Malaysia achieves medium overall compliance with international standards and codes, with a score of 45 out of 100 in our Standards Compliance Index. Malaysia's compliance in the area of macroeconomic fundamentals is high. However, it does not fare as well in the market infrastructure and financial supervision categories. There are no independent assessments of compliance with the standards for the insolvency framework, banking supervision, or insurance supervision. For the remaining standards compliance has not been assessed higher than the Enacted level. However, the anti-money laundering framework has undergone important reforms, and provisions against the financing of terrorism have been adopted. Likewise, the corporate governance regime incorporates international requirements. Malaysia is also in the process of converging its accounting and auditing standards with international best practice.

Macroeconomic Policy and Data Transparency

The International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) website states that that Malaysia has been a subscriber to the SDDS since August 1996 and started meeting its requirements in September 2000. Both the IMF's SDDS website and a 2007 observance report by the IMF note that Malaysia meets or exceeds SDDS standards of coverage, timeliness, and periodicity. The country, however, takes the timeliness flexibility option for data on Central Government/Public Sector Operations. The Malaysian authorities provide advance release calendars for all data categories. Further, the SDDS website asserts that statistical data for all entry points are being simultaneously released to all interested parties. According to the same website, the integrity dimension largely meets the SDDS requirements, except that for several data categories information concerning changes in methodology are provided at the time of release and not in advance as required by the IMF. Most data categories provide information on terms and conditions for confidentiality, except for Central Government Debt, Central Government Operations, Central Government or Public Sector Operations, and Share Price Index of the Stock Market, where no information is available on the SDDS website. The IMF's SDDS website indicates that Malaysia fulfils all SDDS requirements on the quality dimension. In addition, the 2007 report also finds that during 2007, Malaysia provided information on the methodology, sources, and reconciliation of data categories that allowed users to assess the quality of the data. More »

Oxford Analytica, in its 2006 Report on Monetary Policy Transparency, rates Malaysia's overall compliance with this standard as "Compliance in Progress." This overall assessment is unchanged from 2005. The OA report notes that, in recent years, the Central Bank of Malaysia - Bank Negara Malaysia (BNM) has improved its efforts to comply with international monetary transparency standards. For example, in 2006, the BNM made a concerted effort to increase its communications with the public and its stakeholders, such as the decision to releases the calendar of Monetary Policy Committee (MPC) meetings in advance and the decision to issue a statement on monetary policy on the same day as the MPC meeting as opposed to quarterly. In addition, in 2005, the BNM launched the Laman Informasi Nasihat dan Khidmat (LINK), which aims to enhance the effectiveness of BNM's interface with the public by creating a single point of contact. Also, in 2006, the BNM created the Credit Counseling and Debt Management Agency, which provides advice and information to the public on credit and financial management. Malaysia's monetary policy framework is officially set out in the Central Bank of Malaysia Act of 1958 (CBA), as amended in 1994, which enumerates the principal objectives of the BNM, and specifies its duties as overseer of the day-to-day handling of monetary policy. The roles, responsibilities and objectives of the central bank are clearly and comprehensively posted on the BNM website. According to the OA report, Malaysia is one of the first subscribers to the IMF's SDDS, and as such the BNM meets most of the SDDS specifications for coverage, periodicity and timeliness. More »

In its 2006 Report on Fiscal Policy Transparency, OA rates Malaysia's overall compliance with this standard as "Compliance in Progress." This overall assessment is unchanged from 2005. In recent years, Malaysia has made several strides in its efforts to comply with international fiscal transparency standards. For instance, in 2006, the administration of Prime Minister Abdullah Badawi began the restructuring of the historically opaque domestic corporate sector by launching three manuals setting out guidelines for the transformation of government-linked companies. Also in 2006, to tackle corruption and further promote fiscal transparency, the Malaysian government launched the National Integrity Index, opened the Anti-Corruption Agency Academy and hosted the Organization of Islamic Countries inaugural corruption and integrity forum. The Malaysian Constitution sets Malaysia's main government sectors apart from the private sector and includes a clear breakdown of legislative and executive powers between the federation and the states. Also, Malaysia has established clear mechanisms for the coordination and management of budgetary activities. Article 99-101 of the Constitution sets out the basic framework for budgetary activities. The OA Report states that Malaysia is committed to the public availability of fiscal information. The government is required to do so under Malaysian laws and regulations. For example, Section 16(1) of the Financial Procedures Act (1957) requires the Federal Financial Authority to prepare a publicly available annual accounts statement immediately after the closing of accounts of that particular year. Malaysia also subscribes to the IMF Special Data Dissemination Standard, and as such meets the SDDS specifications for the coverage, periodicity, and timeliness of fiscal data and for the monthly dissemination of advance release calendars. More »

