Just last Thursday on 30 October 2025, Bank Negara Malaysia (“BNM”) published its Discussion Paper on Asset Tokenisation in the Malaysian Financial Sector (“Discussion Paper”), which signals Malaysia’s intention to explore how distributed ledger technology or blockchain technology could reshape the country’s financial infrastructure.
Other global regulators, such as the Monetary Authority of Singapore and Hong Kong Monetary Authority, have already commenced rather advanced large-scale tokenisation pilots, especially Hong Kong where we saw the completion of the e-HKD pilot programme last week. The current step taken by the BNM is a step forward by the central bank in following up with the global movement. Instead of announcing prescriptive rules for asset tokenisation at the get-go, through the publication of the Discussion Paper, BNM is inviting the industry participants to co-create a roadmap to asset tokenisation that balances innovation with regulatory oversight, ensuring that tokenisation is rolled out in a way that supports monetary stability, consumer protection, and systemic trust.
This discussion paper is more than a technical exercise – it marks the beginning of a new regulatory conversation that will intersect with existing frameworks on licensing, custody, outsourcing, AML/CFT, and monetary policy. Understanding its direction is key to advising boards and management teams that are preparing for the next wave of digital finance transformation. With this article, we hope that we can help companies and industry participants to have a quick understanding of BNM’s direction in the Discussion Paper, so that assessment can be made on whether or not to participate in the feedback process under the Discussion Paper, and to be better prepared for the regulation on asset tokenisation, which may just well happen sooner than expected.
From a high-level perspective, the Discussion Paper outlines Malaysia’s roadmap for fostering innovation in digital assets and tokenisation within a regulated environment. In essence, the Discussion Paper serves as a strategic blueprint to advance Malaysia’s position in the digital asset space while maintaining regulatory prudence and public confidence. The following sections summarise the key highlights of the Discussion Paper.
1. A Co-creation Roadmap for Responsible Innovation
As briefly mentioned in the introduction above, BNM has taken a collaborative stance towards exploring asset tokenisation, emphasising that innovation must align with financial stability, integrity, and consumer trust, and to do that, it will need the cooperations of industry participants. Rather than prescribing definitive rules, the Discussion Paper outlines a three-year co-creation roadmap, commencing with conceptual validation through proof-of-concepts and progressing to live testing via pilots, which will eventually lead to the formulation of policies for a potential tokenised financial system.
At the centre of this roadmap is the Digital Asset Innovation Hub (“DAIH”), which was launched back in June 2025, as a platform for joint exploration of tokenisation use cases between regulators, financial institutions, and technology providers. The DAIH provides an inclusive environment where stakeholders can jointly explore practical applications of tokenisation, which surfacing key insights to inform future policy and regulatory developments.
BNM has also expressed in the Discussion Paper of the possibility of establishing, through DAIH, a controlled environment to support live experimentation of digital asset solutions for real-world use cases – essentially a sandbox specifically for digital asset solutions. Those who are interested can reach out to DAIH for more information.
This approach reflects BNM’s recognition that tokenisation sits at the intersection of law, technology, and systemic stability, requiring regulators and market participants to co-develop solutions rather than operate in isolation. In our view, this is a win-win situation – regulators will not be coming up with laws or regulations that may not be fully practical or applicable to the innovations at hand, while at the same time industry participants can finally participate in the process of formulating regulations and receive regulatory clarity in the process.
From the Discussion Paper, our takeaway is that DAIH will be the main driver of all tokenisation exploratory efforts in Malaysia.
2. Guiding Principles for Identifying Tokenisation Use Cases
Recognising that not all use cases of tokenisation are equally viable or beneficial, in the Discussion Paper, BNM has provided a set of guiding principles to help industry participants to identify use cases of tokenisation, especially for the financial service providers, that are worthwhile to be explored through the DAIH.
According to the Discussion Paper, when designing use cases for tokenisation, industry participants should ensure that a use case fulfils three (3) criteria:
- i) Clear Value Proposition: Any tokenisation use case must deliver clear and tangible economic benefits, such as faster settlement, enhanced transparency, or reduced counterparty risk. It should not be innovation for its own sake.
- ii) Technology-Solution Fit: Tokenisation is not a universal remedy for all market frictions or inefficiencies. When designing tokenisation use case, industry participants should assess whether simpler or other more readily available or cost-effective alternatives, like APIs or Open Finance standards, could achieve the same outcome with fewer legal and operational risks. In other words, industry participants should not blindly explore tokenisation use case when tokenisation itself may not be the right solution to the pain point to be addressed.
- iii) Feasibility within Current Capabilities: As a start, industry participants are encouraged to focus on tokenisation use case that are more operationally, legally and regulatorily practical. For example, tokenising well-understood financial assets, such as mortgages, may be considered a lower hanging fruit which is easier to execute given its compatibility with existing regulatory and legal frameworks, as opposed to tokenising property deeds, which could potentially require broader changes beyond the financial sector.
