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1.0 INTRODUCTION
The United Kingdom and Malaysia are both having a similar government system in which a prime minister is the active head of the government executive branch. The head of state is a constitutional monarch who normally only exercises his or her powers with the consent of the government, the people or their representatives. Although both countries use the same government system, the two countries practice different financial structures and banking systems.

Financial system is a set of institutions instruments and markets which foster saving and channels them to their most efficient use. It is also defined by a complex, well integrated set of sub system of financial market, financial institution and financial services that facilitates effective allocation and mobilization of available resources. However, when analyzing the financial system of a country, it should be outlined that it comprises the currency, the financial market, the financial institutions, the supervising institutions and regulators.
OBJECTIVES
To understand the financial and banking structure in United Kingdom and Malaysia.

To discover the differences and similarities in both countries.

To highlight the strength and weaknesses of each countries system.

To discuss further any banking or economic crises occur in both countries
To improve understanding in the regulations and regulatory agencies in both countries.
3228975457200-162560695325THE STRUCTURE OF BANKING SYSTEM
Figure 1: Structure of Banking System
3.1 UNITED KINGDOM
United Kingdom is chosen to represent Organization for Economic Cooperation and Development (OECD) country. It is an intergovernmental economic organization that conduct economy and social research that provide a policy framework for economic development.

UK is the fifth ranked in the world for develop country. Due to UK is the largest banking sector in Europe, this country has been a model to the other countries in terms of monetary policy. Monetary policy of UK is being conducted by Bank of England. The central bank of United Kingdom which is Bank of England has trying to maintain the monetary stability by targeting the UK inflation rate should be around 2% or 1%. Responsibility for UK bank regulation is under taken by three main regulations which is Bank of England (BoE), the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA).
There are 4 major groups in UK financial institutions. Those four are foreign banking sector, building societies, clearing banks and investment banks. UK sector has hosts many foreign banks and the banking assets of non-UK banks is about 45% of aggregate balance sheet. Building societies is a mutual organization and also a financial institution that provides banking and financial services. The services are mortgage lending and savings accounts. The largest building societies is Nationwide Building Society that was founded in 1846. Next, clearing bank is the cheque and credit clearing company that dominate the banking sector in UK. Besides, clearing banks also played role as international banker to the society. The activities of clearing banks are trade services, corporate finance, Forex and advisory services. Lastly, investment bank plays role as lending and medium term finance for experts to finance overseas project finance, investment management and corporate finance. Barclays Capital is the investment banking of Barclays.

3.2 MALAYSIA
Malaysia has been chosen to represent emerging market countries. Emerging market countries are the countries that are less matured and they are open to greater risk.
Banking system in Malaysia is different compared to banking system in United Kingdom. Malaysia’s banking system is governed by Bank Negara Malaysia which is Central Bank of Malaysia. BNM need to ensure the banking sector complies all regulatory requirements.
Banking sector of Malaysia is made up of three types of banks. The banks are commercial banks, Islamic banks and investment banks. Banking sector is important as it is accounted about 50.6% of Malaysian financial sector in 2015. Commercial banks in Malaysia provides retail banking services, trade financing facilities, treasury services, cross border payment services, forex and custody services such as safe deposits and share custody. Commercial bank also the only one institutions that have current account facility. There are 27 commercial banks in Malaysia has been established including foreign banks.
According to BNM, there are 11 investment banks in Malaysia and all of them are locally incorporated. Investment bank in Malaysia is the bank that functions in capital-raising activities such as financing, specializing in syndication, corporate finance and management advisory services and arranging investment portfolio management.

Malaysia is one of the country that practiced Islamic banking which has existed in Malaysia since 30 years ago. These Islamic banks offers Islamic finance concepts such as ijarah (leasing), mudharabah (profit sharing) and musyarakah (partnership). Islamic banks also being regulated by BNM under Islamic Financial Services Act 2013.

Representative offices of foreign banking institutions in Malaysia also a part of banking institutions in Malaysia. The representative offices are established to perform activities from their head office such as supplying trade, assisting Malaysian exporters and others.

Although Malaysia is one of the countries that exposed to greater risk, up until now, Malaysia banking sector is doing good and improving time by time.

