Malaysia’s Financial System Remains Resilient Under Strong Regulatory Oversight

Malaysia’s financial system remained stable throughout 2025, supported by a strong regulatory framework and ongoing supervisory oversight by Bank Negara Malaysia (BNM). In its Annual Report 2025, the central bank outlined measures aimed at strengthening financial resilience, improving consumer protection, and addressing risks linked to digitalisation. These efforts included aligning regulations with global standards, tightening technology risk management, and introducing reforms to enhance transparency and fairness in consumer lending and digital payments.

Aligning Prudential Standards With Global Frameworks

BNM said a key priority has been aligning Malaysia’s regulatory framework with the Basel III international standards while adapting them to domestic conditions. The approach is intended to strengthen banks’ resilience to financial shocks and sustain confidence among depositors and investors.

During 2025, the central bank issued three exposure drafts designed to strengthen risk management practices within financial institutions. These covered the Capital Adequacy Framework for the Internal Ratings-Based Approach (IRB) for credit risk, the Capital Adequacy Framework for Counterparty Credit Risk (CCR), and Interest Rate Risk in the Banking Book (IRRBB). The policies aim to improve how banks assess, measure, and manage potential financial risks.

Strengthening Technology Risk and Cyber Resilience

As financial services become increasingly digital and interconnected, BNM has also updated its Risk Management in Technology (RMiT) policy to address emerging threats. The revised requirements respond to growing risks from cyber incidents, system disruptions, and technology failures across shared digital infrastructure.

These measures complement broader national efforts to strengthen digital resilience and infrastructure, as highlighted in initiatives supporting cybersecurity and connectivity for a resilient digital economy. By tightening technology risk governance, regulators aim to ensure financial institutions maintain operational continuity even during disruptions.

Reforms to Improve Consumer Protection in Credit and Payments

BNM has also introduced policy changes aimed at strengthening trust between financial institutions and consumers. Under revised rules, financial service providers are no longer allowed to use a flat rate or the Rule of 78 method when calculating interest or profit for personal financing.

The change ensures borrowers pay interest only on the outstanding balance of their loans and are not charged excessive amounts if they repay early. Similar restrictions will apply to hire-purchase financing once the Hire-Purchase (Amendment) Act 2026 comes into force on 1 June 2026.

In parallel, the central bank has updated payment card rules to introduce stronger authentication requirements and new self-service security controls. These features allow cardholders to customise security settings for their payment cards. The reforms align with wider national initiatives supporting secure and inclusive digital payment innovation in Malaysia.

BNM also plans to establish stronger requirements for how financial institutions respond to fraud incidents, including clearer communication with account holders and improved coordination across the banking sector.

Consumer Credit Reform and Supervisory Enforcement

The enactment of the Consumer Credit Act 2025 represents another significant regulatory reform. The legislation is intended to strengthen consumer protection and harmonise regulatory oversight across the consumer credit sector.

BNM also emphasised the importance of crisis preparedness among financial institutions. Banks are expected to conduct deeper assessments of their recovery options and develop more detailed stress scenarios to ensure their contingency plans remain practical during real-world crises.

Supervisory activity remained active during 2025. BNM carried out 284 supervisory and enforcement actions, imposing monetary penalties totalling RM15.9 million for breaches related primarily to anti-money laundering requirements, technology risk management, prudential standards, and foreign exchange policies.

Nine banks were penalised for failing to meet regulatory expectations, with total fines amounting to RM5.6 million. The central bank continues to publish enforcement actions on its website as part of its transparency approach and to deter future misconduct.

Looking ahead, BNM said it will continue aligning Malaysia’s prudential regulations with international best practices while adapting them to the country’s financial environment. The strategy aims to maintain long-term financial stability as the sector evolves alongside digital transformation and changing economic conditions.