In August 2025, Bank Negara Malaysia (BNM) launched a public consultation exploring how artificial intelligence (AI) can be integrated responsibly across the country’s financial sector. The initiative aims to find a balance between fostering innovation and maintaining strong consumer protection and governance standards.
Napier AI has submitted its response, highlighting how consistent regulation and collaboration can help Malaysia lead the region in responsible AI adoption.
The public consultation marks an important milestone for the financial services industry. As AI continues to transform risk management, customer engagement, and financial crime detection, the need for shared standards and regulatory clarity grows. Napier AI emphasised that regulators, technology providers, and financial institutions must work together to ensure the safe and effective deployment of these technologies.
One of the key points raised by BNM is the need for a harmonised and sector-specific definition of AI. Currently, many institutions label rules-based or automated systems as AI, even though these tools lack the ability to learn and adapt autonomously. Napier AI noted that distinguishing between true AI and automation is vital for ensuring that oversight, accountability, and transparency are applied appropriately.
The discussion also comes amid the rise of agentic AI—systems made up of autonomous agents capable of making decisions with minimal human intervention. While these technologies promise significant efficiency gains, they also introduce new challenges around explainability, accountability, and ethical deployment. Napier AI argued that global alignment on definitions and regulatory frameworks will be crucial to managing these risks.
Citing the UK government’s definition of agentic AI as an example, Napier AI supported the idea of creating a consistent terminology that enables financial institutions to comply across jurisdictions. Such harmonisation would reduce operational inefficiencies and promote industry-wide trust while helping regulators differentiate between systems that require close scrutiny and those that pose lower risks.
AI adoption in Malaysia’s financial sector is already growing, particularly in financial crime compliance. According to the Napier AI / AML Index 2025–2026, Malaysia lost 5.04% of its GDP to money laundering in 2024, despite spending $1.95bn on compliance—considerably more than similar-sized economies. The report found that adopting AI-powered compliance systems could save Malaysia up to $0.56bn, underscoring the economic value of responsible AI use.
AI enables financial institutions to detect suspicious activity more effectively, reduce false positives, and adapt to new money laundering and terrorism-financing typologies. However, Napier AI stressed that explainability, fairness, and human oversight remain essential. Human judgment should not be replaced but instead enhanced by AI, ensuring transparency and accountability remain central to financial decision-making.
Looking ahead, Napier AI recommended that Malaysian institutions prioritise governance, accountability, and collaboration. This includes board-level oversight, rigorous model risk management, robust data governance, and maintaining human-in-the-loop decisioning. Regular engagement between regulators and financial institutions should also be institutionalised, with consultations occurring at least annually to keep pace with rapid technological change.
Ultimately, AI regulation represents a “win-win-win” opportunity for Malaysia—enhancing regulatory oversight, boosting institutional efficiency, and strengthening consumer trust, Napier AI explained.
For more insights, read the full story here.
Read the daily FinTech news
Copyright © 2025 FinTech Global
Copyright © 2018 RegTech Analyst
