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KembaraXtra – Legal Terms – Lex Non Scripta
Lex non scripta means “unwritten law” and traditionally refers to the common law, as opposed to statutory law enacted by Parliament. It reflects a system developed through judicial decisions and long-standing customs.
Although common law is now recorded in written judgments and law reports, the term originates from a time when legal principles were not formally documented. Instead, they were passed down through practice and precedent.
The phrase highlights the historical distinction between law derived from custom and case law, and law created through formal legislation. It remains a useful conceptual distinction in legal theory.
Lex non scripta means “unwritten law” and traditionally refers to the common law, as opposed to statutory law enacted by Parliament. It reflects a system developed through judicial decisions and long-standing customs.
Although common law is now recorded in written judgments and law reports, the term originates from a time when legal principles were not formally documented. Instead, they were passed down through practice and precedent.
The phrase highlights the historical distinction between law derived from custom and case law, and law created through formal legislation. It remains a useful conceptual distinction in legal theory.
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Malaysian Banking Law: “Carrying on Banking Business” — Comparison Between Malaysian and English Law
Malaysian Banking Law: “Carrying on Banking Business” — Comparison Between Malaysian and English Law
Case Scenario
A foreign bank that previously operated in Malaysia loses its banking licence but still has outstanding loans owed by customers. It files a lawsuit to recover those debts. The borrowers argue that the bank is illegally continuing banking business without a licence. The court must decide whether suing for repayment counts as “carrying on banking business.”
(Q&A Format)
Q1: What was the main legal question in Bank of China v Lee Kee Pin?
The court needed to decide whether a bank without a licence is breaking the law by suing to recover money owed to it.
Q2: What exactly was the defendant trying to argue? (Simple explanation)
The borrower was basically saying:
👉 “If the bank is suing me, it means the bank is still operating as a bank.”
So their logic was:
They tried to turn debt recovery into banking activity
Q3: What did the court actually decide? (Very clear explanation)
The court rejected this argument and said:
👉 “Recovering money is NOT the same as running a bank.”
Because:
Getting back money from past transactions
Q4: Why did the judge allow this?
The law is meant to stop:
👉 Unlicensed banks from actively operating
NOT to stop:
👉 Banks from collecting money already owed
Otherwise:
Comparison with Malaysian Statutory Definition
Under
Financial Services Act 2013
Banking business includes:
Application to This Case (Note Form)
Banking = active operations
Debt recovery = enforcement of past rights
Comparison with English Law Approach
From United Dominions Trust Ltd v Kirkwood
Banking focuses on:
Critical Analysis (Easy Understanding)
Core Concept:
Courts distinguish between:
👉 Operating a banking business
vs
👉 Closing or enforcing past transactions
Why this distinction matters:
If debt recovery = banking:
Resolution of the Case Scenario
Final Exam Rule (Important)
Recovering debts does not amount to “carrying on banking business” because it does not involve active banking activities such as accepting deposits or granting new loans.
Case Scenario
A foreign bank that previously operated in Malaysia loses its banking licence but still has outstanding loans owed by customers. It files a lawsuit to recover those debts. The borrowers argue that the bank is illegally continuing banking business without a licence. The court must decide whether suing for repayment counts as “carrying on banking business.”
(Q&A Format)
Q1: What was the main legal question in Bank of China v Lee Kee Pin?
The court needed to decide whether a bank without a licence is breaking the law by suing to recover money owed to it.
Q2: What exactly was the defendant trying to argue? (Simple explanation)
The borrower was basically saying:
👉 “If the bank is suing me, it means the bank is still operating as a bank.”
So their logic was:
- Asking for repayment = continuing banking business
- No licence = illegal
They tried to turn debt recovery into banking activity
Q3: What did the court actually decide? (Very clear explanation)
The court rejected this argument and said:
👉 “Recovering money is NOT the same as running a bank.”
Because:
- The bank is not giving new loans
- The bank is not accepting deposits
- The bank is not offering banking services
Getting back money from past transactions
Q4: Why did the judge allow this?
The law is meant to stop:
👉 Unlicensed banks from actively operating
NOT to stop:
👉 Banks from collecting money already owed
Otherwise:
- Borrowers would escape payment
- Banks would suffer unfair losses
Comparison with Malaysian Statutory Definition
Under
Financial Services Act 2013
Banking business includes:
- Accepting deposits
- Handling payments (e.g., cheques)
- Providing finance (loans)
Application to This Case (Note Form)
- Giving new loans → ✔ Banking business
- Accepting deposits → ✔ Banking business
- Processing payments → ✔ Banking business
- Suing to recover old loans → ❌ NOT banking business
- Collecting existing debts → ❌ NOT banking business
- Winding down business → ❌ NOT banking business
Banking = active operations
Debt recovery = enforcement of past rights
Comparison with English Law Approach
From United Dominions Trust Ltd v Kirkwood
Banking focuses on:
- Ongoing account relationship
- Managing customer funds
- Continuous transactions
Critical Analysis (Easy Understanding)
Core Concept:
Courts distinguish between:
👉 Operating a banking business
vs
👉 Closing or enforcing past transactions
Why this distinction matters:
If debt recovery = banking:
- Banks cannot recover loans after closure
- Customers could avoid paying debts
Resolution of the Case Scenario
- The bank is not operating as a bank anymore
- It is only enforcing existing rights
- Therefore, it is not violating the law
Final Exam Rule (Important)
Recovering debts does not amount to “carrying on banking business” because it does not involve active banking activities such as accepting deposits or granting new loans.
