Bank Negara issues Policy Document on Prudent and Professional Conduct of Insurance and Takaful Brokers

Bank Negara Malaysia (“BNM”) has issued the Policy Document on Prudent and Professional Conduct of Insurance and Takaful Brokers (“Policy Document”) on 29 August 2025.

The Policy Document comes into effect on 1 January 2026, other than paragraph 11.2 (the requirement to have at all times, at least one independent director on the board of directors) which will come into effect on 1 January 2027.

The Policy Document applies to approved brokers, that is an approved insurance broker under the Financial Services Act 2013 (“FSA”) and an approved takaful broker under the Islamic Financial Services Act 2013 (“IFSA”).

The Policy Document is to be read together with the relevant policy documents and legal instruments set out in paragraph 6.1 of the Policy Document (including any amendments, modifications and reissuances made after the issuance date of the Policy Document) and supersedes the circulars and specification letter set out in paragraph 7.1 of the Policy Document.

The main requirements set out in the Policy Document are set out below. 

  1. Form of establishment – an approved broker must be a company incorporated under the Companies Act 2016. 
  2. Capital funds – an applicant and an approved broker must have minimum capital funds of RM1.0 million which shall comprise paid up ordinary shares, preference shares, reserves, retained profits/ earnings or accumulated losses, and audited profits for the period, or audited and unaudited losses for the period minus loans, advances and investments given to shareholders, directors or other related parties. Notwithstanding the foregoing, the board of directors (“board”) of an approved broker must ensure that the amount of capital funds commensurate with the volume, nature and risk of the approved broker’s business and that the adequacy is reviewed regularly. 
  3. Professional indemnity – an approved broker shall maintain a professional indemnity insurance or takaful cover with a minimum limit of indemnity of at least RM1.0 million, net of deductibles for any one claim at all times.Notwithstanding the foregoing, the board must ensure that the amount and scope of the professional indemnity insurance or takaful cover commensurate with the volume, nature and risk of the approved broker’s business and that the adequacy of the cover is reviewed regularly. 
  4. Board – subject to a minimum of three directors, the size of the board shall commensurate with the size and risk of the approved broker’s business. Commencing 1 January 2027, the board shall have at least one independent director at all times. An approved broker carrying on takaful broking business shall ensure that at least one director possesses an understanding of the relevant Shariah concepts and principles.

    The board has the overall responsibility for promoting the sustainable growth and financial soundness of an approved broker and for ensuring reasonable standards of fair dealing, without undue influence from any party. 
  5. Senior management – an approved broker shall appoint a full-time chief executive officer (“CEO”) whose principal or only place of residence is within Malaysia. An approved broker shall ensure that its senior management is responsible for the functions set out in paragraph 11.14 of the Policy Document, which, among others, include – 
  • establishing and implementing effective policies and procedures for risk management and controls to manage and monitor risks;
  • ensuring sufficient and timely reporting or escalation of issues to the board; and
  • ensuring decision making processes give adequate consideration to customers’ interests. 

An approved broker carrying on takaful broking business shall ensure that its objectives, operations, business, affairs and activities comply with Shariah principles. 

  1. Appointment of auditor – the auditor of an approved broker must be registered by the Audit Oversight Board under the Securities Commission Malaysia and has not served as an engagement partner for a continuous period of more than five years with the same approved broker. An auditor who has been rotated off the audit of the approved broker may resume the role as engagement partner only after a lapse of five years from the last audit engagement with that approved broker. 
  2. Business conduct   Product options – for first-time customers, an approved broker shall source suitable product options from at least three different licensed insurers or licensed takaful operators for each class of insurance or takaful business and recommend the most suitable option.

    If there is less than three or no suitable product options that meet customers’ needs, an approved broker shall inform and explain the limitations to the customers accordingly. An approved broker must obtain the customer’s consent before proceeding with any comparisons and recommendations based on the limited product options.

    An approved broker may solicit, negotiate or procure foreign currency denominated ordinary life or investment-linked insurance policies from Labuan insurers for high-net-worth individuals (HNWI), subject to, among others, the following – 
  • commission received shall not exceed the relevant commission limits payable by licensed life insurers/ licensed family takaful operators for the sale of similar policies/ takaful certificates under the Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business;
  • the approved broker shall not be tied to any particular Labuan insurer; and
  • the approved broker shall educate the client on the risks of purchasing from non-licensed insurers or takaful operators under the FSA, and obtain written confirmation from the client on his awareness of such risks.

Handling customers’ monies – an approved broker shall segregate customers’ monies from the approved broker’s own funds.

An approved broker carrying on takaful broking business shall ensure payments of takaful contributions by customers are made into the takaful broker’s customer account with an Islamic bank.

To protect its customers’ interest, an approved broker shall ensure that premiums or contributions are collected and remitted to licensed insurers, takaful operators, reinsurers or retakaful operators in a timely manner (and in any event no later than seven working days from the receipt of premiums or expiry of the 60-day Premium Warranty period, whichever is earlier).

