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Malaysian Banking Law: Definition of a “Bank” under the Financial Services Act 2013
Direct Answer
Under the Financial Services Act 2013:
👉 There is NO single section that directly defines the word “bank.”
How the Act Defines a Bank (Step-by-Step Understanding)
1. Section 2(1): Key Definitions
Instead of defining “bank” directly, the Act defines:
👉 “licensed bank”
= a person licensed under section 10 to carry on banking business
2. Section 10: Licensing Requirement
👉 Section 10 states:
A person must obtain a licence to carry on banking business
3. Section 2(1): “Banking business”
The Act defines banking business as:
Put It Together (Very Important)
👉 A “bank” under the Financial Services Act 2013 means:
✔ A licensed bank
✔ Which is authorised under section 10
✔ To carry on banking business
Simplified Definition (Exam Ready)
A bank under the Financial Services Act 2013 is a person licensed under section 10 to carry on banking business as defined in section 2(1).
Important Insight
👉 The Act uses an indirect definition approach:
Link to Your Previous Cases
This matches what courts said:
✔ “Bank” = licensed + full banking functions
Final Exam Rule
Under the Financial Services Act 2013, a bank is not expressly defined but is understood as a licensed person under section 10 authorised to carry on banking business as defined in section 2(1).
Direct Answer
Under the Financial Services Act 2013:
👉 There is NO single section that directly defines the word “bank.”
How the Act Defines a Bank (Step-by-Step Understanding)
1. Section 2(1): Key Definitions
Instead of defining “bank” directly, the Act defines:
👉 “licensed bank”
= a person licensed under section 10 to carry on banking business
2. Section 10: Licensing Requirement
👉 Section 10 states:
A person must obtain a licence to carry on banking business
3. Section 2(1): “Banking business”
The Act defines banking business as:
- Accepting deposits
- Paying/collecting cheques
- Providing finance
- Other prescribed activities
Put It Together (Very Important)
👉 A “bank” under the Financial Services Act 2013 means:
✔ A licensed bank
✔ Which is authorised under section 10
✔ To carry on banking business
Simplified Definition (Exam Ready)
A bank under the Financial Services Act 2013 is a person licensed under section 10 to carry on banking business as defined in section 2(1).
Important Insight
👉 The Act uses an indirect definition approach:
- It does NOT say “bank = …”
- Instead, it defines:
- banking business
- licensed bank
Link to Your Previous Cases
This matches what courts said:
- Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd
→ Not every lender is a bank - Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd
→ Financing alone ≠ banking
✔ “Bank” = licensed + full banking functions
Final Exam Rule
Under the Financial Services Act 2013, a bank is not expressly defined but is understood as a licensed person under section 10 authorised to carry on banking business as defined in section 2(1).
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Malaysian Banking Law: Section 125 BAFIA and Its Link to the Financial Services Act 2013
Case Scenario
A borrower in Malaysia challenges a financing agreement, arguing that the lender did not comply with banking regulations. The borrower claims the contract should be void. The court must decide: does a breach of banking law automatically invalidate the agreement?
Q1: What is Section 125 of the Banking and Financial Institutions Act 1989?
Section 125 states that a contract will not automatically become void just because it breaches the Act.
👉 In simple terms:
Even if a transaction does not fully comply with banking law, the agreement itself can still remain valid and enforceable.
Q2: Why is Section 125 important?
Without this section:
✔ Commercial certainty
✔ Fairness between parties
Q3: How does this apply in cases like Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd?
The court said:
👉 Even if the transaction had breached banking law (which it did not),
✔ Section 125 would still protect the agreement
So:
Link with Current Law: Financial Services Act 2013
Q4: What replaced BAFIA?
The Financial Services Act 2013 replaced BAFIA and now governs banking regulation in Malaysia.
Q5: Does the same principle still exist under the Financial Services Act 2013?
Yes — the same idea continues.
👉 The law still aims to:
Key Understanding
✔ Regulatory breach ≠ Contract automatically void
👉 The Act focuses on:
Application (Note Form)
✔ Section 125 principle:
Critical Analysis
This rule is very important for commercial stability.
👉 If every illegal technical breach made contracts void:
👉 Regulation (public law)
vs
👉 Contract enforcement (private law)
Resolution of the Case Scenario
Final Exam Rule (Very Important)
A breach of banking law does not automatically render a contract void; under Section 125 BAFIA (and its modern equivalent under the Financial Services Act 2013), financial agreements remain enforceable unless expressly declared void by law.
Case Scenario
A borrower in Malaysia challenges a financing agreement, arguing that the lender did not comply with banking regulations. The borrower claims the contract should be void. The court must decide: does a breach of banking law automatically invalidate the agreement?
Q1: What is Section 125 of the Banking and Financial Institutions Act 1989?
Section 125 states that a contract will not automatically become void just because it breaches the Act.
👉 In simple terms:
Even if a transaction does not fully comply with banking law, the agreement itself can still remain valid and enforceable.
Q2: Why is Section 125 important?
Without this section:
- Many financial contracts could be cancelled easily
- Borrowers could avoid repayment by claiming illegality
✔ Commercial certainty
✔ Fairness between parties
Q3: How does this apply in cases like Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd?
The court said:
👉 Even if the transaction had breached banking law (which it did not),
✔ Section 125 would still protect the agreement
So:
- The borrower cannot escape liability
- The debt remains payable
Link with Current Law: Financial Services Act 2013
Q4: What replaced BAFIA?
The Financial Services Act 2013 replaced BAFIA and now governs banking regulation in Malaysia.
Q5: Does the same principle still exist under the Financial Services Act 2013?
Yes — the same idea continues.
👉 The law still aims to:
- Regulate financial institutions
- BUT not automatically invalidate contracts
Key Understanding
✔ Regulatory breach ≠ Contract automatically void
👉 The Act focuses on:
- Punishing non-compliance (fines, penalties)
- NOT destroying private agreements
Application (Note Form)
✔ Section 125 principle:
- Contracts remain valid despite breach
- Protects lenders and financial system
- Prevents borrowers from avoiding repayment
- Same approach continues
- Licensing rules enforced separately
- Contracts generally still enforceable
Critical Analysis
This rule is very important for commercial stability.
