MDEC Fintech Developer Bootcamp - Fintech Masterclass Day 2
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Transcript of MDEC Fintech Developer Bootcamp - Fintech Masterclass Day 2
TEOH HUEI WEN4 October 2016 Associate, Corporate & Commercial Practice Group
Legal Issues: Fintech in Malaysia
Disclaimers
2
The information contained herein is not intended to constitute legal advice and is not to be acted on as such. You are advised to seek proper legal or other professional advice to progress your matter forward.
Agenda
3
• Regulatory Compliance• Anti-Money Laundering• Contract Law• Fundraising
Regulatory Compliance
4
• Who are the relevant Regulators?• Central Bank of Malaysia• Securities Commission• Communications and Multimedia Commission• Competition Commission• Personal Data Protection Commission• Ministry of Urban Wellbeing, Housing and Local
Government
Regulatory Compliance
5
• What are the relevant legislations?• Financial Services Act 2013• Money Business Services Act 2011• Moneylenders Act 1951• Communications and Multimedia Act 1998• Personal Data Protection Act 2010• Digital Signature Act 1997• Electronic Commerce Act 2006• Anti-Money Laundering, Anti-Terrorism
Financing and Proceeds of Unlawful Activities Act 2001
• Foreign Exchange Administration
Regulatory Compliance
6
• Personal Finance
• Financial Services Act 2013?
• Moneylending Act 1951?
• Securities Commission Guidelines on “P2P Platform”?
Regulatory Compliance
7
• Personal Finance• Financial Services Act 2013• “banking business” includes the business of
deposit taking, paying or collecting cheques and provision of finance licensed business
• “provision of finance” includes lending of money.
• Penalty: imprisonment for a term not exceeding 10 years or a fine not exceeding RM5 million
Regulatory Compliance
8
• Personal Finance• Moneylenders Act 1951• “moneylending” means the lending of
money at interest, with or without security, by a moneylender to a borrower.
• “interest” includes any amount by whatsoever name called in excess of the principal paid or payable to a moneylender in consideration of or otherwise in respect of a loan.
Regulatory Compliance
9
• Personal Finance• Moneylenders Act 1951• No person shall carry on or advertise or
announce himself or hold himself out in any way as carrying on the business of moneylending unless he is licensed under the MLA.
• Penalty: a fine between RM250,000 to RM1,000,000, or imprisonment for a term not exceeding 5 years or to both, and for subsequent offence, whipping may be imposed
Regulatory Compliance
10
• Personal Finance• Moneylenders Act 1951• Any person who assists an unlicensed
moneylender shall be guilty of an offence.
• Penalty: imprisonment for a term not exceeding 2 years or a fine not exceeding RM20,000 or to both.
Regulatory Compliance
11
• Personal Finance• Moneylenders Act 1951• Prescribed moneylending agreement
• Penalty: a fine between RM10,000 to RM50,000 or imprisonment for a term not exceeding 5 years or to both, and for subsequent offence whipping may be imposed.
• Void and have no effect and shall not be enforceable
Regulatory Compliance
12
• Personal Finance• Moneylenders Act 1951• Presumption as to the business of
moneylending – a single loan at interest made by a person shall raise a presumption that such person is carrying on the business of moneylending.
• Contract by unlicensed moneylender is unenforceable.
Regulatory Compliance
13
• Personal Finance• Moneylenders Act 1951• Prescribed interest rate• Interest for a secured loan: ≤ 12% p.a.• Interest for an unsecured loan: ≤ 18% p.a.
• Penalty: a fine not exceeding RM20,000 or imprisonment not exceeding 18 months or to both
• Agreement is void and have no effect and not enforceable.
Regulatory Compliance
14
• Personal Finance• P2P Lending• Only locally incorporated sole
proprietorships, partnerships, incorporated limited liability partnerships, private limited and unlisted public companies, will be allowed to be hosted on the P2P platform.
Regulatory Compliance
15
• Digital Bank• Financial Services Act 2013• “banking business” includes the business of
deposit taking, paying or collecting cheques and provision of finance licensed business
• Penalty: imprisonment for a tem not exceeding 10 years or a fine not exceeding RM5 million
Regulatory Compliance
16
• Restriction on the use of certain words• Financial Services Act 2013• No person shall use the following words in
its name, description or title without the prior written approval of Bank Negara Malaysia: bank, insurance, assurance, financial adviser
• Penalty: imprisonment for a term not exceeding 8 years or a fine not exceeding RM25 million.
