BNM SCEL Guidelines: Banking Services in Malaysia Quiz and Flashcards

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Questions and Answers

What is the main role of financial institutions in the real economy?

Ensuring financial stability

Providing funds to enable companies to operate efficiently (correct)

Facilitating payment transfers

Investing in capital markets

Which component of the Malaysian financial system reallocates funds from savers to borrowers?

Capital markets system

Banking system (correct)

Government agencies

Non-banks intermediaries

What is one of the key outputs of the financial system in Malaysia?

Ensuring financial stability

Facilitating investment in government agencies

Providing funds to depositors

Reflecting roles of banking and capital market systems (correct)

Who are the savers and users that constitute the financial system in Malaysia?

Individuals and government agencies Signup and view all the answers

In what way do financial institutions maintain financial stability within an economy?

By supplying funds when required Signup and view all the answers

Which two major components make up the financial system in Malaysia?

Banking system and capital markets Signup and view all the answers

What is one of the crucial roles of financial institutions operating within an economy?

Facilitating money transfers Signup and view all the answers

How do financial markets play a role in the reallocation of funds in the economy?

By working with banks to reallocate funds from savers to borrowers Signup and view all the answers

What is the role of the capital market system in raising long-term finance?

Assisting companies in obtaining funds from investors Signup and view all the answers

How does the primary market in the capital market system differ from commercial banks?

Providing loans directly to companies Signup and view all the answers

What is the main risk faced by investors in the capital market system?

Market risk Signup and view all the answers

Why is the existence of a secondary market important for investors?

To provide liquidity for investments Signup and view all the answers

Which entity in the capital market system provides professional support and advice for transactions?

Investment banks Signup and view all the answers

What is the primary difference in acquiring funds between companies using commercial banks and those using the capital market system?

Direct access to funds from investors Signup and view all the answers

Which market is considered 'illiquid' without a platform for trading investments?

Primary market Signup and view all the answers

What is the key role of the Securities Commission in relation to the capital market system?

Regulating securities exchange operations Signup and view all the answers

What are some key banking services provided by commercial banks in Malaysia?

Loans for individuals and corporations Signup and view all the answers

What is 'banking business' defined as under FSA 2013?

Accepting deposits and providing finance Signup and view all the answers

Which financial services were mergers of finance companies and banks in the late 1990s primarily responsible for commercial banks offering?

Leasing and hire-purchase Signup and view all the answers

What does 'investment banking business' include as per FSA 2013?

Operating an investment portfolio for clients Signup and view all the answers

Which of the following is NOT mentioned as a key banking service provided by commercial banks in Malaysia in the text?

Building construction services Signup and view all the answers

Under FSA 2013, what is one of the activities that commercial banks are NOT licensed to undertake?

Running a car dealership Signup and view all the answers

'Banking business' under FSA 2013 includes which of the following activities?

Accepting deposits on current accounts Signup and view all the answers

'Investment banking business' under FSA 2013 does NOT involve which of the following?

Selling handmade crafts online Signup and view all the answers

What is the main function of the capital market system?

Mobilisation of long-term investment funds Signup and view all the answers

Which financial market system mobilises short-term funds?

Banking system Signup and view all the answers

What is the significance of liquidity in the capital market system?

To attract long-term funding Signup and view all the answers

In the equity market, what are securities issued and traded known as?

Company shares Signup and view all the answers

What distinguishes the debt securities market from the equity market?

Type of securities issued and traded Signup and view all the answers

Which activity in the capital market enables investors to buy or sell their securities?

Secondary market activities Signup and view all the answers

What is a common way for businesses to raise equity funding in the capital market system?

Rights issue Signup and view all the answers

Which market enables the trading of securities that have a specific maturity date for repayment?

'Debt Securities Market' Signup and view all the answers

What do retail investors purchase in a unit trust scheme?

Units Signup and view all the answers

Where does the fund manager place the funds collected from a unit trust scheme?

Money market Signup and view all the answers

What are Exchange-Traded Funds (ETFs) known as?

