- Published on
Malaysian Banking Law – Misinformation and Rumour in the Wholesale Financial Market
Introduction
Financial markets function efficiently only when market participants make decisions based on accurate, reliable, and truthful information. The spread of false information, misleading statements, or unverified rumours can distort market behaviour, affect prices, undermine investor confidence, and threaten financial stability.
To preserve the integrity of Malaysia’s wholesale financial markets, section 141(1)(c) of the Financial Services Act 2013 (FSA 2013) and section 153(1)(d) of the Islamic Financial Services Act 2013 (IFSA 2013) prohibit the making or dissemination of false or misleading statements or information that may influence trading decisions or affect market rates in the money market or foreign exchange market.
These provisions are further reinforced by the Code of Conduct for Malaysia Wholesale Financial Markets issued by Bank Negara Malaysia (BNM).
Definition of Misinformation and Rumour
Misinformation and rumour occur when a person makes a statement or disseminates information that is false or misleading in a material respect and which is likely:
(1) Fails to Exercise Due Care
The person does not take reasonable steps to verify whether the information is true or false before communicating it.
or
(2) Knows or Ought Reasonably to Know It Is False
The person knows, or a reasonable person in the same circumstances should have known, that the information is false or materially misleading.
Accordingly, liability may arise not only from deliberate lies but also from reckless or careless dissemination of unverified information.
Why Is Misinformation Dangerous?
Financial markets are heavily influenced by information.
Traders constantly react to:
This may result in:
Common Forms of Misinformation and Rumour
Without limiting the broad scope of sections 141 FSA 2013 and 153 IFSA 2013, the following conduct may constitute an offence.
(A) Starting and Spreading Rumours to Move the Market
A person deliberately creates or spreads false rumours to influence market prices or deceive market participants.
Examples
(B) Carelessly Repeating Unverified Information
A person discusses or circulates information without taking reasonable steps to verify its accuracy.
The information may:
Simple Example
Scenario
A trader receives a message claiming that the Malaysian Government is planning to impose emergency foreign exchange controls.
The trader has no evidence that the information is true.
Without checking the accuracy of the information, the trader immediately shares it with several banks and foreign exchange dealers.
As the rumour spreads:
The information was false from the beginning.
The trader may have committed an offence because he disseminated false information without exercising due care.
Banking Example
Case Scenario
A treasury dealer at ABC Bank Berhad learns from an informal conversation that Bank XYZ may be experiencing financial difficulties.
The dealer has no documentary evidence and has not verified the information.
Believing that the rumour may affect the market, the dealer sends messages to several market participants stating that Bank XYZ is facing a severe liquidity crisis and may require regulatory intervention.
The information spreads rapidly throughout the wholesale financial market.
As a result:
Further investigation shows that the dealer either knew the information was unreliable or failed to take reasonable steps to verify its accuracy before disseminating it.
Application to the Case Scenario
The treasury dealer disseminated information that was false or materially misleading.
The dealer’s statements were capable of:
Alternatively, if evidence shows that the dealer knew the information was false, liability becomes even clearer.
The conduct therefore falls within section 141(1)(c) FSA 2013 and section 153(1)(d) IFSA 2013.
Solution to the Case Scenario
In this scenario, the treasury dealer circulated false information regarding the financial condition of Bank XYZ.
The information was likely to influence the behaviour of other market participants and affect market conditions.
The dealer either:
Difference Between Genuine Market Information and Misinformation
Genuine Market Information
Practical Application
The prohibition against misinformation and rumour is particularly relevant to:
“Verify first, communicate later.”
Critical Analysis
The prohibition against misinformation and rumour reflects the importance of information integrity in modern financial markets.
Unlike traditional forms of market manipulation, misinformation can spread rapidly through electronic communication platforms, social media, messaging applications, and trading networks. A single false statement can affect thousands of market participants within minutes.
The legislation therefore imposes liability not only on persons who deliberately spread false information but also on those who recklessly or carelessly disseminate unverified information without exercising due care.
This approach is justified because market participants, particularly professional traders and financial institutions, occupy positions of trust and influence. Their statements can significantly affect market behaviour.
