Malaysia Issues Consultation Paper on Regulating Cryptocurrencies

The central bank of Indonesia, Bank Negara Malaysia,  has published a consultation report on regulating Bitcoin and other cryptocurrencies. The action by the Bank comes at a time when popular interest in Bitcoin is increasing due to the dramatic rise in price and the addition of futures contracts on the CBOE and CME.  The Bank noted that it does not regulate digital currencies.

The Bank issued an “exposure draft” regarding reporting obligations on digital currency exchanges under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). The goal is to ensure that effective measures are in place against money laundering/terrorism financing risks associated with the use of crytpocurrencies 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 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.

The Bank said the addition of reporting obligations on crypto exchanges does not in any way connote the authorisation, licensing, endorsement or validation by the Bank of any entities involved in the provision of digital currency exchange services.

Additionally, the Bank cautioned the public that “digital currencies are not legal tender in Malaysia.” Digital currency businesses are not covered by prudential and market conduct standards or arrangements that are applicable to financial institutions regulated by the Bank.

The Bank cautioned members of the public on the risk of dealing with cryptocurrencies pointing specifically at the high volatility, the lack of deep markets and the vulnerability to cyber attacks. Users of digital currencies are not covered under established disputed resolution arrangements which exists for regulated financial institutions in the event of any dispute or losses.

The Bank described their actions as a first step in making cryptocurrencies more transparent and added they would continue to monitor the emerging market to ensure the integrity of the financial system is not compromised.

Feedback on the consultation will be accepted until 14 January 2018.

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