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KembaraXtra – Legal Terms – Lex Loci Solutionis
Lex loci solutionis refers to the law of the place where a contractual obligation is to be performed or where a debt is to be discharged. In private international law, it identifies the legal system connected to the performance stage of an agreement.
In English law, its application is relatively limited. It is most notably relevant in determining matters such as the due date for payment under instruments like bills of exchange, rather than governing the broader substance of contractual rights and duties.
Modern contract law tends to rely more on the “proper law of the contract” rather than strictly applying lex loci solutionis. Nevertheless, it remains a useful concept when pinpointing specific obligations tied to a place of performance.
Lex loci solutionis refers to the law of the place where a contractual obligation is to be performed or where a debt is to be discharged. In private international law, it identifies the legal system connected to the performance stage of an agreement.
In English law, its application is relatively limited. It is most notably relevant in determining matters such as the due date for payment under instruments like bills of exchange, rather than governing the broader substance of contractual rights and duties.
Modern contract law tends to rely more on the “proper law of the contract” rather than strictly applying lex loci solutionis. Nevertheless, it remains a useful concept when pinpointing specific obligations tied to a place of performance.
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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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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: English Common Law Characteristics of Banking and Their Modern Relevance
Case Scenario
Farah maintains an account with a financial institution in Malaysia that operates entirely online. The institution does not issue cheque books or process cheque payments but allows continuous deposits and withdrawals through digital platforms. When a legal dispute arises, Farah questions whether the institution qualifies as a “bank,” especially since it does not perform traditional cheque-related functions.
Facts
Q1: What characteristics of banking were identified in United Dominions Trust Ltd v Kirkwood?
The Court of Appeal identified three key characteristics:
Diplock LJ emphasized that the essential feature is the acceptance of money into a running account, where customers can deposit and withdraw funds over time.
Q3: What happens if there is insufficient evidence of these characteristics?
The court may rely on evidence of reputation—whether the institution is recognized as a banker within commercial and banking circles.
Q4: What distinction did Lord Denning MR make regarding banking characteristics?
Lord Denning highlighted that “usual” characteristics are not the same as “essential” characteristics. A list of common features does not amount to a strict definition of banking.
Q5: What additional factors did Lord Denning consider relevant?
He emphasized qualities such as stability, soundness, and integrity, and suggested that reputation among informed commercial persons can help determine whether an institution is a bank.
Q6: How did this apply in the case itself?
The institution, United Dominions Trust Ltd (UDT), was recognized as a banker partly based on its reputation in the financial community.
Q7: Is this definition still fully applicable today?
Its relevance has diminished, particularly in jurisdictions like Malaysia, due to statutory developments and the decline of cheque usage in modern banking practices.
Practical Application
In modern practice, especially with the rise of digital banking, many institutions no longer rely on cheque-based transactions. Electronic fund transfers, mobile banking, and online platforms have replaced traditional methods. As a result, the classic English common law characteristics may not fully reflect contemporary banking operations. Courts and regulators now place greater emphasis on statutory definitions and licensing requirements.
Critical Analysis
The English approach provides a structured framework but is rooted in traditional banking practices, particularly cheque usage. While it offers clarity, it may not adequately capture the realities of digital and fintech-driven banking. Lord Denning’s emphasis on reputation introduces flexibility but also subjectivity. The decline of cheque usage further weakens the relevance of these criteria, suggesting that functional and regulatory approaches are more appropriate in modern contexts.
Resolution of the Case Scenario
In Farah’s case, the absence of cheque facilities does not automatically disqualify the institution from being a bank. If it accepts deposits into a running account and allows withdrawals—whether through digital or electronic means—it may still satisfy the essential characteristics identified by Diplock LJ. Additionally, its regulatory status and reputation within the financial sector are important considerations. Therefore, despite the evolution of banking practices, the institution could still be recognized as a bank, although modern statutory definitions in Malaysia would ultimately be decisive.
Case Scenario
Farah maintains an account with a financial institution in Malaysia that operates entirely online. The institution does not issue cheque books or process cheque payments but allows continuous deposits and withdrawals through digital platforms. When a legal dispute arises, Farah questions whether the institution qualifies as a “bank,” especially since it does not perform traditional cheque-related functions.