Regulatory Compliance
17
• E-Money• Financial Services (Designated Payment
Instruments) Order 2013• Designated Payment Instruments include
electronic money, ie. an instrument that stores funds electronically in exchange of funds paid to the issuer, and is able to be used as a means of making payment to any person other than the issuer.
Regulatory Compliance
18
• E-Money• Financial Services Act 2013, Division 1 of
Schedule 1• Businesses which require the approval of
Bank Negara Malaysia include issuance of a designated payment instrument.
• Penalty: imprisonment for a term not exceeding 10 years or to a fine not exceeding RM50 million or to both.
Regulatory Compliance
19
• Payment System• Financial Services Act 2013, Division 1 of Schedule 1• Businesses which require the approval of Bank
Negara Malaysia include the operation of a payment system which:a) enables the transfer of funds from one banking
account to another, which includes any debit transfer, credit transfer or standing instructions but does not include the operation of a remittance system approved under the MSBA;
b) provides payment instrument network operation which enables payment to be made through the use of a payment instrument.
Regulatory Compliance
20
• Payment System• Financial Services Act 2013, Division 1 of Schedule 1• Penalty: imprisonment for a term not exceeding
10 years or to a fine not exceeding RM50 million or to both.
Regulatory Compliance
21
• Online Insurance• Financial Services Act 2013• “licensed business” includes insurance
business.
Regulatory Compliance
22
• Online Insurance• Bank Negara Malaysia Guidelines on Internet
Insurance • Internet insurance activities are defined as
the use of the Internet as a channel to transact insurance business with customers or as a platform for transmission of customers’ information.
• An insurer is required to seek Bank Negara’s prior approval to conduct Internet insurance.
Regulatory Compliance
23
• Foreign Currency Exchange• Money Services Business Act 2011• “money-changing business” means any or
all of the following:a) the business of entering into an
exchange transaction at a rate of exchange; or
b) the business of buying or selling travellers’ cheques, on behalf of an issuer of travellers’ cheques, at a rate of exchange.
Regulatory Compliance
24
• Remittance• Money Services Business Act 2011• “remittance business” means the business
of transferring funds or facilitating the transfer of funds, whether in any form or by any means or whether there is any movement of funds or not, on behalf of an originator person in or outside Malaysia, with a view to making the funds available to a beneficiary person in or outside Malaysia and the originator person and the beneficiary person may be the same person
Regulatory Compliance
25
• Foreign Currency Exchange/Remittance• Money Services Business Act 2011• No person shall carry on money services
business without a license issued under the MSBA.
• “money services business” includes money-changing business and remittance business.
Regulatory Compliance
26
• Foreign Currency Exchange/Remittance• Money Services Business Act 2011• No person shall issue or publish an
advertisement containing:a) an invitation or offer to enter into any
transaction relating to money services business; or
b) information which may lead, directly or indirectly, to a transaction relating to money services business.
• This prohibition does not apply to the advertisement for and on behalf of a licensed money-changer.
Regulatory Compliance
27
• Foreign Currency Exchange/Remittance• Money Services Business Act 2011• Penalty: a fine not exceeding RM5 million or
imprisonment for a term not exceeding 10 years, or to both.
Regulatory Compliance
28
• Foreign Currency Exchange/Remittance• Money Services Business Act 2011• Restriction on the use of the words “money
services business” in relation to the business, in the name or description or title of the person• money service business, money-changer, currency exchange,
money exchange, forex dealer, foreign exchange, bureau de change, remittance services, money transfer, money remit, funds transfer
• Penalty: a fine not exceeding RM5 million or imprisonment not exceeding 10 years or to both.
Regulatory Compliance
29
• Foreign Currency Exchange• Money Services Business Act 2011• Display the buying and selling rates under
the headings “we buy” and “we sell”.• Disclose the fees and charges for the
services rendered.• Issue a receipt in respect of the transaction.• Maintain anti-money laundering and anti-
terrorism financing compliance program.
Regulatory Compliance
30
• Remittance• Money Services Business Act 2011• Customers’ funds to be kept separately and
shall be deposited not later than the next business day of receipt of the funds.
• The remittance system shall first be approved by the Bank Negara Malaysia.
Regulatory Compliance
31
• Remittance• Money Services Business Act 2011• State the exchange rate, fees and charges
applicable, the amount in the currency that will be paid to the beneficiary, the fees and charges to be imposed by the correspondent agent, the estimated time for the transfer, the location where the funds are available.
