Bank Negara Malaysia (BNM) has released the second of a two-part consultation paper on the Consumer Credit Act (CCA), which will prioritize bringing currently unregulated non-bank credit providers and service providers including buy-now-pay-later (BNPL) platforms under its supervision.
Currently receiving feedback until the 15th May 2023, BNM’s Consumer Credit Oversight Board (CCOB) expects to table the CCA to parliament and for it to be enacted before the year ends.
The second consultation paper outlines licensing and registration requirement for non-bank entities as well as sets out broad principles relating to a provider’s organizational requirements including on operational procedures and internal controls, risk management as well as required human resources and authorization and governance structures.
Specific requirements and guidance toward achieving intended outcomes of the CCA’s principle-based and outcome-focused approach will be detailed in the Authorization Handbook and Conduct Handbook.
The paper also details proposals to enhance the existing framework on hire purchase financing.
The implementation of the CCA will be dual-phased. In Phase 1 (2024—25), the CCOB will focus on providers currently not directly regulated by any authorities in Malaysia. These include BNPL platforms. Phase 2 (2025 onward) will see the Ministry of Local Government Development (KPKT) and the Ministry of Domestic Trade and Cost of Living transferring their regulatory powers over existing credit providers and credit service providers such as hire purchase companies, money lenders and pawnbrokers, to the CCOB.
“With technology being at the center of our everyday lives, consumer credit businesses continue to pivot and evolve, providing products and services to consumers with the aid of digital technologies,” BNM explained in the consultation paper, adding that the use of technology also potentially increases consumer risks against the backdrop of rising level of consumer debts.
The CCOB will be using digital technologies from the onset to operate at scale in regulating the conduct of industry players in the consumer credit market.
“Digital technologies will be incorporated throughout an industry player’s journey with the CCOB. Starting at authorization, industry players are expected to submit their data digitally via a one-stop portal that will take into consideration the different consumer credit business requirements,” read the paper.
The CCOB will also introduce the use of an integrated complaints system driven by an application programming interface. Such digital solutions in the one-stop portal will be freely accessible to industry players to ease regulatory costs and reporting obligations.
In the feedback for the first consultation paper, market players had expressed concern over potential regulatory burden, particularly, being subjected to multiple reporting obligations as a regulatee of multiple regulatory supervisory authorities. This could be the case for some BNPL providers holding a moneylenders’ license issued by KPKT.
In response, the task force said it will work with relevant regulators to streamline the reporting requirements for non-bank entities.
A minimum financial requirement of RM2 million (US$452,556) has also been proposed for BNPL providers.
Table 1: Proposed minimum financial requirements for credit providers and credit service providers
|Types of business||Proposed minimum financial requirements|
|BNPL||Shareholders’ fund of RM2 million|
|Impaired loan buyer|
|Debt collection agency||Shareholders’ fund of RM500,000 (US$113,139) or shareholders’ fund of RM250,000 (US$56,569.5) and professional indemnity insurance coverage of RM250,000|
|Debt counselling and management services|
“It is critical that credit providers and credit service providers are regulated and conform to high professionalism or conduct standards,” commented Abu Hassan Alshari Yahaya, BNM’s assistant governor and head of the CCOB task force. “We will continue our extensive engagements with the currently unregulated industry and consumers to deliver a practical regulatory response.”
There are at least four Islamic BNPLs in Malaysia including IOUpay, Riipay, Split and Atome.