KhaiLing Yau Chambers

Can our laws keep up with innovative business models arising from cryptocurrency?

Legal Insights / By / July 29, 2022

Introduction

Laws and regulations tend to always trail innovation. The rise of cryptocurrencies is no different. Compared to traditional fiat currencies, cryptocurrencies are virtual, encrypted and decentralized mediums of exchange with no control by any central authority.

This article explores the potential gaps in the existing laws of Malaysia in regulating or facilitating certain new business models adopted or emerging in the western countries which use cryptocurrencies.

Cryptocurrency Lending

Under the Moneylenders Act 1951 (“Moneylenders Act”), “moneylending” refers to the lending of money at interest, with or without security, to a borrower.

Consider a business which lends bitcoin, also known as BTC, against security/collateral in BTC. Principal and interest are payable in BTC. The lender disburses the loan in BTC, which is thereafter immediately converted into fiat currency upon receipt by the borrower – this process takes a fraction of a second. Is this moneylending?

As it stands, cryptocurrencies like BTC are neither recognized as legal tender in Malaysia nor statutorily defined as money. As such, one may argue that a literal reading of the Moneylenders Act suggests that BTC lending may not be “moneylending” and therefore would not be regulated under the Moneylenders Act.

Money Remittance using Cryptocurrency Payment Rails

Under the Malaysia Money Services Business Act 2011 (“MSBA”), “remittance business” refers to the transferring or facilitating the transfer of “funds”, which in turn is defined as “any unit of account or unit of value that facilitates the purchase of goods or services”. 

Consider a business which uses the BTC protocol (instead of legacy telegraphic transfers using SWIFT) as a payment rail to remit money anywhere in the world instantly. Conceptually, to transfer RM100 equivalent to Tanzania – the transferor deposits RM100 with the remitter, it is converted into BTC, then transferred via the Lightning Network (a secondary layer on the BTC protocol), then converted into Tanzanian Shillings and finally deposited into the recipient’s Tanzania bank account – all within a fraction of a second and a fraction of telegraphic transfer costs which banks now charge. Is this money remittance?

The applicability of the MSBA to such business in Malaysia depends on whether BTC constitutes “funds” or “money” within the meaning of MSBA. Whilst BTC may be regarded as a unit of account or unit of value, it is arguable that it does not facilitate the purchase of goods or services considering it is not recognized as legal tender in Malaysia. Until these points are clarified, the applicability of the MSBA to such business in Malaysia may remain unclear.

Bitcoin Mining

Bitcoin mining refers to the process where a global network of computers compete to solve complex math puzzles in order to validate new transactions in a distributed ledger (blockchain) and be rewarded with BTC. The system is designed to make the math puzzles increasingly difficult as demand for BTC grows whilst the supply of BTC remains fixed based on predetermined milestones. Solving the calculations requires hardware and energy, which are generally paid for by selling the BTC for fiat.

Uncertainties abound vis a vis the taxability of BTC proceeds under the Income Tax Act 1967. For example, if a company receives 1 BTC today (worth RM100,000/BTC) from its mining activities but only sells the said BTC one year later (at RM200,000/BTC), how is its revenue recorded on its profit and loss statement? Furthermore, the Malaysian Financial Reporting Standards does not currently provide for any standards to record BTC (and other cryptocurrencies) held on a company’s balance sheet.

Conclusion

To date, Malaysia has relied on subsidiary legislation such as the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 and Securities Commission Guidelines on Digital Assets to plug the gaps in law in this space. Whilst these are applaudable efforts to govern, inter alia, the trading of cryptocurrencies or issuance of digital assets in Malaysia, we look forward to the enactment of other primary laws for more holistic governance of innovative businesses using cryptocurrencies, including those discussed above. Until then, it is for us to rely on first principles in law in navigating the cryptocurrency landscape in Malaysia. 

This legal update is for general information only and is not a substitute for legal advice.

Published on: 29 July 2022

Should you have any queries as to how these developments affect your business, please do not hesitate to contact us. 

