Effective 30 March 2015, the Netting of Financial Agreements Act 2015 (‘the Act’) came into force which aims to provide legal certainty to the enforceability of a close-out netting mechanism under Malaysian law. Prior to this, there was some uncertainty on the enforceability of netting arrangements in Malaysia.
According to Deputy Finance Minister Datuk Ahmad Maslan, the Act gives assurance to international and domestic financial market participants such as fund management, insurance, and banking institutions, and also public and private companies to enforce the close-out netting mechanisms when an ‘event of default’ occurs under certain agreements.
With the Act coming into force, credit risk reduction benefits will be provided by allowing counter parties to net off credit risk exposures instead of having gross exposures thereby improving the operational efficiency of the financial system by reducing systemic risks.
Please click here for our client alert which highlights the key features of the Act.