PETALING JAYA: Moneychangers have raised concerns over the new act that requires industry players to increase their paid-up capital by up to 20 times.
Under the new Money Services Business Act 2011 (MSBA) guidelines, which came into force on Dec 1, moneychangers with annual turnover of more than RM100 million must have a minimum paid-up capital of RM2 million, a far cry from the previous requirement of just RM100,000.
Those with more than RM30 million annual turnover are required to have a minimum paid-up capital of RM500,000 while those with less than that are required to have RM300,000 in paid-up capital.
Abdul Hamid Abdullah, managing director of Bestrate Sdn Bhd, the country’s leading moneychanger, told The Edge Financial Daily that such requirements will put many smaller players at risk of losing their business.
There are 801 licensed money changers, 38 remittance service providers and two currency wholesalers in the country. The industry is said to have a turnover of RM5 billion a year.
“I strongly welcome the Compliance Act (MBSA) but some players are very concerned about this requirement. The definition of turnover is also arguable.
“Also, if a company with a paid- up capital of RM100,000 can make 10 to 20 times its share base in a day, which comes up to over RM350 million turnover a year, how can we justify the need for RM2 million in paid up capital?” he said in a phone interview last Friday.
Hamid, the founder and adviser to licensed remittance company Remit Master Sdn Bhd, said companies will be given up to two years to comply with the new capital requirements.
There are other new requirements attached to the share capital size.
Hamid said under the new guidelines, the smaller moneychangers (with RM300,000 in paid up capital) are not allowed to set up branches.
Only the ones with a minimum of RM500,000 in paid up capital can establish up to five branches, while those with paid up capital of at least RM2 million can have unlimited branches.
But the crux of the matter, which is what moneychangers have been discussing with Bank Negara Malaysia (BNM), is the definition of “turnover”.
The moneychangers say “turnover” should be counted as only one side of a transaction that is being carried by them, while BNM has not clearly spelled out what its definition is.
Hamid also said the definition of “fit and proper” in the MSBA guidelines is not clear and is subjective, unlike the Capital Markets Services Act, that governs the securities and fund management industry.
“In hindsight, it looks like Bank Negara [Malaysia] has too much discretionary power over the industry,” he said.
He said perhaps the central bank should apply the paid up capital requirements only to new players, and suggested that those who have a track record should be given the flexibility to remain status quo on their capital base.
“However, my advice to moneychangers is to take this opportunity to change mindset and operate on a more professional level like the banks -- or we will be changed,” he said.
Moneychangers have also been required to complete a tedious application process to reapply for their licences as the MBSA takes effect.
Owners whose licences will expire in two years need to submit the form by Dec 31, 2011, while those whose licences will expire in more than two years will need to submit by March 31, 2012.
With its enactment, the regulation of all existing licensed moneychangers, non-bank remittance service providers and foreign currency wholesalers will fall under the purview of the MSBA and all players are required to apply for a new licence under the Act.
“Bank Negara did the right thing to bring professionalism into the industry. We still need to submit our monthly and yearly reports but under the new act, unlike before, we are now required to share our business plan, reveal personal details of our CEO and compliance officer and so on,” said another moneychanger based in Kuala Lumpur.
Applicants would need to furnish the central bank information on their bank loans or mortgages as well as interest in family businesses. Applicants would also need to describe how they will fund the minimum capital requirements to operate the moneychanging business.
If any additional capital requirement and working capital are funded through borrowings, the applicant is required to provide cash flow projections for the next three years.
Under the old act, the company must have a paid up capital of RM100,000 to get into the money changing business, and the directors must take a “competency” exam, which covers basic industry knowledge. If successful, the applicant will be awarded a five-year licence and pay an annual fee of RM500.
Another operator said the new act has limited impact on moneychangers, but would provide more scrutiny and increase competition in the remittance businesses, which are largely owned by foreigners.
“Under the new act, even moneychangers can remit up to RM50,000 per day per client,” he said. For any transaction worth more than RM20,000, the client would have to declare his name and identity card number, he added.
“There may be clients reluctant to share such personal information, but it’s just a matter of educating them. The details are only for record’s sake, and this record will only be used as reference whenever Bank Negara decides to audit our company. We are not obliged to submit these records because there is no requirement to do so,” he said.
