Digital tokens offering seen as high-risk fundraising method

15 Jan 2020 / 18:47 H.

KUALA LUMPUR: The offering of digital tokens is regarded as a high-risk fundraising vehicle, thus the Securities Commission Malaysia (SC) is imposing a fundraising limit on issuers and an investment limit on investors as stipulated in its Guidelines on Digital Assets released today.

“We recognise this as fairly high risk, so the fundraising limit is calculated as 20 times the shareholders’ funds and subject to a ceiling of RM100 million,” SC executive director of digital strategy and innovation Chin Wei Min said at a technical briefing on Tuesday.

The perceived high risk stems from an untested business model and its non-equity investment nature (unless specified). Unlike traditional equity holdings in a public listed company (PLC), where shareholders can equip themselves with company announcements, disclosures and AGM updates, investors of digital tokens can only refer to what was defined in the whitepapers.

On the fundraising limit, Chin noted that many successful fintech startups do not need massive amounts of funds in its first fundraising activity, citing Ethereum co-founder Vitalik Buterin started with US$18 million, which was sufficient for him to build his first Ethereum engine.

Asked if the limit would bring down Malaysia’s competitiveness, Chin said it does not need to compete with other markets, but is focused on creating a safe place for entrepreneurs to be successful here.

The requirement that issuances can only be effected through a new subsidiary of special purpose vehicle serves to ring fence the offering, added Chin.

For investors’ protection, the SC is limiting retail investors to RM2,000 per offering and RM20,000 total per year; while angel investors are limited to up to RM500,000 total per year. There is no limit for sophisticated investors. Tokens can only be subscribed using ringgit, the only legal tender in the country.

“We want our investors to benefit from the growth of these clever solutions and to benefit our community at large. We give investors and issuers different options that they can consider and it can be a combination of several. We believe a different avenue for issuers to raise funds should give them more pathways to success,” said Chin.

He said SC has a broader repertoire of offerings that allow investors to take, depending on each individuals’ risk appetites, calling investors to assess the issuers’ whitepapers.

Chin said the guidelines encourage the local industry to create creative solutions, and that the digital token’s underlying business or project must solve an industry problem.

“This is an alternative fundraising (avenue) so we want to make sure issuers demonstrate that value proposition to the marketplace,” said Chin.

He emphasised that Initial Exchange Offerings (IEO) operators need to be freshly assessed, including existing Recognised Market Operators (RMOs).

Digital tokens can take any forms, including securities, ability for benefits or certain rights, as long as it is within the prescribed characteristics by the SC.

“If it is structured like a bond, bond rules apply,” said Chin.

Once the guidelines come into force in the second half of the year, existing RMO operators as well as new interested parties can apply to be an IEO operator.

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