PETALING JAYA: Bank Negara 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 yesterday, the central bank emphasised that while digital currencies are not legal tender in Malaysia, it wanted to increase the transparency of digital currency activities in the country.
Bank Negara highlighted that 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 currencies are not legal tender in Malaysia”.
Its document, entitled Anti-Money Laundering and Counter Financing of Terrorism Policy (AML/CFT) 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.
The central bank pointed out that 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.”
Bank Negara 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 the First Schedule of the AMLA.
Bank Negara also said that reporting institutions were required to perform enhanced customer due diligence (CDD) or verification of a customer’s identity in line with AML/CFT.
“However, such methods must satisfy the requirement under Section 9.3.3, which stipulates that the process has to be as effective as that of a face-to-face process.”
Reporting institutions can view identification documents physically or via electronic means, as long as the institutions can reasonably determine its authenticity.
The central bank added that financial institutions are expected to take a risk-based approach and conduct proper know-your-customer/CDD processes in deciding whether to establish banking relationships with a digital currency exchanger.
It said the AML/CFT policies for reporting institutions are applicable to any persons providing services related to digital currencies as defined in Section 4.1 of the policy document
“Other than obligations imposed in the policy document, the bank does not regulate, license or authorise digital currency activities or services linked to such activities.”
In practice, Bank Negara said digital currency exchangers may be subjected to an enhanced due diligence process based on assessments by financial institutions of heightened money laundering and terrorist financing risks.
The central bank also said it expects persons, whether local or foreign, to be incorporated or registered under the Companies Act 2016 if they are carrying on or intending to carry on the activities listed in Paragraph 4.1 of the policy in Malaysia.