Following the establishment of Bank Negara Malaysia (BNM) Financial Technology Enabler Group (FTEG) on 2nd June 2016, BNM issued a discussion paper on Fintech Regulatory Sandbox on the 29th July 2016. BNM in its Press Statement said that "the Sandbox will allow regulated financial institutions (FIs) and fintech companies looking to do businesses regulated by the Bank to experiment with fintech solutions in a production or live environment, subject to appropriate safeguards and regulatory requirements." BNM invited written comments on the discussion paper to be submitted by 30th August 2016.
Clauses specific to Islamic finance are as follows:
- Section 1.6 of the discussion paper states that one of the intended outcomes is to ensure innovative solutions for Islamic financial services are consistent with prevailing Shariah standards.
- Section 3.2 defines "Islamic Financial Services" as Islamic financial intermediation activities including Islamic banking and takaful services which leverage on technological innovation
In my opinion, the above clauses are not a problem for financial institutions as they should already have Shariah governance to ensure compliance to the prevailing Shariah standards. Collaborative fintech companies that partner with Islamic financial institutions should also not have any problem as they can ride on the Shariah governance of their partners. However, it is a big challenge for competitive fintech companies especially small start-ups which are not familiar with Shariah requirements.
I would recommend BNM to have a section on guidelines to comply with "prevailing Shariah standards". The guidelines should clearly differentiate the requirements for Collaborative and Competitive fintech companies. Some of the details to be included are the governance structure and the measures to be taken for ensuring the compliance.