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You’re right to push for a clear, workable definition—the law circles because banking evolves, but we can extract a solid definition from all the cases, statutes, and authorities.
Malaysian Banking Law: A Proper Legal Definition of a “Banker”
Final Consolidated Definition
A banker is a person, partnership, or corporation that, as its principal business, accepts money from the public as deposits (repayable on demand or at agreed times), maintains an ongoing account relationship with customers enabling deposits and withdrawals, and utilises those funds for lending or other financial operations, while being recognised or authorised within the legal and financial system to carry on such business.
Why this is the “correct” definition (built from all sources)
This definition is not invented—it is synthesised from all the authorities you studied:
1. Core function (Permewan case principle)
From State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd
→ Banking =
2. Economic role (Bank of NSW case)
From Commonwealth of Australia v Bank of New South Wales
→ Banking =
3. Flexibility (Bank of Chettinad case)
From Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo
→ No fixed definition
👉 So the definition must be broad and adaptable
4. Account relationship (Kirkwood case)
From United Dominions Trust Ltd v Kirkwood
→ Key idea:
5. What is NOT essential (modern judicial view)
Cases show:
6. Statutory reinforcement (Malaysia)
From Financial Services Act 2013
→ Banking =
Simplified Version
A banker is a licensed financial institution whose main business is to accept deposits from the public, allow withdrawals through an account relationship, and use those funds for lending or other financial activities.
Key Insight (Very Important)
👉 The law does not define a banker by tools (cheques)
👉 It defines a banker by function (handling and using money)
Final Takeaway
A banker is best understood as:
Malaysian Banking Law: A Proper Legal Definition of a “Banker”
Final Consolidated Definition
A banker is a person, partnership, or corporation that, as its principal business, accepts money from the public as deposits (repayable on demand or at agreed times), maintains an ongoing account relationship with customers enabling deposits and withdrawals, and utilises those funds for lending or other financial operations, while being recognised or authorised within the legal and financial system to carry on such business.
Why this is the “correct” definition (built from all sources)
This definition is not invented—it is synthesised from all the authorities you studied:
1. Core function (Permewan case principle)
From State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd
→ Banking =
- Receiving deposits
- Using them (mainly lending)
2. Economic role (Bank of NSW case)
From Commonwealth of Australia v Bank of New South Wales
→ Banking =
- Credit creation
- Loans
- Financial intermediation
3. Flexibility (Bank of Chettinad case)
From Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo
→ No fixed definition
👉 So the definition must be broad and adaptable
4. Account relationship (Kirkwood case)
From United Dominions Trust Ltd v Kirkwood
→ Key idea:
- Continuous account (deposit + withdrawal)
5. What is NOT essential (modern judicial view)
Cases show:
- Cheques ❌ not essential
- Current accounts ❌ not strictly required
- Methods ❌ can change (digital, etc.)
6. Statutory reinforcement (Malaysia)
From Financial Services Act 2013
→ Banking =
- Accept deposits
- Provide finance
- Facilitate payments
- Must be licensed
Simplified Version
A banker is a licensed financial institution whose main business is to accept deposits from the public, allow withdrawals through an account relationship, and use those funds for lending or other financial activities.
Key Insight (Very Important)
👉 The law does not define a banker by tools (cheques)
👉 It defines a banker by function (handling and using money)
Final Takeaway
A banker is best understood as:
- Custodian of money (holds deposits)
- Intermediary (moves money in economy)
- Lender/financier (uses funds productively)
- Regulated entity (must be authorised by law)
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Malaysian Banking Law: Judicial Interpretation of the Business of Banking (Evolution of Judicial Views)
Case Scenario
Oliver deposits money with a financial institution in United Kingdom that does not provide cheque books but allows deposits, withdrawals, and electronic transfers. When a dispute arises, Oliver argues that the institution is not a “bank” because it does not pay cheques. The court must determine whether cheque-related functions are essential to being a banker.
Judicial Position
Q1: What did United Dominions Trust Ltd v Kirkwood establish regarding banking?
The case identified common features of banking, namely maintaining accounts, handling payment instructions, and processing incoming funds. However, these were not intended to form a strict or exhaustive definition.
Q2: What was the earlier traditional judicial view on banking?
Earlier decisions suggested that an institution could not be regarded as a banker unless it honoured cheques drawn on itself. This view was reflected in cases such as Re District Savings Bank Ltd, ex parte Coe and Halifax Union v Wheelwright.
Q3: Did all courts agree that cheque payment is essential?
No. Later judicial decisions rejected this strict requirement, recognising that banking could exist even without cheque facilities.
Q4: Can an institution still be a banker without offering current accounts or cheque services?
