Crypto Law in Malaysia

Based on the Securities Commission's 2021 Annual Report, the trading value of digital assets in Malaysia hit an all time high of RM21 billion. With the increasing interest in and around digital assets, many begin to ponder, what is the legal position of cryptocurrencies in Malaysia?

This piece will give you a look into the legal landscape for digital assets and cryptocurrencies in the country.

Legal, but not legal tender

Although cryptocurrencies are legal in Malaysia, they are not viewed or accepted as legal tender. This coincides with an official statement issued by Bank Negara Malaysia, the country's national bank. The BNM has also advised the public to “be cautious of the risks associated with the usage of such digital currency”.

Overview of Regulations

Despite not being legal tender in Malaysia, cryptocurrency is not illegal and is regulated by the Securities Commission through existing financial legislation. The Malaysian authorities typically consider cryptocurrencies to be securities and so tokens are regulated under securities laws and overseen by the Malaysian Securities Commission (SCM). They fall under the authority of the Capital Markets and Services Act (CMSA) 2007. Based on the Order 2019, all digital currencies and digital tokens satisfying the requirements in the Order will be prescribed as securities.

According to the Order 2019, digital currency is defined as 'a digital representation of value which is recorded on a distributed digital ledger whether cryptographically-secured or otherwise, that functions as a medium of exchange and is interchangeable with any money, including through the crediting or debiting of an account', whereas digital token is defined as 'a digital representation which is recorded on a distributed digital ledger whether cryptographically-secured or otherwise.

Apart from the Order 2019, the Securities Commission has also published its 2020 Guidelines on Digital Assets, pursuant to CMSA 2007. The Guidelines essentially set out the requirements relating to fundraising activity through digital token offering, operationalisation of initial exchange offering (IEO) platform and provision of digital asset custody.

With regards to operating cryptocurrency exchanges, they are required to register with the Securities Commission in order to operate, in accordance with the Guidelines on Recognized Markets, issued pursuant to the CMSA 2007. These exchanges are called Digital Asset Exchange, also known as 'DAX', which means an electronic platform which facilitates the trading of a digital asset. In this regard, there are currently four registered DAXs operating in Malaysia — Luno, Tokenize, Singey, and MX Global.

The Future of Malaysian Cryptocurrency Regulation

While the Malaysian government has expressed that cryptocurrencies are unlikely to be accepted as legal tender, there are suggestions that more flexible regulation is on the horizon.

In March 2022, deputy communications and multimedia minister Datuk Zahidi Zainul Abidin from the Ministry of Communications and Multimedia (KKMM) publicly proposed potential reforms to cryptocurrency regulation in Malaysia. Specifically, he argued that certain crypto assets could be legalized in order to help younger Malaysians participate in the financial system. Zahidi called the crypto industry the “business and financial program of the future”, and added “we hope the government can try to legalize this matter so that we can expand the participation of young people in cryptocurrencies and help them in terms of energy consumption and so on”.