Institutional and market infrastructure

The International Association of Insolvency Regulators' (IAIR) website notes that individual insolvency matters in Malaysia are governed by the Malaysian Bankruptcy Act 1967, while corporate insolvencies are settled under the 1965 Companies Act. The judicial system in Malaysia offers the following solutions for companies in distress: liquidation of corporate entities, court approved schemes of arrangement, and private and court appointed receivers (and managers). The Corporate Law Reform Committee (CLRC), established in 2003 by the Companies Commission of Malaysia to reform the corporate law, in its report titled "Reforming the Corporate Insolvency Regime" concludes that the insolvency framework in Malaysia focuses mostly on liquidation which, in many cases, is the "only viable option for companies which are insolvent." As a part of its activities, the CLRC is contemplating adoption of a uniform insolvency law covering both individuals and entities. Most importantly, the new insolvency regime, according to the CLRC, should protect the rights of stakeholders of the company in financial distress, while at the same time making liquidation process less complicated. There is, however, insufficient publicly available information regarding Malaysia's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. More »

The Malaysian Accounting Standards Board (MASB) has expressed its commitment to convergence with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). In October 2005, the MASB issued in batches 21 new and revised Financial Reporting Standards (FRSs). The revisions mirror improvements carried out by the IASB to IFRSs. In January 2006, FRSs were finalized for application in relation to financial statements that are required to be prepared or lodged under any law administered by the Securities Commission (SC), Central Bank of Malaysia (BNM), or the Registrar of Companies (RoC) for annual periods beginning on or after 1 January 2006. At the same time, it was announced that private entities may elect to use the former MASB standards which, although based on the former International Accounting Standards (IASs) regime, differ from IFRSs. This change was followed by the announcement that implementation of the Malaysian equivalent to IAS 39, FRS 139, has been deferred to a date to be announced. According to PricewaterhouseCoopers, these developments have raised some uncertainty as to how Malaysia's plans to converge with IFRSs are affected. More »

In the wake of the Asian financial crisis, steps have been taken to improve accounting transparency and corporate governance in Malaysia. According to the World Bank's 2005 Report on the Observance of Standards and Codes (ROSC) on corporate governance in Malaysia, the incidence of concentrated shareholding is very pronounced in the Malaysian market, particularly through pyramid structures. Furthermore, companies are usually majority-controlled by a small group of related-parties and managed by owner-managers. The World Bank's 2005 ROSC, which benchmarks laws and practices against the Organization for Economic Cooperation and Development Principles of Corporate Governance, states that important corporate governance reforms have been implemented in Malaysia. Key reforms include the formulation by the Securities Commission of a ten-year Capital Market Master Plan in 2001, the demutualization of the Kuala Lumpur Stock Exchange, the introduction of a Code on Corporate Governance in 2000 (which was last revised in 2007), and changes in the composition and role of the Board of Directors. Weaknesses remained with regards to the overlapping authority of the regulatory institutions governing the securities market, the government's high level of equity ownership, low free float, weak protection of minority shareholders, and directors' accountability. In this regard, it was advised to enforce disclosure and reporting requirements in a continuous and consistent manner, to strengthen directors' independence and accountability to investors, and to enhance the role of institutional investors and shareholder activism in the corporate governance framework. More »