Yes. In R v Industrial Disputes Tribunal, ex parte East Anglian Trustee Savings Bank, it was held that an institution could still carry on banking business despite not issuing cheque books.
Q5: What other cases support the flexible approach?
Cases such as Re Bottomgate Industrial Co-operative Society and State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd confirmed that traditional features like cheque handling are not indispensable.
Q6: How did Lord Denning summarise the characteristics of banking?
Lord Denning explained that bankers typically:
The courts have moved from a strict, cheque-based definition to a broader, functional understanding of banking.
Practical Application
In modern banking, especially with digital systems, cheque usage is declining. Institutions now perform equivalent functions through electronic payments and online accounts. Courts therefore focus on whether the institution manages customer funds and facilitates financial transactions, rather than on the specific method used.
Critical Analysis
Judicial interpretation demonstrates a clear evolution. Earlier courts emphasised formal characteristics such as cheque payments, while later decisions adopted a more flexible, functional approach. This shift reflects changes in banking practice and ensures that the law remains relevant. However, the absence of a fixed standard may create uncertainty in borderline cases.
Resolution of the Case Scenario
In Oliver’s case, the institution may still be considered a banker even though it does not handle cheques. If it accepts deposits, maintains accounts, and facilitates payments—albeit electronically—it performs the essential functions of banking. Therefore, the modern judicial approach would likely recognise it as a bank, focusing on substance rather than outdated formal requirements.
Case Scenario
Oliver deposits money with a financial institution in United Kingdom that does not provide cheque books but allows deposits, withdrawals, and electronic transfers. When a dispute arises, Oliver argues that the institution is not a “bank” because it does not pay cheques. The court must determine whether cheque-related functions are essential to being a banker.
Judicial Position
Q1: What did United Dominions Trust Ltd v Kirkwood establish regarding banking?
The case identified common features of banking, namely maintaining accounts, handling payment instructions, and processing incoming funds. However, these were not intended to form a strict or exhaustive definition.
Q2: What was the earlier traditional judicial view on banking?
Earlier decisions suggested that an institution could not be regarded as a banker unless it honoured cheques drawn on itself. This view was reflected in cases such as Re District Savings Bank Ltd, ex parte Coe and Halifax Union v Wheelwright.
Q3: Did all courts agree that cheque payment is essential?
No. Later judicial decisions rejected this strict requirement, recognising that banking could exist even without cheque facilities.
Q4: Can an institution still be a banker without offering current accounts or cheque services?
Yes. In R v Industrial Disputes Tribunal, ex parte East Anglian Trustee Savings Bank, it was held that an institution could still carry on banking business despite not issuing cheque books.
Q5: What other cases support the flexible approach?
Cases such as Re Bottomgate Industrial Co-operative Society and State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd confirmed that traditional features like cheque handling are not indispensable.
Q6: How did Lord Denning summarise the characteristics of banking?
Lord Denning explained that bankers typically:
- Receive and collect funds for customers,
- Honour payment instructions issued by customers, and
- Maintain accounts recording transactions.
However, these are usual features rather than rigid legal requirements.
The courts have moved from a strict, cheque-based definition to a broader, functional understanding of banking.
Practical Application
In modern banking, especially with digital systems, cheque usage is declining. Institutions now perform equivalent functions through electronic payments and online accounts. Courts therefore focus on whether the institution manages customer funds and facilitates financial transactions, rather than on the specific method used.
Critical Analysis
Judicial interpretation demonstrates a clear evolution. Earlier courts emphasised formal characteristics such as cheque payments, while later decisions adopted a more flexible, functional approach. This shift reflects changes in banking practice and ensures that the law remains relevant. However, the absence of a fixed standard may create uncertainty in borderline cases.
Resolution of the Case Scenario
In Oliver’s case, the institution may still be considered a banker even though it does not handle cheques. If it accepts deposits, maintains accounts, and facilitates payments—albeit electronically—it performs the essential functions of banking. Therefore, the modern judicial approach would likely recognise it as a bank, focusing on substance rather than outdated formal requirements.
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Malaysian Banking Law: Difference Between “Authorised Person” and “Approved Person”
Case Scenario
Mei Ling deals with two financial institutions in Malaysia. One is a licensed bank offering deposit accounts and loans, while the other operates a payment system and provides financial advisory services. When an issue arises, she assumes both are regulated in the same way. However, the law distinguishes between an “authorised person” and an “approved person.” What is the difference?
Explanation (Q&A Format )
Q1: What is an “authorised person” under the Financial Services Act 2013?
An authorised person is a broad category referring to any entity that is legally permitted to carry on regulated financial activities. This includes both licensed and approved entities.
Q2: What is meant by a “licensed person”?
A licensed person is an institution that has obtained a formal licence to conduct core financial businesses such as banking, insurance, or investment banking. These are typically highly regulated and central financial institutions.
Q3: What is an “approved person”?
An approved person is an entity that does not hold a full licence but has been granted approval by the regulator to carry out specific financial activities listed under the law.
Q4: What kinds of activities do approved persons usually perform?