This article was co-authored by Yau Khai Ling, Lee Chongshen and Charissa Chan Shi Kai. 

Lee Chongshen is a Director of Insights Law LLC, an award-winning full service Singapore law firm specialising in the areas of corporate and commercial law, tax and dispute resolution. For more information, please visit http://www.insightslaw.sg.

Yau Khai Ling 
Principal Partner
E: ykl@khailinglaw.com

Lee Chongshen 
Director of Insights Law LLC 
E: chongshen.lee@insightslaw.sg

Charissa Chan 
Associate
E: csk@khailinglaw.com

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A Regulatory Overview on Fintech Fundraising Platforms in Malaysia

Legal Insights / By / July 28, 2022
network, technology, connection

1.     Rise of Fintech

1.1   In this digital age, financial technology (“fintech”) has been increasingly embraced as businesses and consumers alike shift towards digital solutions, including e-commerce, contactless payments and digital financial services.

1.2   In Malaysia, it was recently entrenched in the Twelfth Malaysia Plan 2021-2025 that the Government of Malaysia will undertake efforts to position Malaysia as a regional centre for fintech, offering both conventional and Islamic fintech services[1]. Further, Bank Negara Malaysia (“BNM”) had also indicated its commitment in its Financial Sector Blueprint 2022-2026 to, among others, facilitate greater digitalisation of business models in financial services and to advocate and support the growth potential of Malaysia’s broader fintech ecosystem[2].

1.3  In tandem with its developments, fintech has also transformed the platforms through which businesses or entities may undertake alternative fundraising activities for their business in Malaysia. This article will focus on the regulatory overview on fintech fundraising platforms in Malaysia.

2.     Fintech Regulatory Regime in Malaysia – In General

2.1   Activity-Based Regulation

Malaysia does not have a specific regulatory regime applicable to fintech businesses. Generally, the nature or type of business activities carried out by a fintech business will dictate how it is to be regulated under the existing laws and regulations. The regulatory framework generally applicable to traditional financial services remains relevant, and would include laws such as the Financial Services Act 2013, the Islamic Financial Services Act 2013, the Money Services Business Act 2011, the Capital Markets and Services Act 2007 as well as various standards and guidelines issued by BNM and the Securities Commission Malaysia (“SC”).

2.2   Main Regulatory Bodies 

(a) BNM and the SC are the main regulatory bodies that regulate fintech in Malaysia. Broadly speaking, fintech businesses which relate to:

(i) financial markets such as banking, money and payment services would be regulated by BNM; and

(ii) capital markets such as dealing in securities or derivatives, fundraising, fund management and investment advice would be regulated by the SC. 

(b) Notwithstanding the above, certain fintech business activities may fall under the purview of both regulators. This is illustrated in the case of digital assets, wherein BNM and the SC clarified in a joint statement[3] in 2018 that the issuance and trading of digital assets will be regulated by the SC, and where the digital assets involve a payment function, players dealing in such digital assets will be regulated by BNM. 

(c) Both regulators have taken an active role in the preceding years to encourage the development of the fintech space in Malaysia:

(i) SC

In September 2015, the SC launched the Alliance of FinTech Community (aFINity) to catalyse and nurture fintech development in the Malaysian capital market and is intended to serve as a platform for continuous interactions between the SC as a capital market regulator and all relevant fintech stakeholders such as innovators, financial institutions, government agencies, ecosystem players and investors[4].

Since then, the frameworks for alternative forms of fundraising namely equity crowdfunding (“ECF”), peer-to-peer financing (“P2P Financing”) and initial exchange offering (“IEO”) have been introduced by the SC. In addition to the licensing of ECF and P2P Financing operators in Malaysia, the SC had recently in March 2022 registered a total of two (2) IEO operators to provide an alternative avenue for eligible businesses to raise funds via the issuance of digital tokens in Malaysia[5].

