Overview of Cryptocurrency Regulation in Malaysia

Regulatory Framework

Malaysia adopts a "dual regulation" model for Crypto Assets, primarily jointly undertaken by the central bank and the securities commission. The central bank is responsible for monetary policy and financial stability, and does not recognize privately issued digital coins as legal tender. The securities commission includes qualified Crypto Assets into the capital market regulatory system, regulating them as securities/investment products.

The legal basis of the regulatory system comes from the "2007 Capital Markets and Services Act, effective from 2019, which classifies digital currencies and digital tokens as securities (." The Securities Commission subsequently issued several supporting regulations, including the "Guidelines for Recognized Market Operators" and "Digital Asset Guidelines," which regulate digital asset exchanges, IEO 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 requirements, robust risk control mechanisms, anti-money laundering measures, and KYC processes. Additionally, a "digital asset custodian" system has been introduced, requiring institutions engaged in asset custody services to possess the relevant licenses.

For wallet services, if only decentralized software wallet functions are provided, they are temporarily not subject to regulatory oversight; however, if they also include fiat currency exchange or custody functions, they must obtain the corresponding payment or custody qualifications. This differentiated approach balances innovative development with regulatory control.

Exchange Regulation and Market Landscape

By 2025, Malaysia will have a total of 6 licensed digital asset exchanges approved by the Securities Commission, including Luno Malaysia, SINEGY, Tokenize Malaysia, MX Global, HATA Digital, and Torum International. These platforms are all recognized market operators and are connected to the local banking system, supporting deposits, withdrawals, and coin exchanges in Malaysian Ringgit.

As of early 2025, there are 22 types of Crypto Assets approved for trading, covering mainstream coins, public chain coins, DeFi coins, etc. It is worth noting that no stablecoins or privacy coins have been approved for trading, indicating that regulatory authorities are taking a cautious approach in the selection of coins, focusing on controlling foreign exchange risks and money laundering risks.

Luno is the platform with the most listed tokens, nearly encompassing all regulated coin types. The Securities Commission updates the token approval list every year; for example, Worldcoin was added in 2024, and Hedera and The Graph are set to be approved in the first half of 2025, increasing the total number of coins from 19 to 22.

Capital In and Out Mechanism and Foreign Exchange Control

Licensed exchanges in Malaysia generally support deposits and withdrawals in the local currency, Malaysian Ringgit. Users can deposit fiat currency into their exchange accounts via local bank transfers and subsequently 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, while 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 personal on-chain wallets to exchanges for trading. After the transaction is completed, assets can also be withdrawn to on-chain wallets. However, all fund transactions must go through real-name verification and anti-money laundering review processes, especially for large or unusual withdrawals, where the platform will implement additional scrutiny.

In order to prevent the formation of capital outflow channels through Crypto Assets, the Malaysian regulatory authorities have implemented the following measures on exchanges:

1. Only transactions priced in Ringgit are allowed: Exchanges must not offer trading pairs priced in US dollars or other foreign currencies, nor are transactions in stablecoins permitted.
2. Withdrawals are limited to local bank accounts: Fiat withdrawals must be transferred to the user's own local bank account, and it is strictly prohibited to transfer to a third-party account.
3. Crypto Assets withdrawal review: Although technically users are allowed to withdraw coins to personal wallets, the platform usually imposes 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 regulatory stance is: "Do not prohibit trading activities, but control cross-border usage."

Custodial Model and Client Asset Protection

All licensed exchanges in Malaysia adopt a centralized custody trading model, meaning that 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's custodian, and individuals can only view their balance and place orders through the platform account.

The platform must ensure that customer assets are strictly separated from company assets and adopt 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 platforms from misappropriating user assets or asset losses.

The Securities Commission has introduced a system of "Digital Asset Custodians", setting specific regulatory thresholds for institutions providing token custody services. As of the end of 2023, three institutions, including CoKeeps, have obtained principle approval as digital asset custodians.

Before the full implementation of the digital asset custodian mechanism, most platforms entrusted third-party international custodians to manage digital assets. For example, Luno Malaysia collaborates with BitGo to safeguard digital assets, while fiat funds are held by the local trust institution MTrustee. The asset custody of Tokenize is jointly executed by BitGo and Universal Trustee. SINEGY also adopts an independent custody solution to ensure the independence of client assets.

The Securities Commission requires all licensed exchanges:

1. Maintain a 1:1 reserve ratio; customer assets must not be used for other purposes.
2. Implement regular asset audits and reserve proof report disclosures.
3. 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. The Malaysian platform, because its assets are held by a third party and cannot be misappropriated, has shown stronger resilience and regulatory credibility amid global market fluctuations.

