QUESTION:
We understand that there has been growth in the key industries in Labuan IBFC and that the intermediaries or license holders in the jurisdiction have done very well for themselves, in addition the depth of key business lines has also increased. Which areas for you are key highlights, and offer a glimpse into the future development of the jurisdiction?
ANSWER:
Generally, 2019 has been another positive year of growth for Labuan notwithstanding the many challenges experienced in the year. Labuan FSA continues to see growth in wholesale financial business in the banking and insurance/risk management sectors. There has been greater focus on out-out international business with lesser reliant on domestic or Malaysian business. This is the direction we want Labuan IBFC to continue heading, i.e. doing more business for the Asian market.
Labuan IBFC’s locality in the Asian region is strategic and well-positioned to effectively provide financial intermediation for the region, fulfilling its aim of being the preferred International Financial Centre (IFC) in Asia. This can be reflected in-
- The Labuan banking sector where 80.9% of the Labuan IBFC industry market’s total banking financing was channelled to the Asian region;
- The Labuan insurance total gross premiums stood at USD1.5 billion, where 89% of the total premium originated from Asian region;
- Out of more than 16,000 companies registered so far in Labuan IBFC, about three quarters or more than 73% of them are from Asian region. We are also seeing increasing company incorporation from Far East region i.e. from China, Japan, South Korea and Taiwan.
Majority of the Labuan companies are set up for purpose of doing trading, investment, and entities to facilitate trade flow and investment in the region. This clearly reflects the Centre’s growing value propositions as a facilitative market for trade and investment flows within the Asian economies.
For the future, it is imperative for us to intensify our business scanning on emerging opportunities and to be sensitive and agile to the changing market demands. While we continue to provide unique and sufficiently differentiated product offerings and services with facilitative but stable regulations, we must have a focus for sustainable businesses that will sustain the jurisdiction of Labuan IBFC and Labuan. We all know digital-related business is a key growth area, including for Labuan IBFC. We are taking steps to further cultivate this business for the jurisdiction to cater for digital Asian future.
QUESTION:
Labuan IBFC as a jurisdiction is celebrating its 30th year of its establishment in 2020, and it is indeed a momentous time to be heading Labuan FSA through this anniversary; more than half of which you have personally served in the FSA. What for you are key milestones Labuan IBFC has gone through as it matures into a key intermediation centre in Asia?
ANSWER:
Yes, 30 years of achievements for Labuan IBFC and it has truly been a blessing for me personally to be part of this wonderful story. I have served in Labuan FSA since its early years and have seen Labuan IBFC grow from a jurisdiction that caters to country centric related business to a more regional, particularly Asian and international intermediation centre, as you see today.
There are so many milestones but the key ones are:
- Labuan IBFC has morphed over the years from a traditional plain vanilla offshore centre to one that has a lot more business value propositions for the Asian region;
- And this has been done through rebranding exercises, amendments to laws and regulations, facilitative business guidelines, and introduction of new products and services. But the real key success is the presence of a wide spectrum of many service providers and financial institutions to conduct the businesses and serve clients, regionally or globally. We can set the rules, regulations etc, but we need the institutions to make Labuan a business centre.
- More significantly, Labuan IBFC employs near a total of 6,000 people, and with the introduction of substance requirements, this number will grow. Labuan IBFC is already now the largest employer compared to other industries in Labuan. And that for me is a significant milestone, contributing to the further wellbeing of Labuan island itself.
QUESTION:
From a regulatory point of view, the issue of tax and economic substance in relation to taxation has been a key developmental element in all International Financial Centres (IFCs) over the last 2-3 years and before that, there was a huge sea change in terms of transparency vis-à-vis taxation e.g. via Common Reporting Standard. How has Labuan IBFC responded to these challenges or has it been the case that these “flight to quality” changes have been positive for Labuan IBFC?
ANSWER:
Yes, the introduction of the new tax framework which includes substance requirements and the removal of the RM20,000 option in 2019 is a major change for the jurisdiction. The change is necessary as the taxation structure in Labuan IBFC has been mainly the same since its establishment in 1990. We have to move along with the times and also comply with international requirements. Therefore, the overhaul is very timely to ensure the long-term sustainability of Labuan IBFC.
