Malaysian Banking Law: Definition of a “Bank” under the Financial Services Act 2013


Direct Answer
Under the Financial Services Act 2013:
👉 There is NO single section that directly defines the word “bank.”


How the Act Defines a Bank (Step-by-Step Understanding)
1. Section 2(1): Key Definitions
Instead of defining “bank” directly, the Act defines:
👉 “licensed bank”
= a person licensed under section 10 to carry on banking business


2. Section 10: Licensing Requirement
👉 Section 10 states:
A person must obtain a licence to carry on banking business


3. Section 2(1): “Banking business”
The Act defines banking business as:

• Accepting deposits
• Paying/collecting cheques
• Providing finance
• Other prescribed activities

Put It Together (Very Important)
👉 A “bank” under the Financial Services Act 2013 means:
✔ A licensed bank
✔ Which is authorised under section 10
✔ To carry on banking business


Simplified Definition (Exam Ready)
A bank under the Financial Services Act 2013 is a person licensed under section 10 to carry on banking business as defined in section 2(1).


Important Insight
👉 The Act uses an indirect definition approach:

• It does NOT say “bank = …”
• Instead, it defines:
  • banking business
  • licensed bank

👉 So you must combine them


Link to Your Previous Cases
This matches what courts said:

• Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd
  → Not every lender is a bank
• Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd
  → Financing alone ≠ banking

👉 So:
✔ “Bank” = licensed + full banking functions


Final Exam Rule
Under the Financial Services Act 2013, a bank is not expressly defined but is understood as a licensed person under section 10 authorised to carry on banking business as defined in section 2(1).

​

KembaraXtra – Legal Terms – Life Peerage
A life peerage is a title of nobility granted for the lifetime of the recipient, without passing to their descendants. It is usually conferred at the rank of baron or baroness.
Life peerages are created under statutory authority and are often used to appoint members to the House of Lords. They allow individuals to contribute to legislative work without establishing hereditary privilege.
There is no fixed limit on the number of life peerages that may be granted. This flexibility helps maintain a diverse and functional upper chamber within the parliamentary system.

​

KembaraXtra – Legal Terms – Life Imprisonment
Life imprisonment is a criminal sentence requiring an offender to remain in custody for the duration of their life. It is mandatory for certain offences, most notably murder.
Although described as a life sentence, in practice the offender may be released after serving a minimum term set by the court, subject to parole. The minimum term reflects the seriousness of the offence and acts as a guideline for release eligibility.
The determination of this minimum period is governed by statutory guidelines and judicial discretion. The sentencing process must comply with principles of fairness and the offender’s right to have their sentence determined by an independent tribunal.

​

Malaysian Banking Law: Meaning of “Customer” in Banking Law


Case Scenario
Sarah opens a savings account with a bank in Malaysia. At the same time, another person, Amir, only takes a loan from the same bank without depositing any money. A dispute arises, and the issue is whether both Sarah and Amir are considered “customers” under banking law.


Paraphrased Explanation (Q&A Format – Simplified & Clear)
Q1: Why is it important to define who a “customer” is?
Banking law mainly governs the relationship between a bank and its customer. Therefore, to understand rights and duties (like confidentiality, duty of care, etc.), we must first know who qualifies as a customer.


Q2: Does the Financial Services Act 2013 define “customer”?
No. The Act does not provide a direct definition of the term “customer.”


Q3: What term does the Act define instead?
The Act defines “depositor”, which refers to a person who is entitled to repayment of money placed with the bank, regardless of who originally deposited it.


Q4: What is the difference between a “customer” and a “depositor”? (Simple explanation)
👉 A depositor:

• Someone who puts money into the bank
• Has the right to get that money back

👉 A customer:

• A broader concept
• Includes anyone who has a banking relationship

✔ So:

• All depositors = customers
  ❌ Not all customers = depositors

Q5: Can someone be a customer without depositing money?
Yes. A person can still be a customer if they:

• Take a loan
• Use banking services
• Enter into financial agreements with the bank

👉 Example:
Amir (borrower only) is still a customer, even though he is not a depositor.


Application 
✔ Customer includes:

• Depositors
• Borrowers
• Account holders
• Users of banking services

✔ Depositor includes:

• Only those entitled to repayment of deposits

👉 Key idea:
Customer = wider category
Depositor = narrower category


Critical Analysis (Simple Understanding)
The law intentionally keeps the term “customer” broad. This ensures that all individuals dealing with banks—whether depositing money or borrowing—are protected under banking law. If the definition were limited only to depositors, borrowers and other users of banking services would be excluded from important legal protections.


Resolution of the Case Scenario

• Sarah (depositor) → ✔ Customer
• Amir (borrower only) → ✔ Customer

👉 Therefore:
Both are customers, even though only Sarah is a depositor.


Final Exam Rule 
A “customer” is a broader concept than a “depositor”; while a depositor is entitled to repayment of deposits, a customer includes any person who has a banking relationship with the bank, including borrowers and users of banking services.