Given the income generated by the money exchange business, it is understandable that many would want to get into it.
An operator in Kuala Lumpur said he made a net profit of close to RM10,000 the last month.
“At Masjid India, the money exchange operators make the same figure per day while the ones at Bukit Bintang may be making the same amount in just hours!” he added.
The new legislation was recently passed in Parliament and follows the repeal of the Money Changing Act 1998, the Payments Systems Act 2003 and the Exchange Control Act 1953, to enable a single, uniform regulatory framework for licencees, instead of the three separate laws.
According to BNM, it has already briefed the players in the market and plans to launch a re-licensing exercise.
With the new Act, BNM has wider enforcement powers to take early action against non-compliance or breaches of regulatory requirements. It also enables the players to expand their current scope of activities to provide a wider range of services that can include moneychanging, remittance and/or wholesale currency services under a single licence.
The central bank says the new Act supports the development of a more dynamic, competitive and professional money services business industry, while strengthening safeguards against money laundering, terrorist financing and illegal activities.
“The Act introduces strengthened prudential requirements, focusing in particular on ensuring the effective oversight and control of the conduct and operations of licensed entities to safeguard the integrity of, and confidence in the money services business industry,” BNM said.
“This includes strengthened fit and proper requirements for shareholders, directors and chief executive officers of licensed entities, and financial and operational requirements that reflect the size and scope of business of an entity.”
The enactment of the new Act comes almost two years after BNM revoked 41 moneychanging licences in 2009 under the Money-Changing Act 1998.
It said a number of the moneychangers had contravened Section 30 of the Act, which prohibits moneychangers from transferring funds outside Malaysia, whether on their own behalf or on behalf of third parties.
The issue came to light when it was reported that several VIPs had used the services of moneychangers to transmit money abroad. One high profile case involved the Negri Sembilan Menteri Besar Datuk Seri Mohamad Hassan who was alleged to have transferred RM10 million to the United Kingdom through moneychangers.
This article appeared in The Edge Financial Daily, December 5, 2011.
Under the new Money Services Business Act 2011 (MSBA) guidelines, which came into force on Dec 1, moneychangers with annual turnover of more than RM100 million must have a minimum paid-up capital of RM2 million, a far cry from the previous requirement of just RM100,000.
Those with more than RM30 million annual turnover are required to have a minimum paid-up capital of RM500,000 while those with less than that are required to have RM300,000 in paid-up capital.
Abdul Hamid Abdullah, managing director of Bestrate Sdn Bhd, the country’s leading moneychanger, told The Edge Financial Daily that such requirements will put many smaller players at risk of losing their business.
There are 801 licensed money changers, 38 remittance service providers and two currency wholesalers in the country. The industry is said to have a turnover of RM5 billion a year.
“I strongly welcome the Compliance Act (MBSA) but some players are very concerned about this requirement. The definition of turnover is also arguable.
“Also, if a company with a paid- up capital of RM100,000 can make 10 to 20 times its share base in a day, which comes up to over RM350 million turnover a year, how can we justify the need for RM2 million in paid up capital?” he said in a phone interview last Friday.
Hamid, the founder and adviser to licensed remittance company Remit Master Sdn Bhd, said companies will be given up to two years to comply with the new capital requirements.
There are other new requirements attached to the share capital size.
Hamid said under the new guidelines, the smaller moneychangers (with RM300,000 in paid up capital) are not allowed to set up branches.
Only the ones with a minimum of RM500,000 in paid up capital can establish up to five branches, while those with paid up capital of at least RM2 million can have unlimited branches.
But the crux of the matter, which is what moneychangers have been discussing with Bank Negara Malaysia (BNM), is the definition of “turnover”.
The moneychangers say “turnover” should be counted as only one side of a transaction that is being carried by them, while BNM has not clearly spelled out what its definition is.
Smaller moneychangers could be at risk of losing their business under the new Money Services Business Act 2011 requirements.
Hamid also said the definition of “fit and proper” in the MSBA guidelines is not clear and is subjective, unlike the Capital Markets Services Act, that governs the securities and fund management industry.
