Application Requirements

A Labuan investment bank can be set up as a branch/subsidiary and registered or be incorporated under the Labuan Companies Act 1990. Applications to the Director General, Labuan FSA, 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 institution under the Banking and Financial Institutions Act 1989 with prior approval of Bank Negara Malaysia
• Corporations with the necessary expertise and experience in the financial industry with at least three years’ good track record and regulated by an authority in their home country.

An applicant's submission must include, but is not limited to, the following:

• For applicants which are branches/subsidiaries, a letter of undertaking from the head office/parent company to assume any liability arising from the operations of its branch/subsidiary in Labuan
• A business plan for the first three years of operations
• Audited annual accounts for the three years immediately preceding the application, where applicable
• A letter of consent from the home regulatory authority, where applicable
• Details of the composition of its Board of Directors and senior management 
• Prior written approval from Labuan FSA on the appointment of the person in control, director or Chief Executive Officer of the applicant, whom must also be deemed fit and proper persons
• Proof of sound track record and/or the necessary experience and expertise in a similar undertaking.

Annual Fee

The applicant must pay an annual licence fee of MYR80,000 on or before 15 January of each year.

Capital Requirements

The applicant must have a paid-up capital of MYR10 million (unimpaired by losses) or its equivalent in a foreign currency or if the applicant is a branch it must maintain net working funds equivalent to MYR10 million.  In addition, Labuan FSA is to be informed of any changes in shareholding structure of capital and/or any erosion of paid up capital.

Operational Requirements

The Labuan investment bank must adhere to the following:

• The applicant must maintain a sufficiently staffed operational office in Labuan and all dealings must be conducted through this said office unless otherwise permitted under the co-location guidelines
• Applicants conducting Islamic finance activities may open operational offices anywhere in Malaysia, and subject to the prior approval of Labuan FSA, it may be exempted from maintaining any operational offices in Labuan
• Applicants can only carry on business in any currency other than the Malaysian currency, except as permitted by the relevant authorities
• Subject to the provisions under the Labuan Financial Services and Securities Act 2010 and Exchange Control Act 1953, licensed Labuan investment banks may deal with Malaysian residents. In dealing with residents and arranging syndicated financing schemes, the said investment bank must ensure that the syndicating as far as possible should involve the Labuan banking institutions in Labuan before involving other financial institution overseas
• Shall appoint an approved auditor
• Must obtain the approval of Labuan FSA on any changes or amendments to its constituent documents and indicate clearly its names and licence number on its letterhead, stationery and other documents.

In addition, the Labuan investment bank:

• Must subscribe to safeguards and standards developed and issued by the relevant authority or organisation. These include implementing an effective management control system, capital adequacy and use of value as a risk model, as  well as having proper reporting, disclosure and accounting procedures
• Which is a branch of a foreign bank, should subscribe to the prevailing rules and regulations of the home country which houses its head office 
• Must conduct its business with due diligence and sound principles; maintain adequate and proper records and books of accounts.
• Must obtain approval of Labuan FSA of any change in business plan
• Is to submit to Labuan FSA within six months after the close of each financial year, two copies of its audited annual balance sheet and profit and loss account. The applicant is also expected to provide statistics and information required from time to time by Labuan FSA in relation to prudential information, general business conduct and volume of business in Labuan.

The total number of approved banks increased to 61 as at end-2010 (2009: 59). During the year, four new banks were granted approvals comprising two full-fledged and two investment banks. However, Labuan FSA withdrew two investment bank approvals due to non-compliance with the conditional approval. Out of the 61 approved banks, 56 were in operation, comprising 13 subsidiaries and six branches of Malaysian-owned banks and 9 subsidiaries and 28 branches of foreign-owned banks.

Since its inception in 1990, Labuan IBFC has witnessed positive pace of transformation in the banking industry. Labuan banks continued to contribute towards the significant development of the centre via diversification of financial products and services offered by the banks. In 2010, the Labuan banking industry recorded its best ever performance in terms of growth in pre-tax profits. The banking industry achieved a record growth of 114.8% in pre-tax profit to USD536.4 million (2009: USD249.7 million). The significant increase in the pre-tax profits was due to higher fee-based activities, write-backs on provision for impairment of loans and higher net interest income. As a result, the return on assets of the banks also showed an improvement at 1.6% (2009: 0.8%).

