KUALA LUMPUR, Oct 11  -- Although digital assets, which include digital currencies and digital tokens, have garnered significant attention due to their potential disruption on the financial system, it is still a nascent and emerging sector where global and domestic adoption rates are still low.

According to the Economic Outlook 2019 released by the Finance Ministry (MoF) today, some large and prominent companies in key economic sectors have taken steps to adopt some form of digital currency in their operations.   

“Although the impact of these projects has yet to be felt more widely, digital assets may well emerge as a part of the wider economy or recede into the background as a novelty, depending on the outcome of its usage.

“To this end, authorities around the world will continue to closely monitor the development of this sector in order to formulate blueprints to address issues and challenges surrounding digital assets,” the report said.

Domestically, financial regulators, namely Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC), have been collaborating to proactively respond to this emerging sector and exploring ways to facilitate innovation in the local market while ensuring that the necessary safeguards are in place.

As such, both BNM and the SC have issued multiple warning statements to the general public on dealing with digital assets and have taken the necessary regulatory action against suspicious or unlawful behaviours, it said.

In terms of formal regulations, BNM amended its Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Regulations in February 2018 to include Sector 6 which sets out the AML/CFT requirements for digital asset service providers in Malaysia.

Additionally, in January 2019, the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 came into force to regulate digital assets and exchange platforms. 

Under the new rule, any digital assets offered as a form of investment or used as a method of fundraising are prescribed as securities in Malaysia.

Subsequently, the SC had amended its Guidelines on Recognised Markets to include regulatory requirements for digital asset exchanges (DAX) and had registered three DAX operators under these guidelines in May 2019.

“The DAX operators have been given nine months to be fully compliant and operational and are now the only legitimate venues for digital asset trading in Malaysia,” it said.

The SC had also published a public consultation paper on Initial Coin Offerings, with a view to introducing formal guidelines in the near future.

While regulatory developments are ongoing, the report said that there have been significant experiments and pilot projects conducted locally on the application of distributed ledger technologies within the broader economy.

These include the SC's Project Castor on unlisted and over the counter markets; BNM's efforts with nine banks on trade finance applications; Bursa Malaysia's pilot project on Securities Borrowing and Lending, as well as the Ministry of Education's efforts in setting up a university consortium based on blockchain technology and launching a university degree issuance and verification system using the technology.

-- BERNAMA