‍1. Introduction

On October 31, 2025, Bank Negara Malaysia (BNM) released the "Discussion Paper on Asset Tokenisation in the Malaysian Financial Sector" (hereinafter referred to as the "Discussion Paper"), officially launching the action plan for asset tokenization in the financial sector and announcing the roadmap and implementation path. At a time when the RWA (Real World Assets) craze is running parallel with market chaos, the Discussion Paper published by BNM, along with the subsequent series of actions like soliciting opinions, highlights Malaysia's cautious yet innovative attitude towards RWAs: it aims to plan ahead for the RWA track and utilize blockchain technology to improve asset circulation efficiency, while also strengthening regulation to ensure domestic RWAs develop on a compliant track.

The "Discussion Paper" not only lays out the implementation phase of the plan but also proposes an organizational model to advance the tokenization process and identifies application scenarios with clear economic value. At the same time, it emphasizes pushing forward in a way that strengthens the foundations of monetary and financial stability as well as financial integrity. This may provide a path for current RWAs that integrates innovation with compliant development. This article will interpret the main content, including the layout, trends, and driving forces of Malaysia's RWA regulation, and analyze the impact of this move on the RWA industry and Web3 Participants.

2. Decoding the Core Content of the Asset Tokenization Action Plan

According to the roadmap announced in the "Discussion Paper", Malaysia's asset tokenization action will be divided into three stages: 2025 will see the official launch of the plan, the release of documents, and the seeking of industry feedback; 2026 will be the stage for proof of concept and pilot programs; 2027 will involve expanding the scale of trials, summarizing test results, assessing their impact on laws, regulations, and technology, and formulating a path for large-scale application. To successfully complete the plan, Malaysia will primarily rely on its established Digital Asset Innovation Hub (DAIH) platform. It will adopt a collaborative co-creation model involving regulators, industry participants, and stakeholders to participate in the tokenization application process together. Focusing on areas such as supply chain financing for SMEs, cross-border trade, and Islamic finance, it aims to solve long-standing pain points in Malaysia's financial ecosystem, with the expectation of promoting tokenization exploration and practice across the entire financial sector in a planned, phased manner within the next three years.

2.1 Regulatory Framework Under the Collaborative Co-creation Mode

In the process of exploring cryptocurrency regulation, Malaysia has gradually formed a dual-track regulatory system centered on the Securities Commission (SC) and Bank Negara Malaysia (BNM). The SC is responsible for regulating the securities attributes of cryptocurrencies, while BNM is more responsible for monetary policy and financial stability. To maintain a compliant environment while advancing the tokenization process, the SC and BNM will use the DAIH and the Asset Tokenization Industry Working Group (IWG) as levers to leverage the role of the regulatory sandbox. The core function of the DAIH is to facilitate two-way learning between regulators and the market. By providing a regulated sandbox environment, it places high-risk innovations in a transparent, controllable environment for safe proof of concept and live piloting. It allows companies to test frontier ideas under specific exemptions while letting BNM closely observe real risks and regulatory blind spots during technology implementation. Under the DAIH, BNM and the SC will also jointly lead the establishment of the Asset Tokenization Industry Working Group (IWG). The IWG will not only be responsible for coordinating resources to promote pilots, gathering industry strength, and setting industry standards, but will also exercise regulatory duties to assess the potential risks of tokenization to the financial and monetary stability of Malaysia's financial sector, as well as regulatory gaps and legal hurdles, to support the future development of regulatory policies.

2.2 No Exemptions or Exceptions: AML/CFT/CPF Regulatory Requirements

In the "Discussion Paper", BNM's regulatory stance on Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT), Counter Proliferation Financing (CPF), and Targeted Financial Sanctions (TFS) is very clear and the requirements are strict; compliance is viewed as an insurmountable bottom line for tokenization exploration. BNM in the application scenario precautions section clarified a mandatory licensing entry framework, where only authorized users who have undergone identification and verification (KYC) can access and participate in tokenized financial services. Secondly, BNM requires that the identity and responsibility of participants be clearly defined—whether they are financial institutions or technology providers, they must be entities that are legally traceable and accountable. When financial institutions outsource part of their services to technology providers, they must still ensure their partners comply with AML/CFT regulations and bear the ultimate compliance responsibility. BNM pointed out in the document that tokenized assets with payment functions (including stablecoins) might amplify AML/CFT risks. All related explorations must strictly adhere to current AML/CFT/CPF and transaction screening (TFS) measures to maintain financial stability. This means issuers must demonstrate monitoring and compliance capabilities far beyond the norm, otherwise, it will be difficult to obtain approval.

2.3 Tokenization of Islamic Finance

Among the potential application scenarios being explored, combining Islamic finance principles with asset tokenization is a field with strategic significance and unique advantages for Malaysia's tokenization plan. Islamic finance principles are a set of financial and business practice guidelines based on Shariah law. The main difference from the traditional Western financial system is that it doesn't just focus on capital returns, but emphasizes the social justice and moral attributes of economic activities. Introducing tokenization into the Islamic finance sector and utilizing the technical characteristics of blockchain could solve structural difficulties that have long existed in traditional Islamic finance.

The technical limitations of the traditional financial system have forced Islamic finance to make many compromises in product design, increasing complexity and cost. For instance, "Murabahah" (cost-plus-profit financing) and specific types of "Salam" (forward delivery sales) require that asset ownership and payment actions must happen simultaneously or nearly instantly to avoid suspected interest (Riba) caused by time differences. Tokenization can achieve the synchronized, instant exchange of assets and payments. For example, when exchanging a commodity token representing a physical object with a token representing funds, the transaction either succeeds simultaneously or fails simultaneously. Technically, this eliminates the possibility of late delivery by one party, fitting the Shariah requirement for immediacy. The "composability" of smart contracts can also encode the logic of multiple contracts into a series of interlinked smart contracts, which can reduce the operational and compliance risks brought about by strictly following Shariah conditions in complex Islamic financial products.

