 24 September 2022. The auction will be conducted by BNM’s appointed auctioneer, MNP Auctioneers (Central) Sdn. Bhd. (MNP) whereby bids can be placed via this link. MNP will begin the ‘Live Auction’ on 24 September 2022 (Saturday) at 11.00 a.m. Ringgit banknotes with special serial numbers, such as sets of the first 10 banknotes (e.g. LL0000001-0000010) and super solid numbers with repetitive prefix (e.g. LL8888888) will be auctioned. Online registration and bids can be completed via www.best2bid.com. Further information on the auction can be obtained through MNP’s website at www.mnp.com.my or MNP’s customer service hotline via 017-400 6661. Bank Negara Malaysia 6 September 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

29 Aug 2022

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-20220829-en

Reading: Financial Consumer Alert update Share: 200 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 2050 on Monday, 29 August 2022 29 Aug 2022 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following company was added to the list: OctaFX The list will be updated regularly for public's reference. To view the updated list, please visit this link. Bank Negara Malaysia 29 August 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

05 Aug 2022

Public Consultation Survey on Monthly Data Published by BNM

https://www.bnm.gov.my/-/mhs-data-survey-invite

Reading: Public Consultation Survey on Monthly Data Published by BNM Share: 3 Public Consultation Survey on Monthly Data Published by BNM Embargo : For immediate release Not for publication or broadcast before 1200 on Friday, 5 August 2022 5 Aug 2022 The rapid development in globalisation and digitalisation has raised the demand for greater data availability to support greater efficiency, drive innovation and decision-making. Bank Negara Malaysia, as the primary source of monthly statistics on financial developments, is reviewing the appropriateness of the coverage, frequency and format of its published data. To facilitate this ongoing effort, please take a moment to complete this survey. Survey link: https://forms.office.com/r/SN1ggLTWBe Your feedback will help us in improving data relevancy and accessibility so we can continue to serve users' needs better in the future. This survey will be opened for responses until 14 August 2022. Thank you in advance for your participation! Bank Negara Malaysia 5 August 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

29 Jul 2022

Exposure Draft on Registration Procedures and Requirements on Professionalism of Adjusters

https://www.bnm.gov.my/-/ed-adjusters-registration-professionalism

https://www.bnm.gov.my/documents/20124/855632/ED_Adjusters_Registration_Pro_Reqm.pdf

Reading: Exposure Draft on Registration Procedures and Requirements on Professionalism of Adjusters Share: 5 Exposure Draft on Registration Procedures and Requirements on Professionalism of Adjusters Embargo : For immediate release Not for publication or broadcast before 1700 on Friday, 29 July 2022 29 Jul 2022 This exposure draft sets out Bank Negara Malaysia’s (BNM) proposed enhanced registration requirements for a person intending to carry on adjusting business, as well as prudential and conduct requirements which registered adjusters must comply with at all times. 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. Responses must be submitted by 1 September 2022 via email to [email protected]. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. Issuance Date 29 July 2022 Issuing department Jabatan Konsumer dan Amalan Pasaran Document Exposure Draft on Registration Procedures and Requirements on Professionalism of Adjusters Bank Negara Malaysia 29 July 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Registration Procedures and Requirements on Professionalism of Adjusters Exposure Draft Issued on: 29 July 2022 BNM/RH/ED 032-8 Registration Procedures and Requirements on Professionalism of Adjusters Exposure Draft Applicable to: 1. Registered adjusters 2. Shareholders of registered adjusters 3. Persons intending to become registered adjusters Registration Procedures and Requirements on Professionalism of Adjusters Issued on: 29 July 2022 T his exposure draft sets out Bank Negara Malaysia’s (Bank) proposed enhanced registration requirements for a person intending to carry on adjusting business, as well as prudential and conduct requirements which registered adjusters must comply with at all times. Failure to comply with the requirements of the finalised policy document, will result in enforcement actions or deregistration. 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. Responses must be submitted by 1 September 2022 via email 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: a. Noor Azuween Nazamudin ([email protected]) b. Fairul Azli Mohamed ([email protected]) c. Ezzel Nor Othman ([email protected]) mailto:[email protected] Registration Procedures and Requirements on Professionalism of Adjusters Issued on: 29 July 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 ....................................... 3 7. Policy documents superseded ..................................................................... 3 PART B REGISTRATION PROCEDURES AND FEES .......................................... 4 8. Registration procedures ................................................................................ 4 9. Fees ………..................................................................................................... 4 PART C POLICY REQUIREMENTS ....................................................................... 5 10. Fit and proper requirements ......................................................................... 5 11. Effective governance and oversight ............................................................. 5 12. Business conduct requirements ................................................................... 6 13. Notification ..................................................................................................... 8 APPENDICES ....................................................................................................... 9 Appendix I: Requirements to be fulfilled to become registered adjusters ....... 9 Appendix II: List of documents and information for registration .................... 12 Appendix III: Registration Form .......................................................................... 13 Registration Procedures and Requirements on Professionalism of Adjusters 1 of 17 Issued on: 29 July 2022 PART A OVERVIEW 1. Introduction 1.1 In carrying on an adjusting business as defined under Section 2(1) of the Financial Services Act 2013 (FSA), a registered adjuster is required to carry out its business of investigating the cause and circumstances of a loss and ascertaining the quantum of the loss in relation to insurance or takaful claims independently and objectively. 1.2 This policy document is intended to set out the following: (a) the registration requirements of a person intending to carry on adjusting business; and (b) the requirements that a registered adjuster must comply with at all times, including the fees payable. 1.3 The requirements in this policy document also aim to enhance the professionalism of registered adjusters in managing its business and in dealing with customers through the imposition of rigorous fit and proper requirements on its shareholders and key responsible persons (KRPs). New obligations on meeting minimum continuous professional development (CPD) requirements annually to ensure adjusting employees keep abreast with relevant market and industry developments have also been included. In line with this, additional requirements have been imposed on the board of directors (Board) and senior management to ensure effective implementation of proper governance and control measures. 1.4 The Bank is also working with the Association of Malaysian Loss Adjusters (AMLA) and the Malaysian Insurance Institute (MII) to review the syllabus of the Basic Certificate Course in Insurance Loss Adjusting (BCCILA), taking into account the new developments in the industry such as the increased use of technological components in motor vehicles and more electric vehicle models introduced in the market. 2. Applicability 2.1 This policy document is applicable to: (a) a person intending to carry on adjusting business; (b) a registered adjuster; and (c) shareholders of a registered adjuster. Registration Procedures and Requirements on Professionalism of Adjusters 2 of 17 Issued on: 29 July 2022 3. Legal provisions 3.1 The requirements in this policy document are specified pursuant to sections 17(1), 18(2), 123 and 143(2) of the FSA. 3.2 The guidance in this policy document is issued pursuant to section 266 of the FSA. 4. Effective date 4.1 This policy document comes into effect upon 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, 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; “adjusting employee” refers to a person who is employed by a registered adjuster and meet the qualification criteria set by the Bank to carry out adjusting work, particularly on evaluating the actual loss, conducting investigations on the cause of the loss and establishing fair settlement amount in accordance with the terms of the insurance policy; “board” means the board of directors of a registered adjuster, 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; “key responsible persons (KRPs)” refer to a director and chief executive officer (CEO) who are responsible for the management of a registered person; Registration Procedures and Requirements on Professionalism of Adjusters 3 of 17 Issued on: 29 July 2022 “Order” refers to the Financial Services (Requirements and Submission of Documents or Information) (Registered Business) (Amendment) Order 2022 [P.U. (A) xxx/2022]1 as set out in Appendix I and Appendix II2; “senior management” refers to the CEO and senior officers of a registered adjuster having authority and responsibility for planning, directing or controlling the activities of adjuster, including individuals responsible for monitoring and enforcing the internal policies of the adjuster; “shareholder” refers to a person that holds an aggregate interest of 5% or more in the shares of a registered adjuster. 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) the Order; (b) Guidelines on Prohibited Business Conduct issued on 15 July 2016; and (c) Guidelines on Claims Settlement Practices (Consolidated) issued on 1 April 2008. 7. Policy documents superseded 7.1 This policy document supersedes the Registration Procedure to Carry on Adjusting Business issued on 21 December 2018. 1 The existing Financial Services (Requirements and Submission of Documents or Information) (Registered Business) Order 2013 [P.U. (A) 206] will be amended to incorporate additional requirements and is expected to come into force concurrently with the effective date of the final Policy Document on Registration Procedures and Requirements on Professionalism of Adjusters. 2 The additional requirements are set out in Appendix I and Appendix II solely for the purpose of facilitating public consultation on this Exposure Draft. Registration Procedures and Requirements on Professionalism of Adjusters 4 of 17 Issued on: 29 July 2022 PART B REGISTRATION PROCEDURES AND FEES 8. Registration procedures 8.1 By virtue of section 17(1) of the FSA, a person intending to carry on an adjusting business is required to: (a) fulfil the requirements as set out in Part 1 of Schedule 2 of the Order; (b) submit documents and information as set out in Part 2 in Schedule 2 of the Order, together with the duly completed Registration Form in Appendix III at least 30 working days before the commencement date of its adjusting business; and (c) commence adjusting business within six months from the date of registration and notify the Bank in writing within seven working days after commencement of its business. 8.2 A registered adjuster must comply with the registration requirements specified in Appendix I at all times. 8.3 The completed Registration Form and the required documents and information must be submitted to— Director, Consumer and Market Conduct Department, Bank Negara Malaysia, Jalan Dato’ Onn, 50480 Kuala Lumpur. 8.4 Pursuant to section 27(2) of the FSA, the list of registered adjusters will be published on the Bank’s website and will be updated as and when there are changes to this list. 8.5 A person who has not fulfilled the requirements stated in paragraph 8.1 will not be registered to carry on an adjusting business and the person will be informed accordingly in writing by the Bank. 9. Fees 9.1 Pursuant to section 26(1) of the FSA, registered adjusters are required to pay the annual fee as set out in the Third Schedule of the Financial Services (Fees) Regulations 2014 [P.U.(A) 331/2014]. 9.2 Payment of such fees must be made through any licensed commercial or Islamic banks via RENTAS (Real Time Electronic Transfer of Funds and Securities) by crediting the account of ‘Akauntan Negara Malaysia’ (Account Number: 1554095430), Bank Negara Malaysia (TRN: ANT01) and by stating the name of the registered adjuster and “Fee” under payment details. Once S S S G G S S Registration Procedures and Requirements on Professionalism of Adjusters 5 of 17 Issued on: 29 July 2022 S payment is made, a copy of the credit advice must be provided to the Bank immediately for confirmation of the payment. PART C: POLICY REQUIREMENTS 10. Fit and proper requirements 10.1 A registered adjuster must ensure that its shareholders and KRPs comply with the fit and proper requirements prescribed in the Order at all times. 11. Effective governance and oversight Board and Senior Management roles and responsibilities 11.1 The Board shall: (a) oversee the formulation and implementation of the registered adjusters’ internal governance and control frameworks (including approving of internal policies and procedures and establishing a mechanism to ensure the KRPs are fit and proper) to ensure compliance with the Bank’s requirements; (b) periodically review the appropriateness and effectiveness of the implementation of the registered adjusters’ internal governance and control frameworks referred to above; and (c) together with the senior management, promote a sound corporate culture among all employees, which reinforces ethical and professional behaviour in the conduct of adjusting activities. 11.2 The senior management shall be responsible for ensuring the following: (a) effective and comprehensive internal policies and procedures are established and implemented for adjusting activities, including incorporating end-to-end process of adjusting activities until completion of the adjusting report; (b) appropriate controls are in place to manage and monitor the adjusting activities such as rotation of adjusting assignments and adequate reviews of practices and the work quality of adjusting employees in the investigation, inspection of damaged vehicles, properties, casualty or liabilities, determination of the damage costs, replacement and repair costs, and preparation of adjusters’ reports; (c) robust policies, procedures and controls are implemented to prevent situations that may give rise to conflicts of interest that could affect the independence and professional integrity of its adjusting employees; (d) well-defined processes for the timely reporting or escalation of issues (such as a breach of policies and procedures which resulted in disciplinary actions) to the Board; (e) due diligence and relevant background screening process is conducted on adjusting employees prior to employment. At a minimum, this should S S Registration Procedures and Requirements on Professionalism of Adjusters 6 of 17 Issued on: 29 July 2022 include checks on financial history such as bankruptcy/insolvency check, employment and academic history, as well as security screening for past criminal involvement; and (f) only KRPs who meet the fit and proper requirements at all times as prescribed in the Order are appointed or continue to be appointed as KRPs of a registered adjuster. 12. Business conduct requirements Ensuring independence and professional integrity 12.1 A registered adjuster shall ensure that its adjusting employees: (a) meet the minimum qualification requirements in Appendix l; (b) carry out their adjusting work independently and objectively; (c) avoid situations which could result in a conflict of interest in the handling of claims (such as adjusting employee who has a spouse or immediate family member having interests in workshops or insurers handling the same claims); and (d) act with care and due diligence in conducting investigations and assessment of loss. Ensuring quality and timeliness of adjusting work 12.2 A registered adjuster shall ensure that the assignment of adjusting work is commensurate with the skills, qualifications and experience of the adjusting employee. 12.3 A registered adjuster shall have in place a mechanism for a new adjusting employee to be closely supervised by a senior adjusting employee3 for at least one year before they are allowed to conduct adjusting work independently and submit adjusting reports to the insurers and takaful operators directly. Question 1 In relation to paragraph 12.3 and the definition in footnote 3 below: a) Is a minimum of one (1) year of close supervision on new adjusting employees sufficient for them to conduct adjusting work independently, particularly for non- motor cases? b) Is a minimum of five (5) years of adjusting experience appropriate to be considered as a senior adjusting employee for motor and non-motor cases? Please support your responses with clear justifications. 3 Senior adjusting employee refers to adjusting employees who have acquired at least five (5) years of adjusting experience in the subject matter being assessed. S S S Registration Procedures and Requirements on Professionalism of Adjusters 7 of 17 Issued on: 29 July 2022 S 12.4 A registered adjuster shall ensure that adjusting work is completed within the established turnaround time as defined in its internal policies and procedures, taking into account the complexity of the work and in adherence to the Bank’s Guidelines on Claims Settlement Practices. Quality of adjusting reports 12.5 A registered adjuster shall ensure that an adjusting report discloses and clearly describes the material information i.e. the facts, assumptions, methods, sources of information and databases used or referred to in producing its final assessment or recommendation. 12.6 A registered adjuster shall ensure that adjusting reports are reviewed and signed by a senior adjusting employee. Maintaining adequate records and documentation 12.7 A registered adjuster shall ensure adequate records and supporting documentation are maintained for seven (7) years to support its adjusting activities. Examples of supporting documentation include photographs of damaged properties/areas, losses or injuries sustained by claimants, police reports, medical reports, fire brigade reports, repair quotations, statements from witnesses, autopsy reports and forensics’ reports. Training programmes and Continuous Professional Development (CPD) 12.8 A registered adjuster shall provide adequate training programmes for its adjusting employees to ensure they are able to keep pace with the technical, technological and environmental changes in the motor and non-motor ecosystem in order to deliver high quality adjusting work. 12.9 A registered adjuster shall ensure that its adjusting employees attend a minimum of 15 hours of CPD programmes each year. 12.10 A registered adjuster shall refer to AMLA or any other institution that the Bank may specify from time to time on the training programmes and professional activities that would qualify for the CPD hours. Question 2 In relation to paragraph 12.9, what would be the appropriate minimum hours of CPD that adjusting employee be required to attend each year to remain updated on key and emerging developments in the industry on a continuous basis? Please support your responses with clear justifications. S S S S S S Registration Procedures and Requirements on Professionalism of Adjusters 8 of 17 Issued on: 29 July 2022 13. Notification 13.1 A registered adjuster shall notify the Bank in writing within seven (7) working days after the date of the following: (a) changes to its minimum paid-up capital; (b) relocation of its head office; (c) establishment, relocation or closure of its branch offices; and (d) changes to its director, CEO, shareholders or shareholding structure. S Registration Procedures and Requirements on Professionalism of Adjusters 9 of 17 Issued on: 29 July 2022 APPENDICES Appendix I: Requirements to be fulfilled to become registered adjusters 1. The applicant is a company incorporated under the Companies Act 2016 with minimum paid-up capital unimpaired by losses of RM150,000. [New] Minimum qualification of adjusting employees 2. Adjusting employees involved in motor claims must have, at minimum, a Basic Certificate Course in Insurance Loss Adjusting (BCCILA) for Motor from the Malaysian Insurance Institute (MII) or any other qualifications recognised4 by the Bank. [New] 3. Adjusting employees involved in non-motor claims must have at least one of the following qualifications: (a) BCCILA for Non-motor from Malaysian Insurance Institute; [New] (b) Associate or Fellow of Chartered Institute of Loss Adjuster; (c) Australasian Institute of Chartered Loss Adjusters’; [New] (d) Diploma or Associate or Fellow of Malaysian Insurance Institute; (e) Associate or Fellow of Insurance Institute of Canada; (f) Diploma or Associate or Fellow of Australian Insurance Institute; (g) Associate or Fellow of Insurance Institute of Canada; (h) Chartered Property & Casualty Underwriter; or (i) any other qualifications recognised by the Bank. Box 1 – Rationale and Proposal to Enhance BCCILA syllabus The Bank is considering enhancements to the minimum qualification for adjusting employees to ensure such requirements are on par with industry best practice and adequately equip adjusting employees with the basic knowledge required to perform their roles professionally and responsibly. Enhancements are mainly to incorporate into the modules, practical elements and latest technology affecting adjusting industry. The review of BCCILA syllabus for motor and non-motor will be conducted by the Association of Malaysian Loss Adjusters (AMLA) and the Malaysian Institute of Insurance (MII) and is expected to be completed by end-2022. Question 3 What are other areas which should be considered in the review of the BCCILA syllabus? Please support your responses with clear justifications. Box 2 – Proposal on Ensuring Level Playing Field between New and Existing Adjusting Employees (a) The enhanced BCCILA qualification as proposed in Box 1 will be applicable for new entrants. To ensure existing adjusters in the industry are similarly equipped with the 4 The Bank will notify on any additional qualifications recognized from time to time via letters to CEOs of registered adjusters, communication to AMLA and updating the FAQ on the Bank’s website. [New] Registration Procedures and Requirements on Professionalism of Adjusters 10 of 17 Issued on: 29 July 2022 relevant and updated knowledge and skills, existing adjusting employees will be required to undertake a ‘specific module’ which will be developed by AMLA and MII for them to complete within a period of two years from the effective date of this final policy document. Note: The requirements for existing adjusting employees will be communicated through a Specification Letter following issuance of the final policy document. Question 4 Are there other considerations/options to achieve relevant/updated knowledge and competencies for existing adjusting employees as describe in Box 2? Please support your responses with clear justifications. Fit and proper requirements 4. A registered adjuster must ensure that its shareholder(s) meet the following fit and proper requirements at all times: (a) has not been convicted of an offence under the FSA or an offence involving fraud or dishonesty under any other written law; (b) has not been associated, in ownership or management capacity, with an adjusting business company whose license or registration has been revoked, deregistered or has been refused a license by the Bank; and (c) has not been an undischarged bankrupt, suspended payments or compounded by his creditors whether in or outside Malaysia. [New] 5. A registered adjuster must ensure that KRPs meet the following fit and proper requirements at all times: t: (a) has not been convicted of an offence under the FSA or an offence involving fraud or dishonesty under any other written law; (b) has not become the subject of any proceedings of a disciplinary or criminal nature, or has been notified of any impending proceedings or of any investigations, which might lead to such proceedings; [New] (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; [New] (d) has not acted unfairly or dishonestly in his dealings with customers, employer, auditors or regulatory authorities; [New] (e) has not contravened any of the requirements and standards of a regulatory body, professional body, government or its agencies; [New] (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; [New] (g) has not been involved in the management or operation of an adjusting company whose licence or registration has been revoked, deregistered or has been refused a licence by the Bank; Registration Procedures and Requirements on Professionalism of Adjusters 11 of 17 Issued on: 29 July 2022 (h) has not been an undischarged bankrupt, suspended payments or compounded with his creditors whether in or outside Malaysia. [New] 6. In addition, the shareholders, directors, CEO, senior management 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. [New] 7. In relation to paragraph 6, a registered adjuster must establish adequate internal policies and procedures to ensure an effective mechanism is in place to determine and manage any potential conflict of interest issues which may arise. [New] 8. A registered adjuster is required to ensure that a shareholder or KRP that does not meet or does not continue to meet the fit and proper requirements set out in paragraphs 4, 5 and 6, as the case may be: (a) is disqualified from being appointed the shareholder or KRP of a registered adjuster; and (b) such disqualified shareholder or KRP ceases to be a shareholder or the KRP, as the case may be, immediately. [New] 9. A registered adjuster shall notify the Bank in writing of the fact that a person has ceased to be its shareholders or KRP, within seven working days from the date of cessation. [New] Registration Procedures and Requirements on Professionalism of Adjusters 12 of 17 Issued on: 29 July 2022 Appendix II: List of documents and information for registration 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 for a company already in operation. 4. Information on return on allotment of shares, as follows: (a) Form 24 (return on allotment of shares) under the Companies Act 1965 for allotment of shares or changes made before 31 January 2017, if any; [New] or (b) A copy of the particulars submitted for allotment of shares or any changes made to it after 31 January 2017 under section 78 of the Companies Act 2016. [New] 5. Information on particulars of directors, as follows: (a) Form 29 (particulars of directors) under the Companies Act 1965 for a company incorporated before 31 January 2017, if any; or [New] (b) A copy of information submitted under section 58 of the Companies Act 2016. [New] 6. A statutory declaration (as per Appendix III) that the applicant has met all requirements specified in Appendix I. [New] 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 CEO; (c) the names, addresses and identity card or passport numbers of all its substantial shareholders within the meaning of section 136 of the Companies Act 2016; (d) the names, addresses and registration number of its related corporations as defined in section 2 of the Companies Act 2016; and (e) the names of all adjusting employee with their relevant qualifications. Note: Appendix II will be published in the amended Order (i.e. reproduced in this Exposure Draft to provide a complete reference on the amendments proposed, which are mainly administrative changes to reflect recent amendments in the Companies Act 2016). Registration Procedures and Requirements on Professionalism of Adjusters 13 of 17 Issued on: 29 July 2022 Appendix III: Registration Form Registration Procedures and Requirements on Professionalism of Adjusters 14 of 17 Issued on: 29 July 2022 Registration Procedures and Requirements on Professionalism of Adjusters 15 of 17 Issued on: 29 July 2022 Profile of Shareholders, Directors and CEO on Qualification and Working Experience (Please fill separate form for each individual) 1. Name: 2. Address: 3. Tel. no.: 4. E-mail: 5. Academic/Adjusting Qualification: No. Name of Institution Qualification Year Obtained 6. Working Experience: 7. Current Directorship in Other Companies: (*Please state whether it’s Managing/Executive Director, Independent Director, Non-independent Director or Chairman) 8. Previous Directorship in Other Companies: (*Please state whether it’s Managing/Executive Director, Independent Director, Non-independent Director or Chairman) No. Name of Organisation Nature of Business/ Principle Activity Designation From - To No. Name of Organisation Nature of Business/ Principle Activity Type of Directorship* Date of Appointment No. Name of Organisation Nature of Business/ Principle Activity Type of Directorship* From - To Appendix III(a) Registration Procedures and Requirements on Professionalism of Adjusters 16 of 17 Issued on: 29 July 2022 Appendix III(b) Relationship with Insurance Company, Takaful Operator (ITOs) and/or Workshop Operator (WO) Please indicate (X) on any of the persons listed below (including their spouse, children, parents or siblings) who hold any equity or have any interests, or are employed or associated with, or have any linkages with any ITO and/or any WO. Section A: Relationship with ITOs and/or WO No. Persons who are relevant to the application YES NO i) Shareholder(s) of company ii) Director(s) of company iii) Senior Management of company iv) Adjusting Staff v) Other employees (all other non-adjusting staff i.e. holding administrative/managerial positions ) If any of the answer section A above is YES, please provide details in section B below: Section B: No. Name & Position of Relevant persons in (A); or its Family Members Type of Relationship Name of ITO/WO Job Title/Position 1 E.g. A clerk employed in the applicant's company, Miss ABC. Spouse (Miss ABC's husband) Workshop XYZ Mechanic Note: Appendix III will be published in the final Policy Document on Registration Requirements and Requirements on Professionalism of Adjusters. Amendments made are additions of Appendix III(a) and III(b) to facilitate the registration process and enable checking against fit and proper requirements. 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 REgistration procedureS and FEES 8. Registration procedures 9. Fees PART C: POLICY REQUIREMENTS 10. Fit and proper requirements 11. Effective governance and oversight 12. Business conduct requirements 13. Notification Appendix I: Requirements to be fulfilled to become registered adjusters Appendix II: List of documents and information for registration Appendix III: Registration Form

Public Notice

30 Jun 2022

Discussion Paper on the 2024 Climate Risk Stress Testing Exercise

https://www.bnm.gov.my/-/dp_2024_crst

https://www.bnm.gov.my/documents/20124/3770663/DP_2024_CRST.pdf

Reading: Discussion Paper on the 2024 Climate Risk Stress Testing Exercise Share: 108 Discussion Paper on the 2024 Climate Risk Stress Testing Exercise Embargo : For immediate release Not for publication or broadcast before 1230 on Thursday, 30 June 2022 30 Jun 2022 This discussion paper sets out Bank Negara Malaysia’s (“the Bank”) proposed framework and elements for the industry-wide climate risk stress testing (CRST) exercise in 2024. The paper puts forward for discussion 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, including suggestions on areas to be improved, clarified or alternative proposals and areas that the Bank should consider. All feedback for the discussion paper 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]”. Documents: Discussion Paper: 2024 Climate Risk Stress Testing Exercise Attachment 1: Feedback Template for 2024 CRST Discussion Paper (xlsx)Bank Negara Malaysia 30 June 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

Policy Document on Bancassurance/Bancatakaful

https://www.bnm.gov.my/-/pd_banca

https://www.bnm.gov.my/documents/20124/948107/Banca_fdbk_stmt.pdf, https://www.bnm.gov.my/documents/20124/948107/PD_Banca.pdf

Reading: Policy Document on Bancassurance/Bancatakaful Share: Policy Document on Bancassurance/Bancatakaful Embargo : For immediate release Not for publication or broadcast before 1000 on Thursday, 30 June 2022 30 Jun 2022 Bank Negara Malaysia has issued a policy document on Bancassurance / Bancatakaful. The policy document sets out the policy requirements and guidance for bancassurance / bancatakaful arrangements, which aim to enhance the bancassurance / bancatakaful as an effective channel and further strengthen safeguards in place to ensure the delivery of better consumer outcomes. The requirements are now extended to bancassurance / bancatakaful partners, where relevant. This policy’s requirements will also apply to existing and new bancassurance / bancatakaful arrangements, including renewal of bancassurance / bancatakaful agreements unless otherwise specified. Documents: Policy Document on Bancassurance/Bancatakaful Public Feedback Statement – Summary of key feedback received on the Exposure Draft and BNM’s responses Issuing Department Jabatan Konsumer dan Amalan Pasaran  Bank Negara Malaysia 30 June 2022 © Bank Negara Malaysia, 2022. All rights reserved.