(ii) BNM

In October 2016, a Financial Technology Regulatory Sandbox Framework was introduced by BNM in 2016 to facilitate the deployment and testing of fintech solutions in a live environment[6]. BNM also introduced a licensing framework for digital banks in December 2020, with an aim to enable the innovative application of technology to uplift the financial well-being of individuals and businesses and foster sustainable growth[7]. Pursuant thereto, BNM had in April 2022 announced a total of five (5) successful applicants for the digital bank licences as approved by the Minister of Finance[8].

Further, BNM announced in November 2021 that it is driving inter-agency efforts to enact the Consumer Credit Act with an aim to strengthen the regulatory arrangements to govern all consumer credit activities including “Buy Now Pay Later (BNPL)” schemes which are on the rise within the fintech space of Malaysia.

BNM’s commitment in updating its regulatory approach for fintech can also be seen in the issuance of the exposure draft of a policy document for electronic money (“e-money”) issuers in June 2021 (“Draft E-Money Policy”). E-money is a payment instrument that stores monetary value that is paid in advance by the user to the issuer of e-money, and is quickly becoming one of the main payment methods in Malaysia. The Draft E-Money Policy, when finalised, will replace the Guideline on Electronic Money (E-money) issued in 2008 and be applicable to approved issuers of e-money under the Financial Services Act 2013.

3.     Fintech Regulation of Fundraising Platforms

3.1 Within the Malaysian regulatory context, fintech fundraising platforms are generally classified as recognised market operators (“RMO(s)”) and governed by the SC. For these purposes, the Capital Markets and Services Acts 2007 (“CMSA”), administered primarily by the SC, is the main governing legislation. To operate a recognised market, a person is required to apply to the SC under Section 34 of the CMSA to be registered as a RMO.

3.2   Subject to fulfilling the prescribed registration requirements, the following fintech fundraising platforms are deemed to be RMOs:

(a) ECF platform – an online fundraising platform for start-ups or micro, small and medium enterprises to obtain capital through small equity investments from a group of investors;

(b) P2P Financing platform – an online fundraising platform which facilitates a debt-based fundraising method that is akin to a loan wherein investors provide financing to a business by subscribing to investment notes or Islamic investment notes; 

(c) Property crowdfunding (“PCF”) platform – an online fundraising platform for homebuyers to obtain financing for the purchase of property from a group of investors who subscribe for investment notes or Islamic investment notes;

(d) E-services platform – an online fundraising platform which arranges or facilitates the sale, purchase or subscription of a capital market product offered by a holder of a Capital Market Services Licence (“CMSL”) granted under Section 61 of the CMSA to investors; and

(e) IEO platform – an online fundraising platform for businesses to raise funds through IEO i.e. the offering of digital tokens to investors.

3.3   To supplement Section 34 the CMSA in relation to the registration of a RMO, the SC has issued specific guidelines to prescribe the relevant registration and ongoing operating requirements for RMOs. In particular, the SC has issued:

(a) Guidelines on Recognized Markets (“RM Guidelines”) to regulate, among others, ECF, P2P Financing, PCF and E-services platforms; and

(b) Guidelines on Digital Assets (“DA Guidelines”) to regulate IEO platform. 

3.4   Apart from the RM Guidelines and DA Guidelines, fintech fundraising platforms would also be governed by other applicable guidelines or practice notes issued by the SC from time to time. For instance, in view that the technical infrastructure of fintech fundraising platforms is heavily reliant on information technology (IT) systems which collect and process critical data, fintech fundraising platforms must also observe the requirements under the Guidelines on Management of Cyber Risk to manage cyber risks and mitigate cyber threats to protect investors’ confidential data.

3.5    That being said, the regulatory frameworks as set out above in relation to fintech fundraising platforms are by no means exhaustive, and a fintech fundraising platform must also comply with such other Malaysian laws and regulations as may be applicable to it, including but not limited to the following:

(a) Anti-Money Laundering / Countering Financing of Terrorism (“AML/CFT”)

Fintech fundraising platforms are generally required to observe AML/CFT laws and to establish adequate AML/CFT frameworks in its operations. The Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLA”) was amended on 24 December 2021 to, among others, extend the application of Part IV of the AMLA (concerning the reporting obligations of reporting institutions) to RMOs[9].

