As the due date of Singapore’s digital bank licence application approaches, Malaysia’s central bank Bank Negara Malaysia (BNM) issued its own draft framework for digital bank licensing.
At a glance there are some good similarities between the two – which makes sense, considering the two countries share a lot in common: political system, legal framework and infrastructure.
A summary of the key points in the framework:
- No more than 5 digital bank licences will be issued; licences holders can conduct banking or shariah banking services;
- The objective is to help those not served or underserved by traditional financial institutions to build savings and financial capabilities;
- Licence holders must comply with the Financial Services Act and Islamic Financial Services Act, issued in 2013;
- Licensed digital bank will have 3-5 years ‘foundational phase’ to prove its operations and sustainability, during this period BNM will closely monitor operations and risks, and
- The regulatory requirements, especially in capital reserve ratio, stress test and information disclosure, will be more relaxed compared to conventional banks;
- The minimum capital requirement is RM100m (US$24m); this requirement will be increased to RM300m (US$72m) after the foundational phase
- The asset of a digital bank should not exceed RM2 billion (US$480 million)
- The applicants must show a business plan that shows breakeven point within 5 years;
- Existing banks and shariah banks can form consortiums to bid for the digital bank licence;
- Foreign companies can apply, though companies or consortia residing in Malaysia will be preferred;
- The digital banks can use the PayNet ATM network;
- With approval from BNM, digital banks can use offline agent network, though they could not establish physical branches.
BNM expects to receive feedback (by email:[email protected]) by 28 February, and finalise the regulations by the first half of 2020.