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Speech by Mr Danial Mah Abdullah, Director-General of Labuan FSA at The Labuan Annual Industry Dinner 2019

Speeches

THE LABUAN ANNUAL INDUSTRY DINNER 2019

Speech by

Mr Danial Mah Abdullah
Director-General, Labuan FSA

18th October 2019
Convention Hall, Financial Park

Bismillahirrahmanirrahim
Yang Berbahagia Datuk Oh Chong Peng, Chairman of Labuan FSA and Datin Lim Siew Kee,
Members of Authority of Labuan FSA,
Chairmen of the Associations,
Members of Labuan Press and Media,
Distinguished Guests, Ladies and Gentlemen,
Assalamualaikum W.B.T and Salam Sejahtera

1. Firstly, on behalf of Labuan FSA I would like to thank the Labuan International Insurance Association (LIIA) for organising the 2019 Labuan Industry Dinner, an annual event that brings the Labuan IBFC community together. As for our guests from beyond Labuan, we are privileged to have you are with us here tonight. Warmest welcome to all and we hope that you will take the time to enjoy the many attractions that Labuan island has to offer. So aside from spending time with us in tonight’s event, do continue to spend on the island’s offerings and help contribute towards the local economy.

Ladies and Gentlemen,

2. 2019 has been a very eventful year. You can say that it is a watershed year considering the significant changes that have been implemented in the year, particularly the required changes to the Labuan Tax framework. These changes are critical in order for the Centre to be internationally compliant and avoid any risks of being blacklisted or even sanctioned. The changes made include the abolishment of the RM20,000 tax election; removal of ring-fencing elements for dealings with residents and in ringgit and more importantly, the introduction of business substance requirements for Labuan entities to have employees and minimum amount of operating expenditure in Labuan.

3. We however recognise that for any regulatory changes and implementation, there will be practical and transitional issues. In this regard, efforts have been made to ensure that the new requirements are rolled out pragmatically taking into account the industry’s feedback. We have established the Labuan Investment Committee (LIC), a cross-agency platform comprising senior officials of the Ministry of Finance, Inland Revenue Board and Labuan FSA. This is to facilitate the rollout of the new tax requirements including clarifying and resolving implementational issues faced by players. The LIC had issued pronouncement and will continue to do so in order for the industry to be amply guided. Rest assured, the LIC and Labuan FSA will continue to be facilitative to ease the industry’s transition into the new tax regime.

4. Having said that, the new tax changes have resulted in positive outcomes to Labuan IBFC. Firstly, Malaysia including Labuan was assessed as “Not Harmful” by the OECD’s Forum on Harmful Tax Practices in January 2019. Secondly, Malaysia which included Labuan was rated “Largely Compliant” under the Peer Review Assessment in the OECD’s Forum on Tax Transparency and Exchange of Information recently in July 2019. At the international level, Labuan IBFC now clearly stands on par with other prominent IFCs in adhering to international requirements. 

5. Further, while there are heightened requirements under the new Labuan tax framework, Labuan FSA has taken steps to liberalise relevant regulations such as those relating to marketing offices and work permits, in a way, to balance out the scale to ensure the centre remains business-conducive. Labuan FSA will continue to review all current regulations and requirements which could be further rationalised as a consequence to the new tax framework. Indeed, while there might had been early pessimism due to the impact of the changes, we are in fact encouraged that the business momentum for Labuan IBFC for 2019 has remained positive. This was evidenced by increased number of interests received from regional and global investors and entrance of new large institutions to Labuan IBFC.

Ladies and Gentlemen,

6. As the international business landscape becomes increasingly competitive, Labuan IBFC must be able to distinguish itself from other international centres moving forward. Unique and sufficiently differentiated product offerings with accommodative but stable regulations are what international investors are on the lookout for. One growth potential which Labuan IBFC is focusing on is FinTech. Labuan IBFC has seen an influx of digital business set ups into the centre with 25 approvals given in 2019 alone which included the nation’s first digital bank and a new digital asset exchange. More is in the pipeline as interests keep coming in for Labuan entities to be used to undertake these innovative businesses. To cater for this new business demand, Labuan FSA has put in place key requirements and business guidance in the second half of 2018. We are now firming up a more holistic regulatory framework which will be released by end-year to better guide these digital business which include digital banking, virtual currency trading, insuretech and tokenisation.
 

7. Today Labuan IBFC is home to more than 6,000 active companies which includes top-ranked financial institutions comprising 55 banks, 217 insurance companies, 61 trust companies, more than 300 leasing companies and 43 commodity trading companies. Labuan IBFC entities now employ more than 6,000 people, making the IBFC the largest employer compared to other industries in the island. I foresee the employment numbers would surely increase as Labuan entities comply with the substance requirements this and next year. 
 
