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ICO / token sale
Companies and projects have increasingly relied on the sale of digital assets, or tokens, as a means of fundraising. These tokens generally do not grant the holders an ownership interest in the issuing company or project, but may provide governance rights, access rights or other utility. This has been conducted through public sales known as initial coin offerings (ICOs), proliferation through token generation events (TGEs) or private sales, among other mechanisms.  While showing characteristics of traditional methods of fundraising, there are a range of unanswered questions related to the legal classifications of such products. As ICOs and TGEs will usually be distributed online and internationally, there is usually no single legal framework applying to such transaction, and the legal framework of each market in which the tokens may be offered or sold needs to be considered.


Attitude of the country towards ICOs/token sales

Recent years have seen a rise in ICO schemes, however, regulators have issued cautionary statements to the public to avoid participating in an ICO that is not permitted under securities laws. In order to cater to the gaining traction for ICOs, the SC has taken active steps in regulating such activities which were previously not allowed in Malaysia.

Legal affairs

Presence of any explicit regulation on ICOs and the issuance of token/coins

The SC’s Guidelines on Digital Assets (“DA Guidelines”), issued on 15 January 2020, sets out the requirements for an issuer seeking to raise funds through digital token offerings (“Issuers”) and platform operators which operate an Initial Exchange Offering (“IEO”).

Both Issuers and IEO operators must be registered with the SC.

Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins

Under the DA Guidelines, the offering of digital tokens must be conducted through an IEO registered with the SC. An Issuer must not be hosted concurrently on multiple IEO platforms or on an equity crowdfunding or P2P platforms.

Obligations and requirements to issue token/coins

Both Issuers and IEO operators must be registered with the SC. 

IEO operators must be a Malaysian-incorporated entity with a minimum paid up capital of RM 5 million. IEO operators must have directors who are fit and proper pursuant to the DA Guidelines as well as other organisation requirements set out in the DA Guidelines. Additionally, IEO operators must conduct due diligence on the Issuer prior to the issuance of digital tokens.

IEO operators seeking to facilitate the trading of digital assets on its platform must also register as a DAX operator with the SC pursuant to the RMO Guidelines. 

An Issuer is required to be a locally-incorporated company with business operations in Malaysia and a minimum paid-up capital of RM 500,000 (approximately USD114,000). An Issuer must have a minimum of two (2) resident directors. Issuers are required to apply together with a disclosure document (“Whitepaper”) to a registered IEO operator. The application should demonstrate that the underlying business or project of digital tokens provides an innovative solution or a meaningful value proposition for Malaysia. The Whitepaper must contain certain minimum information that would enable an investor to make an informed assessment of the digital token before subscribing to the digital tokens, including among others the objective of the digital tok
en offering, key characteristic of digital tokens, the targeted amount to be raised and subsequent use of the proceeds thereafter, any rights, conditions or functions attached to digital tokens etc. Issuers may only raise funds subject to limits prescribed under the DA Guidelines. 

Classification of token/coins in the jurisdiction

Digital tokens/coins are prescribed as securities which are regulated under the CMSA. Notwithstanding, such token/coins are not recognised as a means of payment and are not classified as valid legal tender by Malaysian regulators.

Presence of a duty to publish a prospectus bevor offering token/coins to investors

An Issuer is required to furnish a copy of the Whitepaper as approved by the IEO operator which shall be made available through the IEO platform. The Whitepaper must contain information that would enable an investor to make an informed assessment of the digital token before subscribing to the digital token, which include the following:

    a) Brief description of the issuer’s directors, senior management, key personnel, and advisers including name, designation, nationality, address, professional qualifications, and related experience;
    b) The objective or purpose of the IEO, including detailed information on the IEO project to be managed and operated by the issuer;
    c) The key characteristics of the digital token;
    d) Detailed description of the sustainability and scalability of the IEO project;
    e) The business plan of the issuer;
    f) The targeted amount to be raised through the IEO, and subsequent use and application of the proceeds thereafter illustrated in a scheduled timeline for drawdown and utilisation of proceeds (schedule of proceeds);
    g) Any rights, conditions or functions attached to digital tokens including any specific rights attributed to a token holder;
    h) Discussion on the determination of the accounting and the valuation treatments for the digital token including all valuation methodology and reasonable presumptions adopted in such calculation;
    i) Associated challenges and risks as well as mitigating measures thereof;
    j) Information in relation to the distribution of the digital tokens and where applicable, the distribution policy of the Issuer;
    k) A technical description of the protocol, platform, or application of the digital token, as the case may be, and the associated benefits of the technology;
    l) Audited financial statements of the Issuer; and
    m) A statement of disclaimer as follows: “The furnishing on this white paper to the Securities Commission Malaysia should not be taken to indicate that the Securities Commission Malaysia assumes responsibility for the correctness of any statement made in this white paper.”

Presence of AML/KYC requirements that are needed to be fulfilled regarding (i) the initial issuance of token/coins and (ii) any following transfer of token/coins to third parties

IEO operators, in determining whether to approve an IEO, must carry out due diligence and critical assessment on an Issuer to understand and verify the business of the Issuer, assess the fit and properness of the Issuer’s directors and senior management and understand the features of the digital token to be issued by the Issuer and the rights attached to it. IEO operators must also carry out critical assessment on the Issuer’s compliance with the requirements under the DA Guidelines and assess the Issuer’s Whitepaper to ensure that the contents follow the DA Guidelines. IEO operators must also ensure compliance with the Anti-Money Laundering and Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.

Additional comments regarding (i) the legal situation for ICOs/token/coins and (ii) any following transfer of

token/coins to third parties IEO operators are also subject to restrictions on outsourcing of services under the DA Guidelines, where it is not permitted to outsource any function that involves the decision-making functions of the IEO operator or any interaction or direct contact with the Issuer or token holders.

Economic conditions

Market size for ICOs/token sales and existence of any previous regulated ICO/token sales in the jurisdiction

The SC has registered the first two IEO operators in March 2022, being Kapital DX Sdn Bhd and Pitch Platforms Sdn Bhd. Given the recent registrations of these IEO operators, there are no data available as to how soon the offering of digital tokens will be carried out via these IEO platforms.

Additional comments regarding the economic situation for ICOs/token sales or what companies must be aware of in this business area




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