Insights

The long-awaited Cybersecurity Act 2024 is a recognition by the Government on the need for a comprehensive legal framework to protect critical national information infrastructure.

In this publication, Partners Nadarashnaraj Sargunaraj, Jonathan Lim, and Mohamad Izahar Mohamad Izham discuss the highlights of the new law, with practical guidance on navigating the upcoming compliance obligations.

The Malaysian Communications and Multimedia Commission (“MCMC”) announced on 1 August 2024 that a new regulatory framework for Internet messaging service and social media service will come into effect on 1 January 2025.

Two Ministerial orders were gazetted on 1 August 2024 to amend the following subsidiary legislation under the Communications and Multimedia Act 1998 (“CMA”):

(i)       Communications and Multimedia (Licensing) Regulations 2000; and

(ii)      Communications and Multimedia (Licensing) (Exemption) Order 2000

With the amendments, service providers of “Internet messaging services” and “social media services” with more than 8 million users in Malaysia must be registered under an Applications Service Provider Class (“ASP (C)”) licence under the CMA (collectively referred to as the “Relevant Service Providers”).

“Internet messaging services” and “social media services” are defined as follows:

“Internet messaging services” means an applications service which utilizes Internet access service that enables a user to communicate any form of messages with another user.

“Social media services” means an applications service which utilizes Internet access service that enables two or more users to create, upload, share, disseminate or modify content.

MCMC has also published an Information Paper and FAQ Guide on the new licensing framework which can be accessed here.

MCMC has stated that end users of services offered by these Relevant Service Providers will not be affected by the new regulatory framework. It also reiterated that end users can expect a safer online environment, better protection against harmful content, and clearer avenues for addressing complaints and concerns.

The Relevant Service Providers are given a grace period of five months from 1 August 2024 to apply for the ASP (C) licence and comply with the relevant licensing requirements. The validity period for ASP (C) licence held by the Relevant Service Providers is one year from the registration date and the licence is required to be renewed annually.

For further enquiries, you may contact Nadarashnaraj Sargunaraj, Stanley Lee Wai Jin,  Vivienne Caitlin Michael of Zaid Ibrahim & Co (in association with KPMG Law).

In the third edition of the KPMG Intellectual Property Newsletter for 2024, our Senior Associate, Stanley Lee Wai Jin, has contributed an article on the protection of sui generis or unique IP rights in Malaysia. The article explores key issues pertaining to geographical indications, layout designs of integrated circuits and protection of plant varieties.

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Nadarashnaraj Sargunaraj and Nurul Syahirah Azman have recently contributed their insights to the Malaysia Chapter of the Global Legal Insights – Merger Control 2024 published by the Global Legal Group. The publication covers practical insights on merger control in Malaysia, with particular focus on the Communications and Multimedia Act 1998, the Malaysian Aviation Commission Act 2015 and the merger controls proposed to be introduced to the Competition Act 2010. Recent approval and exemption decisions by the relevant Malaysian sector regulators are also discussed. The publication can be viewed at GLI’s website or alternatively, a copy of the publication can also be downloaded in the link provided below.

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Bank Negara Malaysia (“BNM”) has introduced enhanced requirements through the Policy Document on the Disposal and Purchase of Impaired Loans/Financing (“Policy Document”), which came into effect on 25 June 2024.

The Policy Document aims to encourage more buyers for the impaired loans/financing market, providing better protection to borrowers and elevating efficiency in disposal and purchasing of impaired loans/ financing.[1] Accordingly, the Policy Document covers requirements prior to and post the disposal and purchase of impaired loans/financing.[2]

This Policy Document applies to licensed banks, licensed investment banks, licensed Islamic banks (excluding international Islamic banks) and non-bank buyers.

This article summarises notable provisions of the Policy Document.

Section 100 of the Financial Services Act 2013 and section 112 of the Islamic Financial Services Act 2013 allows parties intending to enter into any agreement or arrangement to transfer the whole or any part of the business of a licensed person. They are required to submit a joint application to obtain BNM’s approval prior to effecting such agreement or arrangement.