However, regulators must carefully distinguish between:
The provisions therefore serve an important preventive function by encouraging accuracy, responsibility, and professionalism in financial communications.
Conclusion
Under section 141(1)(c) of the Financial Services Act 2013 and section 153(1)(d) of the Islamic Financial Services Act 2013, it is an offence to make or disseminate information that is false or materially misleading and which is likely to influence trading activity or affect market rates in the money market or foreign exchange market.
Liability may arise where a person:
Introduction
Financial markets function efficiently only when market participants make decisions based on accurate, reliable, and truthful information. The spread of false information, misleading statements, or unverified rumours can distort market behaviour, affect prices, undermine investor confidence, and threaten financial stability.
To preserve the integrity of Malaysia’s wholesale financial markets, section 141(1)(c) of the Financial Services Act 2013 (FSA 2013) and section 153(1)(d) of the Islamic Financial Services Act 2013 (IFSA 2013) prohibit the making or dissemination of false or misleading statements or information that may influence trading decisions or affect market rates in the money market or foreign exchange market.
These provisions are further reinforced by the Code of Conduct for Malaysia Wholesale Financial Markets issued by Bank Negara Malaysia (BNM).
Definition of Misinformation and Rumour
Misinformation and rumour occur when a person makes a statement or disseminates information that is false or misleading in a material respect and which is likely:
- To induce another person to deal in financial instruments; or
- To raise, lower, maintain, or stabilise the market rate of financial instruments in the money market or foreign exchange market.
(1) Fails to Exercise Due Care
The person does not take reasonable steps to verify whether the information is true or false before communicating it.
or
(2) Knows or Ought Reasonably to Know It Is False
The person knows, or a reasonable person in the same circumstances should have known, that the information is false or materially misleading.
Accordingly, liability may arise not only from deliberate lies but also from reckless or careless dissemination of unverified information.
Why Is Misinformation Dangerous?
Financial markets are heavily influenced by information.
Traders constantly react to:
- Economic news;
- Government announcements;
- Central bank policies;
- Market reports;
- Corporate developments; and
- Foreign exchange information.
This may result in:
- Artificial price movements;
- Unnecessary panic;
- Distorted supply and demand;
- Investor losses;
- Reduced confidence in the market; and
- Financial instability.
Common Forms of Misinformation and Rumour
Without limiting the broad scope of sections 141 FSA 2013 and 153 IFSA 2013, the following conduct may constitute an offence.
(A) Starting and Spreading Rumours to Move the Market
A person deliberately creates or spreads false rumours to influence market prices or deceive market participants.
Examples
- Spreading false information that a bank is facing liquidity problems.
- Claiming that a government policy announcement is imminent when it is not.
- Circulating false reports that a central bank intends to intervene in the foreign exchange market.
- Fabricating news regarding the issuance of government securities.
(B) Carelessly Repeating Unverified Information
A person discusses or circulates information without taking reasonable steps to verify its accuracy.
The information may:
- Be unsubstantiated;
- Be false;
- Be materially misleading; and
- Cause harm to third parties.
- Forwarding unverified market reports.
- Sharing unconfirmed rumours with traders.
- Repeating speculative information as fact.
- Distributing unverified information concerning another financial institution.
Simple Example
Scenario
A trader receives a message claiming that the Malaysian Government is planning to impose emergency foreign exchange controls.
The trader has no evidence that the information is true.
Without checking the accuracy of the information, the trader immediately shares it with several banks and foreign exchange dealers.
As the rumour spreads:
- Traders become concerned.
- Market participants rush to buy foreign currencies.
- The Ringgit weakens.
- Foreign exchange rates move significantly.
The information was false from the beginning.
The trader may have committed an offence because he disseminated false information without exercising due care.
Banking Example
Case Scenario
A treasury dealer at ABC Bank Berhad learns from an informal conversation that Bank XYZ may be experiencing financial difficulties.
The dealer has no documentary evidence and has not verified the information.
Believing that the rumour may affect the market, the dealer sends messages to several market participants stating that Bank XYZ is facing a severe liquidity crisis and may require regulatory intervention.
