SUMMARY ON POLICY DOCUMENT FOR THE FINANCIAL TECHNOLOGY REGULATORY SANDBOX FRAMEWORK

Initially introduced in October 2016, the Financial Technology Regulatory Sandbox Framework (“Framework”) provides a regulatory environment that is conducive for the deployment of fintechs and facilitating meaningful innovation in the Malaysian financial sector by providing a regulatory sandbox where fintech solutions may be tested in live environment. This policy document comes into effect on 29.02.2024 and will supersede the PD issued on 18.10.2016, simplifying the eligibility assessment with a quick response time (15 days).

This PD has introduced a new feature “Green Lane” to accelerate the application track, enabling financial institution with a strong track record in risk management, governance, and compliance to test innovative solutions more swiftly by granting them regulatory flexibility.

  1. Sandbox Assessment Procedure

The table below will provide a quick overview of the current updated sandbox application and assessment process for both the standard sandbox and green lane:-

Standard SandboxApplicabilityGreen Lane
Fintech companies, new entrants and financial institutions regulated by the BankAdmission on a rolling basisFinancial institution regulated by the BankAdmission on a cohort basis
Eligibility / qualification criteria
Stage 1 Simplified assessment with the following key changes:Value proposition to be assessed at a conceptual level without requiring upfront evidence such as proof-of-concept (to be validated during testing period)Risk management assessment to prioritise ability of applicants identify risk appropriately. A more comprehensive assessment will be done in Stage 2The Bank endeavors to inform applicant within 15 working days   Stage 2 Comprehensive assessment of state of readiness and risk management capabilitiesFinalisation of testing parameters, KPIs and exit plansApproval given with or without conditions for go-liveQualification at institutional level • Comprehensive one-off assessment of institutional risk management, compliance and governance capabilities
• Submission of list of all potential solutions and aggregate cap of expected financial losses
• The bank endeavors to inform decision on approval within 30 working days.   Qualification at solution level • Limit to 20,000 customers and up to 12 months of testing
• Regulatory flexibility provided unless specified as out-of-scope   Simplified review • Registration of solutions at least 15 working days prior to go-live
• Attestation and identity of customers against direct financial losses
Review before go-live
Live-testing
Submission of interim reports to the Bank and preparation of a final report post testing

Post-testing

OutcomesNext steps
• Participant is unable to continue testing (either due unsuccessful testing, revocation of approval or no interest to continue operations)• Termination of testing and orderly winding down
• Participant seeks to continue operations and can comply with existing laws and regulatory requirements• Graduate from sandbox and to comply with existing regulations
• Participant seeks to continue operations but is incompatible with existing laws• Subject to discussion with the Bank on a case-by-case basis

2. General Requirements

    2.1 An applicant interested to test its solution in the sandbox by either procedure (standard or green lane) must submit the following to BNM:-

    (a) an application letter signed by the CEO of the applicant or an officer of the applicant as duly authorized by the CEO;

    (b) the application form (standard sandbox track or green lane application forms); and

    (c) supporting documents to substantiate the information provided in the application form.

    Submission to be sent to:

    Pengarah
    Jabatan Pembangunan dan Inovasi Kewangan
    Bank Negara Malaysia
    Jalan Dato’ Onn 50480 Kuala Lumpur
    Email: fintech@bnm.gov.my

    2.2 BNM has encouraged prospective applicants to visit the BNM sandbox webpage at https://www.bnm.gov.my/sandbox and contact the Bank at fintech@bnm.gov.my if there are any queries on whether the sandbox is an appropriate platform for an applicant’s intended testing of a new solution.

    Author: Maryam Amilah Zaini