The Exposure Draft on Licensing and Regulatory Framework for Digital Insurers and Takaful Operators was published by Bank Negara Malaysia (BNM) (DITOs).
The policy document will be completed and applications for licenses will be opened by BNM in 2023. Applicants who satisfy all conditions may receive up to five licenses.
The Exposure Draft, which was published on November 25, 2022, proposes to make it easier for DITOs to operate in Malaysia by realizing the following objectives:
Increased financial resiliency for customers whose protection needs are now unmet or insufficiently met;
Innovative goods that meet various protective demands due to competition;
Efficiency: Greater cost savings and a convenient, smooth customer experience.
It is intended for DITOs to conduct their insurance or takaful business entirely (or virtually entirely) online. As a result, new types of businesses and operational models are anticipated to emerge in order to better serve the demands of a wide range of consumers. BNM keeps a sharp focus on good risk management and customer protection while promoting these advances.
The Exposure Draft contains precise rules on the acceptable business models and distribution methods for DITOs, as well as licensing and application processes. This aims to benefit policyholders while promoting sustainable business practices. The Financial Services Act 2013 (FSA) or the Islamic Financial Services Act 2013 will include rules that DITOs must abide with (IFSA). This covers guidelines for prudential considerations, professional conduct, and countermeasures against money laundering and terrorism financing.
BNM will require an applicant to provide a thorough five-year business plan as part of the licensing application process, which includes, among other things, planned strategies to properly manage technology and cyber risks in providing its goods and services. The applicant will also be expected to show that it has the ability to authenticate online transactions and protect consumer data, in line with the standards expected of other financial institutions under the "Risk Management in Technology" policy document.
Licensed DITOs will go through a foundational period, just like digital banks. Because DITOs are still in the early stages of operations, lower minimum paid-up capital requirements and proportionate regulatory flexibility will be applied to them during this time. The foundational phase is valid for a minimum of three years and a maximum of five years. After this phase, DITOs will be required to implement an exit strategy in accordance with the guidelines outlined in the exposure draft if they cannot show convincing prospects for long-term viability or higher prudential standards consistent with those applied to all currently licensed insurers and takaful operators.
To view the Exposure Draft on the licensing and regulatory framework for DITOs, please click here.