Commercial Banks Investment Banks Islamic Banks
Local Foreign Local Foreign Local Foreign
Affin Bank Berhad BNP Paribas Malaysia Berhad Affin Hwang Investment Bank Berhad Affin Islamic bank Berhad Al Rajhi Banking ; Investment Corporation (Malaysia) Berhad
Alliance Bank Malaysia Berhad Bangkok Bank Berhad Alliance Investment Bank Berhad Alliance Islamic Bank Berhad HSBC Amanah Malaysia Berhad
Ambank (M) Berhad Bank of America Malaysia Berhad Amlnvestment Bank Berhad AmBank Islamic Berhad Kuwait Finance House (Malaysia) Berhad
CIMB Bank Berhad Bank of China (Malaysia) Berhad CIMB Investment Bank Berhad Bank Islam Malaysia Berhad MBSB Bank Berhad
Hong Leong Bak Berhad China Construction Bank (Malaysia) Berhad Hong Leong Investment Bank Berhad Bank Muamalat Malaysia Berhad OCBC Al-Amin Bank Berhad
Malayan Banking Berhad Citibank Berhad KAF Investment Bank Berhad CIMB Islamic Bank Berhad Standard Chartered Saadiq Berhad
Public Bank Berhad Deutsche Bank (Malaysia) Berhad Kenanga Investment Bank Berhad Hong Leong Islamic Bank Berhad RHB Bank Berhad HSBC Bank Malaysia Berhad MIDF Amanah Investment Bank Berhad Maybank Islamic Berhad India International Bank (Malaysia) Berhad Maybank Investment Bank Berhad Public Islamic Bank Berhad Industrial and Commercial Bank of China (Malaysia) Berhad Public Investment Bank Berhad RHB Islamic Bank Berhad J.P. Morgan Chase Bank Berhad RHB Investment Bank Berhad MUFG Bank (Malaysia) National Bank of Abu Dhabi Malaysia Berhad OCBC Bank (Malaysia) Standard Chartered Bank Malaysia Berhad Sumitomo Mitsui Banking Corporation Malaysia Berhad The Bank of Nova Scotia Berhad United Overseas Bank (Malaysia) Bhd. Source: Bank Negara Malaysia (22/4/2018)
Table 1: Types of Banking in Malaysia
4.0 COMPARISON OF FINANCIAL SYSTEM BETWEEN UNITED KINGDOM AND MALAYSIA 4.1 SIMILARITIES OF FINANCIAL SYSTEM
Depending on market structure, it is possible to distinguish two main categories of financial system, which is market-oriented, such as America. The other is bank-oriented, such as German. Both United Kingdom and Malaysia is supported by a market-oriented economy. A type of financial system, which focuses on the capital market or the bank, causes the provision of financial savings through the market. Bonds and stocks are one of the most important financial instruments. Hence, these provides attractive terms to both investors and borrowers. It also facilitates diversification and allows risk-sharing and financing new technologies.
4.2 DIFFERENCES OF FINANCIAL SYSTEM
A real overview of the differences and similarities of both financial and banking sectors in the analyzed countries could be achieve through following table.
CHARACTE-RISTIC UNITED KINGDOM MALAYSIA
Banking sector Clearing banks, investment bank and foreign bank sector Bank Negara Malaysia, Commercial banks, Investment banks, Islamic banks, Discount houses, and representatives of foreign banks.

Non-banking sector Building societies Social securities, Insurance companies, Savings institutions, Leasing companies, Development Finance Institutions and others (unit trust, credit guarantee, etc.)
Regulators Bank of England
Bank Negara Malaysia or Central Bank of Malaysia
Legal framework Financial Services and Markets Act 2000 (FSMA) Financial Services Act 2013 (FSA), Islamic Financial Services Act 2013 (IFSA), Insurance Act 1996 and Anti-Money Laundering Act 2001
Branching restrictions It is an open policy and has easy access to the foreign banking sector. Foreign banks are limited to four additional branches throughout Malaysia.

Deposit insurance Since 1982 Since 2005
Exchange control restrictions No restrictions, but anyone carrying the equivalent of €10,000 or more in cash must declare it when they enter the UK. Restricted when import or export to no more than RM1,000 per person
Payment system administrator Association for Payment Clearing
Services (APACS) Malaysian Electronic Payment System Sdn Bhd (MEPS)
Stock exchanges London Stock Exchange (LSE) Kuala Lumpur Stock Exchange (KLSE)
GDP per capita and population 39,899.39 USD (2016),
65.64 (2016) 9,502.57 USD (2016),
31.19 million (2016)
Contribution of financial services to the economy 6.5% of total economic output (2017) Contributed 4.7% of Malaysia’s GDP in 2016
Number of employees in financial services sector 1.1 million which is 3.2% of all jobs 3% of total employed workers in country in 2016
Rate of NPL 0.09% in 2016 1.6% in 2016
Capital adequacy ratio 7.0% in 2016 11.0% in 2016
Reserve requirement None 3.50%
Source: World Bank
Table 2: Differences of banking sector in United Kingdom and Malaysia
5.0 STRENGTHS AND WEAKNESSES OF UNITED KINGDOM AND MALAYSIA BANKING
United Kingdom
Malaysia
The UK is the largest economy in Europe. Member of ASEAN.

