The growing use of technology has led to a seismic shift in traditional finance, and no country wants to be left behind

The banking industry of the future could not have been welcomed sooner once humanity was plagued by covid-19 and the plethora of daily restrictions that came with it. Consumers are now more reliant on, and demanding, digital experiences including instant and continual access to banking products, services and information.

Rodney D Cruz, Adnan Sundra & Low
Rodney D’Cruz
Partner at Adnan Sundra & Low in Kuala Lumpur
Tel: +603 2279 3288
Email: rodney.d’

At the same time, the internet of things has also experienced several advances, with cryptocurrency and blockchain technology leading the charge. In October, Malaysia’s Securities Commission (SC) announced that more than MYR16 billion (USD3.85 billion) in digital assets and cryptocurrencies were traded between August 2020 and September 2021.

Digital banking

For some time the Central Bank of Malaysia, or Bank Negara Malaysia (BNM), has been cognisant of the importance of technology-based innovations, and how entrenched these innovations have become within the financial sector in Malaysia. In 2016, the BNM introduced the financial technology (fintech) regulatory sandbox framework to enable the deployment and testing of innovations and advances in fintech in live environments, within specified parameters and timeframes.

Through the framework, the BNM aimed to facilitate the growth and development of Malaysia’s financial sector by encouraging innovation in financial services and the introduction of new business models, solutions and enhancements in customer value and experience, and improvements in the efficiency and risk management of financial institutions.

Dato' AJ Surin, Adnan Sundra & Low
Dato’ AJ Surin
Partner at Adnan Sundra & Low in Kuala Lumpur
Tel: +603 2279 3288

Building on this, the BNM subsequently issued a policy document on the licensing framework for digital banks, in December 2020. The introduction of digital banks to Malaysia was meant to facilitate sustainable growth and uplift the financial well-being of individuals and businesses but, most importantly, its core purpose is to promote and provide suitable financial solutions to the unserved and underserved segments.

Notwithstanding the importance of safeguarding the integrity and stability of the financial system and the interests of Malaysian depositors, the BNM has adopted a balanced approach to enable the admission of digital banks with strong value propositions. It introduced a simplified regulatory framework to licensed digital banks during the foundational phase of operation (a period of up to five years from its commencement of operations), where a licensed digital bank shall maintain at all times a minimum amount of capital funds of MYR100 million unimpaired by losses, and be subject to the business limitation as described in the policy document. Licensed digital banks need to demonstrate their viability and sound operations for the BNM to observe attendant risks during the foundational phase.

Following the foundational phase, the simplified regulatory framework will be abolished and licensed digital banks will be required to comply with similar laws and regulations that apply to traditional banks under the Financial Services Act, 2013; Islamic Financial Services Act, 2013; Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act, 2001; and also all policy documents that have been published by the BNM especially on standards on prudential, shariah law, business conduct and consumer protection.

As of last July, 29 applications for digital banking licences from a diverse range of applicants had been received by the BNM, ranging from banks, tech firms, fintech players, state governments and e-commerce operators. The BNM is expecting to issue up to five licences by 2022. While It may be premature now to analyse or assess how successful digital banking in the country will be, one thing the authors can be sure of is that with 7.8 million Malaysians turning 18 by 2023, as mentioned by the ex-prime minister of Malaysia back in July 2019, a whole generation who are unlikely to visit a physical bricks-and-mortar bank are ready, willing and able to embrace the usage of digital banking services.


Cryptocurrency, or digital currency, became regulated in Malaysia through the enactment of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (order 2019), where all digital currency and digital tokens meeting the criteria stipulated in the order will be prescribed as securities for the purposes of securities law in Malaysia. Nonetheless, the SC has also clarified that digital currency and digital tokens are neither legal tender nor a payment instrument regulated by the BNM.

Following order 2019, the SC has also published its 2020 Guidelines on Digital Assets, which came into force on 28 October 2020, setting out the requirements relating to fundraising activity through digital token offerings, operationalisation of initial exchange offering platforms, and the provision of services for the safekeeping, storing, holding or maintaining custody of digital assets for the account of another person. The 2020 guidelines confer regulatory flexibility by allowing the SC to grant exemptions varying the requirements of the guidelines upon application.

In January, the SC amended its 2015 Guidelines on Recognised Markets to introduce new requirements for electronic platforms that facilitate the trading of digital assets. Based on the SC’s website updated on 7 October, four recognised market operators are currently allowed to operate as digital asset exchanges in Malaysia.

It should be noted that digital asset exchanges were previously subjected to the Anti-Money Laundering and Counter Financing of Terrorism – Digital Currencies (Sector 6) Guide, issued by the BNM in February 2018. However, given the amendments made to the 2015 guidelines, digital asset exchanges are currently subject to the Guidelines on Prevention of Money Laundering and Terrorism Financing for Capital Market Intermediaries, issued by the SC in 2014 and amended in April this year.

Besides prescribing digital assets as securities for the purpose of securities law and issuing guidelines governing initial coin offerings, other aspects have to be considered, principally the treatment of holding cryptocurrencies for taxation purposes. The current tax system in Malaysia does not have a specific regime to deal with digital businesses.

Recognising the need to revamp the Malaysian tax system, the Ministry of Finance formed a tax reform committee in September 2018. Among the main objectives of this committee are to reduce the existing tax gap, address tax leakage, explore new sources of revenue, study the taxation of the digital economy, and review the effectiveness of various tax incentives as provided by the laws. The government has been studying the mechanism to implement taxation on digital economy businesses that have recorded billions of ringgit in profit and announced that a new law would be introduced for licensing online gaming to collect tax.

Another important aspect is the legal status, specifically whether cryptocurrencies are treated as property. This is a fundamental legal consideration because a property can be owned and granted proprietary rights that are enforceable against the world. The adoption of English common law has been long practised by Malaysian courts by virtue of section 3 of the Civil Law Act, 1956.

Therefore, it will be useful to discuss the approach adopted by English courts. The Malaysian judiciary had, in October 2018, heard a case related to cryptocurrency.

The court held that although the cryptocurrency is not legal tender in the country, cryptocurrency trading is not illegal. Most importantly, the court classified cryptocurrency as a commodity, since fiat currency was used to purchase the cryptocurrency and there is a value attached to the cryptocurrencies in the same way as value is attached to shares. Nevertheless, digital asset investors should be mindful that, as of 5 October, none of the digital asset exchanges operating in Malaysia was a member of the Securities Industry Dispute Resolution Centre (Sidrec), a body approved by the SC to handle capital market-related disputes between investors and its members.

A member is obliged to participate in the Sidrec’s dispute resolution service if the dispute fulfils the criteria under the mandatory scheme. First, the dispute has to be against a Sidrec member, and the claimant is an individual investor or sole proprietor. Second, the dispute must involve a capital market product or service purchased from or offered by a Sidrec member. Finally, the monetary claim must not exceed MYR250,000. Investors should also be mindful that there is no available consumer protection and recourse to the dispute resolution framework for cryptocurrencies, as opposed to conventional securities.

The introduction of a regulatory framework governing digital assets has received a positive response from market participants, signifying the acceptance of cryptocurrencies in Malaysia. Nonetheless, investors in general, and retail investors in particular, should exercise caution when deciding to invest in cryptocurrencies regarding their volatile nature and the complications of recourse available to investors should their objectives not be met.

Adnan SUndra & Low

Adnan Sundra & Low
Level 25, Menara Etiqa, No. 3
Jalan Bangsar Utama 1
Kuala Lumpur – 59000, Malaysia
Tel: +603 2279 3288