Approved persons are typically involved in specialised or supporting services such as:
The main difference lies in the level and scope of authorisation:
Yes. The term “authorised person” is an umbrella term that includes both licensed persons and approved persons.
Practical Application
In practice, a bank in Malaysia is a licensed person, while a company operating a payment gateway or providing financial advice may be an approved person. Both are regulated, but the scope of regulation differs depending on the nature of their activities.
Critical Analysis
This distinction reflects a modern regulatory approach. Instead of treating all financial institutions the same, the law differentiates between core banking activities and supporting financial services. This allows for proportionate regulation—stricter control over banks and more tailored oversight for specialised service providers. However, this layered system may confuse customers who assume all regulated entities have identical responsibilities.
Resolution of the Case Scenario
In Mei Ling’s case, the licensed bank is a licensed person and therefore an authorised person with full banking responsibilities. The other institution, if only approved to operate a payment system or advisory service, is an approved person and also falls under the category of authorised person but with a narrower scope of duties. Therefore, while both are regulated, their legal obligations and responsibilities differ based on the type of authorisation they hold.
Case Scenario
Mei Ling deals with two financial institutions in Malaysia. One is a licensed bank offering deposit accounts and loans, while the other operates a payment system and provides financial advisory services. When an issue arises, she assumes both are regulated in the same way. However, the law distinguishes between an “authorised person” and an “approved person.” What is the difference?
Explanation (Q&A Format )
Q1: What is an “authorised person” under the Financial Services Act 2013?
An authorised person is a broad category referring to any entity that is legally permitted to carry on regulated financial activities. This includes both licensed and approved entities.
Q2: What is meant by a “licensed person”?
A licensed person is an institution that has obtained a formal licence to conduct core financial businesses such as banking, insurance, or investment banking. These are typically highly regulated and central financial institutions.
Q3: What is an “approved person”?
An approved person is an entity that does not hold a full licence but has been granted approval by the regulator to carry out specific financial activities listed under the law.
Q4: What kinds of activities do approved persons usually perform?
Approved persons are typically involved in specialised or supporting services such as:
- Operating payment systems,
- Issuing payment instruments,
- Conducting financial advisory services,
- Acting as insurance brokers or money brokers.
The main difference lies in the level and scope of authorisation:
- Licensed persons carry on principal financial businesses (e.g., banking).
- Approved persons carry on specific or ancillary financial services with regulatory approval.
Yes. The term “authorised person” is an umbrella term that includes both licensed persons and approved persons.
Practical Application
In practice, a bank in Malaysia is a licensed person, while a company operating a payment gateway or providing financial advice may be an approved person. Both are regulated, but the scope of regulation differs depending on the nature of their activities.
Critical Analysis
This distinction reflects a modern regulatory approach. Instead of treating all financial institutions the same, the law differentiates between core banking activities and supporting financial services. This allows for proportionate regulation—stricter control over banks and more tailored oversight for specialised service providers. However, this layered system may confuse customers who assume all regulated entities have identical responsibilities.
Resolution of the Case Scenario
In Mei Ling’s case, the licensed bank is a licensed person and therefore an authorised person with full banking responsibilities. The other institution, if only approved to operate a payment system or advisory service, is an approved person and also falls under the category of authorised person but with a narrower scope of duties. Therefore, while both are regulated, their legal obligations and responsibilities differ based on the type of authorisation they hold.
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Malaysian Banking Law: UK Statutory Approach to Defining a “Banker”
Case Scenario
Aisyah enters into a transaction with a financial institution in London that claims to be a “bank” under statutory law. When a dispute arises, the issue is whether the institution qualifies as a “banker” under United Kingdom legislation, even though no single clear definition exists. This raises the question: how does the UK statutory framework determine who is a banker?
UK Statutory Position (Q&A Format)
Q1: Does UK legislation provide a single comprehensive definition of a “banker”?
No. The UK statutory framework does not contain a unified definition. Instead, different statutes refer to “bank” or “banker” for specific legal purposes without laying down a universal meaning.
Q2: How does the Bills of Exchange Act 1882 approach the meaning of a banker?
It adopts a broad and inclusive wording, treating a banker as any person or body—whether incorporated or not—engaged in banking activities, without detailing the exact nature of those activities.
Q3: What method is used in the Bankers’ Books Evidence Act 1879?
This Act identifies banks by referring to authorised institutions and certain public bodies, such as national savings entities and postal authorities when performing banking functions, rather than defining banking itself.
Q4: How is a bank described in the Agricultural Credits Act 1928?
The Act focuses on recognised and authorised institutions, including central banking authorities and licensed entities, thereby linking the concept of a bank to official approval.
Q5: What is the position under the Solicitors Act 1974?
The statute defines a bank by listing recognised institutions such as the central bank, authorised banks, and certain public service providers involved in banking operations.
Q6: Do other UK statutes follow the same pattern?
Yes. Legislation such as company law, insolvency law, and financial services statutes typically define bankers by reference to institutions authorised under banking legislation, rather than providing independent definitions.
Practical Application
In practice, the UK statutory approach relies on authorisation and regulatory status. An entity is treated as a banker because it is officially recognised under banking laws. This approach ensures clarity and consistency within a regulated financial system.