(b) Personal data protection and privacy

The Personal Data Protection Act 2010 (“PDPA”) and the regulations or guidelines issued thereunder apply to any person who processes and has control over or authorises the processing of any personal data in respect of commercial transactions.  

(c) Anti-corruption and whistleblowing

Fintech fundraising platforms are also generally required to impart anti-corruption and whistleblowing measures within their organisations that are appropriate to the nature, scale and complexity of their businesses, in accordance with the Malaysian Anti-Corruption Commission Act 2009 and the Whistleblower Protection Act 2010, as well as the guidelines or regulations made thereunder.

4.     Perspective

4.1   The SC reported a growth of 149.2% in alternative financing for 2021 from 2020, with RM1.4 billion raised from ECF and P2P Financing platforms[10]. It is beyond doubt that the SC’s efforts in recognising fintech forms of fundraising and in implementing the relevant frameworks has benefitted businesses in Malaysia, especially small and medium enterprises which traditionally have limited means of financing their businesses.

4.2   At the same time, fintech fundraising platforms have also served to democratise access to investment opportunities for a broader spectrum of investors, and investors may take comfort in the fact that such platforms are under the purview of a robust regulatory regime overseen by the SC. To boot, it is worth mentioning that the recent registration of two (2) new IEO operators will open new doors to businesses and investors alike, and we eagerly anticipate for the fintech fundraising space in Malaysia to be further stimulated in the near future.

 

[1] Twelfth Malaysia Plan, 2021-2025 (epu.gov.my)

This legal update is for general information only and is not a substitute for legal advice.

Published on: 28 July 2022

Should you have any queries as to how these developments affect your business, please do not hesitate to contact us. 

Yau Khai Ling 
Principal Partner
E: ykl@khailinglaw.com

Lau Yuet Sian
Partner
E: lys@khailinglaw.com

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Legal Update: Recent Key Amendments to the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework

Legal Updates / By / July 28, 2022

The Securities Commission Malaysia (“SC”) has on 30 May 2022 and 30 June 2022 respectively issued a revised Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework (“LOLA Guidelines”). The amendments to the revised LOLA Guidelines took effect on 1 June 2022 and 30 June 2022 respectively.

In this article, we will be highlighting the key amendments made to the LOLA Guidelines pursuant to the revisions made on 30 May 2022 and 30 June 2022.

30 May 2022 LOLA Guidelines Revisions

Key amendments made to the LOLA Guidelines on 30 May 2022 include those relating to:

  • post-issuance submission requirements to SC
  • corporate bonds and sukuk
  • asset-backed securities
  •  convertible notes and Islamic convertible notes to specific registered persons

(1)       Corporate bonds and sukuk

Period for remedy. Paragraph 2.11 (a) of Part 3 of Section B of the revised LOLA Guidelines provides that where there is a provision under the principal terms and conditions of any ringgit-denominated corporate bonds or sukuk that do not require a trust deed to remedy a default in payment of the principal of, or interest/profit/rental on any of, the corporate bonds or sukuk, the period for remedy must not exceed 7 business days from the date on which the payment becomes due. Prior to the revision, the LOLA Guidelines did not stipulate when the 7 days period commences.

Party responsible to lodge trust deed. It has been clarified in paragraph 2.14 of Part 3 of Section B of the revised LOLA Guidelines that the responsibility to lodge the duly executed trust deed with the SC lies with the Lodgement Party[1] on behalf of the issuer. 

Change in timeline for the submission of post-issuance notice. As provided under paragraph 4.07 of Part 3 of Section B of the revised LOLA Guidelines, the deadline to submit a post-issuance notice to the SC for all issuances of corporate bonds and sukuk has been extended to no later than 7 business days after the end of the month in which the corporate bonds or sukuk were issued. Prior to the revision, it was 7 business days from the date of issuance of corporate bonds and sukuk.

