1. It gives me great pleasure to be with you at the 24th Malaysian Finance Association International Conference or MFAIC 2022. Firstly, I'd like to thank the organiser, Universiti Malaysia Sabah or UMS for giving me the opportunity to share with you my thoughts on the immediate and future financial landscape in the aftermath of the pandemic, particularly for Labuan International Business and Financial Centre or Labuan IBFC. For today’s theme on Evolving and Impacting the Post-Pandemic World: Future Development in Financial Sector, I wish to also share with you broad key developments sweeping the international financial landscape that are defining the financial markets and subsequently the roles of regulators themselves. I’m mindful I’m in the physical and virtual presence of learned scholars and distinguished academicians--hence I’ve asked my team to verify all data and facts again and again against legitimate sources.

2. The world has been greatly impacted over the past two years due to the onslaught of Covid-19. A lot had happened during this period as everyone adjusted to living with the pandemic; many economies are in fact still struggling to contain the virus and mitigate its implications to public health, livelihoods, societies, and markets. The pandemic had profoundly impacted many international centres in its wake, and while it is difficult to tell exactly what the economic damages from this health crisis have been, it has had severe negative impacts on the global economy. The world's collective gross domestic product (GDP) fell by 3.4 percent in 2020. To put this in perspective, global GDP reached USD85 trillion in 2020--meaning that a 3.4 percent drop in economic growth resulted in over USD2 trillion of lost economic output.

3. However, the global economy quickly recovered from the initial shock, reaching growth levels again in 2021. That year, it reached over USD92 trillion and is expected to continue to grow in the coming years. The global unemployment rate is expected to reach 5.9 percent in 2022, down from 6.6% in 2020. According to a report by the International Labour Organization, global employment will not return to pre-pandemic levels until at least 2023, with a projected shortfall in hours worked this year equivalent to 52 million full-time jobs. The global unemployment will remain well above pre-pandemic levels, with 207 million people expected to be unemployed in 2022 compared to 186 million in 2019.

4. Closer to home, Labuan IBFC is not spared from the economic debilitating impact. While Labuan IBFC contributed more than 60 percent to Labuan’s GDP in 2021, there is a concern on the closure of companies and licensed entities due to the adverse impact of movement restrictions that began in March 2020. Understandably, they had to shut down due to internal restructuring and also the tax policy change. I’m glad to reiterate that the exclusion of OTEs or Other Trading Entities from the Labuan tax compliance regime has been resolved late last year and now they are taxed under the 3 percent tax regime. With more tax certainty and upliftment of restrictions, it is observed since beginning of this year that the trend of such closure is slowing down while new incorporations of companies and new licences granted, especially to digital players providing digital platforms and issuing tokens, are rising more than the previous years’. The August 2022 figures show that new trading companies and licences have surpassed the number of closure of trading companies, but we are not out of the woods just yet.

Ladies and Gentlemen,

5. As we enter this next phase of the recovery, the future is unfolding. Financial services institutions are operating in a changing world—one they can help to define. From banking, capital markets to insurance and investment management to commercial real estate, financial services firms are facing a pivotal, no-turning-back opportunity to shape theirs and the industry’s future. Across sectors, financial institutions need to overcome challenges and scale new heights by innovating, transforming, rethinking the workplace, as well as connecting to the community in order to be continuously relevant in the new norms. It’s time for businesses to think beyond traditional bottom-line metrics and develop strategies that serve both business and societal needs. There’s never been a better time to change for the better.

6. The pandemic has accelerated digital adoption and prompted financial institutions to question the sustainability of existing business models. At the same time, emerging technopreneurs into financial business space became a disruptive force to challenge the status quo where conventional financial business used to hold dominance. Now, everywhere around us, you may find the trail of financial innovation in every new trend – blockchains, cloud storage, tokenisation, data analytics and artificial intelligence, are among the many advancements brought about by digitalisation. It is obvious that financial services sector is relying more and more on digital technology to gain distinctive competitive edge.

7. The post-pandemic environment also saw acceleration in Islamic finance growth. Islamic fintech or the digital delivery of Islamic finance is on the rise. Islamic finance assets saw double-digit growth to USD3.4 trillion in 2020 and is projected to rise to almost USD5 trillion by 2025. While the global Muslim population continues to be one of the most significant drivers of growth in Islamic finance, there has also been an emergence of the millennial generation of socially-conscious investors. Unlike profit oriented conventional investors, this group seeks to invest into more responsible and moral finance solutions with reasonable returns. With the pandemic and associated economic dislocation, heightened social unrest and continued climate change, the need for action on Environmental, Social & Governance or ESG by governments and corporations alike has never been higher.

8. As the demand for sustainable investment is on the rise driven by the ESG-related agenda, the trend of investing in sustainable, environmentally friendly and socially conscious businesses is also making Islamic products becoming more appealing to non-Muslim investors. In recent years, the Islamic finance industry has witnessed the launch of several initiatives and the creation of innovative structures that were sustainability and ESG-motivated. Based on statistics from Refinitiv, the ESG Islamic bonds or sukuk issuances reached a record value of over USD5.3 billion in 2021, boosted by large sustainable issuances during the year.

