January 25, 2019

BNM published a consultation (exposure draft) in the form of a policy document setting out the approval and notification requirements for equity interests held by financial institutions in corporations. This consultation applies to licensed banks, licensed investment banks, licensed Islamic banks, licensed insurers, licensed takaful operators, financial holding companies, and prescribed development financial institutions. Comment must be submitted by February 28, 2019. This policy document will come into effect on the date of publication of final policy document, save for the transitional arrangements.

This exposure draft sets out the approval requirements of BNM for a financial institution to establish or acquire a subsidiary, or hold a material interest in any corporation in or outside Malaysia. It also sets out the scope of permissible equity investment in non-financial corporations by a financial institution. The prudential safeguards are being introduced to address risks from equity exposures, including a targeted prudential limit that is intended to replace the existing aggregate limits on equity-related exposures applied to banking institutions specified under the Guidelines on Investment in Shares, Interest-in-Shares, and Collective Investments Schemes (IIS) and IIS for Islamic banks. 

The financial institutions are increasingly collaborating with, or hold material equity interest in, e-commerce activities and e-payments firms to realize business synergies. Thus, a review of the current requirement on equity investments is necessary to ensure that financial institutions continue to remain relevant, competitive, and are able to offer a fuller range of services to their customers. This policy document must be read together with other relevant legal instruments and policy documents that have been issued by BNM, particularly the following:

  • Approach to Regulating and Supervising Financial Groups
  • Capital Adequacy Framework (Basel II: Risk-Weighted Assets and Capital Components both)
  • Capital Adequacy Framework for Islamic Banks (Both Capital Components and Risk-Weighted Assets)
  • Risk-Based Capital Framework for Insurers and Takaful Operators
  • Single Counterparty Exposure Limit
  • Single Counterparty Exposure Limit for Islamic Banking Institutions

 

Related Link: Consultation Paper (PDF)

Comment Due Date: February 28, 2019

Keywords: Asia Pacific, Banking, Insurance, Islamic Banking, Takaful Operators, Equity Investment, Equity Exposures, BNM

 

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