Crypto Regulations in Malaysia
Cryptocurrency, or digital currency, became regulated in Malaysia through the enactment of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (order 2019), where all digital currency and digital tokens meet the criteria stipulated in the order will be prescribed as securities for the purposes of securities law in Malaysia. Nonetheless, the SC has also clarified that digital currency and digital tokens are neither legal tender nor payment instruments regulated by the BNM.
Source: Law Asia
Cryptocurrency regulations in Malaysia draw on existing financial legislation. The Malaysian authorities typically consider cryptocurrencies to be securities and so tokens are regulated under securities laws and overseen by the Malaysian Securities Commission (SCM) under the authority of the Capital Markets and Services Act 2007
Source: SC.com
Cryptocurrencies will not become legal tender in Malaysia, the country’s deputy finance minister said Thursday (March 24, 2022).
As Bloomberg reported, Minister I Mohd Shahar Abdullah told Malaysia’s parliament that there were too many limitations on digital currencies such as bitcoin to use as a payment instrument. He said these limitations include swing and price and the danger of cyber threats.
Abdullah’s proclamation came days after another minister in Malaysia said the country should begin legalizing cryptocurrencies such as bitcoin as a way to get youths more active in the crypto space
Source: Pymnts
In Malaysia, while it is not illegal, cryptocurrency remains to be unregulated. Back on January 2nd, 2014, Bank Negara Malaysia issued a statement “The Bitcoin is not recognized as legal tender in Malaysia. The Central Bank does not regulate the operations of Bitcoin. The public is therefore advised to be cautious of the risks associated with the usage of such digital currency.”
Further, the Securities Commission of Malaysia (the “SC”), whose main function is to protect investors, issued a media release in early September 2017 in relation to ICO where it cautioned investors to be mindful of the potential risks involved in ICO schemes which include limited legal protection and recourse against scheme operators and high exposure to fraud, money laundering, and terrorism financing.
Source: hg.org
Digital assets are recognized as securities under the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (“Prescription Order 2019”), for the purposes of securities laws in Malaysia, if the criteria set out in the Prescription Order 2019 are satisfied. Digital assets come in many forms, but under the Prescription Order 2019, digital assets are categorized into two particular types which are digital currency and digital token.
The offering of digital assets as securities in Malaysia must be conducted through a recognized Initial Exchange Offering (“IEO”) platform that has been registered with the SC. In simple terms, IEO is a digital fundraising mechanism in which an issuer offers digital tokens to investors in exchange for funds.
In regulating the issuance of digital assets for fundraising through IEO platforms, the SC has issued the Guidelines on Digital Assets (“DA Guidelines”) pursuant to the Capital Markets and Services Act 2007 (“CMSA 2007”). The DA Guidelines set out the eligibility requirements to be met by applicants and the criteria and obligations to be fulfilled by IEO operators and issuers of digital assets.
Source: Azmi Law
The Guidelines on Digital Assets (Guidelines) are issued by the Securities Commission Malaysia (SC) pursuant to section 377 of the Capital Markets and Services Act 2007 (CMSA)
Source: SC.com
Cryptocurrency, or digital currency, became regulated in Malaysia through the enactment of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (order 2019), where all digital currency and digital tokens meet the criteria stipulated in the order will be prescribed as securities for the purposes of securities law in Malaysia. Nonetheless, the SC has also clarified that digital currency and digital tokens are neither legal tender nor payment instruments regulated by the BNM.
Following order 2019, the SC has also published its 2020 Guidelines on Digital Assets, which came into force on 28 October 2020, setting out the requirements relating to fundraising activity through digital token offerings, operationalization of initial exchange offering platforms, and the provision of services for the safekeeping, storing, holding or maintaining custody of digital assets for the account of another person. The 2020 guidelines confer regulatory flexibility by allowing the SC to grant exemptions varying the requirements of the guidelines upon application.
The introduction of a regulatory framework governing digital assets has received a positive response from market participants, signifying the acceptance of cryptocurrencies in Malaysia. Nonetheless, investors in general, and retail investors in particular, should exercise caution when deciding to invest in cryptocurrencies regarding their volatile nature and the complications of recourse available to investors should their objectives not be met.
Source: Law Asia
According to the Inland Revenue Board of Malaysia (LHDN), cryptocurrency investors who actively trade their assets at the digital asset exchange are required to declare the gains in their annual income tax.
LHDN referred to Section 3 of the Income Tax Act 1967 and said that it will treat income earned through digital platforms similarly to income generated through conventional businesses.
This tax treatment is similar for active traders of shares and other assets. The profits made by individuals who occasionally trade cryptocurrencies or shares may be viewed as capital gains, which are not taxable in Malaysia. But the profits earned by individuals who trade actively may be viewed as revenue and thus, deemed as taxable income.
Source: bdo.my
Currently, there are no rules or guidance on how cryptocurrencies will be taxed. The authorities have indicated that they are looking into the matter, and they are likely to announce guidance on how cryptocurrencies will be taxed.
Malaysia only taxes income accruing in, derived from, or received in Malaysia. We do not tax capital gains except for real property gains.
Source: The Sun Daily
Following compliance regulations and guidelines, cryptocurrency exchanges in Malaysia are required to register with the SCM in order to operate. The registration process involves a set of criteria, including requirements for exchanges to demonstrate the fitness of their senior management employees, and their ability to manage the AML/CFT risks associated with their business. Once successfully registered, cryptocurrency exchanges in Malaysia must abide by a set of AML/CFT obligations, which include implementing suitable customer due diligence measures and submitting reports on suspicious customer transactions to the SCM.
