Nor Shamsiah Mohd Yunus: Building trust and transparency
collaborate, accelerate, strengthen
Speech by Ms Nor Shamsiah Mohd Yunus, Governor of the Central Bank of Malaysia (Bank
Negara Malaysia), at the 11th International Conference on Financial Crime and Terrorism
Financing (IFCTF) 2019, Kuala Lumpur, 5 November 2019.
* * *
Last year, I spoke at this same conference about our shared responsibility to combat financial
crime and the need for us to have a deep understanding of new and emerging risks. I also called
on reporting institutions to strengthen their compliance functions.
I was therefore delighted to learn that the theme of this year's conference is "Building Trust and
Transparency: Collaborate, Accelerate, Strengthen".
This afternoon, I would like to briefly expand on some of the ideas that I put forward last year,
which will build on this year's conference theme.
First, on the point on collaboration. We speak a lot about how combating financial crime is a
shared responsibility. This is because of its massive impact, imposing a cost to governments,
businesses and individuals. A Thompson Reuters report from 2018 revealed that nearly half of
2,000 plus large companies surveyed were victims of financial crimes in the past one year,
losing an estimated 3.5% of their turnover.
This goes to show that this is a battle that needs to be waged together. Key to this is the sharing
of information. Over the years, we have put in place various arrangements to enable smooth
information flows between the financial sector and the law enforcement community, within a
controlled environment.
These "public-private partnerships" (PPP) are vital as they allow the financial intelligence unit, law
enforcement agencies and reporting institutions to leverage on intelligence-led collaboration and
information sharing to detect financial crime and terrorism financing. This will further support
investigation and prosecution processes. For Malaysia, our goal is to formalise and further
deepen what we have built over the years. As such, I am pleased to announce that the PPP will
be officially launched shortly by our Prime Minister. I wish to also express my appreciation to
other participating agencies in the PPP namely Polis Diraja Malaysia, the Suruhanjaya
Pencegahan Rasuah Malaysia, Jabatan Kastam Diraja Malaysia and the Securities Commission
Malaysia, and also the 18 reporting institutions.
Second, reporting institutions must efforts to further expand and develop their
accelerate
AML/CFT toolkit to deal with new and emerging risks.
At our end, Bank Negara is in the process of reviewing our AML/CFT policies. A key outcome of
this review is the move of our regulatory framework towards being more "risk-based" and
"principles-based". We have come a long way since the AMLA was gazetted in 2001. Since then,
reporting institutions have matured in understanding and have fully implemented the regulatory
requirements. This is also supplemented by the issuance of various guidance, technical notes
and updates on regulation.
We believe that the industry is ready to build and expand its capacity in this area. While we are
moving to being more risk-based, there is still a lot more to be done. This includes educating
everyone in the industry that "risk-based" does not mean "total risk aversion". While it is crucial to
protect our financial system from being abused, it is also necessary for financial institutions to
serve their roles and purposes in the economy and for the society. Accordingly, the new
regulatory framework demands reporting institutions to take greater ownership of their individual
AML/CFT frameworks. Reporting institutions must strengthen their internal governance and
controls to preserve financial integrity, not because Bank Negara tells them so, but because it is
the right thing to do.
This demands a high level of maturity by the industry. For individual institutions which have
established a mature control environment, there will be greater latitude to design control
frameworks in a way that is more operationally flexible. On the other hand, for individual
institutions who are not quite there yet, the new framework raises the compliance bar, calling for
them to strengthen awareness, governance and processes to ensure they have the capabilities
to preserve integrity of the financial system.
On this point, I wish to applaud the Financial Services Professional Board (FSPB) on its recent
publication of standards on whistleblowing and on managing conflicts of interest. By working
together to set and voluntarily commit to baseline standards, the industry can demonstrate its
readiness for a more risk-based regulatory approach. I hope that the industry will adopt these
standards and this means moving beyond symbolic gestures, to the diligent implementation of
policies and programmes that promote the desired culture.
Bank Negara is also committed to ensuring that regulatory requirements support the country's
digital economy agenda. We are in the midst of developing e-KYC policy guidance to streamline
practices of industry players in leveraging new technology. The guidance will clarify desirable
outcomes of e-KYC adoption, and set out best practice as well as standardised parameters to
measure effectiveness of e-KYC solutions. Our hope is that with its promise of seamless digital
on-boarding of customers and lower costs, increased prevalence of e-KYC will help increase
competition while also advancing the financial inclusion agenda - and this must be done without
compromising on financial integrity outcomes. We will consult the industry and other relevant
parties through the publication of an exposure draft early December this year.
Third, we must strengthen our defences in view of new risks and changing environment.
Recent years have seen authorities across the globe intensifying action against financial
institutions for harbouring criminal activity. We see multi-billion dollar fines and all forms of
regulatory sanctions, with some facing the threat of closure.
On our part, Bank Negara will continue to use supervisory levers to sustain positive changes and
drive improvements in the compliance culture in the industry. This includes seeing increased
oversight by senior management and board of directors, more robust remedial measures and
increased investments in strengthening compliance.
We prefer if the industry can strengthen their defences against financial crimes pre-emptively, on
their own. But Bank Negara will also not hesitate to use enforcement levers to deal with
instances where there are persistent gaps and non-compliance with rules. Over the years, we
have worked to enhance our enforcement framework to ensure that enforcement actions are
just, proportionate and transparent. In order to uphold transparency of enforcement actions, we
have started publishing actions taken against financial institutions for non-compliances of rules
under our purview. The intention is to clarify our regulatory expectations and to expedite change
in culture by knowing the incentives and consequences of non-compliance.
In January, we lowered the daily Cash Threshold Report (CTR) from RM50,000 to RM25,000. Up
to September, over five million CTR reports were received, representing about RM483 billion in
cash transactions. It is still too early to draw any concrete conclusions, but what we have
observed across the industry is the total value of cash transactions reported has increased
marginally, while the number of CTR reports received have nearly doubled. The significant
increase in CTR received since January provides us important data points that enable more
rigorous monitoring of peculiarities in cash transactions and identification of ML/TF risk on newly
identified entities that have not been captured previously. These additional insights also lead to
better quality of disclosures to relevant law enforcement agencies especially in relation to fraud,
tax evasion and corruption crimes.
The regulatory and law enforcement community is also in the midst of exploring introducing a
Cash Transaction Limit (CTL) to complement the existing financial integrity measures. While
new to Malaysia, many other countries such as France, Italy and India have already implemented
it. This measure will further mitigate the abuse of cash by addressing the ease of conducting
high-value cash transactions. Even with the rise of electronic payments, we cannot wash over
the fact that criminals still prefer cash because it is widely accepted, anonymous in nature and
untraceable. For this purpose, the National Coordination Committee to Counter Money
Laundering (NCC) will be consulting the public on this proposal later this month. The NCC wants
to make an informed decision. As such, we hope that all of you could get the word out and
encourage the public to provide feedback on the proposed measure.
Closing
As a regulator, Bank Negara can only do so much to protect the financial system against money
laundering and terrorism financing risk. Reporting institutions, as responsible corporate citizens,
must also play their parts to safeguard the financial system and economy.
Our hope is that over these two days, participants at this conference will draw new insights and
perspectives, forge new networks, and strengthen their resolve in carrying out this important
mission to uphold the integrity and the trust of the people in our financial system.
Thank you.