Change in redemption notice requirements and submission timeline to the SC. Paragraph 5.08 of the pre-revised LOLA Guidelines, an issuer is required to notify the SC of the redemption, in full or in part, of the corporate bonds or sukuk within 7 business days from the date of redemption. However, under the revised LOLA Guidelines, further clarification has been made to such provision whereby: 

(i) notification of redemption must be given to the SC for (a) partial redemption; (b) early redemption; (c) redemption of perpetual corporate bonds or sukuk, where no fixed maturity date has been submitted in the post-issuance notice; and (d) any other redemption occurring on a date other than the maturity date submitted in the post-issuance notice; and

(ii) the deadline for notifying the SC is now 7 business days after the end of the month in which the corporate bonds or sukuk were redeemed.

Responsible Party[2] for submission of redemption notice. New provisions have been introduced under Part 3 of Section B of the revised LOLA Guidelines to:

(i) reflect the party who is permitted to be the Responsible Party for the purposes of submission of redemption notice[3];

(ii) highlight that the Responsible Party for submitting the redemption notice must be specified in the lodgement or the post-issuance notice[4]; and

(iii) reflect the requirement to notify the SC as soon as practicable if there is a change in the maturity date submitted in the post-issuance notice.[5]  

Availability of copies of announcements. Copies of announcements made pursuant to paragraphs 6.08(c), 6.08(d), 6.14(c) or 6.14(d) of Part 3 of Section B of the revised LOLA Guidelines are required to be made available to the SC only upon its request and not within 2 business days from the date of announcements as required pre revision of the LOLA Guidelines.

Party responsible to lodge information relating to an upsizing of a debt or sukuk programme. It has been amended under the revised LOLA Guidelines that in the event of any upsizing of a debt or sukuk programme, the issuer is required to lodge all relevant information and documents with the SC through its Lodgement Party.[6]

(2)          Asset-Backed Securities (“ABS”)

Change in timeframe for SPV to accept transfer of assets or issue ABS. The timeframe in paragraph 2.20(a) of Part 4 of Section B of the revised LOLA Guidelines for a special purpose vehicle (“SPV”) to accept a transfer of the assets or issue ABS has been extended from 60 business days to 90 business days from the date on which the securitisation transaction is lodged with the SC.

Lodgement party to lodge information relating to an issue of ABS. Clarification has been made in paragraph 3.01 of Part 4 of Section B of the revised LOLA Guidelines that lodgement of all information and documents relating to an issue of ABS, are to be lodged by the issuer’s Lodgement Party.

(3)          Convertible Notes and Islamic Convertible Notes to Specific Registered Persons

Change in timeframe for issuance. The timeframe for the issuance of convertible notes or Islamic convertible notes as set out in paragraph 3.04 of Part 5 of Section B of the revised LOLA Guidelines has been extended from 60 business days to 90 business days from the date of lodgement.

(4)          Transitional Provisions

Lodgement party to lodge information relating to an upsizing of a debt or sukuk programme previously approved by the SC. Paragraph 4.07 of Section D of the revised LOLA Guidelines clarifies that in the event of any upsizing of a debt or sukuk programme previously approved or authorised by the SC, the issuer is required to lodge, through its Lodgement Party, all relevant information and documents with the SC and comply with the relevant requirements under Part 3 of Section B of the revised LOLA Guidelines.

30 June 2022 LOLA Guidelines Revision

The key amendment to the revision of the LOLA Guidelines as at 30 June 2022 is the insertion of a new Chapter 9 of Part 3 of Section B – Sustainable and Responsible Investment linked (SRI-linked) Sukuk.

The insertion of the chapter 9 also brings about the introduction of the SRI-linked Sukuk Framework (“SRI-linked Sukuk Framework”) which sets out, among others, the requirements pertaining to the issuance of an SRI-linked sukuk.

Pursuant to the SRI-linked Sukuk Framework, the proceeds raised by the issuance of SRI-linked sukuk can be utilised for general purpose, subject to the issuer committing to future improvements for sustainability outcomes within a predefined timeline, which will be monitored using key performance indicators.

