Following the US SEC’s investor alert against Initial Exchange Offerings (IEO’s), Malaysia’s regulator has published a regulatory guide requiring token offerings in the country be attached to exchanges.
A breakdown of Malaysia IEOs
A report from Malaysia’s Securities Commission (SC) makes clear that digital tokens are to be used only for goods and services and within strict guidelines, which will take effect late 2020.
Issuing digital tokens in the country without SC approval is illegal. The platforms themselves bear responsibility for vetting issuers and approving token features. The minimum paid-up capital is 5 million Malaysian ringgit ($1,227,000).
Operators looking to trade digital assets must be registered as Digital Asset Exchange platform operators — more commonly known as crypto exchanges. Issuers must meet a minimum paid-up capital of 500,000 ringgit ($122,700).
Retail investors and angel investors are each limited to 2,000 ringgit ($490.80) per issuer without exceeding 20,000 ($4,908) ringgit in a 12-month period. Sophisticated investors — those with a high net worth and extensive market experience — face no restricted investment amount.
The SC report mandates that any business dealings must somehow offer value to Malaysia, such as addressing market needs and problems or streamlining processes and services.
US SEC issues investor alert
As Cointelegraph wrote yesterday, the SEC has nabbed a number of non-compliant ICOs — requiring $13 million in one case — and now looks focussed on IEOs.
Zachary Kelman, managing partner of Kelman Law and expert in regulation law, told Cointelegraph: “This is interesting because it represents a sharp pivot away from Malaysia's originally anti-crypto position back in 2017.” Kelman continued to confirm that “Regulating IEOs rather than ICOs is a slightly lower risk proposition.”
An IEO-hosting exchange may need various forms of approval, including licensure by the commission. Moreover, IEOs and/or their participants must be able to prove dutiful consideration of federal securities laws or potentially face penalties. The report added, “There is no such thing as an SEC-approved IEO.”
UPDATE Jan. 17 22:00 UTC: This article has been updated with comments from Zachary Kelman received after publication.