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Blockchain: A malaysian legal perspective


Blockchain technology has been touted as the technology which will drive humanity towards the Fourth Industrial Revolution. Although the potential uses of blockchain technology transcend far beyond the financial and investment sectors, it is in relation to these sectors that the technology can be said to have had the most profound impact. It can be surmised therefore that the financial and investment sectors will most likely be the domains of our civilization in which blockchain technology will eventually leave its indelible mark. Accordingly, this article will discuss about the impact of blockchain technology on the financial and investment sectors in the legal context in general and the context of Malaysian laws in particular.

In this day and age of ours where banks may fail and nations require bailouts, the use of blockchain technology in the financial and investment sectors may represent a saving grace of sorts to the ordinary men on the street who more often than not end up as hapless victims of bank failures and collapsed nations. In general, most legal jurisdictions have their own financial and investment laws to mitigate the effects of market imbalances and information asymmetries whereby in the context of our country such laws can be found in the form of the Financial Services Act 2013 (“FSA”) and Money Services Business Act 2011 (“MSBA”) which regulates the financial and money services industries respectively in Malaysia and the Capital Markets and Services Act 2007 (“CMSA”) which regulates the capitals markets the capital markets industry in Malaysia in addition to the Interest Schemes Act 2016 (“ISA”) which regulates the operations of interest schemes in Malaysia.



The primary manner in which the FSA may be applicable to blockchain technology is in relation to blockchain-based digital tokens issued in Malaysia which are exchangeable for fiat money whereby the issuer of such tokens would be deemed as the issuer of a payment instrument. As for the MSBA, it may be also be applicable to blockchain-based digital tokens issued in Malaysia which are exchangeable for fiat money albeit the issuer thereof would be deemed as carrying out a remittance business. In the context of securities laws, the CMSA may be applicable to blockchain-based digital tokens which are issued in Malaysia if the structure of the issuance scheme coupled with the features and functionalities of the tokens render such tokens to fall within the scope of any capital market product regulated under the CMSA be it in the guise of shares, debentures, derivatives or unit trusts. Additionally, blockchain-based digital tokens issued in Malaysia which grant its holders a right or interest to the profits or assets of the scheme, or an interest or right in respect of the properties of the scheme including any entitlement to use such properties, may amount to interests in an interest scheme whereby the issuer of such tokens would be required to register its issuance framework as an interest scheme with the Companies Commission of Malaysia (“CCM”).

In this connection, it is notable that todate the Malaysian legislature has yet to enact any legislation to regulate blockchain-based digital tokens save for a few public statements issued by the Malaysian Securities Commission (“SC”) with the latest one cautioning the public on the risks of Initial Coin Offerings (“ICOs”)[1] and a policy guideline[2] issued by Bank Negara Malaysia (“BNM”). In the absence of any legislation in Malaysia which has been devised specifically for the regulation of blockchain-based digital tokens, the application of our existing laws to such tokens can be said to be conjectural at best thereby leaving a swathe of grey area i.e. gaps in our laws. Nonetheless, this state of affairs is understandable given that the stance taken by the Malaysian legislature is a reflection of the fact that it is cognizant of the need for restraint on its part lest it may end up unduly stifling the development of this newfound technology which in turn may hamper the development of our financial and investment sectors.



In the context of Malaysian laws, the issuer of any blockchain-based digital tokens which are exchangeable for fiat money, goods or services may choose to incorporate a Labuan company under the Labuan Companies Act 1990 (“LCA”) which would allow the issuer to register for a credit token business license under the Labuan Financial Services and Securities Act 2010 (“LFSAA”)[4]. As for platform operators who provide exchange and trading services for blockchain-based digitals tokens which are exchangeable for fiat money other than the Malaysian Ringgit or which are representations of short-term debt instruments, the LFSAA provides a registration option in the form of a money-broking business license. The choice of Labuan which is a mid-shore jurisdiction would enable the issuers of blockchain-based digital tokens which amount to credit tokens under the LFSAA and platform operators whose exchange and trading facilities for such tokens amount to the provision of money-broking services under the LFSAA to obtain the best of both worlds in terms of securing the advantages which come with registration while not being unduly burdened by operational costs arising from cumbersome regulatory compliance requirements.



In sum, blockchain technology can be a said to be a godsend tool in terms of its potential in enabling the SC to attain its philosophy to establish a self-regulatory market for the capital markets industry in Malaysia[5] and assist BNM in its endeavor to promote financial inclusion among the Malaysian public[6]. In terms of regulatory compliance, the decentralized nature of blockchain technology would fit in perfectly with the SC’s vision for the adoption of self-regulation among Malaysian capital markets players while the internet-based model of blockchain’s operations coupled with its autonomous and immutable nature would render the technology to be the ideal choice for BNM in its efforts to widen the reach of our financial infrastructure in terms of its coverage of the Malaysian public. It is clear therefore that blockchain technology will play a central role in our country’s drive towards achieving the status of a developed nation wherefore changes to our laws and regulations would be inevitable in time to come in order to accommodate the paradigmatic shifts brought about by this technology.

We at Ben & Partners look forward to embracing the changes brought about by the futuristic technology that is blockchain as we endeavor to guide our clients through the uncharted terrain of blockchain governance in Malaysia’s legal landscape in tandem with our progressive professional outlook the adoption of which is a must in order to stay ahead of the rest because as the ancient Greek philosopher Heraclitus of Ephesus once said, “change is the only constant in life”.








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