Licensing Framework for Digital Banks Exposure Draft

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 the Bank to enable innovative application of technology in the financial sector. The Bank invites written feedback on this exposure draft, including areas to be clarified or elaborated further or alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale and accompanying evidence or illustrations as appropriate to facilitate the Bank’s assessment. All feedback on the Exposure Draft should be submitted to the Bank by 30 April 2020 to the email or address below (electronic submission is encouraged). Applications for licence will be open upon issuance of the Policy Document.

TABLE OF CONTENTS
PART A OVERVIEW
Introduction
2 Applicability
3 Legal provisions
4 Effective date
5 Interpretation 
6 Related legal instruments and policy documents 
PART B ELIGIBILITY AND ADDITIONAL APPLICATION PROCEDURES
7 Factors for consideration in assessing the best interest of Malaysia criteria
8 Factors for consideration in assessing shareholders
9 Application and review process 
10 Submission of business plan 
11 Submission of exit plan
PART C REGULATORY REQUIREMENTS
12 Overview 
13 Business limitation
14 Regulatory framework
15 End of the foundational phase 
PART D BUSINESS ACTIVITIES AND PRESENCE
16 Business of paying or collecting cheques 
17 Physical access points
APPENDIX 1 CREDIT RISK COMPONENT OF CAPITAL ADEQUACY FRAMEWORK (RISK-WEIGHTED ASSETS)
APPENDIX 2 MARKET RISK COMPONENT OF CAPITAL ADEQUACY FRAMEWORK (RISK-WEIGHTED ASSETS)

1.4 The proposed licensing framework for digital banks aims to achieve these
outcomes through the application of a defined asset threshold in the initial three
to five years of operations of a licensed digital bank. 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.
During this phase, the licensed digital bank will be subject to a more simplified
regulatory requirement.
1.5 The Exposure Draft provides for requirements on applications for the
establishment of a digital bank, as follows–
(a) Part B describes the eligibility requirement 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 explains the business limitations and regulatory framework
applicable to a licensed digital bank during the foundational phase; and
(c) Part D explains the business activities that must be undertaken and the
physical access points that may be established by the licensed digital
bank.
1.6 Licensed banks and licensed Islamic banks may apply for a digital bank licence
separate from their current licensed entity should they wish to carry on digital
banking business or Islamic digital banking business in a joint venture with other
parties. However, this does not preclude licensed banks and licensed Islamic
banks from digitalising their current business operations, which remains within
the scope of their existing banking licence and does not require the application
of a separate digital bank licence.

2 Applicability
2.1 This policy document is applicable to–
(a) an applicant applying for a licence under section 10 of the FSA or section
10 of the IFSA to carry on digital banking business or Islamic digital
banking business, as the case may be;
(b) licensed digital banks as defined in paragraph 5.2 of this policy
document; and
(c) the shareholders who require an approval under section 90 of the FSA
or section 102 of the IFSA for the holding of interest in the shares of the
proposed licensed digital bank. 

Document Details

Document Type: 
Doument Author (Entity): 
Authoring Country: 
Originating Country or Trade Block: 
Year of Document: 
2020
Date of Document: 
Tuesday, March 3, 2020
Document Authors: 
Bank Negara
Language (This Document): 
English

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