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    BNM Consults on Regulatory Framework for Digital Banks

    March 03, 2020

    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).


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    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

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