3. Strategic Considerations for RWA Layout

Bank Negara Malaysia's announcement this time is not a spur-of-the-moment decision, but a key step in the evolution of the entire national digital finance strategy. In earlier years, the Securities Commission Malaysia (SC) released policy documents such as the "Capital Markets and Services Act," the "Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order," and "Digital Asset Guidelines," providing clear regulatory boundaries for the entire ecosystem. In 2022, BNM released the "Financial Sector Blueprint 2022-2026," listing the vision for financial industry development and strategies to achieve goals over the next 5 years, which included promoting market vitality, driving sustainable development, and continuing to focus on monetary and financial stability. Releasing the RWA plan is a response to this blueprint. Against the backdrop of RWA moving from concept exploration to substantive institutional construction and market practice, Malaysia's layout in RWA with a national-level, systematic, and phased strategic stance has its internal and external strategic considerations.

3.1 Boosting Financial System Efficiency and National Competitiveness

Malaysia's strategic layout this time stems from its profound insight into the internal and external economic and financial environments. Although Malaysia is the third-largest economy in Southeast Asia, its financial market still has room for improvement in settlement efficiency, cross-border payments, and the ease of financing for SMEs. Facing Singapore's first-mover advantage in the digital asset field and Hong Kong's active catch-up, Malaysia is committed to building a more efficient and modern financial system to find its own track. Tokenization can achieve near real-time settlement, significantly reducing intermediary costs and operational risks. By emphasizing compliance, institutional participation, and real asset empowerment, Malaysia intends to shape the image of a "Steady Innovator," attracting traditional financial institutions and long-term capital that are cautious about pure cryptocurrency speculation but bullish on the value of underlying blockchain technology. The expectation is to clarify its own positioning in the Asian digital finance landscape and enhance financial competitiveness.

3.2 Activating Massive Stocks of Illiquid Assets

Malaysia's economic development contains a large amount of assets with insufficient liquidity, such as SME loans, real estate, infrastructure projects, and agricultural commodities (like palm oil). Through tokenization, these assets can be divided into smaller investment units, significantly lowering the investment threshold and creating an active secondary market, thereby revitalizing existing assets and injecting new, lower-cost capital vitality into the real economy.

3.3 Solidifying Leadership in Global Islamic Finance

This is Malaysia's most strategically significant differentiated advantage. The scale of global Islamic finance assets is huge, but their product structures are often quite complex. RWAs align highly with the Islamic finance principles of asset backing and risk sharing. Through tokenization, on one hand, Malaysia can use smart contracts to automate the profit distribution and asset backing processes of Sukuk (Islamic-compliant financial certificates), greatly enhancing transparency and the trust of global investors. On the other hand, it creates an unprecedented, highly liquid secondary market for over a billion Islamic investors worldwide, solving the core pain point of insufficient liquidity in traditional Islamic financial products. Furthermore, it creates new, more segmented Islamic financial products that were previously difficult to realize due to operational complexity.

4. Analysis and Thoughts on Malaysia's RWA Regulatory Trends

Malaysia has consistently not regarded cryptocurrency as legal tender, and in the "Discussion Paper", BNM also strictly distinguishes RWAs from cryptocurrencies. The "Discussion Paper" repeatedly emphasizes that its scope of exploration is strictly limited to tokenized financial services backed by real-world assets, drawing a clear line from speculative cryptocurrencies without underlying value (like Bitcoin) and unbacked tokens. This positioning ensures that innovation does not conflict with the fundamental goal of financial stability. Regarding the attitude and purpose of RWA regulation, BNM emphasizes a risk-based approach where compliance is paramount, adhering to the principle of "same activity, same risk, same regulatory outcome": regardless of the technology used for the activity, as long as it constitutes a regulated financial behavior (such as payments, securities issuance), the relevant institutions must hold the corresponding licenses and comply with existing regulations. It also explicitly emphasizes the substantive economic value of tokenization, opposing technology for technology's sake or using it for regulatory arbitrage; tokenization exploration must aim to solve real market pain points.

Under this regulatory trend, regulatory compliance will become the entry ticket for RWA practitioners to enter the Malaysian market in the future. Practitioners involved in key businesses such as stablecoins, asset custody, and trading venues must make obtaining the corresponding BNM licenses a top-priority task. In the project design phase, professional advisors proficient in Malaysian financial regulations and tax laws must be introduced. Conducting a tax impact assessment for every link in the asset tokenization process should become a standard operating procedure. The narrative of pure "disintermediation" will essentially not pass in the Malaysia model; a collaborative co-creation partnership model will become a necessity. The most feasible path for Web3 technology providers will be to form alliances with licensed financial institutions (banks, brokerages), where the former provides technology and the latter provides compliant licenses and customer trust. This "Technology + License" cooperation model may become the market mainstream.

5. Conclusion

The "Regulation-Tech-Entity" framework constructed in Malaysia's RWA roadmap paves a compliant channel for RWAs from proof of concept to scale application, providing a template for steady innovation under strict regulatory protection to promote the deep integration of blockchain technology and the real economy. It showcases the future of a regional RWA tokenization hub characterized by safety, efficiency, and compliance. Its establishment of a strict anti-money laundering framework and a licensed entry model will also provide an important reference for the entire Southeast Asian region on how to balance financial innovation with risk prevention. For Web3 Participants, the key to future success may not lie in having the most cutting-edge technology, but in deeply understanding regulatory intent, actively seeking cooperation, and deeply integrating compliance into product design and business strategies.

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