The Financial Services Act 2012 ("FSA") came into operation on 30 June 2013. The FSA, which has the aim of promoting financial stability, is an extensive legislation which consolidates the various legislations pertaining to banking, investment banking, insurance  and payment systems businesses and the oversight of the money market and foreign exchange administration in Malaysia. Thus, the Banking and Financial Institutions Act 1989, the Insurance Act 1996, the Exchange Control Act 1953 and the Payment Systems Act 2003 are all repealed by the FSA although licences which were issued and approvals which were granted under the repealed legislations are deemed to have been issued under the FSA and continue to apply. One key feature of the FSA is the formal recognition of financial groups, as opposed to individual banking or financial entities, for the purposes of regulation and supervision. The FSA empowers the central bank of Malaysia, Bank Negara Malaysia (“BNM”), to exercise oversight over financial groups for the safety of any member of the group who is an authorised person licensed to carry on banking, insurance or investment banking business.  Under the FSA, BNM is endowed with wide powers to intervene with a bank's or financial institution's business or operations to manage risk and ensure good governance.

The FSA will impact the insurance industry as it prohibits insurers from operating both life and general insurance business simultaneously. Those licensed insurers currently operating with composite licences will therefore need to restructure and separate or divest one or the other of their life or general insurance business.

Generally, there are no substantive changes to the regulation of the operational aspects of carrying on of a payment system business and the business of issuing payment instruments although the application of prudential requirements applicable to the financial institutions have also been extended to businesses that intend to operate a payment system or issue designated payment instruments.

The FSA has also simplified the exchange control regime in Malaysia by prescribing a list of transactions which are prohibited save with BNM's written approval. BNM's approvals can be found in a new set of exchange control notices ("ECM Notices"), also effective 30 June 2013. As some of the prescribed transactions are couched in very wide language and not expressly permitted in the ECM Notices (eg. paragraph 5 of Schedule 14 which prohibits "the giving or obtaining of any guarantee, indemnity or undertaking in respect of any debt, obligation or liability"), care needs to be taken to verify the permissibility or otherwise of ordinary commercial transactions.

To effectively enforce the provisions of the FSA, stricter penalties for financial crimes have been imposed.  The FSA will therefore assist BNM in its role and help to prevent disruptions to the stability of the Malaysian financial sector.