Understanding Cryptocurrency Law in Malaysia

In 2021, Malaysia witnessed a notable increase in the trading value of the digital asset and cryptocurrency market, reaching RM21 billion, as highlighted in the Securities Commission's Annual Report for that year. 

As interest in alternative assets continues to grow, it becomes essential to examine the legal framework governing cryptocurrencies in Malaysia. 

Overview of cryptocurrency regulations

While not officially recognized as legal tender in Malaysia, cryptocurrency remains lawful. Specifically, cryptocurrency is governed under the regulation of the Securities Commission through the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 ("Prescription Order").

The Prescription Order  defines digital currency as :  

“a digital representation of value recorded on a distributed digital ledger, whether cryptographically secured or not, functioning as a medium of exchange and interchangeable with any form of money, including through account crediting or debiting”

Concurrently, the Prescription Order also defines a digital token as :  

“digital representation recorded on a distributed digital ledger, whether cryptographically secured or otherwise.” 

In layman terms, cryptocurrency which utilises blockchain technology are defined as digital currency and digital token under the laws of Malaysia

The Prescription Order further imposed two different activity based criterias on when cryptocurrency is regulated under Malaysia’s securities law as either digital currency or digital token. 

1) When cryptocurrency is regulated as “digital currency” under the Prescription Order : 

Cryptocurrency is regulated as securities when : 

      (a) It is traded in a place or on a facility where offers to sell, purchase, or exchange of, the digital               currency are regularly made or accepted; 

     (b) a person expects a return in any form from the trading, conversion or redemption of the                        digital  currency or the appreciation in the value of the digital currency; and 

     (c) It is not issued or guaranteed by any government body or central banks as may be specified                  by  the Commission

Therefore, only when a cryptocurrency is traded in a facility or platform, such as a cryptocurrency exchange or a peer to peer trading platform or any platform that facilitates trading of cryptocurrency where users of the platform expect a return, when cryptocurrency is regulated by the Securities Commission of Malaysia. 

2) When cryptocurrency is regulated as “digital token” under the Prescription Order : 

       (a) the person receives the digital token in exchange for a consideration; 

       (b) the consideration or contribution from the person, and the income or returns, are pooled; 

       (c) the income or returns of the arrangement are generated from the acquisition, holding,                            management or disposal of any property or assets or business activities; 

       (d) the person expects a return in any form from the trading, conversion or redemption of the                     digital token or the appreciation in the value of the digital token; 

       (e) the person does not have day-to-day control over the management of the property, assets or              business of the arrangement; and 

      (f) the digital token is not issued or guaranteed by any government body or central banks as may             be specified by the Commission. 

In summary, when cryptocurrency is issued for the purpose of fundraising activities, then the issued cryptocurrency is regulated as a digital token under the securities law of Malaysia.

In addition to the Prescription Order, the Securities Commission has also issued Guidelines on Regulated Market Operator (Digital Asset) and Guidelines on Digital Assets. These guidelines outline requirements related to operating cryptocurrency businesses including operating a cryptocurrency exchange, operating  initial exchange offering (IEO) platforms, and the providing  of digital asset custody service in Malaysia.

Hata is regulated as a Digital Asset Exchange

Hata operates as a Digital Asset Exchanges or 'DAX’ that provides Malaysians with a platform to buy and sell cryptocurrencies with Ringgit Malaysia. Investing cryptocurrency with Hata offers Malaysians a safe and regulated environment to access cryptocurrency. 

Being regulated by the SC underscores Hata's commitment to compliance and transparency within the Malaysia securities market. SC’s regulatory oversight provides investors with confidence, knowing that Hata operates within the legal boundaries set by Malaysia's financial regulatory authority.

In addition, Hata's is also regulated by the Labuan Financial Services Authority. Such dual regulation by both the SC and the Labuan FSA further solidifies Hata’s commitment as a trusted player in the industry. Labuan, with its status as an international financial center, offers a robust regulatory environment conducive to the growth of fintech and digital asset businesses. By further complying with Labuan's regulatory requirements, Hata is dedicated in maintaining a secure and compliant platform, ultimately contributing to a safer and more trustworthy investment environment for all our users.

Conclusion

In conclusion, Malaysia’s financial authorities provide legal certainty for the cryptocurrency industry to develop whilst investors’ interest and protection are prioritised. For more insights and updates on the crypto landscape, visit our blog at  https://explore.hata.io/. 

DISCLAIMER & WARNING

The information provided here is presented "as is'' and is intended for general informational and educational purposes only. It does not come with any representation or warranty of any kind. This content should not be interpreted as financial, legal, or other professional advice, and it is not intended to endorse or recommend the purchase of any specific product or service. It is advisable to consult with appropriate professional advisors for personalised guidance. In cases where the article is contributed by a third-party author, please note that the expressed views belong to the author alone and may not necessarily reflect the opinions of Hata. For furthedetails, we encourage you to read our complete disclaimer. Please be aware that the prices of digital assets can be highly volatile. The value of your investment may increase or decrease, and there is a risk that you may not recover the full amount invested. You are solely responsible for making your own investment decisions, and Hata cannot be held liable for any losses you may incur. This material is not to be construed as financial, legal, or other professional advice. For more information, please refer to Hata’s Terms of Use and Risk Warning.