Labuan Banking

Thanks to a forward-thinking approach, we’re at the forefront of banking, private wealth, funds and capital markets.

Generally, the sector remained financially strong with positive liquidity and increased profitability. This can be attributable to their business diversification beyond Malaysia and the shift towards more fee-based services.

In 2019, five international banking institutions established their presence in the Labuan market. This is a milestone for Labuan IBFC as two of the new entrants were permitted to offer digital banking services. This reflects the trend of Labuan banking sector in embracing digital advancements.

Labuan banking is defined as:

The business of receiving deposits on a current account, deposit account, savings account or any other account as may be specified by Labuan FSA
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 in Malaysian Ringgit where permitted under the Financial Services Act 2013 or such other relevant law in force).

Entry Requirements

An applicant should meet the following minimum eligibility criteria:

1. Must be a bank or financial institution

2. Possesses a sound track record

3. Accorded a good credit rating by acceptable rating agencies

4. Supervised by a competent regulatory authority; and

5. Conforms to generally accepted standards of international banking practices or the Bank for International Settlements (BIS), as the case may be.

Application Requirements

1. A letter of awareness from a competent regulatory authority that supervises the applicant’s shareholder/head office.

2. A letter of guarantee from the applicant’s shareholder or an undertaking from the head office.

3. Business plans inclusive of three years’ financial projections of the applicant.

4. Certified true copy of the Memorandum and Articles of Association of the applicant.

5. Certified true copy of the resolutions of the board or minutes of the general meeting, which approve the applicant to apply for a licence.

6. Copy of the audited annual accounts of the applicant’s shareholder/head office for the three preceding years.

7. 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.

8. Declaration by the applicant on the probity of its directors and officers who are responsible for the management of the applicant; and

9. Any other information relevant to the application.

Operating Requirements

Maintain a physical presence in Labuan.
Every director or principal officer (PO) of a Labuan bank must be fit and proper persons and shall not be subject of any adverse report from any reliable sources. The appointment of a 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 (Amendment) Act 2022 (Act A1654).
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 of Malaysia.

Fees

All licensees are required to pay to Labuan FSA annual licence fees on or before 15 January of each year:

Type of fees	Amount
Annual Fee	USD30,000
Marketing Office Fee	USD2,500
Co-Located Office Fee	USD3,500

Labuan Islamic Banking Window

The setting up of an Islamic banking window by a Labuan bank under the Labuan Financial Services and Securities (Amendment) Act 2022 (Act A1654) does not require a separate licence and there is also no additional licence fee involved. A Labuan bank may submit the application for approval with the following documents:

Certified true copy of board resolution pertaining to the proposed establishment of an Islamic banking window.
Business plan inclusive of three years’ financial projections.
Information on its own internal Shariah Advisory Board (SAB).

Additional Incentives

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

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