High personal incomes resulting in high levels of disposable incomes. Large current account surpluses since 1998.

A strong post-Brexit UK (Coulter & Hacke, 2016). Generally strong business environment.

A relatively strong GDP growth rate of 1.7% (World Bank Group, 2016). Resilient banking sectors.

Low rate of corporate taxes at 20%. The lower rate of interest (Bank of England at 0.25%) (World Bank Group, 2016). Ease of doing business in the UK (82.74%) (World Bank Group, 2016). 5.1 STRENGTHS
Table 3: Strengths in banking structure.

The U.K. has a large, complex, and globally interconnected financial system. The U.K. is a global financial hub: according to the Bank of England (BoE), nearly a fifth of global banking activity worldwide is booked in the U.K. and around half of the world’s largest financial firms, including banks, insurers, asset managers, and hedge funds, have their European headquarters in the U.K.

Malaysia is the third-largest economy in the Association of Southeast Asian Nations (ASEAN) and has one of the best economic records in the world, having grown 6.4% per year on average between 1960 and 2011. According to the Commission on Growth and Development, it is one of the 13 countries that has successfully managed high and sustained growth over the past few decades. Once dependent on mining and exports such as tin and rubber, Malaysia now boasts a diversified economy. This has been a key factor in helping the country bounce back from the 1997 Asian financial crisis faster than its peers. The country has successfully transformed itself from an agricultural and primary commodity-focused economy to an externally oriented global manufacturing hub.

Besides, Bank Negara Malaysia is responsible for the prudential regulation of investment banks to ensure their safety and soundness and the overall stability of the financial system. The Securities Commission of Malaysia is responsible for the investment banks’ business and market conduct, to promote market integrity and investor protection in the capital markets.

5.2 WEAKNESSES
UNITED KINGDOM
MALAYSIA
A large aging population.

Export dependency causes cyclical risk.

High costs of labor.

Slightly elevated fiscal deficits in recent years (currently not a problem but should be addressed in the medium term.

Political uncertainty in the post-Brexit UK. High household debt and high external debt burden.

Rising rate in inflation (1.6%) (World Bank Group, 2016). Table 4: Weaknesses of banking structure
4.0 ISSUES GIVE IMPACTS ON INTERNATIONAL BANKING BUSINESS.
4.1 UNITED KINGDOM
According to Bliss & Kaufman (2010), United Kingdom retail banks or known as Major British Banking Groups (MBBG) is dominated in sterling banking business in the U.K. Abbey National, Northern Rock (1997), HSBC and etc are included in MBBG until the end of 2007. Since mid-2007 the MBBG have experienced turmoil resulting from the credit crisis and there have been significant developments adversely affecting their activities. On 13 September 2007, Northern Rock was the first that had received emergency financial support from the Bank of England because unable to refinance itself in the interbank markets. Over the next few days, bank run was occurred when £1bn was withdrawn from the bank’s high street branches. To stop the panic, the U.K. government announced a full guarantee of depositor’s saving on 17 September 2007.
In the same month, HBOS bank was acquired for £12bn, creating a merged entity with a market share of around one-third in the U.K. savings and mortgage markets. Primary causes of the Northern Rock failure included overaggressive growth in mortgage lending, and overdependence on short-term wholesale funding. Therefore, to improve depositor confidence, on 10 October 2007, the U.K. authorities eliminating a provision where by deposits between 2,000 and 35,000 were only 90% guaranteed which this is the most factor that contributed the losses of depositor confidence in Northern Rock. As the result on 6 December 2007, worries about the possibility of a major slowdown in the U.K. economy led the Bank of England to implement a base rate cut down to 5.5% and participated in a coordinated international effort to increase liquidity in the interbank markets by increasing the size of its next two auctions of short-term funds. CITATION Rob101 l 1033 (Bliss & Kaufman, 2010)Based on Bliss & Kaufman (2010), on 17 February 2008 the U.K. government finally exhausted its attempts to find a private sector buyer for Northern Rock and announced the remedy of full scale nationalization. A few days later, the U.K. Banking Act was introduced providing new provisions for faster intervention and resolution of bank failures, in recognition that authorities’ powers to intervene had been inadequate as the crisis at a Northern Rock first broke and escalated. Besides, the new powers allowed for the Bank of England to intervene and help sort out problems at a troubled bank at a stage before corporate bankruptcy procedures were triggered by transfer of assets and liabilities to a third-party bank, transfer assets to a “bridge bank,” temporary nationalization or liquidation.
In an attempt to inject more liquidity into a floundering U.K. banking system, the Bank of England introduced a special Liquidity Scheme to allow banks to swap temporarily high quality, illiquid mortgage-backed and other securities for Treasury Bills. The swaps were initially for a period of up to three years. While the monetary authorities continued with their efforts to inject liquidity, the potential for write-offs of non-performing assets to erode the capitalization of the U.K. largest banks was growing concern. In addition, the main features of the U.K. government’s immediate response to the crisis has been policy actions aimed at boosting capital and liquidity positions of the U.K. banks and also providing various guarantees aimed at encouraging lending activity. CITATION Rob101 l 1033 (Bliss & Kaufman, 2010)Bennet (2012) indicates a general public dissatisfaction with the banking industry after the onset of the crisis. The banks were regarded as having engaged in wild speculation and possessing serious moral flaws. Sample members’ perceptions of the banking industry’s levels of reliability, competence, and respect for the law declined substantially in the years following the crisis implying the need for the sector, as a whole, to invest in reputation management. The respondents whose perceptions of the reputation of the banking industry prior to the crisis were sound had significantly more favorable current attitudes towards the banks and that this relationship was especially strong among people with little knowledge of economic and political circumstances surrounding events. Moreover, the prior perception that banks had a good reputation was associated with lower levels of attribution of blame for the crisis to the banks.

