Law

Published on: June 3, 2026

Malaysian Banking Law – Banking Secrecy, Confidentiality, Personal Data Protection and Banker’s Duties

Malaysian Banking Law – Banking Secrecy, Confidentiality, Personal Data Protection and Banker’s Duties
Introduction
Banking secrecy is one of the most fundamental obligations imposed upon banks and financial institutions. It protects confidential information entrusted by customers to banks and forms a cornerstone of the banker-customer relationship.
The duty serves several important purposes:

Protecting customer privacy;
Preserving confidence in the banking system;
Promoting trust in financial institutions;
Protecting sensitive commercial information; and
Ensuring disclosure only where authorised by law.

In Malaysia, banking secrecy is governed primarily by:

Section 132 Financial Services Act 2013 (FSA 2013) – Restriction on inquiry into customer affairs;
Section 133 FSA 2013 – Statutory duty of secrecy;
Section 134 FSA 2013 – Permitted disclosures and exceptions; and
Personal Data Protection Act 2010 (PDPA) – Protection of personal data handled by commercial organisations, including banks.

These statutory duties are supplemented by:

Contract law;
Tort law;
Equity; and
Regulatory obligations.

As a result, a bank may incur:

Criminal liability;
Civil liability;
Regulatory sanctions; and
Equitable remedies

for improper disclosure or misuse of customer information.

PART I – STATUTORY FRAMEWORK UNDER THE FSA 2013
Section 132 FSA 2013 – Restriction on Inquiry into Customer Affairs
General Rule
Section 132 protects customers from arbitrary governmental interference.
Neither:

The Minister of Finance; nor
Bank Negara Malaysia (BNM)

may ordinarily direct an inquiry into the affairs or account of a particular customer.
The purpose is to safeguard banking privacy and prevent unjustified investigations.

Exception
BNM may inquire into customer affairs where necessary to exercise its statutory functions under:

The Financial Services Act 2013;
The Islamic Financial Services Act 2013; or
The Central Bank of Malaysia Act 2009.

Thus, banking secrecy cannot be used to obstruct legitimate regulatory investigations.

Case Scenario
Facts
A customer receives several unexplained overseas transfers amounting to RM20 million.
BNM suspects money laundering and requests the customer’s account records from the bank.
The customer argues that disclosure breaches banking secrecy.
Solution
The argument fails.
Section 132(2) expressly permits BNM to obtain such information when exercising regulatory powers.
Critical Analysis
The provision balances:

Customer privacy; and
Financial system integrity.

Without such powers, regulators would be unable to investigate fraud, money laundering and terrorism financing.

Section 133 FSA 2013 – Statutory Duty of Secrecy
General Rule
Section 133 imposes a strict statutory duty of confidentiality upon:

Banks;
Financial institutions;
Directors;
Officers;
Employees;
Agents; and
Former employees and agents.

No such person may disclose information relating to a customer’s affairs or account.
The obligation continues indefinitely, including after employment ends.

Scope of Protection
The duty covers:

Savings accounts;
Current accounts;
Fixed deposits;
Financing facilities;
Investment accounts;
Credit information;
Transaction histories;
Customer identities;
Financial standing; and
Any information acquired through the banker-customer relationship.

The protection extends beyond account balances and includes all information concerning the customer’s affairs.

Public Information Exception
The secrecy obligation does not apply where information:

Has already become lawfully available to the public;
Is disclosed to BNM for statutory purposes; or
Is disclosed in anonymous or aggregated form.

Criminal Liability
A person who breaches section 133 commits an offence punishable by:

Imprisonment up to 5 years;
Fine up to RM10 million; or
Both.

Further Disclosure Prohibited
Section 133(3) prohibits a person who knowingly receives unlawfully disclosed information from making any further disclosure.
Thus liability may extend beyond the original wrongdoer.

Section 134 FSA 2013 – Permitted Disclosures
Although secrecy is the general rule, section 134 recognises that confidentiality cannot be absolute.
A bank may disclose information:

Under Schedule 11; or
With written approval from BNM.

The 18 Permitted Disclosures under Schedule 11
1. Customer’s Written Consent
Disclosure authorised by the customer.
2. Deceased Customer’s Estate
Disclosure for probate, administration and faraid purposes.
3. Bankruptcy and Winding-Up
Disclosure involving bankrupt individuals and insolvent companies.
4. Litigation Involving the Bank
Disclosure in civil or criminal proceedings involving:

Customers;
Guarantors;
Sureties; and
Competing claimants.

5. Garnishee Orders
Disclosure necessary to comply with garnishee proceedings.
6. Court Orders
Disclosure pursuant to orders of courts not lower than the Sessions Court.
7. Enforcement Agencies
Disclosure for investigations conducted under written law.
8. PIDM
Disclosure for performance of statutory functions by PIDM.
9–10. Capital Market Authorities
Disclosure involving:

Securities Commission;
Stock exchanges;
Clearing houses; and
Trade repositories.

11. Inland Revenue Board
Disclosure for tax administration and international information exchange.
12. Credit Reporting Agencies
Disclosure to registered credit reporting agencies.
13. Supervisory Authorities
Disclosure to local and foreign regulators performing supervisory functions.
14. Centralised Group Functions
Disclosure for:

Audit;
Risk management;
Compliance;
Finance; and
Information technology.

15. Due Diligence Exercises
Disclosure relating to:

Mergers;
Acquisitions;
Capital raising; and
Disposal of business assets.

16. Outsourcing Arrangements
Disclosure to outsourced service providers.
17. Consultants and Adjusters
Disclosure to professional advisers engaged by the bank.
18. Suspicion of Criminal Activity
Disclosure where the bank reasonably suspects that an offence has been, is being or may be committed.

Confidentiality During Court Proceedings
Even when disclosure is permitted, the court may:

Conduct proceedings in camera;
Restrict access to documents;
Prohibit publication; and
Make confidentiality orders.

The objective is to minimise unnecessary disclosure.

PART II – CONFIDENTIALITY UNDER CONTRACT AND EQUITY
Tan Eng Seong v Malayan Banking Bhd
Principle
Disclosure of customer information to the customer’s brother constituted a breach of the implied contractual duty of confidentiality.
Significance

Confidentiality is an implied contractual term.
Relatives remain third parties.
Nominal damages may be awarded.

Wong Yeng Mun v CIMB Bank Berhad
Principle
The bank negligently sent account statements to the wrong address.
The statements were opened by the customer’s wife.
Significance

Confidentiality belongs to the customer.
Negligent disclosure may create liability.
Banks must maintain proper safeguards.

Tan Lay Soon v Kam Mah Theatre Sdn Bhd
Principle
Confidentiality belongs to the customer.
Consent to disclosure may be:

Express; or
Implied.

Disclosure necessary to implement a customer-authorised transaction is lawful.

PART III – EXTRA-TERRITORIAL DISCLOSURE
Attorney General of Hong Kong v Zauyah Wan Chik
Principle
Banking secrecy legislation does not automatically operate outside Malaysia.
Disclosure compelled by foreign court proceedings may not create criminal liability in Malaysia.
Significance
The administration of justice may justify disclosure.

PART IV – ILLEGALLY OBTAINED INFORMATION
Wako Merchant Bank v Lim Lean Heng
Principle
Information obtained in breach of banking secrecy provisions remains admissible if relevant.
Significance
The law distinguishes between:

Criminal liability for disclosure; and
Admissibility of evidence.

The evidence remains admissible despite unlawful disclosure.

PART V – PUBLIC INFORMATION
Hj Salleh Hj Janan v Financial Information Services Sdn Bhd
Principle
Publicly available court records are not confidential.
Information published in:

Court records;
Newspapers; or
The Gazette

may be restated without liability.
Significance
Banking secrecy protects confidential information, not information already in the public domain.

PART VI – BANKER’S PROFESSIONAL DUTY
Bank Utama (M) Bhd v Insan Budi Sdn Bhd
Facts
The plaintiff obtained an international trade facility to finance the importation and sale of raw sugar.
The plaintiff instructed the bank to issue a confirmed irrevocable transferable SWIFT Telegraphic Transfer.
The bank used the wrong transmission procedure and attempted to send the SWIFT instruction by facsimile.
As a result:

The overseas bank could not process the transaction;
The supplier terminated the contract;
The downstream sale failed; and
The plaintiff suffered losses.

The plaintiff sued for:

Breach of contract; and
Negligence.

Held
The Court of Appeal held the bank liable.
Principle 1 – Concurrent Liability
A professional adviser may be liable simultaneously:

In contract; and
In negligence.

Principle 2 – Duty to Advise
The bank possessed specialist knowledge regarding SWIFT procedures.
The customer could not reasonably be expected to understand technical banking processes.
The bank therefore had a duty to advise the customer that SWIFT transfers cannot be transmitted by facsimile.
Significance
Modern banks are not merely executors of instructions.
They are professional service providers expected to exercise reasonable care and expertise.

PART VII – BANKING SECRECY AND THE PERSONAL DATA PROTECTION ACT 2010 (PDPA)
Relationship Between Banking Secrecy and Personal Data Protection
Banking secrecy and personal data protection operate alongside one another.
While the FSA 2013 protects confidential banking information, the Personal Data Protection Act 2010 (PDPA) protects personal data handled by commercial organisations, including banks.
The PDPA makes it unlawful for commercial organisations to:

Sell personal information;
Misuse personal data; or
Permit unauthorised third parties to access such information.