Exchange-Traded Funds Signup and view all the answers

Who receives the returns from investments in a unit trust scheme?

Retail investors Signup and view all the answers

How can investors withdraw from a unit trust scheme if it is listed on a securities exchange?

Sell units on the securities exchange Signup and view all the answers

What role do various institutions play in Malaysia's financial system?

Both intermediating funds and facilitating financial activities Signup and view all the answers

What do credit officers need to be aware of according to the text?

Different sources of funding Signup and view all the answers

What aspect of financial services does the FSA 2013 focus on in terms of authorised persons?

Business conduct standards Signup and view all the answers

According to the FSA 2013, which of the following is prohibited unless licensed under the Act?

Deposit-taking Signup and view all the answers

What does the FSA 2013 specify regarding the ownership of licensed businesses?

Transfer restrictions Signup and view all the answers

In the context of FSA 2013, what falls under BNM's powers of investigation and supervision?

Financial services businesses control Signup and view all the answers

What is one of the key functions that banking executives involved in credit activities should understand according to the FSA 2013?

Business conduct standards Signup and view all the answers

Which area of operation does the FSA 2013 NOT cover?

Consumer credit facilities Signup and view all the answers

What type of business conduct does the FSA 2013 explicitly prohibit?

'Front running' in financial markets Signup and view all the answers

Which power does BNM have under the FSA 2013 concerning prudential matters?

'Case-by-case' licensing discretion Signup and view all the answers

What action, despite being necessary to manage impaired loans, provides a false picture of the institution’s risk profile?

Delaying the classification of loans in arrears Signup and view all the answers

Which guideline must be read alongside the Guideline on Classification and Impairment for Financing/Loans?

Guideline on Best Practices for Risk Management Signup and view all the answers

Which of the following alterations to loan terms can provide a false depiction of an institution’s capital position?

Altering principal amounts Signup and view all the answers

What is the primary purpose of ensuring proper loan classification according to the text?

Maintaining an accurate risk profile Signup and view all the answers

Which practice, despite being important to manage impaired loans, might provide a false capital position?

Changing interest rates Signup and view all the answers

What is the purpose of altering repayment terms for non-performing loans?

To ensure continued loan performance Signup and view all the answers

Which action, despite its necessity for managing impaired loans, may contribute to inaccuracies in reserves?

Tweaking loan terms to capitalize interest Signup and view all the answers

What is vital to ensuring an accurate account of an institution's portfolios according to the text?

Proper provisioning techniques Signup and view all the answers

What does the Civil Law Act 1956 as at 1 April 1972 state about the law administered for commercial matters in Malaysia?

It is the same as the law of England. Signup and view all the answers

According to the Bills of Exchange Act 1949 (BEA) as at 29 April 1978, what is a cheque considered as?

A form of a bill of exchange drawn on a banker. Signup and view all the answers

What does The National Land Code 1965 in Malaysia primarily focus on?

Acquisition and development of land. Signup and view all the answers

What type of order does the Bills of Exchange Act 1949 define a bill of exchange as?

An unconditional order for the payment of money. Signup and view all the answers

Why are the provisions of the Bills of Exchange Act important according to the text?

To provide guidelines for banking officers regarding cheques. Signup and view all the answers

What is a key aspect covered in the Civil Law Act 1956 as at 1 April 1972 concerning Malaysia's legal system?

Application of UK common law, including equity rules. Signup and view all the answers

What is an important consideration from the Bills of Exchange Act 1949 mentioned in the text related to banking?

Dealing with issues surrounding dishonoured cheques. Signup and view all the answers

How does The National Land Code 1965 in Malaysia contribute to the legal framework regarding land?

By regulating land use and providing security interests to lenders. Signup and view all the answers

What does the term 'exposure' refer to, as per the BNM Guideline on the Single Counterparty Exposure Limit (BNM/RH/GL 001-38)?

All claims, commitments, and contingent liabilities from various transactions Signup and view all the answers

What is the criteria for a 'large exposure' under the BNM Guideline on the Single Counterparty Exposure Limit?

