Bank Negara Malaysia (Bank), Malaysia’s central bank, has issued an exposure draft proposing to extend the scope of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) to include digital currency exchanges.  In the same press release, issued on 14 December 2017, the Bank also stated that it does not intend to regulate digital currencies.

Proposed Obligations of Digital Currency Exchanges under the AMLA

The Bank aims to increase the transparency of digital currencies transactions and ensure that robust measures are put in place to mitigate the money laundering and terrorism financing (ML/TF) risks to which digital currency exchanges are exposed.

Digital currency exchanges will be regarded as reporting institutions under the AMLA.  Each digital currency exchange will have to declare its details to the Bank as a reporting institution.  Failure to do so may result in enforcement and non-compliance actions against the exchange under the AMLA and the potential termination of denial of use of financial services in Malaysia.

As a reporting institution, each digital currency exchange will have to comply with requirements relating to:

• the identification and verification of customers and beneficial owners, ongoing monitoring of customers’ transactions, sanction screening, suspicious transaction reporting and record keeping;
• transparency obligations; and
• requirements for the submission of data and statistics to the Bank for the purpose of managing ML/TF risks.

Clarification on Regulation of Digital Currencies

In its press release, the Bank clarified that it is neither regulating digital currencies nor authorising, licensing, endorsing or validating digital currency exchanges.  It also urged the public to carefully evaluate the risks associated with dealings in digital currencies, which include:

• high volatility in prices;
• lack of deep markets;
• vulnerabilities to cyber-attacks; and
• the inability to rely on established dispute resolution arrangements which only exists for regulated financial institutions in the event of any loss or disputes.

The public consultation will close on 14 January 2018.  A copy of the exposure draft can be found here.

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