It has issued an Exposure Draft on Licensing Framework for digital banks that form part of the series of measures adopted by BNM to enable innovative application of technology in the financial sector.

In a statement today, BNM said the exposure draft outlines the proposed framework for the licensing of digital banks to offer banking products and services to address market gaps in the underserved and unserved segments.

“Such digital banks are expected to offer meaningful access to and promote responsible usage of suitable and affordable financial solutions to financial consumers,” it said.

BNM said it has adopted 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.

It will also take into account that such digital banks have not operated in a full financial and economic cycle.

To achieve these outcomes, it said an asset threshold of not more than RM2 billion in the initial three to five years of operations will be applied.

“This functions as a ‘foundational phase’ for the licensees to demonstrate their viability and sound operations, and for the bank to observe performance and attendant risks,” it said.

BNM said 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 requirements that comprise, among others, standards on prudential, business conduct and consumer protection, as well as on anti-money laundering and terrorism financing.

During the foundational phase, it said, licensed digital banks will be subjected to a more simplified regulatory requirement relating to capital adequacy, liquidity, stress testing and public disclosure requirements.

“Digital banks will be required to maintain minimum capital funds unimpaired by losses of RM100 million during the foundational phase, and RM300 million thereafter,” it said.

BNM said it was inviting written feedback on the exposure draft, which should be submitted by Feb 28.

“The bank will assess all feedback received and aims to finalise the policy document by the first half of 2020. Applications for licence will be open upon issuance of the policy document,” it said.