4.2 MALAYSIA
 During Asian Financial Crisis in 1997-1998, the stock market in Malaysia crashed 75% and the currency drop 40%. One billion dollars in foreign reserves were blown trying to shore up the currency. One of the reason that cause crisis in Malaysia was that it had a high current-account deficits (when imports exceed exports), which made it a target for currency speculators. The deficit was partly caused by money poured into infrastructure projects. Growth was spurred by government spending and tax breaks than efficiency. According to Drabble (2000), the Asian financial crisis originated in heavy international currency speculation leading to major slumps in exchange rates beginning with the Thai baht in May 1997, spreading rapidly throughout East and Southeast Asia and severely affecting the banking and finance sectors.
After the crisis in January 1998, the Malaysia ringgit exchange rate fell from RM 2.42 to RM 4.88 to the 1USD. There was a heavy outflow of foreign capital. To counter the crisis, the International Monetary Fund (IMF) recommended severity changes to fiscal and monetary policies. Some countries (Thailand, South Korea, and Indonesia) reluctantly adopted these but not Malaysia. Government was refused and implemented independent incentives where the ringgit became non-convertible externally and was pegged at RM 3.80 to the 1USD. Besides that, foreign capital repatriated before staying at least twelve months was subject to substantial levies. Restoring net growth although worldwide criticism, it settled the domesticated circumstances very adequately contrasted with neighboring Indonesia. CITATION Joh001 l 1033 (Drabble, 2000)At the same time, it tried to reestablish the economy through domestic policies such as lowing interest rates and government spending, reducing corporate and bank debts, and enacting legislation to reduce the power of foreign investors. Malaysia encouraged their people to buy their product, discouraged companies from hiring foreign workers and told rich families to send their foreign servants home. The government strict the legislation that made it more difficult to take ringgits out of the country by exploits sweeping controls of the capital markets. It prohibit trading of the ringgit, pegged the ringgit against the dollar at a fixed rate, and forbid foreign capital from leaving the country for a year. Besides, it also adopted isolationist and protective policies to protect Malaysian industry and loosen some rules to help ailing companies stay afloat. CITATION Jef15 l 1033 (Hays, 2015)The economy decline in Malaysia after the Asian financial crisis 1997-1998 was not critical compared to other Asian countries. The economy shrunk by 6 percent in 1998 but started growing again after that. Most of its $13 billion in bad loans was cleared up in four years. Most of the loans were bought by the government at about 46 percent of their original value which for a while banks couldn’t lend the loans. At the peak of the crisis in Malaysia, bank credit equaled 160 percent of GDP. Besides that, debt collectors have to work hard to collect all the debts from the borrowers and number of Mercedes sold in Malaysia also dropped 60 percent. In addition, it also resulted in a reduction of pollution as people drove less, car sales plummeted, factories reduced their output or were closed, construction ceased and development projects were scrapped. CITATION Jef15 l 1033 (Hays, 2015)The recovery from the crisis based on Hays (2015) was driven by exports activities and the use of government funds to prop up failing companies and finance employment-providing infrastructure projects. Malaysia has enjoyed an average real GDP growth rate of 5.6 percent since the 1997 Asian Financial Crisis. As an export-oriented economy, the country’s major exports in 2007 were electronics, electrical machinery, chemical products, palm oil and crude oil. Its top five trading partners are the U.S., Singapore, Japan, China and Thailand. In addition to exports, Malaysia’s economy also has strong manufacturing, services and tourism industries.

