On 26 September 2018, the firm’s team attended The Southeast Asia’s International Blockchain or better known as BLOCFEST. The two days’ event was held at Shangri-La Hotel, Kuala Lumpur. The firm’s founding partner, Siti Zurina Sabarudin was invited to present her experience on recent blockchain regulations titled ‘The Evolution of Blockchain Regulations: The Malaysian Perspectives’.
For a copy of the slides, please click the link below for a copy.
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In the beginning of her presentation, Siti Zurina highlighted the significant developments in the last three years by notable regulators namely Securities Commission (SC) and the Bank Negara Malaysia (BNM). For instance, the BNM started The Financial Technology Enabler Group (FTEG) was a good step and aimed towards promoting fintech startups to participate in a regulatory sandbox within the BNM’s framework. Similarly, the SC has been active in issuing notices to the public on any initial coin offerings advising the public to exercise caution or restraint before deciding to invest.
The first challenge discussed is on the BNM’s approach in addressing the rise of digital currency exchanges. Earlier in February this year, the BNM had published a guidelines for digital currencies aimed towards cryptocurrency exchanges with the aim to reduce anti money laundering risks by ensuring such firms to be recognised as reporting institutions similar to other entities such as banks and money changers. This by no means that digital currencies has been recognised as legal tender in Malaysia.
However, there is a certain optimism in the BNM’s approach toward regulation and its progressiveness. In other words, the approach taken by BNM and SC is not restrictive by simply banning ICOs unlike certain jurisdictions such as China.
Another legal issue discussed is on data protection and privacy. In summary, blockchain service providers (ie operators or owners of such platforms) should distinguish whether the blockchain is to be made public or private. Private blockchain may seem to be more suited towards financial institution and government agencies. In such scheme, service level agreements will bind the service operator and participants. Also, it is important to note that laws are territorial in nature, and therefore, the regulator may need to consider whether present laws may need to be revised in order to have an extraterritorial effect to tackle the open nature of blockchain technologies such as platforms based in cloud servers which may be located outside the jurisdiction. A case in point is the recent introduction of European Union’s General Data Protection Regulation (GDPR) which may extend to entities which may not operate within the EU’s territories.
The final matter discussed is on initial coin offerings. In a case study published in ‘A Guide to Digital Tokens Offering’ by the Singapore’s Monetary Authority of Singapore (MAS), it appears that the legal position taken by the MAS may be similar in Malaysia. Essentially, digital token may fall under the definition of ‘securities’ under the Capital Markets and Services Act 2007. In other words, compliance with obtaining approval from Securities Commission (SC) and disclosure requirements to SC, are required.
After the presentation, Siti Zurina Sabarudin also participated as one of the panelists for the panel discussion, entitled “How Can Regulators Share Learnings in the Region, and not in Silos?”. The panel comprised Abdul Fattah Yatim (Chairman, Malaysia’s National Standards Technical Committee on Blockchain and Distributed Ledger Technologies), Cris D. Tran (Country Head, Infinity Blockchain Ventures (IBV) Malaysia / Director, QRC Group) and Luis Buenaventura (Founder, Bloom / Creator, Cryptopop). The moderator of the panel was Floyd D’Costa (Co-Founder, Black Armour, Blockchainworx SG).
If you wish to watch the recorded video of the panel discussion, please visit our Facebook’s page by clicking on the link below.
One of the main issues raised during the discussion is on the approaches taken by different regulators in Southeast Asia particularly in the Philippines, Malaysia and Singapore respectively. The panelists discussed that some regulators have been progressive in adopting friendly regulations such as the Philippines, Gibraltar and Singapore in embracing blockchain technologies. To illustrate, Philippines’s Securities and Exchange Commission (SEC) had approved a draft rules for initial coin offerings (ICO) which covers the minimum standards required in an ICO. Sometime in July this year, Gibraltar launched The Gibraltar Blockchain Exchange which aims to position itself as a leading token sale platform and other digital assets exchange. Singapore on the other hand, through its Monetary Authority of Singapore (MAS), had published ‘A Guide to Digital Token Offerings’ in late 2017 which seeks to elaborate upon how ICOs will be subject to Singapore’s securities laws.
A major conclusion made during the discussion is the importance for regulators to ‘step up’ in their current review of the existing regulatory framework in light of the evolution of new technologies. Certain areas found to be inconsistent or incompatible may need to be addressed. This certainly requires various collaboration between the regulators and other ecosystem players in the industry to ensure that Malaysia remains a choice of jurisdiction that is progressive in welcoming new innovations.
For more information about the regulatory framework on blockchain technologies and initial coin offerings in Malaysia, please contact our law firm at +03-76245215, or e-mail at email@example.com.