Cryptocurrency Regulations in Malaysia Prior to 2024

Malaysia’s approach to cryptocurrency regulation prior to 2024 was characterized by an increasing need for clarity and structure in response to the global surge in cryptocurrency adoption. While the country did not recognize digital assets as legal tender, it categorized them as a form of securities, laying the groundwork for a comprehensive regulatory framework.

Classification of Digital Assets

Digital Asset Categories: Malaysia’s Prescription Order 2019 classified digital assets into two main categories: Digital Currency, seen as a digital representation of value interchangeable with any form of money, and Digital Tokens, which are digital representations recorded on a distributed digital ledger. The Order also specified the conditions under which digital currencies and tokens are considered securities​​.

Types of Crypto-Related Companies

Company Categories in the Crypto Space: In Malaysia’s crypto landscape, companies were categorized into: Recognized Market Operator for Digital Asset Exchanges (RMO-DAX), which facilitated digital asset trading; Digital Asset Custodian (DAC), providing custody services for digital assets; and Initial Exchange Offerings (IEO), offering fundraising channels for businesses through digital tokens​​.

Regulatory Oversight

Securities Commission Malaysia (SCM) as the Regulatory Body: The SCM was the primary body overseeing digital asset service providers in Malaysia. Any company providing services with assets classified as securities was required to register with the SCM. This regulatory oversight was a critical aspect of ensuring compliance and legitimacy in the digital asset market​​.

Key Regulations and Compliance

Capital Markets & Services Order 2019: This Order enabled the SCM to set guidelines on offering and trading digital assets. Companies like RMO-DAX followed the Guidelines on Recognized Markets, while DACs and IEOs complied with the Guidelines on Digital Assets. Additionally, companies were required to adhere to the Anti-Money Laundering and Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001, related SCM guides, and the Personal Data Protection Act 2010​​.

Registration Requirements: Businesses had to be Malaysian incorporated to register, with criteria varying based on the type of services provided. For example, IEOs and DACs had to satisfy criteria related to fitness, obligations, risk management, financial resources, and security arrangements. IEO applicants were required to have a minimum paid-up capital of RM5,000,000​​.

Compliance with AML Regulations: Registered companies were obligated to implement procedures to comply with AML regulations. This included appointing a compliance officer, staff training, risk-based approaches, Customer Due Diligence checks, transaction monitoring, sanctions and AML screening, record retention, and reporting of suspicious transactions​​.

Adherence to the Travel Rule: Digital asset service providers were required to adhere to the Travel Rule, which involved sharing information on wire transfers or digital asset transactions, including details about the originator and beneficiary. This rule was crucial for ensuring effective risk-based policies and procedures​​.

Conclusion

Prior to 2024, Malaysia’s regulatory framework for cryptocurrencies was evolving to meet the challenges and opportunities presented by the burgeoning digital asset market. The country’s approach, marked by detailed classifications, stringent compliance requirements, and structured oversight, reflected a commitment to balancing innovation with financial security and consumer protection. This regulatory landscape aimed to provide clarity and stability for companies operating in the crypto space, ensuring a responsible growth of the digital asset sector in Malaysia.