👉 If every illegal technical breach made contracts void:
- Banking system would collapse
- Loans could not be enforced
- Borrowers could act unfairly
👉 Regulation (public law)
vs
👉 Contract enforcement (private law)
Resolution of the Case Scenario
- Even if there was a breach ✔
- The agreement is still valid ✔
- The borrower must repay ✔
Final Exam Rule (Very Important)
A breach of banking law does not automatically render a contract void; under Section 125 BAFIA (and its modern equivalent under the Financial Services Act 2013), financial agreements remain enforceable unless expressly declared void by law.
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Malaysian Banking Law: “Banking Business” — Islamic Financing and Licensing Requirements
Case Scenario
A financial institution in Malaysia provides Islamic financing through a Murabaha arrangement, where it purchases goods and resells them to a customer at a profit. When the customer fails to pay, the institution seeks repayment. The customer argues that the agreement is illegal because the institution is allegedly carrying on banking business without a licence. The court must determine whether providing such financing amounts to “banking Business”
Q1: What was the main issue in Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd?
The court had to decide whether the defendant, by providing Islamic financing through a Murabaha Sale Agreement, was carrying on banking business without a licence and whether the agreement was therefore illegal.
Q2: What was the plaintiff’s argument?
The plaintiff argued that the defendant was effectively acting like a bank because it provided financing facilities. Since the defendant allegedly did not have the required licence under the Banking and Financial Institutions Act 1989, the plaintiff claimed that the agreement was illegal and unenforceable. In simple terms:
👉 “If you provide financing like a bank, then you must be a bank — and without a licence, the agreement is invalid.”
Q3: What did the court decide?
The court rejected this argument and held that providing financing alone does not amount to banking business. The judge explained that banking business requires a combination of activities—namely accepting deposits, handling cheques, and providing financing. Since the defendant only provided financing and did not accept deposits or operate accounts, it was not carrying on banking business. Therefore, no banking licence was required, and the agreement was valid.
Judicial Proceedings
The court emphasised that under the statutory definition, the elements of banking business must be read together (conjunctively) rather than separately. This means that performing only one activity—such as providing financing—is not sufficient to constitute banking business. The judge highlighted that banking involves a system of interrelated functions, particularly deposit-taking and payment services, which were absent in this case.
The court also considered established judicial principles, including those from United Dominions Trust Ltd v Kirkwood, which describe banking as involving continuous account relationships, cheque handling, and financial intermediation. These elements were not present in the defendant’s activities.
Additionally, the court noted that even if there had been a technical breach of the law, section 125 of the statute would prevent the agreement from being automatically void. This reflects a legislative intention to preserve commercial transactions where possible.
Application (Note Form)
✔ Banking business requires:
Financing alone ≠ Banking business
All elements must exist together
Comparison with Earlier Cases
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone is insufficient
From Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd
→ Financier is not necessarily a banker
From Koh Kim Chai v Asia Commercial Banking Corporation Limited
→ Making advances alone is not banking
👉 Common principle:
Banking requires a combination of core functions
Critical Analysis (Simple Understanding)
This case strongly reinforces a strict statutory interpretation. The court makes it clear that the definition of banking business is not flexible or optional--all required elements must be present. This prevents ordinary financing arrangements, including Islamic finance structures, from being wrongly classified as banking activities.
It also reflects commercial reality. Many financial institutions provide financing without being banks. Treating all such activities as banking would unnecessarily restrict legitimate business operations.
Resolution of the Case Scenario
The defendant was NOT carrying on banking business
✔ The agreement is valid
✔ The debt is enforceable
✔ No breach of law
Final Exam Rule (Very Important)
Providing financing alone, including Islamic financing arrangements, does not constitute banking business; banking business requires the combined performance of deposit-taking, payment handling, and financing activities.
Case Scenario
A financial institution in Malaysia provides Islamic financing through a Murabaha arrangement, where it purchases goods and resells them to a customer at a profit. When the customer fails to pay, the institution seeks repayment. The customer argues that the agreement is illegal because the institution is allegedly carrying on banking business without a licence. The court must determine whether providing such financing amounts to “banking Business”
Q1: What was the main issue in Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd?
The court had to decide whether the defendant, by providing Islamic financing through a Murabaha Sale Agreement, was carrying on banking business without a licence and whether the agreement was therefore illegal.
Q2: What was the plaintiff’s argument?
The plaintiff argued that the defendant was effectively acting like a bank because it provided financing facilities. Since the defendant allegedly did not have the required licence under the Banking and Financial Institutions Act 1989, the plaintiff claimed that the agreement was illegal and unenforceable. In simple terms:
👉 “If you provide financing like a bank, then you must be a bank — and without a licence, the agreement is invalid.”
Q3: What did the court decide?
The court rejected this argument and held that providing financing alone does not amount to banking business. The judge explained that banking business requires a combination of activities—namely accepting deposits, handling cheques, and providing financing. Since the defendant only provided financing and did not accept deposits or operate accounts, it was not carrying on banking business. Therefore, no banking licence was required, and the agreement was valid.
Judicial Proceedings
The court emphasised that under the statutory definition, the elements of banking business must be read together (conjunctively) rather than separately. This means that performing only one activity—such as providing financing—is not sufficient to constitute banking business. The judge highlighted that banking involves a system of interrelated functions, particularly deposit-taking and payment services, which were absent in this case.
The court also considered established judicial principles, including those from United Dominions Trust Ltd v Kirkwood, which describe banking as involving continuous account relationships, cheque handling, and financial intermediation. These elements were not present in the defendant’s activities.
Additionally, the court noted that even if there had been a technical breach of the law, section 125 of the statute would prevent the agreement from being automatically void. This reflects a legislative intention to preserve commercial transactions where possible.
Application (Note Form)
✔ Banking business requires:
- Accepting deposits
- Maintaining accounts
- Paying and collecting cheques
- Providing finance (as part of a system)
- Providing financing only
- Islamic financing (Murabaha) alone
- Single or isolated financial activity
Financing alone ≠ Banking business
All elements must exist together
Comparison with Earlier Cases
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone is insufficient
From Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd
→ Financier is not necessarily a banker
From Koh Kim Chai v Asia Commercial Banking Corporation Limited
→ Making advances alone is not banking
👉 Common principle:
Banking requires a combination of core functions
Critical Analysis (Simple Understanding)
This case strongly reinforces a strict statutory interpretation. The court makes it clear that the definition of banking business is not flexible or optional--all required elements must be present. This prevents ordinary financing arrangements, including Islamic finance structures, from being wrongly classified as banking activities.
