This article first appeared in The Edge Financial Daily on October 31, 2018

KUALA LUMPUR: Malaysian banks and casinos will be required to file with Bank Negara Malaysia (BNM) any cash transaction that exceeds RM25,000 per day starting Jan 1 next year.

This follows the move by the central bank to lower the daily cash threshold report (CTR) to RM25,000 from RM50,000 currently.

“This will bring the CTR in Malaysia to be more at par with other countries,” said BNM governor Datuk Nor Shamsiah Mohd Yunus in her keynote address at the 10th International Conference on Financial Crime and Terrorism Financing yesterday.

“We do not anticipate any impact in terms of economic activity, but an increase in effectiveness of taming the black economy that is still heavily reliant on cash transactions,” she said.

According to BNM’s website, CTR refers to cash transactions exceeding RM50,000 involving physical currencies and traveller’s cheques but excludes bank drafts, cheques, electronic transfers or fixed deposit rollovers or renewals. CTR reporting obligations are imposed on banks and licensed casinos.

Nor Shamsiah noted that even with the emergence of technologies, demand for cash worldwide continues to rise.

“For Malaysia, currency in circulation has increased by around 150% over the past decade. However, if we scale it to the country’s gross domestic product, it has been ranging between 6.1% and 6.9% over the past five years,” she said.

“Thus, despite the headway we have made in advancing e-payments, the persistency of cash among the public and small- and medium-sized businesses remains high. This opens up the economy to risks as cash is still being used by criminals to launder illegal proceeds, as we have seen from some high-profile cases over the past year or so.

“Similarly, this is the preferred mode to finance terrorist activities, which will involve transactions in cash,” she said.

Nor Shamsiah said therefore, it is now time for Malaysia to look at ways to strengthen the controls to mitigate financial crime, namely the cash threshold reporting requirement.

“When we compare Malaysia with other countries, our current threshold is too high and disconnected from the size of our economy, especially relative to our purchasing power. Hence, it needs to be updated,” she said.

Nor Shamsiah also highlighted that the compliance function of a financial institution is an important element in mitigating risks of abuse of the financial system, especially financial crime and terrorism financing risks.

According to the 2017 National Risk Assessment by the National Coordinating Committee for Money Laundering and the financial sector, the banking sector continues to face high money laundering risk and medium high terrorism financing risk.

“The sector records the highest value of cash transactions and high-risk customers; and provides the highest number of high-risk products compared with other sectors within the financial industry. This reflects the central role of the banking sector in intermediating money flows within an economy,” she said.

Nor Shamsiah said one important compliance function that needs to be undertaken is the identity of the ultimate beneficial owner of companies, assets and financial transactions.

“Financial institutions need to have controls and procedures to identify, verify and conduct due diligence on the beneficiaries. This must be complemented by a rigorous monitoring process. Adherence to this requirement will inject transparency, accountability and ensure integrity of the financial system. It will prevent criminals from hiding their ownership of companies and assets through complex methods and vehicles,” she added.