On 15 January 2020, the Securities Commission of Malaysia (“SC”) have published the Guidelines of Digital Assets (“Guidelines”) after months of consultation with stakeholders. The Guidelines introduced the concept of Initial Exchange Offering (“IEO”) and sets out the requirement for:
(a) an issuer seeking to raise funds through digital token offering; and
(b) the registration of a platform operator to operate an IEO platform.
Requirements for Digital Token Offering
With the issuance of the Guidelines, the SC formally recognises digital token offering as an avenue for fund raising by companies. In order to raise funds through a digital token offering, the company seeking to raise fund, or in other words, the issuer:
(a) must be a company incorporated in Malaysia, which does not include an exempt private company and public listed company;
(b) must have its main business operations in Malaysia;
(c) must have a minimum paid-up capital of RM500,000.00;
(d) must have at least two (2) directors whose principal or only place of residence is in Malaysia;
(e) submit a Whitepaper to be approved by the IEO operator; and
(f) must demonstrate to the IEO operator that the digital token’s underlying business or projects provides an innovative solution or a meaningful digital value proposition for Malaysia.
In addition to the requirements as stated above, the issuer must fulfil the following obligations:
(a) submit to the IEO operator fit and proper declaration of its board and senior management team;
(b) retain all relevant documents and agreements related to the digital token offering for a period of seven (7) years;
(c) provide confirmation to the SC that the utilisation of proceeds is as stated in the Whitepaper;
(d) prepare and cause to be published on the IEO platform of an annual and semi-annual report; and
(e) must ensure all information disseminated for marketing or promotion is consistent with the contents of its Whitepaper.
Requirements for Registration of an IEO Operator
A person who wishes to operate an IEO platform must fulfil the following requirements:
(a) must be a locally incorporated company;
(b) must have a minimum paid up capital of RM5,000,000.00;
(c) must ensure that its board members and management team are fit and proper persons; and
(d) must appoint at least one (1) responsible person who possesses a minimum of five (5) years’ experience in carrying out due diligence, assessment on business proposals and fundraising or any other similar experience.
In addition to the requirements as stated above, an IEO operator is obligated to conduct the following:
(a) carry out due diligence and critical assessment on an issuer;
(b) assess the Whitepaper furnished to it by the issuer;
(c) make available all information and pertaining to the issuer, including the Whitepaper readily available through its platform;
(d) monitor the drawdowns of proceeds by issuer and to that it has been utilised for the purposes as stated in the Whitepaper;
(e) have in place proper rules and procedure for the offering of digital token on its platform;
(f) identify and manage risks associated with its business and operations, including having in place an effective business continuity plan;
(g) establish and maintain policies to effectively and efficiently manage actual and potential conflict of interest and to ensure compliances with all relevant laws, regulations, guidelines and by-laws; and
(h) establish systems and controls to maintain an up to date records of any monies or digital assets held in relation to the investor.
Limit to Funds Raising and Investment Limits
Under the Guidelines, there are limits as to how much funds an issuer may raise. The limit is calculated by taking the total issuer’s shareholder funds multiply by 20 within any continuous twelve (12) months period. The limit is also subject to a ceiling of RM100 million.
Further, the Guidelines also specified the investment limits a person may invest in digital token offerings:
(a) Sophisticated investors – no restrictions;
(b) Angel investors – a maximum of RM500,000 within a twelve (12) months period; and
(c) Retail investors – a maximum of RM2,000 per issuer with a total investment limit not exceeding RM20,000 within a twelve (12) month period.
Our Observations
With the issuance of the Guidelines by the SC, there is now certainty and procedure in place for matters pertaining to digital token offering. The issuance of the Guidelines is a positive step towards embracing the fourth industrial revolution as with the Guidelines, it will generate more interest for companies, especially the small and medium enterprises to utilise digital token offering as an alternative means to raise funds. This development will certainly have an impact in how companies structure their fundraising roadmap which can be beneficial to the nation’s economy as a whole.
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