The information spreads rapidly throughout the wholesale financial market.
As a result:
- Other banks become reluctant to deal with Bank XYZ.
- Market confidence declines.
- Foreign exchange traders react negatively.
- The market value of Bank XYZ’s financial instruments falls.
- Funding costs for Bank XYZ increase.
Further investigation shows that the dealer either knew the information was unreliable or failed to take reasonable steps to verify its accuracy before disseminating it.
Application to the Case Scenario
The treasury dealer disseminated information that was false or materially misleading.
The dealer’s statements were capable of:
- Influencing trading decisions;
- Affecting market confidence;
- Lowering the value of financial instruments;
- Influencing foreign exchange activity; and
- Causing other market participants to alter their behaviour.
Alternatively, if evidence shows that the dealer knew the information was false, liability becomes even clearer.
The conduct therefore falls within section 141(1)(c) FSA 2013 and section 153(1)(d) IFSA 2013.
Solution to the Case Scenario
In this scenario, the treasury dealer circulated false information regarding the financial condition of Bank XYZ.
The information was likely to influence the behaviour of other market participants and affect market conditions.
The dealer either:
- Failed to exercise reasonable care to verify the information; or
- Knew, or ought reasonably to have known, that the information was false or materially misleading.
- Section 141(1)(c) Financial Services Act 2013; and
- Section 153(1)(d) Islamic Financial Services Act 2013.
- Criminal proceedings;
- Civil enforcement action;
- Administrative penalties;
- Regulatory sanctions; and
- Disciplinary action against the dealer.
Difference Between Genuine Market Information and Misinformation
Genuine Market Information
- Information is verified before dissemination.
- Reasonable investigation has been conducted.
- Facts are supported by evidence.
- Information is presented accurately.
- No intention to mislead the market.
- Supports informed decision-making.
- Enhances market transparency.
- Information is false or materially misleading.
- Information is unverified or unsupported.
- Reasonable care is not exercised.
- Information may be knowingly false.
- Market participants are misled.
- Trading decisions are distorted.
- Market confidence may be harmed.
Practical Application
The prohibition against misinformation and rumour is particularly relevant to:
- Treasury dealers;
- Foreign exchange traders;
- Money market participants;
- Investment bankers;
- Bank executives;
- Financial analysts;
- Market commentators; and
- Employees of financial institutions.
- Verify facts from reliable sources;
- Confirm information through official channels;
- Exercise professional judgment;
- Avoid repeating unverified rumours;
- Maintain proper records of information sources; and
- Comply with internal compliance procedures.
“Verify first, communicate later.”
Critical Analysis
The prohibition against misinformation and rumour reflects the importance of information integrity in modern financial markets.
Unlike traditional forms of market manipulation, misinformation can spread rapidly through electronic communication platforms, social media, messaging applications, and trading networks. A single false statement can affect thousands of market participants within minutes.
The legislation therefore imposes liability not only on persons who deliberately spread false information but also on those who recklessly or carelessly disseminate unverified information without exercising due care.
This approach is justified because market participants, particularly professional traders and financial institutions, occupy positions of trust and influence. Their statements can significantly affect market behaviour.
However, regulators must carefully distinguish between:
- Genuine opinions;
- Legitimate market speculation;
- Honest mistakes; and
- Deliberate or reckless misinformation.
The provisions therefore serve an important preventive function by encouraging accuracy, responsibility, and professionalism in financial communications.
Conclusion
Under section 141(1)(c) of the Financial Services Act 2013 and section 153(1)(d) of the Islamic Financial Services Act 2013, it is an offence to make or disseminate information that is false or materially misleading and which is likely to influence trading activity or affect market rates in the money market or foreign exchange market.
Liability may arise where a person:
- Fails to exercise due care regarding the truth of the information; or
- Knows, or ought reasonably to know, that the information is false or misleading.
- Starting rumours to move markets;
- Spreading false information about financial institutions;
- Circulating misleading market reports; and
- Repeating unverified information without proper verification.
0 Comments