Alumni Admin – AzmiLaw Alumni

Asni Che Abd. Aziz

Alumni Admin — Tue, 28 Feb 2023 05:26:39 +0000

Tell us a bit about your background?
I initially grew up in Kota Bharu, Kelantan and later, at a tender age of 13, attended Tunku Kurshiah College, a secondary boarding school in Seremban, Negeri Sembilan. I graduated from International Islamic University Malaysia with a Bachelor of Laws, followed by a Postgraduate Diploma in Syariah and Legal Practice and consequently, a Master of Laws (Business) from the same institution. In 2015, I moved to London for about a year to pursue my second Master of Law at The London School of Economics & Political Science. I returned to Malaysia for approximately 5 years and migrated to the United Kingdom again in 2021. I am currently based in Newcastle upon Tyne. I have just started my doctoral studies (Ph.D. Law) at Durham University in January 2023 and I am also in the midst of working towards gaining a dual qualification as a solicitor in England & Wales.

Overall, I have approximately 17 years of PQE with a broad range of experience as an in-house legal counsel in multiple industries, ranging from telecommunication, broadcast and media, information & communication technology, tech-hub enabler, airport management, oil & gas to engineering. My professional credentials also include my experience as a corporate practicing lawyer with AzmiLaw and a brief stint with a regulatory body, Bursa Malaysia.

What was your proudest moment or greatest achievement while at AzmiLaw?
As a young lawyer then, I was very fortunate to have been given valuable opportunities to undertake domestic and cross-border transactions as well as to manage people at various levels including board of directors, top management, stakeholders, lawyers, regulators, financiers and clients from local and abroad. However, if I were to pick one, my proudest moment would be when I had the privilege of giving back to my state, Kelantan by rendering legal services to several government agencies and authorities such as Perbadanan Menteri Besar Kelantan and Air Kelantan.

Describe your present job and position in more detail.
I am currently working for WSP in the UK as Commercial Advisor (UK Legal Team), based in Newcastle. WSP in the UK is a leading engineering professional services consulting firm which supports significant projects in both the built and natural environments and serves public and private sector clients in transportation and infrastructure, property and buildings, environment services, water, energy and industry as well as strategic advisory offering.

What aspect of your current job do you like the most?
I love the nature/subject matter of assignments/work, learning curve, time flexibility, hybrid working approach, empowerment and support that it offers.

How has your time at AzmiLaw benefited your professional life?
In addition to a good education, I strongly believe that a solid foundation and right mentor(s) are essential in building a successful career. Again, I was lucky to kick-start my legal profession by doing pupillage at AzmiLaw under direct supervision of Dato’ Azmi Mohd Ali, the Senior Partner. At AzmiLaw, I was not burdened with administrative or clerical duties but was trained as a proper lawyer from the beginning – the quality and volumes of work given, the trainings provided, the knowledge/skills shared by the senior lawyers and the work ethics/values instilled by the firm had all laid strong fundamentals for me to advance further in this field.

Why do you believe it’s crucial for AzmiLaw alumni to be a part of the network?
It would be very important for AzmiLaw alumni to be part of the network as it offers opportunities for knowledge/idea/information sharing, career building, business connections and long-lasting personal relationships.

What advice would you give others about the value of being part of an alumni network?
Michelle Obama, in her book, Becoming said this, “I’ve been lucky enough now in my life to meet all sorts of extraordinary and accomplished people – world leaders, inventors, musicians, astronauts, athletes, professors, entrepreneurs, artists and writers, pioneering doctors and researchers. Some (though not enough) of them are women. Some (though not enough) are black or of color. Some were born poor or have lives that too many of us would appear to have been unfairly heaped with adversity, and yet still they seem to operate as if they’ve had every advantage in the world. What I’ve learned is this: All of them have had doubters. Some continue to have roaring, stadium-sized collection of critics and naysayers who will shout I told you so at every little misstep or mistake. The noise doesn’t go away, but the most successful people I know have figured out how to live with it, to lean on the people who believe in them, and to push onward with their goals.” So I believe that this alumni network would be the perfect circle for us to lean in, be it for personal development or professional growth.

How do you contribute to creating a better workplace?
I contribute to creating a better workplace by exercising kindness and empathy. Too often we underestimate the power of these values!

What do you want to be remembered for? Is there some sort of legacy you want to leave?
Have you ever watched Legally Blonde and its sequel, Legally Blonde 2: Red, White & Blonde? If yes, you would be familiar with Elle Woods, the main character of the films, which was successfully portrayed by a brilliant American actress, Reese Witherspoon. Elle Woods is a member of a sorority, an informal female network or sisterhood whose purpose, amongst others, are to find intellectual and social companionship among each other. Legally Blonde ultimately centered around female friendship, from Delta Nu to Neptune’s Beauty Nook, the movies illustrate how magical and positive women’s presence and the bond of sisterhood can be. I personally share the same view. Growing up, I spent approximately 11 years in all girls schools, from I was 7 years old up until 17 years old. Therefore, this cause of female empowerment is very dear to my heart. What’s more, I now have two daughters myself. As such, I would like to continue contributing to women and society as a whole, especially in Malaysia, by consistently advocating for women empowerment through my legal expertise or otherwise.

Participation of Foreign Contractors in Construction Projects in Malaysia

Alumni Admin — Tue, 13 Dec 2022 05:04:52 +0000

Introduction

In recent years, Malaysia’s construction industry has been on the rise with a whole host of newly-announced large scale projects which is seen as ongoing momentum to the industry growth. Given the expansion scale of the market, it is unsurprising that overseas market players, particularly foreign contractors have targeted at the opportunities offered by Malaysia’s construction industry. This article aims to provide an overview on the compliance of foreign contractors with the registration requirements of the Malaysia statutory authority.

Regulatory Body

The Construction Industry Development Board (“CIDB”) is a body corporate established under the Construction Industry Development Board Act 1994 (“Act”) and is an agency under the Ministry of Works, Malaysia (Kementerian Kerja Raya Malaysia). The main functions encompass advisory, regulatory and to oversee the development and promote quality assurance in the construction industry. The mission of the CIDB is achieved largely through the accreditation and registration of contractors who engage in construction projects in Malaysia and the levy which it imposes on the substantive construction projects.

Registration Requirement under CIDB Act

Under Section 25 of the Act, no person shall undertake any construction works unless he is registered and holds a valid certificate of registration issued by the CIDB. “Construction works” are defined in Section 2 of the Act to cover “the construction, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling, or demolition of:

a) any building, erection, edifice, structure, wall, fence or chimney, whether constructed wholly or partly above or below ground level;

b) any road, harbour works, railway, cableway, canal or aerodrome;

c) any drainage, irrigation or river control works;

d) any electrical, mechanical, water, gas, petrochemical or telecommunication works; or

e) any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct. culvert,
drive, shaft, tunnel or reclamation works

and includes –

(A) any works which form an integral part of, or are preparatory to or temporary for the works described in paragraphs (a) to (e), including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping.

(B) procurement of construction materials, equipment or workers, necessarily required
for any work described in paragraphs (a) to (e);

Section 29 of the Act states that a person who does not comply with the registration requirement could be liable to a fine not less than RM10,000 but not exceeding RM100,000 and Section 30 confers the power to the CIDB to serve on the contractor by notice in the prescribed form requiring him to abstain from commencing or proceeding with the construction works. Contractors who failed to comply with the notice shall be guilty of an offence and shall, on conviction, be liable to a fine not exceeding RM5000, and in the case of a continuing offence, to a fine not exceeding RM1000 for every day or part of a day during which the offence continues after conviction.

Definition of Foreign Contractor

Registration as Foreign Contractor

Registration as foreign contractor will be required where a foreign construction company participates in a construction project on its own capacity or without any joint venture with local construction company.

Foreign contractor registration will generally involve two stages.

First, if a foreign contractor was never registered with the CIDB, the company is required to submit a pre-registration application to the CIDB.
Second, a foreign contractor will be required to apply for a Provisional Registration Certificate (PRC) for the permission to participate in a tender exercise as specified in the PRC using Form R2 (Participation of Tender in Malaysia Registration Application Form);
After the foreign contractor is offered with the Letter of Award, application for Registration Certificate (RC) is required to be submitted using Form R3 (Projects Awarded in Malaysia Registration Application Form).

The registration procedure and conditions for foreign contractor can be summarised in the table as follows.

