Bank Negara Malaysia (BNM) published an exposure draft on Friday, Nov 25, setting out how it would license and regulate digital insurers and takaful operators, known as DITOs. In the accompanying press statement, the central bank wrote: “BNM aims to finalise the policy document and invite applications for licences in 2023. Up to five licences may be issued to applicants that meet all requirements.”
Written feedback on the draft is due by April 28, 2023.
The timeline
The record shows a three-step process. On Jan 4, BNM issued a discussion paper on the proposed licensing framework. Feedback on that paper led to this exposure draft, and a policy document will follow, setting out the prudential and business requirements for DITOs.
What the draft says
A DITO is expected to run its insurance or takaful business wholly, or almost wholly, through digital or electronic channels. BNM expects that to bring new business and operating models, wider product choice and better service. It says it will keep a firm hold on risk management and consumer protection while those innovations develop.
The draft lays out licensing and application procedures, plus specific rules on which business models and distribution channels qualify. BNM says the aim is sustainable operations that still deliver value to policyholders. Licensed DITOs must also meet existing standards under the Financial Services Act 2013 or the Islamic Financial Services Act 2013, covering prudential matters, business conduct and anti-money laundering and terrorism financing measures.
Applicants must hand in a five-year business plan that includes how they would manage technology and cyber risks. In line with the Risk Management in Technology policy document applied to other financial institutions, they should also show they can protect consumer data and authenticate online transactions to reduce fraud and cyber risks.
A foundational phase, as with digital banks
As happened with digital banks, licensed DITOs will go through a foundational phase. Minimum paid-up capital is lower during that period, and regulators apply flexibility suited to their early stage. The phase lasts at most five years and no less than three.
At the end, a DITO that cannot show credible long-term viability, or cannot meet the higher prudential standards that apply to existing licensed insurers and takaful operators, must carry out an exit plan under the conditions in the draft.
BNM said feedback can include requests for clarification, further explanation and alternative proposals, but it wants clear reasons behind each submission.
