Malaysia among leaders in online alternative finance regulation

Malaysia is ahead of larger countries like Japan and Indonesia with absolute funding raised


MALAYSIA is ranked among the top 10 most benchmarked jurisdiction in terms of online alternative finance regulation globally, according to a new World Bank and Cambridge Centre for Alternative Finance report.

The report, titled, “Regulating Alternative Finance — Results from a Global Regulator Survey”, noted Malaysia is ranked second in the East Asia-Pacific (EAP) region after Singapore when it comes to such regulations.

“What we clearly see based on the responses that we have got from other regulators is that Malaysia is one of the most benchmarked against by other regulatory framework,” World Bank Group lead financial sector economist Dr Margaret Miller told reporters after the launch of the report at the Securities Commission Malaysia in Kuala Lumpur yesterday.

The joint report, which was based on a global survey of 111 regulatory jurisdictions, showed regulators looking to their peers for best practices.

The survey noted the UK, the US and Singapore are the most frequently-referenced jurisdictions, with other top benchmarked jurisdictions includes the United Arab Emirates (primarily Abu Dhabi and Dubai) and Mexico.

Miller added based on the global survey, countries that do not have a clear guideline will view other existing securities market regulations and banking and lending regulations and tailor it to their needs.

“What we see is that in this jurisdiction of financial inclusion, to deal with new and upcoming businesses, it needs a tailor-made regulation.”

“This is because, there is a huge opportunity here to make sure small businesses and immediate consumers have access to finances as well as increase competition in the financial market,” she said.

Miller noted alternative sources of finance have grown exponentially. Between 2013 and 2017, alternative finance grew by over 125% per year in Malaysia.

“More than 60 firms have raised RM55 million through crowdfunding as of June 2019. Malaysia is ahead of larger countries like Japan and Indonesia with absolute funding raised,” she said.

Miller added crowdfunding seems to have positive impact on financial inclusion as 70% of beneficiaries are businesses owned by women or young entrepreneurs (under 35 years old).

The report found regulators are keen to manage risks associated with technology-enabled activities such as crowdfunding, peer-to-peer (P2P) lending and initial coin offering (ICO), while also facilitating the promise of the sector in terms of financial inclusion by broadening access to transaction accounts and electronic payments.

Online alternative finance activities are still largely unregulated the report found.

Based on regulators responses, the research team estimated by mid-2021, 68% of the jurisdictions will be regulating equity crowdfunding, 43% will have regulated P2P lending and 37% will be regulations for ICOs.

“Jurisdictions where change is underway, are planning to create bespoke regulatory frameworks rather than relying on established securities and banking regulations.

“There is little evidence of regulators purposefully creating ‘light-torch’ regulatory frameworks for alternative finance as consumer protection and financial stability stay firmly as their top priorities,” the report stated.