As the Labuan banks continued to expand their business activities, the total assets position increased by 13.2% to USD33.9 billion in 2010 (2009: USD30.0 billion), driven by increase in loans and advances amounting to USD19.9 billion as compared to USD18.5 billion last year.

WHAT IS INVESTMENT BANKING?

Investment banking means the business of providing credit facilities, providing consultancy and advisory services relating to corporate and investment matters of making investments on behalf of any person. Other activities include undertaking foreign exchange transactions, interest rate swaps, dealings in derivative instruments or derivative financial instruments or any other similar risk management activities.

WHO MAY APPLY FOR A LABUAN BANKING LICENCE?

Organisations that meet the following minimum criteria :

• Should be a bank or financial institution
• Should possess a sound track record
• Should be accorded a good credit rating by acceptable rating agencies
• Should be supervised by a competent regulatory authority; and conform to generally accepted standards of international banking practices or BIS

WHAT IS THE MINIMUM WORKING FUND FOR AN INVESTMENT BANK?

MYR10 million or its equivalent in any other currency.

HOW DO I OPEN A BANK ACCOUNT IN LABUAN?

Opening a banking account in Labuan is quick and easy, thanks to the island’s efficiency and impressive infrastructure. The process takes an average of only one to two days, and investors have a range of international banks to choose from, including HSBC, Citibank, Standard Chartered and Barclays as well as local Malaysian banks including Maybank, Public Bank and CIMB.

Should you wish to enquire about establishing an Labuan banking account specifically, please contact one of the licensed Labuan Trust Companies.

WHAT INCENTIVES ARE OFFERED TO LABUAN BANKS?

Right of first refusal for Malaysian business, which means if any Malaysian company were to obtain services from banks other than the domestic banks, the company should approach Labuan banks first.

WHAT ARE THE PRUDENTIAL REQUIREMENTS?

The prudential guidelines issued by Labuan FSA pertain to capital adequacy, liquidity management, asset quality, concentration of credit, connected parties lending and internal auditors. Labuan banks are also required to submit to Labuan FSA on a regular basis their statement of assets and liabilities, liquidity report and size of loans and deposits.

WHAT PRODUCTS AND SERVICES ARE CURRENTLY OFFERED BY LABUAN BANKS?

Foreign currency credit facilities:

• Short term and long term financing
• Project financing
• Syndication/loan arrangement
• Standby letter of credit/bank guarantee
• Foreign exchange trading.
• Trade financing facilities.
• Foreign currency deposits
• Investment banking/advisory services (fee-based income)
• Project evaluation/feasibility studies
• Capital restructuring
• Private banking/portfolio fund management
• Correspondent banking (for Malaysian banks)

ARE THERE ANY LIMITATIONS?

A Labuan bank is prohibited from accepting cash deposits and from opening an account for a customer whose identity is unknown. The reason is to avoid Labuan banks from being used as a conduit for money laundering or other unwarranted illicit purpose.

In order to reduce risk associated with cross-border cheque clearing, a Labuan bank is not allowed to accept money on deposit or loan from a customer that is repayable on demand by cheque, draft, order or any other instrument drawn on it.

As of January 19, 2010, a Labuan bank can now open one or more co-located offices in any part of Malaysia. However, it must maintain its office and operations on Labuan.

CAN MALAYSIAN RESIDENTS OBTAIN LOANS FROM LABUAN BANKS?

Yes, they can subject to the guidelines issued by Bank Negara Malaysia (BNM), as follows:

• For an aggregate loan amount not exceeding MYR1 million, no approval by, or notification of, BNM is necessary
• For an aggregate amount exceeding MYR1 million but not exceeding MYR5 million, the applicant is required to inform BNM within 2 weeks from Letter of Offer
• For an aggregate loan amount exceeding MYR5 million (equivalent in foreign currency), approval from BNM is required (ECM10)

DO BUYERS AND SELLERS HAVE TO BE OUTSIDE MALAYSIA FOR LABUAN TRADE FINANCING TRANSACTIONS?

With respect to trade financing, the buyers and sellers can be outside of Malaysia and the underlying goods to be exported to or imported from other countries may also include Malaysia

CAN A LABUAN BANK PROVIDE A GUARANTEE ON FOREIGN DIRECT BORROWING OF A RESIDENT?

Yes, a Labuan bank may provide a guarantee on foreign direct borrowing of a resident. Residents are freely allowed to obtain foreign currency credit facilities from the Labuan banks in the aggregate up to MYR5 million, beyond which the approval of Bank Negara Malaysia is required.