The legislation is particularly important in relation to:

Retail banking customers;
Consumer financing;
Guarantors;
Corporate borrowers; and
Credit facilities.

Criminal Penalties under the PDPA
Depending on the nature of the offence, penalties may include:
Section 141(2)

Fine up to RM100,000;
Imprisonment up to 1 year; or
Both.

Section 130(7)

Fine up to RM500,000;
Imprisonment up to 3 years; or
Both.

Non-compliance with the data protection principles may constitute a criminal offence.

The Seven Personal Data Protection Principles
Banks must comply with seven statutory principles.

1. General Principle (Section 6)
Personal data must:

Be processed lawfully;
Be necessary for the intended purpose; and
Generally be processed with the customer’s consent.

The information collected must also be adequate and not excessive.

2. Notice and Choice Principle (Section 7)
Customers must be informed:

Why data is collected;
How it will be used; and
Their rights regarding the data.

Customers should be given choices regarding certain uses of their personal information.

3. Disclosure Principle (Section 8)
Personal data must not be disclosed without consent unless authorised by law.
This principle closely complements banking secrecy obligations under section 133 FSA 2013.

4. Security Principle (Section 9)
Banks must implement appropriate security measures to protect data.
Examples include:

Password protection;
Encryption;
Secure databases;
Restricted access systems; and
Workplace security controls.

5. Retention Principle (Section 10)
Personal data must not be retained longer than necessary.
Once the purpose has been fulfilled, unnecessary data should be destroyed or anonymised.

6. Data Integrity Principle (Section 11)
Personal data must remain:

Accurate;
Complete;
Current; and
Up to date.

7. Access Principle (Section 12)
Customers must generally be allowed to:

Access their personal data; and
Request corrections where information is inaccurate.

Alliance Bank v AmBank Dispute (2018)
Facts
Alliance Bank commenced legal proceedings against AmBank alleging misappropriation of sensitive information.
The dispute involved former Alliance Bank employees who had joined AmBank.
Alliance Bank alleged that electronic records showed confidential internal information being transferred to a former employee after his departure.
The information allegedly reached senior personnel within the competing bank.
The dispute was subsequently resolved amicably.

Significance
The case illustrates that confidentiality obligations extend beyond customer information.
Banks must also protect:

Internal business information;
Commercial strategies;
Trade secrets; and
Sensitive operational data.

Chia Sun Huat v United Overseas Bank (Malaysia) Bhd
Facts
A purchaser agreed to buy property from a vendor whose property was charged to UOB.
To complete the purchase, the purchaser requested a redemption statement from UOB.
The vendor could not be contacted.
Although a purported letter of authority existed, the bank could not verify its authenticity.
UOB refused to release the redemption statement.
The purchaser sued.

Held
The High Court held that UOB was not liable.
The bank was bound by its duty of secrecy and could not release confidential information without proper authority.

Legal Principle
A bank is entitled to refuse disclosure where:

Authority cannot be verified; and
Disclosure would reveal confidential customer information.

The duty of secrecy prevails unless a recognised exception applies.

Comprehensive Case Scenario
Facts
A purchaser requests a redemption statement from a bank concerning a property owner who cannot be contacted.
The purchaser presents an unsigned authority letter and insists that the transaction cannot proceed without disclosure.
The bank refuses.
The purchaser alleges obstruction and negligence.

Solution
Applying Chia Sun Huat v UOB:
The bank is entitled to refuse disclosure.
The redemption statement contains confidential customer information.
Without verified authority or a statutory exception under section 134 FSA 2013, disclosure would breach banking secrecy.

Critical Analysis
The decision demonstrates the strict nature of banking confidentiality.
Commercial convenience cannot override a bank’s legal obligations.
Banks must verify authority before releasing customer information, even where refusal may delay a transaction.

Key Examination Principles
Section 132 FSA 2013

Restricts arbitrary inquiries.
Allows BNM investigations.

Section 133 FSA 2013

Creates the statutory duty of secrecy.
Covers all customer information.
Continues after employment ends.
Breach attracts criminal sanctions.

Section 134 FSA 2013

Creates exceptions to secrecy.
Contains 18 permitted disclosures.
Allows disclosure with BNM approval.

PDPA 2010

Protects personal data.
Imposes seven statutory principles.
Creates additional criminal liability for misuse of personal information.

Important Case Principles
Tan Eng Seong

Confidentiality is an implied contractual duty.

Wong Yeng Mun

Negligent disclosure creates liability.

Tan Lay Soon

Confidentiality belongs to the customer.
Consent may be implied.

Zauyah Wan Chik

No automatic extra-territorial effect.

Wako Merchant Bank

Illegally obtained evidence remains admissible.

Hj Salleh Hj Janan

Public facts are not confidential.

Bank Utama

Banks may be liable concurrently in contract and negligence.
Professional duty may include a duty to advise.

Chia Sun Huat

Banks may refuse disclosure where authority is uncertain.
Confidentiality overrides commercial convenience.

Conclusion
Malaysian banking secrecy law is built upon a comprehensive framework comprising sections 132–134 FSA 2013, the Personal Data Protection Act 2010, contractual obligations, equitable principles and tortious duties. The law protects customer information not only from unauthorised disclosure but also from misuse, mishandling and improper processing. The various cases demonstrate that confidentiality belongs to the customer, extends beyond account balances to all customer affairs, survives termination of employment, and remains enforceable through criminal, civil and equitable remedies. At the same time, carefully defined statutory exceptions ensure that secrecy does not obstruct justice, regulatory supervision, legitimate commercial transactions or the public interest.

Published on: June 3, 2026

Malaysian Banking Law – Banking Secrecy, Confidentiality, Permitted Disclosures and Personal Data Protection

Malaysian Banking Law – Banking Secrecy, Confidentiality, Permitted Disclosures and Personal Data Protection
Introduction
Banking secrecy is one of the most important obligations imposed upon banks and financial institutions. It requires banks to keep confidential all information relating to their customers’ accounts and affairs.
The duty serves several purposes:

Protecting customer privacy;
Preserving confidence in the banking system;
Protecting sensitive financial and commercial information;
Encouraging customers to deal openly with banks; and
Ensuring disclosure occurs only where authorised by law.

In Malaysia, banking secrecy is governed primarily by:

Sections 132, 133 and 134 Financial Services Act 2013 (FSA 2013);
Sections 145 and 146 Islamic Financial Services Act 2013 (IFSA 2013);
Personal Data Protection Act 2010 (PDPA);
Contract law;
Equity; and
Tort law.

The general rule is confidentiality. Disclosure is the exception.

PART I: BANKING SECRECY UNDER THE FINANCIAL SERVICES ACT 2013
Section 132 FSA 2013 – Restriction on Inquiry into Customer Affairs
General Rule
Section 132 protects customers from arbitrary investigations into their banking affairs.
Neither:

The Minister of Finance; nor
Bank Negara Malaysia (BNM)

may ordinarily inquire specifically into the affairs or account of a particular customer.
The purpose is to safeguard customer privacy and confidence in the banking system.

Exception
BNM may investigate customer affairs where necessary for exercising its powers under:

The Financial Services Act 2013;
The Islamic Financial Services Act 2013; or
The Central Bank of Malaysia Act 2009.

Thus, confidentiality cannot be used to obstruct legitimate regulatory investigations.

Section 133 FSA 2013 – Duty of Secrecy
General Rule
Section 133 imposes a statutory duty of confidentiality on:

Financial institutions;
Directors;
Officers;
Employees;
Agents; and
Former directors, officers and agents.

These persons must not disclose any information relating to a customer’s affairs or account.
The duty survives termination of employment.

Scope of Protection
The protection extends to:

Savings accounts;
Current accounts;
Fixed deposits;
Financing facilities;
Investment accounts;
Credit information;
Customer identities;
Financial standing;
Transaction records; and
Any information acquired through the banker-customer relationship.

Exceptions under Section 133(2)
The secrecy obligation does not apply where the information:
(a) Is disclosed to BNM
For the purpose of exercising statutory powers and functions.
(b) Is disclosed in summary form
Provided no particular customer can be identified.
(c) Is already public information
Where the information has already been lawfully made available to the public from a source other than the financial institution.

Further Disclosure Prohibited
A person who knowingly receives information disclosed in breach of section 133 cannot further disclose it.

Penalty
Contravention may result in:

Imprisonment up to 5 years;
Fine up to RM10 million; or
Both.

Section 134 FSA 2013 – Permitted Disclosures
Section 134 provides the statutory exceptions to confidentiality.
A financial institution may disclose customer information:

Under Schedule 11; or
With written approval from BNM.

The recipient of such information must not further disclose it.
The court may also order proceedings to be held in camera and prohibit publication of information identifying the parties.

PART II: BANKING SECRECY UNDER THE ISLAMIC FINANCIAL SERVICES ACT 2013
The Islamic Financial Services Act 2013 contains provisions almost identical to those found in the Financial Services Act 2013.
The objective is likewise to preserve customer confidentiality within Islamic financial institutions.

Section 145 IFSA 2013 – Secrecy
General Rule
Section 145 prohibits disclosure of information relating to the affairs or account of a customer of an Islamic financial institution.
The duty applies to:

The Islamic financial institution;
Directors;
Officers;
Agents; and
Former directors, officers and agents.

