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November 25, 2009 19:20 PM

Central Bank Of Malaysia Act 2009 Comes Into Force

KUALA LUMPUR, Nov 25 (Bernama) -- The Central Bank of Malaysia Act 2009 comes into force Wednesday, providing greater clarity on Bank Negara Malaysia's mandate and the necessary powers and instruments to achieve it.

In a statement, Bank Negara said with the new development, the old Central Bank of Malaysia Act 1958 is repealed and thus, ceased to apply.

It added that the new Act will enable it to more effectively manage emerging risks and challenges in performing its role and responsibilities as the nation's central bank.

Incorporated in the Act is a more robust governance framework that provides for a high degree of accountability and transparency, Bank Negara said.

"It institutionalises the good practices that have been put in place over the recent decade which have proven to be important in enhancing the functioning and effectiveness of Bank Negara," it said.

Bank Negara's main aim is to promote monetary and financial stability conducive to the sustainable growth of the Malaysian economy.

The monetary policy aims to maintain price stability while giving due regard to developments in the economy.

The Act stipulates that monetary policy is to be autonomously formulated by the Monetary Policy Committee and effectively implemented by Bank Negara, the central bank said.

Adequate safeguards have been incorporated in the Act with respect to the membership of the committee, the decision-making framework and requirements for transparency, disclosure and accountability, it said.

According to Bank Negara, the more integrated and globalised economic and financial environment have presented new challenges for its role in preserving financial stability.

"In the preparation of this new Act, lessons were extensively drawn from the recent global financial crises in financial regulation, surveillance and crisis management framework and the need for effective coordination not only across sectors but also across borders," it said.

Specific powers for macro-prudential financial stability, which to-date, has not been a common feature of traditional central banking legislation, have now been included in the Act, Bank Negara said.

These provisions, among others, support increased surveillance, regulatory reach, oversight of money and foreign exchange markets and coordination with other regulators, including across borders, on crisis prevention, management and resolution, it said.

Consistent with the goal to promote Malaysia as an international centre for Islamic finance, the Act gives due recognition to the Islamic financial system in Malaysia, Bank Negara said.

The Act also provides for an enhanced role of the Syariah Advisory Council on Islamic Finance to facilitate consistent application of Islamic law on Islamic financial matters, it said.

According to the central bank, the role and responsibility of Bank Negara and the impact its policies and actions on the economy and financial system necessitates a highly robust governance framework.

"The role of the board is enhanced in the new legislation. The board will continue to have oversight of the management of Bank Negara and will review its performance," it said.

The Board Governance Committee, the Board Audit Committee and the Board Risk Committee have been established to assist the board in this oversight responsibility, it added.

Bank Negara also said that the Act will provide a strong legal foundation for it to effectively discharge its role and responsibilities in addressing the current and future challenges towards achieving monetary and financial stability.

This, it said, is for the overall development of the financial system that supports sustainable economic advancement.

-- BERNAMA

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