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Malaysian Central Bank Draft Regulations

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There is an interesting development in my country and like all countries that is trying to adapt itself to tide of cryptocurrencies flooding the financial market, Malaysia is seeking to introduce regulation with its guns trained on the following aspects:-

i. Money Laundering; and
ii) Anti Terrorism.

The position of cryptocurrencies remains at status quo. It is still not regarded as a legal tender. When this statement was made, to the man on the street they have wrongly interpreted it to mean that if it is not legal, it is illegal. That is furthest from the truth. What is meant by legal tender is the use of it to represent a 'currency'. Even in developed states such as the United States, cryptocurrencies are not regarded as currency. They avoid the use of the term, 'not legal tender' because it can be misleading.

The press release dated 14th December, 2017 by the Malaysian Central Bank can be accessed through the link provided here. This draft regulation does not represent the final regulation but is open for public consultation.

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Two Pronged Objectives

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This regulation has two objectives. The first objective is to put in place effective measures against money laundering and terrorism financing risks and secondly to increase the transparency of the use of digital currency in Malaysia. The relevant legislation that is given foremost priority would be Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA).

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These regulations are aimed at exchangers by imposing upon these companies legal obligations, requirements and standards to comply as digital currency exchangers. The draft has rest is belief on the notion that increased transparency will prevent the use of digital currencies to promulgate illegal activities. This would be a point for moot.

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How Effective is this Regime

It is often the failure of regulatory body to understand the workings of blockchain technology and digital currencies that result in haphazardly worded regulation that are couched in open ended terms. The need for regulation is now stagnated with a regulation that does not spell out the precise obligation and the level of transparency that is required. The lack of particularisation cannot be a good thing.

Any participant an operation of an exchange would find themselves in a limbo. Broad terms that are grand sounding such as transparency, good governance and standard of compliance are vague to say the least. If this regulation is a mere reinstatement of existing laws, why the need to draft new regulations. Exchangers operating within the jurisdiction of Malaysia would be governed by the duty of disclosure in Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). There is also the obligation that is imposed by Capital Market and Services Act 2007.

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In short the effort has to be more specific rather than conceptual.

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The Government's Role

It is high time that the government realise that it cannot bar or restrict the onslaught of cryptocurrency from its shores. It is an inevitable conclusion. Taking that into consideration, what is now needed are very specific requirements imposed on exchangers that wishes to run its business in Malaysia.

These exchanges in consideration for its licenses must provide the following:-
i) There can be no anonymity of transaction;
ii) Exchangers must be well equipped with safety measures to prevent breach of security that could result in losses; and
iii) Capital maintenance must be strictly enforced to ensure that exchangers do exceed its financial ability.

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The common misconception about cryptocurrency in Malaysia is the fact that it is widely used for ponzi schemes and other finance related scams. This is because of its nature that easily slips regulatory surveillance. This can only be cured with education. No amount of regulation or imposition of law can cure ignorance. The pubic would still be vulnerable unless governments take an affirmative stand to stem this menace.

It would be myopic to think that just because a medium is widely used for activities which are dubious that medium is illegal. It is almost akin to saying that a murderer's mom must also be punished for giving birth to a murderer. It is frustrating to say the least when the authorities has focussed its direction wrongly because it causes confusion and creates uncertainty. But let us rejoice that at least this effort is only at a draft stage.