It also reflects commercial reality. Many financial institutions provide financing without being banks. Treating all such activities as banking would unnecessarily restrict legitimate business operations.
Resolution of the Case Scenario
- The defendant only provided financing ✔
- It did not accept deposits ❌
- It did not operate accounts ❌
- It did not handle cheques ❌
The defendant was NOT carrying on banking business
✔ The agreement is valid
✔ The debt is enforceable
✔ No breach of law
Final Exam Rule (Very Important)
Providing financing alone, including Islamic financing arrangements, does not constitute banking business; banking business requires the combined performance of deposit-taking, payment handling, and financing activities.
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Malaysian Banking Law: “Banking Business” — Cross-Border Transactions and Licensing
Case Scenario
A foreign bank based in Singapore offers a loan in foreign currency to a Malaysian customer to purchase shares in Malaysia. Some documents are signed in Malaysia, and securities are placed locally. When the borrower defaults, the bank enforces a judgment obtained abroad. The borrower argues that the loan is illegal because the bank was carrying on banking business in Malaysia without a licence
Q1: What was the main issue in Banque Nationale De Paris v Wuan Swee May?
The court had to determine whether a foreign bank, by soliciting business and granting a loan to a Malaysian customer, was carrying on banking business in Malaysia without a licence, thereby making the transaction illegal.
Q2: What was the defendant’s argument?
The defendant argued that the bank was effectively operating in Malaysia because:
“If the bank conducts these activities in Malaysia, then it is carrying on banking business here without a licence — therefore the loan is illegal.”
Q3: What did the court decide?
The court rejected this argument and held that the bank was not carrying on banking business in Malaysia. The judge found that the transaction, although connected to Malaysia, did not amount to conducting the business of banking within the country. Therefore, there was no breach of the Banking and Financial Institutions Act 1989, and the transaction was valid and enforceable.
Judicial Reasoning
The court focused on the substance of the transaction rather than its location. It recognised that although some elements of the transaction took place in Malaysia—such as signing documents and holding securities—the core banking activity, namely the provision of the loan, was not carried out as part of a continuous banking operation in Malaysia.
The judge emphasised that isolated or incidental activities within Malaysia do not amount to carrying on banking business. What matters is whether the institution is systematically conducting banking operations in the country. Since the plaintiff did not have a branch or ongoing banking presence in Malaysia, it could not be said to be operating as a bank there.
Application
✔ Not banking business in Malaysia:
Connection to Malaysia ≠ Carrying on banking business
Continuity and system = required
Comparison with Earlier Cases
From Koh Kim Chai v Asia Commercial Banking Corporation Limited
→ Taking and enforcing security in Malaysia ≠ banking business
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone ≠ banking business
From Bank Industri (M) Bhd v Technopro Corp (M) Bhd
→ Authorised financing is valid
👉 Common principle:
Not every financial activity amounts to banking business
Critical Analysis (Simple Understanding)
This case reinforces the idea that location alone is not decisive. Just because part of a transaction happens in Malaysia does not mean the bank is operating there. Courts focus on whether there is a real, continuous business presence.
This approach supports international banking and cross-border financing. If every foreign loan connected to Malaysia were treated as illegal, it would severely restrict global financial transactions.
Resolution of the Case Scenario
The bank was NOT carrying on banking business in Malaysia
✔ The loan is valid
✔ The judgment can be enforced
✔ No breach of law
Final Exam Rule (Very Important)
A foreign bank does not carry on banking business in Malaysia merely because a transaction has connections to Malaysia; there must be continuous and substantive banking operations within the jurisdiction.
Case Scenario
A foreign bank based in Singapore offers a loan in foreign currency to a Malaysian customer to purchase shares in Malaysia. Some documents are signed in Malaysia, and securities are placed locally. When the borrower defaults, the bank enforces a judgment obtained abroad. The borrower argues that the loan is illegal because the bank was carrying on banking business in Malaysia without a licence
Q1: What was the main issue in Banque Nationale De Paris v Wuan Swee May?
The court had to determine whether a foreign bank, by soliciting business and granting a loan to a Malaysian customer, was carrying on banking business in Malaysia without a licence, thereby making the transaction illegal.
Q2: What was the defendant’s argument?
The defendant argued that the bank was effectively operating in Malaysia because:
- It approached the customer in Malaysia,
- The loan documents were signed in Malaysia, and
- Some securities were located in Malaysia.
“If the bank conducts these activities in Malaysia, then it is carrying on banking business here without a licence — therefore the loan is illegal.”
Q3: What did the court decide?
The court rejected this argument and held that the bank was not carrying on banking business in Malaysia. The judge found that the transaction, although connected to Malaysia, did not amount to conducting the business of banking within the country. Therefore, there was no breach of the Banking and Financial Institutions Act 1989, and the transaction was valid and enforceable.
Judicial Reasoning
The court focused on the substance of the transaction rather than its location. It recognised that although some elements of the transaction took place in Malaysia—such as signing documents and holding securities—the core banking activity, namely the provision of the loan, was not carried out as part of a continuous banking operation in Malaysia.
The judge emphasised that isolated or incidental activities within Malaysia do not amount to carrying on banking business. What matters is whether the institution is systematically conducting banking operations in the country. Since the plaintiff did not have a branch or ongoing banking presence in Malaysia, it could not be said to be operating as a bank there.
Application
✔ Not banking business in Malaysia:
- Soliciting business occasionally
- Signing documents locally
- Holding securities in Malaysia
- One-off or isolated loan transaction
- Continuous operations in Malaysia
- Accepting deposits locally
- Running accounts in Malaysia
- Providing ongoing banking services
Connection to Malaysia ≠ Carrying on banking business
Continuity and system = required
Comparison with Earlier Cases
From Koh Kim Chai v Asia Commercial Banking Corporation Limited
→ Taking and enforcing security in Malaysia ≠ banking business
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone ≠ banking business
From Bank Industri (M) Bhd v Technopro Corp (M) Bhd
→ Authorised financing is valid
👉 Common principle:
Not every financial activity amounts to banking business
Critical Analysis (Simple Understanding)
This case reinforces the idea that location alone is not decisive. Just because part of a transaction happens in Malaysia does not mean the bank is operating there. Courts focus on whether there is a real, continuous business presence.
