Licensing Framework for Digital Banks

Technology based innovations have become increasingly embedded in the financial sector improving service delivery and generating efficiency gains while contributing to broader economic development. The Bank aims to ensure that the regulatory framework remains supportive of these innovations in a safe and sound manner that enables transformation of the financial ecosystem to meet future economic needs and promote a sustainable and inclusive financial sector.

In line with these efforts the Bank has introduced a framework for digital banks to provide banking products and services to underserved or unserved markets wholly or almost wholly through digital or electronic means. The licensing of these new players with innovative business models is expected to bring greater dynamism to the banking landscape support the economy and enhance individual wellbeing. This includes expanding access to appropriate financial solutions and encouraging responsible usage among underserved and unserved segments.

The Bank recognises that digital banks have not yet operated across a full financial and economic cycle. This requires a balanced approach that allows the entry of digital banks with strong value propositions while safeguarding the integrity and stability of the financial system and protecting depositors interests.

This licensing framework for digital banks seeks to achieve these objectives by setting an asset threshold during the initial three to five years of operations. This period serves as a foundational phase for licensed digital banks to demonstrate their viability and sound operations while allowing the Bank to monitor associated risks. During this phase licensed digital banks will be subject to simplified regulatory requirements.

This policy document sets out the requirements relating to applications for the establishment of a digital bank, as follows—
(a) Part B sets out the eligibility requirements and application procedures that must be complied with by an applicant intending to carry on digital banking business or Islamic digital banking business. This is in addition to the application and assessment process set out in the policy document on Application Procedures for New Licences under Financial Services Act 2013 and Islamic Financial Services Act 2013 (Licensing Procedures);
(b) Part C sets out the business limitations and regulatory framework applicable to a licensed digital bank during the foundational phase; and
(c) Part D sets out the business activities that must be undertaken and the physical access points that may be established by the licensed digital bank.

Existing licensed banks or licensed Islamic banks may apply to carry on digital banking business or Islamic digital banking business through a separate corporate body, such as their subsidiary or through a joint venture arrangement with another party. However, this does not preclude existing licensed banks and licensed Islamic banks from digitalising their current business operations, which does not require the application of a separate licence under this policy document.

This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking