Overview of the Regulatory Framework for Money Services in Malaysia

Introduction

The money services business industry has grown significantly over the past years with increasing demands globally. In Malaysia, the money services business is governed by the Money Services Business Act 2011 (Act 731)(“Act”). The Act which aims to provide a single, uniform regulatory framework provides for the licensing, regulation and supervision for money services business comprising of money changing, remittance and wholesale currency businesses.

The enforcement and supervision of the Act falls within the purview of the Central Bank of Malaysia (“BNM”), a statutory body whose substantial role is to ensure prudent conduct of monetary policy. BNM is vested with the authority to commence formal enforcement actions against any person who fail to comply with regulatory standards and other requirements issued pursuant to the laws administered by it.

In this write-up we will provide you with an insight on the regulatory framework for money services business in Malaysia.

Overview of Money Services Business in Malaysia

There are three categories of businesses falling within the definition of “money services business”, namely:

(a)  money-changing business;

(b)  remittance business; and

(c)  wholesale currency business.¹

The law provides that every person who wishes to carry on money services business to be licensed under the Act.² A person who carries money services business without licence commits an offence whereby upon conviction, such person may be liable to a fine not exceeding five million ringgit (RM5,000,000) or to imprisonment for a term of not more than ten (10) years or to both.³

There are four (4) classes of licenses in respect of money services business. The classes of licenses) and their respective descriptions are as Table 1.

Table 1

As at 13 March 2020, there are 314 licensees registered with BNM. In 2019, BNM had raided more than 20 premises and charged 8 individuals in courts for conducting money changing activities without a license, and offence under the Act and engaging in money laundering activities, which is an offence under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLA”).

Key Features of the Money Services Business Act 2011 (“Act”)

Under the Act, the licensees are required to comply with legal requirements such as transparency and operations and governance arrangements to ensure the proper conduct of money services business.

Requirement of Transparency

A licensee is required to provide adequate disclosure to its customers on its products or services and any other information relating to such products or services.⁵ In fulfilling its obligation to provide adequate disclosure, a licensee shall ensure that the information may be easily accessible, visible and reader friendly.

A licensee shall disclose the following information in relation to its products and services to its customers:

• a licensee who carries on money changing or wholesale currency business shall:

• • display the buying and selling rates of exchange; and
  • disclose the fees and charges for any services rendered;
• a licensee who carries on remittance business shall state:
  • the exchange rate, fees and charges for any services rendered;
  • the amount in the currency that will be paid to the beneficiary;
  • the fees and charges to be imposed by the correspondent agent;
  • the estimated time for the funds to be transferred to the beneficiary; and
  • the location where the funds are available for collection by the beneficiary;
  • the address of the principal place of business of the licensee; and
  • the manner in which customers may lodge complaints to the licensee.⁶

Further, upon completing any transaction relating to its money services business, a licensee shall issue a receipt to its customers.⁷ Failure to provide adequate disclosure and to issue receipt in respect of the transaction constitutes an offence.

Operational and Governance Arrangements

BNM has issued various regulations, guidelines and policies to provide support to the operational and governance arrangements required under the Act. The operational and governance arrangements demand a licensee to institute and maintain among others, internal control mechanisms, including risk management arrangements, accounting procedures and security measures to ensure the safety and integrity of its money services business, governance arrangements which are effective, accountable and transparent to ensure the continued integrity of its money services business operations, and adequate procedures to ensure compliance with the Anti-Money Laundering and Anti-Terrorism Act 2001.⁸

Some of the regulations, guidelines and policies issued by BNM in respect of operational and governance arrangements for money services business are as follows:

• Guidelines on Governance and Operational Requirements on Conduct of Money Services Business;
• Guidelines on Risk Management and Internal Controls for Conduct of Money Services Business;
• Money Services Business (Minimum Criteria of the “Fit and Proper” Person) Regulations 2012; and
• Circular on Preventive Measures against Illegal Financial Schemes.

Proposed Amendments to the Act

On 19 March 2019, BNM had issued a Consultation Paper on the Proposed Amendments to the Money Services Business Act 2011 (“Consultation Paper”) to seek for feedbacks on the proposed amendments on the Act. The consultation period ended on 19 April 2019.

In the Consultation Paper, BNM stated that the proposed amendments were aimed at enabling swifter, more punitive and visible enforcement actions to combat illegal money services business and enabling prompt actions in addressing non-compliances by licensed MSB through an expanded scope of administrative actions.

The following are the proposed amendments to the Act as set out in the Consultation Paper:

• amendment to the definition of “remittance business” by expanding the definition to include the business of facilitating the transfer of funds and setting out the respective activities amounting to “facilitating the transfer of funds”;
• introducing a new provision to allow for all evidence obtained under the Act to be admissible as evidence in court proceedings regardless of the means in which such evidence was obtained;
• expansion of section 86 of the Act to provide explanation and illustrations for abetment under the Act;
• imposing mandatory imprisonment for a term of up to ten years and a minimum of RM50,000 on any person convicted for carrying on money services business without a licence;
• introduction of a provision to allow the court to issue an order to forfeit any property which is the subject matter of an offence or appears to have been used in the commission of an offence upon the offence being proved against an accused; and
• introduction of a provision to enable Bank Negara to institute administrative actions against licensees for non-compliance with the following provisions of the Act (Table 2):

Table 2

It seems that the proposed amendments to the Act entail stricter laws and harsher punishments for non-compliance. This goes to show that BNM is keen on the enforcement and supervision of the laws pertaining to money services business in Malaysia. To date, we have not seen any updates in respect of the proposed amendments. However, should the proposed amendments be passed, the regulatory framework for money services business would experience significant changes.

Conclusion

The regulatory framework for money services in Malaysia is extensive and wide ranging, covering every aspects to the money services business.  Should you have any inquiries pertaining to money services business, please feel free to get in touch with Azmi & Associates and we will be more than happy to be of your assistance.

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1 Section 1 of the Money Services Business Act 2011.

2 Section 4(1) of the Money Services Business Act 2011.

3 Section 4(4) of the Money Services Business Act 2011.

4 First Schedule of the Money Services Business (Licensing) Regulations 2012.

5 Section 26 of the Money Services Business Act 2011.

6 Regulation 4 of the Money Services Business (Duties of Licensees) Regulations 2012.

7 Section 27 of the Money Services Business Act 2011.

8 Section 36 of the Money Services Business Act 2011.

Written by:

Syed Zomael Hussain (Associate Director) zomael@azmilaw.com

Fozi Addina Mohamad Fozi (general@azmilaw.com)