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Bank Negara issues revised policy document on granting of credit facilities by insurers and takaful operators

27 May 2022

On 20 May 2022, Bank Negara Malaysia (‘BNM’) issued a revised Policy Document on Granting of Credit Facilities (‘Policy Document’).
 
The Policy Document sets out the requirements to be complied with by a licensed insurer under the Financial Services Act 2013 (‘FSA’) and licensed takaful operator under the Islamic Financial Services Act 2013 (‘IFSA’) (each a ‘licensed person’) in granting credit facilities.
 
The expression ‘credit facilities’ is not defined in the Policy Document or the IFSA, but guidance may be drawn from the FSA which defines ‘credit facility’ to mean:
 
‘(a) the giving of any advance, loan or other facility in whatever form or by whatever name called;
(b)  the giving of a guarantee; or
(c)  any other dealing or transaction as prescribed under section 4 (of the FSA)’.
 
Paragraph 7.1 of the Policy Document requires a licensed person to obtain the prior written approval of BNM to: 
  1. act, or arrange with any person to act, as a guarantor for a credit facility granted to any person; and
  2. grant a credit facility to any person specified in paragraph 7.2. 
The persons specified in paragraph 7.2 of the Policy Document are: 
  1. a director of a licensed person;
  2. a company or firm in which a licensed person has any interest as a controller, manager or agent;
  3. a company or firm in which any of the director of a licensed person has any interest as a director, partner, controller, manager or agent;
  4. an individual for whom or a company or firm for which any of its directors is a guarantor;
  5. a company in which a licensed person or any one or more of its directors has interest in the voting shares of 20% or more;
  6. a company which has an interest in the voting shares of 20% or more in a licensed person; and
  7. a company in which the company in paragraph 7.2(f) has an interest in the voting shares of 20% or more. 
The restriction in paragraph 7.1(b) does not apply to the granting of a credit facility to a director of a licensed person if that credit facility is fully secured by a life policy or family takaful certificate held by the director which does not exceed the surrender value of the policy or takaful certificate (paragraph 7.3).

For the purposes of paragraphs 7.2 and 7.3, a ‘director’ includes a relative of a director. A ‘relative’ is defined in subsections 2(1) and 2(2) of both the FSA and the IFSA and will, presumably, be given that meaning in the Policy Document.
 
The Policy Document also provides that the purchase of corporate bonds and/or sukuk by a licensed person in the primary or secondary market is not deemed as the granting of a credit facility.
 
Approval from, or notification to, BNM is dispensed with for credit facilities granted by a licensed person to its insurance or takaful agents. However, a licensed person is required to set out in its internal policies, the specific purposes for which credit facilities may be granted to such agents and to comply with the same. Further, any credit facilities granted by a licensed person to its insurance or takaful agents is to be granted from the shareholders’ funds of the licensed person.
 
The Policy Document is deemed to have come into effect from 1 December 2015 and supersedes the Policy Document on Granting of Credit Facilities issued by BNM on 25 November 2015.
 
Alert prepared by Grace Teo Shi Kay (Senior Associate) of the Corporate 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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