Headline Verdana Bold Comparison of Regulatory Requirements for Digital Banks Development of Digital Banking License Framework in Asia Pacific

To date, South Korea’s Financial Services Committee (FSC) has issued up to 2 digital banking license

South Korea Financial Supervisory Committee (FSC) issued the virtual banking license requirements in April 2018 . As of July 2019, FSC has issued up to 3 digital Taiwan Hong Kong Monetary Authority (HKMA) banking licenses. published the Guidelines on Authorisation of Virtual Banks on 30 May 2018. To date, HKMA has issued up to 8 Hong Kong digital banking licenses

Bank Negara Malaysia (BNM) issued the Digital Banking Monetary Authority of Singapore (MAS) License Framework Exposure announced the notice on issuance of the Draft on 27 Dec 2019. digital banking licenses on 28 June 2019. All Malaysia applications are to be submitted by 31 Singapore December 2019 and announcements of Indonesia successful applicants will be made mid-2020. Australian Prudential Regulatory Authority (APRA) introduced the Australia new “restricted” accreditation for new retail Banks in May 2018 and To date, the Indonesian Financial Services granted its first license to Volt Authority (OJK), has only issued the Bank Ltd. guidelines to manage provisions of digital banking services by commercial banks © 2020 Deloitte Risk Advisory Sdn Bhd through its recently issued regulation POJK 12/2018, effective 8 August 2018 2 Comparison of Regulatory Requirements for Digital Banks (1/4)

Topic Area Malaysia Singapore Hong Kong Taiwan License Only 1 type of license 2 types – digital full bank and Only 1 type of license Only 1 type of license type digital wholesale bank Number of May issue up to 5 digital licenses Limited number – up to 2 digital No specified limit. 8 licenses Initially only 2 licenses were licenses full bank license and up to 3 granted. available, but 3 licenses were digital wholesale bank license eventually granted Policy 1. To offer banking products 1. Financing growth 1. Promote application of 1. Increase customer objectives and services to address enterprises and SMEs fintech and innovation convenience and meet market gaps in the 2. Reducing costs and 2. Offer new customer customer needs underserved and unserved improving convenience for experience 2. Promote financial inclusion segments consumers 3. Promote financial inclusion, 3. Promote financial innovation 2. Promote easier and 3. Helping people to plan covering retail and SME and fintech affordable access to financial early and achieve financial segments solutions security in their later years 3. Create strong value propositions of financial 4. Creating good jobs system stability without 5. Financing the growth of jeopardising depositors’ infrastructure in emerging interest Asia, and increase of climate-resilient, low- carbon investments

© 2020 Deloitte Risk Advisory Sdn Bhd 3 Comparison of Regulatory Requirements for Digital Banks (2/4) Topic Area Malaysia Singapore Hong Kong Taiwan Assessment 1. Operational readiness on N/A 1. Sufficient financial, technology and 1. Financial capability (10%) organisational structure, policies, other relevant resources to operate a 2. Suitability of controllers and criteria procedures and controls, virtual bank management (20%) compliance management 2. Credible and viable business plan 3. Business model (40%) framework, IT and accounting 3. Provide new customer experience systems and BCP 4. Management model (30%) and promote financial inclusion and 2. Provide a comprehensive 5-year fintech development business plan that includes 4. Appropriate IT platform to support financial, managerial and their business plan organisational resources to support business strategy and continuity 5. Ready to commence operation soon plan after a licence is granted 3. Required to obtain independent external assurance to validate the business plan Capital/ Minimum paid-up capital of RM100 Digital full banks: Paid-up capital Paid-up capital similar to other Paid-up capital similar to other million (SGD 33 million) during the similar to other full banks of SGD 1.5 commercial banks of HKD 300 million commercial banks of TWD 10 billion (SGD Finance foundational phase, and shall achieve a billion; but concessionary level of SGD (SGD 53 million). 440 million). minimum capital fund of RM300 million 15 million during initial 1-2 years to be (SGD 99 million) at the end of the fifth progressively raised to SGD 1.5 billion. Banks should be public companies within year Digital wholesale banks: Paid-up one year after establishment. capital of SGD 100 million.

Risk focus Capital Adequacy Requirements, N/A Technology, liquidity, operational (data Liquidity contingency plan, data quality Liquidity, and Pillar 3 Disclosures, protection) and reputation risks. and credit scoring models, data Consumer Protection, AML/CFT, and protection, contingency plans for Recovery Plan negative news/rumours, corporate governance, no destructive competition, consumer protection.

