Malaysian central bank issues draft policy on obligations, requirements and standards for digital currency exchanges
Bank Negara Malaysia (BNM), the central Bank of Malaysia has issued for public consultation, an exposure draft on the invocation of reporting obligations on digital currency exchange business (such as exchanges trading cryptocurrencies like Bitcoin, Ether, Ripple, Dash, etc.) as reporting institutions under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA).
BNM is inviting written feedback on the specific requirements set out in the exposure draft. Responses must be submitted to the Bank by 14 January 2018.
The policy aims to ensure that effective measures are in place against money laundering/terrorism financing (ML/TF) risks associated with the use of digital currencies and to increase the transparency of digital currencies activities in Malaysia.
The proposed policy sets out the legal obligations, requirements and standards that digital currency exchangers, to be defined under the First Schedule of the AMLA. must carry out as reporting institutions.
It includes the identification and verification of customers and beneficial owners, on-going monitoring of customers’ transactions, sanction screening, suspicious transaction reporting and record keeping. This includes requirements for the submission of data and statistics to BNM for the purpose of managing ML/TF risks and transparency obligations which are intended to provide relevant information for the public to better understand and evaluate risks associated with the use of digital currencies.
Increased transparency is expected to help prevent the use of the digital currencies for criminal or unlawful activities. A digital currency exchanger must also declare its details to the Bank as a reporting institution.
Digital currency exchangers which fail to declare details as reporting institutions or comply with the reporting obligations may be subject to the enforcement and non-compliance actions, as provided under the AMLA, as well as the potential termination or denial of use of financial services in Malaysia.
The invocation of reporting obligations on digital currency exchangers is the first step towards making digital currency activities more transparent in Malaysia. The Bank will continue to monitor and assess the risks posed to the financial system by such activities to ensure that the integrity of the financial system is not compromised.
BNM reiterates that it does not regulate digital currencies. The press release clarifies that the invocation of reporting obligations on digital currency exchange business does not in any way connote the authorisation, licensing, endorsement or validation by BNM of any entities involved in the provision of digital currency exchange services.
BNM reminds the public in the press release that digital currencies are not legal tender in Malaysia. Accordingly, digital currency businesses are not covered by prudential and market conduct standards or arrangements that are applicable to financial institutions regulated by the Bank. This is consistent with reporting obligations currently invoked under the AMLA on other reporting institutions such as legal or accounting firms and real estate agents which do not fall under the Bank’s purview.
BNM also says that members of the public are responsible for evaluating the risks associated with dealings in digital currencies. This includes risks arising from high volatility in prices, the lack of deep markets and vulnerabilities to cyber-attack which can lead to significant losses.
Users of digital currencies will also not be covered under established disputed resolution arrangements which exists for regulated financial institutions in the event of any dispute or losses.