KUALA LUMPUR (Aug 23): Bank Negara Malaysia (BNM) said on Friday it has imposed a penalty on Bank of China’s operations in the country for failing to comply with a rule on outsourcing.

An administrative monetary penalty of RM88,000 was imposed on Bank of China (Malaysia) Bhd for failing to obtain approval from the central bank before relocating two of its systems to new data centres in December 2022 and February 2023, BNM said in a statement. The bank paid the fine on Aug 2.

“The two systems are core banking systems, and their relocation is deemed as a significant modification to the existing approved outsourcing arrangement” as it may materially change the risk which the bank is exposed to, BNM said.

That breached paragraph 48(1)(a) of the Financial Services Act 2013 read together with paragraph 12.1(b) of the policy document on outsourcing, it noted.

Under the policy document on outsourcing, a financial institution is required to obtain BNM’s approval before significantly modifying any existing approved material outsourcing arrangement in order to allow the central bank to continue to effectively supervise financial institutions.

BNM said Bank of China Malaysia’s gaps in oversight over its outsourcing activities and outsourcing-related internal policies and procedures resulted in the breach, noting that the company has since then taken “appropriate measures” to strengthen its oversight.

Bank of China Malaysia has also put in place periodic reviews of its outsourcing arrangements and improved coordination with its group functions that perform material activities on behalf of the bank to ensure compliance with local laws and regulations at all times, BNM added.