Bank Negara Malaysia plans to issue up to five licences to digital insurers and takaful operators, known as DITOs, and expects to open applications in 2023.
The central bank put out an exposure draft on the licensing and regulatory framework on Friday, Nov. 25, and asked for written feedback by April 28, 2023. “BNM aims to finalise the policy document and invite applications for licences in 2023,” it said. “Up to five licences may be issued to applicants that meet all requirements.”
The draft follows a discussion paper the bank issued on Jan. 4. The sequence is set: feedback on the draft, then a policy document laying out the prudential and business requirements.
What a DITO is
A DITO would run its insurance or takaful business wholly, or almost wholly, through digital or electronic channels. The bank expects that to produce new business and operating models, wider product choice and better service. It said it will keep its focus on risk management and consumer protection while that happens.
The draft sets out licensing and application procedures, and specific rules on which business models and distribution channels qualify. Operators must still meet the Financial Services Act 2013 or the Islamic Financial Services Act 2013, including standards on prudential matters, business conduct and anti-money laundering and counter-terrorism financing.
Application requirements
Each applicant must submit a five-year business plan. The plan has to cover how it will manage technology and cyber risks. Applicants must also show they can protect consumer data and authenticate online transactions, the same standard other financial institutions face under the Risk Management in Technology policy document.
As with digital banks, licensed DITOs will go through a foundational phase. Minimum paid-up capital is lower during that period, and regulators apply flexibilities scaled to a young business. The phase runs no less than three years and no more than five.
When it ends, any DITO that cannot show credible long-term prospects, 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.
Feedback can include requests for clarification or elaboration, as well as alternative proposals. The bank asked that each submission come with clear reasons.