Critical Analysis
The UK statutory method prioritises certainty over flexibility. By linking the definition of a banker to authorised institutions, it avoids ambiguity present in common law definitions. However, this results in multiple fragmented definitions across different statutes, each serving a specific purpose. While effective for regulation, it may not fully reflect the functional and evolving nature of banking activities.
Resolution of the Case Scenario
In Aisyah’s case, the determining factor is whether the institution is authorised under the relevant UK legislation. If it holds the necessary regulatory approval, it will be recognised as a banker regardless of how its services compare to traditional banking functions. Therefore, under the UK statutory approach, legal recognition and licensing are decisive in establishing the status of a banker.
Case Scenario
Aisyah enters into a transaction with a financial institution in London that claims to be a “bank” under statutory law. When a dispute arises, the issue is whether the institution qualifies as a “banker” under United Kingdom legislation, even though no single clear definition exists. This raises the question: how does the UK statutory framework determine who is a banker?
UK Statutory Position (Q&A Format)
Q1: Does UK legislation provide a single comprehensive definition of a “banker”?
No. The UK statutory framework does not contain a unified definition. Instead, different statutes refer to “bank” or “banker” for specific legal purposes without laying down a universal meaning.
Q2: How does the Bills of Exchange Act 1882 approach the meaning of a banker?
It adopts a broad and inclusive wording, treating a banker as any person or body—whether incorporated or not—engaged in banking activities, without detailing the exact nature of those activities.
Q3: What method is used in the Bankers’ Books Evidence Act 1879?
This Act identifies banks by referring to authorised institutions and certain public bodies, such as national savings entities and postal authorities when performing banking functions, rather than defining banking itself.
Q4: How is a bank described in the Agricultural Credits Act 1928?
The Act focuses on recognised and authorised institutions, including central banking authorities and licensed entities, thereby linking the concept of a bank to official approval.
Q5: What is the position under the Solicitors Act 1974?
The statute defines a bank by listing recognised institutions such as the central bank, authorised banks, and certain public service providers involved in banking operations.
Q6: Do other UK statutes follow the same pattern?
Yes. Legislation such as company law, insolvency law, and financial services statutes typically define bankers by reference to institutions authorised under banking legislation, rather than providing independent definitions.
Practical Application
In practice, the UK statutory approach relies on authorisation and regulatory status. An entity is treated as a banker because it is officially recognised under banking laws. This approach ensures clarity and consistency within a regulated financial system.
Critical Analysis
The UK statutory method prioritises certainty over flexibility. By linking the definition of a banker to authorised institutions, it avoids ambiguity present in common law definitions. However, this results in multiple fragmented definitions across different statutes, each serving a specific purpose. While effective for regulation, it may not fully reflect the functional and evolving nature of banking activities.
Resolution of the Case Scenario
In Aisyah’s case, the determining factor is whether the institution is authorised under the relevant UK legislation. If it holds the necessary regulatory approval, it will be recognised as a banker regardless of how its services compare to traditional banking functions. Therefore, under the UK statutory approach, legal recognition and licensing are decisive in establishing the status of a banker.
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Malaysian Banking Law: Understanding Underwriting of Securities in Investment Banking
Case Scenario
Lina owns a growing company in Malaysia and plans to raise funds by issuing shares to the public. She approaches an investment bank, which agrees to “underwrite” the share issuance. Lina is unsure what this means and whether the bank is guaranteeing her company will successfully raise the required funds.
Explanation
Q1: What does “underwriting securities” mean?
Underwriting securities refers to a process where a financial institution, usually an investment bank, agrees to manage and support the issuance of securities (such as shares or bonds) to investors.
Q2: What is the main role of the underwriter?
The underwriter helps the company structure the offering, determines the price of the securities, markets them to investors, and facilitates their sale in the market.
Q3: Does underwriting involve any guarantee?
In many cases, yes. The underwriter may guarantee that the company will raise a certain amount of money by agreeing to purchase any unsold securities. This is known as a “firm commitment” underwriting.
Q4: Are there different types of underwriting?
Yes. Common types include:
It reduces the risk for companies issuing securities by ensuring they can raise capital efficiently, while also providing confidence to investors about the credibility of the offering.
Practical Application
In practice, underwriting is essential in capital markets. Companies rely on investment banks to access funding from the public. The bank’s expertise helps ensure compliance with regulations, proper pricing, and successful distribution of securities. However, the level of risk borne by the underwriter depends on the type of underwriting agreement.
Critical Analysis
Underwriting reflects the evolving role of banks as financial service providers rather than traditional deposit-taking institutions. While it supports economic growth by enabling capital formation, it also introduces risks, particularly for underwriters in firm commitment arrangements. Additionally, conflicts of interest may arise if the underwriter prioritizes completing the deal over ensuring fair pricing for investors. Regulatory oversight is therefore crucial to maintain market integrity.
