The Securities Commission Malaysia (SC) recently published guidelines on digital assets. The release stated that all offerings of digital tokens should be carried out through an initial exchange offering (IEO) platform operator.
The Guidelines on Digital Assets was published as a response to the SC’s earlier consultation paper, Proposed Regulatory Framework for The Issuance of Digital Assets Through Initial Coin Offerings, and will come into force in the second half of 2020.
The paper stated that an Initial Coin Offering allows companies with innovative business proposals to raise capital before doing it through venture capitalists or lenders, and without selling equity or taking out debt in the developing phase.
The new guidelines are based on feedback from the consultation paper, which revealed that industry players support the appointment, by the commission, a platform operator who will leverage their expertise to review applications for issuance of digital tokens for fundraising.
As a result, offerings must be carried out through an IEO platform operator registered with the SC. The operator would be required to carry out the necessary assessment and due diligence to verify the business of the issuer and the fit and properness of the issuer’s board, as well as understand the features of the digital tokens.
The Chairman of the SC stated that digital tokens offering can provide another alternative fundraising avenue for early-stage entrepreneurs.
This initiative supports Malaysia’s Shared Prosperity Vision 2030 (SPV2030) by supporting the growth of SMEs and micro-businesses which are targeted to contribute 50 percent to Malaysia’s GDP.
It also aligned with SPV2030’s aspiration to create 30 percent high technology Malaysian companies.
During the first phase of the implementation of the guidelines, the SC will work with the relevant platform operators in assessing prospective issuers.
The issuers must also satisfy governance and capital requirements and demonstrate that their proposed project or business provides an “innovative solution” or a “meaningful digital value proposition” for Malaysia.
The guidelines further state that an issuer may raise funds up to RM100 million and tap on investments from retail, sophisticated as well as angel investors, subject to the investment limits.
Furthermore, each issuance must be accompanied by a whitepaper, which should provide investors with information on the issuer, the digital token and the utilisation of funds obtained through the issuer’s fund-raising exercise.
After the offering has been successfully completed, the SC will conduct post-issuance monitoring of the utilisation of the proceeds.
One industry expert noted, in another article, that it is encouraging to see Securities Commission Malaysia tackling these new innovations in finance head-on.
Over the past few years, the nation has seen the regulator issuing guidelines and providing clarity in with equity crowdfunding, P2P financing, cryptocurrency exchanges and most recently digital token offerings.
The expert is of the view that the approach of using IEOs to conduct assessments and due diligence is a good step in minimising questionable projects and safeguarding consumers.
The experts hope, however, that down the line the limit of RM2,000 per issuer will be raised to a more meaningful amount. For comparison sake, retail investors are allowed to invest up to RM5,000 per issuer for equity crowdfunding.
