The Corporate Laws Series . 23 Feb 2023
Introduction
Blockchain is a distributed ledger technology that enables secure, transparent, and immutable transactions without an intermediary. It is a distributed database that records and stores information in a decentralized format, rendering it virtually immune to manipulation and tampering. As a result, blockchain technology has revolutionized finance and its related industries, including banking, payments, and trading. Fintech laws in Malaysia are established to regulate the use of digital financial services, with the aim of protecting consumers, promoting fair competition, and encouraging innovation. Over recent years, the Securities Commission Malaysia has released a set of guidelines for digital assets such as cryptocurrencies, and is working on creating a framework for regulating the use of blockchain in the financial sector. In essence, the legal relationship between blockchain and fintech laws in Malaysia is that the former provides a platform for the secure and transparent transactions necessary for the latter to operate. While blockchain technology helps bring efficiency, security, and transparency to financial transactions, fintech laws in Malaysia provide a legal basis to ensure that these transactions and the organizations involved are properly regulated and secure. The importance of fintech laws in Malaysia lies in the fact that they prevent malicious actors from taking advantage of financial services. As such, they allow customers to trust the organizations they interact with and keep the financial system stable. Additionally, they ensure that organizations offering digital financial services are compliant with all the regulations and are held accountable for their actions. Finally, they foster innovation by providing a clear legal framework that encourages interested parties to develop new services and products.
With this being clear, here is a guide to start a blockchain/ fintech business in Malaysia :
1. Start with Understanding the Malaysian Regulatory Landscape: To start a fintech or blockchain business in Malaysia, it is essential to understand the Malaysian regulatory landscape. Malaysia has issued various laws and regulations, such as the Payment Systems Act 2013, Capital Markets and Service Act 2007, Anti-Money Laundering, Counter-Terrorism Financing and Proceeds of Unlawful Activities Act 2001, Financial Services & Securities Act 1989, and the Bank Negara Malaysia Guidelines on the Registration and Regulation of Digital Currencies (which recognizes digital asset activities).
2. Choose the Right Business Structure: To set up a fintech or blockchain company in Malaysia, you will need to select the right formal business structure. Choosing the right structure requires balancing factors such as ownership, business purpose, and numbers of stakeholders/shareholders. Common business structures in Malaysia include Private Limited (Sdn Bhd) and Sole Proprietorship (Persekutuan Berhad). You must select the structure that fits your business best, and ensure the structure complies with all relevant rules and regulations.
3. Set up Company in Malaysia: Once you have chosen the right business structure, you must complete the company registration process. To register a business in Malaysia, you will need to obtain an authorization letter from the Malaysian Companies Commission, submit a Form 44 to the Companies Commission, and obtain registration forms from the Ministry of Domestic Trade & Consumer Affairs (KPDNKK). You may also need to open a bank account, obtain an Enterprise Account from the Inland Revenue Board (LHDN), and obtain business permits from the local authorities.
4. Understand the Requirements for FinTech & Blockchain Companies: Malaysia does not have a specific set of requirements for fintech and blockchain companies. However, fintech and blockchain companies in Malaysia must comply with the Financial Services and Securities Act 1989, the Payment Systems Act 2013, the Capital Markets & Services Act 2007, the Anti-Money Laundering, Counter-Terrorism Financing and Proceeds of Unlawful Activities Act 2001, and various other regulations.
5. Obtain Approval from the Regulatory Authorities: To operate in Malaysia, fintech and blockchain companies must obtain approval from the relevant regulatory authorities. These include the Securities Commission Malaysia, Bank Negara Malaysia, and the Inland Revenue Board.
6. Obtain a Digital Currency License: To operate digital currency activities in Malaysia, companies must obtain a license from Bank Negara Malaysia. The license is issued after an application process, including due diligence checks, legal opinions, and submission of financial statements.
7. Set up a Development & Testing Environment: To develop and test blockchain applications, fintech companies must first set up a suitable development and testing environment. This includes procuring the relevant hardware and software, and setting up the necessary infrastructure. Additionally, companies must have the necessary technical skills and talent to design and develop blockchain applications.
8. Ensure Proper Compliance: To ensure operations comply with the relevant regulations and laws, companies must have in place a comprehensive compliance program, including the adoption of appropriate policies and procedures. Companies must also monitor their operations and ensure that the data and information is appropriately secured.
I hope this guide has helped you to better understand the landscape and process for forming a blockchain or fintech company in Malaysia. If you have any queries, please feel free to contact me at brentyap@vikneshyap.com.