The Securities Commission (SC) has issued a Practice Note allowing licensed stockbrokers to offer digital asset trading under existing regulatory frameworks, rather than introducing a new license category. The guidelines clarify how digital assets meeting prescribed criteria should be treated and outline safeguards to protect market integrity and client interests.
Integrating Digital Assets into the Securities Framework
The Practice Note applies to Capital Market Services Licence (CMSL) holders authorised to deal in securities, including those limited to listed securities. It is based on the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, which recognises certain digital currencies and tokens as securities when specific conditions are met.
Brokers may offer digital asset services only for SC-approved assets and must comply with additional requirements set by the regulator. The SC retains discretion to grant exemptions or variations as long as regulatory intent is upheld.
Requirements for Brokers
Before offering digital asset services, CMSL holders must notify the SC with a formal declaration confirming that their operations align with SC guidelines. The declaration must be validated by an independent auditor registered with the Audit Oversight Board. All documentation must be submitted to the SC’s Intermediary Supervision Department before services begin.
Trading Rules
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Digital assets may only be sourced from SC-registered local exchanges or from foreign platforms regulated in jurisdictions aligned with Financial Action Task Force (FATF) standards.
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Brokers must conduct thorough due diligence on foreign platforms, including verification of licensing, anti-money laundering (AML), counter-terrorism financing (CTF), and counter-proliferation controls.
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Only SC-approved digital assets may be traded, and all transactions must be on a cash upfront basis. Margin trading or lending of digital assets is prohibited.
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Brokers cannot exercise discretionary control over client accounts.
Protecting Client Assets
Client assets, including both fiat and digital assets, must be fully segregated from the broker’s own assets. Digital assets must be held with an SC-registered custodian, unless prior approval is granted to use a foreign custodian. Any income or yield generated by client assets must belong to the client unless explicitly agreed otherwise.
Client Disclosures
Brokers must provide clear and meaningful disclosure to clients, including details on:
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Administrative controls and business continuity arrangements
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Handling of blockchain events, such as hard forks and airdrops
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Custody and management of clients’ digital assets
Operational and Risk Expectations
CMSL holders must ensure they have sufficient manpower, expertise, and operational capabilities to manage risks associated with technology, ownership structures, and operational processes. Governance and risk management frameworks must meet standards applied across other regulated capital market activities.
A Structured and Cautious Approach
The Practice Note establishes a structured framework for licensed brokers to participate in digital asset trading in Malaysia. By embedding digital assets within existing securities regulation and reinforcing client protection principles, the SC aims to maintain orderly market conduct and ensure regulatory oversight.