Exposure equal to or greater than 10% of the total capital Signup and view all the answers

What constitutes 'exposure' under the BNM Guideline?

Claims, commitments, and liabilities from on-and off-balance sheet transactions Signup and view all the answers

In the context of the BNM Guideline, what does 'large exposure' signify?

Total exposures to a single counterparty which is equal to or greater than 10% of the total capital Signup and view all the answers

What type of liabilities are included in the definition of 'exposure' as per the BNM Guideline?

Commitments arising from derivative contracts and investments in collective investment schemes Signup and view all the answers

What is the significance of specifying 'connected', 'counterparty', and 'exposure' under the BNM provision?

To exempt certain exposures from restrictions based on guarantees by BNM or the Government Signup and view all the answers

What does 'large exposure' entail under the BNM Guideline?

'Large exposure' signifies total exposures to a single counterparty equal to or greater than 10% of a bank's total capital. Signup and view all the answers

What does Section 47(1) of the FSA 2013 allow BNM to specify standards for, regarding related party transactions?

Promoting the sound financial position of an institution Signup and view all the answers

Who is involved in 'related party transactions' as defined by Section 47(3) of the FSA 2013?

A director, officer, or shareholder of the institution Signup and view all the answers

What type of transactions are considered 'related party transactions' under the FSA 2013?

Transactions involving relatives or dependents of individuals with influence over the institution Signup and view all the answers

Under what conditions may BNM specify standards related to related party transactions?

To promote integrity, professionalism, and expertise in all institutions Signup and view all the answers

What is the primary purpose of BNM specifying standards related to related party transactions?

To promote integrity, professionalism, and expertise in institutions Signup and view all the answers

Who qualifies as someone 'in a position to influence or control the institution' under the FSA 2013?

Any person who can impact decisions or control the institution Signup and view all the answers

'Related party transactions' may involve which types of individuals according to S.47(3)?

Relatives or dependents of certain individuals connected to the institution Signup and view all the answers

What is one of the key areas covered in the Financial Services Act 2013 (FSA 2013) in relation to the credit function?

Provisions regulating credit risk function Signup and view all the answers

Which regulatory body in Malaysia provides guidelines on credit and loans as mentioned in the chapter?

Bank Negara Malaysia Signup and view all the answers

What is a primary focus of the Foreign Exchange Administration (FEA) Rules and Notices as related to credit within the banking industry?

Guidelines for managing exposure to foreign exchange risk Signup and view all the answers

What is a necessity to ensure proper loan classification within the banking industry?

Complying with laws and regulations Signup and view all the answers

Which of the following is covered under the key provisions of the Financial Services Act 2013 (FSA 2013) affecting the credit function?

Legislation regulating the credit risk function Signup and view all the answers

How do Laws and Regulations impact the Malaysian Banking industry according to the learning outcomes of the chapter?

By influencing credit risk management practices Signup and view all the answers

What role do Central Bank Guidelines on Credit and Loans play in the Malaysian Banking industry?

Establishing requirements for credit activities Signup and view all the answers

What is one of the main purposes of ensuring an accurate account of an institution's portfolios as discussed in relation to Laws and Regulations?

Minimizing exposure to financial risks Signup and view all the answers

What is the primary reason a banking institution is required to aggregate its exposures to a single counterparty with its exposures to persons connected to the single counterparty?

To present a true picture of the common risk they pose Signup and view all the answers

In the context of being 'connected' to a single counterparty, what does it mean if either party has control over the other through shareholding or shared management?

One can influence the other's actions Signup and view all the answers

Under which scenario in the BNM SCEL is a relationship between counterparties considered not easily substitutable in the short term?

Appendix 5, scenario (e) Signup and view all the answers

Why is it important for a banking institution to identify persons connected to a single counterparty?

To assess the impact they may collectively have on the institution Signup and view all the answers

What criterion makes a person 'connected' to a single counterparty according to Appendix 5 of the BNM SCEL?

