PETALING JAYA: Malaysian regulators are looking to clamp down on initial coin offerings or ICOs by expanding the definition of “securities” in existing laws, according to industry sources.
The regulator is also likely to require some form of licensing for cryptocurrency exchanges to operate on Malaysian shores.
ICOs are fund raising activities by tech start up firms which sell investors digital tokens in exchange for cryptocurrencies such as bitcoin and ether.
A number of countries including the United States and Singapore have taken the stand that most ICOs would fall under their existing securities laws although it is left to be seen if promoters of ICOs could challenge that considering that ICOs are a new form of fund raising.
Cryptocurrency exchanges are online platforms where people can buy, sell or exchange cryptocurrencies for another digital currency or fiat money.
StarBizWeek reported last week that Luno, one of the more popular exchanges operating in this part of the world, said it has one million customers or wallets registered.
It revealed that Malaysians traded over 900 bitcoins on the Luna exchange last Thursday, which worked out to a total value of some RM40mil.
There are many other exchanges that Malaysians can buy and sell cryptocurrencies on.
A source says that one of these exchanges hit a trading volume of some RM500mil from Malaysian trades last year alone.
A number of governments are seeking to regulate exchanges.
This week it was reported that the UK government intended to expand anti-money-laundering rules that force traders on cryptocurrency exchanges to disclose their identities and report suspicious activity.
Japan has taken the lead in this area by requiring exchange to seek explicit approval and a licence from the Japanese Financial Services Agency. So far it has licensed 15 such exchanges.
On ICOs, the US Securities and Exchange Commission (SEC) ruled in July that some of the “coins” for sale are actually securities – and are subject to the agency’s regulation.
This is similar to the stance taken by Hong Kong and Singapore regulators.
However, the Philippines has said that it was in the process of tweaking its definitions of “securities” so that ICOs would be subject to existing laws.
Malaysia may be the first among these markets to do so, according to sources.
To date nearly US$3.6bil has been raised via hundreds of ICOs, with the large majority of that taking place in the first half of 2017.
However, commentators have voiced out that many of the ICOs are either fraudulent or at least based on untested or unsound projects.
A handful of ICOs have originated in Malaysia or are involving Malaysians with more being planned.
Last Friday, a new division of the SEC dedicated to ICOs filed its first charges, targeting a scam that reportedly raised US$15mil from thousands of investors by promising a 13-fold profit in less than a month, Forbes reported.
The unit filed a criminal complaint against the promoter who sold digital tokens known as “PlexCoins” as part of a purported plan “to increase access to cryptocurrency services” across the world.
Forbes reported that the SEC considered the token sale a “blatant rip-off”.
Last month the Securities Commission (SC) said it is working closely with Bank Negara to release a cryptocurrency framework for the country within three months.
To be noted is the fact that the SC has created a number of legalised avenues which would serve the fundraising needs of small tech firms, including equity crowdfunding, peer to peer lending and the Leading Entrepreneur Accelerator Platform Market.