Crypto Businesses in Malaysia: An Overview Malaysia presents a viable option for businesses to set up their crypto businesses because it offers a mature regulatory environment without strong regulatory restrictions from the government’s end. However, it must be remembered that local government prioritises protecting the rights of local consumers. In 2018, Malaysia adopted a new legislative framework in order to regulate crypto businesses in Malaysia. According to this legislative framework, all the entities such as exchanges, exchangers and organisations that are involved in the act of converting non-fiat funds are termed as ‘reporting agents’. The entities that regulate the activities of crypto businesses in Malaysia include the State’s central bank, i.e. Bank Negara Malaysia, with the Securities Commission of Malaysia being the chief regulator. It has been entrusted with the responsibility of issuing licenses for the exchange of cryptocurrencies in Malaysia. Regulatory Framework for Crypto Businesses in Malaysia The Securities Commission of Malaysia is the primary regulator for regulating digital asset businesses in Malaysia. This body has also developed a regulatory framework that considers digital tokens and digital currencies as securities that are regulated by Securities law. In furtherance of regulating crypto businesses in Malaysia, the Securities Commission has released a Digital Asset Order and Digital Asset Guidelines. These Digital Asset Guidelines have to be read along with the relevant provisions of the securities laws that apply to the digital assets as mentioned under the Capital Markets and Services Act of 2007 (CMSA). Under the abovementioned Digital Assets Guidelines, prospective issuers who want to issue digital assets for the purpose of fundraising can do so through the channel of initial exchange offerings (IEOs). It must be noted that an issuer can issue only those digital assets via an IEO that have been accepted as securities under the Digital Asset Order. The issuers are not permitted to raise funds through any other channel when they are raising funds through the channel of an IEO. IEOs can only be conducted by IEO operators who can approve applications from prospective buyers. IEO Operators are electronic platform operators that are registered under the Digital Asset Guidelines to operate an IEO platform. Currently, it has been clarified by both the Securities Commission and Bank Negara Malaysia that digital assets are not considered as an instrument for payment regulated by Bank Negara Malaysia, and they are legally accepted for the exchange of services and goods as legal tender in Malaysia. Additionally, the Guidelines on the Prevention of Money Laundering and Terrorism Financing for Capital Market Intermediaries 2014 and the Guidelines on Recognised Markets of 2019 are also applicable. Regulatory Authorities for Crypto Businesses in Malaysia Except for the digital assets exchanges that have been given approval by the Securities Commission of Malaysia, digital assets exchanges are prohibited from carrying on their business activities in Malaysia. Till date, the Securities Commission has registered four digital assets operators to conduct their crypto businesses in Malaysia, viz. SINEGY technologies, Luno Malaysia, MX Global and Tokenize Technology. Operating a digital assets exchange without obtaining the due permission from the Securities Commission is considered to be an offence under the securities laws of Malaysia, and those found to be guilty may be liable to a fine or imprisonment or both. Recently, the Securities Commission took enforcement actions against Binance for operating in Malaysia without appropriate authorisation and permission. The Securities Commission and Bank Negara Malaysia have clarified that despite there being regulatory framework and policies in place for digital exchanges, these digital exchange assets are considered to be a payment instrument regulated by Bank Negara Malaysia and are not accepted as legal tender for the exchange of services and goods in Malaysia. If you wish to set up your cryptocurrency business in Malaysia, speak to our Crypto business and Fintech Consultants at Enterslice. Criteria for obtaining a cryptocurrency license in Malaysia Business structure: the legal structure for obtaining a cryptocurrency license can either be a company or an LLP. Main business operations: The main business operations of the business should be carried out from a physical office space, whether leased or purchased, in Malaysia. Paid-up capital: The paid-up capital of the company should be RM 500,000. Personal particulars: the personal details of all the members of the company should be provided. Payroll: The local workers of the company should be on the payroll of the company. Shareholders’ fund: the company is supposed to maintain a shareholders’ fund at the value of RM 500,000 at all times. Background check: proof of the founders’ and shareholders’ non-involvement in any previous criminal activity AML compliance: the company should be compliant with the prevailing Anti-Money Laundering rules and regulations. Registration criteria for Crypto businesses in Malaysia In order to operate crypto exchange businesses in Malaysia, the following compliance regulations and guidelines need to be met, and registration has to be done with the Securities Commission of Malaysia in order to operate legally in Malaysia: The exchanges need to demonstrate the fitness and competence of their senior management employees. They also need to demonstrate their ability to manage AML/CTF risks associated with the business. After the successful