– By Hirander Misra, CEO of GMEX Group and Asad Sultan, CEO of Deutsche Malayan Ventures
Early adoption will be a key differentiator in the race to lead South East Asia in regulated digital asset exchanges and associated digital financial products and services – offering services such as primary listing of securities, listing of alternative assets and secondary-market trading of security tokens and cryptocurrencies with secure digital custody.
Distributed ledger technology is bound to revolutionise capital markets so that conventional and digital asset classes will eventually converge; and digital asset exchanges will provide the liquidity and efficiencies necessary to support this marketplace with standardized processes, reduction of intermediaries, global 24/7 access, real-time settlements and lower costs of trading and custody.
Given that the Fintech sector is set for exponential growth, it is worth pointing out that Malaysia has some key advantages over its peers to develop a Digital Financial Services Hub in the ASEAN region (with potentially a global reach).
Malaysia has English language and common law commercial platforms, strong and credible oversight by Bank Negara and the Securities Commission, a budding off-shore tax-efficient financial center in Labuan; and, most importantly, none of the legacy issues of big money centers like Tokyo, Hong Kong and Singapore which have ironically made them inflexible to innovation and resistant to change – at least with respect to digital financial services.
The benefits of a Digital Financial Services Hub initiative are multiple for Malaysia and include:
- Positioning Malaysia as a leader in digital financial services especially within Islamic Fintech;
- Development of local expertise in digital assets and services as well as attracting Fintech companies;
- Growing the GDP in the digital financial services space;
- Opening the door to an unlimited set of digital assets to be offered for trading over time;
- Enabling easy connection to other similar Hubs in the ASEAN region and other parts of the world.
Rather than lobby the government for a new Digital Hub, which would likely be a long lead-time initiative, we can use existing infrastructure such as the Digital Free Trade Zone – launched in 2018 to great fanfare but since then underutilized – and combine its facilities and incentives with the regulatory flexibility offered by Labuan Offshore Financial Services Authority (LOFSA), for example. Where the first digital asset exchange licenses have already been issued.
Some of the benefits of operating out of Labuan include 100% foreign ownership control, 3% corporate tax, and oversight by Malaysia’s Ministry of Finance. Earlier this year, Fusang Exchange was licensed by LOFSA as the first securities exchange focused on digital assets.
While Fusang plans to start by securitizing and offering digital shares in smaller companies that are ineligible for listing on the KLSE, as well as digitizing hard assets such as gold, property, art, etc.; in theory every asset class can be tokenized and, indeed, eventually will be.
Such a paradigm shift underlines the importance of an early mover advantage in order to cultivate the ground for domestic startups, interconnect with regional hubs, and entice international players to choose Malaysia as the landing pad from which to grow out their Asia digital financial services footprint.