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Labuan: Law of Offshore

Banking Law

The Labuan Financial Services and Securities Act 2010 (which replaced the Offshore Banking Act 1990) provides a regulatory framework covering the operations of banks in Labuan.

Labuan banking business is the business of receiving deposits on current account, deposit account, savings account or any other account as may be specified including the Labuan investment banking business, Labuan financial business, Labuan Islamic banking business, or such other business as Labuan FSA may specify, with the approval of the Minister of Finance, in any currency (including ringgit where permitted by the Exchange Control Act 1953 or such other relevant law in force).

An applicant should meet the following minimum eligibility criteria:

  • Must be a bank or financial institution;
  • Possesses a sound track record;
  • Accorded a good credit rating by acceptable rating agencies;
  • Supervised by a competent regulatory authority; and
  • Conforms to generally accepted standards of international banking practices or BIS, as the case may be.

An applicant is required to submit application of which the submission should include the following:

  • A letter of awareness from a competent regulatory authority that supervises the applicant's shareholder/head office.
  • A letter of guarantee from the applicant's shareholder or an undertaking from the head office.
  • Business plans inclusive of three years' financial projections of the applicant.
  • Certified true copy of the Memorandum and Articles of Association of the applicant.
  • Certified true copy of the resolutions of the Board or minutes of the general meeting, which approve the applicant to apply for a licence.
  • Copy of the applicant's shareholder/head office audited annual accounts for the three preceding years.
  • A minimum paid-up capital amounting to RM10.0 million equivalents in any foreign currency.
  • Applicant's corporate profile, which includes:
    • The name, place and date of establishment of the applicant.
    • The names, addresses, qualifications and experience of the directors and officers responsible for the overall management of the affairs of the applicant.
    • The name and address of each member who holds 10% or more of the voting shares of the applicant.
    • Declaration by the applicant on the probity of its directors and officers who are responsible for the management of the applicant.

Operationla requirements include the following

  • An ongoing physical presence in Labuan.
  • Every director or Principal Officer (PO) of a Labuan bank must be of fit and proper persons and shall not be subjected to any adverse report from any reliable sources. The appointment of director or PO of a Labuan bank must obtain prior approval from Labuan FSA.
  • Comply with the statutory requirements under the Labuan Financial Services and Securities Act 2010.
  • Comply with the prudential and reporting requirements issued by Labuan FSA.
  • Adhere to any other requirements issued by Labuan FSA from time to time.
  • Meet certain pre-determined criteria, should it prefer to co-locate to any other parts in Malaysia.

All licensees are required to pay to the Labuan FSA annual licence fees on or before 15 January of each year. At the time of writing the annual fee was RM80,000.

The setting up of an Islamic banking window by a Labuan Bank under the Labuan Financial Services and Securities Act 2010 does not require a separate license and there is also no additional licence fee involved. Labuan banks may submit the application for approval by submitting the following documents:

  • Certified true copy of Board Resolution pertaining to the proposed establishment of Islamic window;
  • Business plan inclusive of three years' financial projections;
  • Information on its own internal Shariah Advisory Board (SAB).

Under the Malaysian International Islamic Financial Centre's (MIFC) initiative, the Islamic divisions of the Labuan banks are given greater flexibility as follows:

  • Exemption from maintaining physical presence in Labuan. The Islamic divisions of Labuan banks may open operation offices anywhere in Malaysia, subject to consideration by Labuan FSA and approval by Minister of Finance.
  • No limitation on the staffing and number of operations offices to be opened outside Labuan.
  • The operation offices are to conduct non-ringgit Islamic financial business and deal mainly with non-residents as per Labuan legislation.
  • Dealing with residents in non-ringgit transactions are allowed as permitted under the current foreign exchange administration policies.

Labuan Islamic investment banking is defined as the business of providing financing facilities with Shariah principles, providing consultancy and advisory services relating to corporate and investment matters including dealing in securities, or making and managing investments on behalf of any person in compliance with Shariah principles, business of undertaking foreign exchange transactions, profit rate swaps, dealings in Islamic derivative instruments or Islamic derivative financial instruments which are in compliance with Shariah principles or any other similar risk management activities, Labuan Islamic financial business or such other business as Labuan FSA may specify, with the approval of the Minister of Finance, in any currency (including ringgit where permitted by the Exchange Control Act 1953 or such other relevant law in force).

Labuan Islamic investment banks are not allowed to accept deposits.

A Labuan Islamic investment bank can be set up as a branch or subsidiary and registered or incorporated under the Labuan Companies Act 1990. The application may be accepted from:

  • An investment bank or group engaging in investment banking activities licensed by the regulatory authority in the country of origin;
  • A licensed bank or an established financial institution or financial service provider supervised by a competent regulatory authority;
  • Any licensed institutions under BAFIA with prior approval of Bank Negara Malaysia; and
  • Corporations with the necessary expertise and experience in financial industry with at least three years good track records and regulated by an Authority in their home countries.



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