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. 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)

Public Notice

29 Jun 2022

JC3 issues the TCFD Application Guide for Malaysian Financial Institutions

https://www.bnm.gov.my/-/jc3-issues-tcfd-application-guide

https://www.bnm.gov.my/documents/20124/3770663/TCFD_Application_Guide.pdf

Reading: JC3 issues the TCFD Application Guide for Malaysian Financial Institutions Share: 82 JC3 issues the TCFD Application Guide for Malaysian Financial Institutions Embargo : For immediate release Not for publication or broadcast before 1100 on Wednesday, 29 June 2022 29 Jun 2022 The Joint Committee on Climate Change (JC3) today released the Task Force on Climate-related Financial Disclosures (“TCFD”) Application Guide for Malaysian Financial Institutions which outlines key recommendations supplemented by the relevant descriptions, guidance notes, considerations and examples that could be utilised as practical resources to facilitate the adoption of TCFD Recommendations by the Malaysian financial industry. Download the guide See also: Climate Change website Bank Negara Malaysia 29 June 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

Exposure Draft on Cloud Technology Risk Assessment Guideline (CTRAG)

https://www.bnm.gov.my/-/ed_cloud_tech_ctrag

https://www.bnm.gov.my/documents/20124/938039/ED_CTRAG_20220603.pdf

Reading: Exposure Draft on Cloud Technology Risk Assessment Guideline (CTRAG) Share: 22 Exposure Draft on Cloud Technology Risk Assessment Guideline (CTRAG) Embargo : For immediate release Not for publication or broadcast before 0800 on Friday, 3 June 2022 3 Jun 2022 This exposure draft sets out the proposed guidance to assess common key risks and considerations of control measures when financial institutions adopt cloud services. The proposed guideline complements the Risk Management in Technology (RMiT) policy document to strengthen financial institutions’ cloud risk management capabilities. Exposure Draft on Cloud Technology Risk Assessment Guideline (CTRAG) Submission of feedback Bank Negara Malaysia 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. Feedback should be submitted to the Bank by email to [email protected] by 15 July 2022. Applicability Licensed banks Licensed investment banks Licensed Islamic 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 Issuing department Risk Specialist and Technology Supervision Bank Negara Malaysia 3 June 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?

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29 Apr 2022

Policy Documents on Financial Reporting

https://www.bnm.gov.my/-/pd-financial-reporting

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

Reading: Policy Documents on Financial Reporting Share: 14 Policy Documents on Financial Reporting Embargo : For immediate release Not for publication or broadcast before 1800 on Friday, 29 April 2022 29 Apr 2022 Summary BNM has published the Financial Reporting for Takaful Operators Policy Document and Financial Reporting Policy Document, which set out the revised requirements applicable for takaful operators and insurers to ensure alignment with the Malaysian Financial Reporting Standards (MFRS) 17 Insurance contracts and the MFRS 9 Financial Instruments requirements. Specifically for takaful operators, the disclosure requirements have been strengthened to reflect specificities of takaful. Requirements have also been aligned with recommendations by the Malaysian Accounting Standards Board (MASB) and latest ruling by the Shariah Advisory Council relating to application of MFRS 17 to takaful businesses (i.e. columnar presentation of financial statements and qard measurement). Policy Documents: Financial Reporting  Financial Reporting for Takaful Operators 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

Exposure Draft on Professionalism of Insurance and Takaful Agents

https://www.bnm.gov.my/-/ed-professionalism-insurance-agents

https://www.bnm.gov.my/documents/20124/948107/ED_Professionalism_of_Insurance_and_Takaful_Agents.pdf

Reading: Exposure Draft on Professionalism of Insurance and Takaful Agents Share: 7 Exposure Draft on Professionalism of Insurance and Takaful Agents Embargo : For immediate release Not for publication or broadcast before 1703 on Wednesday, 27 April 2022 27 Apr 2022 This exposure draft sets out Bank Negara Malaysia’s proposed new requirements on the licensed insurers and takaful operators in promoting high standards of conduct and professionalism of their insurance and takaful agents. The draft includes policy requirements pertaining to the recruitment of insurance and takaful agents, minimum qualifications, fit and proper criteria, due diligence process and treatment of errant agents. Responses must be submitted to the Bank by 31 May 2022 in writing via email to [email protected]. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. Exposure Draft: Professionalism of Insurance and Takaful Agents   Bank Negara Malaysia 27 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

26 Apr 2022

Policy Document on Prudent and Professional Conduct by Financial Advisers

https://www.bnm.gov.my/-/policy-document-on-prudent-and-professional-conduct-by-financial-advisers

https://www.bnm.gov.my/documents/20124/855632/Feedback_Statement_April_2022.pdf, https://www.bnm.gov.my/documents/20124/855632/pd_Prudent_Professional_Conduct_FA.pdf

Reading: Policy Document on Prudent and Professional Conduct by Financial Advisers Share: Policy Document on Prudent and Professional Conduct by Financial Advisers Embargo : For immediate release Not for publication or broadcast before 1300 on Tuesday, 26 April 2022 26 Apr 2022 Issuance Date 26 April 2022 Summary Bank Negara Malaysia has issued a policy document on Prudent and Professional Conduct by Financial Advisers on 26 April 2022. This policy document sets out the policy requirements and guidance for financial advisers and Islamic financial advisers approved pursuant to section 11 of the Financial Services Act 2013 (FSA) or the Islamic Financial Services Act 2013 (IFSA). The policy requirements in this policy requirements must be met on an on-going basis by an approved financial adviser and Islamic financial adviser in managing its business and conduct in a fair, impartial and professional manner that instils trust and confidence among financial consumers. Policy Document: Prudent and Professional Conduct by Financial Advisers Public Feedback Statement – Summary of key feedback received on the Exposure Draft and BNM’s responses Issuing department Jabatan Konsumer dan Amalan Pasaran   Bank Negara Malaysia 26 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.

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 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 Notice

26 Apr 2022

Policy Document on Application Procedures to Carry on Financial Advisory Business and Islamic Financial Advisory Business

https://www.bnm.gov.my/-/policy-document-on-application-procedures-to-carry-on-financial-advisory-business-and-islamic-financial-advisory-business

https://www.bnm.gov.my/documents/20124/855632/pd_Application_Procedures_carry_on_FA_business.pdf

Reading: Policy Document on Application Procedures to Carry on Financial Advisory Business and Islamic Financial Advisory Business Share: Policy Document on Application Procedures to Carry on Financial Advisory Business and Islamic Financial Advisory Business Embargo : For immediate release Not for publication or broadcast before 1300 on Tuesday, 26 April 2022 26 Apr 2022 Issuance Date 26 April 2022 Summary This policy document sets out the required documents and submission procedures to apply for new approval or renewal of approval to carry on financial advisory business and Islamic financial advisory business. Policy Document: Application Procedures to Carry on Financial Advisory Business and Islamic Financial Advisory Business Issuing department Jabatan Konsumer 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

Online Auction of Ringgit Banknotes with Special Serial Numbers

https://www.bnm.gov.my/-/14th-banknotes-auction

Reading: Online Auction of Ringgit Banknotes with Special Serial Numbers Share: 4 Online Auction of Ringgit Banknotes with Special Serial Numbers Embargo : For immediate release Not for publication or broadcast before 1725 on Friday, 22 April 2022 22 Apr 2022 BNM will be holding an online auction of Ringgit banknotes with special serial numbers which opens from 23 April until 30 April 2022. The auction will be conducted by BNM’s appointed auctioneer, MNP Auctioneers (Central) Sdn. Bhd. (MNP) whereby bids can be placed via this link. MNP will begin the ‘Live Auction’ on 30 April 2022 (Saturday) at 11.00 a.m. Ringgit banknotes with special serial numbers, such as sets of the first 10 banknotes (e.g. LL0000001-0000010) and super solid numbers with repetitive prefix (e.g. LL8888888) will be auctioned. Online registration and bids can be completed via www.best2bid.com. Further information on the auction can be obtained through MNP’s website at www.mnp.com.my or MNP’s customer service hotline via 017-400 6661. Bank Negara Malaysia 22 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

01 Apr 2022

Publication of the List of Registered Currency Processors

https://www.bnm.gov.my/-/list-of-registered-currency-processors

https://www.bnm.gov.my/documents/20124/820862/act827_ca2020_en.pdf

Reading: Publication of the List of Registered Currency Processors Share: Publication of the List of Registered Currency Processors Embargo : For immediate release Not for publication or broadcast before 1110 on Friday, 1 April 2022 1 Apr 2022 Pursuant to section 26 of the Currency Act 2020, Bank Negara Malaysia has registered the following companies as registered currency processors under the Act:No. Company Name and Registered Address Suruhanjaya Syarikat Malaysia (SSM) Registration Number 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  See also: Currency Act 2020 Bank Negara Malaysia 1 April 2022 © Bank Negara Malaysia, 2022. All rights reserved.

