Malaysia Revamps Crypto Exchange Rules to Boost Investor Protection

Malaysia is set to revamp its regulatory framework for digital asset exchanges, with the aim of expediting token listings and bolstering investor protections. The Securities Commission (SC) of Malaysia released a consultation paper on Monday, outlining significant proposed updates to its regulations for digital asset exchanges (DAX).

Among the key changes proposed are the allowance for certain digital assets to be listed on DAX platforms without prior approval from the SC, provided they meet specific eligibility criteria. Additionally, the regulator plans to impose stricter governance and operational requirements on exchange operators. These include mandatory segregation of client assets and higher financial thresholds to ensure the stability and security of the exchanges.

The SC is seeking public feedback on these proposals from various stakeholders, including issuers, exchanges, financial institutions, and legal professionals. The consultation period is scheduled to run from June 30 to August 11, allowing for a comprehensive review and input from the industry.

The proposed reforms are part of the SC’s ongoing efforts to tighten oversight of the digital asset industry and ensure market integrity. These changes follow a series of enforcement actions against unlicensed crypto exchanges operating in Malaysia without the required Recognised Market Operator (RMO) status under the Capital Markets and Services Act 2007. In December last year, the SC took action against Bybit and its chief executive, ordering them to cease all operations and marketing in Malaysia for running an unlicensed digital asset platform. Similarly, in 2023, the SC ordered Huobi Global to cease operations in Malaysia for failing to register as an RMO.

The proposed DAX reforms come at a time of significant growth in Malaysia’s digital asset sector since the introduction of the DAX framework in 2019. The sector has seen increased participation from institutional investors and traditional capital market intermediaries, both through direct investments and fund-based exposure. This growth underscores the need for a robust regulatory framework to protect investors and ensure the stability of the market.

The SC’s proposal for a major overhaul of crypto exchange rules is a significant step towards establishing a robust regulatory framework for the digital asset market in Malaysia. By focusing on investor protection, market integrity, and anti-money laundering measures, the SC aims to create a secure and transparent environment for digital asset exchanges to operate. This, in turn, is expected to foster innovation and attract more investors to the digital asset market in Malaysia.