The Bank Negara Malaysia (BNM) published the Financial Sector Blueprint for 2022-2026 for the country. The Blueprint, which was unveiled at the launch of MyFintech Week 2022, identifies five strategic areas: funding economic transformation, elevating financial well-being of households and businesses, advancing digitalization of the financial sector, positioning the financial system to facilitate an orderly transition to greener economy, and advancing value-based finance through Islamic finance leadership. The key plans impacting the banking sector involve Basel capital requirements, recovery and resolution planning, risk management technology, open data ecosystem, cyber-security, regulatory technology, and climate risks.
The blueprint highlights the following key focus areas for the next five years:
- Basel III capital requirements. BNM will review and implement Basel III reforms related to the computation of risk-weighted assets—with a focus on credit risk, operational risk, counterparty credit risk, securitization, and exposures to central counterparties. BNM will also review the Single Counterparty Exposure Limit policy to take into account developments in international standards on large exposures, where relevant. This will include potential refinements to the limits, scope of eligible collateral, and treatment of specific exposures.
- Risk Management in Technology (RMiT) policy. BNM will prioritize fine-tuning the RMiT policy, which is a central piece of the regulatory framework for technology risk management. Efforts on the RMiT in particular will be guided by four thrusts. First, it will ensure greater supervisory focus on how financial institutions manage risks from third-party service providers. Second, BNM will enhance its guidance to the industry on cloud service management. Third, it will heighten scrutiny on the implementation of "high availability" infrastructures. Fourth, BNM will explore allowing financial institutions to rely on their internal risk function in conducting risk assessment, as the industry's infrastructure and practices mature.
- Recovery and resolution planning. With the release of the Recovery Planning policy in July 2021, the recovery plans in Malaysia will be implemented in a phased approach. The immediate focus will be on financial institutions under the first phase of the roll-out plan, with first submissions from banks on their recovery plans expected in 2023. These recovery plans will serve as an important starting point to support Malaysia Deposit Insurance Corporation’s resolvability assessments and resolution plans.
- Development of an open data ecosystem. BNM will continue to facilitate efforts to develop common standards for data sharing in the financial sector, particularly for high-impact use cases. BNM will support efforts to establish shared data infrastructures for the financial sector and its broader value chain. This would include emerging digital platforms that enable more seamless and efficient connections among various users. It will continuously review the data governance framework for the financial sector, in tandem with legal developments and technological applications to ensure the protection and fair treatment of financial consumers.
- Cyber-security. BNM will continuously strengthen its oversight of cyber-security risks, with an increased focus on the broader financial ecosystem. This entails ensuring that the financial industry adheres to a strong set of minimum standards on cyber risk governance and management as well as intensifying focus on cyber-security issues arising from critical third-party service providers.
- Greater use of technology for regulation and supervision. BNM will seek to leverage technology to further strengthen regulation and supervision of the financial industry; and futureproof its data strategy. BNM will aim to continuously strengthen its application of technologies—such as artificial intelligence, machine learning, natural language processing, and automation—to deliver process improvements in its regulatory and supervisory functions. This will include greater integration of risk analytics engines to support more holistic surveillance across different datasets—and, with it, explore further enhancements in the way BNM conducts its oversight activities.
- Climate-related and environmental risks. BNM will ensure effective implementation of the Climate Change and Principle-based Taxonomy to facilitate the assessment of climate-related risks and encourage financial flows towards environmentally sustainable economic activities. It will also align the prudential and supervisory framework to incorporate climate and environmental risk considerations. BNM will strengthen practices in the disclosure of climate-related risk exposures by financial institutions. A clear roadmap will be announced for all financial institutions regulated by BNM to make mandatory climate-related risk disclosures aligned with recommendations from the Task Force on Climate-related Financial Disclosures.
Keywords: Asia Pacific, Malaysia, Banking, Basel, Resolution Framework, Cyber Risk, Regtech, Suptech, Fintech, Credit Risk, Open Data, Climate Change Risk, ESG, Disclosures, TCFD, Taxonomy, BNM
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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