Bank Negara Malaysia will issue up to five licences to establish digital banks to conduct either conventional or Islamic banking business in the country.
It has issued an Exposure Draft on Licensing Framework for digital banks that form part of the series of measures adopted by Bank Negara Malaysia to enable the innovative application of technology in the financial sector.
In a statement, BNM said the exposure draft outlines the proposed framework for the licensing of digital banks to offer banking products and services to address market gaps in the underserved and unserved segments.
Such digital banks are expected to offer meaningful access to and promote responsible usage of suitable and affordable financial solutions to financial consumers.
BNM said it has adopted a balanced approach to enable admission of digital banks with strong value propositions while safeguarding the integrity and stability of the financial system as well as depositors’ interests.
It will also take into account that such digital banks have not operated in a full financial and economic cycle.
To achieve these outcomes, an asset threshold of not more than RM2 billion in the initial three to five years of operations will be applied.
This functions as a ‘foundational phase’ for the licensees to demonstrate their viability and sound operations, and for the bank to observe performance and attendant risks.
Digital banks will be required to comply with the requirements under the Financial Services Act 2013 (FSA) or Islamic Financial Services Act 2013 (IFSA), including requirements that comprise, among others, standards on prudential, business conduct and consumer protection, as well as on anti-money laundering and terrorism financing.
During the foundational phase, it said, licensed digital banks will be subjected to a more simplified regulatory requirement relating to capital adequacy, liquidity, stress testing and public disclosure requirements.
Digital banks will be required to maintain minimum capital funds unimpaired by losses of RM100 million during the foundational phase, and RM300 million thereafter.
Written feedback is currently invited on the exposure draft, which should be submitted by 28 February 2020. The bank will assess all feedback received and aims to finalise the policy document by the first half of 2020. Applications for the licences will be open upon issuance of the policy document.
OpenGov Asia also recently reported that Bank Negara Malaysia (BNM) announced a set of guidelines defining Risk Management in Technology (RMiT) for financial institutions, meaning security becomes a crucial consideration as they are now responsible for the safety of the bank’s information infrastructure, systems and data.
The tech firm will address these new requirements by working together with financial institutions, so they are able to comply with BNM’s guideline.
BNM has been at the forefront of fintech over the last year, OpenGov Asia reported that, in August 2019, Bank Negara Malaysia issued an exposure draft which expanded its e-KYC guidelines for money changers in Malaysia.
The draft outlines proposed the minimum requirements and standards that a licensed money changer approved to implement e-KYC must observe in on-boarding customers.
The draft largely mirrors the earlier policy document but with some minor tweaks in requirements reflecting the nature of a money-changing business.
While the widening of e-KYC for the purposes of on-boarding customers is a move that is welcome by all, the industry eagerly awaits e-KYC’s applicability across the financial services industry.
It is anticipated that an industry-wide e-KYC guideline would be made available prior to the issuance of the virtual banking framework scheduled for the end of 2019.