CURRENCY ACT 2020 Currency 1 LAWS OF MALAYSIA Act 827 CURRENCY ACT 2020 2 Laws of Malaysia Act 827 Date of Royal Assent ... ... 14 February 2020 Date of publication in the ... ... 28 February 2020 Gazette Publisher’s Copyright C PERCETAKAN NASIONAL MALAYSIA BERHAD All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording and/or otherwise without the prior permission of Percetakan Nasional Malaysia Berhad (Appointed Printer to the Government of Malaysia). Currency 3 LAWS OF MALAYSIA Act 827 CURRENCY ACT 2020 ARRANGEMENT OF SECTIONS Part I PRELIMINARY Section 1. Short title and commencement 2. Interpretation 3. Person declared as financial institution 4. Powers and functions of Bank Part II POWERS RELATING TO CURRENCY 5. Bank to be sole authority to issue currency 6. Printing and minting of currency under authority of Bank 7. Issuance, reissuance and exchange of currency at office, etc., established by Bank 8. Bank liable for face value of currency 9. Denomination and form of currency 10. Legal tender 11. Sale of currency 12. Safe custody of unissued currency, etc. 13. Power to call in currency 14. Withdrawal of currency 15. Disposal of currency or printing and minting instruments 16. Refund of lost, stolen or imperfect currency 17. Preservation of quality and integrity of currency Part III OFFENCES RELATING TO CURRENCY 18. Prohibition from issuing, printing or minting currency 19. Restriction on use of photograph, drawing or design of currency in publication, etc. 4 Laws of Malaysia Act 827 20. Prohibition from melting down of currency coin 21. Limitation on cash transaction 22. Non-application of section 21 Part IV CURRENCY PROCESSING BUSINESS 23. Declaration of currency processing business Division 1 Registration 24. Prohibition from carrying on currency processing business 25. Application for registration 26. Registration 27. Non-registration 28. Publication of list of registered currency processor 29. Voluntary deregistration 30. Deregistration by Bank 31. Opportunity to make representation for action under section 30 32. Effect of deregistration Division 2 Duties of registered currency processor 33. Prudent and professional practice 34. Duties of director and chief executive officer 35. Fees 36. Preservation of secrecy 37. Detention of currency suspected to be counterfeit 38. Bank, registered currency processor and financial institution to record personal information of person from whom currency is detained 39. Currency to be surrendered and information to be furnished, to police 40. Currency remains property of person from whom currency was detained if currency is genuine 41. Submission of document or information Section Currency 5 Division 3 Examination Section 42. Power to examine 43. Examination of specific person 44. Right of access and production of property, etc. 45. Appearance before Bank Part V ENFORCEMENT Division 1 Actions by Bank 46. Breach 47. Power to issue direction 48. Power to take administrative action 49. Appropriateness of action 50. Opportunity to make representation for action under section 47 or 48 51. Appeal against monetary penalty Division 2 Criminal action 52. Offence by person acting in official capacity 53. Offence by employee or officer or agent 54. Attempt, abetment and conspiracy 55. Seizable offence 56. Joinder of offences 57. Compounding of offences 58. Prosecution Part VI GENERAL 59. Monies received by Bank 60. Power to make regulations 61. Power to issue standards 6 Laws of Malaysia Act 827 Section 62. Power to issue guidelines 63. Provision relating to approval, standards, specifications, notice, requirements, directions, order or guidelines 64. Publication of enforcement action 65. Amendment of Schedules 66. Protection against suits and legal proceedings 67. Application of section 77 of the Central Bank of Malaysia Act 2009, Division 2 of Part XIV of the Financial Services Act 2013 and Division 2 of Part XV of the Islamic Financial Services Act 2013 68. Exemption Part VII SAVING AND TRANSITIONAL 69. Saving 70. Transitional First schedule second schedule Currency 7 LAWS OF MALAYSIA Act 827 CURRENCY ACT 2020 An Act to provide for the management of currency of Malaysia, regulation of currency processing business and currency processing activities and for related matters. [ ] ENACTED by the Parliament of Malaysia as follows: Part I PRELIMINARY Short title and commencement 1. (1) This Act may be cited as the Currency Act 2020. (2) This Act comes into operation on a date to be appointed by the Minister by notification in the Gazette and the Minister may appoint different dates for the coming into operation of different Parts or provisions of this Act. Interpretation 2. (1) In this Act, unless the context otherwise requires— “currency processing activities” means— (a) the sorting of currency note or currency coin by authenticity or quality; or 8 Laws of Malaysia Act 827 (b) the packing of currency note or currency coin by quality, quantity or denomination; “Bank” has the same meaning assigned to it in subsection 2(1) of the Central Bank of Malaysia Act 2009 [Act 701]; “Governor” means the Governor of the Bank; “financial institution” means— (a) a licensed bank under the Financial Services Act 2013 [Act 758], a licensed Islamic bank under the Islamic Financial Services Act 2013 [Act 759] and a prescribed institution under the Development Financial Institutions Act 2002 [Act 618]; or (b) any person declared as a financial institution in the First Schedule; “instruments and materials” includes— (a) relating to currency note, origination film, progressive, plate, proof, and unprinted, semi-printed or finished currency note; (b) relating to currency coin, design, mould, lettering wheel, punch, collar, die, working tool, rimming and lettering block, coin blank and finished currency coin; and (c) any apparatus, equipment and machinery which are related to the issuance, printing or minting of currency note or currency coin; “Monetary Penalty Review Committee” means the Monetary Penalty Review Committee established under section 238 of the Financial Services Act 2013; “computer” has the same meaning assigned to it in section 3 of the Evidence Act 1950 [Act 56]; “currency note” means a note issued by the Bank including a commemorative note issued by the Bank for, or to commemorate, a particular event or purpose; Currency 9 “currency coin” means a coin issued by the Bank including a commemorative coin issued by the Bank for, or to commemorate, a particular event or purpose; “Minister” means the Minister charged with the responsibility for finance; “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; “computer output” means a statement or representation, whether in written, printed, pictorial, film, graphical, acoustic or other form— (a) produced by a computer; (b) displayed on the screen of a computer; or (c) accurately translated from a statement or representation so produced; “registered currency processor” means a person registered under subsection 26(1) to carry on a currency processing business and for the purpose of Division 3 of Part IV includes any financial institution carrying on currency processing activities; “currency processing business” means— (a) the business of— (i) collecting currency note or currency coin; (ii) sorting currency note or currency coin by authenticity and quality; and (iii) packing currency note or currency coin by quality, quantity and denomination, by a person for or on behalf of another person; or 10 Laws of Malaysia Act 827 (b) any activity declared as a currency processing business under section 23. (2) A currency note shall be deemed defaced— (a) if any word, sign, symbol, drawing, caricature, or other thing, has been written, inscribed or in any other manner or by any other means has been shown on its surface; or (b) if the currency note is torn, marred, burnt, stained, spoilt or otherwise in any manner mutilated. (3) A currency coin shall be deemed tampered with— (a) if the currency coin is impaired, diminished or lightened otherwise than by fair wear and tear; or (b) if the currency coin is stamped, engraved or pierced, regardless whether the coin has been diminished or lightened. Person declared as financial institution 3. Any person specified in the First Schedule is declared as a financial institution for the purposes of this Act. Powers and functions of Bank 4. (1) The powers and functions of the Bank under this Act are in addition to, and not in derogation of, the powers and functions of the Bank under the Central Bank of Malaysia Act 2009. (2) The Governor shall exercise such powers and perform such functions of the Bank under this Act on behalf of the Bank. (3) The Bank may, either generally or in a particular case, appoint any person, including an officer of the Bank, whether in or outside Malaysia— (a) to exercise any of the powers or perform any of the functions, of the Bank, under this Act on behalf of and in the name of the Bank; or Currency 11 (b) to render such assistance in the exercise of any of the powers or performance of any of the functions, of the Bank, under this Act. Part II POWERS RELATING TO CURRENCY Bank to be sole authority to issue currency 5. The Bank shall be the sole authority to issue currency note and currency coin in Malaysia. Printing and minting of currency under authority of Bank 6. (1) The currency note and currency coin shall only be printed or minted by or under the authority of the Bank. (2) The Bank shall arrange for the printing of currency note and the minting of currency coin. Issuance, reissuance and exchange of currency at office, etc., established by Bank 7. The Bank shall issue and reissue and may exchange currency note and currency coin at the office of the Bank or at any agency as the Bank may establish or appoint for such purpose. Bank liable for face value of currency 8. The Bank shall be liable for the face value of currency note and currency coin issued by the Bank. Denomination and form of currency 9. (1) Currency note and currency coin issued by the Bank— (a) shall be in such denomination of ringgit or sen; and 12 Laws of Malaysia Act 827 (b) shall be of such form, characteristics or design, or bear such feature or device, as approved by the Minister, on the recommendation of the Bank. (2) The standard weight and composition of currency coin issued by the Bank and the amount of remedy and variation shall be as approved by the Minister, on the recommendation of the Bank. Legal tender 10. (1) Only currency note and currency coin issued by the Bank shall be legal tender in Malaysia at its face value provided that the currency note is not defaced and the currency coin is not tampered with. (2) The currency note and currency coin referred to in subsection (1) shall be legal tender at its face value for a payment not exceeding the maximum aggregate quantity or value of currency note or currency coin as specified in the Second Schedule. Sale of currency 11. (1) The Bank may, for the purpose of promoting numismatics, sell currency note or currency coin at a price other than its face value. (2) Any proceeds from the sale of currency note or currency coin pursuant to subsection (1) shall be considered as an income to the Bank. Safe custody of unissued currency, etc. 12. The Bank shall, in such manner as the Bank deems fit— (a) arrange for the safe custody of unissued currency note or currency coin; and (b) prepare and keep instruments and materials used for the issuance, printing or minting of currency note or currency coin. Currency 13 Power to call in currency 13. (1) The Bank may call in any currency note or currency coin upon giving not less than one month’s notice published in the Gazette of its intention to do so. (2) Upon the expiration of the notice, the currency note or currency coin to which the notice applies shall cease to be legal tender. (3) Notwithstanding subsection (2), the Bank shall be liable for the face value of any currency note or currency coin upon presentation at the office of the Bank or at any agency as the Bank may establish or appoint for such purpose. Withdrawal of currency 14. The Bank may take all steps as the Bank deems fit to withdraw from circulation— (a) any currency note including currency note which is defaced or unfit for circulation; (b) any currency coin including currency coin which is worn or tampered with; and (c) any currency note and currency coin which have been called in pursuant to section 13. Disposal of currency or printing and minting instruments 15. (1) The Bank may destroy, deal with or otherwise dispose of currency note or currency coin which has been withdrawn pursuant to section 14 in such manner as the Bank deems fit. (2) The Bank shall arrange for the destruction of instruments and materials used for the issuance, printing or minting of currency note or currency coin in such manner as the Bank deems fit. 14 Laws of Malaysia Act 827 Refund of lost, stolen or imperfect currency 16. (1) No person shall be entitled to recover from the Bank the value— (a) of any currency note and currency coin which is lost, stolen or imperfect; (b) of any currency note which is defaced; or (c) of any currency coin which has been tampered with. (2) Notwithstanding subsection (1), the Bank may, at its discretion, refund the value— (a) of any currency note and currency coin which is imperfect; (b) of any currency note which is defaced; or (c) of any currency coin which has been tampered with. Preservation of quality and integrity of currency 17. For the purpose of preserving the quality and integrity, or promoting the reissuance or recirculation of currency note or currency coin, the Bank may— (a) enter into a contract or other arrangement with a financial institution or a registered currency processor; or (b) take any measures or facilitate any actions as the Bank deems fit. Part III OFFENCES RELATING TO CURRENCY Prohibition from issuing, printing or minting currency 18. (1) No person shall issue, print or mint or authorize the issuance, printing or minting of, any note, coin, token, document or instrument, whether tangible or intangible, which is likely to pass as legal tender unless the note, coin, token, document or instrument is denominated in and fully backed by ringgit or foreign currency. Currency 15 (2) For the purpose of subsection (1)— (a) a note, coin, token, document or instrument is likely to pass as legal tender, if the note, coin, token, document or instrument fulfills all of the following characteristics: (i) the note, coin, token, document or instrument is payable to a bearer or holder on demand or upon presentation; (ii) the note, coin, token, document or instrument is widely used in Malaysia for the purpose of payment to any person other than the issuer of such note, coin, token, document or instrument; and (iii) the note, coin, token, document or instrument has a value other than its intrinsic value; (b) “foreign currency” means any note, coin, token, document or instrument, whether tangible or intangible, which is legal tender in any country, territory or place outside Malaysia and includes any right to receive such note, coin, token, document or instrument; and (c) “issue” means the act of making available for usage by any member of the public. (3) Any person who contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding fifty million ringgit or imprisonment for a term not exceeding ten years or to both. Restriction on use of photograph, drawing or design of currency in publication, etc. 19. (1) No person shall, unless approved by the Bank— (a) use any photograph of or any drawing or design resembling a currency note or currency coin or any part thereof, in any publication in any size, scale or colour; or (b) import, manufacture, sell, circulate or otherwise distribute any merchandise or product containing a photograph, drawing or design resembling a currency note or currency coin or any part thereof in any size, scale or colour. 16 Laws of Malaysia Act 827 (2) Any person who contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding fifty thousand ringgit. Prohibition from melting down of currency coin 20. (1) No person shall, with the intention to make profit, melt down any currency coin unless authorized by the Bank. (2) The Bank may, in granting any authorization under subsection (1), impose any condition or restriction as the Bank deems fit. (3) Any person who contravenes subsection (1) or (2), commits an offence and shall, on conviction— (a) in the case of a natural person, be liable to a fine not exceeding fifty thousand ringgit or imprisonment for a term not exceeding one year or to both; or (b) in the case of a body, incorporated or unincorporated, be liable to a fine not exceeding one hundred thousand ringgit. Limitation on cash transaction 21. (1) No person shall, in a single transaction, make or receive any payment using currency note, currency coin or their combination which exceeds the maximum aggregate value as specified in the Second Schedule. (2) For the purpose of subsection (1)— (a) different maximum aggregate value may be provided for different purposes, classes of persons, activities, businesses or professions; and (b) a series of transactions shall be considered as a single transaction if the transactions were made with the same person, for the same purpose and within the same day. (3) No person shall undertake or structure, or assist or participate in the structuring of, any transaction with the intention to avoid the application of subsection (1). Currency 17 (4) Any person who contravenes subsection (1) or (3) commits an offence and shall, on conviction, be liable to a fine not exceeding three times the aggregate sum or value of the transaction at the time the offence was committed. Non-application of section 21 22. Section 21 shall not apply to any transaction— (a) made by a person with or through the Bank or a financial institution; or (b) approved by the Minister, on the recommendation of the Bank, in any exigent circumstances including the following: (i) humanitarian aid; or (ii) disaster relief. Part IV CURRENCY PROCESSING BUSINESS Declaration of currency processing business 23. The Minister may, on the recommendation of the Bank, by an order published in the Gazette, declare any activity relating to the handling of currency note or currency coin as a currency processing business. Division 1 Registration Prohibition from carrying on currency processing business 24. (1) No person, other than the Bank or a financial institution, shall— (a) carry on a currency processing business; or (b) hold itself out to be a registered currency processor, unless the person is registered under section 26. 18 Laws of Malaysia Act 827 (2) Any person who contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding five million ringgit. Application for registration 25. (1) An applicant for registration to carry on currency processing business shall— (a) fulfill all requirements as prescribed by the Bank; (b) submit an application in such form and manner, together with any information and document as may be specified by the Bank; and (c) pay the processing fees as may be prescribed by the Minister under section 60. (2) No person shall apply for registration to carry on a currency processing business unless the person is a company. (3) For the purpose of paragraph (1)(a), “prescribed” means to be prescribed by an order published in the Gazette, and the power to prescribe includes the power to prescribe differently for different persons or different classes, categories or descriptions of persons, and to amend any prescription. Registration 26. (1) The Bank shall, upon receipt of an application for registration under section 25, register the applicant. (2) An applicant shall not commence its currency processing business until the applicant is notified by the Bank of its registration under this Act. (3) Any person who contravenes subsection (2) commits an offence and shall, on conviction, be liable to a fine not exceeding five million ringgit. Non-registration 27. The Bank shall not register an applicant if the applicant fails to comply with section 25 and the Bank shall notify the applicant on the refusal of the application for registration. Currency 19 Publication of list of registered currency processor 28. The Bank shall publish a list of registered currency processor in the form as the Bank deems fit. Voluntary deregistration 29. (1) A registered currency processor proposing to cease from carrying on currency processing business shall give a notice to the Bank for voluntary deregistration and may propose an effective date for the voluntary deregistration. (2) The Bank shall , upon receipt of a notice under subsection (1), deregister a registered currency processor in accordance with the proposed effective date stated in the notice, if any, or such later date as the Bank deems fit. (3) The Bank shall notify a registered currency processor of the effective date of its voluntary deregistration under this section. Deregistration by Bank 30. The Bank may propose to deregister a registered currency processor— (a) if the registered currency processor provided the Bank with false, misleading, inaccurate or incomplete information for the purpose of subsection 25(1); (b) if the registered currency processor has ceased from carrying on currency processing business; (c) if the registered currency processor commits a breach regardless no action has been taken in respect of the breach; (d) if the registered currency processor contravenes any provision of— (i) the Central Bank of Malaysia Act 2009; (ii) the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 [Act 613]; 20 Laws of Malaysia Act 827 (iii) the Money Services Business Act 2011 [Act 731]; (iv) the Financial Services Act 2013; or (v) the Islamic Financial Services Act 2013, regardless no prosecution or other action has been taken in respect of such contravention; (e) the director, chief executive officer or any person concerned with the operation or management of the registered currency processor is convicted of an offence under this Act or an offence involving fraud or dishonesty under any other written law; (f) the registered currency processor has been wound-up or otherwise dissolved; or (g) a receiver or manager of the property of the registered currency processor has been appointed. Opportunity to make representation for action under section 30 31. (1) Where the Bank proposes to deregister a registered currency processor under section 30, the Bank shall give the registered currency processor a notice setting out the proposed deregistration and the grounds for the proposed deregistration. (2) A registered currency processor who has received a notice under subsection (1) shall be given an opportunity to make a representation to the Bank within fourteen days from the date of the notice. (3) If at the end of the period set out in subsection (2)— (a) the Bank did not receive any representation, the Bank shall deregister the registered currency processor and give the registered currency processor a notice of the deregistration; or (b) the Bank receives a representation, the Bank shall, after considering the representation, give the registered currency processor a notice of its decision whether to proceed with the deregistration or otherwise. Currency 21 (4) A deregistration under subsection (3) shall take effect on the date as may be specified by the Bank in its notice under subsection (3). (5) Where the Bank decides under paragraph (3)(b) to not deregister the registered currency processor, the Bank may impose any requirements on the registered currency processor as the Bank deems fit. Effect of deregistration 32. (1) Where a registered currency processor voluntarily deregisters under section 29 or the Bank deregisters a registered currency processor under subsection 31(3), the registered currency processor shall immediately cease from carrying on currency processing business on the effective date of the deregistration. (2) A deregistration shall not affect any right, obligation or liability arising under, any agreement, arrangement or transaction entered into by the registered currency processor with any person prior to the deregistration. Division 2 Duties of registered currency processor Prudent and professional practice 33. (1) A registered currency processor and a financial institution carrying on currency processing activities shall manage its business, affairs and activities prudently, professionally and with integrity, accountability and transparency. (2) A registered currency processor and a financial institution carrying on currency processing activities shall comply and ensure that its internal policies and procedures are consistent with any standards specified by the Bank under section 61, including standards on prudential practice, integrity, professionalism and expertise in the conduct of its business, affairs and activities. 22 Laws of Malaysia Act 827 Duties of director and chief executive officer 34. Every director, chief executive officer or any person concerned with the operation or management of a registered currency processor or a financial institution carrying on currency processing activities shall ensure that the registered currency processor or the financial institution carrying on currency processing activities complies with this Act and any regulations, standards, specifications, directions or requirements made under this Act. Fees 35. (1) A registered currency processor shall pay any fees prescribed by the Minister under section 60. (2) No registered currency processor shall be entitled to a refund of any fees paid under subsection (1). (3) The Bank may sue any person to recover any unpaid fees under this Act as a civil debt due to the Government and the court may award the cost of recovering the unpaid fees to the Bank. Preservation of secrecy 36. (1) No person who is or was a director, chief executive officer, officer or employee of a registered currency processor shall disclose to any person, any information or document relating to the business or affairs of a customer of a registered currency processor unless approved by the Bank. (2) No person, who for any reason, has by any means access to any information or document relating to the business or affairs of a customer of a registered currency processor, shall disclose to any person, such information or document unless approved by the Bank. (3) Subsections (1) and (2) shall not apply to any disclosure— (a) made to the Bank relating to the performance of its duties or the carrying out of its functions under this Act; or (b) lawfully required by any court or any written law. Currency 23 (4) Any person who contravenes subsection (1) or (2) commits an offence and shall, on conviction, be liable to a fine not exceeding three million ringgit or imprisonment for a term not exceeding three years or to both. Detention of currency suspected to be counterfeit 37. The Bank, registered currency processor and financial institution shall detain any currency note or currency coin presented in any manner to the Bank, registered currency processor and financial institution which the Bank, registered currency processor and financial institution have reason to believe to be counterfeit. Bank, registered currency processor and financial institution to record personal information of person from whom currency is detained 38. (1) Upon detention of the currency note or currency coin under section 37, it shall be lawful for the Bank, registered currency processor and financial institution to record the personal information including the name, national registration identification number and address of the person from whom the currency note or currency coin is detained by the Bank, registered currency processor and financial institution, including— (a) the personal information of its legal or beneficial owner; and (b) the personal information of its carrier or any person having in his possession the detained currency note or currency coin prior to the detention. (2) The person from whom the currency note or currency coin is detained under section 37 shall provide the information required under subsection (1) to the Bank, registered currency processor and financial institution. (3) Any person who contravenes subsection (2) commits an offence and shall, on conviction, be liable to a fine not exceeding twenty thousand ringgit. 24 Laws of Malaysia Act 827 Currency to be surrendered and information to be furnished, to police 39. The Bank, registered currency processor and financial institution shall surrender any currency note or currency coin detained under section 37, and the Bank, registered currency processor and financial institution shall furnish the information recorded under subsection 38(1), to the police. Currency remains property of person from whom currency was detained if currency is genuine 40. (1) Any currency note or currency coin detained and surrendered to the police under section 39 shall remain as the property of the person from whom the currency note or currency coin is detained if the currency note or currency coin is discovered to be genuine. (2) No person shall be entitled to recover any compensation for any loss suffered by him due to the detention of currency note or currency coin under section 37. Submission of document or information 41. (1) A registered currency processor and a financial institution shall submit to the Bank, or to any person as the Bank may identify, any document or information in the manner and within the period as specified by the Bank. (2) The Bank may require any person to submit any document or information as specified by the Bank relating to— (a) a registered currency processor or its currency processing business; or (b) a financial institution or its currency processing activities. (3) Where any person is required to submit any document or information under subsection (1) or (2), the person shall submit document or information that is correct, accurate, complete and not misleading. (4) Any person who contravenes subsection (1), (2) or (3) commits an offence and shall, on conviction, be liable to a fine not exceeding fifty thousand ringgit. Currency 25 Division 3 Examination Power to examine 42. (1) The Bank may without any prior notice, examine any— (a) document, account or transaction; (b) computer, machinery, equipment or infrastructure; and (c) premises or office, relating to the currency processing business or currency processing activities of a registered currency processor or its agent. (2) For the purpose of subsection (1), the power to examine includes the power to— (a) test any computer, machinery, equipment and infrastructure; (b) make copy of or extract any document, account, computer output, transaction and output of any machinery, equipment and infrastructure; and (c) take photograph of any document, account, transaction, computer, machinery, equipment, infrastructure, premises and office. Examination of specific person 43. In carrying out an examination under section 42, the Bank may examine a person who is, or was at any time, a director, chief executive officer, officer, employee, or any person concerned with the operation or management, of the currency processing business or currency processing activities of a registered currency processor or its agent under the examination. Right of access and production of property, etc. 44. (1) Any person under an examination under section 42 or 43 shall— (a) allow access to any document, account, transaction, property, apparatus, equipment, machinery, computer, computer output, system, infrastructure, premises and office; and 26 Laws of Malaysia Act 827 (b) produce any document, account, transaction, property, apparatus, equipment, machinery, computer, computer output and system, to the Bank in the manner and within the time as specified by the Bank. (2) For the purpose of subsection (1), the person under an examination shall provide the Bank with the necessary key, password, encryption code, decryption code, software or hardware or any other means to enable the comprehension of any computer output, machinery, equipment or infrastructure. (3) Any person who contravenes subsection (1) or (2) commits an offence and shall, on conviction, be liable to a fine not exceeding one hundred thousand ringgit. Appearance before Bank 45. (1) A person to be examined under section 43 shall appear before the Bank at the time and place as may be specified by the Bank. (2) Any person who contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding one hundred thousand ringgit. Part V ENFORCEMENT Division 1 Actions by Bank Breach 46. A registered currency processor or a financial institution, or its director or chief executive officer, or any person concerned with its operation or management, commits a breach under this Act if the registered currency processor or financial institution, or its director or chief executive officer, or any person concerned with its operation or management, fails to comply with or give effect to— (a) any provision of this Act; or Currency 27 (b) any regulations, standards, specifications, directions or requirements made under this Act. Power to issue direction 47. (1) The Bank may, subject to sections 49 and 50, issue a direction under subsection (2) to a registered currency processor or a financial institution if the Bank thinks that— (a) it is necessary to do so as a result of any examination under this Act; or (b) the registered currency processor or the financial institution, or its director or chief executive officer, or any person concerned with its operation or management— (i) is carrying or has carried on currency processing business or currency processing activities in a manner detrimental to the interests of its customers or members of the public; or (ii) is committing or has committed or is likely to commit a breach. (2) For the purpose of subsection (1), the Bank may issue a direction to the registered currency processor or the financial institution relating to one or more of the following purposes: (a) to prohibit the registered currency processor or the financial institution from carrying on all or any part of its currency processing business or currency processing activities; (b) to prohibit the registered currency processor or the financial institution from doing or performing any act or function connected with all or any part of its currency processing business or currency processing activities; (c) to suspend its currency processing business or currency processing activities to any extent and for any period as the Bank deems fit; (d) to require the registered currency processor or financial institution to— (i) comply with or give effect to; or (ii) do or omit any act in order to ensure compliance with, 28 Laws of Malaysia Act 827 any provisions of, regulations, standards, specifications, directions or requirements made under, this Act; (e) to require the registered currency processor or financial institution to take any measure as the Bank may direct to mitigate the effect of a breach. Power to take administrative action 48. (1) Where the Bank thinks that a registered currency processor or a financial institution, or its director or chief executive officer, or any person concerned with its operation or management, has committed a breach and it is appropriate to take action against the person, the Bank may, subject to sections 49 and 50, take any one or more of the following actions: (a) reprimand the person in breach; (b) require the person in breach to issue a public statement in relation to such breach, if the Bank thinks that such breach is relevant for the information of members of the public; (c) where the breach is not an offence under this Act or any regulations made under this Act, impose a monetary penalty, in any amount as the Bank deems fit, but shall not exceed, relating to every breach— (i) in the case of a body, incorporated or unincorporated, one hundred thousand ringgit; or (ii) in the case of a natural person, twenty thousand ringgit. (2) Where a breach was committed by a body, incorporated or unincorporated, the Bank may take any action under subsection (1) against a person who is or was its director or chief executive officer, or any person concerned with its operation or management, at the time of the commission of the breach, unless that person demonstrates that the breach was committed without his consent or connivance and that he exercised due diligence to prevent the breach as he ought to have exercised, having regard to the nature of his function in that capacity and to the circumstances. (3) Where a breach was committed by a person who is a director or chief executive officer, or any person concerned with the operation or management, of a registered currency processor Currency 29 or a financial institution during the course of his employment, the Bank may take any action under subsection (1) against the registered currency processor or financial institution. (4) Where a person fails to pay a monetary penalty imposed by the Bank under paragraph (1)(c) within the period specified by the Bank, the Bank may sue and recover the monetary penalty as a civil debt due to the Government and the court may award the cost of recovering the unpaid monetary penalty to the Bank. Appropriateness of action 49. In determining the appropriate action to be taken by the Bank against a person under section 47 or 48, the Bank shall take into consideration the following matters: (a) the effectiveness of the action to be taken; (b) the proportionality of the action to be taken with the findings of an examination or breach committed; (c) deterrence of future breach of similar nature by a registered currency processor, a financial institution or other person; and (d) any other matters as the Bank deems fit. Opportunity to make representation for action under section 47 or 48 50. (1) Where the Bank proposes to take any action against a person under section 47 or 48, the Bank shall provide to the person a notice setting out the proposed action and the grounds for the proposed action. (2) Any person who has received a notice under subsection (1) shall be given an opportunity to make a representation to the Bank within fourteen days from the date of the notice. (3) If at the end of the period set out in subsection (2)— (a) the Bank did not receive any representation, the Bank shall proceed with the proposed action; or 30 Laws of Malaysia Act 827 (b) the Bank receives a representation, the Bank shall, after considering the representation, decide whether to— (i) proceed with the proposed action; (ii) modify the proposed action; or (iii) take no further action, and shall inform its decision to the person by a notice. (4) If the Bank decides to modify the proposed action under subparagraph (3)(b)(ii), the Bank shall provide an additional notice and an opportunity to the person to make a representation. (5) The decision of the Bank under paragraph (3)(b) shall take effect at any date as specified by the Bank in its notice. Appeal against monetary penalty 51. (1) Any person who is aggrieved by a decision of the Bank under subsection 50(3) in respect of an action taken under paragraph 48(1)(c) may, within twenty one days after the person has been notified of the decision of the Bank, make an appeal by filing a notice to the Monetary Penalty Review Committee. (2) The decision of the Bank under subsection 50(3) in respect of an action taken under paragraph 48(1)(c) shall not take effect until the appeal is disposed of. (3) The Monetary Penalty Review Committee may decide to confirm the decision of the Bank or require the Bank to reconsider and reach a decision in accordance with the findings of the Committee. Division 2 Criminal action Offence by person acting in official capacity 52. (1) Where an offence is committed by a body, incorporated or unincorporated, a person who is its director or chief executive officer, or any person concerned with its operation or management, at the time of the commission of the offence is deemed to have Currency 31 committed that offence unless that person proves that the offence was committed without his consent or connivance and that he exercised diligence to prevent the commission of the offence as he ought to have exercised, having regard to the nature of his function in that capacity and to the circumstances. (2) A natural person may be prosecuted for an offence under subsection (1) notwithstanding— (a) that no prosecution has been instituted against the body, incorporated or unincorporated; or (b) that the body, incorporated or unincorporated has not been convicted of the offence. (3) Subsection (1) shall not affect the criminal liability of the body, incorporated or unincorporated for the offence referred to in that subsection. Offence by employee or officer or agent 53. (1) Where an offence is committed by— (a) an employee or officer in the course of his employment; or (b) an agent while acting within its authority as an agent, the employer or the principal of the person, as the case may be, at the time of the commission of the offence, is deemed to have committed that offence and be liable to the same penalty for the offence committed by the employee or officer or agent. (2) Nothing under subsection (1) shall absolve an employee or officer or agent from any liability for an offence. Attempt, abetment and conspiracy 54. (1) Any person who— (a) attempts to commit an offence under this Act; (b) does an act preparatory to, or in furtherance of, the commission of an offence under this Act; or (c) abets or is engaged in a criminal conspiracy to commit an offence under this Act, 32 Laws of Malaysia Act 827 whether or not the offence is committed in consequence of it, commits an offence and is liable to the same penalty for that offence. (2) For the purpose of subsection (1)— (a) “criminal conspiracy” has the same meaning assigned to it in section 120a of the Penal Code [Act 574]; (b) “abet” has the same meaning assigned to it in section 107 of the Penal Code; and (c) where different punishment is provided for a natural person and for a body, incorporated or unincorporated, the person committing an offence shall be liable to the punishment provided for a natural person if he is a natural person or shall be liable to the punishment provided for a body, incorporated or unincorporated if it is a body, incorporated or unincorporated. Seizable offence 55. Every offence punishable under this Act shall be a seizable offence and a police officer not below the rank of Inspector may arrest without warrant any person whom he reasonably suspects to have committed or is committing the offence. Joinder of offences 56. Notwithstanding anything contained in any other written law, where a person is accused of more than one offence under this Act, he may be charged with and tried at one trial for any number of the offences committed within any length of time. Compounding of offences 57. (1) The Minister may, on the recommendation of the Bank, with the approval of the Public Prosecutor, make regulations prescribing— (a) any offence under this Act or any regulations made under this Act as an offence which may be compounded; Currency 33 (b) the criteria for compounding such offence; and (c) the method and procedure for compounding such offence. (2) The Governor may, with the consent of the Public Prosecutor, at any time before a prosecution is instituted, compound any offence which may be compounded by making an offer to the person reasonably suspected of having committed the offence upon payment to the Governor a sum of money not exceeding the amount of the maximum fine to which the person would have been liable to if he had been convicted of the offence, within such time as may be specified in the offer. (3) An offer under subsection (2) may be made at any time after the offence has been committed but before any prosecution for it has been instituted, and where the amount specified in the offer is not paid within the time specified in the offer, or such extended time as the Governor may grant, prosecution for the offence may be instituted at any time after that against the person to whom the offer was made. (4) Where an offence has been compounded under subsection (1), no prosecution shall be instituted in respect of the offence against the person to whom the offer to compound was made, and any document or thing seized in connection with the offence may be released by the Bank, subject to such terms as the Bank thinks fit. Prosecution 58. No prosecution for an offence under this Act shall be instituted except by or with the written consent of the Public Prosecutor. Part VI GENERAL Monies received by Bank 59. Without prejudice to subsections 11(2), 35(3) and 48(4), all monies received by the Bank or the Governor pursuant to this Act shall be paid into the Consolidated Fund including any— (a) fees paid by a person under section 25 or 35; 34 Laws of Malaysia Act 827 (b) monetary penalty paid under section 48; and (c) compound paid under section 57. Power to make regulations 60. (1) The Minister may, on the recommendation of the Bank, make regulations as may be necessary or expedient for the purpose of carrying into effect the provisions of this Act. (2) Without prejudice to the generality of subsection (1), regulations may be made to provide— (a) for fees payable to the Bank in respect of any matter under this Act; (b) for the registration of a registered currency processor; and (c) for any other matters relating to currency. (3) Any regulations made under this section may prescribe an act or omission in contravention of the regulations to be an offence and may prescribe penalties of a fine not exceeding fifty thousand ringgit or to imprisonment for a term not exceeding one year or to both for such offence. (4) Regulations made under this section may relate to all or any class, category or description of persons, and the Minister, on the recommendation of the Bank, may make different provisions for different classes, categories or descriptions of persons. Power to issue standards 61. The Bank may issue standards as the Bank deems fit, generally in respect of this Act, or in respect of any particular provision of this Act, or generally in respect of the conduct of a registered currency processor or a financial institution carrying on currency processing activities— (a) for the purpose of giving effect to its object and carrying out its function or conducting its business or affair; (b) for the purpose of giving full effect to any provision of this Act; or Currency 35 (c) for the further, better or more convenient implementation of the provisions of this Act. Power to issue guidelines 62. The Bank may issue guidelines to any person or to any class, category or description of persons consisting of any information, advice or recommendation as the Bank deems fit— (a) relating to the provisions of this Act; (b) for the purpose of carrying out or achieving the regulatory objective of this Act; or (c) relating to any other matters which the Bank thinks is desirable to give information, advice or recommendation. Provision relating to approval, standards, specifications, notice, requirements, directions, order or guidelines 63. (1) Any approval granted, or standards, specifications, notice, requirements, directions, order or guidelines made under this Act— (a) may be either general or specific; and (b) may be amended or revoked by the Bank. (2) Any standards, specifications, notice, requirements, directions, order or guidelines made under this Act may provide differently for different persons or different classes, categories or descriptions of persons. (3) Any approval granted, or standards, specifications, notice, requirements, directions, order or guidelines made under this Act shall be issued or communicated in such manner as the Bank deems fit. Publication of enforcement action 64. The Bank may, where appropriate, publish in such form and manner as the Banks deems fit, any information in relation to any action taken by the Bank or otherwise under Part V, and the outcome of the action. 36 Laws of Malaysia Act 827 Amendment of Schedules 65. The Minister may, on the recommendation of the Bank, by an order published in the Gazette, amend the First Schedule and Second Schedule to this Act. Protection against suits and legal proceedings 66. No action, suit, prosecution or other proceedings shall lie or be brought, instituted, or maintained in any court or before any other authority against— (a) the Minister; (b) the Bank; (c) the Governor; (d) any member of the Monetary Penalty Review Committee; (e) any director, officer or employee of the Bank; or (f) any person acting on behalf of the Bank, for or on account of, or in respect of, any act, statement or omission made or omitted, or purporting to be made or omitted, in pursuance of or in execution of, or intended pursuance of or execution of, this Act, or any approval, directions, prescriptions, specifications, standards, requirements, order, guidelines and regulations made under this Act if the act, statement or omission made or omitted, or purporting to be made or omitted, in pursuance of or in execution of, or intended pursuance of or execution of, this Act, or the approval, directions, prescriptions, specifications, standards, requirements, order, guidelines and regulations made under this Act is made or omitted in good faith. Application of section 77 of Central Bank of Malaysia Act 2009, Division 2 of Part XIV of Financial Services Act 2013 and Division 2 of Part XV of the Islamic Financial Services Act 2013 67. (1) Nothing contained in this Act shall in any manner affect or derogate from the provisions of section 77 of the Central Bank of Malaysia Act 2009, Division 2 of Part XIV of the Financial Services Act 2013 and Division 2 of Part XV of the Islamic Financial Services Act 2013. Currency 37 (2) This Act shall be read subject to the provisions of section 77 of the Central Bank of Malaysia Act 2009, Division 2 of Part XIV of the Financial Services Act 2013 and Division 2 of Part XV of the Islamic Financial Services Act 2013 and in the event of any conflict between this Act and the provisions, the provisions shall prevail. (3) Nothing in this Act shall be considered as an approval for the purpose of Division 2 of Part XIV of the Financial Services Act 2013 and Division 2 of Part XV of the Islamic Financial Services Act 2013. Exemption 68. The Minister may, on the recommendation of the Bank, by an order published in the Gazette, exempt any person or any class, category or description of persons, from all or any provisions of this Act for any period and subject to any conditions as the Minister may prescribe in the order. Part VII SAVING AND TRANSITIONAL Saving 69. Any— (a) approval or determination made by the Minister under section 23 of the Central Bank of Malaysia Act 1958 [Act 519] shall be deemed as approval of the Minister under section 9; and (b) permission given by the Bank under section 27a of the Central Bank of Malaysia Act 1958 shall be deemed as approval granted by the Bank under subsection 19(1), and shall continue to remain in full force and effect in relation to the person to whom the approval or determination or permission applies until the approval or determination or permission is amended or revoked. 38 Laws of Malaysia Act 827 Transitional 70. (1) Any person who has been carrying on currency processing business prior to the appointed date under subsection 1(2) may continue to do so as if this Act had not been enacted for a period of six months from the appointed date or any other period as specified by the Bank, which shall be referred to as the “grace period”. (2) If the person referred to in subsection (1) intends to continue to carry on the currency processing business after the expiry of the grace period, the person shall make an application to be registered as a registered currency processor under section 25 within the grace period. (3) Where a person referred to in paragraph (1) has been registered as a registered currency processor by the Bank, the registered currency processor shall be given an additional grace period of six months from the expiry of the grace period to fully comply with the provisions in Division 2 of Part IV and any non-compliance after the expiry of the additional grace period shall be subject to actions provided in the relevant provisions. (4) Where a person has not applied to be registered as a registered currency processor or has his application for registration rejected on the expiry of the grace period, the person shall immediately cease from carrying on currency processing business on the expiry date of the grace period. (5) The grace period under subsection (1) shall expire in the case where the person has applied to be registered as a registered currency processor— (a) on the date the application for registration as a registered currency processor is accepted by the Bank and a notification under section 26 is issued; or (b) on the date of service of a notice under section 27 stating that the application for registration is refused by the Bank. Currency 39 First schedule [Section 3] PERSON DECLARED AS FINANCIAL INSTITUTION 1. Licensees under the Money Services Business Act 2011 are declared as financial institutions for the purpose of sections 22, 33, 34, 37, 38, 39, 41, 42, 43, 44 and 45 and Division 1 of Part V. second schedule [Subsections 10(2) and 21(1)] LEGAL TENDER LIMIT 1. Currency coin shall be legal tender for the payment of any amount up to the aggregate value of twenty-five pieces of currency coin in any single payment. LIMITATION ON CASH TRANSACTION Nil. 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). DICETAK OLEH PERCETAKAN NASIONAL MALAYSIA BERHAD, KUALA LUMPUR BAGI PIHAK DAN DENGAN PERINTAH KERAJAAN MALAYSIA

Public Notice

11 Mar 2022

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-20220311-en

Reading: Financial Consumer Alert update Share: 467 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1100 on Friday, 11 March 2022 11 Mar 2022 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list: 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 The list will be updated regularly for public's reference. To view the updated list, click on this link. Bank Negara Malaysia 11 March 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

14 Feb 2022

Online Ordering and Payment Facility for Labuan Financial Services Authority 25th Anniversary Commemorative Currency

https://www.bnm.gov.my/-/ordering-coins-lfsa25

Reading: Online Ordering and Payment Facility for Labuan Financial Services Authority 25th Anniversary Commemorative Currency Share: Online Ordering and Payment Facility for Labuan Financial Services Authority 25th Anniversary Commemorative Currency Embargo : For immediate release Not for publication or broadcast before 1100 on Monday, 14 February 2022 14 Feb 2022 Bank Negara Malaysia wishes to announce the availability of the online ordering, payment and delivery facility for the sale of commemorative coins issued in conjunction with the 25th Anniversary of Labuan Financial Services Authority (LFSA25). Members of the public can place their orders at https://duit.bnm.gov.my from Monday, 14 February 2022 (10.00 a.m.) to Friday, 25 February 2022 (11.00 p.m.). Members of the public are advised to place their orders through the Bank Negara Malaysia online system and not with any other party or unauthorised ordering facility. All orders received during the ordering period will be treated equally. In the event of an oversubscription, balloting will be conducted. For further information on how to make payment, announcement of successful purchase and delivery, please visit the ordering website as mentioned above. Bank Negara Malaysia 14 February 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

11 Feb 2022

Ruling of the BNM Shariah Advisory Council at its 218th Meeting

https://www.bnm.gov.my/-/bnm-sac-218th-mtg-ruling

https://www.bnm.gov.my/documents/20124/6123519/218th_SAC_Meeting_MYOR-i_en_v2.pdf

Reading: Ruling of the BNM Shariah Advisory Council at its 218th Meeting Share: 5 Ruling of the BNM Shariah Advisory Council at its 218th Meeting Embargo : For immediate release Not for publication or broadcast before 2305 on Friday, 11 February 2022 11 Feb 2022 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 218th meeting on 28 October 2021 made a ruling in respect of the New Islamic Reference Rate i.e Malaysia Islamic Overnight Rate (MYOR-i). The SAC ruling aims to clarify the Shariah status of the calculation methodology for MYOR-i in normal and contingency situations. This ruling is effective in accordance with the MYOR-i guidelines to be issued by the Bank. Please refer to the attachment for more information Bank Negara Malaysia 11 February 2022 © Bank Negara Malaysia, 2022. All rights reserved.

