LawLaw ofof BankingBanking andand SecuritySecurity

DR.DR. ZULKIFLIZULKIFLI HASANHASAN 2020 th SeptemberSeptember 20112011 WeekWeek IIII ContentContent

 AnAn overviewoverview ofof modernmodern financialfinancial managementmanagement ofof banking,banking, nonnon --bankbank financialfinancial intermediariesintermediaries andand financialfinancial markets.markets.  TheThe developmentdevelopment ofof bankingbanking andand financialfinancial institutionsinstitutions inin .Malaysia. IntroductionIntroduction

 MalaysiaMalaysia has has a a unique unique legislative legislative framework framework consistingconsisting of of mixed mixed jurisdictions jurisdictions and and mixed mixed legallegal systems systems namely namely the the common common law law and and shariahshariah ..  TheThe growth growth and and development development of of banking banking industryindustry are are supported supported through through goods goods governancegovernance and and its its comprehensive comprehensive legal legal frameworks.frameworks. Financial System

Non-Bank Banking Financial Financial System Intermediaries Markets Financial System

Banking Capital Market Insurance

Private/Public Money Conventional Conventionatial Debt Securities Market

Islamic Stock Exchange Derivative Islamic BankingBanking SystemSystem

 MonetaryMonetary InstitutionsInstitutions -- CentralCentral Bank,Bank, MonetaryMonetary authority,authority, CommercialCommercial Banks.Banks.  NonNon --monetarymonetary InstitutionsInstitutions -- FinanceFinance Co,Co, MerchantMerchant BanksBanks andand DiscountDiscount Houses.Houses. NonNon BankBank FinancialFinancial IntermediariesIntermediaries

 DevelopmentDevelopment FinancialFinancial InstitutionsInstitutions -- BankBank PembangunanPembangunan ,, BKRBKR  SavingSaving InstitutionInstitution -- NationalNational SavingSaving BanksBanks andand CreditCredit CooperativeCooperative  ProvidentProvident andand PensionPension FundFund --EPF,EPF, PensionPension TrustTrust Funds,Funds, LTAT.LTAT.  InsuranceInsurance CompaniesCompanies -- ConventionalConventional andand IslamicIslamic  OtherOther FinancialFinancial IntermediariesIntermediaries -- MBSB,MBSB, LeasingLeasing Co.Co. LTH.LTH. FinancialFinancial MarketsMarkets

 MoneyMoney andand ForeignForeign ExchangeExchange -- MarketMarket forfor securitiessecurities lessless thanthan 1212 monthsmonths toto maturity.maturity. EgEg -- bankerbanker ’’ss acceptance,acceptance, negotiablenegotiable instruments.instruments.  CapitalCapital MarketMarket -- PrimaryPrimary andand secondarysecondary securitiessecurities market.market. SC.SC.  CommodityCommodity FuturesFutures marketmarket andand financialfinancial futuresfutures marketmarket andand optionsoptions marketmarket -- COMMEX,COMMEX, MDEX.MDEX. BAFIA

Deposit Taking Scheduled Institution Non-Scheduled Institutions Institution TheThe DevelopmentDevelopment ofof BFIBFI

 PhasePhase 1:1: 18401840 --19001900 :: 7 Western banks were established.  The Oriental Bank was set up in in 1846  The Mercantile Bank of India, London and China in 1855,  The Chartered Bank of India,, Australia and China in 1859  The Asiatic Banking Corporation and the Commercial Bank of India both in the 1960's,  Rhe Nederlandse Handel Matschappij (N. H. M. ) in 1883.  The and Banking Corporation in 1884. TheThe DevelopmentDevelopment ofof BFIBFI  Post 1900 : GradualG emergence of local Chinese banks.  The first local Chinese bank,, Kwong Yik Bank, was founded in Singapore in 1903.  Kwong Yik (Selangor) Banking Corporation in 1913. The first bank incorporated in KL.  Sze Hai Tong in 1906.  Chinese Commercial Bank in 1912  Ho Hong Bank in 1917  Overseas-Chinese Bank in 1919.  Lee Wah Bank, Bank of Malaya and Batu Pahat Bank in 1920  Ban Hin Lee Bank in 1935  United Overseas Bank in 1935.  Malay bank was established in 1947 but it failed in 1952.  Bank of Canton in 1953,  in 1955,  Bank of Indonesia in 1955,  Bank of Tokyo and Bank in 1957 TheThe DevelopmentDevelopment ofof BFIBFI