Economic independence Signup and view all the answers

In what way does 'control' over another entity, as per the BNM SCEL, impact their relationship?

It denotes significant influence Signup and view all the answers

What is a key factor that determines whether a person is 'connected' to a single counterparty?

'Economic dependence' on the counterparty Signup and view all the answers

'Connected' persons to a single counterparty may pose risk because of __________.

'Economic dependence' on the counterparty Signup and view all the answers

Which of the following entities is NOT considered a 'Resident' as per the text provided?

An unincorporated body approved by an authority in Malaysia Signup and view all the answers

What is the maximum limit for residents with domestic Ringgit borrowing to invest abroad per calendar year?

Up to RM50 million equivalent per calendar year for SE individual residents Signup and view all the answers

What is the primary requirement for residents without domestic Ringgit borrowing to invest abroad?

They must convert Ringgit into foreign currency Signup and view all the answers

In what circumstances are residents with domestic Ringgit borrowing allowed to invest abroad?

When they are converting Ringgit into foreign currency Signup and view all the answers

What is one of the conditions for residents to be free to undertake investment abroad?

Having obtained permanent resident status but not residing in Malaysia Signup and view all the answers

What constitutes a key difference between residents who can undertake investment abroad and those restricted from doing so?

The source of the foreign currency funds Signup and view all the answers

What is a distinguishing factor between residents who can invest abroad and those who cannot?

Their citizenship status Signup and view all the answers

'Residents without domestic Ringgit borrowing' are explicitly allowed to invest abroad for what reason?

To utilize funds sourced from foreign countries Signup and view all the answers

What is the main regulatory agency responsible for enforcing the Financial Services Act 2013 and the Islamic Financial Services Act 2013 in Malaysia?

Bank Negara Malaysia Signup and view all the answers

What provision in the Financial Services Act 2013 allows executive decisions made under repealed Acts to continue until amended or revoked?

Section 272 entitled 'Savings and Transitional' Signup and view all the answers

Which legislation may be enacted from time to time to clarify or supplement existing rules and compliance requirements in Malaysia?

Companies Act 2016 Signup and view all the answers

What is the primary function of Bank Negara Malaysia (BNM) in issuing guidelines to financial institutions?

To ensure capital adequacy Signup and view all the answers

Which act serves as supporting legislation for the banking industry in Malaysia according to the text?

Companies Act 2016 Signup and view all the answers

What is the role of Bank Negara Malaysia (BNM) in relation to enforcing the Financial Services Act 2013?

Enforcing compliance with the FSA 2013 Signup and view all the answers

What component of Malaysian financial regulations provides an overview of the regulatory components of the banking industry?

Financial Services Act 2013 Signup and view all the answers

What type of legislation is the Companies Act 2016 considered as in relation to banking regulations in Malaysia?

Supporting legislation Signup and view all the answers

What distinguishes a private company under CA 2016?

Restricts the transfer of its shares Signup and view all the answers

In the context of company classification, what characterizes a public company?

Cannot invite the public to subscribe for shares Signup and view all the answers

Why are unlimited companies unique compared to other company types?

Members have unlimited liability Signup and view all the answers

What is a key feature of an unlimited company according to CA 2016?

No limit on liability for members Signup and view all the answers

Under CA 2016, what is the distinctive characteristic of a private company?

Restricts the transfer of its shares Signup and view all the answers

Which statement accurately represents the liability of members in a company limited by guarantee?

Liability is limited to contribution amount upon winding up Signup and view all the answers

What naming requirement distinguishes an unlimited company according to Section 25(1) of CA 2016?

Must end with 'Sdn' or abbreviation 'SDN' Signup and view all the answers

Study Notes

Commercial Banks in Malaysia

Commercial banks in Malaysia provide financial services such as deposit facilities, funds transfer, loans, credit facilities, and financing for the government.
Under Section 10 of the Financial Services Act 2013 (FSA 2013), commercial banks and investment banks are licensed to undertake "banking business" and "investment banking business" respectively.

