Bank Negara Malaysia (‘BNM’) issued seven regulatory documents, namely four policy documents and three exposure drafts of policy documents relating to the financial services sector, from 24 to 26 December 2019.

Some of the salient points of these documents are highlighted below–

1. Policy Document on Universal Life Business (‘ULB-PD’)[i]

a. The ULB-PD applies to licensed insurers under the Financial Services Act 2013 (‘FSA’) which offer, market or sell universal life policies[ii].

b. The objectives of the ULB-PD are to –

  1. facilitate the orderly development of universal life business in Malaysia;
  2. promote and maintain high standards of governance and professionalism in the administration of universal life business; and
  3. enhance product transparency and ensure fair treatment of policy owners.

c. The ULB-PD will come into effect on 1 January 2021.

2. Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business (‘OCC-PD’)

a. The OCC-PD applies to licensed insurers under the FSA carrying on life business and licensed takaful operators under the Islamic Financial Services Act (‘IFSA’) carrying on family takaful business.

b. The OCC-PD sets out -

  1. the road map for deregulation of operating cost control limits;
  2. the expectations on remuneration policies implemented by a licensed intermediary for intermediaries;
  3. the requirements relating to the implementation of the balanced scorecard framework[iii];
  4. the disapplication of, and adjustments to, operating cost controls for specific products and intermediaries;
  5. the enhancements to, and rationalisation of, requirements relating to agency structures and related expenses; and
  6. the governance and reporting requirements.

c. The OCC-PD comes into operation on 1 January 2020 and will supersede BNM’s Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business issued on 26 December 2016.

3. Policy Document on Equity Investments (‘EI-PD’)

a. The EI-PD applies to –

  1. licensed banks, licensed investment banks and licensed insurers under the FSA;
  2. licensed Islamic banks and licensed takaful operators under the IFSA;
  3. financial holding companies under the FSA and the IFSA; and
  4. prescribed development financial institutions under the Development Financial Institutions Act 2002 (‘DFIA’).

b. The EI-PD sets out –

  1. the thresholds for which approval of, or notification to, BNM is required in respect of equity investments;
  2. the requirements to be complied with for applications or notifications to BNM;
  3. BNM’s approach and expectations in considering applications for approval by financial institutions to hold equity interests in other corporations; and
  4. the prudential limits and reporting requirements to be complied with by financial institutions to address risks from equity exposures.

c. The EI-PD will come into operation on 1 January 2020 and supersedes –

  1. BNM’s Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes issued on 10 October 2008;
  2. BNM’s Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes for Islamic Banks issued on 29 June 2007; and
  3. paragraph 7.1(ii) of BNM’s Guidelines on Property Development and Property Investment Activities by Islamic Banks issued on 31 March 2010.

4. Policy Document on Holding of Immovable Properties (‘HIP-PD’)

a. The HIP-PD applies to licensed banks and licensed investment banks under the FSA.

b. The HIP-PD states that a licensed bank and a licensed investment bank –

  1. is allowed to acquire, hold or rent immovable properties for the purpose of conducting its business (subject to section 25 of the FSA), providing housing and other amenities for staff. or satisfying debts owed to it (i.e. foreclosed properties);
  2. is required to obtain BNM’s written approval before it acquires, holds or rents any immovable property for purposes other that those set out in sub-paragraph (i) above;
  3. is allowed to let out the floor space of any immovable property acquired by it under sub-paragraph (i) above which is in excess of its current needs; and
  4. shall limit its holding of immovable property acquired in satisfaction of debts to an amount which does not exceed 1% of its Total Capital (as defined in the Policy Document on Capital Adequacy Framework (Capital Components)).

c. The HIP-PD will come into operation on 1 January 2020 and supersedes BNM’s Policy Document on Holding of Immovable Property issued on 27 June 2013.

5. Exposure Draft of Policy Document on Valuation of Insurance and Takaful Liabilities (‘VITL-ED’)

a. The VITL-ED applies to licensed insurers and professional reinsurers under the FSA and licensed takaful operators and professional retakaful operators under the IFSA.

b. The VITL-ED sets out –

  1. the manner in which insurance and takaful liabilities are to be measured;
  2. the roles and responsibilities of the board, senior management and the appointed actuary;
  3. the internal governance and management of data; and
  4. reporting requirements to BNM.

c. The deadline for providing feedback to BNM on the VITL-ED is 15 April 2020.

6. Exposure Draft of Policy Document on Financial Reporting for Development Financial Institutions (‘DFI-FR-ED’)

a. The DFI-FR-ED applies to prescribed development financial institutions under the DFIA.

b. The DFI-FR-ED sets out –

  1. the specific requirements on the application of the Malaysian Financial Reporting Standards to development financial institutions;
  2. the information to be disclosed in the financial statements including those arising from Shariah contracts applied in Islamic banking transactions;
  3. the application requirements for approval of a dividend payment; and
  4. the requirements on submission and publication of financial statements.

c. The policy document will apply to financial statements of development financial institutions for financial years beginning on or after 1 January 2019 and the requirement to classify a credit facility as credit-impaired under paragraph 10.5 of the policy document is to apply prospectively from 1 October 2019.

d. The deadline for providing feedback to BNM on the DFI-FR-ED is 24 February 2020.

7. Exposure Draft of Policy Document on Responsibility Mapping (‘RM-ED’)

a. The RM-ED applies to -

  1. licensed banks, licensed investment banks and licensed insurers under the FSA;
  2. licensed Islamic banks and licensed takaful operators under the IFSA;
  3. prescribed development financial institutions under the DFIA; and
  4. financial holding companies under the FSA and the IFSA.

b. Responsibility mapping, inter alia, seeks to –

  1. ensure that responsibilities for key functions of a financial institution are clearly allocated to individuals at an appropriate level of seniority within the financial institution;
  2. clarify and strengthen the accountability of individuals to whom key responsibilities are allocated, in particular where there are shared responsibilities, collective decision making and matrix reporting structures within groups; and
  3. encourage a financial institution to carefully consider whether the allocation of responsibilities to individuals within senior management is compatible with effective risk management practices, taking into account the size, scale and complexity of the financial institution’s operations.

c. The RM-ED sets out the four principles governing the responsibility mapping framework-

i. Principle 1: (aa) The responsibility of the board of directors to oversee and ensure an effective process for responsibility mapping, including –

  • having a robust mechanism to identify the responsibility areas; and
  • ensuring all responsibility areas are clearly mapped into the organizational structure; and

(bb) The chief executive officer (‘CEO’) is to identify responsibility areas that covers all functions integral to the conduct of the operations and affairs of the financial institution;

ii. Principle 2: The CEO is to allocate responsibility areas to individuals who –

  • are at an appropriate senior level; and
  • have the professional competence, authority and accountability to manage these areas;

iii. Principle 3: The Individual must –

  • be accountable for management and conduct of the responsibility areas, including his/her staff;
  • exercise sound professional judgement, diligence and due care;
  • adhere to the code of ethics of the financial institution;
  • act with integrity;
  • manage responsibility areas in line with legal and regulatory requirements; and
  • act in good faith and remain accountable for responsibility areas, even if responsibility is delegated; and

iv. Principle 4: The CEO must maintain a complete and up-to-date register of individual responsibilities.

  1. The policy document will come into effect one year from date of issuance of final policy document, except for the requirement that a financial institution must complete the documentation of each individual’s responsibilities under Principle 4 no later than three years from the effective date of the final policy document.
  2. The deadline for providing feedback to BNM on the RM-ED is 31 March 2020.