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  • Writer's pictureRajvin Singh Gill

Money Services Business: Key Legal Considerations for Outsourcing to Service Providers

In Malaysia, the Money Services Business Act 2011 ("MSBA 2011") is responsible for overseeing money services business operations. This legislation entails the licensing, regulation, and supervision of such businesses. As stated in Section 2 of the MSBA 2011, money service business comprises activities like money-changing, remittance, and wholesale currency businesses.


As a money services business licensee, it must ensure that the business operates effectively, with accountability and transparent governance arrangements. In order to do so, a licensee is mandated to comply (in addition to the relevant regulations) with guidelines (or Policy Documents) issued by Bank Negara Malaysia BNM from time to time. One such policy document is the Policy Document on Governance, Risk Management, and Operations for Money Services Business, issued on 30th June 2022.


It is to be noted that guidelines issued by BNM are legally binding on an MSB licensee. Any licensee who fails to comply with the provisions of the relevant guideline may be liable to legal actions imposed by the bank including but not limited to a penalty not exceeding RM100,000.00. (See section 74, read together with sections 73 and 75) of the MSBA Act 2011.


In this round of knowledge sharing on the aforementioned Policy Document, my attention is paid to a specific portion of the Policy Document on Governance, Risk Management, and Operations for Money Services Business: Outsourcing.


Outsourcing

An outsourcing arrangement is essentially where a service provider “performs an activity on behalf of the MSB on a continuing basis, where the activity would otherwise be undertaken by the MSB”


Governance Requirements

An outsourcing arrangement which outsources any functions related to a MSB’s business must firstly be approved by the Board of Directors of the MSB. This arrangement must also be supplemented with a robust risk management framework to ensure compliance with relevant laws and regulations, amongst others.


The Bank’s approval is needed prior to the outsourcing of ‘material MSB functions’. These functions are:

  • Compliance, including key sub-functions such as, but not limited to, customer data protection, customer fund management, and AML/CFT transaction monitoring;

  • Finance and treasury

  • Product management and development; and

  • Internal audit (For big MSBs only).

It is worth noting that ‘legal functions’ are not expressly stated as one of the ‘material MSB functions’. Hence the requirement for the Bank’s approval prior approval for the outsourcing of ‘legal functions’ i.e. agreement review, drafting, etc. may not be required.


Legal requirements

Such outsourcing arrangement must also be reflected via an outsourcing agreement entered into by such parties. The agreement shall contain, amongst others:

  • terms and conditions governing obligations and responsibilities of all parties,

  • contractual parties’ termination rights and a minimum period to execute the termination provisions);

  • appropriate reporting and support mechanisms;

  • provisions protecting the confidentiality of customers’ information.

Utilising a System offered by a Service Provider

In this case, an MSB is required to enter into service level agreements with such service provider. It must be noted that prior to doing so, an MSB is to conduct appropriate due diligence (including at the time of renewing or negotiating existing SLAs), to assess the ability of the system to perform in a manner which satisfies the requirements of the Bank, including but not limited to the maintenance of robust and reliable management system and remittance system requirements as stipulated more particularly in other sections of the Guidelines.


IT related Service Providers

Here, an MSB is specifically required to its ability, to regularly review the service level agreements with its service providers to take into account the latest security and technological developments in relation to the services provided.


Let’s Chat

If you’re an MSB or looking to be one, and wish to enquire or discuss legal and compliance matters pertaining to this topic, please feel free to contact us for a complementary consultation.



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