Services: Labuan Investment Banks

Labuan Investment Banks

Labuan investment banking is defined under the Labuan Financial Services and Securities Act 2010 as the business of:

  • Providing credit facilities
  • Providing consultancy and advisory services relating to corporate and investment matters or making investments on behalf of any person
  • 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 activities
  • Labuan financial business, or
  • Such other business as Labuan FSA may specify.

Labuan investment banks are not allowed to accept deposits and may only carry on business in any currency other than the Malaysian Ringgit, except as permitted by the relevant authorities. Subject to provisions under the Labuan Financial Services and Securities Act 2010 and Exchange Control Act 1953, a licensed Labuan investment bank is allowed to deal with Malaysian residents.

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.

The applicant must pay an annual licence fee of MYR100,000 on or before 15 January of each year.

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.

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.
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