Making digital currency activities transparent

Exposure draft on reporting obligations for exchange businesses

PETALING JAYA: Bank Negara has issued an exposure draft on the reporting obligations for digital currency exchange businesses under the Anti-Money Laundering, AntiTerrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA).

The central bank said this was aimed at ensuring that effective measures were in place against money laundering or terrorism financing risks associated with the use of digital currencies, as well as to increase the transparency of digital currency activities in the country.

The proposed policy, it said, set out the legal obligations, requirements and standards that digital currency exchangers, which will be defined under the First Schedule of the AMLA, must carry out as reporting institutions.

“This includes transparency obligations which are intended to provide relevant information for the public to better understand and evaluate risks associated with the use of digital currencies.

“Increased transparency will also serve to prevent the use of the digital currencies for criminal or unlawful activities,” it said in a statement.

Bank Negara added that digital currency exchangers must declare their details to the bank as a reporting institution.

Failure to declare their details or comply with the reporting obligations may subject the digital currency exchangers to enforcement and non-compliance actions as provided under the AMLA, as well as the potential termination or denial of use of financial services in the country, it said.

The central bank, however, stressed that the invocation of reporting obligations for these businesses did not connote the authorisation, licensing, endorsement or validation by Bank Negara of any such entities.

“The public is reminded that digital currencies are not legal tender in Malaysia.

“Accordingly, digital currency businesses are not covered by prudential and market conduct standards or arrangements that are applicable to financial institutions regulated by the bank,” it said.

It said this was consistent with reporting obligations currently invoked under the AMLA on other reporting institutions such as legal or accounting firms and real estate agents.

The central bank also reminded Malaysians to be cautious in evaluating the risks associated with dealings in digital currencies.

This, it said, included risks arising from high volatility in prices, the lack of deep markets and vulnerabilities to cyber attacks, which could lead to significant losses.

“Users of digital currencies will also not be covered under established disputed resolution arrangements which exist for regulated financial institutions in the event of any dispute or losses,” it said.

Bank Negara noted that the latest move was the first step towards making digital currency activities more transparent in Malaysia.

“The bank will continue to monitor and assess the risks posed to the financial system by such activities to ensure that the integrity of the financial system is not compromised,” it added.

The central bank invites written feedback on the specific requirements set out in the exposure draft. Responses must be submitted to the bank by Jan 14, 2018.

A copy of the exposure draft can be viewed at http://www.bnm.gov.my/.