• Issue a receipt in respect of the transaction.• Maintain anti-money laundering and anti-
terrorism financing compliance program.
Regulatory Compliance
32
• Remittance• Money Services Business Act 2011• B2B remittance transaction: the daily
outward transaction limit for a customer shall not exceed an aggregate amount of RM200,000.
• In other cases: the daily outward transaction limit for a customer shall not exceed an aggregate of RM50,000.
Regulatory Compliance
33
• Foreign Exchange Administration• A resident may only buy or sell foreign currency
notes with licensed onshore banks or licensed money changers.
• Approval is required for payment between residents in foreign currency, save for:• Settlement of any securities, financial instruments denominated in
foreign currency approved by the Bank Negara Malaysia;• Settlement of derivatives denominated in foreign currency;• Settlement of commodity murabahah transactions;• For education and employment overseas;• For any purpose by a resident individual to another resident
immediate family member (ie. spouse, parents, children and siblings).
Regulatory Compliance
34
• Foreign Exchange Administration• Resident entities are free to obtain borrowing up to RM1
million in aggregate from other than resident for use in Malaysia. The limit does not apply to borrowing from non-resident group of entities, non-resident direct shareholders, non-resident financial institutions.
• Resident individuals are free to obtain borrowing up to RM1 million in aggregate from other non-residents for use in Malaysia. The limit does not applicable to borrowing from non-resident immediate family members.
P2P lending / Personal Finance
Regulatory Compliance
35
• Robo-Advisor• Financial Services Act 2013• Business which require Bank Negara approval
includes financial advisory business.• “financial advisory business” means any of the
following:a) analysing the financial planning needs of a person relating
to an insurance product;b) recommending an appropriate insurance product to a
person;c) sourcing an insurance product from a licensed insurer for
a person; ord) Arranging of a contract in respect of an insurance for a
person.
Regulatory Compliance
36
• Fund Management / Investment Advice / Financial Planning• Capital Market and Services Act 2007• No person shall carry on a business in any regulated activity or
hold himself out as carrying on such business unless he is the holder of a Capital Market Services License or is a registered person.
• “regulated activity” includes fund management, investment advice, financial planning
• Penalty: a fine not exceeding RM10 million or imprisonment for a term not exceeding 10 years, or to both
Regulatory Compliance
37
• BNM Regulatory Sandbox• The grant of regulatory flexibilities for fintech
companies to experiment their solutions in a live environment.
• It applies to fintech companies intending to carry out any approved business under the FSA or money services business under the MSBA.
Regulatory Compliance
38
• BNM Regulatory Sandbox• Testing period not exceeding 12 months.• Cannot be used to circumvent existing laws and
regulations.• The product, service or solution is genuinely
innovative.
Regulatory Compliance
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• Personal Data Protection Act 2010 (“PDPA”)• General Principle• Notice and Choice Principle• Disclosure Principle• Security Principle• Retention Principle• Data Integrity Principle• Access Principle
Anti-Money Laundering
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• Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLA”)
• What is money-laundering?
• Relying on licensed banks’ AMLA compliance?
Anti-Money Laundering
41
• Offence of Money Laundering:• engages, directly or indirectly, in a transaction that
involves proceeds of an unlawful activity or instrumentalities of an offence;
• acquires, receives, possesses, disguises, transfers, converts, exchanges, carries, disposes of or uses proceeds of an unlawful activity or instrumentalities of an offence;
Anti-Money Laundering
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• Offence of Money Laundering:• removes from or brings into Malaysia, proceeds of
an unlawful activity or instrumentalities of an offence; or
• conceals, disguises or impedes the establishment of the true nature, origin, location, movement, disposition, title of or rights with respect to, or ownership of, proceeds of an unlawful activity or instrumentalities of an offence.
Anti-Money Laundering
43
• Offence of Money Laundering:• Penalty: imprisonment for a term not exceeding 15
years and a fine not less than 5 times the sum or value of the unlawful proceeds, or RM5 million, whichever is higher
Anti-Money Laundering
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• Offence of Money Laundering:• Inferences:• the person knows, has reason to believe or has
reasonable suspicion that the property is the proceeds of an unlawful activity or instrumentalities of an offence; or
• the person without reasonable excuse fails to take reasonable steps to ascertain whether or not the property is the proceeds of an unlawful activity or instrumentalities of an offence.