Source: Comply Advantage
LIST OF REGISTERED DIGITAL ASSET EXCHANGES
Following the coming into force of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 on 15 January 2019, and the subsequent issuance of the revised Guidelines on Recognized Markets on 31 January 2019 to introduce new requirements for DAX operators, the SC has now registered three Recognized Market Operators (RMOs) to establish and operate digital asset exchanges in Malaysia.
Registered Recognized Market Operators -Digital Asset Exchange
- Luno Malaysia Sdn. Bhd.
- MX Global Sdn Bhd
- SINEGY Technologies (M) Sdn. Bhd.
- Tokenize Technology (M) Sdn. Bhd.
Source: SC.com
While the Malaysian government has indicated that cryptocurrencies are unlikely to be accepted as legal tender and continues to warn the public about their dangers, there are suggestions that a more flexible regulatory approach may be possible.
In March 2022, deputy communications and multimedia minister Datuk Zahidi Zainul Abidin from the Ministry of Communications and Multimedia (KKMM) publicly proposed potential reforms to cryptocurrency regulation in Malaysia. Specifically, he argued that certain crypto assets could be legalized in order to help younger Malaysians participate in the financial system. Zahidi called the crypto industry the “business and financial program of the future”, and added, “We hope the government can try to legalize this matter so that we can expand the participation of young people in cryptocurrencies and help them in terms of energy consumption and so on”.
Malaysia has also started to explore the potential of a Malaysian central bank digital currency (CBDC). In 2021, Bank Negra Malaysia worked with counterpart institutions in Australia, Singapore, and South Africa to test the efficiency of a CBDC. The central bank said that its research was being focused on “proof-of-concept and experimentation to enhance our technical and policy capabilities, should the need to issue CBDC arise in the future”.
Source: Comply Advantage
In the year 2017, there were 11 cryptocurrency exchanges in Malaysia (Jayaseelen, 2017). Our lawmakers decided to come up with a warm approach to the system. The result of the long discussion is announced in February 2017 when the Malaysian government has come up with new legislation which placed a check and balance system on cryptocurrency. The new legislation reads as Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) is come to effect on 27 February 2018 (Haig, 2018). This legislation marked the biggest history for the FinTech industry in Malaysia as the new piece of legislation is brought to the cryptocurrency under the umbrella of regulation. This legislation is drafted based on the feedback received from the public of the paper in December 2017. Our central bank stated that the main reason for this legislation is to impose an obligation on the cryptocurrency exchangers mainly on the business which involved cryptocurrency transactions. This result from the feedback received from the public during the public consultation period in December 2017. The major impact of this legislation is imposing a duty on cryptocurrency users to conduct customer due diligence or known CDD. The extract of the guidelines is set below: Reporting institutions are required to:
(a) Identify the customer and verify that customer’s identity using reliable, independent source documents, data, or information;
(b) Verify that any person purporting to act on behalf of the customer is so authorized, and identify and verify the identity of that person;
(c) Identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner, using relevant information or data obtained from a reliable source, such that the reporting institution is satisfied that it knows who the beneficial owner is;
and (d) Understand and, where relevant, obtain information on, the purpose of the business relationship (Gazette, 2018). This means that each and every cryptocurrency exchanger needs to identify and verify the customer who involves in this trade with them which wasn’t the case prior to this. This places the onus on the registered cryptocurrency exchangers to identify their customers.
Source: ijbel.com
Malaysian authorities seized 1,069 bitcoin mining rigs, laid them out in a parking lot at police headquarters, and used a steamroller to crush them, as part of a joint operation between law enforcement in the city of Miri and electric utility Sarawak Energy.
Assistant Commissioner of Police Hakemal Hawari told CNBC the crackdown came after miners allegedly stole $2 million worth of electricity siphoned from Sarawak Energy power lines.
The Cambridge Center for Alternative Finance estimates that Malaysia accounts for 3.44% of all the world’s bitcoin miners, placing it in the top ten mining destinations on the planet.
Eight have been arrested in connection with the mining operation in Miri, and six people have been charged under Section 379 in the Penal Code for stealing energy supplies, according to Hawari. Those charged will be jailed for eight months and face a fine of up to $1,900 per person.
This is just the latest example of Malaysia’s struggle to track down crypto mining criminals.
Source: CNBC
The Regulatory Sandbox was launched by Bank Negara Malaysia in October 2016, to provide a regulatory environment that is conducive to the deployment of financial technology and facilitate overall innovation in the Malaysian financial sector.
As advances in financial technology have led to the introduction of new business models and solutions, the Regulatory Sandbox seeks to encourage innovation and the delivery of financial services by granting regulatory flexibilities for fintech solutions with a genuine value proposition to experiment in a production or live environment. Such flexibilities will be accompanied by appropriate safeguards to preserve financial stability, and the integrity of financial transactions, and ensure fair business conduct and fair treatment of consumers.
The Regulatory Sandbox Framework was published in October 2016 to enable the experimentation of fintech solutions in a live environment, subject to appropriate safeguards and regulatory requirements. The policy was issued following a public consultation of the policy’s exposure draft released in July 2016 which received feedback from various stakeholders including financial institutions, fintech companies, associations, and other corporates.
Following the comments and suggestions received from the public, the eligibility criteria of the Sandbox were expanded to clarify the focus of innovations that the sandbox aims to support. Innovations should have clear potential to:
(i) improve the accessibility, efficiency, security, and quality of financial services;
(ii) enhance the efficiency and effectiveness of Malaysian financial institutions’ management of risks; or
(iii) address gaps in or open up new opportunities for financing or investments in the Malaysian economy.
The minimum standards and requirements for participation in the sandbox were also reviewed to encourage wider participation of fintech companies. Applicants to the sandbox should be able to demonstrate that a product, service, or solution has been developed to a functional stage and is ready for testing. The applicant must also have a good understanding of risks during testing, with adequate resources committed to effectively managing the risks.
Source: bnm.gov.my
