Malaysian Central Bank Proposes to Issue up to 5 Digital Banking Licenses

January 2020

Malaysia’s central bank, Bank Negara Malaysia (BNM) has proposed to issue up to five licenses to establish digital banks in either conventional or Islamic banking business in December 2019. BNM has published the Exposure Draft on Licensing Framework for Digital Banks as part of a series of measures to enable innovative application of technology in the local financial sector.

BNM stated that the exposure draft is in line with the proposed framework for the licensing of digital banks to offer banking products and services, aiming to address market gaps in the underserved and unserved segments. It is anticipated that digital banks would be able to provide meaningful access and promote responsible usage of suitable and affordable financial solutions to financial consumers.

BNM is aiming for a balanced approach intended to encourage admission of digital banks with strong value propositions, while safeguarding the integrity of the financial system as well as depositors’ interests. The digital banks should be able to survive through the ups and downs of a full financial and economic cycle.

To achieve these outcomes, an asset threshold of not more than MYR 2 billion (USD 492 million) in the initial three to five years of operations will also be applied. This acts as a foundational phase for the licensees to demonstrate their viability and sound operations, and for BNM to observe and study risks. The qualified digital banks will be required to comply with the requirements under the Financial Services Act 2013 or Islamic Financial Services Act 2013, including core requirements that comprise, amongst others, standards on prudential, business conduct, consumer protection, as well as on anti-money laundering (AML) and terrorism financing.

During the foundational phase, licensed digital banks will also be subjected to a more simplified regulatory requirement relating to capital adequacy, liquidity, stress testing, and public disclosure, as well as to maintain minimum capital funds unimpaired by losses of MYR 100 million (USD 24.6 million) and subsequently MYR 300 million (USD 73 million).

(Sources: Bank Negara Malaysia; Free Malaysia Today)

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