New Digital Token regulation in Malaysia in 2020

Securities Commission Malaysia published on 15th January 2020 a new regulatory Guideline on Digital Assets. The guideline outlines a framework for digital token offerings in Malaysia, previously known as ICOs.

This article attempts to summarise the guideline for those who might want to start an ICO in Malaysia.

No more self-run ICOs

First takeaway is that the original model of ICOs, where organisations (now called digital token issuers, per the guideline) raise funds themselves through token sales directly to the public, will be illegal.

Here are some key aspects of the requirements to become a token issuer:

  1. Must be a Malaysian company with main operations in Malaysia.
  2. Must have minimum paid-up capital of RM 500,000.
  3. Must have at least two directors whose place of residence is in Malaysia.
  4. Members of the board must own at least 50% equity.
  5. Initial board members may not sell their equity until completion of the digital token’s project.

Offer tokens via IEOs instead

Instead, token sales must be done via an Initial Exchange Offering (IEO). IEOs can only be run by registered entities that meet the SC requirements as an IEO operator (such as crypto exchanges).

IEO operators are responsible to carry out due diligence and critical assessment on any token issuers before letting them sell their tokens on their platform.

Here are some key aspects of the requirements to register as an IEO operator:

  1. Must be a locally incorporated company (unless specified otherwise by the SC, i.e. can be a person if they meet the requirements).
  2. Must have a minimum paid-up capital of RM 5,000,000.
  3. Must be a recognised Digital Asset Exchange platform operator (which there currently only three: Luno Malaysia, SINEGY Technologies, Tokenize Technology)

The new guidelines will come into effect after Q2 2020.

Key takeaways

In my opinion, this new development can be viewed in a few different ways:

The positive

  • Can be seen as a move to embrace new innovations in digital economics and cryptocurrency technology.
  • Strict guidelines may assuage questionable projects and protect consumers.

The negative

  • Can be seen as stifling new innovations by trying to re-centralise aspects of a decentralised system.
  • Strict guidelines may deter innovative projects that may not have enough initial capital or resources.

Securities Commission Malaysia press statement: https://www.sc.com.my/resources/media-releases-and-announcements/sc-publishes-guidelines-on-digital-assets

Read the complete guidelines here: https://www.sc.com.my/api/documentms/download.ashx?id=dabaa83c-c2e8-40c3-9d8f-1ce3cabe598a