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The Malaysian regulator is seeking public feedback on its proposed reform of the country’s crypto exchange framework, aiming to enhance the market’s competitiveness and improve investors’ protection.
On Monday, Malaysia’s Securities Commission (SC) published a consultation paper seeking the public’s feedback on the proposed changes to the regulatory framework for Digital Asset Exchange (DAX).
The regulator explained that Malaysia’s crypto market has grown since the SC’s DAX framework was introduced in 2019. Last year, the total trading value increased 2.6 times the value of 2023, reaching RM13.9 billion, worth around $3.31 billion.
During this period, the SC noted that regulated crypto exchanges have faced strong competition from unregulated platforms and avenues, which are perceived as more attractive due to their broader token offerings and better pricing.
Notably, the current regulatory framework requires DAXs to list only the crypto assets that meet the regulator’s minimum criteria and have received approval beforehand. Under the current rules, the SC also has the power to impose additional terms and conditions or directions to the regulated exchanges.
Meanwhile, regulated digital assets trading is “primarily driven by retail investors, with institutional participation still limited,” leading DAX operators to “play a crucial role in enabling responsible access to digital asset investments by offering a secure and well-regulated environment for both retail and institutional investors.”
Based on this, the Malaysian regulator considers that the industry must shift from an entrepreneur-led to a more institution-led industry to enhance credibility and increase confidence towards the market.
To further enhance and facilitate sustainable growth of digital assets in Malaysia, the regulatory framework for DAXs needs to be strengthened. This is intended to enhance competitiveness to our regulated digital asset market and better serve investors’ needs, whilst ensuring there is adequate investor protection, which is crucial towards fostering responsible and sustainable growth and confidence in the capital market.
The regulator expects the overhaul to encourage wider participation of investors and promote better interaction between DAXs with the broader ecosystem of the Malaysian capital market. In its consultation paper, the SC proposes key changes to the current framework, including easing the listing process of crypto assets and strengthening requirements for DAX operators.
Under the proposed framework, digital assets that meet SC’s minimum specific criteria could be listed on regulated platforms without the regulator’s approval. This key change aims to accelerate the time-to-market period during the listing process, increase crypto exchanges’ accountability, and expand product offerings.
Moreover, DAX operators would be subject to stricter operational governance and control requirements, including criteria related to the segregation of clients’ assets to ensure adequate governance and operational practices for the risks associated with their operations.
Crypto exchanges would also need to meet new financial criteria to ensure stronger integrity and resilience. This includes robust investor protection mechanisms to increase confidence among capital market participants.
The proposed reform comes amid the Malaysian government’s efforts to boost competitiveness against international markets. Malaysia’s Prime Minister, Datuk Seri Anwar Ibrahim, announced in January that the government was exploring policies to regulate the digital assets sector and improve its “outdated” financial system.
As reported by Bitcoinist, authorities were considering establishing a clear regulatory framework to “eventually see cryptocurrency and blockchain technology recognized in the country.”
Anwar affirmed that he had suggested that Malaysian agencies, including the SC, Treasury, and Bank Negara Malaysia, study how the country can regulate the industry so that the Malaysian market isn’t “left behind” and can safeguard the people’s interests.
