The Malaysian government has embraced blockchain technology as a vital part of its financial technology (fintech) sector, creating a welcoming environment for cryptocurrency businesses. The deployment, research, and development of blockchain, along with cryptocurrency trading operations, are progressively opening up. This growth, though in a relatively new field, has been encouraging due to the government’s liberalized stance.
Back in 2018, multiple local publications reported that cryptocurrency ranked as the third most-held asset among Malay communities, right after real estate and gold. This guide provides essential insights for foreign entrepreneurs looking to establish a cryptocurrency exchange in Malaysia smoothly, efficiently, and without unnecessary delays.
Advantages of a Malaysian Cryptocurrency Exchange License
Operating any business involves risk, but with risk often comes greater reward. In Malaysia, securing a cryptocurrency license offers several distinct benefits:
- Opportunity to operate in a business-friendly environment with significant expansion potential.
- The country has taken proactive steps to enhance its fintech landscape by positively addressing the emergence of blockchain technology.
- Malaysia is one of the global locations where businesses can operate effectively without concerns over overly strict government policies.
Regulatory Body for Cryptocurrency Exchanges in Malaysia
The Securities Commission Malaysia (SC) regulates all types of digital assets under the Guidelines on Digital Assets, issued on October 28, 2020. As of the time of writing, four exchanges are approved to sell cryptocurrencies in Malaysia: Luno, SINEGY, Tokenize, and MX Global.
Requirements for a Cryptocurrency License in Malaysia
To qualify for a cryptocurrency license in Malaysia, applicants must meet the following criteria:
- A company or Limited Liability Partnership (LLP) registered in Malaysia.
- Primary business operations conducted from a physical office space, either leased or purchased, within the country.
- Paid-up capital of at least RM500,000.
- Maintenance of shareholder funds at RM500,000 consistently.
- Employment of local workers on the payroll.
- Clean criminal record for all shareholders and founders.
- Compliance with anti-money laundering (AML) guidelines.
Key Factors to Consider When Applying
When applying for a cryptocurrency license in Malaysia, several important factors must be taken into account:
Submission of Investment Documentation:
- Investment documents must provide detailed information about the nature of the investment and its intended outcomes. This step is crucial not only for regulatory compliance but also for gaining approval from local Malaysian banks.
Adherence to Transaction-Related Conditions within the Legal Framework:
- Cryptocurrency businesses primarily involve trading digital assets and converting between fiat currency and crypto. To operate legally, exchanges must meet conditions related to disclosing transaction information to clients and investors, as outlined by regulatory frameworks.
Proof of Capacity to Protect Investments:
- Demonstrating the ability to safeguard investments is essential for protecting the interests of Malaysian clients. A company must show that it has robust measures in place to secure investor funds, aligning with AML standards and global counter-terrorism financing efforts.
Ability to Meet Client Needs:
- Ensuring customer satisfaction can be more challenging than obtaining the license itself. Malaysia places high importance on protecting its residents, which is why data security and protection against cyber theft are critical considerations for regulatory approval.
Step-by-Step Procedure to Obtain a Cryptocurrency License
The process of securing a cryptocurrency license in Malaysia can be broken down into several key steps:
Step 1: Evaluate the Best Legal Structure for Your Entity
After understanding your business goals and activities, professional advisors can recommend the most suitable type of company entity for your cryptocurrency operations in Malaysia. Before registration, you will receive guidance on optimal paid-up capital, corporate structure, relevant legislation, and whether additional licenses are needed. Registering a company in Malaysia requires at least one local resident director, two shareholders of any nationality, a local registered address, and a company secretary. For those unable to meet the resident director requirement, nominee director services are available to ensure compliance.
Step 2: Register the Legal Entity in Malaysia
Upon receipt of all necessary KYC documents, company registration forms, and power of attorney, due diligence will be conducted on the company’s management and shareholders. The company is then registered through the online system of the Companies Commission of Malaysia (SSM). After completion, registration certificates, memorandum and articles of association, and other internal documents are provided.
Step 3: Prepare Documentation for the License Application
A legal team will prepare the required documents for the cryptocurrency license application, which may include a business plan, AML/CFT policies, and insurance policies, depending on local requirements. Additional information needed includes personal profiles of the applicant, company directors, and the AML/CTF officer, along with specific policies and internal controls. The AML/CTF officer should also be prepared for an interview with financial intelligence units to assess suitability. Once documents are ready, drafts are sent for review, and after confirmation, they are finalized for electronic signing and submission.
Step 4: Secure a Legal Registered Address and Meet Economic Substance Requirements
Under Malaysian law, companies must demonstrate economic substance. Assistance is available to meet these requirements, including help with recruiting locally qualified staff. Human resource teams can screen and conduct initial interviews with candidates, followed by a shortlisting process. Once candidates are selected, employment contracts are prepared based on agreed terms. Additionally, listings of physical offices in Malaysia are provided, with details on monthly rent, location, and size to aid in selection. Lease agreements are then prepared for signing between the client and landlord.
Step 5: Open a Corporate Bank Account
Support is offered to open a corporate bank account with reputable financial institutions. The minimum paid-up capital required for the license must be deposited into this account. Banks with extensive networks in Malaysia, such as Maybank, RHB Bank, and Standard Chartered, are options for account setup.
Step 6: Submit the License Application
After completing the above steps, the application is submitted to the Securities Commission Malaysia along with the required fees. If an interview with regulators is necessary before approval, preparation and follow-up assistance are provided. Upon success, the company receives the cryptocurrency license and must commence business operations within a specified timeframe to maintain the license.
Tax Implications for Cryptocurrency Businesses in Malaysia
Malaysia does not have a specific tax framework for digital businesses, and there is no capital gains tax on the sale of investments or capital assets. However, companies deriving income from frequent trading of digital assets may be subject to income tax, while digital asset exchanges are liable for corporate income tax. Although the Ministry of Finance established a Tax Reform Committee in 2018, no changes regarding digital taxation have been implemented yet.
How Long Does It Take to Get a Cryptocurrency License?
Before engagement, a project plan with a clear timeline for company registration, document preparation, and license application is provided. This ensures all parties are aware of the project schedule and milestones.
What Are the Costs Involved?
The total fee depends on the services required, ranging from assistance with registration to full license acquisition. Costs include company registration fees, license fees, and any additional expenses. Detailed discussions on total engagement fees occur before starting the process to ensure transparency. All terms and conditions are clearly outlined in an engagement letter.
License Revocation and Deregistration
The Securities Commission Malaysia may revoke a license and deregister an entity under the following circumstances:
- Submission of false or misleading information, or significant omission of details to the SC.
- Failure to meet requirements under securities laws, guidelines, or other relevant regulations.
- Cessation of registered business activities for six consecutive months.
- Breach of any obligations, conditions, or restrictions imposed by the guidelines.
- Failure to pay fees prescribed by the Securities Commission.
Frequently Asked Questions
What types of cryptocurrencies are regulated in Malaysia?
The Securities Commission Malaysia regulates digital assets that meet the criteria outlined in its guidelines, focusing on those used in investment and trading contexts.
Can a foreign-owned company apply for a cryptocurrency license in Malaysia?
Yes, foreign-owned companies can apply, but they must meet all local requirements, including having a physical office and resident director.
Is there a minimum capital requirement for maintaining the license?
Yes, companies must maintain shareholder funds of RM500,000 consistently throughout their operation.
How often must licensed exchanges renew their authorization?
Licenses are typically subject to ongoing compliance rather than annual renewal, but exchanges must adhere to regular reporting and regulatory reviews.
What are the common reasons for application rejection?
Common reasons include incomplete documentation, failure to meet capital requirements, or insufficient anti-money laundering measures.
Are there any restrictions on advertising cryptocurrency services?
Yes, advertising must comply with regulatory standards to avoid misleading claims and ensure consumer protection.
For those looking to navigate this process smoothly, it’s essential to explore more strategies for regulatory compliance and market entry. Additionally, understanding local nuances can significantly enhance your application’s success. To get advanced methods for maintaining your license and expanding your operations, continuous learning and adaptation are key.