Brokerage/ fee sharing arrangements – an approved broker shall comply with the requirements set out in the Policy Document relating to brokerage and fee sharing arrangements, including the following –

  • ensuring proper governance and documentation for any arrangements involving the sharing of brokerage/ fees, including establishing effective internal policies, procedures and controls that clearly delineate the roles and responsibilities to ensure prudent, professional and fair dealings for all parties involved in such arrangements;
  • formalising brokerage/ fee sharing arrangements in a written agreement that contains the matters listed in paragraph 13.18 of the Policy Document and which is to be approved by the senior management and the board;
  • all payments in respect of brokerage/fee shall only be out of the brokerage received on the specific customer introduced and shall not be from the total brokerage income of the approved broker;
  • where a foreign broker secures a customer residing overseas through an introduction made by an approved broker, the approved broker shall endeavour to secure a brokerage of not less than 30% of the direct brokerage, subject to prevailing laws in the country where the foreign broker operates; and
  • where a customer is secured with the assistance of a foreign broker who provides technical assistance or related services in securing and servicing the customer, the approved broker shall endeavour to retain a minimum of 70% of the brokerage. For specialised risks, the approved broker may retain any other percentage no less than 50% of the brokerage, provided such percentage is approved by the board. 

Business introducer – In relation to business introducers1, the minimum brokerage/ fee that an approved broker retains for itself shall not be less than 70% of the total direct brokerage/ fee on the specific customer introduced.

Where a Malaysian customer is secured through the introduction or assistance of an approved broker’s overseas associate broker, or any other foreign broker, the approved broker shall retain a minimum of 70% of all direct brokerage/ fee on the customer introduced.

A business introducer is only allowed to work with one approved broker for one specific customer at any one time.

The minimum brokerage to be retained by an approved broker is to be liberalised and reduced progressively as set out in paragraph 13.27 of the Policy Document and shall cease to apply after 31 December 2028. 

  1. Other permitted business activities An approved broker is permitted to carry on the following activities – 
  • risk consulting and management services not relating to broking services;
  • claims advisory and management services on behalf of policyholders/ takaful participants;
  • employee benefits consulting and management; and
  • distribution of private retirement schemes. 

An approved broker intending to carry out any of the above businesses or activities is required to notify BNM in writing at least two weeks before commencing such business or activity, and comply with any condition which BNM may impose in respect of such business or activity.

An approved broker that wishes to carry on any activity other than those mentioned above must submit an application to BNM.

To ensure that an approved broker remains focused on the approved insurance or takaful broking business, the annual revenue earned from any additional permitted activities is subject to a maximum cap of 20% of the total revenue in the previous financial year. 

  1. Maintaining professionalism of broking staff 

The following are among the initiatives which are to be implemented to enhance the professionalism of its broking staff.

Qualifications – an approved broker must ensure that its broking staff hold at least one of the qualifications listed in paragraph 15.2 or 15.3 of the Policy Document or an equivalent qualification from a higher learning institution.

Continuous Professional Development – an approved broker shall ensure that its broking staff attend courses or training to achieve a minimum of 20 hours of continuous professional development in each calendar year.

Balanced score card – an approved broker and its senior management shall develop and approve the remuneration policy which includes parameters for the implementation of a balanced scorecard (“BSC”) framework that fulfils the requirements set out in paragraphs 15.13 to 15.19 of the Policy Document.

Submission of report to BNM – an approved broker shall submit to BNM an annual report on the performance of its broking staff against the key performance indices of the BSC framework which has been reviewed by the board and senior management, and the information on the amount of BSC commissions payable to its broking staff by the end of March of the following year using the template in Appendix II of the Policy Document. 

  1. Publication of financial statement 

An approved broker shall make available its latest audited financial statements for access and inspection by members of the public, at no cost, at every branch of the approved broker in Malaysia, or on its website in an electronic form that is publicly accessible.

  1. Notifications 

An approved broker shall notify BNM in writing within seven days after the date of the following changes: 

  • the establishment or relocation of an office (section 25(2) FSA and section 22(2) IFSA);
  • the appointment, re-appointment, election or re-election of its chairman, director or CEO (section 54(4) FSA and section 63(4) IFSA);
  • the cessation from office of its chairman, director, CEO or senior officer, and the reason for such cessation (section 62 FSA and section 71 IFSA);
  • the appointment or reappointment of an auditor (section 67(3) FSA and section 76(3) IFSA); and
  • cessation of auditor, and the reason for such cessation (section 70 FSA and section 79 IFSA). 

Comment

The consolidation of the requirements relating to prudent and professional conduct of approved brokers into a single resource is a welcomed initiative by BNM.


Article by Tan Wei Liang (Partner) and Joey Tiw (Senior Associate) of the Corporate Practice of Skrine.

1 A “business introducer” is an individual person or a body corporate that assists an approved broker in securing new customers or maintaining existing customers, and may include an approved broker’s overseas associate or any other foreign broker providing technical expertise. The persons/ entities who are ineligible to be a business introducer are set out in paragraph 13.23 of the Policy Document.