Resolution of the Case Scenario
In Lina’s case, underwriting means that the investment bank will assist in issuing and selling her company’s shares. If it is a firm commitment arrangement, the bank guarantees that Lina’s company will receive the agreed funds even if some shares remain unsold. If it is a best-efforts arrangement, the bank will only try to sell the shares without guaranteeing full success. Lina must carefully review the agreement to understand the level of risk and assurance involved.
Case Scenario
Lina owns a growing company in Malaysia and plans to raise funds by issuing shares to the public. She approaches an investment bank, which agrees to “underwrite” the share issuance. Lina is unsure what this means and whether the bank is guaranteeing her company will successfully raise the required funds.
Explanation
Q1: What does “underwriting securities” mean?
Underwriting securities refers to a process where a financial institution, usually an investment bank, agrees to manage and support the issuance of securities (such as shares or bonds) to investors.
Q2: What is the main role of the underwriter?
The underwriter helps the company structure the offering, determines the price of the securities, markets them to investors, and facilitates their sale in the market.
Q3: Does underwriting involve any guarantee?
In many cases, yes. The underwriter may guarantee that the company will raise a certain amount of money by agreeing to purchase any unsold securities. This is known as a “firm commitment” underwriting.
Q4: Are there different types of underwriting?
Yes. Common types include:
- Firm commitment: the underwriter buys all securities and resells them to the public.
- Best efforts: the underwriter only tries to sell the securities but does not guarantee full subscription.
It reduces the risk for companies issuing securities by ensuring they can raise capital efficiently, while also providing confidence to investors about the credibility of the offering.
Practical Application
In practice, underwriting is essential in capital markets. Companies rely on investment banks to access funding from the public. The bank’s expertise helps ensure compliance with regulations, proper pricing, and successful distribution of securities. However, the level of risk borne by the underwriter depends on the type of underwriting agreement.
Critical Analysis
Underwriting reflects the evolving role of banks as financial service providers rather than traditional deposit-taking institutions. While it supports economic growth by enabling capital formation, it also introduces risks, particularly for underwriters in firm commitment arrangements. Additionally, conflicts of interest may arise if the underwriter prioritizes completing the deal over ensuring fair pricing for investors. Regulatory oversight is therefore crucial to maintain market integrity.
Resolution of the Case Scenario
In Lina’s case, underwriting means that the investment bank will assist in issuing and selling her company’s shares. If it is a firm commitment arrangement, the bank guarantees that Lina’s company will receive the agreed funds even if some shares remain unsold. If it is a best-efforts arrangement, the bank will only try to sell the shares without guaranteeing full success. Lina must carefully review the agreement to understand the level of risk and assurance involved.
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Malaysian Banking Law: Essential Characteristics of Banking under Common Law
Case Scenario
Daniel deposits money with a financial institution in Malaysia that does not offer cheque facilities or current accounts. The institution only accepts fixed deposits and provides loans to businesses. When a dispute arises, Daniel argues that the institution is not a “bank” because it does not perform typical functions like cheque collection. The institution claims otherwise, relying on common law principles.
Facts
Q1: Must a bank perform all traditional functions like collecting and paying cheques to be considered a banker?
No. In State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd, the court held that it is not necessary for a bank to carry out functions such as collecting or paying cheques to qualify as a banker.
Q2: How did the court describe the role of a bank?
The court described a bank as a “financial reservoir,” meaning it receives money and redistributes it to support commercial, industrial, and other economic activities.
Q3: What are the essential characteristics of the business of banking according to Isaac J?
The key characteristics are:
No. These methods—such as current accounts, cheques, loans, and transfers—are considered secondary or auxiliary. They may vary and are not essential to defining banking.
Q5: Are banks legally required to offer current accounts?
No. Banks are not obliged to provide current accounts and may operate solely through deposit accounts, with terms for withdrawal agreed between the bank and the customer.
Practical Application
In practice, this case clarifies that the essence of banking lies in deposit-taking and lending, not in the specific mechanisms used. Modern banks may adopt various methods—digital platforms, mobile banking, or alternative account structures—but these do not change the fundamental nature of banking. This principle is especially relevant when assessing non-traditional or digital financial institutions.
Critical Analysis
This decision reinforces a functional approach to defining banking. By focusing on core activities rather than form, the law remains adaptable to evolving financial practices. However, this broad interpretation may blur distinctions between banks and other financial entities that also engage in lending or fund management. While flexibility is beneficial, it may create uncertainty in borderline cases, particularly with fintech developments.
Resolution of the Case Scenario
In Daniel’s case, the institution may still be classified as a bank if its primary business involves accepting deposits and using those funds for lending, even if it does not offer cheque services or current accounts. The absence of traditional features does not disqualify it from being a bank under common law. Therefore, the institution’s argument is likely to succeed if its core activities align with the essential characteristics of banking.
Case Scenario
Daniel deposits money with a financial institution in Malaysia that does not offer cheque facilities or current accounts. The institution only accepts fixed deposits and provides loans to businesses. When a dispute arises, Daniel argues that the institution is not a “bank” because it does not perform typical functions like cheque collection. The institution claims otherwise, relying on common law principles.
Facts
Q1: Must a bank perform all traditional functions like collecting and paying cheques to be considered a banker?