R A K A N K E W A N G A N A N D A B I L . 1/2021 Perlindungan bagi Pemegang Sijil Takaful dan Polisi Insurans Kesihatan Kewangan Pekerja Gig Pendidikan Kewangan Melalui Lensa Anak Muda Sila imbas kod QR untuk muat turun Buletin Ringgit PERCUMA | PP 16897/05/2013 (032581) Pendidikan Kewangan Dalam Sistem Persekolahan Menyemai Nilai Murni Sejak Usia Muda Layari /amaranpenipuan https://www.bnm.gov.my/ http://www.fomca.org.my/v1/ https://www.facebook.com/amaranpenipuan/ Sesi persekolahan 2021 yang akan bermula tidak lama lagi sememangnya amat dinanti oleh semua. Masyarakat amat mengharapkan agar sesi persekolahan dapat berjalan dengan lancar pada tahun ini demi kesinambungan pendidikan generasi muda kita dalam membangunkan sahsiah mahupun untuk menyemai nilai murni dalam diri murid- murid. Antara nilai yang diketengahkan oleh Kementerian Pendidikan Malaysia termasuklah sederhana dalam berbelanja, jimat cermat, bijak buat keputusan, amanah, jujur, bertanggungjawab, rasional dan bersyukur. Nilai murni yang dipupuk akan seterusnya menjelmakan sikap yang baik dalam generasi akan datang. Antara wadah yang diguna pakai untuk memupuk nilai-nilai murni ini termasuklah melalui penerapan elemen celik kewangan dalam kurikulum sekolah. Bagi tujuan ini, murid- murid sekolah mula didedahkan dengan kemahiran dan ilmu yang berkaitan pendidikan kewangan seawal peringkat pra-sekolah, sekolah rendah sehingga sekolah menengah, di antara usia 5 hingga 17 tahun. Pendedahan pada usia sebegini adalah amat bertepatan dan tidaklah terlalu awal. Berdasarkan kajian yang dijalankan oleh Universiti Putra Malaysia1, kanak-kanak di Malaysia didapati telahpun menjalankan transaksi kewangan secara aktif pada usia 10 tahun. Antaranya, mereka telah menguruskan wang saku yang diberikan oleh ibu bapa dan mula membentuk tabiat kewangan seperti menyimpan dan berbelanja. Kanak-kanak ini juga mempunyai kesedaran tentang tabiat pengurusan kewangan ibu bapa mereka dan menyatakan ibu bapa mereka sebagai pengaruh utama dalam tabiat perbelanjaan mereka. Oleh itu, usaha oleh Kementerian Pendidikan Malaysia ini sememangnya amat bertepatan dan diharapkan akan dapat melahirkan masyarakat yang celik wang dan bijak dalam mengurus kewangan dengan bertanggungjawab. Usaha ini telah dijalankan secara sistematik dengan mengintegrasikan elemen pendidikan kewangan dalam Pendidikan Kewangan Dalam Sistem Persekolahan Menyemai Nilai Murni Sejak Usia Muda kurikulum persekolahan secara berperingkat sejak 2014. Proses ini lengkap sepenuhnya dengan pengenalan elemen kewangan dalam mata pelajaran baru tingkatan lima yang diperkenalkan pada tahun ini. Melalui kurikulum yang dibangunkan, pendidikan kewangan dilaksanakan semasa proses pengajaran dan pembelajaran merentasi tema, mahupun bidang atau tajuk yang bersesuaian dalam sesuatu mata pelajaran. Murid-murid didedahkan kepada elemen ini melalui mata pelajaran teras seperti Bahasa Melayu, Bahasa Inggeris, Matematik, Pendidikan Islam, Pendidikan Moral dan juga mata pelajaran elektif seperti Sains Rumah Tangga, Ekonomi, Perniagaan dan Prinsip Perakaunan. Pendedahan ini dapat mendidik murid tentang pengurusan kewangan peribadi seharian secara berhemat seperti berbelanja, menyimpan, meminjam, melabur dan dalam menguruskan risiko kewangan. Seterusnya, pengetahuan dan kemahiran pendidikan kewangan yang dipelajari di dalam bilik darjah ini diperkasakan pula melalui aktiviti ko-kurikulum. Kementerian Pendidikan Malaysia juga telah menjalankan pelbagai aktiviti dan inisiatif pendidikan kewangan yang melibatkan warga Kementerian Pendidikan Malaysia di peringkat pusat, negeri, daerah dan juga sekolah. Ini termasuklah penganjuran ceramah simpanan dan pelaburan, pertandingan pidato pelaburan, kuiz celik kewangan, ceramah pengurusan kewangan, pertandingan menulis esei, membina infografik dan aplikasi bertemakan pendidikan kewangan serta penyiaran Wacana Ilmu: Pengintegrasian Elemen Pendidikan Kewangan dalam Kurikulum Persekolahan. Sektor swasta, terutamanya penyedia perkhidmatan kewangan, juga menjalin kerjasama dengan pihak sekolah bagi memperkukuhkan ilmu pengetahuan, kemahiran dan keyakinan yang mantap dalam pengurusan kewangan peribadi murid. Aktiviti bertemakan pengurusan kewangan seperti ceramah berkaitan simpanan dan asas pengurusan kewangan, kuiz pendidikan kewangan, pertandingan melukis 1 Literasi, sosialisasi, tingkah laku dan kompetensi kewangan dalam kalangan kanak-kanak, Jurnal Pengguna Malaysia, Disember 2013. 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Maizatul Aqira Ishak Baskaran Sithamparam Nur Asyikin Aminuddin Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : [email protected] Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : [email protected] Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. komik pendidikan kewangan, aktiviti membuat tabung serta permainan interaktif pendidikan kewangan telah dijalankan secara bersemuka, mahupun atas talian. Pendekatan sebegini dapat mengukuhkan lagi penguasaan pengetahuan dan kemahiran kewangan yang dipelajari oleh murid sehingga berjaya mengubah tingkah laku mereka semasa melaksanakan aktiviti secara hands-on. Pembelajaran ilmu pendidikan kewangan merupakan proses yang berterusan dan tidak terhenti di sekolah sahaja, malahan perlu diteruskan di luar sekolah. Ibu bapa dan masyarakat umumnya disarankan agar dapat memainkan peranan masing- masing dalam menyokong usaha meningkatkan pengetahuan, kemahiran dan nilai dalam kalangan generasi muda. Ibu bapa dan masyarakat merupakan model kepada generasi muda dalam membentuk tabiat kewangan mereka. Oleh itu, mereka haruslah peka dengan inisiatif yang telah dilaksanakan ini dan memainkan peranan bagi memastikan pendidikan kewangan dapat diterapkan dalam generasi muda secara efektif. Janganlah mengambil sikap lepas tangan kepada pihak sekolah serta memandang enteng bahawa anak anda masih kecil dan tidak akan terkesan dengan tindak tanduk kewangan anda. Malahan, kajian Universiti Putra Malaysia juga mendapati kanak-kanak seringkali memperoleh maklumat tentang kewangan menerusi pemerhatian dan penglibatan secara tidak langsung dalam aktiviti seharian bersama keluarga. Sehubungan itu, ibu bapa perlu menunjukkan contoh yang baik kepada anak-anak dalam tabiat pengurusan kewangan termasuklah semasa membuat keputusan dalam pembelian mahupun transaksi pembayaran. FOMCA berpendapat bahawa pengetahuan tentang kewangan adalah aspek yang amat penting bagi pendidikan untuk generasi muda, terutamanya dalam fasa pembentukan diri mereka. Pendekatan pendidikan kewangan secara terancang dalam sistem pendidikan di Malaysia adalah satu usaha jangka panjang yang dapat menyemai nilai murni berkaitan pengurusan kewangan dalam diri. Pembelajaran tentang cara menyimpan, berbelanja dan hal-hal lain yang berkaitan dengan pengurusan kewangan dapat membantu mereka sebagai persiapan untuk menguruskan kewangan dengan lebih baik apabila dewasa kelak. Malahan, pendekatan ini juga membantu mereka untuk mendapatkan pendidikan dan mengamalkan tabiat kewangan yang lebih baik untuk mencapai matlamat kehidupan mereka pada masa hadapan. Oleh itu, FOMCA menyeru agar masyarakat Malaysia, terutamanya ibu bapa, dapat memberi sokongan kepada usaha ini demi membina masyarakat Malaysia yang celik kewangan dan mengamalkan tingkah laku kewangan yang sihat pada masa hadapan. Sumber: Kementerian Pendidikan Malaysia Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Buletin Ringgit. bil. 1/2021 | 3 Pengalaman mengajar di sekolah berkeperluan tinggi di seluruh Malaysia yang kebanyakan murid-muridnya daripada golongan berpendapatan rendah telah membuka mata empat orang guru muda untuk memperbaiki taraf kehidupan anak murid mereka. Impian tersebut telah mendorong guru-guru ini untuk menjalankan inisiatif bagi membina generasi celik kewangan. Tahap literasi kewangan seseorang individu akan memberi impak ke atas taraf kehidupan bukan sahaja pada murid itu sendiri, tetapi juga ahli keluarganya dalam jangka panjang. Dengan kesedaran ini, pada tahun 2019, sebuah program literasi kewangan Fun(d) for Life, yang berdasarkan konsep permainan simulasi kehidupan sebenar mula diperkenalkan. Di dalam program simulasi ini, para peserta berpeluang untuk mencuba membuat keputusan kewangan dalam kehidupan sebenar seperti: memilih pekerjaan, kawasan tempat tinggal, jenis kenderaan dan gaya hidup. Tidak ketinggalan, para peserta juga perlu mengambil kira faktor lain seperti bilangan anak, kos sara hidup anak, perlindungan takaful dan pelaburan simpanan yang mereka inginkan serta cabaran hidup seperti kemalangan, jatuh sakit atau kematian. Lebih kurang 100 orang peserta di kalangan murid sekolah rendah dan sekolah menengah seluruh Malaysia telah melalui simulasi permainan ini di mana mereka dapat merasai sendiri kesan pilihan mereka di sepanjang permainan ini. Pilihan yang dibuat di awal usia memungkinkan peserta melalui kehidupan yang selesa dengan keadaan tahap kewangan yang mampu untuk menampung kehendak hidup mereka di kemudian hari ataupun mereka mungkin jatuh bankrap dan diselubungi hutang. Setelah tamatnya simulasi permainan Fun(d) for Life ini, sahutan gembira bersilang kesalan sedih dapat dilihat di kalangan para peserta. Peserta juga dapat memahami “Alangkah seronoknya kalau kita diajar kemahiran kewangan sejak dari kecil lagi dalam satu pendekatan yang menarik sehingga dapat mempengaruhi tabiat pengurusan kewangan apabila dewasa kelak” Pendidikan Kewangan Melalui Lensa Anak Muda 4 | RINGGIT Tips! 1 Dapat mengenali dan mengira mata wang Malaysia. 2 Dapat membezakan antara keperluan dan kehendak. 3 Menyedari manfaat mempunyai wang simpanan. Lakukan aktiviti bersama yang ringkas dan seronok. Fokuskan didikan kewangan melalui visual atau aktiviti. Kurangkan terlalu banyak mengajar melalui kata-kata. Kemahiran Utama Yang Perlu Dipupuk Di Usia Ini Aktiviti Mudah Gunakan aktiviti “Kenali Duit Malaysia” kami sebagai inspirasi. Ajar beza semua jenis wang kertas & syiling Malaysia1 Terangkan apa yang perlu anda lakukan apabila tiba di kaunter pembayaran. Sebaiknya, gunakan wang tunai dan bukannya kad kredit atau debit supaya mereka boleh mengenali nilai wang. Libatkan anak anda semasa membeli barang keperluan1 Beri peluang anak anda memilih sesuatu barangan yang tidak bernilai tinggi di kedai atau restoran. Minta mereka membuat bayaran untuk barangan tersebut menggunakan wang kecil (RM1-RM5). Latih anak anda membeli barangan di kedai atau restoran 2 Pilih mainan di sekitar rumah anda dan letak “tanda harga” di atasnya. Ambil giliran untuk menjadi “pemilik kedai” atau “pelanggan”. Beri peluang untuk mereka berlatih membuat pengiraan harga yang betul sama ada sebagai pemilik kedai atau pelanggan. Bermain “Pasaraya Mama & Anak”3 Kanak-kanak di usia ini lebih senang mengikut apa yang kita lakukan berbanding dengan apa yang kita katakan. Mulakan tabung simpanan lutsinar untuk diri anda sendiri 4 Tonton video ini bersama-sama di Portal Fun(d) for Life (Kategori Murid > 7-9 tahun). Kongsikan apakah antara keperluan dan kehendak bagi diri anda sendiri. Tonton video “Perbezaan Keperluan & Kehendak"5 Galakkan anak anda menyimpan baki daripada wang saku harian atau duit raya. Gunakan tabung lutsinar untuk membantu melihat pertambahannya supaya dapat membakar semangat menabung anak anda. Galakkan tabiat menabung2 Pilih 10 barang sedia ada yang ada di dalam rumah. Minta anak anda untuk bahagikan barang-barang tersebut kepada kategori keperluan dan kehendak dan bincangkan pilihannya. Ajar beza antara keperluan & kehendak3 Ada Masa Ekstra? 2 + 9 = 11 abah adik www.fundfor.life Untuk mendapatkan lebih banyak tips & aktiviti kewangan menarik sesuai untuk mereka yang berusia 7 -18 tahun, layari: IbuBapa untuk Jika Anak Anda Berusia kepentingan literasi kewangan dan perlindungan takaful dalam membuat keputusan hidup. Ini telah membuktikan betapa berkesannya sebuah program literasi kewangan yang dapat mendidik peserta melalui cara yang interaktif dan seronok dengan keperluan pembelajaran di usia ini. Ekoran itu, sejak awal tahun 2020, program Fun(d) for Life kini telah dikembangkan lagi melalui www.fundfor.life, selaras dengan objektif program untuk membina generasi celik kewangan. Melalui program ini, faktor pengaruh luaran seperti ibu bapa dan guru juga diambil kira, di samping menyediakan kandungan secara langsung untuk murid berusia 7 hingga 18 tahun. Kandungan portal dibahagikan berdasarkan umur bagi menyampaikan maklumat kewangan yang bersesuaian dalam kategori Tonton, Main, Belajar dan Buat. Kategori Tonton menyediakan video seperti ‘Bezakan Keperluan & Kehendak’, manakala kategori Main menyediakan permainan seperti ‘Pak Pandir di Bandar’ atau ‘Simbol Mata Wang’. Selain itu, murid juga boleh Belajar melalui maklumat berbentuk infografik seperti ‘Gol-Gol Kewangan’ dan membuat aktiviti secara langsung melalui kategori Buat menggunakan panduan seperti ‘Mempelajari Cara Menggunakan Perkhidmatan Dalam Talian dengan Selamat’. Portal ini juga menyediakan komik berunsur kewangan yang menyelitkan kisah yang mencuit hati sambil mencapai objektif dalam memberi pendidikan kewangan. Sebuah siri video “Kecil-Kecil, Celik Duit” turut membincangkan topik dan persoalan duit daripada perspektif anak-anak muda dalam cara yang santai. Selain kandungan secara langsung untuk anak muda, portal ini menyediakan panduan aktiviti, tips dan kemahiran yang wajar diambil kira oleh ibu bapa mengikut usia anak mereka. Antara tip penting yang dikongsikan termasuklah memberikan peluang pada anak muda untuk melakukan urusniaga mudah sendiri di kedai seawal 7 tahun dan memperkasakan kemahiran hidup seperti kemahiran memasak, menjual dan menguruskan sesuatu. Kemahiran sebegini penting untuk menjadi asas dalam membina literasi kewangan di masa hadapan, selain mampu membantu anak-anak membina hobi yang produktif dan mungkin dapat menjana pendapatan kelak. Selain ibu bapa, guru juga merupakan pengaruh kuat kepada murid di usia ini. Selaras dengan Panduan Pelaksanaan Pendidikan Kewangan yang disediakan oleh Kementerian Pendidikan Malaysia, portal Fun(d) for Life juga menyediakan pelan pengajaran dan aktiviti berdasarkan enam elemen celik kewangan yang merentas empat mata pelajaran bagi sekolah rendah dan sekolah menengah: Bahasa Melayu, Matematik, Pendidikan Islam dan Pendidikan Moral. Dengan pendekatan interaktif, mudah dibaca dan diakses, program ini diharap dapat membantu membina generasi celik kewangan. Usaha ini juga memerlukan sokongan daripada pelbagai pihak, untuk mendidik anak-anak muda secara berterusan dengan topik pengurusan kewangan. Sumber: www.fundfor.life “Lebih kurang 100 orang peserta di kalangan murid sekolah rendah dan sekolah menengah seluruh Malaysia telah melalui simulasi permainan ini ...” bil. 1/2021 | 5 Seiring dengan transformasi teknologi yang pantas, peluang pekerjaan dalam sektor ekonomi gig mengalami pertumbuhan pesat dewasa ini. Malaysia yang sedang giat membangunkan ekonomi digital tidak terkecuali daripada perubahan drastik landskap ekonomi tersebut. Menurut laporan Kumpulan Wang Simpanan Pekerja, ekonomi gig berkembang 31% pada tahun 2017, mengalahkan tenaga kerja konvensional. Data Pertubuhan Buruh Antarabangsa (International Labour Organization) juga menunjukkan bahawa penduduk yang bekerja sendiri merangkumi 25% daripada 15 juta tenaga kerja di Malaysia pada tahun 2020, bersamaan dengan hampir empat juta orang. Pekerja gig adalah sebahagian daripada mereka yang dikategorikan sebagai bekerja sendiri. Memandangkan pertumbuhan yang pesat ini, Rancangan Malaysia ke-12 (2021-2025) akan memberi tumpuan khas kepada ekonomi gig sebagai salah satu teras utama ekonomi negara. Ekonomi gig didefinisikan sebagai sebuah model ekonomi berasaskan permintaan dan penawaran perkhidmatan jangka masa pendek atau berdasarkan tugasan, dengan dipacu aplikasi teknologi. Berbeza dengan pekerjaan konvensional yang tertakluk kepada kontrak pekerjaan jangka sederhana/ panjang, penjanaan pendapatan dalam sektor ekonomi gig adalah melalui kerja yang dapat diselesaikan dalam jangka pendek dan dengan kontrak kerja yang bersifat sementara serta terhad. Di samping itu, pekerja gig menikmati kebebasan untuk mengatur jadual kerja dan memilih pelanggan atau kerja, berbeza dengan pekerja konvensional yang mempunyai skop kerja dan jadual kerja yang tetap. Contoh pekerja gig termasuklah pemandu Grab yang menghantar pelanggan ke destinasi pilihan, rakan kerja foodpanda yang menghantar makanan kepada pelanggan, pemberi khidmat pembersihan yang diupah melalui aplikasi mudah alih untuk membersihkan rumah dan pengasuh kanak-kanak yang dipilih melalui aplikasi yang memadankan pengasuh dengan ibu bapa. Perkembangan ekonomi gig telah membuka peluang kepada orang ramai untuk menjana pendapatan di samping menikmati keanjalan waktu pekerjaan. Sifat ekonomi gig yang inklusif juga membolehkan penyertaan kumpulan yang mungkin dipinggirkan daripada bekerja dalam sektor ekonomi konvensional seperti wanita, belia, dan warga emas. Selain penjanaan peluang pekerjaan, perkembangan ekonomi gig turut mendatangkan impak positif terhadap pelbagai aspek kehidupan seharian kita, daripada pengangkutan dan santapan sehinggalah kepada urusan membeli barangan keperluan. Kesihatan Kewangan Pekerja Gig 6 | RINGGIT Kesihatan Kewangan Pekerja Gig Memandangkan pentingnya sektor ekonomi gig dalam m e m a c u p e r t u m b u h a n ekonomi negara, Kumpulan Wang Pembangunan Modal Pertubuhan Bangsa-Bangsa Bersatu (United Nations Capital Development Fund, UNCDF) telah menjalankan Tinjauan Kesihatan Kewangan Pekerja Gig2 yang meliputi empat platform gig di Malaysia (GoGet, FastJobs, Grab, dan foodpanda) pada Mac hingga Ogos 2020 untuk meneliti aspirasi dan kesihatan kewangan pekerja gig. Secara spesifik, kajian tersebut bertujuan untuk menilai tahap keselamatan dan daya tahan kewangan serta kemampuan menikmati kebebasan kewangan di kalangan pekerja gig. D a p a t a n k a j i a n U N C D F menunjukkan bahawa waktu kerja yang fleksibel, autonomi dalam menentukan jadual kerja dan memilih pelanggan/kerja, serta penjanaan pendapatan tambahan menjadi daya tarikan utama ekonomi gig di kalangan tenaga kerja yang memilih untuk menyertai sektor ekonomi tersebut. Namun, keanjalan yang ditawarkan ekonomi gig juga mengakibatkan pekerja gig berdepan dengan ketidaktentuan pendapatan dan tiadanya faedah pekerjaan, seperti cuti berbayar dan perlindungan kesihatan, yang menjadi dua punca utama kerisauan mereka. Kajian tersebut juga mendedahkan pelbagai cabaran kesihatan kewangan yang dihadapi oleh pekerja gig. 80% pekerja gig tidak dapat atau merasa sukar untuk menyediakan RM1,000 sekiranya berlaku kecemasan. Dapatan tersebut lebih tinggi, berbanding Kaji Selidik Keupayaan dan Rangkuman Kewangan Bank Negara Malaysia pada tahun 2018 yang menunjukkan bahawa 52% rakyat Malaysia merasa sukar untuk menyediakan RM1,000 bagi menangani kecemasan. Di samping itu, tiga daripada empat pekerja gig tidak mempunyai amalan menyimpan atau menabung hanya sekali- sekala, dan satu daripada dua pekerja gig mempunyai baki simpanan bawah RM500. Tinjauan Tingkah Laku Kewangan 2018 oleh Agensi Kaunseling dan Pengurusan Kredit turut memperolehi hasil kajian yang serupa, di mana hanya 29% daripada dewasa bekerja dapat menyimpan lebih daripada 10% daripada pendapatan mereka. Menurut pekerja gig yang tidak mempunyai amalan menyimpan secara berkala, dua punca utama mereka gagal menyimpan adalah sumber pendapatan terhad (64%) dan terjadinya perbelanjaan tidak terjangka yang menghalang mereka daripada menabung (57%). Dapatan kajian UNCDF juga menunjukkan bahawa walaupun majoriti pekerja gig menggunakan perkhidmatan kewangan peringkat asas seperti akaun simpanan biasa (84%), penggunaan produk kewangan yang lebih kompleks adalah terhad - insurans (25%), kad kredit (15%) dan produk pelaburan (10%). Selain itu, hanya 17% daripada pekerja gig mempunyai pinjaman dengan pihak bank, yang menandakan kesukaran akses pembiayaan di kalangan pekerja gig akibat daripada ketidakpastian pekerjaan mereka. 2 The Gig Economy and Financial Health - A snapshot of Malaysia and China’, Center for Financial Health, UNCDF and i3 Programme, December 2020 bil. 1/2021 | 7 Perkhidmatan Kewangan Digital untuk Pekerja Gig Memandangkan perkembangan trend pekerjaan dalam sektor ekonomi gig masih agak baru di Malaysia, aspek perlindungan sosial serta keselamatan kewangan yang lain untuk pekerja gig masih belum matang dan memerlukan perhatian khusus daripada semua pihak. Melalui kerjasama dengan beberapa rakan kongsi tempatan, UNCDF sedang melaksanakan beberapa in i s iat i f untuk meningkatkan taraf kesihatan kewangan pekerja gig di Malaysia melalui penawaran produk simpanan, pinjaman, perlindungan insurans, pelaburan, dan lain-lain perkhidmatan kewangan yang disesuaikan dengan keperluan unik pekerja gig. Selain itu, panduan untuk meningkatkan kesejahteraan kewangan melalui perkhidmatan seperti skor kredit percuma juga akan disediakan. Inisiatif-inisiatif tersebut diharapkan dapat membantu pekerja gig untuk menyimpan dan mengembangkan wang serta mencapai matlamat kewangan mereka di samping dapat mengurus risiko kewangan secara efektif. Sumber: United Nations Capital Development Fund (UNCDF) Pekerjaan Gig Pekerjaan Konvensional Kontrak dengan pengelola platform atau pengupah yang bersifat sementara dan terhad kepada kerja/projek masing-masing Kontrak pekerjaan dengan majikan yang mengikat untuk jangka sederhana/ panjang, daripada beberapa bulan hingga puluhan tahun lamanya Penjanaan pendapatan melalui kerja yang dapat diselesaikan dalam jangka pendek dan dengan waktu kerja yang fleksibel Skop kerja dan waktu kerja yang tetap seperti yang telah dipersetujui dalam kontrak pekerjaan dengan majikan Pendapatan tidak menentu dan tergantung kepada jenis dan jumlah kerja yang diselesaikan Pendapatan yang tetap seperti yang telah dipersetujui dalam kontrak pekerjaan dengan majikan Tiada faedah pekerja seperti cuti tahunan/umum/ sakit/bersalin berbayar, perlindungan kesihatan dan caruman skim persaraan wajib Faedah pekerja seperti cuti tahunan/umum/sakit/bersalin berbayar, perlindungan kesihatan, dan caruman skim persaraan wajib terjamin di sisi undang-undang Kebebasan mengatur jadual kerja sendiri serta memilih pelanggan dan/atau kerja/ projek yang ingin dikerjakan Jadual kerja, pelanggan yang dilayani, serta kerja/projek yang dikerjakan ditetapkan oleh majikan Simpanan dan Belanjawan Pinjaman Perancangan Temuan kajian UNCDF • 3 daripada 4 pekerja gig tidak mempunyai amalan menyimpan atau menabung hanya sekali-sekala. • 1 daripada 2 pekerja gig mempunyai baki simpanan bawah RM500. • 3 daripada 4 pekerja gigi meminjam wang daripada keluarga/rakan mereka apabila timbul keperluan. • Hanya 1 daripada 6 pekerja gig mempunyai pinjaman dengan bank. • 4 daripada 5 pekerja gig berasa sukar untuk menyediakan RM1,000 sekiranya berlaku kecemasan. • 3 daripada 4 pekerja gig tidak dilindungi mana-mana produk insurans. Ciri-ciri produk perkhidmatan kewangan yang dapat membantu pekerja gig • Memberi peringatan secara berkala kepada pekerja gig agar menyisihkan sejumlah daripada pendapatan mereka untuk tujuan simpanan, terutama pada saat mereka menerima wang pendapatan mereka. • Membantu pekerja gig membuat pelaburan walaupun dalam jumlah kecil untuk pulangan yang lebih tinggi berbanding akaun simpanan biasa. • Membantu menyimpan rekod kerja dan pendapatan bagi memenuhi syarat kelayakan pinjaman institusi kewangan berlesen. • Perkhidmatan pinjaman dalam jumlah kecil dan tanpa faedah atau dengan kadar faedah yang rendah. • Tempoh bayaran balik yang fleksibel dan dapat disusun semula sesuai dengan kemampuan dan keadaan kewangan semasa pekerja gig. • Produk insurans mikro yang menyediakan perlindungan untuk jangka pendek, sama ada harian, mingguan atau bulanan sesuai dengan keperluan pekerja gig. • Kadar premium yang terjangkau, dengan pembayaran hanya apabila perlindungan diperlukan. • Prosedur pembelian/pendaftaran dan kaedah pembayaran serta proses tuntutan yang mudah. Contoh penyedia perkhidmatan kewangan Perkhidmatan kewangan digital untuk pekerja gig 8 | RINGGIT Telekomunikasi kini telah menjadi keperluan asas bagi setiap pengguna di Malaysia tanpa mengira umur dan jantina. Ianya menjadi nadi untuk perhubungan, platform untuk transaksi membeli atau menempah barangan atas talian dan juga sumber penyebaran maklumat. Pada tahun 2019, sebanyak 4,950 aduan diterima daripada para pengguna terhadap perkhidmatan telekomunikasi di Malaysia. Salah satu masalah yang mendapat aduan paling tinggi adalah rungutan terhadap bil telekomunikasi yang mencatatkan sebanyak 17.11% atau 847 daripada jumlah aduan. Antara isu yang diketengahkan oleh para pengguna adalah caj yang dikenakan untuk perkhidmatan yang tidak dilanggani. Malah ada juga yang mengadu mereka masih dikenakan caj walaupun mereka sudah menamatkan perkhidmatan tersebut. Segelintir pengguna mengadu bahawa mereka terpaksa membayar kepada pihak penyedia perkhidmatan walaupun mereka tidak memerlukan perkhidmatan tersebut. Malahan, perkhidmatan yang ditawarkan seringkali terputus, mengalami gangguan jaringan atau liputan. Para pengguna juga tidak berpuas hati kerana mereka terpaksa membayar untuk perkhidmatan SMS yang diterima daripada pihak ketiga yang tidak langgani oleh pengguna. Aduan yang kedua tertinggi melibatkan kualiti perkhidmatan jaringan internet jalur lebar yang mencatatkan sebanyak 16% daripada jumlah aduan. Pengguna seringkali mengalami gangguan internet dan bayaran yang dikenakan untuk kelajuan data yang dilanggani tidak setimpal dengan perkhidmatan yang ditawarkan. Malahan, pengguna tidak dapat menggunakan perkhidmatan e-dompet kerana gangguan perkhidmatan internet di lokasi tertentu. Para pengguna yang membayar bil yang tinggi berasa terpedaya kerana mendapat perkhidmatan yang tidak setimpal dengan bayaran yang dikenakan. Di samping itu, perkhidmatan pelanggan pula menerima aduan sejumlah 10.51% daripada keseluruhan aduan. Rata-rata pengadu bersungut tentang perkhidmatan pelanggan yang mengambil masa yang terlalu lama. Malahan, terdapat juga situasi di mana tiada tindakan yang diambil sehingga pengguna perlu menunggu berbulan-bulan lamanya. Ada juga pengadu yang dimaklumkan bahawa tiada rekod aduan, walaupun aduan telah dibuat sebelumnya. Bagi kes sebegini, FOMCA menasihatkan para pengguna supaya sentiasa mencatatkan maklumat yang lengkap dengan siapa dan tarikh perbualan dengan penyedia perkhidmatan itu berlangsung. Simpan sebarang resit atau salinan borang untuk rujukan dan bukti sekiranya diperlukan kelak. Apabila pengguna mendapati perkhidmatan yang diberikan oleh sesebuah penyedia perkhidmatan telekomunikasi tidak memuaskan, mereka akan segera menamatkan perkhidmatan tersebut dan bertukar kepada penyedia perkhidmatan telekomunikasi yang baru. Walau bagaimanapun, proses ini bukanlah mudah memandangkan 8% daripada aduan yang diterima adalah mengenai penamatan perkhidmatan. Ada pengadu yang ingin menamatkan perkhidmatan dipaksa untuk membayar penalti walaupun alasan yang munasabah diberikan. Antaranya, pihak penyedia perkhidmatan tidak menerima alasan seperti liputan tidak begitu baik di kawasan tempat tinggal atau kerja, walaupun isu sebegini boleh diperiksa kesahihannya dengan mudah. Terdapat juga kes pengguna dikenakan bayaran walaupun perkhidmatan mereka sudah ditamatkan dengan alasan mereka tidak mempunyai surat yang mengesahkan penamatan perkhidmatan. Pengguna terpaksa menjelaskan bayaran yang tertunggak dan sekiranya tidak dijelaskan, rekod kredit pengguna berkemungkinan akan terjejas. FOMCA ingin mengingatkan para pengguna supaya menyimpan segala dokumen atau surat penamatan kontrak dengan baik untuk melindungi para pengguna daripada dikenakan bayaran tunggakan. Pihak Suruhanjaya Komunikasi dan Multimedia Malaysia (SKMM) juga harus lebih tegas dalam melindungi pengguna dengan mewajibkan semua penyedia perkhidmatan telekomunikasi untuk mengeluarkan surat penamatan kontrak sebaik saja pengguna menamatkan perkhidmatan telekomunikasi tersebut. Aduan mengenai perkhidmatan yang tidak dilanggani pula mencatatkan 7.78% daripada jumlah aduan. Pengguna mengadu bahawa mereka dikenakan bayaran untuk penambahan automatik (auto reload) dan juga nada panggilan yang mereka tidak langgani. Para pengguna juga dikenakan bayaran oleh penyedia perkhidmatan untuk SMS, permainan atas talian serta lain-lain perkhidmatan oleh pihak ketiga tanpa kebenaran para pengguna. Yang menghairankan, pihak ketiga boleh berurusan dengan pihak penyedia perkhidmatan tanpa bertanya pada pelanggan untuk mendapatkan nombor telefon pengguna. Pihak SKMM perlu memainkan peranan yang lebih penting dalam menjamin kepentingan para pengguna. SKMM perlu mengambil tindakan yang sewajarnya terhadap pihak ketiga yang mendapatkan nombor telefon tanpa kebenaran pengguna. FOMCA menasihatkan para pengguna supaya melaporkan kepada SKMM sekiranya mereka masih dikenakan bayaran untuk perkhidmatan yang tidak dilanggani. Aduan mengenai maklumat yang mengelirukan turut mencatatkan sebanyak 6% daripada jumlah aduan. Rata-rata pengguna mengadu iklan penyedia perkhidmatan mengelirukan pengguna dengan beberapa pakej untuk meningkatkan langganan mereka. Setelah pengguna melanggani pakej tersebut, mereka sedar maklumat yang terdapat dalam iklan adalah berlainan dengan maklumat yang terdapat dalam laman sesawang penyedia perkhidmatan. Selain itu, aduan mengenai tuntutan pemulangan bayaran dan isu kawasan liputan, masing-masing mencatatkan 5.78% dan 5.56% daripada jumlah aduan. FOMCA sangat mengharapkan agar pihak SKMM dapat mengawasi semua penyedia perkhidmatan telekomunikasi di Malaysia agar perkhidmatan yang mereka berikan adalah berkualiti dan setaraf dengan yuran bulanan yang dikenakan. Pengguna pula hendaklah memainkan peranan sebagai pengguna bijak dengan meneliti syarat pakej telekomunikasi yang ditawarkan dan melayari laman sesawang mereka terlebih dahulu sebelum membuat perjanjian langganan. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Suara Pengguna: Penyedia Perkhidmatan Telekomunikasi bil. 1/2021 | 9 Pengendali Takaful dan syarikat insurans kini semakin inovatif dengan menawarkan pelbagai pakej untuk disesuaikan dengan segmen masyarakat yang berbeza berdasarkan kepada keperluan dan pendapatan. Tujuan mereka adalah sama iaitu menyediakan perlindungan sekiranya berlaku sesuatu yang tidak dijangka. Tetapi bagaimana jika sesuatu yang tidak dijangka menimpa penyedia takaful atau insurans anda? Jangan khuatir! Perbadanan Insurans Deposit Malaysia (PIDM) menyediakan perlindungan automatik kepada pemilik polisi insurans dan sijil takaful di bawah Sistem Perlindungan Manfaat Takaful dan Insurans untuk manfaat yang layak sehingga RM500,000 sekiranya ahli penginsurans PIDM muflis. Ahli penginsurans PIDM terdiri daripada syarikat insurans yang dilesenkan di bawah Akta Perkhidmatan Kewangan (FSA) 2013 dan pengendali takaful yang dilesenkan di bawah Akta Perkhidmatan Kewangan Islam (IFSA) 2013. Untuk layak mendapat perlindungan, sijil takaful atau polisi insurans mesti dikeluarkan di Malaysia oleh ahli penginsurans dan didenominasi dalam Ringgit Malaysia. Jadual di bawah menunjukkan contoh manfaat takaful atau insurans yang dilindungi PIDM: Tuntutan pihak ketiga yang layak, dividen tunai, anuiti/ pendapatan persaraan, pendapatan hilang upaya dan bayaran balik sumbangan/premium prabayar juga dilindungi. Manfaat yang dilindungi di bawah sijil atau polisi seseorang individu, dan sijil atau polisi kumpulan dikira secara berasingan dalam mencapai had maksimum, dengan itu menambah nilai manfaat bagi pemilik sijil dan polisi. Selain daripada itu, manfaat takaful dan insurans yang sama dengan ahli penginsurans berbeza juga dilindungi secara berasingan. Manfaat Yang Dilindungi Had Maksimum Kematian dan manfaat berkaitan RM500,000 Hilang upaya kekal RM500,000 Penyakit kritikal RM500,000 Perbelanjaan perubatan 100% daripada perbelanjaan yang ditanggung Nilai serahan RM500,000 Kehilangan atau kerosakan kepada harta benda RM500,000 bagi setiap harta Perlindungan bagi Pemegang Sijil Takaful dan Polisi Insurans 10 | RINGGIT Berdasarkan jadual, jumlah yang dilindungi adalah RM700,000 kerana amaun yang diinsuranskan oleh Polisi Kemalangan Peribadi dan Polisi Hayat Encik Lim dengan XYZ Insurance digabungkan berdasarkan kepada “penginsurans, pemilik polisi, peristiwa risiko dan orang diinsuranskan yang sama”. Sekiranya Encik Lim ingin mendapatkan perlindungan penuh bagi manfaat takaful atau insuransnya, beliau boleh membeli sijil takaful atau polisi insurans daripada ahli penginsurans yang berbeza. PIDM melindungi manfaat takaful dan insurans anda sekiranya sesebuah ahli penginsurans muflis dengan dua cara: • PIDM akan membuat pembayaran bagi manfaat yang dilindungi kepada pemilik sijil atau polisi apabila berlaku tuntutan, kematangan atau serahan sijil takaful atau polisi insurans. Sebarang tuntutan adalah tertakluk kepada syarat-syarat dan had yang dinyatakan dalam kontrak takaful atau polisi. • PIDM juga boleh menguruskan pemindahan sijil takaful atau polisi insurans daripada ahli penginsurans yang muflis kepada ahli penginsurans lain bagi memastikan kesinambungan perlindungan bagi pemilik sijil takaful atau polisi insurans. Walaupun anda tidak perlu memohon atau membayar untuk mendapatkan perlindungan PIDM, adalah penting untuk mengetahui batasan had dan manfaat, supaya anda boleh membuat pilihan yang tepat mengenai produk takaful dan insurans. Untuk mengetahui sama ada sesebuah syarikat insurans atau pengendali takaful adalah ahli PIDM, semak untuk tanda keahlian PIDM. Senarai ahli penginsurans PIDM juga boleh didapati di laman web PIDM. Hubungi PIDM untuk maklumat lanjut tentang PIDM dan sistem perlindungan yang ditadbir di talian 1800-88-1266 atau layari www.pidm.gov.my. Sumber: Perbadanan Insurans Deposit Malaysia (PIDM) Polisi Kemalangan Peribadi Kumpulan Polisi Hayat Polisi Kemalangan Peribadi Pemilik Polisi Syarikat A Encik Lim Encik Lim Syarikat insurans XYZ Insurance XYZ Insurance XYZ Insurance Peristiwa risiko Kematian Kematian Kematian Orang yang diinsuranskan Encik Lim Encik Lim Encik Lim Jumlah yang diinsuranskan RM200,000 RM300,000 RM300,000 Amaun yang dilindungi oleh PIDM RM200,000 Terhad pada RM500,000 Jumlah yang dilindungi oleh PIDM RM700,000 Jadual di bawah menerangkan perkara ini dengan lebih lanjut: “Manfaat yang dilindungi di bawah sijil atau polisi seseorang individu, dan sijil atau polisi kumpulan dikira secara berasingan dalam mencapai had maksimum, dengan itu menambah nilai manfaat bagi pemilik sijil dan polisi.” bil. 1/2021 | 11 . PERLINDUNGAN FINANCIAL NETWORK F E N EDUCATION . . MAMPU 8: MUDAH Bijak Wang Pilihan Saya PERLINDUNGAN YANG MAMPU DAN MUDAH UNTUK SEMUA Perlindungan Tenang menawarkan perlindungan kepada pemegang polisi serta keluarga dalam menghadapi peristiwa yang tidak dijangka JADIKAN PERLINDUNGAN TENANG SEBAHAGIAN DARIPADA PENGURUSAN KEWANGAN PERIBADI ANDA MUDAH MAMPU I Mudah difahami I Premium/caruman _ Bayaran tuntutan serendah RM1.00 sebulan terus kepada I Pelan boleh diperbaharui pemegémg ponsi setiap tahun atau penama PROSES TUNTUTAN F E R , "G YANG MUDAH & RINGKAS ' n Tuntutan yanfl Ilcienrjlglégg) akan dibayar dalam tempo hari bekerja SENANG UNTUK DIBELI/DISERTAI - -; _ I Beli terus daripada syarikat insurans / pengendali takaful, melalui internet atau wakil I Juga boleh didapati di cawangan bank terpilih, kaunter Pos Malaysia dan melalui syarikat pengendali telefon mudah alih PERLINDUNGAN TENANG MENYEDIAKAN JARINGAN KESELAMATAN KEWANGAN MAMPU MILIK UNTUK ANDA SEISI KELUARGA Untuk maklumat Ianjut, sila Iayari www.mycoverage.my Sumber: Jaringan Pendidikan Kewangan (FEN) Infografik Bernama

