Malaysia issues regulations for IEOs, bans ICOs

Malaysia issues regulations for IEOs, bans ICOs

Securities Commission Malaysia (SC) issued guidelines for initial exchange offerings (IEOs) and in the process appear to have outlawed initial coin offerings (ICOs).

On Wednesday, Malaysia’s financial watchdog published a set of guidelines that will regulate and legalize IEOs in the country. Per the new rules, only cryptocurrency exchanges that meet specific requirements will be allowed to conduct IEOs.

Requirements for IEO platforms

What that means is that crypto exchanges that wish to host IEOs will be required to work with the SC to assess and perform “due diligence” on both token issuers and the merits of the tokens themselves.

To be eligible for becoming an IEO operator, a crypto exchange must:

  • Have a minimum paid-up capital of RM 5 million [US$1.2 million]
  • Be incorporated in Malaysia (unless otherwise instructed)
  • Maintain a trust account for all funds received from IEO investors
  • The trust account must be with a licensed Malaysian financial institution

In addition, any exchange that wants to be able to trade IEO tokens will be required to get a DAX (Digital Asset Exchange) platform license.

More requirements and limitations

More requirements and limitations

Like IEO platforms, the new regulations require that IEO token issuers be incorporated in Malaysia and have a minimum amount of paid-up capital – in this case, RM 500,000 [$122,000].

Issuers are also required to carry out its main business locally and have – at all times – at least two directors whose primary residence is in Malaysia.

The new guidelines also include limiting clauses for both retail investors and angel investors:

  • Retail investors: RM 2000 [$491] per IEO or RM 20,000 [$4,916] total per year
  • Angel investors: RM 500,000 [$122,000] per year
  • “Sophisticated” investors: no limit

New regulations make ICOs illegal in Malaysia

Per the SC, the newly introduced guidelines will aid IEO platforms and regulators in determining if a cryptocurrency token’s underlying project boasts “an innovative solution or a meaningful digital value proposition” for market sectors that already exist.

As an IEO will be the only possible way for token sales to be conducted, ICOs are now illegal in Malaysia. The country has joined the list of only a handful of jurisdictions that have turned to regulated cryptocurrency token sales.

The newly introduced crypto token sale regulations will go into effect sometime in the second quarter of this year, 2020.

While Malaysia may be taking steps to regulate IEOs, no such efforts are yet being made in the United States.

Just yesterday, the U.S. Securities and Exchange Commission (SEC) issued an official notice about IEOs to investors warning them not to invest in the token offerings.

Little explanation or clarity was given other than to say that many IEOs “may” be classified as securities offerings.

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