Among the four new Acts introduced in Labuan are two pieces of "omnibus" legislation, so-called because they aggregate all the guidelines, directives and legislation covering individual business activities on the island.
The Labuan Financial Services and Securities Act 2010 (LFSSA) governs financial entities using the conventional financial system while the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) is a mirror of the conventional Act but relates to activities deemed Islamic and Shariah-compliant.
The LFSSA provides for the regulation and administration of the financial services and securities industry including securities, mutual funds, market intermediaries, Labuan Trust companies, Labuan banks, Labuan insurance companies, company management, exchanges and self-regulatory organisations.
Among the key features of the Act is the enhanced scope of the regulator’s statutory objectives and functions which now includes the power to issue licenses, guidelines, directives and advisories. New entities such as Labuan Private Trust Company, Labuan Managed Trust Company, Self-Regulatory Organisation, Limited Liability Partnerships and Protected Cell Company have also been introduced under its ambit.
In the area of mutual funds, private and public funds have been re-defined with the significant change being that private funds have been deregulated. Private funds are defined as either those with a maximum of 50 investors with each investor’s first time investment being not less than MYR250,000, or any number of investors with each investor’s first time investment at a minimum of MYR500,000.
In the insurance sector, licensed life brokers can now act as full-fledged IFAs. There is also no longer a need for a Labuan insurer to have a Labuan resident director.
As a first mover in Islamic finance, Labuan had issued a stream of guidelines, directives and circulars over the years, amending and adapting conventional products for Shariah-compliant use . This maze of assorted rulings has been standardized and codified, resulting in the ground-breaking Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA).
Possibly the first comprehensive Islamic finance legislation in the world, LIFSSA’s central concern is Shariah-compliance. For instance, the jurisdiction’s Shariah Advisory Council has been elevated to be the Shariah Supervisory Council. This is not just a titular change but an important scaling up as the SSC now ascertains the proper Islamic law relating to any business regulated in Labuan IBFC and any of the Council’s rulings may be taken as a valid reference by a court of competent jurisdiction when making a decision.
The Act, which covers provisions from the licensing and regulation of Islamic finance activities to the role of the regulator (Labuan Financial Services Authority or Labuan FSA, responsible for ensuring the stability of both the conventional and Islamic systems in Labuan), also defines the range of Islamic financial services and products which broadly parallel conventional financial products.
New business products including takaful captives (the first in the world), and a wide range of Islamic-styled variations such as Protected Cell Companies; Private Trust Companies; Labuan and Labuan Foundations; Limited Partnerships and Limited Liability Partnerships are permitted.
The third new Act is the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 which repeals and replaces the earlier law on Limited Partnerships. Under the new Act, three types of partnerships are allowed in Labuan IBFC, namely Limited Partnerships, Limited Liability Partnerships and recognised limited liability partnerships.
The LLP, as a partnership in which the partners have limited liability, allows all investors to actively participate in the management without being personally liable for any other partner’s liabilities that may arise from negligence or misconduct.
Although an LLP contains elements of both a partnership and a corporation, it is different from a typical joint stock company in which shareholders do not actively participate in the company’s management. The introduction of these partnerships, commonly used by professionals, will greatly enhance the jurisdiction’s appeal.
A Labuan Limited Partnership is suitable for fund management as it provides for a general partner and limited partners, the latter as passive limited investors in the partnership. The Act also provides for an LP or a Labuan Company to convert to an LLP, and for a foreign LLP to be registered in Labuan.
To cater for those involved in estate planning or wealth management, Labuan introduced its new Foundations Act 2010. Similar to common law Trusts, Foundations would probably be more familiar to individuals or families from Civil Law countries like Indonesia, Thailand, the Philippines and the Middle East. They may also be preferred over Trusts as a Founder can retain substantial control over the management of the Foundation’s assets.
The LFA addresses all the key issues such as the formalities, administration and judicial nature of Foundations including provision for the redomiciliation of a Foundation into and from Labuan. Other significant features are the preservation of confidentiality, and the unenforceability of foreign claims or judgements pertaining to divorce, succession rights or creditors’ claims. Furthermore, a Foundation can be in the Islamic form if it subscribes to Shariah principles and appoints a Shariah adviser.
The article was first published in FSC Report 2011