Fintech in Malaysia: Trends and Recent Legal Developments
Introduction
Malaysia has seen the most rapid development in its Financial Technology (“FinTech”) field in recent times. While there is no specific definition of FinTech1, it can generally be referred to as any financial service offered using technology.
The key-stakeholders involved in FinTech ecosystem would be the financial services institutions itself as the original provider of the traditional financial services as well as FinTech companies that offers innovative solutions to financial services institutions. On the other hand, the key-regulators involved in FinTech ecosystem in Malaysia are Bank Negara Malaysia (Central Bank of Malaysia) (“BNM”) and the Securities Commission of Malaysia (“SC”).
Key Trends in Malaysia
The following are some of the key trends taken place across Malaysia relating to FinTech:
a) Peer to Peer Financing (“P2P”) and Equity Crowd Funding (“ECF”)
The introduction of P2P and ECF enable funds raising from individuals or retail investors (i.e. lender) to the issuers (i.e. borrower) via internet platform provided by a P2Poperator (i.e. lending between lenders and borrowers without an intermediary such as the bank) as well as funding or investment by investors in exchange of shares in the start-up entrepreneurs and small and medium enterprises. SC has, in the year 2016, approved six (6) P2P operators namely B2B FinPAL, Kapital, FundedByMe Malaysia, ManagePay Services, Modalku Ventures and Peoplender as well as six (6) ECF providers namely FundedByMe (Alix Global), Ata Plus, Crowdonomic, Eureeca, pitchIN and Crowdplus2.
(b) Mobile Wallet
Malaysia’s largest financial services providers such as Maybank and CIMB aggressively promoting cashless trend to their customers, amongst other, by introducing payment for transaction to be made via mobile wallet. Maybank has launched Malaysia’s very first mobile payment platform, MaybankPay in July 2016 where user can simply tap on its Visa payWave terminal to make payment3 followed suits by CIMB via its CIMB Pay in December 2016. Both recently announced that they will bring the well-known online and mobile payment platform, Alipay mobile wallet into Malaysia by collaborating with the Ant Financial Services Group4.
c) FinTech programme and solution introduced by local banks
Hong Leong Bank has introduced early this year5 its HLB LaunchPad, a 3-month mentorship and developmental programme targeted at nurturing the next-generation of promising Malaysian technology and FinTech start-ups specifically focusing on the area of simplifying banking today, digitising customer journeys and experience, and re-imagining banking for tomorrow6.
Maybank also has recently launched Maybank Sandbox7 which provides a complete ecosystem having all the essential components for free, to fast-track the growth of FinTech developers across the region.
It is a great platform not just for the public to raise ideas for new services, products and facilities but also for FinTech companies to develop, test and publish ideas by utilising Maybank’s digital and technology expertise, in which the members of the Maybank Sandbox may also collaborate with each other virtually to develop any Fintech solutions or products8.
(d) FinTechHecks
Fintech Enablement Group (FGE) was introduced by the BNM in June 2016, where the group’s primary function is to formulate and enhance regulatory policies to facilitate the adoption of technological innovations in the Malaysian financial services industry as well as attending to any FinTech related queries including on regulatory matters related to the adoption of FinTech in the financial services industry9. It recently launched FintechHacks which invites the public to share any ideas to improve financial services via innovation and technology10.
Legal Development in Malaysia
The following are some of the main legal developments in Malaysia relating to FinTech:
a) Amendment to the Guidelines on Recognized Markets by SC
SC has amended its Guidelines on Recognized Markets (“the Guidelines”) in May 2016 by introducing the new Chapter 13 which set outs the requirements for the registration and obligations of a P2P operator.
The new Chapter 13 of the Guidelines requires, among others, that P2P operators must pass the “fit and proper” test and to disclose information related to the issuer and the risk assessment and credit scoring parameters adopted by the P2P operator.
Further, the new Chapter 13 of the Guidelines states that the rate of financing cannot be more than 18%. In addition, the new Chapter 13 of the Guidelines provides the type of issuer and investor who can participate in the P2P.
The P2P framework introduced in the new Chapter 13 of the Guidelines enables eligible businesses and companies to access market-based financing to fund their projects or businesses via an electronic platform.
b) FinTech regulatory sandbox framework
BNM has issued the Financial Technology Regulatory Sandbox Framework (“the Framework”) on 18 October 2016, to allow FinTech companies to experiment with innovative solutions in a live environment, within specified parameters and timeframes11.
The Framework sets out the requirements as well as the eligibility criteria to be fulfilled by the stakeholder to participate in the said regulatory sandbox12.
The Framework aims to provide an environment that is conducive for the deployment of financial technology to foster innovations in financial services that can contribute to the growth and development of Malaysia’s financial sector13.
c) Digital Investment Management framework by SC
SC has recently in May 2017, introduced the Digital Investment Management framework (“the DIM Framework”). The DIM Framework sets out the licensing and conduct requirements for the offering of automated discretionary portfolio management services to investors.
Companies who wish to offer digital investment management14 services may apply for the new licence with SC effective 9 May 2017.
The DIM Framework aims to provide investors with a more convenient, affordable and accessible channel to manage and grow their wealth.
Conclusion
With the introduction of FinTech solutions or products, any financial service using traditional banking methodologies such as money transfer, lending, investment or payment could be made easy at a cheaper cost.
To ensure that they remain relevant in the market, the financial services institutions in Malaysia have made aggressive efforts to embrace and keep pace with FinTech either by acquiring the technology offered by the FinTech companies or coming up with their own FinTech solutions.
Similarly, BNM and SC are actively come out with legal and regulatory frameworks to facilitate the use of FinTech in relation to financial services in Malaysia.
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- even within the financial services industry itself due to its huge and limitless ecosystem.
- Securities Commission Malaysia, 2016.
- http://www.maybank2u.com.my/.
- http://www.thestar.com.my/business/ businessnews/2017/03/22/cimbtoenable alipaymobilewalletinmalaysia/.
- https://www.hlb.com.my/main/news/ 20170321-001-hlb-launchpad-programme.
- https://www.hlb.com.my/hlblaunchpad/.
- http://www.thesundaily.my/news/2017/ 06/07/maybank-rolls-out-fintech-sandbox.
- https://maybanksandbox.com/#/about.
- https://www.myfteg.com.
- http://www.bnm.gov.my/index.php? ch=en_speech&pg=en_speech&ac=721.
- https://www.myfteg.com/faq.
- http://www.bnm.gov.my/index.php? ch=57&pg=137&ac=533&bb=file.
- http://www.bnm.gov.my/index.php? ch=en_press&pg=en_press&ac=4273& lang=en.
- Digital investment management is a fund management business which incorporates innovative technologies into discretionary portfolio management services.
Written by:
Khairul Fazli Abdul Kadir (Partner) khairul.fazli@azmilaw.com
