Dogged by a multi-billion-dollar scandal at its state development fund, Malaysia is seeking to restore trust in its financial sector.

Malaysia is crafting a regulatory structure for crypto-currencies such as bitcoin in a bid to defend itself against money laundering and terrorism financing threats. 

Central bank governor Muhammad Ibrahim reportedly told a summit that from next year those converting crypto-currencies into fiat money will be labelled “reporting institutions” under Malaysia’s Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act. 

Reporting institutions are legally required to take preventative measures to stop their firms from being used as a conduit for washing dirty cash.

“This is to prevent the abuse of the system for criminal and unlawful activities and ensuring the stability and integrity of the financial system,” Muhammad said, without saying when the regulations would be completed. 

Dogged by a multi-billion-dollar scandal at its state development fund, 1Malaysia Development Berhad, Malaysia is seeking to restore trust in its financial sector. 

Bitcoin and other crypto-currencies have a tarnished reputation due to their ability to conceal the identity of the holder, raising red flags over know-your-client (KYC) and anti-money laundering procedures. 

Commenting on terrorism financing in Malaysia, Muhammad said the total number of suspicious transaction reports (STRs) from financial institutions had risen this year. 

In the first six months of 2017, Malaysian authorities received 346 STRs linked to terrorism financing, which have led to 34 disclosures to law enforcement agencies. In comparison, there were just 93 reports filed in 2015.

Malaysia has arrested hundreds of people over the past few years over suspected links to terrorist groups. It has been on high alert since suicide bombers and gunmen linked to the Islamic State launched numerous attacks in Jakarta, the capital of Indonesia, in January last year. 

Closer to home, a grenade attack on a bar close to Kuala Lumpur in June last year wounded eight civilians. The Islamic State said it was responsible for the attacks. 

Bitcoin was trading at $8,108 at the time of writing (18:15 GMT, 22/11/17).