Public Notice

03 Jan 2022

Outcomes of the Third Roundtable Meeting between Centralised Shariah Advisory Authorities in Islamic Finance

https://www.bnm.gov.my/-/3rd-roundtable-meeting-csaa-islamic-finance

Reading: Outcomes of the Third Roundtable Meeting between Centralised Shariah Advisory Authorities in Islamic Finance Share: Outcomes of the Third Roundtable Meeting between Centralised Shariah Advisory Authorities in Islamic Finance Embargo : For immediate release Not for publication or broadcast before 2045 on Monday, 3 January 2022 3 Jan 2022 Bank Negara Malaysia (BNM) hosted the Third Roundtable Meeting between Centralised Shariah Advisory Authorities in Islamic Finance (CSAAs)[1] on 21 December 2021. The meeting was held virtually and participated by more than 50 delegates from 16 countries[2] and three standard-setting bodies[3]. The meeting was chaired by the Chairman of the BNM Shariah Advisory Council, Tan Sri Dr. Mohd Daud Bakar. It aims to further strengthen connectivity and foster mutual respect among Shariah boards at both central bank and national levels. The following outcomes were highlighted during the meeting: Given the important role of CSAAs in mainstreaming Islamic finance, having a broader picture on Islamic finance development in their countries is critical. This mainly include industry-wide issues which could not be resolved by individual Islamic financial institutions (IFIs) and their respective Shariah boards. Such areas include providing Shariah guidance in navigating through any unprecedented crisis, developing Shariah parameters on rectification of Shariah non-compliant (SNC) events and incomes, as well as promoting the best ethical behaviour among Shariah board members and management of IFIs in preserving the Shariah sanctity of their operations.   CSAAs should strive to build greater coordination with other regulators and Governments in driving future-proof initiatives for the Islamic finance industry. It is critical for CSAAs to address challenges including those arising from misalignment of regulatory frameworks with Shariah principles. For example, to address the impact of climate change, CSAAs can collaborate with the Government and other relevant regulators to issue a national green framework that is consistent with Shariah principles. CSAAs may also guide regulators in enhancing laws and regulatory policies to suit the development of their respective Islamic finance industry.   On Shariah governance, the meeting acknowledged the importance of a sound framework to ensure quality Shariah boards in terms of behaviour, duty of care and attitude towards fulfilling their mandates. The meeting also recognised the key roles of a competent Shariah Secretariat in supporting the effective functioning of its Shariah advisory board, at both national and institution levels.   The meeting agreed for more focus to be given on key strategic issues, maqasid Shariah and action-oriented commitments in supporting sustainable finance for future meetings.   [1] The CSAA is established to deliberate on Shariah matters in Islamic finance. Each country adopts a different model and approach in establishing their respective Shariah advisory authority, to commensurate with the size and complexity of its Islamic finance industry as well as the local custom. The role of the Shariah advisory authority has been pivotal in preserving the Shariah sanctity and public confidence on Islamic financial transactions, creating a conducive environment for the industry to innovate and grow. [2] Afghanistan, Algeria, Bahrain, Bangladesh, Brunei, Djibouti, Indonesia, Kuwait, Libya, Malaysia, Maldives, Morocco, Nigeria, Pakistan, Turkey and United Arab Emirates. [3] Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), General Council for Islamic Banks and Financial Institutions (CIBAFI) and Islamic Financial Services Board (IFSB). Bank Negara Malaysia 3 January 2022 © Bank Negara Malaysia, 2022. All rights reserved.

Public Notice

29 Dec 2023

Policy Document on Responsibility Mapping

https://www.bnm.gov.my/-/pd-rm23

Reading: Policy Document on Responsibility Mapping Share: Policy Document on Responsibility Mapping Embargo : For immediate release Not for publication or broadcast before 1300 on Friday, 29 December 2023 29 Dec 2023 Bank Negara Malaysia (BNM) has issued the policy document on Responsibility Mapping today. The policy document sets out requirements to clarify and strengthen individual accountability of members of senior management, who bear the primary responsibility for planning, directing or controlling the activities of financial institutions. Clarity and transparency in accountability will promote actions and decisions by senior management that are consistent with good governance and sound risk management, which ultimately contribute to the long-term financial soundness of financial institutions. A feedback statement has been issued concurrently with the policy document, covering BNM’s responses to key areas of comments received during the consultation period. The policy document comes into effect on 1 January 2026. Click here to view the policy document and feedback statement. Bank Negara Malaysia 29 December 2023 © Bank Negara Malaysia, 2023. All rights reserved.

Public Notice

06 Dec 2023

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-update-231206

Reading: Financial Consumer Alert update Share: 2 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1700 on Wednesday, 6 December 2023 6 Dec 2023 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list: ASNB Investment (not related to Amanah Saham Nasional Berhad) HSBC Bank Investment (not related to HSBC Bank Malaysia Berhad) Pelaburan Berdaya Millenium Capital Trading Top Syariah RaiseFX Raise Sea Trading The list will be updated regularly for public's reference. To view the updated list, please visit this link: bnm.gov.my/fca   Bank Negara Malaysia 6 December 2023 © Bank Negara Malaysia, 2023. All rights reserved.

Public Notice

30 Nov 2023

Bank Negara Malaysia Enhances the Monthly Highlights and Statistics publication

https://www.bnm.gov.my/-/mhs-new-datasets-en

https://www.bnm.gov.my/documents/20124/5915429/fsb3_en_s3.pdf

Reading: Bank Negara Malaysia Enhances the Monthly Highlights and Statistics publication Share: 2 Bank Negara Malaysia Enhances the Monthly Highlights and Statistics publication Embargo : For immediate release Not for publication or broadcast before 1530 on Thursday, 30 November 2023 30 Nov 2023 Inclusion of eight new datasets in the Monthly Highlights and Statistics New Terms of Use for BNM datasets to support the Government’s open data initiative Bank Negara Malaysia (BNM) today published eight new datasets and their metadata in the Monthly Highlights and Statistics (MHS) publication. This enhancement follows a holistic review of BNM’s published datasets. It is also in line with the open data ecosystem development initiative under the Financial Sector Blueprint 2022-2026 and the Government’s open data agenda. The main objective of the review is to enhance the availability and accessibility of BNM datasets to support data-driven decision-making. The other objectives are to develop new insights, as well as identify collaborative and innovative opportunities. Eight New Datasets The eight new datasets (see table) were selected based on historical data demands from various stakeholders. Feedback was also gathered through a public consultation survey conducted in August 2022. BNM also benchmarked published datasets of other central banks. Subject Area Dataset Nature of Data Enhancement Publication Release Date External Sector 1.   Banking System: Cross-Border Position vis-à-vis Non-Resident by Counterparty Sector and Instrument Segregation by non-resident counterparty 30 November 2023 Insurance and Takaful 2.   Quarterly capital adequacy ratio Introduction of quarterly data   3.   Quarterly assets and liabilities of insurance companies 4.   Quarterly retention ratios 5.   Quarterly premiums and claims Monetary and Banking 6.   Household loan by purpose Segregation by purpose 7.   Debit card   transactions by type Segregation by transaction type 8.   Banking System: Loan/Financing by Location Segregation by state 30 June 2024   In addition to these eight new datasets, BNM has also published a more detailed dataset for Total Loan/Financing by Malaysian Financial Reporting Standards 9 (MFRS 9) and Total Provisions with segmentation by classification exposure. This is in line with international best practices. All datasets are made available today except for the Loan/Financing by Location dataset that will be published in the second quarter of 2024. New Terms of Use BNM has also introduced a new Terms of Use (TOU) for its datasets. This allows users to use the data for commercial and non-commercial purposes. The new TOU is applicable to data in which BNM is the primary compiler. Previously, datasets were bound by the general TOU for BNM website to be used for informational purpose only.     To better respond to evolving data demands, BNM will continue to enhance public availability of and access to its datasets. This is done through periodic review against international best practices and engagement with stakeholders. The public may contact BNMLINK via web form at bnmlink.bnm.gov.my or call 1-300-88-5465 for further enquiries. See also: Terms of Use for BNM Datasets Monthly Highlights & Statistics in October 2023Bank Negara Malaysia 30 November 2023 © Bank Negara Malaysia, 2023. All rights reserved.

