Is there any cryptocurrency regulation in Malaysia?

Blockchain is a type of distributed ledger technology (DLT), a public ledger that stores all the transactional data or digital events executed or shared among participating parties (nodes). Before a transaction can be stored in the ledger, the data will be encrypted and verified by other participating parties, after which a new block of data will be added to the chain and be visible to all users on public and unpermissioned blockchain, or to only known participants in a private and permissioned blockchain. Most importantly, once a block is created, it can neither be deleted nor amended. The ideology behind blockchain is to create an open-source, neutral, decentralized, borderless, and network-resilient technology.

Regulatory Environment of Blockchain In Malaysia

The nature of blockchain technology, its anonymity and virtual freedom from any governmental control, has created new opportunities for money laundering and terrorist financing. To mitigate the risk of the technology being used for those purposes, any person carrying on activities or business on a digital currency exchange is treated as a reporting institution and subjected to the provisions in the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Digital Currencies (Sector 6) Standards and Guidelines issued by the Central Bank of Malaysia (Bank Negara Malaysia).

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Through the enactment of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (Order 2019), all digital currencies and digital tokens that meet the criteria stipulated in Order 2019 will be prescribed as securities for the purposes of securities law in Malaysia. All platforms that facilitate the trading of digital assets must be registered as Digital Asset Exchange (DAX) Operators under the Guidelines on Recognised Market (RM Guide) issued by the Securities Commission of Malaysia (SC). The RM Guide sets out, amongst others, the requirements for the registration of a DAX Operator, the obligations of a DAX Operator, and the ongoing requirements of a DAX Operator.

Generally, a DAX Operator must be locally incorporated with a minimum paid-up capital of MYR5 million and satisfy the criteria for registration as stipulated in the RM Guide. Upon registration, the DAX Operator will be a recognized market operator pursuant to Section 34 of the Capital Markets and Services Act 2007. Acknowledging that the offering of digital tokens can support the growth of small and medium-sized enterprises and micro-businesses in Malaysia, and with the aspiration to create more hi-tech companies in Malaysia, a guide on the offering of digital tokens was also published by the SC in 2020 (Guidelines on Digital Assets).

Regulations in Malaysia are not just in respect of the application of blockchain in digital assets. The Income Tax (Exemption) (No 10) Order 2018 was enacted to provide a financial incentive for companies carrying out promoted activities in Malaysia. The promoted activities within the order include the provision of services in relation to the blockchain. Companies should note that not all activities related to the blockchain will fall within this order, a full description as to what may be considered as a promoted activity is provided by the Malaysia Digital Economy Corporation. The services include the provision of product design; engineering and simulation services to various industries that require the use of high-end workstations, cloud platforms, and sufficient bandwidth (design and simulation services); provision of cybersecurity services that include threat alert, threat research, technical support, remote diagnostics and remedy (cybersecurity services); and software design and development services.