Cryptocurrency Legal Landscape in South East Asia: Malaysia — Part 1

The legal status of cryptocurrency and related crypto instruments, i.e. initial coin offering (ICO) and security token offering (STO) vary substantially from country to country. The proliferation of cryptocurrency has prompted more and more regulators to grapple with their regulations by either issuing laws and regulations or drafting framework to regulate cryptocurrency.

The status of cryptocurrency as a medium of exchange (as money) or store of value varies with differing regulatory implications. Some countries do not make the usage of cryptocurrency illegal, while some countries have explicitlyallowed its use and trade, others have banned or restricted it. Different countries classify cryptocurrency differently.

Source: HowMuch.net

This series will provide the cryptocurrency legal landscape in the countries from South East Asia: Malaysia, Thailand and Singapore. This week we will cover the regulations and the bans that apply to the cryptocurrency in Malaysia.

Timeline:

2014- Bitcoin Is Not Recognised As A Legal Tender in Malaysia

On 2 January 2014, Malaysia’s central bank — Bank Negara Malaysia issued a statement saying that “Bitcoin is not recognised as a legal tender in Malaysia”. The public was advised to be cautious of the risks associated with the usage of cryptocurrency as Bank Negara did not regulate the operations of Bitcoin.

2017-Exposure Draft On The Invocation of Reporting Obligations On Digital Currency Exchange As A Reporting Institution

On 14 December 2017, Bank Negara Malaysia released an exposure draft on “The Invocation of Reporting Obligations on Digital Currency Exchange as a Reporting Institution” under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) for the purpose of public consultation.

According to the associated press release:

This aims to ensure that effective measures are in place against money laundering/terrorism financing risks associated with the use of digital currencies and to increase the transparency of digital currencies activities in Malaysia.

The proposed policy sets out the legal obligations, requirements and standards that digital currency exchangers which will be defined under the First Schedule of the AMLA, must carry out as reporting institutions. This includes transparency obligations which are intended to provide relevant information for the public to better understand and evaluate risks associated with the use of digital currencies. Increased transparency will also serve to prevent the use of the digital currencies for criminal or unlawful activities. A digital currency exchanger must also declare its details to the Bank as a reporting institution.

Failure to declare its details as reporting institutions or comply with the reporting obligations may subject the digital currency exchangers to the enforcement and non-compliance actions as provided under the AMLA as well as the potential termination or denial of use of financial services in Malaysia.

The invocation of reporting obligations on digital currency business did not imply Bank Negara Malaysia authorises, licenses, endorses or validates any entities involved in the provision of digital currency exchange services. Bank Negara Malaysia did not consider digital currencies as a legal tender in Malaysia. Digital currency businesses were not regulated by Bank Negara Malaysia. This, the public were advised to carefully evaluate the risk associated with dealings in digital currencies.

You may access a copy of the exposure draft here.

The policy would require digital currency exchanges (including any businesses that exchange digital currency for money, exchange money for digital currency, or exchange one digital currency for another) to comply with regulations relating to “the identification and verification of customers and beneficial owners, on-going monitoring of customers’ transactions, sanction screening, suspicious transaction reporting and record keeping”; transparency obligations; and “requirements for the submission of data and statistics to the Bank” for the purpose of managing money laundering and terrorism financing risks. Public comments on the draft policy were due by 14 January 2018.

2018

(i) The Release of Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) — Digital Currencies (Sector 6)

On 27 February 2018, Bank Negara Malaysia issued the Anti-Money Laundering and Counter Financing of Terrorism Policy for Digital Currencies (Sector 6) which has taken into account feedback received during the public consultation period on the exposure draft released on 14 December 2017. The policy aimed to ensure that effective measures are in place against money laundering and terrorism financing risks associated with the use of digital currencies and to increase the transparency of digital currency activities in Malaysia.

Any persons carrying on activities involving digital currencies should refer to the details within the policy to determine its applicability and comply accordingly. Persons covered under the policy as reporting institutions are expected to comply with the provisions of the Companies Act 2016 including the requirement to be incorporated or registered.

This policy will neither recognize cryptocurrency as money nor ban them altogether.

You may access a copy of Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) — Digital Currencies (Sector 6) policy document here.

You may access a copy of the common questions and feedback during the public consultation here.

Here is the List of Reporting Institutions Dealing With Digital Currencies Declared to the Bank:

(ii) Joint Statement Between Bank Negara Malaysia and Securities Commission Malaysia on Regulation of Digital Assets in Malaysia

On 6 December 2018, Securities Commission Malaysia and Bank Negara Malaysia released a joint press release to provide clarity on the regulatory approach for the offering and trading of digital assets in Malaysia.

Securities Commission Malaysia will regulate the issuances of digital assets via initial coin offerings (ICO) and the trading of digital assets at digital asset exchanges in Malaysia.

ICO issuers and digital asset exchanges which are involved in the issuance or dealing of digital assets with a payment function will need to comply with relevant Bank Negara Malaysia laws and regulations relating to payments and currency matters.

Cryptocurrency was not a legal tender in Malaysia as per reiterated in the joint press release.

2019- Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019

On 14 January 2019, Ministry of Finance Malaysia released a Gazette where any activities related to cryptocurrencies, tokens and other digital assets will be categorised as securities henceforth and fall under the regulation of the Securities Commission Malaysia with effective from 15 January 2019. In this regard, Securities Commission Malaysia will put in place the relevant regulatory requirements for the issuance of ICO and the trading of digital assets at digital exchanges in Malaysia. Any person offering an ICO or operating a digital asset exchange without Securities Commission Malaysia’s approval may be punished, on conviction, with imprisonment not exceeding 10 years and fine not exceeding RM10 million.

For those interested in a more detailed read, you may access the Gazette here.

On 31 January 2019, Securities Commission Malaysia released the revised Guidelines on Recognized Markets pursuant to section 377 of the Capital Markets and Services Act 2007 (CMSA) to be read together with subdivision 4, division 2 of Part II CMSA.

For those interested in a more detailed read, you may access the revised guidelines here.

Securities Commission Malaysia has put in place arrangements to facilitate current operating platforms that facilitate trades in digital asset for a transitional period until 1 March 2019, subject to them fulfilling the conditions specified by Securities Commission Malaysia. During this period, these platform operators will not be permitted to accept new investors and will only be allowed to facilitate the withdrawal or transfer of client assets with the written instruction of the investor.

Any entities who are interested to register as a Recognized Market Operator can submit the application to Securities Commission Malaysia by 1 March 2019.

Tokenize Xchange has submitted the application to Securities Commission Malaysia. Tokenize Xchange has been granted the continuation of operating in the transitional period under the conditions as per set out by Securities Commission Malaysia. The transitional period has been extended by Securities Commission Malaysia until further notice pursuant to the assessment of the application by Securities Commission Malaysia. During this period, Tokenize Xchange will not be permitted to accept new investors and will only be allowed to facilitate the withdrawal or transfer of client assets with the written instruction of the investor.

References:

  1. https://www.bnm.gov.my
  2. https://www.sc.com.my/
  3. https://coin.dance/poli#legalitybycountry
  4. https://www.loc.gov/law/help/cryptocurrency/world-survey.php#malaysia
  5. https://howmuch.net/articles/bitcoin-legality-around-the-world
  6. https://www.cnplaw.com/the-state-of-global-cryptocurrency-regulation-southeast-asia/

Leave a Reply

Your email address will not be published. Required fields are marked *