Embracing Innovation for Greater Growth - Strengthening the Sustainability and Competitiveness of the Capital Market

Embracing Innovation for Greater Growth

The SC remains committed to fostering innovation and technological advancement within the Malaysia capital market to address increasing demand for digital and online services. This approach is aimed at accelerating digitisation among capital market entities and adoption of innovative fintech solutions in the overall ecosystem, leading to greater growth and development in the market.

Catalysing Digitisation of the Capital Market through Digital Innovation Fund
Recognising the role of capital market players in pushing new frontiers via digitalisation, the Digital Innovation Fund (DIGID) was set up by the SC to co-fund new-tomarket, scalable and sustainable innovative solutions.

In line with the SC’s MSME agenda, the RM30 million fund aims to support smaller capital market players to develop projects that leverage technology. Additionally, this initiative aims to foster new growth opportunities and competitive propositions within the Malaysian capital market.

DIGID will be administered over a three-year period – from 2023 to 2025, or until fully utilised. The funding amount per project will defray up to 70% of approved qualifying expenses, capped at RM500,000. Successful DIGID Award recipients will receive funding on a reimbursement basis upon completion of agreed-upon milestone deliverables, which includes a presentation of the completed solution and accomplishment of its intended outcomes.

The DIGID initiative has unearthed promising solutions that cut across various capital market segments including financial planning, investment advisory, fund management, ECF, P2P financing, bond market, unit trust, PRS and digital assets segments. These projects seek to adopt technologies including artificial intelligence (AI), data analytics, distributed ledger technology (DLT) and API integrations that enable new sources of growth, enhanced process efficiency, improved customer delivery, and enhanced risk management and regulatory compliance.

DIGID continues to encourage more technologyenabled solutions which can push market boundaries, drive further efficiency, and spur greater inclusion to serve markets or segments which are underserved.
In 2023, 15 projects were selected for the DIGID Award, with solutions as follows:
Facilitating Innovation in ICM
The SC seeks to promote innovation and efficient delivery of ICM products and services through fintech. By leveraging fintech as an enabler, the SC endeavors to facilitate the growth and expansion of innovative solutions, focusing on the halal economy, SRI, and social finance.

While digital and fintech adoption in the ICM has expanded across Islamic ECF, P2P financing and DIM sercives – there is a need to spur growth in these areas. In 2021, the SC, in collaboration with the United Nations Capital Development Fund (UNCDF), introduced FIKRA, Malaysia’s first regulator-led Islamic fintech accelerator. FIKRA, which translates to ‘ideas’, aims to identify and scale relevant and innovative Islamic fintech solutions that can help address three main challenge areas, namely, new ICM offerings, accessibility and social finance integration.

As part of the SC’s continuous effort to develop a vibrant Islamic fintech ecosystem in Malaysia’s ICM, FIKRA ACE – the enhanced, three-year fintech initiative, was introduced in June 2023. Expanding from FIKRA which adopts a single accelerator approach, the newly launched FIKRA ACE consists of three components:
The overarching goal of FIKRA ACE is to identify companies with fintech solutions to nurture, grow, and connect with the ICM ecosystem in various segments. The initiative also aims to support the Islamic fintech space by building capacity and a talent pipeline for the industry.

The first component of FIKRA ACE, i.e. the Accelerator programme, commenced on 5 September 2023, which was organised in collaboration with Malaysia Digital Economy Corporation (MDEC). The 8-week programme concluded with a Demo Day held on 9 November 2023, of which 10 startups were selected as finalists to pitch their ideas to a panel of judges and potential investors and industry partners. The 10 finalists were EPC

Blockchain, Eversustain, Global Psytech, Pewarisan, Pod, HalalStocks, GreenArc Capital, Refundway, Sampul, and W Vault by Wahine Capital. Global Psytech and Pewarisan emerged as winners for the 2023 cohort and earned a combined total cash prize of RM80,000. Subsequent to the conclusion of the Accelerator programme, the second component of FIKRA ACE – Excel, which involves collaboration programmes with higher learning institutions, will be launched in 1H 2024.

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.