Introducing changes is never easy. There were initial industry concerns and its accompanying implementation issues. But there are also many positivities that the changes bring to Labuan IBFC. The substance requirements for example will provide more jobs on the ground in Labuan, creating economic spin offs in the island. It will also boost the real estate and property sector in Labuan from the demand for more office space. Overall, the changes have placed Labuan in good assessment rating and in compliance with international standard, and thus retaining our good international standing.
You mentioned about transparency, frankly, Labuan IBFC has always been transparent in its business activities. We removed the secrecy provision in our legislation more than 10 years ago and we have signed memorandum of understanding with many jurisdictions to ensure the exchange of information with other regulatory agencies are handled effectively and in a timely manner.
The changes have put Labuan IBFC on a level playing field and global investors are searching for credible and well-regulated financial centres which are supported by a network of good professionals and intermediaries - Labuan IBFC has what it takes to offer this combination effectively. So the flight to quality jurisdiction would be positive for Labuan IBFC.
QUESTION:
How do you see Labuan IBFC growing in the next 30 years? What role do you see it playing in facilitating Malaysia’s economic growth and the growth in Asia generally? Which areas of business do you think holds the most promise?
ANSWER:
We are optimistic in the growth prospects of Labuan IBFC for the next 30 years. Labuan IBFC has a good spectrum of financial infrastructure or service providers, and we have been and are focusing on an intermediating role for a very large market i.e. the Asian market, that we believe will continue to lead global economic growth in the future.
Just like for other regional economies, Labuan IBFC also plays an intermediation role in facilitating trade, investments, credit and financial capacity flows into Malaysia. And this invariably contributed to the economic growth of Malaysia. At the same time, Labuan has been the conduit for the outward investments of Malaysian conglomerates. All these will also help spur economic growth of Labuan island itself. Labuan is part of Malaysia, so we will continue to ensure the centre contributes positively to the economic growth of Malaysia.
Moving ahead, we will remain focused on wholesale financial products and services, risk management solutions, wealth management, and company administration and management services. We are also riding on the trend of digital business. The intake of players in this business in Labuan IBFC has been strong and the momentum will continue.
QUESTION:
Can you also share with us Labuan FSA’s response vis-à-vis Covid-19, maybe from operational, regulatory and supervision related aspects? How do you think financial intermediation will change in a post Covid-19 world? And will the economic downturn caused by Covid-19 and its repercussions affect a centre like Labuan IBFC?
ANSWER:
The effects of Covid19 are unprecedented. It has been a huge eye opener for everyone, and it remains to be seen how the landscape of financial intermediation will change with this pandemic. From operational, regulatory and supervisory related aspects, we continue to monitor the situation and scan the environment for emerging risks and the possible threats that would undermine the stability of the Centre, particularly those related to cybercrime and money laundering.
Similar to other jurisdictions introducing measures to cushion the impact of the pandemic, Labuan FSA has provided Temporary Regulatory Reliefs to the industry to alleviate some of the regulatory burdens and to offer some level of flexibility. The Reliefs cover among others, relaxations on administrative governance and market conduct requirements so as to ensure practicality in view of the current situation; flexibility on the technical requirements for the (re)insurance and (re)takaful liabilities; extension of period for the regulatory reporting and statistical submissions; as well as registration of company in terms of document submission.
Of course, any global economic downturn will affect an IFC including Labuan IBFC, however once the economy rebounds so will activities in an IFC. Financial intermediation will continue to remain an integral part of the global economy, and IFCs are often seen as the “lubricants” of global trade and investments” and hence in this regard, Labuan IBFC’s role will continue to be relevant.
However, there will be recalibrations and some changes as to the manner this intermediation is done. In this respect, Labuan FSA will definitely need to recalibrate its strategies, to adopt to the new norms in a changed business landscape for Labuan IBFC.
QUESTION:
Finally, what are your aspirations for Labuan IBFC? So, in the next 30 years, under ideal circumstances, how would you like to see Labuan IBFC evolve?
ANSWER:
Labuan FSA of course wants to see Labuan IBFC grow to fully realise its true potential as Asia’s leading wholesale financial intermediation hub. We would like to see more vibrancy and volume of business being conducted out of Labuan IBFC.
We also like to see Labuan IBFC contributing more to the national development agenda whether in the form of more economic inflows, more fiscal revenues and more employment opportunities and career building progression for our youth. And with the need for substance, we would really like to see a deeper and larger pool of local talent being employed and serve in senior positions in Labuan IBFC. And at the end of the next 30 years, Labuan IBFC will still be regarded as an active international reputable business and financial centre.
