Malaysia Shakes Up Crypto Exchange Rules – A Bold Play for Global Dominance

Kuala Lumpur just fired the opening salvo in Asia's crypto regulatory arms race. Their proposed exchange overhaul could rewrite the rulebook—or crash into the same bureaucratic walls that stalled Japan's early lead.

Breaking the mold: Malaysia's Securities Commission dropped a 50-page bombshell late Tuesday. The draft framework axes archaic capital controls while doubling down on investor protections—a tightrope walk between innovation and stability.

Behind the numbers: Local exchanges processed $3.8B in spot volume last quarter despite restrictive policies. The new rules could triple that by 2026 if they nail the implementation (and if Wall Street doesn't suck all the liquidity first).

The fine print bites: While retail traders cheer looser leverage limits, the compliance section reads like a blockchain forensics manual. Every transaction now needs a 'travel rule' paper trail—good luck explaining that to your DeFi wallet.

Global ripple effect: This comes three weeks after Singapore's MAS quietly eased stablecoin rules. Coincidence? Or the start of Southeast Asia's crypto infrastructure war?

Closing thought: When traditional finance dinosaurs finally adapt, they either evolve wings… or just grow longer claws. Malaysia's betting it can outmaneuver both crypto anarchists and legacy banks. Place your bets.

Securities Commission Seeks Feedback

On Monday, Malaysia’s Securities Commission (SC) published a consultation paper seeking the public’s feedback on the proposed changes to the regulatory framework for Digital Asset Exchange (DAX).

The regulator explained that Malaysia’s crypto market has grown since the SC’s DAX framework was introduced in 2019. Last year, the total trading value increased 2.6 times the value of 2023, reaching RM13.9 billion, worth around $3.31 billion.

During this period, the SC noted that regulated crypto exchanges have faced strong competition from unregulated platforms and avenues, which are perceived as more attractive due to their broader token offerings and better pricing.

Notably, the current regulatory framework requires DAXs to list only the crypto assets that meet the regulator’s minimum criteria and have received approval beforehand. Under the current rules, the SC also has the power to impose additional terms and conditions or directions to the regulated exchanges.

Meanwhile, regulated digital assets trading is “primarily driven by retail investors, with institutional participation still limited,” leading DAX operators to “play a crucial role in enabling responsible access to digital asset investments by offering a secure and well-regulated environment for both retail and institutional investors.”

Based on this, the Malaysian regulator considers that the industry must shift from an entrepreneur-led to a more institution-led industry to enhance credibility and increase confidence towards the market.

To further enhance and facilitate sustainable growth of digital assets in Malaysia, the regulatory framework for DAXs needs to be strengthened. This is intended to enhance competitiveness to our regulated digital asset market and better serve investors’ needs, whilst ensuring there is adequate investor protection, which is crucial towards fostering responsible and sustainable growth and confidence in the capital market.

Malaysia’s Crypto Framework Reform

The regulator expects the overhaul to encourage wider participation of investors and promote better interaction between DAXs with the broader ecosystem of the Malaysian capital market. In its consultation paper, the SC proposes key changes to the current framework, including easing the listing process of crypto assets and strengthening requirements for DAX operators.

Under the proposed framework, digital assets that meet SC’s minimum specific criteria could be listed on regulated platforms without the regulator’s approval. This key change aims to accelerate the time-to-market period during the listing process, increase crypto exchanges’ accountability, and expand product offerings.

Moreover, DAX operators WOULD be subject to stricter operational governance and control requirements, including criteria related to the segregation of clients’ assets to ensure adequate governance and operational practices for the risks associated with their operations.

Crypto exchanges would also need to meet new financial criteria to ensure stronger integrity and resilience. This includes robust investor protection mechanisms to increase confidence among capital market participants.

The proposed reform comes amid the Malaysian government’s efforts to boost competitiveness against international markets. Malaysia’s Prime Minister, Datuk Seri Anwar Ibrahim, announced in January that the government was exploring policies to regulate the digital assets sector and improve its “outdated” financial system.

As reported by Bitcoinist, authorities were considering establishing a clear regulatory framework to “eventually see cryptocurrency and blockchain technology recognized in the country.”

Anwar affirmed that he had suggested that Malaysian agencies, including the SC, Treasury, and Bank Negara Malaysia, study how the country can regulate the industry so that the Malaysian market isn’t “left behind” and can safeguard the people’s interests.