Malaysia’s Securities Commission (SC) has unveiled a proposed regulatory framework for tokenized capital market products, with a consultation running until June 16, 2025. The framework distinguishes “tokenized securities” from cryptocurrencies and utility tokens, while adopting a phased approach that initially focuses on “digital twin” tokens rather than natively digital blockchain assets often referred to as “digital securities”.
The consultation paper outlines how tokenized capital market products – digital representations of traditional securities using distributed ledger technology – will be regulated under a technology neutral principle where “like product and like services will be regulated similarly regardless of the underlying technology.”
As an aside, a European Commission adviser recently observed that all legislation inherently has a bias towards the technology that existed at the time the laws were passed.
Twin track approach: tokenized v digital securities
SC Malaysia has opted for a twin track regulatory approach, initially focusing only on digital twin tokens (tokenized securities) that mirror existing off-chain securities. Digital securities, which exist solely on blockchains without conventional counterparts, will be addressed in future frameworks.
“The proposed framework seeks to promote responsible innovation, facilitating innovation while ensuring investors’ interests are not compromised,” states the consultation paper.
Reconciliation and compliance requirements
Since tokenized products represent existing regulated assets, issuers must comply with all existing securities laws while adding blockchain specific protections. A critical requirement involves reconciling conventional and blockchain records, as traditional registers often remain legally authoritative.
For example, with tokenized shares, Companies Act 2016 provisions mean blockchain transfers alone won’t constitute legal ownership changes until reflected in the official register of members.
The framework permits the use of permissionless public blockchains but requires additional controls and risk mitigation measures.
For all tokenized securities, issuers must provide expanded disclosures including whether on-chain or off-chain records are final, immobilization methods for conventional securities, blockchain specifications and comprehensive risk disclosures.
Issuers and regulated market operators have to consult with the Securities Commission before issuing and trading tokenized securities.
Broader digital finance developments
This consultation comes as Bank Negara Malaysia continues developing wholesale Central Bank Digital Currency (CBDC) capabilities. While initially planning both wholesale and retail CBDCs, the central bank now focuses exclusively on wholesale applications, believing retail payments are adequately served by existing systems.
