In 2021, Switzerland became one of the first countries to adopt a comprehensive legal framework for the application of DLT. Besides various adjustments to securities law, a new licence category for DLT trading facilities has been created under the Financial Market Infrastructure Act. This has created the basis in Switzerland for a regulated token ecosystem. Where do you find interesting applications of DLT in today’s financial system? The short answer is in the area of financial market infrastructure, which includes trading platforms, securities settlement systems, and payment systems such as the SIC system, via which transactions are settled. DLT promises efficiency gains in post-trading, i.e. in the clearing, settlement and custody of assets. A shared ledger increases transparency and simplifies the booking of transactions. In addition, it eliminates the need for costly and error-prone reconciliation processes between different databases on different systems. Moreover, DLT also allows assets such as securities, works of art or money to be securitised in the form of digital tokens, represented in a decentralised and fraud-proof network, and managed. Standardisation allows assets of different types to be represented as tokens on a shared infrastructure. Transfers of tokens can be programmed in the form of ‘smart contracts’. DLT enables the efficient and low-risk settlement of transactions. For example, the transfer of tokenised assets versus tokenised money can be effected conditionally according to preprogrammed logic. 5 It replicates the payment process with cash, where the exchange of money and goods can take place simultaneously on a delivery-versus-payment basis.
Over the years, we have put in place various arrangements to enable smooth information flows between the financial sector and the law enforcement community, within a controlled environment. These “public-private partnerships” (PPP) are vital as they allow the financial intelligence unit, law enforcement agencies and reporting institutions to leverage on intelligence-led collaboration and information sharing to detect financial crime and terrorism financing. This will further support investigation and prosecution processes. For Malaysia, our goal is to formalise and further deepen what we have built over the years. As such, I am pleased to announce that the PPP will be officially launched shortly by our Prime Minister. I wish to also express my appreciation to other participating agencies in the PPP namely Polis Diraja Malaysia, the Suruhanjaya Pencegahan Rasuah Malaysia, Jabatan Kastam Diraja Malaysia and the Securities Commission Malaysia, and also the 18 reporting institutions. Second, reporting institutions must accelerate efforts to further expand and develop their AML/CFT toolkit to deal with new and emerging risks. At our end, Bank Negara is in the process of reviewing our AML/CFT policies. A key outcome of this review is the move of our regulatory framework towards being more “risk-based” and “principles-based”. We have come a long way since the AMLA was gazetted in 2001. Since then, reporting institutions have matured in understanding and have fully implemented the regulatory requirements. This is also supplemented by the issuance of various guidance, technical notes and updates on regulation.