Malaysia Crypto Assets Regulatory Framework and Market Status

Regulatory Framework

Malaysia has adopted a "dual regulation" model for Crypto Assets, with the central bank and the securities commission jointly assuming regulatory functions. The central bank is responsible for monetary policy and financial stability and does not recognize Crypto Assets as legal tender. The securities commission includes qualifying Crypto Assets under capital market regulation, treating them as securities products for regulatory purposes.

The regulatory system is based on the "2007 Capital Markets and Services Act that came into effect in 2019, which includes the order that digital currencies and digital tokens are securities (." The Securities Commission has issued several supporting regulations, including the "Guidelines for Recognized Market Operators" and the "Digital Asset Guidelines," to regulate exchanges, IEO platforms, and digital asset custody.

Specific regulatory measures include:

• Set up licensing thresholds, trading platforms must register as recognized market operators )RMO-DAX(
• Introduce the digital asset custodian system )DAC(, requiring institutions engaged in custody services to possess a license.
• Implement differentiated regulation for wallet services, decentralized software wallets are temporarily not included in regulation.

Exchange Regulation and Market Landscape

By 2025, Malaysia will have a total of 6 approved licensed digital asset exchanges )DAX(:

1. Luno Malaysia: The highest market share, supports about 18 regulated coins.
2. SINEGY: characterized by compliance and security, supports fewer coins.
3. Tokenize Malaysia: Operations cover Malaysia, Singapore, Vietnam, and other regions.
4. MX Global: Local trading platform, previously received investment from Binance.
5. HATA Digital: The 5th licensed DAX, with independent USD market trading capabilities.
6. Torum International: The 6th DAX, positioned as a "social + financial" platform

A total of 22 Crypto Assets have been approved for trading, covering mainstream coins, public chain coins, DeFi coins, and more. No stablecoins or privacy coins have been approved for trading. Luno supports the most coins, almost covering all regulated coins.

Capital In and Out Mechanism and Foreign Exchange Control

Licensed exchanges support deposits and withdrawals in Malaysian Ringgit )MYR(. Users can deposit through local bank transfers or sell Crypto Assets to withdraw to their personal bank accounts. Most platforms offer free bank deposits and charge a symbolic fee for withdrawals.

To prevent capital outflows, regulatory authorities have taken the following measures:

• Only MYR-denominated transactions are allowed, transactions in USD or other foreign currencies are prohibited.
• Fiat withdrawals are limited to local bank accounts and withdrawals to third-party accounts are prohibited.
• Set up an additional review process for Crypto Assets withdrawals

Fund Custody Model and Customer Asset Protection

All licensed exchanges in Malaysia adopt a centralized custody trading model. The platform must ensure that customer assets are strictly separated from company assets and implement cold wallet/multi-signature custody mechanisms.

The Securities Commission has introduced the "Digital Asset Custodian )DAC(" system, setting regulatory thresholds for institutions providing token custody services. Currently, 3 institutions have been approved under the DAC principles.

Regulatory requirements include:

• Maintain a 1:1 reserve ratio, customer assets must not be misappropriated.
• Regular asset audits and reserve proof report disclosure
• Prohibit the platform from conducting customer asset lending or leveraged investments

Market Status and Platform Competition Landscape

The Malaysian crypto market is showing a steady growth trend. By the end of 2021, the annual trading volume of the national crypto market reached 21 billion ringgit. In 2022, 128,000 new digital asset trading accounts were added.

The competitive landscape of the platform presents a highly concentrated structure:

• Luno Malaysia is absolutely leading the market, with over 1 million registered users and an annual trading volume of 87 billion ringgit, accounting for more than 90% of the entire licensed exchange market.
• Other exchanges have limited market share, but each has its own characteristics: Tokenize leverages its investment banking background to expand traditional financial users, MX Global has seen significant growth after receiving investment from Binance, and HATA Digital attracts professional users with its USD trading zone.

Investors are mainly retail, with a noticeable younger demographic. Over 72% of investors in DAX accounts are under 45 years old.

The Phenomenon of Unauthorized Platform Usage and Regulatory Attitude

Some experienced investors still use overseas unregistered platforms such as Binance, Huobi, Bybit, etc., to access a wider range of trading coins and tools. Regulatory agencies are implementing progressively stricter restrictions.

1. Maintain the "Investor Warning List" to list unregistered platforms.
2. Issue formal orders and public condemnations to large platforms
3. Implement technical blockades, such as blocking websites, removing apps, etc.
4. Strengthen investor education and warn about the risks of illegal platforms.

Regulators adopt a zero-tolerance attitude towards unlicensed trading platforms, compressing the space for illegal platforms through administrative orders, financial blockades, and public opinion propaganda.

Token Issuance System and IEO Platform Regulation

Malaysia adopts a highly prudent compliance system for digital token issuance, introducing the "Initial Exchange Offering )IEO(" platform model to replace traditional ICOs.

The issuing entity of the token must meet the following conditions:

• Registered and established in Malaysia, primarily operating domestically.
• Minimum paid-up capital is 500,000 Malaysian Ringgit
• At least two directors of the board must be permanent residents of Malaysia.
• Executives and major shareholders meet the "fit and proper" criteria

The IEO platform has been incorporated into the "Recognized Market Operators" system. Currently, two platforms have been licensed: Pitch Platforms and Kapital DX. The platforms are responsible for conducting full-process due diligence and subsequent supervision of projects.

The complete IEO issuance process includes: application and white paper disclosure, platform due diligence and review, SC filing confirmation, public sale, fundraising and delivery, subsequent reporting and regulatory disclosure.

Representative IEO projects include:

• Integra Healthcare Fixed Income Token: The first compliant security token offering project
• BidNow Platform Token: The first IEO token to achieve trading circulation on a locally compliant exchange.
• Ni Hsin Group: A publicly listed company participating in IEO, expanding the scope of applicable subjects.

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. Most are small and medium financing projects below 10 million ringgit, providing innovative financing channels for local small and medium enterprises.

Token Trading and Listing Mechanism

Tokens issued through an IEO that are intended for public circulation must be listed on a licensed digital asset exchange )DAX(. The listing process includes:

• Regulatory filing and approval: The exchange submits a review application to the SC for each proposed token to be listed.
• Internal Exchange Review: Due Diligence on Tokens
• Listing and Announcement: Publish a formal announcement detailing the listing time, recharge opening time, and other details.

There is no significant difference in the circulation mechanism of functional and security tokens after being listed on the exchange; both are determined by market supply and demand.

SC establishes a supporting secondary market continuous supervision system, including:

• Anti-money laundering and real-name system requirements
• Market Manipulation Monitoring Mechanism
• Continuous Disclosure Obligations

If any abnormal or illegal activities are detected, SC may order DAX to suspend trading, temporarily delist, or cancel the listing qualification.

Summary and Outlook

Malaysia's digital asset regulatory system has formed a relatively complete compliance framework, covering the entire process of regulation from Crypto Assets trading, asset custody to token issuance. The IEO system achieves a closed loop from policy design to actual operation, enhancing investors' confidence in the transparency and legitimacy of projects.

The public acceptance of the IEO system is in a state of "rational observation and small-scale participation." Regulatory agencies hold a "prudent and open" attitude towards IEOs, supporting the development of digital assets while emphasizing that market integrity and investor protection should not be sacrificed.

In the future, there is room for growth in the number of IEO platforms and types of projects. Whether stablecoins and RWA-type assets are listed depends on policy risk assessment and market feedback. Malaysia may attract more companies to adopt compliant paths for digital asset issuance and trading through institutional stability and legal clarity, promoting it to become one of the digital financial centers in Southeast Asia.