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​Malaysian Banking Law – Checklist on the Definition of a Bank


Checklist: Is the Institution a “Bank”?
This checklist is based on:
  • Malaysian statutes,
  • UK common law principles,
  • Malaysian and foreign banking cases,
  • Traditional banking law authorities.
The checklist helps determine whether a person, corporation, or institution is legally regarded as carrying on banking business.


Part A – Core Characteristics of Banking
1. Does the institution accept deposits?
✔ Accepting money on:
  • Current accounts,
  • Savings accounts,
  • Deposit accounts,
  • Similar accounts.
This is one of the most essential banking characteristics.
Authority
  • United Dominions Trust Ltd v Kirkwood
  • Paget’s Law of Banking
  • Financial Services Act 2013


2. Does the institution pay cheques drawn by customers?
✔ The institution honours cheques issued by customers.
Authority
  • United Dominions Trust Ltd v Kirkwood
  • Paget’s Law of Banking
  • Halsbury’s Laws of England


3. Does the institution collect cheques for customers?
✔ The institution collects and processes cheques deposited by customers.
Authority
  • United Dominions Trust Ltd v Kirkwood
  • Paget’s Law of Banking


4. Does the institution maintain current accounts?
✔ Customers maintain current accounts with credits and debits recorded.
Authority
  • Lord Denning in United Dominions Trust Ltd v Kirkwood


Part B – Financing Activities
5. Does the institution provide financing or loans?
✔ Examples:
  • Loans,
  • Credit facilities,
  • Trade financing,
  • Murabaha financing,
  • Hire purchase,
  • Revolving credit.
⚠ Important:
Providing financing alone does NOT automatically amount to banking business.
Authority
  • Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd
  • Vernes Asia Ltd v Trendale Investment Pte Ltd & Anor
  • Sabah Development Bank Bhd v Skbs (Sabah) Sdn Bhd & Ors


6. Is the financing activity combined with deposit-taking?
✔ Financing + deposit-taking together strongly suggest banking business.
✘ Financing without deposit-taking usually does NOT amount to banking business.
Authority
  • Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd
  • PP Consultants Pty Ltd v Finance Sector Union


Part C – Regulatory and Statutory Factors
7. Is the institution licensed under Malaysian law?
✔ Does it hold a licence under section 10 of the:
  • Financial Services Act 2013?
If YES:
  • It may carry on licensed business such as banking business.


8. Is the institution carrying on “licensed business”?
✔ Licensed business includes:
  • Banking business,
  • Insurance business,
  • Investment banking business.
Authority
  • Financial Services Act 2013


9. Is the institution carrying on “approved business”?
✔ Approved business includes:
  • Payment systems,
  • Designated payment instruments,
  • Financial advisory business,
  • Insurance broking,
  • Money-broking.
⚠ Approved business does NOT automatically make the institution a bank.
Authority
  • Financial Services Act 2013


10. Is the institution an “authorised person”?
✔ An authorised person means:
  • A licensed person; or
  • An approved person.
Authority
  • Financial Services Act 2013


Part D – Nature of Business Activities
11. Is the institution carrying on business continuously?
✔ Continuous and systematic banking activities suggest banking business.
✘ A single isolated transaction usually does NOT amount to carrying on banking business.
Authority
  • Banque Nationale De Paris v Wuan Swee May & Anor


12. Does the institution have a physical business presence?
✔ Branches,
✔ Offices,
✔ Banking operations,
✔ Customer service infrastructure.
These factors support a finding of banking business.
Authority
  • Banque Nationale De Paris v Wuan Swee May & Anor


13. Is the institution merely enforcing security or recovering debts?
✘ Recovering debts alone is NOT banking business.
✘ Enforcing security alone is NOT banking business.
Authority
  • Bank of China v Lee Kee Pin
  • Koh Kim Chai v Asia Commercial Banking Corporation Limited


Part E – Development Finance Institutions
14. Is the institution a development finance institution?
✔ Development finance institutions may:
  • Provide loans,
  • Offer trade financing,
  • Support economic development.
⚠ This alone does NOT automatically make them banks.
Authority
  • Sabah Development Bank Bhd v Skbs (Sabah) Sdn Bhd & Ors
  • Bank Industri (M) Bhd v Technopro Corp (M) Bhd & Ors


15. Does the institution conduct “development finance business”?
✔ Development finance business includes:
  • Industrial financing,
  • Agricultural financing,
  • Economic development financing.
⚠ Such activities are recognised scheduled businesses under Malaysian law.
Authority
  • Banking and Financial Institutions Act 1989
  • Bank Industri (M) Bhd v Technopro Corp (M) Bhd & Ors


Part F – Reputation and Commercial Understanding
16. Is the institution recognised commercially as a bank?
✔ Courts may consider:
  • Reputation,
  • Commercial recognition,
  • Stability,
  • Soundness.
Authority
  • Lord Denning
  • United Dominions Trust Ltd v Kirkwood


Part G – Final Legal Test
Final Question
Does the institution perform ALL essential banking functions together?
✔ Accept deposits
✔ Maintain current accounts
✔ Pay cheques
✔ Collect cheques
✔ Conduct systematic banking operations
If YES:
→ The institution is likely carrying on banking business.
If NO:
→ The institution may merely be:
  • A financier,
  • Development finance institution,
  • Payment provider,
  • Financial intermediary,
  • Approved business operator.


Key Principles Summarised
Principle 1
Financing alone does NOT equal banking business.
Cases
  • Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd
  • Vernes Asia Ltd v Trendale Investment Pte Ltd & Anor


Principle 2
Recovering debts alone does NOT equal banking business.
Case
  • Bank of China v Lee Kee Pin


Principle 3
Taking security alone does NOT equal banking business.
Case
  • Koh Kim Chai v Asia Commercial Banking Corporation Limited


Principle 4
A single isolated banking transaction does NOT necessarily amount to carrying on banking business.
Case
  • Banque Nationale De Paris v Wuan Swee May & Anor


Principle 5
Development finance institutions are NOT automatically banks.
Cases
  • Sabah Development Bank Bhd v Skbs (Sabah) Sdn Bhd & Ors
  • Bank Industri (M) Bhd v Technopro Corp (M) Bhd & Ors


Conclusion
The legal definition of a bank depends on:
  • Statutory requirements,
  • Essential banking characteristics,
  • Continuous banking operations,
  • Deposit-taking activities,
  • Cheque-processing functions,
  • Regulatory status,
  • Commercial recognition.
Modern Malaysian banking law adopts both:
  • Traditional common law banking principles,
    and
  • Statutory licensing and regulatory frameworks under the Financial Services Act 2013.

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