Malaysia is a relatively open economy and one of the most attractive and diversified emerging industrialized countries in Asia and the world's emerging market economies. Among them, Labuan, Malaysia, belongs to the federal territory of Malaysia and is an international offshore financial center.This article will sort out two licenses in Malaysia’s financial regulation that are closely related to the crypto industry:1. Money broker license issued by Labuan Financial Services Authority (LFSA) of Malaysia2. RMO license issued by the Securities Commission of Malaysia (SC)
Money Broker License
Labuan Island is located in the southwest of Sabah, Malaysia. It is an international commercial and financial center that mainly develops offshore activities such as offshore banking, insurance, trust and fund management, offshore investment holding and other activities of multinational companies. Labuan offshore business has compliance, operational flexibility and cost advantages.The Labuan Financial Services Authority (LFSA) of Malaysia was established in 1996. It is Malaysia's offshore financial regulatory agency. Its main regulatory function is to issue licenses to companies in the Labuan International Business and Financial Centre (Labuan IBFC) and supervise licensed entities. The currency brokerage license issued by LFSA is applicable to foreign exchange market transactions, exchanges and projects in the ICO and STO industries. After obtaining the license, it can engage in currency-to-currency, currency-to-fiat currency, and fiat-to-currency transactions. In recent years, it has become a license that brokers in Asia are competing for.Unique advantages1. 100% foreign-owned, no Malaysian participation required.2. Only a 3% tax rate is charged on the company’s net profit.3. There is no withholding tax on interest, management fees, brand fees and technical fees.4. There is no foreign exchange control.5. No stamp duty and consumption tax.6. There are no import and export taxes, sales taxes, or value-added taxes.7. There is no inheritance tax or net profit tax.8. Shareholders do not need to pay personal income tax on dividends.9. Signed double taxation agreements with more than 70 countries.10. Professionals and executives are exempted from 50% of personal income tax.11. Foreign directors are 100% exempt from personal income tax.12. You can apply for two work visas and your whole family can stay in Malaysia.Application requirements1. The minimum capital shall not be less than 50 Ringgit or other equivalent foreign currency.2. Labuan FSA will also consider the applicant’s risk profile, the nature, size, complexity and diversity of its business activities.3. The applicant is required to set up a physical office in Labuan equipped with office equipment and used for commercial business purposes.4. The company's controller, supervisor and chief executive officer must meet the suitability requirements.5. Establish an appropriate internal control system within the company to oversee business operations, compliance, corporate governance and risk management.6. Ensure that the company’s (currency broker’s) prime broker or liquidity provider is a compliant and regulated institution.7. Have an external auditor certified by Labuan to conduct annual financial audits and report to FSA.8. Keep transaction records and account records, keep monthly customer funds records, and do not misappropriate customer funds.9. The numbers/systems must have IT technical support.10. Comply with KYC requirements, conduct due diligence on customers, disclose counterparty risk levels to customers, clarify the pricing of financial instruments, and ensure that risk buffer mechanisms such as stop-loss orders are established. RMO license A currency broker license has its unique advantages, but as Malaysia updates its regulation of the crypto industry, simply having a currency broker license does not mean that you can operate a crypto business in Malaysia in full compliance.In August 2021, the Securities Commission of Malaysia (SC) issued an announcement on its official website, taking enforcement action against Binance for illegally operating the Digital Asset Exchange (DAX). The announcement stated that according to Sections 8(2007) and 7(1) of the Capital Markets and Services Act 34,All DAX operators must be registered by the SC as Recognized Market Operators (RMO).Cryptocurrency-related activities are legal in Malaysia, but must be subject to dual supervision by the local central bank and the Securities and Exchange Commission.On January 2019, 1, the Malaysian SC also issued the Capital Markets and Services (Securities Regulations) (Digital Currency and Digital Token) Act 14.The decree classifies crypto assets such as digital currencies and digital tokens as securities and places them under the authority of the Securities Commission and regulated by the SC.Anyone operating a digital asset platform must apply to the SC to register as a Recognized Market Operator (RMO) and obtain a Malaysia RMO Licence.What is an RMO license?RMO stands for "Recognized Market Operator", which is a "Recognized Market Operator (Digital Asset Exchange)" license. The RMO license is regulated by the Securities Commission of Malaysia (SC) and allows investors to engage in commercial activities such as buying, selling and storing cryptocurrencies.According to the SEC’s guidelines, recognized markets basically encompass alternative trading venues, markets or facilities that bring together buyers and sellers of capital market products.The SC may impose terms and conditions on the RMO that are commensurate with the risk profile, nature and scope of the proposed recognised market operations.In Malaysia, there are currently three recognized market types: a) equity crowdfunding, b) peer-to-peer lending, and c) digital asset trading.Application conditions1. RMO needs to provide information technology assurance regarding the status of the trading system.2. A written statement from the internal auditor or head of the RMO confirming that the registered risk management organization complies with the following specifications:(1) Having sufficient human, financial and other resources to carry out business;(2) adequacy of securities practices, system capabilities, business continuity plans and procedures, risk management, data integrity and confidentiality, record keeping and audit trails, daily operations, and response to emergencies;(3) Adequate information technology and technical support.3. There must be at least one responsible person. The person appointed as the responsible person must be the RMO or any person primarily responsible for its operational and financial management. The responsible person must always assume the role of the primary contact person to liaise with the SC and perform any duties that the SC may direct.4. RMO must be structured as a corporate body.Compliance obligations1. Supervise and ensure compliance with relevant regulations;2. Ensure fair treatment of its users;3. Ensure that all disclosures are fair, accurate, clear and not misleading;4. Obtain and retain the self-declared risk confirmation form before the user invests in the approved market;5. Disclose to investors in advance any losses resulting from such transactions or investments made through recognized markets that investors are not covered by the Capital Market Compensation Fund;6. Ensure that all payable fees are fair, reasonable and transparent;7. Ensure that it does not engage in any business practices that appear deceptive, oppressive or improper (whether illegal or not) or otherwise reflect badly on the credibility of its business practices;8. Conduct ongoing awareness and education programmes;9. Have procedures in place to monitor anti-money laundering and terrorist financing requirements, including adequate investor onboarding arrangements and processes;10. Disclose and display any relevant information prominently on its platform.
