Overview of Malaysia's encryption asset regulatory system

I. Regulatory Framework

Malaysia adopts a "dual regulatory" model, with the central bank and the securities commission jointly regulating encryption assets. The central bank is responsible for monetary policy and financial stability, and does not recognize privately issued digital currencies as legal tender. The securities commission incorporates eligible encryption assets into the capital market regulatory framework. Overall, Malaysia regulates encryption assets as securities/investment products rather than as currency.

The legal basis for the regulatory system comes from the "2007 Capital Markets and Services Act (Digital Currency and Digital Tokens as Securities) Order" that took effect in 2019. This decree grants the Securities Commission regulatory authority and stipulates that encrypted assets meeting investment characteristics can be considered securities. Subsequently, the Securities Commission has successively issued several supporting regulations, including the "Guidelines for Recognized Market Operators" and the "Digital Asset Guidelines," which regulate digital asset exchanges, IEO platforms, and digital asset custody services.

In terms of specific regulatory measures, Malaysia has set clear licensing thresholds. Digital asset trading platforms must register as recognized market operators and meet high compliance standards, including local registration, minimum capital requirements, robust risk control mechanisms, anti-money laundering measures, and KYC processes. Furthermore, a "digital asset custodian" system has been introduced, requiring institutions engaged in asset custody services to possess the relevant licenses and ensure that client assets are stored independently, with clear records and risk isolation.

2. Exchange Regulation and Market Structure

As of 2025, Malaysia has a total of 6 licensed digital asset exchanges approved by the Securities Commission, including:

1. Luno Malaysia - The compliant platform with the highest market share.
2. SINEGY - A local exchange characterized by compliance and security
3. Tokenize Malaysia - Obtain local investment bank Kenanga's investment
4. MX Global - A local trading platform that has previously received investment from a certain trading platform.
5. HATA Digital - The 5th licensed DAX, equipped with independent USD market trading capabilities.
6. Torum International - The 6th DAX, positioned as a "social + financial" platform

These platforms are all RMO-DAX and are connected to the local banking system, supporting deposits, withdrawals, and currency exchanges in Malaysian Ringgit, forming the foundation of Malaysia's compliant digital asset service ecosystem.

According to the regulations of the Securities Commission, every digital asset listed on licensed exchanges must be approved. As of early 2025, there are 22 types of encryption currencies approved for trading, covering mainstream coins, public chain coins, DeFi coins, etc. It is noteworthy that no stablecoins or privacy coins have been approved for trading. This indicates that Malaysian regulators take a cautious approach to currency selection, focusing on controlling foreign exchange risk and money laundering risk.

3. Fund In-Out Mechanism and Foreign Exchange Control

Licensed exchanges in Malaysia generally support deposits and withdrawals in the local currency, the Malaysian Ringgit. Users can deposit fiat currency into their exchange accounts via local bank transfers and then exchange it for encryption; they can also sell their held encryption assets and withdraw the proceeds in Ringgit to their bank accounts. Additionally, investors can transfer compliant cryptocurrency from their personal on-chain wallets to the exchange for trading, and after the transaction is completed, they can also withdraw the assets to their on-chain wallets.

In order to prevent the outflow of funds through encryption assets, the Malaysian regulatory authorities have implemented the following measures for exchanges:

• Only transactions priced in Ringgit are allowed.
• Withdrawals are limited to local bank accounts
• Encryption withdrawal review

These designs effectively prevent encryption assets from becoming tools for capital transfer, making it difficult for investors to convert high-volatility currencies like Bitcoin and Ethereum into foreign currency assets for foreign exchange transfers. The basic regulatory stance is: "Not prohibiting trading activities, but controlling cross-border uses."

4. Fund Custody Model and Client Asset Protection

All licensed exchanges in Malaysia adopt a centralized custody trading model. The Securities Commission introduced a "Digital Asset Custodian" system, setting specific regulatory thresholds for institutions providing token custody services. By the end of 2023, three institutions, including CoKeeps, have obtained approval under the DAC principles.