Exceptions under Section 145(2)
The secrecy obligation does not apply where information:
(a) Is disclosed to BNM
For purposes connected with the exercise of BNM’s statutory powers.
(b) Is disclosed in summary or aggregated form
Provided no particular customer can be identified.
(c) Has already entered the public domain
Through lawful publication from another source.

Further Disclosure
A person who knowingly receives information disclosed in breach of section 145 cannot further disclose it.

Penalty
Contravention may result in:

Imprisonment up to 5 years;
Fine up to RM10 million; or
Both.

Section 146 IFSA 2013 – Permitted Disclosures
An Islamic financial institution may disclose customer information:

In the circumstances listed in Schedule 11; or
With written approval from BNM.

BNM may impose conditions upon disclosure.
Recipients are prohibited from making further disclosure.
The court may:

Hold proceedings in camera;
Restrict access to documents;
Prevent publication of identifying information; and
Make confidentiality orders.

Schedule 11 IFSA 2013 – Permitted Disclosures
The Schedule operates through two columns:
First Column
The purpose or circumstance under which disclosure is permitted.
Second Column
The persons to whom disclosure may be made.

1. Customer’s Written Consent
First Column
Documents or information disclosed with written permission from:

The customer;
Executor;
Administrator; or
Legal personal representative.

Second Column
Disclosure may be made to:

Any person authorised by the customer;
Executor;
Administrator; or
Legal personal representative.

2. Deceased Customer’s Estate
First Column
Disclosure connected with:

Faraid certificate applications;
Probate applications;
Letters of administration; or
Distribution orders under the Small Estates (Distribution) Act 1955.

Second Column
Disclosure may be made to:
Any person whom the Islamic financial institution genuinely believes is entitled to obtain:

The faraid certificate;
Grant of probate;
Letters of administration; or
Distribution order.

3. Bankruptcy, Winding-Up or Dissolution
First Column
Where the customer:

Has been declared bankrupt;
Is being wound up; or
Has been dissolved,

whether in Malaysia or elsewhere.
Second Column
Disclosure may be made to:
All persons to whom disclosure is necessary in connection with:

Bankruptcy;
Winding-up; or
Dissolution proceedings.

4. Civil or Criminal Proceedings
First Column
Proceedings involving the Islamic financial institution and:

Its customer;
Surety;
Guarantor;
Competing claimants to money in the account; or
Persons claiming rights over property in which the institution has an interest.

Second Column
Disclosure may be made to:
All persons to whom disclosure is necessary for the purpose of those proceedings.

5. Garnishee Orders
First Column
Compliance with a garnishee order attaching money in a customer’s account.
Second Column
Disclosure may be made to:
All persons to whom disclosure is required under the garnishee order.

6. Court Orders
First Column
Compliance with an order made by a court not lower than the Sessions Court.
Second Column
Disclosure may be made to:
All persons to whom disclosure is required under the court order.

7. Requests by Enforcement Agencies
First Column
Compliance with requests or orders made by enforcement agencies under written law for investigation or prosecution purposes.
Second Column
Disclosure may be made to:

Investigating officers authorised under written law;
Prosecuting officers; or
The court.

8. Functions of Malaysia Deposit Insurance Corporation (PIDM)
First Column
Performance of PIDM’s statutory functions.
Second Column
Disclosure may be made to:

Directors;
Officers of PIDM; or
Persons authorised by PIDM to receive the information.

9. Approved Trade Repository Functions
First Column
Disclosure by a licensed Islamic bank for the performance of approved trade repository functions under the Capital Markets and Services Act 2007.
Second Column
Disclosure may be made to:
Officers of the approved trade repository authorised to receive the information.

10. Inland Revenue Board (IRB)
First Column
Information required by the Inland Revenue Board under section 81 of the Income Tax Act 1967 for tax information exchange purposes.
Second Column
Disclosure may be made to:
Officers of the Inland Revenue Board authorised to receive the information.

11. Credit Reporting Agencies
First Column
Disclosure of customer credit information for credit reporting business.
Second Column
Disclosure may be made to:
Officers of registered credit reporting agencies authorised to receive the information.

12. Supervisory Authorities Outside Malaysia
First Column
Performance of supervisory functions by foreign authorities exercising functions similar to BNM.
Second Column
Disclosure may be made to:
Authorised officers of the relevant supervisory authority.

13. Centralised Functions within a Financial Group
First Column
Conduct of centralised functions including:

Audit;
Risk management;
Finance;
Information technology; and
Other centralised functions.

Second Column
Disclosure may be made to:

Head office;
Holding company;
Persons designated by the head office; or
Persons designated by the holding company to perform those functions.

14. Due Diligence Exercises
First Column
Board-approved due diligence exercises relating to:

Mergers and acquisitions;
Capital raising exercises; or
Sale of assets, business or part of the business.

Second Column
Disclosure may be made to:
Any person participating in or involved in the due diligence exercise.

15. Outsourced Functions
First Column
Performance of outsourced functions of the Islamic financial institution.
Second Column
Disclosure may be made to:
Persons engaged by the institution to perform the outsourced function.

16. Consultants and Adjusters
First Column
Disclosure to consultants or adjusters engaged by the Islamic financial institution.
Second Column
Disclosure may be made to:
The consultant or adjuster engaged by the institution.

17. Suspicion of Criminal Activity
First Column
Where the Islamic financial institution has reason to suspect that an offence under any written law has been, is being or may be committed.
Second Column
Disclosure may be made to:

Officers of another Islamic financial institution; or
Relevant associations of Islamic financial institutions authorised to receive the information.

Key Difference Between Sections 145–146 IFSA and Sections 133–134 FSA
In substance, both regimes provide nearly identical protection.
Both:

Impose a strict duty of secrecy;
Cover all customer affairs and account information;
Continue after employment ends;
Permit disclosures only under specified exceptions;
Provide criminal sanctions of up to RM10 million fine and/or 5 years imprisonment.

The objective of both statutes is the same:
To preserve public confidence in the financial system by ensuring that customer information remains confidential unless disclosure is authorised by law.

Summary
Under Malaysian Banking Law, banking secrecy applies to both conventional and Islamic financial institutions. Sections 133–134 FSA 2013 and sections 145–146 IFSA 2013 establish comprehensive confidentiality regimes. Customer information remains protected indefinitely and may only be disclosed in carefully defined circumstances. Schedule 11 IFSA 2013 specifically links each permitted purpose of disclosure (First Column) with the persons entitled to receive the information (Second Column), ensuring that disclosure remains limited, controlled and consistent with the objective of protecting customer confidentiality.

Published on: June 3, 2026

Malaysian Banking Law – Offences Relating to Entries in Documents (Section 248 Financial Services Act 2013)

Malaysian Banking Law – Offences Relating to Entries in Documents (Section 248 Financial Services Act 2013)
Introduction
Apart from maintaining customer confidentiality and complying with regulatory requirements, banking institutions must ensure that all records, books, documents, and reports are accurate, complete, and truthful. The integrity of banking records is essential because regulators, customers, auditors, and financial institutions rely on these documents to assess the financial condition and operations of a bank.
To safeguard the reliability of such records, section 248 of the Financial Services Act 2013 (FSA 2013) creates criminal offences relating to false entries, omissions, alterations, concealment, destruction, or forgery of banking documents and records. The provision also criminalises attempts to circumvent the requirements of the FSA 2013 through manipulation or tampering of documents.

Purpose of Section 248 FSA 2013
Section 248 seeks to preserve the integrity and accuracy of records relating to:

The business and affairs of financial institutions;
Banking transactions;
Financial condition and operations of institutions;
Assets and liabilities;
Customer accounts and records; and
Documents relating to authorised persons, registered persons, and operators of designated payment systems.

The provision aims to ensure that information maintained by financial institutions remains reliable and free from fraud, manipulation, or misrepresentation.

Prohibited Conduct Under Section 248(1)
Section 248(1) prohibits any person from:
(a) Making False Entries
A person must not create or cause another person to create false information in any book, record, report, statement, slip, or document relating to a financial institution’s operations or accounts.
Examples:

Recording fictitious deposits or withdrawals.
Entering incorrect loan repayment information.
Creating false accounting records to conceal losses.
Recording transactions that never occurred.

(b) Omitting Required Entries
It is also an offence to intentionally fail to record information that ought to be entered into banking records.
Examples:

Failing to record a customer’s outstanding liability.
Omitting details of non-performing loans.
Excluding material transactions from official records.
Concealing financial losses by not entering them into the accounting system.

(c) Altering, Extracting, Concealing, or Destroying Entries
The law further prohibits any person from altering, removing, concealing, or destroying information contained in banking records.
Examples:

Changing figures in loan documents.
Removing evidence of unauthorised transactions.
Concealing entries showing customer defaults.
Destroying records to prevent regulatory detection.

Evasion of the Financial Services Act 2013
Section 248(2) extends beyond entries in records and prohibits any attempt to evade the FSA 2013 by:

Altering documents;
Forging documents;
Destroying documents;
Mutilating documents;
Defacing documents;
Concealing documents; or
Removing documents.

This provision targets conduct designed to obstruct regulators, auditors, investigators, or law enforcement authorities from obtaining accurate information.

