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Bank Negara issues Exposure Draft of Agent Oversight Framework for Money Services Business

01 December 2021

Bank Negara Malaysia (‘BNM’) issued an exposure draft of the Policy Document on the Agent Oversight Framework for Money Services Business (‘Exposure Draft’) on 18 November 2021.
 
The Exposure Draft, issued pursuant to the Money Services Business Act 2011 (“MSBA”), is not a new policy document but is an update of the Guidelines on Agent Oversight Framework for the Money Services Business Industry issued on 15 April 2013 (‘Existing Guidelines’). The Existing Guidelines will be replaced by the Exposure Draft when the latter takes effect.
 
The expression “money services business”, as defined in section 2 of the MSBA, refers to all or any of the following businesses, namely money-changing business, remittance business, and wholesale currency business.
 
As in the case of the Existing Guidelines, the Exposure Draft applies to all licensees which are approved to appoint money services business agents to carry on money services business on their behalf under section 43 of the MSBA (“principal licensee”).
 
The Exposure Draft reiterates the objectives of the Existing Guidelines, which is to set out the minimum requirements that a principal licensee  must observe to ensure effective agent oversight for the principal-agent arrangement.
 
As in the case of the Existing Guidelines, the Exposure Draft is divided into two parts, namely Part A, which is an overview of the policy document and Part B, which deals with the following requirements for agent oversight:

  • Agent oversight by principal licensee
  • Policies and procedures on appointment of agent
  • Processes, systems and controls to monitor agent’s operations and compliance
  • Specific requirements for principal-agent arrangement  
The main amendments proposed in the Exposure Draft are as follows:
 
  1. The Exposure Draft introduces the following new definitions which would distinguish provisions in the Exposure Draft which are standards which must be complied with and those which are guidance which are recommended to be adopted:  
  • “S” means a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action;  

  • “G” means guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted.  
  1. The definition of “agent” or “money services business agent” has been clarified to include entities that are appointed by a principal licensee to conduct customer due diligence to onboard new customers and performing money services business transactions with customers on behalf of its principal licensee.  

  2. New definitions of “mobile channel”, “online channel” and “substantial shareholder” will be introduced.  

  3. The definition of “key responsible person of an agent” under the Existing Guidelines will be removed and replaced by the term “the shareholders, directors and CEO of the agent” in the relevant paragraphs of the Exposure Draft.  

  4. A new paragraph 9.1.2 will be introduced under the Exposure Draft to require principal licensees to ensure that agents that operate via online and/or mobile channels have adequate technology capability to support a robust, smooth and safe operation of money services business. This expectation applies regardless of whether the system is owned by the agent, principal licensee or a third party provider.  

  5. In assessing the technology capability of the platform for online and/or mobile channels, a new paragraph 9.1.3 under the Exposure Draft will require principal licensees to ensure that the online and/or mobile channel is: (a) safe and capable to ensure data confidentiality and integrity; (b) reliable and operate continuously, and any intermittent disruption which occurs will have minimal impact to the services; and (c) equipped with controls against relevant risks (e.g. fraud risk, cybersecurity risk).  

  6. Paragraph 8.2(b)(i) of the Existing Guidelines which require principal licensees to ensure that the cooling period to enable the principal licensee and its agent to settle any outstanding obligations is not more than three months will be reduced under the corresponding paragraph 9.2(b) of the Exposure Draft to a period not exceeding one month, or upon the agent’s settlement of the outstanding obligations, whichever is earlier.  

  7. Paragraph 10.1.1(a)(i) of the Exposure Draft (which corresponds with paragraph 9.1.1(a)(i) of the Existing Guidelines) will require principal licensees to ensure that the standard operating procedures (“SOPs”) for its agents include a requirement to incorporate certain minimum information outlined in the format in Appendix I of the Exposure Draft in respect of the agents’ signages.  

  8. The requirement for principal licensees to ensure that their agents display ‘conspicuous’ signage that it is an agent of the principal licensee and that the certificates of appointment are displayed in a ‘conspicuous’ position at the agent’s premises under paragraphs 9.1.1(a)(i) and 9.1.1(a)(ii) of the Existing Guidelines will be enhanced to mean ‘prominent’ signage and position under the corresponding paragraphs 10.1.1(a)(i) and 10.1.1(a)(ii) of the Exposure Draft.  

