Welcoming Address by Mr. Danial Mah Abdullah, at Labuan Industry Dinner 2018

Welcome Remarks by
Mr Danial Mah Abdullah Director-General, Labuan FSA

5th October 2018
Convention Hall, Financial Park


Yang Berhormat Dato’ Ir (Ingenieur) Haji Amiruddin Hamzah, Deputy Minister of Finance and Yang Berbahagia Datin Nora Mohamed Noor 

Yang Berhormat Datuk Rozman bin Hj Datuk Isli, Member of Parliament Labuan  

Members of Authority 

Distinguished Guests, 

Ladies and Gentlemen 

Assalamualaikum W.B.T and Salam Sejahtera

1. Firstly, I would like to thank the Association of Labuan Banks for organising the 2018 Industry Dinner, an annual event that brings together Labuan International Business and Financial Centre (Labuan IBFC) community. This year, we are indeed very honoured to have Yang Berhormat Dato’ Amiruddin Hamzah, the Deputy Minister of Finance to share this evening with us. On behalf of the Labuan financial community, I wish to extend our warmest welcome and big thank you to Yang Berhormat for his presence here. I would like to say that this is a strong indication of the continued support of the government in the development agenda of Labuan Island. 

Ladies and Gentlemen,

2. The theme for the dinner tonight is “Black and White Affair”. When we look from the standpoint of Labuan IBFC businesses, the theme can readily be applied to the business landscape which has evolved tremendously characterised by terms such as transparency, beneficial ownership, regulatory compliance, substance requirements, automatic exchange of information, Base Erosion and Profit Shifting (BEPS) and many more. The current demands are that International Financial Centres (IFCs) including Labuan IBFC are expected to conduct their businesses in a more black or white fashion rather than in fluidity of rainbow colors. In this relation, my remarks tonight will touch on Labuan IBFC’s evolvement, our achievements and what we need to do to remain competitive and relevant.

3. Let me walk you through a compressed journey of 28 years that has shaped Labuan as an IBFC for the Asia-Pacific region. Labuan was declared as an International Offshore Financial Centre in 1990 by our Prime Minister, Yang Amat Berhormat Tun Dr. Mahathir Mohamed. The primary objectives are to complement the domestic financial activities in Kuala Lumpur to enhance Malaysia as a regional financial centre and to spur the development of Labuan island. The early work has been focused on ensuring the right regulatory policies and framework that are attuned to international best practices and the normal characteristics of offshore financial centres. Efforts were also directed at providing a conducive business environment driven by development of the centre physically as well as having critical mass of core and top players. Underpinned by these, the centre witnessed an annual Labuan companies growth of 30% in the first decade and the establishment of a wide spectrum of international financial institutions in Labuan IBFC.

4. A decade on, we made changes by rebranding ourselves as international business and financial centre rather than as offshore centre following a holistic strategic business model assessment and review of the centre’s value propositions. We also amended our laws and regulations to facilitate businesses, and provided clarity on market access, introduced a range of new products and services such as foundations, protected cell company, private trust company, Islamic trusts as well as improved our delivery processes. Another spurt of growth kicked in because of these innovations. New frontiers such as private wealth structuring, financial intermediation services and fintech have increasingly became more popular. 

5. This coincided with the on-set of global financial crisis in 2008. The crisis triggered massive global stability measures particularly on the regulatory fronts that reshape the international landscape. This in turn necessitated changes as how IFCs including Labuan IBFC operate. International setting bodies have instituted requirements covering governance, supervision and prudential requirements that must be instituted by all centres if one do not wish to be labelled as “non-compliant” or worst blacklisted and be imposed with sanctions. There is a constant demand need to do more in relation to anti money laundering. Besides demands to increase transparency on beneficial ownership of legal person to strengthen governance and the transparency of company ownership, the work for the compliance officer becomes more and more. All of these have placed more expectations upon the board and senior management of the financial institutions. Indeed, it also demands for a change of culture of financial institutions and discipline of compliance in doing things.

