SC acts to protect consumers

The SC and related authorities are preparing guidelines to regulate cryptocurrencies and ICOs in Malaysia

By AFIQ AZIZ & MARK RAO / Pic By MUHD AMIN NAHARUL

Lack of clarity and safeguarding of consumer interests are the likely reasons behind the authorities’ action to stop the launch of an initial coin offering (ICO) this week, said experts.

Securities Commission Malaysia (SC) had issued a cease-and-desist order to CopyCash Foundation over the Singapore-based firm’s planned initial coin offering (ICO) CopyCashCoin in Malaysia.

The order also covered all activities related to the proposed ICO launch including roadshows, seminars or promotional events. The SC found reasonable grounds that CopyCash’s white paper contravened related securities laws.

“SC was probably acting on a perceived threat and the decision is welcomed. It could be due to the absence of clarity on the trading platform,” said an industry player who spoke under conditions of anonymity.

The investor said ICOs — which are modelled after initial public offerings but utilise digital tokens — are not launched unless they are proven to be a reliable product.

“You need more than a white paper to launch an ICO. You require an established track record and a product either in the Alpha or Beta stage that has already been tested in the market.”

The SC and related authorities are preparing guidelines to regulate cryptocurrencies and ICOs in Malaysia, as regulators are not prepared to totally slam the door on digital currencies.

“Thailand could provide a useful model for regulators to learn from, as its Securities and Exchange Commission is working towards regulating cryptocurrencies and, to a lesser extent, ICOs,” said the source.

Malaysian Investors’ Association VP Aaron Ting said the lack of vitality in the venture capital (VC) space has led many startups to move towards ICOs to raise capital.

However, he said an ICO must fulfil several criteria before it is considered a quality and reliable product.

“ICOs must have a compelling white paper from a business and technical viewpoints, as well as projects with a proof of concept — either in the Alpha or Beta stage,” he said.

“The project must also have a strong team of developers recognisable in the industry, as well as having a good marketing and entrepreneurial track record.”

He added that ICOs require a token distribution model that ensures sufficient decentralisation and abide by the relevant security audit and code of ethics.

Bobby Ong, who is the co-founder of Malaysian-based cryptocurrency research platform CoinGecko, said ICOs have grown in demand due to its ability to raise funds more efficient than VC platforms.

“More cryptocurrency startups have opted to do ICO rather than raise money from the traditional VC route,” Ong said.

“For example, in the second quarter of 2017, ICO funding (US$797 million [RM3.19 billion]) exceeded VC funding (US$235 million) by a factor of three times for blockchain startups,” he said.