According to the 2007 edition of the Malaysian Institute of Accountants' (MIA) Handbook, the MIA, as a member of the International Federation of Accountants (IFAC), is committed to converging its national standards with International Standards on Auditing promulgated by the IFAC. The Preface to the Handbook further notes that Malaysia has decided to apply ISAs as the basis for Malaysian Approved Standards on Auditing (MASA). In the event that an ISA contains guidance which is significantly different from Malaysian law or practice, the explanatory foreword to an approved ISA will provide guidance on such differences. The financial statements of all companies incorporated under the Companies Act of 1965 are required to be audited in accordance with MASA issued by the joint working group of the Malaysian Institute of Certified Public Accountants and the MIA. The Approved Standards on Auditing that are recognized by the Council of the MIA comprise: (1) ISAs, designated as AI; and (2) the Malaysian Standards on Auditing, designated as AM issued by the MIA that cover topics not dealt with in ISAs. Further recommendations concerning guidelines on auditing released by the Council serve as opinions on best current practice and hence form part of the Generally Accepted Auditing Principles in Malaysia. More »

The Asia/Pacific Group (APG) on Money Laundering conducted a mutual evaluation of Malaysia's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the Financial Action Task Force (FATF) 40+9 recommendations and special recommendations. The APG published its findings in a 2007 report, in which it concludes that Malaysia is compliant with 9 recommendations and special recommendations; largely compliant with 24; partially compliant with 15; and non-compliant with 1. The report notes that the overall AML/CFT framework in Malaysia is well-developed and achieves a relatively high degree of compliance with most of the FATF's recommendations and special recommendations. Nevertheless, there are some areas where Malaysia's AML/CFT regime could be enhanced. For example, the reporting of terrorism financing-related suspicious transaction reports is not explicitly required by Malaysian law. Furthermore, although the Anti-Money Laundering and Anti-Terrorism Financing Act of 2001 covers all designated non-financial businesses and professions (DNFBPs), there is little evidence that the implementing regulations are in force yet, since, for example, many of the suspicious transaction reports obligations for DNFBPs were only introduced between 2005-2007 (i.e. insurance, financial advisors, e-money issuers and leasing companies were only included in 2007). Money laundering is criminalized pursuant to the Anti-Money Laundering and Anti-Terrorism Financing (AMLA) Act of 2001, which the APG report deemed consistent with international standards. According to the 2008 U.S. Department of State report, in March 2007, Malaysia made amendments to several of its laws relating to AML/CFT, which included the AMLA Act of 2001. These amendments, according to the DoS report, among other things, impose penalties for terrorist acts, allow for the forfeiture of terrorist-related assets, and allow for the prosecution of individuals who have provided material support for terrorists. More »

The 2008 Financial Stability and Payment Systems report by the central bank of Malaysia, the BNM, classifies the Real Time Transfer of Funds and Securities (RENTAS) system as the systemically important payment system in Malaysia. The 2008 BNM report also refers to a 2007 self-assessment of the RENTAS system conducted against the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS). The report provides a snapshot of the 2007 self-assessment, in which it shows that RENTAS fully observes five of the ten CPSIPS, and it broadly observes four. Core Principle V is "not applicable" since RENTAS is a real time gross settlement system. Similarly, the BNM broadly observes two of the CPSS' principles on central bank responsibilities, and broadly observes one. One category, namely, the central bank responsibility on the oversight of non-central bank systems is not applicable to the BNM. The 2008 BNM report also observes that the 2007 self-assessment concluded that the RENTAS system continued to exhibit a high level of robustness and came close to fully observing the international standards. However, the 2007 self-assessment itself is not publicly available. More »

Financial Regulation and Supervision

According to the IMF's 2005 Public Information Notice, at the time, the capital adequacy of banks in Malaysia was strong, the ratio of non-performing loans had continued to decline, and efforts to mitigate companies' high exposure to interest rate risks, and banks' potential exposure to credit risks in the household sector had been enhanced. The implementation of the ten-year Financial Sector Master Plan, formulated by the Central Bank of Malaysia (BNM) in 2001, was also on track with key measures aimed at improving the prudential and regulatory framework. The BNM was established under the 1958 Central Bank of Malaysia Act, as the regulatory and supervisory authority for the banking system in Malaysia, which is composed predominantly of commercial banks. According to a 2006 study published by the Bank for International Settlements, Malaysian authorities are focused on aligning the country's financial institutions' prudential regulations to international standards. Malaysia has also implemented a more principle-based regulatory regime for the financial sector, which remains at a relatively early stage, according to the BNM's 2007 Financial Stability and Payment Systems Report (published in 2008). In addition, the BNM has enhanced its risk-based supervisory framework applicable to all types of financial institutions, thus enabling consolidated supervision of financial conglomerates, as stated in a 2008 study by the South East Asian Central Banks. Despite the information provided above, there is insufficient information publicly available regarding Malaysia's actual compliance with the Basel Core Principles for Effective Banking Supervision. More »

