The Labuan Financial Services Authority (‘LFSA’) launched the Strategic Roadmap 2022-2026 (‘Strategic Roadmap’) for the Labuan International Business and Financial Centre (‘Labuan IBFC’) on 16 June 2022.
The Strategic Roadmap aims to transform Labuan IBFC into a dynamic and sustainable international mid-shore centre and to achieve the following key objectives:
- Maintain market stability, resilience and credibility;
- Stable and well-regulated market;
- Greater synergy between Labuan IBFC and the growth of Labuan island;
- Holistic contemporary product offerings; and
- Higher market relevancy.
To achieve the abovementioned aim and objectives, the Strategic Roadmap focusses on five strategic thrusts which are divided into three business streams and two regulatory streams.
The three strategic thrusts comprised in the business streams are as follows:
- Thrust 1: Spurring market innovation and vibrancy;
- Thrust 2: Promoting market facilitation and visibility; and
- Thrust 3: Enhancing Labuan IBFC’s complementary roles to Malaysia.
The two strategic trusts comprised in the regulatory streams are as follows:
- Thrust 4: Effecting relevant and proportionate regulations; and
- Thrust 5: Effecting pre-emptive supervision and enforcement.
Thrust 1: Spurring market innovation and vibrancy
Four initiatives and some of the enabling initiatives that have been identified to achieve Thrust 1 are as follows:
- Transforming Labuan IBFC into a Digital Financial Hub:
- Enhance the scope and operational requirements for Labuan banking activities;
- Formulate digital assets regulatory requirements including tokenisation of non-securities via digital platform;
- Develop and enhance Labuan exchanges’ scope and functions, including promoting environmental, social, and governance (ESG);
- Promote formation of centralised facilities for digital authentication for the Labuan market;
- Effect end-to-end digitisation of licensing and registration; and
- Develop and enhance existing requirements for dealings on digital assets and digital exchange platforms;
- Intensifying Labuan insurance market growth:
- Underwrite specialised risks of Labuan entities;
- Develop industry-wide retention policy and market cession schemes;
- Review and harmonise the varieties of Labuan captive structures to ensure effectiveness and relevancy are at par with international market development;
- Review and expand functions of captive managers to effectively assist captive insurers in their business operations;
- Undertake a detailed study to expand the scope of business of Protected Cell Companies;
- Explore the possibility of sector-based tiering of insurance intermediaries against the practice of another international financial centre; and
- Undertake a feasibility study to introduce new or specialised “underwriter” licences to cater for growing demands for underwriting of specialised risks;
- Promoting international Islamic finance:
- Attract new digital prospects in banking and other traditional financial sectors;
- Service new sectors through takaful captives and Shariah-compliant tokenisation;
- Institutionalise globally social finance via digitalisation such as Pension, Hajj, Waqf and Zakat; and
- Complement the global Islamic infrastructure;
- Revitalising niche and prospective segments:
- Promote commercial use of Protected Cell Companies to administer mutual funds;
- Enhance the attractiveness of the Labuan International Commodity Trading Company (LITC) including operational requirements for oil and gas and non-oil and gas; and
- Develop digital leasing structure by identifying possible types of leasing assets that can be digitised for commercial purposes.
Thrust 2: Promoting market facilitation and visibility
Two initiatives and some of the enabling initiatives that have been identified to achieve Thrust 2 are as follows:
- Upscaling Labuan IBFC’s ecosystem and infrastructure:
- Develop aggregation/distribution platform to encourage cross-sectoral business transaction to match the supply and demands of business in Labuan IBFC; and
- Undertake a feasibility study to develop ‘protection’ schemes to enhance investors’ confidence;
- Enhancing Labuan IBFC’s visibility and branding:
- Enhance strategic communication;
- Participate actively in international events and strengthen collaboration with other international financial centres as well as domestic stakeholders, including engagement with standard setting bodies, MoU partners and promotional agencies; and
- Focus on marketing strategy emphasising on targeted key brands for specific sectors.
Thrust 3: Enhancing Labuan IBFC’s complementary roles to Malaysia
Among the enabling initiatives under Trust 3 are as follows:
- Utilise captive structures by GLCs, GLICs, co-operations for better risk management;
- Support international trade and investments in specific business niches through digital platform that have been proposed on digital activities;
- Introduce counter-cyclical fiscal measures for relevant resident borrowers with Labuan banks especially for financing related to national interest; and
- Labuan digital banking to serve financing needs of the unserved or underserved Small-Medium Enterprises.
Thrust 4: Effecting relevant and proportionate regulations
Three initiatives and some of the enabling initiatives that have been identified to achieve Thrust 4 are as follows:
- Continued legal and regulatory upscaling:
- Review the current legal requirements to accommodate for proportionate regulatory and supervisory approach;
- Effect forward-looking legal requirements in tandem with international regulatory developments and market innovation; and
- Undertake measures to ensure that the legal ecosystem remains effective and relevant in safeguarding financial stability and market integrity;
- Developing risk-sensitive, fit-for-purpose regulations to cater for emerging concerns:
- Enhance risk-based capital framework for the insurance market in line with international standards developments;
- Review capital adequacy framework and prudential requirements for the banking sector in line with the Basel standards;
- Formulate key regulations for digital financial services, such as asset tokenisation, digital trading platform operators and digital exchanges; and
- Develop market conduct regulations for key and digital market intermediaries to promote fair and responsible market practices;
- Securing good ratings for incoming international assessments on Labuan IBFC:
- Undertake adequate preparation for OECD’s BEPS 2.0 and Automatic Exchange of Information and AML/CFT assessments expected over 2022-2026; and
- Firm-up and ensure cohesion in the Labuan tax policy under post-substance environment.
Thrust 5: Effecting pre-emptive supervision and enforcement
Among the enabling initiatives under Trust 5 are as follows:
- Modernise supervisory approach through adoption of supervisory technology for monitoring, surveillance and enforcement;
- Enhance supervisory capabilities and skillsets needed for new digital businesses; and
- Strengthen home-host supervisory relationship for more effective monitoring of banking and insurance international groups.
In addition, the Strategic Roadmap has identified two key organisational enablers, namely digitalising of the organisation and nurturing internal talents and capabilities, to transform the LFSA as a future-proof, resilient and dynamic organisation.
It is evident that digitalisation is a cornerstone of the Strategic Roadmap. Over the next half decade, we can expect to see the introduction of many processes and products that will be underpinned wholly or predominantly by digital infrastructures. The implementation of the initiatives under the Strategic Roadmap are also likely to lead to the introduction of new products and enhancement of existing products aimed at increasing the attractiveness of Labuan IBFC as the preferred centre for investment. The first step of this journey has already been taken with the recent announcement by the LFSA that the Islamic Digital Asset Centre (IDAC) is “on track to launch its first Islamic/ESG Digital Exchange in Labuan this month, possibly to be the world’s first of such exchange.”1
As against the foregoing, the implementation of the initiatives under the regulatory streams identified in the Strategic Roadmap may result in enhanced regulatory oversight of activities carried on from Labuan IBFC.