Is Malaysia the next major Crypto market?

Malaysia is going to be a well-regulated crypto market soon.

Due to the uncertainty that has arisen with regard to cryptocurrency in the past few weeks, the Malaysian Securities Commission has clarified on certain positions it holds regarding digital assets.

Last month has been a ‘no picnic’ season for Malaysian crypto-exchanges, with the possibility of RM10 mn fine and 10 years prison looming over ever since the Capital Markets and Services Order 2019 was announced by Finance Minister Lim Guan Eng.

Fortunately, the ambiguity has been lifted off the air with Securities Commission Malaysia (SC) declaring its much-anticipated framework for crypto-exchanges and digital assets.

The current framework will come under the purview of SC’s guidelines on recognised markets, which is the same that is employed to regulate equity crowdfunding and P2P lending members. Under the same guideline, the regulator has amended a section to include new obligations for crypto exchanges.

One of the significant revelations is that the Securities Commission refutes is the blanket consideration of crypto-assets as securities.

Digital Assets Considered Securities

As per the directions provided by the Federal Gazette website, a digital asset is said to be a security when:

Condition 1:

1. It is traded in a place or on a space where offers to sell, purchase, or exchange of, the digital currency is always made or accepted.
2. An investor or a trader expects a return in any kind from the trading, conversion or redemption of the digital currency or the increase in value.
3. When it is not issued or guaranteed by a government body or a central bank as defined by the Commission.

Condition 2:

For crypto tokens which embodies the rights or interests of a person in a particular order where:

1. The person gets crypto tokens in exchange for a consideration.
2. The consideration or contribution from the person and the income or returns are pooled.
3. The income or returns of the arrangement are caused because of any holding, acquisition, management or disposal of any assets or business operations.
4. The person expects a return in any form from the trading or redemption of the crypto token or appreciation in its value.
5. The person does not have any control over the day to day management of assets or business of the arrangement; and
6. The token is not issued or guaranteed by any government body or central banks as may be specified by the commission.

New Guidelines and Requirements for Crypto Exchanges to Operate in Malaysia.

The improved guidelines are classifying crypto exchanges as a Digital Asset Exchange Operator. In brief, the following are some requirements that crypto exchanges need to comply with, in order to function in Malaysia.

The following are some of the essences of the guideline. For a more precise read, it would be better to visit the Securities Commission Malaysia’s website.

1. 5 Million paid-up capital against approval and prior to commencement.
2. Limitations in giving financial assistance to investors/customers for the purposes of purchasing cryptocurrencies/digital assets.
3. A strong risk management system must be put in place to ensure a high degree of security and authenticity.
4. Prior to listing on the exchange, the cryptocurrencies and digital assets have to be approved by SC.
5. The platform should have firm rules and procedures in place for the trading and clearance settlements of Digital Assets.
6. Should have clear, concise and fair disclosures that are not deceiving to investors.
7. To only allow trades that are carried out using Ringgit Malaysia and other legal tenders.
8. Institute one or more trust account in a Malaysian licensed financial institution.

Under the updated guidelines, anybody who is interested in running a digital asset platform is required to apply to the SC, to be registered as a verified market operator by 1 March 2019.

Commenting on the updated guideline Datuk Syed Zaid Albar, SC Chairman stated that the current framework and guidelines are part of SC’s attempt to support innovations while ensuring investor protection in trading of digital assets. Also, he added that even though the framework is to aid the investors they are suggested to be mindful of the risks such as unexpected volatility and liquidity risks when dealing with digital assets.

Meanwhile, the industry leaders and government official are going to gather at World Blockchain Summit in Kuala Lumpur to shed lights on the Malaysian economy for active legislation for blockchain based service providers and guidelines for ICOs.

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