BNM Consults on Regulatory Framework for Digital Banks
BNM issued an updated exposure draft on the licensing framework for digital banks. The update incorporates the proposed simplified regulatory framework for digital banks applicable during the foundational phase, wherein a licensed digital bank shall operate with an asset limit for a period of up to five years from its commencement of operations. The simplified framework is intended 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. The consultation period is open until April 30, 2020. Applications for new licences will be open on issuance of the Policy Document.
This exposure draft sets out the proposed framework to allow entry of digital banks with innovative business models that seeks to serve the underserved and unserved market segments. This framework forms part of a series of measures adopted by BNM to enable innovative application of technology in the financial sector. The regulatory framework for digital banks is applicable to applicants under section 10 FSA, applicants under section 10 IFSA, licensed digital banks, licensed Islamic digital banks, and shareholders of proposed licensed digital banks. Digital banks will be required to comply with all equivalent regulatory requirements applicable to incumbent banks after the foundational phase. Key features of the simplified regulatory framework include:
- Capital Adequacy Requirement—The risk categories to calculate the credit and market risk components for risk-weighted assets under Basel II capital framework have been rationalized into simpler categories.
- Liquidity requirement—A licensed digital bank shall hold an adequate stock of unencumbered Level 1 and Level 2A high-quality liquid assets (HQLA) equivalent to at least 25% of its total on-balance sheet liabilities.
- Stress Testing—A licensed digital bank shall be exempt from requirements under the policy document on stress testing.
- Public Disclosure (Pillar 3)—A licensed digital bank shall be exempt from requirements under the policy documents on Risk-Weighted Capital Adequacy Framework (Basel II)−Disclosure Requirements (Pillar 3) and Capital Adequacy Framework for Islamic Banks (CAFIB)−Disclosure Requirements (Pillar 3).
Related Links
Comment Due Date: April 30, 2020
Keywords: Asia Pacific, Malaysia, Banking, Digital Banks, Licensing Framework, Capital Adequacy, Liquidity, Stress Testing, Fintech, Basel II, Islamic Banking, BNM
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Related Articles
APRA Issues Interim Update to Policy Priorities for 2021 and Beyond
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
EC Adopts Solvency II and Resolution Rules Package for Insurers
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
OCC Issues Booklets on Regulatory Reporting and Earnings
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
ECB Sets Out Results of Economy-Wide Climate Stress Tests
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
EBA Examines Implications of Increasing Use of Digital Platforms in EU
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
HKMA Issues Updates on Policy Measures Intended to Ease COVID Impact
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS Quarterly Review Discusses Developments in Fintech and ESG Space
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
BCBS to Consult on Supervisory Practices for Climate Risks by Year-End
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
OCC Identifies Operational Risk Deficiencies in MUFG Union Bank
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.
