Bank Negara Malaysia (BNM) had unveiled its Annual Report 2023 today, offering insights into the major advancements and regulatory measures undertaken within the financial sector over the past year.

The AR 2023 details BNM’s key initiatives in fulfilling its mandates to promote monetary and financial stability conducive to the sustainable growth of the Malaysian economy in 2023.

It also provides an account of BNM’s operations and resources that enable it to function effectively and efficiently.

Fintech News Malaysia sifted through close to 200 pages to condense the fintech developments from the report to provide a comprehensive yet succinct overview of the year’s significant highlights.

BNM makes strategic shifts to financial inclusion framework

The Financial Inclusion Framework 2023–26, launched in June 2023, builds upon the groundwork established by the first Financial Inclusion Framework (2011–20).

The earlier framework greatly expanded access to financial services nationwide while the new version aims to shift the focus towards achieving broader developmental outcomes.

This strategic roadmap is committed to improving the financial well-being and enhancing the standard of living for all Malaysians, by outlining clear visions, desired outcomes, policy objectives, and strategies to bridge the remaining gaps in access to quality and affordable financial services.

Malaysia’s new digital banks are up and running

Key developments include the operational launch of three digital banks, with GXBank now available to the public and both Boost Bank and AEON Bank currently in beta testing.

These banks have met BNM’s stringent evaluation criteria, focusing on governance, risk management, and their capability to mitigate technology and operational risks effectively.

BNM shared that there will be a gradual rollout for their digital banking services, beginning with basic deposit and payment products and eventually expanding to include loans and other financial services.

The initiative aims to bridge service gaps in underserved markets, improving financial access for gig workers, SMEs, and lower-income groups.

Similar to the digital banks, the anticipated introduction of digital insurers and takaful operators (DITOs) is also expected to enhance Malaysia’s financial landscape by complementing existing insurance services and fostering greater market competition.

The DITO Framework is expected to be finalised in the first half of 2024.

Cross border and digital payments get a boost

The report also showcases a notable 20% growth in electronic payment (e-payment) transactions in 2023, reflecting progress towards the Financial Sector Blueprint’s targets. This achievement underscores the increasing adoption of e-payments among businesses, particularly small-sized enterprises, facilitated by initiatives like DuitNow QR and e-Duit aimed at expanding digital payment solutions nationwide.

A significant enhancement in cross-border payments was highlighted, with real-time payment connectivity with Singapore for QR payments and person-to-person (P2P) fund transfers going live in March and November 2023, respectively.

This development complements existing QR payment links with Thailand and Indonesia, enabling seamless transactions for travelers and visitors among these countries, leveraging over 2 million DuitNow QR acceptance points in Malaysia. In 2023, these linkages facilitated approximately 674,000 transactions valued at RM59 million.

Another major initiative to enhance the efficiency of cross-border payments has been the development of a scalable multilateral payment connectivity model under Project Nexus.

In 2023, BNM partnered with the Bank for International Settlements Innovation Hub (BISIH) Singapore Centre and central banks from Indonesia, Philippines, Singapore, and Thailand, to embark on the transition phase of Project Nexus (Phase 3) which will bring the solution closer to implementation.

This roadmap includes the appropriate governance arrangement, business model, technical specifications of the Nexus gateway, and joint oversight arrangement to ensure the multilateral linkage remains safe and resilient.

The next phase of Project Nexus (Phase 4) to operationalise these arrangements is on track to commence in 2024.

BNM has also been actively modernising Malaysia’s payment infrastructure to keep pace with global developments, including the adoption of the ISO 20022 messaging standard, which enhances payment infrastructure efficiency, strengthens risk management, and offers consumers advanced cash management tools.

The financial industry remains on track for full adoption of ISO 20022 for both domestic and cross-border payments.

In addition to payment infrastructure advancements, BNM is exploring technology solutions through Project Mandala to simplify compliance processes for cross-border transactions, such as automating compliance procedures and providing real-time transaction monitoring.

This project is led by the BISIH Singapore Centre alongside BNM, including central bank and financial institution partners from Australia, Republic of Korea, and Singapore.

Exploration of digital assets continue

BNM’s Digital Currency Research Hub monitors the impact of digital assets on financial stability, focusing on promoting responsible innovation and exploring the potential of Central Bank Digital Currencies (CBDC) to enhance cross-border payments.

Efforts in 2023 included collaboration with the Securities Commission Malaysia (SC) to address potential risks from digital asset market activities.

The regulator will continue exploratory work on domestic wholesale CBDC, which is ongoing and is expected to further intensify in 2024. BNM is looking to explore a range of potential use cases for digital assets and tokenisation.

Launch of upcoming National Fraud Portal

Furthermore, the National Scam Response Centre (NSRC), established in 2022, continues to provide swift responses to online financial scams.

The upcoming National Fraud Portal (NFP), set to roll out by mid-2024, will strengthen Malaysia’s defense against financial fraud, featuring tools to expedite the tracing of stolen funds and support data-driven assessments to identify and take action against fraudulent activities and mule accounts.

Governor Datuk Abdul Rasheed Ghaffour said,

“Our prospects are good. We have reason to cautiously anticipate a better year ahead. There is also a favourable window of opportunity to implement crucial structural reforms.

 

While there may be challenges during this transition, these reforms are investments in our future towards prosperity of our rakyat and the nation.”