Current Status and Prospects of Cryptocurrency Regulation in Malaysia

I. Regulatory Framework

Malaysia adopts a "dual regulatory" model for Crypto Assets, primarily overseen by Bank Negara Malaysia and the Securities Commission, which share regulatory functions. Bank Negara is responsible for monetary policy and financial stability and does not recognize privately issued digital currencies as legal tender. The Securities Commission incorporates eligible Crypto Assets into the capital market regulatory framework and regulates them as securities products. Overall, Malaysia regulates Crypto Assets as a type of security/investment product 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" which came into effect in 2019. This decree grants the securities commission regulatory authority and stipulates that as long as the crypto assets meet certain investment attributes, they can be regarded as securities. Subsequently, the securities commission has released several supporting regulations, including the "Guidelines for Recognized Market Operators" and the "Digital Asset Guidelines," which respectively regulate the access conditions for digital asset exchanges, initial exchange offering platforms, and digital asset custody services.

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

It is worth mentioning that for wallet services, if they only provide decentralized software wallet functions, they are temporarily not included in the regulatory scope; however, if they also have fiat currency exchange or custody functions, they need to obtain the corresponding payment or custody qualifications. This differentiated treatment balances innovative development with controllable regulation.

2. Exchange Regulation and Market Landscape

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

1. Luno Malaysia: The compliance platform with the highest market share, established in 2013, is one of the first licensed exchanges, supporting the trading of approximately 18 regulated coins.

2. SINEGY: A local exchange established in 2017, characterized by compliance and security, supporting a limited number of coins.

3. Tokenize Malaysia: Founded in 2017, operating in Malaysia, Singapore, Vietnam, and other regions, and has received investment from the local investment bank Kenanga.

4. MX Global: Established in 2018, a local trading platform that has received investment from a certain trading platform and supports trading of mainstream coins.

5. HATA Digital: Obtained principle approval in 2022 and is the 5th licensed DAX, with independent USD market trading capabilities.

6. Torum International: Approved in 2024, it is the 6th DAX, positioned as a "social + financial" platform, currently still in the pre-launch preparation stage.

The above platforms are all RMO-DAX and are connected to the local banking system, supporting deposits, withdrawals, and coin exchanges in Malaysian Ringgit, forming the foundation of a compliant digital asset service ecosystem in Malaysia.

According to the regulations of the Securities Commission, every type of digital asset listed on a licensed exchange must be approved. As of early 2025, the number of approved Crypto Assets for trading is 22, 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 regulatory authorities maintain a cautious attitude towards the selection of coins, focusing on controlling foreign exchange risks and money laundering risks.

3. Capital In and 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 the exchange account through local bank transfers and then exchange it for Crypto Assets; they can also sell their held Crypto Assets and withdraw the Ringgit to their bank accounts. Most platforms do not charge fees for bank deposits, and withdrawals usually incur a nominal fee, resulting in a low overall threshold.

In addition, investors can also transfer compliant coin types of Crypto Assets from their personal on-chain wallets to exchanges for trading, and after the transaction is completed, they can also withdraw assets to their on-chain wallets. This arrangement provides users with a dual-flow channel between fiat currency and digital assets. However, all fund inflows and outflows must undergo real-name verification and anti-money laundering review procedures, especially for large or unusual withdrawals, where the platform will implement additional scrutiny.

Malaysia has long implemented strict capital control policies, prohibiting the trading of the ringgit in offshore markets since the 1998 Asian financial crisis. To prevent the formation of capital outflow channels through Crypto Assets, Malaysian regulatory authorities have implemented the following measures for exchanges:

• Only ringgit-denominated transactions are allowed: The exchange must not provide trading pairs denominated in US dollars or other foreign currencies, nor are transactions involving stablecoins permitted.
• Withdrawals are limited to local bank accounts: Fiat withdrawals must be transferred to the user's own local bank account, and transfers to third-party accounts are strictly prohibited.
• Crypto Assets withdrawal review: Although users are technically allowed to withdraw coins to personal wallets, the platform typically sets delays or additional review processes.

These designs effectively prevent Crypto Assets from becoming tools for capital transfer, making it difficult for investors to convert highly volatile coins like Bitcoin and Ethereum into foreign currency assets for foreign exchange transfers. The basic stance of regulation is: "Do not prohibit trading activities, but control cross-border uses."

4. Fund Custody Model and Client Asset Protection

All licensed exchanges in Malaysia adopt a centralized custody trading model, meaning users must deposit assets into the platform's wallet or account for trading and cannot use personal on-chain wallets for direct matching or on-chain transactions. In this model, the assets held by investors are custodied by the platform, and individuals can only view their balance and place orders through their platform account.

The platform must ensure that customer assets are strictly separated from company assets and implement appropriate cold wallet/multi-signature custody mechanisms. This requirement comes from the "Digital Asset Guidelines" and the "Customer Asset Protection Guidelines" established by the Securities Commission, aimed at preventing the platform from misappropriating user assets or asset losses.

The Securities Commission of Malaysia has introduced a "Digital Asset Custodian" system, establishing specific regulatory thresholds for institutions providing token custody services. As of the end of 2023, three institutions, including CoKeeps, have received DAC principle approval.