	Provisional Registration Certificate (PRC) (Form R2 Application)	Registration Certificate (RC) (Form R3 Application)
Purpose of Registration	To participate in tender of construction project in Malaysia.	To execute and undertake construction projects in Malaysia.
Registration Requirement	1) Submission of the following document/information to the CIDB: a) Tender advertisement or invitation letter from client; b) Company’s construction experience; and c) Certificate of registration with the Company Commission Malaysia (CCM) or a copy of the company registration from the country of origin. Note: The approval of the pre-registration application does not allow the company to participate in any tender nor any construction work. 3) Financial resource of minimum RM750,000 / equivalent to the value of the currency of the country of origin. (i.e. minimum paid-up capital of RM750,000); if the company is not registered with the Company Commission Malaysia (CCM) or is without any paid-up capital, a copy of the company’s current account statement has to be submitted. 4) Employment of at least one (1) Malaysian citizen with the academic qualification in a construction related field as technical personnel.	1) Submission of the following document/information to the CIDB: (a) Certificate of registration with the Company Commission Malaysia (CCM); (b) Letter of Award for the particular project and such a project will be specified in the Registration Certificate; (c) A copy of at least two (2) Malaysian technical persons’ bachelor degree certificate. The degree must be in a construction related field. At least one technical person must have at least five years of experience in construction. (Years of experience to be derived from the date of completion of the bachelor degree). 2) Prior to this application, foreign contractors registering with the CIDB for the first time has to submit a pre-registration application to the CIDB. Note: The approval of the pre-registration application does not allow the company to participate in any tender nor any construction work. 3) Minimum paid-up capital of RM750,000; if the company is registered with the Company Commission Malaysia (CCM) as a Branch office without any paid-up capital, the company is required to declare the latest financial documents of the company registered in the country of origin. 4) Employment of at least two (2) Malaysian citizens with bachelor’s degree or above in the construction field; and one of them must possess more than five years relevant experience in construction industry.
Fees and Charges	Processing fee: RM50 Registration fee: RM500	Processing fee: RM50 Registration fee: RM5,000
Certificates upon Successful Application	Provisional Registration Certificate (“PRC”)	Registration Certificate (“RC”)
Conditions for Holder of Certificates	1) The Certificate cannot be transferred; 2) The Provisional Certificate of Registration shall be valid only until the deadline or extended deadline for the tender in question; 3) The certificate cannot be used for carrying out any other tender except the one being specified in the Certificate; and 4) The applicant is required to submit an application for a Registration Certificate for Foreign Contractor upon successful in the bid as a foreign contractor before starting any work.	1) The Certificate cannot be transferred; 2) The validity period for a Registration Certificate is as indicated in the Certificate itself in accordance with the letter of award submitted earlier and if for any reason the date of completion of the project is extended, the contractor has to apply to the CIDB for an extension of the validity of the Certificate; and 3) The Registration Certificate allows the holder to execute only the project specified in the certificate.

Source: CIDB Requirements and Procedure on Contractor Registration, July 2018

Joint Venture between Foreign Contractor and Local Contractor

It is also common for foreign contractors to enter into joint venture arrangements with local construction companies in Malaysia to undertake construction activities. The procedure for registering the joint venture with the CIDB and whether the joint venture parties are required to incorporate an entity in Malaysia (a joint venture company) to jointly undertake the construction project work in Malaysia depend on:

a) Whether the foreign contractor’s interests exceed the applicable foreign participation threshold (see Table 1 above); and

b) Whether the local construction company (the local partner) of the joint venture is currently registered with the CIDB.

Conclusion

The construction industry is one of the most crucial industries for a country’s development and growth. Recognising the importance of the industry for the country’s long term sustainable growth, the Malaysian government is always active in formulating rules and policies to monitor and regulate the construction industry. Foreign contractors are strongly advised to comply with the requirements of CIDB and other laws and regulations.

Written by: Lee Kin Hing

Corporate Communications
Azmi & Associates
13 December 2022

Avoiding Cartel Under Malaysian Competition Law: Tips for Companies

Alumni Admin — Tue, 13 Dec 2022 04:13:39 +0000

The Malaysia Competition Commission (“MyCC”) has recently imposed financial penalties for RM1.04 million against 7 warehouse operators (“Parties”) for engaging in a price-fixing cartel. The parties were found to have infringed the prohibition under Section 4 of the Competition Act 2010 (“CA2010”) by participating in an agreement which has, as its object, the prevention, restriction or distortion of competition in relation to the market of the provision of handling services of long length and heavy lift of import and export cargoes at Port Klang, Malaysia from 22 May 2017 until 9 January 2020 (“Infringing Agreement”).

Among the key evidences relied on by MyCC to prove the existence of cartel in this case were the:

(a) WhatsApp Messages: existence of a WhatsApp group chat being a platform of discussion for the Parties on the fixing of surcharges.

(b) Surcharge Memorandum: usage of a Surcharge Memorandum which was also extended to the respective customers of the Parties.

(c) Meetings between the Operators: 3 meetings were held between the Parties and the Port Klang Authority (“PKA”) to discuss the implementation of surcharges and issues relating to less container load. Despite being warned by the PKA, the Parties issued the Surcharge Memorandum to their customers.

MyCC also made the following findings in proving the infringement:

(a) No public distancing: The fact that some of the parties have refunded the excess payments upon the “reversal of PKA’s approval” does not exonerate the Parties from liability for breaching the competition law. Additionally, the act of refunding the payment upon the instruction of PKA by itself does not amount to an act of public distancing. MyCC was of the view that the Parties neither raised the issue of public distancing with regard to the Infringement Agreement, nor did the Parties inform the meeting that they did not have the intention of following through with the price fixing agreement.

(b) Single Continuous Infringement: MyCC considered each of the series of discussions as constituting a single continuous infringement. The series of discussions were all in pursuit of a common objective, namely, to distort the normal movement of rates for the handling services of long length and heavy lift of import and export cargoes at Port Klang, Malaysia.

(c) Object or Effect of Significantly Preventing Competition: MyCC was not required to prove the effect of the Infringing Agreement to arrive at a finding of infringement under the CA2010. MyCC’s investigation revealed that the Parties had entered into an agreement vide the issuance of a Surcharge Memorandum that has the object of fixing the rates for the handling services of long length and heavy lift of import and export cargoes at Port Klang, Malaysia.

How Can Companies Avoid the Cartel Trap?

Based on the decision of MyCC as discussed above, companies may take the following steps to avoid cartel:

(a) Public distancing from cartel activities: Company that has attended anti-competitive meetings or in any way involved itself in anti-competitive discussions may evade liability by showing that it had publicly distanced itself from any such anti-competitive discussions. The enterprise must express firmly and unequivocally to the other cartel members of its intention to distance itself from the anti-competitive conduct.

(b) Whistleblowing: The investigation into the above case was triggered by the information provided to MyCC by a whistleblower. Any person that comes to know of any anti-competitive conduct is encouraged to disclose the same to the authority and such whistleblower will be protected by the Whistleblower Protection Act 2010.

(c) Leniency Regime: Companies that have participated in a cartel may consider applying to MyCC for leniency under Section 41 of the CA2010. This Leniency Regime provides cartelists with an opportunity to reduce their fines to a maximum of 100% on the condition that they admit their cartel involvement and provide information or cooperation to MyCC in facilitating its investigations.

Additionally, companies may consider the following practical compliance tips in avoiding cartels:

(a) Establish and implement an anti-competition policy and train key personnel and employees on the dangers of cartel.

(b) Avoid the following practices¹:

(i) Agreeing or discussing prices, price increases or important costs with competitors, including the terms to be submitted in response to a tender;

(ii) Imposing resale price on distributors or resellers;

(iii) Sharing out markets or customers with competitors;

(iv) Agreeing with competitors to limit output or production;

(v) Exchanging confidential commercially sensitive information with competitors;

(vi) Absolutely preventing distributors from selling outside of a designated area; and

(vii) Imposing justifiably long exclusivity periods or non-compete obligations. The permitted length will depend on market shares of the parties involved and impact on market.

(c) Review compliance of existing commercial agreements (including distribution agreements, joint ventures and collaboration agreements) with a view to avoiding cartel arrangement.

Cartel Culture Must Go

It is clear from the above case that MyCC is committed to making the uncovering and prosecution of cartels and cartel facilitators as their top priorities. Companies and public at large are therefore required to fight off cartel by bringing such anti-competitive conduct to light and to avoid any kind of involvement in such activities. While total eradication of cartel from the fabric of corporate Malaysia may take time given that the syndrome is deeply rooted in our society, MyCC must be given credit for taking brave steps in purging cartels.

References:

Practical Law Competition, Thomson Reuters

Written by: Hanizah Mohd Huzin

Corporate Communications
Azmi & Associates
13 December 2022

M&A Review: Recent Technology Deals in Malaysia

Alumni Admin — Sun, 11 Dec 2022 22:20:35 +0000

Introduction

According to United Nations Conference on Trade and Development (“UNCTAD”), the number of cross-border mergers and acquisitions (“M&A”) globally declined by 15% year-on-year in the first nine months of 2020.¹ However, the trend in Asia is the polar opposite, with equivalent M&A activity in the region rising by 60% year-on-year over the same period, with much of the focus has been on pandemic-proof industries such as technology.² As technology has opened the door to a vast trove of digitalisation potential following the COVID-19 outbreak, the timing of these deals was rather propitious. Against this background, this article seeks to provide a sampling of recent transactions that took place across various verticals within the technology industry, involving Malaysia-based companies.

Technology Deals in Malaysia

The number of deals within the technology industry in Malaysia continues to flourish despite various challenges precipitated by the government-sanctioned lockdown. These technology transactions transpired across several verticals within the industry, such as financial technology (“fintech”), insurance technology (“insurtech”), government technology (“govtech”), and digital advertising.

Fintech

The concept of fintech, a shorthand for “financial technology”, needs no introduction. The financial service industry has been thrown into a state of massive disruption since the end of the 2008 financial crisis, witnessing a massive wave of digitalisation of various financial services. Fintech companies have transformed the ways in which consumers pay merchants, transfer money, and purchase goods through utilising many cutting-edge technologies designed for daily convenience. In Malaysia, the fintech sector has recently witnessed a flurry of acquisitions across multiple segments, involving both fintech incumbents and newcomers.

