1. Introduction
On October 31, 2025, Bank Negara Malaysia (BNM) released the "Discussion Paper on Asset Tokenization in the Malaysian Financial Sector" (hereinafter referred to as the "Discussion Paper"), officially launching its action plan for asset tokenization in the financial sector and announcing its roadmap and implementation path. At a time when RWA (Real Asset Tokenization) is experiencing both hype and chaos, BNM's release of the Discussion Paper and subsequent consultation demonstrates Malaysia's prudent and innovative approach to RWA: it aims to proactively develop the RWA market, leveraging blockchain technology to improve the efficiency of asset circulation, while also strengthening regulation to ensure the compliant development of RWA within the country.
The discussion document not only outlines the implementation phase of the plan but also proposes organizational models for advancing tokenization and application scenarios with clear economic value. It emphasizes promoting this process by strengthening the foundation of monetary and financial stability and financial integrity, potentially providing a path for RWA development that integrates innovation and compliance. This article will interpret the main contents of the Malaysian RWA regulatory framework, trends, and development drivers, and analyze the impact of this move on the RWA industry and practitioners. 2. Core Content Interpretation of the Asset Tokenization Action Plan According to the roadmap published in the Discussion Paper, Malaysia's asset tokenization action will be divided into three phases: 2025: formal launch of the plan, publication of documents, and seeking industry feedback; 2026: proof of concept and pilot phase; 2027: expanding the scale of the trial, summarizing test results, assessing its legal, regulatory, and technological impact, and developing a path for large-scale application. To successfully complete the plan, Malaysia primarily utilizes its established Digital Asset Innovation Center (DAIH) platform, adopting a collaborative co-creation model where regulators, industry participants, and stakeholders all participate in the tokenization application process. Focusing on areas such as supply chain financing for SMEs, cross-border trade, and Islamic finance, the aim is to address long-standing pain points in Malaysia's financial ecosystem, with the goal of systematically and phasedly promoting the exploration and practice of tokenization across the entire financial sector over the next three years. 2.1 Regulatory Framework under the Collaborative Co-creation Model In its exploration of cryptocurrency regulation, Malaysia has gradually formed a dual-track regulatory system centered on the Securities Commission (SC) and the Central Bank of Malaysia (BNM). The SC is responsible for regulating the securities attributes of cryptocurrencies, while the BNM is more responsible for monetary policy and financial stability. To maintain a compliant environment while advancing tokenization, SC and BNM will leverage the DAIH and the Industry Working Group on Asset Tokenization (IWG) to utilize the regulatory sandbox. The core function of DAIH is to facilitate two-way learning between regulators and the market by providing a regulated sandbox environment that allows high-risk innovations to be safely tested for concept and piloted in a transparent and controlled manner. It allows companies to test cutting-edge ideas under specific exemptions while enabling BNM to closely observe the real risks and regulatory blind spots in technology implementation. Under DAIH, BNM and SC will also jointly lead the establishment of the Industry Working Group on Asset Tokenization (IWG). The IWG will not only coordinate resources to promote pilots, unite industry forces, and develop industry standards, but will also assume regulatory responsibilities to assess the potential risks of tokenization to the financial and monetary stability of the Malaysian financial sector, as well as regulatory gaps and legal obstacles, to support the future development of regulatory policies. 2.2 Regulatory Requirements for AML/CFT/CPF without Exemptions or Exceptions In the Discussion Paper, BNM's regulatory stance on Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), Countering the Financing of Proliferation (CPF), and Targeted Financial Sanctions (TFS) is very clear and stringent. Compliance is considered an insurmountable bottom line for tokenization exploration. BNM clearly defines a mandatory permission framework in the Application Scenarios section, requiring only authorized users who have undergone Know Your Customer (KYC) verification to access and participate in tokenized financial services. Secondly, BNM requires clear identification and responsibility of participants—whether financial institutions or technology providers, they must be legally traceable and accountable entities. When financial institutions outsource some services to technology providers, they still need to ensure that their partners comply with AML/CFT regulations and bear ultimate responsibility for compliance. BNM also specifically mentions the AML/CFT risks posed by stablecoins in its document, stipulating that any exploration of tokenized currencies in any form must comply with existing AML/CFT/CPF and Transaction Review (TFS) measures. BNM states in its document that tokenized assets with payment functions (including stablecoins) may amplify AML/CFT risks, and all related explorations must strictly comply with existing AML/CFT/CPF and Transaction Review (TFS) measures to maintain financial stability. This means that issuers must demonstrate far greater monitoring and compliance capabilities than usual, otherwise approval will be difficult to obtain. In exploring potential application scenarios, combining Islamic financial principles with asset tokenization is a strategically significant and uniquely advantageous area for Malaysia's tokenization initiative. Islamic financial principles are a set of financial and business practices based on Shariah (Shariah law). A key difference between Islamic financial principles and the traditional Western financial system is that it not only focuses on returns on capital but also emphasizes the social justice and ethical attributes of economic activities. Introducing tokenization into the realm of Islamic finance, leveraging the technological characteristics of blockchain, may be able to solve long-standing structural problems in traditional Islamic finance. The technological limitations of traditional financial systems have forced Islamic finance to make many compromises in product design, increasing complexity and cost. For example, "Murabahah" (cost-plus-profit financing) and certain types of "Salam" (forward settlement sales) require that asset ownership and payment occur simultaneously or nearly instantly to avoid potential interest (Riba) due to time