Bank Negara Malaysia (or the Central Bank of Malaysia) is liberalising the foreign exchange administration rules to enhance the economy’s competitiveness and further develop the domestic financial market.
The liberalising measures will only come into effect around mid-2013 when the Financial Services Act (FSA) and Islamic Financial System Act (IFSA) come into force.
The measures include allowing residents to freely invest in onshore foreign currency-denominated assets to spur the domestic foreign exchange market through greater demand for foreign currency products and services.
Another measure allows resident takaful operators to undertake investments abroad of any amount on behalf of their resident client. This measure would further promote the development of the Islamic financial markets through greater flow of cross-border Islamic financial activities, and greater use of Islamic financial intermediaries.
This measure would also enhance regulatory efficiency, as resident takaful operators and resident insurers would only be subject to their risk-based capital framework when undertaking investment abroad for their own accounts.
Residents would be permitted to issue any securities, provided the issuance of debt securities to non-residents was subject to the prevailing rules on borrowing from non-residents, and non-residents were permitted to issue foreign-currency securities in Malaysia to enhance the depth and breadth of the domestic capital market by facilitating fund-raising activities and promoting Malaysia as a centre
To further promote a risk-management culture and support the development of the foreign exchange market, residents and non-residents would now be permitted to undertake anticipatory hedging involving the ringgit for financial account transactions with onshore banks. Furthermore, non-residents would be permitted to hedge ringgit exposure arising from the ringgit investments acquired prior to April 1, 2005 with onshore banks, in addition to the current flexibility to hedge the ringgit investments acquired from April 1, 2005 onwards.
Entities registered with the Labuan Financial Services Authority would now automatically be designated as non-resident, as part of the move to enhance regulatory efficiency and reduce the cost of doing business.