One deal that took many fintech observers by surprise was the acquisition of Uniqa, an electronic payment system provider, by Minetech Resources, a KLSE-listed construction and mining company. The acquisition was carried out by Minetech Resources’ subsidiary, Techmile Resources, and was first announced on February 15, 2021.³ This cross-industry deal serves as an example of how attractive the fintech sector has become that even a business that sits well outside the technology industry has chosen to diversify into the field. As remarked by a Minetech Resources representative, “the pandemic has pushed us to accept a new reality, a future where businesses operate online as a necessity rather than a meagre second thought.”⁴ The acquisition was reportedly part of Minetech Resources’ plan to turn one of its subsidiaries into a full-stack fintech provider.⁵ Minetech Resources is no longer exclusively a construction and mining group as it had been popularly known for, but it has now also become a fintech company. This cross-industry acquisition could be interpreted as a smart tactical move made by Minetech Resources that would enable it to reap the benefits out of the fintech sector’s rapid upswing. It is also safe to expect that the number of cross-industry M&A deals, including ones involving non-traditional buyers, will continue to proliferate. This prediction is especially plausible considering how fintech has blurred the lines between financial services and other industries, prompting non-technology companies to re-evaluate their value chains and investment decisions.

The digital payment segment in Malaysia has recently celebrated an intracontinental marriage between Fave, a Kuala Lumpur-based consumer fintech company, and Pine Labs, an India-based payment merchant platform provider. In the deal that was announced on April 13, 2021, Pine Labs stated that it has acquired Fave for over $45 million.⁶ The acquisition will enable both Fave and Pine Labs to spur their growth in Asia and unlock massive consumer opportunities across retail, food, fashion, and consumer goods sectors, as Fave application will be rolled out in all major Indian cities by the end of 2021.⁷ Fintech has long been popularly lauded as a transformative force disrupting the traditional world of financial services for the benefit of consumers. In this case, it is indisputably the truth that consumers will stand to benefit from the merging of these two companies. Fave is a smart payment application that consumers can use to pay for their goods whilst saving money on every transaction at the same time. Since 2016, Fave has impressively helped 6 million Southeast Asian shoppers save over $400 million across 40,000 retailers.⁸ Following this acquisition, Fave will be able to tap into Pine Labs’ existing user base, thereby allowing more consumers in Asia to save. As the two entities now have approximately 560,000 merchant touchpoints in India and Southeast Asia following the acquisition,⁹ consumers are the clear winners in this deal.

Within the remittance segment, on September 17, 2020, Merchantrade Asia, a digital money service business operator, announced its successful acquisition of Valyou, a cross-border digital remittance service provider which was previously owned by Norway’s Telenor Group.¹⁰ The said acquisition reportedly turned Merchantrade Asia into Malaysia’s largest money services business with a customer base of more than 3 million people.¹¹ Through the acquisition, Merchantrade Asia has increased both of its online and offline touchpoints, allowing them to reach out to more customers. One of Valyou’s founding missions was to ease international remittances for migrant workers and to divert them from the traditional over-the-counter business models to a mobile remittance model.¹² It is not a secret that Valyou has a large migrant worker client base. Accordingly, this acquisition has also increased Merchantrade Asia’s share of migrant worker client base. The traditional remittance system has been identified as having flaws, which has prompted a shift to digital methods. Due to office hours, migrant workers may have to take time off on weekdays to visit remittance counters. Some migrant workers pay their remittances through unofficial means, risking losing their money. Thus, as this deal has the potential of further increasing financial inclusion within the migrant worker community, it should certainly be celebrated.

Insurtech

In its simplest form, insurtech involves the application of technology to the provision of insurance services. Globally, the insurtech segment has witnessed a soar in M&A activities, with 37 deals in 2019, 62 deals in 2020, and 45 deals in the first half of 2021, including an insurtech acquisition that occurred right at home.¹³ On June 29, 2021, KG Information Systems (“KGISL”), an India-based information technology (“IT”) company, announced their acquisition of AETINS, a Malaysian insurance company, thereby marking their expansion within the insurtech space.¹⁴ KGISL is a longstanding insurtech industry player in Malaysia that has been operating through its Malaysian subsidiary since 2006. The acquisition of AETINS has brought a wider breadth of insurance products to KGISL that were not previously available, including core insurance products and insurance solution framework.¹⁵ Further, as AETINS boasts a vast clientele from the Asia-Pacific, the Middle East, and North Africa, this acquisition will certainly help KGISL strengthen its insurtech footprint by reaching a wider customer base. From consumers’ perspective, the acquisition is certainly welcomed. Traditional ways of servicing customers have slowly become increasingly irrelevant, and the insurance service is no exception. Insurance customers nowadays prefer interacting with carriers through digital platforms, requesting on-demand solutions. The convergence between the two companies is certainly auspicious and represents a win-win situation for both the providers and their consumers. Insurance is an industry where players must get fit or fail. Thus, as digitalisation has become an inevitable trend, all industry players must seek and embrace changes. Ultimately, insurers that will survive in the long term are the ones that operate like retail businesses: those which are quick to pre-empt consumer demands and interact with customers in the way they want.

Govtech

Govtech, a portmanteau of the words “government” and “technology,” refers to the application of technology in government administration and services. The application is typically aimed at increasing efficiency in administration by digitalising work processes or incorporating new technologies. The govtech sector is worth approximately $400 billion globally,¹⁶ and global govtech spending is projected to grow to $483 billion by the end of 2021.¹⁷

The business uptrend within the Malaysian govtech sector can be exemplified by a mid-pandemic transaction that was recently announced. On July 23, 2021, Pertama Digital, a KLSE-listed investment holding company specialising in the technology sector, announced that it is acquiring additional equity in Dapat Vista, a homegrown govtech software company.¹⁸ Pertama Digital is carrying out this acquisition through its subsidiary, Television Airtime Services (“TAS”), which will be exercising its contractual option to acquire a further 24% equity, and has the right to acquire up to 60% before 2023.¹⁹ Pertama Digital, through TAS, will be acquiring the additional stake in Dapat Vista from HeiTech Padu, a Selangor-based IT services provider. Upon completing the transaction, Pertama Digital’s stake in Dapat Vista will increase to 80%, while HeiTech Padu will hold 20%.²⁰ TAS, the holding company of Dapat Vista, was itself acquired by Pertama Digital in 2020.²¹

The govtech sector in Malaysia is still young, but it is gaining traction. This transaction serves as an example of how more technology investors are beginning to recognise the potential in the govtech sector, and rightfully so. As remarked by a Pertama Digital’s representative, “we intend to identify and invest in more companies such as Dapat Vista. Our group’s main objective is to provide digital solutions to the rakyat to access government services.”²² Further, MyEG Services, the flagship provider of electronic government services in Malaysia, has also announced its expansion into healthcare, by reportedly allocating $168 million for its new healthcare arm.²³ The govtech sector was previously seen as a backwater and has met numerous hurdles over the years. Some government authorities may have been resistant to the idea of govtech, latching on to their traditional ways. To others, govtech may have been too prohibitively expensive as an investment.²⁴ In Malaysia, many dealings with government agencies still require physical paperwork and physical presence at the counters. To help governments embrace new solutions, it is paramount for technology industry leaders and companies to push for more coalitions with the government to accelerate digitalisation on government services. Outside Malaysia, this sector appears to be very promising too. According to StateUp, the govtech companies in their database collectively raised around £500 million in 2020 alone.²⁵ It is safe to predict that more investment will flow into the sector, with more government agencies doubling down on digital transformation following the COVID-19 outbreak. Soon enough, the govtech sector will prove to be one of the most lucrative market opportunities that has been hiding in plain sight.

Digital Advertising

Following the COVID-19 outbreak, more consumers are transitioning to online channels. As a result, more businesses are feeling the pressure to upscale their usage of technologies in advertising. In July 2020, BMW fans in Malaysia were surprised with an action-packed augmented reality showroom for the launch of the new BMW X5, which brought the car to life for consumers on lockdown, allowing consumers to explore the vehicle at any time and place.²⁶ The said impressive marketing campaign was delivered to BMW by Entropia, a Kuala Lumpur-based full-service digital agency with core capabilities in advertising and marketing. Entropia’s strong record of success had apparently caught the attention of Accenture, a NYSE-listed technology consulting and services provider, which on June 2, 2021, proudly announced their acquisition of the digital agency. This deal is rather historic as this is Accenture’s first ever successful acquisition in Southeast Asia.²⁷ Through this acquisition, Entropia joined Accenture by being a subsidiary of its digital services offshoot, Accenture Interactive. Entropia, which has previously rejected many takeover offers, has in the past year, incorporated many technology tools such as extended reality, internet of things, and artificial intelligence into its services.²⁸ Thus, the acquisition will undoubtedly strengthen Accenture Interactive’s digital prowess and its offerings to the Malaysian market. This deal is also a win for Entropia, whose client base was mostly local,²⁹ as Accenture is giving them a highway to a global reach through its worldwide presence.

