Knowledge Highlights 24 March 2023
Bank Negara Malaysia revises Foreign Exchange Policy Notices, catering to evolving needs of current economy
Knowledge Highlights 3 August 2022
On 1 June 2022, the revised Foreign Exchange Policy Notices (“Revised FEP Notices”), formerly known as Foreign Exchange Notices (“FE Notices”), came into effect, superseding the previous FE Notices issued on 15 April 2021.
This revision introduces several amendments to the FE Notices, particularly to the following Notices:
- Notice 1: Dealings in Currency, Gold and Other Precious Metals
- Notice 2: Borrowing, Lending and Guarantee
- Notice 4: Payment and Receipt
- Notice 7: Export of Goods
Notice 1: Dealings in Currency, Gold and Other Precious Metals
The Revised FEP Notices amended Part B: Dealings in Currency by Non-Resident.
Under the FE Notices, a non-resident can buy or sell foreign currency against ringgit for its own account on a Spot Basis1 and Forward Basis2 with a Licensed Onshore Bank (“LOB”) or an Appointed Overseas Office (“AOO”).
Paragraph 6(1) under Notice 1 of the FE Notices has been amended to remove the requirement that the buying or selling of foreign currency against ringgit by a non-resident for its own account with an AOO on either a Spot Basis or Forward Basis must be for the settlement of international trade in goods or services on a Firm Commitment3 or Anticipatory4 basis, or for other purposes on Firm Commitment basis.
Any dealings with an AOO for the purposes of this part on a Forward Basis is now subject to the existing requirement imposed on dealings with a LOB.
Further amendments have been made to paragraphs 8 and 9 of the FE Notices, where a non-resident entity was allowed to buy or sell foreign currency against ringgit with a LOB or an AOO, on behalf of a resident entity and a non-resident entity within its group. The Revised FEP Notices also delete and consolidate both clauses for clarity. The paragraph now reads “a non-resident entity is allowed to buy or sell foreign currency against ringgit on behalf of an entity within its group”.
Notice 2: Borrowing, Lending and Guarantee
The Revised FEP Notices amended Part G: Guarantee.
Paragraph 21 of Notice 2 allowed a non-bank resident guarantor to give a financial guarantee for any amount in ringgit or foreign currency to secure a borrowing obtained by a non-resident. This clause has been revised to include securing a borrowing in foreign currency from a non-resident financial institution (“NRFI”).
Prior to the revision, there were exceptions where a financial guarantee could not be given. In addition to how a non-bank resident guarantor was not allowed to give a financial guarantee to secure a borrowing obtained by a non-resident borrower which was a special purpose vehicle, the exception in paragraph 21(a) has been varied to now include securing a borrowing to be utilised by the resident guarantor. The revision to paragraph 21(b) clarifies that a resident guarantor is not permitted to enter into an arrangement to repay a borrowing in foreign currency “other than under a call-upon by the lender in the event of default”. For the purposes of this part, the guarantor is not permitted to initiate a “call-upon” of a financial guarantee.
Notice 4: Payment and Receipt
The Revised FEP Notices amended Part C: Payment in Foreign Currency and Part F: Opening and Maintaining of Account.
Paragraph 4 of Notice 4 allows a resident to make or receive payments in foreign currency to or from another resident in a few situations. A new category has been introduced to cover miscellaneous expenses incurred outside Malaysia between a resident individual residing in Malaysia and a resident individual residing outside Malaysia. The term “miscellaneous expense” is defined as a “current account transaction that is of reasonable amount and infrequent in nature”.
Paragraph 14 allows a resident individual to open and maintain a foreign currency account with a LOB or a NRFI individually or jointly with another resident individual or a non-resident individual who is his immediate family member. The phrase “who is his immediate family member” has now been removed. Paragraph 18 under Notice 4 of the Revised FEP Notices now allows a non-resident to open and maintain a foreign currency account with a LOB, individually or jointly with another non-resident or a resident individual that need not be his immediate family member.
This amendment relaxes the requirements to open and maintain a foreign currency account, allowing residents the leeway to create a joint account with any non-resident and vice versa.
Notice 7: Export of Goods
The Revised FEP Notices amended Part C: Reporting Requirement.
The reporting requirement for export of goods that exceed RM250 million equivalent in the preceding year has been amended from “within twenty-one (21) days after the end of each quarter” to “as and when is required by the Bank”. Resident exporters must still bear in mind that the removal of the timeframe does not mean a complete disposal of the report, as Bank Negara Malaysia (“BNM”) may still request for it from time to time.
Additionally, resident exporters must also take note that an exporter of goods must now notify BNM within 21 days of the end of each calendar year if they did not receive any proceeds from the export of goods within 24 months from the date of shipment.
1 Spot Basis is defined in the Foreign Exchange Policy Notices as “buying and selling of any currency for delivery within two (2) business days".
2 Forward Basis is defined in the Foreign Exchange Policy Notices as “buying or selling of any currency for settlement after two (2) business days (regardless of whether settlement is to be made on gross or net basis) through (a) a derivative as defined in section 2(1) of the FSA; (b) an Islamic derivative as defined in section 2(1) of the IFSA; or (c) any other arrangement".
3 Firm commitment is defined in the Foreign Exchange Policy Notices as “commitment arising from – (a) an obligation to make or a right to receive, any payment under any agreement or arrangement; (b) a holding of an asset or a property; or (c) a holding of a debt, an obligation or a liability".
4 Anticipatory is defined in the Foreign Exchange Policy Notices as “(a) a projected Current Account Transaction based on previous track record or relevant documents to validate the projected transaction; or (b) a projected Financial Account Transaction supported with relevant documents to validate the projected transaction".
This article has been prepared with the assistance of Associate Kimberly Lim Ming Ying.
Knowledge Highlights 20 March 2023