Bank Negara keeps tight rein on digital currencies with policy paper

Bitcoins sit among twisted copper wiring inside a communications room at an office in this arranged photograph in London, U.K., on Tuesday, Sept. 5, 2017.

KUALA LUMPUR: Bank Negara Malaysia is keeping a tight rein on digital currencies such as bitcoin with effective measures against money laundering and terrorism financing risks.

In its policy statement issued on Tuesday, it emphasised that while digital curencies are not legal tender in Malaysia, it wanted to increase the transparency of digital currency activities in the country.

Bank Negara highlighted the reporting obligations on the digital currency business “are not an authorisation, licensing, endorsement or validation by the bank of digital currency exchange services, and that digital curencies are not legal tender in Malaysia”.

Its document, entitled Anti-Money Laundering and Counter Financing of Terrorism Policy for Digital Currencies (Sector 6), incorporated the feedback received during public consultation on the exposure draft released on Dec 14, 2017.

It received feedback from representatives of existing digital currency exchangers, industry associations, law firms, financial institutions, academia as well as interested individuals.

Bank Negara pointed out digital currency businesses are not covered by prudential and market conduct standards or arrangements that are applicable to financial institutions which it regulates.

"Members of the public are advised to carefully evaluate the risks associated with dealings in digital currencies."

BNM advised any persons involved in digital currencies to refer to the policy to determine its applicability and comply accordingly. 

"Persons covered under the policy as reporting institutions are expected to comply with the provisions of the Companies Act 2016 including the requirement to be incorporated or registered."

According to the policy document any person offering services to exchange digital currencies either from or to fiat money, or from or to another digital currency” is subject to obligations under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) as a reporting institution pursuant to First Schedule of the AMLA. 

Bank Negara also said reporting institutions were required to perform enhanced customer due diligence (CDD) where the ML/TF risks are assessed as higher risk. 

(a) obtaining CDD information; 

(b) obtaining additional information on the customer and beneficial owner (e.g. volume of assets and other information from public database); 

inquiring on the source of wealth or source of funds. In the case of PEPs, both sources must be obtained; and

(d) obtaining approval from the Senior Management of the reporting institution before establishing (or continuing, for existing customers) such business relationship with the customer. In the case of PEPs, Senior Management refers to Senior Management at the head office.

Bank Negara also said reporting institutions may also consider the following enhanced CDD measures in line with the ML/TF risks identified:

(a) obtaining additional information on the intended level and nature of the business relationship with the reporting institutions;

(b) updating more regularly the identification data of customer and beneficial owner; and

(c) inquiring on the reasons for intended or performed transactions.