6. While regulatory bodies embarked on financial reforms, the spotlight in recent years, has shifted to the enhancement of fiscal revenues which set the stage for initiatives such as BEPS, Automatic Exchange of Information, Common Reporting Standards, Country by Country reporting and Foreign Account Tax Compliance Act or FATCA to eliminate the so-called harmful tax practices in financial centres. Tax incentivised regimes such as Labuan IBFC are required to make resolutions to eliminate elements of ring-fencing, low tax and to increase transparency and substantial activities.

7. These regulatory developments have resulted in international financial centres responses which will significantly alter the way businesses are conducted in their centres. Labuan IBFC is no exception. In this regard, Labuan FSA has, among others: 

  1. actively engaged and involved in international forum comprising of fraternity of regulators and government agencies; 
  2. signed more memorandum of understandings with other agencies for supervisory and regulatory cooperation enhancement; 
  3. make changes to the regulatory regime that subscribe to international best practices; and
  4. put in place relevant legislation and mechanism for the exchange of information with enforcement and tax agencies. 

8. In the immediate or near future, the tax regime of Labuan IBFC will need to be modernised. As you are aware, Labuan and Malaysia, like many other jurisdictions such as Hong Kong, is in the grey-list under the OECD list of financial centres. We are required to evolve the tax policies to remove elements that can be deemed as harmful, allow better fiscal contribution and enhance business substance. Failure to do this may cause Labuan being blacklisted which will result in greater negative repercussions for the financial centre.

Ladies and Gentlemen 

9. Notwithstanding the changes, Labuan FSA remain committed towards maintaining the sustainability of businesses in Labuan IBFC. We have identified the following strategic action areas to further drive the centre:

  1. To be more business focus by enhancing the business friendly environment, introducing new products and services, facilitating digital or fintech businesses including cryptocurrency exchanges;
  2. To ensure reputation resilience by continuously upscaling the prudential requirements and implementing risk-based supervision and pre-emptive enforcement;
  3. To continue to have close collaboration and cooperation with relevant stakeholders, domestic as well as international;
  4. To develop human capital and talent in the financial centre; and
  5. To increase Labuan IBFC prominence within the region and Labuan itself. 

10. The present business policies, regulatory and fiscal regime have served Labuan IBFC well over the years. Company formations grew by an average of 7 percent per annum to reach more than 14,200 companies. Banks remain profitable and well-capitalised, with a total loan size of about USD 30 billion. Insurance premiums flows continue to surpass USD1 billion and Labuan IBFC has been awarded as the number one captive insurance domicile in Asia. Leasing business is now the biggest financial sector in the IBFC in terms of number of players (more than 350) and size of financial assets (more than USD48 billion worth of leased assets). The pace of business expansion is expected to continue. 

11. More significantly, is the contributions of Labuan IBFC to Labuan island. In terms of employment, Labuan IBFC employs a total of 5,583 workforce. It is the largest employer compared to other industries in Labuan. 

12. The size of employment is expected to rise further when substance requirements are fully implemented in Labuan IBFC. We are also seeing an increase in the number of Labuan institutions providing services such as back office processing for global clients and this will increase the demand for human resources. Many Labuan IBFC institutions are also fulfilling corporate social responsibility by making positive contributions in many areas that have benefited Labuan community. 

Ladies and gentlemen, 

13. While we can stand proud of the achievements which I have mentioned, more can and needs to be done. The challenges ahead in terms of competition, new regulatory requirements, political and business uncertainties are many. As such, we must remain vigilant and agile so that Labuan IBFC adapt to the changes to remain competitive, relevant and sustainable. And this can only be achieved with strong cooperation and commitment of all of us here in this hall, the government, the regulator and the players. 

14. With that, I wish to again express my appreciation to Association of Labuan Banks for organising this year’s annual dinner. And our gratitude again to Yang Berhormat Dato’ Amiruddin Hamzah, Deputy Minister of Finance for his presence here. 

I wish everyone an enjoyable evening.

Mr Danial Mah Abdullah
Director-General, Labuan FSA
Copyright © Labuan FSA 
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