Crypto Regulations in Malaysia 2024

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Malaysia, a country in Southeast Asia with 32 million people and an area of 330 kilometers, is a diverse nation comprising various ethnicities and religions. While half the population is Malaysian, the rest come from different parts of the world. Its economy is robust, growing quickly, and highly competitive, making it appealing for foreign investors.

Regarding Bitcoin, Malaysia lacks specific regulations from the government. Bitcoin mining and trading are permitted without restrictions. However, the Central Bank of Malaysia clarified that Bitcoin isn’t recognized as legal tender. Users are cautioned about potential risks like fraud and operational hazards.

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Malaysia Crypto Regulations 2024

Bursa Malaysia has rejected the idea of including cryptocurrency on its multi-asset exchange. The chief executive officer, Datuk Muhamad Umar, stated that they considered offering cryptocurrency, along with exchange-traded funds (ETFs), but decided against it because it didn’t align with their objectives.

Government on Cryptocurrency

In Malaysia, digital assets aren’t seen as legal tender but are classified as securities. The country actively working on establishing clear rules for digital assets and their providers. According to Malaysia’s Prescription Order 2019, digital assets are divided into two groups:

1. Digital currency: This is a digital representation of value, recorded on a digital ledger, and can be used for exchange, similar to money.
2. Digital tokens: These are also digital representations recorded on a digital ledger, and they can represent various things.

The document also outlines when digital currencies and tokens are seen as securities.

Companies wanting to operate in Malaysia must specify if they deal with digital tokens or currencies. Depending on this, they are categorized into:

1. Recognized Market Operator for Digital Asset Exchanges (RMO-DAX): These are online platforms facilitating the trading of digital assets.
2. Digital Asset Custodian (DAC): They offer storage services for digital assets, ensuring the safety of investors’ assets.
3. Initial Exchanges Offering (IEO): This is a fundraising method for innovative businesses using digital tokens.

The Malaysian Central Bank has announced new rules for cryptocurrency exchanges regarding anti-money laundering and counter-financing of terrorism policies for virtual currencies. These rules apply to crypto activities such as exchanging digital currency for money, money for digital currency, or exchanging digital currency among others, including exchanges outside the country.

Cryptocurrencies are not considered ‘legal’ in the country, but this doesn’t mean they’re illegal. However, in January 2020, the Malaysian Government clarified that cryptocurrencies would not be banned but regulated. The Finance Minister of Malaysia, Johari Abdul Ghani, stated,

“No plans to ban cryptocurrencies in Malaysia since doing so would curb creativity and innovation in the financial sector.”

According to officials, the government is in the process of easing regulations while ensuring corporate access to future business opportunities. The governor of the Malaysian Central Bank, Muhammad Ibrahim, advocates for a more transparent process in the crypto business, emphasizing transparency in methods and people involved. 

Licensing Requirements for Exchanges

Malaysia’s Securities Commission (SC) has now framed more strict and direct regulations on cryptocurrencies. The regulation classifies digital currencies, tokens, and crypto-assets as Securities placing them under the Securities Commission’s authority.

The exchanges are required to apply for a license from the regulator to operate in the country. The exchange will be granted a license only in compliance with the regulatory rules. The exchange needs to:-

• Submit investment documentation of $1.2 million paid-up capital to the Central Bank of Malaysia (Bank Negara) for approval.
• Record and maintain the details of the participants and the transactions within the regulatory framework.
• Comply with the AML-CTF rules and also the approach applied to ensure the monetary safety of the customers.
• A work plan to collect data about their customers, their activities, etc.

The exchanges which fail to comply with the above requirements will not be issued a license and the exchanges which are operational will be subjected to closure.

Malaysian Laws require local exchanges to register with the SC and later comply with the license requirements mentioned above. They will be provided 9 months time to do so.

Crypto Taxation in Malaysia

Malaysia does not consider cryptocurrency as a capital asset, and the government of Malaysia does not accept crypto as a legal tender hence cryptocurrency in Malaysia is tax-free. The IRBM Inland Revenue Board of Malaysia has not yet issued any definitive guidelines on cryptocurrency transactions to tax. IRB has however cited section 3 of the Income Tax Act 1967(“ITA”) and can be applied on active cryptocurrency traders.  

