On 31 December 2020, Bank Negara Malaysia (BNM) issued its Licensing Framework for Digital Banks ("Licensing Framework") and indicated that it may issue up to five digital bank licences.
The grant of the licences is subject to the applicants demonstrating that their proposed services will harness technology to deliver services that meet the needs of unserved and/or underserved customer segments in Malaysia. The business models of the applicants must demonstrate that the business is viable and sustainable in the long term.
The introduction of digital banks in Malaysia is a welcome addition to the existing banking landscape. As the Licensing Framework opens the banking sector to non-traditional players, eligible persons with innovative business models are encouraged to apply for a digital bank licence by 30 June 2021 ("Application Deadline"). As the competition in retail and wholesale (SME) banking will intensify with new licensees entering the market, existing banks should reflect on their current models and update them to remain competitive.
The Licensing Framework provides clarity on BNM's expectations and requirements. Some salient points that need to be considered include:
BNM's approach to regulating digital banks is to some extent similar to the Monetary Authority of Singapore's approach. A phased approach will be applied and less stringent regulatory requirements and business restrictions will be imposed during the foundational period. This is to minimise risks and manage any adverse impact on customers and the financial system during the foundational period.
The grant of these new digital banking licences should spur existing licensees to step up their game, and therefore offer greater choice to the consumer.
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