Capital markets regulator, the Securities Commission Malaysia (SC), has indicated its willingness to further embrace the burgeoning trend of tokenized capital market products, publishing a public consultation paper to help shape its regulatory approach.
The SC clarified that the current consultation paper does not extend to digital tokens and digital currencies – such as utility tokens like $BID and $FRAC as well as cryptocurrencies like Bitcoin and Ethereum – which are already subject to a separate regulatory framework established in 2019.
The consultation paper instead distinguishes between two forms of tokenized capital market products: digital twin representation tokens and native tokens – in both the conventional and Shariah investment spaces.
Digital twin representation tokens are digital copies of existing capital market products, essentially a ‘tokenization wrapper’ around traditional assets. In contrast, native tokens are novel forms of tokens issued directly on a distributed ledger without an off-chain equivalent, existing solely on the blockchain.
For now, the SC’s immediate focus is on developing a regulatory framework for digital twin representation tokens.
The commission noted that native tokens, due to their increased complexity and associated risks, require further consideration before a suitable regulatory structure can be established.
The move signals the SC’s ambition to foster innovation while safeguarding market integrity and investor interest in the rapidly evolving digital asset landscape, the regulator said in the consultation paper released on the 6th May 2025. All feedback is due by the 16th June 2025.
According to the commission, “In developing and regulating the capital market, the SC has adopted a regulatory neutrality approach where ‘like product and like services will be regulated similarly regardless of the underlying technology’.”
This paper suggests that existing regulations governing traditional securities, derivatives, unit trusts and private retirement schemes will likely be adapted and be aligned with their tokenized counterparts.
Tokenization involves using distributed ledger technology, such as blockchain, to create a digital representation – or token – of a capital market product.
The SC highlighted potential benefits of the technology including the programmability of assets through automation, the ability to fractionalize ownership, faster settlement times, enhanced operational efficiency, the immutability of records and greater potential for innovation.
The SC also addressed the potential risks associated with tokenized offerings including technology as well as cybersecurity threats like blockchain forking and cyberattacks, anti-money laundering risks stemming from anonymity features, operational risks related to token ownership transfer and on-chain record maintenance along with legal risks concerning the enforceability of tokenized rights.
“In line with the SC’s mandate to promote the development of the capital market, the SC seeks to develop a regulatory framework that will balance promoting innovation with ensuring proper safeguards are in place to protect the integrity of the capital market and investors’ interest,” said the commission.
