Is Forex trading legal in Malaysia?

Yes, Forex trading is legal in Malaysia. Though Forex brokers may be operating illegally if they are not licenced and registered by the Securities Commission Malaysia (SCM).

Until recently, the SCM had turned a blind eye to Malaysian Forex traders using offshore brokers to trade Forex and other CFDs, but since 2020 the SCM has started issuing warnings against Forex brokers operating without a local licence. Many respected and otherwise well-regulated brokers have seen warnings issued against them, including eToro, HotForex, FXTM, Tickmill, Oanda, OctaFX and FBS. 

While no arrests have been made, the SCM has announced that these companies are violating Malaysia’s Capital Markets and Services Act 2007 and, if convicted, company representatives could be imprisoned and heavily fined. Specifically, the SCM has warned that these brokers are ‘carrying out of the unlicensed capital market activities of dealing securities’, and ‘operating a recognized market without authorization from the SCM.

Overseas Investing is Legal

Interestingly, investing with offshore institutions is legal in Malaysia and trading with an internationally based Forex broker could be considered a foreign investment. While traders are not technically breaking the law by trading with an offshore broker (the crime, if any, is being committed by the broker), it has been increasingly difficult for traders to work with offshore brokers.

Some brokers have recently updated their websites to state that they no longer accept clients from Malaysia, while others have taken down their local Malaysian websites altogether. While this is most likely an effort to avoid legal trouble with the Securities Commission, it is worth bearing in mind for traders – especially if the SCM starts taking more concrete action against offshore brokers.

To be completely safe, Malaysian Forex traders should use the services of a Forex broker that is registered, licensed and regulated by the Securities Commission Malaysia.

Law and regulation in Malaysia concerning Forex trading

The main laws and regulations set in place to facilitate Forex and related activities are the Capital Markets and Services Act 2007, the Exchange Control Act of 1953, Securities Commission Act of 1993 and the Money Changing Act of 1998.

Structure

• Capital Markets and Services Act 2007

The Capital Markets and Services Act 2007 is a Malaysian law that consolidates the Securities Industry Act 1983 [Act 280] and Futures Industry Act 1993 [Act 499]. It regulates and provides for matters relating to the activities, markets and intermediaries in the capital markets. As this act provides for all companies involved in the securities and derivatives markets, it covers all CFD brokers.

• The Exchange Control Act of 1953

The Exchange Control Act of 1953 (pdf) consists of guidelines to how Malaysians deal with foreign exchange related commodities like gold, securities, and currencies and also gives the restrictions connected to them. In addition, it also regulates the import, export, and transfer of commodities or properties.

• The Securities Commission Act of 1993

The Securities Commission Act of 1993 (including latest updates in 2017) gives powers to the Securities Commission Malaysia, to license and regulate businesses dealing in securities.

• The Money Changing Act of 1998

The Money Changing Act of 1998 (pdf) is mainly concerned with the licensing and regulation of any money-changing business by the responsible commission. This is the act that outlines the regulations that Forex brokers who wish to operate in Malaysia should strictly abide by. It is this act that also outlines that the Foreign Exchange trade is not regulated directly by Bank Negara Malaya. The central bank, BNM, regulates the Malaysian Ringgit and also issue licenses to money-changing businesses without regulating the trade itself.

Institutions, bodies, Agencies, and commissions regulating Forex trading in Malaysia

The main regulating bodies and commissions that deal with foreign exchange businesses are Bank Negara Malaysia, Malaysian Investment Development Authority (MIDA), Bursa Malaysia, Securities Commission of Malaysia, Finance Accreditation Agency (FAA) and Shariah Advisory Council (SAC).

• Securities Commission of Malaysia

This commission was formed in conjunction with the Securities Commission Act of 1993 and it is answerable to the minister of finance. It is the body that regulates businesses that deal with securities in Malaysia. Its functions are:

1. Supervision of exchanges, clearance of houses and central depositories.
2. Registration of prospectuses of corporations other than unlisted recreational clubs.
3. Approving corporate bond issues.
4. Regulation of all matters relating to securities and futures contracts.
5. Regulation of the mergers and acquisitions of companies.

• Bank Negara Malaysia

Bank Negara Malaysia is the Central bank of Malaysia and it controls all matters concerning the Malaysian currency and also advises the government on the financial stand of the economy. It is actively involved in all foreign exchange trading related activities in Malaysia.

• Malaysian Investment Development Authority (MIDA)

The Malaysian Investment Development Authority (MIDA) outlines how money-changing businesses should conduct themselves in Malaysia including retail Forex traders. The MIDA has clearly expounded on issues of investing in foreign assets, borrowing in ringgit, borrowing in foreign currency and opening foreign currency accounts.

• Finance Accreditation Agency (FAA)

This agency was established by the Securities Commission and Central Bank Malaysia in 2013 as an independent quality assurance and accreditation body for the financial services industry.

• Shariah Advisory Council (SAC)

The mandate of the Shariah Advisory Council is to ensure that the implementation of the Islamic Capital Market complies with the Shariah principles since a majority of Malaysians are Muslims. It also advises the Securities Commission Malaysia on all matters that are related to the overall development of the Islamic Capital Market and also functions as a reference centre for all Islamic Capital Market issues.

• Bursa Malaysia

This is an exchange holding company in Kuala Lumpur.