  9. A new paragraph will be introduced under paragraph 10.1.1(a) of the Exposure Draft (which corresponds with paragraph 9.1.1(a) of the Existing Guidelines) to require principal licensees to ensure that agents operating via online and/or mobile channels, or temporary premises approved by BNM, display prominently the minimum business information set out in Table 1 of the said paragraph in a manner that is easily identifiable by customers and which include the means for the customer to easily verify the legitimacy of the agent.  

  10. A footnote has been included under paragraph 10.1.1(h) of the Exposure Draft (which corresponds with paragraph 9.1.1(h) of the Existing Guidelines) to clarify that principal licensees must adhere to relevant requirements on non-face-to-face transaction as specified under the policy document relating to anti-money laundering, countering financing of terrorism and targeted financial sanctions for financial institutions for new customers that have not been on-boarded.  

  11. Paragraph 10.1.1(k) of the Exposure Draft (which corresponds with paragraph 9.1.1(k) of the Existing Guidelines) which requires principal licensees to ensure that the mechanisms for setting the dealing spread and exchange rate quotation by an agent are transparent will be enhanced by the additional requirement that they are to be ‘set at prevailing market rates’.  

  12. A new sub-paragraph (b) will be included under paragraph 10.1.1(l)(ii) of the Exposure Draft (which corresponds with paragraph 9.1.1(l)(ii) of the Existing Guidelines) to require principal licensees to ensure that their SOPs to their agents stipulate that transactions by their agents with third parties for sourcing and clearing foreign currencies are conducted only with licensed currency wholesalers, licensed money changers, licensed banks and licensed Islamic banks in Malaysia.  

  13. A new paragraph will be included under paragraph 10.1.1(n)(ii) of the Exposure Draft to require principal licensees to apply a risk-based approach and implement proper procedures to determine the agent’s risk level when implementing the requirement for its agent to have counterfeit detection machines and close circuit cameras (“CCTV”) at the agent’s premises.  

  14. A new requirement will be included under paragraph 10.1.2 of the Exposure Draft to encourage principal licensees to also equip other non-high risk agents with counterfeit machines and/or CCTVs to ensure customer protection and provide a deterrent against risks of physical harm and financial losses.  

  15. Paragraph 10.1.3(a)(i) of the Exposure Draft (which corresponds with paragraph 9.1.2(a)(i) of the Existing Guidelines) will be enhanced to include a requirement for off-site supervision to be carried out by principal licensees in respect of their agents on at least a quarterly basis. 

  16. Paragraph 10.1.3(c) of the Exposure Draft (which corresponds with paragraph 9.1.2(c) of the Existing Guidelines) will be enhanced to include a requirement for principal licensees to notify BNM of any temporary closure of the agent’s money services business for a period exceeding seven days. 

  17. Paragraph 11.1 of the Exposure Draft (which corresponds with paragraph 10.1 of the Existing Guidelines) will include a requirement for principal licensees to obtain the prior written approval of BNM for the conduct of any money services business through online and/or mobile channel by its agents. 

  18. Paragraph 11.2 of the Exposure Draft (which corresponds with paragraph 10.2 of the Existing Guidelines) will require principal licensees to notify BNM: 
  • of any change to the non-substantial shareholders of an agent, other than an agent that is a licensee, not later than 14 days after the changes become effective;
  • “prior to any change in the name of its agent other than agent that is a licensee not later than fourteen days after the changes become effective, for purpose of the Bank’s agent registration”;
  • at least 14 days prior to any termination of the services of its agent, stating the reasons and effective date of the termination.
There appears to be an error in the second sub-item above (paragraph 11.2(c) of the Exposure Draft) as it is unclear whether the requirement to notify BNM is required to be done prior to any change in the name of the agent, or only within 14 days after the change becomes effective. 
  1. Paragraph 11.3 of the Exposure Draft (which corresponds with paragraph 10.3 of the Existing Guidelines) will introduce a specific timeframe for principal licensees to submit their report on material non-compliances by its agents to BNM, i.e. not later than seven days after detection of the non-compliances. 
Feedback on the Exposure Draft are to be submitted to BNM by 18 January 2022. Electronic submission is encouraged and should be addressed to paymentpolicy@bnm.gov.my.
 
Comment
 
The Exposure Draft enhances and clarifies the requirements applicable to principal licensees in the exercise of oversight of their agents.
 
Alert by Lee Ai Hsian (Partner) of the Banking and Finance Practice of Skrine.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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