Loans/financing eligibility criteria

From the seller’s perspective, the following criteria must be met prior to submitting the joint application:

(a) whichever occurs earlier:

    (i) the impaired loans/ financing remains classified as impaired for a minimum period of 12 months from the date it was first classified as impaired; or

    (ii) all reasonable efforts to recover the impaired loans/financing have been exhausted by the seller; and

(b) the impaired loans/financing must not be loans/financing that was granted for or linked to projects of strategic importance.[3]

Further, a seller must only sell such impaired loans/financing to the following parties:

(a) domestic banking institutions or locally incorporated foreign banking institutions in Malaysia; or

(b) non-banking institutions that are locally incorporated and are a resident for tax purposes.

From the buyer’s perspective, the following criteria must be met:

(a) proven track record in debt management and recovery, and minimal complaints against its debt management and recovery practices;

(b) adopted satisfactory recovery approaches, including having a dedicated unit with competent personnel to effectively manage debt collection and complaints from borrowers;

(c) adequate and competent staff with recognised qualifications from reputable institutions of higher learning, or adequate knowledge and training, including, if applicable, in Islamic banking and finance or Shariah law; and

(d) where a buyer has the intention to outsource the collection or recovery of the impaired loans/financing to a service provider, the buyer must meet the above criteria.

Note that the buyer must comply with the above requirements on a continuous basis, even after receiving approval from BNM.

Business conduct requirements

From the seller’s perspective, a written notification must be given to affected borrowers of its intention to dispose of its impaired loans/financing to buyer within 90 calendar days prior to entering into an agreement or arrangement for the disposal of the impaired land/financing to the buyer.

The seller must allow borrowers a period of 90 days from the date of the notice to regulate and settle their outstanding loans/financing, before entering into an agreement or arrangement for the disposal of the impaired loans/financing to the buyer.

Upon completion of the disposal of impaired loans/financing, the seller must give written notification to the affected borrowers on the following within seven days:

(a) completion of the disposal, including name and contact number of the buyer; and

(b) all complaints or any matters related to such impaired loans/financing prior to completion of the disposal shall be directed to the seller.

From the buyer’s perspective, the buyer must inform the affected borrowers within seven days of the completion of disposal that:

(a) any complaints or queries pertaining to the purchase, management and recovery procedures of the impaired loans/financing must first be directed to the buyer, unless the complaint or query relates to matters prior to the completion date of the purchase of the impaired loans/financing; and

(b) if the affected borrowers are not satisfied with the decision of the buyer on the complaints or queries raised, the buyer must inform the affected borrowers on the availability of alternative redress avenues.

Other Requirements

1. Accounting Treatment

A seller must recognise any losses that may arise at the point of the completion of the disposal of the impaired loans/financing to a buyer.

A buyer that is a banking institution must at all times comply with paragraph 10 of the Policy Document on Financial Reporting or the Policy Document on Financial Reporting for Islamic Banking Institutions and the Malaysian Financial Reporting Standards (MFRS9), as the case may be.

2. ‍Disposal of impaired loans/financing to entities within the same group

In a situation where the seller and buyer are banking institutions within the same group, they shall ensure that for purposes of accounting, the impaired loans/financing are consolidated at the group level.

3. Additional requirements for Non-bank Buyers

Note that BNM has clearly set out additional requirements to be complied by non-bank buyers, once the non-bank buyer assumes the rights and titles to such impaired loans/financing.

Frequently Asked Questions

To clarify and assist in understanding some of the provisions of the Policy Document, BNM has issued a set of Frequently Asked Questions on the Policy Document on 25 June 2024. This document can be accessed here.

Conclusion

The enhanced Policy Document provides comprehensive definitions, explanations and clear requirements. Key provisions include stricter eligibility criteria for sellers, increased requirements for buyers, particularly non-bank buyers, and strengthened borrower protection measures. The policy also outlines accounting treatments and prohibits onward sales of impaired loans.

Further, the enhanced Policy Document eliminates the 49% foreign ownership limit found in the previous guideline and introduces stringent safeguards to protect borrowers. In addition, third-party buyers must now demonstrate a proven track record in debt management and recovery.

The notification period to borrowers regarding the intention of sellers to dispose the impaired loans/financing is also clearly set out in the Policy Document. The 90-day notification period mandate enhances transparency and fairness for affected borrowers.

If you have any questions or require any additional information, please contact Chan Xian Ai, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.

