On January 15th, 2019, new regulations on cryptocurrencies were put to effect in Malaysia, prompting cryptocurrency exchanges and firms dealing with blockchain technology to quickly adapt to keep up with the government’s new rules.
Malaysia has reportedly classified tokens, cryptocurrencies, and crypto assets as securities, effectively placing all of them under the jurisdiction of the Malaysian Securities Commission. The new regulations state that unlicensed cryptocurrency exchanges as well as ICOs (initial coin offerings) are punishable by up to 10 years in prison and a fine of up to $2.4 million.
Though startups and cryptocurrency companies may be shocked at the strict regulations and severe punishment, it seems that the Malaysian government is likely to reserve them for the worst offenders. In recent years, the Malaysian administration has expressed a positive attitude for blockchain technology as well as cryptocurrency.
Domestic news outlet The Star revealed that though the punishments may be harsh, Malaysian agencies and officials remains optimistic towards blockchain technology and cryptocurrencies. Malaysia’s Finance Minister Lim Guan Eng, who announced the new measures, stated that the Malaysian government is aware of the benefits of blockchain technology as well as cryptocurrencies, which can offer innovative ways for businesses across multiple industries to carry out its operations.
The Ministry of Finance views digital assets, as well as its underlying blockchain technologies, as having the potential to bring about innovation in both old and new industries. In particular, we believe digital assets have a role to play as an alternative fundraising avenue for entrepreneurs and new businesses, and an alternate asset class for investors.
Many consider the statement to be a surprising change of stance, as a Malaysian minister had remarked the week before that the government was unsure regarding its position and direction towards cryptocurrency.
In an interview published in the New Strait Times on January 12th, 2019, Malaysia’s Federal Territories Minister Khalid Abdul Samad said, “People have asked me if these [cryptocurrency and digital] currencies are legal or illegal. At the moment, the answer is neither legal nor illegal as the situation is still unclear.”
Malaysia, however, had previously set a timeframe to consider how to handle issues relating to the regulation of blockchain and cryptocurrency. Back in December 2018, the Malaysian central bank and the government’s finance regulator had announced that they would issue a statement on the country’s stance towards the technology in the first quarter of the year.
Effendy Zulkifly, Founder of Crypto Valley Malaysia, revealed that the Malaysian government is fully aware of blockchain technology and cryptocurrency, as well as its potential. He added that Malaysia’s central bank, Bank Negara Malaysia, had established a sandbox of startups, as well as appointed a team dedicated to the development of cryptocurrency.
Moreover, Zulkifly expressed his belief that the strict regulations will prove to benefit Malaysia in the long run, as it eliminates any uncertainties relating to the adoption of blockchain technology and cryptocurrency in the country. He said that the regulations are good for the cryptocurrency industry, as business operators and startups can now move in a clear direction as well as gain more recognition from the government. According to him, the regulation eliminates the need for crypto businesses to hide, giving them concrete rules to follow and opening up new opportunities for ICOs.
He went on to cite the example of Switzerland’s government, which had declared that it recognizes ICOs. The move strengthened the country’s economy, due to the value of ICOs as foreign direct investment.
The Malaysian government’s move has not been free from controversy. Rumors relating to political involvement in a local cryptocurrency project have emerged in the media. The token in question — Harapan Coin — was introduced in 2017. Since its release, the crypto has been known for its role in funding a coalition of opposition political parties ahead Malaysia’s national election in 2018.
In Malaysia, the Barisan Nasional coalition has held the majority of seats in the government since the country gained independence in 1957. In 2018, however, the party lost to the Pakatan Harapan coalition, which won a majority of seats in the lower parliament, a key turning point for Malaysia’s political history. The Harapan Coin was directly linked to funding for the opposition coalition, which campaigned on a message of dislodging the entrenched Barisan Nasional.
The project was a source of controversy, as opposition parties took the trouble to hide the names of those working in the project. Over 50 percent of the funds raised through the token had been sent to system administrators, as well as a political party that had joined the Pakatan coalition.
Federal Territories Minister Khalid Samad was a known promoter of the Harapan Coin, while financial authorities in Malaysia as well as civil society groups have tried to distance themselves from the cryptocurrency.
As the Malaysian government and financial regulator have announced new regulations to define cryptocurrencies as securities, effects will be felt by cryptocurrency and blockchain technology stakeholders. Still, the announcement was successful in eliminating grey areas in the industry and paving the way for entrepreneurs to carry out their business operations in Malaysia with more confidence and clarity.
Meanwhile, the United States, in stark contrast to Malaysia, has taken a relatively long time to consider the country’s stance on the regulation of cryptocurrencies and virtual assets.
Governments worldwide have been scrambling to find approaches to regulate blockchain technology and cryptocurrencies, with the aim of offering guidelines for developers and users and promoting the nascent technology that is seeing adoption across multiple industries.
The United States is reportedly seeking a different approach from Malaysia, as back in December 2018, two congresspersons proposed a bill to exempt digital assets from being classified as securities. The bill also urges the Securities and Exchange Commission (SEC) to adjust taxes related to cryptocurrencies, establish a tax exemption for the exchange of cryptocurrency tokens, and revise the taxation of capital gains via transactions carried out using cryptocurrencies. The draft law called on government agencies to consider the unique nature of digital assets and to issue regulations that are fair to their potential use.
One landmark case study considered whether Ethereum should be classified as a security, as per the nature of its token sale in 2014. Back then, US lawmakers and agencies also took a long time before ultimately deciding in 2018 that ETH is not a security.
Meanwhile in Malaysia, the country has grouped together cryptocurrencies, ICOs and tokens under one rule. Crypto exchanges and blockchain-based companies are now obligated to follow the new regulations or face punishments stipulated by the Malaysian government.
However, other approaches to crypto regulation might prove to be more ideal for Malaysia, as it moves forward with blockchain technology and cryptocurrencies. Dr. Mattia Rattaggi, chairperson of policy and regulation at the Crypto Valley Association, has voiced his opinion on a holistic approach for cryptocurrency regulation trends around the world.
Rattaggi indicated that there seems to be a lack of clarity on whether clear distinctions will be made between different types of securities, as well as the way in which cryptocurrencies and crypto assets may be classified separately to one another.
In many places around the world, regulation will remain key to the adoption of cryptocurrencies and blockchain technology, as well as the development of this innovation.
Rattaggi added that no matter how complicated it seems, regulations are needed in order for the industry to keep growing and developing. He insisted that more regulation must be issued, as it will increase trust, standardization, and most importantly, mature the industry enough to attract investment interest.
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