Malaysian Banking Law: Section 125 BAFIA and Its Link to the Financial Services Act 2013

Case Scenario
A borrower in Malaysia challenges a financing agreement, arguing that the lender did not comply with banking regulations. The borrower claims the contract should be void. The court must decide: does a breach of banking law automatically invalidate the agreement?​

Q1: What is Section 125 of the Banking and Financial Institutions Act 1989?
Section 125 states that a contract will not automatically become void just because it breaches the Act.
👉 In simple terms:
Even if a transaction does not fully comply with banking law, the agreement itself can still remain valid and enforceable.


Q2: Why is Section 125 important? 
Without this section:

• Many financial contracts could be cancelled easily
• Borrowers could avoid repayment by claiming illegality

👉 Section 125 prevents this by ensuring:
✔ Commercial certainty
✔ Fairness between parties


Q3: How does this apply in cases like Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd?
The court said:
👉 Even if the transaction had breached banking law (which it did not),
✔ Section 125 would still protect the agreement
So:

• The borrower cannot escape liability
• The debt remains payable

Link with Current Law: Financial Services Act 2013
Q4: What replaced BAFIA?
The Financial Services Act 2013 replaced BAFIA and now governs banking regulation in Malaysia.


Q5: Does the same principle still exist under the Financial Services Act 2013?
Yes — the same idea continues.
👉 The law still aims to:

• Regulate financial institutions
• BUT not automatically invalidate contracts

Key Understanding
✔ Regulatory breach ≠ Contract automatically void
👉 The Act focuses on:

• Punishing non-compliance (fines, penalties)
• NOT destroying private agreements

Application (Note Form)
✔ Section 125 principle:

• Contracts remain valid despite breach
• Protects lenders and financial system
• Prevents borrowers from avoiding repayment

✔ Under Financial Services Act 2013:

• Same approach continues
• Licensing rules enforced separately
• Contracts generally still enforceable

Critical Analysis 
This rule is very important for commercial stability.
👉 If every illegal technical breach made contracts void:

• Banking system would collapse
• Loans could not be enforced
• Borrowers could act unfairly

So the law separates:
👉 Regulation (public law)
vs
👉 Contract enforcement (private law)


Resolution of the Case Scenario

• Even if there was a breach ✔
• The agreement is still valid ✔
• The borrower must repay ✔

👉 Section 125 ensures fairness


Final Exam Rule (Very Important)
A breach of banking law does not automatically render a contract void; under Section 125 BAFIA (and its modern equivalent under the Financial Services Act 2013), financial agreements remain enforceable unless expressly declared void by law.

KembaraXtra – Legal Terms – Life Policy
A life policy is a formal document representing a contract of life assurance. It sets out the terms under which the insurer agrees to pay a specified sum upon the occurrence of an insured event.
The policyholder pays premiums in exchange for this financial protection. The payout may be made upon death or at the end of a specified period, depending on the type of policy.
Life policies are transferable and may be assigned to third parties. This makes them useful not only for personal protection but also as financial instruments in broader planning and investment contexts.

​

​KembaraXtra – Indian Evidence Law – Bharatiya Sakshya Adhiniyam – Admissions by Persons Whose Position Must Be Proved (Section 17)
1. General Rule

• Statements made by a third person are treated as admissions
• Only when that person’s position or liability is in issue in the case

👉 In simple words:
If a case depends on someone else’s liability, then what that person says becomes relevant.

2. Core Principle👉 When liability of one party depends on liability of another, statements of that other person become admissions.

3. Example

• A is agent of B (collects rent)
• B sues A for not collecting rent from C
• A says: “C did not owe rent”
• C earlier said: “I owe rent to B”

👉 C’s statement = Admission against A

4. Scope of Section

• Applies where:
  • Rights/liability of one party depends on third party’s liability
• Common situations:
  • Agent–Principal
  • Debtor–Creditor
  • Contract through third person

5. Essential ConditionsTo apply Section 17, all must be satisfied:

1. Relationship must exist
   • Between parties (e.g., agent–principal)
2. Third person’s liability must be in issue
   • Case outcome depends on that liability
3. Statement must relate to that liability
4. Statement must be made during existence of liability
   • If liability ended (e.g., time-barred) → NOT relevant

6. Important Limitation❌ Statement NOT relevant if:

• Made after liability ceased
• Example: Debt already time-barred

7. Key Concept👉 Third person’s statement becomes admissible because:

• It directly affects legal rights of parties in dispute

Quick Revision Line👉 If your liability depends on another person, his statement about that liability can be used against you.

Malaysian Banking Law: “Banking Business” — Development Banks and Scope of Banking Activities


Case Scenario
A development financial institution in Malaysia provides loans and credit facilities to a company for business purposes. When the company defaults, the institution sues to recover the outstanding amount. The borrower argues that the institution is not a licensed bank and therefore the loan is illegal. The court must determine whether lending money alone amounts to “banking business.”


Q and A 
Q1: What was the main issue in Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd?
The court had to decide whether a development bank that provides loans without a banking licence is unlawfully carrying on banking business, and whether such loans are therefore invalid.


Q2: What was the defendants’ argument? 
The defendants argued that since the plaintiff was not licensed as a bank under the Banking Act 1973, it had no legal right to give loans. They claimed that the lending activity itself amounted to banking business, and because the plaintiff was unlicensed, the transaction should be considered illegal and void. In simple terms, they were saying:
👉 “If you lend money like a bank, you must be a bank — and without a licence, your loan is unlawful.”


