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ICO / token sale
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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.

Introduction

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

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