 PostPost 19571957  Maybank Berhad and UMBC in 1960.  BBMB in 1966.  1983 BIMB: Islamic Banking  1993: BBMB, UMBC and Maybank to open Islamic Banking window :: SPTFSPTF  2004 - Foreign Islamic full-fledged banking license to Kuwait Finance House (KFH), Al- Rajhi Investment Bank, Saudi Arabia and Qatar Investment Group.  2011:2011: 2424 CBCB andand 1717 IB.IB. BNMBNM

 The idea had been first seriously mooted in the International Bank for Reconstruction Development Mission Report on the Economic Development of Malaya in 1955.  The Central Bank of Malaya Ordinance 1958 (replaced by the CBA 2009) and the Banking Ordinance 1958 (replaced by the BAFIA 1989) BNMBNM  22 Objectives:Objectives:  1)1) ToTo promotepromote monetarymonetary stabilitystability andand aa soundsound financfinancialial structurestructure  2)2) ToTo influenceinfluence thethe creditcredit situationsituation toto thethe advantaadvantagege ofof thethe federationfederation  The BNM is therefore charge with the task of implementing all the regulations concerned with these matters as laid by the law, as well as issuing policies and directives to further the implementation of these regulations.  Where and when certain of the regulations have become inadequate or new or additional regulations become necessary, it is also the Central Bank's responsibility to initiate the formulation of such changes. BNMBNM

 (a) to issue currency in the Federation and to keep reserves safeguarding the value of the currency  (b) to act as banker and financial adviser to the government  (c) to promote monetary stability and a sound financial structure  SRR: S 36 BAFIA  (d) to influence the credit situation to the advantage of the Federation BankBank andand bankbank  ““BankBank ”” meansmeans thethe CentralCentral BankBank ofof MalaysiaMalaysia establishedestablished byby thethe CentralCentral BankBank ofof MalaysiaMalaysia ActAct 1958;1958;  ““bankbank ”” meansmeans aa personperson whichwhich carriescarries onon bankingbanking business;business; Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd & Ors [1992] (1) MLJ 454: Development bank is not a bank and therefore banking license is not a requirement. Cooperative Central Bank v Belaka_Suria Sdn Bhd [1 991] (3) MLJ 43.Cooperative Central Bank is not a bank.  RestrictionRestriction onon thethe useuse ofof thethe termterm ““bankbank ”” sectionsection 44 bankingbanking businessbusiness

 ““bankingbanking businessbusiness ”” meansmeans ——((a)a) thethe businessbusiness ofof ——((i)receivingi)receiving depositsdeposits onon currentcurrent account,account, depositdeposit account,account, savingssavings accountaccount oror otherother similarsimilar account;(ii)payingaccount;(ii)paying oror collectingcollecting chequescheques drawndrawn byby oror paidpaid inin byby customers;customers; and(iii)provisionand(iii)provision ofof finance;finance; oror (b)(b) suchsuch otherother businessbusiness asas thethe Bank,Bank, withwith thethe approvalapproval ofof thethe Minister,Minister, maymay prescribe;prescribe; CommercialCommercial BanksBanks

 24 Commercial Banks in Malaysia  Largest and most important  Provides current account facilities where payments can be effected readily through the issue of cheques. IslamicIslamic BanksBanks

