Digital assets and digital asset custodians in Malaysia


Traditional financial services have been heavily disrupted by digital assets and it is clear that a key element in the future growth of the financial services industry will be digital assets. The International Monetary Fund (IMF) defines digital assets as “digital representations of value, made possible by advances in cryptography and distributed ledger technology. They are denominated in their own units of account and can be transferred from peer to peer without an intermediary.. “Simply put, digital assets are assets that exist virtually, which makes them intangible, but many are increasingly linked to real-world assets.

Digital assets are recognized as securities under the Capital Markets and Services (Title Prescription) (Digital Currency and Digital Token) Ordinance 2019 (“Ordinance 2019“), for the purposes of securities laws in Malaysia if the criteria set out in Prescription Order 2019 are met. Digital assets come in many forms, but under Prescription Order 2019 digital assets are categorized into two types that are digital currency and digital token.

The term digital currency is defined in the Prescription Order 2019 as a “digital representation of value that is recorded on a distributed digital ledger, whether secured by cryptography or otherwise, which functions as a medium of exchange and is interchangeable with any currency, including credit or debit from an account. “Meanwhile, the term digital token is defined as “a digital representation that is recorded on a distributed digital ledger, whether secured by cryptography or otherwise. “As a result, all digital assets that are not recorded on a distributed digital ledger do not fall under the Limitation Order 2019. It should also be noted that, as the law currently stands, digital assets issued by the private sector are not recognized as a legal right, tender or payment instrument in Malaysia.

Under the 2019 Prescription Order, a digital currency is deemed to be a security for the purposes of securities laws if:

(a) it is traded in a place or on a facility where offers to sell, buy or exchange digital currency are regularly made or accepted;

(b) a person expects a return in any form from the trading, conversion or redemption of the Digital Currency or the appreciation in the value of the Digital Currency; and

(c) it is not issued or guaranteed by any government agency or central bank as may be specified by the Malaysian Securities Commission (“SC”), Is prescribed as a securities for the purposes of securities laws.

During this time, a digital token is considered a security for the purposes of Malaysian securities laws if:

(a) the person receives the digital token in exchange for consideration;

b) the consideration or contribution of the person and the income or income are pooled;

(c) the income or returns from the Arrangement are generated by the acquisition, holding, management or disposal of any property or assets or business activities;

(d) the person expects a return in any form from the trading, conversion or redemption of the digital token or the appreciation of the value of the digital token;

(e) the person does not have day-to-day control of the management of the property, assets or affairs of the Arrangement; and

(f) the digital token is not issued or guaranteed by any government agency or central bank as specified by the SC.

As financial market players and financial services regulators navigate and consider their respective roadmaps for digital asset adoption, in this regard, one can only anticipate the emergence of a new generation of digital asset providers. services that would be able to assist in the management of digital assets. assets.

Although there are no laws dealing specifically with “digital asset management” under the applicable law in Malaysia, the SC regulates “digital asset custodians” under the 2007 Law on Digital Assets. capital markets and services (“CMSA“), which perform similar functions to digital asset managers.

Under the SC Digital asset guidelines (“DA Guidelines“), a DAC is defined as a”person providing the custody, storage, ownership or custody of digital assets on behalf of another person.

These activities are considered as capital market services under Article 76A of the CMSA and are therefore subject to the regulatory competence of the SC. The SC may, upon satisfaction of various rigorous and rigorous criteria, register a person as a DAC.

The digital asset industry is borderless and as long as the digital ecosystem continues to show phenomenal growth, factors such as security, regulatory compliance and the overall viability of the digital custodian will continue to be a relevant consideration for businesses. participants in the digital ecosystem.