Advance digitalisation of the financial sector - FSBP 2022-2026 FINANCIAL SECTOR BLUEPRINT 2022-202668 Strategic Thrust 3 Advance digitalisation of the financial sector Digitalisation continues to have widespread implications for financial services. Customers are expecting faster, more frictionless, and more customised services, with growing awareness about the importance of data privacy and security. Digital business models are also becoming more ecosystem-driven, whether through a platform or a network of partnerships. Alongside this, the risk landscape is also being reshaped. Boundaries are blurring, with new and more complex interlinkages within and beyond the financial sector. The key will be for Malaysia’s financial industry to take advantage of the upsides of digitalisation, while managing the associated risks – especially those that may threaten system-wide stability, consumer outcomes, and confidence in the financial sector. To this end, we will advance four key strategies (Diagram 1). Diagram 1: Advance digitalisation of the financial sector Futureproof key digital infrastructures w Leverage key financial infrastructures for Malaysia’s broader digital ecosystem w Advance development of an open data ecosystem that is fair and fit for the future Support a more vibrant digital financial services landscape w Enhance pathways for digital innovations to test, scale and exit w Support industry-led strategies for digital payments adoption w Preserve effective oversight of digital business models Strengthen cyber security readiness and responsiveness w Strengthen system-wide cyber security oversight and capabilities w Strengthen domestic and global collaborative efforts on cyber security Support greater use of technology for regulation and supervision w Leverage technology to further strengthen the Bank’s regulation and supervision of the financial industry w Futureproof the Bank’s data strategy A B D C 69FINANCIAL SECTOR BLUEPRINT 2022-2026 Strategy 3A Futureproof key digital infrastructures A digital economy is built upon a combination of technological infrastructures (Diagram 2). Financial infrastructures are a vital part of that. Payment and settlement systems, for example, enable day-to-day economic activities of households and businesses. As more transactions move to the digital sphere, so does data – and the vast potential and risks that come with it. Diagram 2: Key infrastructure layers in the digital economy Our strategies to futureproof key financial infrastructures will be anchored on several desired outcomes. First, these infrastructures should be resilient, particularly to enable a secure ecosystem and preserve the continuity of critical services in adverse situations. Second, these infrastructures should be inclusive – designed to promote openness and interoperability, reflecting the increasingly diverse profile of stakeholders in the financial landscape, without compromising the safety of the system. Third, these infrastructures should be adaptable to emerging developments, including new technologies and operating models. Broader digital infrastructures, including non-financial ones, are also equally important for financial development objectives. Similar outcomes like resilience, inclusivity, and adaptability should also guide the development of these infrastructures. Connectivity and digital identity are some key examples that support greater innovation and adoption of digital financial services. It will also be important to leverage emerging digital platforms to unlock major upsides for the financial sector and broader economy. For the data ecosystem, we will look to advance efforts that can better serve financial consumers. These include policies and safeguards that support responsible and ethical usage of data, as well as facilitate fair and reciprocal data sharing initiatives among participants in Malaysia’s data ecosystem. These efforts will be reinforced by collaborative initiatives with the Government to accelerate the roll-out and enhancements of these broader infrastructures. To this end, we will: i. Leverage key financial infrastructures for Malaysia’s broader digital ecosystem; and ii. Advance the development of an open data ecosystem that is fit for the future. Strategic Thrust 3: Advance digitalisation of the financial sector Infrastructure layer Key components (examples) w Data legislation and regulations w Consent mechanisms w Application Programming Interface (API) standards w Clearing and settlement systems (e.g. domestic, cross-border) w Technical standards w National digital identity system w Internet w Devices (e.g. smartphones) Data Payments Identity Connectivity Collectively, these digital infrastructures are the foundation for digital economy use cases (e.g. data sharing, e-commerce) Growing significance of digital platforms (e.g. consumer-to-business, business-to-business, P2P) FINANCIAL SECTOR BLUEPRINT 2022-202670 Diagram 3: Key objectives of RENTAS modernisation exercise n We will aim to futureproof Malaysia’s payment systems – particularly real-time payment infrastructures, including real-time gross settlement systems and retail payment systems, focusing on three areas: o A multi-year modernisation exercise for the Real-Time Electronic Transfer of Funds and Securities Settlement (RENTAS). As part of this exercise, we will review the RENTAS access model to cater for more diverse participation – including by non-bank payment service providers (PSPs), without compromising the operational and cyber resilience of RENTAS. Besides levelling the playing field between banks and non-bank PSPs, this would expand the range of transactions settled using central bank money – in turn, potentially lowering settlement risk in the ecosystem. The modernisation exercise will also include initiatives to strengthen the end-to-end risk management in RENTAS, promote interoperability and efficiency, facilitate competition and innovation, as well as to enhance user functionalities (see Diagram 3 for summary). 1 Indirect participation regimes are where a non-bank payment service provider relies on an intermediary (also known as a ‘sponsor institution’) to indirectly join the network of a shared payment infrastructure. Some PSPs may prefer the indirect participation regime due to specific commercial or operational needs. We will review the RENTAS access model to cater for more diverse participation, including by non-bank payment service providers Strengthen resilience w Review system infrastructure holistically, including to reinforce protection against cyber threats and enable flexible infrastructure to accommodate future needs Promote interoperability and efficiency w Promote alignment with international standards (e.g. industry-wide adoption of International Organisation for Standardisation (ISO) 20022 by mid-2024, via a phased approach) Enable competition and innovation w Review RENTAS access model to cater for more diverse participation arrangements w Explore potential central bank digital currencies (CBDC) and distributed ledger technology (DLT) applications for RENTAS Enhance user functionality w Facilitate enhanced real-time reporting and monitoring capabilities, and develop better tools for analytics under RENTAS iLINK* w Explore use of API interface to replace existing access channels for RENTAS * RENTAS iLINK is a web-based system in RENTAS that provides real-time information to participants such as cash position, securities holdings and settlement status. i Leverage key financial infrastructures for Malaysia’s broader digital ecosystem o Enabling shared payment infrastructures in Malaysia’s payments ecosystem, including the RPP. These infrastructures allow industry players to pool resources and share costs, while competing at the product level to better serve end-users, such as consumers and merchants. A key priority will be to preserve and ensure effective implementation of open and risk-based access regimes for banks and non-bank PSPs – whether through direct or indirect participation regimes1. Other areas of focus include facilitating the adoption of common technical standards (e.g. ISO 20022, DuitNow QR), and exploring opportunities to leverage on shared payment infrastructures for more use cases (e.g. welfare payments, tax refunds, fraud analytics, trade finance). 71FINANCIAL SECTOR BLUEPRINT 2022-2026 o Intensifying efforts to enhance cross-border payments efficiency. We will work with industry players to address challenges associated with cross-border payments, such as high costs, low speed, limited access, and insufficient transparency. This includes linking up the RPP with other real-time payment systems in the Association of Southeast Asian Nations (ASEAN) region and beyond, focusing on countries with strong economic linkages with Malaysia. We will build on the recently established QR payment linkages with Thailand and Indonesia and the ongoing work with Singapore and the Philippines. The goal will be to expand the scope of use cases to P2P fund transfers as well as to establish similar linkages with other countries in the region and beyond. Beyond this region, we are also working on a proof-of-concept (POC) with the Bank for International Settlements (BIS) Innovation Hub and other partners in Project Nexus to develop a multilateral and scalable mode, which aims to connect all real-time payment systems globally to facilitate fast and seamless cross-border payments. In addition to real-time payment linkages, we will explore emerging payment innovations for cross-border payments, such as the use of multi-CBDC arrangements. Unlike existing correspondent banking arrangements, the use of CBDC could shorten the transaction chain and free up liquidity that is ‘trapped’ in correspondent banking accounts – thus resulting in faster and cheaper cross-border payments. We will be embarking on collaborative initiatives in this regard. This includes building on findings from our participation in Project Dunbar, where we have partnered with the BIS Innovation Hub and other central banks – namely, Reserve Bank of Australia, Monetary Authority of Singapore, and South African Reserve Bank – to test the use of multiple CBDC and DLT for cross-border settlements. n We will intensify research and experimentation on the use of central bank digital currencies for Malaysia’s monetary and financial infrastructures – with the initial focus on wholesale payments – as part of broader efforts to respond to digital currency developments (refer to the box article “Digital currencies: A new frontier”). n The effective delivery of digital financial services also hinges on the availability of common, non- financial digital infrastructures that support all sectors of the economy. To this end, there are three key areas that we will continue to pursue in cooperation with the Government and relevant agencies: o The establishment of a national digital identity, which requires a coordinated collaboration between different government agencies and the private sector. We will continue to advocate for speedy and effective implementation, to cater to both existing and future needs (particularly in relation to the choice of technology for authentication). o Legislative and regulatory reforms to facilitate end-to-end digitalisation of business processes, such as the use of digital and electronic signatures by the both private and public sectors. o Speed, quality, and affordability of internet connectivity across the country and segments of society. This in turn will facilitate greater accessibility and usage of digital financial services, especially among the underserved and unserved segments as well as those in the rural areas. Strategic Thrust 3: Advance digitalisation of the financial sector Common digital infrastructures at the national level are critical to facilitate end-to-end digitalisation of the value chain FINANCIAL SECTOR BLUEPRINT 2022-202672 Securing a trusted and more open data regime is key to unlocking data-driven innovation n We will continue to facilitate efforts to develop common standards for data sharing in the financial sector, particularly for high-impact use cases. Therefore, we aim to focus efforts on use cases that: o Promote greater financial inclusion. These include facilitating new data sharing arrangements, such as on “thin file” consumers – namely, those with little or no credit history – to enable the development of alternative credit scoring models. This aims to make use of alternative forms of data such as payments or utilities data, which can help enrich the creditworthiness assessment. o Support consumers to make better informed financial decisions, such as through financial planning. These include personal financial management solutions, providing better quality information to consumers, and nudging consumers towards better financial behaviour (such as encouraging habits in relation to savings and investments). Where specific use cases have been identified by the industry, we will work closely with the relevant stakeholders on the development of common data standards and suitable data sharing arrangements – with the view to provide guidance on policy and regulation, where appropriate. A market-led approach will generally be preferred to provide industry players with sufficient space to test and iterate, before converging on standards that are fit-for-purpose. However, we may consider establishing mandates to accelerate progress, where warranted, to serve the broader public interest in line with the Bank’s regulatory objectives. n We will support efforts to establish shared data infrastructures for the financial sector and its broader value chain. This would include emerging digital platforms that enable more seamless and efficient connections among various users. As with other key digital infrastructures, our priority will be to promote the adoption of open and interoperable design principles. Examples of these infrastructures include trade finance infrastructures (e.g. for detection of duplicate invoicing), a medical claims data exchange (e.g. for costs of common medical procedures) that is accessible by industry players, as well as modernised systems that enable an end- to-end digital experience for motor claims. For insurance and takaful services in particular, digitalisation is a key game changer that will bring the current level of services to new heights – especially to create a hassle-free experience for consumers making motor claims, and address prevailing pain points in the process. To this end, we will intensify efforts to pave the way for insurers and takaful operators to advance digital transformation efforts that will deliver more integrated, transparent, and seamless processes (see Diagram 4 for desired outcomes for the motor ecosystem). This includes establishing and improving existing infrastructure to support the adoption of digital technologies across the claims process. This is a necessary precondition for the full liberalisation of motor tariffs. ii Advance the development of an open data ecosystem that is fit for the future 73FINANCIAL SECTOR BLUEPRINT 2022-2026 Diagram 4: Digitalisation - A game changer for consumers' claims experience n We will continuously review the data governance framework for the financial sector, in tandem with legal developments and technological applications to ensure the protection and fair treatment of financial consumers. This includes potential enhancements to customer consent mechanisms and requirements around the ethical and responsible usage of data – which are key elements in building a trusted data regime. We expect FSPs to collect, process, and share personal consumer data in a lawful and secure manner such that individuals know how their data will be used and give consent to such usage. Data must also be used in ways that do not result in the unfair treatment of consumers. n Beyond the financial industry, we will continue to collaborate with industry players and other stakeholders to enable broader arrangements for more open and secure data sharing, focused on three priorities: o Improving accessibility to public data under the Government’s open data initiatives. These initiatives, such as the Malaysian Administrative Modernisation and Management Planning Unit's (MAMPU) Open Data platform, provide the potential for various stakeholders – including the financial sector – to leverage datasets residing in other agencies to build data-driven innovations to better serve the public. To make data sharing more seamless, it will be important Pre and during commute Devices provide real-time important information Throughout drive, car sensors monitor driving habits, provide alerts and take corrective action for accident prevention In the event of accident Device transmits information to insurer or takaful operator Device guides on next steps Accident details captured Multiple systems assess damage and determine liabilityClaims journey begins without driver initiation Car fixed to pre- accident condition and claims paid Real time status updates from device on repairs Right combination of investments in automation, advanced analytics, IoT, open API and AI Temporary car and towing services arranged within minutes Integrated, transparent and seamless process Consumers given options for repairs to synchronise key reforms discussed in flagship policy documents (e.g. RMK12, MyDigital) and develop a uniform approach to data governance. This in turn will provide the necessary foundations for the adoption of interoperable standards and formats across sectors. o Supporting national efforts to develop a data protection legal framework. Primarily, we will do this through our membership in national- level committees. We will also collaborate with government agencies in relation to key laws and policies, such as on the drafting of NDSP and amendments to the Personal Data Protection Act 2010 (PDPA). The implementation of both NDSP and amended PDPA will strengthen the confidence and trust of data users to facilitate greater data sharing in the digital economy as a whole. o Supporting regional level data sharing initiatives. To this end, we will continue to collaborate with government agencies and industry players to advance best practices with respect to cross-border data flows that are aligned with global standards and policies. Key focus areas include managing cross-border fraud and money laundering, support risk management practices of internationally active financial institutions, as well as promote trade activities, including within the ASEAN region. Strategic Thrust 3: Advance digitalisation of the financial sector FINANCIAL SECTOR BLUEPRINT 2022-202674 2 Project Spyder is a proof-of-concept developed in 2019 between the Bank and an industry consortium of leading Malaysian banks to detect duplication of invoice financing and to enable interbank sharing of invoice information in a secure manner. The testing phase of Project Spyder concluded in November 2019, in which more than 1,700 duplicate invoices were detected from over 290,000 invoices submitted from participating banks. n We will enhance testing mechanisms for financial innovation in two key ways. First, we will refresh our Regulatory Sandbox. The Sandbox has played an important role in advancing digital innovation so far, paving the way for critical use cases such as electronic Know-Your-Customer (e-KYC) and new business models such as digital insurers, P2P family takaful and digital remittance. The Sandbox will continue to support industry players in bringing financial innovations safely to the market, across different stages of the innovation cycle. Enhancements moving forward will aim to accelerate time-to-live testing under the Sandbox. For late-stage or more mature innovative solutions, this may include accelerated tracks for lower-risk activities or simplified testing parameters for players who can demonstrate robust governance and risk management practices. In particular, for financial institutions that we already regulate, we will simplify and reduce the Sandbox’s gatekeeping processes to test new value propositions and address regulatory implications. This will aim to allow financial institutions to test their innovations more quickly and flexibly, supplemented with principles- based testing parameters. Drawing from our experience with a specialised e-KYC testing track, we will also consider similar accelerated tracks for other relevant use cases. This would cover activities where the risks are low or can be managed within standardised and pre-determined boundaries, or where development of relevant policies is already underway. Such activities include insurance and takaful aggregation activities. Second, we will look to advance ‘collaborative pilot’ mechanisms for areas where digital transformation is needed at the industry or national level. This is relevant for financial innovations that are multi-stakeholder in nature – whereby testing and iteration across the value chain is needed to pave the way towards viable business models and arrangements for the industry. These include efforts to establish shared utilities or platforms, promoting common standards, or piloting new industry use cases. Previously, we have adopted a collaborative approach in promoting common open API standards and developing Project Spyder2 a DLT-based trade finance solution. In addition to continuing such efforts, we will also seek to advance efforts towards establishing shared digital infrastructures for insurance and takaful solutions, as set out in Strategy 3A(ii) of this chapter. Strategy 3B Support a more vibrant digital financial services landscape Technological changes have taken place at an unprecedented pace in recent years, enabling new applications in financial services. The pandemic has only accelerated this, as customers sought to access ‘low-touch’ or completely digital channels – in turn, shaping behavioural norms for financial services. New technologies can redefine the landscape, pushing the boundaries of what is technically and operationally possible. Efforts need to be centred on keeping pace and responding effectively to technology. Our strategies on this front will aim to foster an enabling environment for innovation, while preserving broader financial system stability. We will also prioritise strengthening institutional arrangements to facilitate greater collaboration – among industry players, regulators, and other agencies. To this end, we will seek to advance the following: i. Enhance pathways for digital innovations to test, scale, and exit; ii. Support industry-led strategies for digital payments adoption; and iii. Preserve effective oversight of evolving digital business models. i Enhance pathways for digital innovations to test, scale and exit 75FINANCIAL SECTOR BLUEPRINT 2022-2026 n We will facilitate greater digitalisation of business models in financial services, prioritising those that can advance greater financial inclusion by better meeting the needs of the unserved and underserved (refer to the chapter “Elevate the financial well-being of households and businesses”). A key priority will be the smooth implementation of the digital banking framework. We are committed to ensure that the policy environment remains relevant, as digital banks and incumbents continue to evolve their business models (e.g. through greater partnerships with other FSPs or third parties) to create an ecosystem that will better address underserved and unserved segments, without jeopardising system-wide stability and consumer outcomes. A key consideration will be to foster an appropriate regulatory environment for all players engaged in banking services – be it through traditional or digital channels, consistent with the principles of parity, proportionality and neutrality (refer to Strategy 3B(iii) in this chapter). We are committed to support digital players that can address unmet needs, including through digital ecosystems Additionally, we will finalise a regulatory framework for digital insurers and digital takaful operators in 2022, with the view to significantly elevate the dynamism of the sector. We aim to license new digital players in 2023 that can leverage technologies to deliver value propositions on three fronts. First, inclusion – to enhance the financial resilience of customers whose protection needs are not adequately served. Second, competition – to transform the existing market structure of insurance/takaful through innovative solutions. Third, efficiency – to deliver a more frictionless consumer experience and protection at lower costs. n We will continue to advocate and support the growth potential of Malaysia’s broader fintech ecosystem. In addition to broader digital infrastructures (refer to Strategy 3A in this chapter), we will also aim to seamlessly integrate our frameworks – such as the Sandbox – with other initiatives, both at industry and national level. This will aim to establish an extensive network of key stakeholders that can connect fintech start-ups to a comprehensive suite of support facilities, ranging from capacity-building resources to market access opportunities. This will build on various existing initiatives available, including those under the Malaysia Digital Economy Corporation (MDEC) and the newly formed Malaysian Research Accelerator for Technology and Innovation (MRANTI). Strategic Thrust 3: Advance digitalisation of the financial sector FINANCIAL SECTOR BLUEPRINT 2022-202676 We will continue to accord priority to preserving and further strengthening confidence in digital payments n Considering the trajectory of Malaysia’s retail payment services landscape, we will advance an industry-led approach to digital payments development. Digital payments adoption has risen significantly in Malaysia, accelerated further by the recent pandemic. While regulatory efforts over the past decade have helped catalyse the progress so far, the retail payments industry is also maturing. In more recent years, we have observed the industry becoming highly competitive – especially with the entry of new players – resulting in cheaper and more innovative services to merchants, including SMEs. New consumer-facing technologies, such as biometrics and wearables, have also made digital payments more convenient. Against this backdrop, we expect industry efforts to sustain the momentum of digital payments adoption, as we play an enabling role. o As Malaysia’s broader economy becomes more digitalised, the importance of payment system operators (PSOs), such as the Payments Network Sdn. Bhd. (PayNet), Visa and Mastercard, to system-wide stability will also intensify – along with growing commercial interest to be PSOs in Malaysia. Given this, we will advance regulations for PSOs, which will clarify and align expectations in areas such as governance, risk management, operational resilience, and transparency. ii Support industry-led strategies for digital payments adoption o We will also review existing regulatory policies on digital payments, to ensure their continued relevance. These include the e-Payment Incentive Fund Framework (ePIF), Payment Card Reform Framework (PCRF), and the Interoperable Credit Transfer Framework (ICTF). o Efforts will also be made to pave the way for greater industry leadership and market dynamism in relation to the shareholding of PayNet. Consistent with PayNet’s role as a shared payment infrastructure operator, its shareholding composition will be enhanced to be more reflective of the growing diversity in Malaysia’s payments landscape – with the Bank progressively divesting its share in PayNet over time. n We are supportive of the broader national aspirations for digital payments under MyDigital. We expect the commitment by federal and state agencies to adopt cashless payments to play a pivotal role in creating behavioural shifts towards greater digital payments adoption. We are committed to supporting these national aspirations and will intensify our awareness-building strategies to that end. 77FINANCIAL SECTOR BLUEPRINT 2022-2026 Diagram 5: Our approach to regulating innovation Overarching principles to foster a level playing field … Parity Same type of risk, same type of regulation Proportionality Rigour of regulation and supervision calibrated to level of risk Neutrality Agnostic to different technologies, systems and approaches Combining activity- and entity-based approaches to regulation … w Where risks are simpler and more well- contained Activity-based Entity-based w Where the combination of activities leads to more complex and potentially systemic risks (e.g. higher interlinkages with the financial system) w Focuses on promoting sound consumer outcomes (e.g. disclosures, redress mechanisms, privacy) w Serves to mitigate regulatory arbitrage In addition to those outcomes under ‘activity-based’ … w Ensures prudent risk-taking, including buffers and limits w Addresses systemic risks, including cyber security w Facilitates orderly recovery and resolution w Manages interdependencies with competition … supported by strengthened collaborative oversight arrangements aCooperate across sectors (e.g. telcos, e-commerce) aAvoid blind spots and regulatory arbitrage aInformation sharing to support timely surveillance and intervention iii Preserve effective oversight of evolving digital business models n We will continuously refine and adapt financial sector policies on digital business models to ensure that risks are managed effectively. Digital innovation is constantly evolving, shaped by technological change and commercial breakthroughs. In overseeing such a landscape, we will be guided by a set of key considerations to determine the way we regulate digital financial services (Diagram 5): Strategic Thrust 3: Advance digitalisation of the financial sector FINANCIAL SECTOR BLUEPRINT 2022-202678 o We aim to preserve parity, proportionality, and neutrality. This means that same types of risks will be regulated the same way (‘parity’) – but with its rigour and intensity calibrated in a way that is commensurate with the level of risk (‘proportionality’). In implementing proportionate regulations, we will consider the nature of risks and public interests. For example, in the area of cyber security, especially where it concerns critical financial services, the same rigour of requirements may be warranted for all players to address ‘weakest link’ risks in the financial value chain – such as where activities are connected to one another across firms or infrastructures (refer to Strategy 3C in this chapter). Similarly, universal consumer redress mechanisms for financial services will continue to be preserved for all financial consumers, irrespective of the size or complexity of the FSP. We are agnostic to different technologies, systems and approaches (‘neutrality’). However, we expect industry players to demonstrate that risks associated with a particular technology or innovation are well- understood, and adequately managed. Collectively, we expect these to foster a level playing field, while ensuring that digital innovations are supported by sound risk management. o We will continue to adopt a combination of activity- and entity-based regulations3. A purely activity-based approach can be suitable for circumstances where the risks are simpler and relatively insulated. That is, where frictions from adverse events – such as a business failure or temporary service interruption – will not have significant spill-over effects on the financial system or economy. We will adopt activity-based regulations with two key priorities. First, to ensure reasonable protection of sound consumer outcomes, such as through clear disclosures, dispute resolution and redress mechanisms. Second, to mitigate regulatory arbitrage, such that different businesses carrying out the same services are subject to the same rules. 3 Activity-based rules consist of requirements to be met by any institution offering a given service (e.g. lending, payment services). Entity-based rules consist of requirements imposed on institutions with a specific licence or charter, which in turn sets out the activities those entities are allowed to undertake. Entity-based regulations are appropriate where certain activities – when combined as part of a business model – can give rise to a more complex risk profile, as well as interdependencies that can amplify market- wide disruptions. This can arise in business models that combine a range of different activities that build an existing ecosystem or platform – sometimes described as ‘embedded finance’. In these circumstances, entities may be subject to a comprehensive set of prudential expectations, including those on governance, risk management, financial capacity to absorb losses, and disclosures. Entities that pose systemic risks to the financial system may also be required to develop actionable recovery and resolution plans to protect critical financial services. Our licensing approach for digital banks reflects an entity-based approach, guided by our assessment of the underlying risks of the banking business. We will also intensify our focus on business continuity and resolution frameworks. A more competitive and innovative market can mean dealing with greater unknowns and more dynamic changes in the financial landscape – which may include a higher turnover of entities within the financial services industry. Our objective will be to ensure that financial services activities can be unwound in an orderly fashion without adversely affecting system-wide stability, while safeguarding consumer outcomes. At the same time, we will also focus on strengthening the credibility of financial institutions’ business continuity plans to ensure that they adequately reflect changing operational configurations as well as increasing interdependencies on third parties and shared infrastructures. o We will continuously develop and refine our regulatory guidance on critical digital enablers – such as the use of cloud, AI and ML. The focus will be to better align expectations among industry players to ensure the sound management of risks and fair treatment of consumers. We will also seek to address undue regulatory frictions or inefficiencies, if any – including in our supervisory processes – to support greater agility by financial institutions in adopting these technologies (refer to the box article “Medium-term priorities for the prudential framework and AML/CFT”). 79FINANCIAL SECTOR BLUEPRINT 2022-2026 We will also seek to address undue regulatory frictions relating to the use of critical digital enablers, such as cloud technologies and AI/ML n We will enhance inter-agency cooperation to better oversee emerging non-bank business models, focusing on two areas: o Economic sectors that are increasingly linked to financial services (such as telecommunications and e-commerce); and o Regulatory mandates that are closely intertwined with monetary and financial stability within the sphere of digital finance – particularly competition, data protection, and privacy. This approach reflects the growing prevalence of digital financial ecosystems (e.g. emergence of digital lenders, cross-selling of financial products by e-wallet operators, potential partnerships between banks or insurers with other technology-based service providers). In enhancing these arrangements, our priorities will be to support the timely identification, monitoring, and mitigation of risks in the overall financial value chain to financial stability and consumer outcomes. Given the potentially rapid pace at which digital models may scale, we will also work closely with the relevant authorities on timely information-sharing and intervention arrangements. Strategic Thrust 3: Advance digitalisation of the financial sector FINANCIAL SECTOR BLUEPRINT 2022-202680 Strategy 3C Strengthen cyber security readiness and responsiveness Diagram 6: Key factors shaping the cyber security landscape Interconnections Higher interconnectedness between financial services and TPSPs Work Arrangements Adoption of hybrid working arrangements Evolving Threats Greater frequency, sophistication and entry points for threats Greater Use of Cloud More critical systems will be migrated to public or hybrid cloud Modernisation Critical software and hardware can quickly become obsolete Malaysia’s financial sector is increasingly part of a broader network of digital relationships – with third party service providers (TPSPs), other financial institutions, and devices. As cross-border and global supply chain linkages deepen, so will new interdependencies and potential blind spots. In these networks, each of the nodes is a possible target. Unlike most operational risks, cyber security breaches in one node can quickly propagate to others in a short period. The cyber security strength of any single ‘node’ or institution is therefore only as strong as the weakest link in that network. With the continued digitalisation of financial services in Malaysia, cyber security is arguably one of the biggest risks. The same digital ecosystems that accelerate innovation – and all its upsides to consumers and businesses – also bring risks and vulnerabilities for the financial sector. These include operational disruptions, data breaches, fraud, and financial losses. If not managed well, these can have severe consequences for financial and monetary stability, as well as the broader economy. Importantly, the cyber security threat landscape is highly complex, shaped by a range of factors (see Diagram 6). The tools of cyber criminals are also constantly evolving, becoming easier and more inexpensive by the day. The threat is borderless, and increasingly more coordinated and sophisticated. Such factors compound the challenge of putting in place reliable safeguards. Against this backdrop, a financial system with strong cyber security fundamentals will continue to be a critical priority of the Bank, in turn providing a solid foundation for innovation to thrive. Given the characteristics of cyber risk, our strategies are centred around readiness and responsiveness. While reducing the probability of cyber attacks remains an important objective, we will intensify efforts to mitigate the impact of such attacks. We will also strengthen collaborative arrangements – among authorities and industry players, domestically and internationally. These efforts will aim to develop holistic defences against cyber security risks to the financial sector, including those from telecommunications infrastructure and potentially critical TPSPs such as cloud operators. We will seek to advance the following strategies: i. Strengthen system-wide cyber security oversight and capabilities; and ii. Strengthen domestic and global collaborative efforts on cyber security. 81FINANCIAL SECTOR BLUEPRINT 2022-2026 We will broaden our cyber security focus at the ecosystem level, including on critical third party service providers This will in turn guide our supervisory assessments of financial institutions, support better informed business decisions by the financial sector to manage potential risk concentration of TPSPs or related services, as well as focus our efforts at the national level to better safeguard critical infrastructures. o Expanding the scope and coverage of ongoing resilience measures. This includes the implementation of the cyber resilience maturity assessment (CRMA) framework, cyber drill exercises with other stakeholders and the Government, and the recently established Financial Sector Cyber Threat Intelligence Platform (FinTIP). Across these initiatives, we will aim to involve a greater range of stakeholders and industry players in the financial sector value chain. These initiatives are expected to enrich our collective understanding and improve the ecosystem-wide ability to proactively mitigate cyber risks. n We will continuously strengthen our oversight of cyber security risks, with an increased focus on the broader financial ecosystem. This entails: o Ensuring that the financial industry adheres to a strong set of minimum standards on cyber risk governance and management. o Intensifying our focus on cyber security issues arising from critical TPSPs. This will entail assessing the adequacy of existing policies in managing TPSP risks and where necessary, developing additional frameworks to better protect the financial ecosystem throughout its entire value chain. Further, we will consider the need for strengthened oversight arrangements to take into account interactions between the financial sector and TPSPs that can give rise to systemic risks. These include expanding the regulatory perimeter given the increasing interdependence with TPSPs. We will consult with key industry players, including critical TPSPs to develop possible approaches for securing the financial system’s technology linkages with third party providers. We will also consider integrating TPSPs as part of intelligence-sharing arrangements established in the financial sector (as set out below). n We will intensify sharing of actionable cyber security intelligence by: o Further developing our capacity to construct and maintain comprehensive cyber contagion maps of the financial industry. The aim will be to identify, on a continuing basis, vulnerable points, potential concentration risks and interconnections in the financial sector arising from technological infrastructures and services that are being used by financial institutions. These contagion maps are expected to provide a more granular view of how the shock from a cyber incident could spread throughout the financial ecosystem, including its magnitude and impact. i Strengthen system-wide cyber security oversight and capabilities Strategic Thrust 3: Advance digitalisation of the financial sector FINANCIAL SECTOR BLUEPRINT 2022-202682 Cyber security is a shared responsibility n We will continue to support nationwide efforts in strengthening digital literacy and cyber hygiene practices of financial consumers. With wider adoption of digital financial services, basic cyber hygiene practices will be crucial to protect consumers from threats such as online scams, financial fraud and identity theft. To this end, we will support and work with industry associations, law enforcement agencies and relevant government agencies to increase cyber security awareness among consumers so that they can effectively protect their data and digital devices. n We will advocate for greater standardisation in cyber security and cyber resilience terminology at the national level. With a common language among all relevant stakeholders, ecosystem-wide efforts to safeguard and strengthen cyber security – whether to share information or to coordinate interventions – can be pursued more effectively. ii Strengthen domestic and global collaborative efforts on cyber security In our advocacy efforts, we will aim to leverage on widely accepted practices. This would consider global efforts such as those of the FSB’s Cyber Lexicon, ISO, as well as domestic policies of various agencies such as National Cyber Security Agency Malaysia (NACSA), CyberSecurity Malaysia (CSM), Malaysian Communications and Multimedia Commission (MCMC), National Institute of Standards and Technology (NIST) and others. n We will facilitate initiatives to deliver specialised cyber security training and certification that promote skills development and competencies in the financial industry. In doing so, we will work together with relevant government agencies and industry associations – such as MDEC, CSM, NACSA, and Persatuan Penguji Keselamatan Siber (PPKS) – to collect, compare, and assess data to design a clear roadmap to deepen Malaysia’s cyber security talent pool. Strategy 3D Support greater use of technology for regulation and supervision We are also committed to ensure that we leverage digital technologies to continuously improve our effectiveness and efficiency – particularly, as a financial regulator and supervisor. This will complement the financial industry’s shift towards greater digitalisation. A key consideration in our way forward would be to enhance how we create, collect, capture, synthesise and share data – aiming to improve the efficiency, integrity, and security of the ecosystem. This reflects the growing importance of data for a range of functions, from the surveillance of risks and vulnerabilities to facilitating efficient ways to comply with regulatory policies and requirements. As future enhancements will affect existing infrastructures, systems, and processes, we will ensure that the path forward is collaboratively mapped out, together with industry players and other regulatory authorities. As part of this effort, we will seek to advance the following: i. Leverage technology to further strengthen the Bank’s regulation and supervision of the financial industry; and ii. Futureproof the Bank’s data strategy. 83FINANCIAL SECTOR BLUEPRINT 2022-2026 We aim to reform our data arrangements, including through the use of APIs and Open Data initiatives expected to enhance risk-based supervision, by providing richer insights in identifying and sizing up risks to financial institutions – and in turn, enabling more timely and targeted interventions. o Streamlining and facilitating more efficient regulatory and compliance processes. This includes providing a single, technology- supported applications and submissions interface, with monitoring capabilities, for all authorised financial institutions with the Bank. i Leverage technology to further strengthen the Bank’s regulation and supervision of the financial industry n We will aim to continuously strengthen our application of technologies – such as AI, ML, natural language processing, and automation – to deliver process improvements in our regulatory and supervisory functions. This will include: o Greater integration of our risk analytics engines to support more holistic surveillance across different datasets – and with it, explore further enhancements in the way we conduct our oversight activities. In particular, this is ii Futureproof the Bank’s data strategy n We will initiate a comprehensive industry review on the financial data ecosystem, which includes the submission, processing and usage of regulatory reporting and statistical submissions to the Bank. In the next five to ten years, we will focus on improving the timeliness, quality, granularity, and transparency of the data that we collect from the industry. This will be done through the implementation of a new data collection and sharing arrangement between the Bank, the financial industry and other partner institutions. o Quality and timeliness. We will work with the industry to gradually phase out manual or semi-automated data submissions and quality control processes, and explore the use of APIs to improve the overall data preparation and submission processes. This will reduce compliance costs for financial institutions and improve the Bank’s regulatory and supervisory efficiency. o Granularity. We will increasingly leverage the use of geospatial and other technologies to continuously enhance the granularity of data – and in turn, drive better insights for our analysis and decision-making. This will build on efforts so far, such as pilot initiatives that we have pursued since the onset of the pandemic – where we collect more granular payments and financial inclusion data from selected financial institutions, on a near real-time basis. We will continue to expand the scope of such pilots to include other data sets, such as household and business data, climate-related exposures, and green financing data. o Transparency. We will continue to enhance public access and portability of the Bank’s various financial and economic data sets that do not reveal any commercially sensitive information. This can play a role in catalysing the broader data community – such as through Open Data initiatives – to develop new insights and identify collaboration opportunities, including with the Bank. Where possible, we will also explore the development of dashboarding capabilities, leveraging on industry data reported to the Bank, for financial institutions to anonymously benchmark their risk profiles and practices relative to peers. Strategic Thrust 3: Advance digitalisation of the financial sector

