LABUAN BANKING BUSINESS
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Labuan banking business means –

  • the business of providing receiving deposits on a current account, deposit account, savings account or any other account as may be specified by Labuan Financial Services Authority (“FSA”);
  • Labuan investment banking business;
  • Labuan financial business *;
  • Labuan Islamic banking business;
  • such other business as the Labuan FSA may specify with the approval of the Malaysian Minister of Finance

in any currency (including Malaysian Ringgit where permitted under the Financial Services Act 2013 or such other relevant law in force).

* “Labuan financial business” means -

  1. building credit business;
  2. credit token business;
  3. development finance business;
  4. leasing business;
  5. factoring business;
  6. money-broking business;
  7. Labuan Islamic financial business

The Labuan banking business is governed by the Labuan Financial Services and Securities Act 2010 (LFSSA).

Who is eligible?

A Labuan bank can be set up as a branch or subsidiary under the Labuan Companies Act 1990. An applicant should meet the following minimum eligibility criteria:

  1. Must be a bank or financial institution;
  2. Possesses sound track record;
  3. Accorded a good credit rating by acceptable rating agencies;
  4. Supervised by a competent regulatory authority; and
  5. Conform to generally accepted standards of international banking practices or the Bank for International Settlements (BIS), as the case may be.
Minimum paid-up capital and/or Capital Adequacy/Solvency Requirements
  1. minimum RM 10 million or its equivalent in any other currency unimpaired by losses; and
  2. minimum risk-weighted capital ratio of 4% for Tier 1 Capital(1) and 8% for Total Capital(1).
  3. (1) As defined under the Guidelines on Risk-Weighted Capital Adequacy issued by Labuan FSA.

All Labuan banks are required to maintain its minimum paid-up capital at all times as prescribed by Labuan FSA. In addition to this minimum paid-up capital, the Labuan banks shall also comply with the capital adequacy ratio or solvency margin requirements imposed on them.

Co-Location of Labuan Banks

Option had been given for Labuan Bank to establish an office or offices in other part of Malaysia other than its office in Labuan (referred to as the “Co-located Office”). Please refer to Annexure I for more information on Co-located Office.

Operational 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. Prior approval must be obtained from Labuan FSA for any new appointment of director or PO of a Labuan bank.
  • Comply with the statutory requirements under the LFSSA.
  • Comply with the prudential and reporting requirements issued by Labuan FSA.
  • Meet certain pre-determined criteria, should it prefer to co-locate to any other parts of Malaysia.
  • Comply with Labuan FSA’s Guidelines on corporate governance for Labuan Banks.
  • Comply with Labuan FSA’s Guidelines on minimum audit standards for Internal Auditors of Labuan Banks.
  • Adhere to any other requirements issued by Labuan FSA from time to time.
Fees payable to Labuan FSA

License processing fee (once-off) RM 1,000
Annual Bank license fee RM 100,000
Annual Co-located Office fee (if applicable ) RM 10,000
Annual Marketing Office fee (if applicable ) RM 7,500

Note: The annual license fee is payable when the license is approved by Labuan FSA and remains valid until 31 December of the year of approval. All licensees are required to pay to Labuan FSA subsequently the annual license fees on or before 15 January of each calendar year.


LABUAN INVESTMENT BANK

Labuan investment banking business means –

  • the business of providing credit facilities;
  • the business of 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;
  • the business of undertaking foreign exchange transactions, interest rate swaps, dealings in derivative instruments or derivative financial instruments or any other similar risk management activities;
  • Labuan Islamic investment banking business;
  • Labuan financial business, or
  • such other business as Labuan FSA may specify, with the approval of the Malaysian Minister of Finance

in any currency (including in Malaysian Ringgit where permitted by the Financial Services Act 2013 or such other relevant law in force).

Labuan investment banks are not allowed to accept deposits.

Who is eligible?

A Labuan investment bank can be set up as a branch or subsidiary under the Labuan Companies Act 1990. An applicant should meet the following minimum eligibility criteria:

  1. An investment bank or group engaging in investment banking activities licensed by the regulatory authority in the country of origin;
  2. A licensed bank or an established financial institution or financial service provider supervised by a competent regulatory authority
  3. Any institutions licensed under the Financial Services Act 2013 with prior approval from Bank Negara Malaysia; and
  4. Corporations with the necessary expertise and experience in the financial industry with at least three (3) years of good track record and regulated by an authority in their home country.
Minimum paid-up capital and/or Capital Adequacy/Solvency Requirements
  1. minimum RM 10 million or its equivalent in any other currency unimpaired by losses; and
  2. minimum risk-weighted capital ratio of 4% for Tier 1 Capital(1) and 8% for Total Capital(1).
  3. (1) As defined under the Guidelines on Risk-Weighted Capital Adequacy issued by Labuan FSA.

All Labuan investment banks are required to maintain its minimum paid-up capital at all times as prescribed by Labuan FSA. In addition to this minimum paid-up capital, the Labuan investment banks shall also comply with the capital adequacy ratio or solvency margin requirements imposed on them.

Co-Location of Labuan Banks

Option had been given for Labuan Bank to establish an office or offices in other part of Malaysia other than its office in Labuan (referred to as the “Co-located Office”). Please refer to Annexure I for more information on Co-located Office.

