October 5, 2022
Banking and Insurance

What are banking and insurance?

The banking and Insurance Institute of Malaysia or BIIM is the sole regulatory body for Malaysian banking, life insurance, and takaful businesses.

The Banking and Insurance Act (KLBI) was enact in 1967. BIIM was establish in 1973 to regulate financial services in Malaysia and takaful activities were include under its purview in 1974.

BIIM is an agency that provides oversight on the development of banking, life insurance as well as takaful sectors with a focus on prudential regulation. As a regulator, it prohibits banks from issuing their own life insurance products which are consider the conflict of interest with their business model.

What are Banking and Insurance

A key area of BIIM’s role is to supervise and regulate banking and insurance companies. It does this by carrying out the following activities:

-Regulating the conduct of banks and insurance companies

-Asking for financial reports from these entities

-Investigating possible mis-spelling or fraudulent financial practices

-Monitoring the health of the banking and insurance sectors.

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What is the role of banks in insurance?

The banking sector is heavily regulate compare to the insurance industry. The lion’s share of this regulation is in relation to consumer protection and commercial and prudential regulations. The Insurance Act (KLIA) and the Banking and Insurance Act (KLBI), which was enact in 1967, are the main legislations governing both sectors.

Banking and Insurance

It is important to note that while BIIM oversees financial services, it does not regulate other aspects of financial service providers such as their corporate governance policies or their business ethics. These matters fall under the purview of the Companies Commission of Malaysia (CCM) or other relevant regulatory bodies such as Bank Negara Malaysia’s Financial Consumer Agency of Malaysia (FinCEN).

Do banks give insurance?

Banks do not have the power to offer insurance products, unlike insurance companies. Suppliers of life and general insurance products can only do so after obtaining the authority of BIIM. The final decision on whether or not a product is allow to be sold is made by BIIM.

Does the central bank regulate banks?

The Central Bank of Malaysia (BNM) is responsible for regulating, supervising, and monitoring banks. This role applies to commercial banks, savings banks, and plantation development banks. Banks are required to comply with BNM’s regulations or policies in making investments, enforcing their own lending policies, and controlling risk exposure in their business models as well as public information & disclosure practices.

Is banking Another type of insurance?

Banking and Insurance are two different business models. An insurance company collects funds from its policyholders and invests them to generate income. A bank collects funds deposited by its customers. And lends the money out to other parties as well as invest in securities, hence generating income for itself.

Banks only have one customer base, unlike insurance companies which have multiple customer bases. Insurance companies are responsible for their own investment decisions. Whereas banks act solely as intermediaries between depositors and borrowers, or investors (for securities). The role of banks is to ensure liquidity in the market by managing interest rates. Which affects the profitability of investments when there is a large demand for liquidity.

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