The Inland Revenue Board of Malaysia (IRBM), also known as Lembaga Hasil Dalam Negeri (LHDN), collects money for the government. It operates under the Ministry of Finance (MOF), which manages government spending and revenue. LHDN has shared a list of specific transactions or circumstances to clarify the tax treatment for each.

Taxable crypto transactions (business/trading transactions)

Non-taxable crypto transactions (non-business/trading transactions)

Historical Events & Announcements

11-10-2023 : Hata granted approval as fifth Malaysian digital exchange.

Malaysia-based Hata receives in-principle approval from Securities Commission Malaysia (SC) to register as Recognized Market Operator (RMO) for digital asset exchange and broker. Approval enables Hata to launch services in six to nine months.

22-05-2023: Huobi Global instructed to cease operations in Malaysia

Huobi Global ordered to cease Malaysia operations by Securities Commission Malaysia for failing to register as a cryptocurrency exchange. Directed to disable website and mobile apps on Apple Store and Google Play.

28-03-2022: Malaysia Announces the country will not accept Bitcoin as legal tender.

Malaysian Deputy Finance Minister blamed the price volatility and Bitcoin’s susceptibility to cyber-attacks as the main reasons behind its unsuitability as a legal tender. The deputy minister explains further that cryptocurrencies like Bitcoin are not suitable for use as payment due to various limitations.

21-03-2022: The communications ministry of the country suggests considering cryptocurrency as legal tender “to assist the younger generation, who are frequent users of the currency, particularly on non-fungible token (NFT) trading platforms.”

28-12-2021: Malaysia’s Security commission announced more than MYR16 billion (USD3.85 billion) in digital assets and cryptocurrencies traded between August 2020 and 2021 of September. The Internet has also experienced several advances with crypto and blockchain technology leading at the same time. 

04-04-2020:– Malaysia based cryptocurrency platform, Tokenize Malaysia obtained the license from the regulatory bodies to operate legally in Malaysia.

28-03-2020:– Binance announced its own debit card and also said the initial testing will be carried out in Malaysia.

19-01-2020:- The Securities Commission Malaysia publishes guidelines on digital assets.

17-01-2020:- Malaysian Securities Commission published a regulatory framework declaring the Initial Coin Offerings(ICOs) as illegal and the Initial Exchange Offerings (IEOs) as the only legal means of conducting the token sales.

23-12-2019:- At a summit attended by the Muslim Countries, the Iranian president proposed in the creation of a Muslim Cryptocurrency to cut the dependence on the US Dollar. Malaysian Prime Minister Mahathir Mohamad is open to the idea of a unified Muslim Cryptocurrency.

06-11-2019:- Major bank HSBC has announced the enactment of a letter of credit (LC) on blockchain in Malaysia.

15-01-2019:- Malaysian’s Securities Commission announced new digital currency and digital token regulatory rules. The SC also mentioned working with the Central Bank to develop a regulatory framework for digital assets.

22-03-2018:- According to a report Published, by the deputy Governor of the Central Bank of Malaysia, Jessica Chew Cheng Lian in a speech discussed the country’s desire to implement the Fintech and Blockchain technologies in the banking sector. She also said, nine banks have collaborated to develop blockchain applications for trade finance.

06-11-2017:– The Chairman of the Securities Commission at a finance conference said that the commission is working closely with the Central bank, Bank Negara Malaysia to work on the regulations and guidelines on digital assets and cryptocurrencies. The chairman also said that they are working on a pilot program to research distributed ledger technology.

02-01-2014:- Central Bank of Malaysia announced that cryptocurrencies are not recognized as a legal tender and it does not regulate their operations. It also cautioned the public about the risks involved in dealing with cryptocurrencies.

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Conclusion

After the financial crisis of the Covid pandemic, which led to losses in monetary reserves, people started seeking secure replacements for cryptocurrencies as alternatives. Over the last fourteen years, cryptocurrencies have consciously grown in value and recognition as digital currency.

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The Malaysian Government has a positive approach to cryptocurrency and its business in the country. Malaysia is actively working on establishing a comprehensive regulatory framework for the crypto industry. As the landscape evolves, businesses must stay informed and compliant to thrive in this sector. The future of cryptocurrencies in the country would be brighter when firm regulations and laws are implemented.