Opening Remarks by YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz Minister Of Finance Malaysia, at the Labuan FSA 25th Anniversary Commemorative Coin Launch

15th December 2021

Opening Remarks By

YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz 

Minister Of Finance Malaysia

Yang Berbahagia Tan Sri Nor Shamsiah binti Mohd Yunus
Gabenor Bank Negara Malaysia

Yang Berbahagia Datuk Siti Zainab Omar
Pengerusi, Labuan Financial Services Authority

Yang Berbahagia Dato’ Syed Zaid Albar
Executive Chairman of the Securities Commission Malaysia

Yang Berbahagia Datuk Seri Hajah Rosida binti Jaafar
Secretary General, Ministry of Federal Territories

Yang Berusaha Encik Nik Mohamed Din Nik Musa
Director-General, Labuan FSA

Your Excellency Ambassadors and High Commissioners

Members of the Media, Ladies and Gentlemen,

Assalamualaikum WBT, a very good afternoon dan selamat petang.

1. Saya ingin merakamkan penghargaan kepada Lembaga Perkhidmatan Kewangan Labuan (atau Labuan FSA) kerana mengundang saya untuk memberi ucaptama sempena pelancaran syiling peringatan bagi meraikan ulang tahunnya yang ke 25.

2. Dua puluh lima tahun yang lalu, Kerajaan telah menubuhkan Labuan FSA untuk memaju dan membangunkan Labuan sebagai sebuah pusat antarabangsa bagi perniagaan dan perkhidmatan kewangan. Di samping itu, Kerajaan juga ingin melihat kemajuan Labuan IBFC ini dinikmati oleh penduduk setempat menerusi pembangunan ekonomi yang positif. Bagi ucaptama seterusnya, izinkan saya untuk menyampaikannya dalam Bahasa Inggeris.

3. Labuan International Business and Financial Centre or Labuan IBFC has come of age and emerged as an important and preferred financial centre in the Asian region. Since 1996 when Labuan FSA was set up by the Government as a single regulator, the number of licensed financial institutions has increased by more than ten times from 80 entities to 850 international and regional financial players in the IBFC today.

4. A truly international and well recognised centre, Labuan is now home to more than 5,200 active companies from 125 countries, some of which are well-known brands around the world. Amidst the numerous challenges along the way, the IBFC has now become an integral component of the Malaysian financial system and Labuan FSA, as among our key regulators after 25 years in existence. Strong Rules and Regulation to Safeguard Labuan IBFC’s Reputation

5. In carrying out its mandates, Labuan FSA is tasked with preserving Labuan’s good reputation as an international business and financial centre. While Labuan was primarily established to serve as a gateway for international business flows and financial transactions, opportunities for Malaysian corporates and financial institutions to use Labuan as a steppingstone to invest and venture abroad have been widely available.

6. For the past 25 years, Labuan FSA has adhered to high international standards and implemented all necessary controls and safeguards to ensure that only legitimate businesses can be established, and only legal transactions take place.

7. The Government applauds Labuan’s approach which is both pragmatic and market-focused, striking a good balance between risk-based supervisory surveillance and a modern legal framework with a tax-efficient regime. These are its strengths and unique advantages in meeting the needs of international sophisticated investors, as recognised by organisations such as the International Monetary Fund (IMF) 1 and the Organisation for Economic Co-operation and Development (OECD)2.

8. The Ministry of Finance is also committed to meeting OECD’s other requirements and has imposed substance requirements on the entities operating in Labuan. In this regard, I would like to share a recent development involving “Other Trading Entities” or OTEs, which have now been incorporated into the substance requirements, and are part of the IBFC’s fiscal regime. As I understand it, this has provided significant relief to the market, as the OTEs form a large number of Labuan entities. 

Contribution of Labuan FSA and the IBFC to the Nation and the Island

Ladies and Gentlemen,

9. Labuan has demonstrated its ability to adjust and adapt in a rapidly changing international and regional environment over the last 25 years. The once sleepy and quiet backwater has been transformed into a thriving financial centre with thousands of active companies and hundreds of financial institutions. These entities primarily engage in wholesale intermediation activities ranging from banking, insurance and fund management; to money broking, leasing and trust services.