9. Of late, market liberalisations promoting free cross border trading and business transactions have begun to pick up momentum. Noteworthy to mention is the Regional Comprehensive Economic Partnership (RCEP) which is expected to further improve market access, promote greater financial inclusivity in Asia. In addition, it will leverage on its geographical location and ride on the vigorous development of bilateral trade and investment as well as cross-border business between Malaysia and the rest of the world. On this front, the Labuan IBFC is inextricably linked with the broader Malaysian financial system and it remains an important complementary market for Malaysia’s economy. The Centre aspires to be the window for economic connectivity between Malaysia and intra-Asian economies, tapping on the Free Trade Agreements (FTAs) which Malaysia participates in, particularly the RCEP agreement which has just come into force for Malaysia on 18 March 2022.

Ladies and Gentlemen,

10. In this regard, the Labuan IBFC's 5-year Strategic Roadmap 2022-2026 was timely launched by the Minister of Finance in June 2022, charting the continued growth and building on the position of strength of Labuan IBFC. This is exciting as the Roadmap articulates the priorities and new initiatives to be pursued over short and medium term with the objectives to create a greater business sustainability and efficiency with defined niches, to achieve higher market relevancy and inclusiveness, and synergy between Labuan IBFC and the Labuan Island. The approach is two-pronged--to reach the international market virtually as well as physically face-to-face.

11. As Islamic or sustainable finance is on the rise and capitalising on Malaysia’s success in this area, it is envisaged that Labuan will play a significant role as a fund raising and investment hub in the global digital space, with a niche in ESG and Shariah compliant activities. New players, namely, the digital assets and fintech players are already interested to be part of this exciting emerging market. Labuan is underpinned by a comprehensive set of laws and regulations governing both the conventional and Islamic financial services under two separate Labuan financial services and securities Acts.

12. Made possible today by the availability of virtual listing using blockchain technology, global investors who are looking for new asset classes including, ESG and Shariah compliant investment products, can look to Labuan where those seeking financing can raise funds via securities token offering (STO) otherwise known as asset or commodity-backed tokens such as gold, real estate and carbon credit. Labuan can become the gateway for Islamic Digital Asset Centre or in short, IDAC, targeting primarily “out-out” business. I am pleased to share with you that 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. In particular, SMEs interested to raise fund cost effectively and tap the ESG and Islamic investors from South East Asia and Middle East for example, can leverage on Labuan’s IDAC.

13. As the world places greater emphasis and focus on sustainable finance, the outbreak of COVID-19 has sparked a chain reaction in the captive insurance industry. The World Economic Forum Global Risks Report 2021 has ranked climate change as the most likely and impactful threat to stability and cyber risk is considered as a top global risk for the insurance sector. Hence, Labuan is well positioned to create another niche market for itself as an insurance captive hub. Risk managers are currently looking for better alternatives and captive insurance to enable corporations with extensive risk portfolios to better bundle and diversify them, as well as have direct access to global insurance and reinsurance markets. By self-insuring high-frequency, low-severity risks through a captive, a corporate can reduce transaction costs and focus risk transfer on lower-frequency, higher-severity risks for more efficient risk management. Among the initiatives in place, Labuan FSA is positioning itself as takaful captives hub, a unique proposition not found in other parts of the world.

14. Labuan IBFC is now home to 226 insurance and insurance-related entities, including 64 captives. As of the second quarter of 2022, the total gross premium of Labuan insurance industry recorded at USD933.3 million. A total USD350.7 million worth of premiums was underwritten by Labuan captive insurance in the first half of 2022 and about 65 percent of these premiums are from international market. Asia markets have contributed more than 55 percent of the premiums underwritten by Labuan captives. Besides Islamic digital asset and captive hub as our two emerging niches, other existing businesses that are growing well are leasing, Labuan international trading commodity company, and digital services providers.

Ladies and Gentlemen,

15. Labuan IBFC is currently home to about 5,000 active companies which employ more than 6,000 people. The diverse nature of financial services in Labuan IBFC would mean that they would require a wide spectrum of talent in various fields. The various financial sectors provide wide career choices such as in banking, insurance, finance, accounting, auditing, law, tax, corporate secretarial, compliance function, and financial and information technology, to both fresh graduates and those who have experience. Labuan IBFC has implemented the substance requirements as part of the new Labuan Tax Framework back in 2019. The economic substance required Labuan entities to have substantive business presence on the island in order to enjoy the tax incentives. This entails mandating Labuan entities to have a minimum number of full-time employees. Consequently, this translates into increased demand for local talents which further improves the employment level in Labuan. With the higher needs for business professionals and to support Labuan’s IBFC Roadmap, UMS plays a pivotal role to nurture graduates to grow the talent pool further, and undertake re-skilling initiatives to meet this growing demand.

16. I would like to congratulate UMS Labuan for taking the lead in organizing an event like this. I am confident that the upcoming sessions will be insightful and enlightening for us all. I wish you a productive conference ahead. Thank you and wabillahitawfik walhidayah wasalam W.R.T.