5.0 REGULATIONS AND REGULATORY AGENCIES
5.1 UNITED KINGDOM
The Bank of England (BoE) has pursue a wider economic goal of sustainable growth and employment to ensure they can achieve their target. The BoE also need to maintain the financial stability of UK. Besides, the legal framework for United Kingdom is Financial Services and Market Act 2000 (FSMA). This act is established by European regulations that directly effects UK mainly in prudential requirements and capital requirements for increase credit institutions and investment firms. All the banks are being regulated under FSMA and the regulators of this act are BoE. In the BoE, a Financial Policy Committee (FPC) has been established to manage systemic risks and giving direction to Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). FPC can give recommendations to the regulators.

BoE was formally recognized as a central bank by 1946. BoE is the resolution authority, with primary responsibility for regulatory intervention and exercise of resolution powers in relation to banks that are failing or likely to fail. The role of BoE include:
The Bank was granted independence in the sense that it was given freedom to set interest rates;
Prudential control of Banks was transfer from the Bank to the new financial services authority (FSA), which became responsible for prudential control of the whole of the financial services industry;
Management of government’s debt was transferred to the Debt Management Office (DMO).

The PRA’s objective is to promote the safety and soundness of those institutions authorized by them which PRA will seeking of certain to providing that their business is carried on in a way which avoids any effect that can be negative side on the stability of the UK financial system.

5.2 MALAYSIA
Baking system in Malaysia is different compared to banking system I United Kingdom. Malaysia’s banking system is governed by Bank Negara Malaysia. Bank Negara Malaysia (BNM) was established in 1959 to oversee the operation of the financial institutions. BNM is empowered to act as the regulator of the banking institutions under the Financial Services Act 2013 (FSA), the Islamic Financial Services Act (IFSA) and the Central Bank of Malaysia Act 2009 (CBA). BNM is the sole authority that issued currency notes and coins country. It plays important role in stimulating growth of the financial sector and stabilizing the economy from inflation and recession problem. Then, BNM also responsible for the formulation and implementation of monetary and credit policies to achieve financial and economic objectives.
The role of BNM include:
Issues currency and keep the reserves that safeguard its value
Act as banker and financial adviser to government
Promote monetary stability and sound financial structure
Influence the credit situation to the advantage of Malaysia
BNM has a broad power of supervision and control over banking institutions licensed under the FSA and the IFSA.

The framework for banking regulation in Malaysia is the Financial Services Act 2013 (FSA). It replaced the Banking Financial Services Act 1989, the Insurance Act 1996, the Payment Systems Act 2003 and the Exchange Control Act 1953. Then the Islamic Financial Services Act 2013 (IFSA) is the FSA’s counterpart for the Islamic finance sector, and replaced statutes such as the Islamic Banking Act 1983 and the Takaful Act 1984. Both are the sources of baking regulation in Malaysia.
For Islamic banking, the decision of Islamic law on any financial matter and issue in rulings on Shariah matters on a reference is under the Shariah Advisory Council (SAC) of BNM. SAC has an authority under the Central Bank of Malaysia Act 2009 (CBA) to make this decision. BNM also required to consult the SAC on any matter relating to Islamic financial business which requires a decision on Islamic law by the SAC. Any issues in Islamic can refer to the SAC.

The FSA and IFSA help BNM to effectively perform its oversight role. It is also helps bank for the purpose of ensuring the safety, integrity, efficiency and reliability of the payment systems and payment instruments.
In conclusion regulation of banking in United Kingdom is control under the Bank of England (BoE) and Malaysia is regulated under Bank Negara Malaysia. They have their own rules and main objective to ensure banking industry maintain their performance.

References
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