Penalties
A person who contravenes section 248(1) or section 248(2) commits a criminal offence.
Upon conviction, the offender may be punished with:

Imprisonment for a term not exceeding eight years; or
A fine not exceeding RM25 million; or
Both imprisonment and a fine.

The severe penalties demonstrate Parliament’s intention to deter fraud and manipulation within the banking industry.

Importance of Accurate Banking Records
Accurate record-keeping is fundamental to the banking system because:

Regulators depend on accurate records for supervision and enforcement.
Auditors rely on records to verify the financial position of institutions.
Customers expect their accounts and transactions to be correctly recorded.
Investors and stakeholders require truthful information regarding the institution’s financial health.
Courts frequently rely on banking records as evidence in legal proceedings.

To preserve public confidence in the financial system, banking records must remain complete, truthful, and untampered with.

Practical Applications During the Banker–Customer Relationship
Employees of financial institutions must avoid manipulating documents or records at any stage of the banker-customer relationship.
Examples of prohibited conduct include:

Altering customer documents to secure approval of a financing facility.
Modifying information to facilitate the completion of a sale or transaction.
Submitting forged supporting documents.
Manipulating marketing materials to exaggerate performance.
Altering financial statistics or operational reports.
Concealing information that should be disclosed to management or regulators.

Even where the intention is to assist a customer or achieve business targets, such conduct may constitute a criminal offence under section 248.

Scope of the Provision
An important feature of section 248 is its broad application.
The section states that “No person shall” engage in the prohibited conduct. Consequently, liability is not limited to:

Directors;
Officers; or
Employees of financial institutions.

The provision may also apply to:

Customers;
Borrowers;
Consultants;
Agents;
Third parties; and
External fraudsters.

Accordingly, anyone who submits forged or altered documents to a financial institution may be prosecuted under this provision.
Examples include:

Altered bank statements.
Forged salary slips.
Fabricated financial statements.
Manipulated credit reports.
Falsified supporting documents for loan applications.

Case Law: Hock Hua Bank (Sabah) Bhd v Lam Tat Ming & Ors
Facts
A current account officer employed by the bank made false entries in vouchers by debiting amounts to a suspense account. His actions constituted both falsification of banking records and dishonest conduct against the bank.
As a result, criminal proceedings were initiated against him.

Decision
The officer was found guilty of:

An offence under section 105 of the Banking and Financial Institutions Act 1989 (BAFIA), the predecessor provision to section 248 FSA 2013; and
Section 420 of the Penal Code for cheating.

Punishment
The offender received:

A term of imprisonment;
A monetary fine; and
Two strokes of whipping.

Critical Analysis
Section 248 plays a crucial role in maintaining trust and confidence in Malaysia’s banking system. Banking operations depend heavily on documentary records, and any falsification may affect customers, regulators, shareholders, and the public at large.
The broad wording of the provision is particularly significant because it captures not only internal misconduct by bank employees but also external fraud committed by customers and third parties. This wider scope enhances the effectiveness of the law in combating financial crime.
The severe penalties imposed under the section further reflect the seriousness with which the law treats document manipulation and record falsification. In modern banking, where lending decisions, regulatory compliance, risk management, and customer transactions depend on documentary evidence, inaccurate records can undermine the stability and integrity of the entire financial system.

Key Takeaway
Section 248 FSA 2013 criminalises any falsification, omission, alteration, concealment, destruction, or forgery of banking records and related documents. The provision applies broadly to any person, including bank employees and external parties. Violations may result in imprisonment of up to eight years, a fine of up to RM25 million, or both. The objective is to ensure the accuracy, reliability, and integrity of banking records, which are essential to maintaining confidence in Malaysia’s financial system.

Published on: June 3, 2026

Malaysian Banking Law – Code of Conduct in the Wholesale Financial Market and Prohibited Conduct

Malaysian Banking Law – Code of Conduct in the Wholesale Financial Market and Prohibited Conduct
Introduction
To strengthen consumer protection, market integrity, and confidence in the financial system, the Financial Services Act 2013 (FSA 2013) prohibits certain forms of improper business conduct. Section 124 of the FSA 2013 provides that financial institutions must not engage in prohibited business conduct as prescribed under Schedule 7 of the Act.
In furtherance of these objectives, Bank Negara Malaysia (BNM) issued the Code of Conduct for Malaysia Wholesale Financial Markets, which governs the conduct of participants operating in Malaysia’s wholesale financial markets. The Code applies to a wide range of market participants, including banks, investment banks, Islamic banks, development financial institutions, insurers, takaful operators, money brokers, operators of electronic trading or broking platforms, corporations, and investment institutions.
Part C of the Code highlights several serious forms of misconduct that are strictly prohibited under both the Financial Services Act 2013 and the Islamic Financial Services Act 2013 (IFSA 2013).

Definition of Wholesale Financial Market
A Wholesale Financial Market refers to a financial market where large-scale financial transactions are conducted between institutional participants rather than retail customers or members of the general public.
The market typically involves transactions among:

Banks;
Investment banks;
Islamic banks;
Development financial institutions;
Insurance companies;
Takaful operators;
Pension funds;
Asset management companies;
Corporations;
Government agencies; and
Other institutional investors.

Transactions in the wholesale financial market generally involve substantial sums of money and include dealings in:

Foreign exchange (FX);
Money market instruments;
Government securities;
Corporate bonds;
Sukuk;
Interest rate products;
Islamic financial instruments;
Derivatives; and
Other capital market products.

Unlike retail banking, where services are provided directly to individual customers, wholesale financial markets facilitate the movement of large amounts of funds between institutions and play a crucial role in maintaining liquidity, price discovery, and overall financial stability.
Because these markets significantly influence the economy and the financial system, participants are expected to adhere to the highest standards of professionalism, integrity, transparency, and ethical conduct.

Case Scenario
ABC Bank Berhad is actively involved in Malaysia’s wholesale financial market. A senior treasury dealer employed by the bank becomes aware that a large institutional client intends to purchase a substantial amount of government securities the following day.
Before the transaction takes place, the dealer secretly purchases similar securities for his personal account, anticipating that prices will rise once the institutional order is executed.
At the same time, the dealer circulates false information among market participants, claiming that the government is planning to issue a large volume of new securities, knowing that this information is untrue. The false rumour causes temporary market uncertainty and affects trading decisions.
In addition, the dealer executes several artificial transactions designed to create the appearance of active market demand for certain securities, thereby misleading other participants regarding the true market conditions.
Subsequently, Bank Negara Malaysia discovers the dealer’s activities during a market surveillance review.

Legal Principles
1. Code of Conduct for Malaysia Wholesale Financial Markets
The Code of Conduct establishes standards of professionalism, integrity, transparency, and ethical behaviour expected from all participants in the wholesale financial market.
The Code aims to ensure that market participants:

Act honestly and fairly;
Maintain market integrity;
Avoid conflicts of interest;
Conduct transactions in a transparent manner;
Protect market confidence;
Promote fair dealing; and
Comply with applicable laws and regulatory requirements.

Failure to comply with these standards may expose both the individual and the financial institution to regulatory action.

2. Prohibited Conduct
Part C of the Code identifies three major categories of prohibited conduct under the FSA 2013 and IFSA 2013.
(A) Market Manipulation
Market manipulation occurs when a person deliberately interferes with the normal operation of a financial market to create a false or misleading impression regarding:

Market activity;
Supply and demand;
Trading volume;
Market prices; or
The true state of the market.

Examples include:

Artificial trading activities;
Wash trades;
Creating false market demand;
Manipulating benchmark rates;
Manipulating prices of financial instruments; or
Conduct intended to distort market prices.

Such conduct undermines market efficiency and investor confidence.

(B) Misinformation and Rumour
Misinformation and rumour involve the dissemination of false, misleading, inaccurate, or deceptive information that may influence market behaviour.
This may include:

Spreading false market reports;
Publishing inaccurate financial information;
Circulating unverified rumours;
Making misleading statements regarding financial instruments;
Disseminating false information concerning financial institutions; or
Creating market panic through fabricated information.

The prohibition seeks to ensure that market participants make decisions based on accurate and reliable information rather than fabricated or misleading reports.

(C) Insider Dealing
Insider dealing occurs when a person trades or procures trading based on confidential, non-public, price-sensitive information obtained through their position, employment, or relationship.
Such information may relate to:

Future transactions;
Corporate actions;
Government decisions;
Financial results;
Market-sensitive developments;
Merger activities; or
Significant investment decisions.

The prohibition aims to ensure fairness by preventing individuals from gaining an unfair advantage over other market participants.

Application to the Case Scenario
In the present case, the treasury dealer committed multiple prohibited acts.
First, the dealer used confidential information concerning the institutional client’s planned purchase of government securities to conduct personal trading before the information became public. This constitutes insider dealing because the dealer exploited non-public, price-sensitive information for personal gain.
Second, the dealer intentionally spread false information regarding a purported government securities issuance. This amounts to misinformation and rumour, as the information was knowingly false and capable of influencing market participants’ decisions.
Third, the dealer carried out artificial transactions intended to create a misleading appearance of market demand. Such conduct constitutes market manipulation, as it distorted the true state of the market and misled other participants.
Accordingly, the dealer breached the Code of Conduct and violated the prohibitions contained in the FSA 2013 and IFSA 2013.

