Stablecoin issuer / redeemer in Labuan (Malaysia)

Labuan Financial Services and Securities Act 2010 (LFSSA 2010)

Guidance Note on the Offering and Trading of Digital Assets in Labuan IBFC (the DA Guidance Note): This is the most crucial document, specifically outlining the regulatory requirements for digital asset businesses. It was initially issued in 2019 and may undergo updates.

For Digital Asset Exchanges (DAX):

This license permits the licensee to:

For Custody Providers:

For Payment Processors (involving Digital Assets):

Crypto-to-Crypto or Crypto-only Payments: If the service solely involves processing payments in digital assets without converting to or from fiat currency, it would likely fall under the scope of a Labuan Digital Asset Business or specific approvals from LFSA under the DA Guidance Note, focusing on the transfer and settlement aspects of digital assets.

Fiat-to-Crypto / Crypto-to-Fiat Payments (Remittance/Money Changing): If the payment processor facilitates the exchange of fiat currency for digital assets, or vice-versa, or offers remittance-like services using digital assets, it would typically require a Labuan Money Broking License in addition to or in conjunction with being regulated as a digital asset business. A Labuan Money Broking license covers money changing and remittance services.

It is crucial to clarify the exact nature of the payment processing activity with LFSA during the pre-application stage.

The DA Guidance Note does not specify a fixed minimum paid-up capital for all digital asset businesses but requires capital commensurate with the proposed business activities, scale, and risk profile.

For full-fledged digital asset exchanges or complex operations, LFSA will expect significantly higher capital, potentially in the range of RM 500,000 to RM 1,000,000 or more, depending on the business model and risk assessment.

Strict compliance with AMLA 2001 and LFSA's AML/CFT guidelines.

Entity Type: Must be incorporated or registered as a Labuan company under the Labuan Companies Act 1990.

Physical Presence: Must have a substantive presence in Labuan.

Capital Requirements: Maintain adequate paid-up capital and working capital, as determined by LFSA based on the nature, scale, and complexity of the business (Section 4.1.3 & 5.1).

Fit and Proper Criteria: Directors, controllers, and key management personnel must meet LFSA's "fit and proper" criteria (Section 4.1.5 & 4.1.6).

Section 5.3.1 (e): "The entity shall establish robust internal controls and safeguards to segregate and protect clients' assets from its own assets. Client funds and digital assets must be held in designated segregated accounts or wallets and must not be commingled with the company's proprietary assets."

Section 5.3.1 (e): Implies the need for safeguards to protect client assets, which can include various risk mitigation strategies, potentially including insurance coverage for certain risks (e.g., cyber theft) as part of a comprehensive risk management framework.

Section 5.3.1 (g): "The entity shall implement appropriate and comprehensive cybersecurity measures and controls to safeguard clients' digital assets from theft, loss, and unauthorised access, which include, but are not limited to, the use of secure private key management, multi-signature wallets, and cold storage for a significant portion of digital assets."

This explicitly mandates the use of cold storage (offline storage) for a significant portion of digital assets, alongside other security measures like multi-signature wallets and robust private key management.

Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA 2001): This is the cornerstone legislation. It imposes obligations on reporting institutions (which include VASPs) to detect, deter, and report suspicious transactions, and to implement robust AML/CFT measures, including sanctions screening.

Customer Due Diligence (CDD) / Know Your Customer (KYC)

Risk-Based Approach: VASPs must adopt a risk-based approach to CDD, meaning the intensity of verification should be commensurate with the assessed money laundering/terrorism financing risk of the customer, product, service, or transaction.

Enhanced Due Diligence (EDD): Apply EDD for higher-risk customers and transactions, including:

Ongoing Monitoring: Regularly scrutinize transactions undertaken throughout the course of the relationship to ensure consistency with the VASP’s knowledge of the customer, their business, and risk profile. This includes reviewing CDD information periodically.

Beneficial Ownership: Identify and take reasonable measures to verify the identity of the beneficial owner(s) – the natural person(s) who ultimately own or control the customer, or the natural person(s) on whose behalf a transaction is being conducted. This is particularly critical for VASPs dealing with potentially opaque structures.

Evidence fact lb.aml.reporting-of-suspicious-transactions-strs not found (may have been renamed).

Labuan Business Activity Tax Act 1990 (LBATA):

3% of net audited profit; OR

A fixed sum of RM20,000 (Ringgit Malaysia Twenty Thousand) if the Labuan entity meets the substance requirements (e.g., adequate full-time employees, annual operating expenditure) and elects this option.

Substance Requirements: For a Labuan entity to qualify for the preferential 3% tax rate or fixed sum, it must comply with substance requirements set by the Labuan Financial Services Authority (LFSA) under the Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018. This includes having an adequate number of full-time employees in Labuan and an adequate amount of annual operating expenditure in Labuan, proportionate to the level of activity.

Service Tax: Service Tax is imposed on taxable services provided by a taxable person in Malaysia.

The Royal Malaysian Customs Department (RMCD) has indicated that exchange services (brokerage, matching services) involving cryptocurrency could be subject to Service Tax if provided by a taxable person.