Mr Jonathan Lim Hon Kiat
Partner, also serves as the Secretary of Fintech Association of Malaysia.

Jonathan is a corporate partner at Zaid Ibrahim & Co. with considerable experience in areas such as Fintech, venture capital, blockchain technology, payment systems, digital remittance, and initial coin offerings. His involvement in the Fintech sector also extends to advising clients on compliance matters relating to regulatory developments in the industry as set out by the Malaysian central bank (Bank Negara Malaysia) and the Malaysian Securities Commission.

Jonathan is also well versed in advising both local and foreign clients on corporate transactions including mergers and acquisitions, corporate structuring, initial public offerings, takeovers as well as private funds, and has been involved in several landmark corporate transactions. Jonathan also has experience in advising start-ups and venture capital corporations on matters ranging from compliance to funding agreements.

As an active supporter of the financial technology fraternity, Jonathan also currently serves as Secretary of the Fintech Association of Malaysia wherein he assists in developing the burgeoning sector’s growth here in Malaysia and the region. In addition, Jonathan also acts as legal counsel and mentor of Founders Institute (a pre-seed start-up accelerator with a presence in over 180 cities worldwide).

Malaysia’s Digital Evolution: Pioneering Fintech and Shaping a Regulatory Future

Malaysia- Digital First

South East Asia known as the Tiger economy, houses an approximate population size of 750 million people. Within this Tiger Economy, sits Malaysia, a well-recognised emerging market, that enjoys a humble population size of approximately 33 million people.

Originating from agriculture and commodities based economy, Malaysia today stands in the forefront of being one of the pivotal players in shaping SEA as a digital driven economic force. In less that a decade since the inception of the Bank Negara Malaysia/Central Bank (BNM) Regulatory Sandbox (Sandbox), Malaysia stands proud today as being recognised as a jurisdiction that enjoys “Regulatory Clarity”.

BNM Sandbox¹https://www.bnm.gov.my/sandbox

The inception of a regulatory Sandbox in 2016 with the objective to promote and nurture financial technology offerings, has been revamped and reintroduced in 2024. In recognising the challenge posed by the current eligibility assessment, BNM proposed to assess the value proposition of a new solution at a conceptional level instead of requiring evidence of how the solution will address market gaps and inefficiencies. Applicants are granted a three (3) months period to deploy their solution for testing under the sandbox which is in line with BNM’s intention to provide applicants with added flexibility to develop their solution and risk management capabilities.

An additional feature is the introduction of the Green Lane. The Green Lane is an alternative to the standard sandbox regime and is introduced to provide a simplified route for financial institutions (and not for other fintech companies) to test new and innovative solutions that do not comply with BNM’s regulatory regime.

There are two levels of assessment in order for a financial institution to become eligible to participate in the Green Lane:

1. Assessment. First, BNM shall assess the financial institutions risk management, compliance and governance capabilities; and
2. Registration. Second, financial institutions must undergo a simplified registration procedure in order to begin testing individual solutions that face regulatory impediments.

Additionally, BNM has taken a more inclusive approach and have partnered with the Fintech Association of Malaysia (FAOM) to provide pre screening and mentoring solutions. Whilst FAOM does not have any compelling powers nor represents the views of BNM, the approach is to gather and promote industry input and participation in this process.

Digital Banks

In 2023, BNM issued 5 provisional digital licenses which paved the launch Malaysia’s first digital banks in 2024 being GXBank, AEON Bank, and Boost Bank which have all commenced operations, offering fully digital banking services to the Malaysian public. The introduction of the digital banking framework alongside the issuance of the 5 digital bank licenses, continues to fortify the tone that BNM recognises the maturity of the Fintech landscape in Malaysia and is robustly ready to weave financial technology into the fabric of the Malaysian society.

GXBank, the first to launch, has secured nearly one million customers by introducing innovative products such as the GX Account, GX FlexiCredit, and the GX Card, which offers instant cashback. Following suit was AEON Bank, Malaysia’s first Islamic digital bank that focuses on providing a range of digital payment solutions and budgeting tools differentiating itself from the other digital bank players. Boost Bank, owned by Axiata Group and RHB Banking Group, began operations in June 2024 which featured a seamless account opening offering via its e-wallet²Malaysia Fintech Report 2024: Will Digital Banks Usher in a New Era of Banking? – Fintech News Malaysia. These digital banks are set to enhance financial inclusion and provide a more convenient and personalised banking services to Malaysians. The primary objective for these digital banks continues to be premised on reaching the underserved and unbanked. With technology enhancements, the vision is to enable a wider spread of financial products reaching places with infrastructural challenges in hopes of enhancing the financial literacy of fellow Malaysians.

