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Banking Industry Compliance Trends in Malaysia: A Growing Landscape

KUALA LUMPUR, MALAYSIA - The banking sector in Malaysia is one of the most vital and rapidly evolving industries in Southeast Asia. With a bank account penetration rate of 92 percent in 2020, it makes Malaysia one of the highest in the region.

A Long History of Banking

The banking industry in Malaysia dates back to the 19th century, with its roots in Penang, a strategic port city that facilitated business activities. Since then, Malaysian banking has undergone significant development and technological advancements. In the second quarter of 2023, the return on equity (ROE) of the banking system stood at 11.6 percent.

Dual Banking System

Malaysia’s central bank, Bank Negara Malaysia (BNM), was established in January 1959 as a statutory government body to supervise banking institutions and promote monetary stability. The country has a dual banking system, consisting of conventional and Islamic banks.

Conventional Banking

Conventional banking includes commercial and investment banks, with the total assets of commercial banks reaching nearly 1.7 trillion Malaysian ringgit in 2022.

Islamic Banking: A Growing Sector

Malaysian Islamic banking is relatively new compared to its conventional counterpart, with the first Islamic bank starting operations in 1983. The Sharia-friendly financial system has become one of the most developed among other Muslim-majority countries. In 2021, Malaysia had the third-largest Islamic banking assets in Asia, after Iran and Saudi Arabia.

Major Local Banks Dominate

Malaysian banks have expanded their business to neighboring countries in Southeast Asia and the Asia-Pacific region. Some of the largest banks in the country are homegrown Malaysian banks, including Malayan Banking (Maybank), CIMB Bank, and Public Bank. These three banks were ranked within the top six strongest brands in Malaysia in 2022.

Digital Banking on the Rise

With the current technology, banking services have become more digital, with the value of internet banking transactions increasing significantly over the last five years. Although online banking has started to gain traction, traditional banks are likely to still thrive in the country, especially with more than half of Malaysians still preferring traditional to digital banks.

As the banking industry continues to evolve, compliance trends will play a crucial role in ensuring that Malaysian banks meet regulatory requirements and maintain their competitive edge. With the introduction of new technologies and increasing consumer expectations, banks must adapt to changing market conditions while remaining compliant with regulations.

Key Takeaways

  • The banking industry in Malaysia is rapidly evolving
  • Major local banks dominate the market
  • Islamic banking becomes an increasingly important sector
  • Compliance trends play a crucial role in ensuring regulatory requirements are met
  • Traditional banks are likely to still thrive, especially among Malaysians who prefer traditional over digital banks.