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
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
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
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.