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Updated: Participating in digital banking, Malaysia

8 Feb 2021 PDF
Subject Business alert
Categories Business Insights
Jurisdictions 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.
Chow Sang Hoe
EY Asean Advisory Leader; Malaysia Advisory Managing Partner Ernst & Young Advisory Services Sdn Bhd

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.
Shankar Kanabiran
Partner and Deputy Consulting Leader, Ernst & Young Advisory Services Sdn Bhd

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: