How will stablecoins fare under the newly passed Currency Act 2020 in Malaysia?

by Edmund Yong

[From Part 1: Attributes]

We asked a former regulator for insights on how the new Currency Act 2020 applies to stablecoins or cryptocurrencies in general. If you are a prospective issuer, operator, or market entrant, please seek independent legal advice – some contacts are suggested at the end of this article. The following is merely an academic discussion and should not be relied upon for decision making.

1. Please take us through the definition of “coins” in the Currency Act.

The Currency Act 2020 (Act 827) is an Act to provide for the management of currency is Malaysia, regulation of currency processing business and currency processing activities and for related matters.  Act 827 was granted the Royal Assent on 14 February 2020 and the date of publication in the Gazette was on 28 February 2020. However, as of 1 June 2020, Act 827 has yet to come into force.

The key point to note is that even though Act 827 has yet to come into force, pursuant to the Central Bank of Malaysia Act 2009 (Act 701) [1], the Bank (Bank Negara Malaysia or Central Bank of Malaysia) is the sole authority [2] to issue the currency note and currency coin in Malaysia and only the currency note and currency coin issued by the Bank shall be legal tender [3] in Malaysia. Sub-section 4(1) of Act 827 provides that the powers and functions of the Bank under Act 827 are in addition to, and not in derogation of, the powers and functions of the Bank under Act 701.

Act 827 defines “currency coin” as a coin issued by the Bank including a commemorative coin issued by the Bank for, or to commemorate, a particular event or purpose.

It would appear that the definition of “currency coin” under Act 827 confines to a coin issued by the Bank. By the same reason, it seems to exclude coins issued by any person other than the Bank, including the “stablecoins”.

[Note: The Act 827 defines “currency coin” but not “token”.  However, a brief search shown that “token” can be found in sections 14, 15 and 18 of Act 827. Merriam Webster defines “token” as “a piece resembling a coin issued as money by some person or body other than a de jure government”]

2. To what extent then will the Currency Act regulate cryptocurrencies?

From the Preamble of Act 827, one may conclude that Act 827 is enacted solely for the management of currency of Malaysia issued by the Bank.  It addition, Act 827 provides for the regulation of essential services including the currency processing business and the currency processing activities. One may, therefore,  take the view that Act 827 excludes the management of currencies other than currency of Malaysia and the regulation of currency processing business and currency processing activities and for related matters of such currencies.

Be that as it may, it is pertinent to note that Part III of Act 827 sets out the offences relating to currency. Section 18 of Act 827 provides –

“(1) No person shall issue, print or mint or authorize the issuance, printing or minting of, any note, coin, token, document or instrument, whether tangible or intangible, which is likely to pass as legal tender unless the note, coin, token document or instrument is denominated in and fully backed by ringgit [4] or foreign currency. 

(2) For the purpose of sub-section (1) –

(a) a note, coin, token, document is likely to pass as legal tender, if the note, coin, token, document or instrument fulfills all of the following characteristics:

(i)     the note, coin, token, document or instrument is payable to a bearer or holder on demand or upon the presentation;

(ii)     the note, coin, token, document or instrument is widely used in Malaysia for the purpose of payment to any person other than the issuer of such note, coin, token, document or instrument; and

(iii)    the note, coin, token, document or instrument has a value other than its intrinsic value;

(b) “foreign currency” means any note, coin, token, document or instrument, whether tangible or intangible, which is legal tender in any country, territory or place outside Malaysia and includes any right to receive such note, coin, token, document or instrument; and

(c) “issue” means the act of making available for usage by any member of the public.

(3) Any person who contravenes sub-section (1) commits an offence and shall be, on conviction, be liable to a fine not exceeding fifty million ringgit or imprisonment for a term not exceeding ten years or to both.”

3. How does this differ from BNM’s Sector 6 guidance on “digital currency”?

For the purposes of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Digital Currencies (Sector 6) Policy Document issued by Bank Negara Malaysia, which comes into effect on 27 February 2018, “digital currency”  refers to digital representation of value that –

(a) functions as a medium of exchange; and

(b) is interchangeable with any money (including through the crediting or debiting of an account)

but excluding electronic money, as defined under the Financial Services Act 2013 [Act 758] and the Islamic Financial Services Act 2013 [Act 759], issued by an approved issuer of electronic money under those Acts.

The Policy Document is applicable to reporting institutions carrying on the following activities as listed in Paragraph 25 of the First Schedule to the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (Act 613):

(a) activities carried out by any person who provides any or any combination of the following services:

(i) exchanging digital currency for money;

(ii) exchanging money for digital currency; or

(iii) exchanging one digital currency for another digital currency,

whether in the course of carrying on a digital currency exchange business or otherwise.

The principal objects [5] of the Bank shall be to promote monetary stability and financial stability conducive to the sustainable growth of the Malaysian economy. The primary functions of the Bank include to exercise oversight over payment systems. Consequentially, it is the Bank’s responsibility to ensure that the payment systems in Malaysia are functioning effectively (no disruption) [6] to preserve the public confidence in the overall payment systems at all times and ensure no adverse impact on the monetary stability and financial stability of Malaysia.

[Read Part 3: Approaches]

Footnotes:

[1] Consequential amendments to the Central Bank of Malaysia Act 2009 (Act 701) can be found in the Central Bank of Malaysia (Amendment) Act 2020 (Act A1616) which is yet to come into force. Act 701 is amended by deleting sections 62 and 63, amongst others.

[2] Section 62 of Act 701 and section 5 of Act 827.

[3] Section 63 of Act 701 and section 10 of Act 827.

[4] Section 61 of the Central Bank Act of Malaysia (Act 701) provides that the unit of currency in Malaysia shall be the ringgit, which shall be divided into one hundred sen. The abbreviated form of the ringgit shall be “RM” or “MYR”.

[5] Section 5 of Act 701.

[6] Section 30 of the Financial Services Act 2013 (Act 758) and section 39 of the Islamic Financial Services Act 2013 (Act 759).