On 26 August 2024, the Securities Commission Malaysia (“
SC”) issued
Practice Note No. 1/2024 – Digital Asset Custodian Specified as “Custodian” under section 121(g) of the Capital Markets and Services Act 2007 (“
P.N. 1/2024”) which took effect immediately upon its issuance.
Subdivision 4 of Division 4 of Part III (sections 120 to 124) of the Capital Markets and Services Act 2007 (“
CMSA”) sets out specific provisions applicable to a holder of a Capital Market and Services Licence which carries on fund management business (“
fund management company”).
Among other obligations under Subdivision 4, section 122(1) of the CMSA requires a fund management company to open a trust account
1 for its clients’ assets
2 and to make arrangements for a custodian to maintain such trust account.
Section 121 of the CMSA sets out various categories of entities that are deemed to be “custodians” in relation to the client of a fund management company, including any person specified
3 as a “custodian” by the SC under paragraph (g) of section 121.
Pursuant to section 121(g), the SC issued P.N.1/2024 wherein it has specified that a Digital Asset Custodian registered with the SC
4 (“
registered DAC”) is a “custodian” and that a fund management company may deposit its client’s digital assets
5 with a registered DAC.
While the specification of registered DACs as custodians of digital assets is a welcomed development, it is a natural extension of the Malaysian Government’s decision to allow digital assets
6 to be traded on registered digital asset exchanges
7 and digital tokens to be offered through electronic platforms operated by registered Initial Exchange Offering operators
8.
Alert by Phua Pao Yii (Partner) of the Corporate Practice and Lee Ai Hsian (Partner) of the Fintech Practice of Skrine.
1 The expression “trust account”, as defined in section 121 of the CMSA, includes, inter alia, a property account which is kept with a custodian.
2 The expression “client’s assets”, as defined in section 121 of the CMSA, includes monies or other property received or retained by, or deposited with a fund management company received in the course of its business for which it is liable to account to its client, and includes property deposited with or held by a custodian for which it is liable to account or deliver to the client.
3 For the purposes of section 121(g) of the CMSA “specify” means specified in writing by the SC.
4 Any person who provides the services of safekeeping, storing, holding or maintaining custody of digital assets for the account of another person is required to be registered as a Digital Asset Custodian with the SC pursuant to section 76A of the CMSA. The detailed requirements relating to the registration and obligations of a Registered DAC are set out in the
Guidelines on Digital Assets.
6 The concurrence of the SC must be obtained before a digital asset can be offered for trading on a digital asset exchange. The SC’s concurrence is not required if the digital asset is already offered on any other digital exchange platform.
8 An Initial Exchange Offering platform operator is required to be registered with the SC under the Guidelines on Digital Assets and upon such registration, is deemed to be registered as a recognised market operator under section 34 of the CMSA.