By Dr. Marizah Minhat, Dr. Mazni Abdullah, Dr. Nazam Dzolkarnaini & Dr. Noor Sharoja Sapiei

In April 2020, we launched a research project that explores the risks and governance challenges of the market for cryptocurrencies. The research has been commissioned by the Malaysian Accountancy Research and Education Foundation (MAREF)¹ as part of the Priority Research Programme².

Four categories of risk and corresponding governance challenges were examined during the study period: (1) information asymmetry and knowledge-gap risk, (2) opaqueness and criminal risk, (3) technology and security risk, and (4) speculative value and gambling risk.

Risk propositions were tested via several iterations of online survey and interviews that involved three stakeholder groups (i.e., accountants, market participants and wider stakeholders). Summarised below are selected key findings that were derived from a maximum of 191 survey respondents and 15 interview participants in Malaysia.

Information Asymmetry and Knowledge-gap Risk

Cryptocurrency has been coined in several terms globally that describe more or less overlapping functions (digital currency, exchange tokens, virtual currency, etc.). Regulatory instruments in Malaysia make reference to ‘digital currency’ rather than ‘cryptocurrency’. The lack of a common taxonomy of this asset creates uncertainty.

Knowledge gap amongst stakeholders stands as a primary source of risk and this is not unique to the less sophisticated segment of the society. We found that a significant percentage of accountants (52%) and wider stakeholders (42%) in our survey³ had first-time learned about digital currency from the survey (see Figure 1). The majority of accountants in this survey concurred that they do not know enough about digital currency. Half of them responded that they are not interested in this digital asset.

The lack of awareness, knowledge and understanding of the market for cryptoassets is indeed echoed by EY (Woolard et al., 2021) even though previous media reports suggested that big firms such as KPMG, Deloitte, EY and PwC have plans for blockchain and crypto (Decrypt, 2020). Are smaller firms missing the opportunities?

Although digital currency and digital token are separately defined by the Securities Commission Malaysia (SC), more than fifty per cent of the stakeholders in our survey are not sure whether the two digital asset categories are distinguishable. Even market participants who are deemed experienced in digital assets are not necessarily sure of the difference (see Figure 2). Many of these participants also regard digital currency as electronic money albeit there are differences between the two.

Many of our survey participants are not sure whether digital currencies are legal tender. This knowledge gap is alarming as Bank Negara Malaysia has reaffirmed that digital currencies are not legal tender. Therefore, to what extent the announcement of the central bank has successfully reached the public is questionable. There seems to be an opportunity to improve the communication channel here. The public needs to be enlightened more effectively as not everyone would read regulatory instruments. Although the Securities Industry Development Corporation (SIDC) has conducted short seminars on digital assets, to what extent these are impactful is questionable.

Opaqueness and Criminal Risk

Lack of transparency in the market creates uncertainty. The cyberspace where cryptocurrencies are traded and/or stored operates through opaque technology of cryptographic transfer process and Distributed Ledger Technology (DLT) commonly known as blockchain. From our interview, the President of a blockchain association revealed that those who are running mining operation do not necessarily have understanding of how the blockchain works. Our survey participants also perceive that some investors invested in cryptocurrency without fully understanding what it is and how it works. Thus some investors may be exposed to some unintended consequences of their naïveté.

Our survey also gathered many market participants’ concerns that cryptocurrency markets are constantly disrupted by fake trading platforms, scams, frauds and thefts. There seems to be a unanimous view that the owners of cryptocurrencies are pseudonymous, in which only their IDs are known. The pseudonymous identity of the underlying beneficiary can impede investigations on the flow of money. Consequently, cryptocurrencies can be used to facilitate financial crimes (e.g., money laundering, terrorism financing and other illegal activities), as agreed by the majority of the market participants in our survey.

According to cybersecurity specialists in our interview, it is difficult to establish the individuals behind such cybercrimes. The Chief Operating Officer (COO) of a Digital Asset Exchange (DAX) suggested that cybercrime departmentsmay not have enough personnel that are fully trained in this aspect to handle the extent of scams around the country. The President of a consumer association views that an enforcement body has some catching up to do regarding their education and knowledge about dark web. Thus, education is suggested as a plausible governance measure to help mitigate cybercrimes and move the digital asset markets forward.

Technology and Security Risk

The sustainability of the underlying technology that supports cryptocurrencies is uncertain too. A concentrated reliance on the founder(s) of the protocols or the technical lead(s) was implied from our interview with a blockchain association. It was claimed that there were many protocols that went backwards in terms of the holdings and support when the leaders lost influence.

Our interview also revealed an honest opinion that anything digital is hackable. The market participants who responded to our survey also fully concurred that a digital currency is lost once the key or password is lost. As suggested by a cybersecurity specialist in our interview, private keys also can be stolen from an exchange’s wallet where transactions can then be executed against the will of the currency owners. However, more than half of the accountants and wider stakeholders in our survey were not sure if the key is that important, exposing naïveté amongst them.

Installing a robust custodial system is suggested by the COO of a DAX to mitigate the security risk. Access to a secure storage solution for cryptocurrencies that were seized for criminal cases under investigations is also needed by enforcement agencies, as suggested during our interview with cybersecurity specialists. However, according to a Co-Founder of a DAX, there was no properly regulated digital asset custodian in Malaysia. Thus, the three regulated DAXs in the country were using the same service provider that is based in the United States.