This approach supports international banking and cross-border financing. If every foreign loan connected to Malaysia were treated as illegal, it would severely restrict global financial transactions.
Resolution of the Case Scenario
- The bank had no branch in Malaysia ✔
- The loan was not part of continuous Malaysian operations ✔
- Activities in Malaysia were incidental ✔
The bank was NOT carrying on banking business in Malaysia
✔ The loan is valid
✔ The judgment can be enforced
✔ No breach of law
Final Exam Rule (Very Important)
A foreign bank does not carry on banking business in Malaysia merely because a transaction has connections to Malaysia; there must be continuous and substantive banking operations within the jurisdiction.
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Malaysian Banking Law: “Banking Business” — Development Finance and Legality of Credit Facilities
Case Scenario
A financial institution in Malaysia provides credit facilities funded by international organisations such as the World Bank and Islamic Development Bank. When the borrower defaults, the bank sues the guarantor. The guarantor argues that the loan is illegal because the institution is not properly licensed under banking law. The court must determine whether the institution was unlawfully carrying on banking business.
Q1: What was the main issue in Bank Industri (M) Bhd v Technopro Corp (M) Bhd?
The court had to decide whether the credit facilities provided by the plaintiff were illegal due to lack of proper licensing, and whether the plaintiff was unlawfully carrying on banking business.
Q2: What was the defendant’s argument?
The guarantor argued that the plaintiff did not have the proper banking licence under the Banking and Financial Institutions Act 1989. Therefore, the loans and credit facilities granted should be considered illegal and unenforceable. In simple terms:
👉 “If you are not a licensed bank, you cannot give loans — so the agreement is invalid.”
Q3: What did the court decide? (Clear explanation)
The court rejected this argument and held that the plaintiff’s activities were legal and valid. The judge found that the plaintiff was not acting as an ordinary commercial bank, but as a development finance institution. Since it had proper authorisation from Bank Negara Malaysia and the relevant Ministry, its activities fell within “development finance business,” which is recognised under the law. Therefore, the credit facilities were lawful and enforceable.
Judicial Reasoning
The court explained that development finance business is a special category of financial activity recognised under the Banking and Financial Institutions Act 1989. Such institutions are established to promote economic development by providing financing for industrial, agricultural, and commercial projects. Their role is not identical to that of commercial banks.
The judge emphasised that the plaintiff had obtained proper approval from Bank Negara Malaysia and the Ministry of Finance. Therefore, it was authorised to carry out development finance activities. The provision of loans for development purposes fell squarely within this mandate.
The court also clarified that even if an activity may resemble banking (such as giving loans), it does not automatically mean the institution is carrying on the “business of banking” in the legal sense. The nature, purpose, and regulatory approval of the activity must be considered.
Application
✔ Valid financial activities:
Authorised development finance ≠ illegal banking
Purpose + approval = legality
Additional Legal Principle
The court further recognised that:
👉 A single or isolated banking-type transaction (e.g., offering a loan or financing shares) does not mean the institution is carrying on the full “business of banking.”
This reinforces the principle that:
✔ Banking business requires continuous and structured activities
❌ Not just one-off transactions
Comparison with Other Cases
From Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd
→ Development banks are not necessarily “banks” in law
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone is not banking
👉 Common principle:
Not all financial institutions are banks
Critical Analysis (Simple Understanding)
This case highlights the importance of regulatory classification. The law recognises different types of financial institutions, each with its own role. Development finance institutions fill gaps that commercial banks may not cover, especially in long-term and high-risk investments.
The decision also prevents unnecessary invalidation of financial transactions. If every loan by a non-bank institution were treated as illegal, it would disrupt economic development and financing activities.
Resolution of the Case Scenario
The plaintiff was NOT acting illegally
✔ The loan is valid
✔ The guarantor is liable
✔ The claim succeeds
Final Exam Rule
A financial institution does not carry on unlawful banking business if it provides credit facilities under proper regulatory authority and within the scope of development finance; lending alone does not amount to banking business.
Case Scenario
A financial institution in Malaysia provides credit facilities funded by international organisations such as the World Bank and Islamic Development Bank. When the borrower defaults, the bank sues the guarantor. The guarantor argues that the loan is illegal because the institution is not properly licensed under banking law. The court must determine whether the institution was unlawfully carrying on banking business.
Q1: What was the main issue in Bank Industri (M) Bhd v Technopro Corp (M) Bhd?
The court had to decide whether the credit facilities provided by the plaintiff were illegal due to lack of proper licensing, and whether the plaintiff was unlawfully carrying on banking business.
Q2: What was the defendant’s argument?
The guarantor argued that the plaintiff did not have the proper banking licence under the Banking and Financial Institutions Act 1989. Therefore, the loans and credit facilities granted should be considered illegal and unenforceable. In simple terms:
👉 “If you are not a licensed bank, you cannot give loans — so the agreement is invalid.”
Q3: What did the court decide? (Clear explanation)
The court rejected this argument and held that the plaintiff’s activities were legal and valid. The judge found that the plaintiff was not acting as an ordinary commercial bank, but as a development finance institution. Since it had proper authorisation from Bank Negara Malaysia and the relevant Ministry, its activities fell within “development finance business,” which is recognised under the law. Therefore, the credit facilities were lawful and enforceable.
Judicial Reasoning
The court explained that development finance business is a special category of financial activity recognised under the Banking and Financial Institutions Act 1989. Such institutions are established to promote economic development by providing financing for industrial, agricultural, and commercial projects. Their role is not identical to that of commercial banks.
The judge emphasised that the plaintiff had obtained proper approval from Bank Negara Malaysia and the Ministry of Finance. Therefore, it was authorised to carry out development finance activities. The provision of loans for development purposes fell squarely within this mandate.
The court also clarified that even if an activity may resemble banking (such as giving loans), it does not automatically mean the institution is carrying on the “business of banking” in the legal sense. The nature, purpose, and regulatory approval of the activity must be considered.
