In this Chapter 2 of our Digital Assets Series, we focus our discussion on initial exchange offering and the relevant regulatory framework in Malaysia.
The Securities Commission Malaysia (“SC”) had in its public consultation paper No. 1/2019 titled “Proposed Regulatory Framework for the Issuance of Digital Assets through Initial Coin Offerings” (“Public Consultation Paper”) sought feedback from the public on the formulation of a framework for the issuance of digital assets through initial coin offerings (“ICO(s)”) to mitigate the risks posed by ICOs, for purposes of investor protection and promoting confidence in the ICO market. In the Public Consultation Paper, the SC expressed its intention to adopt an approach similar to the regulatory frameworks of equity crowdfunding (ECF) and peer-to-peer financing (P2P) in Malaysia, wherein the SC shall directly regulate the operator of the platform of an ICO, who in turn shall assess the issuers on its platform.
The SC’s proposals in the Public Consultation Paper were then largely incorporated into the Guidelines on Digital Assets (“DA Guidelines”) issued on 15 January 2020 and subsequently revised on 28 October 2020, to set out, among others, the requirements relating to fundraising activity through digital token offering. Instead of the term “ICO” which was used in the Public Consultation Paper, the term “initial exchange offering (“IEO”)” is adopted in the DA Guidelines and is described thereunder as an offering of digital tokens by an issuer through an electronic platform operated by an IEO operator (“IEO platform”). Where the concept of an ICO involves the offering of a digital asset by the issuer to the public directly, “IEO” is a more appropriate label for the fundraising activity governed under the DA Guidelines as the offering of digital tokens to the public must be made by an issuer through a regulated intermediary, i.e. an IEO platform.