In a follow-up interview, representatives of a regulatory body suggested that there will be progress in this matter. We noted that the introduction of SC’s revised Guidelines on Digital Assets (Guidelines) to regulate Digital Asset Custodians (DAC) came into force late October 2020. However, the effectiveness of this regulation in terms of compliance and consumer protection is subject to further research.

Speculative Value and Gambling Risk

In the United Kingdom, both the Bank of England and Financial Conduct Authority have acknowledged that cryptocurrencies or cryptoassets are held mostly as speculative assets by investors who hope their value will rise. The sale of crypto derivatives to retail clients is prohibited (Financial Conduct Authority, 2020).

The absence of fundamentals underlying cryptocurrency prices and trading activities was indeed acknowledged during our interview with a DAX’s Co-Founder in Malaysia. It was revealed that speculators (including millennials) can just take advantage of a price difference and make money from it. To what extent such a financial arbitrage strategy fits within Shariah’s spirit is a subject of interesting discourse.

Interestingly, almost half of the accountants in our survey agreed that cryptocurrency trading is more like gambling rather than investing. As managers of value, many of them believe that a cryptocurrency has no intrinsic value, no income stream or valuable asset that defines its value. Many of them also view that the cryptocurrency craze and bubbles were triggered by investors’ instincts to make quick money.

During our interview, it was acknowledged by the President of a consumer association that many people have criticised cryptocurrency as something equivalent to gambling, and therefore haram. However, opinions are understandably mixed. Our survey also reveals clear evidence that the public is not entirely sure if digital currency is Shariah-compliant (Islamic). We hope the findings from this research have shed light on what was previously uncertain for the benefit of public interest.

Public Interest Role of Accountants

The reported findings should trigger a sense of urgency for stakeholder’s activism if regulators, supervisory authorities and enforcement agencies are not doing enough to protect the public against the risk posed by digital assets. Highly speculative assets can be detrimental to humanity (Minhat and Dzolkarnaini, 2019). If cryptocurrency is aspired to be money, which is a public good, accountants have to be more proactive in their role as public interest agents.

There are several challenges ahead. One of them is how would accountants measure and report the risks and rewards associated with cryptocurrencies? In Malaysia, one may argue that the standard setters are unlikely to develop a separate accounting standard to fit all situations when it comes to cryptocurrencies (Crowe, 2021). According to the IFRS Interpretations Committee (2019), IAS 2 Inventories applies to cryptocurrencies when they are held for sale in the ordinary course of business. If IAS 2 is not applicable, an entity applies IAS 38 Intangible Assets to holdings of cryptocurrencies.

However, in Europe, the Discussion Paper that was proactively developed by the European Financial Reporting Advisory Group (2020), has proposed other options for addressing IFRS related requirements, namely (1) update existing requirements for both holders and issuers of cryptoassets, and (2) develop a new Standard with explicit requirements for the accounting for cryptoassets (liabilities).

‘Do nothing’ or ‘wait and see’ directive can be costly on the nation’s future as any unquantified (hidden) and unmitigated risks can spread systemically, faster than we would envisage. At the time of writing, the volume of digital assets traded in Malaysia has surpassed a billion, with value in excess of RM16 billion (Securities Commission Malaysia, 2021).

As income from cryptocurrency trading is taxable (Inland Revenue Board of Malaysia, 2021), there are also tax avoidance and evasion risks that should be mitigated for the sake of public finance. The challenges outlined here provide a great opportunity for the MIA to lead the agenda with other interested stakeholders and to allocate resources for our concerted efforts to do what we can to protect and promote public interest.

¹  MAREF is a trust body of the Malaysian Institute of Accountants (MIA).

²  Priority Research Programme is a programme that drives the commissioning of research topics that are relevant to the accounting profession which is funded by MAREF Research Grants.

³  The sample consists of accountants (16%), wider stakeholders (77%) and market participants (7%).

  Entities are not disclosed due to confidentiality.

  According to the resolution of the Shariah Advisory Council (SAC) of the SC, the discussions on digital assets in the SAC meetings are limited to digital assets that are regulated by the SC. As the global market for cryptocurrencies has grown from only 66 cryptocurrencies in 2013 to 6,044 in July 2021, it is not clear whether the resolution is applicable to all of them.



  • Dr. Marizah Minhat is Associate Professor in Finance and Economics at the University of Bradford. She holds LL.M (Financial Law and Regulation) from the London School of Economics (LSE). She is a Fellow of ACCA, a committee member of ICAEW Scotland and Tech Sub-Group Facilitator.
  • Dr. Mazni Abdullah is Associate Professor at the Faculty of Business and Economics, University of Malaya.
  • Dr. Nazam Dzolkarnaini is Associate Professor in Accounting and Finance at The Business School, Edinburgh Napier University. He is a Fellow of CA ANZ and UK Higher Education Academy.
  • Dr. Noor Sharoja Sapiei is Senior Lecturer and was Head of Accounting Department at the Faculty of Business and Economics, University of Malaya.
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