Securities Commission Malaysia Issues Cease And Desist Order To CopyCash Foundation – Initial Coin Offering
The Securities Commission Malaysia (SC) has directed CopyCash Foundation to cease all proposed activities, including the launching of Initial Coin offering (ICO) due to the likelihood that it might violate security laws. Besides, no person is permitted to carry out any regulated activities without obtaining necessary approval or authorization from the SC. ICO operators cannot undertake regulated activities without the authorization under financial service laws administered by BNM. Investors are advised to be careful of fraud before participating in ICO schemes, and the SC will take action where necessary. South Korean authorities are considering banning the trade of cryptocurrencies such as the bitcoin.
Regulator: Malaysia’s new Guidelines on Cryptocurrency
Bank Negara Malaysia has draft cryptocurrency regulations. These include requiring businesses to verify their customers’ identities, monitor transactions and report any suspicious activities to authorities. They must also report usage statistics to the central bank. The regulators also acknowledge that while companies use cryptocurrencies, the country does not recognize them as legal tender. At last check the guidelines were not yet posted on SC website.
Govts are still coming to terms with cryptocurrency
Bank Negara in Malaysia is working on guidelines to regulate cryptocurrency. This guideline is aimed to be ready by early 2018. Virtual currency is a medium of exchange, alike the USD, but is not regulated by authorities such as central banks. It has been created for the purpose of digital data exchange via a process that is enabled through cryptography. Blockchain technology is decentralized, and is used to manage transactions for the bitcoin. Its possible to buy property with cryptocurrency, without the need for middlemen. It offers good security being encrypted and digital, with no chance of getting ripped off as compared to using standard payments systems. It also accessible in all markets. Other advantages include lower transaction costs, increased privacy and long-term protection of loss of purchasing power from inflation. Disadvantages include sizeable volatility in bitcoin prices, insecurity due to theft and fraud, and a long-term deflationary bias that encourages the hoarding of bitcoins. It is easier to launder virtual currency.
Cryptocurrency can spur growth, but must be Syariah-compliant
Financial innovations have an impact on Islamic banking and financial sector. Efforts are underway by Syariah advisor councils and national financial organisations to determine the nature, scope and legality of cryptocurrency for financial activities in Malaysia. Cryptocurrency seeks to overcome restrictions of conventional banking and financial practices. Some argue that cryptocurrency was more secure and effective than “conventional banks, which operate using the principle of fractional reserve, which is prohibited by Syariah”. It must be moderated and legally accepted to spur economic internationalisation agenda and comply with Syariah requirements. It must be regulated by a central digital authority to provide a net of safety and transparency to buyers and investors.
Digital currencies remain tricky subject for Islamic finance
The role and status of cryptocurrencies within the Islamic system of values remains a hotly disputed issue in the Muslim world. Egyptian Grand Mufti Shawki Allam said that cryptocurrency was forbidden in Shariah as it causes harm to individuals, groups and institutions, and that such trades would carry risks of fraudulence, lack of knowledge, and cheating, very much like gambling which was explicitly forbidden in Islam. Other countries declaring a similar stance include Algeria, Morocco and Bangladesh. In nations such as Malaysia, Indonesia and even Saudi Arabia accept cryptocurrencies and are currently working on market regulations, though with some slight protests and warnings. UAE and Saudi Arabia central banks launched a pilot initiative in December 2017 to test a new cryptocurrency for cross-border payments. In Dubai, One-Gram was the first company to set up a “Shariah-compliant” cryptocurrency called oneGramCoin and currently runs an Initial Coin Offering. This is because it was backed by gold and thus had intrinsic value, consistent with the need for there to be an underlying asset in Islamic finance.
Cryptocurrency a tax headache for regulators
Cryptocurrency are currently tax-free as digital currencies are yet to be recognized for tax purposes. Before any tax treatment can be imposed, the government will first have to define cryptocurrency. In the US, its Internal Revenue Service treats cryptocurrencies as a property, similar to bonds, for tax purposes and are subjected to capital gains tax. Every individual or business that owns cryptocurrencies will need to pay taxes on gains made upon the sale of cryptocurrencies, on gains made upon the purchase of a good or service with cryptocurrency and on the fair market value of any mined cryptocurrency. Singapore IRAS recognizes it as a service, and is subjected to the GST. Inland Revenue Board in Malaysia is trying to understand how cryptocurrency works, which parties are involved in it and how they should be taxed, as they can only tax when it knows how the profits are being made.
It is unlikely that individuals in Malaysia would be taxed for holding cryptocurrencies due to the difficulty in tracking the users. Since there is no capital gains tax in Malaysia, it is unlikely that holders would be taxed on long-term gains such as in US.