Solution to the Case Scenario
ABC Bank Berhad’s treasury dealer engaged in three distinct forms of prohibited conduct within the wholesale financial market.
The dealer committed insider dealing by purchasing securities using confidential information regarding the institutional client’s forthcoming transaction before the information became publicly available.
The dealer committed misinformation and rumour offences by deliberately spreading false information concerning an alleged government securities issuance in order to influence market sentiment.
The dealer also committed market manipulation by carrying out artificial trades designed to create a false impression of demand and market activity.
These actions undermine market integrity, distort price discovery, and create an unfair trading environment for other participants.
Consequently, Bank Negara Malaysia may initiate:

Criminal proceedings;
Civil enforcement actions; and/or
Administrative enforcement measures

against the dealer.
Depending on the circumstances, enforcement action may also be taken against ABC Bank Berhad if deficiencies in governance, supervision, compliance controls, risk management systems, or internal monitoring contributed to the misconduct.

Practical Application
The prohibitions on market manipulation, misinformation, and insider dealing are highly relevant to the daily operations of financial institutions, particularly within:

Treasury departments;
Foreign exchange trading desks;
Money market operations;
Government securities trading;
Bond and sukuk trading activities;
Investment banking divisions;
Corporate finance departments;
Islamic capital market operations; and
Financial market dealing rooms.

To ensure compliance, banks should:

Establish comprehensive compliance frameworks;
Maintain effective information barriers (“Chinese Walls”);
Monitor employee trading activities;
Conduct regular ethics and compliance training;
Implement whistleblowing mechanisms;
Perform transaction surveillance and market monitoring;
Maintain proper record-keeping systems; and
Promptly report suspicious activities to regulators where required.

Strong internal controls protect customers, institutions, and the integrity of Malaysia’s financial markets.

Critical Analysis
The prohibition of market manipulation, misinformation, and insider dealing reflects the regulatory objective of maintaining a fair, orderly, transparent, and efficient financial market.
Wholesale financial markets form the backbone of the financial system because they facilitate the movement of large volumes of funds between institutions. Any misconduct within these markets can have significant consequences for financial stability, investor confidence, and economic growth.
Without these prohibitions, individuals possessing confidential information could exploit their positions for personal gain, while false information could distort market prices and influence investment decisions unfairly. Market manipulation can further undermine confidence by creating artificial market conditions that do not reflect genuine supply and demand.
The Code of Conduct complements the statutory provisions of the FSA 2013 and IFSA 2013. While legislation establishes legal obligations and penalties, the Code provides practical guidance on the standards of behaviour expected from market participants.
Nevertheless, enforcement remains challenging due to increasingly sophisticated trading strategies, technological developments, algorithmic trading systems, and cross-border financial transactions. Effective surveillance technology, strong compliance cultures, and active regulatory oversight are therefore essential to detect and prevent misconduct.
The combination of statutory regulation, ethical standards, and supervisory enforcement is necessary to preserve the integrity and stability of Malaysia’s wholesale financial markets.

Conclusion
Section 124 of the Financial Services Act 2013, together with the Code of Conduct for Malaysia Wholesale Financial Markets issued by Bank Negara Malaysia, seeks to ensure that participants in Malaysia’s wholesale financial markets conduct themselves with honesty, integrity, professionalism, and transparency.
A wholesale financial market is a market where large-scale financial transactions are conducted between institutional participants such as banks, financial institutions, corporations, insurers, and investment entities rather than individual retail customers.
Three major forms of prohibited conduct are specifically identified:

Market Manipulation;
Misinformation and Rumour; and
Insider Dealing.

Any person who engages in such conduct may be subject to criminal, civil, or administrative action. These prohibitions are fundamental to maintaining fair and transparent markets, protecting investors and consumers, preserving financial stability, and sustaining public confidence in Malaysia’s financial system.

Published on: June 3, 2026

Malaysian Banking Law – Spoofing

Malaysian Banking Law – Spoofing
Definition
Spoofing is a form of market manipulation whereby a trader places bids or offers in the market with no genuine intention of executing the transaction. The trader’s real objective is to create a false impression of market demand, supply, liquidity, or price movement in order to influence the behaviour of other market participants.
After other traders react to the apparent demand or supply, the spoofer cancels the orders before they are executed.
Spoofing is specifically recognised as an example of market manipulation under the Code of Conduct for Malaysia Wholesale Financial Markets and falls within the prohibitions against creating a false or misleading appearance of active dealing under section 141 of the Financial Services Act 2013 (FSA 2013) and section 153 of the Islamic Financial Services Act 2013 (IFSA 2013).

How Spoofing Works
A spoofer typically:

Places a large buy order or sell order.
Has no genuine intention of completing the transaction.
Creates the appearance of strong demand or supply.
Causes other traders to react to the apparent market movement.
Cancels the original order before execution.
Profits from the resulting market reaction.

The deception lies in the fact that the displayed order is not genuine.

Simple Example
Scenario
A trader wants to buy a government bond at a lower price.
The trader places a very large sell order into the electronic trading system.
Other market participants observe the large sell order and believe:

There is significant selling pressure;
Prices are likely to fall;
Demand is weakening.

As a result, some investors begin selling the bond.
The market price falls.
Before the large sell order is executed, the trader cancels it and purchases the bond at the now lower price.
The original order was never intended to be executed.
This conduct is known as spoofing.

Banking Example
Case Scenario
A treasury dealer at ABC Bank Berhad wishes to purchase a large amount of foreign currency at a favourable exchange rate.
The dealer enters multiple large sell orders into an electronic trading platform, creating the appearance that substantial quantities of the currency are about to be sold.
Other dealers respond by lowering their prices.
Before the orders can be matched and executed, the dealer cancels them.
The dealer then purchases the currency at the newly reduced market price.
An investigation later reveals that the dealer never intended to complete the original sell orders.
The dealer’s conduct constitutes spoofing and may amount to market manipulation under section 141 FSA 2013 and section 153 IFSA 2013.

Why Is Spoofing Harmful?
Spoofing distorts the market because it creates false signals regarding:
Supply
The market may wrongly believe that large quantities of a financial instrument are available for sale.
Demand
The market may wrongly believe that significant buying interest exists.
Liquidity
Participants may incorrectly assume there is more market liquidity than actually exists.
Price Discovery
Prices may move based on deceptive information rather than genuine market forces.
As a result, investors and institutions make decisions based on false market information.

Difference Between Genuine Trading and Spoofing
Genuine Trading

Trader intends to execute the order.
Commercial purpose exists.
Order reflects genuine demand or supply.
Market information is accurate.
No intention to mislead other participants.
Supports proper price discovery.

Spoofing

Trader never intends to execute the order.
Order is entered solely to influence the market.
Creates artificial demand or supply.
Generates false market signals.
Intends to mislead other participants.
Distorts price discovery.

Difference Between Wash Trade and Spoofing
Wash Trade

Involves actual transactions being executed.
Same person or colluding parties effectively act as buyer and seller.
Creates artificial trading volume.
Gives a false impression of market activity.
Transaction is completed.

Spoofing

Usually involves orders that are never executed.
Trader places orders intending to cancel them.
Creates artificial demand or supply.
Gives a false impression of market interest.
Order is normally cancelled before execution.

Key Distinction
Wash trade = fake transaction.
Spoofing = fake order.
A wash trade creates a false impression through an executed trade, whereas spoofing creates a false impression through a deceptive order that is usually cancelled before execution.

Application to Malaysian Banking Law
Under the Code of Conduct for Malaysia Wholesale Financial Markets, spoofing is specifically identified as prohibited conduct.
The Code describes spoofing as:
Bidding or offering with an intent to cancel the bid or offer before execution in order to mislead the market.
Such conduct creates a false or misleading appearance regarding:

Market demand;
Market supply;
Market liquidity; and
Market prices.

Consequently, spoofing may constitute market manipulation under:

Section 141 Financial Services Act 2013; and
Section 153 Islamic Financial Services Act 2013.

Critical Analysis
Spoofing has become increasingly prevalent in modern electronic markets because orders can be placed and cancelled within milliseconds using sophisticated trading systems.
Unlike traditional market manipulation, spoofing may not involve completed transactions, making detection more difficult. Regulators therefore focus on trading patterns, cancellation rates, timing of orders, and the trader’s intent.
The key legal issue is not whether the order was executed but whether the trader genuinely intended to execute it when it was entered.
If orders are repeatedly entered solely to influence market perception and then cancelled before execution, regulators may infer manipulative intent.
For this reason, regulators such as Bank Negara Malaysia employ advanced surveillance systems to monitor electronic trading activity and identify suspicious conduct.

Conclusion
Spoofing is a form of market manipulation in which a trader places bids or offers without any genuine intention of executing them and instead intends to cancel them after influencing the market.
Its purpose is generally to:

Create artificial demand or supply;
Mislead market participants;
Influence market prices;
Distort liquidity perceptions; and
Generate trading advantages.

Unlike a wash trade, which involves an executed artificial transaction, spoofing involves a deceptive order that is usually cancelled before execution.
Because spoofing creates a false or misleading appearance of market activity, it is prohibited under the Financial Services Act 2013, the Islamic Financial Services Act 2013, and the Code of Conduct for Malaysia Wholesale Financial Markets, and may result in criminal, civil, or administrative sanctions.