Payments Instruments – E Money Issuers

On 30th December 2022, BNM issued a new Policy Document on Electronic Money (“E-Money PD”) which supersedes the 2008 Guidelines on Electronic Money. The E-Money PD sets out a more comprehensive and improved regulatory framework for current and prospective e-money issuers (“EMIs”) in Malaysia. The key amendments introduced in the E-Money PD include:

Recatergorisation of EMI

BNM abolished the previous practice of categorising EMIs into small scheme or large scheme issuers and re-categorised EMIs.

1. Wallet Sizes. BNM’s prior written approval is required if the wallet size exceeds MYR5,000 (instead of the previous MYR1,000).
2. Limited purpose EMIs. The E-Money PD introduced limited purpose EMIs which are exempted from obtaining an approval to issue e-money.

Notification

The E-Money PD sets out clear requirements regarding the approval and notification processes applicable to EMIs, particularly regarding:

1. changes in the risk profile of an EMI’s business model;
2. periodical reporting obligations; and
3. an EMI’s mandatory membership with an approval Financial Ombudsman Scheme.

Emphasis on Technology

A substantial portion of the E-Money PD focuses on the establishment of a technology risk management framework and technology management. These requirements are comprehensive and cover a broad range of features, systems and operations of an EMI’s business. These requirements should also be read together with BNM’s recent policy documents on Risk Management in Technology and Management of Customer Information and Permitted Disclosures.

The adoption of digital payments in Malaysia has seen remarkable growth in 2024. E-payment transactions per capita increased by 20% year-on-year, rising from 285 in 2022 to 343 in 20233. Cards recorded the strongest growth at 26%, followed by e-money and credit transfers, which rose by 26% and 20%, respectively³Ibid footnote 2. This surge is driven by several modernisation initiatives by the government, such as MyDebit, the national debit card scheme, the Real-time Retail Payments Platform (RPP), and DuitNow QR, the country’s QR code standard for mobile payments⁴5 Key Fintech Trends that Will Shape Malaysia in 2024 – Fintech News Malaysia.

Consumer Credit Oversight Board (CCOB)

In July 2021, the Ministry of Finance (MOF), Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC) set up the Consumer Credit Oversight Board Task Force (CCOB Task Force) to drive the enactment of the Consumer Credit Act with the aim to regulate non bank credit providers. This effort is undertaken in close collaboration with the Ministry of Domestic Trade and Cost of Living (KPDN), the Ministry of Housing and Local Government (KPKT), the Ministry of Entrepreneur and Cooperatives Development (KUSKOP) and Malaysia Co-operative Societies Commission (SKM).

In April 2023, the CCOB issued its second consultation paper on the proposed regulatory framework for credit businesses and credit services businesses (“2nd Consultation Paper”).

The 2nd Consultation Paper builds on its predecessor, the first consultation paper, and proposes inter alia, the following:

1. Credit business and credit service businesses such as leasing, factoring and buy now pay later service providers will be required to obtain the necessary approvals to continue offering their services in Malaysia;
2. all credit businesses and credit service businesses must be locally incorporated in Malaysia and must ensure that they have specific governance and operational arrangements in place including, a minimum capital requirement, anti-corruption and anti-bribery processes, internal controls etc.
3. specific business conduct and consumer protection measures must be complied with by current and prospective credit businesses and credit service businesses to safeguard the interest of consumers. Such measures include the use of advertising and promotional materials, the transparency of information disclosed to consumers and imposing parameters on fees and charges.

Regulatory Advancements

With the maturity of the landscape and the introduction of new regulatory frameworks, the Malaysia’s fintech sector has definitely benefited from pivotal regulatory advancements. In anticipation will be the rise of Islamic fintech, insurtech and wealthtech which with the right set of regulatory framewroks will again contribute to a dynamic fintech ecosystem in Malaysia. In conjunction with such efforts, the government has also been actively developing digital identity solutions like MyDigital ID and PADU to streamline the authentication process and enhance the security, convenience, and accessibility of financial services.

Conclusion

Malaysia’s digital-first approach and fintech development in 2024 have indeed positioned the country as a leader in digital innovation. The launch of digital banks, the surge in digital payments, and the regulatory advancements are all testament to Malaysia’s commitment to fostering a fintech-friendly ecosystem. As the country continues to trail blaze digital transformation, the future of Malaysia’s fintech sector continues to look promising, with more innovations and advancements on the horizon.