Southeast Asia RWA New Engine: Malaysia's Robust Innovation and New Opportunities in Web3

1. Introduction

On October 31, 2025, Bank Negara Malaysia (BNM) issued a discussion paper titled “Discussion Document on Asset Tokenization in Malaysia's Financial Sector” (hereinafter referred to as the “Discussion Document”), officially launching an action plan for asset tokenization in the financial sector and announcing a roadmap and implementation path. In the current context of the RWA boom and chaos, the discussion document released by BNM and a series of subsequent actions such as soliciting opinions reflect Malaysia's prudent and innovative attitude towards addressing RWA: not only should it proactively layout the RWA track and leverage blockchain technology to enhance asset circulation efficiency, but it should also strengthen regulation to ensure that domestic RWA develops within a compliant framework.

The “Discussion Paper” not only outlines the implementation phase of the plan but also proposes organizational models for advancing the tokenization process and application scenarios with clear economic value. At the same time, it emphasizes promoting this with a focus on strengthening the foundation of monetary financial stability and financial integrity, which may provide a reference path that integrates innovation and compliant development for current RWA. This article will interpret the regulatory layout situation and trends in Malaysia regarding RWA, the driving factors, and other key content, and analyze the impact of this initiative on the RWA industry and practitioners.

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

According to the roadmap published in the “Discussion Document”, Malaysia's asset tokenization initiative will be divided into three phases: the official launch of the plan in 2025, the release of documents, and seeking industry feedback; the concept validation and pilot phase in 2026; and the expansion of the pilot scale in 2027, summarizing testing results, evaluating their impact on laws, regulations, and technology, and formulating a path for large-scale application. To successfully complete the plan, Malaysia mainly utilizes its established Digital Asset Innovation Hub (DAIH) platform, adopting a collaborative co-creation model where regulatory agencies, industry participants, and stakeholders participate together in the tokenization application process, focusing on areas such as supply chain financing for SMEs, cross-border trade, and Islamic finance, aiming to address long-standing pain points in Malaysia's financial ecosystem, with the intention of promoting the exploration and practice of tokenization across the entire financial sector in a planned and phased manner over the next three years.

2.1 Regulatory Framework under Collaborative Co-Creation Model

Malaysia is gradually forming a dual-track parallel regulatory system centered on the Securities Commission (SC) and the Central Bank (BNM) as it explores cryptocurrency regulation. The SC is responsible for regulating the securities attributes of cryptocurrencies, while the BNM focuses more on monetary policy and financial stability. To maintain a compliant environment while advancing the tokenization process, the SC and BNM will leverage the Digital Assets Innovation Hub (DAIH) and the Asset Tokenization Industry Working Group (IWG) to facilitate the role of a regulatory sandbox. The core function of the DAIH is to facilitate two-way learning between regulators and the market, safely conducting proof of concept and real-time pilots for high-risk innovations within a transparent and controlled environment provided by the regulated sandbox. It allows companies to test cutting-edge ideas under specific exemptions while enabling the BNM to closely observe the real risks and regulatory blind spots during technological implementation. Under the DAIH, the BNM and SC will jointly lead the establishment of the Asset Tokenization Industry Working Group (IWG), which is responsible for coordinating resources to promote pilots, consolidating industry strength, setting industry standards, and fulfilling regulatory duties to assess the potential risks of tokenization to the financial and monetary stability of Malaysia's financial sector, as well as identifying regulatory gaps and legal obstacles to support the future development of regulatory policies.

2.2 AML/CFT/CPF regulatory requirements without exemptions and exceptions

In the “Discussion Document”, BNM's regulatory stance on anti-money laundering (AML), countering the financing of terrorism (CFT), counter-proliferation financing (CPF), and targeted financial sanctions (TFS) is very clear and requires strict compliance, which is seen as the insurmountable bottom line for the exploration of tokenization. BNM has clarified a mandatory licensing access framework in the section on application scenario considerations, where only authorized users who have undergone identity identification and verification (KYC) can access and participate in tokenized financial services. Additionally, BNM requires clear identification of the identity and responsibilities of participants—whether financial institutions or technology providers, they must be legally traceable and accountable entities. When financial institutions outsource part of their services to technology providers, they still need to ensure that their partners comply with AML/CFT regulations and bear the ultimate compliance responsibility. BNM also specifically points out the AML/CFT risks posed by stablecoins in the document, stating that any form of exploration into tokenized currency must comply with existing AML/CFT/CPF and transaction review (TFS) measures. BNM emphasizes in the document that tokenized assets with payment functions (including stablecoins) may amplify AML/CFT risks, and all related explorations must strictly adhere to current AML/CFT/CPF and transaction review (TFS) measures to maintain financial stability. This means that issuers must demonstrate a monitoring and compliance capability far beyond the norm, or it will be difficult to obtain approval.

2.3 Islamic Financial Tokenization

In exploring potential application scenarios, the combination of Islamic financial principles and asset tokenization is a strategically significant and uniquely advantageous area for Malaysia's tokenization program. Islamic financial principles are a set of financial and business practice guidelines based on Islamic law (Shariah), with the main distinction from the traditional Western financial system being that it not only focuses on the returns on capital but also emphasizes social justice and moral attributes of economic activities. Introducing tokenization into the field of Islamic finance, utilizing the technological characteristics of blockchain, may be able to address the structural challenges that have long existed in traditional Islamic finance.