The deal does not come across as a mighty surprise considering the sheer number of acquisitions that Accenture Interactive has made. Within the past six years, Accenture Interactive has acquired more than 30 companies worldwide, including few well-known names in the industry, such as a design giant, Fjord; a New York-based digital advertising company, Adaptly; a London-based digital consultancy firm, Bow & Arrow; and Japan’s largest independent digital agency, IMJ.³⁰ Following the COVID-19 outbreak, Accenture Interactive has finally turned its attention to Southeast Asia and marked its inaugural foray into the region. This acquisition serves as an example of how consequences associated with the pandemic have actually contributed to growth. As remarked by an Accenture Malaysia’s representative, “a new approach to customer experience is required since the COVID-19 pandemic shifted behaviours in how people shop, work, and interact.”³¹ It is thus fair to perceive Accenture’s decision to upscale its digital marketing services, through acquiring a local brand, as a good sign of forthcoming growth of the Malaysian digital advertising industry.

Final Thoughts
The technology industry appears to be one of the industries that is the least affected by the pandemic-induced economic upheaval. As illustrated by the given samples of successful deal, there is clearly a promising trend in the technology M&A space in terms of the number of transactions that occurred both between two Malaysian entities as well as ones with foreign involvement. Further, as technology has increased the propensity for companies to cross industry lines, the rising trend in cross-industry M&As involving buyers outside the technology sphere is also expected to maintain in the future. Even if the complexity and the ticket size of these transactions are smaller compared to similar deals closed in some other parts of the world, overall, these deals represent a good indicator that the rapid growth of the Malaysian technology industry will continue. The overall prediction for the industry is thus optimistic, and more new deals can be anticipated to come to the fore across all verticals.

References:

“Global Investment Trends Monitor, No. 36” (UNCTAD, 27th October 2020).
ibid.
“Minetech ventures into fintech” (The Star, 15th February 2021).
ibid.
ibid.
“Fave, Southeast Asia’s fast growing fintech startup acquired by Pine Labs” (Pine Labs, 13th April 2021).
ibid.
ibid.
Oliver Gomez, “Pine Labs-Fave deal to open up cross-market, pay-later opportunities” (The Edge Markets, 17th May 2021).
“Merchantrade Acquires 100 Percent Stake in Valyou from Norwegian Telenor Group Kuala Lumpur” (Merchantrade Asia, 17th September 2020).
ibid.
“Fintech: the mobile wallet Valyou proposition” (The Edge Markets, 19th November 2018).
Matt Connolly, “Insurtech M&A takes ‘upward swing’ as pandemic bolsters digital transformation” (The Insurance Times, 29th June 2021).
“KGISL acquires AETINS Sdn. Bhd. Malaysia, Expands Expertise in the Insurance Space” (KGISL, 29th June 2021).
ibid.
Appala Bhattacharya, “GovTech – the $400bn ‘local’ market” (GovInsider, 24th October 2018).
“Gartner Forecasts Global Government IT Spending to Grow 5% in 2021” (Gartner, 23rd February 2021).
“Pertama Digital raises stake in govtech software Dapat Vista to 80%” (The Edge Markets, 23rd July 2021).
ibid.
ibid.
ibid.
“Pertama Digital looks beyond e-government space” (The Edge Malaysia, 19th January 2021).
“Malaysia: MYEG moves into healthcare” (LaingBuisson News, 31st March 2021).
Brian Diaz, “Where is the future of Govtech heading?” (Forbes, 31st March 2021).
“Data-driven Insights into Global Govtech” (StateUp, February 2021).
“Entropia XR’s AR showroom unveils all-new BMW X5” (Marketing Magazine, 22nd July 2020).
“Experience-led transformation services in Southeast Asia with acquisition of award-winning agency Entropia” (Accenture, 2nd June 2021).
“Lifting the veil on Accenture’s acquisition of Entropia” (Campaign Asia, 3rd June 2021).
ibid.
“Accenture Interactive acquisitions: all its agency deals so far” (The Drum, 12st August 2019).
StateUp (n 25).

Written by: Ili Syazwani Shairi

Corporate Communications
Azmi & Associates
13 December 2022

Anthony Azad Tan Chien Liang

Alumni Admin — Tue, 06 Dec 2022 18:56:14 +0000

What was your last role at AzmiLaw and which area of law did you work in?
Senior Associate; M&A.

What was your proudest moment or greatest achievement while at AzmiLaw?
Being mentored by Dato’ Azmi.

Describe your present job and position in more detail.
I provide centralised legal support for the Gamuda Group across the entire spectrum of legal functions, especially serving corporate deals both domestic and cross-border.

What aspect of your current job do you like the most?
The deal dynamics of big M&A in new ventures.

How has your time at AzmiLaw benefited your professional life?
I learned not only the substance of law but also good values of servicing clients including responsiveness, listening to clients’ underlying concerns, drilling down into commercial side of things to be a more efficient corporate lawyer, being modest and to always stay professional in conduct.

Why do you believe it’s crucial for AzmiLaw alumni to be a part of the network?
I believe that all who have undergone the training at AzmiLaw share common values; we can build on this networking to be more effective in our respective endeavours. But most of all, it’s fun!

What advice would you give others about the value of being part of an alumni network?
There’s nothing to lose & a lot to gain through the connections, but we must also contribute as much as we’d like to benefit from the network.

How do you contribute to creating a better workplace?
By being nurturing & realistic in all interactions.

The Late Tuan Haji Mohd Rasheed, Ex-Senior Counsel of AzmiLaw

Alumni Admin — Tue, 06 Dec 2022 18:32:59 +0000

Tell us a bit about your background
I graduated from the Inns School of Law, London, became a member of the Honourable Society of Lincoln’s Inn and was admitted as a barrister-in-law in July 1978. In May 1979, I joined the Judicial and Legal Service and served for 4 years as a Magistrate, Deputy Public Prosecutor and Senior Assistant Registrar of the High Court. In May 1983, I joined Shell Malaysia as its Legal Advisor and worked under various portfolios in its Legal Department.

I also worked in the offices of Shell International, London and The Hague where I gained valuable international exposure. I served 2½ years as Legal Adviser of Sarawak Shell Berhad and Sabah Shell Petroleum Company Limited which are both Shell’s upstream companies engaged in exploration and production of oil and gas. My last post in Shell was as General Counsel for Shell Companies in Malaysia for Oil Products (Downstream).

Not many people know that I started my career as an Interpreter in the Sessions Court in Kota Bharu, Kelantan and later was a Trust officer in the Public Trustee’s office in Penang. After being legally qualified, I was appointed as a Magistrate in Penang in 1979.

How long have you been in practice with Azmi & Associates?
My knowledge covers a wide area of practices; however, Oil & Gas (“O&G“), Trust and Estate Planning, as well as Dispute Resolution, have always been interesting topics for me. Lately, Competition Law practice is also an area I have seen developing since my days in Shell. In AzmiLaw, I am usually the first point of reference for these areas of practice. I am proud to say that I am a point of reference in many areas and I am always ready to share my experience and provide a second opinion on any matters referred to me.

What areas of work have you been closely involved in and interesting projects you have worked on?
Cross-border disputes: There was an interesting arbitration begun by a listed company in Malaysia which was majority owned by a State Government. AzmiLaw acted as a Malaysian counsel and we worked with an international English law firm. Proceedings were conducted in the London Court of International Arbitration and we successfully obtained judgment for our client. We then had to execute the judgment in 5 jurisdictions and engaged 5 sets of lawyers. This case provided tremendous experience in understanding the various jurisdictions, the court systems as well as the procedures. Unfortunately, very little was recovered but the client now realises the attributes of conducting cross-border business and the need of having to conduct adequate due diligence before venturing overseas. For AzmiLaw and I, it was a good learning experience.

Oil & Gas: I have to record two major O&G projects undertaken by me. One involved the drafting of policies and procedures as well as the necessary agreements for the use by third parties of pipelines belonging to a major O&G operator in Malaysia. The other involved a major due diligence for the purchase of substantial interest valued at approximately USD2 billion in a group of upstream companies with exploration and production in Malaysia.

Arbitration: I acted as an arbitrator in a dispute involving a statutory body and a KLSE-listed company. The dispute arose out of a shareholders’ agreement and options available to one of the parties. The arbitral award is now the subject matter of cross-appeals in the Court of Appeal. I have acted as co-counsel in an arbitration proceeding involving another statutory body and its contractor. I am currently involved in a potential arbitration matter with the possibility of having multiple arbitrations.

What are your thoughts on Malaysia’s ability to attract international trade based on its current Oil & Gas framework?
Malaysia has the world’s fourteenth largest natural gas reserves and twenty-third largest crude oil reserves. The oil and gas industry has been identified as one of the National Key Economic Areas to fuel national growth under Malaysia’s Economic Transformation Programme and therefore receives prioritised Government of Malaysia support due to its economic opportunities for the private sector.

The Malaysian O&G market is a very attractive market with further growth for potential investors and PETRONAS plays a major role in driving the industry’s growth through its development of O&G resources, as well as the creation of opportunities for local companies. The total CAPEX to be invested in the Exploration & Production (“E&P“) sector in Malaysia is projected to be substantial over the next 5 years until 2020. Even though the price of oil has fallen sharply, there are still opportunities which must not be missed by E&P players as well as service providers.