Before the full implementation of the DAC mechanism, most platforms used third-party international custodians to hold digital assets. The Securities Commission requires all licensed exchanges:

• Maintain a 1:1 reserve ratio
• Implement regular asset audits and reserve proof report disclosures
• The platform is prohibited from engaging in any form of customer asset lending or leveraged investment activities.

This system design, especially after the FTX incident, is of significant importance for ensuring investor confidence. The Malaysian platform has shown stronger resilience and regulatory credibility during global market fluctuations because its assets are held by a third party and cannot be misappropriated.

5. Current Market Situation and Platform Competitive Landscape

The cryptocurrency asset market in Malaysia has shown robust growth in recent years. By the end of 2021, the annual trading volume of the national crypto market had reached approximately 21 billion ringgit. In 2022, the number of new digital asset trading accounts reached 128,000, comparable to the scale of account openings in the traditional securities market.

In terms of the competitive landscape of the platform, a highly concentrated structure is presented. Luno Malaysia, as the first approved exchange, has always maintained an absolute leading position in the market. According to its public data for 2024, the platform has surpassed 1 million registered users, with a total of over 72 million transactions and a total custodial asset amounting to 4.28 billion ringgit. The annual trading volume reaches 87 billion ringgit, accounting for over 90% of the entire licensed exchange market.

The market share of the remaining exchanges is relatively limited, but each has its own characteristics and development path. Overall, the compliant market in Malaysia is still dominated by Luno, while other platforms are developing in a differentiated manner.

From the perspective of investor profiling, retail users are predominant, showing a clear trend towards younger demographics. Investors under the age of 45 account for more than 72% of DAX accounts, reflecting that this market is primarily composed of digital native users.

Overall, the Malaysian encryption market has established a trading ecosystem characterized by a high concentration of platforms and active trading, primarily driven by young retail investors, based on clear regulatory policies and compliant, secure platforms. As the categories of tokens gradually open up and the compliance tool system improves, the market still has further growth potential.

6. Phenomena of Unauthorized Platform Usage and Regulatory Attitudes

Despite Malaysia's strict licensing system, some experienced investors are still using unregistered overseas platforms in the actual market. This phenomenon reflects the limitations of the local compliant market in terms of cryptocurrencies, product types, and investment tools, and exposes the contradiction between the globalization of the encryption industry and local regulation.

In response to the above situation, the Malaysian Securities Commission has taken a gradually escalating regulatory action, forming a systematic restriction and punishment mechanism:

1. Investor Warning List System
2. Formal Law Enforcement and Injunctions
3. The combination of technical and financial means of blockade
4. Investor Education and Public Advisories

These crackdown actions have achieved phased results. Multiple international exchanges have announced or tacitly exited the Malaysian market and ceased to provide services related to the Malaysian ringgit; local access and recharge volumes have significantly decreased. Although some users still use VPNs and other technical means to bypass restrictions, their activity has significantly declined, and mainstream investors are gradually returning to the locally licensed market.

Overall, Malaysian regulators adopt a zero-tolerance attitude towards unlicensed trading platforms, establishing a regulatory bottom line of "compliance-based, self-risk" through a three-pronged approach of administrative orders, financial blockades, and public opinion propaganda. This series of measures not only compresses the space for illegal trading platforms but also further promotes the development and credibility building of the local licensed market.

7. Token Issuance System and IEO Platform Regulation

Malaysia adopts a highly cautious compliance system design for digital token issuance. According to the "Digital Asset Guidelines" issued by the Securities Commission, all token issuance activities involving public fundraising are regarded as securities issuance and must be included in the regulatory framework under the "Capital Markets and Services Act". The core of this mechanism is the introduction of the "Initial Exchange Offering (IEO)" platform model to replace the project review gaps and weak investor protection issues present in traditional ICOs.

