BNM updates exposure draft on licensing framework for digital banks

The proposed framework will look at how digital banks can offer products and services to address market gaps in the underserved and unserved segments


BANK Negara Malaysia (BNM) has issued an updated exposure draft on the licensing framework for digital banks that incorporates the proposed simplified regulatory framework applicable during the foundational phase.

In a statement yesterday, the central bank said the simplifications aim to reduce regulatory burden for new entrants that have strong value propositions for the development of the Malaysian economy, while safeguarding the integrity and stability of the financial system.

BNM said key features of the simplified regulatory framework include capital adequacy requirement and liquidity requirement.

“(For) capital adequacy requirement, the risk categories to calculate the credit and market risk components for risk-weighted assets under Basel II capital framework has been rationalised into simpler categories.

“(For) liquidity requirement, 25% of the digital bank’s on-balance sheet liabilities must be held in high-quality liquid assets,” the central bank said.

BNM noted that digital banks will be required to comply with all equivalent regulatory requirements applicable to incumbent banks after the foundational phase and added it is extending the consultation period for the exposure draft until April 30, 2020.

“All feedback on the exposure draft should be submitted to the bank by April 30, 2020. Applications for new licence(s) will be open upon issuance of the policy document,” it said.

The race to establish the country’s first virtual banking service is set to intensify following the central bank’s announcement highlighting further details that outline the venture.

In the exposure draft on licen- sing framework for digital banks published on Dec 27 last year, the central bank stated that it is going to issue up to five licences to qualified applicants to operate such services, for either conventional or Islamic banking in the country.

BNM has also set a minimum capital fund unimpaired by losses by RM100 million for the virtual bank’s foundational phase, which would be increased to RM300 million subsequently.

The proposed digital banking framework would look at how these banks can offer banking products and services to address market gaps in the underserved and unserved segments.

BNM said the digital banks are expected to offer meaningful access to consumers, as well as promote responsible usage of suitable and affordable financial solutions.

The country’s banking regulator said it has adopted a balanced approach to enable the admission of digital banks with strong value propositions, while safeguarding the integrity and stability of the financial system.

It also stressed on the need to protect depositors’ interests, taking into account that such digital banks have not operated in a full financial and economic cycle.

The policy document is expected to be finalised by the first half of this year (1H20). Applications for licence will be open upon issuance of the document.

It was reported earlier that Axiata Group Bhd is in talks with 11 companies to jointly bid for one of Malaysia’s five digital banking licences.

Its deputy group CEO Datuk Mohd Izzaddin Idris said the telecommunications company has “been pursued” by several parties, including banks and e-wallet players.

“The exposure draft (for digital banking regulations) came out in December and we’ve provided our comments and have been engaging with BNM.

“So, hopefully, we can form the partnership that’s needed to make the submission in due course,” Mohd Izzaddin said during a media briefing in Kuala Lumpur last month.

The 11 players courting Axiata include local firms, as well as domestically incorporated foreign players, he said without giving any names. Optimistically speaking, the virtual bank could be esta- blished by 2H21, he added.

Malaysia currently has 26 commercial banks, where 18 are licensed foreign banks and eight are local.