Asia Can Regulate Digital Assets, But Can It Connect Them?

One of the original promises of digital assets was simple: value moving across borders with minimal friction and full transparency. Today, Malaysia is taking steps towards that vision, developing regulated digital asset infrastructure intended to support domestic financial innovation and potentially enhance regional market integration.

Through Bank Negara Malaysia’s (BNM) Digital Asset Innovation Hub (DAIH), launched in June 2025, Malaysia has established a dedicated environment to test real-world applications. The DAIH currently emphasises testing tokenised bank deposits, while BNM’s broader strategic horizon continues to explore tokenised sukuk, stable coins and automated supply chain finance. If this roadmap is anchored in institutional liquidity and cross-border commercial trade, Malaysia has the potential to reduce structural friction and unlock real economic value within a live banking ecosystem. The Securities Commission Malaysia (SC) is also relevant to the digital asset and tokenised capital markets framework, including tokenised sukuk. The boundary between the BNM and SC perimeters is itself an interoperability question: participants need clarity on which regulator governs each asset, activity and point in the transaction chain.

Across Asia, neighbouring jurisdictions are advancing their own tailored regulatory regimes. Singapore, for instance, has been moving beyond initial proofs of concept under Project Guardian and developing commercial digital infrastructure through Global Layer One (GL1) and settlement networks such as BLOOM, while its framework for digital payment tokens (DPTs) under the statutory Payment Services Act (PSA) and its regulatory framework for single-currency stable coins continue to evolve. Hong Kong’s stablecoinlicensing regime which came into effect in August 2025, offers a useful comparator for how reserve-backed digital money may be supervised. Meanwhile, Taiwan has enacted a statutory framework specifically for virtual asset service providers (VASPs), although its Virtual Asset Service Act has not yet entered into force.

Individually, these domestic frameworks represent major regulatory milestones. But what happens between them when a transaction crosses a border?

Consider a scenario where a ringgit stable coin or tokenised deposit issued under BNM’s DAIH framework interacts with an institution operating under Singapore’s PSA regime, or where a tokenised asset residing in Malaysia is settled using digital fiat originating from a foreign market. While ledger transfers execute in seconds, the underlying legal, regulatory, and institutional mechanics remain firmly bound to national borders. Critical friction points immediately surface:

• Regulatory Perimeter & Licensing: Which jurisdiction holds primary licensing authority when digital asset services, custody nodes, and smart contract execution layers span multiple borders?
• Monetary & Sanctions Reconciliation: How are foreign exchange controls, capital flow management measures, and disparate AML/CFT or sanctions screening standards reconciled between distinct payment regimes?
• Private Law & Insolvency Finality: In cross-border collateral transfers or tokenised asset defaults, which country's legal system determines property rights, choice-of-law priority and custody ring-fencing during an insolvency event? For example, if a tokenised asset held for a Malaysian investor is custodied in Singapore and the Singapore custodian becomes insolvent, does Malaysian law, Singapore law or the governing law of the tokenised asset determine whether the asset is ring-fenced from the custodian’s creditors? The answer may depend on the asset, the custody structure and the applicable conflict-of-laws rules [confirm].

Beyond Sandboxes: Building Interoperable Architecture

Sandboxes like BNM’s DAIH are essential for evaluating technical viability and informing national policy. However, a sandbox or regulatory perimeter in one market cannot, by itself, determine how a Malaysian digital asset structure legally interacts with counterparties in Singapore, Hong Kong, or beyond. That requires an overlay of legal and regulatory interoperability operating across borders.

Multilateral central bank initiatives, such as Project Mandala, led by the BIS Innovation Hub with participating central banks including BNM, MAS, Reserve Bank of Australia, Banque de France, Reserve Bank of India, Central Bank of Kuwait, Bangko Sentral ng Pilipinas take a major step forward by exploring how regulatory parameters can be embedded directly into transaction protocols. Yet, protocol-level "compliance-by-design" is only one layer of the solution.

The surrounding legal architecture, from institutional custody agreements and master clearing documentation to the cross-border enforce ability of smart contracts must be equally interconnected. For institutional market participants, cross-border interoperability is no longer atheoretical debate. Regulatory posture is increasingly transitioning from a domestic compliance checkbox to a core pillar of regional commercial strategy.

Bridging the Gap: What Interoperability Requires

Technical interoperability is necessary but insufficient. Cross-border digital asset markets also require a legal and regulatory framework that can travel with the transaction.

• Mutual recognition or passporting between regulators, supported by clear limits and supervisory cooperation;
• Harmonised conflict-of-laws approaches, drawing where appropriate on the UNIDROIT Principles on Digital Assets and Private Law;
• Alignment of the FATF Travel Rule across corridors to support consistent AML/CFT controls;
• Standardised cross-border documentation, including master agreements and custody terms;
• ASEAN-level coordination to reduce fragmentation while preserving appropriate national safeguards.

The answer to the question posed above is yes—but only if legal interoperability is built alongside technical interoperability.

What This Means for Market Participants

For market participants, the practical agenda is immediate:

• Map the licensing touchpoints of each cross-border flow, including issuance, custody, settlement and technology services;
• Stress-test governing-law and insolvency provisions in tokenisation documentation, including the treatment of assets held through an overseas custodian;
• Align AML and sanctions screening across relevant corridors, with clear responsibility for Travel Rule information;
• Engage early with DAIH and relevant regional initiatives to test legal, regulatory and technical assumptions before scaling.

The Road Ahead

The next phase of digital assets in Asia will not merely be about perfecting domestic frameworks within individual borders; it will be about making those frameworks work together in practice. Market participants should treat legal interoperability as a design requirement: identify licensing perimeters, document governing-law and insolvency outcomes, and align AML/CFT controls before a transaction crosses a border.

Malaysia’s DAIH and regional initiatives could provide practical forums to test that approach. The jurisdictions that connect regulatory, legal and technical layers will be best placed to turn tokenisation into durable cross-border infrastructure.

This article is written by Managing Partner, Jonathan Lim and Senior Associate, Laurel Lim.

This article is for general informational purposes only and does not constitute legal advice. Please contact us if you require advice on how these developments may affect your business.