3. Designing Tokenisation Use Cases: Six Regulatory Considerations
In the Discussion Paper, BNM has dedicated a section specifically to set out some regulatory considerations that industry participants should pay attention to when designing their tokenisation use cases, in order to ensure that any tokenisation use case designed would be in compliance with existing laws.
- i) Participants
A tokenisation use case may involve several distinct roles within its value chain, such as custodians and financial services providers. These roles are subject to existing rules and regulations by BNM, Securities Commission, or other applicable authorities. In designing tokenisation use cases that involve roles under existing regulations, industry participants need to ensure that only regulated and accountable entities are taking part in the use cases. Additionally, where complementary services of third-party service providers are to be sought in carrying out the intended tokenisation use cases, industry participants should also ensure that the onboarding of these service providers is in compliance with applicable requirements on outsourcing, such as BNM’s Policy Document on Risk Management in Technology and the Policy Document on Outsourcing. - ii) Access
Blockchain-based systems can largely be categorised in two (2) broad categories: permissioned and permissionless. To put it simply, a permissionless system is one where anyone can participate in without needing approval from a central authority; whereas a permissioned system is one where only participants with permission or the necessary credentials can join and the permission is typically administered by a central authority. Primarily due to concerns from the aspect of anti-money laundering, countering financing of terrorism, and countering proliferation financing, BNM makes it clear in the Discussion Paper that permissioned framework would be the preferred approach in exploring tokenisation use case, especially in the early phase of exploration. - iii) Service Models
The term “service model” here refers to the configuration of roles, functions and mechanisms that govern how tokenised financial services are delivered on a programmable platform of a tokenisation use case. The features of tokenisation enable entirely new ways to structure products and services. While the reimagination of mechanisms that govern how financial services are delivered is encouraged, industry participants should remain cognisant of the potential for these new mechanisms to lead to unintended outcomes that may undermine principles for responsible financing and fair treatment of consumers. The Discussion Paper would still require the industry participants to ensure that any risks that are introduced pursuant to the reimagination of service models to be managed and mitigated accordingly. - iv) Tokenised Financial Instruments
The Discussion Paper encourages that early pilots focus on tokenised financial instruments that are well-established within existing regulatory frameworks (bonds, loans, deposits and tokenised money), as opposed to physical assets that may not naturally fit within existing financial market structure. The goal is to preserve legal and risk equivalence between tokenised and conventional forms, ensuring the same rights, protections, and enforceability. - v) Tokenised Money
BNM reaffirms that the Ringgit remains the sole unit of account for domestic transactions. As such, in the exploration of tokenisation use case, the finality of settlement must remain anchored on central bank money, even where tokenised money is involved. And when it comes to tokenised money, BNM is encouraging the exploration of the following two (2) types of private money: - a) Tokenised deposits (issued by licensed banks) – Digital representations of commercial bank money backed by the fiat currency deposited with the issuing banks.
- b) MYR-denominated stablecoins – BNM is open to exploring MYR-denominated stablecoin models that could uphold the singleness of money and demonstrate qualities in line with expectations set by international standard-setting bodies, which include credible value stabilisation and reliable redemption mechanisms.
- vi) Programmable Platforms
BNM adopts a technology-agnostic stance, allowing both public and private DLT-based infrastructures provided they are resilient, secure, interoperable, and adaptable.
Conclusion
This Discussion Paper of BNM marks Malaysia’s most structured step yet towards asset tokenisation in the financial sector. While the Discussion Paper does not prescribe definitive regulatory positions at the moment, it is an invitation to the industry participants to engage the regulator to help design the regulatory framework which will eventually be used to govern the asset tokenisation in the financial sector.
By participating in the dialogue, industry participants can play a defining role in shaping the governance models, risk standards, and market rules that will underpin the future of digital financial infrastructure in Malaysia. For those who are interested in submitting feedback under the Discussion Paper, you may do so prior to the deadline of 1 March 2026.
The Technology Practice Group of Halim Hong & Quek continues to be recognised by leading legal directories and industry benchmarks. Recent accolades include FinTech Law Firm of the Year at the ALB Malaysia Law Awards (2024 and 2025), Law Firm of the Year for Technology, Media and Telecommunications by the In-House Community, FinTech Law Firm of the Year by the Asia Business Law Journal, a Band 2 ranking for FinTech by Chambers and Partners, and a Tier 3 ranking by Legal 500.
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About the authors
Lo Khai Yi
Partner
Co-Head of Technology Practice Group
Technology, Media & Telecommunications (“TMT”), Technology
Acquisition and Outsourcing, Telecommunication Licensing and
Acquisition, Cybersecurity
ky.lo@hhq.com.my.
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Ong Johnson
Partner
Head of Technology Practice Group
Fintech, Data Protection,
Technology, Media & Telecommunications (“TMT”),
IP and Competition Law
johnson.ong@hhq.com.my
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