Central bank puts control on cryptocurrency conversions

Malaysia will allow cryptocurrency transactions in 2018, but converting such currency will need to be reported to BNM


Bank Negara Malaysia (BNM) has required that conversions of cryptocurrencies into cash must be reported as transactions under antimoney laundering laws, as Malaysia begins to impose controls over the growing use of digital currencies.

The new requirement, to be effective next year, means Malaysia will allow cryptocurrency transactions, but converting such currency will need to be reported to BNM as required under the strict Anti- Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.

Malaysia’s among the few countries that are imposing controls over digital currency. Other countries like Japan has recognised bitcoin, the leading cryptocurrency, as an official payment option. While many more like China, has outlawed cryptocurrency exchanges. Morocco totally bans the use of cryptocurrency.

Rising cryptocurrency transactions have forced many countries to act to protect from what could be financial disaster if unregulated. Bitcoin for instance, is already processing US$2 billion (RM8.2 billion) worth of transactions daily, a 1,000% jump this year alone.

It is estimated about US$1.5 billion bitcoins value was transferred by late October.

Authorities worry that cryptocurrency is being used as the medium to launder money as it allows users to send or receive payment securely on the Internet. Financial regulators do not have jurisdiction over decentralised networks of computers.

BNM governor Tan Sri Muhammad Ibrahim said the digital currencies mark the “beginning of a new era in the financial sector” as digital curencies become the new norm.

“But the new regulation is to prevent the abuse of the system for criminals and unlawful activities and ensuring the stability and integrity of the financial system,” Muhammad said at the Third Counter-Terrorism Financing Summit 2017 in Kuala Lumpur yesterday.

He said the banking sector must adopt the latest and most advanced technologies to improve its risk management framework.

“The reliance on automated systems to monitor and detect suspicious transactions has served us well, but as we move forward, we need to do more.

“We need new tools. The adoption of artificial intelligence, machine learning and big data technology are tools that would likely be imperative, as suspicious transactions become more complex and harder to detect,” Muhammad said.

Global Internet users have increased 1,000% from 397 million in 2000 to nearly 3.9 billion as of June 2017. Global investment activities in the financial technology industry have increased from US$9 billion in 2010 to US$25 billion in 2016.

“If this trend is anything to go by, the financial industry will be hard pressed to mitigate, identify and prevent cases of abuse in the system,” Muhammad said.

He said greater access of intelligence information for financial institutions and heightened threats from terror groups have resulted in an upward trend in suspicious transaction reports (STRs).

In 2015, the financial intelligence unit received 93 terrorism financing related STRs which led to 14 disclosures to law enforcement agencies.

For the January through June 2017 period, BNM received 346 terrorism financing related STRs.

“It is essential that the financial sector’s risk management strategy remains agile in order to mitigate emerging risks. This requires not only the development of innovative technology-based deterrents and pro-active detection systems, but also effective cooperation between the public and private sector, law enforcement domestically and across borders,” Muhammad said.

He said the central bank is also in the middle of finalising the details of a new requirement for the banking and money services business sector to report remittances in high-risk areas.

The high-risk areas will be determined based on the law enforcement agency’s intelligence on areas that may pose higher risks for funding of terrorism activities.