No. In State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd, the court held that it is not necessary for a bank to carry out functions such as collecting or paying cheques to qualify as a banker.
Q2: How did the court describe the role of a bank?
The court described a bank as a “financial reservoir,” meaning it receives money and redistributes it to support commercial, industrial, and other economic activities.
Q3: What are the essential characteristics of the business of banking according to Isaac J?
The key characteristics are:
- Receiving money from customers as deposits (essentially as loans to the bank), and
- Using those funds by lending them out to others as needed.
No. These methods—such as current accounts, cheques, loans, and transfers—are considered secondary or auxiliary. They may vary and are not essential to defining banking.
Q5: Are banks legally required to offer current accounts?
No. Banks are not obliged to provide current accounts and may operate solely through deposit accounts, with terms for withdrawal agreed between the bank and the customer.
Practical Application
In practice, this case clarifies that the essence of banking lies in deposit-taking and lending, not in the specific mechanisms used. Modern banks may adopt various methods—digital platforms, mobile banking, or alternative account structures—but these do not change the fundamental nature of banking. This principle is especially relevant when assessing non-traditional or digital financial institutions.
Critical Analysis
This decision reinforces a functional approach to defining banking. By focusing on core activities rather than form, the law remains adaptable to evolving financial practices. However, this broad interpretation may blur distinctions between banks and other financial entities that also engage in lending or fund management. While flexibility is beneficial, it may create uncertainty in borderline cases, particularly with fintech developments.
Resolution of the Case Scenario
In Daniel’s case, the institution may still be classified as a bank if its primary business involves accepting deposits and using those funds for lending, even if it does not offer cheque services or current accounts. The absence of traditional features does not disqualify it from being a bank under common law. Therefore, the institution’s argument is likely to succeed if its core activities align with the essential characteristics of banking.
- Published on
Malaysian Banking Law: Best Efforts vs Firm Commitment in Securities Underwriting
Case Scenario
Aiman plans to list his company in Malaysia to raise RM10 million. An investment bank offers two underwriting options: a best efforts arrangement and a firm commitment. Unsure which to choose, Aiman wants to understand the legal and financial implications of each.
Explanation (Q&A Format)
Q1: What is a best efforts underwriting?
It is an arrangement where the investment bank agrees to use its best efforts to sell the securities but does not guarantee that all will be sold.
Q2: What is a firm commitment underwriting?
It is an arrangement where the investment bank guarantees the full amount by purchasing all the securities from the issuer and then reselling them to the public.
Q3: Who bears the risk in each arrangement?
Firm commitment provides greater certainty to the issuer because the funds are guaranteed, whereas best efforts depends on market demand.
Practical Application
In real transactions, companies with strong market demand often opt for firm commitment to secure guaranteed funding. Smaller or riskier ventures may use best efforts to reduce costs. Investment banks will assess the company’s financial strength, market conditions, and investor appetite before recommending the appropriate structure.
Critical Analysis
The distinction highlights the role of investment banks as financial intermediaries rather than traditional lenders. Firm commitment underwriting demonstrates a higher level of involvement and risk assumption, aligning the bank more closely with the success of the offering. However, it may lead to conservative pricing to ensure the securities are sold. Best efforts, while cheaper, shifts uncertainty to the issuer and may result in underfunding. This reflects the broader theme in banking law: risk allocation depends on the nature of the financial service provided.
Resolution of the Case Scenario
For Aiman, the choice depends on his priorities. If he requires certainty in raising RM10 million, a firm commitment is more suitable despite higher costs. If he is willing to accept the risk of not raising the full amount in exchange for lower fees, best efforts may be appropriate. Ultimately, the decision should balance financial certainty, cost, and market conditions.
Case Scenario
Aiman plans to list his company in Malaysia to raise RM10 million. An investment bank offers two underwriting options: a best efforts arrangement and a firm commitment. Unsure which to choose, Aiman wants to understand the legal and financial implications of each.
Explanation (Q&A Format)
Q1: What is a best efforts underwriting?
It is an arrangement where the investment bank agrees to use its best efforts to sell the securities but does not guarantee that all will be sold.
Q2: What is a firm commitment underwriting?
It is an arrangement where the investment bank guarantees the full amount by purchasing all the securities from the issuer and then reselling them to the public.
Q3: Who bears the risk in each arrangement?
- In best efforts, the issuer (company) bears the risk of unsold securities.
- In firm commitment, the underwriter (investment bank) bears the risk if securities cannot be fully sold.
- Best efforts usually involves lower fees because the bank takes less risk.
- Firm commitment involves higher fees since the bank assumes significant financial risk.
Firm commitment provides greater certainty to the issuer because the funds are guaranteed, whereas best efforts depends on market demand.
Practical Application
In real transactions, companies with strong market demand often opt for firm commitment to secure guaranteed funding. Smaller or riskier ventures may use best efforts to reduce costs. Investment banks will assess the company’s financial strength, market conditions, and investor appetite before recommending the appropriate structure.