registration of the crypto exchange in Malaysia, they need to comply with a set of AML/CTF obligations, such as customer due diligence measures and submitting reports on suspicious transactions to the Securities Commission of Malaysia. Factors to be considered for Cryptocurrency license in Malaysia Following are some of the major factors that should be considered before applying for a Cryptocurrency license in Malaysia: The investment documentation should be kept in mind, which consist of the details of the business along with the nature of the investment made. The crypto exchange has to comply with the legal framework related to the operating of a crypto business in Malaysia. The company has to present proof of capacity that it is capable of protecting the investments of the public and meeting the AML/CTF standards. The company should be capable enough to safeguard the interests of the people. Procedure for obtaining a cryptocurrency license in Malaysia Following is the step-by-step process for obtaining a cryptocurrency license in Malaysia: Deciding the best suitable legal structure for your business entity The first step in the process of obtaining a cryptocurrency license in Malaysia is deciding the legal structure of the business entity. As mentioned previously, Malaysian law permits only the structure of a company and that of an LLP for a business entity to carry its cryptocurrency business in Malaysia. After the successful registration of the business entity, the company should decide on the minimum paid-up share capital, its corporate structure, applicable legislation and the need to apply for any additional licenses to operate the business. A Malaysian company must have at least two shareholders of any nationality, one local resident, a company secretary and a local registered address. Enterslice offers the services of a nominee director, allowing you to carry on your business without any hindrances. Registration of the business entity in Malaysia After deciding the legal structure of the business entity, Enterslice will conduct the due diligence of the shareholders and the management of the company. Once the due diligence process is completed, Enterslice collects the required incorporation documents, power of attorney, KYC documents and proceeds towards registration of the company with the Malaysian registration authority called SSM. After the company has been registered, the important incorporation documents such as Certificate of Incorporation, MoA and AoA and internal documentary evidence are shared with the management of the company. Preparation and compilation of supporting documents After the registration of the company, Enterslice starts the process of preparing the necessary documentation required for attaching the application for a cryptocurrency license. The documents include a business plan, insurance policy and policy on anti-money laundering and combating the financing of terrorism, depending on the legal requirements. Enterslice will assist you in the preparation of particulars of the applicant and the directors of the company, anti-money laundering and combatting the financing of terrorism policy, role and responsibilities of the AML officer and the internal controls regulations. There is a possibility that the officer may be called upon for an interview. After preparing the documents, Enterslice will send over the documents for your e-signature and prepare your cryptocurrency license application. Meeting the economic requirements and finalising the legal registered address As mentioned before, for a company to obtain a cryptocurrency license in Malaysia, the company is required to meet the minimum basic capital requirements and maintain the shareholders’ fund. Enterslice assists the company in meeting these economic requirements. Enterslice will assist your company in local recruitment to find out qualified employees, shortlist them and initiate initial interviews with the candidates. After you decide on the team, Enterslice will share the employment contract with peculiar terms and conditions specifically for these businesses. Enterslice also assists your company in finalising a physical, legally registered address in Malaysia which is a mandatory requirement for obtaining a cryptocurrency license. Here also, Enterslice can assist in the preparation of the lease agreement between your company and landlord. Opening of a corporate bank account Enterslice shall assist your company in opening a corporate bank account with a reputable bank in Malaysia. The company needs to open a corporate bank account because the criterion for depositing a minimum paid-up capital for the company can be met by depositing the capital amount in the corporate bank account itself. Enterslice will leverage its banking network to open a corporate bank account in a reputable financial institution in Malaysia. Filing of a license application Once all the above-mentioned documentation is prepared by the company, Enterslice proceeds towards filing the application to the Malaysian Securities Commission and payment of the applicable fee. There is a probability that the regulatory authorities may call the AML officers and senior management to discuss the AML/CTF policy. If the Commission is satisfied with the documentation filed from your end, then it will issue the cryptocurrency license. Upon obtaining the cryptocurrency license from the Commission, your company needs to commence business operations within the stipulated period of time in order to maintain the validity of the license. Enterslice is an international consulting firm offering Crypto business advisory services across the globe.