Seeking clarity: The NEM Foundation’s commentary on Malaysian regulatory announcement

The NEM Blockchain Centre in Kuala Lumpur serves as a learning centre, incubator and accelerator for organisations in Asia.

Kuala Lumpur, MALAYSIA – Given its presence in Malaysia,  the NEM Foundation has responded to the latest ruling by the Securities Commission on the regulation of digital assets with support from projects such as LuxTag and ProximaX.

In particular, LuxTag is a local start-up in the Blockchain space using NEM technology. LuxTag collaborates closely with NEM, MiGHT, MDec, MaGIC, AIM and various universities as well as enterprises nationwide and abroad. LuxTag issues digital certificates of authenticity and ownership, representing (tokenising) products and similar assets of value. Its managers are concerned about the unclarities regarding the recently gazetted regulations in Malaysia, which hopefully don’t pose any danger to their operations.

This month, the Malaysian Government’s Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 has come into force . As a result, all digital currency trading and initial coin offerings (ICOs) will need to be approved by the regulator and comply with the government’s regulation.

The NEM Foundation as a global blockchain technology organisation has a sizeable presence in Malaysia including a NEM Blockchain Centre in Kuala Lumpur. And while the Malaysian government’s move to regulate the Digital Currency and Digital token industry is welcomed, it has been stated in a press release that regulatory clarity is “much needed in this nascent space” and that they are “encouraged by the Finance Minister Lim Guan Eng’s progressive view on the potential of blockchain”.

The Malaysian Finance Minister has said: “The Ministry of Finance views digital assets, as well as its underlying blockchain technologies, as having the potential to bring about innovation in both old and new industries. In particular, we believe digital assets have a role to play as an alternative fundraising avenue for entrepreneurs and new businesses, and an alternative asset class for investors.”

The NEM Foundation works to promote and commercialise the NEM blockchain platform which supports the creation of digital assets and utilisation of blockchain for enterprise and consumer adoption. The statement by the Finance Minister has been indicated as a positive step forward for the industry.

Source: CoinMarketCap

However, it has been mentioned in that same statement from the NEM Foundation that many industry players were taken by surprise with a sudden blanket statement on the ruling for all Digital Currencies and Digital Tokens. Some exchanges responded by temporarily shutting down operations while awaiting clarification. Thankfully, the authorities have acted quickly to garner industry feedback and many are appreciative of the swift response on the part of the regulator, Securities Commission.

It is argued that the landing would have been much softer if the Government had engaged with the industry first before any ratification. The ramifications can be significant, especially when the underlying technology is a necessary solution to it, more so when the very same technology can be used to power solutions that may not fall under the purview of the above Order. One concern is the broad definition of digital currencies and tokens. Technically speaking, the current definitions could include payment, asset, and utility tokens. In Switzerland, only asset tokens are regulated as securities whereas the Monetary Authority Singapore (MAS) first determines if a token intersects with capital market products before deciding on regulations.

It was added:

“We are hopeful that the Securities Commission (SC) will have a full view of the complexity of digital assets/tokens and classifications thereof and give due consideration as a result.

We are also hopeful that the SC will see the greater picture so that the industry will be able to develop in this country and be a leader in the ever-competitive landscape. It is good to know that some of the top influencers of blockchain technology are Malaysians, and it is important that this continues to be so.”

Given the operational capacity in the country,  the worry is that a blanket regulation for all blockchain products will not give the industry the flexibility to grow and to compete at an international level. Each kind of product has “different objectives and needs” according to the press statement. It was also noted with great optimism that the Securities Commission’s quick engagement of digital currency exchanges in a meeting during mid-January.