PIDM extends protection to e-money issuers in trust accounts

This agency protects these funds placed in trust accounts at PIDM member banks, up to RM250,000, for each customer

by ASILA JALIL / pic by BLOOMBERG

FUNDS placed by e-money issuers in trust accounts tied to a banking institution will receive protection from the Perbadanan Insurans Deposit Malaysia (PIDM).

Bank Negara Malaysia (BNM) had recently published the Exposure Draft of the Policy Document on Electronic Money (e-Money) which supersedes BNM’s current guideline on Electric Money issued on July 31, 2008.

The exposure draft sets out the central bank’s proposed requirements and guidance for issuers of e-money approved pursuant to section 11 of the Financial Services Act 2013 (FSA) or the Islamic Financial Services Act 2013 (IFSA).

There are five parts in the policy document which touches on the overview of the document, governance requirements, operational and risk management requirements, enhanced information technology requirements and regulatory process.

Under the operations and risk management requirements set out by the central bank, it noted an e-money issuer (EMI) shall deposit the funds collected in exchange of the e-money issued into a trust account with a banking institution.

In an email response to The Malaysian Reserve recently, PIDM said the protection provided by the organisation to member banks will be standardised and extended to all customers’ funds placed by e-money issuers in the required trust accounts.

“In the E-Money Exposure Draft issued by BNM on June 11, 2021, BNM proposed all e-money issuers approved under the FSA and IFSA to deposit the funds in a trust account with a licensed institution.

“This requirement, once finalised, will ensure PIDM protection is standardised and extended to all customers’ funds placed by e-money issuers in trust accounts at PIDM member banks, in the event a member bank fails, up to specified limit for each customer,” it said.

It added the BNM currently requires an issuer of a large e-money scheme that are not licensed institutions to deposit the funds collected in a trust account with a licensed institution in a timely manner.

Consequently, PIDM protects these funds placed in trust accounts at PIDM member banks, in the event the member bank fails, up to RM250,000, for each customer.

“PIDM also protects customers’ funds collected by issuers of a small e-money scheme that are placed in deposit accounts with PIDM member banks, up to RM250,000, for each account,” it added.

The exposure draft stated a standard non-bank EMI shall maintain RM1 million or 8% outstanding e-money liabilities, whichever is higher, at all times while the minimum capital funds for eligible EMI stands at RM5 million or 8% of outstanding e-money liabilities, whichever is higher.

It also requires an EMI to diversify the placement of the funds received in bank accounts maintained at several banking institutions to mitigate exposure to any single institution.

Among other matters outlined in the exposure draft include an exit plan for non-bank EMI that wishes to leave the e-money business if it is unsustainable or can no longer support its operations in a reliable manner.

It said a non-bank EMI shall establish an exit plan which needs to be valid for a three-year period. The plan needs to include “plausible internal triggers” that lead to the EMI’s exit, as well as options measures to be taken for the exit that would minimise disruption to its customers.

For the safety of operations, the exposure draft said an EMI should have a Technology Risk Management Framework to safeguard every EMI’s information infrastructure, systems and data.