In brief

Effective 1 January 2022, cloud service providers in Malaysia will be subjected to licensing requirements under the Malaysian Communications and Multimedia Act 1998. Technical standards are also expected to be implemented in due course to ensure that licensed cloud service providers comply with prescribed requirements as to data security and data protection. Cloud service providers are advised to carefully consider whether the new licensing regime applies to their solutions, and to ensure they are duly licensed when the requirements come into force in the new year.

In more detail

From 1 January 2022, cloud service providers (CSPs) must apply for an applications service provider class licence (ASP(C)) from the Malaysian Communications and Multimedia Commission (MCMC).

This requirement was announced on 15 October 2021 via a press statement by the Communications and Multimedia Minister, Tan Sri Annuar Musa, together with an advisory notice issued by the MCMC on the same day. The new licensing regime comes as part of the Malaysian government’s initiatives to accelerate Malaysia’s transformation towards a technologically-advanced economy, as envisioned in the Malaysia Digital Economy Blueprint. With the expansion of the current licensing framework to CSPs, MCMC seeks to co-develop with the industry and roll out technical codes and standard operating procedures for the provision of cloud services, particularly around data security and protection.

Under the advisory notice, cloud services are defined broadly as “any service made available to end users on demand via the Internet from a cloud computing provider’s server”. Currently drafted, the advisory notice indicates that the licensing requirement will be imposed on local CSPs, as well as local data centre operators hosting cloud service applications of a foreign CSP. As regards foreign CSPs that are not using local data centres, the advisory notice suggests that such foreign CSPs will also need to be licensed, however it appears that the MCMC will need to provide further clarity in this regard. That said, web hosting and client server activities which are currently exempted under the licensing framework will remain exempted.

CSPs should note that the provision of licensable activities without a licence is an offence under the Malaysian Communications and Multimedia Act 1998, punishable upon conviction with a fine of up to RM500,000 (~ USD120,000) and/or imprisonment for up to 5 years.

Applicants are required to submit their application to the Licensing Department of the MCMC, together with the relevant supporting documents and payment of fees. As the regulation is intended to be ‘light touch’, there will be no foreign equity restrictions and CSPs will also qualify for a waiver from contributing to the Universal Service Provision fund, which all licensees except for content applications services providers are normally required to contribute to. The ASP(C) licence granted to CSPs will be valid for one year and renewable annually.

In light of these developments, CSPs are advised to conduct a careful assessment as to whether their activities will require the cloud service provider ASP(C) licence in Malaysia before the new regime takes effect in the coming weeks on 1 January 2022.