KUALA LUMPUR (May 11): Bank Negara Malaysia has commenced a review of the changes and additional guidance needed to the regulatory framework for the adoption of fintech, according to the new central bank governor Datuk Muhammad Ibrahim.

This was in view of the rising cybersecurity threats that could compromise safeguards that protect financial assets and customer data.

"The Bank has commenced a review of the changes and additional guidance needed to ensure that the regulatory framework remains appropriate to manage the risks, while encouraging productive innovation that will drive costs down and improve the quality of service to consumers," said Muhammad.

He said the bank is looking at fintech from several perspectives, including the impact of fintech strategies on the management of risks by financial institutions.

"Second, (we also look at) the potential for fintech start-ups to introduce new risks to the broader financial system as a result of regulatory arbitrage; and third, the impact to consumers," he said while delivering his first keynote address as the central bank governor at the launch of Global Islamic Finance 5.0 earlier today.

"We will be providing more information to the market on our approach to the regulation of fintech developments as our review progresses. In the meantime, our engagements with individual firms will continue, supported by dedicated resources within the Bank to lead the review," he shared.

Ibrahim noted that fintech is challenging the status quo of the financial industry, but he said financial institutions ought to embrace it as an opportunity.

"One of the most significant transformational developments of our era is the technological revolution. More specifically, the fintech revolution was made possible by maturing social, mobile and cloud technologies," he said.

According to Ibrahim, an estimated 10% to 40% of overall banking revenues could be at risk by 2025 due to fintech innovations outside banking institutions that are able to achieve a significant pricing advantage.

"In Islamic finance, like the IAP (Investment Account Platform) in Malaysia, fintech has immense potential to be the next game changer. It offers opportunities for industry players to radically transform operational models by adopting digitisation strategies that will be able to deliver much greater scale or alternatively, a high degree of specialisation," he said.

Malaysia introduced the IAP in February, which Muhammad termed an important example of a collaborative strategy by the industry to bring game-changing innovations to the market.

He added fintech also opens up new possibilities for improving efficiencies, reducing wastage and enhancing the customer experience.

"All of this adds up to stronger market positioning and financial performance," he added.