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Securities Commission proposes to enhance Digital Asset Exchange Framework

07 July 2025

On 30 June 2025, the Securities Commission Malaysia (“SC”) issued Public Consultation Paper No 3/2025 (“CP 3/25”) seeking public feedback on the Proposed Amendments to the Guidelines on Recognized Markets – Digital Asset Exchange (“RMO Guidelines”)1.
 
The proposed amendments to the RMO Guidelines relate exclusively to the requirements relating to digital asset exchanges (severally a “DAX” and collectively “DAXs”) and not to other Registered Market Operators (“RMO”) such as Equity Crowdfunding (ECF) and Peer-to-Peer Financing (P2P) platform operators.
 
Having considered recent global developments in the digital asset space, such as the collapse of FTX and the mainstreaming of cryptoassets via Exchange Traded Funds (ETFs), the SC has proposed to strengthen the regulatory framework in Malaysia for DAXs to provide greater investor protection and to enable DAXs to offer a wider range of digital assets2 and products to investors.
 
The proposed revised DAXs framework will focus on the following: 
  1. Enhancing investor protection: strengthening the requirements in relation to safeguarding of clients’ asset and control measures in addition to enhancing governance framework, as well as stronger regulatory oversight; 
  2. Strengthening the resilience and integrity of DAX operators: strengthening the requirements relating to financials, shareholding and management proficiency of DAXs to promote confidence and greater interaction between DAXs and the broader ecosystem of the Malaysian capital market such as dealings with licensed persons and other RMOs; and 
  3. Encouraging a more competitive DAX market: facilitating wider range of digital assets to be offered on a DAX whilst ensuring investors are protected. 
This article provides a summary of the key amendments proposed by the SC in CP 3/25.
 
A.  Enhancing Requirements to Safeguard Client Assets and Governance
 
Security and Segregation of Assets
 
The SC proposes to enhance the requirements relating to asset security and segregation by introducing the following new requirements: 
  1. at least 90% of the investors’ digital assets must be held in offline wallets (i.e. cold wallets) for each type of digital asset listed on a DAX operator’s platform; 
  2. the remaining investors’ digital assets held in online wallets (i.e. hot wallets) must be fully collateralised with an equivalent amount in the DAX’s own offline wallet; 
  3. where the DAX operator and/or its affiliate companies offer digital asset services in other jurisdictions, the DAX wallet address and trust account for local transactions shall be distinct and separate from its foreign digital asset transactions; and 
  4. DAX operators must perform daily reconciliation on its asset holdings (including investors’ assets). 
Governance Controls
 
To enhance governance controls, the SC proposes that DAX operators must: 
  1. appoint an independent and qualified party to carry out periodic audits (at least on a yearly basis) on the effectiveness of the measures and controls relating to investors’ asset segregation; 
  2. appoint auditors registered with the Audit Oversight Board to conduct its annual financial audits; 
  3. maintain direct access to its wallet addresses free from influence or control of any external parties (including its affiliate companies); 
  4. put in place effective policies and procedures to manage the risk of loss or misuse of investors’ assets including facilitating the return of investors’ assets in the event of the DAXs’ insolvency; 
  5. identify a member of its senior management who is a resident of Malaysia with the relevant capability, knowledge, experience and authority to be responsible for the administration of the access to the wallet addresses, including mitigating the risk of loss or misuse of customers’ assets and facilitating movement of digital assets as set out in sub-paragraph (4) above; and 
  6. where the DAX operator facilitates the custody of digital assets on behalf of its investors, the DAX operator must either be registered as a digital asset custodian (“DAC”) or engage a DAC registered with the SC to provide the custody service.
B.  Enhancing Requirements for DAX Operators
 
Capital Adequacy Requirements
 
The SC proposes to increase the financial requirements as follows: 
  1. Paid-up Share Capital: Minimum RM15 million; and 
  2. Shareholders’ Funds: The higher of the following must be maintained at all times: 
  • Minimum of RM5 million, or in the case of a DAX operator operating a Digital Broker model3, minimum of RM7 million; or
  • 25% of the DAX’s operating expenses. 
Presently, paragraph 15.03 of the RMO Guidelines requires a DAX operator to have a minimum paid-up share capital of RM5 million, and a DAX operator operating as a Digital Broker model to maintain a shareholders’ funds of RM5 million at all times.
 
According to CP 3/25, existing DAXs will be given a period of one year from the issuance date of the revised RMO Guidelines to meet the proposed new financial requirements.
 
The SC’s right under paragraph 15.04 of the RMO Guidelines to, at any time, impose additional financial requirements or other terms and conditions on any DAX operator, commensurate with the nature, operation and risks posed by the DAX operator will be maintained.
 