Anti-Money Laundering
45
• Reporting Institutions includes:• Licensed banks;• Licensed insurers;• Approved issuer of designated payment
instrument;• Capital Markets and Services Licensees;• Licensees under the MSBA;• Moneylender under the MLA.
Anti-Money Laundering
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• Obligations of Reporting Institutions includes:
a) identify, assess and understand AML/CFT risks;b) implement risk control and mitigation measures;c) record-keeping;d) reporting – suspicious transaction reporting and
cash threshold reporting;e) KYC checks; andf) Customer due diligence.
Anti-Money Laundering
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• Customer due diligence (MSBA):• When providing money-changing services involving
an amount equivalent to RM3,000 and above; or• When providing remittance services.
• Identify and verify the identity of the customers and beneficial owner – name, NRIC/passport number, residential or mailing address, date of birth, nationality, purpose of transaction, corporate documents, resolutions
• If there is any doubt as to the identity of any person – conduct a basic background search
• Display a notice on the requirements of customer due diligence in a conspicuous place
Anti-Money Laundering
48
• Customer due diligence (MSBA):• When providing money-changing services involving
an amount equivalent to RM3,000 and above;• When providing remittance services;
• For higher risk of money laundering or terrorism financing (eg. non-resident, nominees, unusually complex corporate structure, high net worth individuals):• Inquire on the source of wealth or source of funds;• Get approval from your senior management before
establishing business relationship with such person.
Anti-Money Laundering
49
• Ongoing customer due diligence (MSBA):• Ensure that the transactions being conducted
are consistent with the knowledge on the customer;
• Ensure that documents, data or information collected is kept up-to-date and relevant.
Anti-Money Laundering
50
• Red flags:• Customer is unwilling to provide information
when requested;• Customer is using different identifications when
conducting various transactions;• Customers are trying to break up large cash
transactions into multiple small transactioons;• Remittance from multiple customers to the
same beneficiary;• Customer frequently exchanging foreign
currencies but not exceeding the equivalent of RM3,000 for each transaction.
Anti-Money Laundering
51
• Failure to satisfactorily complete customer due diligence:• Shall not commence business relations /
terminate business relations;• Consider whether a suspicious transaction
report needs to be lodged.
Anti-Money Laundering
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• Reporting Institution• Board of Directors• Senior Management• Compliance Officer• Employees • Audit
Essential Considerations in a Contract
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• What is a contract?
• Terms of Use of website
Essential Considerations in a Contract
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• Elements of a valid contract• Intention to create legal relations• Offer• Acceptance• Consideration• Certainty • Capacity• Consent
Essential Considerations in a Contract
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• Execution of agreement electronically
• Digital Signature Act 1997• Digital signature
• Electronic Commerce Act 2006 (not applicable to negotiable instrument)• Electronic signature• Electronic message
Joint Venture
56
• Shareholders Agreement
• Should you have a Shareholders Agreement?
Joint Venture
57
• Shareholders Agreement• Rights and obligations of each Shareholder• Degree of board and shareholder participation• Moratorium• Deadlock and Exit rights• Distribution of dividends• ESOS• Fundraising
Key Concepts in a Fundraising
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• What is a Term Sheet?
• Should it be legally binding or not?
• What agreements do I sign simultaneously with the Term Sheet?
• What are the transaction documents?
Key Concepts in a Fundraising
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• What is due diligence?
• Exclusivity period
• Do promoters need to engage their own lawyers?
Key Concepts in a Fundraising
60
• Equity or debt?
• Ordinary shares or preference shares?
• If there are multiple investors, should they be on similar terms?
• Fixing a realistic valuation
Key Concepts in a Fundraising
61
• Waiver of pre-emption rights
• Board resolutions / shareholder resolutions for the issuance of shares
• Prior approval / notification in respect of the fundraising
Key Concepts in a Fundraising
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• Allocation of board seats to the investors / board observer
• Reserved matters
• Representations and warranties
Key Concepts in a Fundraising
63
• Right of first refusal
• Tag-Along Rights
• Drag-Along Rights
Conclusion
64
• Get it right from the beginning!
• Ignorantia Juris Non Excusat
• Engage in discussions with the regulators
• Seek professional advice
• If you are growing regional, understand the laws of the foreign jurisdictions
Thank you!
Teoh Huei Wen
Associate, Corporate & Commercial Practice GroupT 6 03 7887 2702
www.mahwengkwai.com