By Khairul Fazli Abdul Kadir and Azarith Sofia Aziz
E: khairul.fazli@azmilaw.com • azarith.sofia@azmilaw.com
Financial technology (fintech) creates the possibility that financial services offered by traditional banking providers such as money transfer, lending, investment or payment can be done cheaper and more conveniently. To ensure they remain relevant in the market, 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, the central bank (Bank Negara Malaysia or BNM) and the Securities Commission of Malaysia (SC) have actively responded with legal and regulatory frameworks to facilitate the use of fintech in relation to financial services in Malaysia.
Key trends in Malaysia
Peer-to-peer (P2P) financing and equity crowdfunding (ECF)
The introduction of P2P and ECF enable fund-raising from individuals or retail investors via an internet platform without an intermediary such as a bank, as well as funding or investment by investors in exchange for shares in startup entrepreneurs and small and medium enterprises. SC has, in the year 2016, approved six P2P operators, namely B2B FinPAL, Kapital, FundedByMe Malaysia, ManagePay Services, Modalku Ventures and Peoplender, as well as six ECF providers, namely FundedByMe (Alix Global), Ata
Plus, Crowdonomic, Eureeca, pitchIN and Crowdplus.
Mobile wallet
Malaysia’s largest financial services providers such as Maybank and CIMB aggressively promoting the cashless trend through mobile wallets and other products. Maybank launched Malaysia’s first mobile payment platform, MaybankPay, in July 2016, allowing users to simply tap their smartphones on Visa payWave terminals to make payments, which was followed by CIMB Pay in December 2016. Both recently announced that they will also introduce support for Alipay mobile wallet in Malaysia by collaborating with China’s Ant Financial Services Group.
Fintech development by local banks
Hong Leong Bank has introduced early this year its HLB LaunchPad, a three-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, digitising customer journeys and experience, and re-imagining banking for tomorrow.
Maybank also has recently launched Maybank Sandbox, which provides a complete ecosystem having all the essential components for free, to fast-track the growth of fintech developers across the region.
Legal developments in Malaysia
Amendment to the Guidelines on Recognised Markets
The SC has amended its Guidelines on Recognised Markets 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 other things, that P2P operators must pass the “fit and proper” test and 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 percent. 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.
Fintech regulatory sandbox framework
BNM issued the Financial Technology Regulatory Sandbox Framework on October 18, 2016 to allow fintech companies to experiment with innovative solutions in a live environment, within specified parameters and timeframes. The Framework sets out the requirements as well as the eligibility criteria to be fulfilled by the stakeholder to participate in the said regulatory sandbox. 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 sector.
Digital Investment Management Framework
In May 2017, the SC introduced the Digital Investment Management Framework, which sets out the licensing and conduct requirements for the offering of automated discretionary portfolio management services to investors. Companies that wish to offer digital investment management services may apply for the new licence with SC effective May 9, 2017. The DIM Framework aims to provide investors with a more convenient, affordable and accessible channel to manage and grow their wealth.
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E: khairul.fazli@azmilaw.com • azarith.sofia@azmilaw.com • http://azmilaw.com/