Application
✔ Valid financial activities:
- Providing development loans
- Financing economic projects
- Offering credit facilities with regulatory approval
- Acting under mandate from Bank Negara
- Giving loans alone
- Offering credit facilities without full banking functions
- Conducting isolated financial transactions
Authorised development finance ≠ illegal banking
Purpose + approval = legality
Additional Legal Principle
The court further recognised that:
👉 A single or isolated banking-type transaction (e.g., offering a loan or financing shares) does not mean the institution is carrying on the full “business of banking.”
This reinforces the principle that:
✔ Banking business requires continuous and structured activities
❌ Not just one-off transactions
Comparison with Other Cases
From Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd
→ Development banks are not necessarily “banks” in law
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone is not banking
👉 Common principle:
Not all financial institutions are banks
Critical Analysis (Simple Understanding)
This case highlights the importance of regulatory classification. The law recognises different types of financial institutions, each with its own role. Development finance institutions fill gaps that commercial banks may not cover, especially in long-term and high-risk investments.
The decision also prevents unnecessary invalidation of financial transactions. If every loan by a non-bank institution were treated as illegal, it would disrupt economic development and financing activities.
Resolution of the Case Scenario
- The plaintiff had proper authorisation ✔
- It carried out development finance business ✔
- The loans were within its mandate ✔
The plaintiff was NOT acting illegally
✔ The loan is valid
✔ The guarantor is liable
✔ The claim succeeds
Final Exam Rule
A financial institution does not carry on unlawful banking business if it provides credit facilities under proper regulatory authority and within the scope of development finance; lending alone does not amount to banking business.
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Malaysian Banking Law: “Banking Business” — Development Banks and Scope of Banking Activities
Case Scenario
A development financial institution in Malaysia provides loans and credit facilities to a company for business purposes. When the company defaults, the institution sues to recover the outstanding amount. The borrower argues that the institution is not a licensed bank and therefore the loan is illegal. The court must determine whether lending money alone amounts to “banking business.”
Q and A
Q1: What was the main issue in Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd?
The court had to decide whether a development bank that provides loans without a banking licence is unlawfully carrying on banking business, and whether such loans are therefore invalid.
Q2: What was the defendants’ argument?
The defendants argued that since the plaintiff was not licensed as a bank under the Banking Act 1973, it had no legal right to give loans. They claimed that the lending activity itself amounted to banking business, and because the plaintiff was unlicensed, the transaction should be considered illegal and void. In simple terms, they were saying:
👉 “If you lend money like a bank, you must be a bank — and without a licence, your loan is unlawful.”
Q3: What did the court decide?
The court rejected this argument and held that lending money alone does not automatically amount to banking business. The judge explained that a true banking business requires more than just giving loans. Since there was no evidence that the plaintiff accepted deposits, maintained current accounts, or handled cheques, it could not be classified as a bank. Therefore, the loan was valid and enforceable.
Judicial Proceedings
The court emphasised that development finance institutions are specialised financial bodies created to promote economic development, particularly by providing medium- and long-term financing. Their role is different from commercial banks. Although the plaintiff used the word “bank” in its name, this did not automatically make it a bank in law. The court clarified that even if an entity is authorised to use the term “bank,” it does not become a “banker” unless it performs the essential functions of banking.
The judge relied on established legal principles that a banker must typically carry out three key activities: accepting deposits, paying cheques, and collecting cheques. Since the plaintiff did not perform these functions, it could not be said to be carrying on banking business. The court also noted that the plaintiff’s activities were primarily those of a financier, not a banker.
Application
✔ Banking business requires:
Financing ≠ Banking business
Name ≠ Legal status
Comparison with Other Cases
This case is consistent with earlier decisions:
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone is not banking
From Bank of China v Lee Kee Pin
→ Recovering debts is not banking
👉 Common principle:
Only core banking functions together amount to banking business
Additional Legal Insight (Role of Bank as Financier)
The court recognised that banks, when providing loans, act primarily as financiers. This was reinforced in Chang Yun Tai v HSBC Bank (M) Bhd, where it was held that a bank is not responsible for investigating the underlying transaction between its customer and third parties.
Duty of Care (Important Exception)
However, banks still owe a duty of care.
From Anthony Lawrence Bourke v CIMB Bank Bhd
✔ Bank must:
Resolution of the Case Scenario
The plaintiff was NOT carrying on banking business
✔ The loan is valid
✔ The defendants must repay
✔ No breach of Banking Act
Final Exam Rule
A person is not a banker merely because it lends money; banking business requires the combined performance of essential functions such as deposit-taking, account operation, and payment handling.
Case Scenario
A development financial institution in Malaysia provides loans and credit facilities to a company for business purposes. When the company defaults, the institution sues to recover the outstanding amount. The borrower argues that the institution is not a licensed bank and therefore the loan is illegal. The court must determine whether lending money alone amounts to “banking business.”
Q and A
Q1: What was the main issue in Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd?
The court had to decide whether a development bank that provides loans without a banking licence is unlawfully carrying on banking business, and whether such loans are therefore invalid.
Q2: What was the defendants’ argument?
The defendants argued that since the plaintiff was not licensed as a bank under the Banking Act 1973, it had no legal right to give loans. They claimed that the lending activity itself amounted to banking business, and because the plaintiff was unlicensed, the transaction should be considered illegal and void. In simple terms, they were saying:
👉 “If you lend money like a bank, you must be a bank — and without a licence, your loan is unlawful.”
Q3: What did the court decide?
The court rejected this argument and held that lending money alone does not automatically amount to banking business. The judge explained that a true banking business requires more than just giving loans. Since there was no evidence that the plaintiff accepted deposits, maintained current accounts, or handled cheques, it could not be classified as a bank. Therefore, the loan was valid and enforceable.
Judicial Proceedings
The court emphasised that development finance institutions are specialised financial bodies created to promote economic development, particularly by providing medium- and long-term financing. Their role is different from commercial banks. Although the plaintiff used the word “bank” in its name, this did not automatically make it a bank in law. The court clarified that even if an entity is authorised to use the term “bank,” it does not become a “banker” unless it performs the essential functions of banking.
The judge relied on established legal principles that a banker must typically carry out three key activities: accepting deposits, paying cheques, and collecting cheques. Since the plaintiff did not perform these functions, it could not be said to be carrying on banking business. The court also noted that the plaintiff’s activities were primarily those of a financier, not a banker.
