Malaysia: Bank Negara Malaysia issues Exposure Draft Bancassurance/Bancatakaful Policy Document

In brief

The Central Bank of Malaysia, Bank Negara Malaysia (BNM) has issued an exposure draft of the Bancassurance/Bancatakful Policy Document (PD) on 30 August 2021 ("Exposure Draft") on the proposed regulatory requirements for bancassurance and bancatakaful arrangements.

The requirements of the PD are intended to:

  1. ensure bancassurance/bancatakaful remains as a viable channel that is widely accessible for consumers to purchase insurance and takaful products
  2. promote sound market conduct practices that safeguard consumers' interest through needs-based sales, disclosure and enhanced transparency
  3. market competitiveness while preserving consumer choice.

Recommended actions

  • Financial service providers (FSPs, i.e., licensed banks, licensed insurers, licensed takaful operators and prescribed development financial institutions) are encouraged to consider the salient points in the "In more detail" section below to ascertain whether their existing bancassurance/bancatakaful arrangement need to be amended or re-negotiated to comply with the PD.
  • FSPs should also review their existing internal policies against the PD to determine if changes are required to align with the requirements in the PD.

In more detail

Not Effective Yet

There is currently no certainty when the PD will come into force. At the earliest, it would be in the fourth quarter of 2021. When issued, it is contemplated that the FSPs will be given a grace period (anticipated to be approximately six months) to comply with the requirements. The PD will apply to new and existing bancassurance/bancatakaful arrangements.

Salient Terms

The salient provisions proposed under the Exposure Draft are set out below:

(a) Board and Senior Management Responsibilities

There are clear parameters on the obligations and responsibilities of the board of directors and management of the FSPs for the formulation of internal policies to regulate the oversight of bancassurance/bancatakaful arrangements (including the framework around the design and distribution of the products). The board and senior management will need to ensure that the products marketed and sold do not result in poor consumer outcomes.

Where the bancassurance/bancatakaful arrangements are concluded at the group level (e.g., at the parent company, financial holding company or regional entity level), the board of the FSPs and the board of the relevant group entity, must ensure that the arrangement complies with other policy documents issued by BNM (e.g., in respect of related party transactions, corporate governance) and does not affect or limit the ability of entities within the group to comply with local laws. An exclusive bancassurance/bancatakaful arrangement entered into by a group entity with a conventional insurer should therefore not prevent an Islamic subsidiary within the financial group, from offering takaful products (due to the exclusive tie-up with the conventional insurer).

(b) Upfront Fees

Upfront fees (including fees payable during the term of the bancassurance/bancatakaful agreement) paid to the bancassurance/bancatakaful partner by the licensed insurer and/or licensed takaful operator ("Licensed Person"), or any other party on its behalf, must be defrayed from the shareholders fund of the Licensed Person.

BNM also requires a Licensed Person to incorporate conditions or appropriate targets that would be linked to the payment of the upfront fees. Accordingly, the upfront fees can be clawed back if, for example, minimum persistency rate thresholds under an agreement are not achieved. The quantum of the upfront fees will also need to be calibrated to ensure that the agreed targets do not incentivize higher sales without a sufficient focus on the quality of sales.

(c) Quality of Sales and Personnel

A Licensed Person should establish robust policies, procedures and controls for its bancassurance/bancatakaful persistency rates for all non-credit regular premium/takaful contribution products (i.e., all life insurance and family takaful products other than credit-related products). This requirement is expected to involve a framework to monitor and manage persistency issues, and require the internal auditors of the FSP to review and monitor the effectiveness of these policies, procedures and controls.

The sales staff of the bancassurance/bancatakaful partner will also need to meet the minimum academic/professional qualifications prescribed under the PD.

(d) Transparency and Disclosures

The Exposure Draft prescribes a number of disclosure requirements to, among others, ensure that marketing names (i.e., name or label of the products) are not misleading to consumers. The FSPs must also disclose, among others, commissions, charges and expenses that will be borne by policyholders/takaful participants.

The FSPs will need to implement measures to mitigate the risk of inappropriate targeting of consumers (in particular, the FSPs must ensure that for savings products sold to certain retail segments are subject to prior approval of sale supervisors and subject to follow-up calls).


The Exposure Draft seeks to ensure consumer/policyholder protection by requiring accountability by the FSPs, ensuring that the FSPs train sales personnel and requiring transparent disclosures in product documentation.

As a result of these higher standards prescribed by BNM, the FSPs will need to review their internal policies to determine if modifications or changes should be made to cater for the more stringent and prescriptive requirements imposed by BNM.

In addition, the bancassurance/bancatakaful agreements that have been signed by the FSPs will also need to be reviewed. Amendments will be required to bring the arrangements in line with the requirements set out in the PD.


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Contact Information
Angel Ling
Senior Associate
Kuala Lumpur

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