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Malaysia Financial Sector Blueprint 2022-26 – A booster for digital finance

Malaysia Financial Sector Blueprint 2022-26 – A booster for digital finance

24 Feb 2022

Bank Negara Malaysia (BNM) launched Malaysia’s five-year Financial Sector Blueprint (FSB) during the opening of MyFintechWeek in January 2022.

MyFinTechWeek, the flagship event of BNM, had a theme of advancing digitalisation for recovery, sustainability and inclusion. Digitalisation has become the forefront of every nation, including Malaysia, to overcome the changing economic and financial landscape in the aftermath of the Covid-19 pandemic.

The FSB will act as a catalyst for Malaysia’s Digital transformation in general and a booster for financial innovation and economic transformation.

In the blueprint, the central bank identified five strategic thrusts that will be the key enabler for Malaysia’s digitalisation plan, which includes; funding Malaysia’s economic transformation, uplifting the financial well-being of households and businesses, advancing digitalisation of the financial sector, positioning the financial system to facilitate a robust greener economy, and lastly, using thought leadership in Islamic finance to advance value-based financing.

It will be too difficult to discuss all thrust areas, and thus this piece is focused on the 3rd strategic thrust, that is related to advancing the digitalisation of the financial sector.

In the words of BNM Governor, Datuk Nor Shamsiah Mohd Yunus, “the world of finance, new applications of technology, broader shifts to digital channels and the emergence of new business models have opened up exciting possibilities for better financial services” have rightly set up the need of digitalisation of the financial sector. As shown in the image below, the FSB has made it clear that Malaysia’s financial services industry should take advantage of the upsides of digitalisation while managing the associated risks that may threaten system-wide stability, consumer outcomes, and confidence in the financial sector.

To advance the digitalisation of the financial sector, a broader digital ecosystem and an open data ecosystem will be the key actors, the latter being the most crucial. Open data will be the heart of inclusive finance as it can be used to improve the ability of challenger banks, digital banks and other FinTech players to make effective financial decisions about who to lend money to or enable comparison applications to make more detailed and accurate assessments of how customers can save money.

To fully leverage the open data ecosystem, regulators will strive to establish policies and safeguards that support responsible and ethical usage of data and facilitate fair and reciprocal data-sharing initiatives among participants in Malaysia’s data ecosystem.

The FSB also made it clear that broader digital infrastructures, including non-financial ones, will be the key to aid financial development. Thus, inclusivity and adaptability will anchor the development of these infrastructures. Connectivity and digital identity are vital examples that support greater innovation and adoption of digital financial services.

Financial Technology (FinTech) development is the heart of the digitalisation of the financial sector, and the FSB has put across lots of initiatives to support it. BNM is committed to intensifying efforts to enhance cross-border payments efficiency by working with industry players to address challenges associated with cross-border payments, such as high costs, low speed, limited access, and insufficient transparency.

This includes linking up the recovery and resolution planning (RPP) with other real-time payment systems in the Association of Southeast Asian Nations (ASEAN) region and beyond, focusing on countries with strong economic linkages with Malaysia.

To catch up with the popularity of the Central Bank Digital Currency (CBDC), BNM will intensify research and experimentation on the use of CBDC for Malaysia’s monetary and financial infrastructures with the initial focus on wholesale CBDC, making it clear that retail CBDC is not on the radar of the central bank. CBDC will also be handy in exploring emerging payment innovations for cross-border payments, such as the use of multi-CBDC arrangements.

Malaysia already has made a significant process Project Dunbar, where BNM has already partnered with the BIS Innovation Hub and other central banks with the likes of Reserve Bank of Australia, Monetary Authority of Singapore, and South African Reserve Bank to test the use of multiple CBDC and DLT for cross-border settlements.

Another focussed area of the FSB is the smooth implementation of the digital banking framework. With the aspiration to offer five digital banking licenses this year to create an ecosystem that will better attend to underserved and unserved segments, BNM is committed to ensuring that the policy environment remains relevant as digital banks and incumbents continue to evolve their business models catering for SMEs and unbanked.

To overcome any systemic risk arising from the digital banks, the central bank will also be fostering an appropriate regulatory environment.

To continue the FinTech development and leverage its growth opportunity, the FSB is targeting seamlessly integrating Regulatory Sandbox with industry and national level initiatives to boost innovative financial products and services. To achieve this aspiration, regulators and policymakers are committed to establishing an extensive network of key stakeholders such as Malaysia Digital Economy Corporation (MDEC) and Malaysian Research Accelerator for Technology and Innovation (MRANTI) that can connect FinTech startups to a comprehensive suite of support facilities, ranging from capacity-building resources to market access opportunities.

And finally, to have a better insight into the regulatory and supervisory environment, the central bank will continue to leverage the usage of emerging technologies. A key consideration of moving forward is using technology to enhance how BNM creates, collects, captures, synthesises, and shares data. BNM will continuously strengthen the use of technology, including artificial intelligence (AI), machine learning (ML), natural language processing (NLP), to improve their supervisory function.

It can be seen that this blueprint has put Malaysia’s aspiration in line with the developed and developing countries, and it proves that Malaysia is on the path to achieving greater success in implementing robust, innovative and future-ready digital finance.

The complete Financial Sector Blueprint 2022 can be found here.


by: Prof Nafis Alam

The writer is the Head at School of Business, Monash University Malaysia.

The views expressed in this article are the author’s own and do not necessarily reflect those of the New Straits Times

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