Published on: June 3, 2026

Malaysian Banking Law – Wash Trade

Malaysian Banking Law – Wash Trade
Definition
A wash trade is a form of market manipulation where a person directly or indirectly buys and sells the same financial instrument without any genuine commercial purpose or genuine change in beneficial ownership.
The transaction creates a false or misleading appearance of active trading, market demand, liquidity, or trading volume, even though no real economic transaction has occurred.
A wash trade is prohibited because it deceives other market participants into believing that there is genuine market activity when, in reality, the transaction is artificial.

Why Is It Called a Wash Trade?
The term “wash trade” is used because the transaction effectively cancels itself out or “washes out.”
Although there may appear to be a purchase and sale, the person ultimately remains in substantially the same position before and after the transaction.
There is:

No genuine transfer of beneficial ownership;
No legitimate investment objective;
No genuine commercial purpose; and
Little or no real economic risk.

The sole purpose is often to create an illusion of market activity.

Simple Example
Scenario
Mr A owns RM10 million worth of government securities.
He instructs Broker X to sell the securities from Account A while simultaneously arranging for the same securities to be purchased through Account B, which is also under his control.
After the transaction:

Mr A still effectively owns the same securities;
No genuine investment decision has been made;
No real economic exposure has changed.

However, the market records a RM10 million transaction.
Other market participants may wrongly assume:

There is significant market demand;
Trading activity is increasing;
The securities are becoming more attractive.

This is a wash trade.

Banking Example
Case Scenario
A treasury dealer at XYZ Bank Berhad wishes to create the appearance of strong market interest in a government bond.
The dealer secretly arranges for:

XYZ Bank to sell the bond; and
A related institution to purchase the same bond,

with an understanding that the securities will eventually be returned or repurchased.
The transaction has no genuine commercial purpose.
Its objective is to:

Increase reported trading volume;
Create artificial demand;
Influence market perception; and
Encourage other investors to enter the market.

The transaction constitutes a wash trade and may amount to market manipulation under section 141 of the Financial Services Act 2013 and section 153 of the Islamic Financial Services Act 2013.

Why Are Wash Trades Harmful?
Wash trades distort the proper operation of financial markets because they create false signals regarding:
Trading Volume
Investors may believe that significant trading activity exists when it does not.
Market Demand
The market may appear to have strong buying interest even though the transactions are artificial.
Liquidity
Participants may wrongly assume that there is sufficient liquidity in the market.
Market Price
Artificial transactions may influence prices and affect investment decisions.
Consequently, investors, banks, and institutions may make decisions based on misleading information.

Relationship with Market Manipulation
Wash trades are recognised as a form of market manipulation because they interfere with normal market forces.
Instead of allowing prices to be determined by genuine buyers and sellers, wash trades artificially affect:

Supply;
Demand;
Trading volume;
Market sentiment; and
Price formation.

For this reason, wash trades are specifically identified in the Code of Conduct for Malaysia Wholesale Financial Markets as an example of prohibited conduct.

Comparison Between a Genuine Trade and a Wash Trade
Genuine Trade

Involves an independent buyer and seller.
Genuine transfer of ownership occurs.
Legitimate commercial or investment purpose exists.
Real market risk is assumed.
Reflects actual market supply and demand.
Produces genuine trading activity.
Assists accurate price discovery.
Lawful market conduct.

Wash Trade

Same person or colluding parties effectively act as both buyer and seller.
No genuine change in beneficial ownership.
No legitimate commercial or investment purpose.
Little or no real market risk assumed.
Creates artificial supply and demand conditions.
Produces false trading activity.
Distorts price discovery.
May constitute unlawful market manipulation.

Critical Analysis
Wash trades may appear legitimate because a purchase and sale technically occur. However, regulators and courts focus on the substance of the transaction rather than its form.
The critical question is whether the transaction has a genuine commercial purpose and whether beneficial ownership genuinely changes.
Modern financial markets make wash trades increasingly sophisticated. Traders may use multiple accounts, related companies, offshore entities, or coordinated trading arrangements to disguise the true nature of transactions.
Consequently, regulators such as Bank Negara Malaysia employ sophisticated surveillance systems to detect unusual trading patterns and identify potentially manipulative conduct.
The prohibition against wash trades is therefore essential to preserve:

Market integrity;
Investor confidence;
Fair competition;
Accurate price discovery; and
Financial stability.

Without such prohibitions, market prices and trading volumes could become unreliable indicators of genuine economic activity.

Conclusion
A wash trade is a transaction in which a person directly or indirectly buys and sells the same financial instrument without any genuine commercial purpose or meaningful change in beneficial ownership.
Its purpose is generally to:

Create artificial trading volume;
Generate a false appearance of market activity;
Mislead investors and market participants;
Influence market prices; or
Manipulate supply and demand.

Because wash trades create a false or misleading appearance of active dealing, they constitute a form of market manipulation and may expose the offender to criminal, civil, and administrative sanctions under the Financial Services Act 2013 and the Islamic Financial Services Act 2013. In Malaysia’s wholesale financial markets, genuine trading activity must always be distinguished from artificial transactions designed to mislead the market.

Published on: June 3, 2026

Malaysian Banking Law – Customers’ Rights and Duties in the Banker-Customer

Malaysian Banking Law – Customers’ Rights and Duties in the Banker-Customer Relationship
Case Scenario
Mr. Lim maintains a current account with a bank. While issuing several cheques, he carelessly leaves large blank spaces before and after the amount written on the cheques. An employee subsequently alters one of the cheques from RM1,000 to RM11,000 and successfully cashes it.
A few months later, Mr. Lim discovers that several cheques bearing forged signatures have also been paid from his account. Although he notices the irregularities in his bank statements, he delays informing the bank for several months. During that period, additional forged cheques are honoured by the bank.
Mr. Lim demands reimbursement from the bank for all losses arising from the altered and forged cheques. The bank argues that Mr. Lim breached his duties as a customer by failing to exercise reasonable care when drawing the cheques and by not promptly reporting the forged signatures once he became aware of them.
The dispute concerns both the rights and duties arising under the banker-customer relationship.

Customers’ Rights
The rights of a bank customer generally consist of three principal rights:
1. Right to Repayment
A fundamental right of every customer is the right to repayment of money deposited with the bank. The banker-customer relationship is primarily one of debtor and creditor, whereby the bank becomes indebted to the customer for the amount deposited.
An implied term of the banking contract is that the bank undertakes to repay the customer an amount equivalent to the sum deposited. In the case of a current account, repayment is generally payable upon demand by the customer.
Accordingly, a customer is entitled to recover funds standing to the credit of his account and may seek legal remedies if the bank wrongfully refuses repayment.

2. Right to Draw Cheques
A customer who has sufficient funds in a current account possesses an implied contractual right to issue cheques against the available credit balance.
Correspondingly, the bank owes a duty to honour properly drawn cheques provided that:

sufficient funds are available;
the cheque is valid and regular;
there are no legal restrictions preventing payment; and
the account remains operational.

A customer cannot require the bank to honour cheques exceeding the available balance unless an overdraft facility or other financing arrangement has been agreed upon.
Where a bank wrongfully dishonours a cheque despite sufficient funds being available, it may be liable for breach of contract and any resulting loss suffered by the customer.

3. Right to Interest
Customers holding savings or deposit accounts are generally entitled to receive interest or returns in accordance with the contractual terms governing the account.
The applicable rate may fluctuate according to market conditions and bank policies. By contrast, customers maintaining ordinary current accounts are generally not entitled to interest unless specifically provided by contract.
Therefore, the customer’s entitlement to interest depends upon the nature of the account and the agreed contractual terms.

Customers’ Duties
While customers enjoy important contractual rights, they also owe certain duties to their bankers. These duties are intended to protect the integrity of banking transactions and minimise the risk of fraud.
The two principal duties are:
1. Duty to Exercise Reasonable Care When Drawing Cheques
A customer has an implied duty to exercise reasonable care when preparing and signing cheques so as not to mislead the bank or facilitate fraud or forgery.
In Joachimson v Swiss Bank Corporation, it was recognised that a customer must take reasonable care in executing written instructions to prevent the bank from being misled or exposed to forgery.
Similarly, in London Joint Stock Bank v Macmillan and Arthur, Lord Haldane stated that customers are expected to draw cheques in a manner that is clear, complete, and free from ambiguity so that the bank can properly discharge its obligations.
This duty requires customers to:

write amounts clearly;
avoid leaving blank spaces that may facilitate alteration;
complete all relevant particulars before signing;
safeguard cheque books; and
exercise reasonable caution when issuing payment instructions.

Failure to do so may reduce or eliminate the customer’s ability to recover losses resulting from subsequent alterations or fraud.

2. Duty to Notify the Bank of Forgery
A customer also owes a duty to notify the bank promptly if he discovers that cheques purportedly signed by him have been forged.
In Greenwood v Martins Bank, the court held that once a customer becomes aware of forged cheques, he must inform the bank without undue delay.
The rationale is straightforward. Prompt notification allows the bank to:

investigate suspicious transactions;
prevent further fraudulent withdrawals;
freeze suspicious activities; and
minimise losses suffered by both parties.

If the customer remains silent after discovering a forgery and the bank continues to honour forged cheques, the customer may be prevented from recovering losses that could have been avoided through timely notification.

