Labuan Banking Business

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

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 -

(a) building credit business;
(b) credit token business;
(c) development finance business;
(d) leasing business;
(e) factoring business;
(f) money-broking business;
(g) Labuan Islamic financial business

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 RM10 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).
     (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 office(s) in other part of Malaysia other than its office in Labuan (referred to as the “Co-located Office”).

LABUAN FSA’s FEES

  • License processing fee (once-off) : RM1,000
  • Annual Bank license fee : RM100,000
  • Annual Co-located Office fee (if applicable) : RM10,000
  • Annual Marketing Office fee (if applicable) : RM7,500

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. a) minimum RM10 million or its equivalent in any other currency unimpaired by losses; and
  2. b) minimum risk-weighted capital ratio of 4% for Tier 1 Capital(1) and 8% for Total Capital(1).
     (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 office(s) in other part of Malaysia other than its office in Labuan (referred to as the “Co-located Office”).

LABUAN FSA’s FEES

  • License processing fee (once-off) : RM1,000
  • Annual Bank license fee : RM100,000
  • Annual Co-located Office fee (if applicable) : RM10,000
  • Annual Marketing Office fee (if applicable) : RM7,500

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.