The Securities Commission (SC) on 15 Jan 2020 published a set of guidelines for issuing digital assets (cryptocurrencies, digital currencies and digital tokens). These guidelines set out the requirements for an issuer seeking to raise fund through initial coin offering (ICO) or digital token offering.
By issuing these guidelines, the Securities Commission is setting the stage for more robust and comprehensive governance of Malaysia’s cryptocurrency landscape. There is also greater clarity now for businesses wishing to raise funds through digital token offering or ICO.
In summary, the pertinent requirements include:
a. The issuer must be a non-listed company incorporated in Malaysia, with at least RM500,000 paid up capital. A Sdn Bhd or subsidiary of a listed entity would qualify.
b. The Board of Directors and senior management staff must in aggregate hold a minimum of 50% shares in company at the time of issuance, and must not dispose more than 50% of these shares during the moratorium period (from the issuance date until completion of the underlying project for which the digital assets were issued). This is to ensure continuous management support throughout the project.
c. Similar to prospectus for IPOs, issuers have to prepare a whitepaper that contains, amongst others, key characteristics of the digital asset, the business plan of the issuer and information on how the proceeds raised will be utilised.
d. Issuer is only permitted to raise up to 20 times its shareholders’ fund in any 12 months period, subjected to a ceiling of RM100 million.
e. The digital tokens issued by an issuer must be fully subscribed, with no permitted over-subscription of such digital tokens, to be effective. Failing which, the money must be returned to subscribers/investors within 14 days.
f. A person may invest in digital token offerings subject to the following limits:
i. For sophisticated investors: no restriction on investment amount;
ii. For angel investors: a maximum of RM500,000 within a 12-month period; and
iii. For retail investors: a maximum of RM2,000 per issuer with a total investment limit not exceeding RM20,000 within a 12-month period.
g. The Securities Commission may impose or vary terms, or issue direction that may affect the issuer, to ensure fair and orderly markets, and to protect public and investors interest.
Please note that these guidelines of SC do not, however, cover implications for other regulators such as the Inland Revenue Board (tax department) and Companies Commission of Malaysia (CCM). As such, anyone embarking on issuing digital assets will have to refer to the published laws by those respective regulators on top of these guidelines issued by SC.
These guidelines issued by Securities Commission are noteworthy as issuance of digital tokens and cryptocurrencies have rapidly proliferated and gaining interest among the digital-first startups and entrepreneurs who are looking for other expedient ways to raise funds for their business.
While innovation has been quickly accelerating, governments around the world have been struggling to keep up. With these guidelines and more to come (hopefully), there will be more legal certainty in the space. And this would certainly help to attract more startups, fintech companies and exchanges to Malaysia.
Please come and speak to us if you are keen to tap into this new way of raising funds for your business.