PETALING JAYA – Bank Negara Malaysia (BNM) is not prohibiting banks from dealing with digital currency exchangers or businesses, but it expects them to be extra careful in their due diligence exercise in view of heightened money laundering and terrorist financing risks.
The regulator stated this in a policy paper issued following a public consultation on the classification of digital currency exchanger as a reporting institution. BNM said it received feedback from representatives of existing digital currency exchangers, industry associations, law firms, financial institutions, academia as well as interested individuals.
The central bank said banks should take a risk-based approach and conduct proper Know-Your-Customer/Customer Due Diligence processes in deciding whether to establish banking relationship with a digital currency exchanger.
“In practice, digital currency exchangers may be subjected to an enhanced due diligence process based on assessments by financial institutions of heightened money laundering and terrorist financing risks,” it added.
BNM said there is no restriction on using electronic means of performing the necessary CDD or verification of a customer’s identity, but such methods must satisfy the requirement under Section 9.3.3 of the policy paper, which stipulates that the process has to be as effective as one that is face-to-face.
“Reporting institutions (RI) can view identification documents physically or via electronic means, as long as the RI can reasonably determine their authenticity.”
BNM also said it has made an amendment to require reporting institutions to inform it of a material change or materially incorrect information within five working days.
The regulator expects any company engaged in exchanging digital currency for money; exchanging money for digital currency; or exchanging one digital currency for another digital currency to be registered with the Companies Commission of Malaysia.
It reiterated that the invocation of reporting obligations on digital currency exchange business does not in any way connote the authorisation, licensing, endorsement or validation by the central bank of any entities involved in the provision of digital currency exchange services.
“The public is reminded that digital currencies are not legal tender in Malaysia. Accordingly, digital currency businesses are not covered by prudential and market conduct standards or arrangements that are applicable to financial institutions regulated by the Bank. Members of the public are advised to carefully evaluate the risks associated with dealings in digital currencies.”
On imposition of tax on currency trading profits, BNM said the issue is under the purview of the Inland Revenue Board. However, businesses should be obligated to pay tax on revenues they generate domestically, it added.