Financial Regulators: Who They Are and What They Do

FINANCIAL REGULATORS:

WHO THEY ARE AND WHAT THEY DO

A well-functioning financial system is vital for a robust economy. With financial regulations in place, it helps protect both businesses and consumers from risk and fraud. But who are these regulators and what exactly do they regulate? Let’s find out!

What is regulatory compliance? Simply put, regulatory compliance refers to the rules governing the financial industry that entities such as banks, insurance companies, asset managers and financial brokers must adhere to. The specific requirements may vary, depending on the industry section and the type of business.

However, financial regulation is more than just having rules in place – these rules must also be enforced. Poorly regulated financial institutions have the potential to weaken the stability of the financial system, harm consumers and could also damage the economy. Malaysia operates a dual banking system, that is, a conventional banking system operating in tandem with an Islamic banking system. The federal government has a handful of regulatory bodies in place that regulates and oversees local financial markets and companies operating across both of these banking systems. Companies and financial institutions that fail to comply with regulators can be vulnerable to criminal charges or potential lawsuits from customers.

As a graduate, it’s important that you understand who the main regulators are before entering the financial industry. Finance employers may also require you to demonstrate a basic understanding of local financial law too, so knowing who the main players are is a good place to start your research. Let’s look at the following three regulators you should be award of.

BANK NEGARA MALAYSIA

Bank Negara Malaysia (BNM) is a government-owned statutory body that was established under the Central Bank of Malaysia Act 1958. The BNM reports to the Ministry of Finance and keeps the ministry advised and informed on policies governing the local financial sector. BNM is also, most famously, in charge of setting national interest rates for banks and other financial firms.

As an overseer, BNM establishes regulatory framework and conducts oversight on the financial industry to promote sustainable growth of the Malaysian economy. The regulator also offers financial advice and counselling via the Agensi Kaunseling Dan Pengurusan Kredit. BNM is also in charge of various initiatives to ensure financial inclusion of various levels of Malaysian society, and to raise the level of financial literacy among consumers. The local insurance and Takaful industry, like other financial sectors, are also regulated by BNM. The regulator only covers life insurance, non-life insurance, family Takaful and general Takaful product offerings.

SECURITIES COMMISSION MALAYSIA

Investment banks which undertake capital market activities on top of banking activities are also regulated by the Securities Commission Malaysia (SC). The SC is a selffunded statutory body established in 1993 which regulates all trades, mergers, and acquisitions on the local financial market.

The SC’s responsibility includes rule-making, enforcing regulations regarding the financial market, ensuring sustainable market growth and regulating all persons, companies, and financial institutions under the Capital Markets and Services Act 2007.

Employees of investment banks that deal with securities, fund management, investment advisory, futures broking, futures fund management and futures trading advisory are mandated to meet the licensing requirements imposed by the SC.

If you’re looking to work in any of the fields mentioned above, the SC will require you to pass relevant examinations and be licensed as representatives before you are allowed to undertake the said activities.

LABUAN FINANCIAL SERVICES AUTHORITY

The Labuan Financial Services Authority (Labuan FSA) is the supervisory and regulatory body for the Labuan International Business Financial Centre (Labuan IBFC). Companies and financial institutions operating in the Labuan IBFC are subjected to separate federal legislation specific to the Labuan IBFC. As you may surmise, this is obviously more relevant to East Malaysia specifically.

Labuan FSA licenses and regulates licensed companies and financial institutions operating within Labuan IBFC and ensures all such entities remain in compliance with Labuan laws and regulations. Labuan FSA also develops regulatory policies to ensure orderly conduct of business and financial services in Labuan IBFC.

Labuan is not only known for its strong regulations but also its favourable and flexible tax systems, as well as its low set up operational costs. As a result, Labuan has attracted many international investment bankers to set up operations (e.g. Credit Suisse, OCBC Bank and DSB Bank).

If you’re someone that is eyeing a career in the reinsurance industry, you should know that the Labuan LFSA regulates all reinsurance businesses in the country. Not to be confused with the insurance industry that is regulated by Bank Negara Malaysia – Labuan LFSA regulates the reinsurance industry, a type of insurance product that is purchased by an insurance company to manage its risk. Some of the notable local reinsurers include Malaysian Reinsurance Berhad, AFR Asia Pacific, Malaysian Life Reinsurance Group and Principal Re.