Investors’ protection assured with regulated DAXs, says Luno

The guideline and regulations outlined by SC have helped to ensure users are protected and gain fair services


DIGITAL assets in regulated digital assets exchanges (DAXs) in the country are safe and secure as opposed to those on illegal platforms, according to Luno Malaysia Sdn Bhd.

This comes in a week marked by restriction of services by Binance Exchange in the country while bitcoin and ethereum and other cryptocurrencies rose further from their recent lows.

Hackers also plundered more than US$600 million (RM2.54 billion) worth of cryptocurrency assets from a decentralised finance platform last week, but much of which was returned but leaving the industry rattled.

According to Tang, it is important for cryptocurrency exchanges to work closely with local regulators to establish appropriate regulatory frameworks that benefit both customers and industry players

Luno Malaysia’s country manager Aaron Tang said the guideline and regulations outlined by Security Commission (SC) have helped to ensure users are protected and gain fair services by lifting standards in the industry while implementing barriers to entry for operators with low concern or capabilities.

The stringent measures, Tang said, would prevent unwanted activity like market manipulation and wash trading.

Furthermore, this could avoid the users’ accounts or assets being used for any illicit means.

“A regulated DAX provides peace of mind for investors to focus on doing what they love, knowing that their digital assets are safe.

“On the flip side, investing in a non-regulated DAX poses multiple risks, such as losing your assets entirely and a lack of legal recourse. Hence, we recommend investors always do their due diligence first before choosing a DAX to use,” Tang stated in an email.

Recently, the SC reprimanded Binance Exchange for continuing its operation in Malaysia despite being included in the regulator’s Investor Alert List since July last year.

SC stated Binance’s activities were deemed illegal under Sections 7(1) and 34(1) of the Capital Markets and Services Act 2007 as it was not registered as recognised market operator (RMO) by the SC.

The regulator issued a public reprimand against Binance Holdings Ltd CEO Zhao Changpeng, who’s based in Singapore, as well as three other Binance entities — Binance Digital Ltd, Binance UAB and Binance Asia Services Pte Ltd — which were registered in the UK, Lithuania and Singapore, respectively.

All four of the entities have been ordered by the SC to disable all Binance platform in Malaysia within 14 business days from July 26 and immediately cease all media and marketing activities to Malaysian investors.

Simultaneously, investors are advised to stop dealing with and investing through illegal DAXs.

“Those who currently have accounts with Binance are strongly urged to immediately cease trading through its platforms and to withdraw all their investments immediately,” it added.

After 14 days summoned by the SC, Binance has finally begun restricting its services in Malaysia in a push to comply with regulations.

In a statement on Aug 13, the DAXs stated it has stopped offering trading with local fiats and terminated taking ringgit deposits.

Binance has also restricted peer-to-peer (P2P) merchant applications and investors were asked to complete their P2P trades and close P2P trade advertisement by 8pm last Friday, to avoid potential losses and trade disputes.

“Binance P2P will remove ringgit trading pairs on Friday, Aug 13, 2021, at 1pm UTC (9pm UTC+8).

“Users are advised to complete all related P2P trades and remove related trade advertisements by Aug 13, 2021, at 12pm UTC (8pm UTC+8) to avoid potential trading disputes.

“Please note we are also not operating any Telegram channel or online communication channels in Malaysia. We aim to create a sustainable ecosystem around blockchain technology and digital assets.

“Binance welcomes developments to our industry’s regulatory framework as they pose opportunities for the market players to have greater collaboration with the regulators,” Binance official statement last Friday read.

Industry sources told The Malaysian Reserve the estimated illegal DAXs market stood almost the same as the regulated market share of RM1.1 billion.

Binance — the largest cryptocurrency in the world — is believed to hold substantial shares of the local market.

As of now, only four DAXs have been granted RMO status. Luno, Tokenize Exchange and Sinegy Technologies (M) Sdn Bhd received their full approval in 2019 and 2020 while last month, SC added MX Global Sdn Bhd into the RMO list.

To recap, SC issued the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 on Jan 15, 2019, and the subsequent issuance of the revised Guidelines on Recognised Markets on Jan 31, 2019, to introduce new requirements for DAXs’ operators.

The body first recognised a total of 43 firms but after due diligence, 40 of the DAXs were instructed to halt operation in March and June same year.

CoinGecko COO Bobby Ong said SC’s enforcement is justifiable as Binance continued its operations despite being alert for the last 12 months.

“Legal crypto exchanges are operating in Malaysia and Malaysians should use these legal venues for better investor protection.

“Crypto companies need to comply with regulations — there are no two ways about things. Binance has not been following the rules for the longest time and it’s good that they are trying to comply with regulations now,” Ong said.

Tang concurred that it is important for cryptocurrency exchanges to work closely with local regulators to establish appropriate regulatory frameworks that benefit both customers and industry players.

“A practical regulatory framework strikes a balance between the rules to protect customer funds and the space that encourages technological innovation. Furthermore, it lays the groundwork to develop greater transparency and customer confidence,” he added.

Reintroduced in November 2019 after being granted SC’s approval, Luno has over 90% of the regulated DAX market share in Malaysia, storing more than RM1 billion of digital assets on behalf of more than 300,000 customers and processing more than RM4.2 billion in 2021.