The global surge in cryptocurrency adoption has reached Malaysia, bringing with it the need for clear and comprehensive regulations. While Malaysia doesn’t recognize digital assets as legal tender, it categorizes them as a form of securities. In this guide, we will delve into the evolving landscape of crypto regulations in Malaysia for 2023, with a focus on what companies need to know to operate legally in the country.
Understanding Digital Asset Categories
Malaysia’s Prescription Order 2019 classifies digital assets into two categories:
· Digital Currency: A digital representation of value, recorded on a distributed digital ledger, serving as a medium of exchange and interchangeable with any form of money.
· Digital Tokens: Digital representations recorded on a distributed digital ledger.
The Prescription Order also outlines when digital currencies and tokens are considered securities.
Types of Companies
Companies operating in Malaysia’s crypto space fall into distinct categories:
· Recognized Market Operator for Digital Asset Exchanges (RMO-DAX): These electronic platforms facilitate the trading of digital assets.
· Digital Asset Custodian (DAC): DACs provide custody services for digital assets, safeguarding investors’ assets.
· Initial Exchanges Offering (IEO): IEOs offer an alternative channel for fundraising for innovative businesses through digital tokens.
The primary regulatory body overseeing digital asset service providers in Malaysia is the Securities Commission Malaysia (SCM). Any company wishing to operate in Malaysia and provide services with assets qualified as securities must register with the SCM.
The SCM regulates digital assets in Malaysia through the Capital Markets & Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, enabling the SCM to set guidelines on offering and trading digital assets. RMO-DAX companies follow the Guidelines on Recognized Markets, while DACs and IEOs must comply with the Guidelines on Digital Assets. Also, companies must adhere to the Anti-Money Laundering and Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 and related SCM guides, and the Personal Data Protection Act 2010.
To register, businesses must be Malaysian incorporated unless specified otherwise by the SCM. Criteria vary based on the type of services provided. For instance, IEOs and DACs must satisfy criteria related to fitness, ability to carry out obligations, risk management, financial resources, and security arrangements. IEO applicants require a minimum paid-up capital of RM5,000,000, with the SCM empowered to impose additional financial requirements as needed.
Compliance with AML Regulations
Registered companies must implement procedures to comply with Anti-Money Laundering (AML) regulations, including appointing a compliance officer, staff training, risk-based approaches, Customer Due Diligence checks, transaction monitoring, sanctions and AML screening, record retention, and reporting of suspicious transactions.
The Travel Rule
Digital asset service providers must adhere to the Travel Rule, sharing information on wire transfers or digital asset transactions. This includes details about the originator and beneficiary, ensuring effective risk-based policies and procedures for determining actions related to missing information.
In conclusion, Malaysia is actively working on establishing a comprehensive regulatory framework for the crypto industry. As the landscape evolves, businesses must stay informed and compliant to thrive in this burgeoning sector.