What has happened?
The Malaysian Central Bank has announced that new rules for cryptocurrency exchanges in respect of anti-money laundering have come into force.
What does this mean?
Bank Negara Malaysia has issued a policy document entitled "Anti-Money Laundering and Counter Financing of Terrorism Policy for Digital Currencies (Sector 6)", which came into effect on 27 February 2018.
The rules apply to activities where digital currency is exchanged for money, money for digital currency or one digital currency is exchanged for another, even if the exchange is not located in the country.
The aim of the policy is to ensure that effective measures are in place to combat money laundering (ML) and terrorism financing (TF) risks associated with the use of digital currencies.
Another goal is to increase the transparency of digital currency activities in Malaysia.
"Reporting institutions must take appropriate steps to identify, assess and understand their ML/TF risks in relation to their customers, countries or geographical areas and products, services, transactions or delivery channels."
The crux of the policy centres around the requirement for exchanges to conduct thorough customer due diligence (CDD).
"Reporting institutions are required to conduct CDD on all customers and the persons conducting the transaction... when the reporting institution establishes business relationship with customer; and... when the reporting institutions have any suspicion of ML/TF."
The document lists what checks the exchanges must make as well the type of information they should obtain from customers, including identifying customers and verifying their identity.
Other requirements include the need to have adequate management information and record keeping systems in place, appointing a compliance officer as well as ensuring that any suspicious transactions are reported to the Central Bank promptly.
The Central Bank also warned exchanges not to commence business if they cannot comply with the CDD requirements.
Still, the Central Bank reiterated that the release of the document does not connote an endorsement or authorisation for digital currency exchange services.
"The public is reminded that digital currencies are not legal tender in Malaysia. Accordingly, digital currency businesses are not covered by prudential and market conduct standards or arrangements that are applicable to financial institutions regulated by the Bank. Members of the public are advised to carefully evaluate the risks associated with dealings in digital currencies."
In drafting the policy document, the Central Bank took account of the results of a public consultation it had issued on the proposed rules in December 2017.
Respondents, including representatives of digital currency exchanges, financial institutions and industry associations, mainly focused on the obligations imposed on digital currency exchangers.
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