Malaysia's financial sector is regarded as highly diversified and among the more advanced in East Asia. The World Bank's 2005 Report on the Observance of Standards and Codes (ROSC) found that important reforms have been implemented in Malaysia since the Asian financial crisis. Key reforms include the formulation by the Securities Commission (SC) of a ten-year Capital Market Master Plan (CMP) in 2001, and the demutualization of the Kuala Lumpur Stock Exchange. The World Bank's 2005 ROSC reported that one of the key weaknesses that surfaced following the 1997 financial crisis was the overlapping authority of the regulatory institutions governing the securities market. Pursuant to the Securities Commission Act No 498 of 1993, while the SC is the sole regulator for the corporate bond market, other authorities are still involved in regulating the capital market. In this regard, the World Bank recommended ensuring the independence of the regulator, and rationalizing the regulatory framework. These issues were intended to be addressed by the ten-year CMP and amendments to the Securities Commission Act. In September 2006, the SC released a self-assessment against the International Organization of Securities Commissions (IOSCO) Principles and Objectives of Securities regulation, which was undertaken in line with the IOSCO's 2003 methodology. The self-assessment indicated that Malaysia had adopted the principles into legislation and regulation, but did not assign actual levels of compliance for the individual IOSCO principles. A subsequent independent third-party assessment is being conducted in 2008 and is expected to be published by the end of the year. More »

The insurance industry in Malaysia remains dominated by foreign providers, as stated in the U.S. Department of Commerce 2008 Country Commercial Guide, and the government continues to promote Islamic insurance and reinsurance, better known as takaful and retakaful sectors, as part of its strategy to make Malaysia a global hub for Islamic financial services. Stronger solvency positions and enhanced asset-liability management contributed to the sustained performance of the insurance industry in 2007, according to the Central Bank of Malaysia's (BNM) 2007 Financial Stability and Payment Systems Report. The BNM, established under the Central Bank of Malaysia Act No. 519 of 1958, functions as the regulatory and supervisory authority for the insurance industry since 1988. The Insurance Act No. 553 of 1996 and 1996 Insurance Regulations, which were amended in 2005, provide for the licensing, regulation and supervision of the insurance industry. Malaysia completed a detailed self-assessment in April 2001 of its observance of the Insurance Core Principles (ICPs) developed by the International Association of Insurance Supervisors (IAIS) in 2000, according to the Asian Development Bank's 2001 report. Based on Malaysia's self-assessment, 11 principles were observed, 4 were largely observed and 2 were materially non-observed. However, the ICPs and methodology were revised in October 2003 by the IAIS, and there is insufficient information publicly available regarding Malaysia's compliance with the more stringent principles. The ten-year Financial Sector Master Plan (FSMP) was formulated by the BNM in 2001 to set a timeline for the liberalization of the insurance industry. As of 2005, according to the BNM's 2005 Insurance Annual Report, 16 of the 31 recommendations of the FSMP were implemented. More »

Legend:

Credit Ratings

Moody's A3/Stable

Fitch A-/Positive

Standard & Poor's A-/Positive

Macroeconomic Data

2007 GDP (Current Prices): 186.482 billion USD (IMF)

2007 GDP (Per Capita): 6,948 USD (IMF)

2008 GDP (Growth Forecast): 5% (IMF)

2008 Inflation (CPI): 2.4% (IMF)

2007 Unemployment: 3.1% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 6.06 billion USD (UNCTAD)

FDI (Outward): 6.041 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 240 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)