Malaysia seeks to rein in digital currencies
IN THE FIRST notable move to regulate the world of cryptocurrencies in Malaysia, the country’s central bank says it will deem all parties acting as exchanges as “reporting institutions”, requiring them to provide detailed information on buyers and sellers of such currencies.
Bank Negara governor Muhammad Ibrahim also noted the possibility of digital currencies becoming the “new norm” and that the central bank “cannot be oblivious to these developments”.
The measure is to come into effect next year.
Going by some websites, there are up to 11 cryptocurrency exchanges in Malaysia, the most notable of which are Luno and CoinHako.
Cryptocurrency exchanges are websites where you can buy, sell or exchange cryptocurrencies for other digital currency or traditional currencies like the US dollar or the ringgit.
While there is no conclusive proof that money laundering and terrorism financing goes through the trading of cryptocurrencies, some reports indicate that these rogue parties are showing an increasing interest in cryptocurrencies.
“Beginning in 2018, Bank Negara will designate persons converting cryptocurrencies into fiat-money currencies as reporting institutions under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act (Amla) 2001,” Muhammad said.
“This is to prevent the abuse of the system for criminal and unlawful activities and ensuring the stability and integrity of the financial system,” he noted at the Third Counter-Terrorism Financing Summit 2017 in Kuala Lumpur on Wednesday.
Malaysia’s move is in step with what Australia, China and Japan had recently done, although countries like Japan are issuing licences for exchanges as well.
Conduit for money
Under Amla, all reporting institutions will be required to undertake preventive measures to prevent their institutions from being used as a conduit for money laundering and terrorism financing activities.
These preventive measures would include conducting risk assessment; application of customer due diligence; submission of suspicious transaction report (STR) and cash threshold report; and maintenance and retention of records of transactions.
According to Muhammad, the role of the financial sector as a bulwark against terrorists financing has become even more critical, given the rise of financial technology (fintech), which posted global investments totalling US$25 billion last year, compared with US$9 billion in 2010.
“If this trend is anything to go by, then the financial industry will be hard-pressed to mitigate, identify and prevent cases of abuse in the system,” he said.
“We need to prepare ourselves, as according to many pundits, digital currencies will become the new norm.
“The advent of digital currencies as some have forecast, will mark the beginning of a new era in the financial sector. As authorities, we cannot be oblivious to these developments.”Industry players in fintech welcome the move as a means to ensure that the technological developments in cryptocurrencies and its underlying blockchain technology are not hampered.
