Bank Negara Malaysia wishes to announce that a new Act, Payment Systems Act 2003 (the Act), will come into force on 1 November 2003. The Act provides the legal framework to ensure the efficient functioning and stability of the payments system in the country and that the confidence in the payments system is preserved. The introduction of the Act is in line with the recommendations in the Financial Sector Master Plan to adopt a flexible, proactive and effective regulatory framework for the oversight of the payments system, and to increase efficiency of the system.

The Act contains provisions that would enable the Central Bank to effectively undertake its oversight activities in meeting its policy objectives in the payments system, namely, to ensure the safety and efficiency of the payments system, as well as to safeguard public interest.

The Act covers both the operators of payments system and issuers of designated payment instruments (DPIs). In exercising the powers under the Act, the Central Bank would aim to achieve a balance between promoting safety and efficiency as well as innovation and prudence. An operator of a payment system will be required to submit documents to the Central Bank and will be able to commence operations after receiving a notification from the Central Bank. The notification is not an approval. Only the issuance of payment instruments designated under the Act would require the prior approval from the Central Bank. This is a departure from the existing legislation, which requires persons intending to operate an electronic fund transfer system to obtain the prior approval of the Central Bank.

The Act empowers the Central Bank to designate payment systems with systemic implications for closer oversight. Operators of designated payment systems (DPSs) are required to ensure that good corporate governance and adequate operational arrangements are in place to ensure the smooth functioning of such payment systems. In addition, the appointment of directors or chief executive officers of the operators of the DPS will need to meet the fit and proper persons requirement.

The Central Bank is also empowered to designate a payment instrument as a DPI if the payment instruments will be of widespread use or that it is in the interest of the public that it should be regulated by the Central Bank. Issuers of DPI are required to ensure that good corporate governance and adequate operational arrangements are in place to ensure the safety and reliability of the payment instruments. An issuer of a DPI shall also establish measures to ensure prudent management of funds collected from a user of the DPI to ensure that such funds are available for repayment to the user.

Relevant provisions have been incorporated in the Act to ensure that payments made through the designated payment systems are final and irrevocable. The real time gross settlement system, RENTAS and the cheque clearing system, SPICK, are deemed as DPS for the purposes of achieving finality in payments and netting arrangements under the Act.

In monitoring the activities of the payment systems operator and issuers of payment instrument, the Central Bank may require any operator of a payment system and issuer of a payment instrument to submit to the Central Bank documents and information regarding the payment system or payment instrument.

While the Act allows payment systems and payment instruments to be introduced in the market speedily, the Central Bank is empowered to prohibit the operations of the payment systems or issuance of payment instruments that are found to be detrimental to the reliable, safe, efficient and smooth operation of the payment systems or that it is in the interest of the public that the prohibition is made.

With the coming into force of the Payment Systems Act 2003, operators of payment systems and issuers of designated payment instruments that have obtained the necessary approval under the Banking and Financial Institutions Act 1989, would be deemed to have already obtained approval under the Act.