Fintech and Its Impact on Islamic Fund Management in Malaysia: A Legal Viewpoint

• Date: 26 August 2019
• Published date: 26 August 2019
• DOI: https://doi.org/10.1108/978-1-78973-545-120191019
• Pages: 223-246
• Author: Surianom Miskam,Abdul Monir Yaacob,Romzie Rosman

Chapter 13

Fintech and Its Impact on Islamic Fund

Management in Malaysia: A Legal

Viewpoint

Surianom Miskam, Abdul Monir Yaacob and Romzie Rosman

Abstract

The global Islamic nancial landscape is changing with rapid advances

in technology. The increasingly tech-savvy demography is presenting

both opportunities and challenges to the industry. With the advances in

e-nance and mobile technologies, nancial technology (Fintech) inno-

vations emerged by combining the e-nance, Internet, social networking

services, social media, articial intelligence (AI) and big data analytics.

Fintech promises to reshape the Islamic nancial landscape by improving

processes’ efciencies, cost-effectiveness, increased distribution, Sharīʿah

compliance and nancial inclusion. As far as the Islamic fund manage-

ment industry is concerned, AI seems to be the keyword. Islamic fund

managers have recently started to incorporate AI and big data analyt-

ics into their strategy in the process of making accurate decisions based

on facts and gures, which eliminates any biases and personal intuition.

This disruption in status quo is raising new issues, new concerns and

new exciting opportunities. While disruption may carry negative con-

notations, the industry players have been embracing the innovation and

potential revolution the technology could offer. Thus, the objective of

this chapter is to discuss legal aspects of Fintech and its impact on the

Islamic fund management industry in Malaysia. This chapter introduces

a historical overview of Fintech and its evolution in the Islamic fund

management industry. This chapter further provides an overview of the

legal and regulatory aspects of Fintech with regards to the industry.

Finally, legal issues and challenges are identied and discussed. Being a

legal research, this chapter adopts a qualitative method by analysing the

Emerging Issues in Islamic Finance Law and Practice in Malaysia, 223–246

Copyright © 2019 by Emerald Publishing Limited

All rights of reproduction in any form reserved

doi:10.1108/978-1-78973-545-120191019

224 Surianom Miskam et al.

relevant literatures on the subject. This chapter is expected to provide an

insight into the application of Fintech and its impact on the Islamic fund

management industry in Malaysia.

Keywords: Islamic nance; Islamic fund; Fintech; articial intelligence;

big data analytics; legal aspect

Introduction

The wave of innovation sweeping through the world of nancial

technology promises nothing short of revolution … it will change

the nature of money, shake the foundations of central banking

and deliver nothing than a democratic revolution for all who use

nancial services. (EYGM, 2017) (Mark Carney, Governor of

Bank of England)

Financial technology or Fintech is a dynamic segment at the intersection of the

nancial services and technology sectors where technology-focussed start-up and

new market entrants introduce innovations in the products and services currently

provided by the traditional nancial services industry (PricewaterhouseCoopers,

2017) The term Fintech was rst used in the early 1990s when it was introduced

under the Financial Services Technology Consortium, which was started by Citi-

corp to stimulate technological collaboration (Rom ānova & Kudinska, 2016).

Today, almost 30 years after its introduction, Fintech is a noun related to compa-

nies that use modern innovative technologies, like software, to enable provisions of

nancial services. In a wider sense, Fintech is seen as a new market that integrates

nance and technology (Arner, Barberis, & Buckley, 2015), thus replacing tradi-

tional nancial structures with new technology-based processes (Romānova &

Kudinska, 2016).

Fintech is gaining signicant momentum and causing disruption, in one way

or another, to the nancial service industry (PricewaterhouseCoopers, 2017). It

has, in many ways, revolutionised the nancial services industry, including the

way people participate in alternative nance. Global investment in Fintech has

achieved compounded annual growth rate of 53.6% from the period of 2008–

2014 – US$0.93 billion in 2008 to US$2.97 billion in 2013, to US$12.2 billion in

2014. Growth in Fintech investments are dominated by the United States with

US$9.89 billion in 2014, up from US$3.39 billion in 2013. Europe experienced the

highest level of growth with an increase of 215% (year-on-year basis) to US$1.48

billion in 2014. In Europe itself, growth in Fintech investments is dominated by

the United Kingdom and Ireland, followed by Nordic countries (US$345 million),

the Netherlands (US$306 million) and Germany (US$82 million). Generally,

popular investment areas include payments, lending, trading technologies and

wealth management. Payments accounted for largest numbers of Fintech deals

(29%) followed by lending (16%), and wealth management and market segments

(Securities Commission Malaysia, 2015).