Critical Analysis
The banker-customer relationship operates on mutual obligations rather than one-sided rights.
Customers are entitled to repayment, payment of valid cheques, and interest where contractually agreed. These rights are essential for maintaining confidence in the banking system and facilitating commercial transactions.
However, customers are also expected to act responsibly. Modern banking transactions involve substantial reliance on customer instructions. If customers fail to exercise reasonable care in preparing cheques or neglect to report known forgeries, banks may be exposed to avoidable losses.
The law therefore seeks to strike a balance between:

protecting customers from wrongful conduct by banks; and
ensuring customers do not contribute to losses through their own negligence.

The duties imposed on customers reflect principles of fairness and risk allocation within the banking system.

Solution to the Case Scenario
Liability for the Altered Cheque
Mr. Lim left substantial blank spaces on the cheque, making alteration relatively easy.
This conduct may amount to a breach of his duty to exercise reasonable care when drawing cheques. The bank could argue that the alteration was facilitated by Mr. Lim’s negligence.
Consequently, Mr. Lim may be unable to recover the full amount of the loss attributable to the alteration.

Liability for the Forged Cheques
Once Mr. Lim discovered the forged signatures, he was under a duty to notify the bank promptly.
His failure to do so for several months enabled additional forged cheques to be processed.
Applying the principle established in Greenwood v Martins Bank, Mr. Lim may be prevented from recovering losses arising from forged cheques paid after he became aware of the forgery and failed to notify the bank.
However, he may still recover losses relating to forged cheques paid before he had knowledge of the fraud.

Customer’s Remaining Rights
Despite breaching certain duties, Mr. Lim retains his contractual rights regarding:

repayment of money standing to his credit;
proper execution of legitimate payment instructions; and
payment of interest where contractually provided.

The existence of customer duties does not extinguish these rights but may affect liability for particular losses.

Practical Application
For Customers
Customers should:

write cheques clearly and completely;
avoid leaving blank spaces on cheques;
protect cheque books and banking credentials;
review bank statements regularly;
immediately report suspected forgeries or unauthorised transactions; and
maintain proper records of banking transactions.

For Banks
Banks should:

verify signatures and payment instructions carefully;
implement fraud detection mechanisms;
investigate suspicious transactions promptly;
educate customers regarding cheque security; and
maintain effective internal controls to minimise fraud risks.

Conclusion
Under Malaysian banking law, the banker-customer relationship imposes both rights and duties upon customers. Customers possess important rights, including the right to repayment of deposited funds, the right to draw cheques against available balances, and the right to receive interest where contractually agreed. At the same time, customers must exercise reasonable care when drawing cheques and must promptly notify the bank upon discovering forged signatures or fraudulent transactions. These duties complement the customer’s rights and ensure that both parties contribute to the security and reliability of the banking system. Where a customer’s negligence facilitates fraud or increases losses, the law may restrict the customer’s ability to recover those losses from the bank.

Published on: June 3, 2026

Malaysian Banking Law – Customers’ Rights Against the Bank

Malaysian Banking Law – Customers’ Rights Against the Bank
Case Scenario
Mr. Ahmad maintains both a current account and a fixed deposit account with a bank. He has RM20,000 standing to the credit of his current account and RM100,000 in a fixed deposit account. Mr. Ahmad issues a cheque for RM15,000 to a supplier, but the bank refuses payment despite sufficient funds being available in his account. He also discovers that the bank has delayed repayment of his deposit upon maturity and has failed to credit interest on his fixed deposit account.
Mr. Ahmad contends that the bank has breached its obligations as a banker and seeks to enforce his rights as a customer.

Customers’ Rights
The rights of a bank customer generally fall into three principal categories:
1. Right to Repayment
One of the most fundamental rights of a customer is the right to repayment of money deposited with the bank. The banker-customer relationship is essentially that of debtor and creditor, where the bank becomes indebted to the customer for the amount deposited.
An implied term of the banking contract is that the bank undertakes to repay the customer an equivalent amount to the money deposited. In the case of a current account, repayment is generally made upon demand by the customer. Once a valid demand is made, the bank is under a contractual obligation to honour it, subject to any legal restrictions or contractual limitations.
Accordingly, a customer is entitled to recover the balance standing to the credit of his account and may take legal action if the bank wrongfully refuses repayment.

2. Right to Draw Cheques
A customer who maintains sufficient funds in a current account possesses an implied contractual right to draw cheques against the credit balance available in that account.
Correspondingly, the bank owes an implied duty to honour cheques that are properly drawn and presented for payment, provided that:

the customer has sufficient funds in the account;
the cheque is valid and regular on its face;
there are no legal impediments preventing payment; and
the account has not been frozen, closed, or otherwise restricted.

However, a customer cannot insist that the bank honour a cheque exceeding the available credit balance unless an overdraft facility or other financing arrangement has been previously agreed upon between the parties.
Where a bank wrongfully dishonours a customer’s cheque despite sufficient funds being available, the customer may be entitled to damages for breach of contract. In certain circumstances, damages may extend to injury to reputation, particularly where the customer is engaged in business.

3. Right to Interest
Customers who maintain deposit accounts, such as savings accounts or fixed deposit accounts, are generally entitled to receive interest or returns on their deposited funds in accordance with the terms of the account.
The applicable interest rate is not fixed permanently and may vary according to prevailing market conditions, regulatory requirements, and the bank’s policies.
In contrast, customers holding ordinary current accounts are generally not entitled to receive interest on positive balances unless the account specifically provides otherwise.
Therefore, a depositor is entitled to receive interest or returns where such payment forms part of the contractual arrangement governing the deposit account.

Critical Analysis
The three rights collectively ensure fairness and confidence in the banking system.
The right to repayment safeguards customer ownership of deposited funds and reinforces the bank’s contractual obligation as debtor. Without this right, public confidence in banking institutions would be significantly undermined.
The right to draw cheques facilitates commercial transactions and enables customers to use banking services effectively. A wrongful refusal to honour cheques may damage a customer’s business reputation and disrupt commercial dealings.
The right to interest reflects the economic benefit that customers receive for allowing the bank to utilise deposited funds. It also promotes savings and investment activities within the financial system.
Nevertheless, these rights are not absolute. Banks may lawfully refuse payment where there are insufficient funds, legal restrictions, court orders, anti-money laundering concerns, or contractual limitations. Similarly, entitlement to interest depends entirely on the terms governing the particular account.

Solution to the Case Scenario
Mr. Ahmad would likely succeed in his claim against the bank for the following reasons:

Wrongful Dishonour of Cheque
- Since RM20,000 was available in his current account and the cheque amounted to only RM15,000, the bank was under a contractual duty to honour the cheque.
- The refusal to pay constitutes a breach of the banker-customer contract.
Failure to Repay Deposit
- Upon maturity of the fixed deposit and a valid demand by the customer, the bank is obliged to repay the deposited amount.
- Any unjustified refusal or delay may amount to a breach of contract.
Failure to Credit Interest
- If the fixed deposit agreement provides for interest payments, the bank must pay such interest according to the agreed terms.
- Failure to do so entitles the customer to claim the unpaid amount.

Mr. Ahmad may therefore seek repayment of his deposit, recovery of unpaid interest, and damages arising from the wrongful dishonour of the cheque.

Practical Application
In practice, customers should:

Monitor account balances regularly.
Ensure sufficient funds are available before issuing cheques.
Review deposit account terms relating to interest payments.
Retain account statements and transaction records as evidence.
Promptly notify the bank of any wrongful refusal to honour payment instructions.

Banks, on the other hand, should:

Honour valid payment instructions where sufficient funds exist.
Process repayment requests promptly.
Accurately calculate and credit interest according to contractual terms.
Maintain efficient internal controls to avoid wrongful dishonour claims.

Conclusion
Under Malaysian banking law, customers enjoy three essential contractual rights: the right to repayment of deposited funds, the right to draw cheques against available credit balances, and the right to receive interest where contractually provided. These rights arise from the implied terms of the banker-customer relationship and form the foundation of modern banking operations. A bank that unjustifiably refuses repayment, wrongfully dishonours a cheque, or fails to pay agreed interest may be liable for breach of contract and the resulting losses suffered by the customer.

Published on: June 3, 2026

Malaysian Banking Law – Misinformation and Rumour in the Wholesale Financial Market

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:

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.

The prohibition applies where the person:
(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.

If false information enters the market, participants may make decisions based on incorrect assumptions.
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.

The objective is often to manipulate market behaviour for personal gain.

(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.

Examples

Forwarding unverified market reports.
Sharing unconfirmed rumours with traders.
Repeating speculative information as fact.
Distributing unverified information concerning another financial institution.

Even where there is no intention to deceive, liability may arise if due care was not exercised.

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.

Several hours later, the Government officially denies the rumour.
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.

Subsequent investigations reveal that Bank XYZ was financially sound and that the information was entirely false.
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.

The dealer failed to verify the information before circulating it and therefore did not exercise due care.
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.

Accordingly, the dealer may have committed an offence under:

Section 141(1)(c) Financial Services Act 2013; and
Section 153(1)(d) Islamic Financial Services Act 2013.

Bank Negara Malaysia may therefore initiate:

Criminal proceedings;
Civil enforcement action;
Administrative penalties;
Regulatory sanctions; and
Disciplinary action against the dealer.

Where weaknesses in compliance controls or supervision contributed to the misconduct, enforcement action may also be taken against ABC Bank Berhad.