Operational 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. Prior approval must be obtained from Labuan FSA for any new appointment of director or PO of a Labuan bank.
  • Comply with the statutory requirements under the LFSSA.
  • Comply with the prudential and reporting requirements issued by Labuan FSA.
  • Meet certain pre-determined criteria, should it prefer to co-locate to any other parts of Malaysia.
  • Comply with Labuan FSA’s Guidelines on corporate governance for Labuan Banks.
  • Comply with Labuan FSA’s Guidelines on minimum audit standards for Internal Auditors of Labuan Banks
  • Adhere to any other requirements issued by Labuan FSA from time to time.
Fees payable to Labuan FSA

License processing fee (once-off) RM 1,000
Annual Bank license fee RM 100,000
Annual Co-located Office fee (if applicable ) RM 10,000
Annual Marketing Office fee (if applicable ) RM 7,500

Note: The annual license fee is payable when the license is approved by Labuan FSA and remains valid until 31 December of the year of approval. All licensees are required to pay to Labuan FSA subsequently the annual license fees on or before 15 January of each calendar year.


LABUAN ISLAMIC BANKING WINDOW

The setting up of an Islamic banking or investment banking window by a Labuan bank or investment bank under the LFSSA does not require a separate licence and therefore, no additional licence fee is involved. A Labuan bank or investment bank may submit the application for approval with the following documents:

  1. Certified true copy of board resolution pertaining to the proposed establishment of an Islamic banking or investment banking window in Labuan;
  2. Business plan inclusive of three years' financial projections
  3. 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 / investment banks are given greater flexibility as follows:

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

The Co-located Office in other part of Malaysia other than its office in Labuan is to facilitate the business of Labuan Bank by leveraging, among others, on the infrastructures, human capital, professional services, recreational and residential facilities that are available in the co-located cities. Labuan Bank given approval to establish a Co-located Office must continue to have an office in Labuan with suitable number of staff to perform the functions assigned to the Labuan office. The application for approval to set up the Co-located Office must be submitted to Labuan FSA prior to its establishment.

Who Qualifies?

Labuan Bank which does not wish to co-locate are allowed to apply or continue to have marketing office under the Guideline for Establishment of Marketing Office in Kuala Lumpur and Johor Bahru.

Options Eligibility Criteria
Option 1 – The Labuan bank may carry on any operations at the Co-located Office, save for the following which will remain in Labuan:
  • Booking centre
  • Maintenance of records
The applicant bank must have-
  • an average total asset for three (3) years preceding the application of not less than USD1 billion;
  • an average percentage of loan granted to non-residents to the total outstanding loan for three (3) years preceding the application of not less than 50%;
  • an average percentage of deposit from non-residents to the total deposit for three (3) years preceding the application of not less than 50%; and
  • a minimum number of 10 staff.
Option 2 –
  • The Labuan bank may only carry on specific operations as may be approved by Labuan FSA apart from marketing activities.
  • All other operations to be retained in Labuan.
The applicant bank has been in operation in Labuan for not less than three (3) years at the time of the application.

Permitted activities

Labuan Bank that co-locates is allowed to conduct the following business activities at the Co-located Office:-

  • banking business as permitted under the LFSSA or any other relevant legislation; and
  • any other banking businesses as may be permitted from time to time.

Operational Requirements

  • Address of Co-Located Office Labuan Bank is required to inform Labuan FSA the address and contact numbers of the Co-located Office prior to the commencement of its operations and of any subsequent changes.
  • The Co-located Office must be -
    • separated from the office of other entity / company; and
    • managed by its own personnel with sufficient books and records that would explain their activities at the Co-located Office.
  • Name and signboard
    • The name of the Labuan Bank must be easily legible in Romanised characters, printed on a signboard affixed at the entrance of the Co-located Office.
    • The signboard must contain the following information -
    • the Labuan Bank’s licence number; and
    • the words “Labuan Bank licensed under the Labuan Financial Services and Securities Act 2010.”
  • The Labuan Bank must comply with requirements of the relevant local authorities with regard to the signboard and the Co-located Office, wherever applicable.
  • Labuan FSA may request Labuan Bank to provide statistical information in such manner and frequency as may be determined by Labuan FSA with regards to its activities in the Co-located Office.
  • Labuan Bank that co-locates would not be allowed to have a marketing office under the Guidelines for Establishment of Marketing Office in Kuala Lumpur and Johor Bahru.

Market Conduct and Consumer Protection

Labuan Bank that co-locates is expected to comply with any guidelines and requirements on market conduct and consumer protection that will be issued by Labuan FSA from time to time.

Annual Fee

Labuan Bank that co-locates is required to pay to Labuan FSA an annual fee of RM 10,000 for each co-located office once the approval is given. The subsequent payment of annual fee is payable not later than 15 January of each calendar year.

Revocation and Surrender

Labuan FSA reserves the right to revoke the approval if Labuan FSA is satisfied, based on the information made available to it, that the Labuan Bank has not complied with any laws or requirements in relation to the Co-located Office.

Notwithstanding the above, the Labuan Bank may surrender the approval by notifying Labuan FSA in writing not less than one (1) month from the date it intends to close the Co-located Office.


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