Bank Negara Malaysia (the Bank) has issued the Exposure Draft on Licensing Framework for Digital Banks. This framework forms part of the series of measures adopted by the Bank to enable innovative application of technology in the financial sector. Up to five licences may be issued to qualified applicants to establish digital banks to conduct either conventional or Islamic banking business in Malaysia.
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.
The Bank has adopted a balanced approach to enable admission of digital banks with strong value propositions whilst safeguarding the integrity and stability of the financial system as well as depositors’ interests, taking 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 relevant requirements that comprises amongst others, standards on prudential, business conduct and consumer protection, as well as on anti-money laundering and terrorism financing. During the above mentioned foundational phase, licensed digital banks will be subjected to a more simplified regulatory requirement relating to capital adequacy, liquidity, stress testing and public disclosure requirements.
On the minimum capital funds, digital banks will be required to maintain minimum capital funds unimpaired by losses of RM100 million during the foundational phase, and RM300 million thereafter.
The Exposure Draft is issued together with the Application Procedures for New Licences under FSA and IFSA, and Application Procedures for Acquisition of Interest in Shares and to be a Financial Holding Company to provide clarity on the procedures and criteria involved in the application process to be a licensed persons under the FSA and IFSA.
The Bank invites written feedback on the Exposure Draft, including areas to be clarified or elaborated further or alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale and accompanying evidence or illustrations to facilitate the Bank’s assessment.
All feedback on the Exposure Draft should be submitted to the Bank by 28 February 2020 to the email or address (electronic submission is encouraged). The Bank will assess all feedback received and aims to finalise the Policy Document by the first half of 2020. Applications for licence will be open upon issuance of the Policy Document.
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