Are there any emerging trends in O&G practice that you have noted?
On the Malaysian Stock Exchange front, the introduction of the Special Purpose Acquisition Companies (“SPACs”) initial public offering (IPO) structure as a fundraising vehicle has culminated in 4 companies namely, Hibiscus Petroleum, Cliq Energy, Sona Petroleum and Reach Energy being listed on the Bursa Malaysia raising funds between US$100m–$160m and all were for E&P activities. There are other SPACs that are currently seeking regulatory initial public offering approvals and they are also planning to go into E&P activities. Whilst, the assets are generally located outside of Malaysia, nevertheless, the strength of the management of these SPAC companies has been derived from the Malaysian O&G industry players over the years. Hibiscus Petroleum was successful in acquiring qualifying assets in Norway and Australia. Cliq Energy, Sona Petroleum and Reach Energy are still looking to acquire controlling interest in O&G assets as qualifying assets as part of the requirement in their IPOs.

What are your thoughts on recent market activities & future trends in the O&G sector?
The O&G sector in Malaysia is expected to consolidate further.

In mid-2013, Newfield Exploration embarked on a divestment exercise to sell its O&G assets in Malaysia in order to focus on their businesses in the United States. Sapura Kencana in its strive to move upstream, successfully acquired the assets for approximately US$900 million.

Following Newfield, another American oil company, Murphy Oil has agreed to sell 30% of its upstream O&G assets in Malaysia to PT Pertamina, a company owned by the Indonesian Government. The exercise has immensely attracted bids from both international and regional E&P players.

With the drastic fall in oil prices, the industry analysts generally anticipate that mergers and acquisitions will be taking place in the sector as one of the factors to maintain sustainability and investment activities.

What are your contributions or rather something significant that you have made to the legal fraternity?
I will say that my most significant contribution would be training and educating young lawyers for more than 14 years. I allocate time to give briefings to pupils and young lawyers who join Azmi & Associates. I share with them my experience as an in-house counsel and corporate lawyer. It has always been my policy to keep my door physically open at all times to allow young lawyers to see me and discuss any problems that they may have. To me, this is part of “Amal Jariah” to share my experience (highlights and challenges) and knowledge with young lawyers.

At this point in your life, what motivates you to come into the office every day?
This is a question that my children ask me from time to time. I am passionate about legal practice which enables me to be able to contribute and be part of a team with such a talented group of young lawyers. It gives me a lot of satisfaction in sharing my knowledge and experience.

It also gives me a lot of pleasure to share my ideas and thoughts with the partners of Azmi & Associates. I will be one of the first to flag to the management any further improvements that can be made in enhancing the productivity and image of AzmiLaw.

Every day is a new day for me and I always look forward to coming to the office because there are things which are required to be done which are still exciting and rewarding. AzmiLaw provides adequate space and environment for me to live my passion.

International Internship at AzmiLaw: Nicholas Towers’ Experience

Alumni Admin — Tue, 06 Dec 2022 18:17:55 +0000

On my first day as an intern at AzmiLaw, I did not know what to expect. I heard about the Firm whilst looking for internship opportunities; I lived in Thailand for a year after university and spent 6 months in Singapore on an exchange with NUS, so Malaysia would be a new experience.

There were relatively few opportunities for international internships and AzmiLaw was at the top of the list of those available. I did not know what the working culture would be like, but I was constantly surprised by the Firm, starting from the moment the Senior Partner, Dato’ Azmi personally replied to my application.

A key issue in my mind was having a work permit, but when I mentioned that I wanted a long-term internship, the Firm was kind enough to arrange it for me and made the whole process easy. As a consequence, my allowance was subjected to tax, so I’d like to think I made my contribution to the Malaysian economy.

My Exposure
When someone says the words “legal internship” the first thoughts that come to mind are probably citation checking, preparation of endless bundles and days of document review, without any substantive involvement with cases. This has not been my experience as an intern at AzmiLaw at all. As well as many opportunities to interact with clients, my first exposure to the Malaysian courts was accompanying a partner to the Federal Court! I have had the opportunity to attend the Federal Court and the Court of Appeal many times and my internship was not simply about being chained to a desk. The more you put into an internship the more you get out of it and by being active and asking different partners for work I had the opportunity to tackle legal problems in all areas of law.

AzmiLaw also places great emphasis on educating its lawyers and promoting all-round training; I have not encountered another firm which has sent its young associates on a two-day course on reading, analysing and interpreting corporate financial statements, for example, and where an international intern would also be sent on such a course.

Malaysian Legal System
Overall I have been impressed with the Malaysian legal system. Electronic filing is available, the courts are clearing backlogs and a commercial case can be dealt with at first instance in around 9 months, making them very competitive. There are a few very high-quality judges in the courts; I have personally been very impressed by Court of Appeal judge Yang Arif Dato’ Mohamad Ariff bin Mohd Yusof, both on the bench and during the discussions at the Kuala Lumpur Regional Centre for Arbitration Conference 2014. The decisions of Dato’ Mary Lim Thiam Suan, a High Court judge demonstrate keen awareness of the need for Malaysia to develop its arbitration capacity.

In business cases the judgments of the courts tend to show commercial awareness and an effort to provide legal certainty to businesses, balanced with the need for fairness.

Legal Training
Coming from the UK system it was something of a shock to see the comparative ease with which a law graduate can obtain a pupillage in Malaysia and as a result, many young lawyers join law firms without having done any legal work experience. This means they do not know whether they are more inclined towards litigation or corporate work, but fortunately, firms such as AzmiLaw let pupils try a range of contentious and non-contentious work so they feel where their skills could be put to the best use.

Ending Note
Overall, my internship at AzmiLaw has been an excellent preparation for the next stage of my legal career. Thanks to the support of all members of the firm, from the staff to the senior partner, it has been a truly enjoyable experience and one I will always remember fondly. The Firm has truly been a welcoming firm in which interns from all over the globe were warmly received.

Regulatory Framework Updates on FinTech

Alumni Admin — Sun, 16 Oct 2022 19:33:15 +0000

Introduction

In our past edition, two aspects of FinTech in Malaysia were discussed, namely the potential and regulation of Blockchain in FinTech in Malaysia, as well as the Peer-to-Peer (P2P) financing legal framework in Malaysia.

In light of Blockchain’s robust development and strong appeal in today’s world because of its characteristics of disintermediation, immutability, security, as well as quasi-anonymity, the growing use of Blockchain technology in the Malaysian financial industry has finally attracted updates to the relevant regulatory framework.

This article taps into three of the latest major regulatory developments on digital currency that is relevant to industry players.

1. Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Policy on Digital Currencies (Sector 6) [February 2018]

Due to the rapid development, growing adoption, global nature, and increasing functionality of use of digital currencies, governments around the world have adopted various approaches and regulatory measures to address risks associated with and posed by digital currencies.¹

In response to the global demand, Central Bank of Malaysia on 27 February 2018 has issued a policy of Anti-Money Laundering and Counter Financing of Terrorism on Digital Currencies Sector 6 (known as “AML/CFT Sector 6”).

AML/CFT Sector 6 outlines the proposed requirements and standards that a digital currency exchanger as defined under the First Schedule of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLA”) that carry out the related services must act as ‘reporting institutions’.

This is to ensure that the effective and robust Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) control measures are in place to safeguard the safety and integrity of the financial system as well as to promote greater transparency in the conduct of digital currencies transactions.²

AML/CFT Sector 6 sets out the minimum requirements and standards that a reporting institution must observe to increase the transparency of activities relating to digital currencies and ensure effective and robust AML/CFT control measures are put in place to mitigate the risk that reporting institutions may be used as conduits for illegal activities. The requirements and standards will also support law enforcement activities.

The reporting institution must take appropriate steps to identify, assess and understand their Money Laundering / Terrorist Financing risks in relation to their customers, countries or geographical areas and products, services, transactions or delivery channels. Once a ‘red flag’ or suspicious transaction is detected based upon such risk-based assessment, such reporting institution will need to lodge a report to the Central Bank using the template in Annexure 3 of AML/CFT Sector 6.

According to Part C of Annexure 3, a suspicious transaction is determined based on several grounds, such as a reactivated dormant account, large/unusual cash deposit/ withdrawal, activity inconsistent with customer profile, payment is credited into a customer’s account by a third party with no apparent relation to the customer, and an unwillingness of a customer or third party to disclose their identity.

2. Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 [January 2019]

The Malaysian Minister of Finance announced the coming into force of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (“Order 2019”) on 15 January 2019³ as an ongoing joint effort between the Central Bank of Malaysia and the Securities Commission for cryptocurrencies, tokens and other digital assets to be categorised as securities henceforth, and to accordingly fall under the regulation of the Securities Commission.

It was reported in the Minister’s statement that digital assets, to the Ministry of Finance, has a role to play as an alternative fundraising avenue for entrepreneurs and new businesses, and is deemed as an alternative asset class for investors.⁴However a huge penalty (i.e. a maximum sentence of 10 years of imprisonment and a RM10 million fine) will be imposed if a person is caught operating unauthorised initial coin offerings (“ICOs”) or digital asset exchanges.

The coming into force of Order 2019 is expected to resolve the confusion of crypto assets as securities. The same cryptocurrency, for example Bitcoin, could be captured as securities based on how it is used. If the Bitcoin is being traded, then it falls under the purview of securities laws.

