Malaysia’s central bank, Bank Negara Malaysia (BNM), will designate persons converting cryptocurrencies into fiat money as reporting institutions under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001, from 2018 onwards.
Speaking at the third Joint Regional Counter-Terrorism Financing Summit 2017, BNM governor Muhammad Ibrahim added the central bank has also initiated the foundational work for the development of a regulatory structure for digital currencies.
“We need to prepare ourselves, as according to many pundits, digital currencies will become the new norm. The advent of digital currencies as some have forecasted, will mark the beginning of a new era in the financial sector. As authorities, we cannot be oblivious to these developments,” Ibrahim said.
The move is part of Ibrahim’s three-pronged strategy suggested under “capitalising on technology” to erect stronger defences within Malaysia’s financial system. The two others include promoting clever partnership between the authorities and industry, as well as closer international cooperation.
Ibrahim also said, while technological misuse poses a danger to society’s well-being, it is after all an effective tool to counter terrorism financing. “Akin to using a diamond to cut a diamond, we must harness the vast potential in technological innovations to reinvent and reinforce our lines of defence,” he explained.
He added that, the use of artificial intelligence and big data will have the potential to increase efficiency and accuracy of assessments that is essential in a dynamic environment. Therefore, the banking sector needs to adopt the latest and most advanced technologies to improve its risk management framework.
“A rule-based system, which is at the core of many of such preventive programmes today is becoming increasingly ineffective. The reliance on automated systems to monitor and detect suspicious transactions have served us well, but as we move forward, we need to do more,” Ibrahim said.
As such, he added that more new tools is needed. This includes the adoption of artificial intelligence, machine learning, and big data technology, which are tools that would likely be imperative. This comes as suspicious transactions become more complex and harder to detect.
Greater access of intelligence information for financial institutions and the increased threats from the Islamic state had also resulted in the upward trend of reporting of Suspicious Transaction Reports (STRs). To put it in perspective, in 2015, the financial intelligence unit received 93 terrorism financing related STRs which led to 14 disclosures to law enforcement agencies.
In comparison, between January and June 2017, it received 346 terrorism financing related STRs which have led to 34 disclosures to law enforcement agencies. The quality of STRs submitted has also improved, and BNM is in the midst of finalising the details of a new requirement for the banking and money services business sector to report remittances in high risk areas. The high risk areas will be determined based on the law enforcement agency’s intelligence on areas that they view may pose higher risks for funding of terrorism activities.