Updated: Participating in digital banking, Malaysia
Industry 4.0 has spurred numerous technology-based innovations that have accelerated the transformation of business models, global market access, governance and regulatory frameworks.
In a series of measures aimed at enabling innovative application of technology in Malaysia’s financial sector, Bank Negara Malaysia (BNM) has recently released the Policy Document on Licensing Framework for Digital Banks. The Framework seeks innovative business models to support Malaysia’s underserved and unserved market segments. To apply for a digital banking license, traditional, licensed banks (including Islamic banks) and new participants can submit their applications to BNM no later than 30 June 2021.
As we step into a new decade, the introduction of digital banks will strengthen the growth of Malaysia’s digital platform economy, expand market access, optimize business performance and delight netizens.
Digital banking to drive financial inclusion
Bank Negara Malaysia (BNM)’s Policy Document on Licensing Framework for Digital Banks aims to drive financial inclusion and deliver quality and responsible usage of financial services. Up to five licenses may be issued to qualified applicants to establish digital banks to conduct either a conventional or Islamic banking business. The licenses will be granted by Q1 2022.
Digital banks: 5 application criteria
1. Best interest of Malaysia
Commitment to driving financial inclusion, including ensuring quality access and responsible usage of financial services
2. Demonstrate viability and sound operations
Maintain asset threshold of no more than RM3b in the first 3-5 years (“Foundational” phase)
3. Comply with regulations
Must comply with Financial Services Act (FSA) and Islamic Financial Services Act (IFSA) regulations, with simplified regulatory requirements in the “Foundational” phase
4. Meet the needs of the underserved and unserved segments
Offer meaningful access and responsible, affordable financial solutions
5. Safeguard the integrity and stability of the financial system
Through capital funds of RM100m in the “Foundational” phase, and RM300m thereafter
Operational timeline for digital banks
The timeline for the operational progression and associated regulatory requirements of a licensed digital bank is as follows:
Considerations for assessing shareholders
BNM considers the ability of applicants and relevant shareholders to contribute to a proposed licensed digital bank in the following areas:
Malaysia’s proposed digital banking framework redefines the financial services ecosystem and offers exciting opportunities for banking incumbents and new players to provide responsible usage of suitable and affordable financial services.
Digital transformation options
In response to the digital banking regulations in Malaysia, both incumbent financial services institutions and non-financial services institutions can explore a number of options: