SC warns of unauthorised ICOs, digital asset exchanges

This article first appeared in The Edge Financial Daily, on July 5, 2019.
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KUALA LUMPUR: The Securities Commission Malaysia (SC) warns the public to be wary of any persons offering initial coin offerings (ICOs), saying it has not authorised any ICOs pending the finalisation of its guidelines.

It also cautioned investors to be careful when considering to buy or sell digital assets through trading platforms, as even though a platform may call itself an “exchange”, that does not mean it has been authorised by the SC.

In a statement yesterday, it said there had been an increase in the number of queries and complaints from the public regarding ICOs and digital asset exchanges (DAXs).

“Any offering of digital assets as well as its associated activities such as marketing or inducing others to subscribe to an ICO will require authorisation from the SC,” it said.

This is stipulated in the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (Prescription Order), which came into force on Jan 15, 2019, the SC said.

At the same time, it reminded investors to be mindful of the potential risks associated with ICO schemes, notably:

  1. an ICO issuer not having a physical presence in Malaysia would make it difficult to verify the authenticity of the ICO. Further, the recovery of invested monies may also be subject to foreign laws or regulations;
  2. the involvement of unauthorised individuals heightens the risk and exposure to fraud, money laundering and terrorism financing
  3. the ICO may be structured in such a way as to limit the legal protection and recourse for the investors against an ICO issuer; and
  4. cybersecurity risks including hacking and stealing of online personal information.

 

Only three DAX operators registered; no others allowed

As for DAXs, the SC said it had only registered three recognised market operators (RMOs) to establish and operate DAXs in Malaysia.

“These three DAX operators, namely Luno Malaysia Sdn Bhd, SINEGY Technologies (M) Sdn Bhd, Tokenize Technology (M) Sdn Bhd, have been given nine months to fully comply with all regulatory requirements.

“Apart from the three operators mentioned above, no other online platforms are permitted to establish and operate a DAX in Malaysia currently. As such, all other DAX operators are required to immediately cease all activities related to the trading of digital assets and return all monies and assets collected from investors. This also applies to operators who were under the SC’s initial transitional period list,” it added.

The SC further warned that operating a DAX or launching or marketing an ICO without its authorisation is an offence under securities laws. “Persons in breach may be liable to a fine or imprisonment term not exceeding 10 years or both,” the SC added.

To verify if a digital asset operator is registered with the SC, go to: https://www.sc.com.my/development/digital/digitalassets.