Application
✔ Banking business requires:
- Accepting deposits
- Maintaining current accounts
- Paying cheques
- Collecting cheques
- Providing finance (as part of a broader system)
- Lending money only
- Providing credit facilities
- Acting as a financier
- Using the word “bank” in name
Financing ≠ Banking business
Name ≠ Legal status
Comparison with Other Cases
This case is consistent with earlier decisions:
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone is not banking
From Bank of China v Lee Kee Pin
→ Recovering debts is not banking
👉 Common principle:
Only core banking functions together amount to banking business
Additional Legal Insight (Role of Bank as Financier)
The court recognised that banks, when providing loans, act primarily as financiers. This was reinforced in Chang Yun Tai v HSBC Bank (M) Bhd, where it was held that a bank is not responsible for investigating the underlying transaction between its customer and third parties.
Duty of Care (Important Exception)
However, banks still owe a duty of care.
From Anthony Lawrence Bourke v CIMB Bank Bhd
✔ Bank must:
- Exercise reasonable skill and care
- Properly disburse loans according to agreement
Resolution of the Case Scenario
- The plaintiff only provided financing ✔
- It did not accept deposits ❌
- It did not operate current accounts ❌
- It did not handle cheques ❌
The plaintiff was NOT carrying on banking business
✔ The loan is valid
✔ The defendants must repay
✔ No breach of Banking Act
Final Exam Rule
A person is not a banker merely because it lends money; banking business requires the combined performance of essential functions such as deposit-taking, account operation, and payment handling.
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Malaysian Banking Law: “Carrying on Banking Business” — Comparison Between Malaysian and English Law
Malaysian Banking Law: “Carrying on Banking Business” — Comparison Between Malaysian and English Law
Case Scenario
A foreign bank that previously operated in Malaysia loses its banking licence but still has outstanding loans owed by customers. It files a lawsuit to recover those debts. The borrowers argue that the bank is illegally continuing banking business without a licence. The court must decide whether suing for repayment counts as “carrying on banking business.”
(Q&A Format)
Q1: What was the main legal question in Bank of China v Lee Kee Pin?
The court needed to decide whether a bank without a licence is breaking the law by suing to recover money owed to it.
Q2: What exactly was the defendant trying to argue? (Simple explanation)
The borrower was basically saying:
👉 “If the bank is suing me, it means the bank is still operating as a bank.”
So their logic was:
They tried to turn debt recovery into banking activity
Q3: What did the court actually decide? (Very clear explanation)
The court rejected this argument and said:
👉 “Recovering money is NOT the same as running a bank.”
Because:
Getting back money from past transactions
Q4: Why did the judge allow this?
The law is meant to stop:
👉 Unlicensed banks from actively operating
NOT to stop:
👉 Banks from collecting money already owed
Otherwise:
Comparison with Malaysian Statutory Definition
Under
Financial Services Act 2013
Banking business includes:
Application to This Case (Note Form)
Banking = active operations
Debt recovery = enforcement of past rights
Comparison with English Law Approach
From United Dominions Trust Ltd v Kirkwood
Banking focuses on:
Critical Analysis (Easy Understanding)
Core Concept:
Courts distinguish between:
👉 Operating a banking business
vs
👉 Closing or enforcing past transactions
Why this distinction matters:
If debt recovery = banking:
Resolution of the Case Scenario
Final Exam Rule (Important)
Recovering debts does not amount to “carrying on banking business” because it does not involve active banking activities such as accepting deposits or granting new loans.
Case Scenario
A foreign bank that previously operated in Malaysia loses its banking licence but still has outstanding loans owed by customers. It files a lawsuit to recover those debts. The borrowers argue that the bank is illegally continuing banking business without a licence. The court must decide whether suing for repayment counts as “carrying on banking business.”
(Q&A Format)
Q1: What was the main legal question in Bank of China v Lee Kee Pin?
The court needed to decide whether a bank without a licence is breaking the law by suing to recover money owed to it.
Q2: What exactly was the defendant trying to argue? (Simple explanation)
The borrower was basically saying:
👉 “If the bank is suing me, it means the bank is still operating as a bank.”
So their logic was:
- Asking for repayment = continuing banking business
- No licence = illegal
They tried to turn debt recovery into banking activity
Q3: What did the court actually decide? (Very clear explanation)
The court rejected this argument and said:
👉 “Recovering money is NOT the same as running a bank.”
Because:
- The bank is not giving new loans
- The bank is not accepting deposits
- The bank is not offering banking services
Getting back money from past transactions
Q4: Why did the judge allow this?
The law is meant to stop:
👉 Unlicensed banks from actively operating
NOT to stop:
👉 Banks from collecting money already owed
Otherwise:
- Borrowers would escape payment
- Banks would suffer unfair losses
Comparison with Malaysian Statutory Definition
Under
Financial Services Act 2013
Banking business includes:
- Accepting deposits
- Handling payments (e.g., cheques)
- Providing finance (loans)
Application to This Case (Note Form)
- Giving new loans → ✔ Banking business
- Accepting deposits → ✔ Banking business
- Processing payments → ✔ Banking business
- Suing to recover old loans → ❌ NOT banking business
- Collecting existing debts → ❌ NOT banking business
- Winding down business → ❌ NOT banking business
Banking = active operations
Debt recovery = enforcement of past rights
Comparison with English Law Approach
From United Dominions Trust Ltd v Kirkwood
Banking focuses on:
- Ongoing account relationship
- Managing customer funds
- Continuous transactions
Critical Analysis (Easy Understanding)
Core Concept:
Courts distinguish between:
👉 Operating a banking business
vs
👉 Closing or enforcing past transactions
Why this distinction matters:
If debt recovery = banking:
- Banks cannot recover loans after closure
- Customers could avoid paying debts
Resolution of the Case Scenario
- The bank is not operating as a bank anymore
- It is only enforcing existing rights
- Therefore, it is not violating the law
Final Exam Rule (Important)
Recovering debts does not amount to “carrying on banking business” because it does not involve active banking activities such as accepting deposits or granting new loans.
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You’re right to push for a clear, workable definition—the law circles because banking evolves, but we can extract a solid definition from all the cases, statutes, and authorities.
Malaysian Banking Law: A Proper Legal Definition of a “Banker”
Final Consolidated Definition
A banker is a person, partnership, or corporation that, as its principal business, accepts money from the public as deposits (repayable on demand or at agreed times), maintains an ongoing account relationship with customers enabling deposits and withdrawals, and utilises those funds for lending or other financial operations, while being recognised or authorised within the legal and financial system to carry on such business.
