29 April 2019
On 6 March 2019, the Securities Commission Malaysia (“SC”) issued two public consultations regarding the introduction of regulatory frameworks for initial coin offerings and property crowdfunding frameworks. Both consultations closed on 29 March 2019.
Consultation paper on initial coin offerings
The stated purpose of the consultation paper titled “Proposed Regulatory Framework for the Issuance of Digital Assets through Initial Coin Offerings” is to provide background as to the nature of digital assets, some of the risks involved in investing in such digital assets and the proposed regulatory framework for Initial Coin Offerings (“ICO”).
The SC recognises the potential use cases of blockchain and digital assets in enhancing efficiencies in the capital market including lowering post trade latency and counterparty risks, and enabling seamless regulatory reporting and compliance. Digital assets also have the potential to act as an alternative asset class for investors. As such, in line with the SC’s mandate to promote the development of the capital market, the SC seeks to develop a regulatory framework that will balance promoting innovation with ensuring proper safeguards to protect the integrity of the capital market and investors’ interest.
With the coming into force of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 on 15 January 2019 (“Order”), digital assets which meet the requirements under the Order are prescribed as securities under the securities laws. The Order provides that a digital asset must be recorded on a distributed ledger. As such, discount cards, e-money or e-payment etc. will not be considered as securities unless it is recorded on a distributed ledger and satisfies the Order’s requirements. Digital assets which display certain characteristics will be considered as securities as set out in the Order. The issuance or offering of such digital assets to the public will require prior approval or authorisation from the SC and compliance with the relevant laws and regulations. Given this, the SC issued this consultation paper with a view to obtaining feedback on the proposed requirements relating to the offering of ICOs in Malaysia.
Consultation paper on property crowdfunding
The consultation paper on “Proposed Regulatory Framework for Property Crowdfunding” states that property crowdfunding offers the same potential as that of equity crowdfunding and peer-to-peer (“P2P”) in providing an alternative source of financing for businesses but which is specifically tailored for first-time homebuyers. Property crowdfunding will enable investors, collectively as a crowd, to finance first-time homebuyers to purchase their first property. At the same time, it will enable investors to access a new type of investment product.
The SC is of the view that there is a need to balance promoting innovation with ensuring proper safeguards to protect the integrity of the scheme and investors’ interest. In this regard, the SC proposes that the current P2P financing framework may apply, with necessary amendments made. As such, similar to the current P2P financing framework, a property crowdfunding platform operator will be registered as a recognised market operator. It is envisaged that, in general, a property crowdfunding scheme would be platform operator-driven. The SC does not prescribe a specific model that should be adopted to encourage ongoing innovation within the recognised market operator (RMO) framework. The consultation paper sets out for comment several requirements that must be fulfilled by a platform operator and participants of the scheme.
The following materials are available on the SC website www.sc.com.my:
- Consultation Paper on Proposed Regulatory Framework for the Issuance of Digital Assets through Initial Coin Offerings
- Consultation Paper on Proposed Regulatory Framework for Property Crowdfunding