Rationalised requirements for digital banks’ foundation phase

In early March, Bank Negara Malaysia (BNM) issued an updated Exposure Draft for Licensing Framework of Digital Banks.

In this updated version, the regulatory framework states that licensed digital banks would be subject to simplified requirements during their foundational phase. In the draft document, “foundational phase” was described as the initial three to five years of the licensed digital bank’s operations.  At start of operations, the minimum total capital funds required is RM100 million and total asset size is limited to RM2 billion

During this phase, the licensed digital bank will have to demonstrate viability and sound operations, while BNM would be observing its performance and attendant risks.

Key features of the new framework include changes to make simpler, the following requirements:

1. Capital adequacy requirement – Risk categories have been rationalised

2. Liquidity requirements rationalised to 25-percent of a digital bank’s on-balance sheet liabilities.

All feedback on the Exposure Draft should be submitted to the Bank by 30 April 2020, after which the Policy Document would be issued and applications for new licenses will be open.

License applicants must outline the measures they will take to achieve full compliance with regulatory requirements at the end of the foundational phase. The plan they submit must include timeframe and resources required to build the capability to reach this full compliance.

In late December last year, it was reported that up to five digital bank licenses would be issued.

Financing facilities during stalled economic times

Our financial regulator has been busier than usual recently, also coming up with measures to assist businesses and households impacted by the COVID-19 outbreak. As much as RM3.3 billion in financing facilities is allocated under BNM’s funds for SMEs to sustain business operations, safeguard jobs and encourage domestic investment.

Of the three main financing facilities announced, the SME Automation and Digitalisation Facility (ADF) amounting up to RM300 million, aims to incentivise SMEs to automate processes and digitalise operations, via purchase of equipment, machinery, computer hardware, software, IT solutions and services, technology support services and so on.