Malaysia Eases Crypto Listing Rules to Boost Market Growth

Malaysia’s Securities Commission (SC) has proposed enhancements to its Digital Asset Exchanges (DAX) regulatory framework, aiming to streamline the process for crypto exchanges to list certain digital assets without prior approval from the regulator. This move is designed to accelerate the time-to-market for new digital assets, increase the accountability of DAX operators, and broaden the range of products available to investors.

The current DAX framework, introduced in 2019, has played a crucial role in regulating the digital assets industry while fostering steady growth. The framework has provided appropriate safeguards, helping Malaysia avoid major crypto-related scandals and collapses, such as those involving Terra Luna and FTX. However, the growing interest in digital asset investment from both retail and institutional investors has necessitated a revision of the framework.

Under the proposed amendments, certain digital assets could be listed on DAXs autonomously as long as they meet minimum criteria. These criteria include the asset's underlying protocol having undergone security audits and the asset having traded for at least one year on a Financial Action Task Force (FATF)-compliant Virtual Asset Service Provider (VASP). The new framework places full accountability on DAX operators for the assets they list, ensuring that only assets meeting the required standards are made available to investors.

In addition to easing crypto listing requirements, the amendments also propose stricter asset safeguards. The SC suggests that at least 90% of investors’ digital assets should be held in offline wallets, with the remainder in hot wallets that must be fully collateralized. This measure aims to enhance the security of digital assets and protect investors from potential losses.

The SC is currently seeking feedback on these proposed amendments until August 11 to gather views from investors and the public on the changes. The consultation period is open to industry stakeholders, who are encouraged to provide input to refine the regulatory framework further. The proposed changes aim to create a more robust and efficient regulatory environment for digital asset exchanges, fostering innovation while ensuring investor protection.

The SC is also considering the inclusion of higher-risk assets, such as privacy coins like Monero, which feature heightened privacy and may appeal to individuals involved in unlawful conduct. Additionally, the regulator is seeking comments on assets intended to follow internet trends or popular culture, commonly known as memecoins, due to their heightened volatility. The SC is also considering assets with low market demand, such as nascent utility tokens, due to their higher risk.

To strengthen governance and custody rules, the SC has proposed more stringent requirements for client asset security. Digital exchange operators would be subject to new rules, including the segregation of user assets. Crypto exchanges would also need to meet new minimum financial criteria, including policies and procedures to mitigate the risk of loss or misuse of user funds and to facilitate repayment in the event of insolvency. Under the new rules, those institutions would also be required to identify a senior management member residing in Malaysia to be responsible for the administration of the wallets. Finally, crypto exchanges that custody user assets would be required to register as digital asset custodians or to engage a custodian registered with the SC to provide its services.