Whereas, if the same Bitcoin is used to pay for a packet of nasi lemak, then it is not captured under the prescription order and is not considered as securities. The prescription is activity-based. Therefore, if the Bitcoin is being traded, then it is a security.

However, if the same Bitcoin is being used as a payment, then it is not recognized as securities, hence would require a license from Bank Negara.⁵

The interested parties operating in crypto-space should approach the Securities Commission to ensure that their business(es) are within the purview of Order 2019 by 1 March 2019, failing which the said business(es) will be deemed illegal and legal action will be taken for non-compliance with the Order.⁶

3. Guidelines on Recognized Markets – Chapter 15 (Digital Asset Exchange) [January 2019]

The Securities Commission had on 31 January 2019 issued amended guidelines or regulations for digital asset or crypto exchanges, the framework for which is a new category under Chapter 15 of the Guidelines on Recognised Markets⁷. It is worth noting that such Guidelines on Recognised Markets is the same one used to also regulate Equity Crowdfunding (“ECF”)⁸ and Peer-to-Peer (“P2P”)⁹ lending players.

The new framework is part of the efforts of the Securities Commission to promote innovation and facilitate the trading of digital assets while ensuring investor protection in the trading of digital assets. However, investors are reminded to be mindful of the risks when dealing in digital assets such as sudden price fluctuations and liquidity risks.¹⁰

Based on the recent guideline, any person who is interested in operating a digital asset platform is required to apply to the Securities Commission to be registered as a recognized market operator by 1 March 2019.

The applicant must have RM5 million paid capital in a company incorporated in Malaysia and is also subject to additional financial requirements on a case-by-case basis based on the operations and risks posed by the exchange.

Apart from that, the cryptocurrencies and digital assets have to be approved by the Securities Commission prior to listing on the exchange, and clear, concise and fair disclosures that are not misleading to investors must also be provided. On another note, the Securities Commission is expected to release the guideline for Initial Coin Offerings (“ICOs”) at the end of March 2019.

Conclusion

The regulator will continuously facilitate the digital assets industry by revising the relevant regulation and guidelines. At the same time, the Central Bank of Malaysia will ensure the compliance of AML/CFT to prevent the occurrence of financial crimes.

References:

http://amlcft.bnm.gov.my/document/PD%20Digital%20currency-v2.pdf.
http://foongchengleong.com/tag/antimoney-laundering-and-counter-financing-ofterrorism-aml-cft-digital-currencies-sector-6/.
http://www.federalgazette.agc.gov.my/outputp/pua_20190114_PUA12.pdf.
https://fintechnews.my/19659/blockchain/malaysia-exchanges-ico-fine-license/.
https://fintechnews.my/19737/blockchain/securities-commission-malaysia-status-tokenscoins-utility-bitcoin/.
https://fintechnews.my/19729/blockchain/ico-regulations-malaysia-securitiescommission-cryptocurrency-marketplace/.
https://www.sc.com.my/api/documentms/download.ashx?id=eb8f1b04-d744-4f9a-a6b6-ff8f6fee8701.
Chapter 13, Guidelines on Recognised Markets.
Chapter 14, Guidelines on Recognised Markets.
https://fintechnews.my/19837/blockchain/cryptocurency-exchange-regulationmalaysia-sc/.

Written by: Dr. Noorfajri Ismail

Legal Aspects of Crypto Currency in Malaysia

Alumni Admin — Sun, 16 Oct 2022 19:27:38 +0000

Methods for carrying out transactions has evolved throughout the centuries, from the bartering system where people exchange items of equal value with the item to be purchased with salt, coins made out of metals, paper money, to debit or credit cards.

But for the past decade or so, there emerged a new method of carrying out transaction where very few have understanding or awareness of it. You may have heard the term Bitcoin, Litecoin and Ethereum and wondering to yourself whether these are terms used in a sci-fi movie.

Generally, Bitcoin, Litecoin and Ethereum are some of the many examples of Cryptocurrency. Cryptocurrency is a type of digital cash, stored in a digital wallet that uses cryptography to secure an online transaction.

The main similarity of these cryptocurrency systems is the blockchain shared between network participants and the use of native tokens to enable the participants to run the network in the absence of a central authority. Blockchain is a type of a shared public ledger which enables a transaction to occur peer to peer, without any authorization by a third party such as the central bank. The integrity and chronological order of the blockchain are enforced with the cryptocurrencies.

How does it work?

Commercial transactions performed electronically via the internet rely heavily on financial institutions which will act as a third party to process payments made by a buyer before releasing the same to a seller.

With the use of Cryptocurrency, the need for a third party to process such payment will be eradicated as the transactions will only be between the users. As Cryptocurrency operate based on decentralized technology, users are able to store digital cash in a digital wallet and secure digital payments anonymously. The digital wallet uses an encrypted electronic signature therefore the owner of the Cryptocurrency can be easily traced to the owner of the wallet.

Every time there is a new transaction using Cryptocurrency, these transactions will be submitted to a public digital ledger where it needs to be approved. These ledgers are owned by the users themselves but made public to others. Even so, the anonymity of the users are well preserved as only the details of the transaction and user’s username in the form of alphanumerics are displayed. Once the transaction is approved by the network, it will be displayed on the digital ledger.

There are 3 ways where a user may obtain a Cryptocurrency i.e. via mining, selling of goods and services, and by purchasing it via an exchange body or private sellers.

How mining works is that every time a new transaction is posted on the digital ledger, the network will reward other users who successfully solve mathematical problems in the form of Cryptocurrency.

It plays a crucial role in enforcing a chronological order in the blockchain, protecting the neutrality of the network and allowing different computers to agree on the state of the system.

So technically, the purpose of mining is for the other user to approve a certain transaction and to have it recorded. The sender of the said transaction will pay a fee to other user who assisted them on the same.

Just like shares, one can also invest in a cryptocurrency such as Bitcoin. It can be traded either between individuals or via an exchange. A good example of an investment is by way of an Initial Coin Offering (“ICO”).

Basically, ICO is an event in a project that uses cryptographic tokens where part of its token pool is exchanged for money to a community of developers and early adopters.

Like an Initial Public Offering, it is a quick and efficient fundraising method for start-ups to raise funds without having to go through the tedious process of obtaining approvals from regulators and adhering strictly to capital market laws or without sacrificing their independence and equity to a venture capitalist. In an ICO, the issuer will offer a digital currency at a discount to investors.

It has to be noted though that purchasing digital currency does not give an investor a say in the company (as a shareholder) and no dividend will be declared for the investors.

The only reprieve for these investors is the increase of the value of the digital currency after a certain period, making it a hot commodity for investors who are willing to take a risk to purchase the same.

Legal Status of Cryptocurrency

The legal status of cryptocurrency differs from one jurisdiction to another. For example, Denmark –a country working towards becoming a cashless society – has started to move to encourage transactions using Cryptocurrency. The Financial Supervisory Authority of Denmark states that it will not regulate matters in relation to Bitcoin, and have legalized the setting up of a digital exchange.

Also worth noting is that the Japanese Parliament amended the Japanese Payment Systems Act and passed laws to recognize Cryptocurrencies as payment instrument similar to traditional currencies like yen and dollars. Other amendments to the said law includes requirement for registration of Cryptocurrency exchanges and mandatory compliance to anti-money laundering laws.

In contrast, China had decided to ban ICOs, deeming it as an unapproved and illegal public financing. This is due to the fact that the government sees it as a threat. Interestingly, an Israel-based company in Liverpool launched a digital currency application called Colu, which aims to facilitate a stronger and more sustainable local economy and community.

In Malaysia, while it is not illegal, cryptocurrency remains to be unregulated. Back in January 2^nd 2014, Bank Negara Malaysia has issued a statement “The Bitcoin is not recognised as legal tender in Malaysia. The Central Bank does not regulate the operations of Bitcoin. The public is therefore advised to be cautious of the risks associated with the usage of such digital currency.”

Further, the Securities Commission of Malaysia (the “SC”), whose main function is to protect investors, issued a media release in early September 2017 in relation to ICO where it cautioned investors to be mindful of the potential risks involved in ICO schemes which include limited legal protection and recourse against scheme operators and high exposure to fraud, money laundering and terrorism financing.

A few days after the SC issued the statement, Bank Negara Malaysia’s governor issued a statement that it is working to issue a guideline on Cryptocurrencies on anti-money laundering and terrorism financing by the end of this year.

This will go hand in hand with the development of financial technology in Malaysia. Financial technology, or FinTech as it is commonly known, is starting to pick up in Malaysia in recent years where agencies like Bank Negara Malaysia, SC, Malaysia Digital Economy Corporation and participating banks have been providing support to technology startups.

With the efforts provided by various agencies to support financial technology, it will be interesting to see what the future has in store for Cryptocurrency in Malaysia.

Will Bank Negara Malaysia finally recognize Cryptocurrency as a virtual currency like Japan? Will Bursa Securities Malaysia Berhad and SC come up with relevant guidelines to regulate ICO’s? Only time will tell…

Written by: Jazmin Ya’cob

Blockchain in Fintech: Potential & Regulation in Malaysia

Alumni Admin — Sun, 16 Oct 2022 19:03:05 +0000

Introduction

Blockchain is a ledger of records organized in ‘blocks’ that are linked together by cryptographic validation which is neither stored in a centralized location nor managed by any single entity¹. The block validation system results in new transactions being added irreversibly and old transactions preserved forever for all to see, hence the transparency and resilience of Blockchain².

