The new Malaysian regulation has been compiled after a great deal of thought. The SC originally released a consultation paper asking for feedback. After careful consideration, the regulatory body decided that IEOs were the best way forward for cryptocurrency companies looking to raise funds.
The Securities Commission cites overwhelming industry support for allowing platform operators to oversee and issue digital tokens for fundraising. In essence, IEOs are very similar to ICOs. The key difference is that they are carried out through a cryptocurrency exchange rather than a solo token issuer.
While this doesn’t guarantee the success of the project, it does have some benefits for investors. For example, under the new Malaysian regulation, exchange operators are obliged to carry out their own due diligence on the offerings they list. They must also assess the viability and characteristics of the token – something that can be hard for individual retail investors.
According to the guidelines, the new regulation will come into force in the second half of 2020. The SC will also work alongside cryptocurrency exchange operators to assess eligible issuers.
Who is eligible to act as an IEO operator?
Not just any exchange can act as an IEO operator. First of all, the platform must obtain the necessary permission from the Securities Commission. Moreover, even before the new guidelines come into effect, it is now illegal for any individuals to engage in the act of holding an ICO.
IEO operators must also meet certain requirements under the impending regulation. They must have a minimum paid-up capital of RM 5m (about $1.2m) and be locally incorporated in Malaysia – unless extenuating circumstances are approved by the SC.
IEO operators must also maintain a trust account for funds received from investors that is licensed by a Malaysian financial institution.
If the operator is also going to trade the digital assets they issue, they must register separately as a Digital Asset Exchange (DAX) platform operator.
What about token issuers in Malaysia?
There are also several stipulations for token issuers under the new law. They must have a physical presence in the country (be locally incorporated) with at least two executive employees whose principal residence is Malaysia. They must also possess a minimum paid-up capital of RM 500,000 ($125,000).
Furthermore, in order to be approved as a token issuer, the project must demonstrate that it provides meaningful digital value or an “innovative solution” for Malaysia.
‘Innovative’ is classified as projects that “provide a solution or addresses an existing market need or problem” or “improve the efficiency of an existing process or service undertaken by the issuer or the industry”.