The technical limitations of the traditional financial system force Islamic finance to make many compromises in product design, increasing complexity and costs. For instance, “Murabahah” (cost-plus financing) and certain types of “Salam” (forward delivery sales) require that asset ownership and payment actions occur simultaneously or nearly instantaneously to avoid the appearance of interest (Riba) caused by timing differences. Tokenization can achieve synchronous and instant exchange of assets and payments. For example, when exchanging tokens representing physical goods and tokens representing funds, the transaction either succeeds simultaneously or fails simultaneously, technically eliminating the possibility of one party delaying delivery, aligning with the Sharia requirement for immediacy. The “composability” of smart contracts can also encode the logic of multiple contracts into a series of interconnected smart contracts, which can reduce the operational risk and compliance risk of complex Islamic financial products that strictly adhere to Sharia conditions.

3. Strategic Considerations for RWA Layout

The recent announcement by Bank Negara Malaysia is not merely a spur-of-the-moment decision, but a crucial step in the evolution of the country's digital finance strategy. In earlier years, 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) Order, and the Digital Asset Guidelines, providing clear regulatory boundaries for the entire ecosystem. The Financial Sector Blueprint 2022-2026 released by BNM in 2022 outlines the vision and strategies for achieving goals in the financial industry over the next five years, which include enhancing market vitality, promoting sustainable development, and continuing to focus on monetary and financial stability. The release of the RWA plan is a response to this blueprint. In the current context where RWA is transitioning from conceptual exploration to substantive institutional construction and market practice, Malaysia's national-level, systematic, phased strategic positioning in RWA reflects its internal and external strategic considerations.

3.1 Enhancing the Efficiency of the Financial System and National Competitiveness

Malaysia's strategic layout this time stems from its profound insight into 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 the convenience of financing for small and medium-sized enterprises. In the face of Singapore's first-mover advantage in the digital asset sector and Hong Kong's active pursuit, Malaysia is committed to establishing 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 the empowerment of physical assets, Malaysia aims to shape an image of a “robust innovator” to attract traditional financial institutions and long-term capital that are cautious about pure cryptocurrency speculation but optimistic about the underlying value of blockchain technology. The goal is to clarify its positioning in the Asian digital financial landscape and enhance financial competitiveness.

3.2 Activate a large stock of illiquid assets

Malaysia's economic development contains a large number of illiquid assets, such as loans to small and medium-sized enterprises, real estate, infrastructure projects, and agricultural commodities (such as 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 Consolidate its leadership position in the global Islamic finance sector.

This is Malaysia's most strategically significant differentiated advantage. The scale of global Islamic financial assets is enormous, but their product structure is often quite complex. RWA aligns closely with the principles of asset backing and risk sharing emphasized in Islamic finance. Through tokenization, Malaysia can, on one hand, utilize smart contracts to automate the profit distribution and asset backing processes of Islamic bonds (Sukuk), 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, addressing the core pain point of liquidity shortages in traditional Islamic financial products. Additionally, it fosters the development of new, more segmented Islamic financial products that were previously difficult to realize due to complex operations.

4. Analysis and Reflection on the Regulatory Trends of RWA in Malaysia

Malaysia has never regarded cryptocurrency as legal tender, and in the “Discussion Paper,” BNM strictly distinguishes between RWA and cryptocurrency. The “Discussion Paper” repeatedly emphasizes that its exploration is limited to tokenized financial services backed by real-world assets, clearly separating them from speculative cryptocurrencies (such as Bitcoin) and unbacked tokens that lack underlying value. This positioning ensures that innovation does not conflict with the fundamental goal of financial stability. Regarding the regulatory attitude and objectives towards RWA, BNM emphasizes a risk-based approach and prioritizes compliance, adhering to the principle of “same activity, same risk, same regulatory outcome”: regardless of the technology used in the activity, as long as it constitutes a regulated financial behavior (such as payments or securities issuance), the relevant institutions must hold the corresponding licenses and comply with existing regulations. Furthermore, it explicitly emphasizes the substantial economic value of tokenization, opposing technology for the sake of technology or regulatory arbitrage, and that tokenization exploration must aim to address real market pain points.

Under this regulatory trend, compliance will become the 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 relevant licenses from BNM as their top task. Professional consultants who are well-versed in Malaysian financial regulations and tax laws must be introduced at the project design stage. Conducting tax impact assessments on every aspect of the asset tokenization process should become standard operating procedure. The purely “decentralized” narrative is difficult to implement under the Malaysian model, and a collaborative co-creation model will become inevitable. 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 offers compliance licenses and customer trust. This “technology + license” cooperation model may become mainstream in the market.

5. Conclusion

The “regulatory-technology-entity” framework built into Malaysia's RWA roadmap paves a compliance channel for RWA from proof of concept to large-scale application, providing a model for advancing the deep integration of blockchain technology with the real economy under strict regulatory protection while ensuring robust innovation. It showcases a future of a regional RWA tokenization center characterized by safety, efficiency, and compliance. The strict anti-money laundering framework and licensing access model established will also provide important references for the entire Southeast Asia region on how to balance financial innovation with risk prevention. For Web3 practitioners, the key to future success may not lie in cutting-edge technology, but in a profound understanding of regulatory intentions, actively seeking collaboration, and deeply integrating compliance into product design and business strategies.