Why this is the “correct” definition (built from all sources)
This definition is not invented—it is synthesised from all the authorities you studied:
1. Core function (Permewan case principle)
From State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd
→ Banking =
2. Economic role (Bank of NSW case)
From Commonwealth of Australia v Bank of New South Wales
→ Banking =
3. Flexibility (Bank of Chettinad case)
From Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo
→ No fixed definition
👉 So the definition must be broad and adaptable
4. Account relationship (Kirkwood case)
From United Dominions Trust Ltd v Kirkwood
→ Key idea:
5. What is NOT essential (modern judicial view)
Cases show:
6. Statutory reinforcement (Malaysia)
From Financial Services Act 2013
→ Banking =
Simplified Version
A banker is a licensed financial institution whose main business is to accept deposits from the public, allow withdrawals through an account relationship, and use those funds for lending or other financial activities.
Key Insight (Very Important)
👉 The law does not define a banker by tools (cheques)
👉 It defines a banker by function (handling and using money)
Final Takeaway
A banker is best understood as:
Malaysian Banking Law: A Proper Legal Definition of a “Banker”
Final Consolidated Definition
A banker is a person, partnership, or corporation that, as its principal business, accepts money from the public as deposits (repayable on demand or at agreed times), maintains an ongoing account relationship with customers enabling deposits and withdrawals, and utilises those funds for lending or other financial operations, while being recognised or authorised within the legal and financial system to carry on such business.
Why this is the “correct” definition (built from all sources)
This definition is not invented—it is synthesised from all the authorities you studied:
1. Core function (Permewan case principle)
From State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd
→ Banking =
- Receiving deposits
- Using them (mainly lending)
2. Economic role (Bank of NSW case)
From Commonwealth of Australia v Bank of New South Wales
→ Banking =
- Credit creation
- Loans
- Financial intermediation
3. Flexibility (Bank of Chettinad case)
From Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo
→ No fixed definition
👉 So the definition must be broad and adaptable
4. Account relationship (Kirkwood case)
From United Dominions Trust Ltd v Kirkwood
→ Key idea:
- Continuous account (deposit + withdrawal)
5. What is NOT essential (modern judicial view)
Cases show:
- Cheques ❌ not essential
- Current accounts ❌ not strictly required
- Methods ❌ can change (digital, etc.)
6. Statutory reinforcement (Malaysia)
From Financial Services Act 2013
→ Banking =
- Accept deposits
- Provide finance
- Facilitate payments
- Must be licensed
Simplified Version
A banker is a licensed financial institution whose main business is to accept deposits from the public, allow withdrawals through an account relationship, and use those funds for lending or other financial activities.
Key Insight (Very Important)
👉 The law does not define a banker by tools (cheques)
👉 It defines a banker by function (handling and using money)
Final Takeaway
A banker is best understood as:
- Custodian of money (holds deposits)
- Intermediary (moves money in economy)
- Lender/financier (uses funds productively)
- Regulated entity (must be authorised by law)
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Malaysian Banking Law: Judicial Interpretation of the Business of Banking (Evolution of Judicial Views)
Case Scenario
Oliver deposits money with a financial institution in United Kingdom that does not provide cheque books but allows deposits, withdrawals, and electronic transfers. When a dispute arises, Oliver argues that the institution is not a “bank” because it does not pay cheques. The court must determine whether cheque-related functions are essential to being a banker.
Judicial Position
Q1: What did United Dominions Trust Ltd v Kirkwood establish regarding banking?
The case identified common features of banking, namely maintaining accounts, handling payment instructions, and processing incoming funds. However, these were not intended to form a strict or exhaustive definition.
Q2: What was the earlier traditional judicial view on banking?
Earlier decisions suggested that an institution could not be regarded as a banker unless it honoured cheques drawn on itself. This view was reflected in cases such as Re District Savings Bank Ltd, ex parte Coe and Halifax Union v Wheelwright.
Q3: Did all courts agree that cheque payment is essential?
No. Later judicial decisions rejected this strict requirement, recognising that banking could exist even without cheque facilities.
Q4: Can an institution still be a banker without offering current accounts or cheque services?
Yes. In R v Industrial Disputes Tribunal, ex parte East Anglian Trustee Savings Bank, it was held that an institution could still carry on banking business despite not issuing cheque books.
Q5: What other cases support the flexible approach?
Cases such as Re Bottomgate Industrial Co-operative Society and State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd confirmed that traditional features like cheque handling are not indispensable.
Q6: How did Lord Denning summarise the characteristics of banking?
Lord Denning explained that bankers typically:
The courts have moved from a strict, cheque-based definition to a broader, functional understanding of banking.
Practical Application
In modern banking, especially with digital systems, cheque usage is declining. Institutions now perform equivalent functions through electronic payments and online accounts. Courts therefore focus on whether the institution manages customer funds and facilitates financial transactions, rather than on the specific method used.
Critical Analysis
Judicial interpretation demonstrates a clear evolution. Earlier courts emphasised formal characteristics such as cheque payments, while later decisions adopted a more flexible, functional approach. This shift reflects changes in banking practice and ensures that the law remains relevant. However, the absence of a fixed standard may create uncertainty in borderline cases.
Resolution of the Case Scenario
In Oliver’s case, the institution may still be considered a banker even though it does not handle cheques. If it accepts deposits, maintains accounts, and facilitates payments—albeit electronically—it performs the essential functions of banking. Therefore, the modern judicial approach would likely recognise it as a bank, focusing on substance rather than outdated formal requirements.
Case Scenario
Oliver deposits money with a financial institution in United Kingdom that does not provide cheque books but allows deposits, withdrawals, and electronic transfers. When a dispute arises, Oliver argues that the institution is not a “bank” because it does not pay cheques. The court must determine whether cheque-related functions are essential to being a banker.
Judicial Position
Q1: What did United Dominions Trust Ltd v Kirkwood establish regarding banking?
The case identified common features of banking, namely maintaining accounts, handling payment instructions, and processing incoming funds. However, these were not intended to form a strict or exhaustive definition.
Q2: What was the earlier traditional judicial view on banking?
