Section 85 of the Financial Services Act 2013 FSA, section 97 of the Islamic Financial Services Act 2013 IFSA, and section 25 of the Development Financial Institutions Act 2002 require financial institutions to obtain the Bank’s approval for the establishment or acquisition of a subsidiary, or for acquiring or holding a material interest in a corporation. This approval requirement is designed to ensure that such acquisitions do not expose a financial institution to undue contagion risk through its association with these corporations or impede effective supervision by the Bank. The Bank generally limits financial institutions from investing in non-financial corporations due to the inherent differences in risk and to ensure that institutions remain focused on their core financial activities. The approval regime also complements existing prudential safeguards, including capital adequacy requirements and prudential limits, to address risks arising from equity exposures.
The transformation of the financial landscape in recent years has seen increased integration between e-commerce activities and e-payment services. The growing interest in integrated digital ecosystems has encouraged financial institutions to collaborate with, or hold material equity interests in, these corporations to realise business synergies. In view of these developments, a review of the current equity investment requirements is necessary to ensure that financial institutions remain relevant, competitive, and able to offer a wider range of services to their customers. Moving away from a one-size-fits-all limit on equity exposures provides greater flexibility for financial institutions to manage these exposures and facilitates business efficiency. The Bank therefore expects boards to exercise greater oversight to ensure that institutions clearly define their equity investment risk appetite and establish internal limits consistent with their business strategy, expertise, and risk management capabilities.
This policy document sets out the approval and notification requirements for equity interests held by financial institutions in corporations. It also introduces prudential safeguards to address risks from equity exposures, including a targeted prudential limit intended to replace the existing aggregate limits on equity-related exposures under the Guidelines on Investment in Shares, Interest-in-Shares, and Collective Investment Schemes IIS and IIS for Islamic Banks.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
