Ryan was an integral part of the Central Coast Mariners team which won the A-League title under Arnold in 2012-13, earning a move to Belgian side Club Brugge in May 2013.
He quickly made the number one shirt his own at the Pro League title contenders and is also in pole position to start for the Socceroos at the World Cup following the retirement of Mark Schwarzer.
And Arnold has now told the ABC Grandstand radio station his former charge is impressing one of the world's biggest clubs.
"You look at Maty Ryan," he said when asked how a young Socceroos side will fare in Brazil next month.
"Maty Ryan left here last year. He's gone across to Belgium, he's the best goalkeeper in the league I do believe and I have heard he's getting interest from Real Madrid. He's been doing that well."
It remains to be seen how serious Madrid's alleged interest in the 22-year-old shot-stopper is.
Diego Lopez displaced club captain Iker Casillas as Los Blancos' first-choice goalkeeper under Jose Mourinho last season and he has kept his place in La Liga during Carlo Ancelotti's first campaign in charge.
Spain stalwart Casillas, consistently linked with a move away from Estadio Santiago Bernabeu since falling from favour, has played throughout the team's run to the UEFA Champions League final.
Former Numancia keeper Jesus Fernandez is also a member of Madrid's senior squad, and has made two first-team appearances since 2011.