Intended to be a framework for cryptocurrency Bitcoin when it was first created in 2008, Blockchain technology today is fast penetrating into applications beyond the financial sector. Blockchains can be used to perform transactions, secure data, and create decentralised applications (“Dapps”)³. With its transformative power, Blockchain is widely seen as a game changer that has the potential to lead digitalisation in almost every sector that involves value transactions. Worldwide, it has been experimented in asset management, intellectual property management, logistics, medical records, supply chain, the sharing economy, and more⁴.

Among the characteristics of Blockchains which make it appealing are:

Decentralisation: The elimination of third-party intermediaries enables a more efficient digital ecosystem through speedier and lower-cost execution of transactions and also reduces the security risks which arise due to the existence of a central point of failure under the conventional manner of centralised system.⁵ Indeed, the elimination of intermediaries enables cheaper cross-border remittances and lower processing fees for financial services and more transparent and efficient government services. Commerce trading platforms will also be more attractive to Small Medium Enterprises due to lower transaction costs⁶.
Immutability: Consisting of two facets, one of which is the Immutability of History (‘IoH‘) while the other is the Immutability of Process (‘IoP’). With regard to IoH, it warrants the finality of any transaction which has been executed under any blockchain network by ensuring that past consensus reached by users are not amenable to change after the transactions have been completed. This brings an element of finality to blockchain transactions without which there can be no commercial certainty. In relation to IoP, it acts as a safeguard against any undue changes being made to the language script of the network and by doing so IoP plays a crucial role in preventing irregular transactions from being executed⁷.
Security: Blockchain technology can potentially be used to enhance the levels of systemic security as compared to conventional technology given the application of up-to-date asymmetrical encryption methods referred to as ‘public’ and ‘private’ keys. For example, Bitcoin’s Elliptic Curve Digital Signature Algorithm cryptographic standard uses a combination of private and public keys whereby the private key that works similarly to password is held by the user while the public key is the user addresses within the blockchain mathematically generated from the private key, with the public key structured in such a manner which renders it almost impossible for unscrupulous parties to trace it back to the private key it is associated with⁸. Such cryptographic security will enhance the protection afforded to digital assets transactions as well as the transfer and storage of personal and sensitive information, but still enable the idea of Internet of Things by providing a mechanism for the tracking and interoperability of data between various devices⁹.
Pseudonymity/Quasi-Anonymity: Given the way Blockchain operates, absolute anonymity is impossible. For example, although Bitcoin has been described as being anonymous, it is in fact only pseudo-anonymous, given the relation between users and wallets¹⁰ where chain of transactions in and out of wallets, and from wallet to wallet, is visible to all, and can be traced and tracked in public for Bitcoin transactions. Nonetheless, a certain degree of anonymity can be achieved via the taking of appropriate steps¹¹.

Blockchain Experimentation and Implementation in Malaysia

The Malaysian Industry-Government Group for High Technology (MIGHT) has said that Malaysia would be adopting Blockchain by 2025, and Malaysian banks are already taking proactive steps to encourage its development in the country¹². CIMB and Maybank are two of Malaysian banking groups that are working with FinTech companies¹³. National R&D centre in ICT, MIMOS, has been working on FinTech-related areas such as information security, intelligent informatics, cryptography, artificial intelligence, machine learning and big data analytics¹⁴.

As of 1 March 2018, the Ministry of Science, Technology and Innovation has established a special taskforce to study the implementation of blockchain in the country as well as the shariah compliant component of the technology. The ministry is in talks with various stakeholders on the development of blockchain in the country, and towards the end of the discussion, will develop a Shariah-compliant guideline for blockchain technology as it has a lot of potential across various industries, especially the Islamic finance sector¹⁵.

Diagram 1: An Infographic regarding Blockchain. Illustration © PwC. Source: https://www.pwc.com/us/en/industries/financialservices/fintech/bitcoin-blockchain-cryptocurrency.html

Blockchain in Money Services Businesses

In Malaysia, “money services business” is defined in the Money Services Business Act 2011 (MSBA) as referring to businesses involved in the changing of one currency to another, the transfer of funds from one destination to another, and/or the trading in foreign currencies¹⁶. These businesses are subject to licensing by Bank Negara Malaysia (“BNM”). It goes without saying that these businesses can potentially benefit in terms of security and cost efficiency from the utilisation of Blockchain as a platform.

In the case of remittance businesses that use online and mobile channels, BNM has issued a policy document that considers such businesses as being “reporting institutions” and outlines the minimum requirements that must be observed in implementing an electronic know-your customer system¹⁷. Electronic Know Your Customer (e-KYC) enables a remittance provider to verify the identity of the customer electronically, without having to establish the identity of that customer face to face. This allows customers to remit funds faster and allows remittance providers to work efficiently and at a lower cost since all verifications and procedures are done online¹⁸.

As opposed to the above businesses which deal solely with legal tender (i.e. fiat currency), there also exists businesses that exchange cryptocurrencies with fiat money and other cryptocurrencies (and vice versa), in other words, digital currency exchanges, which are not regulated by BNM as they do not fall into any of the categories under the MSBA 2011 and thus are not subject to the associated licensing under the MSBA 2011. One advantage that these businesses in particular stand to gain from blockchain is that the sender can directly send cryptocurrencies to the recipient if the address of the recipient’s e-wallet is known¹⁹. This disintermediation cuts down on costs.

Notwithstanding the fact that digital currency exchangers are not licensed or regulated by BNM, nonetheless digital currency exchangers are expected, as matter of recommended best practice, to comply with the requirements to be incorporated or registered under the provisions of the Companies Act 2016. Moreover, digital currency exchanges are considered as “reporting institutions” under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA)²⁰, which means that businesses that are involved in converting cryptocurrencies to fiat money would be required to provide detailed information on buyers and sellers of such currencies²¹.

It must be pointed out however that the mere fact that a business entity is registered as a “reporting institution” with BNM under the AMLA does not mean that it is regulated and licensed by BNM; indeed such reporting obligations are aimed at preventing money laundering and terrorism financing as opposed to providing consumer protection²².

Initial Coin Offerings (“ICOs”) & Various Tokens – Legal Status in Malaysia

In this part we look at how the massive growth in cryptocurrencies and blockchain technology solutions has created its own set of new legislation and ways of interpreting existing legislation to ‘fit’ these new products. Some countries are writing new legislation with a view to lure cryptocurrencies to open shops in their territories, whilst others are trying to snuff out what they see as an attack on their sovereign currencies. We explore Initial Coin Offering (ICO) and various types of tokens, all of which have different treatments by regulators.

An ICO is an alternative source of funding outside of traditional financial markets. An ICO is a crowdfunding drive akin to an IPO through the issuance of digital tokens to fund a development project of a product or service. The project can be blockchain-related or otherwise. In relation to the former, upon the launch of an ICO, ICO tokens are offered to investors in exchange for other digital tokens such as Bitcoin and ether; only in rare cases is fiat currency accepted. Token holders can use the digital tokens for its specific functions or trade it on the digital token exchanges.

Almost all ICO campaigns are accompanied by a white paper, a document that functions like a prospectus which details the digital tokens being offered particularly their characteristics and functionalities so that investors know their rights as token holders. This is especially relevant in light of the fact that although activities relating to ICOs fall under the purview of the Securities Commission (“the SC”) of Malaysia²³, however some ICO schemes are not regulated²⁴. Indeed, the SC of Malaysia has in various press releases warned potential investors of the risks associated with ICOs²⁵ ²⁶.

That being said, it is crucial for issuers, investors and regulators to determine whether a particular digital token qualifies as a particular capital market product in order to ascertain the relevant applicable laws. For example, an ICO and digital token with attributes resembling a Collective Investment Scheme²⁷ which falls under the statutory definition will need to comply with the legal requirements relevant to Collective Investment Schemes²⁸. Even if the digital tokens do not fall under the Collective Investment Scheme definition, caution still needs to be exercised as the ICO and digital tokens that meet the statutory definition of an investment scheme under the Interest Schemes Act 2016 can likely be designated as a “prescribed investment” under Malaysia’s Capital Markets and Services Act 2007 (“CMSA”)²⁹. In this regard, it is notable that Section 5 of the CMSA empowers the SC to make a recommendation to the Minister of Finance to “prescribe any instrument or product or class of instruments or products to be securities”, which has the effect of placing such ICO and token under the regulation of the SC. This is relevant because the carrying out of any regulated activities such as fundraising, fund management and dealing in capital market products without obtaining necessary approval or authorisation from the SC may amount to an offense³⁰.

Alternatively, but not exhaustively, an ICO and digital token may have attributes which are akin to those of shares; depending on the contextual circumstances, such tokens may include the right to vote, to receive dividends etc³¹.

However, taking into consideration that most ICO issuers are set up as foundations³² ³³, this means that such tokens issued are not shares per se as recognized by the Companies Act 2016³⁴. Of further note would be that Section 43 of the Companies Act 2016 is to the effect that private companies shall not offer shares or debentures to the public.

Thus, any issuance of tokens which have the attributes of shares or debentures by private company ICO issuers would be in contravention of the law.

