New banking laws for swift action during future economic crisis

Friday November 27, 2009
New banking laws for swift action during future economic crisis

PETALING JAYA: The new Central Bank of Malaysia Act 2009, which repeals one of the oldest laws in Malaysia, the Central Bank of Malaysia Act 1958, is to strengthen Malaysia’s resilience to financial crises in a globalised environment.

According to a Bank Negara statement, the new Act provides comprehensive provisions to ensure swift and orderly resolution in the event of an imminent financial crisis to reduce its impact and costs to the domestic economy and to sustain public confidence.

“Provisions have been made for heightened surveillance, pre-emptive actions and resolution powers including the extension of liquidity assistance to entities not regulated by the central bank but which pose risks to the overall financial stability,” it said.

The new Act also provides for Bank Negara to have oversight over the money and foreign exchange markets, payment systems and for enhanced arrangements for cooperation with other supervisory authorities.

The exercise of the powers for the purposes of achieving financial stability shall be decided by the Financial Stability Executive Committee (FSEC) established under the Act.

The FSEC will comprise the governor, a deputy governor and at least three other members to be appointed on the recommendation of the bank’s board of directors.

Meanwhile, monetary policies, which are to maintain price stability while giving due regard to developments in the economy, would be formulated and implemented autonomously by a Monetary Policy Committee (MPC) established under the Act.

The new Act clearly outlines that the MPC would comprise seven to 11 members, including the governor and deputy governors, who will meet no less than six times a year.

“The members of the MPC must be persons of probity, competence and sound judgment with relevant expertise and experience,” the new Act states.

Other extensive safeguards of the new Act prescribe that monetary policy would only be formulated at a formally convened meeting of the MPC with a quorum of not less than two-thirds of its members.

As part of its efforts to enhance the governance framework to be more robust, the Board Governance Committee, the Board Audit Committee and the Board Risk Committee, consisting only of non-executive directors, would be established to assist Bank Negara’s board of directors in its oversight role of the management and performance review of the bank.

Consistent with the goal to promote Malaysia as an international centre for Islamic finance, the Act also gives due recognition to both the Islamic and conventional financial systems operating in parallel in Malaysia.

The new Act also provides for an enhanced role of the Syariah Advisory Council on Islamic Finance (SAC) whose members are appointed by the Yang di-Pertuan Agong on the advice of the finance minister after consultation with the bank.

The SAC “shall be the authority for the ascertainment of Islamic law for the purposes of Islamic financial business”, the new Act states.

Key changes under the new Act:

1. A more robust governance framework
2. Comprehensive provisions to ensure swift and orderly resolution in the event of an imminent financial crisis
3. Heightened surveillance, pre-emptive actions and resolution powers
4. Central bank to have oversight over the money and foreign exchange markets, payment systems and for enhanced arrangements for cooperation with other supervisory authorities
5. Monetary policy is to be formulated and implemented autonomously by a Monetary Policy 6. Committee established under the Act
6. Due recognition to both the Islamic and conventional financial systems operating in parallel in Malaysia


http://biz.thestar.com.my/news/story.asp?file=/2009/11/27/business/5194496&sec=business