Malaysia’s New Financial Sector Blueprint identifies digitization as a key agenda

Bank Negara Malaysia (BNM) today announced the launch of Malaysia’s five-year financial sector blueprint during the opening of MyFintechWeek 2022.

The central bank has identified five strategic thrust that will anchor its efforts in the blueprint which includes; funding Malaysia’s economic transformation, elevating the financial well-being of households and businesses, advancing digitalisation of the financial sector, facilitating an orderly transition to a greener economy, and lastly, advancing value-based finance through thought leadership in Islamic finance.

Commenting on the launch of the blueprint, Bank Negara Malaysia’s Governor, Datuk Nor Shamsiah Mohd Yunus said,

“While producing the blueprint has been a lot of hard work, the greater task for us is to turn its vision into reality. This requires us to work and think outside the box as the nation enters a new stage of development. It is our desire and belief that the financial sector will continue to serve Malaysia well in the years ahead, doing its part to improve the well-being of people now and for the generations to come.”

Datuk Nor Shamsiah Mohd Yunus, Bank Negara Malaysia’s Governor

Since the digitisation agenda is most relevant for the readers of Fintech News Malaysia, this article will take a look at BNM’s five year plan for digitising the financial services sector in Malaysia.

Advancing digitalisation of the financial sector

Under the 3rd strategic thrust of Malaysia’s financial sector blueprint, Bank Negara Malaysia lays out four key strategies pictured in the diagram below:

Financial Sector Blueprint: Advance Digitisation of the Financial Sector

A. Future-proof key digital infrastructures

Bank Negara Malaysia said that their strategy to future-proof key financial infrastructures will be anchored on several desired outcomes — resilience, inclusivity, and adaptability.

Financial Sector Blue Print: Key Infrastructure Layer

Under this pillar, the central bank aims to look at a multi-year modernisation of the “Real-Time Electronic Transfer of Funds and Securities Settlement” better known as RENTAS which was implemented in 1999 with the objective of improving the overall efficiency of large-value payment systems.

The modernisation efforts include reviewing RENTAS access for non-bank payment service providers and to explore potential central bank digital currencies (CBDCs) and distributed ledger technology (DLT) applications for RENTAS.

On the cross-border payments front, the central bank will also be looking at intensifying efforts to enhance efficiency which includes linking up with other real-time payment systems in ASEAN. Towards this objective, BNM has already begun efforts by linking up our real-time payment systems with Thailand in early 2021.  BNM will also be working with Bank for International Settlements (BIS) on their Project Nexus which aims to connect all real-time payment systems globally to facilitate fast and seamless cross-border payments.

In addition to real-time payment linkages, BNM is also looking at the use of multi-CBDC to enable faster and cheaper cross border payments. Malaysia has begun testing the use of CBDCs alongside Singapore, Australia, and South Africa in Project Dunbar, an initiative led by BIS’ innovation hub in Singapore.

In the blueprint, BNM further added that they will be intensifying the research and experimentation of CBDCs for Malaysia’s monetary and financial infrastructures.

Under the same pillar of future-proofing digital infrastructures, Malaysia is also looking at pushing the open data agenda with a specific focus to look at use cases that “promote financial inclusion” and “support consumers to make better informed financial decisions”. The central bank says it prefers a market-led approach to open data but will also consider issuing mandates to accelerate progress if they deem that it is warranted.

B. Support a more vibrant digital financial services landscape

Under the 2nd pillar of their strategic thrust, the central bank aims to foster an enabling environment for innovation while preserving broader financial system stability.

BNM said that it will refresh its Regulatory Sandbox with the aim to accelerate time-to-live testing. This might include accelerated tracks for lower-risk activities or simplified testing parameters for qualified players.

Other key policies geared towards developing a more vibrant digital financial services landscape include the introduction of the digital banking license, and the upcoming digital insurers and digital takaful regulatory framework which BNM aims to finalise by 2022.

In the blueprint, they added that they will be advancing regulations for payment service operators like Paynet, Visa, and Mastercard and will also be reviewing existing payment regulations including — e-Payment Incentive Fund Framework (ePIF), Payment Card Reform Framework (PCRF), and the Interoperable Credit Transfer Framework (ICTF).

Beyond the potential policy changes stated, BNM said that they will continuously refine how they regulate digital business models to ensure that risks are managed effectively. Having considered the constantly evolving nature of digital businesses, BNM said that they will be guided by a set of key considerations which is pictured in the diagram above.

C. Strengthen cyber security readiness and responsiveness

With the rapid digitisation of the financial services sector, BNM views cyber security as one of the biggest risks. On top of that, the risks of fraud, data breaches, and financial losses are also heightened with the increased sophistication of threat actors.

In order to combat cyber security risk, BNM said it will “strengthen system-wide cyber security oversight” and “strengthen domestic and global collaborative efforts on cyber security.”

Some of the key focuses include reviewing the need for strengthening oversight of third-party service providers, developing their capacity to construct and maintain comprehensive cyber contagion maps of the financial industry and expanding the scope and coverage of ongoing resilience measures.

D. Support greater use of technology for regulation and supervision

The central bank also said that it is looking to further leverage digital technologies to improve their effectiveness and efficiency as a regulator. They said that a key consideration of moving forward is looking at how to use technology to enhance how BNM creates, collects, captures, synthesises, and shares data.

BNM will continuously strengthen the use of technology including artificial intelligence, machine learning, natural language processing to improve their supervisory function.

The central bank will also initiate a comprehensive industry review of the financial data ecosystem. In the next five to ten years, the regulator will focus on improving the timeliness, quality, granularity, and transparency of the data that they collect from the industry.

– FINTECH NEWS MALAYSIA

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