Public Consultation on Cryptocurrency Exchange Framework
The Securities Commission of Malaysia (SC) has initiated a public consultation regarding a new framework that may enable cryptocurrency exchanges to list select digital assets without necessitating prior approval from the regulatory body. This proposal seeks to streamline the listing process, which could facilitate quicker market entry for digital assets while ensuring that exchanges maintain a level of accountability in their operations.
Proposed Guidelines for Digital Asset Listing
Under the proposed guidelines, exchanges will be responsible for the assets they choose to list. To be eligible for inclusion, digital currencies must:
- Pass security audits that yield results made public.
- Have a trading history of at least one year on platforms that adhere to standards set by the Financial Action Task Force (FATF).
Additionally, the SC is soliciting feedback on the potential inclusion of specific high-risk digital assets, such as privacy-focused coins like Monero (XMR), known for their strong privacy protection, which could be exploited for illicit uses, posing additional challenges concerning money laundering and terrorism financing.
Asset Categories and Risks
The consultation also delves into various asset categories, including:
- Memecoins, which often exhibit significant price volatility tied to social media trends.
- Stablecoins and tokenized assets.
- Exchange tokens, which may raise concerns over potential conflicts of interest.
- Low-demand assets, such as emerging utility tokens, which generally come with a heightened risk profile.
Updates to Governance and Custody Regulations
In addition to market listings, the SC is advocating for updates to governance and custody regulations to ensure better safeguarding of client assets. Proposed amendments would introduce:
- Stricter rules for digital exchange operators, including the requirement for user assets to be segregated.
- New minimum financial standards to protect against loss or misuse.
- Robust policies for protecting user funds and enhancing processes for repayment in case of an exchange’s insolvency.
Moreover, exchanges would need to designate a senior management official based in Malaysia to oversee digital wallet operations to reduce asset theft or mismanagement risks. Finally, custodianship of user assets would necessitate registering either as digital asset custodians or collaborating with SC-licensed custodians to deliver these essential services.
