Digital Banking: Malaysia’s Reserve Bank Issues New Policy Document for Virtual Banks, Up to Five Licenses Anticipated

Malaysia’s reserve bank, Bank Negara, has released its policy document on digital banks.

The Malaysian central bank’s new document on the licensing framework for all-digital banks has been published after completing a 6-month public consultation.

Bank Negara officials stated on December 31, 2020, that the licensing framework for digital-only banks will support the application of the latest technologies to enhance the financial well-being of individuals and companies while also promoting sustainable growth.

This includes expanding access to and encouraging responsible usage of appropriate financial products and services to the financially unserved and underserved population segments.

The framework offers a balanced approach to enable the entry of digital banking challengers with meaningful value propositions while ensuring the stability of the nation’s financial ecosystem, and also safeguarding depositors’ interests.

In order to achieve these goals or outcomes, a simplified set of regulatory guidelines will be applied to local neo-banks during the initial stage of their operations, commensurate with an asset threshold of up to RM 3 billion (appr. $745.8 million) for 3 to 5 years.

Bank Negara stated:

“This [serves] as a foundational phase for the licensees to demonstrate their viability and sound operations, and for the Bank to observe the performance of the licensed digital banks and attendant risks that arise from their operations.”

The institution added that digital banking platforms will have to adhere to the requirements outlined under the nation’s Financial Services Act 2013 (FSA) or Islamic Financial Services Act 2013 (IFSA). This reportedly includes set standards on prudential, Shariah, business conduct and consumer protection, along with anti-money laundering (AML) and terrorism financing regulations.

During the initial phases, Bank Negara will be requiring all-digital banks to follow a simplified regulatory framework that covers capital adequacy, liquidity, stress testing, Shariah governance and public disclosure guidelines.

Companies interested in launching neo-banks or offering Islamic digital banking services must submit their applications to Bank Negara by June 30, 2021.

Applicants must follow the application guidelines that are outlined in the Policy Document, as well as the Application Procedures for New Licences under the FSA and IFSA, and the Application Procedures for Acquisition of Interest in Shares and to be a Financial Holding Company.

The bank confirmed:

“Up to five licenses may be issued to qualified applicants. Notification on the grant of licence will be made by the first quarter of 2022.”

Bank Negara Malaysia 12.31.2020 Licensing Framework for Digital Banks
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