Facts
Q1: What characteristics of banking were identified in United Dominions Trust Ltd v Kirkwood?
The Court of Appeal identified three key characteristics:
- Maintaining current accounts,
- Paying cheques drawn on the institution, and
- Collecting cheques on behalf of customers.
Diplock LJ emphasized that the essential feature is the acceptance of money into a running account, where customers can deposit and withdraw funds over time.
Q3: What happens if there is insufficient evidence of these characteristics?
The court may rely on evidence of reputation—whether the institution is recognized as a banker within commercial and banking circles.
Q4: What distinction did Lord Denning MR make regarding banking characteristics?
Lord Denning highlighted that “usual” characteristics are not the same as “essential” characteristics. A list of common features does not amount to a strict definition of banking.
Q5: What additional factors did Lord Denning consider relevant?
He emphasized qualities such as stability, soundness, and integrity, and suggested that reputation among informed commercial persons can help determine whether an institution is a bank.
Q6: How did this apply in the case itself?
The institution, United Dominions Trust Ltd (UDT), was recognized as a banker partly based on its reputation in the financial community.
Q7: Is this definition still fully applicable today?
Its relevance has diminished, particularly in jurisdictions like Malaysia, due to statutory developments and the decline of cheque usage in modern banking practices.
Practical Application
In modern practice, especially with the rise of digital banking, many institutions no longer rely on cheque-based transactions. Electronic fund transfers, mobile banking, and online platforms have replaced traditional methods. As a result, the classic English common law characteristics may not fully reflect contemporary banking operations. Courts and regulators now place greater emphasis on statutory definitions and licensing requirements.
Critical Analysis
The English approach provides a structured framework but is rooted in traditional banking practices, particularly cheque usage. While it offers clarity, it may not adequately capture the realities of digital and fintech-driven banking. Lord Denning’s emphasis on reputation introduces flexibility but also subjectivity. The decline of cheque usage further weakens the relevance of these criteria, suggesting that functional and regulatory approaches are more appropriate in modern contexts.
Resolution of the Case Scenario
In Farah’s case, the absence of cheque facilities does not automatically disqualify the institution from being a bank. If it accepts deposits into a running account and allows withdrawals—whether through digital or electronic means—it may still satisfy the essential characteristics identified by Diplock LJ. Additionally, its regulatory status and reputation within the financial sector are important considerations. Therefore, despite the evolution of banking practices, the institution could still be recognized as a bank, although modern statutory definitions in Malaysia would ultimately be decisive.
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Malaysian Banking Law: The Legal Position of Investment Banking vs Traditional Banking
Case Scenario
Amir engages an institution in Malaysia that identifies itself as an “investment bank.” The institution assists him in raising capital through share issuance and advises on mergers and acquisitions. However, it does not accept deposits or provide traditional loans. When a dispute arises, Amir argues that the institution should be treated as a “bank” in the traditional sense and be subject to the same legal duties. This raises the issue: does investment banking fall within the definition of banking?
Facts (Q&A Format)
Q1: Does investment banking involve traditional banking functions like deposit-taking?
No, investment banking generally does not involve accepting deposits from the public, which is a core feature of traditional banking.
Q2: Do investment banks provide loans like commercial banks?
Not in the usual sense. While they may facilitate financing or structure deals, their primary role is not direct lending to customers as a core business.
Q3: What activities do investment banks typically perform?
Investment banks focus on services such as corporate finance advisory, underwriting securities, facilitating mergers and acquisitions, managing investments, and dealing in capital markets.
Q4: Can an investment bank still be considered a “bank”?
Legally, this depends on the jurisdiction. Functionally, investment banks perform financial services, but they may not meet the traditional common law definition of banking if they do not engage in deposit-taking and lending.
Q5: Why is this distinction important?
Because different legal rules, regulatory frameworks, and obligations apply depending on whether an institution is classified as a traditional bank or another type of financial service provider.
Practical Application
In practice, institutions labelled as “investment banks” are treated differently from commercial banks. In Malaysia, they are regulated under specific financial and capital market laws and may not have the same rights or obligations as deposit-taking banks. Customers must understand that services like investment advice or capital raising carry different risks and protections compared to traditional banking services.
Critical Analysis
The existence of investment banks highlights the limitation of traditional definitions of banking. While they play a crucial role in financial markets, their lack of deposit-taking and conventional lending challenges the classical understanding of what constitutes a bank. This supports the broader view that modern financial institutions should be seen as financial service providers rather than strictly categorized entities. However, this also increases legal complexity and may confuse customers who assume all “banks” operate under the same rules.
Resolution of the Case Scenario
In Amir’s case, the institution is unlikely to be treated as a traditional bank if it does not accept deposits or primarily engage in lending. Instead, it would be classified as an investment bank or financial intermediary, subject to a different regulatory regime. Therefore, while it performs important financial functions, it does not fully satisfy the traditional legal definition of banking, and Amir’s expectations must be assessed based on the nature of the services provided rather than the label “bank.”
Case Scenario
Amir engages an institution in Malaysia that identifies itself as an “investment bank.” The institution assists him in raising capital through share issuance and advises on mergers and acquisitions. However, it does not accept deposits or provide traditional loans. When a dispute arises, Amir argues that the institution should be treated as a “bank” in the traditional sense and be subject to the same legal duties. This raises the issue: does investment banking fall within the definition of banking?
Facts (Q&A Format)
Q1: Does investment banking involve traditional banking functions like deposit-taking?
No, investment banking generally does not involve accepting deposits from the public, which is a core feature of traditional banking.
Q2: Do investment banks provide loans like commercial banks?
Not in the usual sense. While they may facilitate financing or structure deals, their primary role is not direct lending to customers as a core business.
Q3: What activities do investment banks typically perform?
Investment banks focus on services such as corporate finance advisory, underwriting securities, facilitating mergers and acquisitions, managing investments, and dealing in capital markets.
Q4: Can an investment bank still be considered a “bank”?
Legally, this depends on the jurisdiction. Functionally, investment banks perform financial services, but they may not meet the traditional common law definition of banking if they do not engage in deposit-taking and lending.
Q5: Why is this distinction important?
Because different legal rules, regulatory frameworks, and obligations apply depending on whether an institution is classified as a traditional bank or another type of financial service provider.
Practical Application
In practice, institutions labelled as “investment banks” are treated differently from commercial banks. In Malaysia, they are regulated under specific financial and capital market laws and may not have the same rights or obligations as deposit-taking banks. Customers must understand that services like investment advice or capital raising carry different risks and protections compared to traditional banking services.
Critical Analysis
The existence of investment banks highlights the limitation of traditional definitions of banking. While they play a crucial role in financial markets, their lack of deposit-taking and conventional lending challenges the classical understanding of what constitutes a bank. This supports the broader view that modern financial institutions should be seen as financial service providers rather than strictly categorized entities. However, this also increases legal complexity and may confuse customers who assume all “banks” operate under the same rules.
Resolution of the Case Scenario
In Amir’s case, the institution is unlikely to be treated as a traditional bank if it does not accept deposits or primarily engage in lending. Instead, it would be classified as an investment bank or financial intermediary, subject to a different regulatory regime. Therefore, while it performs important financial functions, it does not fully satisfy the traditional legal definition of banking, and Amir’s expectations must be assessed based on the nature of the services provided rather than the label “bank.”
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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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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: 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: A Consolidated Legal Definition of a “Bank” Based on Case Law
Case Scenario
Imran deals with a financial institution in Malaysia that offers deposit accounts, provides financing, and facilitates digital payments, but does not issue cheques. When a dispute arises, Imran argues that the institution should not be treated as a “bank” because it lacks some traditional features. The court must determine whether the institution legally qualifies as a bank based on established case law.
