Bank Negara Malaysia to ramp up misconduct supervision, says Ibrahim

Shocking survey results shows 15% of respondents would act ‘unethically’ when not being monitored; new guidance principles and transparency framework to help, BNM governor says
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Bank Negara Malaysia (BNM) will implement a new transparency framework at the beginning of 2018 as an added deterrence against misconduct, the central bank’s governor announced on May 13.

Speaking in Kuala Lumpur, Muhammad bin Ibrahim spoke about the importance of upholding a level of “professionalism” and the risks to integrity and confidence caused by financial misconduct.

“We have made significant progress to professionalise the banking industry,” Ibrahim said, but noted there were still a number of steps that could be taken.

“Over the last decade, the ethical scorecard of the financial sector was blemished by irresponsible risk-taking and opaque practices of bankers in the lead-up to the global financial crisis,” he said.

A number of central banks around the world have since taken measures to tighten up regulation surrounding transparency and whistleblowing across the financial sector. One example has been the UK’s senior manager’s programme.

However, for Malaysia, lapses in behaviour have continued, most recently with the scandal surrounding government-owned investment fund 1MDB

The Malaysian fund was established in 2009, with Malaysian prime minister Najib Razak as chairman of its board. Detailed media reports have alleged that up to several billion US dollars worth of funds have been misused, leading to investigations by several financial regulators, Bank Negara Malaysia included.

Supervisory crisis

A recent survey conducted by the Financial Services Professional Board found 23% of respondents observed supervisors rewarded behaviour derived through unethical means. Such results, were “sobering”, Ibrahim said.

Perhaps worse was the 15% of respondents who admitted they would act unethically when not being watched or monitored. “Far too often, we witness the rise of bankers who are highly competent but ethically deficient,” said Ibrahim, noting Malaysia has traditionally not only allowed but tolerated such practices.

The BNM governor stressed this was an “unsustainable” way to manage the banking system. Ultimately it “tarnishes the reputation of the many who spent their lifetime careers in the industry and who hold the profession with great dignity and regard”, he said.

As a result, Malaysia’s central bank – along with a new transparency framework – will publish five ‘Principles for Fair and Effective Financial Market’.

“There should be a ‘clear tone from the top’ that unethical behaviour will not be tolerated,” said the BNM governor, stressing this culture of “zero tolerance” for unethical behaviour should “permeate” across all levels of the banking system.

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