Topic Area Malaysia Singapore Hong Kong Taiwan Sponsors • An aggregate interest in shares of • Non-bank sponsors must have track • Digital bank should be locally- • At least 40% of shares in digital bank more than 50% or exercise control record in technology or e-commerce incorporated. to be held by licensed financial over the proposed licensed person • Applicant must be headquartered in • Sponsors can be financial or non- institutions, of which more than 25% • Sponsor should be an existing licensed Singapore and controlled by financial firms. to be held by a single licensed financial institution. person under FSA or IFSA Singaporeans. Control is presumed if • Holder of more than 50% of digital • A financial holding company approved the Singaporean and his related bank should be a bank or financial • Foreign financial institutions can be under the FSA or IFSA parties own the largest shareholding institution supervised by recognised sponsors, provided they have approval and have management control of the of home supervisors to establish • A foreign institution regulated by a financial supervisor. If digital bank is applicant. digital bank. supervisory authority outside Malaysia not held by such an entity, it should be which exercises functions • Foreign companies can partner held by an intermediate holding • If sponsors are from Fintech, e- corresponding to those of the Bank Singapore companies to form joint company that is subject to HKMA commerce or telecom industry, they under the FSA or IFSA venture that meet headquarter and supervisory conditions (capital must propose a successful business control requirements. adequacy, liquidity, large exposures, and operation model and hold more intra-group exposures, group than 10% of shares in digital bank. structure, activities undertaken, risk • As a bank needs to hold 25% of the management, fitness and propriety of equity, the limit on the bank partner directors and senior management, undertaking similar banking business reporting). through another entity is lifted if its • Sponsors must be committed to shareholding in the digital bank is provide strong financial, technology above a prescribed limit. and other support to digital bank.

Directors N/A Majority of directors must be N/A Majority of directors must have Singaporean or Singapore PR. qualifications from banks and fintech/e- commerce/telecom industry, of which at least 1 director must have fintech/e- commerce/telecom experience.

Topic Area Malaysia Singapore Hong Kong Taiwan Business Required to establish a sole registered Only 1 physical place of business. No Must maintain a physical place of Can have a head office and customer office and may enter into the Shared ATMs or cash deposit machines. Allowed business in Hong Kong to deal with service centre but no branches. Locations ATM Network and provide servicing via to offer cashback services through point customer queries/complaints, but not an agent. of sale terminals at retail merchants. expected to establish physical branches. Not allowed to establish physical branches.

Fee No fee restrictions. No minimum account balance or fall No minimum account balance N/A below fees. requirement or low-balance fees. Restrictions

Business Total size of assets do not exceed the Digital full banks: Sources of deposit, No restrictions No restrictions RM2 billion (SGD 660 million) at all aggregate amount of deposits and Restrictions times during the foundational phase. amount of deposit per individual retail No asset size limitation thereafter. depositor is limited during initial 1-2 years. Also, can only offer simple credit and investment products during this period. Limits will be lifted progressively taking into account risk management and business performance of the bank. Digital wholesale banks: Same as per other wholesale banks, i.e. cannot accept deposits from individuals unless they are fixed deposits of more than SGD 250,000.

Exit Plan Required Required Required Required

In order to successfully navigate the application process and prepare for the journey through the phases of the digital full bank sandbox, we believe a Framework should cover the following components.

1. Strategy & Business Plan Technology & Credible business plan that includes the bank’s proposed scope of activities, Organisational Operations Structure & analysis of target markets, products and services, delivery channels, expected Governance customer base and viable exit plan to facilitate an orderly wind up if needed 2. Organisational Structure & Governance Treasury & Financial Management Sound organisational and governance structures; profiles of key personnel (directors, management and shareholders) showcasing competence, integrity and sound financial standing 3. Technology & Operations State-of-the-art technology infrastructure and efficient operations to support the strategic and financial aspirations

4. Treasury & Financial Management Details of funding channels and financial projections (e.g. cost-to-income ratio, net interest margin) with clear path to profitability whilst meeting prudential requirements on an ongoing basis 5. Regulatory Compliance & Risk Management Digital Bank Robust frameworks, policies, procedures and controls to ensure ongoing identification, measurement, communication, monitoring and management of risks and ongoing regulatory compliance © 2020 Deloitte Risk Advisory Sdn Bhd 7 Justin Ong Partner, FSI +60 3 7610 8895 [email protected]

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