The governance and legality of cryptocurrency

Posted by EVERUS on October 23rd, 2017

The recent announcement by Bank Negara Malaysia (Malaysia’s Central Bank) to draft regulations for cryptocurrencies has stirred the interest of the general public. As the curiosity builds, many people wonder on the legalities, regulations and acceptance of cryptocurrencies by governments around the world.

As cryptocurrency is just like money; they do not have minds of their own, therefore, they can be manipulated inappropriately by individuals who use them.

Governments around the world are typically concerned about cryptocurrency due to the anonymous nature of the transactions; they can be exploited for money laundering and terrorism financing. The sale of cryptocurrency coins representing benefits such as ownership in assets, like a share or bond certificate to raise funds is commonly known as an Initial Coin Offering (ICO). Unfortunately, in recent years ICOs have been used in malicious ponzi schemes, therefore, ICOs are usually regulated and must comply with existing securities laws aimed at safeguarding investors’ interest.

In September 2017, China, which had some of the most active cryptocurrency communities decided to ban ICOs and later cryptocurrency exchanges due to the large number of scams that were operating in unregulated territory. Many speculate that the move made by China is expected to prevent future frauds as it was a hotbed for such activities and to pave the way for China’s own cryptocurrency. On a similar note, the Reserve Bank of India (RBI) is currently studying and evaluating the feasibility of having India’s own cryptocurrency, the proposed “Lakshmi” coin, as an alternative to the Indian rupee.

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi recently announced regulations on Initial Coin Offerings or ICOs citing they are the most cost-effective way of raising funds. Furthermore, they view cryptocurrency as “commodities” in the same vein as precious metals or fuels, hence, they remain unregulated. Similar to most jurisdictions, the Monetary Authority of Singapore (MAS) has taken a similar approach regulate ICOs but not cryptocurrency per se.

Will Bank Negara follow the steps taken by the FSRA and MAS to regulate ICOs and cryptocurrencies?

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