Banking Business

Banking business is defined as:
- Accepting deposits on current accounts, deposit accounts, savings accounts, or other similar accounts.
- Paying or collecting cheques drawn by or paid by customers.
- Providing finance.
- Other business as prescribed under Section 3, FSA 2013.

Capital Market System

The capital market system plays three main roles:
- Primary market for raising long-term finance, where companies can obtain funds directly from investors.
- Secondary market for investors to dispose or acquire investment securities.
- Providing liquidity to attract long-term funding in an economy.

Roles of Financial System

The financial system reallocates funds from savers and depositors to borrowers.
The financial system operates as a payment mechanism, facilitating money transfers from one party to another.
The banking system mobilises short-term funds, while the capital market system enables the mobilisation of long-term investment funds.

Capital Market Components

The capital market system consists of three interlinked markets:
- Equity market: where companies' share capital is raised and traded.
- Debt securities market: where securities such as bonds, loan stocks, and convertible debt instruments are issued and traded.
- Derivatives market.

Financial Services Act 2013 (FSA 2013)

FSA 2013 covers various aspects, including:
- Authorisation and registration of authorised businesses, registered businesses, and representative offices.
- Prudential requirements, including standards on prudential matters, banking compliance requirements, and single counterparty exposure limit.
- Rules related to the ownership, control, and transfer of licensed businesses.
- Business conduct and consumer protection standards.

Single Counterparty Exposure Limit

The single counterparty exposure limit is defined as total exposures to a single counterparty that is equal to or greater than 10% of the banking institution's total capital.
Exposures include:
- Outstanding loans, advances, and receivables.
- Deposit placements and margins held with counterparties.
- Debt and equity securities held.
- Investments in collective investment schemes.
- Exposures arising from derivative contracts.
- Exposures under off-statement of financial position instruments.

Classification and Impairment of Financing/Loans

The Guideline on Classification and Impairment of Financing/Loans requires institutions to classify and provide for impaired loans accurately.
Impairment, provisioning, and write-offs need to be undertaken in accordance with the Guideline to ensure accurate accounting of portfolios.

Laws and Regulations in Malaysian Banking

The regulations of the banking industry in Malaysia comprise:
- Direct banking laws, such as FSA 2013 and the Islamic Financial Services Act 2013 (IFSA 2013).
- Supporting legislation, such as the Companies Act 2016 (CA 2016).
- Central Bank guidelines, such as the Guideline on Classification and Impairment of Financing/Loans.

Foreign Exchange Administration Rules and Notices

The Foreign Exchange Administration (FEA) Rules and Notices regulate foreign exchange transactions and investments.
Residents are free to undertake investment in foreign currency assets and abroad, subject to certain conditions and limits.### Types of Companies
A company can be incorporated as a company limited by shares, a company limited by guarantee, or an unlimited company.
In a company limited by shares, a member's liability is limited to the amount unpaid on their shares.
In a company limited by guarantee, a member's liability is limited to the amount they agreed to contribute in the event the company is wound up.
There is no limit on the liability of a member of an unlimited company.

Unlimited Company

The name of an unlimited company must end with the word "Sendirian" or the abbreviation "Sdn" (Section 25(1) CA 2016).

Private Company

A private company is a company limited by shares (Section 42(1) CA 2016).
It has not more than 50 shareholders (Section 42(1) CA 2016).
It restricts the transfer of its shares (Section 42(2) CA 2016).
It cannot offer its shares or debentures to the public (Section 43(1) CA 2016).
It cannot allot shares or debentures with a view of offering them to the public (Section 43(1) CA 2016).
Prior to CA 2016, private companies were prohibited from inviting the public to subscribe its shares or debentures (Section 15(1) CA 1965).

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Description

Learn about the key banking services provided by commercial banks in Malaysia such as deposit facilities, funds transfer facilities, loans, and credit facilities. Explore how these services have evolved since the merger of finance companies and banks in the late 1990s and early 2000s.