Market Status and Platform Competition Landscape

The cryptocurrency market in Malaysia has shown a steady growth trend in recent years. By the end of 2021, the annual trading volume of the national crypto market had reached approximately 21 billion ringgit (about 5 billion USD). In 2022, the number of new digital asset trading accounts reached 128,000, which is comparable to the scale of account openings in the traditional securities market.

In terms of the competitive landscape of the platform, it presents a highly concentrated structure. Luno Malaysia, as the first approved exchange, has 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 cumulative number of transactions exceeding 72 million, and a total custodial asset amounting to 4.28 billion ringgit. The annual transaction volume reached 87 billion ringgit, accounting for over 90% of the entire licensed exchange market.

The market share of the remaining 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 that Luno has not covered.
• MX Global has seen significant user growth after receiving investment from Binance, becoming the fastest-growing platform after Luno in 2022;
• HATA Digital will start testing in 2024 and has attracted 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, while other platforms develop in a differentiated manner. Platforms like Tokenize, MX, SINEGY, and HATA have far fewer users and trading volumes compared to Luno, but they are competing for specific groups through different strategies.

From the perspective of investor demographics, retail users are the main focus, with a clear trend towards younger investors. Data from Luno shows that the average age of its investors is 34.8 years, with males accounting for 76%. The median deposit per transaction is 100 ringgit, reflecting the typical retail market characteristics of "small amounts and frequent transactions." Meanwhile, the proportion of female users is increasing year by year, with a growth of 17% in 2024, indicating a continuously expanding market acceptance.

The activity level of market trading is closely related to international market conditions. After the FTX incident in 2022, trading volume once declined, but driven by the recovery of Bitcoin prices and favorable ETF news in 2023, the trading volume in the third quarter of 2023 increased by more than 300% compared to the previous quarter. In 2024, Bitcoin will first break through 100,000 dollars, further boosting trading willingness and the enthusiasm for opening accounts.

Overall, Malaysia's crypto market has built a trading ecosystem centered around young retail investors, characterized by high platform concentration and trading activity significantly influenced by global trends, based on clear regulatory policies and compliant platform safety. As the types of tokens gradually open up and the compliance tool system improves, the market still has further growth potential.

Usage Phenomena and Regulatory Attitudes of Unlicensed Platforms

Despite Malaysia's strict licensing system, some seasoned investors are still using unregistered overseas platforms in the real market. These platforms offer a wider range of trading coins, leverage tools, and financial derivatives, which are highly attractive to high-frequency traders and users seeking high returns. Many investors view local licensed exchanges as a "deposit and withdrawal channel," meaning they trade profitably through unregistered platforms and then transfer their assets to licensed platforms to cash out in ringgit.

This phenomenon reflects the limitations of the local compliance market in terms of coins, product types, and investment tools, and exposes the contradiction between the globalization of the crypto 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: The Securities Commission maintains and publicly releases the "Investor Warning List" for a long time, listing foreign platforms that provide services to local users without registration.

2. Formal Law Enforcement and Prohibitory Orders: The Securities Commission has repeatedly issued written orders and public condemnations to major platforms, demanding that they cease services to Malaysian users, shut down websites, apps, and marketing channels.

3. Coordination of technology and financial means blockade:

   • Local telecom operators block unlicensed platform URLs;
   • Google Play and App Store have removed their related applications in Malaysia;
   • The central bank and the tax bureau are working together to prohibit local banks from providing recharge/withdrawal services for unregistered platforms;
   • Prohibit the provision of USD stablecoin trading to prevent foreign exchange outflow.

4. Investor Education and Public Warning: The Securities Commission has repeatedly reminded the public not to invest on unlicensed platforms, as they will bear all risks and will be unable to seek legal recourse.

These crackdown actions have achieved phased results. Multiple international exchanges have announced or implicitly exited the Malaysian market and stopped providing 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 approach towards unlicensed trading platforms, establishing a regulatory bottom line of "compliance as the foundation, self-borne risks" 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 of the local licensed market.

Token Issuance System and IEO Platform Regulation

Malaysia adopts a highly prudent 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 under the regulatory framework of the "Capital Markets and Services Act." The core of this mechanism is the introduction of the "Initial Exchange Offering (IEO)" platform model, which aims to replace the gaps in project review and the weak investor protection issues that exist in traditional ICOs.

) Token Issuer Qualification

According to the requirements of the Securities Commission, companies intending to issue tokens through IEO must meet the following conditions:

• Registration and Operating Location: Must be a legal entity registered in Malaysia and primarily operating within the country.
• Minimum paid-up capital: must not be less than 500,000 Malaysian Ringgit;
• Corporate governance and equity structure: At least two directors of the issuer's board must be permanent residents of Malaysia, and the executives must collectively hold no less than 50% of the company's shares, which cannot be transferred before the completion of the project.
• Compliance Character Standards: Executives and major shareholders must meet the "fit and proper" criteria.