 1717 IslamicIslamic Banks:Banks: IslamicIslamic BankingBanking ActAct 19831983  bankingbanking businessbusiness whosewhose aimsaims andand operationsoperations dodo notnot involveinvolve anyany elementelement whichwhich isis notnot approvedapproved byby thethe ReligionReligion ofof Islam;Islam; DevelopmentDevelopment FinanceFinance CompaniesCompanies

 thethe businessbusiness ofof providingproviding capitalcapital oror otherother creditcredit facilityfacility onon termsterms whichwhich wouldwould requirerequire thethe samesame toto bebe utilisedutilised forfor industrial,industrial, agricultural,agricultural, commercialcommercial oror otherother economiceconomic development;development; andand forfor thethe purposespurposes ofof thisthis definition,definition, ““developmentdevelopment ”” includesincludes thethe commencementcommencement ofof anyany newnew industrial,industrial, agricultural,agricultural, commercialcommercial oror otherother economiceconomic ventureventure oror thethe expansionexpansion oror improvementimprovement ofof anyany suchsuch existingexisting venture;venture; oror DiscountDiscount HouseHouse

 ReceivingReceiving depositsdeposits onon depositdeposit account;account;  thethe investmentinvestment ofof suchsuch depositsdeposits andand otherother fundsfunds ofof thethe institutioninstitution inin MalaysianMalaysian GovernmentGovernment securities,securities, TreasuryTreasury billsbills oror suchsuch otherother investmentsinvestments asas maymay bebe prescribedprescribed byby thethe Bank;Bank; FinanceFinance CompaniesCompanies

 thethe businessbusiness ofof receivingreceiving depositsdeposits onon depositdeposit account,account, savingssavings accountaccount oror otherother similarsimilar account;account; andand  givinggiving ofof creditcredit facilities,facilities, leasingleasing business,business,  businessbusiness ofof hirehire --purchase,purchase, includingincluding thatthat whichwhich isis subjectsubject toto thethe HireHire --PurchasePurchase ActAct 19671967  usinessusiness ofof acquiringacquiring rightsrights andand interestsinterests inin aa hirehire -- purchase,purchase, leasingleasing oror otherother similarsimilar transaction.transaction. MerchantMerchant BanksBanks  provision of finance (leasing business, lending, purchase of negotiable instruments, guarantee of any liability).  providing consultancy and advisory services relating to corpora te and investment matters  making or managing investments on behalf of any person;  merchant banks are basically specialised wholesale banking institutions looking after the affairs, in the majority of cases, of corporate clients rather than individuals.  merchant banks cannot accept demand deposits or extend overdraft facilities.  corporate finance and advisory services: services as underwriters for share issues and acting as share registrars ; providing advice on capital restructuring,, mergers and acquisitions ; promotion of new investment and joint ventures; and the undertaking of feasibility studies.  Investment advice, which includes portfolio management and the establishment and management of investment and unit trusts.  Banking intermediation services: the management of syndicated loans and the provision of acceptances and guarantees. InvestmentInvestment BankBank  1515 investmentinvestment banksbanks inin MalaysiaMalaysia  raiseraise fundsfunds forfor businessesbusinesses andand somesome governmentsgovernments byby registeringregistering andand issuingissuing debtdebt oror equityequity andand sellingselling itit onon aa market.market.  AA financialfinancial intermediaryintermediary thatthat performsperforms aa varietyvariety ofof investmentinvestment services,services, includingincluding underwriting,underwriting, actingacting asas anan intermediaryintermediary betweenbetween anan issuerissuer ofof securitiessecurities andand ththee investinginvesting public,public, facilitatingfacilitating mergersmergers andand otherother cocorporaterporate reorganizationsreorganizations andand alsoalso actingacting asas aa brokerbroker forfor insinstitutionaltitutional clients.clients.  doesn'tdoesn't usuallyusually provideprovide retailretail bankingbanking servicesservices  investmentinvestment bank'sbank's clientsclients areare institutionalinstitutional investoinvestorsrs andand highhigh netnet --worthworth individualsindividuals TutorialTutorial

 PresentationPresentation toto briefbrief banksbanks ’’ profile.profile.  Name,Name, Logo,Logo, BoardBoard ofof Directors,Directors, Capital,Capital, Products,Products, AddressAddress andand furtherfurther particulars.particulars.  EachEach groupgroup isis allocatedallocated 1515 minutes.minutes.