Competency Requirements for Shareholders of DAX operators
 
The SC has proposed that where DAX operators which are owned by individuals, two of its shareholders whose total shareholding forms the majority (51% or more) in the company, must meet the following requirements: 
  1. each of the two shareholders must have at least five years of relevant experience in capital market or digital asset business each; and
  2. at least one of the two shareholders must have direct experience in securities exchange or derivatives exchange or broker/ trading business.
Key Persons Requirements
 
In addition to the need for the key persons specified in Chapter 4 of the RMO Guidelines, namely the directors, responsible persons, compliance officer and senior management of an RMO, to fulfil the requirements set out in the said Chapter 4, it is proposed in CP 3/25 that: 
  1. all directors of the DAX be required to complete the Securities Industry Development Corporation’s Capital Market Director Program; and
  2. the responsible person of a DAX operator must have a minimum five years of experience in regulated financial services or digital assets business with the appropriate qualifications and skillset.
C.  Liberalising Digital Asset Listing Process on DAX
 
Criteria for Listing of Digital Asset
 
The SC has also proposed in CP 3/25 to liberalise the digital assets market and promote faster time to market. The measures proposed include replacing the present requirement for a DAX operator to obtain the SC’s concurrence for digital assets to be offered for trading with a new Liberalised Listing Framework which among others, requires the DAX operator to assess the following before allowing a digital asset to be offered on its platform: 
  1. the digital asset fulfils the criteria as specified in paragraph 15.19 of the RMO Guidelines;4 
  2. the underlying protocol, network and application must have undergone security audits, and the audit results must be made available to the public; and 
  3. the digital asset must have been traded for at least one year on any Virtual Asset Service Provider (VASP) that is in compliance with the FATF Recommendations 2012 which may include the status of the VASP being registered, authorised, licensed or regulated by a regulatory authority having similar regulatory authority or function as the SC. 
In particular, the SC also seeks views for the listing of certain types of digital assets which may be considered to be of higher risk. These include privacy coins, meme coins, stable coins where pegging mechanisms are solely controlled by the issuer, and certain types of nascent utility tokens.5
 
Revised Disclosure Requirements
 
To supplement the introduction of the Liberalised Listing Framework and in line with the principles and recommendations outlined in the IOSCO Policy Recommendations Report, the SC is proposing to revise the relevant disclosure requirements in the RMO Guidelines to ensure that DAXs make available the relevant information relating to the tradeable digital assets to the public. Among others, such information must include: 
  1. a comprehensive description of the digital asset;
  2. information on ownership and control of digital asset;
  3. information relating to the issuer, its business and management team;
  4. risks associated with the digital asset;
  5. trading history of the digital asset, including volumes and prices;
  6. operational description of the digital asset, including any incidents of manipulation or security failures;
  7. digital asset ownership concentration and any options and lock-ups for founding team, insiders and affiliates;
  8. protocols for transfers; and
  9. the DAX’s treatment of the client’s digital asset and their respective rights and entitlements for events such as, but not limited to, hard forks and airdrops. 
Notwithstanding the above, the SC reserves the right to direct a delisting of a digital asset where the SC considers it necessary for the protection of investors, the public interest, the proper functioning of a recognised market, or where the SC deems a DAX to be unfit to determine the listing of digital asset on its platform.
 
Submission of Feedback
 
Feedback on CP3/25 are to be submitted to the SC at aFINity@seccom.com.my by 11 August 2025.
 
Comments
 
The proposed enhancements to the Digital Asset Exchange framework in the RMO Guidelines have a two-fold impact. First, the introduction of the Liberalised Listing Framework could reduce the timeframe for the listing of new digital assets and increase the types of digital assets that become available on Malaysian DAXs.
 
Second, the enhanced regulatory framework, including the enhanced security and segregation requirements for holding of digital assets, the proposed capital adequacy requirements and revised disclosure requirements will afford greater protection for investors in such assets.
 
It is to be noted that the changes to be introduced in relation to DAXs will not end with the adoption of the proposed changes outlined in CP3/25. The SC is mulling whether to include DAXs as members of the Financial Markets Ombudsman Service (FMOS) in order to further enhance investor protection. Additionally, it is also evaluating the applicable fees for DAXs, taking into account the different categories of shareholders, such as institutional versus individual shareholders. The SC has noted that these proposals will be further discussed in the future once they are finalised.6
 
 
Article by Lee Ai Hsian (Partner) of the Fintech Practice of Skrine.
 
 
 
1 The RMO Guidelines can be accessed here.
2 For the purposes of the RMO Guidelines, “digital asset” refers to a “digital currency” or “digital token”, as the case may be, as defined in the Capital Markets and Services (Prescription of Securities)(Digital Currency and Digital Token) Order 2019.
3 According to paragraph 15.01 of the RMO Guidelines, the “Digital Broker model” refers to where a DAX operator acts as the counterparty to an investor for every buy or sell order on or through the platform.
4 Paragraph 15.19 of the RMO Guidelines sets out certain minimum criteria a digital asset must meet in order to be offered on a DAX operator’s platform, e.g. the requirement for the digital asset to represent certain rights, benefits or utility, and the liquidity and security features of the digital asset.
5 Refer to paragraph 4.5 of CP 3/25 for further discussion.
6 Paragraph 1.19 of CP 3/25.
 

This article/alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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