KUALA LUMPUR (Dec 27): Bank Negara Malaysia (BNM) intends to issue up to five licences to qualified applicants to establish digital banks to conduct either conventional or Islamic banking business in Malaysia.

The central bank today issued the Exposure Draft on Licensing Framework for Digital Banks.

In a statement today, BNM said this framework forms part of the series of measures adopted by the central bank to enable innovative application of technology in the financial sector.

It said the exposure draft outlines the proposed framework for the licensing of digital banks to offer banking products and services to address market gaps in the underserved and unserved segments.

It said such digital banks are expected to offer meaningful access to and promote responsible usage of suitable and affordable financial solutions to financial consumers.

BNM said it has adopted a balanced approach to enable admission of digital banks with strong value propositions whilst safeguarding the integrity and stability of the financial system as well as depositors' interests, taking into account that such digital banks have not operated in a full financial and economic cycle.

It said to achieve these outcomes, an asset threshold of not more than RM2 billion in the initial three to five years of operations will be applied.

This functions as a 'foundational phase' for the licensees to demonstrate their viability and sound operations, and for the central bank to observe performance and attendant risks, it said.

BNM said digital banks will be required to comply with the requirements under the Financial Services Act 2013 or Islamic Financial Services Act 2013, including relevant requirements that comprise, amongst others, standards on prudential, business conduct and consumer protection, as well as on anti-money laundering and terrorism financing.

"During the above mentioned foundational phase, licensed digital banks will be subjected to a more simplified regulatory requirement relating to capital adequacy, liquidity, stress testing and public disclosure requirements," it said.

On the minimum capital funds, digital banks will be required to maintain minimum capital funds unimpaired by losses of RM100 million during the foundational phase, and RM300 million thereafter.