lag. Tokenization, however, enables the synchronous and instantaneous exchange of assets and payments. For instance, when exchanging commodity tokens representing physical goods with tokens representing funds, the transaction either succeeds or fails simultaneously, technically eliminating the possibility of one party delaying delivery and aligning with the Islamic law's requirement for immediacy. The "compositional nature" of smart contracts can also encode the logic of multiple contracts into a series of interconnected smart contracts, reducing the operational and compliance risks associated with the strict adherence to Islamic law in complex Islamic financial products. Bank Negara Malaysia's announcement is not a spur-of-the-moment decision, but a crucial step in the evolution of the country's digital finance strategy. In the past, the Securities Commission of Malaysia (SC) issued policy documents such as the Capital Markets and Services Act, the Capital Markets and Services (Securities Regulation) (Digital Currency and Digital Tokens) Act, and the Digital Assets Guidelines, providing clear regulatory boundaries for the entire ecosystem. In 2022, BNM released the "Financial Sector Blueprint 2022-2026," outlining its vision and strategies for the financial industry's development over the next five years, including promoting market vitality, driving sustainable development, and continuing to focus on monetary and financial stability. The RWA (Restoration of Financial Services) plan is a response to this blueprint. Given the current context of RWA moving from conceptual exploration to substantive institutional construction and market practice, Malaysia's national-level, systematic, and phased strategic approach to RWA reflects both internal and external strategic considerations. Improving Financial System Efficiency and National Competitiveness Malaysia's strategic layout stems from its profound understanding of the internal and external economic and financial environment. 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 SME financing convenience. Facing Singapore's first-mover advantage in the digital asset field and Hong Kong's active pursuit, Malaysia is committed to building a more efficient and modern financial system and finding its own path. Tokenization enables near-real-time settlement, significantly reducing intermediary costs and operational risks. By emphasizing compliance, institutional participation, and empowerment of real assets, Malaysia aims to cultivate an image of a "stable innovator," attracting traditional financial institutions and long-term capital that are cautious about pure cryptocurrency speculation but optimistic about the underlying technological value of blockchain. This aims to clarify its position in the Asian digital finance landscape and enhance its financial competitiveness. 3.2 Activating a Large Stock of Irregular Assets Malaysia's economic development contains a large amount of illiquid assets, such as SME loans, real estate, infrastructure projects, and agricultural commodities (such as palm oil). Tokenization can divide these assets 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 Consolidating its Leadership in Global Islamic Finance This is Malaysia's most strategically significant differentiating advantage. Global Islamic financial assets are enormous, but their product structures are often complex. RWA aligns perfectly with the principles of asset backing and risk sharing in Islamic finance. Through tokenization, Malaysia can, on the one hand, utilize smart contracts to automate the profit distribution and asset backing processes of Sukuk bonds, greatly enhancing transparency and global investor trust. On the other hand, it creates an unprecedented, highly liquid secondary market for over a billion Islamic investors worldwide, addressing the core pain point of insufficient liquidity in traditional Islamic financial products. Furthermore, it fosters new, more segmented Islamic financial products that were previously difficult to implement due to operational complexity. Malaysia has never considered cryptocurrencies as legal tender, and BNM (Bureau National Management Corporation) strictly distinguishes between RWA (Real-World Assets) and cryptocurrencies in its discussion paper. The paper repeatedly emphasizes that its exploration is limited to tokenized financial services backed by real-world assets, clearly distinguishing itself from cryptocurrencies without underlying value, speculative activities (such as Bitcoin), and unbacked tokens. This positioning ensures that innovation does not conflict with the fundamental goal of financial stability. Regarding its regulatory attitude and objectives for RWA, BNM emphasizes risk-based and compliance-first principles, adhering to the principle of "same activity, same risk, same regulatory outcome": regardless of the technology used, if an activity constitutes a regulated financial activity (such as payments or securities issuance), the relevant institution must hold the corresponding license and comply with existing regulations. Furthermore, it explicitly emphasizes the substantial economic value of tokenization, opposing technology for technology's sake or 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 prioritize obtaining the corresponding BNM license. Professional advisors proficient in Malaysian financial and tax laws must be brought in during the project design phase. Tax impact assessments for every stage of the asset tokenization process should become standard operating procedure. A purely "disintermediation" narrative is difficult to sustain in the Malaysian model; collaborative co-creation will become inevitable. The most viable path for Web3 technology providers will be to form alliances with licensed financial institutions (banks, securities firms), with the former providing technology and the latter providing compliance licenses and customer trust. This "technology + license" cooperation model may become the market mainstream. The "regulation-technology-entity" framework built in the Malaysian RWA roadmap paves a compliant path for RWA from proof of concept to large-scale application, providing a model for promoting the deep integration of blockchain technology with the real economy and fostering robust innovation under strict regulatory protection. It showcases the future of a regional RWA tokenization center characterized by security, efficiency, and compliance. Its established strict anti-money laundering framework and permissioned entry model will also provide important reference for the entire Southeast Asian region on how to balance financial innovation and risk control. For Web3 practitioners, the key to future success may not lie in being at the forefront of technology, but in deeply understanding regulatory intent, actively seeking cooperation, and deeply integrating compliance into product design and business strategy.