Before the full implementation of the DAC mechanism, most platforms used third-party international custodians to hold digital assets:

• Luno Malaysia: Collaborating with BitGo to custody digital assets, while fiat funds are held by the local trust institution MTrustee.
• Tokenize: Asset custody is jointly executed by BitGo and Universal Trustee.
• SINEGY: Also adopts an independent custody solution to ensure the independence of customer assets.

The Securities Commission requires all licensed exchanges:

• Maintain a 1:1 reserve ratio, customer assets must not be used for other purposes.
• 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 great significance for ensuring investor confidence. Malaysian platforms demonstrate greater robustness and regulatory credibility in the global market turbulence because the assets are held by third parties and cannot be misappropriated.

5. Market Status and Platform Competition Landscape

The Malaysian Crypto Assets market has shown a robust growth trend in recent years. Despite starting later, thanks to a clear regulatory framework and increased investor confidence, compliant exchanges have gradually established a local user base and operational scale. 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 platform competition structure, it shows a highly concentrated structure. Luno Malaysia, as the first approved exchange, has always been in an absolute leading position in the market. According to its public data for 2024, the platform's registered users have surpassed 1 million, with a total of over 72 million transactions and total assets under custody reaching 4.28 billion ringgit. The annual trading volume has reached 87 billion ringgit, accounting for over 90% of the entire licensed exchange market. Luno has advantages in cryptocurrency support, user experience, and compliant custody, firmly maintaining its leading position in the market.

The market share of other exchanges is relatively limited, but they each have their own characteristics and development paths:

• Tokenize Malaysia, backed by Kenanga's investment background, has a certain level of recognition among local traditional financial users and has launched some coin types not covered by Luno;
• MX Global has seen significant user growth after receiving investment from a certain trading platform, becoming the fastest-growing platform after Luno in 2022.
• HATA Digital will start testing in 2024, attracting the attention of professional users due to its USD trading zone and external liquidity integration features.

Overall, the compliant market in Malaysia is still dominated by Luno, with other platforms developing in a differentiated manner. Platforms like Tokenize, MX, SINEGY, and HATA have user numbers and trading volumes far lower than Luno, but they are vying for specific groups through different strategies.

From the perspective of investor profiles, retail users are predominant, with a clear trend towards youth. Luno's data shows that the average age of its investors is 34.8 years, with males accounting for 76%, and the median deposit amount is 100 MYR, exhibiting typical retail market characteristics of "small amounts and frequent transactions". At the same time, the proportion of female users has been increasing year by year, with a growth of 17% in 2024, indicating that market acceptance is continuously expanding. Luno also launched the "Luno Institutional" service in 2024, providing API, OTC liquidity, and professional custody, demonstrating that the platform is actively expanding into the high-net-worth client and institutional market.

The market trading activity is closely related to international market trends. After the FTX incident in 2022, trading volume experienced a decline, but with the rebound of Bitcoin prices and favorable ETF news in 2023, the trading volume in the third quarter of 2023 increased by over 300% quarter-on-quarter. In 2024, Bitcoin first broke through $100,000, further boosting trading willingness and account opening enthusiasm.

The report from the Securities Commission indicates that investors under the age of 45 account for over 72% of DAX accounts, reflecting that the market is primarily composed of digital native users. Events such as Worldcoin have also attracted widespread attention, showing that the market is highly sensitive to new tokens, airdrops, and innovative applications, highlighting the necessity for enhanced investor education in the future.

Overall, the cryptocurrency market in Malaysia has established a trading ecosystem characterized by young retail investors, high platform concentration, and trading activity significantly influenced by global trends, based on clear regulatory policies and the compliance and safety of platforms. As the categories of tokens gradually open up and the compliance tool system improves, the market still has further growth potential.

6. The Use of Unlicensed Platforms and Regulatory Attitudes

Despite Malaysia's establishment of a strict licensing system, some experienced investors are still using overseas unregistered platforms in the real market, such as certain internationally renowned exchanges. These platforms offer a wider range of trading coins, leverage tools, and financial derivatives, which are very attractive to high-frequency traders and users pursuing high returns. Many investors regard local licensed exchanges as "entry and exit channels," meaning they trade profitably on unregistered platforms and then transfer their assets to licensed platforms to convert them into ringgit.

This phenomenon reflects the limitations of the local compliant market in terms of coins, product types, and investment tools, and exposes the contradiction between the globalization of the encryption industry and local regulations.

In response to the above situation, the Malaysian Securities Commission has taken a step-by-step regulatory action, forming a systematic restriction and penalty mechanism.

1. Investor Warning List System: The Securities Commission maintains and publicly publishes the "Investor Warning List" for a long time, listing overseas platforms that provide services to local users without registration. Many internationally renowned exchanges were included in the list as early as 2020-2021, and the public was clearly informed that "trading with these entities will not be protected by Malaysian law."

2. Formal Law Enforcement and Prohibition Orders: The Securities Commission has repeatedly issued written orders and public condemnations to large platforms, demanding them to stop servicing Malaysian users, shut down websites, apps, and marketing channels, and requiring executives to personally ensure compliance.

3. The combination of technical and financial means of blockade:

   • Local telecom operators block unlicensed platform URLs;
   • The app store has removed its related applications in the Malaysia region;
   • The central bank and the tax bureau are linked, banned