Derived Legal Definition (Q&A Synthesis → Final Rule)
Drawing from judicial authorities such as State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd, United Dominions Trust Ltd v Kirkwood, Commonwealth of Australia v Bank of New South Wales, and Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo, a bank under common law may be defined as:
A bank is a financial institution whose principal business consists of receiving money from the public in the form of deposits, repayable on demand or at agreed times, and utilising those funds by lending or otherwise dealing with them for profit, forming part of the commercial and economic system; while the methods employed (such as current accounts, cheques, or electronic transfers) are incidental, and its status may also be informed by its reputation, stability, and recognition within the financial community.
Key Elements of the Definition
Practical Application
This definition allows courts to identify a bank based on substance over form. Even if an institution uses modern digital systems instead of cheques, it may still qualify as a bank if it performs core functions like deposit-taking and lending. This is particularly relevant in modern banking environments in Malaysia, where fintech and digital banks operate without traditional features.
Critical Analysis
The case law demonstrates that no single rigid definition of a bank exists. Instead, the law adopts a functional and flexible approach, focusing on essential characteristics rather than formal labels. This ensures adaptability to evolving financial practices. However, such flexibility may also create uncertainty, especially when distinguishing banks from other financial service providers like investment firms or fintech companies.
Resolution of the Case Scenario
Applying this definition to Imran’s case, the institution would likely be considered a bank if its primary business involves accepting deposits and using those funds for lending or financial activities, even without cheque facilities. The absence of traditional features does not negate its legal status as a bank. Therefore, Imran’s argument would likely fail if the institution satisfies these core elements and is recognized within the financial system.
Case Scenario
Imran deals with a financial institution in Malaysia that offers deposit accounts, provides financing, and facilitates digital payments, but does not issue cheques. When a dispute arises, Imran argues that the institution should not be treated as a “bank” because it lacks some traditional features. The court must determine whether the institution legally qualifies as a bank based on established case law.
Derived Legal Definition (Q&A Synthesis → Final Rule)
Drawing from judicial authorities such as State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd, United Dominions Trust Ltd v Kirkwood, Commonwealth of Australia v Bank of New South Wales, and Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo, a bank under common law may be defined as:
A bank is a financial institution whose principal business consists of receiving money from the public in the form of deposits, repayable on demand or at agreed times, and utilising those funds by lending or otherwise dealing with them for profit, forming part of the commercial and economic system; while the methods employed (such as current accounts, cheques, or electronic transfers) are incidental, and its status may also be informed by its reputation, stability, and recognition within the financial community.
Key Elements of the Definition
- Deposit-Taking Function (Core Requirement)
The institution must receive money from customers as deposits (Isaac J in Permewan case). - Lending or Use of Funds
The deposited funds must be used for lending or other financial activities (Commercial Banking Co case; Bank of NSW case). - Commercial Purpose
The activity must form part of the wider economic and financial system. - Running Account Relationship
There is typically a continuous relationship where money is deposited and withdrawn (Diplock LJ in Kirkwood). - Non-Essential Features
Cheques, current accounts, and specific mechanisms are not strictly necessary—they are only common features, not defining ones. - Reputation and Recognition
In uncertain cases, the institution’s reputation in financial and commercial circles may be considered (Lord Denning MR in Kirkwood).
Practical Application
This definition allows courts to identify a bank based on substance over form. Even if an institution uses modern digital systems instead of cheques, it may still qualify as a bank if it performs core functions like deposit-taking and lending. This is particularly relevant in modern banking environments in Malaysia, where fintech and digital banks operate without traditional features.
Critical Analysis
The case law demonstrates that no single rigid definition of a bank exists. Instead, the law adopts a functional and flexible approach, focusing on essential characteristics rather than formal labels. This ensures adaptability to evolving financial practices. However, such flexibility may also create uncertainty, especially when distinguishing banks from other financial service providers like investment firms or fintech companies.
Resolution of the Case Scenario
Applying this definition to Imran’s case, the institution would likely be considered a bank if its primary business involves accepting deposits and using those funds for lending or financial activities, even without cheque facilities. The absence of traditional features does not negate its legal status as a bank. Therefore, Imran’s argument would likely fail if the institution satisfies these core elements and is recognized within the financial system.
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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.