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[1] Bank Negara Malaysia, ‘ Policy Document on Disposal and Purchase of Impaired Loans/Financing’ <https://www.bnm.gov.my/-/pd-dpil-en > accessed 26 July 2024.  

[2] Policy Document on Disposal and Purchase of Impaired Loans/Financing, para 1.4.

[3] This includes loans/financing granted for or related to national infrastructure projects (such as, in the area of transportation, telecommunications, energy, logistics and utilities), as well as those identified by the Government as strategic through its various developmental plans (such as projects involving circular economy, integrated water resource management and digital connectivity under the 12^th Malaysia Plan 2021-2025).

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Birth, old age, sickness and death – these are the inevitable stages in human life.

The legal procedure after a person’s death can be complex, especially when a person dies intestate, or without leaving a will.

There are clear advantages to having a will. It allows the person making the will to choose their beneficiaries, determine how assets are to be distributed, and to appoint an executor to administer the estate.

On the other hand, when a person dies intestate, assets will be distributed in accordance with the Distribution Act 1985 and a court-appointed trustee or executor will administer the estate. This more cumbersome process may give rise to assets being distributed in a way that is not in accordance with the deceased person’s wishes, or family disputes.

That said, there are certain distributions that are considered distinct from a deceased’s inheritable estate. This article explores the distribution of insurance benefits and Employment Provident Fund (“EPF”) upon the death of an insured person or EPF member, respectively, in Malaysia.

Insurance

In Malaysia, monies under insurance policies do not form part of the deceased’s estate. This is to protect the interests of the insured’s spouse and children in the policy against a claim by any creditor of the insured.

This is provided for in section 23(1) of the Civil Law Act 1956:

23.  Moneys payable under policy of assurance not to form part of the estate of the insured

(1) A policy of assurance effected by any man on his own life and expressed to be for the benefit of his wife or of his children or of his wife and children or any of them, or by any woman on her own life and expressed to be for the benefit of her husband or of her children or of her husband and children or any of them, shall create a trust in favour of the objects therein named, and the moneys payable under any such policy shall not so long as any object of the trust remains unperformed form part of the estate of the insured or be subject to his or her debts.

The relationship between the insurer and the insured (or the “deceased” for the purpose of the article) is a contractual one (see the Federal Court decision in Malaysian Assurance Alliance Bhd v Anthony Kulanthai Marie Joseph (suing as a representative of the estate of Martin Raj a/l Anthony Selvaraj, deceased) [2010] 4 MLJ 749).

Therefore, upon the death of the insured, the terms of the insurance contract will take effect – all monies payable under the insurance policy will then be paid to the named nominee in accordance with the insurance policy and the Financial Services Act2013 (“FSA 2013”).

The payment of policy monies is not automatic. The nominee must make an application to the insurer, notifying of the death of the insured and accompanied by proof of death. Upon receipt of such claim, the insurer shall pay the policy monies to the nominee. However, if the nominee fails to claim the policy monies within 60 days of the insurer becoming aware of the death of the insured, the insurer shall immediately notify the nominee in writing of his/her entitlement to claim the policy monies. Where the insurance company has been made aware of the death of the policy owner and notified the nominee of their entitlement, and within 12 months the nominee has failed to claim the policy monies, the insurer shall proceed as though no nomination was made.

In situations where the insured did not make any nomination in the policy, the insurer shall pay the policy monies to the lawful executor or administrator of the estate. Where the insurer is satisfied that there is no lawful executor or administrator of the estate at the time of payment, the insurer may pay the policy monies to the deceased’s spouse, child or parent in accordance with the Distribution Act 1958.

Therefore, insurance policy holders are advised to take necessary steps to nominate the intended recipients of the policy monies. This ensures that after the death of the insured, the policy monies will be paid to the intended recipient.

It is also advisable for the nominee to make the insurance claim as soon as possible after the death of the insured to ensure efficient payment of the policy monies.

It must be noted by virtue of section 25 of the Civil Law Act 1956, the nature of nomination varies for Muslim policy owners (also known as takaful participant). The nominee of a Muslim policy owner can either be an executor or a beneficiary of the takaful benefits. If a person is nominated as an executor, he/she will take the takaful benefits only as an executor and must distribute the monies in accordance with Faraid laws. However, a nomination for a nominee to be a beneficiary under a conditional hibah (granting ownership of property from one party to another without any consideration) [1] shall have the effect of transferring ownership. The takaful benefits payable to the nominee upon the death of the insured person shall be transferred to the named nominee.

