Malaysia’s Ambitious Plans for Crypto Exchange Regulation Overhaul

Malaysia is embarking on a significant overhaul of its cryptocurrency exchange framework, seeking to fortify the market’s competitive standing while safeguarding investor interests. This strategy aims to align with global standards and foster a more robust digital asset ecosystem.

Public Consultation on New Regulatory Framework

The Securities Commission of Malaysia (SC) has initiated a public consultation process to gather insights on the proposed amendments to its Digital Asset Exchange (DAX) framework. This move acknowledges the burgeoning growth of Malaysia’s crypto market since the framework’s inception in 2019. Notably, the market’s trading value surged to RM13.9 billion last year, approximately $3.31 billion, marking a 2.6-fold increase compared to 2023.

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Challenges Faced by Regulated Exchanges

Regulated cryptocurrency exchanges in Malaysia have encountered stiff competition from unregulated platforms, which are often seen as more appealing due to their extensive token offerings and competitive pricing. The current regulatory framework mandates that DAXs can only list crypto assets that meet specific criteria and have been pre-approved by the SC. Additionally, the SC retains the authority to impose further conditions or directives on these exchanges.

Retail investors predominantly drive the trading of regulated digital assets, with institutional participation remaining minimal. Consequently, DAX operators play a pivotal role in facilitating responsible investment opportunities by maintaining a secure and regulated environment for both retail and institutional investors. To bolster market credibility and inspire confidence, the SC recognizes the need for a shift towards a more institution-led industry.

Strengthening the Digital Asset Ecosystem

To achieve sustainable growth in Malaysia’s digital asset market, the SC proposes reinforcing the regulatory framework for DAXs. This initiative aims to enhance market competitiveness, better address investor needs, and ensure robust investor protection, which is vital for nurturing responsible and sustainable growth within the capital market.

Key Reforms Under Consideration

The proposed reforms are designed to encourage broader investor participation and foster more dynamic interactions between DAXs and the wider Malaysian capital market ecosystem. Key changes include streamlining the listing process for crypto assets and imposing stricter governance and operational controls on DAX operators. Noteworthy adjustments include:

• Allowing digital assets that satisfy SC’s specific criteria to be listed on regulated platforms without prior approval, thus expediting the time-to-market.
• Enhancing DAX operators’ accountability and expanding product offerings by enforcing stricter operational governance and control requirements.
• Introducing new financial criteria to fortify the integrity and resilience of crypto exchanges, alongside robust investor protection mechanisms.

These reforms align with the Malaysian government’s broader strategy to enhance its competitiveness in the global market. In January, Prime Minister Datuk Seri Anwar Ibrahim highlighted efforts to modernize the nation’s financial system and embrace cryptocurrency and blockchain technology. The government aims to develop a clear regulatory framework that recognizes these digital innovations while protecting citizens’ interests.

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