Take 5: Volume 1

BNM oversight on financial holding companies

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The new FSA and IFSA require financial holding companies (FHC) to submit an application to BNM to be approved as a FHC. Key elements of the Act(s):

Why regulate?

Strengthen effective risk governance over the activities of financial groups to prevent undue risks to the safety and soundness of financial institutions

Who should apply?

Any company which holds an aggregate interest in shares of:

  • More than 50% in a licensed person; or
  • 50% or less in the licensed person but has control over the licensed person, if BNM considers it necessary

A company may propose another company within its corporate group to be approved as a FHC if it can be shown that the proposed company is in a position to have control over the licensed person and its proposed financial group.

BNM may require:

  • Any other company within the corporate group of the applicant to be approved as a FHC if it is of the opinion that neither the applicant nor the proposed company should be approved as a FHC
  • More than one company within a corporate group of the applicant to be approved as a FHC

Impact on FHC

BNM may:

  • Prohibit a FHC to carry on any business other than the business of holding investments directly or indirectly in corporations which are primarily engaged in financial services or in other services in connection with such financial services
  • Specify standards on prudential matters to the FHC and its subsidiary, if it is of the opinion that the activities of such FHC and its subsidiary may pose risks to the licensed person or its financial group
  • Issue a written direction to a FHC, subsidiary or its chief executive officer to cease or refrain from committing an act or pursuing a course of conduct or to do any act, in relation to its business, affairs or property
  • Remove a director or the chief executive officer of a FHC if it is of the opinion that he/she no longer fulfils the fit and proper requirements as specified by BNM

Consequences for non-compliance

Removal of a director or the chief executive officer of a FHC who has failed to comply with a direction of BNM or an enforceable undertaking accepted by BNM or, by action or negligence, has contributed to the breach or contravention of any provisions of the Act(s)

A FHC, subsidiary or its director or chief executive officer who fails to comply with a BNM issued direction commits an offence and shall, on conviction, be liable to:

  • Imprisonment of 10 years or less
  • A fine of RM50 million or less
  • Or both

Source: Extracts from FSA and IFSA