If you are contemplating starting a foreign currency trading, you must be conversant about Forex trading’s legal obligations in Malaysia.
How will you ensure legitimate and safe Forex trading? Is Forex trading permissible by the Malaysian laws?
In February 2012, Bank Negara Malaysia shed light on the buying and selling of foreign currency being acceptable. However, you must ensure that the trading business is with licensed Islamic banks, International Islamic banks, and commercial banks.
Forex Regulation in Malaysia
There are three principal regulations put in place to regulate Forex trading in Malaysia. As a trader, It is therefore essential to apply the regulations while trading. If you choose to trade with brokers, they should have a valid Forex trading license in Malaysia.
1) The Exchange Control Act of 1953
The Act compels general restrictions to residents and non-residents concerning Forex trading. Non-residents have no restrictions to invest in Malaysia and purchase assets like security and land property.
Also, non-residents have no restriction to transfer all their profits, divestment proceeds, and returns in foreign currency from Malaysia.
2) The Money Changing Act of 1998
The Act provides for the licensing and money-changing business and other related matters. In the Money-Changing Act 1998 , if you are licensed under the Exchange Control Act 1953 to buy and sell foreign currency, you are considered licensed under the Money-Changing Act of 1998.
3) The Securities Commission Act 1993
The Act is including recent updates made in 2017. The Security Commission Malaysia is given the power to regulate and license security dealing businesses.
Agencies and Institutions Regulating Forex Business in Malaysia
In Malaysia, you can only conduct the Forex trading business if you are trading with licensed bodies. The licensed institutions include; Islamic banks, International Islamic banks, investment banks, and licensed commercial banks.
The central regulators that deal with Forex trading in Malaysia are the Bank Negara Malaysia , Finance Accreditation Agency , Malaysian Investment Development Authority , and the Shariah Advisory Council.
Alternatively, refer to the institutions below to clearly understand the Forex trading regulations put in place.
Securities Commission of Malaysia
SCM is the body mandated with regulating business that deals with the Malaysian securities. The Act is answerable to the finance minister.
The functions of the Security Commission of Malaysia are:
1) Supervising exchanges, central depository, and clearance of houses;
2) Regulating matters relating to security and future contacts;
3) Approving corporate bond issues;
4) Regulation of acquisition of companies;
5) Regulation of the mergers.
Malaysian Investment Development Authority
Formerly called the Malaysian Industrial Development Authority. MIDA is the critical agency of the government for overseeing and driving investment into the services and manufacturing divisions in Malaysia. MIDA also outlines how money-changing businesses, as well as Forex traders, should conduct themselves.
Shariah Advisory Council
A significant percentage of people in Malaysia are Muslims. The Shariah Advisory Council ascertains the Islamic law concerning the Islamic business rules. It also has the authority to look into Islamic financial business, takaful business, Islamic development financial business, or any other concerns you may have based on the Shariah rules and principles regulated by the central bank of Malaysia.
Bank Negara Malaysia
Established in1959, this is Malaysia’s central bank. The primary function of Bank Negara is to issue currency, regulating the country’s financial institutions, monetary policy, credit system, and act as the advisor and banker to the Malaysian government.
Finance Accreditation Agency
Under the Bank Negara Malaysia guidance, FAA was inaugurated to spearhead the standardization, certify financial services, and advance higher learning standards.
The Relationship Between BNM and Forex Trading
In the late 1980s, Bank Negara Malaysia was a crucial player in the Forex business. Governor Jaffar Hussein’s leadership and management of the bank’s activities became a center of interest to Forex traders.
Upon realizing the bank’s speculation, the Federal Reserve Chairman asked the bank to quit trading.
Over the next couple of years, the bank sold vast amounts of their currency reserves, making the bank technically bankrupt in 1994.
Taxation of Forex Income in Malaysia
In Malaysia, Forex income is taxed like income tax. However, Forex capital gained isn’t taxed.
For instance, when you trade with a swap-free Islamic account and not earning anything from the business, and later gain is tax-free.
Legal Forex Trading in Malaysia
Since you now have insight into the status of the Forex trading business in Malaysia, some rules and regulations stipulated by the Bank Negara Malaysia are stipulated to ensure lawful trading.
Legal Forex trading in Malaysia requires you to use approved brokers and institutions with a Forex trading license. A legit broker must be Shariah-compliant.
Before settling for a specific broker, look at other traders’ reviews concerning the broker. Also, compare the brokers to find out the ones with approval from the Malaysian regulators. If a broker has any history of scams, that is a red flag.
Choosing A Reliable Forex Broker
Once you have a clear picture of what the Malaysian government expects, you ought to look for a reliable broker to help you access the market. Look for a broker that explicitly advises you on the Forex trading business. Avoid brokers that never mention the risks involved. Forex trading involves risk, and failure to mention it means they might be scammers.
To avoid unaware problems, first, do your due diligence. Scams and Forex trading go hand in hand. Despite the numerous advances to prevent fraud, being vigilant keeps your funds secure and safe.
Follow the below tips to succeed in your venture:
- Plenty of websites have information on reputable broker companies. Do not be lazy to assign someone the research work. Conduct thorough research by yourself. Link up with other traders and come up with the best options;
- Make use of the free demo account that most reputable Forex brokers in Malaysia offer. You will not be risking your cash since you will be playing using ‘virtual cash’;
- Be on the alert for any unbelievable claims;
- Check to ensure that the Forex broker has a legit Forex trading license in Malaysia. The broker should be regulated by a body or institution that will ensure performance reaches a certain standard.
Detecting Forex Scams
Even though Forex trading is legal in Malaysia, there are some Forex scams that you may fall for in your trading business. The good thing is that detecting a forex scam is relatively easy. Moreover, when you have presented an outstanding offer that you suspect its legitimacy. Then there will be no reason to proceed with the business. Always trust your instincts whenever you feel something might be too good to be true.
As a trader, you should be attentive to excessively lucrative deals and always point out some scam signs
Now, what are some of the tell-tale indicators of Forex scams?
- Brokers that ask for your signature and bank details, yet their paperwork is unclear with no signatures;
- Bank accounts, companies, and headquarters are registered in loosely controlled tax regime countries;
- Fake pictures and testimonials of their alleged traders with luxury items or immense cash amounts. Suppose you are money-driven and fascinated by luxurious items;
- A controlled environment with demonstrations of what you suspect is fake transactions and does not look real by mentioning the huge profits rather than the risks involved;
- You are getting a payout from the scammers on the first small investment you make so that you can agree to make more significant investments.
In Malaysia, Forex trading is legal. Provided that you use the Malaysian government’s regulated and approved institutions. However, as a trader, you should be thorough and diligent. Always choose reputable Forex brokers with a Forex Trading License in Malaysia. Failure, you may get duped by scammers. Also, get the right educational tools before you begin investing in Forex trading.