Employees Provident Fund

The distribution of EPF mirrors that of insurance policies. The contributions and interest do not form any part of the deceased’s estate, and upon the death of the deceased, it shall remain separated from the deceased’s other assets (How Yew Hock (Executor of The Estate of Yee Sow Thoo, deceased) v Lembaga Kumpulan Wang Simpanan Pekerja [1996] 2 MLJ474). If nomination was made, the fund will then be payable to the nominee.

Section 54 (1A) of the Employees Provident Fund Act 1991 provides that the EPF member may make nomination for the purpose of payment of credit after the death of the member. When a nomination is made, it has the effect of appointing an individual or institution to receive and oversee the EPF savings in the event of one’s demise. A nominee would then be entitled to the nominated portion of the deceased’s EPF savings.

However, where the EPF member dies without first nominating a beneficiary, the member’s next-of-kin is entitled to make a claim for the monies in the savings. This includes:

• the member’s widow/widower, children (or their guardian);
• parents, or siblings for married members; or
• parents or siblings for unmarried members.

If the deceased left a will with a residuary estate clause (a clause that disposes of assets that have been overlooked or are left over), then the EPF savings will form part of the residuary estate of the deceased EPF member and shall be distributed in accordance with his or her express wishes. If a grant of probate or letter of administration has been taken out for the deceased’s estate, the executor or administrator may then act accordingly to apply for the withdrawal of the savings for the benefit of the named beneficiaries or the next-of-kin, as the case may be.

The amount varies according to when the application is made: [2]

In the event of one’s untimely demise, EPF savings may serve as an assurance that the deceased’s next-of-kin are financially cared for. For easy and convenient withdrawal upon death, all EPF members are highly encouraged to make nominations of beneficiaries early on.

Earlier this year, EPF clarified that where there is more than one beneficiary nominated and one of them dies, then only the portion that was bequeath to the deceased beneficiary will be invalid. If the EPF member failed to update his/her nomination before they died, then the surviving beneficiaries will receive their portion accordingly. However, if the member has named only one beneficiary and the beneficiary dies, then the nomination will be deemed void until a new beneficiary is nominated. [3]

Commentary

Other than making nominations for your insurance policies and EPF, it is important to remember that when creating wills and testaments, insurance policies and EPF savings are not to be included as assets.

The separation of both insurance and EPF from the estate of a deceased are restrictions created by lawmakers for the purpose of public policy, ensuring that loved ones are provided for upon the death of an insurance policy owner or EPF member. Hence, one should not consider insurance policies and EPF credits as a part of one’s inheritable assets.

If you have any questions or require additional information, please contact Jeyakuhan Jeyasingam or the partner you usually deal with at Zaid Ibrahim & Co (in association with KPMG Law).

This alert is for general information only and is not a substitute for legal advice.‍

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[1] “Managing Hibah” (My Government) <https://www.malaysia.gov.my/portal/content/27730> accessed 11 June 2024.

[2] “Helping Loved Ones in Times of Need” (EPF) <https://www.kwsp.gov.my/member/account-centre/death> accessed 11 June 2024.

[3] “Chain Messages on Nomination” (EPF) <https://www.kwsp.gov.my/w/chain-email-on-nomination> accessed 11 June 2024.

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The OECD Public Governance Policy Paper titled ‘Regulatory Experimentation Moving ahead on the Agile Regulatory Governance Agenda’ was published in April 2024 to aid governments in developing the use of regulatory experimentation. Our Partner and Head of the Government Advisory practice, Mohamad Izahar Mohamad Izham will deep-dive into the Policy Paper in understanding particularly the case for regulatory experimentation as well as the enabling factors for effective regulatory experimentations.

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Nadarashnaraj Sargunaraj and Stanley Lee Wai Jin have recently contributed their insights to the Malaysia Q&A Chapter of the International Comparative Legal Guide -Product Liability 2024 published by the Global Legal Group. The publication covers common issues pertaining to laws and regulations on product liability in Malaysia – including causation, defences, legal procedures, limitation periods, remedies and potential costs of litigation. The publication can be viewed at ICLG’s website or alternatively, a copy of the publication can also be downloaded in the link provided below.