Public Notice

29 Nov 2023

Enforcement Action Against Illegal Money Services Business Operators in Sarawak

https://www.bnm.gov.my/-/illegal-msb-ops

Reading: Enforcement Action Against Illegal Money Services Business Operators in Sarawak Share: 4 Enforcement Action Against Illegal Money Services Business Operators in Sarawak Embargo : For immediate release Not for publication or broadcast before 1334 on Wednesday, 29 November 2023 29 Nov 2023 As part of continuous enforcement efforts to protect members of the public against potential financial risks when dealing with unlicensed entities in the country, Bank Negara Malaysia (BNM) in collaboration with the Royal Malaysia Police (RMP), raided a total of eight (8) premises in various parts of Sarawak. The raids held on 28 November 2023 were conducted on the premises of the following targeted entities suspected of operating money services businesses without a valid license from BNM as well as potentially engaging in money laundering activities: Name City 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   The above entities are investigated under Subsection 4(1) of the Money Services Business Act 2011 (MSBA). Any person who commits an offence under Subsection 4(1) MSBA is liable to a fine not exceeding RM5 million or imprisonment for a term not exceeding ten years, or to both. BNM would like to remind the public that it is an offence to operate money services business without a valid license from BNM. A list of licensed money services businesses can be found on the BNM website at bnm.gov.my/licensed-msb-operators. Members of the public are urged to only deal with the licensed money services businesses to safeguard their financial interests and are encouraged to report on any unlicensed entity to BNM at: BNMLINK Online Form | Live Chat | Telephone 1-300-88-5465 or +603-2174-1717 (Overseas)   Bank Negara Malaysia 29 November 2023 © Bank Negara Malaysia, 2023. All rights reserved.

Public Notice

25 Sep 2023

Policy Document on Quality and Integrity of Currency

https://www.bnm.gov.my/-/pd-qic

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

Reading: Policy Document on Quality and Integrity of Currency Share: Policy Document on Quality and Integrity of Currency Embargo : For immediate release Not for publication or broadcast before 1105 on Monday, 25 September 2023 25 Sep 2023 Summary This Policy Document sets out the following: (a) criteria in determining the quality of Malaysian currency in circulation; (b) standards in processing and recirculating Malaysian currency to the public; (c) standards in handling suspected counterfeit Malaysian currency in Malaysia; (d) requirements to record and report suspected counterfeit Malaysian currency; (e) timeline to lodge a police report of suspected counterfeit Malaysian currency; and (f) requirements to have competent staff and possess suitable currency processing machines. Issuance Date 12 September 2023 Effective Date 1 October 2023 Issuing Department Currency Management and Operations Documents (a) Policy Document (b) Frequently Asked Questions 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

Online Auction of Ringgit Banknotes with Special Serial Numbers

https://www.bnm.gov.my/-/banknotes-auction-20230915-en

Reading: Online Auction of Ringgit Banknotes with Special Serial Numbers Share: 4 Online Auction of Ringgit Banknotes with Special Serial Numbers Embargo : For immediate release Not for publication or broadcast before 1652 on Friday, 15 September 2023 15 Sep 2023 BNM will be holding an online auction of ringgit banknotes with special serial numbers which opens from 16 September until 23 September 2023. The auction will be conducted by BNM’s appointed auctioneer, MNP Auctioneers (Central) Sdn. Bhd. (MNP) whereby bids can be placed via this link. MNP will begin the ‘Live Auction’ on 23 September 2023 (Saturday) at 11.00 a.m. Ringgit banknotes with special serial numbers, such as sets of the first 10 banknotes (e.g. DD0000001-0000010) and super solid numbers with repetitive prefix (e.g. DD8888888) will be auctioned. Online registration and bids can be completed via www.best2bid.com. Further information on the auction can be obtained through MNP’s website at www.mnp.com.my or MNP’s customer service hotline via 017-400 6661. Bank Negara Malaysia 15 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.

Public Notice

14 Sep 2023

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-update-230914

Reading: Financial Consumer Alert update Share: 21 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1600 on Thursday, 14 September 2023 14 Sep 2023 Financial Consumer Alert update The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list: Bespoke Holdings Budget Besties Pelaburan 2023 abrdn AG Asia Saham Herzen Academy MyDAS FA (not related to MyDAS FA Sdn. Bhd.) NordFX Asia YunikonFX AIProFX Cryptotech Institution Community (CIC) The list will be updated regularly for public's reference. To view the updated list, please visit this link: bnm.gov.my/fca Bank Negara Malaysia 14 September 2023 © Bank Negara Malaysia, 2023. All rights reserved.

Public Notice

30 Jun 2023

Exposure Draft on Claims Settlement Practices

https://www.bnm.gov.my/-/ed-claims-settlement

https://www.bnm.gov.my/documents/20124/948107/ed-claims-settlement-practices-jun23.pdf

Reading: Exposure Draft on Claims Settlement Practices Share: 14 Exposure Draft on Claims Settlement Practices Embargo : For immediate release Not for publication or broadcast before 1845 on Friday, 30 June 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 June 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

Financial Inclusion Framework (2023-2026) Strategy Paper

https://www.bnm.gov.my/-/2nd-fin-incl-frmwk

https://www.bnm.gov.my/documents/20124/55792/SP-2nd-fin-incl-framework.pdf

Reading: Financial Inclusion Framework (2023-2026) Strategy Paper Share: 4 Financial Inclusion Framework (2023-2026) Strategy Paper Embargo : For immediate release Not for publication or broadcast before 1553 on Friday, 23 June 2023 23 Jun 2023 The implementation of the 1st 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. Aligned to meet the goals envisioned in the Financial Sector Blueprint (2022–2026) to elevate the financial well-being of households and businesses, Bank Negara Malaysia developed the 2nd Financial Inclusion Framework (2023–2026) as a four-year strategic roadmap and principle-based guidance to advance financial inclusion in Malaysia. The Framework also takes 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. 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. Document: Financial Inclusion Framework (2023–2026) Strategy Paper   Bank Negara Malaysia 23 June 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

Exposure Draft on Disposal and Purchase of Impaired Loans/Financing

https://www.bnm.gov.my/-/ed-disposal-impaired-loans

https://www.bnm.gov.my/documents/20124/938039/ED-Disposal-and-Purchase-of-Impaired-Loans-Financing-2023.pdf

Reading: Exposure Draft on Disposal and Purchase of Impaired Loans/Financing Share: 6 Exposure Draft on Disposal and Purchase of Impaired Loans/Financing Embargo : For immediate release Not for publication or broadcast before 2015 on Monday, 19 June 2023 19 Jun 2023 This exposure draft sets out 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 lower barriers to entry for buyers into the impaired financing market, strengthen conduct requirements to provide appropriate protection to borrowers whose loans are sold to non-bank buyers and promote greater efficiency in the disposal/purchase of impaired financing. 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])   Issuance Date 19 June 2023   Issuing Department Jabatan Konsumer dan Amalan Pasaran   Document Exposure Draft on Disposal and Purchase of Impaired Loans/Financing     Bank Negara Malaysia 19 June 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

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-update-230614

Reading: Financial Consumer Alert update Share: 358 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1020 on Wednesday, 14 June 2023 14 Jun 2023 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list: XFOX Market Trust (003280046 - H) and XFOX Market Sdn Bhd (1438134 - V) The list will be updated regularly for public's reference. To view the updated list, please visit bnm.gov.my/fca. Bank Negara Malaysia 14 June 2023 © Bank Negara Malaysia, 2023. All rights reserved.

Public Notice

17 Apr 2023

Policy Document on Professionalism of Insurance and Takaful Agents

https://www.bnm.gov.my/-/pd-professionalism-ito-agents

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

Reading: Policy Document on Professionalism of Insurance and Takaful Agents Share: 27 Policy Document on Professionalism of Insurance and Takaful Agents Embargo : For immediate release Not for publication or broadcast before 1510 on Monday, 17 April 2023 17 Apr 2023 This policy document sets out requirements for licensed insurers and takaful operators (ITOs) to promote high standards of conduct and professionalism of their insurance and takaful agents. This policy document includes requirements pertaining to the recruitment of insurance and takaful agents, minimum qualifications, fit and proper criteria, and the due diligence process that needs to be undertaken by ITOs when appointing new agents and treatment of errant agents. Documents Policy Document on Professionalism of Insurance and Takaful Agents Summary of key feedback received from the Public Consultation and BNM’s responses Issuing Department 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 Mar 2023

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-update-230303

Reading: Financial Consumer Alert update Share: 87 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1000 on Friday, 3 March 2023 3 Mar 2023 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites that are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list:  TriumphFX; and Najmuldin Exchanger (NE) Please be informed that TriumphFX was listed as it was promoted in the following websites: https://eobinfinity.com, https://eobmiles.com, and Triumph Investment Malaysia Facebook page: https://www.facebook.com/profile.php?id=100069799277365&mibextid=LQQJ4d   The list will be updated regularly for the public's reference. For the updated Financial Consumer Alert list, please visit bnm.gov.my/fca. Bank Negara Malaysia 3 March 2023 © Bank Negara Malaysia, 2023. All rights reserved.

Public Notice

28 Feb 2023

Exposure Draft on Fair Treatment of Vulnerable Consumers

https://www.bnm.gov.my/-/ed-ftvc

https://www.bnm.gov.my/documents/20124/938039/28230228_ED_Fair_Treatment_of_Vulnerable_Consumers.pdf

Reading: Exposure Draft on Fair Treatment of Vulnerable Consumers Share: 11 Exposure Draft on Fair Treatment of Vulnerable Consumers Embargo : For immediate release Not for publication or broadcast before 1100 on Tuesday, 28 February 2023 28 Feb 2023 This exposure draft sets out the proposed requirements and guidance to promote a culture where financial service providers properly consider and respond to the needs of vulnerable consumers, consistent with fair treatment outcomes. The Bank invites feedback on this exposure draft, including suggestions for specific issues or areas to be clarified and any alternative proposals the Bank should consider. All feedback for the exposure draft must be submitted by 14 April 2023 through https://forms.office.com/r/eKjC9gMTLQ. When preparing the feedback, specific queries can also be directed to [email protected].  Submissions received may be made public unless confidentiality is specifically requested for the whole or any part of the submission. Issuance Date: 28 February 2023 Issuing Department: Jabatan Konsumer dan Amalan Pasaran Document: Exposure Draft on Fair Treatment of Vulnerable Consumers Bank Negara Malaysia 28 February 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

Exposure Draft on Quality and Integrity of Currency

https://www.bnm.gov.my/-/ed-quality-integrity-currency-2023

https://www.bnm.gov.my/documents/20124/938039/ED-quality-integrity-currency-2023.pdf

Reading: Exposure Draft on Quality and Integrity of Currency Share: Exposure Draft on Quality and Integrity of Currency Embargo : For immediate release Not for publication or broadcast before 1000 on Wednesday, 22 February 2023 22 Feb 2023 This Exposure Draft sets out the following: (a) criteria in determining the quality of currency in circulation; (b) standards in processing and recirculating currency to the public; (c) standards in handling suspected counterfeit Malaysian currency in Malaysia; (d) requirements to record and report suspected counterfeit Malaysian currency; (e) timeline to lodge a report with Polis Diraja Malaysia of suspected counterfeit Malaysian currency; and (f) requirements to have competent staff and possess suitable currency processing machines. The Bank invites written comments on this Exposure Draft, including suggestions for particular issues or areas to be clarified and any alternative proposals that the Bank should consider. To facilitate the Bank’s assessment, please clearly notate the relevant paragraph which relates to the comment provided and support each comment with a clear rationale and accompanying evidence, as appropriate. Responses must be submitted electronically in the prescribed format and addressed to [email protected] by 30 April 2023. Issuance Date: 22 February 2023 Issuing Department: Currency Management and Operations Document: Exposure Draft on Quality and Integrity of Currency Bank Negara Malaysia 22 February 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

20 Jan 2023

Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) – Standardised Approach for Credit Risk

https://www.bnm.gov.my/-/ed-basel3-credit-risk-2023

https://www.bnm.gov.my/documents/20124/938039/ED-CAF-Std-App-Cr-Risk.pdf

Reading: Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) – Standardised Approach for Credit Risk Share: 25 Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) – Standardised Approach for Credit Risk Embargo : For immediate release Not for publication or broadcast before 1615 on Friday, 20 January 2023 20 Jan 2023 This exposure draft sets out the proposed requirements on the calculation of the capital charge for the Standardised Approach for Credit Risk under the Basel III reforms by financial institutions. These requirements also apply to financial institutions applying the Internal Ratings-Based Approach for Credit Risk in determining the output floor requirement, which will be consulted in the exposure draft on Capital Adequacy Framework (Basel III - Risk-Weighted Assets) - Internal Ratings-Based Approach for Credit Risk. The Bank invites feedback on this exposure draft, including suggestions for specific issues or areas to be clarified and any alternative proposals the Bank should consider. All feedback for the exposure draft must be submitted by 30 June 2023 to [email protected]. Submissions received may be made public unless confidentiality is specifically requested for the whole or any part of the submission. Issuance Date: 20 January 2023 Issuing Department: Jabatan Dasar Kewangan Pruden Document: Exposure Draft on Capital Adequacy Framework (Basel III – Risk-Weighted Assets) – Standardised Approach for Credit Risk Bank Negara Malaysia 20 January 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

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-update-240419

Reading: Financial Consumer Alert update Share: Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1000 on Friday, 19 April 2024 19 Apr 2024 Bank Negara Malaysia (BNM) has updated the Financial Consumer Alert list. The list consists of companies and websites that are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The following companies were added to the list: Wahed Trader Team Investment, Wahed Investment Trader (not related to Wahed Technologies Sdn Bhd licensed under Securities Commission Malaysia)  (AAA) Labur Saham Syariah, (AAA) Asri Ahmad Academy, Salam Mohd Asri Ahmad (SMAA) (not related to Asri Ahmad Academy Sdn Bhd)  MIDF Investment Scheme (not related to MIDF Amanah Investment Bank Berhad)  Invest KL Malaysia (not related to InvestKL)  Please be informed that the latest updates on HSBC Bank Investment (not related to HSBC Bank Malaysia Berhad) and ASNB Investment (not related to Amanah Saham Nasional Berhad) are also available in the Financial Consumer Alert list. The list will be updated regularly for public's reference. To view the updated list, please visit: bnm.gov.my/fca  Bank Negara Malaysia 19 April 2024 © Bank Negara Malaysia, 2024. All rights reserved.

Public Notice

17 Apr 2024

17th Auction of Ringgit Banknotes with Special Serial Numbers

https://www.bnm.gov.my/-/17aucmyr-en

Reading: 17th Auction of Ringgit Banknotes with Special Serial Numbers Share: 3 17th Auction of Ringgit Banknotes with Special Serial Numbers Embargo : For immediate release Not for publication or broadcast before 0945 on Wednesday, 17 April 2024 17 Apr 2024 BNM will be holding the 17th Auction of ringgit banknotes with special serial numbers. The online auction will open from 20 April until 27 April 2024. In addition to online auction, onsite auction and live auction will commence concurrently on 27 April 2024 (Saturday) 10.30 a.m. at Sasana Kijang, Bank Negara Malaysia. All auctions will be conducted by BNM’s appointed auctioneer, MNP Auctioneers (Central) Sdn. Bhd. (MNP). Ringgit banknotes with special serial numbers, such as sets of the first 10 banknotes (e.g. PP0000001-0000010) and super solid numbers with repetitive prefix (e.g. PP8888888) will be auctioned. Those who are interested to participate in the auction must register via this link (www.best2bid.com). Online bidding can also be placed at the same link. Further information on the auction can be obtained through MNP’s website at www.mnp.com.my or MNP’s customer service hotline via 017-400 6661. Bank Negara Malaysia 17 April 2024 © Bank Negara Malaysia, 2024. All rights reserved.

Public Notice

15 Apr 2024

Policy Document on Electronic Know-Your-Customer (e-KYC)

https://www.bnm.gov.my/-/pd-ekyc-en

https://www.bnm.gov.my/documents/20124/938039/faq-ekyc-apr24.pdf, https://www.bnm.gov.my/documents/20124/938039/pd_ekyc-apr2024.pdf

Reading: Policy Document on Electronic Know-Your-Customer (e-KYC) Share: 32 Policy Document on Electronic Know-Your-Customer (e-KYC) Embargo : For immediate release Not for publication or broadcast before 1200 on Monday, 15 April 2024 15 Apr 2024 This policy document sets out BNM's revised requirements and guidance in implementing electronic Know-Your-Customer (e-KYC) solutions for the onboarding of individuals and legal persons to the financial sector.  The revised requirements and guidance in this policy document seek to accommodate advancements in technology to facilitate the secure and safe adoption of e-KYC solutions for both individuals and legal persons while preserving the integrity of the financial system.  Supplementing this, BNM has also revised the Frequently Asked Questions document to provide clarification on common queries in relation to the revised policy requirements. Issuance Date 15 April 2024 Effective Date 15 April 2024 Issuing Department Financial Development and Innovation Department  Applicability 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 Documents Policy Document on Electronic Know-Your-Customer (e-KYC) Frequently Asked Questions     Bank Negara Malaysia 15 April 2024 © Bank Negara Malaysia, 2024. All rights reserved.

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. Electronic Know-Your-Customer (e-KYC) 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 8.22 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]

Public Notice

27 Mar 2024

Policy Document on Fair Treatment of Financial Consumers

https://www.bnm.gov.my/-/pd-ftfc

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

Reading: Policy Document on Fair Treatment of Financial Consumers Share: 8 Policy Document on Fair Treatment of Financial Consumers Embargo : For immediate release Not for publication or broadcast before 1615 on Wednesday, 27 March 2024 27 Mar 2024 This revised policy document is an enhanced version of the Policy Document on Fair Treatment of Financial Consumers (FTFC) issued by Bank Negara Malaysia (BNM) in November 2019. It sets out existing requirements and guidance for financial service providers (FSPs) to treat financial consumers fairly by adopting high standards of responsible and professional conduct and embedding a culture where the interests of financial consumers are an integral part of FSP’s business strategies and operations. This revised policy document introduces a new principle and specific requirements for FSPs to consider and respond to the interests and needs of vulnerable consumers in conducting its business and operations. FSPs are expected to provide the appropriate support to vulnerable consumers, consistent with fair treatment of financial consumer outcomes. Throughout the revised policy document, BNM has supplemented existing and new requirements with illustrations of good and poor practices to facilitate industry implementation. Highlights For ease of reference, key revisions made to the policy document on FTFC include: Enhancements to the definitions of “representatives” and “agents” and the inclusion of the definitions of “persons with disabilities” and “vulnerable consumer” under paragraph 5.2; Enhancements to the specification of “financial consumer” under paragraph 7.1; Inclusion of new Outcome 7 to ensure vulnerable consumers are treated fairly and equitably by the FSP, and the FSP’s staff, representatives and agents under paragraph 8.1(g); Enhancements to the role of the board and senior management in demonstrating a commitment to the fair treatment of vulnerable consumers, including establishing and maintaining appropriate policies, processes and accountability structures under paragraphs 10.2 to 10.4; Inclusion of principle 7 to set out new requirements on the fair treatment of vulnerable consumers under paragraphs 16.1 to 16.28; Enhancements of existing and inclusion of new good and poor practices throughout the policy document to illustrate BNM’s expectations and assist FSPs in understanding and complying with the policy document’s requirements; Enhancements of fair outcomes to financial consumers under Appendix 1; Enhancements to the illustration of the Treat Customers Fairly Charter under Appendix 2; and Inclusion of new good practices by FSPs in dealing with persons with disabilities and other vulnerable consumers, where relevant, under Appendix 5. BNM has also responded to key feedback received on the Exposure Draft on Fair Treatment of Vulnerable Consumers issued in February 2023, which is accessible through the document attached below. In addition, BNM will enhance the existing Frequently Asked Questions (FAQs) on the FTFC document for issuance soon. Issuance Date 27 March 2024 Effective Date 27 March 2024 Issuing Department Jabatan Konsumer dan Amalan Pasaran Documents Policy Document on Fair Treatment of Financial Consumers Exposure Draft on Fair Treatment of Vulnerable Consumers Feedback Statement: Summary of Key Feedback Received and BNM’s Responses  Bank Negara Malaysia 27 March 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

Climate Risk Stress Testing Methodology Paper

https://www.bnm.gov.my/-/climate-risk-stress-testing

https://www.bnm.gov.my/documents/20124/938039/pd_CRST_29Feb2024.pdf

Reading: Climate Risk Stress Testing Methodology Paper Share: 2 Climate Risk Stress Testing Methodology Paper Embargo : For immediate release Not for publication or broadcast before 1804 on Thursday, 29 February 2024 29 Feb 2024 Bank Negara Malaysia has issued the Methodology Paper on Climate Risk Stress Testing (CRST) on 29 February 2024. This Methodology Paper sets out the Bank’s expectations for financial institutions carrying out the industry wide 2024 CRST exercise. The CRST exercise aims to provide financial institutions with hands-on experience in quantifying climate risk, refine their existing risk management strategies and explore new stress testing approaches that are relevant for assessing climate-related risks. Read the Climate Risk Stress Testing (CRST) Methodology Paper. Bank Negara Malaysia 29 February 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

Exposure Draft on Product Transparency and Disclosure

https://www.bnm.gov.my/-/ed-prod-trp

https://www.bnm.gov.my/documents/20124/938039/ED-Product-Transparency-Disclosure-Feb24.pdf

Reading: Exposure Draft on Product Transparency and Disclosure Share: Exposure Draft on Product Transparency and Disclosure Embargo : For immediate release Not for publication or broadcast before 1800 on Thursday, 29 February 2024 29 Feb 2024 This exposure draft introduces new and enhanced disclosure requirements. It is aimed at ensuring that product disclosure continues to serve its purpose of facilitating consumers to assess product suitability and make informed financial choices. The principle-based requirements under Part B of the exposure draft 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. Bank Negara Malaysia (BNM) invites written feedback on the regulatory requirements in this exposure draft. This includes suggestions on specific issues or areas that need further clarification or alternative proposals that BNM should consider. The written feedback should be supported with clear rationale, evidence or illustrations, as may be appropriate, to facilitate the assessment.  Feedback must be submitted electronically to the Bank by 29 March 2024 through https://forms.office.com/r/Jcmig4dW0d.   Issuance Date 29 February 2024   Issuing Department Jabatan Konsumer dan Amalan Pasaran   Document Exposure Draft on Product Transparency and Disclosure Bank Negara Malaysia 29 February 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

Policy Document on Fintech Regulatory Sandbox Framework

https://www.bnm.gov.my/-/sandbox-pd24

https://www.bnm.gov.my/documents/20124/938039/form-sandbox-greenlane.pdf, https://www.bnm.gov.my/documents/20124/938039/faq-sandbox-feb24.pdf, https://www.bnm.gov.my/documents/20124/938039/form-sandbox-standard.pdf, https://www.bnm.gov.my/documents/20124/938039/pd-sandbox-feb24.pdf

Reading: Policy Document on Fintech Regulatory Sandbox Framework Share: Policy Document on Fintech Regulatory Sandbox Framework Embargo : For immediate release Not for publication or broadcast before 1700 on Thursday, 29 February 2024 29 Feb 2024 Summary This policy document sets out Bank Negara Malaysia’s (BNM) revised Financial Technology Regulatory Sandbox Framework (Framework) policy document, which contains enhancements to the policy document of the same name issued on 18 October 2016 [BNM/RH/PD 030-1]. The enhancements are focused on ensuring proportionate regulatory facilitation and improving the operational efficiency of the existing sandbox procedures through: a) simplifying the sandbox’s Stage 1 (eligibility) assessment; and b) introducing a Green Lane, which aims to provide a risk-proportionate and accelerated pathway for innovative solutions by financial institutions with solid risk management capabilities. The Frequently Asked Questions document provides an additional explanation of the interpretation and implementation of the enhanced Framework. Applicability An authorised or registered person under the Financial Services Act 2013 (FSA) An authorised person under the Islamic Financial Services Act 2013 (IFSA) A licensee under the Money Services Business Act 2011 (MSBA) A prescribed institution under the Development Financial Institutions Act 2002 (DFIA) A fintech company intending to carry on: a) an authorised or registered business as defined in the FSA; b) an authorised business as defined in the IFSA; or c) a money services business as defined in the MSBA. Issuance Date 29 February 2024 Effective Date 29 February 2024 Issuing Department Financial Development and Innovation Department Relevant Acts Financial Services Act 2013 Islamic Financial Services Act 2013 Money Services Business Act 2011 Development Financial Institutions Act 2002 Documents Policy Document on Financial Technology Regulatory Sandbox Framework Frequently Asked Questions Standard Sandbox Application Form Green Lane Application Form See also: Regulatory Sandbox information page Bank Negara Malaysia 29 February 2024 © Bank Negara Malaysia, 2024. All rights reserved.