“In hindsight, it looks like Bank Negara [Malaysia] has too much discretionary power over the industry,” he said.
He said perhaps the central bank should apply the paid up capital requirements only to new players, and suggested that those who have a track record should be given the flexibility to remain status quo on their capital base.
“However, my advice to moneychangers is to take this opportunity to change mindset and operate on a more professional level like the banks -- or we will be changed,” he said.
Moneychangers have also been required to complete a tedious application process to reapply for their licences as the MBSA takes effect.
Owners whose licences will expire in two years need to submit the form by Dec 31, 2011, while those whose licences will expire in more than two years will need to submit by March 31, 2012.
With its enactment, the regulation of all existing licensed moneychangers, non-bank remittance service providers and foreign currency wholesalers will fall under the purview of the MSBA and all players are required to apply for a new licence under the Act.
“Bank Negara did the right thing to bring professionalism into the industry. We still need to submit our monthly and yearly reports but under the new act, unlike before, we are now required to share our business plan, reveal personal details of our CEO and compliance officer and so on,” said another moneychanger based in Kuala Lumpur.
Applicants would need to furnish the central bank information on their bank loans or mortgages as well as interest in family businesses. Applicants would also need to describe how they will fund the minimum capital requirements to operate the moneychanging business.
If any additional capital requirement and working capital are funded through borrowings, the applicant is required to provide cash flow projections for the next three years.
Under the old act, the company must have a paid up capital of RM100,000 to get into the money changing business, and the directors must take a “competency” exam, which covers basic industry knowledge. If successful, the applicant will be awarded a five-year licence and pay an annual fee of RM500.
Another operator said the new act has limited impact on moneychangers, but would provide more scrutiny and increase competition in the remittance businesses, which are largely owned by foreigners.
“Under the new act, even moneychangers can remit up to RM50,000 per day per client,” he said. For any transaction worth more than RM20,000, the client would have to declare his name and identity card number, he added.
“There may be clients reluctant to share such personal information, but it’s just a matter of educating them. The details are only for record’s sake, and this record will only be used as reference whenever Bank Negara decides to audit our company. We are not obliged to submit these records because there is no requirement to do so,” he said.
Given the income generated by the money exchange business, it is understandable that many would want to get into it.
An operator in Kuala Lumpur said he made a net profit of close to RM10,000 the last month.
“At Masjid India, the money exchange operators make the same figure per day while the ones at Bukit Bintang may be making the same amount in just hours!” he added.
The new legislation was recently passed in Parliament and follows the repeal of the Money Changing Act 1998, the Payments Systems Act 2003 and the Exchange Control Act 1953, to enable a single, uniform regulatory framework for licencees, instead of the three separate laws.
According to BNM, it has already briefed the players in the market and plans to launch a re-licensing exercise.
With the new Act, BNM has wider enforcement powers to take early action against non-compliance or breaches of regulatory requirements. It also enables the players to expand their current scope of activities to provide a wider range of services that can include moneychanging, remittance and/or wholesale currency services under a single licence.
The central bank says the new Act supports the development of a more dynamic, competitive and professional money services business industry, while strengthening safeguards against money laundering, terrorist financing and illegal activities.
“The Act introduces strengthened prudential requirements, focusing in particular on ensuring the effective oversight and control of the conduct and operations of licensed entities to safeguard the integrity of, and confidence in the money services business industry,” BNM said.
“This includes strengthened fit and proper requirements for shareholders, directors and chief executive officers of licensed entities, and financial and operational requirements that reflect the size and scope of business of an entity.”
The enactment of the new Act comes almost two years after BNM revoked 41 moneychanging licences in 2009 under the Money-Changing Act 1998.
It said a number of the moneychangers had contravened Section 30 of the Act, which prohibits moneychangers from transferring funds outside Malaysia, whether on their own behalf or on behalf of third parties.
The issue came to light when it was reported that several VIPs had used the services of moneychangers to transmit money abroad. One high profile case involved the Negri Sembilan Menteri Besar Datuk Seri Mohamad Hassan who was alleged to have transferred RM10 million to the United Kingdom through moneychangers.
This article appeared in The Edge Financial Daily, December 5, 2011.