Q3: What did the court decide? 
The court rejected this argument and held that lending money alone does not automatically amount to banking business. The judge explained that a true banking business requires more than just giving loans. Since there was no evidence that the plaintiff accepted deposits, maintained current accounts, or handled cheques, it could not be classified as a bank. Therefore, the loan was valid and enforceable.


Judicial Proceedings 
The court emphasised that development finance institutions are specialised financial bodies created to promote economic development, particularly by providing medium- and long-term financing. Their role is different from commercial banks. Although the plaintiff used the word “bank” in its name, this did not automatically make it a bank in law. The court clarified that even if an entity is authorised to use the term “bank,” it does not become a “banker” unless it performs the essential functions of banking.
The judge relied on established legal principles that a banker must typically carry out three key activities: accepting deposits, paying cheques, and collecting cheques. Since the plaintiff did not perform these functions, it could not be said to be carrying on banking business. The court also noted that the plaintiff’s activities were primarily those of a financier, not a banker.


Application 
✔ Banking business requires:

• Accepting deposits
• Maintaining current accounts
• Paying cheques
• Collecting cheques
• Providing finance (as part of a broader system)

❌ Not sufficient on its own:

• Lending money only
• Providing credit facilities
• Acting as a financier
• Using the word “bank” in name

👉 Key idea:
Financing ≠ Banking business
Name ≠ Legal status


Comparison with Other Cases
This case is consistent with earlier decisions:
From Vernes Asia Ltd v Trendale Investment Pte Ltd
→ Lending alone is not banking
From Bank of China v Lee Kee Pin
→ Recovering debts is not banking
👉 Common principle:
Only core banking functions together amount to banking business


Additional Legal Insight (Role of Bank as Financier)
The court recognised that banks, when providing loans, act primarily as financiers. This was reinforced in Chang Yun Tai v HSBC Bank (M) Bhd, where it was held that a bank is not responsible for investigating the underlying transaction between its customer and third parties.


Duty of Care (Important Exception)
However, banks still owe a duty of care.
From Anthony Lawrence Bourke v CIMB Bank Bhd
✔ Bank must:

• Exercise reasonable skill and care
• Properly disburse loans according to agreement

👉 Bank acts like an agent when releasing funds


Resolution of the Case Scenario

• The plaintiff only provided financing ✔
• It did not accept deposits ❌
• It did not operate current accounts ❌
• It did not handle cheques ❌

👉 Therefore:
The plaintiff was NOT carrying on banking business
✔ The loan is valid
✔ The defendants must repay
✔ No breach of Banking Act


Final Exam Rule 
A person is not a banker merely because it lends money; banking business requires the combined performance of essential functions such as deposit-taking, account operation, and payment handling.

​KembaraXtra – Legal Terms – Life Assurance


Life assurance is a form of insurance that provides for payment upon the occurrence of an event linked to a person’s life, most commonly death or the passage of a specified period.


Different types of life assurance exist, including whole-life policies, which pay out upon death, and term policies, which only pay if death occurs within a fixed period. Endowment policies combine both features by paying either on death or at the end of a set term.


This form of insurance is widely used for financial planning and protection. It ensures that beneficiaries receive a predetermined sum under the conditions set out in the policy.

​KembaraXtra – Indian Evidence Law – Bharatiya Sakshya Adhiniyam – Proof of Admissions (Section 19)
1. General Rule

• Admissions are relevant and can be proved AGAINST the maker
• But they cannot be proved BY or ON BEHALF of the maker

👉 Meaning:

• A person’s admission can be used against him
• But generally, he cannot use his own admission in his favour

2. Exceptions (When Admission Can Be Used in Favour of Maker)(1) When Maker is Dead (Section 26 Principle)

• Admission can be proved if it would be relevant when the maker is dead
• Based on necessity and unavailability

📌 Example:

• Entries made in business records by deceased person → admissible

(2) Statement as to State of Mind or Body

• Must satisfy:
  • Relates to state of mind/body (e.g., intention, knowledge)
  • Made at or about the time
  • Supported by conduct making falsehood unlikely

👉 Reason: Helps prove mental condition or intention

(3) Relevant Otherwise Than as Admission

• If statement is independently relevant under Sections 4–11, it can be used
• Even if it is also an admission

📌 Example:

• Statement explaining conduct or possession can be admitted

3. Key Illustrative Principles

• A cannot prove his own statement to support his case
• But opponent can use it against him

📌 Example:

• A says deed is genuine → B can use it
• But A cannot rely on his own statement

4. Self-Serving Statements (Exception Cases)Self-serving statements are allowed only in 3 cases:

1. When admissible under Section 26 (dead person rule)
2. When showing state of mind/body
3. When independently relevant under other provisions

5. Core Principle👉 Admissions are evidence against the maker, not in his favour — unless special exceptions apply.

Quick Revision Line👉 You cannot use your own admission to help yourself, except in limited situations (dead person, state of mind, or independent relevance).