The surge in the price of bitcoin in 2017 that led to an all-time high of $20,000 left many financial regulators very worried about the future of money and the role they play in it.
As millions of people rushed to embrace the promise of financial freedom, regulators in countries like Nigeria and Kenya were issuing stay-away orders to investors.
In Malaysia, authorities were also getting worried, but rather than press the hard buttons to assert control, they instead took a soft approach. In 2017, the Malaysian government began a series of engagements with the 11 cryptocurrency exchanges in the country that culminated in a resolution to place a check and balance system on the cryptocurrency market.
To ensure full compliance, the government gave exchanges a one-year period – ending February 2018 – within which it expected them to get ready for a roll-out of a regulatory policy. The new policy required digital currency exchanges to implement measures against money laundering and terrorism financing activities. This includes transaction monitoring, reports on any suspicious transactions, and monthly reports to Bank Negara Malaysia (BNM).
“At Luno, we have a very strong compliance policy and culture that was established from the inception of our company. Hence, when the BNM reporting policy was announced, we were one of the first to register with them as a reporting institution,” David Low, General Manager of Southeast Asia, Luno.
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In January, the Securities Commission Malaysia (SC) following in the footsteps of BNM issued the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, which defined the characteristics of “digital currency” and “digital tokens”. The SC prescribed digital tokens as securities for the purposes of Malaysia’s securities law.
According to the SC, a digital asset qualifies as securities when it is used as payment to purchase goods, services, or other digital assets and is traded on a digital asset platform; and a person who trades such currency on the platform expects to benefit from a return or appreciation in the value of the digital currency.
The policy also provided that any person or entity intending to operate cryptocurrencies exchange will be required to be registered with the SC as a recognised market operator and comply with a list of criteria that include being locally incorporated as well as having a minimum paid-up capital. Where a cryptocurrencies exchange operator is a public company, at least one member of the board must be an independent director and the exchange must have in place policies and procedures to manage conflict of interest.
The commission subsequently issued amendments to its recognised market guidelines, which came to include a framework for operators of digital assets platforms to be approved by the SC as recognised market operators.
Three exchanges went on to be approved Tokenize Technology, Sinegy Technologies, and Luno who has a strong presence in Nigeria and which was the first of the three to get licensed.
“Any attempt to restrict access to cryptocurrency does not protect Nigerians. It holds them back and leaves them vulnerable,” Luno said in a statement it released recently addressing the prohibition of cryptocurrency exchanges in Nigeria from transacting with financial institutions.
“Blanket bans push people “underground” (i.e. trading via WhatsApp or Telegram groups, for example). This makes activity involving transparency less transparent and means financial bodies have less visibility of what’s going on,” the exchange said.
The regulatory approach in Malaysia hasn’t entirely stopped transactions happening outside unregulated exchanges. Experts say at least half of the total monthly cryptocurrency trading volume in Malaysia takes place outside regulated exchanges.
Nonetheless, the three licenced exchanges have been able to bring in more investors onto their platforms, which means more people’s protection and more revenue for the government. The confidence from knowing that the government has taken a proactive measure is also expected to attract more investors into the country which will impact other sectors of the country’s economy.
Luno said it is willing to work with the government to resolve the issues it raised that informed the prohibition directive but it warns that the more the situation is allowed to prolong the more people risk becoming victims of scammers.
“Other companies have made the choice to find a workaround that is less visible for regulators, while customers have also switched to Over the Counter (OTC) methods which leaves them susceptible to scammers,” Luno said.