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: 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. 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. 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:

Public Notice

28 Feb 2024

Discussion Paper on RENTAS Modernisation Plans

https://www.bnm.gov.my/-/rentas-dp

https://www.bnm.gov.my/documents/20124/943361/dp-RENTAS-modernisation-Feb2024.pdf

Reading: Discussion Paper on RENTAS Modernisation Plans Share: Discussion Paper on RENTAS Modernisation Plans Embargo : For immediate release Not for publication or broadcast before 1730 on Wednesday, 28 February 2024 28 Feb 2024 This discussion paper sets out Bank Negara Malaysia’s (BNM) proposed plan to modernise the Real Time Electronic Transfer of Funds and Securities System (RENTAS). This modernisation plan is centred around two overarching themes, namely futureproofing RENTAS and enhancing risk management and user functionalities. Key areas of development include supporting near 24/7 operations, wider participant access to RENTAS, enhancing data sharing and analytics capabilities, as well as more effective liquidity management tools. This paper aims to gather feedback on the identified plans and use cases within the proposed RENTAS modernisation strategy. BNM invites written feedback on the proposals in this discussion paper, including suggestions for specific issues, areas to be clarified or elaborated further, and alternative proposals BNM should consider. The written feedback should be supported with clear rationale, accompanying evidence or appropriate illustrations to facilitate an effective review of this discussion paper. Responses must be submitted electronically to BNM by 15 April 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. See also: RENTAS Modernisation Plans Discussion Paper Bank Negara Malaysia 28 February 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

Exposure Draft on Islamic Banking Window

https://www.bnm.gov.my/-/ed-ibw

https://www.bnm.gov.my/documents/20124/938039/ed-islamic-banking-window-jan24.pdf

Reading: Exposure Draft on Islamic Banking Window Share: 3 Exposure Draft on Islamic Banking Window Embargo : For immediate release Not for publication or broadcast before 1900 on Wednesday, 7 February 2024 7 Feb 2024 This Exposure Draft sets out Bank Negara Malaysia (BNM)’s proposed enhancements to the Guidelines on Skim Perbankan Islam and outlines authorisation, governance, prudential and operational regulatory requirements applicable to Islamic Banking Window. BNM would like to invite written feedback on the proposals in this exposure draft, including suggestions for specific issues, areas to be clarified or elaborated further, and any alternative proposals that BNM 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. Feedback for the exposure draft must be submitted electronically to BNM by 31 March 2024 to [email protected] Submissions received may be made public on anonymous basis unless confidentiality is specifically requested for the whole or any part of the submission. Read the Exposure Draft on Islamic Banking Window Bank Negara Malaysia 7 February 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

Policy Document on Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions

https://www.bnm.gov.my/-/pd-amlcftcpftfs-fi

https://www.bnm.gov.my/documents/20124/938039/pd-AMLCFTCPF-TFS-FI-Feb2024_+2.pdf

Reading: Policy Document on Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions Share: 10 Policy Document on Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions Embargo : For immediate release Not for publication or broadcast before 1700 on Monday, 5 February 2024 5 Feb 2024 The Anti-Money Laundering (AML), Countering Financing of Terrorism (CFT), Countering Proliferation Financing (CPF) and Targeted Financial Sanctions (TFS) for Financial Institutions (AML/CFT/CPF and TFS for FIs) policy document is a revision of the AML/CFT and TFS for FIs policy document issued on 31 December 2019. This policy document incorporates the recent updates to the Financial Action Task Force’s Standards and enhances clarity on the AML/CFT/CPF requirements imposed on reporting institutions. Reporting institutions are required to implement a risk-based approach in managing ML/TF/PF risks and comply with the TFS requirements. Issuance Date 5 February 2024 Effective Date 6 February 2024 Issuing Department Financial Intelligence and Enforcement Department 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 Document Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing and Targeted Financial Sanctions for Financial Institutions    Bank Negara Malaysia 5 February 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

BNM Shariah Advisory Council's Ruling on Buy Now Pay Later Facility

https://www.bnm.gov.my/-/sac-ruling-bnpl

https://www.bnm.gov.my/documents/20124/13282254/SAC_Ruling_on_BNPL_220_228_231_SAC_Meeting.pdf

Reading: BNM Shariah Advisory Council's Ruling on Buy Now Pay Later Facility Share: 16 BNM Shariah Advisory Council's Ruling on Buy Now Pay Later Facility Embargo : For immediate release Not for publication or broadcast before 1200 on Wednesday, 24 January 2024 24 Jan 2024 Pursuant to section 52 of the Central Bank of Malaysia Act 2009, the BNM Shariah Advisory Council (SAC) at its 220th SAC Meeting dated 24 January 2022, 228th SAC Meeting dated 28 February 2023, and 231st SAC Meeting dated 26 June 2023, made a ruling in respect of the Buy Now Pay Later (BNPL) facility. This ruling aims to clarify the Shariah requirements on Islamic BNPL facility. This SAC ruling comes into effect immediately upon its publication on the BNM website on 24 January 2024 Issuance Date 24 January 2024 Effective Date 24 January 2024 Applicability Islamic Financial Services Act (IFSA) Licensees Financial Services Act (FSA) Licensees Development Financial Institutions Act (DFIA) Licensees Issuing Department Islamic Finance Department Document The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on Buy Now Pay Later (BNPL) Facility   Bank Negara Malaysia 24 January 2024 © Bank Negara Malaysia, 2024. All rights reserved.

The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on Buy Now Pay Later (BNPL) Facility SAC 220th, 228th and 231st Meetings 2024 1 The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on Buy Now Pay Later (BNPL) Facility 220th SAC Meeting dated 24 January 2022, 228th SAC Meeting dated 28 February 2023 and 231st SAC Meeting dated 26 June 2023 Part I: SAC Ruling, Its Effective Date and Applicability Pursuant to section 52 of the Central Bank of Malaysia Act 2009, the SAC at its 220th meeting ruled that the Buy Now Pay Later (BNPL) facility is permissible, provided that the BNPL facility is structured based on appropriate Shariah contract(s) to preserve the rights and obligations of the contracting parties. As such, written approval of the Islamic financial service provider’s Shariah committee is required to ensure that the structure of the BNPL facility and its contractual terms and conditions comply with Shariah. Subsequently, the SAC at its 228th and 231st meeting ruled that a BNPL facility which enables the purchase of gold and silver (ribawi items) that have the `illah (effective cause) of money must be conducted on spot basis. However, the settlement period of up to T+2 is permitted due to operational constraints and business customary practices (`urf tijari). Consistent with the objectives of Shariah (maqasid Shariah), the SAC encourages Islamic financial service providers to uphold responsible practices by having in place a thorough credit evaluation process to assess consumers’ affordability. These practices aim to encourage prudent and responsible use of a BNPL facility to ensure that consumers’ financial health is not adversely affected. 1.1. This ruling comes into effect immediately upon publication of this ruling on Bank Negara Malaysia’s (the Bank) website dated 24 January 2024 and is applicable to the following: (a) licensed Islamic banks under the Islamic Financial Services Act 2013 (IFSA) including those carrying on Islamic digital banking business; (b) licensed banks and licensed investment banks approved under section 15(1) of the Financial Services Act 2013 (FSA) to carry on Islamic banking business; and (c) prescribed institutions approved under section 33B(1) of the Development Financial Institutions Act 2002 (DFIA) to carry on Islamic financial business. For the purpose of this ruling, the above persons shall be referred to as “Islamic financial service providers (Islamic FSP)”. 1.2. In line with sections 28(1) and (2) IFSA and sections 33D(1) and (2) DFIA, as the case may be, Islamic FSP are required to comply with this ruling as compliance with any ruling of the SAC in respect of any particular aim and operation, business, affair or activity of the Islamic FSP shall be deemed to be in compliance with Shariah. Part II: Background 2.1. In general, a BNPL facility enables consumers to purchase goods or services from merchants with the option of deferring payment and/or splitting the purchase price into instalments. A BNPL provider typically advances full or partial settlement to the merchants on behalf of the SAC 220th, 228th and 231st Meetings 2024 2 consumers, and consumers will make payments accordingly to the BNPL providers based on the agreed terms and conditions1. 2.2. In Shariah, a BNPL facility may be deemed as an extension of the traditional sale contract2 which is already well-established and permissible in Islam, provided that the sale transaction is conducted in a manner that is consistent with Shariah principles. 2.3. At present, BNPL facility offered by non-bank providers do not fall within the regulatory purview of the Bank or any regulatory agency. The proposed enactment of a Consumer Credit Act (CCA) will establish the Consumer Credit Oversight Board (CCOB) as an independent competent authority to regulate, among other things, Islamic BNPL. 2.4. A BNPL facility enables merchants to have a faster settlement process, and allow consumers to defer payments for goods and services without being subject to profit rate, provided that the instalments are paid on time. There has been a moderate growth in demand for BNPL facility, supported by the growing numbers of non-bank BNPL providers entering the BNPL market space. While licensed financial institutions have yet to offer BNPL facility at the moment, a licensed financial institution may offer their BNPL facility in a standalone manner or via a partnership with another (existing) BNPL providers. 2.5. Briefly, the (existing) BNPL facility operates as per the following structure: Illustration: Example Structure of BNPL Facility Shariah issue 2.6. Based on the above structure, the SAC discussed the key Shariah considerations in structuring a Shariah compliant BNPL facility for Islamic FSP. 1 Based on the feedback received by the Bank from the industry. 2 Reference is made to paragraph 4.1. 1. A consumer purchases item from a merchant using BNPL facility. 2. The BNPL provider makes full or partial settlement for consumer’s purchase with the merchant, subject to the arrangement between BNPL provider and merchant. 3. The BNPL provider imposes fee to the merchant based on the contractual agreement between the BNPL provider and the merchant. 4. The consumer pays to the BNPL provider based on the agreed contractual terms and conditions, including instalment period, and fees and charges structure. SAC 220th, 228th and 231st Meetings 2024 3 Part III: Key Discussion Ensuring Shariah compliance in the Islamic BNPL facility 3.1. The SAC recognises that there are various types of operational model adopted by different BNPL providers in the global and domestic market. While remaining supportive of and accommodative to innovation, in order to ensure that the operational structure and business model of the BNPL facility are consistent with Shariah principles, the SAC requires Islamic BNPL to comply with the following: a. The collective use of Shariah contracts3 as the underlying structure for the BNPL facility must observe the relevant Shariah requirements which are applicable to each Shariah contract and to the combined contracts4; b. The use of such Shariah contracts under the BNPL facility must preserve the primary objective of the contract (muqtada `aqad); c. The Shariah contracts used under the BNPL facility must appropriately reflect the contractual rights and obligations of the contracting parties; d. The use of Shariah contracts as the basis of various features in the BNPL facility must not be structured in a way that gives rise to riba practices; and e. Where late payment charges are imposed, such imposition must reflect the actual cost incurred from such late payment and/or defaults by the consumer as it would be considered as compensation (ta`widh). The cost component must be justified according to applicable requirements imposed by the Bank and approved by the respective Shariah committee. 3.2. Where a Shariah-compliant BNPL facility is offered on a platform which also sells non-Shariah compliant goods and services, such BNPL facility would not be automatically considered as Shariah non-compliant, subject to the following: a. The transaction conducted using the Shariah-compliant BNPL facility is confined only to Shariah-compliant goods and services; b. The Shariah committee of respective Islamic FSP has approved the offering of such Shariah-compliant BNPL facility on such platform; and c. The Shariah-compliant BNPL facility has in place appropriate safeguards to ensure no transaction involving non-Shariah compliant goods and services can be facilitated. 3.3. Islamic FSP that facilitate the purchase and sale transactions of gold and silver (ribawi items) that have the `illah (effective cause) of money, shall comply with the following requirements: a. The transaction must be conducted on spot basis. However, the settlement period of up to T+2 is permitted due to operational constraints and business customary practices (`urf tijari)5; and b. The possession of gold and silver purchased by the consumer must take place at the time of transaction, either physically (haqiqi) or constructively (hukmi)6. 3 The collective use of the Shariah contracts is deemed as an innominated contract in the classical text (`uqud ghair musamma) which refers to Shariah contracts that have no specific ruling and classification in classical fiqh literatures. (Mustafa al-Zarqa’, al-Madkhal al- Fiqhi al-`Am, Dar al-Qalam, Damascus, 2004, p. 605 يرتب لها التشريع أحكاما خاصة بهاهي التي لم تسم باسم خاص يميزها، أو لم ). 4 Reference is made to paragraph 4.5 of this document. 5 Similar permissibility is accorded to bai` al-sarf (currency exchange) transaction, where the exchange can be extended beyond the contract session due to established customary business practice (‘urf tijari) resulting from operational constraints. 6 Especially for online purchase and sale transactions of gold and silver (that have the ‘illah of money). The Shariah requirements of constructive possession must take place i.e., transfer of ownership rights (takhliyyah), benefit rights (tamkin) and liability rights (dhaman). SAC 220th, 228th and 231st Meetings 2024 4 3.4. The Shariah committee of an Islamic FSP are responsible for providing objective and sound advice to Islamic FSP to ensure that its aims and operations, business, affairs, and activities are in compliance with Shariah. Advocacy towards responsible and prudent use of BNPL facility 3.5. The easy accessibility and fast credit approval process of the BNPL facility may inadvertently influence consumers to spend beyond consumers’ affordability. Given the lack of a central credit bureau reporting for BNPL facility obtained from the non-bank BNPL providers, Islamic FSP may face challenges in assessing consumers’ overall credit exposure, risking consumers accumulating larger outstanding debt across multiple BNPL providers. Without proper credit management and financial discipline, this could pose risk to the financial well-being of consumers7. 3.6. Premised on the above, and in line with the principle of maqasid Shariah that encourages the preservation of wealth (hifz al-mal), particularly in striving to avoid excessive indebtedness beyond one’s financial affordability, the SAC urges the following: i. Islamic FSP to uphold responsible practices, where the credit and affordability assessment process should be thorough and must takes into consideration consumers’ existing debts and income levels. Islamic FSP should ensure their processes comply with the relevant requirements imposed by the Bank; and ii. Responsible practices in offering a BNPL facility, including the provision of clear and timely disclosures to consumers, would help consumers to make more informed decisions and further encourage the responsible and prudent use of the BNPL facilities. The above paragraph is primarily intended to curb potential adverse financial impact to consumers. Part IV: Basis of Ruling The BNPL facility as an evolved form of traditional sale contract with deferred payment 4.1. The practice of sale and purchase with deferred payment (bai’ bithaman ajil) and deferred payment made into a fixed schedule (bai’ taqsith) are recognised form of commercial transaction since the time of Prophet ( ملسو هيلع هللا ىلص). اشرتى رسول هللا صلى هللا عليه وسلم من يهودي طعاما إىل أجل ورهنه درعا من حديد: قَاَلتْ َعْن َعاِئَشَة، “A'isha, the wife of Prophet (ملسو هيلع هللا ىلص) reported: the Prophet (ملسو هيلع هللا ىلص) purchased food from a Jew on credit and mortgaged his iron armour to him” 8 7 The SAC was presented with the data of market conduct related risk and global payment delinquency that demonstrates the percentage of BNPL users who have missed more than one payment. 8 Imam al-Bukhari, Shahih Bukhari, دار األرقم للنشر والتوزيع، الكويت, v.3, p. 86, hadith no. 2252 and Imam Muslim, Shahih Muslim, مطبعة عيسى .v. 3, p. 1226, hadith no. 1603 , البابي الحلبي وشركاه، القاهرة SAC 220th, 228th and 231st Meetings 2024 5 4.2. As for bai’ taqsith, Shariah scholars9 who have opined its permissibility argued that everything that is permissible to be within one’s liability/obligation (zimmah) for a period, must also be, consistently permissible to be so in two or more terms. 4.3. The occurrence of one’s indebtedness in such transaction must be evidenced by proper documentation with a clear stipulation of the tenure, payment schedule, and instalment amount at the point of inception. This is consistent with the following verse: ُتمْ ِإَذا آَمُنوا الَِّذينَ أَي َُّها يَ فَاْكتُ ُبوهُ ُمَسمًّى َأَجل ِإىَل ِبَدْين َتَدايَ ن ْ “O you who believed, when you contract a debt for a specified time frame, commit it to writing”10 Flexibility to structure new innovative products accorded with specific conditions 4.4. The flexibility accorded in Shariah allows for the emergence of many innovative commercial products that can be structured based on appropriate Shariah contracts to ensure Shariah compliance and to preserve the rights and obligations of the contracting parties. This is based on the following fiqh maxim: والصحة اجلواز والشروط العقوداألصل يف “The basic principle with regard to contracts and conditions is permissibility and validity”11 4.5. In using the appropriate Shariah contracts, the collective use of several Shariah contracts in one single product is allowed12 subject to the following conditions: (i) each contract is permissible by Shariah; (ii) there is no clear Shariah injunction on its prohibition to be used collectively13, such as a restriction on the combination of sales and loan contracts (bai` wa salaf); and (iii) there is no contradiction between the Shariah principles governing each contract, such as hibah and lease of the same asset to the same recipient simultaneously. 4.6. The collective use of Shariah contracts is intended to fulfil the intention and the needs of the contracting parties as well as to properly reflect the actual operating mechanism of a particular product14. The emergence of such contracts through the ijtihad of Shariah scholars could address the evolving needs in the economy and promote innovation in Islamic finance, whilst consistently observing the relevant Shariah principles. The transaction of gold and silver 4.7. The purchase and sale transaction of gold and silver (ribawi items) with currency must be done on spot basis as guided in the following hadith: 9 Shafi’e and Maliki’s school of thoughts in their superior opinion based from Raudhatul al-Talibin, v.4,p.11, Asna al-Matholib, v.2,p.126, al-Mughni, v.4,p.338, al-Isyraf ‘ala al-Masa’il al-Khilaf, v.1, p.280, al-Muhazzab, v.1, p.307. 10 Surah Al-Baqarah, verse 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, v. 2, p. 815. 12 This view is consistent with the decision of the SAC at its 140th Meeting on 28 October 2013 and 166th Meeting on 23 February 2016 that resolves on permissibility to combine several Shariah contracts in one master agreement. 13 Hasan Ali al-Syazili, Ijtima` al-`Uqud al-Mukhtalifah fi `Aqd Wahid, in A`maal al-Nadwah al-Fiqhiyyah al-Khamisah li Bait Tamwil al- Kuwaiti, Bait al-Tamwil al-Kuwaiti, 1998, p. 506. 14 Mustafa al-Zarqa’, al-Madkhal al-Fiqhi al-`Am, Dar al-Qalam, Damascus, 2004, p. 605. SAC 220th, 228th and 231st Meetings 2024 6 الذََّهُب ِِبلذََّهِب َواْلِفضَُّة ِِبْلِفضَِّة َواْلُُبُّ قَاَل َرُسوُل اَّللَِّ صلى هللا عليه وسلم " :َعْن ُعَباَدَة ْبِن الصَّاِمِت، قَالَ بَِيد فَِإَذا اْختَ َلَفْت َهِذِه ِِبْلُُبِر َوالشَِّعرُي ِِبلشَِّعرِي َوالتَّْمُر ِِبلتَّْمِر َواْلِمْلُح ِِبْلِمْلِح ِمْثاًل ِبِْثل َسَواًء ِبَسَواء َيًدا ُتمْ ِإَذا َكاَن َيًدا بَِيد اأَلْصَناُف فَِبيُعوا َكْيَف ِشئ ْ “Ubadah Ibn Samit narrated: Prophet ( ملسو هيلع هللا ىلص) said: gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.”15 4.8. However, the operational constraints to conduct the settlement on spot basis in certain circumstances is recognised based on the following fiqh maxim: التيسري جتلب املشقة 16“Difficulty calls for facilitation” 4.9. Business customary practices (`urf tijari) is recognised in deriving the Shariah ruling based on the following fiqh maxim: العادة حمكَّمة “Custom is a basis for judgment” The encouragement towards responsible practices and prudent financial behaviour in line with the maqasid Shariah 4.10. While Shariah recognises the concept of debt, it is encouraged for the debt practices to be conducted in a responsible manner, from both creditor and debtor’s perspectives. This may include the lender’s responsibility to undertake reasonable evaluation on whether the borrower’s objective of seeking the debt corresponds with his/her financial affordability. The Prophet (ملسو هيلع هللا ىلص) has demonstrated the good practice of honouring a financial commitment and ability to fulfil his debt obligation: ِه، َعنْ َأبِيِه، َعنْ رَبِيَعَة، َأِب ْبنِ اَّللَِّ َعْبدِ ْبنِ ِإبْ َراِهيمَ ْبنِ ِإْْسَاِعيلَ َعنْ هللا صلى النَِّبُّ ِمنِر اْستَ ْقَرضَ قَالَ َجدِر َا َوَماِلكَ َأْهِلكَ يف َلكَ اَّللَُّ َِبَركَ َوقَالَ ِإىَلَّ َفَدفَ َعهُ َمال َفَجاَءهُ أَْلًفا َأْربَِعيَ وسلم عليه اْْلَْمدُ السََّلفِ َجَزاءُ ِإَّنَّ َواأَلَداء “It was narrated from Isma'il bin Ibrahim bin 'Abdullah bin Abi Rabi'ah, from his father, that his grandfather said: The Prophet (ملسو هيلع هللا ىلص) borrowed forty thousand from me, then he received some wealth, and he paid me back while said: 'May Allah bless your family and your wealth, indeed the reward for lending (salaf) is gratefulness and the fulfilment of (the debt) obligation”17 15 Imam Muslim, Shahih Muslim, مطبعة عيسى البابي الحلبي وشركاه، القاهرة, v.3, p.1211, hadith no. 1587. 16 Al-Suyuti, Al-Asybah wa al-Naza’ir, Dar al-Kutub al-`Ilmiyyah, 1983, p. 76-77. 17 Imam Ahmad An-Nasa’i, Kitab al-Buyu` in Sunan An-Nasa’I, no. 235. SAC 220th, 228th and 231st Meetings 2024 7 4.11. Shariah encourages responsible financial consumption behaviour towards the attainment of benefit and prevention of harm to the individual consumers. Therefore, it is crucial to recognise one’s financial capability and to avoid excessive indebtedness beyond the one’s actual need and ability to afford. This is in line with the following verse: ِلكَ َبْيَ وََكانَ يَ ْقرُتُواْ َولَْ ُيْسرُِفواْ لَْ أَنَفُقواْ ِإَذا لَِّذينَ ٱوَ قَ َواًما ذََٰ “And (the servants of Allah) are those who, when they spend, do so not excessively nor miserly, but moderately in between”18 4.12. Collectively, the inculcation of responsible debt practices and prudent financial behaviour could ultimately give rise to a commercial transaction that does not inflict harm on both creditor and debtor. This resonates well with the following fiqh maxim: رَا لَا ا لَا َضا ارَا وا ا َضر “Neither harming nor reciprocating harm (in Islam)”19 Part V: Implication of the SAC Ruling 5.1. The SAC Ruling provides clarity on the key Shariah considerations that must be fulfilled by Islamic FSP which intends to offer a Shariah-compliant BNPL facility, as set out in paragraph 1.1. This will ensure an end-to-end Shariah-compliant product structure offered by Islamic FSP. 5.2. Non-bank Islamic BNPL providers that intends to offer Shariah-compliant BNPL facility are encouraged to refer to the SAC Ruling as a guide and educate their consumers on the essence of the Shariah-compliant BNPL facility. 18 Surah Al-Furqan, verse no. 67. 19 Ahmad al-Zarqa`, Syarh al-Qawaid al-Fiqhiyyah, Dar al-Qalam, 1985, p. 165.

Public Notice

23 Jan 2024

Financial Consumer Alert update

https://www.bnm.gov.my/-/fca-update-240123

Reading: Financial Consumer Alert update Share: 2 Financial Consumer Alert update Embargo : For immediate release Not for publication or broadcast before 1002 on Tuesday, 23 January 2024 23 Jan 2024 Bank Negara Malaysia (BNM) has updated the Financial Consumer Alert list. The list consists of companies and websites that are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM.  The following companies were added to the list:  Opai FX  Aneka Construction Trading  Al Ihsan Robo Capital  Al Ihsan  Please be informed that the latest updates on Skim Pelaburan SMMG and OctaFX are also available in the Financial Consumer Alert list.  The list will be updated regularly for public's reference. To view the updated list, please visit: bnm.gov.my/fca Bank Negara Malaysia 23 January 2024 © Bank Negara Malaysia, 2024. All rights reserved.

Public Notice

18 Jan 2024

Beware of postings that misuse BNM's name, logo or senior officer's name

https://www.bnm.gov.my/-/scam-alert-240118

Reading: Beware of postings that misuse BNM's name, logo or senior officer's name Share: Beware of postings that misuse BNM's name, logo or senior officer's name Embargo : For immediate release Not for publication or broadcast before 2130 on Thursday, 18 January 2024 18 Jan 2024 Do not be deceived by videos, postings or messages that misuse Bank Negara Malaysia’s name, logo or senior officer’s name. Actions will be taken against the perpetrators. It is important to remember that BNM does NOT ENDORSE any investment schemes.#BNMAmaranScam #ScamAlert pic.twitter.com/MzglGmXUnQ — Bank Negara Malaysia (@BNM_official) January 18, 2024 Do not be deceived by videos, postings or messages that misuse Bank Negara Malaysia’s name, logo or senior officer’s name. Actions will be taken against the perpetrators. It is important to remember that BNM DOES NOT ENDORSE any investment schemes. If in doubt, please contact BNMLINK at bnmlink.bnm.gov.my  #AmaranScam #ScamAlert #JanganKenaScam #SoalSekatSebar #AndaLebihBijak Bank Negara Malaysia 18 January 2024 © Bank Negara Malaysia, 2024. All rights reserved.

Public Notice

17 Jan 2024

Exposure Draft on Currency Processing Business

https://www.bnm.gov.my/-/ed-cpb

https://www.bnm.gov.my/documents/20124/13204565/ed_currency_processing_Jan_2024.pdf

Reading: Exposure Draft on Currency Processing Business Share: Exposure Draft on Currency Processing Business Embargo : For immediate release Not for publication or broadcast before 1140 on Wednesday, 17 January 2024 17 Jan 2024 This Exposure Draft sets out the proposed standards and guidelines to be observed by Registered Currency Processors (RCPs) in order to ensure prudent practice, professionalism, integrity, accountability and transparency of currency processing businesses. The exposure draft covers related key areas as follows: governance; operational requirements; internal control; and information technology (IT) requirements. Bank Negara Malaysia (BNM) would like to invite written feedback on the proposals in this exposure draft, including suggestions for specific issues, areas to be clarified or elaborated further, and any alternative proposals that BNM 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. Feedback for the exposure draft must be submitted electronically to BNM 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 any part of the submission.   Issuance Date 17 January 2024 Issuing Department Currency Department Document Exposure Draft on Currency Processing Business   Bank Negara Malaysia 17 January 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.

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