BNM issues draft policy documents on recovery planning for FIs and corporate strategic plan for DFIs

Bank Negara Malaysia (‘BNM’) released the exposure drafts of the policy documents on Recovery Planning (‘Recovery Planning PD’) and Corporate Strategic Plan (‘Corporate Strategic Plan PD’) on 17 and 20 January 2020 respectively. An outline of these exposure drafts is set out below.
  1. Recovery Planning PD
  1. The Recovery Planning PD applies to the following entities (severally a ‘FI’) –
  1. financial holding companies under the Financial Services Act 2013 (‘FSA’) or the Islamic Financial Services Act 2013 (‘IFSA’);
  2. licensed banks and licensed investment banks under the FSA; and
  3. licensed Islamic banks under the IFSA.
  1. Where a financial group consists of multiple financial institutions operating in Malaysia, the requirements in the Recovery Planning PD will apply to the financial holding company or the apex banking institution of the group.
  1. The requirements set out in the Recovery Planning PD applies to the entities set out in sub-paragraph (a) above on a consolidated basis, including the global operations (including its overseas branches) of the FI and its financial and non-financial subsidiaries (including insurance and takaful subsidiaries).
  1. The Recovery Planning PD requires a FI to prepare a recovery plan that contains a suite of recovery options to restore the long-term viability of the FI under a range of idiosyncratic and system-wide stress event (‘recovery plan’). The recovery plan must not take into account the possibility of public intervention by authorities, or access to any exceptional financial support from public funds.
  1. Among other objectives, a recovery plan seeks to enhance the capacity of the relevant supervisory authority to make changes to a FI’s business structure and operations to improve supervisability and recoverability and support the smooth execution of the recovery plans in the event of the occurrence of an idiosyncratic or system-wide stress event contemplated in the recovery plan.
  1. The recovery plan is to include the components prescribed in the Recovery Planning PD. Subject to further consideration by BNM after its receipt of feedback on the exposure draft of the Recovery Planning PD, it is presently proposed that a FI be given 12 months from the date of its receipt of BNM’s request to submit its first recovery plan.
  1. BNM emphasises that recovery planning is to be an iterative and evolving process and a FI is required to keep its recovery plan updated and to notify BNM as and when there are material changes or circumstances that may significantly affect its recovery plan. A FI is also required to notify BNM within 14 days of updating its recovery plan and to submit its recovery plan as and when requested by BNM.
  1. A recovery plan involving an Islamic entity must adhere to Shariah requirements.
  1. The deadline for providing feedback to BNM on the exposure draft of the Recovery Planning PD is 31 March 2020.
  1. Corporate Strategic Plan PD
  1. The Corporate Strategic Plan PD applies to prescribed development financial institutions under the Development Financial Institutions Act 2002.
  1. Development financial institutions (‘DFI’) are established by the Government with specific mandate to promote key strategic sectors in driving the social-economic development of the country. To ensure the long term financial sustainability of DFIs and to ensure that they achieve their mandates, BNM emphasises that it is imperative for DFIs to develop holistic and integrated corporate strategic plans.
  1. The Corporate Strategic Plan (‘CSP’) is a framework that guides a DFI’s overall strategy in a structured and comprehensive manner. The strategy must be supported with clear and measurable action plans and targets. At a minimum, a CSP must consist of a review of the operating environment, a Statement of Corporate Intent and Annual Funding Requirement.
  1. The Corporate Strategic Plan PD sets out –
  1. the responsibilities of the board and senior management in relation to the preparation and implementation of the CSP;
  2. key features to be included in the CSP; and
  3. an Implementation Guide on Performance Measurement Framework for DFIs.
  1. The board of a DFI is responsible for the overall business and affairs of a DFI, including promoting the sustainable growth and financial soundness of the DFI. Among others, the board must –
  1. provide strategic direction in identifying and promoting strategic sectors or segments within the mandated roles of the DFI;
  2. review, challenge and approve the CSP;
  3. oversee the effective implementation of the CSP;
  4. ensure that the agreed objectives within the CSP are translated into specific measures and targets, including additionality indicators (i.e. the positive impact attributable to a DFI beyond that which is delivered under a fully-commercial or profit-driven environment); and
  5. monitor and review the performance targets and provide feedback for improvement.  
  1. The senior management of a DFI is responsible for the effective implementation of the CSP. In discharging this responsibility, the senior management must, among others –
  1. develop a yearly CSP for approval by the board, and amend and revise the CSP to be in line with the board’s direction;
  2. engage the stakeholder Ministries identified in Appendix 1 of the Corporate Strategic Plan PD to obtain and incorporate their feedback on the CSP;
  3. ensure that the contents and governance of the CSP are in accordance with the Corporate Strategic Plan PD;
  4. implement the approved CSP in accordance with the direction of the board;
  5. report to the board regularly and ensure that the stakeholder Ministries are updated on the progress and performance of CSP; and
  6. communicate with the stakeholder Ministries and obtain their agreement on any amendment to the approved CSP.
  1. A DFI must adopt a rigorous strategic planning process in establishing its Statement of Corporate Intent (which must at the least, consist of its overall business strategy and strategies on Government specific funds/schemes) and its Annual Funding Requirement (which must at the least, consist of broad funding strategies and a detailed funding plan).
  1. A CSP approved by a DFI’s board and the relevant Ministers must be submitted to BNM by end-February every year. The CSP is to be supported by minutes of the deliberations, including any dissenting views by the board members.
  1. Any proposed modification or variation to an approved CSP must be deliberated by the DFI’s board DFI before the modification or variation is submitted to the relevant Minister for approval and onward transmission to BNM.
  1. When the Corporate Strategic Plan PD comes into effect, the following guidelines will be superseded as their contents have been consolidated into the Corporate Strategic Plan PD –
  1. Guideline on Statement of Corporate Intent issued on 23 December 2002; and
  2. Guideline on Annual Funding Requirements issued on 23 December 2002.
  1. The deadline for providing feedback to BNM on the exposure draft of the Corporate Strategic Plan PD is 16 March 2020.