8. Notwithstanding the encouraging statistics, Labuan IBFC should not rest on its laurels. It is imperative for us to intensify our business focus on emerging opportunities and to be sensitive to the changing market demands. To chart the way forward, several strategic thrusts have been identified by Labuan FSA:

One: Enhancing the banking industry. As the largest financial sector in Labuan IBFC, we will accord greater regulatory impetus to inject innovation and spur the sector’s growth development. This includes attracting and facilitating the establishments of innovative banking institutions and financial services especially in the digital banking space.
Two: Embracing digital driven businesses. We will evolve the licencing requirements and enhance regulations to better suit digital business setups.
Three: Reinvigorating Labuan IBFC product and service offerings. This entails rationalising licensing requirements for existing Labuan structures to make them more attractive. This includes creating new insurance intermediary licences, and promoting green, social and sustainable (GSS) financing via Labuan sukuk issuances.
Four: Nurturing human capital and talents. Labuan FSA will continue to collaborate with the market and training providers for talent upskilling and knowledge enrichment in Labuan IBFC. With the numerous training events that Labuan FSA had organised over the years, there shall be more in the coming year.
Five: Improving delivery system. Labuan FSA will continue to improve its delivery process by leveraging on IT capabilities and technology. For example, the current trust officer paper examinations will soon be converted into computer-based to allow for a real-time marking and candidates can receive immediate results. The digitisation initiatives that we are planning would also be timely with the rollout of the National Fiberisation & Connectivity Plan for improving Labuan island’s internet infrastructure.

9. In terms of market prospecting, our strategy remains on bridging the Asia economies by leveraging on Labuan’s optimal geo-position. It is also in tandem with one of the Budget 2020’s initiatives to promote investment inflows from China. This is consistent with Labuan IBFC’s own China Strategy as the Centre’s structures can be used to attract Chinese investors especially prominent financial institutions and firms.

Ladies and Gentlemen, 

10. While intensifying its business focus, Labuan FSA will continue to uphold its supervisory and regulatory role to ensure that the soundness and stability of the market are always preserved. Higher supervisory oversights and more on-site examinations will be conducted on sectors which have been identified as “high risk” under the Labuan Sectorial Risk Assessment framework. This is all necessary to evident our seriousness in addressing AML/CFT matters especially when Malaysia including Labuan will be assessed again by the Financial Action Taskforce (FATF) early next year. We need to ensure that Labuan IBFC is ready and demonstrate that measures are in place to preserve our positive ratings of the assessment and maintain Labuan IBFC’s credibility as reputable centre.

Ladies and gentlemen, 

11. As we enter into the 30th year of Labuan as an IBFC next year, we need to be agile and adaptive to the international regulatory changes, global competition and technological advancements. We are fortunate to be in the fastest growing region in the world – Asia Pacific, allowing us to grow in tandem with the region. We should continue to promote our niche sectors that has gained market confidence and international recognition. Talking of recognition, I’m pleased to share with you that Labuan IBFC has for two consecutive years been named as the Best Asian Captive Domicile by the Asian Captive Review Award for 2018 and 2019.

12. Against this backdrop, to stay relevant and vibrant, we need the support of all stakeholders. Hence, we will continue to collaborate with our stakeholders including the relevant ministries, government agencies, industry players, intermediaries and other service providers to develop the centre further. In this regard, the visit by our Minister of Finance, YB Lim Guan Eng in July 2019 has indeed sown positive impetus and provided the assurance of governmental support for the development of Labuan IBFC. At the same time, he has also implore the IBFC to do more. We will certainly do more. This, coupled with recent positive media coverage on Labuan is a testament that the Centre is still very visible and relevant to the nation.
Ladies and gentlemen,

13. To conclude, I take this opportunity to thank the Labuan financial community for the patience and understanding during this change period. On behalf of Labuan IBFC, I would like to extend our deepest appreciation to the Minister and the Ministry of Finance for the unwavering support to Labuan IBFC. We will certainly fully leveraged on the support to accelerate Labuan IBFC’s development to the next level. My heartiest gratitude also to Labuan FSA Authority members for their guidance. And not forgetting the members of Labuan press and media, thank you for your contribution in generating more visibility for Labuan IBFC. Once again, I wish to express my appreciation to LIIA, especially to its Chairman Mr Raymond Wong who will be retiring this year, for organising this year’s annual dinner. And last but least our gratitude again to Yang Berbahagia Datuk Oh Chong Peng, Chairman of Labuan FSA for being with us tonite.

On that note, I wish everyone an enjoyable “Fred and Ginger” evening.

Mr Danial Mah Abdullah
Director-General, Labuan FSA
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