While cryptocurrency usage in Malaysia currently remains minimal, its popularity will likely increase as what is seen abroad

By NG MIN SHEN / Pic By BLOOMBERG

Regulating cryptocurrency could allow for more positive growth of the increasingly widespread virtual currency as opposed to banning it altogether, said industry experts.

The US, Singapore, Japan and China are among the countries that are regulating the cryptocurrency landscape to reduce fraud and money laundering activities, which have given a bad name to the digital money.

Cryptocurrency has been the preferred medium of payment or converting proceeds from illegal activities.

Central banks and currency issuers around the world will need to decide if cryptocurrency can be used as an alternative form of money, says Maslamani (Pic: TMRpic)

V Maslamani, chief compliance officer of Al Rajhi Banking and Investment Corp (M) Bhd, said while cryptocurrency usage in Malaysia currently remains minimal, its popularity will likely increase as what is seen abroad.

“Cryptocurrency usage in Malaysia today is so minimal that it is insignificant. Of course, there are investors, brokers and transactions being made — but it’s all done online.

“If it comes to a point where it forms 10% to 20% of economic activity, then Bank Negara Malaysia (BNM) will have to deal with it,” he told reporters at the International Conference on Financial Crime and Terrorism Financing (IFCTF) 2017 in Kuala Lumpur yesterday.

Maslamani, who is also chairman of the Compliance Officers Networking Group, said central banks and currency issuers around the world will need to decide if cryptocurrency can be used as an alternative form of money.

“The world is grappling with the question of cryptocurrencies becoming the future. Unless cryptocurrency is regulated, it cannot become legal tender. It may happen, but not for the next 10 years — it will take a much longer time,” he said.

BNM governor Tan Sri Muhammad Ibrahim, when queried at IFCTF 2017 on Wednesday regarding the possibility of banning cryptocurrencies in Malaysia, said it is “something that we will be deciding by the end of the year”.

The central bank said in September that it will be issuing its guidelines on cryptocurrencies by year-end.

Rising Concerns

Mark Smalley, co-founder and CEO of Neuroware.io, observed that banks worldwide are largely in favour of blockchain — the technology utilised by cryptocurrencies to facilitate secure and anonymous transactions.

Quoting a recent study by the Cambridge Centre for Alternative Finance, he said 80% of central banks globally are researching centrally issued cryptocurrencies, while five of the 25 central banks surveyed said they will implement cryptocurrencies by 2019.

“Also, 13% of central banks surveyed are experimenting with bitcoin, and 76% are experimenting with ethereum,” he said at a cryptocurrencies panel at IFCTF 2017 yesterday.

Bitcoin is the most popular form of cryptocurrency, while ethereum is an open software platform based on blockchain that enables developers to build and deploy decentralised applications.

Meanwhile, Sandy Baggett, a counsel in litigation practice at Freshfields Bruckhaus Deringer Singapore Pte Ltd, said Singapore — a heavy promoter of blockchain technology and financial technology (fintech) — is now moving towards regulating cryptocurrency.

The country is often favoured for its somewhat lenient rules, tax-friendliness and encouragement of fintech.

“As a result of Singapore’s efforts to become a fintech leader, there has been some exploitation of the lack of regulation there. So now, you’re starting to see the government push back just a little in this area,” she said.

In the US, regulation of cryptocurrency has been made possible by imposing rules on the intermediaries — people who operate trading platforms or exchanges which convert US dollars into virtual money.

“The authorities regulate the exchanges by placing them in the same category as money services businesses,” Baggett said, adding that this began in 2013.

A year later, Singapore stated its intention to regulate the same types of intermediaries in the same way, particularly for anti-money laundering purposes. In 2016, it then announced its plans to regulate all virtual currencies, as well as the intermediaries involved.

Japan was reported in September to be introducing regulations on cryptocurrency exchanges this month, joining the US in efforts to oversee the virtual currency landscape and reduce money laundering and fraud activity.

China last month banned and made illegal fundraising through initial coin offerings (ICOs) — launches of token-based digital currencies.

It also ordered several cryptocurrency exchanges to close, although reports have surfaced of traders continuing to buy and sell bitcoin through other means, while ICOs based outside of the country are still being promoted.

According to China’s official press body Xinhua News Agency, the first half of the year saw 65 ICOs raising a total of 2.62 billion yuan (RM1.67 billion) from 105,000 individuals in the country.