Securities Commission Malaysia Announces Guidelines for Trading of Digital Assets, ICOs to Follow in March

The Securities Commission Malaysia (SC) has updated their “Guidelines on Recognized Markets” to facilitate the trading of digital assets.

The Securities Commission Malaysia has a reputation as being forward thinking when it comes to innovative financial services and is recognized for its encouragement of Fintech in general.

Last November, the SC unveiled details of Project Castor with the a blueprint entitled “Capital Market Architecture Blueprint in a Decentralised World”, which explored the technical implementation and feasibility of using Distributed Ledger Technology (Blockchain) as the underlying market infrastructure for unlisted and over-the-counter (OTC) markets.

In December, the SC along with Bank Negara Malaysia (BNM), announced the intent to provide regulatory clarity for the issuance and trading of digital assets including digital currencies and digital tokens. The intent is to bring digital assets, including initial coin offerings (ICOs), within the remit of securities laws to promote a regulated ecosystem that ensures sufficient investor protection.

At that time, SC stated that ICO issuers and digital asset exchanges which are involved in the issuance or dealing of digital assets with a payment function will need to comply with relevant BNM laws and regulations relating to payments and currency matters. In addition, ICO issuers and digital asset exchanges are subject to the SC’s Guidelines on Prevention of Money Laundering and Terrorism Financing.

Earlier this month, following a statement by the Minister of Finance YB Tuan Lim Guan Eng regarding the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, SC said it would soon put in place guidelines to regulate the offering and trading of digital assets.

The guidelines seek to establish criteria for determining fit and properness of issuers and exchange operators, disclosure standards and best practices in price discovery, trading rules, and client asset protection. Any entity dealing in digital assets will be required to put in place anti-money laundering and counter-terrorism financing (AML / CFT) rules and business continuity measures.

As the Prescription Order is now law, the offering of digital assets will require authorisation from the SC and compliance with relevant securities laws and regulations.

Under the revised Guidelines on Recognized Markets to introduce new requirements to facilitate the trading of digital assets any person who is interested in operating a digital asset platform (ie crypto exchange) is required to apply to the SC to be registered as a recognized market operator.

SC Chairman Datuk Syed Zaid Albar said the new framework is part of the Commission’s “efforts to promote innovation while ensuring investor protection in the trading of digital assets.” He added that investors must remain mindful of the risks involved in trading digital assets such as rapid price fluctuations and liquidity concerns.

Digital asset platforms (or digital asset exchanges – DAX) that currently are operating must submit an application by March 1, 2019, during the current “transitional period.” Until March 1st, platform operators will not be permitted to accept new investors and will only be allowed to facilitate the withdrawal or transfer of client assets with the written instruction of the investor.

Separate guidelines on the offering of digital assets via an ICO will be issued by end of March 2019. In the interim, no person will be allowed to conduct an ICO without the prior authorization of the SC and ongoing ICOs should cease all activities and return all monies or digital assets collected from investors.

Current Digital Asset Definitions

Digital Asset refers collectively to a Digital Currency or Digital Token;

  • Digital Asset Exchange (DAX) means an electronic platform which facilitates the trading of a Digital Asset;
  • Digital Asset Exchange (DAX) Operator means a RMO who operates a Digital Asset Exchange;
  • Digital Currency has the same meaning assigned to it in the Capital Markets and Services (Prescription of Securities)(Digital currency and digital token) Order 2019;
  • Digital Token has the same meaning assigned to it in the Capital Markets and Services (Prescription of Securities)(Digital currency and digital token) Order 2019;

The revised guidelines are below. Digital Assets – Chapter 15.

Securities Commission Malaysia guidelines_recognized Market Updated 1.31.19

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