The SRI-linked Sukuk Framework also provides greater transparency for investors by requiring issuers to appoint an external reviewer before issuance and an independent verifier post-issuance to assess compliance with the framework and the issuer’s sustainability performance which can be tracked by investors.

For more details of the requirements for an issuance of an SRI-linked sukuk, please refer to Chapter 9 of Part 3 of Section B of the revised LOLA Guidelines.

The latest version of the LOLA Guidelines can be accessed here.


[1] “Lodgement Party” means the Responsible Party specified in paragraph 4.04 of Part 3 of Section B of the revised LOLA Guidelines who is required to lodge the relevant information and documents with the SC.

[2]See categories of “Responsible Party” in paragraph 5.09 of Part 3 of Section B of the revised LOLA Guidelines.

[3] Paragraph 5.09 of Part 3 of Section B of the revised LOLA Guidelines.

[4] Paragraph 5.10 of Part 3 of Section B of the revised LOLA Guidelines.

[5] Paragraph 5.11 of Part 3 of Section B of the revised LOLA Guidelines.

[6] Paragraph 6.12 of Part 3 of Section B of the revised LOLA Guidelines. 

This legal update is for general information only and is not a substitute for legal advice.

Published on: 23 July 2022

Should you have any queries as to how these developments affect your business, please do not hesitate to contact us. 

Elaine Chin
Partner 
E: cel@khailinglaw.com

Chan Yi Ling
Associate
E: cyl@khailinglaw.com

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Legal Update: Securities Commission Malaysia has registered 2 IEO Operators

Legal Updates / By / March 25, 2022
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Securities Commission Malaysia has registered 2 IEO Operators

On 23 March 2022, the Securities Commission Malaysia (“SC”) announced that it has registered 2 initial exchange offering (“IEO”) platform operators, namely Kapital DX Sdn Bhd and Pitch Platforms Sdn Bhd to “promote responsible innovation in the digital assets space”. The registered IEO platform operators will offer eligible businesses in Malaysia an alternative avenue to raise funds via the offering of digital tokens.

Under the IEO regime in Malaysia, an issuer may raise funds up to RM100 million from retail, sophisticated, as well as angel investors, subject to the investment limits provided in the SC’s Guidelines on Digital Assets which came into effect on 28 October 2020. Before hosting the IEO of an issuer on its platform, an IEO platform operator shall be required to critically assess the potential issuers, including carrying out a critical assessment on the potential issuer’s business, the features of the digital token to be offered, and whether such issuer will be able to provide an innovative solution or a meaningful digital value proposition for Malaysia.

The SC has further stated in its announcement that the two IEO platform operators will be given up to 9 months to comply with all regulatory requirements before commencing operations, including the implementation of a robust and effective Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) process to mitigate Money Laundering and Terrorism Financing (ML/TF) risks.

As the application to be registered as an IEO platform operator has closed on 15 February 2021, we now await for SC to announce if they will be opening a second round of applications. Once the 2 IEO platform operators comply with all regulatory requirements imposed by the SC and are allowed to commence operations, we believe the market will anticipate with much enthusiasm the first initial exchange offering of digital tokens to be launched in Malaysia.

For more details, you may refer to the media release issued by the SC here: https://www.sc.com.my/resources/media/media-release/sc-registers-two-initial-exchange-offering-ieo-operators.

This legal update is for general information only and is not a substitute for legal advice.

Published on: 25 March 2022

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Legal Update: Key Amendments to the ACE Market and Main Market Listing Requirements effective from 1 January 2022

Legal Updates / By / January 4, 2022
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KEY AMENDMENTS TO THE ACE MARKET AND MAIN MARKET LISTING REQUIREMENTS EFFECTIVE FROM 1 JANUARY 2022

Effective from 1 January 2022, Bursa Malaysia Securities Berhad (“Bursa Securities”) will be the sole approving authority or one-stop centre for all ACE Market initial public offerings, according to a media release issued jointly by the Securities Commission Malaysia (“SC”) and Bursa Securities on 20 December 2021 (“Joint Media Release”). 

