From 2024 into 2025, financial institutions and other regulated entities in Malaysia have been preparing for the country’s fifth mutual evaluation by the FATF, a process that assesses how effectively jurisdictions apply global standards on AML/CTF.
These assessments are grounded in the 40 FATF Recommendations and examine both technical compliance and real-world effectiveness in tackling ML, TF and proliferation financing (PF), said Moody’s.
In 2025, FATF conducted on-site inspections and convened a plenary discussion to review Malaysia’s progress. The subsequent publication of Malaysia’s mutual evaluation report marked an important milestone, showing notable improvements in both technical compliance ratings and the assessment of effectiveness across several Immediate Outcomes. The findings suggest that reforms introduced in recent years are beginning to translate into more robust supervisory, investigative and enforcement capabilities.
Overall, the report highlights advances in expanding access to data and strengthening financial intelligence to support investigations, alongside a more mature framework for domestic and international cooperation. It also notes that Malaysian financial institutions demonstrate a relatively sophisticated understanding of risk, particularly when compared with earlier assessment cycles, reflecting the increasing maturity of the country’s AML/CTF regime.
One of the most significant developments in the 2025 report is the improvement across several Immediate Outcomes used by FATF to measure effectiveness. These include stronger risk-based supervision of financial institutions and virtual asset service providers (VASPs), enhanced investigation and prosecution of TF cases, and a more comprehensive legal and regulatory framework to address PF and the application of targeted financial sanctions. Progress was also recorded in tackling long-standing challenges linked to beneficial ownership (BO) transparency.
As flagged in earlier commentary ahead of the report’s publication, Malaysia had already taken steps to address partial compliance with Recommendations 24 and 25, which focus on transparency and beneficial ownership of legal persons and arrangements. In 2024, the Companies Commission of Malaysia issued updated BO reporting guidelines and amendments to the Companies Act aimed at improving corporate transparency. These reforms included a revised definition of “beneficial owner”, providing clearer guidance on ownership and control structures.
While the evaluation acknowledged these improvements, FATF noted that the effectiveness of some measures could not yet be fully assessed, as several changes were introduced shortly before the on-site visit. Nevertheless, Malaysia’s technical compliance ratings for Recommendations 24 and 25 were upgraded to ‘largely compliant’ and ‘compliant’ respectively. This means that all 40 FATF Recommendations are now rated at least ‘largely compliant’, a significant achievement in the context of global AML standards.
To understand the significance of this progress, it is useful to look back at Malaysia’s earlier mutual evaluation reports from 2015 and 2018. Following the 2015 assessment, Malaysia faced increased monitoring after being rated partially compliant with Recommendations 7, 24 and 25. In response, authorities undertook wide-ranging legal and regulatory reforms to strengthen AML and CFT controls and address the deficiencies highlighted by FATF.
Financial institutions also implemented practical measures to enhance risk management. These included adopting more comprehensive risk-based approaches, supported by broader and higher-quality data sets, as well as introducing stricter enhanced due diligence processes for higher-risk clients and transactions. Over time, this enabled institutions to make more informed decisions around de-risking and risk mitigation, an area that had previously seen limited action.
By the time of the October 2018 re-ratings, progress had been recorded across several Recommendations, with only 24 and 25 remaining partially compliant. The 2025 report therefore reflects the cumulative impact of nearly a decade of regulatory reform and industry adaptation.
Looking ahead, FATF continues to encourage Malaysia to deepen transparency around beneficial ownership. This remains a global challenge, closely linked to risks such as sanctions evasion and the misuse of corporate structures. Further strengthening BO frameworks will require ongoing legislative refinement, enhanced supervisory oversight and consistent enforcement.
For Malaysia, sustained progress in these areas could deliver broader economic benefits. Demonstrating strong alignment with international AML/CTF standards can reinforce investor confidence, support cross-border trade and position the country as a secure destination for international capital. The largely positive outcome of the 2025 report affirms the direction taken by regulators and the financial services industry, while underlining the need for continued vigilance as financial crime risks evolve alongside digital finance and new investment channels.
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