Ten points to note about Digital Banking Licenses in Malaysia

Ten points to note about the Licensing Framework for Digital Banks published by Bank Negara Malaysia on the last day of the 2020 calendar year:

• Applications to become a digital bank or Islamic digital bank in Malaysia are due at the latest by June 30, 2021
• The decision on the license applications will be made by the first quarter of 2022
• The particular license focus is on “underserved and hard-to-reach segments that may be unserved, which includes retail as well as micro, small and medium enterprises (MSMEs)” — §7.2
• “Preference will be accorded to an application where the controlling equity interest in the proposed licensed digital bank are held by Malaysians” — §8.4
• Generally, profitability would be expected within five years, which is then further reflected in the overall timeline — §10.3(c)

• Given the uncertainty of a startup venture, an unwind plan is to be included in the application — §11.1
• The central bank will impose an asset limit on the digital bank for at least three years and at most five years from commencement of operations (“foundational phase”) — §12.1
• The asset side is limited to MYR 3bn (~USD 750m) during the foundational phase — §13.1
• The focus of the digital bank on the underserved or unserved segments shall not change even after the foundational phase — §15.6
• Unlike other digital banking regimes where applications do not *need* to establish a physical branch presence, in Malaysia “a licensed digital bank is not allowed to establish a branch i.e. a fixed place of business to facilitate customer transactions” unless such a physical location is used solely used to accept customer complaints — §17.1

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