Navigating the Trends and Regulatory Landscape of Blockchain in Malaysia

Malaysia is rapidly emerging as a strategic player in the global blockchain space, with a vision that extends far beyond the speculative world of cryptocurrency. The nation is actively integrating blockchain technology into its digital transformation agenda, aiming to foster a more transparent, efficient and secure digital economy. This concerted effort, led by both the government and a burgeoning private sector, is carving out a unique and pragmatic path for the country.

For businesses, developers and investors, understanding this evolving landscape is crucial. Navigating the regulatory nuances, technological shifts and legal frameworks is key to unlocking the immense potential that blockchain holds for Malaysia’s future.

A national blueprint for a decentralised future

The cornerstone of Malaysia’s blockchain strategy is the National Blockchain Roadmap 2021–2025. This ambitious plan outlines a strategic push to integrate blockchain technology across various sectors. A major milestone in this roadmap is the development of the Malaysia Blockchain Infrastructure (MBI).

Designed to be a neutral, foundational platform, the MBI aims to unify what has been a fragmented ecosystem. By providing a common, interoperable layer, it seeks to lower the barrier to entry for innovators and enable seamless communication between different blockchain networks. This unified infrastructure is set to be the backbone for critical national use cases, from enhancing the integrity of government administration and streamlining supply chains to powering a verifiable digital identity system, MyDigitalID. The government’s focus on using blockchain for real-world applications – such as halal certification, trade facilitation and public service delivery – demonstrates a commitment to practical, impactful adoption rather than mere technological showmanship.

The regulatory balancing act: innovation with oversight

Malaysia’s approach to regulating digital assets is a defining feature of its ecosystem. Rather than creating a single, broad blockchain law, regulators have “retro-fitted” existing frameworks to govern the new technology. This allows for adaptability while ensuring consumer protection and financial stability.

The Securities Commission Malaysia (SC) is the primary regulator for digital assets classified as “securities” under the Capital Markets and Services Act 2007 (CMSA). This classification is not based on a token’s label but on its economic function – a “substance over form” approach. Consequently, most digital currencies, tokens sold as part of an investment contract, and even certain types of NFTs can fall under the SC’s purview.

This regulatory certainty has enabled the growth of a regulated market for key players:

• digital asset exchanges (DAXs) for trading;
• initial exchange offering (IEO) operators for fundraising; and
• digital asset custodians (DACs) for secure asset management.

Recent public consultation papers from the SC highlight a dynamic and forward-looking approach. Proposals to increase capital requirements for DAXs, mandate stricter client asset safeguarding (eg, 90% in cold storage), and liberalise the listing process for certain assets, all point towards a more robust and mature regulatory landscape. Furthermore, the SC is actively working on a new framework for tokenised capital market products, which will explicitly bring tokenised versions of traditional securities under a clear regulatory framework.

In parallel, Bank Negara Malaysia (BNM), the central bank, is exploring blockchain’s potential in the financial system. The newly launched Digital Asset Innovation Hub serves as a sandbox for fintech start-ups to test solutions like programmable payments and a potential ringgit-backed stablecoin. This signals a cautious but optimistic view on digital currency innovation, particularly for those pegged to the national currency.

Legal concerns and evolving regulatory changes

Navigating Malaysia’s blockchain ecosystem requires a keen understanding of both established legal principles and the ongoing evolution of regulatory frameworks. Here are the critical legal and regulatory aspects that market participants need to be aware of.

Legal characterisation of digital assets: property v securities

The Malaysian High Court, in the landmark case of Robert Ong Thien Cheng v Luno Pte Ltd & Anor, established a crucial legal precedent – that digital assets can be considered a “thing” and “commodity” and thus, a form of property. This decision, which applied principles from the Contracts Act 1950, is a foundational step, but it does not automatically resolve all legal complexities, such as the following.

• Securities classification: The SC’s framework under the CMSA and the Prescription of Securities (Digital Currency and Digital Token) Order 2019 primarily treats digital assets as securities if they meet a specific set of criteria. This “substance over form” analysis means that the legal status of an asset can change depending on how it is offered, used or marketed. For a project to be viable, its legal characterisation must be the first and most critical consideration.
• Lack of legal tender status: It is essential to remember that digital assets are not recognised as legal tender by the BNM. This has significant implications for payment systems and contractual obligations.

Smart contract enforceability: bridging code and law

There are no specific laws on smart contracts in Malaysia. The legal community’s general view is that they can be enforceable if they fulfil the fundamental requirements of a traditional contract under the Contracts Act 1950. However, this reliance on traditional law presents unique challenges:

• Immutability v flexibility – the immutable nature of smart contract code conflicts with the inherent flexibility of contract law, which allows for interpretation, modification, and remedies. A court’s ability to intervene or provide a remedy in cases of coding errors or unforeseen circumstances is a major legal grey area.
• Dispute resolution – the decentralised, borderless nature of blockchain networks makes it incredibly difficult to establish jurisdiction and for a court to enforce a judgment.
• Hybrid contracts – to mitigate these risks, the use of “hybrid contracts” is a recommended practice. These documents combine a clear, readable legal agreement with the underlying code, explicitly outlining the parties’ intent, jurisdiction, and the process for dispute resolution.

The evolving AML/CTF landscape

Malaysia has one of the most stringent anti-money laundering and counter-terrorism financing (AML/CTF) frameworks in the region. Regulated entities are designated as “reporting institutions” under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA), with strict application of:

• The “Travel Rule” – Malaysia’s implementation of the Financial Action Task Force (FATF) Travel Rule is particularly notable. It requires virtual asset service providers (VASPs), such as DAXs, to obtain and transmit transaction data for all digital asset transfers, with no minimum threshold. This is a crucial compliance point for any entity operating in the space.
• The risk-based approach – all reporting institutions must implement a risk-based approach, which includes comprehensive KYC requirements, ongoing transaction monitoring, and rigorous sanctions screening.

Proposed regulatory changes to watch

The regulatory landscape is not static and market participants should pay close attention to recent and upcoming changes:

• Enhancements to the DAX framework – public consultation papers from the SC in mid-2025 signalled a significant overhaul of the DAX framework. The proposed changes aim to increase investor protection and market integrity, and include:
1. increased capital requirements – raising the minimum paid-up capital for DAXs to MYR15 million to ensure financial resilience;
2. enhanced client asset safeguarding – mandating that a significant portion of clients’ digital assets (eg, 90%) be held in offline “cold storage” to mitigate hacking risks; and
3. liberalised listing framework – reducing the need for the SC’s direct concurrence for every digital asset listing, instead placing more responsibility and accountability on DAXs to perform due diligence.
• Framework for tokenised capital market products – the SC is creating a new framework to regulate the offering of and dealing in tokenised versions of traditional securities. This will explicitly bring these assets under the SC’s regulatory ambit, imposing additional requirements to address risks specific to distributed ledger technology (DLT).

In summary

Malaysia’s strategic and pragmatic approach to blockchain is setting it on a path to become a regional leader in digital innovation. The combination of a government-backed national infrastructure, a maturing regulatory framework, and a broadening scope of use cases creates a fertile ground for growth.

However, this growth is contingent on a clear-eyed understanding of the landscape. Parties must move with regulatory compliance at the forefront, treat legal and contractual elements with the seriousness they deserve, and embrace technical and operational best practices. By doing so, they can not only mitigate risks but also play a pivotal role in shaping Malaysia’s digital future, building a more transparent, efficient and inclusive economy, one block at a time.