Unquestionably, FinTech has continued to take centre stage in recent months. Not only that FinTech players are raising millions of funding from investors, governments and regulators around the world (including Malaysia) are also looking to regulate and facilitate the growth of FinTech industry in their respective countries through the creation of FinTech frameworks.
To this end, it is recognised that some form of policy and regulatory framework is necessary to be put in place so that FinTech participants can operate in a safe, efficient and transparent manner, as rightly pointed out by the Governor of Bank Negara Malaysia, Datuk Muhammad bin Ibrahim.
In February 2015, the Securities Commission of Malaysia (“SC”), a statutory body in charge of the securities and derivatives markets in Malaysia, released guidelines to facilitate ECF market. Six (6) ECF platform operators (Alix Global, Ata Plus, Crowdonomic, Eureeca, pitchIN and Propellar Crowd+) were approved by the SC to operate ECF platforms.
Malaysia is the first country in the ASEAN region to have introduced an ECF regulatory framework.
Investors receive shares in return for their investments and can expect a return in the form of dividends if the company performs well.
According to the SC, from May 2016 until October 2016, the combined amount SMEs have raised through the six regulated ECF platforms amounted to RM8 million for 11 Malaysian businesses. The platforms have also received widespread interest from across 38 different sectors.
In April 2016, the SC released another guideline and this time, it sought to regulate the even more lucrative P2P Lending market. The first round of application was opened from 2 May 2016 to 2 July 2016 and the SC had received more than 50 applications from interested applicants.
These platforms are expected to launch their operations in 2017. Malaysia is once again the 1st country in the ASEAN region to have formally authorised such platforms to operate in the P2P Lending market.
P2P financing, as described by the SC, is a “web-based innovation that broadens the ability of entrepreneurs and SME business owners to unlock capital from a pool of individual investors in small amounts and provides a quick turnaround time to obtain financing for their businesses, through an online digital platform”. Individuals, however, are not allowed to seek personal financing via a P2P Lending platform.
Once purchased, the issuer of the investment note or Islamic investment note will be obliged to pay the investors over a period of time, with interest or profits. Both borrowers and lenders benefit from better interest rates and returns on investment, respectively, compared to traditional financing methods. In addition, there are no intermediation parties as money change hands directly.
Following a public consultation exercise in July-September 2016, Bank Negara Malaysia (“BNM”) released the Financial Technology Regulatory Framework on 18 October 2016. The framework seeks to provide a regulatory environment that is conducive for the deployment of FinTeech in the form of a FinTech sandbox.
With this framework, FinTech product, service or innovation can be deployed and tested in a live environment within certain testing parameters and timeframes.
At the end of the testing period, BNM will work with the participants to develop a transition plan for the deployment of the solution on a commercial scale in Malaysia upon successful testing. On the other hand, if the test fails or is discontinued, BNM will then consult the participants and develop an exit strategy for them.
While the SC is advocating the benefits of digital finance, the SC is also mindful of the new forms of risks and challenges posed by technology. To address this, the SC published a new Guidelines on Management of Cyber Risk on 31 October 2016 to raise awareness of industry-wide cyber resilience.
Against a backdrop of increased dependency on information technology and Internet connectivity in capital market activities, operations of market intermediaries, market infrastructure and market-based financing platforms, there is a need to put in place cybersecurity policies and procedures to safeguard and protect the confidentiality, integrity and availability of information systems used by capital market participants. Sound and vigilant management of cybersecurity risk have been identified as a critical component to further strengthen the resilience of the Malaysian capital markets.
The guidelines will be implemented in phases. Entities will be selected for the different phases based on, among others, size, nature of activities and market share. With this guidelines, it is hoped that this will minimize disruption to the capital market, protect investors’ confidential data and preserve market confidence.
The aim is to achieve four key objectives, namely to enhance access to financing, increase investor participation, augment the institutional market and develop a synergistic ecosystem.