Are Regulations Restrictive for Banks to Innovate in Malaysia?

Are Regulations Restrictive for Banks to Innovate in Malaysia?

by February 13, 2018

Earlier this February, CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak told The Edge that the current strict regulations in the banking industry is not creating a conducive environment for banks to be creative or innovative to respond to the oncoming threats from the Fourth Industrial Revolution.

Indirectly responding to Datuk Seri Nazir and perhaps even taking a jab at him, Bank Negara Malaysia Tan Sri Muhammad Ibrahim said “Using the disguise of being tied by regulations is not a valid excuse,” during his keynote address at the 40th Harvard Business School Alumni Club Malaysia anniversary.

Is there merit to CIMB’s statement or is Bank Negara Malaysia right in saying that banks should not use regulation as a crutch for their perceived lack of innovation? While many perceives Malaysia as slow to respond to global shifts in trends the reality is that Malaysia while not perfect, it is not too far off from our counterparts.

Historical Look

Looking back at the history of banking in Malaysia, we’ve deployed the first real alternate channel for banks which are ATM machines in 1981 at Maybank’s Ampang Park outlet, 2 years after Standard Chartered Bank deployed their first ATM in Singapore. According to a senior banking official who shall remain unnamed, he said during a panel discussion not too long ago that the introduction of ATM’s was not driven by the bank’s innate desire to innovate but rather as a directive from Malaysia’s Central Bank.

Malaysia was also among one of the earlier countries to adopt EMV ( Europay-MasterCard-Visa) technology in 2005, ahead of advanced nations like Taiwan, South Korea, and Japan and the United States who has only recently migrated from magnetic strips to EMV after Target’s massive data breach debacle.

Recent Initiatives

The United Kingdom was the first country to introduce a fintech sandbox approach in 2015 and approving the first sandbox fintech services in 2016. Not being too far behind, Malaysia introduced its own version of the fintech sandbox in the 2nd quarter of 2017, which is only a couple of months behind from its often compared to neighbour, Singapore.

Malaysia’s securities regulator, Securities Commission Malaysia is also widely known to be progressive towards its approach towards innovative technologies with its introduction of the Equity Crowdfunding and P2P loan regulation.

Moving on to more recent times, Malaysian regulators have also shown a more receptive approach towards cryptocurrencies compared to our neighbours from Indonesia. Looking through the historical and current lense it would appear that Malaysian regulators are not as much of a hindrance to innovation in the financial sector as some may perceive.

Verdict?

While it is true that the regulators from time to time may impose rules that may constrict the speed of innovation within banks, from many private conversations with bankers I’ve in the past there has indeed been cases where bank would like to move faster than the regulator would allow. However one wonders if that is necessarily a bad thing, the financial sector is one of the core pillars of the economy, we must innovate however it is imperative that we innovate responsibly. We’ve witnessed from our American counterparts how an unchecked banking sector can go wrong.

Besides, even if Bank Negara is restrictive on consumer facing technologies there’s really nothing that the regulator is doing to stop banks from streamlining their backend processes for better efficiency, deploying assistive tools for front-liners to better serve the bank’s customers, or at the very least break down departmental silos. Of course despite some of the strides made in the right direction by our local regulators, we’d also be very pleased if Bank Negara Malaysia start looking at adopting regulations like the PSD2.

Do you agree with Tan Sri Muhammad Ibrahim’s remark or are you leaning more towards Datuk Seri Nazir’s comments? Let us know your thoughts below.

Featured image via: The Sun Daily and Malay Mail

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