Between 2024 and 2025, financial institutions and regulated entities across Malaysia intensified preparations for the country’s fifth mutual evaluation by the Financial Action Task Force (FATF).
These evaluations form a critical part of the global framework for assessing how well jurisdictions implement international standards on anti-money laundering and counter-terrorism financing (AML/CTF), as set out in the 40 FATF Recommendations, said Moody’s.
In 2025, this process culminated in on-site assessments and a plenary discussion examining Malaysia’s resilience against money laundering (ML), terrorist financing (TF) and proliferation financing (PF).
The publication of Malaysia’s latest mutual evaluation report marked an important milestone. FATF acknowledged improvements in both technical compliance and the effectiveness of several Immediate Outcomes, reflecting sustained regulatory reform and closer collaboration between authorities and the private sector. The report highlighted progress in expanding access to data, strengthening financial intelligence to support investigations and building a solid framework for domestic and international cooperation. Malaysian financial institutions were also recognised for demonstrating a more mature understanding of risk across products, customers and delivery channels.
A key focus of the 2025 report was the improvement seen in several Immediate Outcomes linked to effectiveness. FATF pointed to advances in risk-based supervision for financial institutions and virtual asset service providers, stronger investigation and prosecution of terrorist financing, and the implementation of preventive measures and financial sanctions. The country also demonstrated a more robust legal and regulatory framework to address proliferation financing, alongside tangible steps to resolve long-standing challenges around beneficial ownership.
Beneficial ownership transparency remains a central theme. In the run-up to the 2025 evaluation, Malaysia addressed areas where it had previously been rated as partially compliant under Recommendations 24 and 25. In 2024, the Companies Commission of Malaysia issued updated guidance on beneficial ownership reporting and introduced amendments to the Companies Act to enhance corporate transparency. These reforms clarified the definition of a “beneficial owner” and strengthened obligations on companies and legal arrangements to disclose who ultimately owns or controls them.
While FATF noted that some of these measures were implemented too recently for their full effectiveness to be assessed, the technical compliance ratings for Recommendations 24 and 25 were upgraded to ‘largely compliant’ and ‘compliant’ respectively. This meant that all 40 FATF Recommendations are now rated at least ‘largely compliant’, a significant step forward in reducing ML and TF risks linked to the misuse of legal persons.
To understand the significance of this progress, it is useful to look back at Malaysia’s earlier evaluations. Following the 2015 mutual evaluation, the country faced heightened monitoring after being rated partially compliant on several key recommendations. In response, regulators and financial institutions invested heavily in strengthening AML/CTF laws, supervisory practices and internal risk management frameworks. These efforts continued through to the 2018 re-rating, which showed improvements across four recommendations, leaving only beneficial ownership-related areas as partial gaps.
At an institutional level, banks and other regulated firms adopted more comprehensive risk-based approaches, combining broader data sources with enhanced due diligence for higher-risk relationships. This shift improved decision-making around de-risking and helped institutions balance financial inclusion with effective risk mitigation.
Looking ahead, FATF has encouraged Malaysia to continue enhancing beneficial ownership transparency through stronger enforcement, deeper verification mechanisms and sustained regulatory oversight. Addressing these challenges is essential not only for AML/CTF compliance but also for protecting the country against sanctions evasion and illicit financial flows. By maintaining momentum, Malaysia can further strengthen trust in its financial system, support economic stability and reinforce its position as an attractive destination for international investment.
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