10. As a result, Labuan IBFC is now the federal state’s largest white-collar employer, accounting for 85% of total employment, employing over 6,000 people from the local community, neighbouring states, and the rest of Malaysia.

11. More importantly, despite accounting for only a small portion of Labuan’s services sector, Labuan IBFC’s labour force contributed more than 60% of its GDP in 2020.

12. Labuan has also experienced faster GDP growth than the national average in recent years, with the smallest contraction in 2020 among all states in Malaysia. For 2019 and 2020, Labuan IBFC’s economic contribution to the nation was close to RM5 billion, making it the largest contributor to Labuan’s total GDP, and also the main engine of growth for the island’s development.

13. I am pleased to see that Asia-Pacific and the Far East account for 70% of the businesses at Labuan IBFC. This demonstrates that it has successfully evolved into an outward-looking centre that facilitates international business and is well-regarded around the world.

14. Testament to the efforts are the companies and licensees from 125 countries that have made Labuan their home. In this regard, I would like to congratulate Labuan on successfully serving Malaysian corporates in non-ringgit financing, reinsurance, captives, leased assets, and investments, among others. Congratulations, too, on being named the “best international jurisdiction for captives” by the European Captive Review Awards in November 2021.

15. It is also heartening to note that the Labuan FSA and the IBFC’s commitment has gone beyond their supervisory and business development roles to support the island’s socioeconomic well-being.

16. I was informed that, in addition to contributing to various causes, such as the establishment of the Labuan International School, they had also collected approximately RM770,000 during the pandemic to assist those affected by COVID-19. All of these efforts bode well for increasing IBFC’s attractiveness to the international community.

Aspirations for a Digital-based Financial Hub with Islamic Finance Solutions

Ladies and Gentlemen,

17. Today, as the COVID pandemic has turned the tables on traditional business models, digitalisation is accelerating rapidly.

18. Labuan IBFC made its debut as a digital-friendly jurisdiction began in 2017 with the trading of digital assets through an online platform. Since then, the number of digital financial services providers has grown to 85, ranging from digital banking and insurtech, to digital intermediaries such as robo-advisory, digital asset exchanges, token issuers, and e-payment systems.

19. I am excited to see Labuan IBFC embark on a new growth path, driven by digitalisation. I encourage the Labuan FSA to continue facilitating financial innovations and attracting more fintech companies to serve the Asian market, with the goal of eventually becoming Asia’s leading digital financial hub.

Ladies and gentlemen,

20. Before I end, I would like to emphasise that Labuan’s next chapter must be conceived on sustainability, relevance, and market certainty, and it must be enabled by digital technology, fuelled by innovation.

21. Taking advantage of Malaysia’s striving dual financial system, my aspiration is for Labuan IBFC to provide not only conventional offerings, but also a full suite of Shariah-compliant products and structures to meet the demands and preferences of global investors.

22. In particular, Labuan IBFC can serve as a platform to expand Malaysia’s capabilities in digital Islamic finance as an alternative to conventional fintech. The Government is prepared to collaborate with relevant stakeholders to realise this goal, especially as the economy begins to recover and gain momentum in 2022, InsyaAllah.

23. I would like to thank Labuan FSA once more for inviting me to its 25th anniversary celebration, and I wish them the best for the next 25 years of growth and development.

Wabillahitaufikwal hidayah. Wassalamualaikum wbt. Thank you

YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz
Minister Of Finance Malaysia

1 The International Monetary Fund’s Financial Sector Assessment Programme in 2012 gave a verdict of “strong legal and regulatory framework” to Labuan.

2 The Organisation for Economic Co-operation and Development (OECD) Forum on Harmful Tax Practices in 2017 assessed Labuan as “not harmful” in its report. The latest OECD’s Peer Review Assessment under Global Forum on Tax Transparency and Exchange of Information in 2019 has also assessed Labuan as “largely compliant”. financial institutions. These entities primarily engage in wholesale intermediation activities ranging from banking, insurance and fund management; to money broking, leasing and trust services.

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