This signifies that the prospectus review and registration functions, which were previously undertaken by the SC, is now undertaken by Bursa Securities for the ACE Market. The assumption by Bursa Securities of such functions was made possible via amendments made by the SC to Part III of Schedules 6 and 7 of the Capital Markets and Services Act 2007 in July 2021, in an effort to streamline and consolidate the ACE Market listing process for greater efficiency.

To facilitate the aforementioned changes, the ACE Market Listing Requirements have been amended by Bursa Securities accordingly.

Bursa Securities had also in the Joint Media Release announced that certain amendments have been made to the Main Market Listing Requirements, the amendments of which are effective from 1 January 2022.

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This legal update is for general information only and is not a substitute for legal advice.

Published on: 4 January 2022

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Legal Update: Securities Commission Malaysia takes enforcement actions against Binance for illegally operating a DAX in Malaysia

Legal Updates / By / September 13, 2021

Securities Commission Malaysia takes enforcement actions against Binance for illegally operating a digital asset exchange in Malaysia

Binance is currently the largest cryptocurrency exchange in the world in terms of daily trading volume. As at the date of publication of this article, it records a spot daily trading volume of more than USD 20 billion and offers trading of more than 300 types of cryptocurrencies. It has also launched its own cryptocurrencies, including Binance Coin (BNB), which is currently the cryptocurrency with the fourth highest market capitalisation, ranked after Bitcoin (BTC), Ethereum (ETH) and Tether (USDT).

Pursuant to Sections 7(1) and 34(1) of the Capital Markets and Services Act 2007, all DAX operators must be registered as Recognized Market Operators by the SC. Binance is not registered with the SC to operate a DAX in Malaysia. It had been included in the SC’s Investor Alert List in July 2020 for “operating a recognized market without authorisation from the SC”.

On 30 July 2021, the SC announced that it has taken enforcement actions against Binance for continuing to illegally operate a DAX in Malaysia despite being included in the SC’s Investor Alert List last year.

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This legal update is for general information only and is not a substitute for legal advice.

Published on: 6 August 2021

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Digital Assets Series: Chapter 6

Legal Updates / By / September 14, 2021

A General Comparison between IEO, ECF and P2P Financing in Malaysia

A recognised market is essentially an alternative trading venue, marketplace or facility that brings together purchasers and sellers of capital market products under the purview of the SC. These recognised markets are operated by recognised market operators (“RMO(s)”) who are registered pursuant to Section 34 of the Capital Markets and Services Act 2007 (“CMSA”).

In comparison with approved markets such as the Main Market, ACE Market and LEAP Market of Bursa Malaysia Securities Berhad, which are approved pursuant to Section 8 of the CMSA and subject to stringent requirements under securities laws, the regulations for recognised markets are designed and promulgated to commensurate with the risk profile, nature and scope of the recognised market operations.

Pursuant to the responses received on its Public Consultation Paper No. 2/2014 titled “Proposed Regulatory Framework for Equity Crowdfunding” which sought feedback from the public in respect of the proposed regulatory framework for ECF activities in Malaysia, the SC had on 10 February 2015 issued the Guidelines on Regulation of Markets under Section 34 of CMSA. This was subsequently replaced by the Guidelines on Recognized Markets (“RM Guidelines”) issued on 11 December 2015 which introduced the terms “recognised market” and “RMO(s)”.

Today, save for IEO which is specifically regulated under the Guidelines on Digital Assets (“DA Guidelines”), all recognised markets in Malaysia including a digital asset exchange (“DAX”), ECF and P2P Financing are regulated under the RM Guidelines. An IEO operator which is registered under the DA Guidelines shall, however, be deemed to be registered as a RMO for the purposes of section 34 of the CMSA.

 

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This legal update is for general information only and is not a substitute for legal advice.

