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International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper investigates impact of financial technology (FinTech) on Malaysia’s financial sector. Malaysia is digitally enabled to seize the opportunities brought by FinTech. Malaysian banks continue to dominate in deposits, lending and capital raising, but they have been gradually reducing their emphasis on physical distribution networks. The top five Malaysian banks have increased their technology-related spending over the past three years. Regulators have been mindful of developments outside of the traditional regulatory perimeter that could pose financial stability risks. Rapidly evolving technology is likely to bring multiple challenges to the financial sector. Regulatory requirements are an important component of operating in the FinTech space. Regulators must strike a balance between ensuring financial stability and consumer protection, while promoting innovation and competition. In order to address the lack of regulatory acumen among FinTech industry players, Bank Negara Malaysia has spearheaded various initiatives. A key challenge for Malaysian regulators is to strike a balance between reaping the benefits of FinTech and mitigating potential downside risks in both conventional and Islamic finance. Frequent refinements to regulations and supervision are required to keep pace with the highly dynamic nature of FinTech to balance benefits and risks.
International Monetary Fund. Asia and Pacific Dept

laundering/ financing of terrorism. Interim and final reports help FTEG and the sandbox participants assess the viability of the innovation, address key issues before operating in an uncontrolled environment and mitigate risks. Box 4. FinTech and Malaysia’s Vibrant Islamic Finance Landscape Malaysia is a leader in Islamic finance, which puts it in a strong position to harness Islamic FinTech opportunities . Islamic bank loan growth expanded by 8.9 percent y/y in 2018, compared to 2.5 percent y/y for conventional banks. This brought Islamic loans to close to 32

International Monetary Fund and World Bank
The paper finds that while there are important regional and national differences, countries are broadly embracing the opportunities of fintech to boost economic growth and inclusion, while balancing risks to stability and integrity.
International Monetary Fund and World Bank

. Fintech can make screening transactions quicker and easier, improve traceability and security, expand Islamic finance penetration and strengthen governance ( Box 5 ). Recent industry reports indicate that about 70 percent of current Islamic fintech companies are focused on facilitating business and consumer financing through equity crowdfunding ECF and P2P lending. 23 The potential of DLT to reduce asymmetric information, fraud, and distrust between counterparties could enable better efficiencies and transparency in areas such as trade finance and Islamic social