According to the requirements of the Securities Commission, companies intending to issue tokens through IEO must meet conditions regarding registration and operational location, minimum paid-in capital, corporate governance and equity structure, and compliance character standards.

The IEO platform has been incorporated into a new category under the "recognized market operators" system. As of 2025, two platforms have obtained registration licenses: Pitch Platforms Sdn Bhd and Kapital DX Sdn Bhd. All public digital token offerings must be conducted through such platforms for project declarations, white paper disclosures, fundraising implementations, and token deliveries.

The complete IEO token issuance process includes application and white paper disclosure, platform due diligence and approval, confirmation and public offering by the Securities Commission, fundraising and delivery, as well as subsequent reporting and regulatory disclosure.

The core objective of this system is to institutionalize, monitor, and hold accountable the token issuance process, utilizing platform mechanisms to implement access control and real-time supervision, thereby minimizing risks and protecting investors.

8. Types of Issuable Tokens and Their Legal Status, Market Practices, and Case Analyses

The Malaysian Securities Commission has clearly categorized the types of tokens that can be issued through IEO platforms and has provided detailed definitions regarding their legal status. Despite the diverse nature of the tokens, the Commission uses "whether it involves financing activities and expectations of investment returns" as the core criteria for judgment, classifying tokens into three categories: utility tokens, security tokens, and asset-backed tokens, and has set corresponding legal boundaries for their issuance and circulation.

Since the launch of the IEO platform at the beginning of 2023, Malaysia has seen multiple representative compliant token issuance projects, initially establishing a practical sample system. Representative cases include Integra Healthcare's fixed income token, BidNow platform token, and the participation of Ni Hsin Group in the IEO of Rixin Industrial.

As of the end of 2024, the IEO market in Malaysia is still in its early stages, with a limited number of projects but a high level of compliance. Completed issuances are mostly small and medium financing projects under 10 million ringgit, which are not comparable to traditional IPOs, but provide innovative financing channels for local small and medium enterprises.

On the investor side, most participants in IEO projects are local retail investors, who are gradually showing interest in compliant digital assets. Regulatory agencies provide strong protection for retail investors through investment cooling-off periods, limit systems, and mandatory information disclosure.

Overall, the IEO market in Malaysia develops cautiously and steadily. Regulatory authorities place great importance on the quality of projects and the due diligence process of platforms, while both platform operators and issuers are gradually accumulating operational and disclosure experience. With an increasing number of project cases and a richer variety of tokens, IEOs are expected to become a regular financing tool for small and medium-sized enterprises alongside equity crowdfunding in the future.

9. Token Trading and Listing Mechanism

The Securities Commission of Malaysia clearly stipulates that digital tokens issued by IEO platforms must be listed for trading on licensed digital asset exchanges if they are intended for circulation in the public market. This mechanism ensures that all token trading activities open to the public are conducted in a regulated environment, thereby protecting investors' rights and market order.

The conditions and approval process for token listing include regulatory filing and approval, internal exchange review, listing and announcement mechanisms, among other steps. This process ensures that every stage of the token, from fundraising to circulation, is subject to both regulatory and platform oversight, preventing the token from entering the gray market or triggering market manipulation.

In 2024, the BidNow platform token BID became the first token issued through an IEO and successfully listed on an exchange. It first completed the issuance on the PitchIN platform, and later received approval from the Securities Commission and HATA Digital, officially launching on the exchange, becoming the first closed-loop example bridging compliant IEO and secondary trading markets.

To prevent market manipulation, insider trading, and other behaviors during the circulation of tokens listed on exchanges, the Securities Commission has established a supporting continuous supervision system for the secondary market, which mainly includes anti-money laundering and real-name system requirements, market manipulation monitoring mechanisms, and continuous disclosure obligations.

10. Summary and Outlook: Evaluation of the IEO System, Public Acceptance, and Regulatory Trends

Since the official establishment of the digital asset regulatory framework by the Securities Commission of Malaysia in 2020, the local encryption currency market and token financing mechanism have gradually