Published on: 31 May 2021

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Digital Assets Series: Chapter 5

Legal Updates / By / September 13, 2021

A General Comparison between IEO and IPO in Malaysia

In Malaysia, an eligible company which chooses to go public may seek admission of its shares on any of the three approved markets available on the stock exchange of Malaysia, Bursa Malaysia Securities Berhad (“Bursa Securities”), namely:

  • the Main Market, the prime market for established companies which satisfy any of the quantitative admission criteria (as set out under paragraph 2.1 below);
  • the Access, Certainty, Efficiency (“ACE”) Market (formerly known as the MESDAQ Market prior to 3 August 2009), a sponsor-driven market for companies with growth prospects; and
  • the Leading Entrepreneur Accelerator Platform (“LEAP”) Market, an adviser-driven market for emerging companies, including small and medium-sized enterprises (“SMEs”).

Any company intending to list on the Main Market, ACE Market or LEAP Market by undertaking an IPO is required to, in addition to other applicable laws and/or guidelines, comply with the respective listing requirements issued by Bursa Securities for each of the markets (“Listing Requirements”), and the Equity Guidelines issued by the Securities Commission Malaysia (“SC”) (to be complied with by Main Market listing applicants only).

This Article aims to provide a comparison of certain key aspects between IEO and IPO that an issuer may wish to consider when planning for its fundraising exercise in Malaysia.

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This legal update is for general information only and is not a substitute for legal advice.

Published on: 25 May 2021

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Digital Assets Series: Chapter 4

Legal Updates / By / September 14, 2021

The Regulatory Framework for Persons Seeking to Raise Funds via IEO in Malaysia

The Guidelines on Digital Assets (“DA Guidelines”) issued by the Securities Commission Malaysia (“SC”) apply to all issuers seeking to raise funds through a digital token offering on an IEO platform.

The DA Guidelines are to be read together with other relevant laws and guidelines including payment services and foreign exchange administration laws administered by Bank Negara Malaysia (“BNM”). To illustrate this, where an issuer intends to issue a digital token which has the features of an existing type of securities such as unit trust funds, bonds, warrants or options, the issuer must also comply with the existing requirements for such issuance as set out in the relevant SC’s guidelines in addition to meeting the requirements under the DA Guidelines.

In Paragraph 2 of this Article, we briefly set out some of the provisions under the DA Guidelines which apply to an issuer, including the requirements that an issuer must satisfy prior to making a digital token offering.

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This legal update is for general information only and is not a substitute for legal advice.

Published on: 20 May 2021

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Digital Assets Series: Chapter 3

Legal Updates / By / September 14, 2021

Digital Asset Custodian (“DAC”) and the Regulatory Framework for DACs in Malaysia

Under the Guidelines on Digital Assets (“DA Guidelines”), the obligations of an initial exchange offering (“IEO”) operator in relation to the investors’ digital tokens are to:

  • ensure that the token holders’ digital tokens are properly segregated and safeguarded from conversion or inappropriate use by any person;
  • establish and maintain a sufficiently and verifiably secured storage medium designated to store digital assets from investors; and
  • establish system and controls for maintaining accurate and up-to-date records of client’s digital assets held.

To carry out such obligations, an IEO operator may appoint a DAC registered with the Securities Commission Malaysia (“SC”) to provide custody for the token holders’ digital tokens, or it can choose to provide its own custody services, provided it complies with the requirements set out under Part D of the DA Guidelines. In essence, an IEO operator who wishes to provide custody for the token holders’ digital tokens has to, in addition to being registered as an IEO operator, has to be registered with the SC as a DAC as well.

The DA Guidelines define a DAC as a person who provides services such as safekeeping, storing, holding or maintaining custody of digital assets for the account of another person, and such services constitute capital market services for the purposes of Section 76A of the CMSA. Hence, a prospective DAC must satisfy all the requirements set out in Part D of the DA Guidelines and be registered by the SC.

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This legal update is for general information only and is not a substitute for legal advice.

Published on: 12 May 2021

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