Banking & Finance

Order to regulate Digital Currencies, Tokens Seen as Positive

Date: 27 January 2019; Type: Legal News; Source: Bernama

KUALA LUMPUR, Jan 27 (Bernama) - The new order to regulate digital currencies and tokens as securities, which came into force on Jan 15 this year, is a shift in regulatory regime from both the Securities Commission (SC) and Bank Negara Malaysia, says an expert.

Brian Chia, partner at Wong and Partners, a member firm of Baker and McKenzie International, said this is a very positive step as prior to this the only thing that the authorities would do was to just issue cautiionary statements warning investors of the risk of investing in this with no substance to regulate.

“With the new order there would be more certainties now in the market, and also very positive as it is a contemporisation.

“Other countries in ASEAN have adopted a similar approach such as Thailand where they already have guidelines in place to regulate the currencies and tokens,” he told Bernama.

He said the order is quite broad as it gives certainties across the line, but noted that more guidelines would probably be issued by the SC on criteria and other details in the near future to protect the investing public.

Chia said Malaysian regulators have been very proactive in passing regulations to protect investors and the country’s regulations and guidelines are always ahead of the curve, but noted that they are only regulations and it is up to companies to pursue the model.

He also opined that legislation can never be ahead of technology and it is always a catch up game as technology is evolving too fast and generally legislations are passed after a technology is introduced.

“What regulators need to do, and I believe they are doing it, is continue keeping an eye on this space and developing criteria to approve applications, criteria for disclosing standards for the offering, developing criteria for licensing, and more. There is a lot of devil in the details,” he explained.

On the uptake of digital currencies and tokens by Malaysian investors, he said it is some way off as the Malaysian economy is not ready to take a huge uptake in investment.

“It is still early days, it is little understood, it is not common and it will take time before this class of securities takes off. It is a matter of time and education.

“I do not think the token currency would replace the fiat currency. The next logical step for the fiat currency is e-money and e-wallet, and we are still further down the evolution chain,” he said.

Meanwhile, Dr Zuriati Ahmad Zukarnain, an associate professor at Universiti Putra Malaysia's Department of Communications Technology and Networking, said people often think of regulation as meaning ‘establishing controls’, but it also means ‘to make regular’ – to bring order to a situation.

The network security expert said regulation helps to bring the chaotic to the mainstream.

She said although early adopters typically have a high risk appetite, most people shy away from disorder, especially when it is associated with illegal activity, adding that for many, the word ‘crypto’ is largely synonymous with ‘hacking’ and that is not a good thing.

“If we truly want digital currency to succeed, it needs to be owned and used by hundreds of millions of people. To achieve that, digital currency has to be perceived as safe, easy-to-use and easily available,” she said.

Zuriati said many countries which have recognised digital currencies such as Hong Kong, Japan, the Philippines and Singapore.

Digital assets have a role to play as an alternative fundraising avenue for entrepreneurs and new businesses, and as an alternate asset class for investors, she said.

By establishing a proper regulatory framework, she said government agencies can help reduce the uncertainty surrounding cryptocurrencies, thus driving more robust investment and ensuring that developers and technologists have the funding they need for continued innovation.

On another note, she said digital asset is a technology that is less than a decade old which investors do not wholly understand and can be easily conned, noting that a legal system will bring more awareness.

“With the regulations in place the government will be able to bring crypto-currency exchange firms under a stringent legal system.

“The government cannot prevent hacking but it needs to make it clear what happens in case an incident of hacking occurs. With proper security measures, crypto-currencies can push for a digital economy and more transparency in monetary transactions.

“It also ensures adequate standards are in place for the protection of customers and their funds,” she said.

However she cautioned that if the laws and regulations are not stringent enough, digital assets can be used to launder money, buy drugs and for other illegal activities as the exchange of the coins can be made anonymously.

She pointed out that investing in digital assets is also very risky owing to the lack of technological security and the fluctuating price of the currency, and if something goes wrong with a transaction (hacking) or if a coin is lost there is no way to recover .

The government needs to think of a way to rectify the issues, she said.

Among the things that should be considered for the framework are that a cryptocurrency address is not the same as a bank account, and a fundamental attribute of cryptocurrency is that the technology platform is the ledger and it is not maintained and controlled by third parties, she noted.

Other factors include a framework for Shariah-compliant cryptocurrencies, customer protection and the need for effective measures in place against money laundering and terrorism financing risks associated with the use of digital currencies, she added.

MY Bernama

Asean LIP works with Bernama to bring you the latest Malaysian legal news. Bernama is the national news agency of Malaysia. You shall not reproduce the above/ attached materials in whole or in part without the prior written consent of the Publishers and/or Bernama. Neither the Publishers nor Bernama will be liable for any loss, injury, claim, liability, or damage caused directly, indirectly or incidentally to errors in or omissions from the above/ attached materials. The Publishers and Bernama also disclaim and exclude all liabilities in respect of anything done or omitted to be done in reliance upon the whole or any part of the above/attached materials. The access to, and the use of, Asean LIP and contents herein are subject to the Terms of Use.

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