Earlier decisions suggested that an institution could not be regarded as a banker unless it honoured cheques drawn on itself. This view was reflected in cases such as Re District Savings Bank Ltd, ex parte Coe and Halifax Union v Wheelwright.
Q3: Did all courts agree that cheque payment is essential?
No. Later judicial decisions rejected this strict requirement, recognising that banking could exist even without cheque facilities.
Q4: Can an institution still be a banker without offering current accounts or cheque services?
Yes. In R v Industrial Disputes Tribunal, ex parte East Anglian Trustee Savings Bank, it was held that an institution could still carry on banking business despite not issuing cheque books.
Q5: What other cases support the flexible approach?
Cases such as Re Bottomgate Industrial Co-operative Society and State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd confirmed that traditional features like cheque handling are not indispensable.
Q6: How did Lord Denning summarise the characteristics of banking?
Lord Denning explained that bankers typically:
- Receive and collect funds for customers,
- Honour payment instructions issued by customers, and
- Maintain accounts recording transactions.
However, these are usual features rather than rigid legal requirements.
The courts have moved from a strict, cheque-based definition to a broader, functional understanding of banking.
Practical Application
In modern banking, especially with digital systems, cheque usage is declining. Institutions now perform equivalent functions through electronic payments and online accounts. Courts therefore focus on whether the institution manages customer funds and facilitates financial transactions, rather than on the specific method used.
Critical Analysis
Judicial interpretation demonstrates a clear evolution. Earlier courts emphasised formal characteristics such as cheque payments, while later decisions adopted a more flexible, functional approach. This shift reflects changes in banking practice and ensures that the law remains relevant. However, the absence of a fixed standard may create uncertainty in borderline cases.
Resolution of the Case Scenario
In Oliver’s case, the institution may still be considered a banker even though it does not handle cheques. If it accepts deposits, maintains accounts, and facilitates payments—albeit electronically—it performs the essential functions of banking. Therefore, the modern judicial approach would likely recognise it as a bank, focusing on substance rather than outdated formal requirements.
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Malaysian Banking Law: Difference Between “Authorised Person” and “Approved Person”
Case Scenario
Mei Ling deals with two financial institutions in Malaysia. One is a licensed bank offering deposit accounts and loans, while the other operates a payment system and provides financial advisory services. When an issue arises, she assumes both are regulated in the same way. However, the law distinguishes between an “authorised person” and an “approved person.” What is the difference?
Explanation (Q&A Format )
Q1: What is an “authorised person” under the Financial Services Act 2013?
An authorised person is a broad category referring to any entity that is legally permitted to carry on regulated financial activities. This includes both licensed and approved entities.
Q2: What is meant by a “licensed person”?
A licensed person is an institution that has obtained a formal licence to conduct core financial businesses such as banking, insurance, or investment banking. These are typically highly regulated and central financial institutions.
Q3: What is an “approved person”?
An approved person is an entity that does not hold a full licence but has been granted approval by the regulator to carry out specific financial activities listed under the law.
Q4: What kinds of activities do approved persons usually perform?
Approved persons are typically involved in specialised or supporting services such as:
The main difference lies in the level and scope of authorisation:
Yes. The term “authorised person” is an umbrella term that includes both licensed persons and approved persons.
Practical Application
In practice, a bank in Malaysia is a licensed person, while a company operating a payment gateway or providing financial advice may be an approved person. Both are regulated, but the scope of regulation differs depending on the nature of their activities.
Critical Analysis
This distinction reflects a modern regulatory approach. Instead of treating all financial institutions the same, the law differentiates between core banking activities and supporting financial services. This allows for proportionate regulation—stricter control over banks and more tailored oversight for specialised service providers. However, this layered system may confuse customers who assume all regulated entities have identical responsibilities.
Resolution of the Case Scenario
In Mei Ling’s case, the licensed bank is a licensed person and therefore an authorised person with full banking responsibilities. The other institution, if only approved to operate a payment system or advisory service, is an approved person and also falls under the category of authorised person but with a narrower scope of duties. Therefore, while both are regulated, their legal obligations and responsibilities differ based on the type of authorisation they hold.
Case Scenario
Mei Ling deals with two financial institutions in Malaysia. One is a licensed bank offering deposit accounts and loans, while the other operates a payment system and provides financial advisory services. When an issue arises, she assumes both are regulated in the same way. However, the law distinguishes between an “authorised person” and an “approved person.” What is the difference?
Explanation (Q&A Format )
Q1: What is an “authorised person” under the Financial Services Act 2013?
An authorised person is a broad category referring to any entity that is legally permitted to carry on regulated financial activities. This includes both licensed and approved entities.
Q2: What is meant by a “licensed person”?
A licensed person is an institution that has obtained a formal licence to conduct core financial businesses such as banking, insurance, or investment banking. These are typically highly regulated and central financial institutions.
Q3: What is an “approved person”?
An approved person is an entity that does not hold a full licence but has been granted approval by the regulator to carry out specific financial activities listed under the law.
Q4: What kinds of activities do approved persons usually perform?
Approved persons are typically involved in specialised or supporting services such as:
- Operating payment systems,
- Issuing payment instruments,
- Conducting financial advisory services,
- Acting as insurance brokers or money brokers.
The main difference lies in the level and scope of authorisation:
- Licensed persons carry on principal financial businesses (e.g., banking).
- Approved persons carry on specific or ancillary financial services with regulatory approval.
Yes. The term “authorised person” is an umbrella term that includes both licensed persons and approved persons.
Practical Application
In practice, a bank in Malaysia is a licensed person, while a company operating a payment gateway or providing financial advice may be an approved person. Both are regulated, but the scope of regulation differs depending on the nature of their activities.
Critical Analysis
This distinction reflects a modern regulatory approach. Instead of treating all financial institutions the same, the law differentiates between core banking activities and supporting financial services. This allows for proportionate regulation—stricter control over banks and more tailored oversight for specialised service providers. However, this layered system may confuse customers who assume all regulated entities have identical responsibilities.
Resolution of the Case Scenario
In Mei Ling’s case, the licensed bank is a licensed person and therefore an authorised person with full banking responsibilities. The other institution, if only approved to operate a payment system or advisory service, is an approved person and also falls under the category of authorised person but with a narrower scope of duties. Therefore, while both are regulated, their legal obligations and responsibilities differ based on the type of authorisation they hold.