The restructuring includes the re-branding this month of the Labuan Offshore Financial Services Authority (LOFSA) as the Labuan Financial Services Authority (Labuan FSA) together with the enactment in February 2010 of four new acts and amendments of another four acts which govern activities, especially Islamic financial services, in the Labuan International Business and Financial Centre (Labuan IBFC).
The Malaysian government carried out a comprehensive review of the legal framework in Labuan IBFC as part of the modernization of its laws to be at par with international best practices and at the same time to ensure that the offshore financial centre remains competitive in the international arena.
"In regard to the new laws," explained Labuan FSA Director-General Azizan Abdul Rahman, "a landmark piece of the legislation is the Labuan Islamic Financial Services and Securities Act which streamlines procedures and requirements of all Shariah-related activities conducted in and via Labuan IBFC. The enactment of this Islamic (financial) act makes Labuan IBFC the first common law international financial center to have a specific legislation governing Islamic financial services. This is a significant contribution of Labuan FSA in supporting the Malaysian government's agenda toward promoting Malaysia as a major hub for international Islamic finance.
"The changes have taken into consideration all aspects so that we are ahead of accepted international standards and practices. These far-reaching changes cover all financial activities at the Labuan International Business and Financial Centre (Labuan IBFC) from banking, insurance, leasing and company incorporation right through to the creation of Islamic financial products and services," he added.
They complement the range of products and services readily available and to provide investors with a wider choice of financial products to maximize investment opportunities. Director-General Azizan added that Labuan IBFC has always been a well regulated jurisdiction with a robust financial services industry adhering to stringent compliance parameters, and these changes would further enhance the value proposition of Labuan IBFC. The introduction of the new regulatory framework will also provide a more robust, transparent and accountable framework for the Labuan FSA to regulate and supervise financial institutions and licensed entities operating from the jurisdiction.
At the International Islamic Finance Conference organized by University Malaysia Sabah last week, Director-General Azizan cautioned that despite the fact that Islamic finance has steered through the global financial turmoil relatively unscathed largely due to its unique anti-speculative features, the crisis has also resulted in growing scrutiny for the financial services industry to meet international standards and best practices in areas of transparency, corporate governance, risk management and capital adequacy. The Islamic financial industry is no exception to this trend of regulatory scrutiny.
As such he warned that "stricter Shariah-compliant framework is a harbinger of things to come. It is even truer as Shariah scholars are now faced with increased criticisms in the wake of the recent high-profile Dubai World/Nakheel corporate defaults which have shed a harsh light on the sustainable growth of Islamic finance. As a regulatory and supervisory authority, Labuan FSA is no stranger to these intense international pressures to meet global standards and best practices advocated by international bodies and international standard setting bodies such as the G20 and the OECD."
Labuan FSA, he asserted, has always and will continue to ensure that Labuan IBFC remains a transparent, well-regulated international business and financial centre with robust regulatory systems and practices.
This will be further enhanced by the fact that over the last six months, Malaysia has signed enhanced double taxation agreements (DTAs) in regards to the sharing of information with 12 countries - Belgium, Brunei, France, Ireland, Japan, Kuwait, Netherlands, San Marino, Senegal, Seychelles, Turkey and the United Kingdom.
The white-listing of LIBFC by the OECD, according to international bankers in Kuala Lumpur, would impact positively on the country's economy and encourage more foreign investments into Malaysia in particular through Labuan.
Similarly, with the new legislation in place, Azizan expects further growth in terms of business volumes and the number of companies to be established in Labuan IBFC. The regulations have been also simplified to be at par with world's standards and international best practices. The aim now is to strengthen further so that Labuan IBFC continues to create more facilitative frameworks.
A total of four new acts were enacted as well as comprehensive amendments made to four existing laws. These changes also provide for the introduction of new products, which include the following investment and business vehicles: i) Limited Liability Partnership, ii) Malaysian International Shipping Registry, iii) Foundations, iv) Private Trust Companies, v) Protected Cell Companies, vi) and Labuan Special Trust Takaful Captives.
The acts in question include: i) Labuan Offshore Business Activity Tax (Amendment) Act 2010; ii) Labuan Offshore Financial Services Authority (Amendment) Act 2010; iii) Labuan Offshore Trust (Amendment) Act 2010; iv) Offshore Companies (Amendment) Act 2010; v) Labuan Financial Services And Securities Act 2010; vi) Labuan Foundations Act 2010; vii) Labuan Islamic Financial Services And Securities Act 2010; viii) and the Labuan Limited Partnerships and Limited Liability Partnership Act 2010.
With the new legislation now firmly in place, Labuan IBFC, according to CEO David Kinloch, is well positioned to develop further as a vibrant and active international business and financial center.
Labuan FSA is also now allowing Labuan-registered holding companies to co-locate outside the offshore island jurisdiction, but the authorities dismiss any suggestion that this move would compromise Labuan FSA's main objective of turning the island into an international financial centre.
"Under our guidelines and requirement, Labuan holding companies are still required to maintain their physical presence on the island, though they are allowed co-locate their offices in other parts of Malaysia. The co-location will attract international holding companies and multinationals to setup their business operations in Kuala Lumpur and leverage on its low cost operating environment and infrastructure," added Azizan.
Another important move is the opening up of Labuan IBFC to Malaysians and to make the jurisdiction their choice for wealth and estate management. This is because a growing number of Malaysians now hold portfolios of international assets.
"Prior to this, any allowance to use Labuan IBFC's products and services by a Malaysian generally required specific approval for that particular transaction. Malaysians with foreign assets or foreigners with Malaysian assets are now able to structure their investments via Labuan IBFC. This allowance is made even more attractive by the new trust and estate management products also introduced by the new legislation. Labuan IBFC is an effective and user friendly jurisdiction and these new provisions will make it possible for us to attract and welcome many new categories of client," said Kinloch.