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.

Misinformation and Rumour

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.

Before disseminating information, market participants should:

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.

The principle is simple:
“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 challenge lies in balancing market freedom of expression with the need to preserve market integrity and investor confidence.
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.

Common examples include:

Starting rumours to move markets;
Spreading false information about financial institutions;
Circulating misleading market reports; and
Repeating unverified information without proper verification.

Such conduct undermines market integrity, distorts trading decisions, and threatens confidence in Malaysia’s wholesale financial markets. Consequently, offenders may face criminal, civil, and administrative enforcement action under the FSA 2013 and IFSA 2013.

Published on: June 3, 2026

Malaysian Banking Law – Customers’ Rights, Customers’ Duties, the Macmillan Duty and Greenwood Duty, and Bank Liability for Forged Cheques

Malaysian Banking Law – Customers’ Rights, Customers’ Duties, the Macmillan Duty and Greenwood Duty, and Bank Liability for Forged Cheques
Case Scenario
ABC Construction Sdn Bhd maintains a current account with XYZ Bank. Over a period of three years, the company’s accounts clerk, who is not an authorised signatory, forges numerous company cheques and successfully withdraws substantial sums from the account. The bank honours all the forged cheques and debits the company’s account accordingly.
The fraud is eventually discovered during an internal audit. ABC Construction immediately informs the bank and claims reimbursement of RM500,000 paid out on the forged cheques.
The bank argues that the company was negligent in supervising its employee, failed to detect the fraud earlier, and did not regularly inspect its bank statements. Consequently, the bank contends that the loss should be borne by the customer.
The issue is whether the bank or the customer bears liability for losses arising from forged cheques and what duties each party owes under the banker-customer relationship.

Customers’ Rights
The banker-customer relationship confers several important contractual rights upon customers.
1. Right to Repayment
A customer has the right to demand repayment of funds deposited with the bank. Once money is deposited, the bank becomes a debtor and undertakes an implied contractual obligation to repay an equivalent amount upon a valid demand.
This right forms the foundation of the banker-customer relationship and enables customers to access their funds whenever legally entitled to do so.

2. Right to Draw Cheques
A customer who maintains sufficient funds in a current account has the right to issue cheques against the available credit balance.
Correspondingly, the bank owes a duty to honour properly drawn cheques provided:

sufficient funds exist;
the cheque is valid and regular;
no legal restriction prevents payment; and
the account remains operative.

However, a customer cannot compel a bank to honour cheques exceeding the available balance unless an overdraft or other financing arrangement exists.

3. Right to Interest
Customers holding savings or deposit accounts are generally entitled to receive interest or returns according to the contractual terms governing the account.
The applicable rate may vary depending on market conditions and bank policy. Ordinary current accounts generally do not earn interest unless expressly agreed.

Customers’ Duties
While customers enjoy important rights, common law also imposes certain duties upon them.
The courts have consistently recognised that a customer owes only two principal duties to his banker:

The Macmillan Duty.
The Greenwood Duty.

These duties seek to balance customer protection with the need to prevent avoidable fraud.

The Macmillan Duty
The first duty is commonly known as the Macmillan Duty, derived from London Joint Stock Bank v Macmillan and Arthur.
Under this duty, a customer must exercise reasonable care when drawing cheques and executing written instructions so as not to facilitate fraud or forgery.
A customer is expected to:

complete cheques clearly and accurately;
avoid leaving blank spaces;
ensure figures and words cannot easily be altered;
safeguard cheque books; and
avoid creating ambiguity that may mislead the bank.

The rationale is that a customer should not, through carelessness, create an opportunity for fraudulent alteration of a cheque.
This principle was also recognised in Joachimson v Swiss Bank Corporation, where the court stated that a customer must exercise reasonable care when issuing written instructions to the bank.

The Greenwood Duty
The second duty is known as the Greenwood Duty, originating from Greenwood v Martins Bank.
Under this duty, a customer who discovers that cheques purporting to bear his signature have been forged must notify the bank promptly.
The purpose of this duty is to allow the bank to:

stop further fraudulent payments;
investigate suspicious transactions;
protect the customer’s account; and
minimise losses.

If the customer remains silent after becoming aware of a forgery and additional forged cheques are subsequently honoured, the customer may be prevented from recovering those later losses.

Malaysian Position: United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd
A leading Malaysian authority on forged cheques is United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd.
Facts
The respondent company maintained a current account with the appellant bank.
Between 1979 and 1982, the respondent’s accounts clerk, who was not authorised to sign company cheques, forged numerous cheques drawn on the account. The bank honoured the forged cheques and debited the company’s account.
The fraud was discovered in December 1982. The company sued the bank to recover approximately RM397,660 paid out on the forged cheques.
The High Court ruled in favour of the company, and the bank appealed to the Supreme Court.

Held
1. Forgery Need Only Be Proven on a Balance of Probabilities
A customer alleging that forged cheques were honoured by the bank need only prove the forgery on the civil standard of proof, namely the balance of probabilities.
The customer is not required to establish forgery beyond reasonable doubt.

2. Bank Liability for Paying Forged Cheques
The Supreme Court held that a bank that pays on a forged cheque is liable under the tort of conversion.
This liability is one of strict liability.
Consequently:

the bank cannot escape liability by claiming ignorance of the forgery;
the bank cannot rely on the fact that it exercised reasonable care;
a forged cheque is legally a nullity; and
the bank has no authority from its customer to act on a forged instrument.

Accordingly, payment on a forged cheque is generally made at the bank’s own risk.

3. Customers Owe Only Two Duties at Common Law
The Supreme Court expressly confirmed that customers owe only two duties to their bankers:
(a) Macmillan Duty
The duty not to draw cheques in a manner that facilitates fraud or forgery.
(b) Greenwood Duty
The duty to inform the bank promptly upon becoming aware of forged cheques.
The court further clarified that customers do not owe the following duties at common law:

there is no general duty to supervise employees to prevent forgery;
there is no general duty to organise business affairs to detect fraud;
there is no duty to inspect periodic bank statements for forged transactions;
there is no duty to audit the bank’s work unless specifically agreed by contract.

Thus, absent an express contractual provision, customers are not legally obliged to examine every bank statement to verify that the account is being properly maintained.

Obiter Dictum
The Supreme Court observed that whether a signature has been forged is ultimately a question of fact.
The trial court must determine the issue after considering:

witness credibility;
surrounding circumstances; and
expert evidence relating to handwriting or signatures.

Critical Analysis
The decision in United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd strongly protects customers from losses arising from forged cheques.
The Supreme Court emphasised that banks possess specialised expertise in verifying signatures and processing payment instruments. Since a forged cheque is legally void, the bank acts without authority when it honours such a cheque.
The judgment also prevents banks from shifting responsibility to customers through broad allegations of negligence. The court limited customer duties to the Macmillan Duty and Greenwood Duty, thereby rejecting any broader obligation requiring customers to continuously monitor employees or scrutinise bank statements.
At the same time, the decision preserves fairness by recognising that customers who facilitate fraud through careless cheque preparation or who fail to report known forgeries may themselves bear responsibility for resulting losses.
The case therefore establishes an appropriate balance between customer protection and customer responsibility.

Solution to the Case Scenario
ABC Construction would likely succeed in recovering the RM500,000 from XYZ Bank.
Liability of the Bank
The forged cheques are legally null and void.
The bank had no authority to honour them and therefore acted wrongfully by debiting the customer’s account.
The bank’s liability arises regardless of whether it acted honestly or exercised reasonable care.

Customer’s Duties
The bank cannot rely solely on the argument that:

the company failed to supervise its employee adequately;
the company did not conduct regular audits; or
the company failed to examine bank statements.

According to United Asian Bank, these are not recognised common law duties.

Possible Exceptions
The bank may only reduce or avoid liability if it can establish that:

the customer breached the Macmillan Duty by facilitating the forgery through careless cheque preparation; or
the customer breached the Greenwood Duty by failing to notify the bank after becoming aware of the forgery and thereby allowing further forged cheques to be paid.

Absent such proof, the bank remains liable for the losses.

Practical Application
For Customers
Customers should:

draw cheques clearly and carefully;
avoid leaving blank spaces on cheques;
protect cheque books and payment instruments;
report suspected forgery immediately;
maintain internal controls against fraud.

Although not legally obliged at common law to inspect bank statements, doing so remains good commercial practice.

For Banks
Banks should:

verify signatures carefully;
implement effective fraud-detection systems;
investigate suspicious transactions promptly;
maintain strong internal controls;
understand that payment on forged cheques generally exposes the bank to strict liability.

Conclusion
Under Malaysian banking law, customers possess important rights including the right to repayment, the right to draw cheques against available funds, and the right to receive interest where contractually agreed. In return, customers owe only two recognised common law duties: the Macmillan Duty, requiring reasonable care when drawing cheques so as not to facilitate fraud or forgery, and the Greenwood Duty, requiring prompt notification to the bank once forgery becomes known. The Supreme Court decision in United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd confirms that banks are generally strictly liable when they honour forged cheques because a forged instrument is a nullity and provides no authority for payment. Unless a customer breaches the Macmillan Duty or Greenwood Duty, the loss arising from forged cheques will ordinarily fall upon the bank rather than the customer.

Author

Learn the fact about law

LAW