Financial Technology Regulatory Sandbox Framework³⁵ (“Regulatory Sandbox”)

As Malaysian society stands at the forefront of the FinTech frontier, BNM, ever aware and supportive of FinTech development which can contribute towards the creation of value-added and meaningful innovations that can greatly benefit the Islamic finance industry and the public at large has developed the Regulatory Sandbox to provide a regulatory environment that is conducive for the development of FinTech so that FinTech innovation can be deployed and tested in a live environment within specified parameters and timeframes.

The Regulatory Sandbox is not suitable for proposed products, services, or solutions which are already appropriately addressed under prevailing laws and regulations; indeed, BNM will provide guidance and advice to financial institutions or FinTech companies on the modifications that can be made to align proposed business models or solutions with prevailing laws and regulations. To that effect, BNM has introduced regulatory bootcamps every quarter to provide an opportunity for FinTech companies to gain deeper knowledge and understanding before entering the Regulatory Sandbox³⁶.

That being said, an applicant³⁷ seeking BNM’s approval to participate in the Regulatory Sandbox must demonstrate that the product, service or solution is genuinely innovative with clear potential to improve accessibility, efficiency, security and quality in the provision of financial services as well as to enhance the efficiency and effectiveness of Malaysian financial institutions’ management of risks.

The applicant must show that an adequate and appropriate assessment has been conducted to demonstrate the usefulness and functionality of the product, service or solution and identified the associated risks. This may include the required resources and expertise to mitigate and control potential risks and losses arising from offering of such products, services or solutions; It is worth pointing out that FinTech companies that collaborate with financial institutions could gain added advantage from the guidance and support of financial institutions with respect to regulatory requirements and risk mitigation in applying to participate in a sandbox.

At the same time, FinTech companies with potential to contribute to the creation of high value-added jobs locally will be assessed more favourably by BNM. At the same time, as risk and failure, which may lead to financial loss or other risks to the sandbox participants and their customers, are an integral part of innovation, it is imperative that the Regulatory Sandbox incorporates appropriate safeguards to manage the risks and contain the consequences of failure.

In assessing the risks and evaluating the proposed safeguards, BNM will give due regard to preserve sound financial and business practices consistent with monetary and financial stability and promoting the fair treatment of consumers. The risk of money laundering and counter terrorism financing and protecting the customer’s information is also vital consideration by the regulator. For the Regulatory Sandbox, the initial testing period shall not exceed 12 months from the start date of the test. Nonetheless, a written application to extend the testing period can be submitted by the participant to BNM stating the additional time required as well as clearly explaining reasons for requiring such extension. Upon completion of the testing, BNM will decide whether to allow the introduction of the product, service, or solution to the market on a wider scale. Where allowed, participating FinTech companies intending to carry out regulated businesses will be assed based on the applicable licensing, approval, and registration criteria under the Financial Services Act, Islamic Financial Services Act, and Money Services Business Act, as the case may be.

However, BNM may also prohibit deployment of the product, service or solution in the market upon completion of the testing in the event that the testing was unsuccessful based on agreed test measures, or the product, service or solution has unintended negative consequences for the public and/or financial stability. Only products or services that come under the purview of BNM-regulated businesses under Malaysian laws and regulations should apply to participate in the Regulatory Sandbox. Businesses involved in peer-to-peer lending (P2P) or equity crowdfunding providers (ECF), for example, are classified as the ‘recognised market’ which come under the purview of Securities Commission.³⁸

Conclusion

Blockchain is highly appealing in today’s world because of its disintermediation, immutability, security, as well as quasi-anonymity. With many of Malaysia’s government agencies and ministries as well as private companies welcoming the development of FinTech in general, thus there is great potential for the Blockchain in that regard. Indeed, blockchain holds much utility in, among others, the money service business, e-money and e-wallet business, as well as in ICOs, just to name a few.

However, as many of these are relatively novel in the Malaysia legal sphere, their regulation is still in its infancy, or in some cases, non-existent. For now, many of these products are regulated, if at all, based on their attributes; if such attributes are analogous to pre-existing products or services, then the corresponding law is applicable.

Be that as it may, government entities such as BNM, never wanting to stifle the development of FinTech, has also developed a Regulatory Sandbox so that novel FinTech products and services which show potential can be developed in a more conducive, but nonetheless live, environment.

References:

https://blockgeeks.com/guides/dapps/.
Ibid.
https://access-my.org/.
http://www.mimos.my/paper/blockchain-5-things-we-know-so-far/.
Nur Husna Zakara, Dr Sherin Kunhibava & Prof Abu Bakar Munir, Prospects and Challenges: Blockchain Space In Malaysia [2018] 3 Mlj cx, p.cxii.
Ibid, p. cxii.
Ibid, pp. cxiv-cxv.
Ibid, p. cxvii.
Ibid, p. cxvii.
In this context, “wallet” refers to cryptocurrency wallet, which stores the public and private keys which can be used to receive or spend a cryptocurrency.
Ibid, pp. cxx-cxxi.
http://www.mimos.my/paper/blockchain-5-things-we-know-so-far/.
Ibid.
Ibid.
https://www.nst.com.my/business/2018/03/340273/government-setup-special-taskforcestudy-blockchain-potential.
Nur Husna Zakaria et al. (2018) Malaysian Blockchain Regulatory Report: A Research Report Prepared by the University of Malaya. Kuala Lumpur: University of Malaya Malaysian Centre of Regulatory Studies. As cited in Nur Husna Zakaria et al. (2018), p. 134.
Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3)(Supplementary Document No. 1) As cited in Nur Husna Zakaria et al. (2018), p. 141.
Nur Husna Zakaria et al. (2018). p. 142.
Ibid. p. 135.
Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Digital Currencies (Sector 6)http://www.bnm.gov.my/index.php?ch=57&pg=538&ac=680&bb=file
Nur Husna Zakaria et al. (2018). p. 13.7
https://fintechnews.my/16980/blockchain/cryptocurrency-exchanges-in-malaysiaregistered-bnm/.
http://www.bnm.gov.my/documents/Common%20Questions%20and%20Feedback%20During%20Public%20Consultation.pdf.
https://www.sc.com.my/post_archive/mediastatement-on-initial-coin-offerings/.
https://www.sc.com.my/post_archive/statement-on-initial-coin-offerings/.
https://www.sc.com.my/post_archive/mediastatement-on-initial-coin-offerings/.
Guidelines on Unit Trust Funds SC-GL/GUTF-2008(R2-2017), Chapter 2. https://www.sc.com.my/wp-content/uploads/eng/html/resources/guidelines/cis/170524_cis_unitrustfund.pdf
Nur Husna Zakaria et al. (2018), p. 108.
Ibid, p. 108.
http://www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=4600&lang=en.
Ibid, p. 109.
Ibid, p. 106.
https://www.sc.com.my/post_archive/mediastatement-on-initial-coin-offerings/.
Nur Husna Zakaria et al. (2018), p. 110.
http://www.bnm.gov.my/index.php?ch=57&pg=137&ac=533&bb=file.
http://www.bnm.gov.my/index.php?ch=en_speech&pg=en_speech&ac=764&lang=bm.
Meaning a financial institution either on its own or in collaboration with a FinTech company or a FinTech company which intends to apply or has applied for the Bank’s approval to participate in the sandbox, as defined in the Financial Technology Regulatory Sandbox Framework http://www.bnm.gov.my/index.php?ch=57&pg=137&ac=533&bb=file.
http://www.bnm.gov.my/index.php?ch=en_speech&pg=en_speech&ac=721&lang=bm.

Written by: Dr. Noorfajri Ismail & Muhammad Azly Haziq

Alumni Admin – AzmiLaw Alumni

Asni Che Abd. Aziz

Participation of Foreign Contractors in Construction Projects in Malaysia

Introduction

Regulatory Body

Registration Requirement under CIDB Act

Definition of Foreign Contractor

Registration as Foreign Contractor

Joint Venture between Foreign Contractor and Local Contractor

Conclusion

Avoiding Cartel Under Malaysian Competition Law: Tips for Companies

How Can Companies Avoid the Cartel Trap?

Cartel Culture Must Go

M&A Review: Recent Technology Deals in Malaysia

Introduction

Technology Deals in Malaysia

Fintech

Insurtech

Govtech

Digital Advertising

Anthony Azad Tan Chien Liang

The Late Tuan Haji Mohd Rasheed, Ex-Senior Counsel of AzmiLaw

International Internship at AzmiLaw: Nicholas Towers’ Experience

Regulatory Framework Updates on FinTech

Introduction

1. Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Policy on Digital Currencies (Sector 6) [February 2018]

2. Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 [January 2019]

3. Guidelines on Recognized Markets – Chapter 15 (Digital Asset Exchange) [January 2019]

Conclusion

Legal Aspects of Crypto Currency in Malaysia

How does it work?

Legal Status of Cryptocurrency

Blockchain in Fintech: Potential & Regulation in Malaysia

Introduction

Blockchain Experimentation and Implementation in Malaysia

Blockchain in Money Services Businesses

Initial Coin Offerings (“ICOs”) & Various Tokens – Legal Status in Malaysia

Financial Technology Regulatory Sandbox Framework35 (“Regulatory Sandbox”)

Conclusion

Financial Technology Regulatory Sandbox Framework³⁵ (“Regulatory Sandbox”)