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    BNM Publishes Regulatory Updates Impacting Banking Sector

    December 31, 2020

    BNM finalized the policy on the licensing framework for digital banks, following a six-month public consultation. BNM is accepting applications for digital banking business or Islamic digital banking business until June 30, 2021 and up to five licenses may be issued to qualified applicants. Notification on the grant of license will be made by the first quarter of 2022. Another development involves the appointment of the Financial Markets Committee (FMC) to oversee the development of an alternative reference rate for Malaysia and to deliberate on the continuity of Kuala Lumpur Interbank Offered Rate (KLIBOR). BNM also announced an update on the new and enhanced financing facilities for small and medium-size enterprises (SMEs) affected by COVID-19 pandemic.

    BNM's licensing framework for digital banks adopts a balanced approach to enable admission of digital banks with strong value propositions while safeguarding the integrity and stability of the financial system as well as depositors’ interests. To achieve these outcomes, a simplified regulatory framework will be applied to digital banks during the initial stage of operations, commensurate with an asset threshold of not more than MYR 3 billion for three to five years. This functions as a foundational phase for the licensees to demonstrate their viability and sound operations and for BNM to observe the performance of the licensed digital banks and attendant risks that arises from their operations. Digital banks will be required to comply with the requirements under the Financial Services Act 2013 (FSA) or Islamic Financial Services Act 2013 (IFSA), including standards on prudential, Shariah, business conduct, consumer protection, and anti-money laundering and terrorism financing. During the foundational phase, licensed digital banks will be subjected to a more simplified regulatory requirement relating to capital adequacy, liquidity, stress testing, Shariah governance, and public disclosure requirements. Submission of applications to conduct digital banking business or Islamic digital banking business shall be made to the Bank no later than 30 June 2021. Applications for digital banking licenses should be guided by the application procedures described in this recently published policy document as well as the Application Procedures for New Licenses under the FSA and IFSA, as well as the Application Procedures for Acquisition of Interest in Shares and to be a Financial Holding Company.  

    In another development, the Financial Markets Committee (FMC) has been appointed to oversee the development of an alternative reference rate for Malaysia and to deliberate on the continuity of Kuala Lumpur Interbank Offered Rate (KLIBOR). BNM envisages that the identified alternative reference rate will run in parallel with the existing KLIBOR, thus providing sufficient time for market participants and stakeholders to prepare for the adoption of alternative reference rate. FMC comprises representatives from BNM, Securities Commission Malaysia, financial institutions, insurers, fund managers, and corporate treasurers. It will be the key forum to discuss the latest international developments on financial benchmarks and is responsible for providing recommendations on the strategic direction for the financial benchmark rates in Malaysia. The first key task for the committee would be to conduct an initial public consultation on the identification of a suitable alternative reference rate and enhancements to the KLIBOR framework if it is retained. FMC will also deliberate on industry-wide standards to facilitate the adoption of alternative reference rate for financial contracts referencing KLIBOR. Regular updates on the progress achieved by the FMC, including its assessment and recommendations, will be published for reference by all market participants.

    As part of the update on the financing facilities for SMEs affected by the pandemic, BNM made announcements related to the Targeted Relief and Recovery Facility (TRRF) and the Micro Enterprises Facility (MEF). The TRRF is now available until December 31, 2021 or full utilization (whichever is earlier). For the TRRF, interested SMEs can apply directly to the participating financial institutions, which comprise commercial banks, Islamic banks, and development financial institutions regulated by BNM via their websites or by visiting the branches of participating financial institutions. The MEF has been enhanced to improve access to credit for micro enterprises, to include self-employed individuals, gig workers on digital platforms, and participants of the iTEKAD program. For the MEF, interested micro enterprises can apply directly to the participating financial institutions under the Skim Pembiayaan Mikro. Additionally, BNM will announce details of the High Tech Facility (HTF) on December 15, 2020.


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    Keywords: Asia Pacific, Malaysia, Banking, Digital Banks, Fintech, Licensing Framework, Islamic Banking, Benchmark Reforms, IBOR, Interest Rate Benchmarks, COVID-19, Public Guarantee Schemes, BNM

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