Critical Analysis
The distinction highlights the role of investment banks as financial intermediaries rather than traditional lenders. Firm commitment underwriting demonstrates a higher level of involvement and risk assumption, aligning the bank more closely with the success of the offering. However, it may lead to conservative pricing to ensure the securities are sold. Best efforts, while cheaper, shifts uncertainty to the issuer and may result in underfunding. This reflects the broader theme in banking law: risk allocation depends on the nature of the financial service provided.
Resolution of the Case Scenario
For Aiman, the choice depends on his priorities. If he requires certainty in raising RM10 million, a firm commitment is more suitable despite higher costs. If he is willing to accept the risk of not raising the full amount in exchange for lower fees, best efforts may be appropriate. Ultimately, the decision should balance financial certainty, cost, and market conditions.
- Published on
Malaysian Banking Law: An Updated Legal Definition of a “Banker” in Light of Classical and Modern Authorities
Case Scenario
Sofia engages a licensed institution in Malaysia that offers deposit accounts, digital payments, and investment-linked services. When a dispute arises over a failed transaction, she argues that the institution owes her the full duties of a “banker.” The institution responds that its role varies depending on the service provided. This raises the question: what is the modern legal definition of a “banker”?
Updated Legal Definition (Synthesis of Authorities)
Drawing from authorities such as United Dominions Trust Ltd v Kirkwood, Halsbury’s Laws of England, and academic commentary (including Dr HL Hart), a banker may be defined as:
A banker is an individual, partnership, or corporation whose principal or predominant business involves accepting money from customers into accounts, maintaining a continuing account relationship with rights of deposit and withdrawal, and facilitating the use of those funds—whether by lending, payment services, or other financial operations—while being recognized as such within the financial and commercial system.
Key Elements of the Updated Definition
Practical Application
In modern practice, especially in Malaysia, a banker is not confined to traditional roles like cheque processing. Digital banks, Islamic banks, and financial institutions offering integrated services can still qualify as bankers if they maintain the core deposit-account relationship and provide financial intermediation. The legal focus is on function rather than form.
Critical Analysis
This updated definition reflects the evolution from narrow, cheque-based banking to a broader financial services model. It aligns with common law flexibility while addressing modern realities such as electronic payments and fintech. However, the broader scope may blur distinctions between bankers and other financial intermediaries, making regulatory classification and consumer understanding more complex.
Resolution of the Case Scenario
Applying this definition, Sofia’s institution would likely be considered a banker if it primarily accepts deposits, maintains account relationships, and facilitates financial transactions. However, its specific duties depend on the nature of each service provided. Thus, while the institution qualifies as a banker, its liability in Sofia’s dispute must be assessed based on the particular function it was performing at the time.
Case Scenario
Sofia engages a licensed institution in Malaysia that offers deposit accounts, digital payments, and investment-linked services. When a dispute arises over a failed transaction, she argues that the institution owes her the full duties of a “banker.” The institution responds that its role varies depending on the service provided. This raises the question: what is the modern legal definition of a “banker”?
Updated Legal Definition (Synthesis of Authorities)
Drawing from authorities such as United Dominions Trust Ltd v Kirkwood, Halsbury’s Laws of England, and academic commentary (including Dr HL Hart), a banker may be defined as:
A banker is an individual, partnership, or corporation whose principal or predominant business involves accepting money from customers into accounts, maintaining a continuing account relationship with rights of deposit and withdrawal, and facilitating the use of those funds—whether by lending, payment services, or other financial operations—while being recognized as such within the financial and commercial system.
Key Elements of the Updated Definition
- Acceptance of Customer Funds
The banker receives money from customers, typically as deposits forming part of an ongoing account relationship. - Account-Based Relationship
There is a continuing arrangement allowing customers to place funds and access them over time (not necessarily limited to traditional current accounts). - Facilitation of Payments and Transactions
The banker enables the movement or use of money, whether through cheques, electronic transfers, or other modern payment systems. - Utilisation of Funds
The banker may use deposited funds for lending, investment, or other financial activities, though lending is not always essential. - Recognition and Reputation
The institution is generally acknowledged as a banker within commercial and financial circles, especially in cases of uncertainty. - Beyond Traditional Features
Cheque handling and specific mechanisms are no longer essential; digital and electronic methods now fulfil similar functions.
Practical Application
In modern practice, especially in Malaysia, a banker is not confined to traditional roles like cheque processing. Digital banks, Islamic banks, and financial institutions offering integrated services can still qualify as bankers if they maintain the core deposit-account relationship and provide financial intermediation. The legal focus is on function rather than form.
Critical Analysis
This updated definition reflects the evolution from narrow, cheque-based banking to a broader financial services model. It aligns with common law flexibility while addressing modern realities such as electronic payments and fintech. However, the broader scope may blur distinctions between bankers and other financial intermediaries, making regulatory classification and consumer understanding more complex.
Resolution of the Case Scenario
Applying this definition, Sofia’s institution would likely be considered a banker if it primarily accepts deposits, maintains account relationships, and facilitates financial transactions. However, its specific duties depend on the nature of each service provided. Thus, while the institution qualifies as a banker, its liability in Sofia’s dispute must be assessed based on the particular function it was performing at the time.